Calpine sees power market upturn in 2005

LOS ANGELES -- - Merchant power generator Calpine Corp. predicted recentley that U.S. prices for electricity would probably remain low this year and next but could rise in 2005 and beyond.

"We are seeing a tremendous shift in the marketplace of people asking for long-term contracts and bi-lateral contracts...and it's all across the country," chief financial officer Bob Kelly said, noting buyers were interested in securing power for 2005 and beyond.

Kelly told a Deutsche Bank Securities Inc. Electric Power Conference in New York that 2003 and 2004 would going to be "tough spark spread years" but the market should turn pretty quickly in 2005 and 2006.

Calpine generates power mainly through a fleet of gas-fired power plants. The spark spread is the key measure of the profitability of converting gas into electricity.

"I don't know why people want that volume on long-term contracts if they see the trough continuing for a longer period of time," Kelly said in a webcast monitored here.

"I think it (the power market) might turn a lot quicker than what you have heard over the last couple of days (at the conference)...I think the prices might come up pretty quickly," Kelly added.

Calpine, like many other power producers, has faced major financing challenges during the last couple of years, hurt by a recession-linked drop in electricity prices and demand. It has been forced to slash capital expenditure and seek additional financing to ease liquidity concerns.

Kelly detailed plans to restructure the company's finances, including last week's announcement that it would issue $800 million in notes to be secured by cash flow from two power contracts.

"I'm feeling real bullish on the liquidity events," Kelly told attendees.

Calpine's stock has more than doubled in price since mid-March, partly boosted by diminished concerns about the company's liquidity.