California utility ousts executives

Calpine, which made millions of dollars during the energy crisis and has lost millions ever since, announced the departure of Chairman and Chief Executive Peter Cartwright and Chief Financial Officer Robert Kelly. A "merchant" generator that sells its electricity to retail utility companies, Calpine said the shake-up will allow it "to better address Calpine's financial challenges and to provide a new direction for the company."

The announcement sent Calpine's stock price below $1 a share and triggered speculation that a bankruptcy filing was near. Adding insult to injury, the company learned it's being yanked from the prestigious Standard & Poor's 500 index.

"Cartwright and Kelly were adamant that they didn't want to go into bankruptcy," said Dot Matthews, a utilities bond analyst with CreditSights Inc. in New York. "I can read the tea leaves."

It's unclear whether a bankruptcy would affect electricity supplies in California. State officials had expected Calpine to add to a supply base that remains iffy even though the state has largely avoided shortages since the rolling blackouts of early 2001.

Asked about the impact of a bankruptcy on future projects, Calpine spokeswoman Katherine Potter said, "It's really premature and inappropriate to speculate on bankruptcy."

Calpine has two plants under construction in California and three more that have their permits. It won't begin building those three until it has signed long-term supply contracts with utilities, she said.

The company owns 89 plants in North America, including 38 in California.

Cartwright, who founded the company in 1984, was replaced on an interim basis by Kenneth Derr, a board member and retired Chevron Corp. CEO.

Calpine's downfall is directly tied to the energy crisis and its aftermath. Like other merchant generators, it got rich selling wholesale power to California utilities; Calpine made $623 million in 2001. Cartwright, hailed as a visionary, sketched a plan to make Calpine the largest U.S. supplier of electricity by 2006.

When prices collapsed in mid-2001, many of the big power sellers making money in California went bankrupt, including Enron. Calpine lost $683 million in the first nine months of this year and has been fending off bankruptcy rumors for some time.

"It's a sad story if they have to go into bankruptcy," said Gary Ackerman of the Western Power Trading Forum, an association of electricity merchants. "They had a great working team, they had a great vision. They overextended themselves."

Matthews said Calpine was vulnerable because it was heavily in debt - more than $18 billion worth.

Also, almost all its plants are fueled by natural gas - a nice strategy when gas was cheap, a poor strategy now that gas has roughly quadrupled in price since 1999.

"They didn't have a balanced portfolio," Matthews said.

The company has spent the past several years selling assets to pay down debt. But even those efforts yielded grief: recently a Delaware judge, ruling in a lawsuit between Calpine and its bondholders, said the company misused $313 million in proceeds from the sale of some natural gas assets. Calpine used the money to buy fuel when it should have used it to pay off bondholders, the judge said. Analysts said the ruling weakened Calpine's hand because the company could be forced to return the money to the bondholders.