Calpine troubled by fears of Enron-style collapse

By Michael Liedtke The Associated Press
Tuesday December 11, 2001

SAN FRANCISCO — Calpine Corp.’s shares plunged 17 percent Monday amid investor fears the rapidly expanding power generator is headed down the same perilous path that ruined one of its biggest business partners, bankrupt Enron Corp. 

The fallout from Enron’s stunning collapse last month has hurt the stocks of most major power wholesalers, reflecting worries that its collapse will ripple through the entire power industry. 

Calpine had been a focal point of Wall Street’s concerns because the San Jose-based company collected $1.3 billion — 23 percent of its total revenue — from Enron through the first nine months of the year. 

But the fears took on a new dimension over the weekend with the publication of a New York Times article that asserted Calpine’s financial statements have become as befuddling as Enron. 

The comparison unnerved investors because Calpine — like Enron in its heyday — has put together a run of robust earnings that made it one Wall Street’s hottest stocks earlier this year as the company pursued its goal of becoming the nation’s largest power producer. 

While pointing out the differences between the two companies, the New York Times wrote, “Calpine is looking more like Enron by the day.” 

Calpine on Monday labeled the Times article “inaccurate and misleading,” but the company’s reassurance didn’t soothe investors still licking their wounds from the Enron debacle that wiped out nearly $70 billion in shareholder wealth. 

Calpine’s shares fell $3.58, or 17 percent, to $17.79 Monday during trading on the New York Stock Exchange. The stock peaked at $58.04 in March when electricity prices in California and the rest of the nation were still rising. 

The steep decline in energy prices over the summer didn’t put a serious dent in Calpine’s growth in the third quarter, though. The company earned $320.8 million in the three months ended Sept. 30, more than doubling its profit from the prior year. 

Calpine’s energy trading division has helped the company shore up its earnings even as it receives less money for the electricity generated at the roughly 50 power plants that it runs around the country. 

Because a trading arm depends on complex financial contracts known as derivatives, the earnings from the operations are notoriously difficult to decipher, acknowledged industry analyst Ronald Barone of UBS Warburg. 

But that complexity doesn’t mean Calpine is engaging in the same type of dubious accounting that contributed to Enron’s demise, Barone said. 

One of the biggest differences between Calpine and Enron is the basic structure of the two businesses. 

Calpine is “asset heavy” with about 80 percent of its earnings coming from its power plants, Barone said. Enron, in contrast, is “asset light” with three-fourths of its earnings coming from byzantine energy trading and investment partnerships, Barone estimated. 

Calpine shares at least one trait with Enron: the company is unlikely to meet the earnings goals recently laid out by management. Calpine promised Wall Street annual earnings increases of 30 percent, but Barone and other analysts believe the company’s profit will grow at about half that rate. 


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