Calpine Bankruptcy Filing Came as It Amassed $10-Billion ’05 Loss

Besieged by creditors and crippled by the sagging wholesale power market, Calpine Corp. lost almost $10 billion in 2005 as it filed for U.S. Bankruptcy Court protection, the company said Friday.

The San Jose company’s loss included $4.5 billion in noncash write-offs for plants and projects that have plummeted in value, as well as $5 billion in reorganization and bankruptcy costs, according to the 2005 financial report filed with the Securities and Exchange Commission.

Calpine, which on Dec. 20 filed the nation’s eighth-largest Chapter 11 bankruptcy case, operates 41 power plants in California and 51 elsewhere in North America. Those operations lost $708 million in 2005, in contrast with producing income of $9.9 million a year earlier, the company said.

The company’s operations are being funded with $2 billion in special debt financing, which Calpine said should be sufficient to see it through bankruptcy proceedings. Under its new business plan, the company expects its operations to generate profit in 2007. But with cash flow still an issue, Calpine warned: “There is substantial doubt about our ability to continue as a going concern.”

To cut expenses, the company has said it would shed 20 power plants that are operating or under construction. In addition, Calpine said it would save $150 million a year by cutting 1,100 jobs -- almost a third of its workforce -- by year’s end.

Calpine, once a bright spot in California’s troubled energy market, was founded in 1984 and expanded aggressively because it believed a wave of deregulation would create a vibrant wholesale power market. Calpine expected to dominate that market, especially in California, with its growing fleet of natural-gas-fueled plants that were cheaper and less polluting than competing generators.

But natural gas prices soared and deregulation faltered in the wake of Enron Corp.’s 2001 collapse -- and that left Calpine buried in debt with greatly reduced prospects for power sales. With interest expenses mounting and angry bondholders filing lawsuits, Calpine founder Peter Cartwright was forced out a month before the company headed to Bankruptcy Court.

Calpine Chief Executive Robert May, who joined the company in December, received a $2-million signing bonus and will be paid a yearly salary of $1.5 million, according to the filing. He will receive a minimum bonus this year of $2.2 million, and if the reorganization is successful, May will be eligible for a bonus of at least $4.5 million, a figure that was lowered under court order from Calpine’s earlier offer of $12 million.

Cartwright was paid $1.6 million in salary and $140,000 in other compensation last year. His employment agreement called for severance pay equal to $3.2 million plus double the amount of his target bonus. Calpine, which didn’t pay the severance, said any claim by Cartwright for severance would be processed by the court.

When it filed for bankruptcy, Calpine listed $22.5 billion in liabilities and $25.6 billion in assets. Friday, Calpine said it had $17.4 billion in debt at the end of 2005, adding that it expected claims from its debtors to be “significantly greater” than that.

The final debt figure -- as well as the fate of Calpine and its creditors -- hinges on sorting out claims and debts tied to overlapping agreements and bond issues as well as more than 250 subsidiaries.

U.S. creditors have until Aug. 1 to file claims, and Calpine has until the end of the year to submit its reorganization plan to the court.