16 Jan 2002 – US power group Calpine said today it did not intend to go ahead with the construction of 34 of its planned power projects – some 56 per cent of its current programme. In doing so the company says it has reduced previously forecasted 2002 capital spending by as much as $2bn.
The announcement follows a comprehensive review of its power plant development programme and is a further sign of the slowdown that has occurred in power industry caused by lower electricity prices and reduced economic activity.
The company intends to complete the 27 power projects currently under construction as scheduled. In a statement, Calpine said that construction of an additional 34 advanced-stage development projects will be placed on hold pending further review.
Completion of the 27 existing projects accounting for 15 200 MW already under construction will achieve Calpine’s previously stated objective of more than doubling the company’s generating capacity from 11 100 MW today to 23 200 MW by the end of 2002, and to 26 000 MW by the end of 2003.
The 34 which will not be implemented totalled 15 100 MW. Calpine said, “Development of these projects will continue until they are ready for construction, at which point they will be placed on ‘hot standby’ status pending further review by the company”.
The company’s previous capital spending forecasts included in excess of $2bn billion for construction expenditures relating to these resources at a price where an adequate return on equity capital was available.
The shelving of so many projects will have an impact on equipment suppliers. Calpine said that it was “finalizing agreements with major equipment suppliers to adjust the timing of delivery and related payment schedules to reflect more appropriately the revised construction schedule”.
The company continues to believe that the long-term need for new power plants will be significant, particularly as the national economy recovers and older, less efficient generating assets need to be replaced. As market conditions improve, the company said it intends to proceed with construction of its advanced development projects.
“We remain committed to long-term growth strategies that will generate attractive, sustainable returns for our shareholders while meeting the power needs of the markets we serve,” said Calpine CEO Peter Cartwright. “Calpine believes the depressed prices in the domestic energy markets are temporary, and that demand for power will grow as the weather normalizes and the national economy recovers. We are well positioned to grow as the demand for power increases and as older generation is replaced.”
Notwithstanding recent uncertainties in the domestic energy and capital markets, Calpine has demonstrated the ability to raise substantial capital to meet both its liquidity needs and its 2002 construction financing requirements. In the last three months, the company has raised nearly $5bn of capital, including $2.6bn in bonds issued in the US, Canada, the UK and other European markets, $1.2bn in convertible bonds, and an additional $1bn unsecured working capital credit facility which was announced last week.
The company also stated that an important 2002 objective is to continue to work with Moody’s Investors Service and Fitch, Inc. to restore its investment grade status and to pursue an initial investment grade rating from Standard & Poor’s. “The major credit rating agencies are changing their criteria for evaluating and assigning investment grade ratings in the wake of the Enron situation. We will continue to have discussions with these agencies to ensure that we take the right steps to achieve and maintain investment grade status,” Cartwright added.
Calpine said that adjusted Earnings Before Interest Tax, Depreciation and Amortization, will be approximately $1.95 per share and $1.6bn, respectively. These projected 2001 earnings represent a 63 per cent increase over 2000 earnings.
The company is also updating its estimates for earnings per share and EBITDA, as adjusted in 2002 to approximately $1.70 and $2bn, respectively. These new estimates reflect continued uncertainty over the timing of a domestic economic recovery and a return to more normal weather. The company intends to refine these estimates when market and other conditions provide greater visibility into 2002 results.
“We are proud that Calpine achieved a growth rate of 63 per cent even as our nation and industry faced difficult economic conditions,” Cartwright said. “While 2002 will be a challenging year for the entire power industry, we believe the underlying, long-term growth in electricity demand, the historic swiftness with which power demand recovers in the wake of a recession, and the recent decisions by many of our competitors to curtail new plant construction will all work to Calpine’s favour. We have a competitive advantage in our people, our strategies, and our market position designed to enable us to deliver solid performance to our shareholders.”