12 September 2002 – California regulators have licensed Calpine Corp. to build a 600 MW gas-fired power plant to serve the San Francisco Bay area but the company has no plans to start construction, a company spokesman said Wednesday.

California Gov. Gray Davis said in a statement Wednesday, “This facility is necessary to improve energy reliability in the Bay Area” but Kent Robertson from Calpine said, “We’re not moving into new construction of plants without power purchasing contracts”

The company said earlier this year that it would delay construction of about three dozen plants nationwide in an effort to reduce spending and debt levels, and in light of a bearish power market. Market and economic conditions haven’t changed much since then, Robertson said.

The energy commission, and Davis, pegged the $300m–$400m project’s construction start date at spring 2003, with an operational date of summer 2005, but Calpine would not confirm this.

“I can’t authoritatively say we will begin construction in six months,” Robertson said.

Calpine has been talking with utilities, municipalities and agencies in Northern California about a contract, Robertson said. PG&E Corp. utility Pacific Gas & Electric would be an obvious counterparty, but their Chapter 11 status complicates matters, Robertson said.

“I can’t really name names, but obviously the Pacific Gas & Electric situation makes things more difficult because they are the main utility in the area,” Robertson said.

Pacific Gas & Electric filed for Chapter 11 bankruptcy protection last year, and any contracts it brokered would need to be approved by a federal bankruptcy judge.

One encouraging development, Robertson said, is a recent decision by the California Public Utilities Commission to allow the state’s two insolvent investor-owned utilities to enter into contracts of up to five years in length. Such deals would be backed by the state Department of Water Resources because the utilities aren’t creditworthy.

“The PUC decision was viewed as a positive step in our eyes,” Robertson said.

Calpine said Tuesday it had sold $260m of the $650m in assets it wants to unload in 2002 to generate cash and strengthen its balance sheet. Struggling under $13.2bn in debt, the company has been hit especially hard by low power prices given Calpine’s heavy concentration of unregulated assets.

The San Francisco Bay Area was among the areas hardest hit when California suffered six days of rolling blackouts between January and May 2001.

San Jose, California-based Calpine was in the process of rapidly building a huge fleet of gas-fired power plants, many located in its home state, when electricity prices suddenly tumbled last year.

They have remained low and Calpine has been severely curtailing its power plant construction program and selling assets in a bid to strengthen its balance sheet.

Calpine was also hurt by fallout from the collapse of industry leader Enron Corp. which filed for Chapter 11 bankruptcy protection in December 2001.