Calpine Corp. CEO Pete Cartwright Tuesday said the company is taking a ‘hard look’ at earnings projections for 2002 because of a softening of electricity prices and the recession.

He added in a teleconference with financial analysts that November’s mild weather hasn’t helped electricity prices either. In addition, the company conceded the state of California wants to renegotiate terms of supply contracts but was close-mouthed about the details.

Despite these issues, Cartwright said the independent company isn’t ready to revise earnings projections for 2001 or 2002. Financial analysts grilled company executives for 3 hr Tuesday about Calpine’s liquidity, balance sheet, and debt servicing and cash flow given the souring economic conditions and power prices in the US and Calpine’s aggressive power plant construction program.

Executives defended the company’s cash position and strength in the market for the second day in a row as investors continued to react negatively to perceptions that Calpine is similar to Enron Corp., which filed for bankruptcy protection Dec. 2. Unnerved investors drove Calpine’s share price down by $2.08/share to $15.71/share Tuesday. Calpine’s shares have fallen from a 52-week high of $58/share.

Calpine’s bonds were trading in junk bond territory–so low that the yield was in the 18-20% range. Analysts were perplexed why Calpine isn’t willing to buy the bonds back, if the company’s internal rate of return on investment is 18% as the company has said. Executives replied that the capital markets were in disarray and the high yield on the bonds was simply an “aberration.”

Jon Cartwright, fixed income analyst with Raymond James & Associates said Calpine was part of a sector where “mild panic”, clearly the result of Enron’s collapse, has built up. “There is nothing new here with Calpine,” he said. “They are simply trying to sell electricity in the middle of a recession that started in January.” Worries about Calpine are simply “psychological,” he said.

Analysts asked if Calpine would have to “unwind” gas positions associated with the California contracts.

“We don’t need to talk about unwinding now,” said Paul Posoli, senior vice-president. Decisions about the contracts will be made soon and the investment community will be informed, he said.

Financial analysts continued to be concerned about $1.8 billion of notes that must be refinanced or paid off in April. But executives insisted there was no problem with the notes.

“The capital markets are in disarray right now. But we don’t expect them to be that way in 4 months,” said Bob Kelly, senior vice-president of Calpine. Even if Calpine can’t go to the capital markets to refinance the note, it could always sell gas reserves, executive noted.

The company has 1.7 tcf of proven gas reserves that are free and clear, executives explained. “We could monetize the gas assets in 30-45 days,” said Kelly. “At $1.50/MMcf, the reserves turn into a $2- $2.5 billion book. We sell gas and move on.”

Addressing liquidity, executives said the company has $1.7 billion in free cash flow annually from its existing 12,000 Mw of electric generation. Analysts also wanted to know if Calpine’s debt had immediate repayment clauses that might be triggered by a credit ratings downgrade.

Executives said no debt had any ratings triggers that would accelerate payment of its debts. Currently, Calpine has investment grade credit rating with Moody’s Investors Service and Fitch ICBA. Standard & Poor’s rates Calpine below investment grade.

Finally, Calpine executives said its trading counterparties have not asked the company to post additional collateral to do business.