e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|
|
|
(Mark One) |
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the fiscal year ended December 31, 2005 |
|
or |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For the transition period
from to |
Commission file number: 1-12079
Calpine Corporation
(A Delaware Corporation)
I.R.S. Employer Identification No. 77-0212977
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
Securities registered pursuant to Section 12(b) of the
Act:
Calpine Corporation Common Stock, $.001 Par Value
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes o No þ
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer (as defined in
Rule 12b-2 of the
Securities Exchange Act).
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Securities Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date:
Calpine Corporation: 568,957,616 shares of common stock,
par value $.001, were outstanding as of May 17, 2006.
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant as of
June 30, 2005, the last business day of the
registrants most recently completed second fiscal quarter:
approximately $1.9 billion.
FORM 10-K
ANNUAL REPORT
For the Year Ended December 31, 2005
TABLE OF CONTENTS
1
DEFINITIONS
As used in this
Form 10-K, the
abbreviations contained herein have the meanings set forth
below. Additionally, the terms, the Company,
Calpine, we, us and
our refer to Calpine Corporation and its
subsidiaries, unless the context clearly indicates otherwise.
|
|
|
Abbreviation |
|
Definition |
|
|
|
2004 Form 10-K
|
|
Calpine Corporations Annual Report on Form 10-K for
the year ended December 31, 2004, filed with the SEC on
March 31, 2005, as modified by its Current Report on Form
8-K dated December 31, 2004, filed with the SEC on
October 17, 2005, to reflect the effect of certain
discontinued operations |
2006 Convertible Notes
|
|
4% Convertible Senior Notes Due 2006 |
2014 Convertible Notes
|
|
Contingent Convertible Notes Due 2014 |
2015 Convertible Notes
|
|
73/4
% Contingent Convertible Notes Due 2015 |
2023 Convertible Notes
|
|
43/4
% Contingent Convertible Senior Notes Due 2023 |
Acadia PP
|
|
Acadia Power Partners, LLC |
AELLC
|
|
Androscoggin Energy LLC |
AICPA
|
|
American Institute of Certified Public Accountants |
AMS
|
|
Aquila Merchant Services, Inc. |
AOCI
|
|
Accumulated Other Comprehensive Income |
APB
|
|
Accounting Principles Board |
Aries
|
|
MEP Pleasant Hill, LLC |
ARO
|
|
Asset Retirement Obligation |
Auburndale PP
|
|
Auburndale Power Partners, L.P. |
Bankruptcy Code
|
|
United States Bankruptcy Code |
Bankruptcy Courts
|
|
The U.S. Bankruptcy Court and the Canadian Court |
BBPTS
|
|
Babcock Borsig Power Turbine Services |
Bcfe
|
|
Billion cubic feet equivalent |
Bear Stearns
|
|
Bear Stearns Companies, Inc. |
BPA
|
|
Bonneville Power Administration |
Btu(s)
|
|
British thermal unit(s) |
CAISO
|
|
California Independent System Operator |
CalBear
|
|
CalBear Energy, LP |
CalGen
|
|
Calpine Generating Company, LLC, formerly Calpine Construction
Finance Company II LLC |
Calpine Capital Trusts
|
|
Trust I, Trust II and Trust III |
Calpine Cogen
|
|
Calpine Cogeneration Corporation, formerly Cogen America |
Calpine Debtor(s)
|
|
The U.S. Debtors and the Canadian Debtors |
Calpine Jersey I
|
|
Calpine (Jersey) Limited |
Calpine Jersey II
|
|
Calpine European Funding (Jersey) Limited |
CalPX
|
|
California Power Exchange |
CalPX Price
|
|
CalPX zonal day-ahead clearing price |
Canadian Court
|
|
The Court of Queens Bench of Alberta, Judicial District of
Calgary |
Canadian Debtor(s)
|
|
The subsidiaries and affiliates of Calpine Corporation that have
been granted creditor protection under the CCAA in the Canadian
Court |
2
|
|
|
Abbreviation |
|
Definition |
|
|
|
Cash Collateral Order
|
|
Second Amended Final Order of the U.S. Bankruptcy Court
Authorizing Use of Cash Collateral and Granting Adequate
Protection, dated February 24, 2006 |
CCAA
|
|
Companies Creditors Arrangement Act (Canada) |
CCFC
|
|
Calpine Construction Finance Company, L.P |
CCFCP
|
|
CCFC Preferred Holdings, LLC |
CCRC
|
|
Calpine Canada Resources Company, formerly Calpine Canada
Resources Ltd. |
CDWR
|
|
California Department of Water Resources |
CEC
|
|
California Energy Commission |
CEM
|
|
Calpine Energy Management, L.P. |
CERCLA
|
|
Comprehensive Environmental Response, Compensation and Liability
Act, as amended, also called Superfund |
CES
|
|
Calpine Energy Services, L.P. |
CESCP
|
|
Calpine Energy Services Canada Partnership |
CFE
|
|
Comision Federal de Electricidad (Mexico) |
Chapter 11
|
|
Chapter 11 of the Bankruptcy Code |
Chubu
|
|
Chubu Electric Power Company, Inc. |
CIP
|
|
Construction in Progress |
Clean Air Act
|
|
Federal Clean Air Act of 1970 |
Cleco
|
|
Cleco Corp. |
CMSC
|
|
Calpine Merchant Services Company, Inc. |
CNEM
|
|
Calpine Northbrook Energy Marketing, LLC |
CNGLP
|
|
Calpine Natural Gas L.P. |
CNGT
|
|
Calpine Natural Gas Trust |
Cogen America
|
|
Cogeneration Corporation of America, now called Calpine
Cogeneration Corporation |
CPIF
|
|
Calpine Power Income Fund |
CPLP
|
|
Calpine Power, L.P. |
CPSI
|
|
Calpine Power Services, Inc. |
CPUC
|
|
California Public Utilities Commission |
Creed
|
|
Creed Energy Center, LLC |
CTA
|
|
Cumulative Translation Adjustment |
DB London
|
|
Deutsche Bank AG London |
Deer Park
|
|
Deer Park Energy Center Limited Partnership |
DIG
|
|
Derivatives Implementation Group |
DIP
|
|
Debtor-in-possession |
3
|
|
|
Abbreviation |
|
Definition |
|
|
|
DIP Facility
|
|
The Revolving Credit, Term Loan and Guarantee Agreement, dated
as of December 22, 2005, as amended on January 26,
2006, and as amended and restated by that certain Amended and
Restated Revolving Credit, Term Loan and Guarantee Agreement,
dated as of February 23, 2005, among Calpine Corporation,
as borrower, the Guarantors party thereto, the Lenders from time
to time party thereto, Credit Suisse Securities (USA) LLC and
Deutsche Bank Securities Inc., as joint syndication agents,
Deutsche Bank Trust Company Americas, as administrative agent
for the First Priority Lenders, General Electric Capital
Corporation, as Sub-Agent for the Revolving Lenders, Credit
Suisse, as administrative agent for the Second Priority Term
Lenders, Landesbank Hessen Thuringen Girozentrale, New York
Branch, General Electric Capital Corporation and HSH Nordbank
AG, New York Branch, as joint documentation agents for the first
priority Lenders and Bayerische Landesbank, General Electric
Capital Corporation and Union Bank of California, N.A., as joint
documentation agents for the second priority Lenders, as amended |
E&S
|
|
Electricity and steam |
Eastman
|
|
Eastman Chemical Company |
EIA
|
|
Energy Information Administration of the Department of Energy |
EITF
|
|
Emerging Issues Task Force |
Enron
|
|
Enron Corp. |
Enron Canada
|
|
Enron Canada Corp. |
Entergy
|
|
Entergy Services, Inc. |
EOB
|
|
California Electricity Oversight Board |
EPA
|
|
United States Environmental Protection Agency |
EPAct (1992)(2005)
|
|
Energy Policy Act of 1992 or Energy
Policy Act of 2005 |
EPS
|
|
Earnings per share |
ERC(s)
|
|
Emission reduction credit(s) |
ERCOT
|
|
Electric Reliability Council of Texas |
ERISA
|
|
Employee Retirement Income Security Act |
ESA
|
|
Energy Services Agreement |
ESPP
|
|
2000 Employee Stock Purchase Plan |
EWG(s)
|
|
Exempt wholesale generator(s) |
Exchange Act
|
|
United States Securities Exchange Act of 1934, as amended |
FASB
|
|
Financial Accounting Standards Board |
FERC
|
|
Federal Energy Regulatory Commission |
FFIC
|
|
Firemans Fund Insurance Company |
FIN
|
|
FASB Interpretation Number |
FIN 46-R
|
|
FIN 46, as revised |
First Priority Notes
|
|
95/8
% First Priority Senior Secured Notes Due 2014 |
FPA
|
|
Federal Power Act |
Freeport
|
|
Freeport Energy Center, LP |
FSP
|
|
FASB staff positions |
FUCO(s)
|
|
Foreign Utility Company(ies) |
GAAP
|
|
Generally accepted accounting principles |
4
|
|
|
Abbreviation |
|
Definition |
|
|
|
GE
|
|
General Electric International, Inc. |
GEC
|
|
Gilroy Energy Center, LLC |
GECF
|
|
GE Commercial Finance Energy Financial Services |
General Electric
|
|
General Electric Company |
Gilroy
|
|
Calpine Gilroy Cogen, L.P. |
Gilroy 1
|
|
Calpine Gilroy 1, Inc. |
Goose Haven
|
|
Goose Haven Energy Center, LLC |
GPC
|
|
Geysers Power Company, LLC |
Greenfield LP
|
|
Greenfield Energy Centre LP |
Heat rate
|
|
A measure of the amount of fuel required to produce a unit of
electricity |
HIGH TIDES I
|
|
53/4
% Convertible Preferred Securities, Remarketable
Term Income Deferrable Equity Securities |
HIGH TIDES II
|
|
51/2
% Convertible Preferred Securities, Remarketable
Term Income Deferrable Equity Securities |
HIGH TIDES III
|
|
5% Convertible Preferred Securities, Remarketable Term
Income Deferrable Equity Securities |
HRSG
|
|
Heat recovery steam generator |
HTM
|
|
Heat Thermal Medium Heater System |
IP
|
|
International Paper Company |
IPP(s)
|
|
Independent power producer(s) |
IRS
|
|
United States Internal Revenue Service |
ISO
|
|
Independent System Operator |
King City Cogen
|
|
Calpine King City Cogen, LLC |
KWh
|
|
Kilowatt hour(s) |
LCRA
|
|
Lower Colorado River Authority |
LDC(s)
|
|
Local distribution company(ies) |
LIBOR
|
|
London Inter-Bank Offered Rate |
LNG
|
|
Liquid natural gas |
LSTC
|
|
Liabilities Subject to Compromise |
LTSA
|
|
Long Term Service Agreement |
Mankato
|
|
Mankato Energy Center, LLC |
Metcalf
|
|
Metcalf Energy Center, LLC |
Mitsui
|
|
Mitsui & Co., Ltd. |
MLCI
|
|
Merrill Lynch Commodities, Inc. |
MMBtu
|
|
Million Btu |
MMcfe
|
|
Million net cubic feet equivalent |
Morris
|
|
Morris Energy Center |
MW
|
|
Megawatt(s) |
MWh
|
|
Megawatt hour(s) |
NERC
|
|
North American Electric Reliability Council |
NESCO
|
|
National Energy Systems Company |
NGA
|
|
Natural Gas Act |
NGPA
|
|
Natural Gas Policy Act |
5
|
|
|
Abbreviation |
|
Definition |
|
|
|
NOL
|
|
Net operating loss |
Non-Debtor(s)
|
|
The subsidiaries and affiliates of Calpine Corporation that are
not Calpine Debtors |
NOPR
|
|
Notice of Proposed Rulemaking |
NOR
|
|
Notice of Rejection |
NPC
|
|
Nevada Power Company |
NYSE
|
|
New York Stock Exchange |
O&M
|
|
Operations and maintenance |
OCI
|
|
Other Comprehensive Income |
Oneta
|
|
Oneta Energy Center |
Ontelaunee
|
|
Ontelaunee Energy Center |
OPA
|
|
Ontario Power Authority |
OTC
|
|
Over-the-counter |
Panda
|
|
Panda Energy International, Inc., and related party PLC II,
LLC |
PCF
|
|
Power Contract Financing, L.L.C. |
PCF III
|
|
Power Contract Financing III, LLC |
Petition Date
|
|
December 20, 2005 |
PG&E
|
|
Pacific Gas and Electric |
Pink Sheets
|
|
Pink Sheets Electronic Quotation Service maintained by Pink
Sheets LLC for the National Quotation Bureau, Inc. |
PJM
|
|
Pennsylvania-New Jersey-Maryland |
PLC
|
|
PLC II, LLC |
POX
|
|
Plant operating expense |
PPA(s)
|
|
Power purchase agreement(s) |
PSM
|
|
Power Systems Mfg., LLC |
PUC(s)
|
|
Public Utility Commission(s) |
PUHCA 1935
|
|
Public Utility Holding Company Act of 1935 |
PUHCA 2005
|
|
Public Utility Holding Company Act of 2005 |
PURPA
|
|
Public Utility Regulatory Policies Act of 1978 |
QF(s)
|
|
Qualifying facility(ies) |
RCRA
|
|
Resource Conservation and Recovery Act |
RMR Contracts
|
|
Reliability Must Run contracts |
Rosetta
|
|
Rosetta Resources Inc. |
SAB
|
|
Staff Accounting Bulletin |
Saltend
|
|
Saltend Energy Centre |
SDG&E
|
|
San Diego Gas & Electric Company |
SDNY Court
|
|
United States District Court for the Southern District of New
York |
SEC
|
|
Securities and Exchange Commission |
Second Priority Notes
|
|
Calpine Corporations Second Priority Senior Secured
Floating Rate Notes due 2007, 8.500% Second Priority Senior
Secured Notes due 2010, 8.750% Second Priority Senior Secured
Notes due 2013 and 9.875% Second Priority Senior Secured Notes
due 2011 |
6
|
|
|
Abbreviation |
|
Definition |
|
|
|
Second Priority Secured Debt Instruments
|
|
The Indentures between the Company and Wilmington Trust Company,
as Trustee, relating to the Companys Second Priority
Senior Secured Floating Rate Notes due 2007, 8.500% Second
Priority Senior Secured Notes due 2010, 8.750% Second Priority
Senior Secured Notes due 2013, 9.875% Second Priority Senior
Secured Notes due 2011 and the Credit Agreement among the
Company, as Borrower, Goldman Sachs Credit Partners L.P., as
Administrative Agent, Sole Lead Arranger and Sole Book Runner,
The Bank of Nova Scotia, as Arranger and Syndication Agent, TD
Securities (USA) Inc., ING (U.S.) Capital LLC and Landesbank
Hessen-Thuringen, as Co-Arrangers, and Credit Lyonnais New York
Branch and Union Bank of California, N.A., as Managing Agent,
relating to the Companys Senior Secured Term Loans Due
2007, in each case as such instruments may be amended from time
to time |
Securities Act
|
|
United States Securities Act of 1933, as amended |
SFAS
|
|
Statement of Financial Accounting Standards |
SFAS No. 123-R
|
|
SFAS No. 123, as revised |
SFAS No. 128-R
|
|
SFAS No. 128, as revised |
Siemens-Westinghouse
|
|
Siemens-Westinghouse Power Corporation (changed to Siemens Power
Generation, Inc. on August 1, 2005) |
SIP
|
|
1996 Stock Incentive Plan |
SkyGen
|
|
SkyGen Energy LLC, now called Calpine Northbrook Energy, LLC |
SOP
|
|
Statement of Position |
SPE
|
|
Special-Purpose Entities |
SPP
|
|
Southwest Power Pool |
SPPC
|
|
Sierra Pacific Power Company |
Trust I
|
|
Calpine Capital Trust |
Trust II
|
|
Calpine Capital Trust II |
Trust III
|
|
Calpine Capital Trust III |
TSA(s)
|
|
Transmission service agreement(s) |
TTS
|
|
Thomassen Turbine Systems, B.V. |
ULC I
|
|
Calpine Canada Energy Finance ULC |
ULC II
|
|
Calpine Canada Energy Finance II ULC |
U.S
|
|
United States of America |
U.S. Bankruptcy Court
|
|
United States Bankruptcy Court for the Southern District of New
York |
U.S. Debtor(s)
|
|
Calpine Corporation and each of its subsidiaries and affiliates
that have filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy
Court, which matters are being jointly administered in the U.S.
Bankruptcy Court under the caption In re Calpine Corporation,
et al., Case No. 95-60200 (BRL) |
Valladolid
|
|
Valladolid III Energy Center |
VIE(s)
|
|
Variable interest entity(ies) |
Whitby
|
|
Whitby Cogeneration Limited Partnership |
7
PART I
In addition to historical information, this report contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. We use words such as believe,
intend, expect, anticipate,
plan, may, will and similar
expressions to identify forward-looking statements. Such
statements include, among others, those concerning our expected
financial performance and strategic and operational plans, as
well as all assumptions, expectations, predictions, intentions
or beliefs about future events. You are cautioned that any such
forward-looking statements are not guarantees of future
performance and that a number of risks and uncertainties could
cause actual results to differ materially from those anticipated
in the forward-looking statements. Such risks and uncertainties
include, but are not limited to: (i) the risks and
uncertainties associated with our U.S. and Canadian
bankruptcy cases, including impact on operations; (ii) our
ability to attract, incentivize and motivate key employees and
successfully implement new strategies; (iii) our ability to
successfully reorganize and emerge from bankruptcy;
(iv) our ability to attract and retain customers and
counterparties; (v) our ability to implement our business
plan; (vi) financial results that may be volatile and may
not reflect historical trends; (vii) our ability to manage
liquidity needs and comply with financing obligations;
(viii) the direct or indirect effects on our business of
our impaired credit including increased cash collateral
requirements; (ix) the expiration or termination of our
PPAs and the related results on revenues; (x) potential
volatility in earnings and requirements for cash collateral
associated with the use of commodity contracts; (xi) price
and supply of natural gas; (xii) risks associated with
power project development, acquisition and construction
activities; (xiii) unscheduled outages of operating plants;
(xiv) factors that impact the output of our geothermal
resources and generation facilities, including unusual or
unexpected steam field well and pipeline maintenance and
variables associated with the waste water injection projects
that supply added water to the steam reservoir;
(xv) quarterly and seasonal fluctuations of our results;
(xvi) competition; (xvii) risks associated with
marketing and selling power from plants in the evolving energy
markets; (xviii) present and possible future claims,
litigation and enforcement actions; (xix) effects of the
application of laws or regulations, including changes in laws or
regulations or the interpretation thereof; and (xx) other
risks identified in this report. You should also carefully
review other reports that we file with the Securities and
Exchange Commission. We undertake no obligation to update any
forward-looking statements, whether as a result of new
information, future developments or otherwise.
We file annual, quarterly and periodic reports, proxy statements
and other information with the SEC. You may obtain and copy any
document we file with the SEC at the SECs public reference
room at 100 F Street, NE, Room 1580,
Washington, D.C. 20549. You may obtain information on the
operation of the SECs public reference facilities by
calling the SEC at
1-800-SEC-0330. You can
request copies of these documents, upon payment of a duplicating
fee, by writing to the SEC at its principal office at 100 F
Street, NE, Room 1580, Washington, D.C. 20549-1004.
The SEC maintains an Internet website at http://www.sec.gov that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC. Our SEC filings are accessible through the Internet at that
website.
Our reports on
Forms 10-K, 10-Q
and 8-K, and
amendments to those reports, are available for download, free of
charge, as soon as reasonably practicable after these reports
are filed with the SEC, at our website at www.calpine.com. The
content of our website is not a part of this report. You may
request a copy of our SEC filings, at no cost to you, by writing
or telephoning us at: Calpine Corporation, 50 West
San Fernando Street, San Jose, California 95113,
attention: Corporate Secretary, telephone: (408) 995-5115.
We will not send exhibits to the documents, unless the exhibits
are specifically requested and you pay our fee for duplication
and delivery.
8
OVERVIEW
We are an integrated power company owning, operating and
developing power generation facilities and selling electricity,
capacity and related electricity products and services,
primarily in the United States and Canada. Based in
San Jose, California, we were established as a corporation
in 1984 and operate through a variety of divisions, subsidiaries
and affiliates. Historically, we have focused on two efficient
and clean types of power generation technologies: natural
gas-fired combustion turbine and geothermal. At
December 31, 2005, we owned or leased a portfolio of 73
clean burning natural gas-fired power plants and 19 geothermal
power plants at The Geysers in California, with an aggregate net
capacity of 26,459 MW. Additionally, we had interests in
five new plants in construction and one expansion project. We
offer to third parties energy procurement, scheduling,
settlement and risk management services through our subsidiary
CMSC. We have an O&M organization based in Folsom,
California, which staffs and oversees the operations of our
power plants. We also offer combustion turbine component parts
through our subsidiary PSM. As discussed further below, on or
after December 20, 2005, we and many of our subsidiaries
filed voluntary petitions for reorganization in the United
States and Canada and are currently operating as
debtors-in-possession
under the protection of the United States and Canadian laws,
and, as part of our reorganization process, we are reevaluating
whether to continue in or to exit some of our business
activities. See Strategy, below.
We draw on PSMs capabilities to design and manufacture
high performance combustion system and turbine blade parts with
the objective of enhancing the performance of our modern
portfolio of gas-fired power plants and lowering our replacement
parts and maintenance costs. PSM manufactures new vanes, blades,
combustors and other replacement parts for our plants and for
those owned and operated by third parties as well. It offers a
wide range of Low Emissions Combustion (commonly referred to as
LEC) systems and advanced airfoils designed to be compatible for
retrofitting or replacing existing combustion systems or
components operating in General Electric and
Siemens-Westinghouse turbines.
CMSC provides us with the trading and risk management services
needed to schedule power sales and to ensure fuel is delivered
to our power plants on time to meet delivery requirements and to
manage and optimize the value of our physical power generation
assets. Our marketing and sales activities are directed towards
our traditional load serving client base of local utilities,
municipalities and cooperatives as well as industrial customers.
Additionally, we have developed information technology
capabilities to enable us to operate our plants as an integrated
system in many of our major markets (and thereby enhance the
economic performance of our portfolio of assets) and to provide
load-following and ancillary services to our customers. These
capabilities, combined with our sales, marketing and risk
management resources, enable us to add value to traditional
commodity products.
We have acquired or built and now operate a modern and efficient
portfolio of gas-fired generation assets. However, in certain
markets our facilities have been significantly underutilized due
to poor market conditions. Nonetheless, we believe that our low
cost position, integrated operations and skill sets will allow
us to emerge from bankruptcy protection based on a smaller, but
economically viable and sustainable portfolio of generation
assets.
The following discussion provides general background information
regarding our bankruptcy cases, and is not intended to be an
exhaustive description. Further information pertaining to our
bankruptcy filings may be obtained through our website at
www.calpine.com. Access to documents filed with the
U.S. Bankruptcy Court and other general information about
the U.S. bankruptcy cases is available at
www.kccllc.net/calpine. Certain information regarding the
Canadian cases under the CCAA, including the reports of the
monitor appointed by the Canadian Court, is available at the
monitors website at www.ey.com/ca/calpinecanada. The
content of the foregoing websites is not a part of this report.
9
On December 20, 2005 and December 21, 2005 we and 254
of our direct and indirect wholly owned subsidiaries in the
United States filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy
Court and, in Canada, 12 of our wholly owned Canadian
subsidiaries were granted relief in the Canadian Court under the
CCAA, which, like Chapter 11 in the United States, allows
for reorganization under the protection of the Canadian courts.
On December 27, 2005, December 29, 2005,
January 8, 2006, January 9, 2006, February 3,
2006 and May 2, 2006, a total of 19 additional wholly owned
indirect subsidiaries of Calpine also commenced Chapter 11
cases under the Bankruptcy Code in the U.S. Bankruptcy
Court. Certain other subsidiaries could file in the U.S. or
Canada in the future. See Item 7
Managements Discussion and Analysis of Financial
Condition and Results of
Operations Overview for a discussion of
the events leading up to our bankruptcy filings.
The Calpine Debtors are continuing to operate their
business as
debtors-in-possession,
under the jurisdiction of the Bankruptcy Courts and in
accordance with the applicable provisions of the Bankruptcy
Code, the Federal Rules of Bankruptcy Procedure, the CCAA and
applicable Bankruptcy Court orders, as well as other applicable
laws and rules. In general, each of the Calpine Debtors is
authorized to continue to operate as an ongoing business, but
may not engage in certain transactions outside the ordinary
course of business without the prior approval of the applicable
Bankruptcy Court. Through our bankruptcy cases, we are
endeavoring to restore the Company to financial health. As
discussed more fully under Strategy,
below as well as in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and Notes 3 and 4 of the Notes to
Consolidated Financial Statements, these efforts include
reducing overhead and operating expenses, and discontinuing
activities and disposing of assets without compelling profit
potential, particularly near term profit potential. In addition,
development activities will continue to be further reduced, and
we expect that certain power plants or other of our assets will
be sold (or that we will surrender certain leased power plants
to the lessors of such plants), and that commercial operations
may be suspended at certain of our power plants during our
reorganization effort. It is also possible that some or all of
our Canadian assets may be liquidated pursuant to the Canadian
cases.
THE MARKET FOR ELECTRICITY
The electric power industry represents one of the largest
industries in the United States and impacts nearly every aspect
of our economy, with an estimated end-user market comprising
approximately $296 billion of electricity sales in 2005
based on information published by the Energy Information
Administration of the U.S. Department of Energy. Historically,
the power generation industry was largely characterized by
electric utility monopolies producing electricity from
generating facilities owned by utilities and selling to a
captive customer base. However, industry trends and regulatory
initiatives have transformed some markets into more competitive
arenas where load-serving entities and end-users may purchase
electricity from a variety of suppliers, including IPPs, power
marketers, regulated public utilities and others. For the past
decade, the power industry has been deregulated at the wholesale
level allowing generators to sell directly to the load serving
entities such as public utilities, municipalities and electric
cooperatives. Although industry trends and regulatory
initiatives aimed at further deregulation have slowed, and
markets vary by geographic region in terms of the level of
competition, pricing mechanisms and pace of regulatory reform,
the power industry continues to transform into a more
competitive market.
The United States market consists of distinct regional electric
markets, not all of which are effectively interconnected, so
reserve margins vary from region to region. Due primarily to the
completion of more than 200,000 MW of gas-fired combustion
turbine projects in the past decade, we have seen power supplies
and reserve margins increase in the last several years,
accompanied by a decrease in liquidity in the energy trading
markets. According to data published by Edison Electric
Institute, the growth rate of overall consumption of electricity
in 2005 compared to 2004 was estimated to be 3.7%. The estimated
growth rates in our major markets were as follows: South Central
(primarily Texas) 3.6%, Pacific Southwest (primarily California)
(0.6)%, and Southeast 3.4%. The growth rate in supply has been
diminishing with many developers canceling or delaying
completion of their projects as a result of current market
conditions. The supply and demand balance in the natural gas
industry continues to be strained, with gas prices averaging
$7.59/ MMBtu in 2006
10
through April, compared to averages of approximately $6.59 and
$5.63/ MMBtu in the same periods in 2005 and 2004, respectively.
Even though most new power plants are fueled by natural gas, the
majority of power generated in the U.S. is still produced
by coal and nuclear power plants. The Energy Information
Administration has estimated that approximately 50% of the
electricity generated in the U.S. is fueled by coal, 19% by
nuclear sources, 19% by natural gas, 6% by hydro, and 6% from
fuel oil and other sources. As regulations continue to evolve,
many of the current coal plants will likely be faced with having
to install a significant amount of costly emission control
devices. This activity could cause some of the oldest and
dirtiest coal plants to be retired, thereby allowing a greater
proportion of power to be produced by cleaner natural gas-fired
generation.
STRATEGY
As indicated above, since December 20, 2005, the Calpine
Debtors have sought to reorganize under the jurisdiction of the
Bankruptcy Courts and in accordance with the applicable
provisions of the Bankruptcy Code and the CCAA, as applicable.
On February 1, 2006, and again on April 4, 2006, we
announced the initial steps of a comprehensive program designed
to stabilize, improve and strengthen our core power generation
business and our financial health. This program is designed to
help ensure that we will emerge from our reorganization as a
profitable, stronger and more competitive power company. We are
reducing activities and curtailing expenditures in certain
non-core areas and business units. As part of this program, we
have begun to implement staff reductions that will ultimately
affect approximately 1,100 positions, or over one-third of our
pre-petition date workforce, by the end of 2006. We expect that
the staff reductions, together with non-core office closures and
reductions in controllable overhead costs, will reduce annual
operating costs by approximately $150 million,
significantly improving our financial and liquidity positions.
The areas of our business that will be most immediately impacted
by this program include:
|
|
|
|
|
Business Development: We are limiting our new business
development activities and are focusing our ongoing efforts on
maximizing the value of our advanced development opportunities,
including projects with long-term power contracts or in advanced
contract negotiations. We will review for possible sale certain
development projects and will continue to evaluate existing
petroleum coke gasification development in Texas. |
|
|
|
Construction: We are completing construction projects
with long-term power sales commitments and are significantly
scaling back construction management activities. We are
continuing to evaluate options for those projects without
long-term PPAs, some of which have been identified for potential
sale. |
|
|
|
Power Services: We are discontinuing all new business
activity for Calpine Power Services, Inc. CPSI will continue to
perform its service obligations under existing construction
management and O&M contracts. |
|
|
|
Marketing and Sales: We are evaluating our future
participation in certain power markets to determine the right
balance between short-term, long-term and tolling contracts for
the sale of our electrical generation. Until then, we are
curtailing new retail power sales efforts and, while
administering existing contracts, we are limiting our efforts to
put long-term power contracts in place for existing generation
plants. |
|
|
|
TTS: In keeping with our focus on the North American
power generation sector, we have determined that TTS is not a
core business for us and we are exploring the possible sale of
this company. |
In connection with this program, we announced on April 4,
2006, that we had identified approximately 20 facilities for
potential disposition, including operating facilities and
facilities in development or construction. As a result of our
determination to seek to dispose of such facilities, as well as
other factors, we have concluded that we are required under GAAP
to recognize impairment charges of $2.4 billion with
respect to the operating facilities identified as subjects for
potential disposition and $2.1 billion with respect to
development and construction assets and other investments,
including the development and construction
11
facilities identified as subjects for potential disposition. See
Note 6 of the Notes to Consolidated Financial Statements
for further information regarding the impairment charges. We can
make no assurance that we will not recognize additional material
impairment charges, or incur material costs and expenses, in the
future.
We have started the process of developing a new business plan,
beginning with a comprehensive review of our power assets,
business units and markets where we are active. Our goal is to
improve near-term results, while positioning the Company for
profitable growth in the future. This business plan will also
serve as the foundation for our plan of reorganization, which
will be developed once we complete our business plan. Throughout
this process, we will continue to work closely with our
creditors, the Bankruptcy Courts and other stakeholders to
emerge from bankruptcy with a stronger financial position and a
more profitable core business. The near and longer term goals of
the business plan are as follows:
|
|
|
|
|
Reduce negative cash flow and create a profitable, competitive
and sustainable business with stable positive earnings |
|
|
|
|
|
Achieve positive operating cash flow in 2007 |
|
|
|
Optimize our asset portfolio through selective asset sales and
contract rejections |
|
|
|
Reduce operating cost and achieve greater operational
efficiencies |
|
|
|
Reduce interest cost |
|
|
|
|
|
Simplify our business structure |
|
|
|
|
|
Define core businesses and functions |
|
|
|
Focus on new asset base and business functions |
|
|
|
Streamline management reporting processes and prioritize
information reported |
|
|
|
Reduce management reporting overhead costs |
|
|
|
|
|
Simplify our project financing and overall corporate capital
structure |
|
|
|
Improve access to working capital |
|
|
|
|
|
Align with new business model |
|
|
|
|
|
Motivate key employees to execute the goals of the business plan |
|
|
|
Formulate and implement a plan of reorganization |
In implementing our corporate strategic objectives, the top
priority for our company remains maintaining the highest level
of integrity and transparency in all of our endeavors. We have
adopted a code of conduct that is applicable to all employees,
including our principal executive officer, principal financial
officer and principal accounting officer, and to members of our
Board of Directors. A copy of the code of conduct is posted on
our website at www.calpine.com. We intend to post any amendments
and any waivers to our code of conduct on our website in
accordance with Item 5.05 of
Form 8-K and
Item 406 of
Regulation S-K.
COMPETITION
Our commercial activity generally includes all those activities
associated with acquiring the necessary fuel inputs and
maintaining the necessary distribution channels to market our
generated electricity and related products. The power sales
competitive landscape consists of a patchwork of both
competitive and highly regulated markets in which we compete
against other IPPs, trading companies and regulated utilities to
supply power. This patchwork has been caused by inconsistent
transitions to deregulated markets across distinct geographic
electricity markets in North America. For example, in markets
where there is open competition, our gas-fired or geothermal
merchant capacity (that which has not been sold under a
long-term contract) competes directly on a real-time basis with
all other sources of electricity such as nuclear, coal, oil,
gas-fired, and renewable energy provided by others. However,
there are other markets where the local utility still
predominantly uses its own supply to satisfy its own demand
before ordering competitively provided power
12
from others. Each of these markets offers a unique and
challenging power sales environment, which is dependent on a
variety of factors beyond the specific regulatory structure,
including, among others: the fuel types (and their respective
costs) and capacity of the various other generation sources in
the market; the relative ease or difficulty in developing and
constructing new capacity in the market; the particular
transmission constraints that can limit, increase or otherwise
alter the amount of lower-cost competition in a market; the
fluctuations in supply due to planned and unplanned outages of
various generation sources; the liquidity of various commercial
products in a given market and the ability to hedge or optimize
various positions a generator wants to take in a market; and
short-term fluctuations in electricity demand or fuel supply due
to weather or other factors.
We also compete to be the low cost producer of gas-fired power.
We strive to have better efficiency, start and stop our
combustion turbines using less fuel, operate with the fewest
forced outages and maximum availability and to accomplish all of
this while producing less pollutants than competing gas plants
and those using other fuels.
ENVIRONMENTAL STEWARDSHIP
Our goal is to produce relatively low cost gas-fired electricity
with minimal impact on the environment. To achieve this we have
assembled the largest fleet of combined-cycle natural gas-fired
power plants and the largest fleet of geothermal power
facilities in North America.
Both fleets utilize
state-of-the-art
technology to achieve our goal of environmentally friendly power
generation.
Our fleet of modern, combined-cycle natural gas-fired power
plants is highly efficient. Our plants consume significantly
less fuel to generate a megawatt hour of electricity than older
boiler/steam turbine power plants. This means that less air
pollutants enter the environment per unit of electricity
produced, especially compared to electricity generated by
coal-fired or oil-fired power plants.
Calpines 750-MW
fleet of geothermal power plants utilizes natural heat sources
from within the earth to generate electricity with negligible
air emissions.
The table below summarizes approximate air pollutant emission
rates from Calpines combined-cycle natural gas-fired power
plants and our geothermal power plants compared to average
emission rates from U.S. coal, oil and gas-fired power
plants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Pollutant Emission Rates Pounds of Pollutant Emitted | |
|
|
per MWh of Electricity Generated | |
|
|
| |
|
|
Average | |
|
Calpine Power Plants | |
|
|
US Coal, Oil & | |
|
| |
|
|
Gas-Fired | |
|
Combined-Cycle | |
|
% Less Than | |
|
Geothermal | |
|
% Less Than | |
Air Pollutants |
|
Power Plant(1) | |
|
Power Plant(2) | |
|
Avg US Plant | |
|
Power Plant(3) | |
|
Avg US Plant | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Nitrogen Oxides, NOx
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acid rain, smog and fine particulate formation
|
|
|
3.10 |
|
|
|
0.21 |
|
|
|
93.2% Less |
|
|
|
0.00074 |
|
|
|
99.9% Less |
|
Sulphur Dioxide, SO(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acid rain and fine particulate formation
|
|
|
8.09 |
|
|
|
0.005 |
|
|
|
99.9% Less |
|
|
|
0.00015 |
|
|
|
99.9% Less |
|
Mercury, Hg
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neurotoxin
|
|
|
0.000036 |
|
|
|
0 |
|
|
|
100% Less |
|
|
|
0.000008 |
|
|
|
77.8% Less |
|
Carbon Dioxide, CO(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal greenhouse gas contributor to climate
change
|
|
|
1,919 |
|
|
|
882 |
|
|
|
54.0% Less |
|
|
|
80.8 |
|
|
|
95.86% Less |
|
Particulate Matter, PM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Respiratory health effects
|
|
|
0.5 |
|
|
|
0.037 |
|
|
|
92.6% Less |
|
|
|
0.014 |
|
|
|
97.2% Less |
|
13
|
|
(1) |
The U.S. fossil fuel fleets emission rates were obtained
from the U.S. Department of Energys Electric Power
Annual Report for 2004. Emission rates are based on 2004
emissions and net generation. |
|
(2) |
Calpines combined-cycle power plant emission rates are
based on 2005 data. |
|
(3) |
Calpines geothermal power plant emission rates are based
on 2004 data and include expected results from the mercury
abatement program currently in process. |
Our environmental record has been widely recognized.
|
|
|
|
|
PSM is developing gas turbine components to improve turbine
efficiency and to reduce emissions. |
|
|
|
Calpine Power Company has instituted a program of proprietary
operating procedures to reduce gas consumption and lower air
pollutant emissions per MWh of electricity generated. |
|
|
|
The American Lung Associations of the Bay Area selected Calpine
and its Geysers geothermal operation for the 2004 Clean Air
Award for Technology Development to recognize
Calpines commitment to clean renewable energy, which
improves air quality and helps us all breathe easier. |
|
|
|
Calpine joined the EPAs Climate Leaders Program, which is
intended to encourage climate change strategies, help establish
future greenhouse gas emission reduction goals, and increase
energy efficiency among participants. As part of Climate
Leaders, Calpine has submitted data on greenhouse gas emissions
annually since 2003, from all its natural gas-fired power
plants, The Geysers and its natural gas production facilities
located throughout the United States. |
|
|
|
Calpine became the first IPP to earn the distinction of
Climate Action
Leadertm,
and has certified its 2003 and 2004
CO2
emissions inventory with the California Climate Action Registry.
Calpine continues to publicly and voluntarily report its
CO2
emissions from generation of electricity in California under
this rigorous registry program. |
|
|
|
Calpine was awarded a 2005 Flex Your Power Honorable Mention for
our outstanding achievements in energy efficiency in the
Innovative Products and Services category for our Performance
Optimization Program and Santa Rosa Geysers Recharge Project. |
|
|
|
Calpine is one of several Silicon Valley firms pledging to
reduce area
CO2
emissions to 20% below 1990 levels by 2010 as a participant in
the Sustainable Silicon Valley Project, a multi-stakeholder
collaborative initiative to produce significant environmental
improvement and resource conservation in Silicon Valley through
the development and implementation of a regional environmental
management system. |
RECENT DEVELOPMENTS
On January 26, 2006, the U.S. Bankruptcy Court granted
final approval of our $2 billion DIP Facility. The DIP
Facility will be used to fund our operations during our
Chapter 11 restructuring. In addition, as described below,
a portion of the DIP Facility was used to retire certain
facility operating lease obligations at The Geysers. In
addition, pursuant to the May 3, 2006 amendment, borrowings
under the DIP Facility may be used to repay a portion of the
First Priority Notes. The DIP Facility closed on
December 22, 2005, with limited access to the commitments,
pursuant to the interim of the U.S. Bankruptcy Court and was
amended and restated and closed on February 23, 2006
funding the term loans. It consisted of a $1 billion
revolving credit facility (including a $300 million letter
of credit subfacility and a $10 million swingline
subfacility), priced at LIBOR plus 225 basis points or base
rate plus 125 basis points; $400 million first-priority
term loan, priced at LIBOR plus 225 basis points or base
rate plus 125 basis points; and $600 million
second-priority term loan, priced at LIBOR plus 400 basis
points or the base rate plus 300 basis points. The DIP Facility
will remain in place until the earlier of an effective plan of
reorganization on December 20, 2007.
Effective January 27, 2006, Ann B. Curtis, one of the
founders of the Company, resigned from the Board of Directors
and from her positions as Vice Chairman of the Board, Executive
Vice President and Corporate Secretary.
14
On January 30, 2006, we announced the appointment of Scott
J. Davido as Executive Vice President and Chief Financial
Officer effective February 1, 2006. On March 3, 2006,
we announced that Mr. Davido will also take on the role of
Chief Restructuring Officer.
On February 1, 2006, we announced the initial steps of a
comprehensive program designed to stabilize, improve and
strengthen our core power generation business and financial
health and, on March 3, 2006, we announced a corporate
management and organizational restructuring as one of the steps
in implementing this program. Pursuant to this program, we
indicated that we will focus on power generation and related
commercial activities in the United States while reducing
activities and curtailing expenditures in certain non-core areas
and business units. On April 4, 2006, we identified
approximately 20 power plants in operation or under construction
that are no longer considered to be core operations due to a
combination of factors, including financial performance, market
prospects and strategic fit. Accordingly, we will be seeking to
sell certain of these assets by the end of 2006. In addition, we
will close our office in Boston, Massachusetts, and have already
closed our offices in Dublin, California, Denver and Fort
Collins, Colorado, Deer Park, Texas, Portland, Oregon, Tampa,
Florida and Atlanta, Georgia. As we complete asset sales and
construction activities, we expect to reduce our workforce by
approximately 1,100 positions, or over one third of our
pre-petition date workforce by, the end of 2006. At the
completion of this effort, we expect to retain a generating
portfolio of clean and reliable geothermal and natural gas-fired
power plants located in our key North American markets.
On February 3, 2006, as part of finalizing the collateral
structure of the DIP Facility, we closed a transaction pursuant
to which we acquired The Geysers operating lease assets and paid
off the related lessors third party debt for approximately
$275.1 million (including the $157.6 million purchase
price and $109.3 million to pay related debt and costs and
expenses of the transaction). As a result of this transaction,
we became the 100% owner of The Geysers assets. Previously, we
had leased the 19 Geysers power plants pursuant to a leveraged
lease. Upon completion of this transaction, The Geysers assets
were pledged as security for the DIP Facility.
On February 6, 2006, we filed a notice of rejection of our
leasehold interests in the Rumford power plant and the Tiverton
power plant with the U.S. Bankruptcy Court, and noticed the
surrender of the two plants to their owner-lessor. The
owner-lessor has declined to take possession and control of the
plants, which are not currently being dispatched but are being
maintained in operating condition. The deadline for filing
objections to the notice of rejection, which pursuant to a
U.S. Bankruptcy Court order regarding expedited lease
rejection procedures was originally set for February 16,
2006, was consensually extended to April 14, 2006. Both the
indenture trustee related to the leaseholds and the owner-lessor
filed objections to the rejection notice on that date.
Additionally, the indenture trustee filed a motion to withdraw
the reference of the rejection notice to the SDNY Court, arguing
that the U.S. Bankruptcy Court does not have jurisdiction
over the lease rejection dispute. The ISO New England, Inc.
has separately filed a motion to withdraw the reference of the
rejection notice to the SDNY Court on similar grounds. A hearing
is currently scheduled for May 24, 2006 before the
U.S. Bankruptcy Court to determine whether or not to
approve the rejection and any other matters raised by the
objections. However, such hearing date is subject to change. The
Rumford and Tiverton power plants represent a combined
530 MW of installed capacity with the output sold into the
New England wholesale market.
On February 8, 2006, David C. Merritt was elected to the
Board of Directors. Mr. Merritt also serves as a member of
the Audit Committee and the Nominating and Governance Committee
of the Board of Directors.
On February 15, 2006, we entered into a non-binding letter
of intent contemplating the negotiation of a definitive
agreement for the sale of Otay Mesa Energy Center to SDG&E.
The letter included a period of exclusivity which expired
May 1, 2006. The parties are discussing a possible
extension of exclusivity. Any final, definitive agreement would
require the approval of the CPUC and the U.S. Bankruptcy
Court. Construction of the Otay Mesa Energy Center, a
593-MW power plant,
located in San Diego County, began in 2001 and has
proceeded only gradually while we have sought certain regulatory
approvals and, more recently, as a result of the negotiations
with SDG&E.
15
On February 22, 2006, CCFC announced the commencement of a
solicitation (as amended on March 10, 2006) for consents
to, among other things, a waiver of a default under the
indenture governing its $415.0 million in principal amount
of Second Priority Senior Secured Floating Rate Notes due 2011
and under the credit agreement governing its $385.0 million
First Priority Senior Secured Institutional Term Loans due 2009.
The proposed waivers would waive certain existing defaults under
the indenture and the
On March 1, 2006, upon receipt of U.S. Bankruptcy
Court approval, we implemented a severance program that provides
eligible employees, whose employment is involuntarily terminated
in connection with workforce reductions, with certain severance
benefits, including base salary continuation for specified
periods based on the employees position and length of
service.
On March 3, 2006, pursuant to the Cash Collateral Order,
the U.S. Debtors and the Official Committee of Unsecured
Creditors of Calpine Corporation and the Ad Hoc Committee of
Second Lien Holders of Calpine Corporation agreed, in
consultation with the indenture trustee for the First Priority
Notes on the designation of nine projects that, absent the
consent of the committees or unless ordered by the
U.S. Bankruptcy Court, may not receive funding, other than
in certain limited amounts that were agreed to by the
U.S. Debtors and the committees in consultation with the
First Priority Notes trustee. The nine designated projects are
the Clear Lake Power Plant, Dighton Power Plant, Fox Energy
Center, Newark Power Plant, Parlin Power Plant, Pine Bluff
Energy Center, Rumford Power Plant, Texas City Power Plant, and
Tiverton Power Plant. The U.S. Debtors may determine, in
consultation with the committees and the First Priority Notes
trustee, that additional projects should be added to, or that
certain of the foregoing projects should be deleted from, the
list of designated projects.
On March 15, 2006, CCFC entered into agreements amending,
respectively, the indenture governing its $415.0 million
aggregate principal amount of Second Priority Senior Secured
Floating Rate Notes due 2011 and the credit agreement governing
its $385.0 million in aggregate principal amount of First
Priority Senior Secured Institutional Term Loans due 2009. CCFC
also entered into waiver agreements providing for the waiver of
certain defaults that occurred following our bankruptcy filings
as a result of the failure of CES to make certain payments to
CCFC under a PPA with CCFC. Each of the amendment agreements
(i) provides that it would be an event of default under the
indenture or the credit agreement, as applicable, if CES were to
seek to reject the PPA in connection with the bankruptcy cases
and (ii) allows CCFC to make a distribution to its indirect
parent, CCFCP, to permit CCFCP to make a scheduled dividend
payment on its redeemable preferred shares. The amendment
agreements and waiver agreements were executed upon the receipt
by CCFC of the consent of a majority of the holders of the notes
and the agreement of a majority of the term loan lenders
pursuant to a consent solicitation and request for amendment
initiated on February 22, 2006, as amended on
March 10, 2006. CCFC made a consent payment of
$1.89783 per each $1,000 principal amount of notes or term
loans held by consenting noteholders or term loan lenders, as
applicable. None of CCFCP, CCFC, or any of their direct and
indirect subsidiaries, is a Calpine Debtor or has otherwise
sought protection under the Bankruptcy Code.
Also on March 15, 2006, CCFCP entered into an agreement
with its preferred members holding a majority of the redeemable
preferred shares issued by CCFCP amending its LLC operating
agreement. The amendment agreement, among other things,
acknowledges that the waiver agreements under the CCFC indenture
and credit agreement satisfied the provisions of a standstill
agreement entered into on February 24, 2006, between CCFCP
and its preferred members pursuant to which the preferred
members had agreed not to declare a Voting Rights Trigger
Event, as defined in CCFCPs LLC operating agreement,
to have occurred or to seek to appoint replacement directors to
the board of CCFCP, provided that certain conditions were met,
including obtaining such waiver agreements. The amendment
agreement also gives preferred members the right to designate a
replacement for one of the independent directors of CCFCP; prior
to the amendment, the preferred members had the right to consent
to the designation, but not to designate, any replacement
independent director. Neither CCFCP nor any of its subsidiaries,
which include CCFC and CCFCs subsidiaries, has made a
bankruptcy filing or otherwise sought protection under the
Bankruptcy Code.
On March 30, 2006, the Master Transaction Agreement, dated
September 7, 2005, among Bear Stearns, CalBear, Calpine and
Calpines indirect, wholly owned subsidiaries CES and CMSC,
was terminated. Under
16
the Master Transaction Agreement, CalBear and Bear Stearns were
entitled to terminate the Master Transaction Agreement upon
certain events of default by Calpine, CES or CMSC, including a
bankruptcy filing by one or more of them. In connection with the
termination of the Master Transaction Agreement, the related
agreements entered into thereunder were also terminated,
including (i) the Agency and Services Agreement by and
among CMSC and CalBear, pursuant to which CMSC acted as
CalBears exclusive agent for gas and power trading,
(ii) the Trading Master Agreement among CES, CMSC and
CalBear, pursuant to which CalBear had executed credit
enhancement trades on behalf of CES and (iii) the ISDA
Master Agreement, Schedule, and applicable annexes between CES
and CalBear to effectuate the credit enhancement trades. As a
result of the termination of the Master Transaction Agreement
and related agreements, CMSC has the obligation to liquidate all
trading positions of CalBear and terminate all transactions done
in the name of CalBear, except as otherwise approved by CalBear.
Bear Stearns may, at its option, take over such liquidation from
CMSC. In addition, Bear Stearns continues to maintain ownership
of all of the third party master agreements executed in
connection with the CalBear relationship.
In the first quarter of 2006 we expect to record a charge for an
expected allowable claim related to a guarantee by Calpine
Corporation of obligations under a tolling agreement between
CESCP and Calgary Energy Centre Limited Partnership. CESCP
repudiated this tolling agreement in January 2006, and as a
consequence, we expect to record a charge of approximately
$233 million as a reorganization item expense in the three
month period ended March 31, 2006.
On April 11, 2006, CCFC notified the holders of its notes
and term loans that, as of April 7, 2006, a default had
occurred under the credit agreement governing the term loans and
the indenture governing the notes due to the failure of CES to
make a payment with respect to a hedging transaction under the
PPA with CCFC. If such default is not cured, or the PPA is not
replaced with a substantially similar agreement, within
60 days following the occurrence of the default, such
default will become an event of default under the
instruments governing the term loans and the notes.
On April 11, 2006, the U.S. Bankruptcy Court granted
our application for an extension of the period during which we
have the exclusive right to file a reorganization plan or plans
from April 20, 2006 to December 31, 2006, and granted
us the exclusive right until March 31, 2007, to solicit
acceptances of such plan or plans. In addition, the
U.S. Bankruptcy Court granted each of the U.S. Debtors
an additional 90 days (or until July 18, 2006, for
most of the U.S. Debtors) to assume or reject
non-residential real property leases. Also on April 11,
2006, the U.S. Bankruptcy Court granted our application for
the repayment of a portion of a loan we had extended to CPN
Insurance Corporation, our wholly owned captive insurance
subsidiary. The repayment of this loan facilitates our ability
to continue to provide a portion of our insurance needs through
this subsidiary and thus provides us additional flexibility to
be able to continue to implement a comprehensive and cost
effective property insurance program.
On April 17, 2006, we announced that we expected to record
approximately $5.5 billion in non-cash impairment charges
for the twelve months ending December 31, 2005, which
impairment charges have been reflected in the our financial
statements included in this Report. Further, we stated that we
expected to record additional non-cash valuation allowances of
approximately $1.6 billion against deferred tax assets,
which allowances have been reflected in the tax provision for
2005. We concluded that these charges were necessary due to
multiple factors, including constraints arising as a result of
our bankruptcy filing on December 20, 2005. As we continue
to develop our business plan, and otherwise in connection with
our emergence from bankruptcy, there could be additional
impairment charges in future periods.
On April 18, 2006, we completed the sale of our 45%
indirect equity interest in the
525-MW
Valladolid III Energy Center to the two remaining partners
in the project, Mitsui and Chubu, for $42.9 million, less a
10% holdback and transaction fees. Under the terms of the
purchase and sale agreement, we received cash proceeds of
$38.6 million at closing. The 10% holdback, plus interest,
will be returned to us in one years time. We eliminated
$87.8 million of non-recourse unconsolidated project debt,
representing our 45% share of the total project debt of
approximately $195.0 million. In addition, funds held in
escrow for credit support of $9.4 million were released to
us. We recorded an impairment charge of $41.3 million for
our investment in the project during the year ended
December 31, 2005.
17
The DIP Facility was amended on May 3, 2006. Among other
things, the amendment provides extensions of time to provide
certain financial information (including financial statements
for the year ended December 31, 2005, and the quarter ended
March 31, 2006) to the DIP Facility lenders and, provided
that we obtain the approval of the U.S. Bankruptcy Court to
repurchase the First Priority Notes, allows us to use borrowings
under the DIP Facility to repurchase a portion of such First
Priority Notes.
DESCRIPTION OF POWER GENERATION FACILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Share | |
NERC Region/ Country |
|
Projects | |
|
Megawatts | |
|
(NERC/UK) | |
|
|
| |
|
| |
|
| |
WECC
|
|
|
49 |
|
|
|
8,361 |
|
|
|
5% |
|
ERCOT
|
|
|
12 |
|
|
|
7,666 |
|
|
|
9% |
|
SERC
|
|
|
9 |
|
|
|
5,030 |
|
|
|
3% |
|
MAIN
|
|
|
4 |
* |
|
|
2,136 |
|
|
|
3% |
|
SPP
|
|
|
3 |
|
|
|
1,674 |
|
|
|
4% |
|
NEPOOL
|
|
|
5 |
|
|
|
1,272 |
|
|
|
4% |
|
FRCC
|
|
|
3 |
|
|
|
875 |
|
|
|
2% |
|
MAAC
|
|
|
3 |
|
|
|
193 |
|
|
|
1% |
|
MAPP
|
|
|
1 |
|
|
|
375 |
|
|
|
1% |
|
NYPOOL
|
|
|
5 |
|
|
|
334 |
|
|
|
1% |
|
NPCC
|
|
|
2 |
|
|
|
510 |
|
|
|
1% |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NERC
|
|
|
96 |
|
|
|
28,426 |
|
|
|
3% |
|
Mexico
|
|
|
1 |
|
|
|
236 |
|
|
|
1% |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
97 |
|
|
|
28,662 |
|
|
|
3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Includes Phase II of Fox Energy Center, which was under
construction as of December 31, 2005. |
18
At December 31, 2005, we had ownership or lease interests
in 92 operating power generation facilities representing
26,459 MW of net capacity. Of these projects, 73 are
gas-fired power plants with a net capacity of 25,709 MW,
and 19 are geothermal power generation facilities with a net
capacity of 750 MW. We also have 5 new gas-fired
projects and 1 expansion project currently under construction
with a net capacity of 2,203 MW. Each of the power
generation facilities currently in operation is capable of
producing electricity for sale to a utility, other third-party
end user or an intermediary such as a marketing company. Thermal
energy (primarily steam and chilled water) produced by the
gas-fired cogeneration facilities is sold to industrial and
governmental users. As discussed above, we will seek to sell
certain of these projects over the next year.
Our gas-fired and geothermal power generation projects produce
electricity and thermal energy that is sold pursuant to
short-term and long-term PPAs or into the spot market. Revenue
from a PPA often consists of either energy payments or capacity
payments or both. Energy payments are based on a power
plants net electrical output, and payment rates are
typically either at fixed rates or are indexed to market
averages for energy or fuel. Capacity payments are based on all
or a portion of a power plants available capacity. Energy
payments are earned for each MWh of energy delivered, while
capacity payments, under certain circumstances, are earned
whether or not any electricity is scheduled by the customer and
delivered.
Upon completion of our projects under construction, subject to
any dispositions that may occur, we will provide operating and
maintenance services for 95 of the 97 power plants in which we
have an interest. Such services include the operation of power
plants, geothermal steam fields, wells and well pumps, and gas
pipelines. We also supervise maintenance, materials purchasing
and inventory control, manage cash flow, train staff and prepare
operating and maintenance manuals for each power generation
facility that we operate. As a facility develops an operating
history, we analyze its operation and may modify or upgrade
equipment or adjust operating procedures or maintenance measures
to enhance the facilitys reliability or profitability.
These services are sometimes performed for third parties under
the terms of an O&M agreement pursuant to which we are
generally reimbursed for certain costs, paid an annual operating
fee and may also be paid an incentive fee based on the
performance of the facility. The fees payable to us may be
subordinated to any lease payments or debt service obligations
of financing for the project.
In order to provide fuel for the gas-fired power generation
facilities in which we have an interest, natural gas is
purchased from third parties under supply agreements and gas
hedging contracts. Additionally, we could acquire natural gas
reserves, although we have sold substantially all of our gas
reserves purchased in prior years. We manage a gas-fired power
facilitys fuel supply so that we protect the plants
spark spread.
We currently own geothermal resources in The Geysers in Lake and
Sonoma Counties in northern California from which we produce
steam for our geothermal power generation facilities. In late
2003, we began to inject waste water from the City of Santa Rosa
Recharge Project into our geothermal reservoirs. We expect this
recharge project to extend the useful life and enhance the
performance of The Geysers geothermal resources and power plants.
Certain power generation facilities in which we have an interest
have been financed primarily with project financing that is
structured to be serviced out of the cash flows derived from the
sale of electricity (and, if applicable, thermal energy)
produced by such facilities and generally provides that the
obligations to pay interest and principal on the loans are
secured solely by the capital stock or partnership interests,
physical assets, contracts and/or cash flow attributable to the
entities that own the facilities. The lenders under these
project financings generally have no recourse for repayment
against us or any of our assets or the assets of any other
entity other than foreclosure on pledges of stock or partnership
interests and the assets attributable to the entities that own
the facilities. Certain of these facilities have filed voluntary
petitions for reorganization under Chapter 11 of the
Bankruptcy Code; however, we do not, at this time, consider the
non-recourse debt related to these U.S. Debtor entities to
be subject to compromise.
Substantially all of the power generation facilities in which we
have an interest are located on sites which we own or lease on a
long-term basis. See Item 2. Properties.
19
Set forth below is certain information regarding our operating
power plants and plants under construction as of
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Megawatts | |
|
|
|
|
| |
|
|
|
|
|
|
With | |
|
Calpine Net | |
|
Calpine Net | |
|
|
Number of | |
|
Baseload | |
|
Peaking | |
|
Interest | |
|
Interest with | |
|
|
Plants | |
|
Capacity | |
|
Capacity | |
|
Baseload | |
|
Peaking | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
In operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geothermal power plants
|
|
|
19 |
|
|
|
750 |
|
|
|
750 |
|
|
|
750 |
|
|
|
750 |
|
|
Gas-fired power plants
|
|
|
73 |
|
|
|
21,660 |
|
|
|
26,935 |
|
|
|
20,543 |
|
|
|
25,709 |
|
Under construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New facilities
|
|
|
5 |
|
|
|
2,312 |
|
|
|
2,734 |
|
|
|
1,636 |
|
|
|
1,943 |
|
|
Expansion/ Phase II
|
|
|
|
|
|
|
245 |
|
|
|
260 |
|
|
|
245 |
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
97 |
|
|
|
24,967 |
|
|
|
30,679 |
|
|
|
23,174 |
|
|
|
28,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country, | |
|
|
|
|
|
|
|
|
|
Calpine Net | |
|
|
|
|
US | |
|
|
|
With | |
|
|
|
Calpine Net | |
|
Interest | |
|
|
|
|
State or | |
|
Baseload | |
|
Peaking | |
|
Calpine | |
|
Interest | |
|
with | |
|
Total 2005 | |
|
|
Can. | |
|
Capacity | |
|
Capacity | |
|
Interest | |
|
Baseload | |
|
Peaking | |
|
Generation | |
Power Plant |
|
Province | |
|
(MW) | |
|
(MW) | |
|
Percentage | |
|
(MW) | |
|
(MW) | |
|
MWh(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Geothermal Power Plants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Geothermal Power Plants(19)
|
|
|
|
|
|
|
750.0 |
|
|
|
750.0 |
|
|
|
|
|
|
|
750.0 |
|
|
|
750.0 |
|
|
|
6,704,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas-Fired Power Plants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freestone Energy Center
|
|
|
TX |
|
|
|
1,022.0 |
|
|
|
1,022.0 |
|
|
|
100.0 |
% |
|
|
1,022.0 |
|
|
|
1,022.0 |
|
|
|
4,187,391 |
|
Deer Park Energy Center
|
|
|
TX |
|
|
|
792.0 |
|
|
|
1,019.0 |
|
|
|
100.0 |
% |
|
|
792.0 |
|
|
|
1,019.0 |
|
|
|
5,691,076 |
|
Oneta Energy Center
|
|
|
OK |
|
|
|
994.0 |
|
|
|
994.0 |
|
|
|
100.0 |
% |
|
|
994.0 |
|
|
|
994.0 |
|
|
|
683,307 |
|
Delta Energy Center
|
|
|
CA |
|
|
|
799.0 |
|
|
|
882.0 |
|
|
|
100.0 |
% |
|
|
799.0 |
|
|
|
882.0 |
|
|
|
5,509,506 |
|
Morgan Energy Center
|
|
|
AL |
|
|
|
722.0 |
|
|
|
852.0 |
|
|
|
100.0 |
% |
|
|
722.0 |
|
|
|
852.0 |
|
|
|
1,208,479 |
|
Decatur Energy Center
|
|
|
AL |
|
|
|
793.0 |
|
|
|
852.0 |
|
|
|
100.0 |
% |
|
|
793.0 |
|
|
|
852.0 |
|
|
|
690,875 |
|
Broad River Energy Center
|
|
|
SC |
|
|
|
|
|
|
|
847.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
847.0 |
|
|
|
662,103 |
|
Baytown Energy Center
|
|
|
TX |
|
|
|
742.0 |
|
|
|
830.0 |
|
|
|
100.0 |
% |
|
|
742.0 |
|
|
|
830.0 |
|
|
|
4,299,914 |
|
Pasadena Power Plant
|
|
|
TX |
|
|
|
776.0 |
|
|
|
777.0 |
|
|
|
100.0 |
% |
|
|
776.0 |
|
|
|
777.0 |
|
|
|
3,094,913 |
|
Magic Valley Generating Station
|
|
|
TX |
|
|
|
700.0 |
|
|
|
751.0 |
|
|
|
100.0 |
% |
|
|
700.0 |
|
|
|
751.0 |
|
|
|
3,082,194 |
|
Pastoria Energy Facility
|
|
|
CA |
|
|
|
750.0 |
|
|
|
750.0 |
|
|
|
100.0 |
% |
|
|
750.0 |
|
|
|
750.0 |
|
|
|
2,582,487 |
|
Hermiston Power Project
|
|
|
OR |
|
|
|
546.0 |
|
|
|
642.0 |
|
|
|
100.0 |
% |
|
|
546.0 |
|
|
|
642.0 |
|
|
|
3,650,823 |
|
Columbia Energy Center
|
|
|
SC |
|
|
|
464.0 |
|
|
|
641.0 |
|
|
|
100.0 |
% |
|
|
464.0 |
|
|
|
641.0 |
|
|
|
391,087 |
|
Rocky Mountain Energy Center
|
|
|
CO |
|
|
|
479.0 |
|
|
|
621.0 |
|
|
|
100.0 |
% |
|
|
479.0 |
|
|
|
621.0 |
|
|
|
3,249,691 |
|
Osprey Energy Center
|
|
|
FL |
|
|
|
530.0 |
|
|
|
609.0 |
|
|
|
100.0 |
% |
|
|
530.0 |
|
|
|
609.0 |
|
|
|
1,780,739 |
|
Acadia Energy Center
|
|
|
LA |
|
|
|
1,092.0 |
|
|
|
1,210.0 |
|
|
|
50.0 |
% |
|
|
546.0 |
|
|
|
605.0 |
|
|
|
2,738,118 |
|
Riverside Energy Center
|
|
|
WI |
|
|
|
518.0 |
|
|
|
603.0 |
|
|
|
100.0 |
% |
|
|
518.0 |
|
|
|
603.0 |
|
|
|
1,769,523 |
|
Metcalf Energy Center
|
|
|
CA |
|
|
|
554.0 |
|
|
|
600.0 |
|
|
|
100.0 |
% |
|
|
554.0 |
|
|
|
600.0 |
|
|
|
1,974,610 |
|
Brazos Valley Power Plant
|
|
|
TX |
|
|
|
508.0 |
|
|
|
594.0 |
|
|
|
100.0 |
% |
|
|
508.0 |
|
|
|
594.0 |
|
|
|
3,368,606 |
|
Aries Power Project
|
|
|
MO |
|
|
|
523.0 |
|
|
|
590.0 |
|
|
|
100.0 |
% |
|
|
523.0 |
|
|
|
590.0 |
|
|
|
285,452 |
|
Channel Energy Center
|
|
|
TX |
|
|
|
527.0 |
|
|
|
574.0 |
|
|
|
100.0 |
% |
|
|
527.0 |
|
|
|
574.0 |
|
|
|
2,800,139 |
|
Los Medanos Energy Center
|
|
|
CA |
|
|
|
497.0 |
|
|
|
566.0 |
|
|
|
100.0 |
% |
|
|
497.0 |
|
|
|
566.0 |
|
|
|
3,705,762 |
|
Sutter Energy Center
|
|
|
CA |
|
|
|
535.0 |
|
|
|
543.0 |
|
|
|
100.0 |
% |
|
|
535.0 |
|
|
|
543.0 |
|
|
|
2,472,080 |
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country, | |
|
|
|
|
|
|
|
|
|
Calpine Net | |
|
|
|
|
US | |
|
|
|
With | |
|
|
|
Calpine Net | |
|
Interest | |
|
|
|
|
State or | |
|
Baseload | |
|
Peaking | |
|
Calpine | |
|
Interest | |
|
with | |
|
Total 2005 | |
|
|
Can. | |
|
Capacity | |
|
Capacity | |
|
Interest | |
|
Baseload | |
|
Peaking | |
|
Generation | |
Power Plant |
|
Province | |
|
(MW) | |
|
(MW) | |
|
Percentage | |
|
(MW) | |
|
(MW) | |
|
MWh(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Corpus Christi Energy Center
|
|
|
TX |
|
|
|
414.0 |
|
|
|
537.0 |
|
|
|
100.0 |
% |
|
|
414.0 |
|
|
|
537.0 |
|
|
|
2,315,678 |
|
Texas City Power Plant
|
|
|
TX |
|
|
|
457.0 |
|
|
|
534.0 |
|
|
|
100.0 |
% |
|
|
457.0 |
|
|
|
534.0 |
|
|
|
1,860,795 |
|
Carville Energy Center
|
|
|
LA |
|
|
|
455.0 |
|
|
|
531.0 |
|
|
|
100.0 |
% |
|
|
455.0 |
|
|
|
531.0 |
|
|
|
2,062,451 |
|
South Point Energy Center
|
|
|
AZ |
|
|
|
520.0 |
|
|
|
530.0 |
|
|
|
100.0 |
% |
|
|
520.0 |
|
|
|
530.0 |
|
|
|
1,523,763 |
|
Westbrook Energy Center
|
|
|
ME |
|
|
|
528.0 |
|
|
|
528.0 |
|
|
|
100.0 |
% |
|
|
528.0 |
|
|
|
528.0 |
|
|
|
3,492,152 |
|
Zion Energy Center
|
|
|
IL |
|
|
|
|
|
|
|
513.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
513.0 |
|
|
|
35,058 |
|
RockGen Energy Center
|
|
|
WI |
|
|
|
|
|
|
|
460.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
460.0 |
|
|
|
332,447 |
|
Clear Lake Power Plant
|
|
|
TX |
|
|
|
344.0 |
|
|
|
400.0 |
|
|
|
100.0 |
% |
|
|
344.0 |
|
|
|
400.0 |
|
|
|
1,063,972 |
|
Hidalgo Energy Center
|
|
|
TX |
|
|
|
499.0 |
|
|
|
499.0 |
|
|
|
78.5 |
% |
|
|
392.0 |
|
|
|
392.0 |
|
|
|
1,790,681 |
|
Fox Energy Center(2)
|
|
|
WI |
|
|
|
245.0 |
|
|
|
300.0 |
|
|
|
100.0 |
% |
|
|
245.0 |
|
|
|
300.0 |
|
|
|
443,536 |
|
Blue Spruce Energy Center
|
|
|
CO |
|
|
|
|
|
|
|
285.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
285.0 |
|
|
|
252,702 |
|
Goldendale Energy Center
|
|
|
WA |
|
|
|
237.0 |
|
|
|
271.0 |
|
|
|
100.0 |
% |
|
|
237.0 |
|
|
|
271.0 |
|
|
|
1,025,566 |
|
Tiverton Power Plant(3)
|
|
|
RI |
|
|
|
267.0 |
|
|
|
267.0 |
|
|
|
100.0 |
% |
|
|
267.0 |
|
|
|
267.0 |
|
|
|
1,822,302 |
|
Rumford Power Plant(3)
|
|
|
ME |
|
|
|
263.0 |
|
|
|
263.0 |
|
|
|
100.0 |
% |
|
|
263.0 |
|
|
|
263.0 |
|
|
|
1,022,754 |
|
Santa Rosa Energy Center
|
|
|
FL |
|
|
|
250.0 |
|
|
|
250.0 |
|
|
|
100.0 |
% |
|
|
250.0 |
|
|
|
250.0 |
|
|
|
1,150 |
|
Hog Bayou Energy Center
|
|
|
AL |
|
|
|
235.0 |
|
|
|
237.0 |
|
|
|
100.0 |
% |
|
|
235.0 |
|
|
|
237.0 |
|
|
|
20,432 |
|
Pine Bluff Energy Center
|
|
|
AR |
|
|
|
184.0 |
|
|
|
215.0 |
|
|
|
100.0 |
% |
|
|
184.0 |
|
|
|
215.0 |
|
|
|
1,228,979 |
|
Los Esteros Critical Energy Facility
|
|
|
CA |
|
|
|
|
|
|
|
188.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
188.0 |
|
|
|
276,974 |
|
Dighton Power Plant
|
|
|
MA |
|
|
|
170.0 |
|
|
|
170.0 |
|
|
|
100.0 |
% |
|
|
170.0 |
|
|
|
170.0 |
|
|
|
517,445 |
|
Auburndale Power Plant
|
|
|
FL |
|
|
|
150.0 |
|
|
|
150.0 |
|
|
|
100.0 |
% |
|
|
150.0 |
|
|
|
150.0 |
|
|
|
628,849 |
|
Gilroy Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
135.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
135.0 |
|
|
|
52,968 |
|
Gilroy Cogeneration Plant
|
|
|
CA |
|
|
|
117.0 |
|
|
|
128.0 |
|
|
|
100.0 |
% |
|
|
117.0 |
|
|
|
128.0 |
|
|
|
111,608 |
|
King City Cogeneration Plant
|
|
|
CA |
|
|
|
120.0 |
|
|
|
120.0 |
|
|
|
100.0 |
% |
|
|
120.0 |
|
|
|
120.0 |
|
|
|
815,948 |
|
Parlin Power Plant
|
|
|
NJ |
|
|
|
98.0 |
|
|
|
118.0 |
|
|
|
100.0 |
% |
|
|
98.0 |
|
|
|
118.0 |
|
|
|
78,593 |
|
Auburndale Peaking Energy Center
|
|
|
FL |
|
|
|
|
|
|
|
116.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
116.0 |
|
|
|
7,332 |
|
Kennedy International Airport Power Plant (KIAC)
|
|
|
NY |
|
|
|
99.0 |
|
|
|
105.0 |
|
|
|
100.0 |
% |
|
|
99.0 |
|
|
|
105.0 |
|
|
|
736,749 |
|
Pryor Power Plant
|
|
|
OK |
|
|
|
38.0 |
|
|
|
90.0 |
|
|
|
100.0 |
% |
|
|
38.0 |
|
|
|
90.0 |
|
|
|
315,955 |
|
Calgary Energy Centre(4)
|
|
|
AB |
|
|
|
252.0 |
|
|
|
286.0 |
|
|
|
30.0 |
% |
|
|
75.6 |
|
|
|
85.8 |
|
|
|
327,617 |
|
Bethpage Energy Center 3
|
|
|
NY |
|
|
|
79.9 |
|
|
|
79.9 |
|
|
|
100.0 |
% |
|
|
79.9 |
|
|
|
79.9 |
|
|
|
199,395 |
|
Island Cogeneration(4)
|
|
|
BC |
|
|
|
219.0 |
|
|
|
250.0 |
|
|
|
30.0 |
% |
|
|
65.7 |
|
|
|
75.0 |
|
|
|
2,051,155 |
|
Pittsburg Power Plant
|
|
|
CA |
|
|
|
64.0 |
|
|
|
64.0 |
|
|
|
100.0 |
% |
|
|
64.0 |
|
|
|
64.0 |
|
|
|
194,235 |
|
Bethpage Power Plant
|
|
|
NY |
|
|
|
55.0 |
|
|
|
56.0 |
|
|
|
100.0 |
% |
|
|
55.0 |
|
|
|
56.0 |
|
|
|
109,930 |
|
Newark Power Plant
|
|
|
NJ |
|
|
|
50.0 |
|
|
|
56.0 |
|
|
|
100.0 |
% |
|
|
50.0 |
|
|
|
56.0 |
|
|
|
46,061 |
|
Greenleaf 1 Power Plant
|
|
|
CA |
|
|
|
49.5 |
|
|
|
49.5 |
|
|
|
100.0 |
% |
|
|
49.5 |
|
|
|
49.5 |
|
|
|
280,203 |
|
Greenleaf 2 Power Plant
|
|
|
CA |
|
|
|
49.5 |
|
|
|
49.5 |
|
|
|
100.0 |
% |
|
|
49.5 |
|
|
|
49.5 |
|
|
|
254,054 |
|
Wolfskill Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
48.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
48.0 |
|
|
|
16,475 |
|
Yuba City Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
47.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
47.0 |
|
|
|
36,188 |
|
Feather River Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
47.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
47.0 |
|
|
|
13,346 |
|
Creed Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
47.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
47.0 |
|
|
|
9,657 |
|
Lambie Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
47.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
47.0 |
|
|
|
15,899 |
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country, | |
|
|
|
|
|
|
|
|
|
Calpine Net | |
|
|
|
|
US | |
|
|
|
With | |
|
|
|
Calpine Net | |
|
Interest | |
|
|
|
|
State or | |
|
Baseload | |
|
Peaking | |
|
Calpine | |
|
Interest | |
|
with | |
|
Total 2005 | |
|
|
Can. | |
|
Capacity | |
|
Capacity | |
|
Interest | |
|
Baseload | |
|
Peaking | |
|
Generation | |
Power Plant |
|
Province | |
|
(MW) | |
|
(MW) | |
|
Percentage | |
|
(MW) | |
|
(MW) | |
|
MWh(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Goose Haven Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
47.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
47.0 |
|
|
|
11,036 |
|
Riverview Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
47.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
47.0 |
|
|
|
21,032 |
|
Stony Brook Power Plant
|
|
|
NY |
|
|
|
45.0 |
|
|
|
47.0 |
|
|
|
100.0 |
% |
|
|
45.0 |
|
|
|
47.0 |
|
|
|
299,722 |
|
Bethpage Peaker
|
|
|
NY |
|
|
|
|
|
|
|
46.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
46.0 |
|
|
|
120,983 |
|
King City Peaking Energy Center
|
|
|
CA |
|
|
|
|
|
|
|
45.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
45.0 |
|
|
|
16,261 |
|
Androscoggin Energy Center(5)
|
|
|
ME |
|
|
|
136.0 |
|
|
|
136.0 |
|
|
|
32.3 |
% |
|
|
44.0 |
|
|
|
44.0 |
|
|
|
1,552 |
|
Watsonville (Monterey) Cogeneration Plant
|
|
|
CA |
|
|
|
29.0 |
|
|
|
30.0 |
|
|
|
100.0 |
% |
|
|
29.0 |
|
|
|
30.0 |
|
|
|
164,929 |
|
Agnews Power Plant
|
|
|
CA |
|
|
|
28.0 |
|
|
|
28.0 |
|
|
|
100.0 |
% |
|
|
28.0 |
|
|
|
28.0 |
|
|
|
162,623 |
|
Philadelphia Water Project
|
|
|
PA |
|
|
|
|
|
|
|
23.0 |
|
|
|
83.0 |
% |
|
|
|
|
|
|
19.1 |
|
|
|
|
|
Whitby Cogeneration(4)
|
|
|
ON |
|
|
|
50.0 |
|
|
|
50.0 |
|
|
|
15.0 |
% |
|
|
7.5 |
|
|
|
7.5 |
|
|
|
337,281 |
|
|
Total Gas-Fired Power Plants (73)
|
|
|
|
|
|
|
21,659.9 |
|
|
|
26,934.9 |
|
|
|
|
|
|
|
20,542.7 |
|
|
|
25,709.3 |
|
|
|
88,405,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Power Plants (92)
|
|
|
|
|
|
|
22,409.9 |
|
|
|
27,684.9 |
|
|
|
|
|
|
|
21,292.7 |
|
|
|
26,459.3 |
|
|
|
95,110,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Projects including plants with operating leases
|
|
|
|
|
|
|
21,752.9 |
|
|
|
26,962.9 |
|
|
|
|
|
|
|
21,099.9 |
|
|
|
26,247.0 |
|
|
|
|
|
Equity (Unconsolidated) Projects
|
|
|
|
|
|
|
657.0 |
|
|
|
722.0 |
|
|
|
|
|
|
|
192.8 |
|
|
|
212.3 |
|
|
|
|
|
|
|
(1) |
Generation MWh is shown here as 100% of each plants gross
generation in MWh. |
|
(2) |
Subsequent to December 31, 2005, Phase II of the Fox
Energy Center entered commercial operation, resulting in a total
net operating peaking capacity of the facility of 560 MW. |
|
(3) |
On February 6, 2006, we filed a Notice of Rejection with
the Bankruptcy Court to terminate the underlying operating lease
of this facility. See Note 3 of the Notes to Consolidated
Financial Statements. |
|
(4) |
These power plants were deconsolidated as of December 31,
2005. See Note 10 of the Notes to Consolidated Financial
Statements. |
|
(5) |
See Note 10 of the Notes to Consolidated Financial
Statements for the status of this project. |
22
|
|
|
Projects Under Active Construction (All Gas-Fired) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calpine Net | |
|
|
|
|
|
|
With | |
|
|
|
Calpine Net | |
|
Interest | |
|
|
|
|
Baseload | |
|
Peaking | |
|
Calpine | |
|
Interest | |
|
with | |
|
|
|
|
Capacity | |
|
Capacity | |
|
Interest | |
|
Baseload | |
|
Peaking | |
Power Plant |
|
US State | |
|
(MW) | |
|
(MW) | |
|
Percentage | |
|
(MW) | |
|
(MW) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Projects Under Active Construction(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Otay Mesa Energy Center
|
|
|
CA |
|
|
|
510.0 |
|
|
|
593.0 |
|
|
|
100.0 |
% |
|
|
510.0 |
|
|
|
593.0 |
|
|
Mankato Power Plant
|
|
|
MN |
|
|
|
292.0 |
|
|
|
375.0 |
|
|
|
100.0 |
% |
|
|
292.0 |
|
|
|
375.0 |
|
|
Fox Energy Center II
|
|
|
WI |
|
|
|
245.0 |
|
|
|
260.0 |
|
|
|
100.0 |
% |
|
|
245.0 |
|
|
|
260.0 |
|
|
Freeport Energy Center
|
|
|
TX |
|
|
|
210.0 |
|
|
|
236.0 |
|
|
|
100.0 |
% |
|
|
210.0 |
|
|
|
236.0 |
|
|
Greenfield Energy Centre
|
|
|
Canada |
|
|
|
775.0 |
|
|
|
1,005.0 |
|
|
|
50.0 |
% |
|
|
387.5 |
|
|
|
502.5 |
|
|
Valladolid III Power Plant
|
|
|
Mexico |
|
|
|
525.0 |
|
|
|
525.0 |
|
|
|
45.0 |
% |
|
|
236.3 |
|
|
|
236.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Projects Under Active Construction
|
|
|
|
|
|
|
2,557.0 |
|
|
|
2,994.0 |
|
|
|
|
|
|
|
1,880.8 |
|
|
|
2,202.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
See Projects Under Active Construction at
December 31, 2005 below for current status of these
projects. |
ACQUISITIONS OF POWER PROJECTS AND PROJECTS UNDER
CONSTRUCTION
We have extensive experience in the development and acquisition
of power generation projects. We have historically focused
principally on the development and acquisition of interests in
gas-fired and geothermal power projects, although we may also
consider projects that utilize other power generation
technologies. We have significant expertise in a variety of
power generation technologies and have substantial capabilities
in each aspect of the development and acquisition process,
including design, engineering, procurement, construction
management, fuel and resource acquisition and management, power
marketing, financing and operations.
As indicated above under Strategy, our development
and acquisition activities have been scaled back, for the
indefinite future, to focus on liquidity and operational
priorities in connection with our reorganization and our
restructuring program.
|
|
|
Projects Under Active Construction at December 31,
2005 |
The development and construction of power generation projects
involves numerous elements, including evaluating and selecting
development opportunities, designing and engineering the
project, obtaining PPAs in some cases, acquiring necessary land
rights, permits and fuel resources, obtaining financing,
procuring equipment and managing construction. We intend to
focus on completing certain of our projects already in
construction, while construction on certain of the other
projects may remain in suspension or they may be sold. We do not
expect to start development or construction on new projects at
least until after we have developed our plan of reorganization,
however, in certain cases exceptions may be made if power
contracts and financing are available and attractive returns are
expected. For the year ended December 31, 2005, we recorded
impairment charges of approximately $2.1 billion with
respect to our development and construction projects, including
joint venture investments and other assets. See Note 6 of
the Notes to Consolidated Financial Statements for more
information.
Otay Mesa Energy Center. In July 2001, we acquired Otay
Mesa Generating Company, LLC and the associated development
rights including a license permitting construction of the plant
from the California Energy Commission. Construction of this
593-MW facility,
located in southern San Diego County, California began
in 2001. In February 2004 we signed a ten-year PPA with
SDG&E for delivery of up to 615 MW of capacity and
energy beginning January 1, 2008. Power deliveries are
scheduled to begin on January 1, 2008, subject to certain
conditions that have not yet been satisfied. On
February 15, 2006, we entered into a non-binding letter of
intent contemplating the negotiation of a definitive agreement
for the sale of the Otay Mesa
23
facility to SDG&E. Construction of this facility has
proceeded only gradually while we have sought certain regulatory
approvals and, more recently, as a result of the negotiations
with SDG&E. See Note 34 of the Notes to Consolidated
Financial Statements for more information. Construction of this
facility has proceeded only gradually while we have sought
certain regulatory approvals and, more recently, as a result of
the negotiations with SDG&E.
Mankato Power Plant. In March 2004, we announced plans to
build, own and operate a
375-MW, natural
gas-fired power plant in Mankato, Minnesota. Electric power
generated at the facility will be sold to Northern States Power
Co. under a 20-year
purchased power agreement. Construction began in March 2004 and
we expect commercial operation of the facility to commence in
July 2006.
Fox Energy Center, Phase II. In 2003, we acquired
the fully permitted development rights to the
560-MW Fox Energy
Center in Kaukauna, Wisconsin. Commercial operation of
Phase I began in June 2005. In March 2006, Phase II
entered commercial operation resulting in the total net
operating capacity for the facility of 560 MW. Output from
the facility is sold under contract to Wisconsin Public Service.
Freeport Energy Center. In May 2004, we announced plans
to build and own a
236-MW, natural
gas-fired cogeneration energy center in Freeport, Texas. Under a
25-year agreement, up
to 210 MW of electricity and one million pounds per hour of
steam generated at the facility will be sold to Dow Chemical Co.
in Freeport, Texas. Dow Chemical Co. will operate this facility.
Construction of the facility began in June 2004. Commercial
operations will commence in multiple phases, with the first
phases completed in January 2006 and the last phase expected to
occur in November 2006.
Greenfield Energy Centre. In April 2005, we announced,
together with Mitsui, an intention to build, own and operate a
1,005-MW, natural
gas-fired energy center located in the Township of St. Clair in
Ontario, Canada. The facility will deliver electricity to the
OPA under a 20-year
Clean Energy Supply contract. We contributed three combustion
gas turbine generators and one steam turbine generator to the
project, giving us a 50% interest in the facility. Mitsui owns
the remaining 50% interest. Construction began in November 2005.
Valladolid III Power Plant. In October 2003, we
announced, together with Mitsui of Tokyo, Japan, an intention to
build, own and operate a
525-MW natural
gas-fired energy center, Valladolid, for CFE at Valladolid in
the Yucatan Peninsula. The facility will deliver electricity to
CFE under a 25-year
PPA. We supplied two combustion gas turbines to the project,
giving us a 45% indirect equity interest in the facility. Mitsui
and Chubu were to own the remaining interest. Construction began
in May 2004, and on April 18, 2006 the sale of our 45%
indirect equity interest in Valladolid was completed. See
Note 34 of the Notes to Consolidated Financial Statements
for more information.
OIL AND GAS PROPERTIES
In July 2005, we completed the sale of substantially all of our
remaining oil and natural gas assets. The divestiture of our
historical oil and gas assets is discussed under Note 13 of
the Notes to Consolidated Financial Statements.
Our consolidated financial statements reflect the oil and gas
assets and related operations as discontinued operations.
MARKETING, HEDGING, OPTIMIZATION AND TRADING ACTIVITIES
Most of the electric power generated by our plants is scheduled
and settled by our marketing and risk management unit, CES,
which sells it to load-serving entities such as utilities,
industrial and large retail end users, and to other third
parties including power trading and marketing companies. CES
enters into physical and financial purchase and sale
transactions as part of its hedging, balancing and optimization
activities.
The hedging, balancing and optimization activities that we
engage in are directly related to exposures that arise from our
ownership and operation of power plants and our open gas
positions and are designed to protect or enhance our spark
spread (the difference between our fuel cost and the
revenue we receive for our
24
electric generation). In many of these transactions CES
purchases and resells power and gas in contracts with third
parties.
We utilize derivatives, which are defined in
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by
SFAS No. 138, Accounting for Certain Derivative
Investments, and SFAS No. 149, Amendment
of Statement 133 on Derivative Investment Hedging
Activities, to include many physical commodity contracts
and commodity financial instruments such as exchange-traded
swaps and forward contracts, to optimize the returns that we are
able to achieve from our power plant assets and our open gas
positions. From time to time we have entered into contracts
considered energy trading contracts under EITF Issue
No. 02-03, Issues Related to Accounting for Contracts
Involved in Energy Trading and Risk Management Activities.
However, our risk managers have low capital at risk and value at
risk limits for energy trading, and our risk management policy
limits, at any given time, our net sales of power to our
generation capacity and limits our net purchases of gas to our
fuel consumption requirements on a total portfolio basis. This
model is markedly different from that of companies that engage
in significant commodity trading operations that are unrelated
to underlying physical assets. Derivative commodity instruments
are accounted for under the requirements of
SFAS No. 133. The EITF reached a consensus under EITF
Issue No. 02-03 that gains and losses on derivative
instruments within the scope of SFAS No. 133 should be
shown net in the income statement if the derivative instruments
are held for trading purposes. In addition we present on a net
basis certain types of hedging, balancing and optimization
revenues and costs of revenue in accordance with EITF Issue
No. 03-11,
Reporting Realized Gains and Losses on Derivative
Instruments that are Subject to FASB Statement No. 133 and
Not Held for Trading Purposes As Defined in EITF
Issue No. 02-03: Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management
Activities, which we adopted prospectively on
October 1, 2003. See Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations Application of
Critical Accounting Policies and Note 2 of the Notes
to Consolidated Financial Statements for additional discussion
of this standard. We have received approval from the U.S.
Bankruptcy Court pursuant to our first day and
subsequent motions to continue to collateralize our gas supply
contracts and enter into and collateralize trading contracts.
These orders, together with the Cash Collateral Order and our
DIP Facility, have allowed us to continue our marketing,
hedging, optimization and trading activities during the pendency
of the bankruptcy cases.
In some instances economic hedges may not be designated as
hedges for accounting purposes. An example of an economic hedge
that is not a hedge for accounting purposes would be a long-term
fixed price electric sales contract that economically hedges us
against the risk of falling electric prices, but which for
accounting purposes can be exempted from derivative accounting
under SFAS No. 133 as a normal purchase and sale. For
a further discussion of our derivative accounting methodology,
see Item 7 Managements Discussion
and Analysis of Financial Condition and Results of
Operations Application of Critical Accounting
Policies.
GOVERNMENT REGULATION
We are subject to complex and stringent energy, environmental
and other governmental laws and regulations at the federal,
state and local levels in connection with the development,
ownership and operation of our energy generation facilities, and
in connection with the purchase and sale of electricity and
natural gas. Federal laws and regulations govern, among other
things, transactions by electric and gas companies, the
ownership of these facilities, and access to and service on the
electric and natural gas transmission grids.
In most instances, public utilities that serve retail customers
are subject to rate regulation by the states utility
regulatory commission. A state utility regulatory commission is
often primarily responsible for determining whether a public
utility may recover the costs of wholesale electricity purchases
or other supply procurement-related activities through the
retail rates the utility charges its customers. The state
utility regulatory commission may, from time to time, impose
restrictions or limitations on the manner in which a public
utility may transact with wholesale power sellers, such as
independent power producers. Under certain circumstances where
specific exemptions are otherwise unavailable, state utility
regulatory commissions may have broad jurisdiction over
non-utility electric power plants.
25
Energy producing facilities are also subject to federal, state
and local laws and administrative regulations which govern the
emissions and other substances produced, discharged or disposed
of by a plant and the geographical location, zoning, land use
and operation of a plant. Applicable federal environmental laws
typically have both state and local enforcement and
implementation provisions. These environmental laws and
regulations generally require that a wide variety of permits and
other approvals be obtained before the commencement of
construction or operation of a generation facility and that the
facility then operate in compliance with such permits and
approvals.
There have been a number of federal legislative and regulatory
actions that have recently changed, and will continue to change,
how the energy markets are regulated. Additional legislative and
regulatory initiatives may occur. We cannot provide assurance
that any legislation or regulation ultimately adopted would not
adversely affect our existing projects. See the risk factors set
forth under Item 1A Risk Factors
California Power Market and Government
Regulations.
|
|
|
Federal Regulation of Electricity |
Electric utilities have historically been highly regulated by
both the federal government and state public utility
commissions. There are two principal pieces of federal
legislation that have governed public utilities since the 1930s,
the FPA and the PUHCA of 1935. These statutes have been amended
and supplemented by subsequent legislation, including the PURPA,
the EPAct 1992, and EPAct 2005. Many of the changes made by
EPAct 2005 have recently been implemented or are currently in
the process of being implemented through new FERC regulations.
These particular statutes and regulations are discussed in more
detail below.
FERC regulation under the FPA includes approval of the
disposition of FERC-jurisdictional utility property,
authorization of the issuance of securities by public utilities,
regulation of the rates, terms and conditions for the
transmission or sale of electric energy at wholesale in
interstate commerce, the regulation of interlocking
directorates, and the imposition of a uniform system of accounts
and reporting requirements for public utilities. Unless
otherwise exempt, any person that owns or operates facilities
used for the wholesale sale or transmission of electricity is a
public utility subject to FERC jurisdiction.
The majority of our generating projects are or will be owned by
EWGs. See Item 1A Government
Regulation Public Utility Holding Company Act of
1935. Other than our EWGs located in ERCOT, our affiliates
that are EWGs are or will be subject to FERC jurisdiction under
the FPA. Many of the generating projects in which we own an
interest are or will be operated as QFs under PURPA (see
Public Utility Regulatory Policies Act of
1978) and therefore are or will be exempt from many FERC
regulations under the FPA. Several of our affiliates have been
granted authority to engage in sales at market-based rates and
blanket authority to issue securities, and have also been
granted certain waivers of FERC regulations available to
non-traditional public utilities; however, we cannot assure that
such authorities or waivers will not be revoked for these
affiliates or will be granted in the future to other affiliates.
|
|
|
Market Based Rate Authorization |
Under the FPA and FERCs regulations, the wholesale sale of
power at market-based or cost-based rates requires that the
seller have authorization issued by FERC to sell power at
wholesale pursuant to a FERC-accepted rate schedule. FERC grants
market-based rate authorization based on several criteria,
including a showing that the seller and its affiliates lack
market power in generation and transmission, that the seller and
its affiliates cannot erect other barriers to market entry and
that there is no opportunity for abusive transactions involving
regulated affiliates of the seller. All of our affiliates that
own domestic power plants (except for those power plants that
are QFs under PURPA or are located in ERCOT), as well as our
power marketing companies (collectively referred to herein as
Market Based Rate Companies), are currently authorized by FERC
to make wholesale sales of power at market-based rates. This
authorization could possibly be revoked for any of our Market
Based Rate Companies if they fail in the future to continue to
satisfy FERCs current applicable criteria or future
criteria as possibly modified by FERC; if FERC
26
eliminates or restricts the ability of wholesale sellers of
power to make sales at market-based rates; or if FERC institutes
a proceeding, based upon its own motion or a complaint brought
by a third party, and establishes that any of our Market Based
Rate Companies existing rates have become either unjust
and unreasonable or contrary to the public interest (the
applicable standard is determined by the circumstances).
FERC requires sellers making sales pursuant to their
market-based rate authority to file electronic quarterly reports
of their respective contract and transaction data. Such sellers
also must submit triennial updated market power analyses. If a
seller does not timely file these quarterly or triennial
reports, FERC can revoke the sellers market-based rate
authority.
On November 17, 2003, FERC issued an order conditioning all
jurisdictional electric sellers market-based rate
authority upon the sellers compliance with specified
market behavior rules, with refunds and other possible remedies
imposed on violators. The rules address such matters as power
withholding, manipulation of market prices, communication of
accurate information, and record retention. FERC required each
seller with market-based rate authority to amend its rate
schedule on file with FERC to include these market behavior
rules.
EPAct 2005 contains provisions intended to prohibit the
manipulation of the electric energy markets and increase the
ability of FERC to enforce and promote entities compliance
with the statutes, orders, rules, and regulations that FERC
administers. To implement the market manipulation provision of
EPAct 2005, FERC issued final rules on January 19, 2006,
making it unlawful for any entity, in connection with the
purchase or sale of electricity, or the purchase or sale of
electric transmission service under FERCs jurisdiction, to
(1) use or employ any devise, scheme or artifice to
defraud; (2) make any untrue statements of a material fact,
or omit to state a material fact needed in order to make a
statement not misleading; or (3) engage in any act,
practice, or course of business that operates or would operate
as a fraud or deceit upon any entity.
On February 16, 2006, FERC issued final rules rescinding
two of the market behavior rules because they overlapped with
the new anti-manipulation regulations, and codifying the
remaining market behavior rules within FERCs regulations.
FERC reasoned that these actions simplify FERCs rules and
regulations, avoid confusion and provide greater clarity and
regulatory certainty to the industry.
In February 2005, FERC issued an order requiring every seller
with market-based rate authority to include in its market-based
rate schedule a requirement to report to FERC any change in the
sellers status that would reflect a departure from the
characteristics FERC relied upon in granting market-based rate
authority to the particular seller. Such sellers must report
these changes within 30 days of the legal or effective date
of the change, whichever is earlier.
|
|
|
FERC Regulation of Transfers of Jurisdictional
Facilities |
Pursuant to Section 203 of the FPA, as amended by EPAct
2005, a public utility must obtain authorization from FERC
before the public utility is permitted to: sell, lease or
dispose of FERC-jurisdictional facilities with a value in excess
of $10 million; merge or consolidate facilities with those
of another entity; or acquire any security with a value in
excess of $10 million of another public utility. The
amended section 203 also extends the scope of FERCs
prior approval jurisdiction to include transactions involving
certain transfers of existing generation facilities and certain
holding companies acquisitions with a value in excess of
$10 million; and requires that FERC, when reviewing a
proposed section 203 transaction, examine
cross-subsidization and pledges or encumbrances of utility
assets. These amendments to section 203 took effect on
February 8, 2006.
On December 23, 2005, FERC issued a final rule implementing
these new section 203 provisions. In its final rule, FERC
noted that while EPAct 2005 applies to holding company
acquisitions of foreign utilities, it will grant blanket
authorizations of such acquisitions if certain conditions are
met to protect captive utility customers, which, FERC stated,
will allow U.S. companies to successfully compete abroad.
The rule also grants blanket authorizations for certain types of
transactions, including intra-holding company system financing
and cash management arrangements, certain internal corporate
reorganizations, and certain acquisitions by holding companies
of non-voting securities in a transmitting utility
and electric utility
27
company and up to 9.9% of voting securities in a
transmitting utility and electric utility
company as defined in the FPA and FERC regulations.
On April 24, 2006, FERC issued an order on rehearing of the
December 23, 2005 final rule. On rehearing, FERC granted a
new blanket authorization for holding companies that are holding
companies solely due to their ownership, directly or indirectly,
of one or more QFs, EWGs and FUCOs, to acquire the securities of
additional QFs, EWGs and FUCOs without FERC pre-approval.
|
|
|
FERC Regulation Of Open Access Electric
Transmission |
In 1996, FERC issued Order Nos. 888 and 889, introducing
competitive reforms and increasing access to the electric power
grid. Order No. 888 required the functional
unbundling of transmission and generation assets by
transmission-owning utilities subject to FERCs
jurisdiction. Under Order No. 888, the jurisdictional
transmission-owning utilities were required to adopt FERCs
pro forma Open Access Transmission Tariff establishing terms of
non-discriminatory transmission service. Many non-jurisdictional
transmission owners complied voluntarily through reciprocity
provisions. Order No. 889 required transmission-owning
utilities to provide the public with an electronic system for
buying and selling transmission capacity in transactions with
the utilities and abide by specific standards of conduct when
using their transmission systems to make wholesale sales of
power. In addition, these orders established the operational
requirements of Independent System Operators, or ISOs, which are
entities that have been given authority to operate the
transmission assets of certain jurisdictional and
non-jurisdictional utilities in a particular region. The
interpretation and application of the requirements of Order Nos.
888 and 889 continue to be refined through subsequent FERC
proceedings. These orders have been subject to review, and those
parts of the orders that have been the subject of judicial
appeals have been affirmed, in large part, by the courts.
On November 16, 2005, FERC initiated a proceeding to
consider revisions to the Order No. 888 pro forma Open
Access Transmission Tariff to reflect FERCs and the
electric utility industrys experience with open access
transmission over the last decade. In addition to FERCs
Open Access efforts under Order Nos. 888 and 889, our
business may be affected by a variety of other FERC policies and
proposals, such as the voluntary formation of Regional
Transmission Organizations. FERCs policies and proposals
will continue to evolve, and FERC may amend or revise them, or
may introduce new policies or proposals in the future. In
addition, such policies and proposals, in their final form,
would be subject to potential judicial review. The impact of
such policies and proposals on our business is uncertain and
cannot be predicted at this time.
|
|
|
Public Utility Holding Company Act of 1935 |
PUHCA 1935, which, as discussed below, was repealed by EPAct
2005 on February 8, 2006, provided for the extensive
regulation of public utility holding companies and their
subsidiaries, including registering with the SEC, limiting their
utility operations to a single integrated utility system, and
divesting any other operations not functionally related to the
operation of the utility system. In addition, a public utility
company that was a subsidiary of a registered holding company
under PUHCA 1935 was subject to financial and organizational
regulation, including approval by the SEC of its financing
transactions. The EPAct 1992 amended PUHCA 1935 to create EWGs.
An EWG is exempt from regulation under PUHCA 1935. To obtain and
maintain status as an EWG, a generation facility owner must be
exclusively engaged, directly or indirectly, in the business of
owning and/or operating eligible electric generating facilities
and selling electric energy at wholesale. Under PUHCA 1935, as
amended by the EPAct 1992, we were not subject to regulation as
a holding company provided that the facilities in which we had
an interest were (i) QFs, (ii) owned or operated by an
EWG or (iii) subject to another exemption or waiver, such
as status as an electric utility geothermal small power
production facility.
EPAct 2005 promulgated PUHCA 2005, which repeals PUHCA 1935,
effective February 8, 2006. Under PUHCA 2005, certain
companies in our ownership structure may be considered
holding companies as defined in PUHCA 2005 by virtue
of their control of the outstanding voting securities of
companies that own or operate facilities used for the generation
of electric energy for sale or that are themselves holding
companies. Under PUHCA 2005, such holding companies are subject
to certain FERC rights of access to the
28
companies books and records that are determined by FERC to
be relevant to the companies respective
FERC-jurisdictional rates. However, PUHCA 2005 also provides
that FERC shall provide an exemption from this access to books
and records for any person that is a holding company solely with
respect to its control over EWGs, QFs, and FUCOs.
On December 8, 2005, FERC issued a final rule repealing its
PUHCA 1935 regulations and implementing new regulations that
focus on increased access to holding company books and records.
Although under PUHCA 2005 Calpine is considered a holding
company, it is exempt from the new books and records provisions
because it is a holding company solely because it owns one or
more QFs, EWG and FUCOs. On April 24, 2006, FERC issued an
order on rehearing of the December 8, 2005 final rule. In
this order, FERC clarified that if exempt holding companies were
to lose their exemption from the books and records access
requirement, and would not qualify for another type of
exemption, that such holding companies would be subject to the
books and records access requirement and certain accounting and
record-retention requirements. Consequently, if any single
Calpine entity were to lose its status as a QF, EWG or FUCO,
then Calpine and its holding company subsidiaries would be
subject to the books and records access requirement, and,
certain Calpine affiliates would be subject to FERCs
accounting, record-retention, and/or reporting requirements.
EPAct 2005 also subjects holding companies and
associate companies within a holding company
system, other than holding companies that are holding
companies solely with respect to ownership of QFs, to certain
state commission rights of access to certain of the
companies books and records if the state commission has
jurisdiction to regulate a public-utility company,
as defined in EPAct 2005, within that holding company system. We
cannot predict what effect this part of EPAct 2005 and state
regulations implementing it may have on our business. However,
section 201(g) of the FPA already provides state
commissions with access to books and records of certain electric
utility companies subject to the state commissions
regulatory authority, EWGs that sell power to such electric
utility companies, and any electric utility company, or holding
company thereof, which is an associate company or affiliate of
such EWGs.
|
|
|
Public Utility Regulatory Policies Act of 1978 |
PURPA, prior to its amendment by EPAct 2005, and the new
regulations adopted by FERC, provided certain incentives for
electric generators whose projects satisfy FERCs criteria
for QF status. As recognized under FERCs regulations, most
QF generators were exempt from regulation under PUHCA 1935, most
provisions of the FPA (including the regulation of the QFs
rates, ability to dispose of otherwise-jurisdictional
facilities, and issuance of securities and assumption of
liabilities of other parties), and most state laws and
regulations relating to financial, organization and rate
regulation of electric utilities. FERCs regulations
implementing PURPA required, in relevant part, that electric
utilities (i) purchase energy and capacity made available
by QFs, construction of which commenced on or after
November 9, 1978, at a rate based on the purchasing
utilitys full avoided costs and (ii) sell
supplementary, back-up, maintenance and interruptible power to
QFs on a just and reasonable and nondiscriminatory basis.
FERCs regulations defined avoided costs as the
incremental costs to an electric utility of electric
energy or capacity or both which, but for the purchase from the
qualifying facility or qualifying facilities, such utility would
generate itself or purchase from another source. Utilities
were permitted to also purchase power from QFs at prices other
than avoided cost pursuant to negotiations, as provided by
FERCs regulations.
To be a QF, a cogeneration facility must produce electricity and
useful thermal energy for an industrial or commercial process or
heating or cooling applications in certain proportions to the
facilitys total energy output, and must meet certain
efficiency standards. A geothermal small power production
facility may qualify as a QF if, in most cases, its generating
capability does not exceed 80 MW. Finally, PURPA required
that no more than 50% of the equity of a QF could be owned by
one or more electric utilities or their affiliates.
EPAct 2005 and FERCs implementing regulations have
eliminated certain benefits of QF status. FERC issued a final
rule on February 2, 2006, to eliminate the exemption from
sections 205 and 206 of the FPA for a QFs wholesale sales
of power made at market-based rates. Under FERCs new
regulations, our QFs will have to obtain market-based rate
authorization for wholesale sales that are made pursuant to a
contract executed
29
after March 17, 2006, and not under a state regulatory
authoritys implementation of section 210 of PURPA. In
addition, new cogeneration QFs will be required to demonstrate
that their thermal, chemical, and mechanical output will be used
fundamentally for industrial, commercial, residential, or
institutional purposes.
EPAct 2005 also amends PURPA to eliminate, on a prospective
basis, electric utilities requirement under
Section 210 of PURPA to purchase power from QFs at the
utilitys avoided cost, to the extent FERC
determines that such QFs have access to a competitive wholesale
electricity market. This amendment to PURPA does not change a
utilitys obligation to purchase power at the rates and
terms set forth in pre-existing QF power purchase agreements. On
December 23, 2005, FERC issued a Notice of Proposed
Rulemaking, or NOPR, to implement these new EPAct 2005
provisions. In the NOPR, FERC proposes that electric utilities
that are members of the Midwest Independent System Transmission
Operator, PJM Interconnection, ISO-New England and the New York
Independent System Operator be relieved from the mandatory
purchase obligation for new transactions. FERC reasons that the
mandatory purchase obligation is no longer needed in these
regions because the wholesale electricity markets are
competitive due to the regional entities administration of
auction-based day-ahead and real-time markets, and because
bilateral long-term contracts are available to participants and
QFs in these markets.
The NOPR also outlines the procedures for utilities outside
these regional transmission entities to file to obtain relief
from mandatory purchase obligations on a service territory-wide
basis, and provides procedures for affected QFs to file to
reinstate the purchase obligation. Consistent with the EPAct
2005, FERC proposes to leave intact existing rights under any
contract or obligation in effect or pending approval involving
QF purchases or sales. Market participants have submitted
comments in response to FERCs NOPR. FERC has not taken any
final action. We cannot predict what effect this proposal, and
FERCs final regulations, if any, implementing it, will
have on our business.
EPAct 2005s amendments to PURPA also included certain new
QF benefits, such as the elimination of the electric utility
ownership limitations on QFs. While PUHCA 1935 has been
repealed, FERC has exempted QFs from PUHCA 2005. QFs are still
exempt from many provisions of the FPA and most state laws and
regulations relating to financial, organization and rate
regulation of electric utilities.
We cannot predict what effect other provisions of EPAct 2005 and
FERCs regulations implementing them may have on our
business until FERC promulgates final rules implementing all of
EPAct 2005s PURPA provisions and any appeals of such rules
are concluded. Nevertheless, we believe that each of the
facilities in which we own an interest and which operates as a
QF meets the current requirements for QF status. Certain factors
necessary to maintain QF status are, however, subject to the
risk of events outside our control. For example, some of our
facilities have temporarily been rendered incapable of meeting
such requirements due to the loss of a thermal energy customer
and we have obtained limited waivers (for up to two years) of
the applicable QF requirements from FERC. We cannot provide
assurance that such waivers will in every case be granted.
During any such waiver period, we would seek to replace the
thermal energy customer or find another use for the thermal
energy which meets PURPAs requirements, but no assurance
can be given that these remedial actions would be available. If
one of our QFs were to lose its QF status, the owner of the
power plant would need to obtain FERC acceptance of a
market-based or cost-based rate schedule to continue making
wholesale power sales. To maintain our exemption from PUHCA
2005, the owner would also need to obtain EWG status.
|
|
|
Additional Provisions of EPAct 2005 |
EPAct 2005 made a number of other changes to laws affecting the
regulation of electricity. These include, but are not limited
to, giving FERC explicit authority to proscribe and enforce
rules governing market transparency, giving FERC authority to
oversee and enforce electric reliability standards, requiring
FERC to promulgate rules providing for incentive ratemaking to
encourage investments that promote transmission reliability and
reduce congestion, giving FERC certain siting authority for
transmission lines in critical transmission corridors, requiring
FERC to promulgate rules granting incentives, including certain
cost recoveries, for transmission owners to join Regional
Transmission Organizations, authorizing FERC to require
30
unregulated utilities to provide open access transmission, and
ensuring that load serving entities can retain transmission
rights necessary to serve native load requirements.
EPAct 2005 also enhanced FERCs enforcement authorities by:
(i) expanding FERCs civil penalty authority to cover
violations of any provision of Part II of the FPA, as well
as any rule or order issued thereunder; (ii) establishing
the maximum civil penalty FERC may assess under the NGA or
Part II of the FPA as $1,000,000 per violation for
each day that the violation continues, and (iii) expanding
the scope of the criminal provisions of the FPA by increasing
the maximum fines and increasing the maximum imprisonment time.
Accordingly, in the future, violations of the FPA and
FERCs regulations could potentially have more serious
consequences than in the past.
For those regulations that FERC will promulgate in the future in
connection with EPAct 2005, we cannot predict what effect these
future regulations may have on our business. Furthermore, we
cannot predict what future laws or regulations may be
promulgated. We do not know whether any other new legislative or
regulatory initiatives will be adopted or, if adopted, what form
they may take. We cannot provide assurance that any legislation
or regulation ultimately adopted would not adversely affect the
operation of and generation of electricity by our business.
On February 13, 2002, FERC initiated an investigation of
potential manipulation of electric and natural gas prices in the
western United States. This investigation was initiated as a
result of allegations that Enron and others, through their
affiliates, used their market position to distort electric and
natural gas markets in the West. The scope of the investigation
is to consider whether, as a result of any manipulation in the
short-term markets for electric energy or natural gas or other
undue influence on the wholesale markets by any party since
January 1, 2000, the rates of the long-term contracts
subsequently entered into in the West are potentially unjust and
unreasonable. On August 13, 2002, the FERC staff issued the
Initial Report on Company-Specific Separate Proceedings and
Generic Reevaluations; Published Natural Gas Price Data; and
Enron Trading Strategies (the Initial Report),
summarizing its initial findings in this investigation. There
were no findings or allegations of wrongdoing by Calpine set
forth or described in the Initial Report. On March 26,
2003, the FERC staff issued a final report in this investigation
(the Final Report). In the Final Report, the FERC
staff recommended that FERC issue a show cause order to a number
of companies, including Calpine, regarding certain power
scheduling practices that may have been in violation of the
CAISOs or CalPXs tariff. The Final Report also
recommended that FERC modify the basis for determining potential
liability in the California Refund Proceeding discussed above.
On June 25, 2003, FERC issued a number of orders associated
with these investigations, including the issuance of two show
cause orders to certain industry participants. FERC did not
subject Calpine to either of the show cause orders. Also on
June 25, 2003, FERC issued an order directing the FERC
Office of Markets and Investigations to investigate further
whether market participants who bid a price in excess of $250
per megawatt hour into markets operated by either the CAISO or
the CalPX during the period of May 1, 2000, to
October 2, 2000, may have violated CAISO and CalPX tariff
prohibitions. By letter dated May 12, 2004, the Director of
FERCs Office of Market Oversight and Investigation
notified Calpine that the investigation of Calpine in this
proceeding has been terminated.
Also during the summer of 2003, FERCs Office of Market
Oversight and Investigations began an investigation of
generators in California to determine whether California
generators improperly physically withhold power from the
California markets between May 1, 2000 and June 30,
2001. On June 30, 2004, Calpine was notified by FERC that
its investigation of Calpine in this matter has been terminated.
There are also a number of proceedings pending at FERC that were
initiated by buyers of wholesale electricity seeking refunds for
purchases made during the Western energy crisis, or seeking the
reduction of price terms in contracts entered into at this time.
We have been a party to some of these proceedings, including a
proceeding to determine the level of refunds owed by California
power suppliers for the period October 2, 2000, to
June 19, 2001. A final FERC order directing refunds in this
proceeding is still pending. Furthermore, many proceedings that
have been concluded by FERC have been appealed to the Federal
31
Courts of Appeal. It is uncertain at this time when these
proceedings and investigations will conclude or what will be the
final resolution thereof. See Item 1A. Risk
Factors California Power Market and
California Power Market in Note 33 of the Notes
to Consolidated Financial Statements.
As part of certain proceedings, and as a result of its own
investigations, FERC has made significant policy changes and
rules regarding market conduct and price transparency. In
California and the Western United States (among other regions),
FERCs policy changes include the implementation of price
caps on the day ahead or real-time prices for electricity and a
continuing obligation of electricity generators to offer
uncommitted generation capacity to the CAISO.
|
|
|
FERC Regulation of Natural Gas Transportation |
Under the Natural Gas Act, the Natural Gas Policy Act and the
Outer Continental Shelf Lands Act, FERC is authorized to
regulate pipeline, storage, and liquefied natural gas facility
construction; the transportation of natural gas in interstate
commerce; the issuance of certificates of public convenience and
necessity to companies providing energy services or constructing
and operating interstate pipelines and storage facilities; the
abandonment of facilities; the rates for services; and the
construction and operation of pipeline facilities at
U.S. points of entry for the import or export of natural
gas.
|
|
|
FERC Regulation Over Natural Gas
Transportation |
Pursuant to the Natural Gas Act of 1938, FERC has jurisdiction
over the transportation and storage of natural gas in interstate
commerce. With respect to most transactions that do not involve
the construction of pipeline facilities, regulatory
authorization can be obtained on a self-implementing basis.
However, interstate pipeline rates, terms and conditions for
such services are subject to continuing FERC oversight.
The cost of natural gas is ordinarily the largest operational
expense of a gas-fired project and is critical to the
projects economics. The risks associated with using
natural gas can include the need to arrange gathering,
processing, extraction, blending, and storage, as well as
transportation of the gas from great distances, including
obtaining removal, export and import authority if the gas is
imported from a foreign country; the possibility of interruption
of the gas supply or transportation (depending on the quality of
the gas reserves purchased or dedicated to the project, the
financial and operating strength of the gas supplier, whether
firm or non-firm transportation is purchased and the operations
of the gas pipeline); regulatory diversion; and obligations to
take a minimum quantity of gas and pay for it (i.e.,
take-and-pay obligations). As the owner of more than 70 natural
gas-fired power plants, we rely on the natural gas pipeline grid
for delivery of fuel. The use of pipelines for delivery of
natural gas has proven to be an efficient and reliable method of
meeting customers fuel needs. The risk of fuel supply
disruption resulting from pipeline operation difficulties is
limited given the historic performance of pipeline operators and
in certain instances multiple pipeline interconnections to the
generating facilities. See Item 1A. Risk
Factors California Power Market and
Note 33 of the Notes to Consolidated Financial Statements.
Calpine has two natural gas transportation pipelines in Texas
that are authorized by FERC to provide gas transportation
service pursuant to Section 311 of the NGPA. These
pipelines are also subject to regulation as gas utilities by the
Railroad Commission of Texas for rates and services.
|
|
|
FERC Regulation of Sales of Natural Gas at Negotiated
Rates |
In orders issued in 1992 and 1993, FERC, relying on findings by
Congress in EPAct 1992 that a competitive market exists for
natural gas, concluded that sellers of short-term or long-term
natural gas supplies would not have market power over the sale
for resale of natural gas. FERC established light-handed
regulation over sales for resale of natural gas and issued
blanket certificates to allow entities selling natural gas to
make interstate sales for resale at negotiated rates.
On November 17, 2003, as a result of the western energy
crisis, FERC amended the blanket marketing certificates held by
entities making interstate sales for resale of natural gas at
negotiated rates to require that all sellers adhere to a code of
conduct with respect to natural gas sales. The code of conduct
addresses such
32
matters as natural gas withholding, manipulation of market
prices, communication of accurate information, and record
retention.
EPAct 2005 contains provisions intended to prohibit the
manipulation of the natural gas markets and to increase the
ability of FERC to enforce and promote compliance with the
statutes, orders, rules, and regulations that FERC administers.
To implement the market manipulation provision of EPAct 2005,
FERC issued a final rule on January 19, 2006, implementing
new regulations that make it unlawful for any entity, in
connection with the purchase or sale of natural gas, or the
purchase or sale of transportation service under FERCs
jurisdiction, to (1) use or employ any devise, scheme or
artifice to defraud; (2) make any untrue statements of a
material fact, or omit to state a material fact needed in order
to make a statement not misleading; or (3) engage in any
act, practice, or course of business that operates or would
operate as a fraud or deceit upon any entity.
EPAct 2005 also enhanced FERCs enforcement authorities in
natural gas markets by: (i) expanding FERCs civil
penalty authority to cover violations of any provision of the
NGA, or any rule, regulation, restriction, condition, or order
made or imposed by FERC under NGA authority;
(ii) establishing the maximum civil penalty FERC may assess
under the NGA as $1,000,000 per violation for each day that
the violation continues, and (iii) expanding the scope of
the criminal provisions of the NGA by increasing the maximum
fines and increasing the maximum imprisonment time. Accordingly,
in the future, violations of the NGA and FERCs regulations
could potentially have more serious consequences than in the
past.
On February 16, 2006, FERC issued final rules rescinding
certain provisions of its code of conduct regulations that
relate to market behavior rules because they overlapped with the
new anti-manipulation regulations. FERC retained other code of
conduct regulations regarding price index reporting and record
retention. FERC reasoned that these actions will avoid
regulatory uncertainty and confusion and will assure that the
same standard applies to all market participants.
State PUCs have historically had broad authority to regulate
both the rates charged by, and the financial activities of,
electric utilities operating in their states and to promulgate
regulation for implementation of PURPA. Since a power sales
agreement becomes a part of a utilitys cost structure
(generally reflected in its retail rates), power sales
agreements with independent electricity producers, such as EWGs,
are potentially under the regulatory purview of PUCs and in
particular the process by which the utility has entered into the
power sales agreements. If a PUC has approved the process by
which a utility secures its power supply, a PUC is generally
inclined to authorize the purchasing utility to pass through to
the utilitys retail customers the expenses associated with
a power purchase agreement with an independent power producer.
However, a regulatory commission under certain circumstances may
not allow the utility to recover through retail rates its full
costs to purchase power from a QF or an EWG. In addition, retail
sales of electricity or thermal energy by an IPP may be subject
to PUC regulation depending on state law. IPPs which are not QFs
under PURPA, or EWGs pursuant to the EPAct 1992, are considered
to be public utilities in many states and are subject to broad
regulation by a PUC, ranging from requirement of certificate of
public convenience and necessity to regulation of
organizational, accounting, financial and other corporate
matters. Because all of our affiliates are either QFs or EWGs,
none of our affiliates are currently subject to such regulation.
However, states may also assert jurisdiction over the siting and
construction of electricity generating facilities including QFs
and EWGs and, with the exception of QFs, over the issuance of
securities and the sale or other transfer of assets by these
facilities. In California, for example, the PUC was required by
statute to adopt and enforce maintenance and operation standards
for generating facilities located in the state,
including EWGs but excluding QFs, for the purpose of ensuring
their reliable operation.
State PUCs also have jurisdiction over the transportation of
natural gas by LDCs. Each states regulatory laws are
somewhat different; however, all generally require the LDC to
obtain approval from the PUC for the construction of facilities
and transportation services if the LDCs generally
applicable tariffs do not cover the proposed transaction. LDC
rates are usually subject to continuing PUC oversight. In
addition, PUC regulations can establish the priority of
curtailment of gas deliveries when gas supply is scarce. We own
and
33
operate certain midstream assets in certain states where we have
plants. With the expected influx on liquefied natural gas into
California from Mexico, the CPUC is reviewing the adequacy of
the gas quality specifications contained in the California LDC
tariffs. LNG deliveries into the LDC pipeline system could
impact plant operations and the ability to meet emission limits
unless appropriate gas specifications are implemented.
|
|
|
Environmental Regulations |
The exploration for and development of geothermal resources, and
the construction and operation of wells, fields, pipelines,
various other mid-stream facilities and equipment, and power
projects, are subject to extensive federal, state and local laws
and regulations adopted for the protection of the environment
and to regulate land use. The laws and regulations applicable to
us primarily involve the discharge of emissions into the water
and air and the use of water, but can also include wetlands
preservation, endangered species, hazardous materials handling
and disposal, waste disposal and noise regulations. These laws
and regulations in many cases require a lengthy and complex
process of obtaining licenses, permits and approvals from
federal, state and local agencies.
Noncompliance with environmental laws and regulations can result
in the imposition of civil or criminal fines or penalties. In
some instances, environmental laws also may impose
clean-up or other
remedial obligations in the event of a release of pollutants or
contaminants into the environment. The following federal laws
are among the more significant environmental laws as they apply
to us. In most cases, analogous state laws also exist that may
impose similar, and in some cases more stringent, requirements
on us as those discussed below.
The Clean Air Act provides for the regulation, largely through
state implementation of federal requirements, of emissions of
air pollutants from certain facilities and operations. As
originally enacted, the Clean Air Act sets guidelines for
emissions standards for major pollutants (i.e., sulfur dioxide
and nitrogen oxide) from newly built sources. In late 1990,
Congress passed the Clean Air Act Amendments. Those amendments
attempt to reduce emissions from existing sources, particularly
previously exempted older power plants. We believe that all of
our operating plants and relevant oil and gas related facilities
are in compliance with federal performance standards mandated
under the Clean Air Act and the Clean Air Act Amendments.
In 2005, the EPA issued a new regulation under the Clean Air Act
called the Clean Air Interstate Rule which directs
28 states in the southern, eastern and mid-western regions
of the country to enact further restrictions on air emissions.
How each state determines to implement the Clean Air Interstate
Rule will have an impact on Calpines fleet of power
plants. Recently, there have also been numerous federal
legislative proposals to further reduce emissions of sulfur
dioxide, nitrogen oxide and mercury, as well as to regulate
emissions of carbon dioxide for the first time. Because
Calpines fleet of efficient low-emitting gas-fired and
geothermal power plants have a much lower emissions rate than
the average U.S. fossil fuel fleet, it is possible that the
company will be less impacted by such regulation than owners of
older, higher emitting fleets. However, this will be determined
by the details of implementation such as allocation of emissions
allowances and point of regulation.
The Federal Clean Water Act establishes rules regulating the
discharge of pollutants into waters of the United States. We are
required to obtain wastewater and storm water discharge permits
for wastewater and runoff, respectively, from certain of our
facilities. We believe that, with respect to our geothermal and
oil and gas operations, we are exempt from newly promulgated
federal storm water requirements. We are required to maintain a
spill prevention control and countermeasure plan with respect to
certain of our oil and gas facilities. We believe that we are in
material compliance with applicable discharge requirements of
the Federal Clean Water Act.
34
Part C of the Safe Drinking Water Act mandates the
underground injection control program. The program regulates the
disposal of wastes by means of deep well injection, which is
used for oil, gas, and geothermal production activities. Deep
well injection is a common method of disposing of saltwater,
produced water and other oil and gas wastes. With the passage of
EPAct 2005, oil, gas and geothermal production activities are
exempt from the underground injection control program under the
Safe Drinking Water Act.
|
|
|
Resource Conservation and Recovery Act |
The Resource Conservation and Recovery Act regulates the
generation, treatment, storage, handling, transportation and
disposal of solid and hazardous waste. With respect to our solid
waste disposal practices at the power generation facilities and
steam fields located at The Geysers, we are subject to certain
solid waste requirements under applicable California laws. We
believe that our operations are in material compliance with the
Resource Conservation and Recovery Act and all such laws.
|
|
|
Comprehensive Environmental Response, Compensation and
Liability Act |
CERCLA, also referred to as Superfund, requires cleanup of sites
from which there has been a release or threatened release of
hazardous substances and authorizes the EPA to take any
necessary response action at Superfund sites, including ordering
potentially responsible parties liable for the release to pay
for such actions. Potentially responsible parties are broadly
defined under CERCLA to include past and present owners and
operators of, as well as generators of wastes sent to, a site.
As of the present time, we are not subject to any material
liability for any Superfund matters. However, we generate
certain wastes, including hazardous wastes, and send certain of
our wastes to third party waste disposal sites. As a result,
there can be no assurance that we will not incur liability under
CERCLA in the future.
|
|
|
Canadian Environmental, Health and Safety
Regulations |
Our Canadian power projects are also subject to extensive
federal, provincial and local laws and regulations adopted for
the protection of the environment and to regulate land use. We
believe that we are in material compliance with all applicable
requirements under Canadian law.
|
|
|
Regulation of Canadian Gas |
The Canadian natural gas industry is subject to extensive
regulation by federal and provincial authorities. At the federal
level, a party exporting gas from Canada must obtain an export
license from the National Energy Board. The National Energy
Board also regulates Canadian pipeline transportation rates and
the construction of pipeline facilities. Gas producers also must
obtain a removal permit or license from each provincial
authority before natural gas may be removed from the province,
and provincial authorities regulate intra-provincial pipeline
and gathering systems. In addition, a party importing natural
gas into the United States or exporting natural gas from
the United States first must obtain an import or export
authorization from the U.S. Department of Energy.
EMPLOYEES
As of December 31, 2005, we employed 3,265 full-time
people, of whom 63 were represented by collective bargaining
agreements. Since December 31, 2005, we have begun to
implement staff reductions of approximately 1,100 positions, or
over one-third of our pre-petition date workforce, by the end of
2006. We have never experienced a work stoppage or strike.
35
SUMMARY OF KEY ACTIVITIES
|
|
|
Summary of Key Activities |
|
|
|
Finance New Issuances and Amendments: |
|
|
|
|
|
|
|
Date |
|
Amount | |
|
Description |
|
|
| |
|
|
1/28/05
|
|
$ |
100.0 million |
|
|
Complete a non-recourse construction credit facility for Metcalf
(repaid on June 20, 2005, in connection with the Metcalf
preferred share and senior term loan financing described below) |
1/31/05
|
|
$ |
260.0 million |
|
|
Calpine Jersey II completes issuance of redeemable
preferred shares due July 30, 2005 (repurchased on
July 28, 2005, in connection with the sale of the Saltend
facility described below) |
3/1/05
|
|
$ |
503.0 million |
|
|
Close a non-recourse project finance facility that provides
$466.5 million to complete construction of Mankato and
Freeport as well as a $36.5 million collateral letter of
credit facility |
6/20/05
|
|
$ |
255.0 million |
|
|
Metcalf closes on a $155.0 million 5.5-year redeemable
preferred shares offering and a five-year $100.0 million
senior term loan; (repaid $100 million non-recourse credit
facility completed on January 28, 2005, described above) |
6/23/05
|
|
$ |
650.0 million |
|
|
Receive funding on offering of 2015 Convertible Notes |
6/30/05
|
|
$ |
123.1 million |
|
|
Close non-recourse project finance facility for Bethpage Energy
Center 3 |
8/12/05
|
|
$ |
150.0 million |
|
|
CCFCP completes a $150.0 million private placement of
Class A Redeemable Preferred Shares due 2006 (repurchased
in full on October 14, 2005) |
10/14/05
|
|
$ |
300.0 million |
|
|
CCFCP issues $300.0 million of 6-Year Redeemable Preferred
Shares due 2011 |
12/22/05
|
|
$ |
2.0 billion |
|
|
Receive approval of first day motions from the
U.S. Bankruptcy Court, including permission to continue to
perform under power trading contracts, authorization to continue
paying employee wages, salaries and benefits as well as interim
approval to immediately use $500 million of its
$2 billion DIP Facility, arranged by Deutsche Bank
Securities Inc. and Credit Suisse |
|
|
|
Finance Repurchases and Extinguishments: |
|
|
|
|
|
|
|
Date |
|
Amount | |
|
Description |
|
|
| |
|
|
7/13/05
|
|
$ |
517.5 million |
|
|
Repay the convertible debentures payable to Trust III, the
issuer of the HIGH TIDES III preferred securities, the
proceeds of which are applied by Trust III to redeem the HIGH
TIDES III preferred securities in full |
10/14/05
|
|
$ |
150.0 million |
|
|
Repurchase $150.0 million in CCFCP Class A Redeemable
Preferred Shares due 2006 |
6/28/05
|
|
$ |
94.3 million |
|
|
Issue approximately 27.5 million shares of Calpine common
stock in exchange for $94.3 million in aggregate principal
amount at maturity of 2014 Convertible Notes pursuant to
Section 3(a)(9) under the Securities Act |
1/1/05 12/31/05
|
|
$ |
917.1 million |
|
|
Repurchase Senior Notes in open market transactions totaling
$917.1 million in principal for cash of $685.5 million
plus accrued interest |
|
|
|
Date |
|
Description |
|
|
|
3/31/05
|
|
Deer Park Energy Center Limited Partnership enters into
agreements with Merrill Lynch Commodities, Inc. to sell power
and buy gas from April 1, 2005, to December 31, 2010,
for a cash payment of $195.8 million, net of transaction
costs, plus additional cash payments as additional transactions
are executed |
36
|
|
|
Date |
|
Description |
|
|
|
7/7/05
|
|
Complete the sale of substantially all of our remaining oil and
gas assets for $1.05 billion, less approximately
$60 million of estimated transaction fees and expenses |
7/8/05
|
|
Complete the sale of our 50% interest in the 175-MW Grays Ferry
Power Plant for gross proceeds of $37.4 million |
7/28/05
|
|
Complete the sale of the 1,200-MW Saltend Energy Centre for
approximately $862.9 million |
7/29/05
|
|
Complete the sale of Inland Empire Energy Center development
project to GE for approximately $30.9 million |
8/2/05
|
|
Complete the sale of the 156-MW Morris Energy Center for
$84.5 million |
10/6/05
|
|
Complete the sale of the 561-MW Ontelaunee Energy Center for
$212.3 million |
|
|
|
Date |
|
Description |
|
|
|
2/22/05
|
|
Announce the selection of Inland Energy Center as site for North
American launch of General Electrics most advanced gas
turbine technology, the H
Systemtm |
2/23/05
|
|
NewSouth Energy, a newly formed subsidiary, launches an energy
venture to better focus on wholesale power customers and energy
markets in the South |
3/28/05
|
|
Announce the receipt of a contract to provide 75 MW of
Transmission Must Run Services to Alberta Electric System
Operator with contract terms of March 17, 2005 to
June 30, 2006, with options to extend until June 2008 |
4/12/05
|
|
Enter into a 20-year Clean Energy Supply Contract with the OPA
to make clean energy available from Calpines new 1,005-MW
Greenfield Energy Centre, a partnership between Calpine and
Mitsui, once commercial operation is achieved |
6/1/05
|
|
Expand and extend power contract with Safeway, Inc. for up to
141 MW during on peak and 122 MW during off peak
through mid-2008 |
6/2/05
|
|
Carville Energy Center, LLC, CES, and Entergy enter into a
one-year agreement to supply up to 485 MW of capacity and
energy to Entergy |
7/5/05
|
|
Sign an agreement with Siemens-Westinghouse to restructure the
long-term relationship, which is expected to provide additional
flexibility to self-perform maintenance work in the future |
7/7/05
|
|
Announce a 15-year Master Products and Services Agreement with
GE to supplement operations with a variety of services and to
lower operating costs |
7/11/05
|
|
Major merchant power generator selects PSM to install
LEC-III®
and eliminate 90% of the power plants nitrogen oxide
emissions |
8/26/05
|
|
CES announces new service agreements with Project Orange
Associates LLC and the Greater Toronto Airports Authority to
provide them with marketing, scheduling, and other energy
managements services |
8/29/05
|
|
CES announces five year long-term power supply agreement for
170 MW of electricity with Tampa Electric Company |
9/7/05
|
|
Agree to form an energy marketing and trading venture with Bear
Stearns to develop a third-party customer business focused on
physical natural gas and power trading and related structured
transactions |
9/14/05
|
|
Jeffrey E. Garten resigns from the Companys Board of
Directors |
9/19/05
|
|
William J. Keese and Walter L. Revell elected as independent
directors |
11/4/05
|
|
John O. Wilson retires from the Companys Board of Directors |
11/10/05
|
|
Announce resignation of Susan C. Schwab from the Companys
Board of Directors due to her confirmation by the
U.S. Senate as a Deputy U.S. Trade Representative |
37
|
|
|
Date |
|
Description |
|
|
|
11/29/05
|
|
Announce change in executive management with the departures of
Peter Cartwright, Chairman, President and Chief Executive
Officer, and Robert D. Kelly, Executive Vice President and Chief
Financial Officer |
11/29/05
|
|
Announce appointments of Kenneth T. Derr as Chairman of the
Board and Acting Chief Executive Officer of Calpine and Eric N.
Pryor as Interim Chief Financial Officer |
12/5/05
|
|
Gerald Greenwald resigns from the Companys Board of
Directors |
12/6/05
|
|
NYSE suspends trading of Calpine common stock prior to the
opening of the market |
12/12/05
|
|
Robert P. May appointed as new Chief Executive Officer and
member of the Companys Board of Directors |
12/20/05
|
|
Peter Cartwright resigns from the Board of Directors |
12/20/05
|
|
The Company and certain of its United States subsidiaries file
voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code in the Bankruptcy Court, and certain of the
Companys Canadian subsidiaries file petitions for relief
under the CCAA in Canada; in conjunction with the
U.S. filings the Company receives commitments for up to
$2 billion of secured DIP Financing |
|
|
|
Power Plant Development and Construction: |
|
|
|
|
|
|
|
Date |
|
Project |
|
Description | |
|
|
|
|
| |
5/4/05
|
|
Pastoria Energy Center |
|
|
Commercial Operation |
|
5/27/05
|
|
Metcalf Energy Center |
|
|
Commercial Operation |
|
6/1/05
|
|
Fox Energy Center (Phase 1) |
|
|
Commercial Operation |
|
7/1/05
|
|
Bethpage Energy Center 3 |
|
|
Commercial Operation |
|
7/5/05
|
|
Pastoria Energy Center (Phase II) |
|
|
Commercial Operation |
|
See Item 1. Business Recent
Developments for 2006 developments.
NYSE CERTIFICATION
The annual certification of our former Chief Executive Officer,
Peter Cartwright, required to be furnished to the NYSE pursuant
to Section 303A.12(a) of the NYSE Listed Company Manual was
previously filed with the NYSE in May 2005. The certification
confirmed that he was unaware of any violation by the Company of
NYSEs corporate governance listing standards. Trading in
our common stock on the NYSE was suspended effective
December 6, 2005, and the SEC approved the application of
the NYSE to delist our common stock effective March 15,
2006. Consequently, we are no longer required to provide this
annual certification to the NYSE.
|
|
|
Risks Relating to Bankruptcy |
We are subject to the risks and uncertainties associated with
bankruptcy cases as a result of our filing for
reorganization. On December 20, 2005, we and many of
our U.S. subsidiaries filed voluntary petitions to
reorganize under Chapter 11 of the Bankruptcy Code in the
U.S. Bankruptcy Court, and many of our Canadian
subsidiaries similarly filed petitions for relief under the CCAA
in the Canadian Court. The U.S. bankruptcy cases have been
consolidated and are being jointly administered by the
U.S. Bankruptcy Court. The Canadian cases are being jointly
administered by the Canadian Court. Since the original filings,
additional subsidiaries have also filed voluntary petitions in
the United States and have been joined in the original
proceedings. We continue to operate our business as
debtors-in-possession
under the jurisdiction of the Bankruptcy Courts and in
accordance with the applicable provisions of the Bankruptcy
Code, the CCAA
38
and orders of the Bankruptcy Courts. For the duration of the
bankruptcy cases, our operations will be subject to the risks
and uncertainties associated with bankruptcy which include,
among other things:
|
|
|
|
|
the actions and decisions of our creditors and other third
parties with interests in our bankruptcy cases, including
official and unofficial committees of creditors and equity
holders, which may be inconsistent with our plans; |
|
|
|
objections to or limitations on our ability to obtain Bankruptcy
Court approval with respect to motions in the bankruptcy cases
that we may seek from time to time or potentially adverse
decisions by the Bankruptcy Courts with respect to such motions; |
|
|
|
objections to or limitations on our ability to avoid or reject
contracts or leases that are burdensome or uneconomical; |
|
|
|
the expiration of the exclusivity period for us to propose and
confirm a plan of reorganization or delays, limitations or other
impediments to our ability to develop, propose, confirm and
consummate a plan of reorganization; |
|
|
|
the ability of third parties to seek and obtain court approval
to terminate or shorten the exclusivity period for us to propose
and confirm a plan of reorganization; |
|
|
|
our ability to obtain and maintain normal terms with customers,
vendors and service providers; and |
|
|
|
our ability to maintain contracts and leases that are critical
to our operations. |
These risks and uncertainties could negatively affect our
business and operations in various ways. For example, negative
events or publicity associated with our bankruptcy filings and
events during the bankruptcy cases could adversely affect our
relationships with customers, vendors and employees, which in
turn could adversely affect our operations and financial
condition, particularly if the bankruptcy cases are protracted.
Also, transactions by Calpine Debtors that are outside the
ordinary course of business will generally be subject to the
prior approval of the applicable Bankruptcy Court, which may
limit our ability to respond on a timely basis to certain events
or take advantage of certain opportunities. In addition,
although we have received approval from the U.S. Bankruptcy
Court to an extension of the exclusivity period to propose a
plan of reorganization, until December 31, 2006, and to
seek acceptances thereon until March 31, 2007, if we are
unable to propose and confirm a plan of reorganization within
that time and are unable to obtain a further extension (or if
the period is otherwise shortened or terminated), third parties
could propose and seek confirmation of their own plan or plans
of reorganization. Any such third party plan or plans could
disrupt our business, adversely affect our relationships with
customers, vendors and employees, or otherwise adversely affect
our operations and financial condition.
Because of the risks and uncertainties associated with our
bankruptcy cases, the ultimate impact of events that occur
during these cases will have on our business, financial
condition and results of operations cannot be accurately
predicted or quantified at this time.
The bankruptcy cases may adversely affect our operations
going forward. As noted above, our having sought bankruptcy
protection may adversely affect our ability to negotiate
favorable terms from suppliers, landlords, contract or trading
counterparties and others and to attract and retain customers
and counterparties. The failure to obtain such favorable terms
and to attract and retain customers, as well as other contract
or trading counterparties could adversely affect our financial
performance. For example, as a result of our bankruptcy filing,
certain of our former trading counterparties informed us that
they are prohibited by their internal credit policies from
continuing to execute trades with us. In addition, certain of
our subsidiaries, including CES, have also filed for bankruptcy
protection and we may deem it necessary to seek bankruptcy
protection for additional subsidiaries as part of our overall
restructuring effort. The existence of the bankruptcy cases may
adversely affect the way such subsidiaries are perceived by
investors, financial markets, trading counterparties, customers,
suppliers and regulatory authorities, which could adversely
affect our consolidated operations and financial performance.
39
We will be subject to claims made after the date that we
filed for bankruptcy and other claims that are not discharged in
the bankruptcy cases, which could have a material adverse effect
on our results of operations and financial condition. We are
currently subject to claims in various legal proceedings, and
may become subject to other legal proceedings in the future.
Although we will seek to satisfy and discharge all claims made
against us prior to the date of the bankruptcy filings (which
claims are generally stayed while the bankruptcy proceeding is
pending), we may not be successful in doing so. In addition,
claims made against our Non-Debtor subsidiaries are not stayed
and will not be discharged in the bankruptcy proceeding; and any
claims arising after the date of our bankruptcy filing may also
not be subject to discharge in the bankruptcy proceeding. See
Note 31 of the Notes to Consolidated Financial Statements
for a description of the more significant legal proceedings in
which we are presently involved. The ultimate outcome of each of
these matters, including our ability to have these matters
satisfied and discharged in the bankruptcy proceeding, cannot
presently be determined, nor can the liability that may
potentially result from a negative outcome be reasonably
estimated presently for every case. The liability we may
ultimately incur with respect to any one of these matters in the
event of a negative outcome may be in excess of amounts
currently accrued with respect to such matters and, as a result,
these matters may potentially be material to our business or to
our financial condition and results of operations.
The August 1, 2006 and June 30, 2006, bar dates by
which claims must be filed against the U.S. Debtors and the
Canadian Debtors, respectively, have not yet passed.
Accordingly, it is not possible at this time to determine the
extent of the claims that may be filed, whether or not such
claims will be disputed, or whether or not such claims will be
subject to discharge in the bankruptcy proceedings. Nor is it
possible at this time to determine whether to establish any
claims reserves. Once applicable bar dates have passed, we will
review all claims filed and begin the claims reconciliation
process. In connection with the review and reconciliation
process, we will also determine the reserves, if any, that may
be established in respect of such claims. To the extent that we
are unable to resolve any claims filed, or our assets (including
any applicable reserves) are inadequate to pay resolved claims,
it could have an adverse impact on our financial condition or
our ability to reorganize. In addition, it is likely that
certain creditors may assert claims on multiple bases against
multiple Calpine Debtor entities, resulting in a total overall
claims pool significantly in excess of the amount of the Calpine
Debtors potential liabilities. For example, there may be
multiple claims by one creditor against multiple Calpine Debtors
(as debtor and guarantor, joint tortfeasers, etc.), resulting in
asserted bankruptcy claims significantly in excess of the amount
of the actual underlying liabilities. Alternatively, there may
be multiple bankruptcy claims by multiple creditors against a
single Calpine Debtor based on different theories of liability,
which would also result in asserted bankruptcy claims
significantly in excess of the amount of underlying actual
liabilities. Therefore, we expect that the amount of bankruptcy
claims filed in our bankruptcy cases will be significantly
greater than our total consolidated funded debt of approximately
$17.4 billion (including deconsolidated Canadian debt) as
of December 31, 2005. However, despite the likelihood that
there will be bankruptcy claims asserted against the collective
Calpine Debtors in excess of their potential liabilities, no
individual creditor should receive more than 100% recovery on
account of such multiple claims.
Our bankruptcy filings have exposed certain of our Non-Debtor
subsidiaries to the potential exercise of rights and remedies by
debt or equity holders. Our bankruptcy filings and
constraints on our business during the bankruptcy cases have
resulted in (and could result in additional) defaults under
certain project loan agreements of Non-Debtor subsidiaries.
These bankruptcy filings and limitations on the ability of
certain of the Calpine Debtor subsidiaries to make payments
under intercompany agreements with Non-Debtor subsidiaries has
resulted in defaults or potential defaults under debt or
preferred equity interests issued by or certain lease
obligations of certain of those Non-Debtor subsidiaries,
including CCFC, CCFCP and Metcalf. Absent cure, waiver or other
resolution in respect of these defaults from the applicable
creditors or equity holders, we may not be able to prevent the
acceleration of the subsidiary debt or lease obligations and the
exercise of other remedies against the subsidiaries, including a
sale of the equity or assets of such subsidiaries, a termination
of the leasehold rights or the enforcement of buy-out rights or
other remedies. As of the date of this Report, although we have
been able to obtain waivers with respect to certain defaults, we
have not been able to obtain waivers or forbearances from or
enter into other arrangements with certain project lenders,
lessors and shareholders with respect to other defaults, and
there is no assurance that we will be able to do so in the
future. If we are unable to obtain waivers or make other
arrangements with respect to current or future
40
defaults, if any, under debt, preferred equity or leases of
Non-Debtor subsidiaries, such Non-Debtor subsidiaries may be
adversely affected, or the holders of debt or equity of such
Non-Debtor subsidiaries may take actions or exercise remedies,
including sales of the assets of such Non-Debtor subsidiaries,
which may cause adverse effects to our financial condition or
results of operations as a whole.
Transfers of our equity, or issuances of equity in connection
with our restructuring, may impair our ability to utilize our
federal income tax net operating loss carryforwards in the
future. Under federal income tax law, a corporation is
generally permitted to deduct from taxable income in any year
net operating losses carried forward from prior years. We have
NOL carryforwards of approximately $2.9 billion as of
December 31, 2005. Our ability to deduct NOL carryforwards
could be subject to a significant limitation if we were to
undergo an ownership change for purposes of
Section 382 of the Internal Revenue Code of 1986, as
amended, during or as a result of our Chapter 11 cases.
During the pendency of the bankruptcy proceeding, the U.S.
Bankruptcy Court has entered an order that places certain
limitations on trading in our common stock or certain
securities, including options, convertible into our common
stock. However, we can provide no assurances that these
limitations will prevent an ownership change or that
our ability to utilize our net loss carryforwards may not be
significantly limited as a result of our reorganization. On
April 17, 2006, we announced that, primarily due to the
inability under generally accepted accounting principles to
assume future profits and due to our reduced ability to
implement tax planning strategies to utilize our NOLs while in
bankruptcy, we had concluded that valuation allowances on a
portion of our deferred tax assets were required. The additional
valuation allowances related to these assets recorded in the
financial statements included in this Report for the year ended
December 31, 2005, total approximately $1.6 billion.
In addition, we expect that a portion of the losses that we
expect to incur in 2006 will not generate tax benefits and,
therefore, additional valuation allowances may be required.
Canadian Debtors and their creditors may advance claims
against the U.S. Debtors. In accordance with procedures
under the CCAA, Ernst & Young Inc. was appointed as monitor
and has provided reports to the Canadian Court from time to time
on various matters including the Canadian Debtors cash
flow, asset transfers and other developments in the Canadian
cases. (The monitors reports have been made generally
available on the monitors website at
www.ey.com/ca/calpinecanada; however, we are not responsible for
the monitors reports or the other contents of that
website, none of which is a part of this Report.) On
March 30, 2006, the monitor issued a report containing its
preliminary overview of the assets, liabilities and equity of
the Canadian Debtors. The report indicates, among other things,
that the claims of creditors of the Canadian Debtors, which
includes approximately $3 billion of Senior Notes issued by
ULC I and ULC II and guaranteed by Calpine Corporation, exceeds
the value of the remaining assets of the Canadian Debtors on a
stand-alone basis. The most significant assets of the Canadian
Debtors, including Saltend and the Canadian oil and gas assets,
were sold in 2004 and 2005. The Canadian Debtors intend to file
a plan or plans of compromise and arrangement under the CCAA
with a view to maximizing realizations to their creditors and
resolving inter-creditor disputes without protracted litigation.
It is possible that the creditors of the Canadian Debtors will
apply to the Canadian Court to lift the stay of proceedings to
have some or all of the Canadian Debtors petitioned into
bankruptcy in Canada (a proceeding that is generally the
equivalent of a liquidation proceeding under Chapter 7 of
the Bankruptcy Code in the United States). In either case, the
proceeds of realization will be used to make payments to the
creditors of the Canadian Debtors. It is expected that the
proceeds of such sales would not be sufficient to fully satisfy
the claims of such creditors. At least some of the creditors of
the Canadian Debtors may assert claims in the U.S. bankruptcy
cases for any unpaid portion of their claims.
Claims based upon guarantees provided by us of obligations of
ULC I and ULC II, or claims of other creditors of the Canadian
Debtors who had received a guarantee from or otherwise had
recourse to a U.S. Debtor, could be made against the U.S.
Debtors in the U.S. Bankruptcy Court. Such claims, which would
be unsecured, would likely be in excess of $2 billion.
In addition, certain Canadian Debtors have claims on account of
inter-company indebtedness, which may be advanced against
certain U.S. Debtors in the U.S. bankruptcy cases. Such claims,
which would be unsecured, would likely be in excess of
$2 billion.
41
Our successful reorganization will depend on our ability to
motivate key employees and successfully implement new
strategies. Our success is largely dependent on the skills,
experience and efforts of our people. In particular, the
successful implementation of our business plan and our ability
to successfully consummate a plan of reorganization will be
highly dependent upon our new Chief Executive Officer and our
new Chief Financial Officer and Chief Restructuring Officer, as
well as other members of our senior management. Our ability to
attract, motivate and retain key employees is restricted by
provisions of the Bankruptcy Code, which limit or prevent our
ability to implement a retention program or take other measures
intended to motivate key employees to remain with the Company
during the pendency of the bankruptcy cases. In addition, we
must obtain U.S. Bankruptcy Court approval of employment
contracts and other employee compensation programs. The process
of obtaining such approvals, including negotiating with certain
official and unofficial creditor committees (which may raise
objections to or otherwise limit our ability to implement such
contracts or programs), has resulted in delays and reduced
potential compensation for many employees. Certain employees,
including certain members of our executive management, have
resigned following our bankruptcy filings. The loss of the
services of such individuals or other key personnel could have a
material adverse effect upon the implementation of our business
plan, including our restructuring program, and on our ability to
successfully reorganize and emerge from bankruptcy.
We have recognized impairment and other charges of
$7.1 billion for the period ending December 31, 2005
to certain of our projects and other assets and could recognize
additional impairment charges in the future. As a result of
the convergence of multiple facts and circumstances arising
during the fourth quarter of 2005, we determined that certain of
our projects and other assets had been impaired. These facts and
circumstances include, among other things, restrictions on our
ability to commit to expending additional capital on such
projects due to Bankruptcy Court orders, required approvals of
our official and unofficial creditors committees and the
provisions of the DIP Facility, as well as our focus on
reorganizing and emerging from bankruptcy and our inability to
secure long term PPAs for such facilities in part due to credit
support requirements imposed by potential counterparties both
prior to and after our bankruptcy filings. As a result, in 2005
we recorded impairment charges totaling approximately
(i) $2.4 billion with respect to certain of our
operating projects, (ii) $2.1 billion with respect to
certain of our development and construction assets, and other
investments, (iii) $0.9 billion related to our
investment in our Canadian subsidiaries, which have been
deconsolidated as a result of our Canadian filings, and
(iv) $0.1 billion with respect to deferred financing
costs related to debt subject to compromise following our
bankruptcy filings. In addition, primarily due to the inability
under GAAP to assume future profits and due to our reduced
ability to implement tax planning strategies to utilize our NOL
carryforwards while in bankruptcy, we recorded valuation
allowances of approximately $1.6 billion on a portion of
our deferred tax assets. It is possible that we may be required
to recognize additional impairment charges in the future with
respect to our projects and other assets and, because we expect
that a portion of our losses expected to be incurred in 2006
will not generate tax benefits, additional valuation allowances
may be required.
The prices of our debt and equity securities are volatile
and, in connection with our reorganization, holders of our
securities may receive no payment, or payment that is less than
the face value or purchase price of such securities. Prior
to our bankruptcy filing, the market price for our common stock
was volatile and, following our bankruptcy filing, the price of
our common stock has generally been less than $.30 per
share. Prices for our debt securities and preferred equity
securities are also volatile and prices for such securities (in
particular those issued by Calpine Debtors) have generally been
substantially below par following our bankruptcy filing. In
addition, following the delisting of our common stock from the
NYSE, none of our securities are listed on an exchange, and many
series of our securities are not registered with the SEC.
Accordingly, trading in the securities of both Calpine Debtors
and Non-Debtors may be limited and holders of such securities
may not be able to resell their securities for their purchase
price or at all. We can make no assurance that the price of our
securities will not fluctuate substantially in the future.
It is possible that, in connection with our reorganization, all
of the outstanding shares of our common stock could be
cancelled, and holders of our common stock may not be entitled
to any payment in respect of their shares. In addition, new
shares of our common stock may be issued. It is also possible
that our obligations to holders of debt or preferred equity
securities of Calpine Debtors may be satisfied by payments to
such
42
holders that are less than both the par value of such securities
and the price at which holders purchased such securities, or
that shares of our common stock may be issued to certain of such
holders in satisfaction of their claims. The value of any common
stock so issued may be less than the par value or purchase price
of such holders securities, and the price of any such
common shares may be volatile.
Accordingly, trading in our securities during the pendency of
our bankruptcy cases is highly speculative and poses substantial
risks to purchasers of such securities, as holders may not be
able to resell such securities or, in connection with our
reorganization, may receive no payment, or a payment or other
consideration that is less than the par value or the purchase
price of such securities.
Bankruptcy laws may limit our secured creditors ability
to realize value from their collateral. Upon the
commencement of a case for relief under Chapter 11 of the
Bankruptcy Code, a secured creditor is prohibited from
repossessing its security from a debtor in a bankruptcy case, or
from disposing of security repossessed from such debtor, without
bankruptcy court approval. Moreover, the Bankruptcy Code
generally permits the debtor to continue to retain and use
collateral even though the debtor is in default under the
applicable debt instruments, provided that the secured creditor
is given adequate protection. The meaning of the
term adequate protection may vary according to
circumstances, but it is intended in general to protect the
value of the secured creditors interest in the collateral
and may include cash payments or the granting of additional
security if and at such times as the bankruptcy court in its
discretion determines that the value of the secured
creditors interest in the collateral is declining during
the pendency of the bankruptcy case. A bankruptcy court may
determine that a secured creditor may not require compensation
for a diminution in the value of its collateral if the value of
the collateral exceeds the debt it secures.
In view of the lack of a precise definition of the term
adequate protection and the broad discretionary
power of a bankruptcy court, it is impossible to predict:
|
|
|
|
|
how long payments under our secured debt could be delayed as a
result of the bankruptcy cases; |
|
|
|
whether or when secured creditors (or their applicable agents)
could repossess or dispose of collateral; |
|
|
|
the value of the collateral; or |
|
|
|
whether or to what extent secured creditors would be compensated
for any delay in payment or loss of value of the collateral
through the requirement of adequate protection. |
In addition, the instruments governing certain of our
indebtedness provide that the secured creditors (or their
applicable agents) may not object to a number of important
matters following the filing of a bankruptcy petition.
Accordingly, it is possible that the value of the collateral
securing our indebtedness could materially deteriorate and
secured creditors would be unable to raise an objection.
Furthermore, if the U.S. Bankruptcy Court determines that the
value of the collateral is not sufficient to repay all amounts
due on applicable secured indebtedness, the holders of such
indebtedness would hold a secured claim to only the extent of
the value of their collateral and would otherwise hold unsecured
claims with respect to any shortfall. The Bankruptcy Code
generally permits the payment and accrual of post-petition
interest, costs and attorneys fees to a secured creditor
during a debtors bankruptcy case only to the extent the
value of its collateral is determined by the Bankruptcy Court to
exceed the aggregate outstanding principal amount of the
obligations secured by the collateral.
We are subject to additional risks and uncertainties
associated with revisions to the Bankruptcy Code that took
effect in October 2005. President Bush signed the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005 on
April 20, 2005. Revisions to the Bankruptcy Code contained
in that Act generally became effective 180 days thereafter,
in October 2005, and were in effect at the time we and many of
our U.S. subsidiaries filed our Chapter 11 bankruptcy
petitions on December 20, 2005. These revisions to the
Bankruptcy Code present additional potential risks and
uncertainties associated with our bankruptcy cases. Some of the
revisions may make it more difficult for us to enforce or obtain
certain rights and remedies in Bankruptcy Court, such as with
respect to the rejection of certain executory contracts or
unexpired real property leases. The revisions also may shorten
the time frames in which we must take certain actions, including
determining whether to assume or reject unexpired real property
leases and filing and seeking
43
confirmation of a plan of reorganization. In addition, the
revisions may limit or prevent our ability to implement a
retention program or take other measures intended to motivate
key employees to remain with the Company during the pendency of
the bankruptcy cases. It may make it more difficult to predict
or anticipate a particular outcome because the revisions are new
and have not been tested in a case as large or as complex as
ours, and so could have unanticipated consequences for us or our
creditors.
Accordingly, as a result of the recent Bankruptcy Code
revisions, we are subject to additional risks and uncertainty in
our bankruptcy cases, which we cannot fully predict or quantify
at this time.
Our emergence from bankruptcy is not assured. Our plan of
reorganization has not yet been formulated or submitted to the
Bankruptcy Court. While we expect to emerge from bankruptcy in
the future, there can be no assurance that we will successfully
reorganize or, if we do, of the timing.
|
|
|
Capital Resources; Liquidity |
Our financial results may be volatile and may not reflect
historical trends. While in bankruptcy, we expect our
financial results to continue to be volatile as asset
impairments, asset dispositions, restructuring activities,
contract terminations and rejections, and claims assessments may
significantly impact our consolidated financial statements. As a
result, our historical financial performance is likely not
indicative of our financial performance post-bankruptcy. In
addition, upon emergence from bankruptcy, the amounts reported
in subsequent consolidated financial statements may materially
change relative to historical consolidated financial statements,
including as a result of revisions to our operating plans
pursuant to our plan of reorganization. In addition, as part of
our emergence from bankruptcy protection, we may be required to
adopt fresh start accounting in a future period. If fresh start
accounting is applicable, our assets and liabilities will be
recorded at fair value as of the fresh start reporting date. The
fair value of our assets and liabilities may differ materially
from the recorded values of assets and liabilities on our
consolidated balance sheets. In addition, if fresh start
accounting is required, the financial results of the Company
after the application of fresh start accounting may be different
from historical trends. See Note 2 of the Notes to
Consolidated Financial Statements for further information on our
accounting while in bankruptcy.
We have substantial liquidity needs and face significant
liquidity pressure. At December 31, 2005, our cash and
cash equivalents were $785.6 million. In addition, we have
entered into the $2 billion DIP Facility, under which, at
December 31, 2005, we had outstanding borrowings of
$25 million under the $1 billion revolving commitment
and no loans under the term loan commitments. We continue to
have substantial liquidity needs in the operation of our
business and face significant liquidity challenges. Because of
our low credit ratings and the restrictions against additional
borrowing in our DIP Facility, we believe we may not be able to
obtain any material amount of additional debt financing during
our bankruptcy cases.
Our liquidity and our ability to continue as a going concern,
including our ability to meet our ongoing operational
obligations, is dependent upon, among other things: (i) our
ability to maintain adequate cash on hand; (ii) our ability
to generate cash from operations; (iii) the cost, duration
and outcome of the restructuring process; (iv) our ability
to comply with our DIP Facility agreement and the adequate
assurance provisions of the Cash Collateral Order and
(v) our ability to achieve profitability following a
restructuring. In conjunction with our advisors, we are working
to design and implement strategies to ensure that we maintain
adequate liquidity. However, there can be no assurance as to the
success of such efforts.
Our DIP Facility imposes significant operating and financial
restrictions on us; any failure to comply with these
restrictions could have a material adverse effect on our
liquidity and our operations. These restrictions could
adversely affect us by limiting our ability to plan for or react
to market conditions or to meet our capital needs and could
result in an event of default under the DIP Facility. These
restrictions limit or prohibit our ability, subject to certain
exceptions to, among other things:
|
|
|
|
|
incur additional indebtedness and issue stock; |
|
|
|
make prepayments on or purchase indebtedness in whole or in part; |
44
|
|
|
|
|
pay dividends and other distributions with respect to our
capital stock or repurchase our capital stock or make other
restricted payments; |
|
|
|
use DIP Loans for non-US Debtors or make inter-company loans to
non-US Debtors; |
|
|
|
make certain investments; |
|
|
|
enter into transactions with affiliates on other than
arms-length terms; |
|
|
|
create or incur liens to secure debt; |
|
|
|
consolidate or merge with another entity, or allow one of our
subsidiaries to do so; |
|
|
|
lease, transfer or sell assets and use proceeds of permitted
asset leases, transfers or sales; |
|
|
|
incur dividend or other payment restrictions affecting certain
subsidiaries; |
|
|
|
make capital expenditures beyond specified limits; |
|
|
|
engage in certain business activities; and |
|
|
|
acquire facilities or other businesses. |
These limitations include, among other things, limitations on
our ability to incur or secure additional indebtedness, make
investments, or sell certain assets. Our ability to comply with
these covenants depends in part on our ability to implement our
restructuring program during the bankruptcy cases. If we are
unable to achieve the targets associated with our restructuring
program and the other elements of our business plan, we may not
be able to comply with these covenants. The DIP Facility
contains events of default customary for DIP financings of this
type, including cross defaults and certain change of control
events. If we fail to comply with the covenants in the DIP
Facility and are unable to obtain a waiver or amendment or a
default exists and is continuing under the DIP Facility, the
lenders could declare outstanding borrowings and other
obligations under the DIP Facility immediately due and payable.
Our ability to comply with these covenants may be affected by
events beyond our control, and any material deviations from our
forecasts could require us to seek waivers or amendments of
covenants or alternative sources of financing or to reduce
expenditures. We cannot assure you that such waivers, amendments
or alternative financing could be obtained, or if obtained,
would be on terms acceptable to us. If we are unable to comply
with the terms of the DIP Facility, or if we fail to generate
sufficient cash flow from operations, or, if it became
necessary, to obtain such waivers, amendments or alternative
financing, it could adversely impact the timing of, and our
ultimate ability to successfully implement a plan of
reorganization.
To service our indebtedness and other potential liquidity
requirements we will require a significant amount of cash.
We have substantial indebtedness that we incurred to finance the
acquisition and development of power generation facilities. As
of December 31, 2005, our total funded debt was
$17.4 billion (including $15.4 billion of consolidated
debt and approximately $2.0 billion of unconsolidated debt
of wholly owned subsidiaries), our total consolidated assets
were $20.5 billion and our stockholders deficit was
$(5.5) billion. Our ability to make payments on our
indebtedness (including interest payments on our DIP Facility
and our other outstanding secured indebtedness) and to fund
planned capital expenditures and research and development
efforts will depend on our ability to generate cash in the
future. This, to a certain extent, is subject to industry
conditions, as well as general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control. We may not be able to generate sufficient cash to meet
all of our commitments.
The DIP Facility requires that, subject to limited exceptions,
cash proceeds from disposition of assets be used to prepay the
loans under the DIP Facility.
Whether we will be able to meet our debt service obligations
during the pendency of our bankruptcy cases, and whether we will
be able to successfully implement a plan of reorganization will
depend primarily upon the operational performance of our power
generation facilities, movements in electric and natural gas
prices over time, our marketing and risk management activities,
our ability to successfully implement our
45
business plan, including our restructuring program, and our
ability to consummate a plan of reorganization, as well as
general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
This high level of indebtedness has important consequences,
including:
|
|
|
|
|
limiting our ability to borrow additional amounts for working
capital, capital expenditures, debt service requirements,
execution of our growth strategy, or other purposes; |
|
|
|
limiting our ability to use operating cash flow in other areas
of our business because we must dedicate a substantial portion
of these funds to service the debt; |
|
|
|
increasing our vulnerability to general adverse economic and
industry conditions; |
|
|
|
limiting our ability to capitalize on business opportunities and
to react to competitive pressures and adverse changes in
government regulation; |
|
|
|
limiting our ability or increasing the costs to refinance
indebtedness; and |
|
|
|
limiting our ability to enter into marketing, hedging,
optimization and trading transactions by reducing the number of
counterparties with whom we can transact as well as the volume
of those transactions. |
We may not have sufficient cash to service our indebtedness
and other liquidity requirements. Our ability to
successfully consummate a plan of reorganization, to make
payments on our DIP Facility and other secured debt, and to fund
planned capital expenditures and research and development
efforts, will depend, in part, on our ability to generate cash
in the future. Following our Chapter 11 filing, we have
obtained cash from our operations and borrowings under our DIP
Facility. Taking into account our debt service and repayment
obligations, our remaining significantly scaled-back
construction program, research and development and other planned
capital expenditures, we are currently projecting that
unrestricted cash on hand together with cash from operations
will not by itself be sufficient to meet our cash and liquidity
needs for the year. The budget for our DIP Facility takes this
shortfall into account, and we expect to have sufficient
resources and borrowing capacity under the DIP Facility to meet
all of our commitments throughout the projected term of our
bankruptcy case. However, the success of our business plan,
including our restructuring program, and ultimately our plan of
reorganization, will depend on our being able to achieve our
budgeted operating results. We anticipate enhancing our margin
for error by completing asset sale transactions and otherwise
significantly reducing our expenses through announced programs
but there can be no assurance that we will be successful in
these efforts. In addition, our performance could be impacted to
some degree by a number of factors, including general economic
and capital market conditions; conditions in energy markets;
regulatory approvals and developments; limitations imposed by
our existing agreements; and other factors, many of which are
beyond our control.
We may be unable to secure additional financing in the
future. Our ability to arrange financing (including any
extension or refinancing) and the cost of the financing are
dependent upon numerous factors. Access to capital (including
any extension or refinancing) for participants in the energy
sector, including for us, has been significantly restricted
since late 2001 and may be further restricted in the future as a
result of our bankruptcy filings. Other factors include:
|
|
|
|
|
general economic and capital market conditions; |
|
|
|
conditions in energy markets; |
|
|
|
regulatory developments; |
|
|
|
credit availability from banks or other lenders for us and our
industry peers, as well as the economy in general; |
|
|
|
investor confidence in the industry and in us; |
|
|
|
the continued reliable operation of our current power generation
facilities; and |
|
|
|
provisions of tax and securities laws that are conducive to
raising capital. |
46
We have financed our existing power generation facilities using
a variety of leveraged financing structures, consisting of
senior secured and unsecured indebtedness, including
construction financing, project financing, revolving credit
facilities, term loans and lease obligations. Each project
financing and lease obligation was structured to be fully paid
out of cash flow provided by the facility or facilities financed
or leased. In the event of a default under a financing agreement
which we do not cure, the lenders or lessors would generally
have rights to the facility and any related assets. In the event
of foreclosure after a default, we might not retain any interest
in the facility. While we may utilize non-recourse or lease
financing when appropriate, market conditions and other factors
may prevent similar financing for future facilities. It is
possible that we may be unable to obtain the financing required
to develop our power generation facilities on terms satisfactory
to us.
We have from time to time guaranteed certain obligations of
our subsidiaries and other affiliates. Our lenders or
lessors may also seek to have us guarantee the indebtedness for
future facilities. Guarantees render our general corporate funds
vulnerable in the event of a default by the facility or related
subsidiary. Additionally, certain of our debt instruments may
restrict our ability to guarantee future debt, which could
adversely affect our ability to fund new facilities.
As a result of our impaired credit status due to our
bankruptcy and earlier credit ratings downgrades, our operations
may be restricted and our liquidity requirements increased.
As a result of our bankruptcy and prior credit ratings
downgrades, our credit status has been impaired. Such impairment
has had a negative impact on our liquidity by reducing
attractive financing opportunities and increasing the amount of
collateral required by our trading counterparties. In addition,
fewer trading counterparties are currently able to do business
with us, which reduces our ability to negotiate more favorable
terms with them. We expect that our perceived creditworthiness
will continue to be impaired throughout the pendency of our
bankruptcy cases, and we can make no assurances that our credit
ratings will improve in the future. Our impaired credit has
resulted in the requirement that we provide additional
collateral, letters of credit or cash for credit support
obligations, and has increased our cost of capital, made our
efforts to raise capital more difficult and had an adverse
impact on our subsidiaries and our business, financial
condition and results of operations.
In particular, in light of our bankruptcy filings and our
current credit ratings, many of our customers and counterparties
are requiring that our and our subsidiaries obligations be
secured by letters of credit or cash. Banks issuing letters of
credit for our or our subsidiaries accounts are similarly
requiring that the reimbursement obligations be
cash-collateralized. In a typical commodities transaction, the
amount of security that must be posted can change daily
depending on the
mark-to-market value of
the transaction. These letter of credit and cash collateral
requirements increase our cost of doing business and could have
an adverse impact on our overall liquidity, particularly if
there were a call for a large amount of additional cash or
letter of credit collateral due to an unexpectedly large
movement in the market price of a commodity. In addition, our
CalBear transaction with Bear Stearns, which we had expected
over time to reduce our cash and letter of credit collateral
requirements as trades would be executed through Bear
Stearns wholly owned subsidiary CalBear, has been
terminated. Although our collateral requirements had not yet
been significantly impacted as the CalBear transaction was in
its initial stages, we will not be able to take advantage of the
future benefits that the CalBear transaction was expected to
have provided. We may use up to $300 million of the
revolving credit facility under our DIP Facility for letters of
credit, which in addition to cash available under the DIP
Facility we believe will be sufficient to satisfy our collateral
requirements; however, there can be no assurance that such
amounts will be sufficient. While we are exploring with
counterparties and financial institutions various alternative
approaches to credit support, there can be no assurance that we
will be able to provide alternative credit support in lieu of
cash collateral or letter of credit posting requirements.
Our ability to generate cash depends upon the performance of
our subsidiaries. Almost all of our operations are conducted
through our subsidiaries and other affiliates. As a result, we
depend almost entirely upon their earnings and cash flow to
service our indebtedness, including our DIP Facility, and
otherwise to fund our operations. The financing agreements of
certain of our subsidiaries and other affiliates generally
restrict their ability to pay dividends, make distributions, or
otherwise transfer funds to us prior to the payment of their
other obligations, including their outstanding debt, operating
expenses, lease payments and reserves. While certain of our
indentures and other debt instruments limit our ability to enter
into agreements that
47
restrict our ability to receive dividends and other
distributions from our subsidiaries, these limitations are
subject to a number of significant exceptions (including
exceptions permitting such restrictions arising out of
subsidiary financings).
We may utilize project financing, preferred equity and other
types of subsidiary financing transactions when appropriate in
the future. Our indentures and other debt instruments place
limitations on our ability and the ability of our subsidiaries
to incur additional indebtedness. However, they permit our
subsidiaries to incur additional construction/project financing
indebtedness and to issue preferred stock to finance the
acquisition and development of new power generation facilities
and to engage in certain types of non-recourse financings and
issuance of preferred stock. In addition, if any such financing
were undertaken during the pendency of our bankruptcy cases, it
would also require the approval of the applicable Bankruptcy
Court [and potentially of certain of our other creditors or
statutory committees]. If new subsidiary debt and preferred
stock is added to our current debt levels, the risks associated
with our substantial leverage could intensify.
Our senior notes and our other senior debt are effectively
subordinated to all indebtedness and other liabilities of our
subsidiaries and other affiliates and may be effectively
subordinated to our secured debt to the extent of the assets
securing such debt. Our subsidiaries and other affiliates
are separate and distinct legal entities and, except in limited
circumstances, have no obligation to pay any amounts due with
respect to indebtedness of Calpine Corporation or indebtedness
of other subsidiaries or affiliates, and do not guarantee the
payment of interest on or principal of such indebtedness. In
connection with our bankruptcy cases, we expect that such
subsidiaries or other affiliates creditors,
including trade creditors and holders of debt issued by such
subsidiaries or affiliates, will generally be entitled to
payment of their claims from the assets of those subsidiaries or
affiliates before any of those assets are made available for
distribution to Calpine Corporation or the holders of Calpine
Corporations indebtedness. As a result, holders of Calpine
Corporation indebtedness will be effectively subordinated to all
present and future debts and other liabilities (including trade
payables) of its subsidiaries and affiliates, and holders of
debt of one of such subsidiaries or affiliates will effectively
be so subordinated with respect to all other subsidiaries and
affiliates. As of December 31, 2005, our subsidiaries had
$5.8 billion of secured construction/project financing
(including the CCFC and CalGen financings).
In addition, our unsecured notes and our other unsecured debt
are effectively subordinated to all of our secured indebtedness
to the extent of the value of the assets securing such
indebtedness. Our secured indebtedness includes our
$666.7 million in outstanding First Priority Notes and DIP
Facility and our $3.7 billion in outstanding
Second-Priority Notes and Term Loans. The First Priority Notes
and Second-Priority Notes and Term Loans are secured by,
respectively, first-priority and second-priority liens on, among
other things, substantially all of the assets owned directly by
Calpine Corporation, power plant assets and the equity in
subsidiaries directly owned by Calpine Corporation. Our
$784.5 million of CCFC term loans and notes outstanding as
of December 31, 2005, are secured by the assets and
contracts associated with the six natural gas-fired electric
generating facilities owned by CCFC and its subsidiaries and the
CCFC lenders and note holders recourse is limited to
such security. Our $2.4 billion of CalGen secured
institutional term loans, notes and revolving credit facility
are secured, through a combination of direct and indirect stock
pledges and asset liens, by CalGens 14 power generating
facilities and related assets located throughout the United
States, and the CalGen lenders and note holders
recourse is limited to such security. We have additional
non-recourse project financings, secured in each case by the
assets of the project being financed.
Revenue may be reduced significantly upon expiration or
termination of our PPAs. Some of the electricity we generate
from our existing portfolio is sold under long-term PPAs that
expire at various times. We also sell power under short to
intermediate term (one to five year) PPAs. When the terms of
each of these various PPAs expire, it is possible that the price
paid to us for the generation of electricity under subsequent
arrangements may be reduced significantly.
Our power sales contracts have an aggregate value in excess of
current market prices (measured over the next five years) of
approximately $1.5 billion at December 31, 2005.
Values for our long-term commodity contracts are calculated
using discounted cash flows derived as the difference between
contractually based
48
cash flows and the cash flows to buy or sell similar amounts of
the commodity on market terms. Inherent in these valuations are
significant assumptions regarding future prices, correlations
and volatilities, as applicable. Because our power sales
contracts are marked to market, the aggregate value of the
contracts noted above could decrease in response to changes in
the market. We are at risk of loss in margins to the extent that
these contracts expire or are terminated and we are unable to
replace them on comparable terms. We have four customers with
which we have multiple contracts that, when combined, constitute
greater than 10% of this value: CDWR $0.3 billion, PG&E
$0.7 billion, Wisconsin Power & Light
$0.2 billion, and Carolina Power & Light
$0.2 billion. The values by customer are comprised of these
multiple individual contracts that expire beginning in 2008 and
contain termination provisions standard to contracts in our
industry such as negligence, performance default or prolonged
events of force majeure.
Use of commodity contracts, including standard power and gas
contracts (many of which constitute derivatives), can create
volatility in earnings and may require significant cash
collateral. During 2005 we recognized $11.4 million in
mark-to-market gains on
electric power and natural gas derivatives after recognizing
$13.4 million in gains in 2004 and $26.4 million in
losses in 2003. Additionally, we recognized as a cumulative
effect of a change in accounting principle, an after-tax gain of
approximately $181.9 million from the adoption of DIG Issue
No. C20, Scope Exceptions: Interpretation of the
Meaning of Not Clearly and Closely Related in
Paragraph 10(b) regarding Contracts with a Price Adjustment
Feature on October 1, 2003. See Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operation Application of
Critical Accounting Policies, for a detailed discussion of
the accounting requirements relating to electric power and
natural gas derivatives. In addition, GAAP treatment of
derivatives in general, and particularly in our industry,
continues to evolve. We may enter into other transactions in
future periods that require us to mark various derivatives to
market through earnings. The nature of the transactions that we
enter into and the volatility of natural gas and electric power
prices will determine the volatility of earnings that we may
experience related to these transactions.
Companies using derivatives, many of which are commodity
contracts, are sensitive to the inherent risks of such
transactions. Consequently (and for us, as a result of our
bankruptcy and credit rating downgrades), many companies,
including us, are required to post cash collateral for certain
commodity transactions in excess of what was previously
required. As of December 31, 2005 and 2004, to support
commodity transactions, we had margin deposits with third
parties of $287.5 million and $276.5 million,
respectively; we made gas and power prepayments of
$103.2 million and $80.5 million, respectively; and
had letters of credit outstanding of $88.1 million and
$115.9 million, respectively. Counterparties had deposited
with us $27.0 million and $27.6 million as margin
deposits at December 31, 2005 and 2004, respectively. We
use margin deposits, prepayments and letters of credit as credit
support for commodity procurement and risk management
activities. Future cash collateral requirements may increase
based on the extent of our involvement in standard contracts and
movements in commodity prices and also based on our credit
ratings and general perception of creditworthiness in this
market. See also Capital Resources;
Liquidity As a result of our impaired credit
status due to our bankruptcy and earlier credit ratings
downgrades, our operations may be restricted and our liquidity
requirements increased, above.
We may be unable to obtain an adequate supply of natural gas
in the future. To date, our fuel acquisition strategy has
included various combinations of our own gas reserves, gas
prepayment contracts, short-, medium-and long-term supply
contracts, acquisition of gas in storage and gas hedging
transactions. In our gas supply arrangements, we attempt to
match the fuel cost with the fuel component included in the
facilitys PPAs in order to minimize a projects
exposure to fuel price risk. In addition, the focus of CES is to
manage the spark spread for our portfolio of generating plants
and we actively enter into hedging transactions to lock in gas
costs and spark spreads. We believe that there will be adequate
supplies of natural gas available at reasonable prices for each
of our facilities when current gas supply agreements expire.
However, gas supplies may not be available for the full term of
the facilities PPAs, and gas prices may increase
significantly. Additionally, our credit ratings may inhibit our
ability to procure gas supplies from third parties. If gas is
not available, or if gas prices increase above the level that
can be recovered in electricity prices, there could be a
negative impact on our results of operations or financial
condition.
49
For the year ended December 31, 2004, we obtained
approximately 7% of our physical natural gas supply needs
through owned natural gas reserves. Following the sale of our
oil and natural gas assets in 2005, we no longer satisfied any
of our natural gas supply needs through owned natural gas
reserves. Since that time, we obtain our physical natural gas
supply from the market and utilize the natural gas financial
markets to hedge our exposures to natural gas price risk. Our
current less than investment grade credit rating increases the
amount of collateral that certain of our suppliers require us to
post for purchases of physical natural gas supply and hedging
instruments. To the extent that we do not have cash or other
means of posting credit, we may be unable to procure an adequate
supply of natural gas or natural gas hedging instruments. In
addition, the fact that our deliveries of natural gas depend
upon the natural gas pipeline infrastructure in markets where we
operate power plants exposes us to supply disruptions in the
unusual event that the pipeline infrastructure is damaged or
disabled.
Our power project development and acquisition activities may
not be successful. The development of power generation
facilities is subject to substantial risks. In connection with
the development of a power generation facility, we must
generally obtain:
|
|
|
|
|
necessary power generation equipment; |
|
|
|
governmental permits and approvals; |
|
|
|
fuel supply and transportation agreements; |
|
|
|
sufficient equity capital and debt financing; |
|
|
|
electrical transmission agreements; |
|
|
|
water supply and wastewater discharge agreements; and |
|
|
|
site agreements and construction contracts. |
To the extent that our development activities continue or
resume, we may be unsuccessful in accomplishing any of these
matters or in doing so on a timely basis. In addition, project
development is subject to substantial risks including various
environmental, engineering and construction risks relating to
equipment, permitting, financing, obtaining necessary
construction and operating agreements (including related to fuel
supply and transportation and electrical transmission),
cost-overruns, delays and performance targets. Although we may
attempt to minimize the financial risks in the development of a
project by securing a favorable PPA, obtaining all required
governmental permits and approvals, and arranging adequate
financing prior to the commencement of construction, the
development of a power project may require us to expend
significant sums for preliminary engineering, permitting, legal
and other expenses before we can determine whether a project is
feasible, economically attractive or financeable. If we are
unable to complete the development of a facility, we might not
be able to recover our investment in the project and may be
required to recognize additional impairments. The process for
obtaining initial environmental, siting and other governmental
permits and approvals is complicated and lengthy, often taking
more than one year, and is subject to significant uncertainties.
We cannot assure you that we will be successful in the
development of power generation facilities in the future or that
we will be able to successfully complete construction of our
facilities currently in development, nor can we assure you that
any of these facilities will be profitable or have value equal
to the investment in them even if they do achieve commercial
operation.
Our projects under construction may not commence operation as
scheduled. The commencement of operation of a newly
constructed power generation facility involves many risks,
including:
|
|
|
|
|
start-up problems; |
|
|
|
the breakdown or failure of equipment or processes; and |
|
|
|
performance below expected levels of output or efficiency. |
New plants have no operating history and may employ recently
developed and technologically complex equipment. Insurance
(including a layer of insurance provided by a captive insurance
subsidiary) is maintained to protect against certain risks,
warranties are generally obtained for limited periods relating
to the
50
construction of each project and its equipment in varying
degrees, and contractors and equipment suppliers are obligated
to meet certain performance levels. The insurance, warranties or
performance guarantees, however, may not be adequate to cover
lost revenues or increased expenses. As a result, a project may
be unable to fund principal and interest payments under its
financing obligations and may operate at a loss. A default under
such a financing obligation, unless cured, could result in our
losing our interest in a power generation facility.
In certain situations, PPAs entered into with a utility early
in the development phase of a project may enable the utility to
terminate the PPA or to retain security posted as liquidated
damages under the PPA. The situations that could allow a
utility to terminate a PPA or retain posted security as
liquidated damages include:
|
|
|
|
|
the cessation or abandonment of the development, construction,
maintenance or operation of the facility; |
|
|
|
failure of the facility to achieve construction milestones by
agreed upon deadlines, subject to extensions due to force
majeure events; |
|
|
|
failure of the facility to achieve commercial operation by
agreed upon deadlines, subject to extensions due to force
majeure events; |
|
|
|
failure of the facility to achieve certain output minimums; |
|
|
|
failure by the facility to make any of the payments owing to the
utility under the PPA or to establish, maintain, restore, extend
the term of, or increase the posted security if required by the
PPA; |
|
|
|
a material breach of a representation or warranty or failure by
the facility to observe, comply with or perform any other
material obligation under the PPA; |
|
|
|
failure of the facility to obtain material permits and
regulatory approvals by agreed upon deadlines; or |
|
|
|
the liquidation, dissolution, insolvency or bankruptcy of the
project entity. |
Our power generation facilities may not operate as
planned. Upon completion of our projects currently under
construction, we will operate 95 of the 97 power plants in which
we currently have an interest. The continued operation of power
generation facilities, including, upon completion of
construction, the facilities owned directly by us, involves many
risks, including the breakdown or failure of power generation
equipment, transmission lines, pipelines or other equipment or
processes, and performance below expected levels of output or
efficiency. From time to time our power generation facilities
have experienced equipment breakdowns or failures, and in 2005
we recorded expenses totaling approximately $33.8 million
for these breakdowns or failures compared to $54.3 million
in 2004. Continued high failure rates of Siemens-Westinghouse
provided equipment represent the highest risk for such
breakdowns, although we have programs in place that we believe
will eventually substantially reduce these failures and provide
plants with Siemens-Westinghouse equipment availability factors
competitive with plants using other manufacturers
equipment.
Although our facilities contain various redundancies and
back-up mechanisms, a
breakdown or failure may prevent the affected facility from
performing under any applicable PPAs. Although insurance is
maintained to partially protect against operating risks, the
proceeds of insurance may not be adequate to cover lost revenues
or increased expenses. As a result, we could be unable to
service principal and interest payments under our financing
obligations which could result in losing our interest in one or
more power generation facility.
Our geothermal energy reserves may be inadequate for our
operations. The development and operation of geothermal
energy resources are subject to substantial risks and
uncertainties similar to those experienced in the development of
oil and gas resources. The successful exploitation of a
geothermal energy resource ultimately depends upon:
|
|
|
|
|
the heat content of the extractable steam or fluids; |
|
|
|
the geology of the reservoir; |
51
|
|
|
|
|
the total amount of recoverable reserves; |
|
|
|
operating expenses relating to the extraction of steam or fluids; |
|
|
|
price levels relating to the extraction of steam or fluids or
power generated; and |
|
|
|
capital expenditure requirements relating primarily to the
drilling of new wells. |
In connection with each geothermal power plant, we estimate the
productivity of the geothermal resource and the expected decline
in productivity. The productivity of a geothermal resource may
decline more than anticipated, resulting in insufficient
reserves being available for sustained generation of the
electrical power capacity desired. An incorrect estimate by us
or an unexpected decline in productivity could, if material,
adversely affect our results of operations or financial
condition.
Geothermal reservoirs are highly complex. As a result,
there exist numerous uncertainties in determining the extent of
the reservoirs and the quantity and productivity of the steam
reserves. Reservoir engineering is an inexact process of
estimating underground accumulations of steam or fluids that
cannot be measured in any precise way, and depends significantly
on the quantity and accuracy of available data. As a result, the
estimates of other reservoir specialists may differ materially
from ours. Estimates of reserves are generally revised over time
on the basis of the results of drilling, testing and production
that occur after the original estimate was prepared. We cannot
assure you that we will be able to successfully manage the
development and operation of our geothermal reservoirs or that
we will accurately estimate the quantity or productivity of our
steam reserves.
Seismic disturbances could damage our projects. Areas
where we operate and are developing many of our geothermal and
gas-fired projects are subject to frequent low-level seismic
disturbances. More significant seismic disturbances are
possible. Our existing power generation facilities are built to
withstand relatively significant levels of seismic disturbances,
and we believe we maintain adequate insurance protection.
However, earthquake, property damage or business interruption
insurance may be inadequate to cover all potential losses
sustained in the event of serious seismic disturbances.
Additionally, insurance for these risks may not continue to be
available to us on commercially reasonable terms.
Our results are subject to quarterly and seasonal
fluctuations. Our quarterly operating results have
fluctuated in the past and may continue to do so in the future
as a result of a number of factors, including:
|
|
|
|
|
seasonal variations in energy prices; |
|
|
|
variations in levels of production; |
|
|
|
the timing and size of acquisitions; and |
|
|
|
the completion of development and construction projects. |
Additionally, because we receive the majority of capacity
payments under some of our PPAs during the months of May through
October, our revenues and results of operations are, to some
extent, seasonal.
Competition could adversely affect our performance. The
power generation industry is characterized by intense
competition, and we encounter competition from utilities,
industrial companies, marketing and trading companies, and other
IPPs. In recent years, there has been increasing competition
among generators in an effort to obtain PPAs, and this
competition has contributed to a reduction in electricity prices
in certain markets. In addition, many states are implementing or
considering regulatory initiatives designed to increase
competition in the domestic power industry. For instance, the
CPUC issued decisions that provided that all California electric
users taking service from a regulated public utility could elect
to receive direct access service commencing April 1998; however,
the CPUC suspended the offering of direct access to any customer
not receiving direct access service as of September 20,
2001, due to the problems experienced in the California energy
markets during 2000 and 2001. As a result, uncertainty exists as
to the future course for direct access in California in the
aftermath of the energy crisis in that state. In Texas,
legislation phased in a deregulated
52
power market, which commenced on January 1, 2001. This
competition has put pressure on electric utilities to lower
their costs, including the cost of purchased electricity, and
increasing competition in the supply of electricity in the
future will increase this pressure.
The volatility in the California power market from mid-2000
through mid-2001 has produced significant unanticipated results,
and as described in the following risk factors, the unresolved
issues arising in that market, where 42 of our 99 power plants
are located, could adversely affect our performance.
We may be required to make refund payments to the CalPX and
CAISO as a result of the California Refund Proceeding. On
August 2, 2000, the California Refund Proceeding was
initiated by a complaint made at the FERC, by SDG&E under
Section 206 of the FPA alleging, among other things, that
the markets operated by CAISO, and the CalPX, were
dysfunctional. FERC established a refund effective period of
October 2, 2000, to June 19, 2001 (the Refund
Period), for sales made into those markets.
On December 12, 2002, an Administrative Law Judge issued a
Certification of Proposed Finding on California Refund Liability
(December 12 Certification) making an initial
determination of refund liability. On March 26, 2003, FERC
issued an order (the March 26 Order) adopting many
of the findings set forth in the December 12 Certification. In
addition, as a result of certain findings by the FERC staff
concerning the unreliability or misreporting of certain reported
indices for gas prices in California during the Refund Period,
FERC ordered that the basis for calculating a partys
potential refund liability be modified by substituting a gas
proxy price based upon gas prices in the producing areas plus
the tariff transportation rate for the California gas price
indices previously adopted in the California Refund Proceeding.
We believe, based on the available information, that any refund
liability that may be attributable to us could total
approximately $10.1 million (plus interest, if applicable),
after taking the appropriate set-offs for outstanding
receivables owed by the CalPX and CAISO to Calpine. We believe
we have appropriately reserved for the refund liability that by
our current analysis would potentially be owed under the refund
calculation clarification in the March 26 Order. The final
determination of the refund liability and the allocation of
payment obligations among the numerous buyers and sellers in the
California markets is subject to further Commission proceedings
to ascertain the allocation of payment obligations among the
numerous buyers and sellers in the California markets.
Furthermore, it is possible that there will be further
proceedings to require refunds from certain sellers for periods
prior to the originally designated Refund Period. In addition,
the FERC orders concerning the Refund Period, the method for
calculating refund liability and numerous other issues are
pending on appeal before the U.S. Court of Appeals for the
Ninth Circuit. At this time, we are unable to predict the timing
of the completion of these proceedings or the final refund
liability. Thus, the impact on our business is uncertain.
The energy payments made to us during a certain period under
our QF contracts with PG&E may be retroactively adjusted
downward as a result of a CPUC proceeding. Our qualifying
facility, or QF, contracts with PG&E provide that the CPUC
has the authority to determine the appropriate utility
avoided cost to be used to set energy payments by
determining the short run avoided cost (SRAC) energy
price formula. In mid-2000 our QF facilities elected the option
set forth in Section 390 of the California Public Utilities
Code, which provided QFs the right to elect to receive energy
payments based on the CalPX market clearing price instead of the
SRAC price administratively determined by the CPUC. Having
elected such option, our QF facilities were paid based upon the
CalPX Price for various periods commencing in the summer of 2000
until January 19, 2001, when the CalPX ceased operating a
day-ahead market. The CPUC has conducted proceedings
(R.99-11-022) to determine whether the CalPX Price was the
appropriate price for the energy component upon which to base
payments to QFs which had elected the CalPX-based pricing
option. In late 2000, the CPUC Commissioner assigned to the
matter issued a proposed decision to the effect that the CalPX
Price was the appropriate energy price to pay QFs who selected
the pricing option then offered by Section 390, but the
CPUC has yet to issue a final decision. Therefore, it is
possible that the CPUC could order a payment adjustment based on
a different energy price determination. On April 29, 2004,
PG&E, the Utility Reform Network, a consumer advocacy group,
and the Office of Ratepayer Advocates, an independent consumer
advocacy department of the CPUC (collectively, the
PG&E Parties), filed a Motion for Briefing
53
Schedule Regarding True-Up of Payments to QF Switchers (the
April 2004 Motion). The April 2004 Motion requested
that the CPUC set a briefing schedule in the R.99-11-022 docket
to determine what is the appropriate price that should be paid
to the QFs that had switched to the CalPX Price. The PG&E
Parties allege that the appropriate price should be determined
using the methodology that has been developed thus far in the
California Refund Proceeding discussed above. Supplemental
pleadings have been filed on the April 2004 Motion, but neither
the CPUC nor the assigned administrative law judge has issued
any rulings with respect to either the April 2004 Motion or the
initial Emergency Motion. We believe that the CalPX Price was
the appropriate price for energy payments for our QFs during
this period, but there can be no assurance that this will be the
outcome of the CPUC proceedings. On August 16, 2005, the
Administrative Law Judge assigned to hear the April 2004 Motion
issued a ruling setting October 11, 2005, as the date for
filing prehearing conference statements and October 17,
2005, as the date of the prehearing conference. In our response,
filed on October 11, 2005, we urged that the April 2004
Motion should be dismissed, but if dismissal were not granted,
then discovery, testimony and hearings would be required. The
assigned Administrative Law Judge has not yet issued a formal
ruling following the October 17, 2005 prehearing
conference. We believe that the PX Price was the appropriate
price for energy payments and that the basis for any refund
liability based on the interim determination by FERC in the
California Refund Proceeding is unfounded, but there can be no
assurance that this will be the outcome of the CPUC proceedings.
The availability payments made to us under our Geysers
Reliability Must Run contracts have been challenged by certain
buyers as having been not just and reasonable. CAISO, EOB,
Public Utilities Commission of the State of California,
PG&E, SDG&E, and Southern California Edison Company
(collectively referred to as the Buyers Coalition)
filed a complaint on November 2, 2001 at FERC requesting
the commencement of a FPA Section 206 proceeding to
challenge one component of a number of separate settlements
previously reached on the terms and conditions of RMR contracts
with certain generation owners, including Geysers Power Company,
LLC, which settlements were also previously approved by FERC.
RMR contracts require the owner of the specific generation unit
to provide energy and ancillary services when called upon to do
so by the ISO to meet local transmission reliability needs or to
manage transmission constraints. The Buyers Coalition has asked
FERC to find that the availability payments under these RMR
contracts are not just and reasonable. On June 3, 2005,
FERC issued an order dismissing the Buyers Coalitions
complaint against all named generation owners, including GPC. On
August 2, 2005, FERC issued an order denying requests for
rehearing of its order. On September 23, 2005, the Buyers
Coalition (with the exclusion of the CAISO) filed a Petition for
Review with the U.S. Court of Appeals for the D.C. Circuit,
seeking review of FERCs order dismissing the complaint.
RMR payments made to the Delta Energy Center have been
challenged by certain parties as not being just and
reasonable. Through our subsidiary Delta Energy Center, LLC,
we are party to a recurring, yearly RMR contract with the CAISO
originally entered into in 2003. When the Delta RMR contract was
first offered by us, several issues about the contract were
disputed, including whether the CAISO accepted Deltas bid
for RMR service; whether the CAISO was bound by Deltas bid
price; and whether Deltas bid price was just and
reasonable. The Delta RMR contract was filed and accepted by
FERC effective February 10, 2003, subject to refund. On
May 30, 2003, the CAISO, PG&E and Delta entered into a
settlement regarding the Delta RMR contract (the Delta RMR
Settlement). Under the terms of the Delta RMR Settlement,
the parties agreed to interim RMR rates which Delta would
collect, subject to refund, from February 10, 2003,
forward. The parties agreed to defer further proceedings on the
Delta RMR contract until a similar RMR proceeding (the
Mirant RMR Proceeding) was resolved by FERC. Under
the terms of the Delta RMR Settlement, Delta continued to
provide services to the CAISO pursuant to the interim RMR rates,
terms and conditions. Since the Delta RMR Settlement, Delta and
CAISO have entered into RMR contracts for the years 2003, 2004
and 2005 pursuant to the terms of the Delta RMR Settlement.
On June 3, 2005, FERC issued a final order in the Mirant
RMR Proceeding, resolving that proceeding and triggering the
reopening of the Delta RMR Settlement. On November 30,
2005, Delta filed revisions to the Delta RMR contract with FERC,
proposing to change the method by which RMR rates are calculated
for Delta effective January 1, 2006. On January 27,
2006, FERC issued an order accepting the new Delta RMR rates
effective January 1, 2006 and consolidated the issues from
the Delta RMR Settlement with the 2006
54
RMR case. FERC set the proceeding for hearing, but has suspended
hearing procedures pending settlement discussions among the
parties with respect to the rates for both the February 10,
2003, through December 31, 2005, period and the calendar
year 2006 period. In addition, to resolve credit concerns raised
by certain intervening parties, Delta has begun to direct into
an escrow account the difference between the previously-filed
rate and the 2006 rate pending the determination by FERC as to
whether Delta is obligated to refund some portion of the rate
collected in 2006. We are unable at this time to predict the
result of any settlement process or the ultimate ruling by the
FERC on the rates for Deltas RMR services for the period
between February 10, 2003 and December 31, 2005 or for
calendar year 2006.
We are subject to complex government regulation which could
adversely affect our operations. Our activities are subject
to complex and stringent energy, environmental and other
governmental laws and regulations. The construction and
operation of power generation facilities require numerous
permits, approvals and certificates from appropriate foreign,
federal, state and local governmental agencies, as well as
compliance with environmental protection legislation and other
regulations. While we believe that we have obtained the
requisite approvals and permits for our existing operations and
that our business is operated in accordance with applicable
laws, we remain subject to a varied and complex body of laws and
regulations that both public officials and private individuals
may seek to enforce. Existing laws and regulations may be
revised or reinterpreted, or new laws and regulations may become
applicable to us that may have a negative effect on our business
and results of operations. We may be unable to obtain all
necessary licenses, permits, approvals and certificates for
proposed projects, and completed facilities may not comply with
all applicable permit conditions, statutes or regulations. In
addition, regulatory compliance for the construction and
operation of our facilities can be a costly and time-consuming
process. Intricate and changing environmental and other
regulatory requirements may necessitate substantial expenditures
to obtain and maintain permits. If a project is unable to
function as planned due to changing requirements, loss of
required permits or regulatory status or local opposition, it
may create expensive delays, extended periods of non-operation
or significant loss of value in a project.
Environmental regulations have had and will continue to have
an impact on our cost of doing business and our investment
decisions. We are subject to complex and stringent energy,
environmental and other governmental laws and regulations at the
federal, state and local levels in connection with the
development, ownership and operation of our energy generation
facilities, and in connection with the purchase and sale of
electricity and natural gas. Federal laws and regulations
govern, among other things, transactions by electric and gas
companies, the ownership of these facilities, and access to and
service on the electric and natural gas transmission grids.
There have been a number of federal legislative and regulatory
actions that have recently changed, and will continue to change,
how the energy markets are regulated. For example, in March 2005
the EPA adopted a significant air quality regulation, the Clean
Air Interstate Rule, that will affect our fossil fuel-fired
generating facilities located in the eastern half of the
U.S. The Clean Air Interstate Rule addresses the interstate
transport of NOx and
SO2
from fossil fuel power generation facilities. Individual states
are responsible for developing a mechanism for assigning
emissions rights to individual facilities. States
allocation mechanisms, which will be complete in 2007, will
ultimately determine the net impact to us. In addition, the
potential for future regulation greenhouse gas emissions
continues to be the subject of discussion. Our power generation
facilities are significant sources of
CO2
emissions, a greenhouse gas. Our compliance costs with any
future federal greenhouse gas regulation could be material.
Additional legislative and regulatory initiatives may occur. We
cannot provide assurance that any legislation or regulation
ultimately adopted would not adversely affect our existing
projects.
Complex electric regulations have a continuing impact on our
business. Our operations are potentially subject to the
provisions of various energy laws and regulations, including the
FPA, PUHCA 2005, PURPA and state and local regulations. The FPA
regulates wholesale sales of power, as well as electric
transmission, in interstate commerce. See Government
Regulation Federal Power Act. PUHCA 2005, which
repealed PUHCA 1935 as of February 8, 2006, subjects
holding companies, as defined in PUHCA 2005, to
certain FERC rights of access to the companies books and
records that are determined by FERC to be relevant to the
55
companies respective FERC-jurisdictional rates See
Government Regulation Public Utility Holding Company
Act of 1935. PURPA provides owners of QFs (as defined under
PURPA (see Government Regulation Public Utility
Regulatory Policies Act of 1978)) exemptions from certain
federal and state regulations, including rate and financial
regulations. Each of these laws was created or amended by EPAct
2005, and FERC is still promulgating regulations to implement
EPAct 2005s provisions. We cannot predict what the final
effects of these regulations will be on our business.
Under the FPA and FERCs regulations, the wholesale sale of
power at market-based or cost-based rates requires that the
seller have authorization issued by FERC to sell power at
wholesale pursuant to a FERC-accepted rate schedule. All of our
affiliates that own power plants (except for those power plants
that are QFs under PURPA or are located in ERCOT), as well as
our power marketing companies (collectively referred to herein
as Market Based Rate Companies), are currently
authorized by FERC to make wholesale sales of power at market
based rates. This authorization could possibly be revoked for
any of our Market Based Rate Companies if they fail in the
future to continue to satisfy FERCs applicable criteria or
future criteria as possibly modified by FERC; if FERC eliminates
or restricts the ability of wholesale sellers of power to make
sales at market-based rates; or if FERC institutes a proceeding,
based upon its own motion or a complaint brought by a third
party, and establishes that any of our Market Based Rate
Companies existing rates have become either unjust and
unreasonable or contrary to the public interest (the applicable
standard is determined by the circumstances). FERC could also
revoke a sellers market-based rate authority if the seller
does not comply with FERCs quarterly and triennial
reporting requirements or notify FERC of any change in the
sellers status that would reflect a departure from the
characteristics FERC relied upon in granting market-based rate
authority to the seller. If the sellers market-based rate
authority is revoked, the seller could be liable for refunds of
certain sales made at market-based rates.
Our Market Based Rate Companies also must comply with
FERCs application, filing, and reporting requirements for
persons holding or proposing to hold certain interlocking
directorates. If the appropriate filings are not made, FERC can
deny the person from holding the interlocking positions.
Under PUHCA 2005, we and certain companies within our
organizational structure are holding companies otherwise subject
to the books and records access requirements. However, we and
our subsidiary holding companies are exempt from the books and
records access requirement because we are holding companies
solely with respect to one or more QFs, EWGs and FUCOs. If one
of our subsidiary project companies were to lose their QF, EWG
or FUCO status, we would lose this exemption. Consequently, all
holding companies within our corporate structure would be
subject to the books and records access requirement of PUHCA
2005, in addition to stringent holding company record-keeping
and reporting requirements mandated by FERCs rules. If we
lose the exemption, we could seek a waiver of the record-keeping
and reporting requirements, but we cannot provide assurance that
we would obtain such waiver.
In order to avail ourselves of the benefits provided by PURPA,
our project companies must own or, in some instances, operate a
QF. For a cogeneration facility to qualify as a QF, FERC
requires the QF to produce electricity as well as thermal energy
in specified minimum proportions. The QF also must meet certain
minimum energy efficiency standards. In addition, EPAct 2005 and
FERCs implementing regulations require new cogeneration
QFs to demonstrate that their thermal output will be used in a
productive and beneficial manner and that the
facilitys electrical, thermal, chemical, and mechanical
output will be used fundamentally for industrial, commercial,
residential, or institutional purposes. Generally, any
geothermal power facility which produces not more than
80 MW of electricity qualifies for QF status. FERCs
regulations implementing EPAct 2005 require QFs to obtain
market-based rate authorization for wholesale sales that are
made pursuant to a contract executed after March 17, 2006,
and not under a state regulatory authoritys implementation
of section 210 of PURPA.
Certain factors necessary to maintain QF status are subject to
the risk of events outside our control. For example, some of our
facilities have temporarily been rendered incapable of meeting
FERCs QF criteria due to the loss of a thermal energy
customer. Such loss of a steam host could occur, for example, if
the steam host, typically an industrial facility, fails for
operating, permit or economic reasons to use sufficient
quantities of the QFs steam output. In these cases, we
have obtained from FERC limited waivers (for up to two years) of
the
56
applicable QF requirements. We cannot provide assurance that
such waivers will in every case be granted. During any such
waiver period, we would seek to replace the thermal energy
customer or find another use for the thermal energy which meets
PURPAs requirements, but no assurance can be given that
these remedial actions would be available. We also cannot
provide assurance that all of our steam hosts will continue to
take and use sufficient quantities of their respective QFs
steam output.
If any of our QFs lose their QF status, the owner of the QF
would need to obtain FERC acceptance of a market-based or
cost-based rate schedule to continue making wholesale power
sales. To maintain our exemption from PUHCA 2005, the owner
would also need to obtain EWG status. We cannot provide
assurance that such FERC acceptance of a rate schedule or EWG
status would be obtained. In addition, a loss of QF status
could, depending on the facilitys particular power
purchase agreement, allow the power purchaser to cease taking
and paying for electricity or to seek refunds of past amounts
paid and thus could cause the loss of some or all contract
revenues or otherwise impair the value of a project. If a power
purchaser were to cease taking and paying for electricity, there
can be no assurance that the costs incurred in connection with
the project could be recovered through sales to other purchasers.
FERC has proposed to eliminate prospectively electric
utilities requirement under Section 210 of PURPA to
purchase power from QFs at the utilitys avoided
cost, to the extent FERC determines that such QFs have
access to a competitive wholesale electricity market. FERC has
also proposed procedures for utilities to file to obtain relief
from mandatory purchase obligations on a service territory-wide
basis, and provides procedures for affected QFs to file to
reinstate the purchase obligation. Consistent with EPAct 2005,
FERC proposes to leave intact existing rights under any contract
or obligation in effect or pending approval involving QF
purchases or sales. FERC has not taken any final action. We
cannot predict what effect this proposal, and FERCs final
regulations, if any, implementing it, will have on our business.
For those other regulations that FERC will promulgate in the
future in connection with EPAct 2005, we cannot predict what
effect these future regulations may have on our business.
Furthermore, we cannot predict what future laws or regulations
may be promulgated. We do not know whether any other new
legislative or regulatory initiatives will be adopted or, if
adopted, what form they may take. We cannot provide assurance
that any legislation or regulation ultimately adopted would not
adversely affect the operation of and generation of electricity
by our business.
State PUCs have historically had broad authority to regulate
both the rates charged by, and the financial activities of,
electric utilities operating in their states and to promulgate
regulations for implementation of PURPA. Retail sales of
electricity or thermal energy by an independent power producer
may be subject to PUC regulation depending on state law. States
may also assert jurisdiction over the siting and construction of
electricity generating facilities including QFs and EWGs and,
with the exception of QFs, over the issuance of securities and
the sale or other transfer of assets by these facilities. We
cannot predict what laws or rules will be enacted by states or
PUCs or how these laws and rules would affect our business.
Natural gas regulations have a continuing impact upon our
business. The cost of natural gas is ordinarily the largest
operational expense of a gas fired project and is critical to
the projects economics. The risks associated with using
natural gas can include the need to arrange gathering,
processing, extraction, blending and storage, as well as
transportation of the gas from great distances, including
obtaining removal, export and import authority if the gas is
imported from a foreign country; the possibility of interruption
of the gas supply or transportation (depending on the quality of
the gas reserves purchased or dedicated to the project, the
financial and operating strength of the gas supplier, whether
firm or nonfirm transportation is purchased, and the operations
of the gas pipeline); regulatory diversion; and obligations to
take a minimum quantity of gas and pay for it (i.e., take and
pay obligations).
As the owner of more than 70 natural gas fired power plants, we
rely on the natural gas pipeline grid for delivery of fuel. The
use of pipelines for delivery of natural gas has proven to be an
efficient and reliable method of meeting customers fuel
needs. We believe that our risk of fuel supply disruption
resulting from pipeline operation difficulties is limited, given
the historical performance of pipeline operators and, in certain
instances, multiple pipeline interconnections to the generation
facilities. However, if a disruption were to
57
occur, the effect could be substantial, including outages at one
of more of our plants until we were able to secure fuel supplies.
As a purchaser and seller of natural gas in the wholesale
market, as well as a transportation customer on interstate
pipelines, we are subject to FERC regulation regarding the sale
of natural gas and the transportation of natural gas. We cannot
predict what new regulations FERC may enact in the future or how
these regulations would affect our business.
|
|
Item 1B. |
Unresolved Staff Comments |
None
Our principal executive office located in San Jose,
California is held under leases that expire through 2014. We
also lease offices, with leases expiring through 2013, in
Sacramento and Folsom, California; Houston and Pasadena,
Texas; Boston, Massachusetts; Washington, D.C.; Calgary,
Alberta; and Boca Raton and Jupiter, Florida. We hold
additional leases for other satellite offices. Subsequent to
December 31, 2005, we filed motions in the U.S. Bankruptcy
Court to reject certain of our office leases and have closed
several of our offices, including our offices in Dublin,
California and Tampa, Florida. We anticipate that it is more
likely than not we will file further notices of rejection in
connection with our bankruptcy cases. See Notes 3 and 34 of
the Notes to Consolidated Financial Statements for more
information on notices of rejection and the bankruptcy cases.
We either lease or own the land upon which our power-generating
facilities are built. We believe that our properties are
adequate for our current operations. A description of our
power-generating facilities is included under Item 1.
Business.
We have leasehold interests in 104 leases comprising
approximately 25,826 acres of federal, state and private
geothermal resource lands in The Geysers area in northern
California. In the Glass Mountain and Medicine Lake areas
in northern California, we hold leasehold interests in 41 leases
comprising approximately 46,400 acres of federal geothermal
resource lands.
In general, under these leases, we have the exclusive right to
drill for, produce and sell geothermal resources from these
properties and the right to use the surface for all related
purposes. Each lease requires the payment of annual rent until
commercial quantities of geothermal resources are established.
After such time, the leases require the payment of minimum
advance royalties or other payments until production commences,
at which time production royalties are payable. Such royalties
and other payments are payable to landowners, state and federal
agencies and others, and vary widely as to the particular lease.
The leases are generally for initial terms varying from 10 to
20 years or for so long as geothermal resources are
produced and sold. Certain of the leases contain drilling or
other exploratory work requirements. In certain cases, if a
requirement is not fulfilled, the lease may be terminated and in
other cases additional payments may be required. We believe that
our leases are valid and that we have complied with all the
requirements and conditions material to the continued
effectiveness of the leases. A number of our leases for
undeveloped properties may expire in any given year. Before
leases expire, we perform geological evaluations in an effort to
determine the resource potential of the underlying properties.
We can make no assurance that we will decide to renew any
expiring leases.
We sold substantially all of our remaining domestic oil and gas
assets to Rosetta in July 2005. As of December 31, 2005, we
continue to own certain oil and gas properties, including
certain oil and gas properties yet to be transferred to Rosetta
in connection with the July 2005 sale. Properties remaining to
be transferred include (i) certain properties which are
subject to ministerial governmental action approving Rosetta as
a qualified assignee and operator and (ii) as described
further in Note 13, certain other properties as to which
approximately $75 million of the purchase price was
withheld pending the transfer of such properties for which
consents had not yet been obtained at the closing date.
Accordingly, we currently retain ownership of such properties.
58
|
|
Item 3. |
Legal Proceedings |
See Note 31 of the Notes to Consolidated Financial
Statements for a description of our legal proceedings.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
PART II
|
|
Item 5. |
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Public trading of our common stock commenced on
September 20, 1996, on the NYSE under the symbol
CPN. Prior to that, there was no public market for
our common stock. On December 2, 2005, the NYSE notified us
that it was suspending trading in our common stock prior to the
opening of the market on December 6, 2005, and the SEC
approved the application of the NYSE to delist our common stock
effective March 15, 2006. Since December 6, 2005, our
common stock has traded
over-the-counter on the
Pink Sheets under the symbol CPNLQ.PK. Certain
restrictions in trading are imposed under a U.S. Bankruptcy
Court order that requires certain direct and indirect holders
(or persons who may become direct or indirect holders) of our
common stock to provide the U.S. Debtors, their counsel and
the Bankruptcy Court advance notice of their intent to buy or
sell our common stock (including options to acquire common stock
and other equity linked instruments) prior to effectuating any
such transfer.
The following table sets forth the high and low sale price per
share of our common stock as reported on the NYSE Composite
Transactions Tape for the period January 1 to December 5,
2005, and January 1 to December 31, 2004, and on the
over-the-counter market
(as reported in the Pink Sheets) from December 6 to
December 31, 2005. The stock price information is based on
published financial sources.
Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily reflect actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
Market |
|
|
| |
|
| |
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
6.42 |
|
|
$ |
4.35 |
|
|
NYSE |
Second Quarter
|
|
|
4.98 |
|
|
|
3.04 |
|
|
NYSE |
Third Quarter
|
|
|
4.46 |
|
|
|
2.87 |
|
|
NYSE |
Fourth Quarter
|
|
|
4.08 |
|
|
|
2.24 |
|
|
NYSE |
2005
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
3.80 |
|
|
$ |
2.64 |
|
|
NYSE |
Second Quarter
|
|
|
3.60 |
|
|
|
1.45 |
|
|
NYSE |
Third Quarter
|
|
|
3.88 |
|
|
|
2.26 |
|
|
NYSE |
Fourth Quarter
|
|
|
3.05 |
|
|
|
0.20 |
|
|
NYSE (high) |
|
|
|
|
|
|
|
|
|
|
Pink Sheets (low) |
As of December 31, 2005, there were approximately 2,345
holders of record of our common stock. On December 31,
2005, the last sale price reported on the Pink Sheets for our
common stock was $0.21 per share.
We have not declared any cash dividends on our common stock
during the past two fiscal years. We do not anticipate being
able to pay any cash dividends on our common stock in the
foreseeable future because of our bankruptcy filing and
liquidity constraints. In addition, our ability to pay cash
dividends is restricted under certain of our indentures and our
other debt agreements. Future cash dividends, if any, will be at
the discretion of our board of directors and will depend upon,
among other things, our future operations and earnings, capital
requirements, general financial condition, contractual
restrictions and such other factors as our Board of Directors
may deem relevant.
59
See Securities Authorized for Issuance Under Equity
Compensation Plans in Item 12 below.
|
|
Item 6. |
Selected Financial Data |
|
|
|
Selected Consolidated Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except earnings per share) | |
Statement of Operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
10,112,658 |
|
|
$ |
8,648,382 |
|
|
$ |
8,421,170 |
|
|
$ |
7,069,198 |
|
|
$ |
6,338,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations and cumulative
effect of a change in accounting principle
|
|
$ |
(9,880,954 |
) |
|
$ |
(419,683 |
) |
|
$ |
(13,272 |
) |
|
$ |
1,463 |
|
|
$ |
470,557 |
|
Discontinued operations, net of tax
|
|
|
(58,254 |
) |
|
|
177,222 |
|
|
|
114,351 |
|
|
|
117,155 |
|
|
|
151,899 |
|
Cumulative effect of a change in accounting principle(1)
|
|
|
|
|
|
|
|
|
|
|
180,943 |
|
|
|
|
|
|
|
1,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(9,939,208 |
) |
|
$ |
(242,461 |
) |
|
$ |
282,022 |
|
|
$ |
118,618 |
|
|
$ |
623,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations and cumulative
effect of a change in accounting principle
|
|
$ |
(21.32 |
) |
|
$ |
(0.97 |
) |
|
$ |
(0.03 |
) |
|
$ |
|
|
|
$ |
1.55 |
|
|
Discontinued operations, net of tax
|
|
|
(0.12 |
) |
|
|
0.41 |
|
|
|
0.29 |
|
|
|
0.33 |
|
|
|
0.50 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(21.44 |
) |
|
$ |
(0.56 |
) |
|
$ |
0.72 |
|
|
$ |
0.33 |
|
|
$ |
2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations and cumulative
effect of a change in accounting principle
|
|
$ |
(21.32 |
) |
|
$ |
(0.97 |
) |
|
$ |
(0.03 |
) |
|
$ |
|
|
|
$ |
1.32 |
|
|
Discontinued operations, net of tax provision
|
|
|
(0.12 |
) |
|
|
0.41 |
|
|
|
0.29 |
|
|
|
0.33 |
|
|
|
0.48 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(21.44 |
) |
|
$ |
(0.56 |
) |
|
$ |
0.71 |
|
|
$ |
0.33 |
|
|
$ |
1.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
20,544,797 |
|
|
$ |
27,216,088 |
|
|
$ |
27,303,932 |
|
|
$ |
23,226,992 |
|
|
$ |
21,937,227 |
|
Short-term debt and capital lease obligations
|
|
|
5,413,937 |
|
|
|
1,029,257 |
|
|
|
346,994 |
|
|
|
1,651,448 |
|
|
|
25,307 |
|
Long-term debt and capital lease obligations
|
|
|
2,462,462 |
|
|
|
16,940,809 |
|
|
|
17,324,284 |
|
|
|
12,456,259 |
|
|
|
12,490,175 |
|
Liabilities subject to compromise(2)
|
|
|
14,610,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary trusts(3)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,123,969 |
|
|
$ |
1,122,924 |
|
|
|
(1) |
The 2003 gain from the cumulative effect of a change in
accounting principle included three items: (1) a gain of
$181.9 million, net of tax effect, from the adoption of DIG
Issue No. C20; (2) a loss of $1.5 million
associated with the adoption of FIN 46, as revised and the
deconsolidation of the Trusts which issued the HIGH TIDES and
(3) a gain of $0.5 million, net of tax effect, from
the adoption of SFAS No. 143 Accounting for
Asset Retirement Obligations. |
|
(2) |
LSTC include unsecured and undersecured liabilities incurred
prior to the Petition Date and exclude liabilities that are
fully secured or liabilities of our subsidiaries or affiliates
that have not made bankruptcy filings and other approved
payments such as taxes and payroll. See Note 24 of the
Notes to Consolidated Financial Statements for more information. |
60
|
|
(3) |
Included in long-term debt as of December 31, 2004 and
2003. See Note 14 of the Notes to Consolidated Financial
Statements for more information. |
|
|
|
Selected Operating Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in thousands, except pricing data) | |
Power Plants(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity and steam revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
$ |
4,676,631 |
|
|
$ |
3,782,205 |
|
|
$ |
3,023,327 |
|
|
$ |
2,072,257 |
|
|
$ |
1,593,452 |
|
|
Capacity
|
|
|
1,103,118 |
|
|
|
1,002,939 |
|
|
|
965,728 |
|
|
|
757,562 |
|
|
|
507,542 |
|
|
Thermal and other
|
|
|
499,091 |
|
|
|
380,203 |
|
|
|
302,119 |
|
|
|
164,132 |
|
|
|
138,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total electricity and steam revenues
|
|
$ |
6,278,840 |
|
|
$ |
5,165,347 |
|
|
$ |
4,291,174 |
|
|
$ |
2,993,951 |
|
|
$ |
2,239,839 |
|
MWh produced
|
|
|
87,431 |
|
|
|
83,412 |
|
|
|
70,856 |
|
|
|
63,172 |
|
|
|
38,445 |
|
Average electric price per MWh generated(2)
|
|
$ |
71.81 |
|
|
$ |
61.93 |
|
|
$ |
60.56 |
|
|
$ |
47.39 |
|
|
$ |
58.26 |
|
|
|
(1) |
From continuing operations only. Discontinued operations are
excluded. |
|
(2) |
Excluding the effects of hedging, balancing and optimization
activities related to our generating assets. |
Set forth above is certain selected operating information for
our power plants for which results are consolidated in our
statements of operations. Electricity revenue is composed of
fixed capacity payments, which are not related to production,
and variable energy payments, which are related to production.
Capacity revenues include, besides traditional capacity
payments, other revenues such as Reliability Must Run and
Ancillary Service revenues. The information set forth under
thermal and other revenue consists of host steam sales and other
thermal revenue.
Set forth below is a table summarizing the dollar amounts and
percentages of our total revenue for the years ended
December 31, 2005, 2004, and 2003, that represent purchased
power and purchased gas sales for hedging and optimization and
the costs we incurred to purchase the power and gas that we
resold during these periods (in thousands, except percentage
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Total revenue
|
|
$ |
10,112,658 |
|
|
$ |
8,648,382 |
|
|
$ |
8,421,170 |
|
Sales of purchased power and gas for hedging and optimization(1)
|
|
|
3,667,992 |
|
|
|
3,376,293 |
|
|
|
4,033,193 |
|
As a percentage of total revenue
|
|
|
36.27 |
% |
|
|
39.04 |
% |
|
|
47.89 |
% |
Total cost of revenue
|
|
|
12,057,581 |
|
|
|
8,268,433 |
|
|
|
7,814,343 |
|
Purchased power and gas expense for hedging and optimization(1)
|
|
|
3,417,153 |
|
|
|
3,198,690 |
|
|
|
3,962,613 |
|
As a percentage of total cost of revenue
|
|
|
28.34 |
% |
|
|
38.69 |
% |
|
|
50.71 |
% |
|
|
(1) |
On October 1, 2003, we adopted on a prospective basis EITF
Issue No. 03-11 and
netted certain purchases of power against sales of purchased
power. See Note 2 of the Notes to Consolidated Financial
Statements for a discussion of our application of EITF Issue
No. 03-11. |
The primary reasons for the significant levels of these sales
and costs of revenue items include: (a) significant levels
of hedging, balancing and optimization activities by our CES
risk management organization; (b) particularly volatile
markets for electricity and natural gas, which prompted us to
frequently adjust our hedge positions by buying power and gas
and reselling it; (c) the accounting requirements under
61
SAB No. 104, Revenue Recognition, and EITF
Issue No. 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, under which we show most
of our hedging contracts on a gross basis (as opposed to netting
sales and cost of revenue); and (d) rules in effect
associated with the NEPOOL market in New England, which
require that all power generated in NEPOOL be sold directly to
the ISO in that market; we then buy from the ISO to serve our
customer contracts. GAAP required us to account for this
activity, which applies to three of our merchant generating
facilities, as the aggregate of two distinct sales and one
purchase until our prospective adoption of EITF Issue
No. 03-11 on
October 1, 2003. This gross basis presentation increased
revenues but not gross profit. The table below details the
financial extent of our transactions with NEPOOL for financial
periods prior to the adoption of EITF Issue
No. 03-11. Our
entrance into the NEPOOL market began with our acquisition of
the Dighton, Tiverton and Rumford facilities on
December 15, 2000.
|
|
|
|
|
|
|
|
Nine Months | |
|
|
Ended | |
|
|
September 30, | |
|
|
2003 | |
|
|
| |
|
|
(In thousands) | |
Sales to NEPOOL from power we generated
|
|
$ |
258,945 |
|
Sales to NEPOOL from hedging and other activity
|
|
|
117,345 |
|
|
|
|
|
|
Total sales to NEPOOL
|
|
$ |
376,290 |
|
Total purchases from NEPOOL
|
|
$ |
310,025 |
|
(The statement of operations data information and the balance
sheet data information contained in the Selected Financial Data
is derived from the audited Consolidated Financial Statements of
Calpine Corporation and Subsidiaries. See the Notes to
Consolidated Financial Statements and Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations Results of
Operations for additional information.)
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Our core business and primary source of revenue is the
generation and delivery of electric power. We provide power to
our U.S. and Canadian customers through the integrated
development, construction or acquisition, and operation of
efficient and environmentally friendly electric power plants
fueled primarily by natural gas and, to a much lesser degree, by
geothermal resources. We protect and enhance the value of our
electric assets and gas positions with a sophisticated risk
management organization. We also protect our power generation
assets and control certain of our costs by producing certain of
the combustion turbine replacement parts that we use at our
power plants, and we generate revenue by providing combustion
turbine parts to third parties. Finally, through 2005, we
offered services to third parties to capture value in the skills
we have honed in building, commissioning, repairing and
operating power plants; however, we are discontinuing this
activity.
In 2005, we recorded material impairment charges totaling
$4,530.3 million on power plants in development,
construction and operations and reorganization items charges
totaling $5,026.5 million related to our bankruptcy filing.
Currently, we operate as a
debtor-in-possession
under the jurisdiction of the Bankruptcy Courts in accordance
with Chapter 11 of the Bankruptcy Code and, with respect to
the Canadian Debtors, in accordance with the CCAA. Accordingly,
we are devoting a substantial amount of our resources to our
bankruptcy restructuring, which includes developing a plan of
reorganization, developing a new business plan, beginning with a
top-to-bottom review of
our power assets, business units and markets where we are
active, resolving claims disputes and contingencies, and
determining enterprise value and capital structure. In addition
to financial restructuring activities, we are preparing to
operate after our emergence from Chapter 11 protection.
62
Our key opportunities and challenges include:
|
|
|
|
|
developing and executing our new business plan, including
enhancing the value of our core assets and businesses during the
pendency of our bankruptcy cases; |
|
|
|
|
|
preserving and enhancing our liquidity while spark spreads (the
differential between power revenues and fuel costs) are
depressed; |
|
|
|
lowering our costs of production and overhead through various
efficiency programs; |
|
|
|
|
|
developing, proposing, confirming and implementing our plan of
reorganization; and |
|
|
|
emerging from bankruptcy as a stronger, more competitive company. |
|
|
|
Bankruptcy Considerations |
Since December 20, 2005, we and 273 of our direct and
indirect wholly owned subsidiaries in the United States
filed voluntary petitions for relief under Chapter 11 of
the U.S. Bankruptcy Code and, in Canada, 12 of our wholly
owned Canadian subsidiaries have been granted creditor
protection under the CCAA. See Note 3 of the Notes to
Consolidated Financial Statements for more information regarding
these proceedings.
Our bankruptcy filings were preceded by the convergence of a
number of factors. Among other things, during that time we were
continuing to experience a tight liquidity situation due in part
to our obligations to service our debt and certain of our
preferred equity securities. Our debt and preferred equity
instruments also contained restrictions on our ability to raise
further capital, whether through financings, asset sales or
otherwise, or restricted the use of the proceeds of any such
transactions. At the same time, market spark spreads were being
adversely impacted by excess capacity in certain of our energy
markets, which had resulted in our facilities running at a
reduced average baseload capacity factor of 43.9% by 2005. Our
fuel costs were also adversely impacted by historically high
prices for natural gas in late 2005 at a time when we were more
exposed to gas price volatility after the sale in July 2005 of
substantially all of our remaining oil and gas reserves. Higher
gas prices also increased our collateral support obligations to
counter-parties. Also during that time, we experienced certain
adverse litigation outcomes, particularly in a litigation we
brought in the Delaware Chancery Court against the collateral
agent and trustees representing our First and Second Priority
Notes regarding our use of certain of the proceeds of the sale
of our oil and natural gas reserves. Accordingly, as we brought
new, partially uncontracted capacity into commercial operations,
we were not able to realize sufficient incremental spark spread
margins to meet our increased debt service and preferred equity
obligations and to fund our operations, while restrictions in
our debt and preferred equity instruments prevented us from
pursuing alternative funding opportunities or reducing those
obligations.
Through the bankruptcy process and reorganization, we intend to
restructure the Company to strengthen our core power generation
business while reducing activities and curtailing expenditures
in certain non-core areas and business units. A fundamental
aspect of the restructuring will be the establishment of a
capital structure that is consistent with our refocused
business, which will allow us to be able to successfully compete
in the current environment where persistently low spark spreads
and the effects of overcapacity and incomplete deregulation in
the power generation business have resulted in reduced cash
flows. While in bankruptcy, we expect our financial results to
be volatile as asset impairments, asset dispositions,
restructuring activities, lease and other contract terminations
and rejections, and claims assessments will likely significantly
impact our consolidated financial statements. As a result, our
historical financial performance is likely not indicative of our
financial performance during bankruptcy.
In addition, upon emergence from bankruptcy, the amounts
reported in subsequent consolidated financial statements may
materially change relative to historical consolidated financial
statements as a result of revisions to our operating plans
effected in connection with our bankruptcy reorganization and,
if required to be applied, the impact of revaluing our assets
and liabilities by applying fresh start accounting in accordance
with the AICPAs Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization under
the Bankruptcy Code.
63
We expect our bankruptcy cases to follow three general
phases stabilization, plan design and
implementation. These phases are described below:
|
|
|
|
|
Stabilization During this initial phase, we
are focused on stabilizing our business operations and adjusting
to the changes caused by bankruptcy. Our activities during this
period include securing the DIP Facility, establishing working
relationships with our various creditor committees and their
advisors and performing a comprehensive lease and executory
contract review process. We have made significant progress in
this phase and will continue our stabilization efforts during
2006, particularly with regard to the lease and executory
contract review process. |
|
|
|
Plan Design In this phase, we assess the
business and prepare a business plan, evaluate claims made
against the Calpine Debtors and prepare a plan of reorganization
that is intended to maximize the value of the bankruptcy estate.
We are in the early stages of this phase now and will likely be
in this phase throughout 2006. The period during which we have
the exclusive right to propose a plan or plans of reorganization
has been extended by the U.S. Bankruptcy Court to
December 31, 2006, and we have the exclusive right to
solicit acceptances of any such plans until March 31, 2007. |
|
|
|
Implementation In this phase, we will
continue to negotiate our plan of reorganization with creditor
committees with the expectation that an agreed plan of
reorganization, supported by our official and ad hoc creditor
committees, will be proposed and filed with the
U.S. Bankruptcy Court, and an agreed plan, which may
contemplate liquidation of the Canadian Debtors, filed with the
Canadian Court. In addition, during this phase we will determine
how the claims of various creditors and interests of equity
holders, if any, will be satisfied. This is the final phase and
we expect that it will result in our emergence from bankruptcy.
However, we cannot be sure at this time when or if we will
emerge from bankruptcy. It is possible that some or all of the
assets of any one or more of the Calpine Debtors may be sold. |
Among other things, we arranged, and the U.S. Bankruptcy Court
approved, our DIP Facility, including related cash collateral
and adequate assurance motions which has allowed our business
activities to continue to function. We have also sought and
obtained U.S. Bankruptcy Court approval through our first
day and subsequent motions to continue to pay critical
vendors, meet our payroll pre-petition and post-petition
obligations, maintain our cash management systems, collateralize
our gas supply contracts, enter into and collateralize trading
contracts, pay our taxes, continue to provide employee benefits,
maintain our insurance programs and implement an employee
severance program, which has allowed us to continue to operate
the existing business in the ordinary course. In addition, the
U.S. Bankruptcy Court has approved certain trading notification
and transfer procedures designed to allow us to restrict trading
in our common stock (and related securities) which could
negatively impact our accrued NOLs and other tax attributes, and
granted us extensions of time to file and seek approval of a
plan of reorganization and to assume or reject real property
leases. See Item 1. Business and Notes 3
and 22 of the Notes to Consolidated Financial Statements for
additional information regarding our DIP Facility and other
bankruptcy matters.
We have established a systematic and comprehensive lease and
executory contract review process to determine which leases and
contracts we should assume and which we should reject in the
bankruptcy process. As of December 31, 2005, we had sought
to reject eight PPAs, which were significantly below market. On
February 6, 2006, we filed a notice of rejection with the
U.S. Bankruptcy Court to reject the Rumford and Tiverton
power plant leases. We continue to review all leases and
executory contracts, including office and power plant facility
leases, and anticipate that we will seek to reject further
leases or other contracts as we continue our efforts to
strengthen and stabilize the Companys financial condition.
See Item 1. Business and Note 3 of the
Notes to Consolidated Financial Statements for additional
information regarding the contract rejections.
As part of the bankruptcy process, claims are filed with the
applicable Bankruptcy Court related to amounts that claimants
believe the Calpine Debtors owe them. The U.S. Bankruptcy
Court has set August 1, 2006, as the bar date by which all
claims against the U.S. Debtors are required to be filed,
and the Canadian Court has set June 30, 2006, as the bar
date by which all claims against the Canadian Debtors are
required to be filed. An evaluation of actual or potential
bankruptcy claims, which are not already reflected as a liability
64
on the balance sheet, must meet the SFAS No. 5,
Accounting for Contingencies, criteria before an
additional liability can be recorded. Due to the close proximity
of our bankruptcy filing date to our fiscal year-end date, we
have not yet been presented with significant additional claims
that meet the SFAS No. 5 criteria (probable and can be
reasonably estimated) to be accrued at December 31, 2005.
However, if valid unrecorded claims are presented to the Company
in future periods, we would need to accrue for them. See
Application of Critical Accounting
Policies for additional information.
Calpine Corporation has issued redundant guarantees on
approximately $2.0 billion of the debt of Canadian Debtor
subsidiaries. Therefore, we expect that the amount of claims
filed related to funded debt will be significantly greater than
our total funded debt of approximately $17.4 billion as of
December 31, 2005, which consists of approximately
$7.9 billion classified as debt in our consolidated balance
sheet, approximately $7.5 billion classified within LSTC,
and approximately $2.0 billion of debt issued by
deconsolidated Canadian entities.
Set forth below are the results of operations for the years
ending December 31, 2005, 2004, and 2003 (in millions,
except for unit pricing information, percentages and MW
volumes); in the comparative tables below, increases in
revenue/income or decreases in expense (favorable variances) are
shown without brackets while decreases in revenue/income or
increases in expense (unfavorable variances) are shown with
brackets. Prior year amounts reflect reclassifications for
discontinued operations. See Note 13 of the Notes to
Consolidated Financial Statements for more information regarding
our discontinued operations.
As indicated above, our historical financial performance is
likely not indicative of our future financial performance during
bankruptcy and beyond because, among other things: (1) we
will not accrue interest expense on unsecured or under-secured
debt during bankruptcy; (2) we expect to dispose of certain
plants that do not generate positive cash flow or which are
considered non-strategic; (3) we have begun to implement
overhead reduction programs; and (4) we expect to reject
certain unprofitable or burdensome contracts and leases. During
bankruptcy we expect to incur substantial reorganization
expenses and could record additional impairment charges albeit
at different levels than we incurred in 2005. In addition, as
part of our emergence from bankruptcy protection, we may be
required to adopt fresh start accounting in a future period. If
fresh start accounting is applicable, our assets and liabilities
will be recorded at fair value as of the fresh start reporting
date. The fair value of our assets and liabilities may differ
materially from the recorded values of assets and liabilities on
our consolidated balance sheets. In addition, if fresh start
accounting is required, the financial results of the Company
after the application of fresh start accounting may be different
from historical trends.
In the past several years, as we have brought on-line new
merchant (uncontracted) capacity, we have seen baseload
capacity factors decline and have experienced faster growth in
costs of ownership (depreciation, interest expense and plant
operating expense) than we have realized in additional spark
spreads (the margin between electricity sales and fuel costs).
Consequently, our basic operating results have worsened.
We expect that through the programs implemented to date,
together with those emanating from our plan of reorganization,
once completed and approved, we will emerge from bankruptcy
protection on a more financially sound and profitable basis.
|
|
|
Year Ended December 31, 2005, Compared to Year Ended
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Total revenue
|
|
$ |
10,112.7 |
|
|
$ |
8,648.4 |
|
|
$ |
1,464.3 |
|
|
|
16.9% |
|
The increase in total revenue is explained by category below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Electricity and steam revenue
|
|
$ |
6,278.8 |
|
|
$ |
5,165.3 |
|
|
$ |
1,113.5 |
|
|
|
21.6% |
|
65
E&S revenue increased as we completed construction and
brought into operation four new baseload power plants in 2005,
and our average consolidated operating capacity increased by
3,009 MW, or 13.6%, to 25,207 MW at December 31,
2005. We also realized a 16.0% increase in our average electric
price before the effects of hedging, balancing and optimization,
from $61.93/ MWh in 2004 to $71.81/ MWh in 2005. Generation
increased by 4.8% to 87.4 million MWh. The increase in
generation lagged behind the increase in average MW in operation
as our baseload capacity factor dropped to 43.9% in 2005 from
48.5% in 2004 primarily due to the increased occurrence of
unattractive off-peak market spark spreads in certain areas due
in part to mild weather and also due to oversupply conditions in
those markets, which caused us to cycle off certain of our
merchants plants without contracts in off peak hours.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Transmission sales revenue
|
|
$ |
11.5 |
|
|
$ |
20.0 |
|
|
$ |
(8.5 |
) |
|
|
(42.5)% |
|
We purchase transmission capacity so that power can move from
our plants to our customers. Transmission capacity can be
purchased on a long-term basis and, in many of the markets in
which we operate, can be resold if we do not need it and some
other party can use it. If the generation from our plants is
less than we anticipated when we purchased the transmission
capacity, we can and do realize revenue by selling the unused
portion of the transmission capacity.
We also, in many cases, bill our customers for transmission
costs that we incur in serving their accounts. This is
especially true in the case of many of our retail contracts.
When we bill our customers for transmission expenses incurred on
their behalf we recognize these billings as a component of
transmission revenue. For the year ended December 31, 2005,
as compared to the same period in 2004, transmission revenues
have declined as we have seen a reduction in transmission
billings related to our retail customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Sales of purchased power and gas for hedging and optimization
|
|
$ |
3,668.0 |
|
|
$ |
3,376.3 |
|
|
$ |
291.7 |
|
|
|
8.6 |
% |
Sales of purchased power and gas for hedging and optimization
increased during 2005 due primarily to higher volumes of gas
purchased and higher prices of natural gas as compared to the
same period in 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Realized gain on power and gas mark-to-market transactions, net
|
|
$ |
106.5 |
|
|
$ |
48.1 |
|
|
$ |
58.4 |
|
|
|
121.4 |
% |
Unrealized (loss) on power and gas mark-to-market transactions,
net
|
|
|
(95.1 |
) |
|
|
(34.7 |
) |
|
|
(60.4 |
) |
|
|
174.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market activities, net
|
|
$ |
11.4 |
|
|
$ |
13.4 |
|
|
$ |
(2.0 |
) |
|
|
(14.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market
activities, which are shown on a net basis, result from general
market price movements against our open commodity derivative
positions, including positions accounted for as trading under
EITF Issue No. 02-03 and other
mark-to-market
activities. These commodity positions represent a small portion
of our overall commodity contract position. Realized revenue
represents the portion of contracts actually settled and is
offset by a corresponding change in unrealized gains or losses
as unrealized derivative values are converted from unrealized
forward positions to cash at settlement. Unrealized gains and
losses include the change in fair value of open contracts as
well as the ineffective portion of our cash flow hedges. The
increase in realized revenue is mostly due to amortization of
prepayments for power at our Deer Park facility (see Power
Agreements in Note 29 of the Notes to Consolidated
Financial Statements). The increase in unrealized loss is due
primarily to undesignated gas positions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Other revenue
|
|
$ |
143.0 |
|
|
$ |
73.3 |
|
|
$ |
69.7 |
|
|
|
95.1% |
|
Other revenue increased due primarily to higher revenues at PSM
associated with sales of gas turbine components and at TTS for
gas turbine maintenance services and the sale of spare turbine
parts and components. Additionally in 2005 we recognized higher
construction and O&M services contract revenue.
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Cost of revenue
|
|
$ |
12,057.6 |
|
|
$ |
8,268.4 |
|
|
$ |
(3,789.2 |
) |
|
|
(45.8)% |
|
The increase in total cost of revenue is explained by category
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Plant operating expense
|
|
$ |
717.4 |
|
|
$ |
727.9 |
|
|
$ |
10.5 |
|
|
|
1.4% |
|
Plant operating expense decreased even though four new baseload
power plants and one expansion project were completed during
2005 due primarily to lower charges for equipment repair costs
in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Royalty expense
|
|
$ |
36.9 |
|
|
$ |
28.4 |
|
|
$ |
(8.5 |
) |
|
|
(29.9)% |
|
Approximately 67% of the royalty expense for 2005 vs. 77% for
2004 is attributable to royalties paid to geothermal property
owners at The Geysers, mostly as a percentage of geothermal
electricity revenues. The increase in royalty expense in 2005
was due primarily to a $5.4 increase in the accrual of
contingent purchase price payments to the previous owners of the
Texas City and Clear Lake Power Plants based on a percentage of
gross revenues at these two plants, and the remainder was due to
an increase in royalties at The Geysers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Transmission purchase expense
|
|
$ |
87.6 |
|
|
$ |
74.8 |
|
|
$ |
(12.8 |
) |
|
|
(17.1)% |
|
In many cases, we incur transmission costs that result from
serving the accounts of our customers. This is especially true
in the case of many of our retail contracts. When we incur
transmission expenses on behalf of our customers we recognize
these amounts as a component of transmission purchase expense.
Transmission purchase expenses increased for the year ended
December 31, 2005, as compared to the same period in 2004
as a result of additional power plants becoming operational in
mid-2004 as well as transmission expense related to transmission
rights acquired between the ERCOT and SPP electricity markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Purchased power and gas expense for hedging and optimization
|
|
$ |
3,417.2 |
|
|
$ |
3,198.7 |
|
|
$ |
(218.5 |
) |
|
|
(6.8)% |
|
Purchased power and gas expense for hedging and optimization
increased during 2005 due primarily to higher gas volumes and
higher prices for gas in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Fuel expense
|
|
$ |
4,623.3 |
|
|
$ |
3,587.4 |
|
|
$ |
(1,035.9 |
) |
|
|
(28.9)% |
|
Fuel expense increased during 2005, as compared to the same
period in 2004 due primarily to higher natural gas prices and
the sale of natural gas assets (which required us to purchase
more from third parties) and an increase of 4.8% in generation
due largely to the addition of four baseload power facilities
and one expansion project to our consolidated operating
portfolio in 2005. Our average fuel expense before the effects
of hedging, balancing and optimization increased by 24.4% from
$6.27/ MMBtu for the year ended December 31, 2004 to $7.80/
MMBtu for the same period in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Depreciation and amortization expense
|
|
$ |
506.4 |
|
|
$ |
446.0 |
|
|
$ |
(60.4 |
) |
|
|
(13.5)% |
|
Depreciation and amortization expense increased in 2005
primarily due to additional power plants achieving commercial
operation subsequent to 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 |
|
$ Change | |
|
% Change | |
|
|
| |
|
|
|
| |
|
| |
Operating Plant Impairments
|
|
$ |
2,412.6 |
|
|
$ |
|
|
|
$ |
(2,412.6 |
) |
|
|
% |
|
67
See Note 6 of the Notes to Consolidated Financial
Statements for a discussion of the 2005 impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Operating lease expense
|
|
$ |
104.7 |
|
|
$ |
105.9 |
|
|
$ |
1.2 |
|
|
|
1.1% |
|
Operating lease expense decreased slightly during 2005 as the
reduction in operating lease expense due to the reclassification
of the King City lease from operating lease to capital lease was
partially offset by higher contingent rent accruals on the
Watsonville lease.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Other cost of revenue
|
|
$ |
151.5 |
|
|
$ |
99.3 |
|
|
$ |
(52.2 |
) |
|
|
(52.6)% |
|
Other cost of revenue increased during 2005 as compared to 2004
primarily due to higher cost of revenue at PSM and TTS and on
construction and O&M services contracts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
(Income) loss from unconsolidated investments in power projects
and oil and gas properties
|
|
$ |
(12.1 |
) |
|
$ |
14.1 |
|
|
$ |
26.2 |
|
|
|
185.8% |
|
The more favorable 2005 results were primarily due to an
increase in income (due mostly to lower major maintenance costs
and decreased LTSA costs), from the Acadia PP investment prior
to its consolidation in the latter part of 2005, and the
non-recurrence of losses recorded in 2004 from our investment in
the AELLC power plant. We ceased to recognize our share of the
operating results of AELLC as we began to account for our
investment in AELLC using the cost method following loss of
effective control when AELLC filed for bankruptcy protection in
November 2004. In September 2004 prior to AELLC filing for
bankruptcy protection, we recognized our share of an adverse
jury award related to a dispute with IP. Our share of that
expense was $11.6.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Equipment, development project and other impairments
|
|
$ |
2,117.7 |
|
|
$ |
46.9 |
|
|
$ |
(2,070.8 |
) |
|
|
(4,415.4)% |
|
See Note 6 of the Notes to Consolidated Financial
Statements for a discussion of the 2005 impairment charges
related to equipment, project development and other assets. The
2004 impairment charges primarily resulted from cancellation
costs of six heat recovery steam generators and component part
orders and related component part impairments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Long-term service agreement cancellation charge
|
|
$ |
34.1 |
|
|
$ |
7.7 |
|
|
$ |
(26.4 |
) |
|
|
(342.9)% |
|
During the year ended December 31, 2005, we recorded
charges of $34.1 related to the cancellation of nine LTSAs with
GE. In 2004 we recorded charges of $7.7 related to the
cancellation of four LTSAs with Siemens-Westinghouse.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Project development expense
|
|
$ |
27.6 |
|
|
$ |
19.9 |
|
|
$ |
(7.7 |
) |
|
|
(38.7)% |
|
Project development expense increased by $8.5 during 2005
primarily due to higher preservation activity costs on suspended
construction projects.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Research and development expense
|
|
$ |
19.2 |
|
|
$ |
18.4 |
|
|
$ |
(0.8 |
) |
|
|
(4.3)% |
|
68
Research and development expense was relatively flat in 2005 as
compared to 2004 and relates to personnel expenses and
consulting fees associated with new research and development
programs and testing at PSM.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Sales, general and administrative expense
|
|
$ |
239.9 |
|
|
$ |
220.6 |
|
|
$ |
(19.3 |
) |
|
|
(8.7)% |
|
Sales, general and administrative expense increased in 2005 due
primarily to an increase in legal fees related to an increase in
litigation matters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Interest expense
|
|
$ |
1,397.3 |
|
|
$ |
1,095.4 |
|
|
$ |
(301.9 |
) |
|
|
(27.6)% |
|
Interest expense increased primarily as a result of higher
average interest rates and lower capitalization of interest
expense. Our average interest rate increased from 8.4% for the
year ended December 31, 2004, to 9.4% for the year ended
December 31, 2005, primarily due to the impact of rising
U.S. interest rates and their effect on our existing
variable rate debt portfolio and higher average interest rates
incurred on new debt instruments that were entered into to
replace and/or refinance existing debt instruments during 2005.
Interest capitalized decreased from $376.1 for the year ended
December 31, 2004, to $196.1 for the year ended
December 31, 2005, as new plants entered commercial
operations (at which point capitalization of interest expense
ceases) and because of suspended capitalization of interest on
three partially completed construction projects.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Interest (income)
|
|
$ |
(84.2 |
) |
|
$ |
(54.8 |
) |
|
$ |
29.4 |
|
|
|
53.6% |
|
Interest (income) increased during the year ended
December 31, 2005, due primarily to higher interest earned
on restricted cash as well as margin deposits and collateral
posted to secure letters of credit and due to higher interest
rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Minority interest expense
|
|
$ |
42.5 |
|
|
$ |
34.7 |
|
|
$ |
(7.8 |
) |
|
|
(22.5)% |
|
Minority interest expense increased during the year ended
December 31, 2005, as compared to the same period in 2004
primarily due to an increase in income at CPLP prior to its
deconsolidation, which is 70% owned by CPIF, and was largely
caused by an increase in steam revenue at the Island Cogen plant
which was driven by higher gas prices; the price of gas is a
component of the steam revenue calculation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
(Income) from the repurchase of various issuances of debt
|
|
$ |
(203.3 |
) |
|
$ |
(246.9 |
) |
|
$ |
(43.6 |
) |
|
|
(17.7)% |
|
The decrease in income from repurchase of debt is due to
considerably higher volumes of convertible Senior Notes
repurchased during the year ended December 31, 2004,
compared to the same period in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Other (income)/expense, net
|
|
$ |
72.4 |
|
|
$ |
(121.1 |
) |
|
$ |
(193.5 |
) |
|
|
(159.8)% |
|
Other (income)/expense was less favorable for the year ended
December 31, 2005, by $193.5 as compared with the same
period in 2004. This was due mostly to non-recurrence of income
that was recognized in 2004 (primarily $187.5 of income from the
restructuring and sale of PPAs at two of our New Jersey plants
and the restructuring of a gas contract at our Auburndale
plant). There were also increased expenses in 2005 ($18.5 for an
impairment charge for the Grays Ferry investment and $8.3
for letter of credit fees), offset by reduced foreign currency
losses of $26.9.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 |
|
$ Change | |
|
% Change | |
|
|
| |
|
|
|
| |
|
| |
Reorganization items
|
|
$ |
5,026.5 |
|
|
$ |
|
|
|
$ |
(5,026.5 |
) |
|
|
% |
|
Reorganization items represent the direct and incremental costs
of the bankruptcy cases, such as professional fees, pre-petition
liability claim adjustments and losses that are probable and can
be estimated
69
related to terminated contracts. In the fourth quarter of 2005
we recognized the following expenses as reorganization items:
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
Provision for allowable claims
|
|
$ |
3,791.5 |
|
Impairment of investment in Canadian subsidiaries
|
|
|
879.1 |
|
Write-off of unamortized deferred financing costs and debt
discounts
|
|
|
148.1 |
|
Loss on terminated contracts, net
|
|
|
139.4 |
|
Professional fees
|
|
|
36.4 |
|
Other reorganization items
|
|
|
32.0 |
|
|
|
|
|
|
Total reorganization items
|
|
$ |
5,026.5 |
|
|
|
|
|
We determined it was necessary to deconsolidate most of our
Canadian and other foreign entities due to our loss of control
over these entities upon the filing by the Canadian Debtors for
protection under the CCAA in Canada. These Canadian Debtor
entities are not under the jurisdiction of the U.S. Bankruptcy
Court and are separately administered under the CCAA by the
Canadian Court. In conjunction with the deconsolidation, we
reviewed all intercompany guarantees. We identified guarantees
by U.S. parent entities of debt (and accrued interest
payable) of approximately $5,026.5 issued by entities in the
Canadian debtor chains as constituting probable allowable claims
against the U.S. parent entities. Some of the guarantee
exposures are redundant, such as the Calpine Corporation
guarantee to ULC I security holders and the Calpine Corporation
guarantee of QCHs subscription agreement obligations
associated with the hybrid notes structure in support of the ULC
I Unsecured Notes. Under the guidance of
SOP 90-7
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, we determined the duplicative
guarantees were probable of being allowed into the claim pool by
the U.S. Bankruptcy Court. We accrued an additional amount
of approximately $3,791.5 as reorganization items related to
these duplicative guarantees.
As a result of the deconsolidation, we adopted the cost method
of accounting for our investment in our Canadian and other
foreign entities. Upon adoption of the cost method, we evaluated
our investment balances and intercompany notes receivable from
these entities for impairment. We determined that our entire
investment in these entities had experienced
other-than-temporary decline in value and was impaired. We also
concluded that all intercompany notes receivable balances from
these entities were uncollectible, as the notes were unsecured
and protected by the automatic stay under the CCAA.
Consequently, we fully impaired this investment and receivable
assets at December 31, 2005, resulting in an $879.1 charge
to reorganization items.
Deferred financing costs and debt discounts relate to our
unsecured or under-secured pre-petition debt, which has been
reclassified on the balance sheet to Liabilities Subject to
Compromise following our bankruptcy filings on December 20,
2005, and were written-off to reorganization items as these
capitalized costs were determined to have no future value.
Calpine Debtors recorded a loss on certain commodity contracts
that were terminated by the counterparties to such contracts
after our bankruptcy filings, in accordance with their claim
that our bankruptcy filings constituted an event of default
under the terms of those contracts. We recorded the fair value
of those commodity contracts on the date of termination as a
reorganization item. Calpine Debtors also have some commodity
contracts that meet the accounting definition of a derivative,
but we have elected to account for them under the normal
purchase and sale exemption under the derivative accounting
rules. If a normal contract is terminated, we may no longer be
able to assert probability of physical delivery over the
contract term, and therefore, such contract will no longer be
eligible for the normal purchase and sale exemption. Once we
lose our ability to continue normal purchase and sale treatment,
we must record the fair value of such contracts in our balance
sheet with the related offset to earnings. No amounts have been
recorded as of December 31, 2005, for normal contracts for
which we have filed motions to reject, as such motions are
pending final approval or denial by the courts and regulators.
Professional fees relate primarily to expenses incurred to
secure the DIP Facility and the fees of attorneys and
consultants working directly on the bankruptcy filings and our
plan of reorganization.
70
Other reorganization items consist primarily of non-cash charges
related to certain interest rate swaps that no longer meet the
hedge effectiveness criteria under SFAS No. 133 as a
result of our payment default or expected payment default on the
underlying debt instruments due to the bankruptcy filing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Provision (benefit) for income taxes
|
|
$ |
(741.4 |
) |
|
$ |
(235.3 |
) |
|
$ |
506.1 |
|
|
|
215.1% |
|
During the year ended December 31, 2005, our pre-tax loss
increased by $9,967.3 and our tax benefit increased by $506.1 as
compared to the benefit in the year ended December 31,
2004. The pre-tax loss increase resulted from the approximately
$4,530.3 of impairment charges and approximately $5,026.5 of
reorganization item charges recorded in the fourth quarter
of 2005 as a result of our bankruptcy filing. The effective tax
rate decreased to 7.0% in 2005 compared to 35.9% in the same
period in 2004 primarily due to the recording of valuation
allowances against deferred tax assets. The tax rates on
continuing operations for the year ended December 31, 2005
reflect the reclassification to discontinued operations of
certain tax expense related to the sale of the natural gas
business, and the Saltend, and the Morris and Ontelaunee power
plants. See Note 13 of the Notes to Consolidated Condensed
Financial Statements for further information on discontinued
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Discontinued operations, net of tax
|
|
$ |
(58.2 |
) |
|
$ |
177.2 |
|
|
$ |
(235.4 |
) |
|
|
(132.8 |
)% |
During the year ended December 31, 2005, discontinued
operations activity primarily consisted of the pre-tax gain on
the sale of Saltend of $22.2 and the pre-tax gain on the sale of
substantially all of our remaining oil and gas assets of $340.1.
Both dispositions closed in July 2005. Offsetting these gains
were pre-tax losses of $136.8 related to the sale of Ontelaunee,
and $106.2 related to the sale of Morris. On a pre-tax basis, we
recorded income from discontinued operations for the year ended
December 31, 2005 of $73.5. Our effective tax rate on
discontinued operations for the year ended December 31,
2005, however, was 179% due primarily to the tax provision on
the gains from the sale of Saltend and the oil and gas assets
partially offset by the Morris loss. Additionally, no tax
benefit was recognized on the Ontelaunee loss due to the
valuation allowance established. As a consequence, we recorded
an after-tax loss from discontinued operations of $58.3.
Discontinued operations for the year ended December 31,
2004, net of tax, was $177.2 and consisted primarily of a
pre-tax gain of $208.2 from the sale of our Canadian and
U.S. Rocky Mountain oil and gas assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Net income (loss)
|
|
$ |
(9,939.2 |
) |
|
$ |
(242.5 |
) |
|
$ |
(9,696.7 |
) |
|
|
(3,998.6)% |
|
In 2005 we experienced an increase in the loss from operations
as we continued to see a drop in baseload capacity factor
compared to 2004, and although total realized spark spread
increased by $214.1, our ownership costs went up at a faster
rate as new plants entered commercial operation; depreciation
expense increased by $60.4, and interest expense increased by
$301.9 as we capitalized less interest expense and experienced
an increase in our average borrowing rate. Additionally, in 2005
we recorded material impairment charges totaling $4,530.3 on
power plants in development, construction and operations and
reorganization item charges totaling $5,026.5 related to our
bankruptcy filing.
|
|
|
Year Ended December 31, 2004, Compared to Year Ended
December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Total revenue
|
|
$ |
8,648.4 |
|
|
$ |
8,421.2 |
|
|
$ |
227.2 |
|
|
|
2.7% |
|
The increase in total revenue is explained by category below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Electricity and steam revenue
|
|
$ |
5,165.3 |
|
|
$ |
4,291.2 |
|
|
$ |
874.1 |
|
|
|
20.4% |
|
71
E&S revenue increased as we completed construction and
brought into operation five new baseload power plants and two
project expansions in 2004. Average MW in operation of our
consolidated plants increased by 21.4% to 22,198 MW while
generation increased by 17.7%. The increase in generation lagged
behind the increase in average MW in operation as our baseload
capacity factor dropped to 48.5% in 2004 from 50.9% in 2003,
primarily due to the increased occurrence of unattractive
off-peak market spark spreads in certain areas due in part to
mild weather, which caused us to cycle off certain of our
merchants plants without contracts in off peak hours, and also
due to oversupply conditions in those markets. Average realized
electricity prices, before the effects of hedging, balancing and
optimization, increased to $61.93/ MWh in 2004 from $60.56/MWh
in 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Transmission sales revenue
|
|
$ |
20.0 |
|
|
$ |
15.3 |
|
|
$ |
4.7 |
|
|
|
30.7% |
|
Transmission sales revenue increased in 2004 due to the
increased emphasis on optimizing our portfolio through the
resale of our underutilized transmission positions in the short-
to mid-term markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Sales of purchased power and gas for hedging and optimization
|
|
$ |
3,376.3 |
|
|
$ |
4,033.2 |
|
|
$ |
(656.9 |
) |
|
|
(16.3)% |
|
Sales of purchased power and gas for hedging and optimization
decreased during 2004 due primarily to netting of sales of
purchased power with purchased power expense which reduced sales
of purchased power by approximately $1,676.0 in 2004 compared to
$256.6 in 2003 (netting in 2003 occurred only in the fourth
quarter) in connection with the adoption of EITF Issue
No. 03-11 on a
prospective basis in the fourth quarter of 2003. This was partly
offset by higher volumes and higher realized prices on both
power and gas hedging, balancing and optimization activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Realized gain on power and gas mark-to-market transactions, net
|
|
$ |
48.1 |
|
|
$ |
24.3 |
|
|
$ |
23.8 |
|
|
|
97.9 |
% |
Unrealized (loss) on power and gas mark-to-market transactions,
net
|
|
|
(34.7 |
) |
|
|
(50.7 |
) |
|
|
16.0 |
|
|
|
31.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market activities, net
|
|
$ |
13.4 |
|
|
$ |
(26.4 |
) |
|
$ |
39.8 |
|
|
|
150.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market
activities, which are shown on a net basis, result from general
market price movements against our open commodity derivative
positions, including positions accounted for as trading under
EITF Issue No. 02-03 and other
mark-to-market
activities. These commodity positions represent a small portion
of our overall commodity contract position. Realized revenue
represents the portion of contracts actually settled and is
offset by a corresponding change in unrealized gains or losses
as unrealized derivative values are converted from unrealized
forward positions to cash at settlement. Unrealized gains and
losses include the change in fair value of open contracts as
well as the ineffective portion of our cash flow hedges.
During 2004, we recognized a net gain from
mark-to-market
activities compared to net losses in 2003. In 2004 our exposure
to mark-to-market
earnings volatility declined commensurate with a corresponding
decline in the volume of open commodity positions underlying the
exposure. As a result, the magnitude of earnings volatility
attributable to changes in prices declined. We recorded a hedge
ineffectiveness gain of approximately $7.6 in 2004 versus a
hedge ineffectiveness loss of $1.8 for the corresponding period
in 2003. Additionally, during 2004 we recorded a gain of $9.2 on
a mark-to-market
derivative contract that was terminated during 2004 versus a
mark-to-market loss of
$15.5 on the same contract in 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Other revenue
|
|
$ |
73.3 |
|
|
$ |
107.9 |
|
|
$ |
(34.6 |
) |
|
|
(32.1)% |
|
Other revenue decreased during 2004 primarily due to a one-time
pre-tax gain of $67.3 realized during 2003 in connection with
our settlement with Enron, principally related to the final
negotiated settlement of claims and amounts owed under
terminated commodity contracts. This was partially offset by
increases of
72
$13.3 and $12.0 from combustion turbine parts sales and repair
and maintenance services performed by TTS and construction
management and operating services performed by CPSI,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Cost of revenue
|
|
$ |
8,268.4 |
|
|
$ |
7,814.3 |
|
|
$ |
(454.1 |
) |
|
|
(5.8)% |
|
The increase in total cost of revenue is explained by category
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Plant operating expense
|
|
$ |
727.9 |
|
|
$ |
599.3 |
|
|
$ |
(128.6 |
) |
|
|
(21.5)% |
|
Plant operating expense increased as five new baseload power
plants and two expansion projects were completed during 2004,
and due to higher major maintenance expense on existing plants
as many of our newer power plants performed their initial major
maintenance work. In North America, 25 of our gas-fired plants
performed major maintenance work, an increase of 67% over the
number of plants that did so in 2003. In addition, during 2004
we incurred $54.3 for equipment failure costs compared to $11.0
in 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Royalty expense
|
|
$ |
28.4 |
|
|
$ |
24.6 |
|
|
$ |
(3.8 |
) |
|
|
(15.4)% |
|
Approximately 77% of the royalty expense for 2004 vs. 78%
for 2003 is attributable to royalties paid to geothermal
property owners at The Geysers, mostly as a percentage of
geothermal electricity revenues. The increase in royalty expense
in 2004 was due primarily to a $2.5 increase in royalties at The
Geysers, and the remainder was due to an increase in the accrual
of contingent purchase price payments to the previous owners of
the Texas City and Clear Lake Power Plants based on a percentage
of gross revenues at these two plants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Transmission purchase expense
|
|
$ |
74.8 |
|
|
$ |
34.7 |
|
|
$ |
(40.1 |
) |
|
|
(115.6)% |
|
Transmission purchase expense increased primarily due to
additional power plants achieving commercial operation in 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Purchased power and gas expense for hedging and optimization
|
|
$ |
3,198.7 |
|
|
$ |
3,962.6 |
|
|
$ |
763.9 |
|
|
|
19.3% |
|
Purchased power and gas expense for hedging and optimization
decreased during 2004 as compared to 2003 due primarily to
netting of purchased power expense against sales of purchased
power which decreased purchased power expense by approximately
$1,676.0 in 2004 compared to a decrease of $256.6 in 2003, in
connection with the adoption on a prospective basis of EITF
Issue No. 03-11 in the
fourth quarter of 2003. This was partly offset by higher volumes
and higher realized prices on both power and gas hedging,
balancing and optimization activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Fuel expense
|
|
$ |
3,587.4 |
|
|
$ |
2,636.7 |
|
|
$ |
(950.7 |
) |
|
|
(36.1)% |
|
Cost of oil and gas burned by power plants increased during 2004
as compared to 2003 due to an 18.1% increase in gas consumption
as we increased our MW production and due to higher prices for
gas.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Depreciation and amortization expense
|
|
$ |
446.0 |
|
|
$ |
382.0 |
|
|
$ |
(64.0 |
) |
|
|
(16.8)% |
|
Depreciation and amortization expense increased in 2004
primarily due to additional power plants achieving commercial
operation during or subsequent to 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Operating lease expense
|
|
$ |
105.9 |
|
|
$ |
112.1 |
|
|
$ |
6.2 |
|
|
|
5.5% |
|
73
Operating lease expense decreased during 2004 as compared to
2003 primarily because the King City lease terms were
restructured, and the lease began to be accounted for as a
capital lease. As a result, we ceased incurring operating lease
expense on that lease and instead began to incur depreciation
and interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Other cost of revenue
|
|
$ |
99.3 |
|
|
$ |
62.3 |
|
|
$ |
(37.0 |
) |
|
|
(59.4)% |
|
Other cost of revenue increased during 2004 as compared to 2003
primarily due to $29.0 of amortization expense in 2004 versus
$10.6 in 2003 incurred from the adoption of DIG Issue
No. C20. In the fourth quarter of 2003, we recorded a
pre-tax mark-to-market
gain of $293.4 as a cumulative effect of a change in accounting
principle. This gain is amortized as expense over the respective
lives of the two power sales contracts from which the
mark-to-market gains
arose. We also incurred $11.3 of additional expense from TTS in
2004, as the entity had a full year of activity (we acquired TTS
in late February of 2003). Additionally, CPSI cost of revenue
increased $10.8 in 2004 compared to 2003 due to an increase in
services contract activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
(Income) loss from unconsolidated investments in power projects
and oil and gas properties
|
|
$ |
14.1 |
|
|
$ |
(75.7 |
) |
|
$ |
(89.8 |
) |
|
|
(118.6)% |
|
The unfavorable change was primarily due to a non-recurring
$52.8 gain in 2003, representing our 50% share, on the
termination of the tolling arrangement with AMS at the Acadia
Energy Center and a loss of $11.6 realized in 2004, representing
our share of a jury award to IP in a litigation relating to
AELLC together with a $5.0 impairment charge recorded when
Androscoggin filed for bankruptcy protection in the fourth
quarter of 2004. Also, we did not have any income on our
Gordonsville investment in 2004, compared to $12.0 in 2003, as
we sold our interest in this facility in November 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Equipment, development projects and other impairment cost
|
|
$ |
46.9 |
|
|
$ |
68.0 |
|
|
$ |
21.1 |
|
|
|
31.0% |
|
In 2004, the pre-tax equipment cancellation and impairment
charge was primarily a result of charges of $33.7 related to
cancellation costs of six HRSG orders and HRSG component parts
cancellations and impairments. In 2003 the pre-tax equipment
cancellation and impairment charge was primarily a result of
cancellation costs related to three turbines and three HRSGs and
impairment charges related to four turbines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Long-term service agreement cancellation charge
|
|
$ |
7.7 |
|
|
$ |
16.3 |
|
|
$ |
8.6 |
|
|
|
52.8% |
|
LTSA cancellation charges decreased primarily due to $14.1 in
cancellation costs incurred in 2003 associated with LTSAs with
General Electric related to our Rumford, Tiverton and Westbrook
facilities. In 2004 the decrease was offset by a $7.7 adjustment
as a result of settlement negotiations related to the
cancellation of LTSAs with Siemens-Westinghouse at our
Hermiston, Ontelaunee, South Point and Sutter facilities and a
$3.8 adjustment as a result of LTSA cancellation settlement
negotiations with General Electric regarding cancellation
charges at our Los Medanos facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Project development expense
|
|
$ |
19.9 |
|
|
$ |
18.2 |
|
|
$ |
(1.7 |
) |
|
|
(9.3)% |
|
Project development expense decreased during 2004 primarily due
to lower new development activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Research and development expense
|
|
$ |
18.4 |
|
|
$ |
10.6 |
|
|
$ |
(7.8 |
) |
|
|
(73.6)% |
|
74
Research and development expense increased in 2004 as compared
to 2003 primarily due to increased personnel expense related to
gas turbine component research and development programs at our
PSM subsidiary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Sales, general and administrative expense
|
|
$ |
220.6 |
|
|
$ |
204.1 |
|
|
$ |
(16.5 |
) |
|
|
(8.1)% |
|
Sales, general and administrative expense increased in 2004 due
primarily to an increase of $20.4 of Sarbanes-Oxley 404 internal
control project costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Interest expense
|
|
$ |
1,095.4 |
|
|
$ |
695.5 |
|
|
$ |
(399.9 |
) |
|
|
(57.5)% |
|
Interest expense increased as a result of higher average debt
balances, higher average interest rates and lower capitalization
of interest expense. Interest capitalized decreased from $412.2
in 2003 to $375.3 in 2004 as a result of new plants that entered
commercial operations (at which point capitalization of interest
expense ceases). We expect that the amount of interest
capitalized will continue to decrease in future periods as our
plants in construction are completed. Interest expense related
to our CalGen financing was responsible for an increase of
$113.7, and interest expense related to our preferred interests
increased $28.7. The majority of the remaining increase relates
to an increase in average indebtedness due primarily to the
deconsolidation of the Calpine Capital Trusts which had issued
the HIGH TIDES I, II and III, and recording of debt to
the Calpine Capital Trusts due to the adoption of FIN 46,
Consolidation of Variable Interest Entities, an
interpretation of ARB 51 prospectively on October 1,
2003. See Note 2 of the Notes to Consolidated Financial
Statements for a discussion of our adoption of FIN 46.
Interest expense related to the notes payable to the Calpine
Capital Trusts during 2004 was $58.6. The distributions were
excluded from the interest expense caption on our Consolidated
Statements of Operations through the nine months ended
September 30, 2003, while $15.1 of interest expense related
to the Calpine Capital Trusts was recorded for the quarter
ending December 31, 2003. The HIGH TIDES I and II and the
related convertible debentures payable to the Calpine Capital
Trusts were redeemed in October 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
|
|
| |
|
| |
|
| |
Distributions on trust preferred securities
|
|
$ |
|
|
|
$ |
46.6 |
|
|
$ |
46.6 |
|
|
|
100.0% |
|
As a result of the deconsolidation of the Calpine Capital Trusts
upon adoption of FIN 46 as of October 1, 2003, the
distributions paid on the HIGH TIDES I, II and III
during 2004 were no longer recorded on our books and were
replaced prospectively by interest expense on our debt to the
Trusts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Interest (income)
|
|
$ |
(54.8 |
) |
|
$ |
(39.2 |
) |
|
$ |
15.6 |
|
|
|
39.8% |
|
The increase in interest (income) in 2004 is due to an increase
in cash and cash equivalents and restricted cash balances during
the year. Additionally, we generated interest income on the
repurchases of our HIGH TIDES I, II and III. For
further information, see Note 5 of the Notes to
Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Minority interest expense
|
|
$ |
34.7 |
|
|
$ |
27.3 |
|
|
$ |
(7.4 |
) |
|
|
(27.1)% |
|
Minority interest expense increased during 2004 as compared to
2003 due to our reduced ownership percentage in CPLP following
the sale of our interest in CPIF, which owns 70% of CPLP. Our
30% interest is subordinate to CPIFs interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
(Income) from the repurchase of various issuances of debt
|
|
$ |
(246.9 |
) |
|
$ |
(278.6 |
) |
|
$ |
(31.7 |
) |
|
|
(11.4)% |
|
75
Income from repurchases of various issuances of debt during 2004
decreased by $31.7 from the corresponding period primarily as a
result of lower face amounts of debt repurchased in open market
and privately negotiated transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Other (income), net
|
|
$ |
(121.1 |
) |
|
$ |
(46.6 |
) |
|
$ |
74.5 |
|
|
|
159.9% |
|
Other income increased in 2004 as compared to 2003 primarily due
to (a) pre-tax income in 2004 in the amount of $171.5
associated with the restructuring of PPAs for our Newark and
Parlin power plants and the sale of Utility Contract
Funding II, LLC, net of transaction costs and the write-off
of unamortized deferred financing costs, (b) $16.4 pre-tax
gain from the restructuring of a long-term gas supply contract
net of transaction costs and (c) $12.3 pre-tax gain from
the King City restructuring transaction related to the sale of
our debt securities that had served as collateral under the King
City lease, net of transaction costs. In addition, during 2004,
foreign currency transaction losses totaled $41.6, compared to
losses of $34.5 in the corresponding period in 2003.
In 2003, we recorded a gain of $62.2 on the sale of oil and gas
properties and a gain of $57.0 from a contract termination of
the RockGen facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Provision (benefit) for income taxes
|
|
$ |
(235.3 |
) |
|
$ |
(26.4 |
) |
|
$ |
208.9 |
|
|
|
791.3% |
|
For 2004, the effective rate was 35.9% as compared to 66.6% for
2003. This effective rate variance is due to the inclusion of
certain permanent items in the calculation of the effective
rate, which are fixed in amount and have a significant effect on
the effective tax rates depending on the materiality of such
items to taxable income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Discontinued operations, net of tax
|
|
$ |
177.2 |
|
|
$ |
114.4 |
|
|
$ |
62.8 |
|
|
|
54.9% |
|
The 2004 discontinued operations activity includes the
reclassification to discontinued operations of operating results
related to the commitments to plans of divestiture of our
remaining oil and gas assets in the U.S. and of our Saltend,
Ontelaunee and Morris power facilities, the effects of the 2004
sale of our 50% interest in the Lost Pines 1 Power Project, the
2004 sale of the oil and gas reserves in the Colorado Piceance
Basin and New Mexico San Juan Basin and the remaining
natural gas reserves and petroleum assets in Canada, all of
which resulted in a gain on sale, pre-tax, of $243.5. The 2003
discontinued operations activity includes the operational
reclassification to discontinued operations related to the 2005
commitment to a plan of divestiture of the assets listed above,
the 2004 sales of oil and gas assets in the U.S. and Canada, the
2004 sale of our 50% of interest in the Lost Pines 1 Power
Project, and the 2003 sale of our specialty data center
engineering business. For more information about discontinued
operations, see Note 13 of the Notes to Consolidated
Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
|
|
| |
|
| |
|
| |
Cumulative effect of a change in accounting principle, net of tax
|
|
$ |
|
|
|
$ |
180.9 |
|
|
$ |
(180.9 |
) |
|
|
(100.0)% |
|
The 2003 gain from the cumulative effect of a change in
accounting principle included three items: (1) a gain of
$181.9, net of tax effect, from the adoption of DIG Issue
No. C20; (2) a loss of $1.5 associated with the
adoption of FIN 46-R, and the deconsolidation of the Trusts
which issued the HIGH TIDES. The loss of $1.5 represents the
reversal of a gain, net of tax effect, recognized prior to the
adoption of FIN 46-R on our repurchase of $37.5 of the
value of certain HIGH TIDES by issuing shares of our common
stock valued at $35.0; and (3) a gain of $0.5, net of tax
effect, from the adoption of SFAS No. 143
Accounting for Asset Retirement Obligations.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
Net income (loss)
|
|
$ |
(242.5 |
) |
|
$ |
282.0 |
|
|
$ |
(524.5 |
) |
|
|
(186.0)% |
|
|
|
|
Liquidity and Capital Resources |
Currently, we are operating our business as
debtors-in-possession
under the jurisdiction of the Bankruptcy Courts. In general, as
debtors-in-possession,
we are authorized to continue to operate our business in the
ordinary course, but may not engage in transactions outside the
ordinary course of business without the prior approval of the
applicable Bankruptcy Court. Accordingly, the matters described
in this section may be significantly affected by our bankruptcy,
the other factors described in Forward-Looking
Statements and the risk factors included in Item 1A.
Risk Factors.
Ultimately, whether we will have sufficient liquidity from cash
flow from operations and borrowings available under our DIP
Financing sufficient to fund our operations, including
anticipated capital expenditures and working capital
requirements, as well as satisfy our current obligations under
our outstanding indebtedness while we remain in bankruptcy will
depend, to some extent, on whether our business plan is
successful, including whether we are able to realize expected
cost savings from implementing that plan, as well as the other
factors noted in Forward-Looking Statements and
Item 1A. Risk Factors. On December 31,
2005, our liquidity totaled approximately $2.2 billion.
This includes the immediately available portion of cash and cash
equivalents on hand of $0.2 billion and approximately
$1.975 billion of borrowing capacity under our DIP Facility
(based on the full amount of the facility as amended and
restated on February 23, 2006).
As a result of our bankruptcy filings and the other matters
described herein, including the uncertainties related to the
fact that we have not yet had time to complete and have approved
a plan of reorganization, there is substantial doubt about our
ability to continue as a going concern. Our ability to continue
as a going concern, including our ability to meet our ongoing
operational obligations, is dependent upon, among other things:
(i) our ability to maintain adequate cash on hand;
(ii) our ability to generate cash from operations;
(iii) the cost, duration and outcome of the restructuring
process; (iv) our ability to comply with our DIP Facility
agreement and the adequate assurance provisions of the Cash
Collateral Order and (v) our ability to achieve
profitability following a restructuring. These challenges are in
addition to those operational and competitive challenges faced
by us in connection with our business. In conjunction with our
advisors, we are working to design and implement strategies to
ensure that we maintain adequate liquidity and will be able to
continue as a going concern. See
Overview Bankruptcy Considerations for further
discussion. However, there can be no assurance as to the success
of such efforts.
|
|
|
Bankruptcy Proceedings and Financing Activities |
Our business is capital intensive. Our ability to successfully
reorganize and emerge from bankruptcy protection, while
continuing to operate our current fleet of power plants,
including completing our remaining plants under construction and
maintaining our relationships with vendors, suppliers, customers
and others with whom we conduct or seek to conduct business, is
dependent on the continued availability of capital on attractive
terms. As described below, we have entered into, and obtained
U.S. Bankruptcy Court approval of, a $2 billion DIP
Facility which we believe will be sufficient to support our
operations for the anticipated duration of our bankruptcy cases.
In addition, we have obtained U.S. Bankruptcy Court approval of
several other matters that we believe are important to
maintaining our ability to operate in the ordinary course during
our bankruptcy cases, including (i) our cash management
program (as described below), (ii) payments to our
employees, vendors and suppliers necessary in order to keep our
facilities operational and (iii) procedures for the
rejection of certain leases and executory contracts. In order to
improve our liquidity position, we also expect to continue our
efforts to reduce overhead and discontinue activities without
compelling profit potential, particularly in the near term. In
addition, development activities will continue to be further
reduced, and we expect that certain power plants or other of our
assets will be sold (or that we will surrender certain leased
power plants to the lessors of such plants), and that commercial
operations may be suspended at certain of our power plants
during our reorganization effort.
77
Prior to our bankruptcy filing, we obtained cash from our
operations; borrowings under credit facilities; issuances of
debt, equity, trust preferred securities and convertible
debentures and contingent convertible notes; proceeds from
sale/leaseback transactions; sale or partial sale of certain
assets; contract monetizations; and project financings. We
utilized this cash to fund our operations, service or prepay
debt obligations, fund acquisitions, develop and construct power
generation facilities, finance capital expenditures, support our
hedging, balancing and optimization activities, and meet our
other cash and liquidity needs. We reinvested any cash from
operations into our business development and construction
program or used it to reduce debt, rather than to pay cash
dividends. Our outstanding debt obligations, including our DIP
Facility, are summarized below under
Contractual Obligations. In
general, we continue to pay current interest on the first
priority and other fully secured debt of the Calpine Debtors, to
make periodic cash payments through June 30, 2006, to the
second priority secured debt of the Calpine Debtors and to make
payments of interest or principal, as applicable, on the debt of
our subsidiaries that have not filed for bankruptcy protection.
However, we do not currently pay interest or make other debt
service payments on the unsecured debt of the Calpine Debtors
which has resulted in a reduction of our cash outflow related to
debt service of approximately $17.9 million of unpaid
contractual interest. No principal payments were due in the
ten-day period between our bankruptcy filing and
December 31, 2005. Annual contractual interest expense
related to LSTC is expected to be approximately
$650 million. As discussed in Item 1.
Business Strategy we have initiated a
comprehensive program designed to stabilize, improve and
strengthen our core power generation business and our financial
health by reducing activities and curtailing expenditures in
certain non-core areas and business units. As part of this
program, we have begun to implement staff reductions of
approximately 1,100 positions, or over one third of our
workforce which is expected to be completed by the end of 2006.
We expect that the staff reductions, together with non-core
office closures and reductions in controllable overhead costs,
will reduce annual operating costs by approximately
$150 million, significantly improving the Companys
financial and liquidity positions.
DIP Facility. On December 22, 2005, we entered into
a $2 billion DIP Facility, which, as amended and restated
as of February 23, 2006, is comprised of a $1 billion
revolving credit facility priced at LIBOR plus 225 basis
points, a $400 million first-priority term loan priced at
LIBOR plus 225 basis points or base rate plus 125 basis
point and a $600 million second-priority term loan priced
at LIBOR plus 400 basis points or base rate plus 300 basis
points. Calpine Corporation is the borrower under the DIP
Facility, which is guaranteed by all of the other
U.S. Debtors. The U.S. Bankruptcy Court granted interim
approval of the DIP Facility on December 21, 2005, but
initially limited our access under the DIP Facility to
$500 million under the revolving credit facility. On
January 26, 2006, the Bankruptcy Court entered a final
order approving the DIP Facility and removing the limitation on
our ability to borrow thereunder. The amendment and restatement
of the DIP Facility and the syndication of the DIP Facility were
closed on February 23, 2006. Deutsche Bank Securities Inc.
and Credit Suisse were co-lead arrangers for the DIP Facility,
which is secured by first priority liens on all of the
unencumbered assets of the U.S. Debtors, including The
Geysers, and junior liens on all of their encumbered assets. The
DIP Facility will remain in place until the earlier of an
effective plan of reorganization or December 20, 2007.
Pursuant to the DIP Facility, we are subject to a number of
affirmative and restrictive covenants, reporting requirements
and financial covenants. We were in compliance with the DIP
Facility covenants (or had received extensions or affirmative
waivers of compliance where compliance was not attained), as of
each of December 31, 2005, and the date of filing of this
Report with the SEC. In particular, the DIP Facility was amended
on May 3, 2006, to, among other things, provide us with
extensions of time (i) to provide certain financial
information to the DIP Facility lenders, including financial
statements for the year ended December 31, 2005 (which are
included in this Report), and for the quarter ended
March 31, 2006 and (ii) to cause Geysers Power Company
to file for protection under Chapter 11 of the Bankruptcy
Code.
In connection with and as a condition to closing the DIP
Facility, on February 3, 2006, our subsidiary GPC acquired
ownership of The Geysers, which had previously been leased by
GPC from Geysers Statutory Trust (which is not an affiliate of
ours) pursuant to a leveraged lease. The purchase price for The
Geysers was approximately $157.6 million, plus certain
costs and expenses. Immediately following the acquisition, we
redeemed certain notes issued by Geysers Statutory Trust in
connection with the leveraged lease structure at a
78
cost of approximately $109.3 million. As noted above, The
Geysers were then pledged as part of the collateral securing the
DIP Facility.
Cash Management. We have received U.S. Bankruptcy Court
approval to continue to manage our cash in accordance with our
pre-existing intercompany cash management system during the
pendency of the Chapter 11 cases. This program allows us to
maintain our existing bank and other investment accounts and to
continue to manage our cash on an integrated basis through
Calpine Corporation. Such cash management systems are subject to
the requirements of the DIP Facility and Cash Collateral Order.
Pursuant to the cash management system, and in accordance with
our cash collateral requirements in connection with the DIP
Facility and relevant U.S. Bankruptcy Court orders, intercompany
transfers are generally recorded as intercompany loans. Upon the
closing of the DIP Facility, the cash balances of the United
States Debtors (each of whom is a participant in the cash
management system) became subject to security interests in favor
of the DIP Facility lenders. The DIP Facility provides that all
cash of the U.S. Debtors and certain other subsidiaries be
maintained in a concentration account at Deutsche Bank upon the
DIP Facility agents.
Expedited Procedures for the Rejection of Executory Contracts
and Unexpired Leases. On December 21, 2005, the U.S.
Bankruptcy Court approved expedited procedures for the rejection
of executory contracts and unexpired leases of personal and
non-residential real property. In general, unless otherwise
agreed by the parties or approved by the U.S. Bankruptcy Court,
interested parties have ten days after we have filed a notice
seeking to reject a lease or executory contract to file
objections. If no objections are filed, the lease or executory
contract will be rejected. If an objection is filed, a hearing
will be conducted by the Bankruptcy Court to determine whether
or not to approve the rejection and any other matters raised by
the objection. In accordance with these procedures, we are
seeking to reject certain facility leases, including the leases
for the Tiverton and Rumford power plants, as described in
Item 1. Business Recent
Developments.
In addition, on December 21, 2005, we filed a motion with
the U.S. Bankruptcy Court to reject eight PPAs and to
enjoin FERC from asserting jurisdiction over the rejections. The
U.S. Bankruptcy Court issued a temporary restraining order
against FERC and set the matter for a hearing on January 5,
2006. Under most of the PPAs sought to be rejected, we are
obligated to sell power at prices that are significantly lower
than currently-prevailing market prices. At the time of filing
the motion, we forecasted that it would cost us in excess of
$1.2 billion if we were required to continue to perform
under these PPAs rather than to sell the contracted energy at
current market prices. On December 29, 2005, certain
counterparties to the various PPAs filed an action in the SDNY
Court arguing that the U.S. Bankruptcy Court did not have
jurisdiction over the dispute. On January 5, 2006, the
SDNY Court entered an order that had the effect of
transferring our motion seeking to reject the eight PPAs and our
related request for an injunction against FERC to the SDNY Court
from the U.S. Bankruptcy Court. Earlier, however, on
December 19, 2005, CDWR, a counterparty to one of the eight
PPAs, had filed a complaint with FERC seeking to obtain
injunctive relief to prevent us from rejecting our PPA with CDWR
and contending that FERC had exclusive jurisdiction over the
matter. On January 3, 2006, FERC determined that it
did not have exclusive jurisdiction, and that the matter could
be heard by the U.S. Bankruptcy Court. However, despite the
FERC ruling, on January 27, 2006, the SDNY Court determined
that FERC had jurisdiction over whether the contracts could be
rejected. We appealed the SDNY Courts decision to the
United States Court of Appeals for the Second Circuit. The
appeal was heard on April 10, 2006 and we have not yet
received a decision. We cannot determine at this time whether
the SDNY Court, the U.S. Bankruptcy Court or FERC will
ultimately determine whether we may reject any or all of the
eight PPAs, or when such determination will be made. In the
meantime, three of the PPAs have been terminated by the
applicable counterparties, and we continue to perform under
those PPAs that remain in effect.
Factors that could affect our liquidity and capital resources
are also discussed below in Capital Spending and
above in Item 1A. Risk Factors.
79
Cash Flow Activities The following table
summarizes our cash flow activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Beginning cash and cash equivalents
|
|
$ |
718,023 |
|
|
$ |
954,828 |
|
|
$ |
567,371 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
(708,361 |
) |
|
$ |
9,895 |
|
|
$ |
290,559 |
|
|
Investing activities
|
|
|
917,457 |
|
|
|
(401,426 |
) |
|
|
(2,515,365 |
) |
|
Financing activities
|
|
|
(159,929 |
) |
|
|
167,052 |
|
|
|
2,623,986 |
|
|
Effect of exchange rates changes on cash and cash equivalents,
including discontinued operations cash
|
|
|
(181 |
) |
|
|
16,101 |
|
|
|
13,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents including
discontinued operations cash
|
|
$ |
48,986 |
|
|
$ |
(208,378 |
) |
|
$ |
412,320 |
|
Change in discontinued operations cash classified as current
assets held for sale
|
|
|
18,628 |
|
|
|
(28,427 |
) |
|
|
(24,863 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$ |
67,614 |
|
|
$ |
(236,805 |
) |
|
$ |
387,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$ |
785,637 |
|
|
$ |
718,023 |
|
|
$ |
954,828 |
|
|
|
|
|
|
|
|
|
|
|
Operating activities for the year ended December 31, 2005
used net cash of $708.4 million, compared to providing
$9.9 million for the same period in 2004. In 2005, there
was a $332.0 million use of funds from net changes in
operating assets and liabilities comprised of decreases in
accounts payable, payroll and other liabilities of
$170.6 million, an increase in accounts receivable of
$42.4 million and an increase in net margin deposits posted
to support CES contracting activity of $11.6 million. Cash
operating lease payments in 2005 also exceeded recognized
expense by $91.4 million. Operating cash flows in 2004
benefited from the receipt of $100.6 million from the
termination of PPAs for two of our New Jersey power plants and
$16.4 million from the restructuring of a long-term gas
supply contract.
Investing activities for the year ended December 31, 2005,
provided net cash of $917.5 million, as compared to using
$401.4 million in the same period of 2004. Capital
expenditures, including capitalized interest, for the completion
of our power facilities decreased from $1,545.5 million in
2004 to $774.0 million 2005, as there were fewer projects
under construction. Investing activities in 2005 reflect the
receipt of $897.4 million from the sale of our oil and
natural gas assets, $862.9 million from the sale of our
Saltend power plant in the UK, $212.3 million from the sale
of our Ontelaunee power plant, $84.5 million from the sale
of our Morris power plant, $37.4 million from the sale of
our investment in Grays Ferry power plant, and
$30.4 million from the sale of our Inland Empire
development project. Additional investing activities in 2005
reflect the receipt of $132.5 million from the disposition
of our investment in HIGH TIDES III, offset by a
$535.6 million increase in restricted cash, including
$406.9 million of proceeds from the sale of our oil and gas
assets, and a $90.9 million decrease in cash due to the
deconsolidation of our Canadian and foreign entities. Investing
activities in 2004 reflected the receipt of $148.6 million
from the sale of our 50% interest in the Lost Pines I Power
Plant, $626.4 million from the sale of our Canadian oil and
gas reserves, $218.7 million from the sale of our Rocky
Mountain oil and gas reserves, plus $85.4 million of
proceeds from the sale of a subsidiary holding PPAs for two of
our New Jersey power plants. In 2004, we also used the proceeds
from the Lost Pines sale and cash to purchase the Los Brazos
Power Plant, and we used cash on hand to purchase the remaining
50% interest in the Aries Power Plant and the remaining 20%
interest in Calpine Cogen. Also, we used $110.6 million to
purchase a portion of HIGH TIDES III outstanding and
provided $210.8 million by decreasing restricted cash
during 2004.
Financing activities for the year ended December 31, 2005
used net cash of $159.9 million, as compared to providing
$167.1 million in the prior year. We continued our
refinancing program in 2005 by raising $260.0, $155.0 and
$450.0 million (of which $150.0 million was
repurchased on October 14, 2005) from preferred securities
offerings by Calpine Jersey II, Metcalf and CCFCP,
respectively, $650.0 million from the 2015
80
Convertible Notes offering, $750.5 million from various
project financings, $263.6 million from a prepaid commodity
derivative contract at our Deer Park facility, we received
funding on a $123.1 million non-recourse project finance
facility to complete the 79.9-MW Bethpage Energy Center 3,
and $25.0 million from our DIP Facility. We used
$389.8 million to repay notes payable and project financing
debt, $778.6 million to repay preferred security offerings
(including the Calpine Jersey II mentioned above) in
addition to using $880.1 million to repay or repurchase
Senior Notes and $517.5 million to repay HIGH
TIDES III. Additionally, we incurred $117.3 million in
financing and transaction costs. Financing activities in 2004
raised $2.6 billion to refinance $2.5 billion of
CalGen project financing before payment for fees and expenses of
the refinancing. In 2004 we also raised $250 million from
the issuance of the 2023 Convertible Notes pursuant to an option
exercise by one of the initial purchasers and
$617.5 million from the issuance of the 2014 Convertible
Notes. We raised $878.8 million from the issuance of Senior
Notes, $360.0 million from a preferred security offering
and $1,179.4 million from various project financings. Also,
we repaid $635.4 million in project financing debt, and we
used $658.7 million to repurchase most of the outstanding
2006 Convertible Notes that could be put to us in December 2004.
We used $177.0 million to repurchase a portion of the 2023
Convertible Notes, $871.3 million to repay and repurchase
various Senior Notes and $483.5 million to redeem the
remainder of HIGH TIDES I and II.
Negative Working Capital At December 31,
2005, we had negative working capital of $3.7 billion which
is primarily due to technical defaults under certain of our
indentures and other financing instruments requiring us to
record approximately $5.1 billion of additional debt as
current. We are in the process of obtaining waivers on the
technical defaults in the case of Non-Debtor entities.
Generally, the lenders or noteholders rights to
acceleration of repayment is stayed by the bankruptcy cases for
the Calpine Debtor entities.
Counterparties and Customers Our customer and
supplier base is concentrated within the energy industry.
Additionally, we have exposure to trends within the energy
industry, including declines in the creditworthiness of our
marketing counterparties. Currently, multiple companies within
the energy industry have below investment grade credit ratings.
However, we do not currently have any significant exposures to
counterparties that are not paying on a current basis.
In addition, as a result of our bankruptcy and prior credit
ratings downgrades, our credit status has been impaired. Our
impaired credit has, among other things, generally resulted in
an increase in the amount of collateral required by our trading
counterparties and also reduced the number of trading
counterparties currently able to do business with us, which
reduces our ability to negotiate more favorable terms with them.
We expect that our perceived creditworthiness will continue to
be impaired at least for the duration of our bankruptcy cases.
Letter of Credit Facilities At
December 31, 2005 and 2004, we had approximately
$370.3 million and $596.1 million, respectively, in
letters of credit outstanding under various credit facilities to
support our risk management and other operational and
construction activities. Of the total letters of credit
outstanding, $140.3 million and $233.3 million at
December 31, 2005 and 2004, respectively, were in aggregate
issued under our credit facilities.
Commodity Margin Deposits and Other Credit
Support As of December 31, 2005 and 2004,
to support commodity transactions, we had margin deposits with
third parties of $287.5 million and $276.5 million,
respectively; we made gas and power prepayments of
$103.2 million and $80.5 million, respectively; and
had letters of credit outstanding of $88.1 million and
$115.9 million, respectively. Counterparties had deposited
with us $27.0 million and $27.6 million as margin
deposits at December 31,2005 and 2004, respectively. We use
margin deposits, prepayments and letters of credit as credit
support for commodity procurement and risk management
activities. Future cash collateral requirements may increase
based on the extent of our involvement in standard contracts and
movements in commodity prices and also based on our credit
ratings and general perception of creditworthiness in this
market. While we believe that we have adequate liquidity to
support our operations at this time, it is difficult to predict
future developments and the amount of credit support that we may
need to provide as part of our business operations.
81
Asset Sales Prior to filing for bankruptcy on
December 20, 2005, we had adopted a strategy of conserving
our core strategic assets and selectively disposing of certain
less strategically important assets, through which we sought to
strengthen our balance sheet by using the proceeds of such asset
sales to repay or otherwise reduce our debt. Prior to our
bankruptcy filing, we completed the following dispositions.
|
|
|
Date |
|
Description |
|
|
|
7/7/05
|
|
Completed the sale of substantially all of our remaining oil and
gas assets for $1.05 billion, less approximately
$60 million of estimated transaction fees and expenses |
7/8/05
|
|
Completed the sale of our 50% interest in the 175-MW Grays Ferry
Power Plant for gross proceeds of $37.4 million |
7/28/05
|
|
Completed the sale of our 1,200-MW Saltend Energy Centre for
approximately $862.9 million |
7/29/05
|
|
Completed the sale of our Inland Empire development project for
approximately $30.9 million |
8/2/05
|
|
Completed the sale of our 156-MW Morris Energy Center for
$84.5 million |
10/06/05
|
|
Complete the sale of the 561-MW Ontelaunee Energy Center for
$212.3 million |
Our financial statements reflect reclassifications to record
certain of these assets as discontinued operations. See
Note 13 of the Notes to Consolidated Financial Statements
for more information regarding our discontinued operations and
our asset sales completed in 2005.
As discussed above and in Item 1.
Business Strategy we are continuing to
reduce activities and curtail expenditures in certain non-core
areas and business units. Among other things, we have begun to
implement staff reductions of approximately 1,100 positions, or
over one third of our workforce, which are expected to be
completed by the end of 2006. Other cost reduction measures
include the closure of non-core offices and the sales of
non-strategic assets.
Among other things, on March 3, 2006, pursuant to the Cash
Collateral Order, we, together with the Official Committee of
Unsecured Creditors of Calpine Corporation and the Ad Hoc
Committee of Second Lien Holders of Calpine Corporation agreed,
in consultation with the indenture trustee for our First
Priority Notes, on the designation of nine projects that, absent
the consent of such Committees or unless ordered by the
Bankruptcy Court, may not receive funding, other than certain
limited amounts. The nine designated projects are: Clear Lake
Power Plant, Dighton Power Plant, Fox Energy Center, Newark
Power Plant, Parlin Power Plant, Pine Bluff Energy Center,
Rumford Power Plant, Texas City Power Plant, and Tiverton Power
Plant. In accordance with the Cash Collateral Order, it is
possible that additional power plants will be added (or certain
of the listed plants may be removed) as designated projects. As
described above, we are seeking to reject the Rumford and
Tiverton leases and have tendered surrender of those power
plants to their lessor. We have not yet determined what actions
we will take with respect to the other power plants; however, it
is possible that we could seek to sell those facilities or, as
applicable, reject the related leases.
On February 15, 2006, we entered into a non-binding letter
of intent contemplating the negotiation of a definitive
agreement for the sale of Otay Mesa Energy Center to
San Diego Gas & Electric. The letter included a
period of exclusivity which expired May 1, 2006. The
parties are discussing a possible extension of exclusivity. Any
final, definitive agreement would require the approval of CPUC
and the U.S. Bankruptcy Court. The Otay Mesa Energy Center is a
593-MW power plant
under construction in San Diego County.
On April 18, 2006, we completed the sale of our 45%
indirect equity interest in the 525-MW Valladolid III
Energy Center to the two remaining partners in the project,
Mitsui and Chubu, for $42.9 million, less a 10% holdback
and transaction fees. Under the terms of the purchase and sale
agreement, we received cash proceeds of $38.6 million at
closing. The 10% holdback, plus interest, will be returned to us
in one years time. We eliminated $87.8 million of
non-recourse unconsolidated project debt, representing our 45%
share of the total project debt of approximately
$195.0 million. In addition, funds held in escrow for
credit support of $9.4 million were released to us. We
recorded an impairment charge of $41.3 million for our
investment in the project during the year ended
December 31, 2005.
82
Credit Considerations On December 21,
2005, Standard and Poors lowered its corporate credit
rating on Calpine Corporation to D (default) from CCC-. In
addition, the ratings on Calpines debt and the ratings of
debt of its subsidiaries have been lowered to D, with a few
exceptions.
On December 2, 2005, Moodys Investor Service lowered
its Long Term Corporate Family on Calpine Corporation to Caa1
from B3. In addition, the ratings on Calpines debt and the
ratings on the debt of its subsidiaries were also lowered to Ca.
On March 1, 2006, Moodys withdrew all of the ratings
of Calpine Corporation.
On November 4, 2005, Fitch Ratings lowered Calpines
senior unsecured notes two notches to CCC- from CCC+. In
addition, the ratings on Calpines first and second
priority notes were also lowered by two notches. On
December 21, 2005, Fitch lowered its Long Term Default
Ratings on Calpine to D and the ratings on Calpines senior
unsecured notes were lowered to CC from CCC-.
Bankruptcy and credit rating downgrades have had a negative
impact on our liquidity by increasing the amount of collateral
required by trading counterparties. We believe that as we
implement the steps of our business plan and then emerge from
bankruptcy, our credit rating will be reestablished and will
gradually improve.
Performance Indicators We believe the
following factors are important in assessing our ability to
continue to fund our operations and to successfully reorganize
and emerge from bankruptcy as a sustainable, competitive and
profitable power company: (a) reducing our activities in
certain non-core areas and lowering overhead and operating
expenses; (b) reducing our anticipated capital requirements
over the coming quarters and years; (c) improving the
profitability of our operations and our performance as measured
by the non-GAAP financial measures and other performance metrics
discussed in Performance Metrics below;
(d) complying with the covenants in our DIP Facility;
(e) gaining access to new or replacement capital upon
emergence from bankruptcy; and (f) stabilizing and
increasing future contractual cash flows.
Off-Balance Sheet Commitments In accordance
with SFAS No. 13, Accounting for Leases
and SFAS No. 98, Accounting for Leases,
our operating leases, which include certain sale/leaseback
transactions, are not reflected on our balance sheet. All
counterparties in these transactions are third parties that are
unrelated to us except as disclosed for Acadia PP in
Note 10 of the Notes to Consolidated Financial Statements.
The sale/leaseback transactions utilize special-purpose entities
formed by the equity investors with the sole purpose of owning a
power generation facility. Some of our operating leases contain
customary restrictions on dividends, additional debt and further
encumbrances similar to those typically found in project finance
debt instruments. We guarantee $1.6 billion of the total
future minimum lease payments of our consolidated subsidiaries
related to our operating leases. We have no ownership or other
interest in any of these special-purpose entities. See
Note 31 of the Notes to Consolidated Financial Statements
for the future minimum lease payments under our power plant
operating leases.
In accordance with APB Opinion No. 18, The Equity
Method of Accounting For Investments in Common Stock and
FIN 35, Criteria for Applying the Equity Method of
Accounting for Investments in Common Stock (An Interpretation of
APB Opinion No. 18), the debt on the books of our
unconsolidated investments in power projects is not reflected on
our balance sheet. See Note 10 of the Notes to Consolidated
Financial Statements. At December 31, 2005, investee debt
was approximately $2.2 billion. Of the $2.2 billion,
$2.0 billion related to our deconsolidated Canadian and
other foreign subsidiaries. Based on our pro rata ownership
share of each of the investments, our share of such debt would
be approximately $2.1 billion. Except for the debt of the
deconsolidated Canadian and other foreign subsidiaries, all such
debt is non-recourse to us. See Note 10 of the Notes to
Consolidated Financial Statements for additional information on
our equity method and cost method unconsolidated investments in
power projects and oil and gas properties.
83
Commercial Commitments Our primary commercial
obligations as of December 31, 2005, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts of Commitment Expiration per Period | |
|
|
| |
|
|
|
|
Total | |
|
|
|
|
Amounts | |
Commercial Commitments |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Committed | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Guarantee of subsidiary debt
|
|
$ |
24,425 |
|
|
$ |
198,859 |
|
|
$ |
1,592,342 |
|
|
$ |
22,131 |
|
|
$ |
11,040 |
|
|
$ |
590,287 |
|
|
$ |
2,439,084 |
|
Standby letters of credit
|
|
|
361,104 |
|
|
|
8,298 |
|
|
|
898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370,300 |
|
Surety bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,395 |
|
|
|
11,395 |
|
Guarantee of subsidiary operating lease payments
|
|
|
81,772 |
|
|
|
82,487 |
|
|
|
115,604 |
|
|
|
113,977 |
|
|
|
263,041 |
|
|
|
900,742 |
|
|
|
1,557,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
467,301 |
|
|
$ |
289,644 |
|
|
$ |
1,708,844 |
|
|
$ |
136,108 |
|
|
$ |
274,081 |
|
|
$ |
1,502,424 |
|
|
$ |
4,378,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our commercial commitments primarily include guarantees of
subsidiary debt, standby letters of credit and surety bonds to
third parties and guarantees of subsidiary operating lease
payments. The debt guarantees consist of parent guarantees for
the finance subsidiaries and project financing for the Broad
River Energy Center and the Pasadena Power Plant. The debt
guarantees and operating lease payments are also included in the
commercial commitments table above. We also issue guarantees for
normal course of business activities.
We have guaranteed the repayment of Senior Notes (original
principal amount of $2,597.2 million) for two wholly owned
finance subsidiaries of ours, ULC I and ULC II. However,
amounts outstanding under these two entities have been reduced
to $1,943.0 million and $2,139.7 million, at
December 31, 2005 and 2004, respectively, due to
repurchases of such Senior Notes which are held by subsidiaries
of ours. King City Cogen, a wholly owned subsidiary of ours, has
guaranteed to Calpine Commercial Trust, an unaffiliated entity,
a loan made by the Calpine Commercial Trust to our wholly owned
subsidiary, Calpine Canada Power Limited. Outstanding balances
of the loan at December 31, 2005 and 2004, were
$28.7 million and $37.7 million, respectively. As of
December 31, 2005, we have guaranteed $265.2 million
and $76.6 million, respectively, of project financing for
the Broad River Energy Center and Pasadena Power Plant and
$275.1 million and $72.4 million, respectively, as of
December 31, 2004, for these power plants. In 2004, we had
debenture obligations related to the HIGH TIDES III in
the amount of $517.5 million. In 2005 we repaid these
convertible debentures. (See Note 5 for more information.)
With respect to our Hidalgo facility, we agreed to indemnify
Duke Capital Corporation in the amount of $101.4 million as
of December 31, 2005 and 2004, in the event Duke Capital
Corporation is required to make any payments under its guarantee
of the Hidalgo Lease. As of December 31, 2005 and 2004, we
have also guaranteed $24.2 million and $31.7 million,
respectively, of other miscellaneous debt. In addition, as a
result of the deconsolidation of our Canadian and other foreign
subsidiaries, we deconsolidated approximately $2.0 billion
of debt that is guaranteed by Calpine Corporation (or a
consolidated subsidiary thereof) through, in some cases,
redundant guarantee structures that are expected to give rise to
allowable claims in excess of the amount of debt outstanding to
third party securities holders. Accordingly, we recorded
approximately $3.8 billion of additional LSTC related to
the ULC I, ULC II, and the King City Cogen loan
guarantees, some of which, as in the case of ULC I
guarantees, were redundant. As of December 31, 2005, all of
the guaranteed debt is recorded on our Consolidated Balance
Sheet, except for ULC I, ULC II and the Calpine
Commercial Trust loan, which were deconsolidated on
December 20, 2005. As of December 31, 2004, all of the
guaranteed debt was recorded on our Consolidated Balance Sheet.
84
Contractual Obligations Our contractual
obligations related to continuing operations as of
December 31, 2005, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Other contractual obligations
|
|
$ |
31,846 |
|
|
$ |
7,148 |
|
|
$ |
8,148 |
|
|
$ |
5,880 |
|
|
$ |
5,837 |
|
|
$ |
45,652 |
|
|
$ |
104,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating lease obligations(1)
|
|
$ |
198,967 |
|
|
$ |
184,284 |
|
|
$ |
180,015 |
|
|
$ |
174,696 |
|
|
$ |
318,751 |
|
|
$ |
1,122,140 |
|
|
$ |
2,178,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and other borrowings(3)(4)
|
|
|
179,597 |
|
|
|
134,447 |
|
|
|
97,901 |
|
|
|
104,003 |
|
|
|
111,464 |
|
|
|
1,443 |
|
|
|
628,855 |
|
|
Preferred interests(3)
|
|
|
9,479 |
|
|
|
8,990 |
|
|
|
12,236 |
|
|
|
16,228 |
|
|
|
175,144 |
|
|
|
370,819 |
|
|
|
592,896 |
|
|
Capital lease obligations(3)
|
|
|
8,133 |
|
|
|
7,940 |
|
|
|
9,875 |
|
|
|
10,952 |
|
|
|
16,057 |
|
|
|
233,800 |
|
|
|
286,757 |
|
|
CCFC (3)
|
|
|
3,208 |
|
|
|
3,208 |
|
|
|
3,209 |
|
|
|
365,349 |
|
|
|
|
|
|
|
409,539 |
|
|
|
784,513 |
|
|
CALGEN(3)
|
|
|
|
|
|
|
44,974 |
|
|
|
12,050 |
|
|
|
829,875 |
|
|
|
721,083 |
|
|
|
830,000 |
|
|
|
2,437,982 |
|
|
Construction/project financing(3)(5)
|
|
|
79,594 |
|
|
|
100,069 |
|
|
|
95,502 |
|
|
|
99,518 |
|
|
|
190,630 |
|
|
|
1,795,712 |
|
|
|
2,361,025 |
|
|
DIP Facility
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
Senior Notes and term loans(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
641,652 |
|
|
|
641,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt not subject to compromise
|
|
|
280,011 |
|
|
|
324,628 |
|
|
|
230,773 |
|
|
|
1,425,925 |
|
|
|
1,214,378 |
|
|
|
4,282,965 |
|
|
|
7,758,680 |
|
|
Liabilities subject to compromise(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction/project financing(3)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,506 |
|
|
|
166,506 |
|
|
|
Contingent Convertible Senior Notes Due 2006, 2014, 2015 and
2023(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,823,460 |
|
|
|
1,823,460 |
|
|
|
Second priority senior secured Notes(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,671,875 |
|
|
|
3,671,875 |
|
|
|
Unsecured senior notes(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,879,989 |
|
|
|
1,879,989 |
|
|
|
Notes payable and other liabilities related party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,078,045 |
|
|
|
1,078,045 |
|
|
|
Provision for claims under parent guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,132,349 |
|
|
|
5,132,349 |
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
857,840 |
|
|
|
857,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities subject to compromise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,610,064 |
|
|
|
14,610,064 |
|
Total debt and liabilities subject to compromise(4)(8)
|
|
$ |
280,011 |
|
|
$ |
324,628 |
|
|
$ |
230,773 |
|
|
$ |
1,425,925 |
|
|
$ |
1,214,378 |
|
|
$ |
18,893,029 |
|
|
$ |
22,368,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on debt not subject to compromise(8)
|
|
$ |
911,607 |
|
|
$ |
737,843 |
|
|
$ |
730,605 |
|
|
$ |
679,207 |
|
|
$ |
548,177 |
|
|
$ |
1,588,891 |
|
|
$ |
5,196,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreement payments
|
|
$ |
1,153 |
|
|
$ |
795 |
|
|
$ |
907 |
|
|
$ |
677 |
|
|
$ |
1,197 |
|
|
$ |
1,327 |
|
|
$ |
6,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turbine commitments
|
|
|
17,578 |
|
|
|
4,432 |
|
|
|
2,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,709 |
|
|
Commodity purchase obligations(6)
|
|
|
965,934 |
|
|
|
476,431 |
|
|
|
455,114 |
|
|
|
446,363 |
|
|
|
440,038 |
|
|
|
1,821,912 |
|
|
|
4,605,792 |
|
|
Land leases
|
|
|
4,394 |
|
|
|
4,585 |
|
|
|
5,122 |
|
|
|
5,616 |
|
|
|
5,744 |
|
|
|
361,700 |
|
|
|
387,161 |
|
|
Long-term service agreements
|
|
|
35,036 |
|
|
|
53,420 |
|
|
|
36,637 |
|
|
|
39,649 |
|
|
|
34,692 |
|
|
|
204,711 |
|
|
|
404,145 |
|
|
Costs to complete construction projects
|
|
|
215,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,213 |
|
|
Other purchase obligations(9)
|
|
|
54,624 |
|
|
|
32,886 |
|
|
|
27,190 |
|
|
|
26,945 |
|
|
|
27,559 |
|
|
|
446,677 |
|
|
|
615,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase obligations(7)
|
|
$ |
1,292,779 |
|
|
$ |
571,754 |
|
|
$ |
526,762 |
|
|
$ |
518,573 |
|
|
$ |
508,033 |
|
|
$ |
2,835,000 |
|
|
$ |
6,252,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in the total are future minimum payments for power
plant operating leases, and office and equipment leases. See
Note 31 of the Notes to Consolidated Financial Statements
for more information. |
|
|
(2) |
An obligation of or with recourse to Calpine Corporation. |
85
|
|
|
|
(3) |
Structured as an obligation(s) of certain subsidiaries of
Calpine Corporation without recourse to Calpine Corporation.
However, default on these instruments could potentially trigger
cross-default provisions in certain other debt instruments. |
|
|
(4) |
A note payable totaling $117.7 million associated with the
sale of the PG&E note receivable to a third party is
excluded from notes payable and other borrowings for this
purpose as it is a noncash liability. If the $117.7 million
is summed with the $628.9 million (total notes payable and
other) from the table above, the total notes payable and other
would be $746.6 million, which agrees to the sum of the
current and long-term notes payable and other borrowings
balances on the Consolidated Balance Sheet. See Note 14 of
the Notes to Consolidated Financial Statements for more
information concerning this note. Total debt not subject to
compromise of $7,758.7 million from the table above summed
with the $117.7 million totals $7,876.4 million, which
agrees to the total debt not subject to compromise amount in
Note 14 of the Notes to Consolidated Financial Statements. |
|
|
(5) |
Included in the total are guaranteed amounts of
$275.1 million and $72.4 million, respectively, of
project financing for the Broad River Energy Center and Pasadena
Power Plant. |
|
|
(6) |
The amounts presented here include contracts for the purchase,
transportation, or storage of commodities accounted for as
executory contracts or normal purchase and sales and, therefore,
not recognized as liabilities on our Consolidated Balance Sheet.
See Financial Market Risks for a discussion of our
commodity derivative contracts recorded at fair value on our
Consolidated Balance Sheet. |
|
|
(7) |
The amounts included above for purchase obligations include the
minimum requirements under contract. Also included in purchase
obligations are employee agreements. Agreements that we can
cancel without significant cancellation fees are excluded. |
|
|
(8) |
In accordance with
SOP 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, and as a result of the automatic stay
provisions of Chapter 11 and the uncertainty of the amount
approved by the court as allowed claims, we are unable to
determine the maturity date of the LSTC. Accordingly, only the
total contractual amounts due related to these instruments is
noted above. Also, we ceased accruing and recognizing interest
expense on debt that is considered to be subject to compromise,
except that being paid pursuant to the Cash Collateral Order.
Consequently, interest payable does not include contractual
interest due on LSTC. |
|
|
(9) |
The amounts include obligations under employment agreements.
They do not include success fees which are contingent on the
employment status if and when a plan of reorganization is
confirmed by the bankruptcy court. Also, any claim by Mr.
Cartwright for severance benefits is not included in the table
above and would be a pre-petition claim and processed
accordingly in the Chapter 11 cases. See Item 11.
Executive Compensation Employment Agreements,
Termination of Employment and Change in Control
Arrangements for a discussion of Messrs. May, Davido
and Cartwrights employment contracts. |
86
Debt Extinguishments Senior Notes
extinguished through open market repurchases and unscheduled
payments by Calpine during 2005 and 2004 totaled
$917.1 million and $1,668.3 million, respectively, in
aggregate outstanding principal amount for a repurchase price of
$685.5 million and $1,394.0 million, respectively,
plus accrued interest. In 2005, we recorded a pre-tax gain on
these transactions in the amount of $220.1 million, which
was $231.6 million, net of write-offs of $9.3 million
of unamortized deferred financing costs and $2.2 million of
unamortized premiums or discounts and legal costs. In 2004 we
recorded a pre-tax gain on these transactions in the amount of
$254.8 million, which was $274.4 million, net of
write-offs of $19.1 million of unamortized deferred
financing costs and $0.5 million of unamortized premiums or
discounts. HIGH TIDES III repurchased by Calpine during
2004 totaled $115.0 million in aggregate outstanding
principle amount at a repurchase price of $111.6 million
plus accrued interest. These repurchased HIGH TIDES III are
reflected on the balance sheets for December 31, 2004, as
an asset, versus being netted against the balance outstanding,
due to the deconsolidation of the Calpine Capital Trusts, which
issued the HIGH TIDES, upon the adoption of FIN 46-R. On
July 13, 2005, we repaid the convertible debentures payable
to Trust III, the issuer of the HIGH TIDES III.
Trust III then used the proceeds to redeem the outstanding
HIGH TIDES III totaling $517.5 million, including the
$115.0 million held by Calpine. See Note 16 of the
Notes to Consolidated Financial Statements. The following table
summarizes the total debt securities repurchased (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Principal | |
|
Amount | |
|
Principal | |
|
Amount | |
Debt Security and HIGH TIDES |
|
Amount | |
|
Paid | |
|
Amount | |
|
Paid | |
|
|
| |
|
| |
|
| |
|
| |
2006 Convertible Notes
|
|
$ |
|
|
|
$ |
|
|
|
$ |
658.7 |
|
|
$ |
657.7 |
|
2023 Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
266.2 |
|
|
|
177.0 |
|
First Priority Notes
|
|
|
138.9 |
|
|
|
138.9 |
|
|
|
|
|
|
|
|
|
81/4
% Senior Notes Due 2005
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
38.9 |
|
|
|
34.9 |
|
101/2
% Senior Notes Due 2006
|
|
|
13.5 |
|
|
|
12.4 |
|
|
|
13.9 |
|
|
|
12.4 |
|
75/8
% Senior Notes Due 2006
|
|
|
9.4 |
|
|
|
8.7 |
|
|
|
103.1 |
|
|
|
96.5 |
|
83/4
% Senior Notes Due 2007
|
|
|
5.0 |
|
|
|
3.2 |
|
|
|
30.8 |
|
|
|
24.4 |
|
77/8
% Senior Notes Due 2008
|
|
|
53.5 |
|
|
|
39.6 |
|
|
|
78.4 |
|
|
|
56.5 |
|
81/2
% Senior Notes Due 2008
|
|
|
159.8 |
|
|
|
102.6 |
|
|
|
344.3 |
|
|
|
249.4 |
|
83/8
% Senior Notes Due 2008
|
|
|
|
|
|
|
|
|
|
|
6.1 |
|
|
|
4.0 |
|
73/4
% Senior Notes Due 2009
|
|
|
41.0 |
|
|
|
24.8 |
|
|
|
11.0 |
|
|
|
8.1 |
|
85/8
% Senior Notes Due 2010
|
|
|
86.2 |
|
|
|
59.1 |
|
|
|
|
|
|
|
|
|
81/2
% Senior Notes Due 2011
|
|
|
405.8 |
|
|
|
292.2 |
|
|
|
116.9 |
|
|
|
73.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
917.1 |
|
|
$ |
685.5 |
|
|
$ |
1,668.3 |
|
|
$ |
1,394.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the amounts shown in the above table:
|
|
|
|
|
During 2004 we exchanged 24.3 million shares of Calpine
common stock in privately negotiated transactions for a total of
approximately $115.0 million par value of HIGH TIDES I and
HIGH TIDES II. |
|
|
|
On October 20, 2004, we repaid $636 million of
convertible debentures held by Trust I and Trust II,
respectively, which then used those proceeds to redeem the
outstanding HIGH TIDES I and II. The redemption included the
$115.0 million par value HIGH TIDES I and II previously
purchased and held by us and resulted in a net loss of
$7.8 million, comprised of a gain of $6.1 million
against a write-off of $13.9 million of unamortized
deferred financing costs. |
|
|
|
On June 28, 2005, we exchanged 27.5 million shares of
Calpine common stock in privately negotiated transactions for
$94.3 million in aggregate principal amount at maturity of
our 2014 Convertible Notes. This resulted in a pre-tax loss of
$8.3 million, comprised of a gain of $8.9 million, net
of write-offs of $2.8 million unamortized deferred
financing costs and $14.4 unamortized discount and legal costs. |
87
|
|
|
|
|
On July 13, 2005, we repaid $517.5 million of
convertible debentures held by Trust III, which then used
those proceeds to redeem the outstanding HIGH TIDES III.
The redemption included the $115 million of HIGH
TIDES III previously purchased and held by us and resulted
in a net loss of $8.5 million, comprised of a gain of
$4.4 million against a write-off of $12.9 million of
unamortized deferred financing costs. |
The following table summarizes the total debt securities and
HIGH TIDES exchanged for common stock in 2005 and 2004 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
Common | |
|
|
|
Common | |
|
|
Principal | |
|
Stock | |
|
Principal | |
|
Stock | |
Debt Securities and HIGH TIDES |
|
Amount | |
|
Issued | |
|
Amount | |
|
Issued | |
|
|
| |
|
| |
|
| |
|
| |
2014 Convertible Notes
|
|
$ |
94.3 |
|
|
|
27.5 |
|
|
$ |
|
|
|
|
|
|
HIGH TIDES I
|
|
|
|
|
|
|
|
|
|
|
40.0 |
|
|
|
8.5 |
|
HIGH TIDES II
|
|
|
|
|
|
|
|
|
|
|
75.0 |
|
|
|
15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
94.3 |
|
|
|
27.5 |
|
|
$ |
115.0 |
|
|
|
24.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes 14-24 of the Notes to Consolidated Financial
Statements below for a description of each of our debt
obligations.
Debt, Lease and Indenture Covenant Compliance
See Note 14 of the Notes to Consolidated Financial
Statements for compliance information.
Unrestricted Subsidiaries The information in
this paragraph is required to be provided under the terms of the
indentures and credit agreement governing the various tranches
of our second-priority secured indebtedness (collectively, the
Second Priority Secured Debt Instruments). We have
designated certain of our subsidiaries as unrestricted
subsidiaries under the Second Priority Secured Debt
Instruments. A subsidiary with unrestricted status
thereunder generally is not required to comply with the
covenants contained therein that are applicable to
restricted subsidiaries. The Company has designated
Calpine Gilroy 1, Inc., Calpine Gilroy 2, Inc. and
Calpine Gilroy Cogen, L.P. as unrestricted
subsidiaries for purposes of the Second Priority Secured
Debt Instruments.
The following table sets forth selected balance sheet
information of Calpine Corporation and restricted subsidiaries
and of such unrestricted subsidiaries at December 31, 2005,
and selected income statement information for the year ended
December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calpine | |
|
|
|
|
|
|
|
|
Corporation | |
|
|
|
|
|
|
|
|
and Restricted | |
|
Unrestricted | |
|
|
|
|
|
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Assets
|
|
$ |
20,184,479 |
|
|
$ |
360,318 |
|
|
$ |
|
|
|
$ |
20,544,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities not subject to compromise
|
|
$ |
10,962,473 |
|
|
$ |
204,961 |
|
|
$ |
|
|
|
$ |
11,167,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities subject to compromise
|
|
$ |
14,581,425 |
|
|
$ |
28,639 |
|
|
$ |
|
|
|
$ |
14,610,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
10,108,178 |
|
|
$ |
12,822 |
|
|
$ |
(8,342 |
) |
|
$ |
10,112,658 |
|
Total (cost) of revenue
|
|
|
(12,050,108 |
) |
|
|
(20,341 |
) |
|
|
12,868 |
|
|
|
(12,057,581 |
) |
Equipment, development project and other impairments
|
|
|
(2,117,665 |
) |
|
|
|
|
|
|
|
|
|
|
(2,117,665 |
) |
Interest income
|
|
|
74,334 |
|
|
|
16,681 |
|
|
|
(6,789 |
) |
|
|
84,226 |
|
Interest (expense)
|
|
|
(1,384,345 |
) |
|
|
(12,943 |
) |
|
|
|
|
|
|
(1,397,288 |
) |
Reorganization items
|
|
|
(5,026,510 |
) |
|
|
|
|
|
|
|
|
|
|
(5,026,510 |
) |
Other
|
|
|
517,896 |
|
|
|
(54,944 |
) |
|
|
|
|
|
|
462,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(9,878,220 |
) |
|
$ |
(58,725 |
) |
|
$ |
(2,263 |
) |
|
$ |
(9,939,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
88
Special Purpose Subsidiaries Pursuant to
applicable transaction agreements, we have established certain
of our entities separate from Calpine and our other
subsidiaries. At December 31, 2005, these entities
included: Rocky Mountain Energy Center, LLC, Riverside Energy
Center, LLC, Calpine Riverside Holdings, LLC, Calpine Energy
Management, L.P., CES GP, LLC, PCF, PCF III, Calpine
Northbrook Energy Marketing, LLC, CNEM Holdings, LLC, Gilroy
Energy Center, LLC, Calpine Gilroy Cogen, L.P., Calpine
Gilroy 1, Inc., Calpine King City Cogen, LLC, Calpine
Securities Company, L.P. (a parent company of Calpine King City
Cogen, LLC), Calpine King City, LLC (an indirect parent company
of Calpine Securities Company, L.P.), Calpine Fox Holdings, LLC,
Calpine Fox LLC, Calpine Deer Park Partner, LLC, Calpine Deer
Park, LLC, Deer Park Energy Center Limited Partnership, CCFC
Preferred Holdings, LLC and Metcalf Energy Center, LLC. The
following disclosures are required under certain applicable
agreements and pertain to some of these entities.
On May 15, 2003, our wholly owned indirect subsidiary,
CNEM, completed an offering of $82.8 million secured by an
existing PPA with the BPA. CNEM borrowed $82.8 million
secured by the BPA contract, a spot market PPA, a fixed price
swap agreement and the equity interest in CNEM. The
$82.8 million loan is recourse only to CNEMs assets
and the equity interest in CNEM and is not guaranteed by us.
CNEM was determined to be a VIE in which we were the primary
beneficiary. Accordingly, the entitys assets and
liabilities are consolidated into our accounts.
Pursuant to the applicable transaction agreements, each of CNEM
and its parent, CNEM Holdings, LLC, have been established as an
entity with its existence separate from us and other
subsidiaries of ours. In accordance with FIN 46-R,
Consolidation of Variable Interest
Entities, revised, we consolidate these
entities. See Note 2 of the Notes to Consolidated Financial
Statements for more information on FIN 46-R. The PPA with
BPA has been acquired by CNEM from CES and the spot market PPA
with a third party and the swap agreement that has been entered
into by CNEM, together with the $82.8 million loan, are
assets and liabilities of CNEM, separate from our assets and
liabilities and other subsidiaries of ours. The only significant
asset of CNEM Holdings, LLC is its equity interest in CNEM. The
proceeds of the $82.8 million loan were primarily used by
CNEM to purchase the PPA with BPA.
The following table sets forth selected financial information of
CNEM as of and for the year ended December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
21,985 |
|
Liabilities not subject to compromise
|
|
$ |
37,275 |
|
Total revenue(1)
|
|
$ |
22,575 |
|
Total cost of revenue
|
|
$ |
|
|
Interest expense
|
|
$ |
4,679 |
|
Net income (loss)
|
|
$ |
17,817 |
|
|
|
(1) |
CNEMs contracts are derivatives and are recorded on a net
mark-to-market basis on
our financial statements under SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, notwithstanding that economically they are
fully hedged. |
See Note 15 of the Notes to Consolidated Financial
Statements for further information.
On June 13, 2003, PCF, a wholly owned stand-alone
subsidiary of ours, completed an offering of two tranches of
Senior Secured Notes due 2006 and 2010 (collectively called the
PCF Notes), totaling $802.2 million original
principal amount. PCFs assets and liabilities consist of
cash (maintained in a debt reserve fund), a power sales
agreement with Morgan Stanley Capital Group Inc., a PPA with
CDWR, and the PCF Notes. PCF was determined to be a VIE in which
we were the primary beneficiary. Accordingly, the entitys
assets and liabilities are consolidated into our accounts.
89
Pursuant to the applicable transaction agreements, PCF has been
established as an entity with its existence separate from us and
other subsidiaries of ours. In accordance with FIN 46-R, we
consolidate this entity. See Note 2 of the Notes to
Consolidated Financial Statements for more information on
FIN 46-R. The above-mentioned power sales agreement and
PPA, which were acquired by PCF from CES, and the PCF Notes (a
portion of which have been repaid pursuant to the PCF
Notes amortization schedule) are assets and liabilities of
PCF, separate from the assets and liabilities of us and other
subsidiaries of ours. The following table sets forth selected
financial information of PCF as of and for the year ended
December 31, 2005 (in thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
469,305 |
|
Liabilities
|
|
$ |
581,616 |
|
Total revenue
|
|
$ |
512,405 |
|
Total cost of revenue
|
|
$ |
435,018 |
|
Interest expense
|
|
$ |
54,654 |
|
Net income (loss)
|
|
$ |
26,490 |
|
See Note 15 of the Notes to Consolidated Financial
Statements for further information.
On September 30, 2003, GEC, a wholly owned subsidiary of
our subsidiary GEC Holdings, LLC, completed an offering of
$301.7 million of 4% Senior Secured Notes Due 2011.
See Note 17 of the Notes to Consolidated Financial
Statements for more information on this secured financing. In
connection with the issuance of the secured notes, we received
funding on a third party preferred equity investment in
GEC Holdings, LLC totaling $74.0 million. This
preferred interest meets the criteria of a mandatorily
redeemable financial instrument and has been classified as debt
under the guidance of SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, due to certain preferential
distributions to the third party. The preferential distributions
are due semi-annually beginning in March 2004 through September
2011 and total approximately $113.3 million over the
eight-year period. As of December 31, 2005 and 2004, there
was $59.8 and $67.4 million, respectively, outstanding
under the preferred interest.
Pursuant to the applicable transaction agreements, GEC has been
established as an entity with its existence separate from us and
other subsidiaries of ours. We consolidate this entity. A
long-term PPA between CES and the CDWR has been acquired by GEC
by means of a series of capital contributions by CES and certain
of its affiliates and is an asset of GEC, and the secured notes
and the preferred interest are liabilities of GEC, separate from
the assets and liabilities of Calpine and our other
subsidiaries. In addition to the PPA and seven peaker power
plants owned directly by GEC, GECs assets include cash and
a 100% equity interest in each of Creed and Goose Haven, each of
which is a wholly owned subsidiary of GEC and a guarantor of the
secured notes. Each of Creed and Goose Haven has been
established as an entity with its existence separate from us and
other subsidiaries of ours. GEC consolidates these entities.
Creed and Goose Haven each have assets consisting of various
power plants and other assets. The following table sets forth
selected financial information of GEC as of and for the year
ended December 31, 2005 (in thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
601,681 |
|
Liabilities
|
|
$ |
255,906 |
|
Total revenue
|
|
$ |
96,816 |
|
Total cost of revenue
|
|
$ |
35,688 |
|
Interest expense
|
|
$ |
17,735 |
|
Net income
|
|
$ |
45,614 |
|
See Note 15 of the Notes to Consolidated Financial
Statements for further information.
90
On December 4, 2003, we announced that we had sold to a
group of institutional investors our right to receive payments
from PG&E under an Agreement between PG&E and Calpine
Gilroy Cogen, L.P. regarding the termination and buy-out of a
Standard Offer contract between PG&E and Gilroy (the
Gilroy Receivable) for $133.4 million in cash.
Because the transaction did not satisfy the criteria for sales
treatment under SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities a Replacement of FASB Statement
No. 125, it is reflected in the consolidated
financial statements as a secured financing, with a note payable
of $133.4 million. The receivable balance and note payable
balance are both reduced as PG&E makes payments to the buyer
of the Gilroy Receivable. The $24.1 million difference
between the $157.5 million book value of the Gilroy
Receivable at the transaction date and the cash received will be
recognized as additional interest expense over the repayment
term. We will continue to record interest income over the
repayment term, and interest expense will be accreted on the
amortizing note payable balance.
Pursuant to the applicable transaction agreements, each of
Gilroy and Calpine Gilroy 1, Inc. (the general partner of
Gilroy), has been established as an entity with its existence
separate from us and other subsidiaries of ours. We consolidate
these entities. The following table sets forth the assets and
liabilities of Gilroy as of December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
362,761 |
|
Liabilities
|
|
$ |
118,701 |
|
Liabilities subject to compromise
|
|
$ |
2,514 |
|
See Notes 11 and 15 of the Notes to Consolidated Financial
Statements for further information.
On June 2, 2004, our wholly owned indirect subsidiary,
PCF III, issued $85.0 million aggregate principal
amount at maturity of notes collateralized by
PCF IIIs ownership of PCF. PCF III owns all of
the equity interests in PCF, the assets of which include a debt
reserve fund, which had a balance of approximately
$94.4 million and $94.4 million at December 31,
2005 and 2004, respectively. We received cash proceeds of
approximately $49.8 million from the issuance of the notes,
which accrete in value up to $85 million at maturity in
accordance with the accreted value schedule for the notes.
Pursuant to the applicable transaction agreements, PCF III
has been established as an entity with its existence separate
from us and other subsidiaries of ours. We consolidate this
entity. The following table sets forth the assets and
liabilities of PCF III as of December 31, 2005, which
does not include the balances of PCF IIIs subsidiary,
PCF (in thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
1,576 |
|
Liabilities
|
|
$ |
57,117 |
|
See Note 15 of the Notes to Consolidated Financial
Statements for further information.
On August 5, 2004, our wholly owned indirect subsidiary,
CEM, entered into a $250.0 million letter of credit
facility with Deutsche Bank whereby Deutsche Bank supported
CEMs power and gas obligations by issuing letters of
credit. The facility expired in the fourth quarter of 2005.
Pursuant to the applicable transaction agreements, CEM had been
established as an entity with its existence separate from us and
other subsidiaries of ours. We consolidated this entity.
On June 29, 2004, Rocky Mountain Energy Center, LLC and
Riverside Energy Center, LLC, wholly owned subsidiaries of the
Companys Calpine Riverside Holdings, LLC subsidiary,
received funding in the aggregate amount of $661.5 million
comprising $633.4 million of First Priority Secured
Floating Rate Term Loans Due 2011 and a $28.1 million
letter of credit-linked deposit facility.
Pursuant to the applicable transaction agreements, each of Rocky
Mountain Energy Center, LLC, Riverside Energy Center, LLC, and
Calpine Riverside Holdings, LLC has been established as an
entity with
91
its existence separate from Calpine and our other subsidiaries.
We consolidate these entities. The following tables set forth
the assets and liabilities of these entities as of
December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rocky Mountain | |
|
Riverside Energy | |
|
Calpine Riverside | |
|
|
Energy Center, LLC | |
|
Center, LLC | |
|
Holdings, LLC | |
|
|
2005 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Assets
|
|
$ |
431,408 |
|
|
$ |
690,554 |
|
|
$ |
284,782 |
|
Liabilities
|
|
$ |
279,521 |
|
|
$ |
421,820 |
|
|
$ |
|
|
See Note 21 of the Notes to Consolidated Financial
Statements for further information.
On November 19, 2004, we entered into a $400 million,
25-year, non-recourse
sale/leaseback transaction with affiliates of GECF for the
560-megawatt Fox Energy Center under construction by GECF in
Wisconsin. Due to significant continuing involvement, as defined
in SFAS No. 98, Accounting for Leases, the
transaction does not currently qualify for sale/leaseback
accounting under that statement and has been accounted for as a
financing. The proceeds received from GECF are recorded as debt
in our consolidated balance sheet. The power plant assets will
be depreciated over their estimated useful life, and the lease
payments will be applied to principal and interest expense using
the effective interest method until such time as our continuing
involvement is removed, expires or is otherwise eliminated. Once
we no longer have significant continuing involvement in the
power plant assets, the legal sale will be recognized for
accounting purposes and the underlying lease will be evaluated
and classified in accordance with SFAS No. 13,
Accounting for Leases.
Pursuant to the applicable transaction agreements, each of
Calpine Fox, LLC and Calpine Fox Holdings, LLC, has been
established as an entity with its existence separate from us and
our other subsidiaries. We consolidate these entities. The
following tables set forth the assets and liabilities of Calpine
Fox, LLC and Calpine Fox Holdings, LLC, respectively, as of
December 31, 2005 (in thousands):
|
|
|
|
|
|
|
Calpine Fox, LLC and | |
|
|
Calpine Fox Holdings, LLC | |
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
429,412 |
|
Liabilities
|
|
$ |
365,985 |
|
See Note 21 of the Notes to Consolidated Financial
Statements for further information.
On March 31, 2005, Deer Park, our indirect, wholly owned
subsidiary, entered into an agreement to sell power to and buy
gas from MLCI. To assure performance under the agreements, Deer
Park granted MLCI a collateral interest in the Deer Park Energy
Center. The agreement covers 650 MW of Deer Parks
capacity, and deliveries under the agreement began on
April 1, 2005 and will continue through December 31,
2010. Under the terms of the agreements, Deer Park sells power
to MLCI at a discount to prevailing market prices at the time
the agreements were executed. Deer Park received an initial cash
payment of $195.8 million, net of $17.3 million in
transaction costs during the first quarter of 2005, and
subsequently received additional cash payments of
$76.4 million, net of $2.9 million in transaction
costs, as additional power transactions were executed with
discounts to prevailing market prices. Under the terms of the
gas agreements, Deer Park will receive quantities of gas such
that, when combined with fuel supply provided by Deer
Parks steam host, Deer Park will have sufficient
contractual fuel supply to meet the fuel needs required to
generate the power under the power agreements.
Pursuant to the applicable transaction agreements, Deer Park has
been established as an entity with its existence separate from
us and other subsidiaries of ours. We consolidate this entity.
The following table sets forth the assets and liabilities of
Deer Park as of December 31, 2005 (in thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
560,805 |
|
Liabilities
|
|
$ |
366,032 |
|
See Note 29 of the Notes to Consolidated Financial
Statements for further information.
92
On October 14, 2005, our indirect subsidiary, CCFCP, issued
$300.0 million of
6-Year redeemable
preferred shares. The CCFCP redeemable preferred shares are
mandatorily redeemable on the maturity date and are accounted
for as long-term debt and any related preferred dividends will
be accounted for as interest expense in accordance with
SFAS No. 150.
Pursuant to the applicable transaction agreements, CCFCP has
been established as an entity with its existence separate from
us and our other subsidiaries. We consolidate this entity. The
following table sets forth the assets and liabilities of CCFCP
as of December 31, 2005 (in thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
2,111,301 |
|
Liabilities
|
|
$ |
1,158,751 |
|
See Note 34 of the Notes to Consolidated Financial
Statements for further information.
Metcalf Energy Center, LLC On June 20,
2005, Metcalf consummated the sale of $155.0 million of
5.5-Year redeemable
preferred shares. Concurrent with the closing Metcalf entered
into a five-year, $100.0 million senior term loan. Proceeds
from the senior term loan were used to refinance all outstanding
indebtedness under the existing $100.0 million non-recourse
construction credit facility.
Pursuant to the applicable transaction agreements, Metcalf has
been established as an entity with its existence separate from
us and other subsidiaries of ours. We consolidate this entity.
The following table sets forth the assets and liabilities of
Metcalf as of December 31, 2005 (in thousands):
|
|
|
|
|
|
|
2005 | |
|
|
| |
Assets
|
|
$ |
652,985 |
|
Liabilities
|
|
$ |
275,762 |
|
See Note 21 of the Notes to Consolidated Financial
Statements for further information.
|
|
|
Capital Spending Development and
Construction |
See Notes 6 and 7 of the Notes to Consolidated Financial
Statements for a discussion of our development and construction
projects at December 31, 2005.
In understanding our business, we believe that certain non-GAAP
operating performance metrics are particularly important. These
are described below:
|
|
|
|
|
MWh generated. We generate power that we sell to third
parties. These sales are recorded as E&S revenue. The volume
in MWh is a key indicator of our level of activity. |
|
|
|
Average availability and average baseload capacity
factor. Availability represents the percent of total hours
during the period that our plants were available to run after
taking into account the downtime associated with both scheduled
and unscheduled outages. The baseload capacity factor is
calculated by dividing (a) total MWh generated by our power
plants (excluding peakers) by the product of multiplying
(b) the weighted average MW in operation during the period
by (c) the total hours in the period. The average baseload
capacity factor is thus a measure of total actual generation as
a percent of total potential generation. If we elect not to
generate during periods when electricity pricing is too low or
gas prices too high to operate profitably, the baseload capacity
factor will reflect that decision as well as both scheduled and
unscheduled outages due to maintenance and repair requirements. |
|
|
|
Average heat rate for gas-fired fleet of power plants
expressed in Btus of fuel consumed per KWh generated. We
calculate the average heat rate for our gas-fired power plants
(excluding peakers) by dividing (a) fuel consumed in Btu by
(b) KWh generated. The resultant heat rate is a measure of
fuel efficiency, so the lower the heat rate, the better. We also
calculate a steam-adjusted heat rate, in which we
adjust the fuel consumption in Btu down by the equivalent heat
content in steam or other |
93
|
|
|
|
|
thermal energy exported to a third party, such as to steam hosts
for our cogeneration facilities. Our goal is to have the lowest
average heat rate in the industry. |
|
|
|
Average all-in realized electric price expressed in dollars
per MWh generated. Our risk management and optimization
activities are integral to our power generation business and
directly impact our total realized revenues from generation.
Accordingly, we calculate the all-in realized electric price per
MWh generated by dividing (a) adjusted E&S revenue,
which includes capacity revenues, energy revenues, thermal
revenues, the spread on sales of purchased electricity for
hedging, balancing, and optimization activity and generating
revenue recorded in
mark-to-market
activities, net, by (b) total generated MWh in the period. |
|
|
|
Average cost of natural gas expressed in dollars per MMBtu of
fuel consumed. Our risk management and optimization
activities related to fuel procurement directly impact our total
fuel expense. The fuel costs for our gas-fired power plants are
a function of the price we pay for fuel purchased and the
results of the fuel hedging, balancing, and optimization
activities by CES. Accordingly, we calculate the cost of natural
gas per MMBtu of fuel consumed in our power plants by dividing
(a) adjusted fuel expense which includes the cost of fuel
consumed by our plants (adding back cost of inter-company gas
pipeline costs, which is eliminated in consolidation), the
spread on sales of purchased gas for hedging, balancing, and
optimization activity, and fuel expense related to generation
recorded in
mark-to-market
activities, net by (b) the heat content in millions of Btu
of the fuel we consumed in our power plants for the period. |
|
|
|
Average spark spread expressed in dollars per MWh
generated. Our risk management activities focus on managing
the spark spread for our portfolio of power plants, the spread
between the sales price for electricity generated and the cost
of fuel. We calculate the spark spread per MWh generated by
subtracting (a) adjusted fuel expense from
(b) adjusted E&S revenue and dividing the difference by
(c) total generated MWh in the period. |
|
|
|
Average plant operating expense per MWh. To assess trends
in electric power plant operating expense (POX) per
MWh, we divide POX by actual MWh. |
The table below shows the operating performance metrics for
continuing operations discussed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Operating Performance Metrics;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MWh generated
|
|
|
87,431 |
|
|
|
83,412 |
|
|
|
70,856 |
|
|
Average availability
|
|
|
91.5 |
% |
|
|
92.6 |
% |
|
|
91.1 |
% |
|
Average baseload capacity factor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average total MW in operation
|
|
|
25,207 |
|
|
|
22,198 |
|
|
|
18,283 |
|
|
|
Less: Average MW of pure peakers
|
|
|
2,965 |
|
|
|
2,951 |
|
|
|
2,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average baseload MW in operation
|
|
|
22,242 |
|
|
|
19,247 |
|
|
|
15,611 |
|
|
|
Hours in the period
|
|
|
8,760 |
|
|
|
8,784 |
|
|
|
8,760 |
|
|
|
Potential baseload generation (MWh)
|
|
|
194,840 |
|
|
|
169,066 |
|
|
|
136,752 |
|
|
|
Actual total generation (MWh)
|
|
|
87,431 |
|
|
|
83,412 |
|
|
|
70,856 |
|
|
|
Less: Actual pure peakers generation (MWh)
|
|
|
1,893 |
|
|
|
1,453 |
|
|
|
1,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual baseload generation (MWh)
|
|
|
85,538 |
|
|
|
81,959 |
|
|
|
69,566 |
|
|
|
Average baseload capacity factor
|
|
|
43.9 |
% |
|
|
48.5 |
% |
|
|
50.9 |
% |
|
Average heat rate for gas-fired power plants (excluding
peakers)(Btus/ KWh):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not steam adjusted
|
|
|
8,369 |
|
|
|
8,303 |
|
|
|
8,081 |
|
|
|
Steam adjusted
|
|
|
7,187 |
|
|
|
7,172 |
|
|
|
7,335 |
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Average all-in realized electric price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity and steam revenue
|
|
$ |
6,278,840 |
|
|
$ |
5,165,347 |
|
|
$ |
4,291,173 |
|
|
Spread on sales of purchased power for hedging and optimization
|
|
|
307,759 |
|
|
|
166,016 |
|
|
|
29,246 |
|
|
Revenue related to power generation in mark-to-market activity,
net
|
|
|
243,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted electricity and steam revenue
|
|
$ |
6,830,004 |
|
|
$ |
5,331,363 |
|
|
$ |
4,320,419 |
|
|
MWh generated
|
|
|
87,431 |
|
|
|
83,412 |
|
|
|
70,856 |
|
|
Average all-in realized electric price per MWh
|
|
$ |
78.12 |
|
|
$ |
63.92 |
|
|
$ |
60.97 |
|
Average cost of natural gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel expense
|
|
$ |
4,623,286 |
|
|
$ |
3,587,417 |
|
|
$ |
2,636,744 |
|
|
Fuel cost elimination
|
|
|
8,395 |
|
|
|
18,028 |
|
|
|
61,423 |
|
|
Spread on sales of purchased gas for hedging and optimization
|
|
|
56,921 |
|
|
|
(11,587 |
) |
|
|
(41,334 |
) |
|
Fuel expense related to power generation in mark-to-market
activity, net
|
|
|
189,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted fuel expense
|
|
$ |
4,878,372 |
|
|
$ |
3,593,858 |
|
|
$ |
2,656,833 |
|
|
MMBtu of fuel consumed by generating plants
|
|
|
592,962 |
|
|
|
571,869 |
|
|
|
484,050 |
|
|
Average cost of natural gas per MMBtu
|
|
$ |
8.23 |
|
|
$ |
6.28 |
|
|
$ |
5.49 |
|
|
MWh generated
|
|
|
87,431 |
|
|
|
83,412 |
|
|
|
70,856 |
|
|
Average cost of adjusted fuel expense per MWh
|
|
$ |
55.80 |
|
|
$ |
43.09 |
|
|
$ |
37.50 |
|
Average spark spread:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted electricity and steam revenue
|
|
$ |
6,830,004 |
|
|
$ |
5,331,363 |
|
|
$ |
4,320,419 |
|
|
Less: Adjusted fuel expense
|
|
|
4,878,372 |
|
|
|
3,593,858 |
|
|
|
2,656,833 |
|
|
|
|
|
|
|
|
|
|
|
|
Spark spread
|
|
$ |
1,951,632 |
|
|
$ |
1,737,505 |
|
|
$ |
1,663,586 |
|
|
MWh generated
|
|
|
87,431 |
|
|
|
83,412 |
|
|
|
70,856 |
|
|
Average spark spread per MWh
|
|
$ |
22.32 |
|
|
$ |
20.83 |
|
|
$ |
23.48 |
|
Average plant operating expense (POX) per actual MWh:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant operating expense (POX)
|
|
$ |
717,393 |
|
|
$ |
727,911 |
|
|
$ |
599,325 |
|
|
POX per actual MWh
|
|
$ |
8.21 |
|
|
$ |
8.73 |
|
|
$ |
8.46 |
|
95
The table below provides additional detail of total
mark-to-market
activity. For the years ended December 31, 2005, 2004 and
2003, mark-to-market
activity, net consisted of (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Realized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activity as defined in EITF Issue
No. 02-03
|
|
$ |
297,893 |
|
|
$ |
52,262 |
|
|
$ |
52,559 |
|
|
|
Other mark-to-market activity(1)
|
|
|
(13,372 |
) |
|
|
(12,158 |
) |
|
|
(26,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized power activity
|
|
$ |
284,521 |
|
|
$ |
40,104 |
|
|
$ |
26,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Gas activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activity as defined in EITF Issue
No. 02-03
|
|
$ |
(177,752 |
) |
|
$ |
8,025 |
|
|
$ |
(2,166 |
) |
|
|
Other mark-to-market activity(1)
|
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized gas activity
|
|
$ |
(178,038 |
) |
|
$ |
8,025 |
|
|
$ |
(2,166 |
) |
|
|
|
|
|
|
|
|
|
|
Total realized activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activity as defined in EITF Issue
No. 02-03
|
|
$ |
120,141 |
|
|
$ |
60,287 |
|
|
$ |
50,393 |
|
|
|
Other mark-to-market activity(1)
|
|
|
(13,658 |
) |
|
|
(12,158 |
) |
|
|
(26,059 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized activity
|
|
$ |
106,483 |
|
|
$ |
48,129 |
|
|
$ |
24,334 |
|
|
|
|
|
|
|
|
|
|
|
Unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activity as defined in EITF Issue
No. 02-03
|
|
$ |
(85,860 |
) |
|
$ |
(18,075 |
) |
|
$ |
(55,450 |
) |
|
|
Ineffectiveness related to cash flow hedges
|
|
|
(4,638 |
) |
|
|
1,814 |
|
|
|
(5,001 |
) |
|
|
Other mark-to-market activity(1)
|
|
|
6,393 |
|
|
|
(13,591 |
) |
|
|
(1,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized power activity
|
|
$ |
(84,105 |
) |
|
$ |
(29,852 |
) |
|
$ |
(61,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
Gas activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activity as defined in EITF Issue
No. 02-03
|
|
$ |
(9,042 |
) |
|
$ |
(10,700 |
) |
|
$ |
7,768 |
|
|
|
Ineffectiveness related to cash flow hedges
|
|
|
(1,951 |
) |
|
|
5,827 |
|
|
|
3,153 |
|
|
|
Other mark-to-market activity(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gas activity
|
|
$ |
(10,993 |
) |
|
$ |
(4,873 |
) |
|
$ |
10,921 |
|
|
|
|
|
|
|
|
|
|
|
Total unrealized activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activity as defined in EITF Issue
No. 02-03
|
|
$ |
(94,902 |
) |
|
$ |
(28,775 |
) |
|
$ |
(47,682 |
) |
|
Ineffectiveness related to cash flow hedges
|
|
|
(6,589 |
) |
|
|
7,641 |
|
|
|
(1,848 |
) |
|
Other mark-to-market activity(1)
|
|
|
6,393 |
|
|
|
(13,591 |
) |
|
|
(1,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized activity
|
|
$ |
(95,098 |
) |
|
$ |
(34,725 |
) |
|
$ |
(50,773 |
) |
|
|
|
|
|
|
|
|
|
|
Total mark-to-market activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Activity as defined in EITF Issue
No. 02-03
|
|
$ |
25,239 |
|
|
$ |
31,512 |
|
|
$ |
2,711 |
|
|
Ineffectiveness related to cash flow hedges
|
|
|
(6,589 |
) |
|
|
7,641 |
|
|
|
(1,848 |
) |
|
Other mark-to-market activity(1)
|
|
|
(7,265 |
) |
|
|
(25,749 |
) |
|
|
(27,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mark-to-market activity
|
|
$ |
11,385 |
|
|
$ |
13,404 |
|
|
$ |
(26,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Activity related to our assets but does not qualify for hedge
accounting. |
96
For a discussion of our strategy and managements outlook,
see Item 1 Business
Strategy.
As we are primarily focused on generation of electricity using
gas-fired turbines, our natural physical commodity position is
short fuel (i.e., natural gas consumer) and
long power (i.e., electricity seller). To manage
forward exposure to price fluctuation in these and (to a lesser
extent) other commodities, we enter into derivative commodity
instruments as discussed in Item 1.
Business Marketing, Hedging, Optimization and
Trading Activities.
The change in fair value of outstanding commodity derivative
instruments from January 1, 2005, through December 31,
2005, is summarized in the table below (in thousands):
|
|
|
|
|
Fair value of contracts outstanding at January 1, 2005
|
|
$ |
37,863 |
|
Cash losses recognized or otherwise settled during the period(1)
|
|
|
79,265 |
|
Non-cash gains recognized or otherwise settled during the
period(2)
|
|
|
44,979 |
|
Changes in fair value attributable to new contracts(3)
|
|
|
(344,520 |
) |
Changes in fair value attributable to price movements
|
|
|
(267,112 |
) |
Terminated derivatives
|
|
|
9,711 |
|
|
|
|
|
Fair value of contracts outstanding at December 31, 2005(4)
|
|
$ |
(439,814 |
) |
|
|
|
|
Realized cash flow from fair value hedges(5)
|
|
$ |
346,733 |
|
|
|
|
|
|
|
(1) |
Realized losses from cash flow hedges and
mark-to-market activity
are reflected in the tables below (in millions): |
|
|
|
|
|
|
Realized value of commodity cash flow hedges reclassified from
OCI(a)
|
|
$ |
(384.4 |
) |
Net of:
|
|
|
|
|
|
Terminated and monetized derivatives
|
|
|
(29.2 |
) |
|
Equity method hedges
|
|
|
|
|
|
Hedges reclassified to discontinued operations
|
|
|
(199.4 |
) |
|
|
|
|
|
Cash losses realized from cash flow hedges
|
|
|
(155.8 |
) |
|
|
|
|
Realized value of mark-to-market activity(b)
|
|
|
106.5 |
|
Net of:
|
|
|
|
|
|
Non-cash realized mark-to-market activity
|
|
|
30.0 |
|
|
|
|
|
|
Cash gains realized on mark-to-market activity
|
|
|
76.5 |
|
|
|
|
|
|
Cash losses recognized or otherwise settled during the period
|
|
$ |
(79.3 |
) |
|
|
|
|
|
|
|
|
(a) |
Realized value as disclosed in Note 29 of the Notes to
Consolidated Condensed Financial Statements. |
|
|
(b) |
Realized value as reported in Managements discussion and
analysis of operating performance metrics. |
|
|
(2) |
This represents the non-cash amortization of deferred items
embedded in our derivative assets and liabilities. |
|
(3) |
The change attributable to new contracts includes the
$284.2 million derivative liability associated with a
transaction by our Deer Park facility as discussed in
Note 29 of the Notes to Consolidated Condensed Financial
Statements. |
97
|
|
(4) |
Net commodity derivative liabilities reported in Note 29 of
the Notes to Consolidated Condensed Financial Statements. |
|
(5) |
Not included as part of the roll-forward of net derivative
assets and liabilities because changes in the hedge instrument
and hedged item move in equal and offsetting directions to the
extent the fair value hedges are perfectly effective. |
The fair value of outstanding derivative commodity instruments
at December 31, 2005, based on price source and the period
during which the instruments will mature, are summarized in the
table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Source |
|
2006 | |
|
2007-2008 | |
|
2009-2010 | |
|
After 2010 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Prices actively quoted
|
|
$ |
(31,275 |
) |
|
$ |
1,483 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(29,792 |
) |
Prices provided by other external sources
|
|
|
(206,744 |
) |
|
|
(90,747 |
) |
|
|
(34,418 |
) |
|
|
|
|
|
|
(331,909 |
) |
Prices based on models and other valuation methods
|
|
|
|
|
|
|
(30,707 |
) |
|
|
(47,383 |
) |
|
|
(23 |
) |
|
|
(78,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
$ |
(238,019 |
) |
|
$ |
(119,971 |
) |
|
$ |
(81,801 |
) |
|
$ |
(23 |
) |
|
$ |
(439,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our risk managers maintain fair value price information derived
from various sources in our risk management systems. The
propriety of that information is validated by our Risk Control
group. Prices actively quoted include validation with prices
sourced from commodities exchanges (e.g., New York Mercantile
Exchange). Prices provided by other external sources include
quotes from commodity brokers and electronic trading platforms.
Prices based on models and other valuation methods are validated
using quantitative methods. See Critical Accounting
Policies for a discussion of valuation estimates used
where external prices are unavailable.
The counterparty credit quality associated with the fair value
of outstanding derivative commodity instruments at
December 31, 2005, and the period during which the
instruments will mature are summarized in the table below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality |
|
|
|
|
|
|
|
|
|
|
(Based on Standard & Poors Ratings as of |
|
|
|
|
|
|
|
|
|
|
December 31, 2005) |
|
2006 | |
|
2007-2008 | |
|
2009-2010 | |
|
After 2010 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Investment grade
|
|
$ |
(217,717 |
) |
|
$ |
(115,588 |
) |
|
$ |
(80,475 |
) |
|
$ |
(23 |
) |
|
$ |
(413,803 |
) |
Non-investment grade
|
|
|
(18,324 |
) |
|
|
(2,715 |
) |
|
|
(1,326 |
) |
|
|
|
|
|
|
(22,365 |
) |
No external ratings
|
|
|
(1,978 |
) |
|
|
(1,668 |
) |
|
|
|
|
|
|
|
|
|
|
(3,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value
|
|
$ |
(238,019 |
) |
|
$ |
(119,971 |
) |
|
$ |
(81,801 |
) |
|
$ |
(23 |
) |
|
$ |
(439,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of outstanding derivative commodity instruments
and the fair value that would be expected after a ten percent
adverse price change are shown in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value After | |
|
|
|
|
10% Adverse | |
|
|
Fair Value | |
|
Price Change | |
|
|
| |
|
| |
At December 31, 2005:
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$ |
(628,386 |
) |
|
$ |
(760,216 |
) |
|
Natural gas
|
|
|
188,572 |
|
|
|
163,509 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(439,814 |
) |
|
$ |
(596,707 |
) |
|
|
|
|
|
|
|
Derivative commodity instruments included in the table are those
included in Note 29 of the Notes to Consolidated Financial
Statements. The fair value of derivative commodity instruments
included in the table is based on present value adjusted quoted
market prices of comparable contracts. The fair value of
electricity derivative commodity instruments after a 10% adverse
price change includes the effect of increased power prices
versus our derivative forward commitments. Conversely, the fair
value of the natural gas derivatives after a 10% adverse price
change reflects a general decline in gas prices versus our
derivative forward
98
commitments. Derivative commodity instruments offset the price
risk exposure of our physical assets. None of the offsetting
physical positions are included in the table above.
Price changes were calculated by assuming an
across-the-board ten
percent adverse price change regardless of term or historical
relationship between the contract price of an instrument and the
underlying commodity price. In the event of an actual ten
percent change in prices, the fair value of our derivative
portfolio would typically change by more than ten percent for
earlier forward months and less than ten percent for later
forward months because of the higher volatilities in the near
term and the effects of discounting expected future cash flows.
The primary factors affecting the fair value of our derivatives
at any point in time are (1) the volume of open derivative
positions (MMBtu and MWh), and (2) changing commodity
market prices, principally for electricity and natural gas. The
total volume of open gas derivative positions increased 16% from
December 31, 2004, to December 31, 2005, and the total
volume of open power derivative positions increased 64% for the
same period. In that prices for electricity and natural gas are
among the most volatile of all commodity prices, there may be
material changes in the fair value of our derivatives over time,
driven both by price volatility and the changes in volume of
open derivative transactions. Under SFAS No. 133, the
change since the last balance sheet date in the total value of
the derivatives (both assets and liabilities) is reflected
either in OCI, net of tax, or in the statement of operations as
an item (gain or loss) of current earnings. As of
December 31, 2005, a significant component of the balance
in accumulated OCI represented the unrealized net loss
associated with commodity cash flow hedging transactions. As
noted above, there is a substantial amount of volatility
inherent in accounting for the fair value of these derivatives,
and our results during the year ended December 31, 2005,
have reflected this. See Note 29 of the Notes to
Consolidated Financial Statements for additional information on
derivative activity.
Interest Rate Swaps From time to time, we use
interest rate swap agreements to mitigate our exposure to
interest rate fluctuations associated with certain of our debt
instruments and to adjust the mix between fixed and floating
rate debt in our capital structure to desired levels. We do not
use interest rate swap agreements for speculative or trading
purposes. The following tables summarize the fair market values
of our existing interest rate swap agreements as of
December 31, 2005 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Weighted Average |
|
|
|
|
Notional |
|
Interest Rate |
|
Interest Rate |
|
Fair Market |
Maturity Date |
|
Principal Amount |
|
(Pay) |
|
(Receive) |
|
Value |
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
56,757 |
|
|
|
4.5 |
% |
|
|
3-month US$LIBOR |
|
|
$ |
451 |
|
2007
|
|
|
284,768 |
|
|
|
4.5 |
% |
|
|
3-month US$LIBOR |
|
|
|
2,289 |
|
2009
|
|
|
38,454 |
|
|
|
4.4 |
% |
|
|
3-month US$LIBOR |
|
|
|
420 |
|
2009
|
|
|
192,937 |
|
|
|
4.4 |
% |
|
|
3-month US$LIBOR |
|
|
|
2,105 |
|
2009
|
|
|
50,000 |
|
|
|
4.8 |
% |
|
|
3-month US$LIBOR |
|
|
|
(60 |
) |
2011
|
|
|
37,563 |
|
|
|
4.9 |
% |
|
|
3-month US$LIBOR |
|
|
|
(155 |
) |
2011
|
|
|
24,695 |
|
|
|
4.8 |
% |
|
|
3-month US$LIBOR |
|
|
|
(72 |
) |
2011
|
|
|
18,802 |
|
|
|
4.8 |
% |
|
|
3-month US$LIBOR |
|
|
|
(36 |
) |
2011
|
|
|
18,782 |
|
|
|
4.9 |
% |
|
|
3-month US$LIBOR |
|
|
|
(77 |
) |
2011
|
|
|
18,782 |
|
|
|
4.9 |
% |
|
|
3-month US$LIBOR |
|
|
|
(77 |
) |
2011
|
|
|
18,802 |
|
|
|
4.8 |
% |
|
|
3-month US$LIBOR |
|
|
|
(36 |
) |
2011
|
|
|
18,782 |
|
|
|
4.9 |
% |
|
|
3-month US$LIBOR |
|
|
|
(77 |
) |
2011
|
|
|
18,802 |
|
|
|
4.8 |
% |
|
|
3-month US$LIBOR |
|
|
|
(36 |
) |
2012
|
|
|
100,926 |
|
|
|
6.5 |
% |
|
|
3-month US$LIBOR |
|
|
|
(6,486 |
) |
2016
|
|
|
20,100 |
|
|
|
7.3 |
% |
|
|
3-month US$LIBOR |
|
|
|
(2,592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
918,952 |
|
|
|
4.8 |
% |
|
|
|
|
|
$ |
(4,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
Certain of our interest rate swaps were designated as cash flow
hedges of debt instruments that became subject to compromise as
a result of our bankruptcy filings beginning on
December 20, 2005. Consequently, such interest rate swaps
no longer were effective hedges and we began to recognize
changes in their fair value through earnings rather than through
OCI.
The fair value of outstanding interest rate swaps and the fair
value that would be expected after a one percent (100 basis
points) adverse interest rate change are shown in the table
below (in thousands). Given our net variable to fixed portfolio
position, a 100 basis point decrease would adversely impact
our portfolio as follows:
|
|
|
|
|
|
|
Fair Value After a 1.0% | |
|
|
(100 Basis Points) Adverse | |
Net Fair Value as of December 31, 2005 |
|
Interest Rate Change | |
|
|
| |
$(4,439)
|
|
$ |
(38,848 |
) |
Variable Rate Debt Financing We have used
debt financing to meet the significant capital requirements
needed to fund our growth. Certain debt instruments related to
our non-debtor entities and debt instruments not considered
subject to compromise at December 31, 2005, may affect us
adversely because of changes in market conditions. Our variable
rate financings are indexed to base rates, generally LIBOR, as
shown below. Significant LIBOR increases could have a negative
impact on our future interest expense.
On December 20, 2005, we entered into a $2.0 billion
DIP Facility, which, as amended, is comprised of a
$1.0 billion revolving credit facility, priced at LIBOR
plus 225 basis points; a $400 million first-priority
term loan, priced at LIBOR plus 225 basis points; and a
$600 million second-priority term loan, priced at LIBOR
plus 400 basis points. The DIP Facility will be used to
fund our operations during our Chapter 11 restructuring. It
will remain in place until the earlier of an effective plan of
reorganization or December 20, 2007. At December 31,
2005, the DIP Facility had a balance of $25.0 million. See
Note 22 of the Notes to Consolidated Financial Statements
for more information.
See Note 21 of the Notes to Consolidated Financial
Statements for information on our construction/project financing
instruments.
The following table summarizes our variable-rate debt, by
repayment year, exposed to interest rate risk as of
December 31, 2005. All outstanding balances and fair market
values are shown net of applicable premium or discount, if any
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value | |
|
|
|
|
|
|
|
|
|
|
2010 and | |
|
December 31, | |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
3-month US $LIBOR weighted average interest rate basis(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riverside Energy Center project financing
|
|
$ |
3,685 |
|
|
$ |
3,685 |
|
|
$ |
3,685 |
|
|
$ |
3,685 |
|
|
$ |
340,553 |
|
|
$ |
355,293 |
|
|
Rocky Mountain Energy Center project financing
|
|
|
2,649 |
|
|
|
2,649 |
|
|
|
2,649 |
|
|
|
2,649 |
|
|
|
235,276 |
|
|
|
245,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of 3-month US $LIBOR rate debt
|
|
|
6,334 |
|
|
|
6,334 |
|
|
|
6,334 |
|
|
|
6,334 |
|
|
|
575,829 |
|
|
|
601,165 |
|
1-month US $LIBOR interest rate basis(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freeport Energy Center, LP project financing
|
|
|
|
|
|
|
2,528 |
|
|
|
2,323 |
|
|
|
2,054 |
|
|
|
156,698 |
|
|
|
163,603 |
|
|
Mankato Energy Center, LLC project financing
|
|
|
|
|
|
|
2,222 |
|
|
|
2,292 |
|
|
|
1,969 |
|
|
|
144,747 |
|
|
|
151,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of 1-month US $LIBOR interest rate
|
|
|
|
|
|
|
4,750 |
|
|
|
4,615 |
|
|
|
4,023 |
|
|
|
301,445 |
|
|
|
314,833 |
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value | |
|
|
|
|
|
|
|
|
|
|
2010 and | |
|
December 31, | |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(1)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metcalf Energy Center, LLC preferred interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,000 |
|
|
|
155,000 |
|
|
Third Priority Secured Floating Rate Notes Due 2011 (CalGen)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
680,000 |
|
|
|
680,000 |
|
|
Second Priority Senior Secured Floating Rate Notes Due 2011
(CCFC)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409,539 |
|
|
|
409,539 |
|
|
CCFC Preferred Holdings, LLC preferred interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of variable rate debt as defined at(1) below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,544,539 |
|
|
|
1,544,539 |
|
(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Spruce Energy Center project financing
|
|
|
3,750 |
|
|
|
3,750 |
|
|
|
3,750 |
|
|
|
3,750 |
|
|
|
81,395 |
|
|
|
96,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of variable rate debt as defined at(2) below
|
|
|
3,750 |
|
|
|
3,750 |
|
|
|
3,750 |
|
|
|
3,750 |
|
|
|
81,395 |
|
|
|
96,395 |
|
(4)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Priority Secured Floating Rate Notes Due 2009 (CalGen)
|
|
|
|
|
|
|
1,175 |
|
|
|
2,350 |
|
|
|
231,475 |
|
|
|
|
|
|
|
235,000 |
|
|
First Priority Secured Institutional Term Loans Due 2009 (CalGen)
|
|
|
|
|
|
|
3,000 |
|
|
|
6,000 |
|
|
|
591,000 |
|
|
|
|
|
|
|
600,000 |
|
|
First Priority Senior Secured Institutional Term Loan Due
2009 (CCFC)
|
|
|
3,208 |
|
|
|
3,208 |
|
|
|
3,208 |
|
|
|
365,350 |
|
|
|
|
|
|
|
374,974 |
|
|
DIP Facility
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
Second Priority Secured Institutional Floating Rate Notes Due
2010 (CalGen)
|
|
|
|
|
|
|
|
|
|
|
3,200 |
|
|
|
6,400 |
|
|
|
623,639 |
|
|
|
633,239 |
|
|
Second Priority Secured Term Loans Due 2010 (CalGen)
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
1,000 |
|
|
|
97,444 |
|
|
|
98,944 |
|
|
Metcalf Energy Center, LLC project financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of variable rate debt as defined at (4) below
|
|
|
3,208 |
|
|
|
32,383 |
|
|
|
15,258 |
|
|
|
1,195,225 |
|
|
|
821,083 |
|
|
|
2,067,157 |
|
(5)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contra Costa
|
|
|
171 |
|
|
|
179 |
|
|
|
187 |
|
|
|
196 |
|
|
|
1,381 |
|
|
|
2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of variable rate debt as defined at (5) below
|
|
|
171 |
|
|
|
179 |
|
|
|
187 |
|
|
|
196 |
|
|
|
1,381 |
|
|
|
2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand total variable-rate debt instruments
|
|
$ |
13,463 |
|
|
$ |
47,396 |
|
|
$ |
30,144 |
|
|
$ |
1,209,528 |
|
|
$ |
3,325,672 |
|
|
$ |
4,626,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
British Bankers Association LIBOR Rate for deposit in US dollars
for a period of six months. |
|
(2) |
British Bankers Association LIBOR Rate for deposit in US dollars
for a period of three months. |
|
(3) |
Actual interest rates include a spread over the basis amount. |
|
(4) |
Choice of 1-month
US $LIBOR, 2-month
US $LIBOR, 3-month
US $LIBOR, 6-month
US $LIBOR,
12-month US $LIBOR
or a base rate. |
|
(5) |
Bankers Acceptance Rate. |
101
|
|
|
Application of Critical Accounting Policies |
Our financial statements reflect the selection and application
of accounting policies which require management to make
significant estimates and judgments. See Note 2 of the
Notes to Consolidated Financial Statements, Summary of
Significant Accounting Policies. We believe that the
following reflect the more critical accounting policies that
currently affect our financial condition and results of
operations.
|
|
|
Financial Reporting Under Bankruptcy |
GAAP reporting for debtor entities during bankruptcy is governed
by AICPA Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, which provides for:
|
|
|
|
|
Reclassification of unsecured or under-secured pre-petition
liabilities to a separate line item in the balance sheet which
we have called Liabilities Subject to Compromise or LSTC; |
|
|
|
Non-accrual of interest expense for financial reporting
purposes, to the extent not paid during bankruptcy and not
expected to be an allowed claim. However, unpaid contractual
interest is calculated for disclosure purposes. |
|
|
|
Adjust any unamortized deferred financing costs and
discounts/premiums associated with debt classified as LSTC to
reflect the expected amount of the probable allowed claim. As a
result of applying this guidance, we have written off
approximately $148.1 million for the year ended
December 31, 2005, as a charge to reorganization items
related to certain debt instruments deemed subject to
compromise, in order to reflect this debt at the amount of the
probable allowed claim; |
|
|
|
Segregation of reorganization items (direct and incremental
costs, such as professional fees, of being in bankruptcy) as a
separate line item in the statement of operations outside of
income from continuing operations; |
|
|
|
Evaluation of actual or potential bankruptcy claims, which are
not already reflected as a liability on the balance sheet, under
SFAS No. 5, Accounting for Contingencies.
Due to the close proximity of our bankruptcy filing date to our
fiscal year-end date, we have been presented with only a limited
number of significant claims meeting the SFAS No. 5
criteria (probable and can be reasonably estimated) to be
accrued at December 31, 2005, the most significant of which
we expect could total approximately $3.8 billion related to
U.S. parent guarantees of our deconsolidated Canadian
subsidiary debt. If valid unrecorded claims, including parent
guarantees of subsidiary debt, meeting the SFAS No. 5
criteria are presented to us in future periods, we would accrue
for these amounts, also at the expected amount of the allowed
claim rather than at the expected settlement amount. |
|
|
|
Disclosure of condensed combined debtor entity financial
information, if the consolidated financial statements include
material subsidiaries that did not file for bankruptcy
protection. |
|
|
|
Upon confirmation by the Bankruptcy Court of our plan of
reorganization, and our emergence from Chapter 11
reorganization, fresh-start reporting must be
adopted if the reorganization value of our assets immediately
before the date of confirmation is less than the total of all
post-petition liabilities and allowed claims, and if holders of
existing voting shares immediately before confirmation receive
less than 50 percent of the voting shares of the emerging
entity. Essentially, the reorganization value of the entity, as
mutually agreed to by the
debtor-in-possession
and its creditors, would be allocated to the entitys
assets in conformity with the procedures specified by
SFAS No. 141, Business Combinations. |
We are required to exercise considerable judgment in the
evaluation of potential claims that will ultimately be allowable
against the Company while in bankruptcy. Such claims remain
subject to future adjustments. Adjustments may result from
negotiations, actions of the Bankruptcy Courts, rejection of
executory contracts and unexpired leases, and the determination
as to the value of any collateral securing claims, proofs of
claim or other events. We expect that the liabilities of the
Calpine Debtors will exceed the fair value of their assets. This
is expected to result in claims being paid at less than 100% of
their face value, and the equity of Calpines stockholders
could be diluted or eliminated entirely. In addition, the claims
bar date the date by which claims against the
Calpine Debtors must be filed with the Bankruptcy
Courts have been scheduled for August 1, 2006,
by the U.S. Bankruptcy Court with respect to claims against
102
U.S. Debtors and June 30, 2006, by the Canadian Court
with respect to claims against the Canadian Debtors.
Accordingly, not all potential claims would have been filed as
of December 31, 2005. We expect that additional claims will
be filed against the U.S. and Canadian Debtors prior to the
applicable claims bar date, however, the amounts of such claims
cannot be estimated at this time. Any claims filed may result in
additional liabilities, some or all of which may be subject to
compromise, and the amounts of which may be material to us. In
addition, it is likely that certain creditors may assert claims
on multiple bases against multiple Calpine Debtor entities,
resulting in a total overall claims pool significantly in excess
of the amount of the Calpine Debtors potential
liabilities. However, despite the likelihood that there will be
bankruptcy claims asserted against the collective Calpine
Debtors in excess of their potential liabilities, no individual
creditor should receive more than 100% recovery on account of
such multiple claims.
The most significant judgments that we have made in preparing
the financial statements for the year ended December 31,
2005, have related to the evaluation of potential claims by our
deconsolidated entities in Canada and their respective
creditors. Many of these deconsolidated Canadian entities were
granted relief in Canada under the CCAA at the same time that
Calpine and many of its U.S. based subsidiaries filed for
bankruptcy protection in the United States. We determined that
pursuant to direct guarantees by Calpine (and a
U.S. subsidiary) of funded debt owed by Canadian
subsidiaries, or pursuant to other related support obligations,
there were approximately $5.1 billion of probable allowable
claims against the U.S. parent entities. While some of the
guarantee exposures are redundant,
SOP 90-7 specifies
that liabilities that may be affected by the plan should
be reported at the amounts expected to be allowed, even if they
may be settled for lesser amounts. We concluded that, at
this early stage in the proceedings, we should assume that it
was probable that such claims would be allowed into the claim
pool by the U.S. Bankruptcy Court notwithstanding that we may
object to the presentation of multiple claims that we believe
are essentially related to a single obligation.
We also were required to exercise judgment in evaluating which
of our consolidated pre-petition debt instruments were
under-secured. Based on the guidance in
SOP 90-7 the
Calpine Debtors are required to record as LSTC unsecured and
under-secured liabilities incurred prior to the Petition Date
and exclude liabilities that are fully secured or liabilities of
our subsidiaries or affiliates that have not made bankruptcy
filings. Based upon our assessment of the value of our assets
compared to our liabilities, we concluded that our second
priority senior notes, which have an aggregate outstanding
pre-petition balance of approximately $3.7 billion, were
under-secured. We also evaluated all of our subsidiaries with
project financings and concluded that only our Aries subsidiary,
which is a U.S. Debtor and has an outstanding pre-petition
project financing balance of approximately $0.2 billion,
has under-secured debt. Consequently, both that project
financing and our second priority senior notes were classified
as LSTC at December 31, 2005.
|
|
|
Fair Value of Energy Marketing and Risk Management Contracts
and Derivatives |
Accounting for derivatives at fair value requires us to make
estimates about future prices during periods for which price
quotes are not available from sources external to us. As a
result, we are required to rely on internally developed price
estimates when external quotes are unavailable. We derive our
future price estimates, during periods, where external price
quotes are unavailable, based on extrapolation of prices from
prior periods where external price quotes are available. We
perform this extrapolation by using liquid and observable market
prices and extending those prices to an internally generated
long-term price forecast based on a generalized equilibrium
model.
In estimating the fair value of our derivatives, we must take
into account the credit risk that our counterparties will not
have the financial wherewithal to honor their contract
commitments.
In establishing credit risk reserves we take into account
historical default rate data published by the rating agencies
based on the credit rating of each counterparty where we have
realization exposure, as well as other published data and
information.
103
We value our forward positions at the mid-market price, or the
price in the middle of the bid-ask spread. This creates a risk
that the value reported by us as the fair value of our
derivative positions will not represent the realizable value or
probable loss exposure of our derivative positions if we are
unable to liquidate those positions at the mid-market price.
Adjusting for this liquidity risk states our derivative assets
and liabilities at their most probable value. We use a two-step
quantitative and qualitative analysis to determine our liquidity
reserve.
In the first step we calculate the net notional volume exposure
at each location by commodity and multiply the result by one
half of the bid-ask spread by applying the following
assumptions: (1) where we have the capability to cover
physical positions with our own assets, we assume no liquidity
reserve is necessary because we will not have to cross the
bid-ask spread in covering the position; (2) we record no
reserve against our hedge positions because a high likelihood
exists that we will hold our hedge positions to maturity or
cover them with our own assets; and (3) where reserves are
necessary, we base the reserves on the spreads observed using
broker quotes as a starting point.
The second step involves a qualitative analysis where the
initial calculation may be adjusted for factors such as
liquidity spreads observed through recent trading activity,
strategies for liquidating open positions, and imprecision in or
unavailability of broker quotes due to market illiquidity. Using
this information, we estimate the amount of probable liquidity
risk exposure to us and we record this estimate as a liquidity
reserve.
|
|
|
Accounting for Commodity Contracts |
Commodity contracts are evaluated to determine whether the
contract is (1) accounted for as a lease (2) accounted
for as a derivative (3) or accounted for as an executory
contract and additionally whether the financial statement
presentation is gross or net.
Accounting for Leases We account for
commodity contracts as leases per SFAS No. 13,
Accounting for Leases, and EITF Issue
No. 01-08, Determining Whether an Arrangement
Contains a Lease. EITF Issue No. 01-08 clarifies the
requirements of identifying whether an arrangement should be
accounted for as a lease at its inception. The guidance therein
is designed to broaden the scope of arrangements, such as PPAs,
accounted for as leases. EITF Issue No. 01-08 requires both
parties to an arrangement to determine whether a service
contract or similar arrangement is, or includes, a lease within
the scope of SFAS No. 13, Accounting for
Leases. The guidance is applied prospectively to
arrangements agreed to, modified, or acquired in business
combinations on or after July 1, 2003. Prior to adopting
EITF Issue No. 01-08, we had accounted for certain
contractual arrangements as leases under existing industry
practices, and the adoption of EITF Issue No. 01-08 did not
materially change our accounting for leases. Per
SFAS No. 13, Accounting for Leases,
operating leases with minimum lease rentals which vary over time
must be levelized over the term of the contract. We levelize
these contracts on a straight-line basis. See Note 31 for
additional information on our operating leases. For income
statement presentation purposes, income from arrangements
accounted for as leases is classified within E&S revenue in
our consolidated statements of operations.
Accounting for Derivatives On January 1,
2001, we adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended
by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133 an
Amendment of FASB Statement No. 133,
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities an
Amendment of FASB Statement No. 133, and
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. We
currently hold six classes of derivative instruments that are
impacted by the new pronouncements foreign currency
swaps, interest rate swaps, forward interest rate agreements,
commodity financial instruments, commodity contracts, and
physical options.
Consistent with the requirements of SFAS No. 133, we
evaluate all of our contracts to determine whether or not they
qualify as derivatives under the accounting pronouncements. For
a given contract, there are typically three steps we use to
determine its proper accounting treatment. First, based on the
terms and
104
conditions of the contract, as well as the applicable guidelines
established by SFAS No. 133, we identify the contract
as being either a derivative or non-derivative contract. Second,
if the contract is not a derivative, we account for it as an
executory contract. Alternatively, if the contract does qualify
as a derivative under the guidance of SFAS No. 133, we
evaluate whether or not it qualifies for the normal
purchases and sales exception (as described below). If the
contract qualifies for the exception, we may elect to apply the
normal exception and account for it as an executory contract.
Finally, if the contract is a derivative, we apply the
accounting treatment required by SFAS No. 133, which
is outlined below in further detail.
|
|
|
Normal Purchases and Sales |
When we elect normal purchases and sales treatment, as defined
by paragraph 10b of SFAS No. 133 and amended by
SFAS No. 138 and SFAS No. 149, the normal
contracts are exempt from SFAS No. 133 accounting
treatment. As a result, these contracts are not required to be
recorded on the balance sheet at their fair values and any
fluctuations in these values are not required to be reported
within earnings. Probability of physical delivery from our
generation plants, in the case of electricity sales, and to our
generation plants, in the case of natural gas contracts, is
required over the life of the contract within reasonable
tolerances.
Two of our contracts that had been accounted for as normal
contracts were subject to the special transition adjustment for
their estimated future economic benefits upon adoption of DIG
Issue No. C20, and we amortize the corresponding asset
recorded upon adoption of DIG Issue No. C20 through a
charge to earnings. Accordingly on October 1, 2003, the
date we adopted DIG Issue No. C20, we recorded other
current assets and other assets of approximately
$33.5 million and $259.9 million, respectively, and a
gain due to the cumulative effect of a change in accounting
principle of approximately $181.9 million, net of
$111.5 million of tax. For periods subsequent to
October 1, 2003, we again account for these two contracts
as normal purchases and sales under the provisions of DIG Issue
No. C20.
As further defined in SFAS No. 133, fair value hedge
transactions hedge the exposure to changes in the fair value of
either all or a specific portion of a recognized asset or
liability or of an unrecognized firm commitment. The accounting
treatment for fair value hedges requires reporting both the
changes in fair values of a hedged item (the underlying risk)
and the hedging instrument (the derivative designated to offset
the underlying risk) on both the balance sheet and the income
statement. On that basis, when a firm commitment is associated
with a hedge instrument that attains 100% effectiveness (under
the effectiveness criteria outlined in SFAS No. 133),
there is no net earnings impact because the earnings caused by
the changes in fair value of the hedged item will move in an
equal, but opposite, amount as the earnings caused by the
changes in fair value of the hedging instrument. In other words,
the earnings volatility caused by the underlying risk factor
will be neutralized because of the hedge. For example, if we
want to manage the price-induced fair value risk (i.e. the risk
that market electric rates will rise, making a fixed price
contract less valuable) associated with all or a portion of a
fixed price power sale that has been identified as a
normal transaction (as described above), we might
create a fair value hedge by purchasing fixed price power. From
that date and time forward until delivery, the change in fair
value of the hedged item and hedge instrument will be reported
in earnings with asset/liability offsets on the balance sheet.
If there is 100% effectiveness, there is no net earnings impact.
If there is less than 100% effectiveness, the fair value change
of the hedged item (the underlying risk) and the hedging
instrument (the derivative) will likely be different and the
ineffectiveness will result in a net earnings impact.
As further defined in SFAS No. 133, cash flow hedge
transactions hedge the exposure to variability in expected
future cash flows (i.e., in our case, the price variability of
forecasted purchases of gas and sales of power, as well as
interest rate and foreign exchange rate exposure). In the case
of cash flow hedges, the hedged item (the underlying risk) is
generally unrecognized (i.e., not recorded on the balance sheet
prior to delivery), and any changes in this fair value,
therefore, will not be recorded within earnings. Conceptually,
if a cash flow hedge is effective, this means that a variable,
such as movement in power prices, has been effectively
105
fixed, so that any fluctuations will have no net result on
either cash flows or earnings. Therefore, if the changes in fair
value of the hedged item are not recorded in earnings, then the
changes in fair value of the hedging instrument (the derivative)
must also be excluded from the income statement, or else a
one-sided net impact on earnings will be reported, despite the
fact that the establishment of the effective hedge results in no
net economic impact. To prevent such a scenario from occurring,
SFAS No. 133 requires that the fair value of a
derivative instrument designated as a cash flow hedge be
recorded as an asset or liability on the balance sheet, but with
the offset reported as part of OCI, to the extent that the hedge
is effective. Similar to fair value hedges, any ineffectiveness
portion will be reflected in earnings.
The fair values and changes in fair values of undesignated
derivatives are recorded in earnings, with the corresponding
offsets recorded as derivative assets or liabilities on the
balance sheet. We have the following types of undesignated
transactions:
|
|
|
|
|
transactions executed at a location where we do not have an
associated natural long (generation capacity) or short (fuel
consumption requirements) position of sufficient quantity for
the entire term of the transaction (e.g., power sales where we
do not own generating assets or intend to acquire transmission
rights for delivery from other assets for any portion of the
contract term), |
|
|
|
transactions executed with the intent to profit from short-term
price movements, |
|
|
|
discontinuance (de-designation) of hedge treatment prospectively
consistent with paragraphs 25 and 32 of
SFAS No. 133; in circumstances where we believe the
hedge relationship is no longer necessary, we will remove the
hedge designation and close out the hedge positions by entering
into an equal and offsetting derivative position. Prospectively,
the two derivative positions should generally have no net
earnings impact because the changes in their fair values are
offsetting, and |
|
|
|
any other transactions that do not qualify for hedge accounting. |
Our mark-to-market
Activity includes realized settlements of and unrealized
mark-to-market gains
and losses on both power and gas derivative instruments not
designated as cash flow hedges, including those held for trading
purposes. Our gains and losses due to ineffectiveness on hedging
instruments are also included in unrealized
mark-to-market gains
and losses. We present trading activity net in accordance with
EITF Issue No. 02-03.
Accounting for Executory Contracts Where
commodity contracts do not qualify as leases or derivatives, the
contracts are classified as executory contracts. These contracts
apply traditional accrual accounting treatment unless the
revenue must be levelized per EITF Issue No. 91-06,
Revenue Recognition of Long Term Power Sales
Contracts. We currently account for one commodity contract
under EITF 91-06 which is levelized over the term of the
agreement.
Accounting for Financial Statement
Presentation Where our derivative instruments
are subject to a netting agreement and the criteria of
FIN 39 Offsetting of Amounts Related to Certain
Contracts (An Interpretation of APB Opinion No. 10 and
SFAS No. 105) are met, we present the derivative
assets and liabilities on a net basis in our balance sheet. We
chose this method of presentation because it is consistent with
the way related
mark-to-market gains
and losses on derivatives are recorded in Consolidated
Statements of Operations and within Other Comprehensive Income.
We account for certain of our power sales and purchases on a net
basis under EITF Issue
No. 03-11
Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to SFAS No. 133 and Not
Held for Trading Purposes As Defined in EITF Issue
No. 02-03: Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities,
which we adopted on a prospective basis on
October 1, 2003. Transactions with either of the following
characteristics are presented net in our consolidated financial
statements: (1) transactions executed in a
back-to-back buy and
sale pair, primarily because of market protocols; and
(2) physical power purchase and sale transactions where our
power schedulers net the physical flow of the power purchase
106
against the physical flow of the power sale (or book
out the physical power flows) as a matter of scheduling
convenience to eliminate the need for actual power delivery.
These book out transactions may occur with the same counterparty
or between different counterparties where we have equal but
offsetting physical purchase and delivery commitments.
|
|
|
Accounting for Long-Lived Assets |
Property, plant and equipment is stated at cost. The cost of
renewals and betterments that extend the useful life of
property, plant and equipment are also capitalized. Depreciation
is recorded utilizing the straight line method over the
estimated original composite useful life, generally
35 years for baseload power plants and 40 years for
peaking facilities, exclusive of the estimated salvage value,
typically 10%.
|
|
|
Impairment of Long-Lived Assets, Including Intangibles and
Investments |
We evaluate long-lived assets, such as property, plant and
equipment, equity method investments, patents, and specifically
identifiable intangibles, when events or changes in
circumstances indicate that the carrying value of such assets
may not be recoverable. Factors which could trigger an
impairment include determination that a suspended project is not
likely to be completed, significant underperformance relative to
historical or projected future operating results, significant
changes in the manner of our use of the acquired assets or the
strategy for our overall business and significant negative
industry or economic trends. Certain of our generating assets
are located in regions with depressed demand and market spark
spreads. Our forecasts assume that spark spreads will increase
in future years in these regions as the supply and demand
relationships improve.
Capitalized development and construction project costs are
charged to expense if we determine that a development or
construction project is no longer probable of being completed
such that all capitalized costs will be recovered through future
operations or to the extent it is impaired under the provisions
of SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. We evaluate the
impairment of long-lived assets, including construction and
development projects, based on the projection of undiscounted
pre-interest expense and pre-tax expense cash flows over the
expected lifetime of the asset whenever events or changes in
circumstances indicate that the carrying amounts of such assets
may not be recoverable. The significant assumptions that we use
in our undiscounted future cash flow estimates include the
future supply and demand relationships for electricity and
natural gas, the expected pricing for those commodities,
likelihood of continued development and the resultant spark
spreads in the various regions where we generate electricity. If
management concludes that it is more likely than not that an
operating power plant will be disposed of or abandoned, we do an
evaluation of the probability-weighted expected future cash
flows, giving consideration to both (1) the continued
ownership and operation of the power plant and
(2) consummating a sale disposition or abandonment of the
plant. In the event such cash flows are not expected to be
sufficient to recover the recorded value of the assets, the
assets are written down to their estimated fair values. Certain
of our generating assets are located in regions with depressed
demands and market spark spreads. Our forecasts assume that
spark spreads will increase in future years in these regions as
the supply and demand relationships improve.
For equity method investments and assets identified as held for
sale, the book value is compared to the estimated fair value to
determine if an impairment loss is required. For equity method
investments, we would record a loss when the decline in value is
other than temporary.
Our assessment regarding the existence of impairment factors is
based on market conditions, operational performance and legal
factors of our businesses. Our review of factors present and the
resulting appropriate carrying value of our intangibles, and
other long-lived assets are subject to judgments and estimates
that management is required to make. Future events could cause
us to conclude that impairment indicators exist and that our
intangibles, and other long-lived assets might be impaired.
107
See Note 6 of the Notes to the Consolidated Financial
Statements for a complete discussion of impairment charges
recorded for the year ended December 31, 2005.
|
|
|
Turbine Impairment Charges |
A significant portion of our overall cost of constructing a
power plant is the cost of the gas turbine-generators, steam
turbine-generators and related equipment (which we collectively
refer to here as the turbines). The turbines are
ordered primarily from three large manufacturers under
long-term, build to order contracts. Payments are generally made
over a two to four year period for each turbine. The turbine
prepayments are included as a component of
construction-in-progress
if the turbines are assigned to specific projects probable of
being built, and interest is capitalized on such costs. Turbines
assigned to specific projects are not evaluated for impairment
separately from the project as a whole. Prepayments for turbines
that are not assigned to specific projects that are probable of
being built are carried in other assets, and interest is not
capitalized on such costs. Additionally, our commitments
relating to future turbine payments are discussed in
Note 31 of the Notes to Consolidated Financial Statements.
To the extent that there are more turbines on order than are
allocated to specific construction projects, we determine the
probability that new projects will be initiated to utilize the
turbines or that the turbines will be resold to third parties.
The completion of in-progress projects and the initiation of new
projects are dependent on our overall liquidity and the
availability of funds for capital expenditures.
In assessing the impairment of turbines, we must determine both
the realizability of the progress payments to date that have
been capitalized, as well as the probability that at future
decision dates, we will cancel the turbines and apply the
prepayments to the cancellation charge, or will proceed and pay
the remaining progress payments in accordance with the original
payment schedule.
We apply SFAS No. 5, Accounting for
Contingencies, to evaluate potential future cancellation
obligations. We apply SFAS No. 144 to evaluate turbine
progress payments made to date for, and the carrying value of,
delivered turbines not assigned to projects. At the reporting
date, if we believe that it is probable that we will elect the
cancellation provisions on future decision dates, then the
expected future termination payment is also expensed.
See Note 6 of the Notes to the Consolidated Financial
Statements for a complete discussion of impairment charges
recorded for the year ended December 31, 2005.
We capitalize interest using two methods: (1) capitalized
interest on funds borrowed for specific construction projects
and (2) capitalized interest on general corporate funds.
For capitalization of interest on specific funds, we capitalize
the interest cost incurred related to debt entered into for
specific projects under construction or in the advanced stage of
development. The methodology for capitalizing interest on
general funds, consistent with paragraphs 13 and 14 of
SFAS No. 34, Capitalization of Interest
Cost, begins with a determination of the borrowings
applicable to our qualifying assets. The basis of this approach
is the assumption that the portion of the interest costs that
are capitalized on expenditures during an assets
acquisition period could have been avoided if the expenditures
had not been made. This methodology takes the view that if funds
are not required for construction then they would have been used
to pay off other debt. We use our best judgment in determining
which borrowings represent the cost of financing the acquisition
of the assets. Historically, the primary debt instruments
included in the rate calculation of interest incurred on general
corporate funds have been our Senior Notes, our term loan
facilities and our secured working capital revolving credit
facility with adjustments made as debt is retired or new debt is
issued. We filed for protection under the Bankruptcy Code on
December 20, 2005, and subsequent to that date the debt
instruments included in the rate calculation were the First
Priority Notes and the DIP Facility. At the Petition Date,
unsecured and undersecured Senior Notes and Term Loans were
classified to Liabilities Subject to Compromise and
were removed from the rate calculation for the period subsequent
to the Petition Date. See Note 3 of the Notes to
Consolidated Financial Statements for more information on the
bankruptcy cases. The interest rate is derived by dividing the
total interest cost by the average borrowings. This weighted
average interest rate is applied to
108
our average qualifying assets in excess of specific debt on
which interest is capitalized. To qualify for interest
capitalization, we must continue to make significant progress on
the construction of the assets. See Note 7 of the Notes to
Consolidated Financial Statements for additional information
about the capitalization of interest expense.
|
|
|
Accounting for Income and Other Taxes |
To arrive at our worldwide income tax provision and other tax
balances, significant judgment is required. In the ordinary
course of a global business, there are many transactions and
calculations where the ultimate tax outcome is uncertain. Some
of these uncertainties arise as a consequence of the treatment
of capital assets, financing transactions, multistate taxation
of operations and segregation of foreign and domestic income and
expense to avoid double taxation. Although we believe that our
estimates are reasonable, no assurance can be given that the
final tax outcome of these matters will not be different than
that which is reflected in our historical tax provisions and
accruals. Such differences could have a material impact on our
income tax provision, other tax accounts and net income in the
period in which such determination is made.
SFAS 109 requires all available evidence, both positive and
negative, to be considered whether, based on the weight of that
evidence, a valuation allowance is needed. Future realization of
the tax benefit of an existing deductible temporary difference
or carryforward ultimately depends on the existence of
sufficient taxable income of the appropriate character within
the carryback or carryforward periods available under the tax
law. We considered all possible sources of taxable income that
may be available under the tax law to realize a tax benefit for
deductible temporary differences and loss carryforwards
including future reversals of existing taxable temporary
differences. Under SFAS No. 109, Accounting for
Income Taxes, deferred tax assets and liabilities are
determined based on differences between the financial reporting
and tax basis of assets and liabilities, and are measured using
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. SFAS No. 109
provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. Based on the
weight of available evidence, we have provided a valuation
allowance against certain deferred tax assets. The valuation
allowance was based on the historical earnings patterns within
individual tax jurisdictions that make it uncertain that we will
have sufficient income in the appropriate jurisdictions to
realize the full value of the assets. We will continue to
evaluate the realizability of the deferred tax assets on a
quarterly basis.
For the year ended December 31, 2005, we determined it is
more likely than not a portion of our deferred tax assets will
not be realized as the planned sale of certain appreciated
assets to generate taxable income is no longer feasible due to
our bankruptcy filings, imposed restrictions on our entering
into such transactions and other tax planning strategies. Given
our current financial condition, management determined it was
appropriate to record a valuation allowance on all deferred tax
assets to the extent not offset by taxable income generated by
reversing taxable temporary differences of the appropriate
character within the carryback or carryforward periods.
We provide for United States income taxes on the earnings of
foreign subsidiaries unless they are considered permanently
invested outside the United States. At December 31, 2005,
we had no cumulative undistributed earnings of foreign
subsidiaries.
Our effective income tax benefit rates for continuing operations
were 7.0%, 35.9% and 66.6% in fiscal 2005, 2004 and 2003,
respectively. The effective tax rate in all periods is the
result of profits (losses) that we and our subsidiaries earned
in various tax jurisdictions, both foreign and domestic, that
apply a broad range of income tax rates. The provision for
income taxes differs from the tax computed at the federal
statutory income tax rate due primarily to state taxes, tax
credits, other permanent differences and earnings considered as
permanently reinvested in foreign operations. Future effective
tax rates could be adversely affected if earnings are lower than
anticipated in countries where we have lower statutory rates, if
unfavorable changes in tax laws and regulations occur, or if we
experience future adverse determinations by taxing authorities
after any related litigation. Our foreign taxes at rates other
than statutory include the benefit of cross border financings as
well as withholding taxes and foreign valuation allowance.
109
At December 31, 2005, we had credit carryforwards of
$63.3 million. These credits relate to Energy Credits,
Research and Development Credits, and Alternative Minimum Tax
Credits. The NOL carryforward consists of federal carryforwards
of approximately $2.9 billion which expire between 2023 and
2025. The federal NOL carryforwards available are subject to
limitations on their annual usage. We provided a valuation
allowance on certain state and foreign tax jurisdiction deferred
tax assets to reduce the gross amount of these assets to the
extent necessary to result in an amount that is more likely than
not of being realized. Realization of the deferred tax assets
and NOL carryforwards is dependent, in part, on generating
sufficient taxable income prior to expiration of the loss
carryforwards. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward
period are reduced.
|
|
|
Variable Interest Entities and Primary Beneficiary |
In determining whether an entity is a VIE and whether or not we
are the Primary Beneficiary as defined under
FIN 46-R, we use significant judgment regarding the
adequacy of an entitys equity relative to maximum expected
losses, amounts and timing of estimated cash flows, discount
rates and the probability of achieving a specific expected
future cash flow outcome for various cash flow scenarios. Due to
the long-term nature of our investment in a VIE and its
underlying assets, our estimates of the probability-weighted
future expected cash flow outcomes are complex and subjective,
and are based, in part, on our assessment of future commodity
prices based on long-term supply and demand forecasts for
electricity and natural gas, operational performance of the
underlying assets, legal and regulatory factors affecting our
industry, long-term interest rates and our current credit
profile and cost of capital. As a result of applying the complex
guidance outlined in FIN 46-R, we may be required to
consolidate assets we do not legally own and liabilities that we
are not legally obligated to satisfy. Also, future changes in a
VIEs legal or capital structure may cause us to reassess
whether or not we are the Primary Beneficiary and may result in
our consolidation or deconsolidation of that entity.
We adopted FIN 46-R for our equity method joint ventures,
our wholly owned subsidiaries that are subject to long-term PPAs
and tolling arrangements, our wholly owned subsidiaries that
have issued mandatorily redeemable non-controlling preferred
interests and operating lease arrangements containing fixed
price purchase options as of March 31, 2004, and for our
investments in SPEs as of December 31, 2003.
|
|
|
Joint Venture Investments |
On application of FIN 46-R, we evaluated our investments in
joint venture investments and concluded that, in some instances,
these entities were VIEs. However, in these instances, we were
not the Primary Beneficiary, as we would not absorb a majority
of these entities expected variability. An enterprise that
holds a significant variable interest in a VIE is required to
make certain disclosures regarding the nature and timing of its
involvement with the VIE and the nature, purpose, size and
activities of the VIE. The joint ventures in which we invested,
and which did not qualify for the definition of a business scope
exception outlined in paragraph 4(h) of FIN 46-R, were
considered significant variable interests and the required
disclosures have been made in Note 10 of the Notes to
Consolidated Financial Statements for these joint venture
investments.
In the second half of 2005, CES restructured its tolling
arrangement with Acadia PP to include additional payments from
CES to Acadia Power Holdings, a Cleco subsidiary that holds its
investment in Acadia PP. This restructuring of the tolling
agreement caused us to re-evaluate our economic interest in the
joint venture. Based on our reassessment, we determined that
these additional payments caused us to become the primary
beneficiary of this VIE. As a result, in the fourth quarter of
2005, we began consolidating Acadia PP into our consolidated
financial statements, which include the assets and liabilities
of Acadia PP at December 31, 2005, and its revenue and
expenses for the period beginning August 1, 2005, through
December 31, 2005. We have also reflected Clecos 50%
interest in the joint venture as a minority interest in our
balance sheet at December 31, 2005.
110
|
|
|
Significant Long-Term Power Sales and Tolling Agreements |
An analysis was performed for our wholly owned subsidiaries with
significant long-term power sales or tolling agreements. Certain
of our 100% owned subsidiaries were deemed to be VIEs by virtue
of the power sales and tolling agreements which meet the
definition of a variable interest under FIN 46-R. However,
in all cases, we absorbed a majority of the entitys
variability and did not deconsolidate any of such wholly owned
subsidiaries for this reason. As part of our quantitative
assessment, a fair value methodology was used to determine
whether we or the power purchaser absorbed the majority of the
subsidiarys variability. As part of our analysis, we
qualitatively determined that power sales or tolling agreements
with a term for less than one third of the facilitys
remaining useful life or for less than 50% of the entitys
capacity would not cause the power purchaser to be the Primary
Beneficiary, due to the length of the economic life of the
underlying assets. Also, power sales and tolling agreements
meeting the definition of a lease under EITF Issue
No. 01-08, Determining Whether an Arrangement
Contains a Lease, were not considered variable interests,
since lease payments create rather than absorb variability, and
therefore, do not meet the definition of a variable interest.
|
|
|
Preferred Interests Issued from Wholly Owned Subsidiaries |
A similar analysis was performed for our wholly owned
subsidiaries that have issued mandatorily redeemable
non-controlling preferred interests. These entities were
determined to be VIEs in which we absorb the majority of the
variability, primarily due to the debt characteristics of the
preferred interest, which are classified as debt in accordance
with SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity in our Consolidated Condensed Balance Sheets.
As a result, we continue to consolidate these wholly owned
subsidiaries.
|
|
|
Operating Leases with Fixed Price Options |
On application of FIN 46-R, we evaluated our operating
lease arrangements containing fixed price purchase options and
concluded that, in some instances, the lessor entities were
VIEs. However, in these instances, we were not the Primary
Beneficiary, as we would not absorb a majority of these
entities expected variability. An enterprise that holds a
significant variable interest in a VIE is required to make
certain disclosures regarding the nature and timing of its
involvement with the VIE and the nature, purpose, size and
activities of the VIE. The fixed price purchase options under
our operating lease arrangements were not considered significant
variable interests.
|
|
|
Investments in Special-Purpose Entities |
Significant judgment is required in making an assessment of
whether or not our SPEs were VIEs for purposes of adopting and
applying FIN 46, as originally issued at December 31,
2003. Since the current accounting literature does not provide a
definition of an SPE, our assessment was primarily based on the
degree to which the entity aligned with the definition of a
business outlined in FIN 46-R. Entities that meet the
definition of a business outlined in FIN 46-R and that
satisfy other formation and involvement criteria are not subject
to the FIN 46-R consolidation guidelines. The definitional
characteristics of a business include having: inputs such as
long-lived assets; the ability to obtain access to necessary
materials and employees; processes such as strategic management,
operations and resource management; and the ability to obtain
access to the customers that purchase the outputs of the entity.
Based on this assessment, we determined that six investments
were in SPEs requiring further evaluation and were subject to
the application of FIN 46, as originally issued, as of
October 1, 2003: CNEM, PCF, PCF III and the Calpine
Capital Trusts.
On May 15, 2003, our wholly owned subsidiary, CNEM,
completed the $82.8 million monetization of an existing PPA
with BPA. CNEM borrowed $82.8 million secured by the spread
between the BPA contract and certain fixed power purchase
contracts. CNEM was established as a special purpose subsidiary
and the $82.8 million loan is recourse only to CNEMs
assets and is not guaranteed by us. CNEM was determined to be a
VIE in which we were the Primary Beneficiary. Accordingly, the
entitys assets and liabilities were consolidated into our
accounts as of June 30, 2003.
111
On June 13, 2003, PCF, a wholly owned stand-alone
subsidiary of CES, completed the offering of the PCF Notes,
totaling $802.2 million. To facilitate the transaction, we
formed PCF as a wholly owned, special purpose subsidiary with
assets and liabilities consisting of certain transferred power
purchase and sales contracts, which serve as collateral for the
PCF Notes. The PCF Notes are non-recourse to our other
consolidated subsidiaries. PCF was originally determined to be a
VIE in which we were the Primary Beneficiary. Accordingly, the
entitys assets and liabilities were consolidated into our
accounts as of June 30, 2003.
As a result of the debt reserve monetization consummated on
June 2, 2004, we were required to evaluate our new
investment in PCF III and to reevaluate our investment in
PCF under FIN 46-R (effective March 31, 2004). We
determined that the entities were VIEs but we were not the
Primary Beneficiary and, therefore, were required to
deconsolidate the entities as of June 30, 2004.
Upon the application of FIN 46, as originally issued at
December 31, 2003, for our investments in SPEs, we
determined that our equity investment in the Calpine Capital
Trusts was not considered at-risk as defined in FIN 46 and
that we did not have a significant variable interest in the
Calpine Capital Trusts. Consequently, we deconsolidated the
Calpine Capital Trusts as of December 31, 2003. During 2004
and 2005, we repaid the debentures issued to the Calpine Capital
Trusts, which then used these proceeds to redeem all the
outstanding HIGH TIDES issued by the Calpine Capital Trusts.
We created CNEM, PCF, PCF III and the Trusts to facilitate
capital transactions. However, in cases such as these where we
have a continuing involvement with the assets held by the
deconsolidated SPE, we account for the capital transaction with
the SPE as a financing rather than a sale under EITF Issue
No. 88-18, Sales of Future Revenue or Statement
of Financial Accounting Standard No. 140, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities a Replacement of FASB
Statement No. 125, as appropriate. When EITF Issue
No. 88-18 and SFAS No. 140 require us to account
for a transaction as a financing, derecognition of the assets
underlying the financing is prohibited, and the proceeds
received from the transaction must be recorded as debt.
Accordingly, in situations where we account for transactions as
financings under EITF Issue No. 88-18 or
SFAS No. 140, we continue to recognize the assets and
the debt of the deconsolidated SPE on our balance sheet. See
Note 2 of the Notes to Consolidated Financial Statements
for a summary on how we account for our SPEs when we have
continuing involvement under EITF Issue No. 88-18 or
SFAS No. 140.
Prior to 2003, we accounted for qualified stock compensation
under APB Opinion No. 25, Accounting for Stock Issued
to Employees. Under APB No. 25, we were required to
recognize stock compensation as expense only to the extent that
there is a difference in value between the market price of the
stock being offered to employees and the price those employees
must pay to acquire the stock. The expense measurement
methodology provided by APB No. 25 is commonly referred to
as the intrinsic value based method. To date, our
stock compensation program has been based primarily on stock
options whose exercise prices are equal to the market price of
Calpine stock on the date of the stock option grant;
consequently, under APB No. 25 we had historically incurred
minimal stock compensation expense. On January 1, 2003, we
prospectively adopted the fair value method of accounting for
stock-based employee compensation pursuant to
SFAS No. 123, Accounting for Stock-Based
Compensation as amended by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure. SFAS No. 148 amends
SFAS No. 123 to provide alternative methods of
transition for companies that voluntarily change their
accounting for stock-based compensation from the less preferred
intrinsic value based method to the more preferred fair value
based method. Prior to its amendment, SFAS No. 123
required that companies enacting a voluntary change in
accounting principle from the intrinsic value methodology
provided by APB No. 25 could only do so on a prospective
basis; no adoption or transition provisions were established to
allow for a restatement of prior period financial statements.
SFAS No. 148 provided two additional transition
options to report the change in accounting principle
the modified prospective method and the retroactive restatement
method. Additionally, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of
112
the method used on reported results. We elected to adopt the
provisions of SFAS No. 123 on a prospective basis;
consequently, we are required to provide a pro-forma disclosure
of net income and EPS as if SFAS No. 123 accounting
had been applied to all prior periods presented within our
financial statements. In December 2004 the FASB issued
SFAS No. 123-R (revised 2004), Share Based
Payments. This statement revises SFAS No. 123,
Accounting for Stock-Based Compensation and
supersedes APB No. 25, Accounting for Stock Issued to
Employees, and its related implementation guidance.
SFAS No. 123-R requires a public entity to measure the
cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the
award (with limited exceptions), which must be recognized over
the period during which an employee is required to provide
service in exchange for the award the requisite
service period (usually the vesting period). Adoption of
SFAS No. 123-R is not expected to materially impact
our operating results, cash flows or financial position, due to
the aforementioned discussion surrounding our prior adoption of
SFAS No. 123 as amended by SFAS No. 148.
Under SFAS No. 123, the fair value of a stock option
or its equivalent is estimated on the date of grant by using an
option-pricing model, such as the Black-Scholes model or a
binomial model. The option-pricing model selected should take
into account, as of the stock options grant date, the
exercise price and expected life of the stock option, the
current price of the underlying stock and its expected
volatility, expected dividends on the stock, and the risk-free
interest rate for the expected term of the stock option.
The fair value calculated by this model is then recognized as
compensation expense over the period in which the related
employee services are rendered. Unless specifically defined
within the provisions of the stock option granted, the service
period is presumed to begin on the grant date and end when the
stock option is fully vested. Depending on the vesting structure
of the stock option and other variables that are built into the
option-pricing model, the fair value of the stock option is
recognized over the service period using either a straight-line
method (the single option approach) or a more conservative,
accelerated method (the multiple option approach). For
consistency, we have chosen the multiple option approach, which
we have used historically for pro-forma disclosure purposes. The
multiple option approach views one four-year option grant as
four separate sub-grants, each representing 25% of the total
number of stock options granted. The first sub-grant vests over
one year, the second sub-grant vests over two years, the third
sub-grant vests over three years, and the fourth sub-grant vests
over four years. Under this scenario, over 50% of the total fair
value of the stock option grant is recognized during the first
year of the vesting period, and nearly 80% of the total fair
value of the stock option grant is recognized by the end of the
second year of the vesting period. By contrast, if we were to
apply the single option approach, only 25% and 50% of the total
fair value of the stock option grant would be recognized as
compensation expense by the end of the first and second years of
the vesting period, respectively.
We have selected the Black-Scholes model, primarily because it
has been the most commonly recognized options-pricing model
among U.S.-based
corporations. Nonetheless, we believe this model tends to
overstate the true fair value of our employee stock options in
that our options cannot be freely traded, have vesting
requirements, and are subject to blackout periods during which,
even if vested, they cannot be traded. We will monitor valuation
trends and techniques as more companies adopt
SFAS No. 123-R and as additional guidance is provided
by FASB and the SEC and review our choices as appropriate in the
future. The key assumption in our Black-Scholes model is the
expected life of the stock option, because it is this figure
that drives our expected volatility calculation, as well as our
risk-free interest rate. The expected life of the option relies
on two factors the options vesting period and
the expected term that an employee holds the option once it has
vested. There is no single method described by
SFAS No. 123 for predicting future events such as how
long an employee holds on to an option or what the expected
volatility of a companys stock price will be; the facts
and circumstances are unique to different companies and depend
on factors such as historical employee stock option exercise
patterns, significant changes in the market place that could
create a material impact on a companys stock price in the
future, and changes in a companys stock-based compensation
structure.
We base our expected option terms on historical employee
exercise patterns. We have segregated our employees into four
different categories based on the fact that different groups of
employees within our company have exhibited different stock
exercise patterns in the past, usually based on employee rank and
113
income levels. Therefore, we have concluded that we will perform
separate Black-Scholes calculations for four employee
groups executive officers, senior vice presidents,
vice presidents, and all other employees.
We compute our expected stock price volatility based on our
stocks historical movements. For each employee group, we
measure the volatility of our stock over a period that equals
the expected term of the option. In the case of our executive
officers, this means we measure our stock price volatility
dating back to our public inception in 1996, because these
employees are expected to hold their options for over
7 years after the options have fully vested. In the case of
other employees, volatility is only measured dating back
4 years. In the short run, this causes other employees to
generate a higher volatility figure than the other company
employee groups because our stock price has fluctuated
significantly in the past four years. As of December 31,
2005, the volatility for our employee groups ranged from 71%-91%.
It is expected that as a result of our bankruptcy filing on
December 20, 2005, existing stock options may be cancelled
upon approval of our plan of reorganization once it is prepared
and filed with the U.S. Bankruptcy Court. Until such time
as the existing stock options may be cancelled, however, we will
continue to amortize the grant date fair value as described
above.
See Note 2 of the Notes to Consolidated Financial
Statements for additional information related to the
January 1, 2003, adoption of SFAS Nos. 123 and 148 and
the pro-forma impact that they would have had on our net income
for the years ended December 31, 2005, 2004 and 2003.
Initial Adoption of New Accounting Standards in 2005
See Note 2 of the Notes to Consolidated Financial
Statements for information regarding the initial adoption of new
accounting standards in 2005.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
The information required hereunder is set forth under
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
Financial Market Risks.
|
|
Item 8. |
Financial Statements and Supplementary Data |
The information required hereunder is set forth under
Report of Independent Registered Public Accounting
Firm, Consolidated Balance Sheets,
Consolidated Statements of Operations,
Consolidated Statements of Comprehensive Income and
Stockholders Equity (Deficit), Consolidated
Statements of Cash Flows, and Notes to Consolidated
Financial Statements included in the consolidated
financial statements that are a part of this Report. Other
financial information and schedules are included in the
consolidated financial statements that are a part of this Report.
|
|
Item 9. |
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure |
None.
|
|
Item 9A. |
Controls and Procedures |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized, and
reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required financial disclosure.
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based upon, and as of
the date of this evaluation, the Chief Executive Officer and
114
the Chief Financial Officer concluded that our disclosure
controls and procedures were not effective, because of the
material weakness discussed below. In light of this material
weakness, we performed additional analysis and post-closing
procedures to ensure our consolidated financial statements are
prepared in accordance with GAAP. Accordingly, management
believes that the financial statements included in this report
fairly present in all material respects our financial condition,
results of operations and cash flows for the periods presented.
Managements Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP.
Management has assessed the effectiveness of our internal
control over financial reporting as of December 31, 2005.
In making its assessment of internal control over financial
reporting, management used the criteria described in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. As of
December 31, 2005, we did not have effective controls
related to accounting for income taxes. Specifically we did not
timely reconcile the underlying data being provided by the
accounting department to the tax department to ensure the
accuracy and validity for purposes of our tax calculations,
principally relating to the book and tax basis of our property,
plant and equipment. This control deficiency could result in a
misstatement of deferred income tax assets and liabilities,
valuation allowances and the related income tax provision
(benefit) which could result in a material misstatement to
annual or interim financial statements that would not be timely
prevented or detected. Accordingly, management determined that
this control deficiency constitutes a material weakness. Because
of this material weakness, we have concluded that we did not
maintain effective internal control over financial reporting as
of December 31, 2005, based on criteria in Internal
Control Integrated Framework.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2005 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
Since December 31, 2005, we have experienced resignations
of key personnel in the accounting and SEC reporting functions.
Additionally, we have begun to implement company-wide staff
reductions and a reorganization of our operations. The impact of
these developments could potentially have an adverse impact on
the Companys internal control over financial reporting
until we are able to replace the employees in key positions that
have resigned with permanent personnel and we have completed the
design and implementation of new internal controls to address
the planned staff reductions and reorganization of our
operations and financial reporting functions. We have added
contract workers and consultants as temporary replacements of
the key personnel who have resigned and we expect that we will
be successful during 2006 in attracting qualified permanent
employees to fill these key positions.
Status of Remediation of 2004 Material Weakness
Prior to the fourth quarter of 2004, we identified certain
deficiencies in our tax accounting processes, procedures and
controls. Although we had processes and systems in place
relating to the preparation and review of the interim and annual
income tax provisions, we subsequently determined that these
controls were not adequate, and in our Form 10-K for the
year ended December 31, 2004, we reported a material
weakness in our internal controls over the accounting for income
taxes and the determination of current income taxes payable,
deferred income tax assets and liabilities and the related
income tax provision (benefit) for
115
continuing and discontinued operations. In 2005, we took the
steps listed below to remediate our internal controls relating
to these areas:
|
|
|
|
|
Enhanced various tax provision processes such as effective tax
rate schedules and review procedures. |
|
|
|
Completed reviews of significant transactions for tax
ramifications. |
|
|
|
Engaged third party tax consultants to supplement our staff and
to review the details of income tax calculations. |
Although it was also intended that we would have completed our
implementation of a tax provision software system, we decided to
suspend the implementation of the system initially identified
and to review alternative software solutions in the marketplace.
Consequently, we decided to perform manually the functions that
we would have done by using a tax provision software system.
We added additional resources in the Tax department during the
year ended 2005, specifically appointing a new income tax
director as well as lower level personnel and designating an
accounting director with lead responsibility for working closely
with the Tax department and reviewing tax provision
calculations. However, during the fourth quarter of 2005, both
the new income tax director and designated accounting director
tendered their resignations with Calpine and consequently did
not perform certain documented key controls relating to the
Companys year-end income tax process. Due in part to the
bankruptcy filing, we were unable to hire replacement internal
resources prior to the date of this report. In the interim the
Company has engaged third party tax consultants to perform these
key income tax controls for the period ended December 31,
2005.
We believe that meaningful progress was made during 2005 in
strengthening our control environment related to the accounting
for income taxes. However, due in large part to changes in our
circumstances related to our ability to realize the value of our
deferred tax assets, we determined that a control weakness
existed as discussed below.
2005 Material Weakness and Planned Steps to Remediate
In the fourth quarter of 2005 as we assessed the need to provide
valuation allowances related to deferred tax asset balances, the
Company determined that it did not have effective controls in
place related to the processes around underlying accounting data
used for tax accounting purposes, including the timely
reconciliation of such data. Additional procedures have been
performed by the Company in order to ensure that the
consolidated financial statements were prepared in accordance
with GAAP. In 2006, we plan to take the following steps to
improve our internal controls relating to the timely
reconciliation of the book and tax basis of our property assets:
|
|
|
|
|
Improve the processes around the underlying accounting data used
for tax accounting purposes. |
|
|
|
Integrate and centralize the fixed assets system to include both
accounting and tax basis. |
|
|
|
Add additional internal resources in the accounting department
and provide additional tax accounting training for key
personnel; and |
|
|
|
Timely perform book-tax basis reconciliations on newly acquired
property, plant and equipment. |
We believe we are taking the steps necessary for the remediation
of the 2005 material weakness and will continue to monitor the
effectiveness of these procedures and to make any changes that
management deems appropriate.
Changes in Internal Control Over Financial Reporting
Notwithstanding the developments discussed above, there was no
change in our internal control over financial reporting that
occurred during the last fiscal quarter of 2005 that materially
affected, or was reasonably likely to materially affect, our
internal control over financial reporting as of
December 31, 2005.
116
|
|
Item 9B. |
Other Information |
None
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant |
Set forth in the table below is a list of the Companys
directors, together with certain biographical information.
|
|
|
|
|
|
|
Name |
|
Age | |
|
Principal Occupation |
|
|
| |
|
|
Kenneth T. Derr*
|
|
|
69 |
|
|
Chairman of the Board, Calpine Corporation |
Robert P. May
|
|
|
57 |
|
|
Chief Executive Officer, Calpine Corporation |
David C. Merritt*
|
|
|
51 |
|
|
Managing Director, Salem Partners LLC |
William J. Keese*
|
|
|
67 |
|
|
Consultant, North American Insulation Manufacturers Association |
Walter L. Revell*
|
|
|
71 |
|
|
Chairman and Chief Executive Officer, Revell Investments
International, Inc. |
George J. Stathakis
|
|
|
76 |
|
|
Chief Executive Officer, George J. Stathakis &
Associates |
Susan Wang*
|
|
|
55 |
|
|
Retired, Former Executive Vice President and Chief Financial
Officer of Solectron Corporation |
|
|
* |
Independent director as independence is defined by the listing
standards of the NYSE. |
Kenneth T. Derr became a director of the Company in May
2001. Mr. Derr has been Chairman of the Board of Calpine
Corporation since November 2005 and served as Acting Chief
Executive Officer of Calpine Corporation from November to
December 2005. He retired as the Chairman and Chief Executive
Officer of Chevron Corporation, an international oil company, in
1999, a position that he held since 1989, after a
39-year career with the
company. Mr. Derr obtained a Master of Business
Administration degree from Cornell University in 1960 and a
Bachelor of Science degree in Mechanical Engineering from
Cornell University in 1959. Mr. Derr serves as a director
of Citigroup, Inc. and Halliburton Co.
William J. Keese became a director of the Company in
September 2005. Mr. Keese has been a strategic consultant
to the North American Manufacturers Association since July 2005.
Mr. Keese was Chairman of the CEC from March 1997 to March
2005. During his eight-year tenure with the CEC, Mr. Keese
was Chair of the National Association of State Energy Officials
and the Western Interstate Energy Board. Prior to his
distinguished career at the CEC, he served as a California
public affairs advocate and consultant, representing energy and
professional clients. He obtained a Juris Doctor degree from
Loyola University, Los Angeles in 1963 and is a member of the
American and California Bar Associations. Mr. Keese is also
Californias representative to, and co-chair of, the
Western Governors Associations Clean and Diversified
Energy Advisory Committee. In addition, he sits on the board of
the Alliance to Save Energy, where he co-chaired the
Alliances Vision 2010 effort, crafting a suite of federal
energy policy options. He is a strategic consultant to the North
American Insulation Manufacturers Association.
Robert P. May became Chief Executive Officer and a
director of the Company in December 2005. Mr. May served as
Interim President and Chief Executive Officer of Charter
Communications, Inc. from January 2005 to August 2005. He served
on the Board of Directors of HealthSouth Corporation from
October 2002 to October 2005 and as its Chairman of the Board
from July 2004 to October 2005. From March 2003 to May 2004, he
served as HealthSouths Interim Chief Executive Officer,
and from August 2003 to January 2004, he served as Interim
President of its outpatient and diagnostic division. Since March
2001, Mr. May has been a private investor and principal of
RPM Systems, which provides strategic business consulting
services. From March 1999 to March 2001, Mr. May served on
the board of directors and was Chief Executive of PNV
117
Inc., a national telecommunications company. Mr. May was
Chief Operating Officer and a director of Cablevisions Systems
Corp., from October 1996 to February 1998 and he held several
senior executive positions with Federal Express Corporation,
including President, Business Logistics Services, from 1973 to
1993. Mr. May was educated at Curry College and Boston
College and attended Harvard Business Schools Program for
Management Development. Mr. May also serves as a director
of Charter Communications and on the advisory board of Deutsche
Bank America.
David C. Merritt became an independent director of the
Company in February 2006. He has been a Managing Director at
Salem Partners LLC, an investment banking firm, since October
2003. From January 2001 to April 2003, he served as Managing
Director in the Entertainment Media Advisory Group at Gerard
Klauer Mattison & Co., Inc., a company that provides
advisory services to the entertainment media industries. He also
served as a director of Laser-Pacific Media Corporation from
January 2001 to October 2003. He served as Chief Financial
Officer of CKE Associates, Ltd., a privately held company with
interests in talent management, film production, television
production, music and new media from 1999 to 2000.
Mr. Merritt was an audit and consulting partner of KPMG LLP
from 1985 to 1999. During that time, he served as national
partner in charge of the media and entertainment practice.
Mr. Merritt obtained a Bachelor of Science degree in
business and accounting from California State University,
Northridge in 1976. Mr. Merritt serves as a director of
Outdoor Channel Holdings, Inc. and Charter Communications, Inc.
George J. Stathakis became a director of the Company in
September 1996 and served as a senior advisor to the Company
from December 1994 to December 2005. Mr. Stathakis is also
the Chief Executive Officer of George J. Stathakis &
Associates. He has been providing financial, business and
management advisory services to numerous corporations since
1985. He also served as Chairman of the Board and Chief
Executive Officer of Ramtron International Corporation, an
advanced technology semiconductor company, from 1990 to 1994.
From 1986 to 1989, he served as Chairman of the Board and Chief
Executive Officer of International Capital Corporation, a
subsidiary of American Express. Prior to 1986,
Mr. Stathakis served 32 years with General Electric in
various management and executive positions.
Walter L. Revell became a director of the Company in
September 2005. He has been Chairman and Chief Executive Officer
of Revell Investments International, Inc., an investment,
development and management company, since 1984. Mr. Revell
served as Chairman of the Board and Chief Executive Officer of
H.J. Ross Associates, Inc. from 1991 to 2002 and as
President, Chief Executive Officer and Director of Post,
Buckley, Schuh & Jernigan, Inc., consulting engineers
and planners, from 1975 to 1983. Mr. Revell served as
Secretary of Transportation for the State of Florida from 1972
to 1975. Mr. Revell obtained a Bachelor of Science degree
from Florida State University in 1957. Mr. Revell serves as
a director of Edd Helms Group Inc., The St. Joe Company, Rinker
Group Limited and NCL Corporation Ltd.
Susan Wang became a director of the Company in June 2003.
From January 2001 to February 2002, Ms. Wang served as
Executive Vice President and Chief Financial Officer for
Solectron Corporation, an electronics manufacturing services
company, and from August 1989 to February 2002, she served as
its Chief Financial Officer. Prior to that, she was the Director
of Finance from October 1984 to August 1989. From May 1977 to
October 1984 she was Manager, Financial Services for Xerox
Corporation, a document and equipment services provider.
Ms. Wang obtained a Master of Business Administration
degree from University of Connecticut in 1981 and a Bachelor of
Business Administration degree in accounting from the University
of Texas in 1972. Ms. Wang is a certified public accountant
in New York and served as chairman of the Financial Executive
Research Foundation from 1998 to 1999. Ms. Wang serves as a
director of Altera Corp., Avanex Corp. and Nektar Therapeutics.
118
Set forth in the table below is a list of the Companys
executive officers serving as of
April , 2006 who are not
directors, together with certain biographical information.
|
|
|
|
|
|
|
Name |
|
Age | |
|
Principal Occupation |
|
|
| |
|
|
Charles B. Clark, Jr.
|
|
|
58 |
|
|
Senior Vice President, Chief Accounting Officer and Corporate
Controller |
Scott J. Davido
|
|
|
44 |
|
|
Executive Vice President, Chief Financial Officer and Chief
Restructuring Officer |
Robert E. Fishman
|
|
|
54 |
|
|
Executive Vice President Power Operations |
Eric N. Pryor
|
|
|
41 |
|
|
Senior Vice President, Finance and Corporate Risk Officer |
Charles B. Clark, Jr. has served as the
Companys Senior Vice President since September 2001 and
Corporate Controller since May 1999. He was the Director of
Business Services for the Companys Geysers operations from
February 1999 to April 1999. He also served as a Vice President
of the Company from May 1999 until September 2001. Prior to
joining the Company, Mr. Clark served as the Chief
Financial Officer of Hobbs Group, LLC from March 1998 to
November 1998. Mr. Clark also served as Senior Vice
President Finance and Administration of CNF
Industries, Inc. from February 1997 to February 1998. He served
as Vice President and Chief Financial Officer of Century
Contractors West, Inc. from May 1988 to January 1997.
Mr. Clark obtained a Bachelor of Science degree in
Mathematics from Duke University in 1969 and a Master of
Business Administration degree, with a concentration in Finance,
from Harvard Graduate School of Business Administration in 1976.
Scott J. Davido has served as Executive Vice President,
Chief Financial Officer and Chief Restructuring Officer since
February 2006. He monitors the overall financial health of the
Company and is responsible for implementing and contributing to
all major financial decisions and transactions affecting the
Company. Mr. Davido leads the Companys financial
operations including: corporate accounting, finance, treasury
and tax. He served as Executive Vice President and President for
the Northeast Region of NRG Energy, Inc. from April 2004 to
January 2006. Mr. Davido was chairman of the board of NRG
Energy, Inc. from May to December 2003, during its financial
restructuring, and was senior vice president, general counsel
and secretary from October 2002 through April 2004. He served as
Executive Vice President and Chief Financial Officer of The
Elder-Beerman Stores Corp. from March 1999 to May 2002, and as
General Counsel from January 1998 to March 1999. He obtained a
Bachelor of Science degree in Accounting from Case Western
Reserve University in 1983 and a Juris Doctor degree from Case
Western Reserve University in 1987. Mr. Davido serves as a
director of Stage Stores, Inc., where he serves as Chairman of
the Audit Committee.
Robert E. Fishman has served as Executive Vice
President Power Operations since February 2006.
Mr. Fishman is responsible for managing the Companys
portfolio of natural gas-fired and geothermal power plants.
Mr. Fishman served as Executive Vice President
Development from September 2005 to February 2006, Senior Vice
President Business Development from July 2004 to
August 2005, as Senior Vice President Engineering
from October 2002 to June 2004 and as Senior Vice
President California Peaker Program from September
2001 to September 2002. Mr. Fishman was president of PB
Power, Inc. from 1997 to 2001 and Senior Vice President from
1991 to 1996. During his nearly
30-year career, he has
managed power project engineering services for more than
4,000 MW of gas turbine combined-cycle, cogeneration and
peaking plants. He also has power plant operations experience as
a chief engineer in the U.S. Navy. Fishman obtained a
bachelors degree in mechanical engineering from the
U.S. Naval Academy in 1973, a masters and
engineers degree in mechanical engineering from
Massachusetts Institute of Technology in 1977, and a Ph.D. in
mechanical engineering from the University of Maryland in 1980.
He currently serves as a director of Century Aluminum Company.
Eric N. Pryor has served as Senior Vice President,
Finance and Corporate Risk Officer since April 17, 2006. He
served as Interim Chief Financial Officer from November 2005 to
January, 2006. He plays a key role in leading the Companys
financial operations and in assessing and managing business risk
for the Company. From June 27, 2005 to April 17, 2005,
he served as Executive Vice President, Deputy Chief Financial
Officer and Corporate Risk Officer. From December 27, 2004
to June 27, 2005 he served as Senior
119
Vice President, Deputy Chief Financial Officer and Corporate
Risk Officer. From November 1, 2001 until December 27,
2004 he served as Senior Vice President, Finance. From July 1999
to April 2001 he served as Vice President Finance.
From January 1998 to June 1999 he served as Director
Finance. From January 1997 to December 1997 he served as Senior
Analyst. Prior to joining the Company, Mr. Pryor served as
Enterprise Tax Specialist with Arthur Andersen from 1990 to
1995. He obtained a Bachelor of Arts degree in Economics from
the University of California, Davis in 1988 and a Master of
Business Administration degree also from the University of
California, Davis in 1990. Mr. Pryor is a certified public
accountant.
The Board of Directors of the Company has determined that a
majority of the members of the Companys Board of Directors
has no material relationship with the Company (either directly
or as partners, stockholders or officers of an organization that
has a relationship with the Company) and is
independent within the meaning of the NYSE director
independence standards. Robert P. May, Chief Executive Officer
of the Company, and George Stathakis, who provided consulting
services to the Company from 2000 to 2005, are not considered to
be independent.
Furthermore, the Board has determined that each of the members
of the Audit Committee, the Compensation Committee and the
Nominating and Governance Committee has no material relationship
to the Company (either directly or as a partner, stockholder or
officer of an organization that has a relationship with the
Company) and is independent within the meaning of
the NYSEs director independence standards.
|
|
|
Family Relationships None |
|
|
|
Certain Legal Proceedings |
On December 20, 2005, Calpine and certain of its
subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code. Certain of
Calpines officers are also officers or directors of
subsidiaries that filed for reorganization under
Chapter 11. As such, each of the Companys executive
officers has been associated with a corporation that filed a
petition under the federal bankruptcy laws within the last five
years.
In addition, Mr. Davido served as Chairman of the Board of
NRG Energy, Inc. from May to December 2003, and as Senior Vice
President, General Counsel and Secretary from October 2002
through April 2004. On May 14, 2003, NRG Energy, Inc. and
certain of its subsidiaries commenced voluntary petitions under
Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York. On
November 24, 2003, the Bankruptcy Court entered an order
confirming NRG Energy, Inc.s plan of reorganization and
the plan became effective on December 5, 2003.
|
|
|
Audit Committee and Designated Audit Committee Financial
Experts |
Calpine has a standing Audit Committee established in accordance
with Section 3(a)(58)(A) of the Exchange Act and its
members are Susan Wang (Chair), David C. Merritt and Walter L.
Revell. The Board of Directors has evaluated the members of the
Audit Committee and determined that each member is independent,
as independence for audit committee members is defined under the
listing standards of the NYSE and Item 7(d)(3)(iv) of
Schedule 14A of the Exchange Act. The Board also determined
that each member of the Audit Committee is financially literate
and has designated Ms. Wang and Messrs. Merritt and
Revell as audit committee financial experts as
defined in SEC regulations. Ms. Wang and Mr. Revell
each serve on the audit committee of three other publicly traded
companies. The Board has made a determination that in each case,
Ms. Wangs and Mr. Revells simultaneous
service on the audit committees of such other companies does not
impair Ms. Wangs or Mr. Revells ability to
effectively serve on the Companys Audit Committee.
|
|
|
Section 16(a) Beneficial Ownership Reporting
Compliance |
Section 16(a) of the Securities Exchange Act requires the
Companys directors and executive officers, and persons who
own more than 10% of a registered class of the Companys
equity securities, to file with the Securities and Exchange
Commission initial reports of beneficial ownership and reports
of changes in
120
beneficial ownership of Common Stock and other equity securities
of the Company and to provide the Company with a copy.
Based solely upon review of the copies of such reports furnished
to the Company and written representations that no other reports
were required, the Company is not aware of any instances of
noncompliance with the Section 16(a) filing requirements by
any executive officer, director or greater than 10% beneficial
owners during the year ended December 31, 2005.
|
|
|
Code of Ethics for Senior Financial Officers |
We have adopted a code of conduct that is applicable to all
employees, including our principal executive officer, principal
financial officer and principal accounting officer, and to
members of our Board of Directors. A copy of the code of conduct
is posted on our website at www.calpine.com. We intend to post
any amendments and any waivers to our code of conduct on our
website in accordance with Item 5.05 of
Form 8-K and
Item 406 of
Regulation S-K.
|
|
|
Stockholder Nominees to Board of Directors |
We have not yet adopted procedures by which stockholders may
recommend director candidates for consideration by our
Nominating and Governance Committee because we are not holding
annual meetings of stockholders while we are under
Chapter 11 protection.
121
|
|
Item 11. |
Executive Compensation |
The following table provides certain information concerning the
compensation for services rendered to the Company in all
capacities for the past three years for the Companys Chief
Executive Officer (and the Companys former Acting Chief
Executive Officer and the former Chief Executive Officer) and
each of the four other most highly-compensated executive
officers of the Company in 2005 who were serving as executive
officers as of December 31, 2005, as well as the
Companys former Chief Financial Officer, who would have
been included as one of the Companys most
highly-compensated executive officers, but for the fact that he
was not serving as an executive officer as of December 31,
2005.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation | |
|
|
|
|
| |
|
|
Annual Compensation(5) | |
|
Restricted | |
|
Securities | |
|
|
|
|
| |
|
Stock | |
|
Underlying | |
|
All Other | |
Name and Principal Position |
|
Year | |
|
Salary(6) | |
|
Bonus(7) | |
|
Awards(8) | |
|
Options(6) | |
|
Compensation(9) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Robert P. May
|
|
|
2005 |
|
|
$ |
57,692 |
|
|
$ |
2,000,000 |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth T. Derr
|
|
|
2005 |
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
Director and Chairman of the
|
|
|
2004 |
|
|
|
24,000 |
|
|
|
|
|
|
|
|
|
|
|
16,176 |
|
|
|
|
|
|
Board, and former Acting
|
|
|
2003 |
|
|
|
29,000 |
|
|
|
|
|
|
|
|
|
|
|
20,922 |
|
|
|
|
|
|
Chief Executive Officer(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Cartwright
|
|
|
2005 |
|
|
|
1,595,865 |
|
|
|
|
|
|
|
1,350,002 |
|
|
|
1,600,500 |
|
|
|
137,186 |
|
|
Former Chairman of the Board,
|
|
|
2004 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
915,090 |
|
|
|
119,865 |
|
|
President and Chief
|
|
|
2003 |
|
|
|
1,000,000 |
|
|
|
2,250,000 |
|
|
|
|
|
|
|
1,018,939 |
|
|
|
83,782 |
|
|
Executive Officer(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ann B. Curtis
|
|
|
2005 |
|
|
|
550,000 |
|
|
|
|
|
|
|
412,500 |
|
|
|
350,000 |
|
|
|
11,298 |
|
|
Former Executive Vice President,
|
|
|
2004 |
|
|
|
547,222 |
|
|
|
2,000 |
|
|
|
|
|
|
|
255,018 |
|
|
|
14,276 |
|
|
Vice Chairman of the Board
|
|
|
2003 |
|
|
|
475,000 |
|
|
|
660,000 |
|
|
|
|
|
|
|
350,000 |
|
|
|
14,180 |
|
|
and Corporate Secretary(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert D. Kelly
|
|
|
2005 |
|
|
|
682,934 |
|
|
|
|
|
|
|
1,000,001 |
|
|
|
500,000 |
|
|
|
19,083 |
|
|
Executive Vice President, and |
|
|
2004 |
|
|
|
548,162 |
|
|
|
|
|
|
|
|
|
|
|
288,000 |
|
|
|
20,045 |
|
|
Chief Financial Officer,
|
|
|
2003 |
|
|
|
470,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
368,939 |
|
|
|
20,270 |
|
|
Calpine Corporation, and President, Calpine Finance Company(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E. James Macias
|
|
|
2005 |
|
|
|
538,462 |
|
|
|
148 |
|
|
|
375,001 |
|
|
|
225,000 |
|
|
|
11,298 |
|
|
Senior Vice President |
|
|
2004 |
|
|
|
490,741 |
|
|
|
|
|
|
|
|
|
|
|
183,622 |
|
|
|
11,006 |
|
|
|
|
|
2003 |
|
|
|
467,308 |
|
|
|
560,000 |
|
|
|
|
|
|
|
250,000 |
|
|
|
9,905 |
|
Thomas R. Mason
|
|
|
2005 |
|
|
|
538,462 |
|
|
|
|
|
|
|
375,001 |
|
|
|
200,000 |
|
|
|
16,716 |
|
|
Executive Vice President, |
|
|
2004 |
|
|
|
499,074 |
|
|
|
|
|
|
|
|
|
|
|
144,000 |
|
|
|
28,044 |
|
|
Calpine Corporation, and
|
|
|
2003 |
|
|
|
475,000 |
|
|
|
560,000 |
|
|
|
|
|
|
|
150,000 |
|
|
|
28,030 |
|
|
President, Calpine Power Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Posoli
|
|
|
2005 |
|
|
|
410,141 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
9,537 |
|
|
Executive Vice President, |
|
|
2004 |
|
|
|
398,524 |
|
|
|
750,500 |
|
|
|
|
|
|
|
38,500 |
|
|
|
9,343 |
|
|
Calpine Corporation, and
|
|
|
2003 |
|
|
|
381,231 |
|
|
|
800,500 |
|
|
|
|
|
|
|
38,000 |
|
|
|
8,983 |
|
|
President, Calpine Merchant Services Company, and Calpine Energy
Services, L.P.(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Mr. Derr served as the Companys Interim Chief
Executive Officer from November 28, 2005
December 12, 2005. Mr. Derr was not compensated for
his service as Interim Chief Executive Officer and all
compensation that is disclosed was received in his role as a
non-employee director. |
|
(2) |
Mr. Cartwrights and Mr. Kellys employment
with the Company terminated effective November 28, 2005 and
Mr. Cartwright resigned from the Board of Directors on
December 20, 2005. |
122
|
|
(3) |
Ms. Curtis employment with the Company terminated and
she resigned from the Board of Directors, effective
January 27, 2006. |
|
(4) |
Mr. Posolis employment with the Company terminated
effective March 22, 2006. |
|
(5) |
The Company does not provide any perquisites to its named
executive officers. |
|
(6) |
Salary figures for years prior to 2005 include the amount of
salary deferral reflected in the following stock option grants
under the Salary Investment Option Grant Program of the 1996
Stock Incentive Plan, which was frozen in December 2004 to
comply with Section 409A of the Internal Revenue Code: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Year | |
|
Option Grant | |
|
Salary Deferral | |
|
|
| |
|
| |
|
| |
Peter Cartwright
|
|
|
2004 |
|
|
|
15,090 |
|
|
$ |
50,000 |
|
|
|
|
2003 |
|
|
|
18,939 |
|
|
|
50,000 |
|
Ann B. Curtis
|
|
|
2004 |
|
|
|
3,018 |
|
|
|
10,000 |
|
Robert D. Kelly
|
|
|
2003 |
|
|
|
18,939 |
|
|
|
50,000 |
|
E. James Macias
|
|
|
2004 |
|
|
|
3,622 |
|
|
|
12,000 |
|
|
|
|
These stock option grants are also included in the amounts
listed as Securities Underlying Options. |
|
|
(7) |
In December 2005, Mr. May was paid a one-time cash signing
bonus of $2,000,000 under his Employment Agreement. Bonuses for
2003 and, in the case of Mr. Posoli, 2004, were made under
the Companys Management Incentive Plan. Such annual
incentives bonuses are tied to the Companys performance as
well as the performance of each executive and his or her
business unit. In addition, an Employee Service Recognition
bonus was paid to Ann B. Curtis in 2004 in recognition of her
20th year of service with the Company. A non-cash Employee
Service Recognition bonus was paid to E. James Macias in 2005 in
recognition of his 5th year of service with the Company.
All Company employees are eligible to participate in the
Employee Service Recognition bonus program. |
|
(8) |
Indicates the following restricted stock grants made by the
Company on March 8, 2005 under the Direct Issuance Program
of the 1996 Stock Incentive Plan. The fair market value of such
grants on the date of grant was $3.32 per share and such
restricted stock grants were issued in consideration for past
services. Such restricted stock grants have the following
performance-based vesting: 50% of such restricted stock shall
vest at such time as the Companys stock price is equal to
or greater than $5.00 per share for four consecutive
trading days and the remaining 50% of the restricted stock shall
vest at such time as the Companys stock price is equal to
or greater than $10.00 per share for four consecutive
trading days. |
123
|
|
(9) |
For the named executive officers, this column includes the
following payments by the Company. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Life | |
|
|
|
|
|
|
Insurance | |
Name |
|
Year | |
|
401(k) | |
|
Payment | |
|
|
| |
|
| |
|
| |
Peter Cartwright
|
|
|
2005 |
|
|
$ |
8,400 |
|
|
$ |
128,786 |
|
|
|
|
|
2004 |
|
|
|
8,200 |
|
|
|
111,665 |
|
|
|
|
|
2003 |
|
|
|
8,000 |
|
|
|
75,782 |
|
Ann B. Curtis
|
|
|
2005 |
|
|
|
8,400 |
|
|
|
2,898 |
|
|
|
|
|
2004 |
|
|
|
8,200 |
|
|
|
6,076 |
|
|
|
|
|
2003 |
|
|
|
8,000 |
|
|
|
6,180 |
|
Robert D. Kelly
|
|
|
2005 |
|
|
|
8,400 |
|
|
|
10,683 |
|
|
|
|
|
2004 |
|
|
|
8,200 |
|
|
|
11,845 |
|
|
|
|
|
2003 |
|
|
|
8,000 |
|
|
|
12,180 |
|
E. James Macias
|
|
|
2005 |
|
|
|
8,400 |
|
|
|
2,898 |
|
|
|
|
|
2004 |
|
|
|
8,200 |
|
|
|
2,806 |
|
|
|
|
|
2003 |
|
|
|
8,000 |
|
|
|
1,905 |
|
Thomas R. Mason
|
|
|
2005 |
|
|
|
8,400 |
|
|
|
8,316 |
|
|
|
|
|
2004 |
|
|
|
8,200 |
|
|
|
19,844 |
|
|
|
|
|
2003 |
|
|
|
8,000 |
|
|
|
20,030 |
|
Paul Posoli
|
|
|
2005 |
|
|
|
8,400 |
|
|
|
1,137 |
|
|
|
|
|
2004 |
|
|
|
8,200 |
|
|
|
1,143 |
|
|
|
|
|
2003 |
|
|
|
8,000 |
|
|
|
983 |
|
The following table sets forth certain information concerning
grants of stock options during the fiscal year ended
December 31, 2005 to each of the executive officers named
in the Summary Compensation Table above. The table also sets
forth hypothetical gains or option spreads for the
options at the end of their respective
10-year terms. These
gains are based on the assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the option was
granted over the full option term. No stock appreciation rights
were granted during the fiscal year ended December 31, 2005.
Option Grants in Last Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants(5) | |
|
|
|
|
|
|
| |
|
|
|
Potential Realizable Value | |
|
|
|
|
Percentage of | |
|
|
|
|
|
at Assumed Annual Rates | |
|
|
|
|
Total Options | |
|
|
|
|
|
of Stock Price Appreciation | |
|
|
Options | |
|
Granted to | |
|
Exercise | |
|
|
|
for Option Term(7) | |
|
|
Granted | |
|
Employees in | |
|
Price per | |
|
Expiration | |
|
| |
Name |
|
(No. of Shares) | |
|
Fiscal Year(6) | |
|
Share | |
|
Date | |
|
5% | |
|
10% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Robert P. May
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Peter Cartwright(1)
|
|
|
350,500 |
|
|
|
4.39 |
% |
|
|
3.32 |
|
|
|
3/8/2012 |
|
|
|
473,726 |
|
|
|
1,103,984 |
|
Peter Cartwright(1)
|
|
|
1,250,000 |
(8) |
|
|
15.64 |
|
|
|
3.80 |
|
|
|
3/9/2011 |
|
|
|
895,153 |
|
|
|
2,712,701 |
|
Ann B. Curtis(2)
|
|
|
350,000 |
|
|
|
4.38 |
|
|
|
3.32 |
|
|
|
3/8/2012 |
|
|
|
473,051 |
|
|
|
1,102,409 |
|
Robert D. Kelly(1)(4)
|
|
|
500,000 |
|
|
|
6.26 |
|
|
|
3.32 |
|
|
|
3/8/2012 |
|
|
|
675,787 |
|
|
|
1,574,870 |
|
E. James Macias
|
|
|
225,000 |
|
|
|
2.82 |
|
|
|
3.32 |
|
|
|
3/8/2012 |
|
|
|
304,104 |
|
|
|
708,692 |
|
Thomas R. Mason
|
|
|
200,000 |
|
|
|
2.50 |
|
|
|
3.32 |
|
|
|
3/8/2012 |
|
|
|
270,315 |
|
|
|
629,948 |
|
Paul Posoli(3)
|
|
|
200,000 |
|
|
|
2.50 |
|
|
|
3.32 |
|
|
|
3/8/2012 |
|
|
|
270,315 |
|
|
|
629,948 |
|
|
|
(1) |
Mr. Cartwrights and Mr. Kellys employment
with the Company terminated effective November 28, 2005,
and Mr. Cartwright resigned from the Board of Directors on
December 20, 2005. |
|
(2) |
Ms. Curtis employment with the Company terminated and
she resigned from the Board of Directors, effective
January 27, 2006. |
|
(3) |
Mr. Posolis employment with the Company terminated
effective March 22, 2006. |
124
|
|
(4) |
Mr. Kellys options have terminated. |
|
(5) |
Unless otherwise noted herein, the following applies to each
option set forth in the table. Each option has a term of seven
(7) years, subject to earlier termination upon the
executive officers termination of service with the
Company. Each option has an exercise price equal to the fair
market value of the Common Stock on the date of grant. Each
option will become exercisable for 25% of the option shares upon
the officers completion of each additional one year of
service measured from the grant date. Each option will
immediately become exercisable for all of the option shares
(i) upon an acquisition of the Company by merger or asset
sale unless the options are assumed by the successor
corporation, or (ii) upon retirement of the executive
officer at least 12 months after the option grant date, if
the executive officer is at least 55 years of age at
retirement and if the sum of the executive officers age
and years of service at retirement is at least 70. |
|
(6) |
The Company granted options to
purchase 7,992,710 shares of Common Stock during the
fiscal year ended December 31, 2005 to employees. |
|
(7) |
The 5% and 10% assumed annual rates of compound stock price
appreciation from the exercise date are mandated by the rules of
the Securities and Exchange Commission and do not represent the
Companys estimate or a projection by the Company of future
stock prices. |
|
(8) |
These options were granted pursuant to
Mr. Cartwrights employment agreement under the
Discretionary Option Grant Program of the 1996 Stock Incentive
Plan. The options will fully vest upon the earlier to occur of
(a) the price of the Companys common stock closing at
or above $10.00 per share for four consecutive trading days
or (b) December 31, 2009. The options expire on
March 9, 2011. As provided by Mr. Cartwrights
employment agreement, if Mr. Cartwright is entitled to
receive a severance under such agreement, all stock options
shall vest and remain exercisable through their initial terms. |
|
|
|
Stock Option Exercises and Holdings |
The following table sets forth certain information concerning
the exercise of options during the fiscal year ended
December 31, 2005, and the number of shares subject to
exercisable and unexercisable stock options held as of
December 31, 2005, by the executive officers named in the
Summary Compensation Table above. No stock appreciation rights
were exercised by such executive officers in the fiscal year
ended December 31, 2005 and no stock appreciation rights
were outstanding at the end of that year,
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at | |
|
Value of Unexercised |
|
|
|
|
|
|
December 31, 2005 | |
|
In-the-Money Options |
|
|
|
|
|
|
(No. of Shares) | |
|
at December 31, 2005(3) |
|
|
Shares Acquired | |
|
Value | |
|
| |
|
|
Name |
|
on Exercise | |
|
Realized(2) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable |
|
Unexercisable |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Robert P. May
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Peter Cartwright(1)
|
|
|
1,289,320 |
|
|
|
2,810,718 |
|
|
|
9,435,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ann B. Curtis
|
|
|
|
|
|
|
|
|
|
|
1,034,812 |
|
|
|
722,820 |
|
|
|
|
|
|
|
|
|
Robert D. Kelly
|
|
|
|
|
|
|
|
|
|
|
1,019,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
E. James Macias
|
|
|
|
|
|
|
|
|
|
|
241,897 |
|
|
|
489,828 |
|
|
|
|
|
|
|
|
|
Thomas R. Mason
|
|
|
|
|
|
|
|
|
|
|
510,543 |
|
|
|
391,820 |
|
|
|
|
|
|
|
|
|
Paul Posoli
|
|
|
|
|
|
|
|
|
|
|
131,102 |
|
|
|
252,875 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes options to purchase 2,050,000 shares, which might
be subject to accelerated vesting pursuant to
Mr. Cartwrights employment agreement, if
Mr. Cartwright is entitled to severance benefits under his
employment agreement. |
|
(2) |
Based upon the market price of the purchased shares on the
exercise date less the option exercise price paid for the shares. |
|
(3) |
Based upon the closing selling price on the last trading day in
the calendar year 2005 of $0.208 per share of the Common
Stock on December 30, 2005, less the option exercise price
payable per share. |
125
Only non-employee directors are compensated for Board service.
In 2005, non-employee members of the Board of Directors were
each paid an annual retainer fee of $50,000 and were reimbursed
for all expenses incurred in attending meetings of the Board of
Directors or any committee thereof. The chairs of the
Compensation Committee and the Nominating and Governance
Committee each received an additional annual fee of $15,000. The
chair of the Audit Committee received an additional annual fee
of $20,000 and members of the Audit Committee (including the
Chair) each received an additional annual fee of $10,000 for
serving on the Audit Committee. The Lead Director received an
annual fee of $20,000 for serving as Lead Director.
In 2005, upon their initial election to the Board of Directors,
Mr. Keese and Mr. Revell were each granted an option
to purchase 50,000 shares of Common Stock (under
various option grant programs in effect under the Companys
1996 Stock Incentive Plan). Such initial option grant vests in a
series of four successive annual installments upon the
optionees completion of each year of service on the Board
of Directors over the four-year period measured from the grant
date. Each initial option grant has an exercise price per share
equal to the fair market value per share of Common Stock on the
grant date and a term of ten years, subject to earlier
termination upon the optionees cessation of Board service.
Each option is immediately exercisable for all the option
shares, but any shares purchased upon exercise of the option
will be subject to repurchase by the Company, at the option
exercise price paid per share, upon the optionees
cessation of Board service prior to vesting in those shares.
However, option shares issuable upon exercise of options granted
will immediately vest on an accelerated basis upon certain
changes in control of the Company or upon the retirement, death
or disability of the optionee while serving as a Board member.
Each non-employee member of the Board who was serving on the
Board at the time of the annual meeting of stockholders in May
2005 (except for Mr. Keese and Mr. Revell who joined
the Board in September 2005) received an annual option grant to
purchase 25,000 shares of Common Stock (under various
option grant programs in effect under the Companys 1996
Stock Incentive Plan). Such annual option grant vests upon the
optionees completion of one year of Board service measured
from the grant date.
George Stathakis, who is a former employee of the Company,
received additional compensation in 2005 from his service as a
consultant to the Company. Mr. Stathakis compensation
is discussed in greater detail under Certain Relationships and
Related Transactions.
Beginning in 2006, non-employee members of the Board of
Directors will be paid an annual retainer fee of $125,000 and
will be reimbursed for all expenses incurred in attending
meetings of the Board of Directors or any committee thereof.
Board members will receive meeting attendance fees of
$2,000 per in-person meeting and $1,000 per telephonic
meeting. The chairs of the Compensation Committee and the
Nominating and Governance Committee will each receive an
additional annual fee of $15,000. The chair of the Audit
Committee will receive an additional annual fee of $30,000 and
members of the Audit Committee (including the Chair) will each
receive an additional annual fee of $10,000 for serving on the
Audit Committee. Committee members will receive meeting
attendance fees of $1,000 per in-person or telephonic
meeting. In addition, the Chairman of the Board will receive an
annual retainer fee of $50,000. Non-employee members of the
Board of Directors will not receive stock options in 2006. While
our bankruptcy cases are pending, changes in the compensation of
our Board members will be subject to U.S. Bankruptcy Court
approval.
|
|
|
Employment Agreements, Termination of Employment and
Change in Control Arrangements |
Certain contracts that were entered into prior to our
Chapter 11 filing are considered pre-petition and, as such,
we may decide either to accept or reject these contracts as part
of the Chapter 11 cases based on a cost-benefit analysis of
the individual agreements. Additionally, any such claims with
respect to such pre-petition agreements are subject to
Bankruptcy Court approval and the Court may limit the amount of
such claims.
Effective December 12, 2005, the Company entered into an
employment agreement with Mr. May, which was amended on
May 18, 2006, in accordance with the May 10, 2006
order of the U.S. Bankruptcy
126
Court approving the employment agreement. The term of the
employment agreement consists of a
two-year initial term
(until December 31, 2007) and any subsequent term for which
the employment agreement is renewed. Mr. Mays
employment agreement provides for the payment of an annual base
salary of $1,500,000, which is subject to annual adjustment by
the Board of Directors. Mr. May was paid a one-time cash
signing bonus of $2,000,000. Mr. May is eligible to receive
an annual cash performance bonus so long as he achieves
performance objectives set by the board of directors and remains
employed by the Company on the last day of the applicable fiscal
year. Mr. Mays target bonus will be established by
the Board but the minimum target bonus will be 100% of his base
salary, and his actual bonus may range from 0% to 200% of the
minimum target bonus as determined by the Board, except that
Mr. May shall receive minimum bonuses for the fiscal years
ending December 31, 2006 and December 31, 2007, of
$2,250,000 and $1,500,000, respectively. Mr. May is also
eligible to receive a success fee if and when a plan of
reorganization is confirmed by the U.S. Bankruptcy Court and
becomes effective during Mr. Mays tenure as Chief
Executive Officer of the Company or within 12 months after
termination of Mr. Mays employment, but only if such
termination is by Mr. May for good reason or by the Company
without cause. Mr. May shall not be entitled to the success
fee if the Company terminates his employment for cause, he
resigned his employment without good reason or his employment
terminates due to death or disability before the effective date
of such plan of reorganization. The success fee shall contain a
$4.5 million fixed component and an incentive component
based on the achievement of certain market adjusted
enterprise value and plan adjusted enterprise
value metrics. Mr. May will also participate in
employee benefit programs available to senior executives of the
Company. Severance benefits are payable upon in the event of
resignation for good reason or the Company terminates his
employment without cause. The benefits include an amount equal
to the sum of Mr. Mays base salary and target bonus
at the time of the termination of his employment (except that if
such termination were to occur in 2006 or 2007, in lieu of the
target bonus amount, Mr. May would receive the minimum
bonus amount for such years) paid over a year. If
Mr. Mays employment is terminated because of death or
disability he or his estate would receive a pro rata portion of
his then current target bonus.
Effective January 30, 2006, the Company entered into an
employment agreement with Mr. Davido which was amended on
May 18, 2006 in accordance with the May 10, 2006 order
of the U.S. Bankruptcy court approving the employment agreement.
The term of the agreement consists of a two year initial term
(until February 1, 2008) and any subsequent term for which
the agreement is renewed. Mr. Davidos employment
agreement provides for the payment of an annual base salary of
$700,000, which is subject to annual adjustment by the Board of
Directors. Mr. Davido is also entitled to receive a
one-time cash signing bonus of $500,000, which is payable within
15 days of the U.S. Bankruptcy Courts approval
of the agreement. If Mr. Davido terminates his employment
without good reason, or his employment is terminated by the
Company for cause, Mr. Davido will be required within
10 days of such termination to repay a pro rata portion
(based on the number of full calendar months remaining in the
initial 24-month term
divided by 24 months) of the signing bonus, net of any
associated income and employment taxes. Mr. Davido is
eligible to receive an annual cash performance bonus so long as
he remains employed by the Company on the last day of the
applicable fiscal year. Mr. Davidos target bonus will
be established by the Board but the minimum target bonus will be
100% of his base salary, and his actual bonus may range from 0%
to 150% of his base salary as determined by the Board, except
that Mr. Davido shall receive minimum bonuses of $700,000
for each of the fiscal years ending December 31, 2006 and
December 31, 2007. Mr. Davido is also eligible to
receive a success fee if and when a plan of reorganization is
confirmed by the U.S. Bankruptcy Court becomes effective during
Mr. Davidos tenure as Executive Vice President and
Chief Financial Officer of the Company or within 12 months
after termination of Mr. Davidos employment, but only
if such termination is by Mr. Davido for good reason or by
the Company without cause. Mr. Davido shall not be entitled
to the success fee if the Company terminates his employment for
cause, he resigned his employment without good reason or his
employment terminates due to death or disability before the
effective date of such plan of reorganization. The success fee
shall contain a $1.5 million fixed component and an
incentive component based on the achievement of certain
market adjusted enterprise value and plan
adjusted enterprise value metrics. Mr. Davido will
also participate in employee benefit programs available to
senior executives of the Company. Severance benefits are payable
upon in the event of resignation for good reason or the Company
terminates his employment without cause. The benefits include an
amount equal to two times Mr. Davidos base salary at
the
127
time of the termination of his employment payable in a lump sum.
If Mr. Davidos employment is terminated because of
death or disability, he or his estate would receive a pro rata
portion of his then current target bonus.
On March 9, 2005, the Company entered into an employment
agreement with Mr. Cartwright. The term of the agreement is
two years (until December 31, 2006) and is renewable for
three successive one-year terms upon the mutual agreement of the
Board and Mr. Cartwright. Mr. Cartwrights
employment agreement provides for the payment of a base salary,
which is subject to periodic adjustment by the Nominating and
Governance Committee and the Compensation Committee of the Board
of Directors, acting jointly; annual bonuses under the
Companys bonus plans; and participation in benefit and
equity plans. Pursuant to the agreement, on March 9, 2005,
Mr. Cartwright received an option to
purchase 1,250,000 shares of the Companys Common
Stock under the Discretionary Stock Option Grant Program of the
Companys 1996 Stock Incentive Plan. The option has a
six-year term and an exercise price of $3.80 per share. The
option will vest upon the earlier of (i) the Companys
common stock closing price equaling at least $10.00 per
share for four consecutive trading days and
(ii) December 31, 2009. Except in certain
circumstances, the option will be forfeited if
Mr. Cartwright ceases to be employed as the Companys
Chief Executive Officer before the option vests. As provided by
Mr. Cartwrights employment agreement, if
Mr. Cartwright is entitled to receive a severance under
such agreement, such option shall vest and remain exercisable
through its initial term. The employment agreement also provides
for other employee benefits such as life insurance and health
care, in addition to certain disability and death benefits.
Severance benefits, including severance pay, the acceleration of
outstanding options, life insurance and health care, and
outplacement services, are payable upon in the event of
(i) resignation for good cause, (ii) an involuntary
termination other than for cause or (iii) the agreement is
not renewed for any of the three one-year renewal terms. Such
severance pay would be equal to the sum of
Mr. Cartwrights base salary and target bonus at the
time of the termination of his employment, paid for the shorter
of (i) two years and (ii) the period from his
termination date to December 31, 2009. Mr. Cartwright
ceased to serve as the Companys President and Chief
Executive Officer on November 28, 2005 and resigned from
the Board of Directors on December 20, 2005. Any claim by
Mr. Cartwright for severance benefits would be a
pre-petition claim and processed accordingly in the
Chapter 11 cases.
|
|
|
Change in Control Arrangements |
Under the terms of the 1996 Stock Incentive Plan, should the
Company be acquired by merger or asset sale, then all
outstanding options and shares of restricted stock held by the
executive officers under the 1996 Stock Incentive Plan will
automatically accelerate and vest in full, except to the extent
those options and shares of restricted stock are to be assumed
by the successor corporation. In addition, the Compensation
Committee, as plan administrator of the 1996 Stock Incentive
Plan, has the authority to provide for the accelerated vesting
of the shares of Common Stock subject to outstanding options
held by any executive officer of the Company or any unvested
shares of Common Stock acquired by such individual, in
connection with the termination of that individuals
employment following (i) a merger or asset sale in which
these options are assumed or are assigned or (ii) certain
hostile changes in control of the Company. Mr. May and
Mr. Davido are not participants in the 1996 Stock Incentive
Plan.
|
|
|
Key Employee Program/ Severance Program/2006 Management
Incentive Plan |
On March 1, 2006, upon receipt of U.S. Bankruptcy Court
approval, we implemented a severance program that provides
eligible employees, including executive officers, whose
employment is involuntarily terminated in connection with
workforce reductions, with certain severance benefits, including
base salary continuation for specified periods based on the
employees position and length of service.
On May 10, 2006, the U.S. Bankruptcy Court approved our
request to implement certain employee incentive programs. Such
programs, which we expect to implement upon completing
definitive documentation, will include (i) an Emergence
Incentive Plan, which would provide executive officers and
certain other officers of the Company with a cash incentive
payment upon the Companys emergence from Chapter 11,
as determined by the Chief Executive Officer in his sole
discretion, and (ii) a 2006 Short Term Incentive Plan which
would provide performance bonuses for executive officers
(excluding Mr. May and Mr. Davido) and other employees
provided that individual or corporate performance objectives
established by the Chief
128
Executive Officer and Board are achieved, as determined by the
Chief Executive Officer and the Board in their sole discretion.
|
|
|
Compensation Committee Interlocks and Insider
Participation None |
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The following table sets forth certain information known to the
Company regarding the beneficial ownership of the Common Stock
as of December 31, 2005, or as of such later date as
indicated below, by (i) each person known by the Company to
be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, (ii) each director of
the Company, (iii) each executive officer of the Company
listed in the Summary Compensation Table above, and
(iv) all executive officers and directors of the Company as
a group. The Company has no known beneficial owners of more than
5% of the outstanding shares of Common Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
|
|
|
Shares Individuals | |
|
|
Number of Shares | |
|
Common Shares | |
|
Restricted Shares | |
|
Have the Right to | |
|
|
Beneficially | |
|
Beneficially | |
|
Subject to | |
|
Acquire Within | |
Name |
|
Owned(5) | |
|
Owned(6) | |
|
Vesting(7) | |
|
60 days(8) | |
|
|
| |
|
| |
|
| |
|
| |
Robert P. May
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Cartwright(1)
|
|
|
12,265,901 |
|
|
|
2,424,157 |
|
|
|
406,627 |
|
|
|
9,435,117 |
|
Ann B. Curtis(2)
|
|
|
1,383,555 |
|
|
|
65,176 |
|
|
|
124,247 |
|
|
|
1,194,132 |
|
Kenneth T. Derr
|
|
|
52,393 |
|
|
|
5,000 |
|
|
|
|
|
|
|
47,393 |
|
William J. Keese
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert D. Kelly(1)
|
|
|
1,019,072 |
|
|
|
|
|
|
|
|
|
|
|
1,019,072 |
|
E. James Macias
|
|
|
499,541 |
|
|
|
32,364 |
|
|
|
112,952 |
|
|
|
354,225 |
|
Thomas R. Mason
|
|
|
778,477 |
|
|
|
72,662 |
|
|
|
112,952 |
|
|
|
592,863 |
|
David C. Merritt(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George J. Stathakis
|
|
|
325,040 |
|
|
|
24,000 |
|
|
|
|
|
|
|
301,040 |
|
Paul Posoli(4)
|
|
|
199,065 |
|
|
|
44,088 |
|
|
|
|
|
|
|
154,977 |
|
Walter L. Revell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan Wang
|
|
|
13,500 |
|
|
|
|
|
|
|
|
|
|
|
13,500 |
|
All executive officers and directors as a group (16 persons)
|
|
|
17,746,100 |
|
|
|
2,726,539 |
|
|
|
946,222 |
|
|
|
14,073,339 |
|
|
|
(1) |
Mr. Cartwrights and Mr. Kellys employment
with the Company terminated effective November 28, 2005,
and Mr. Cartwright resigned from the Board of Directors on
December 20, 2005. Includes options to purchase
2,050,500 shares, which might be subject to accelerated
vesting pursuant to Mr. Cartwrights employment
agreement, if Mr. Cartwright is entitled to severance
benefits under his employment agreement. |
|
(2) |
Ms. Curtis employment with the Company terminated and
she resigned from the Board of Directors effective
January 27, 2006. |
|
(3) |
Mr. Merritt joined the Board of Directors effective
February 8, 2006. |
|
(4) |
Mr. Posolis employment with the Company terminated
effective March 22, 2006. |
|
(5) |
Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and consists of either
or both voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise of options or
warrants or upon the conversion of convertible securities that
are immediately exercisable or convertible or that will become
exercisable or convertible within the next 60 days are
deemed beneficially owned by the beneficial owner of such
options, warrants or convertible securities and are deemed
outstanding for the purpose of computing the percentage of |
129
|
|
|
shares beneficially owned by the person holding such
instruments, but are not deemed outstanding for the purpose of
computing the percentage of any other person. Except as
otherwise indicated by footnote, and subject to community
property laws where applicable, the persons named in the table
have reported that they have sole voting and sole investment
power with respect to all shares of Common Stock shown as
beneficially owned by them. The number of shares of Common Stock
outstanding as of December 31, 2005 was 569,081,863. |
|
(6) |
Indicates shares of Calpine common stock beneficially owned.
Shares indicated are included in the Total Number of Shares
Beneficially Owned column. |
|
(7) |
Indicates restricted stock grants made by the Company on
March 8, 2005 under the Direct Issuance Program of the 1996
Stock Incentive Plan. The fair market value of such grants on
the date of grant was $3.32 per share and such restricted
stock grants were issued in consideration for past services.
Such restricted stock grants have the following
performance-based vesting: 50% of such restricted stock shall
vest at such time as the Companys stock price is equal to
or greater than $5.00 per share for four consecutive
trading days and the remaining 50% of the restricted stock shall
vest at such time as the Companys stock price is equal to
or greater than $10.00 per share for four consecutive
trading days. Shares indicated are included in the Total Number
of Shares Beneficially Owned column. |
|
(8) |
Indicates shares of Calpine common stock that certain directors
and executive officers have the right to acquire within
60 days by exercising stock options. The numbers and values
of exercisable stock options as of December 31, 2005 are
shown in Item 11 above. Shares indicated are included in
the Total Number of Shares Beneficially Owned column. |
|
|
|
Securities Authorized for Issuance Under Equity
Compensation Plans |
The following table indicates the compensation plans under which
equity securities of the Company are authorized for issuance as
of December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
Remaining Available for | |
|
|
|
|
|
|
Future Issuance Under | |
|
|
|
|
|
|
Equity Compensation | |
|
|
Number of Securities | |
|
|
|
Plans (Excluding | |
|
|
to be Issued Upon | |
|
Weighted Average | |
|
Securities to be Issued | |
|
|
Exercise of | |
|
Exercise Price of | |
|
Upon Exercise of | |
|
|
Outstanding Options, | |
|
Outstanding Options, | |
|
Outstanding Options, | |
Plan Category |
|
Warrants and Rights | |
|
Warrants and Rights | |
|
Warrants and Rights)(1) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
37,090,268 |
|
|
|
7.62 |
|
|
|
30,293,714 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
37,090,268 |
|
|
|
7.62 |
|
|
|
30,293,714 |
|
|
|
(1) |
Includes 13,451,324 shares subject to issuance under the
Calpine Corporation 2000 Employee Stock Purchase Plan. |
|
|
Item 13. |
Certain Relationships and Related Transactions |
From 2000 to 2005, the Company entered into an annual Consulting
Agreement with George J. Stathakis, who is a member of the Board
of Directors, to provide advice and guidance on various
management issues to the Chief Executive Officer and members of
the Chief Executive Officers senior staff. Pursuant to the
terms of the Consulting Agreement, in 2005 the Company paid
Mr. Stathakis a consulting fee of $5,000 per month and
issued Mr. Stathakis a stock option grant in January 2005
under the Discretionary Option Grant Program for
10,000 shares of Common Stock at an exercise price of
$3.80 per share. Such options were fully vested at the end
of 2005. Mr. Stathakis, who is a former employee of the
Company, also receives an annual stock option grant from the
Company under the Discretionary Option Grant Program in an
amount equal to and on similar terms as the grants issued to the
other non-employee directors of the Company. Accordingly, in May
2005, Mr. Stathakis received a stock option grant to
purchase 25,000 shares of
130
Common Stock at an exercise price of $2.64 per share,
vesting upon the completion of one year of service from the date
of grant. The Company and Mr. Stathakis did not enter into
a Consulting Agreement for 2006.
|
|
Item 14. |
Principal Accounting Fees and Services |
The fees billed by PricewaterhouseCoopers for performing our
integrated audit were approximately $12.4 million during
the fiscal year ended December 31, 2005 and approximately
$12.7 million during the fiscal year ended
December 31, 2004. The fees billed for performing audits
and reviews of certain of our subsidiaries were approximately
$4.4 million during the fiscal year ended December 31,
2005 and approximately $3.0 million during the fiscal year
ended December 31, 2004. The audit fees for 2004 have been
revised from the 2004 proxy to reflect final billings.
The fees billed by PricewaterhouseCoopers for audit-related
services were approximately $1.2 million for the fiscal
year ended December 31, 2005 and approximately
$0.9 million for the fiscal year ended December 31,
2004. Such audit-related fees consisted primarily of
consultations concerning financial accounting and reporting
standards and employee benefit plan audits.
PricewaterhouseCoopers did not provide the Company with any tax
compliance and tax consulting services during the fiscal years
ended December 31, 2005 and December 31, 2004.
There were no fees billed by PricewaterhouseCoopers for services
rendered, other than as described above under the headings Audit
Fees, Audit-Related Fees and Tax Fees, for the fiscal year ended
December 31, 2005 and approximately $0.8 million
during the fiscal year ended December 31, 2004. Such fees
primarily consisted of advisory services related to compliance
with the Sarbanes-Oxley Act of 2002.
PART IV
|
|
Item 15. |
Exhibits, Financial Statement Schedules |
(a)-1. Financial Statements and Other Information
The following items appear in Appendix F of this Report:
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
Consolidated Balance Sheets December 31, 2005 and 2004 |
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2005, 2004, and 2003 |
|
|
Consolidated Statements of Comprehensive Income and
Stockholders Equity (Deficit) for the Years Ended
December 31, 2005, 2004, and 2003 |
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004, and 2003 |
|
|
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2005, 2004, and 2003 |
(a)-2. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
131
(b) Exhibits
The following exhibits are filed herewith unless otherwise
indicated:
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
2 |
.1 |
|
Purchase and Sale Agreement, dated July 1, 2004, among
Calpine Corporation (the Company), Calpine Natural
Gas L.P. and Pogo Producing Company.(a) |
|
|
2 |
.2 |
|
Purchase and Sale Agreement, dated July 1, 2004, among the
Company, Calpine Natural Gas L.P. and Bill Barrett
Corporation.(a) |
|
|
2 |
.3 |
|
Asset and Trust Unit Purchase and Sale Agreement, dated
July 1, 2004, among the Company, Calpine Canada Natural Gas
Partnership, Calpine Energy Holdings Limited, PrimeWest Gas
Corp. and PrimeWest Energy Trust.(a) |
|
|
2 |
.4 |
|
Share Sale and Purchase Agreement, made as of May 28, 2005,
among the Company, Calpine UK Holdings Limited, Quintana Canada
Holdings, LLC, International Power PLC, Mitsui & Co.,
Ltd. and Normantrail (UK CO 3) Limited. Approximately four
pages of this Exhibit 2.4 have been omitted pursuant to a
request for confidential treatment. The omitted language has
been filed separately with the SEC.(b) |
|
|
2 |
.5 |
|
Purchase and Sale Agreement dated July 7, 2005, by and
among Calpine Gas Holdings LLC, Calpine Fuels Corporation, the
Company, Rosetta Resources Inc., and the other Subject Companies
identified therein.(c) |
|
|
2 |
.6 |
|
Agreement dated as of December 20, 2005, by and among Steam
Heat LLC, Thermal Power Company and, for certain limited
purposes, Geysers Power Company, LLC.(*) |
|
|
3 |
.1.1 |
|
Amended and Restated Certificate of Incorporation of the
Company, as amended through June 2, 2004.(d) |
|
|
3 |
.1.2 |
|
Amendment to Amended and Restated Certificate of Incorporation
of the Company, dated June 20, 2005.(e) |
|
|
3 |
.2 |
|
Amended and Restated By-laws of the Company.(f) |
|
|
4 |
.1.1 |
|
Indenture dated as of May 16, 1996, between the Company and
U.S. Bank (as successor trustee to Fleet National Bank), as
Trustee, including form of Notes.(g) |
|
|
4 |
.1.2 |
|
First Supplemental Indenture dated as of August 1, 2000,
between the Company and U.S. Bank (as successor trustee to
Fleet National Bank), as Trustee.(h) |
|
|
4 |
.1.3 |
|
Second Supplemental Indenture dated as of April 26, 2004,
between the Company and U.S. Bank (as successor trustee to
Fleet National Bank), as Trustee.(i) |
|
|
4 |
.2.1 |
|
Indenture dated as of July 8, 1997, between the Company and
The Bank of New York, as Trustee, including form of Notes.(j) |
|
|
4 |
.2.2 |
|
Supplemental Indenture dated as of September 10, 1997,
between the Company and The Bank of New York, as Trustee.(k) |
|
|
4 |
.2.3 |
|
Second Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
|
|
4 |
.2.4 |
|
Third Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.3.1 |
|
Indenture dated as of March 31, 1998, between the Company
and The Bank of New York, as Trustee, including form of Notes.(l) |
|
|
4 |
.3.2 |
|
Supplemental Indenture dated as of July 24, 1998, between
the Company and The Bank of New York, as Trustee.(l) |
|
|
4 |
.3.3 |
|
Second Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
|
|
4 |
.3.4 |
|
Third Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.4.1 |
|
Indenture dated as of March 29, 1999, between the Company
and The Bank of New York, as Trustee, including form of Notes.(m) |
132
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.4.2 |
|
First Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
|
|
4 |
.4.3 |
|
Second Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.5.1 |
|
Indenture dated as of March 29, 1999, between the Company
and The Bank of New York, as Trustee, including form of Notes.(m) |
|
|
4 |
.5.2 |
|
First Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
|
|
4 |
.5.3 |
|
Second Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.6.1 |
|
Indenture dated as of August 10, 2000, between the Company
and Wilmington Trust Company, as Trustee.(n) |
|
|
4 |
.6.2 |
|
First Supplemental Indenture dated as of September 28,
2000, between the Company and Wilmington Trust Company, as
Trustee.(h) |
|
|
4 |
.6.3 |
|
Second Supplemental Indenture dated as of September 30,
2004, between the Company and Wilmington Trust Company, as
Trustee.(o) |
|
|
4 |
.6.3 |
|
Third Supplemental Indenture dated as of June 23, 2005,
between the Company and Wilmington Trust Company, as Trustee.(b) |
|
|
4 |
.7.1 |
|
Amended and Restated Indenture dated as of October 16,
2001, between Calpine Canada Energy Finance ULC and Wilmington
Trust Company, as Trustee.(p) |
|
|
4 |
.7.2 |
|
Guarantee Agreement dated as of April 25, 2001, between the
Company and Wilmington Trust Company, as Trustee.(q) |
|
|
4 |
.7.3 |
|
First Amendment, dated as of October 16, 2001, to Guarantee
Agreement dated as of April 25, 2001, between the Company
and Wilmington Trust Company, as Trustee.(p) |
|
|
4 |
.8.1 |
|
Indenture dated as of October 18, 2001, between Calpine
Canada Energy Finance II ULC and Wilmington Trust Company,
as Trustee.(p) |
|
|
4 |
.8.2 |
|
First Supplemental Indenture, dated as of October 18, 2001,
between Calpine Canada Energy Finance II ULC and Wilmington
Trust Company, as Trustee.(p) |
|
|
4 |
.8.3 |
|
Guarantee Agreement dated as of October 18, 2001, between
the Company and Wilmington Trust Company, as Trustee.(p) |
|
|
4 |
.8.4 |
|
First Amendment, dated as of October 18, 2001, to Guarantee
Agreement dated as of October 18, 2001, between the Company
and Wilmington Trust Company, as Trustee.(p) |
|
|
4 |
.9 |
|
Indenture, dated as of June 13, 2003, between Power
Contract Financing, L.L.C. and Wilmington Trust Company, as
Trustee, Accounts Agent, Paying Agent and Registrar,
including form of Notes.(r) |
|
|
4 |
.10 |
|
Indenture, dated as of July 16, 2003, between the Company
and Wilmington Trust Company, as Trustee, including form of
Notes.(r) |
|
|
4 |
.11 |
|
Indenture, dated as of July 16, 2003, between the Company
and Wilmington Trust Company, as Trustee, including form of
Notes.(r) |
|
|
4 |
.12 |
|
Indenture, dated as of July 16, 2003, between the Company
and Wilmington Trust Company, as Trustee, including form of
Notes.(r) |
|
|
4 |
.13.1 |
|
Indenture, dated as of August 14, 2003, among Calpine
Construction Finance Company, L.P., CCFC Finance Corp., each of
Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power
Partnership, as Guarantors, and Wilmington Trust FSB, as
Trustee, including form of Notes.(s) |
|
|
4 |
.13.2 |
|
Supplemental Indenture, dated as of September 18, 2003,
among Calpine Construction Finance Company, L.P., CCFC Finance
Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and
Hermiston Power Partnership, as Guarantors, and Wilmington Trust
FSB, as Trustee.(s) |
133
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.13.3 |
|
Second Supplemental Indenture, dated as of January 14,
2004, among Calpine Construction Finance Company, L.P., CCFC
Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston,
LLC and Hermiston Power Partnership, as Guarantors, and
Wilmington Trust FSB, as Trustee.(t) |
|
|
4 |
.13.4 |
|
Third Supplemental Indenture, dated as of March 5, 2004,
among Calpine Construction Finance Company, L.P., CCFC Finance
Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and
Hermiston Power Partnership, as Guarantors, and Wilmington Trust
FSB, as Trustee.(t) |
|
|
4 |
.13.5 |
|
Fourth Supplemental Indenture, dated as of March 15, 2006,
among Calpine Construction Finance Company, L.P., CCFC Finance
Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and
Hermiston Power Partnership, as Guarantors, and Wilmington Trust
FSB, as Trustee.(*) |
|
|
4 |
.13.6 |
|
Waiver Agreement, dated as of March 15, 2006, among Calpine
Construction Finance Company, L.P., CCFC Finance Corp.,
each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston
Power Partnership, as Guarantors, and Wilmington Trust FSB, as
Trustee.(*) |
|
|
4 |
.14 |
|
Indenture, dated as of September 30, 2003, among Gilroy
Energy Center, LLC, each of Creed Energy Center, LLC and Goose
Haven Energy Center, as Guarantors, and Wilmington Trust
Company, as Trustee and Collateral Agent, including form of
Notes.(s) |
|
|
4 |
.15 |
|
Indenture, dated as of November 18, 2003, between the
Company and Wilmington Trust Company, as Trustee, including form
of Notes.(t) |
|
|
4 |
.16 |
|
Amended and Restated Indenture, dated as of March 12, 2004,
between the Company and Wilmington Trust Company, including form
of Notes.(t) |
|
|
4 |
.17.1 |
|
First Priority Indenture, dated as of March 23, 2004, among
Calpine Generating Company, LLC, CalGen Finance Corp. and
Wilmington Trust Company, as Trustee, including form of Notes.(t) |
|
|
4 |
.17.2 |
|
Second Priority Indenture, dated as of March 23, 2004,
among Calpine Generating Company, LLC, CalGen Finance Corp. and
Wilmington Trust Company, as Trustee, including form of Notes.(t) |
|
|
4 |
.17.3 |
|
Third Priority Indenture, dated as of March 23, 2004, among
Calpine Generating Company, LLC, CalGen Finance Corp. and
Wilmington Trust Company, as Trustee, including form of Notes.(t) |
|
|
4 |
.18 |
|
Indenture, dated as of June 2, 2004, between Power Contract
Financing III, LLC and Wilmington Trust Company, as
Trustee, Accounts Agent, Paying Agent and Registrar,
including form of Notes.(d) |
|
|
4 |
.19 |
|
Indenture, dated as of September 30, 2004, between the
Company and Wilmington Trust Company, as Trustee, including form
of Notes.(u) |
|
|
4 |
.20.1 |
|
Amended and Restated Rights Agreement, dated as of
September 19, 2001, between Calpine Corporation and
Equiserve Trust Company, N.A., as Rights Agent.(v) |
|
|
4 |
.20.2 |
|
Amendment No. 1 to Rights Agreement, dated as of
September 28, 2004, between Calpine Corporation and
Equiserve Trust Company, N.A., as Rights Agent.(o) |
|
|
4 |
.20.3 |
|
Amendment No. 2 to Rights Agreement, dated as of
March 18, 2005, between Calpine Corporation and Equiserve
Trust Company, N.A., as Rights Agent.(w) |
|
|
4 |
.21.1 |
|
Second Amended and Restated Limited Liability Company Operating
Agreement of CCFC Preferred Holdings, LLC, dated as of
October 14, 2005, containing terms of its 6-Year Redeemable
Preferred Shares Due 2011.(*) |
|
|
4 |
.21.2 |
|
Consent, Acknowledgment and Amendment, dated as of
March 15, 2006, among Calpine CCFC Holdings, Inc. and the
Redeemable Preferred Members party thereto.(*) |
|
|
4 |
.22 |
|
Third Amended and Restated Limited Liability Company Operating
Agreement of Metcalf Energy Center, LLC, dated as of
June 20, 2005, containing terms of its 5.5-year redeemable
preferred shares.(*) |
|
|
4 |
.23 |
|
Pass Through Certificates (Tiverton and Rumford) |
|
|
4 |
.23.1 |
|
Pass Through Trust Agreement dated as of December 19, 2000,
among Tiverton Power Associates Limited Partnership, Rumford
Power Associates Limited Partnership and State Street Bank and
Trust Company of Connecticut, National Association, as Pass
Through Trustee, including the form of Certificate.(h) |
134
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.23.2 |
|
Participation Agreement dated as of December 19, 2000,
among the Company, Tiverton Power Associates Limited
Partnership, Rumford Power Associates Limited Partnership, PMCC
Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, National Association, as Pass
Through Trustee.(h) |
|
|
4 |
.23.3 |
|
Appendix A Definitions and Rules of
Interpretation.(h) |
|
|
4 |
.23.4 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
December 19, 2000, between PMCC Calpine New England
Investment LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
including the forms of Lessor Notes.(h) |
|
|
4 |
.23.5 |
|
Calpine Guaranty and Payment Agreement (Tiverton) dated as of
December 19, 2000, by the Company, as Guarantor, to PMCC
Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State
Street Bank and Trust Company of Connecticut, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
as Pass Through Trustee.(h) |
|
|
4 |
.23.6 |
|
Calpine Guaranty and Payment Agreement (Rumford) dated as of
December 19, 2000, by the Company, as Guarantor, to PMCC
Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State
Street Bank and Trust Company of Connecticut, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
as Pass Through Trustee.(h) |
|
|
4 |
.24 |
|
Pass Through Certificates (South Point, Broad River and RockGen) |
|
|
4 |
.24.1 |
|
Pass Through Trust Agreement A dated as of October 18,
2001, among South Point Energy Center, LLC, Broad River Energy
LLC, RockGen Energy LLC and State Street Bank and Trust Company
of Connecticut, National Association, as Pass Through Trustee,
including the form of 8.400% Pass Through Certificate,
Series A.(f) |
|
|
4 |
.24.2 |
|
Pass Through Trust Agreement B dated as of October 18,
2001, among South Point Energy Center, LLC, Broad River Energy
LLC, RockGen Energy LLC and State Street Bank and Trust Company
of Connecticut, National Association, as Pass Through Trustee,
including the form of 9.825% Pass Through Certificate,
Series B.(f) |
|
|
4 |
.24.3 |
|
Participation Agreement (SP-1) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-1, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.4 |
|
Participation Agreement (SP-2) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-2, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.5 |
|
Participation Agreement (SP-3) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-3, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.6 |
|
Participation Agreement (SP-4) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-4, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
135
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.24.7 |
|
Participation Agreement (BR-1) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-1, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.8 |
|
Participation Agreement (BR-2) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-2, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.9 |
|
Participation Agreement (BR-3) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-3, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.10 |
|
Participation Agreement (BR-4) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-4, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.11 |
|
Participation Agreement (RG-1) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-1, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-1, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.12 |
|
Participation Agreement (RG-2) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-2, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-2, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.13 |
|
Participation Agreement (RG-3) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-3, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-3, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.14 |
|
Participation Agreement (RG-4) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-4, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-4, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.15 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-1, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
136
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.24.16 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-2, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
|
|
4 |
.24.17 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-3, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
|
|
4 |
.24.18 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-4, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
|
|
4 |
.24.19 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-1, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.20 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-2, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.21 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-3, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.22 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-4, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.23 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-1, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.24 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-2, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.25 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-3, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.26 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-4, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.27 |
|
Calpine Guaranty and Payment Agreement (South Point SP-1) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.28 |
|
Calpine Guaranty and Payment Agreement (South Point SP-2) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
137
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.24.29 |
|
Calpine Guaranty and Payment Agreement (South Point SP-3) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.30 |
|
Calpine Guaranty and Payment Agreement (South Point SP-4) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.31 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-1) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.32 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-2) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.33 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-3) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.34 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-4) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.35 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-1) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
4 |
.24.36 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-2) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
4 |
.24.37 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-3) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
4 |
.24.38 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-4) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
10 |
.1 |
|
DIP Financing Agreements |
|
|
10 |
.1.1.1 |
|
$2,000,000,000 Amended & Restated Revolving Credit, Term
Loan and Guarantee Agreement, dated as of February 23,
2006, among the Company, as borrower, the Subsidiaries of the
Company named therein, as guarantors, the Lenders from time to
time party thereto, Credit Suisse Securities (USA) LLC and
Deutsche Bank Trust Company Americas, as Joint Syndication
Agents, Deutsche Bank Securities Inc. and Credit Suisse
Securities (USA) LLC, as Joint Lead Arrangers and Joint
Bookrunners, and Credit Suisse and Deutsche Bank Trust Company
Americas, as Joint Administrative Agents.(*) |
138
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.1.1.2 |
|
First Consent, Waiver and Amendment, dated as of May 3,
2006, to and under the Amended and Restated Revolving Credit,
Term Loan and Guarantee Agreement, dated as of February 23,
2006, among Calpine Corporation, as borrower, its subsidiaries
named therein, as guarantors, the Lenders party thereto,
Deutsche Bank Trust Company Americas, as administrative
agent for the First Priority Lenders, Credit Suisse, Cayman
Islands Branch, as administrative agent for the Second Priority
Term Lenders.(*) |
|
|
10 |
.1.2 |
|
Amended and Restated Security and Pledge Agreement, dated as of
February 23, 2006, among the Company, the Subsidiaries of
the Company signatory thereto and Deutsche Bank Trust Company
Americas, as collateral agent.(*) |
|
|
10 |
.2 |
|
Financing and Term Loan Agreements |
|
|
10 |
.2.1 |
|
Share Lending Agreement, dated as of September 28, 2004,
among the Company, as Lender, Deutsche Bank AG London, as
Borrower, through Deutsche Bank Securities Inc., as agent for
the Borrower, and Deutsche Bank Securities Inc., in its capacity
as Collateral Agent and Securities Intermediary.(o) |
|
|
10 |
.2.2 |
|
Amended and Restated Credit Agreement, dated as of
March 23, 2004, among Calpine Generating Company, LLC, the
Guarantors named therein, the Lenders named therein, The Bank of
Nova Scotia, as Administrative Agent, LC Bank, Lead Arranger and
Sole Bookrunner, Bayerische Landesbank Cayman Islands Branch, as
Arranger and Co-Syndication Agent, Credit Lyonnais New York
Branch, as Arranger and Co-Syndication Agent, ING Capital LLC,
as Arranger and Co-Syndication Agent, Toronto-Dominion (Texas)
Inc., as Arranger and Co-Syndication Agent, and Union Bank of
California, N.A., as Arranger and Co-Syndication Agent.(t) |
|
|
10 |
.2.3.1 |
|
Letter of Credit Agreement, dated as of July 16, 2003,
among the Company, the Lenders named therein, and The Bank of
Nova Scotia, as Administrative Agent.(r) |
|
|
10 |
.2.3.2 |
|
Amendment to Letter of Credit Agreement, dated as of
September 30, 2004, between the Company and The Bank of
Nova Scotia, as Administrative Agent.(y) |
|
|
10 |
.2.4 |
|
Letter of Credit Agreement, dated as of September 30, 2004,
between the Company and Bayerische Landesbank, acting through
its Cayman Islands Branch, as the Issuer.(y) |
|
|
10 |
.2.5 |
|
Credit Agreement, dated as of July 16, 2003, among the
Company, the Lenders named therein, Goldman Sachs Credit
Partners L.P., as Sole Lead Arranger, Sole Bookrunner and
Administrative Agent, The Bank of Nova Scotia, as Arranger and
Syndication Agent, TD Securities (USA) Inc., ING (U.S.) Capital
LLC and Landesbank Hessen-Thuringen, as Co-Arrangers, and Credit
Lyonnais New York Branch and Union Bank of California, N.A., as
Managing Agents.(r) |
|
|
10 |
.2.6.1 |
|
Credit and Guarantee Agreement, dated as of August 14,
2003, among Calpine Construction Finance Company, L.P., each of
Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power
Partnership, as Guarantors, the Lenders named therein, and
Goldman Sachs Credit Partners L.P., as Administrative Agent and
Sole Lead Arranger.(s) |
|
|
10 |
.1.6.2 |
|
Amendment No. 1 to the Credit and Guarantee Agreement,
dated as of September 12, 2003, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(s) |
|
|
10 |
.2.6.3 |
|
Amendment No. 2 to the Credit and Guarantee Agreement,
dated as of January 13, 2004, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(t) |
|
|
10 |
.2.6.4 |
|
Amendment No. 3 to the Credit and Guarantee Agreement,
dated as of March 5, 2004, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(t) |
|
|
10 |
.2.6.5 |
|
Amendment No. 4 to the Credit and Guarantee Agreement,
dated as of March 15, 2006, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(*) |
139
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.2.6.6 |
|
Waiver Agreement, dated as of March 15, 2006 among Calpine
Construction Finance Company, L.P., each of Calpine Hermiston,
LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as
Guarantors, the Lenders named therein, and Goldman Sachs Credit
Partners L.P., as Administrative Agent and Sole Lead Arranger.(*) |
|
|
10 |
.2.7 |
|
Credit and Guarantee Agreement, dated as of March 23, 2004,
among Calpine Generating Company, LLC, the Guarantors named
therein, the Lenders named therein, Morgan Stanley Senior
Funding, Inc., as Administrative Agent, and Morgan Stanley
Senior Funding, Inc., as Sole Lead Arranger and Sole
Bookrunner.(t) |
|
|
10 |
.2.8 |
|
Credit and Guarantee Agreement, dated as of March 23, 2004,
among Calpine Generating Company, LLC, the Guarantors named
therein, the Lenders named therein, Morgan Stanley Senior
Funding, Inc., as Administrative Agent, and Morgan Stanley
Senior Funding, Inc., as Sole Lead Arranger and Sole
Bookrunner.(t) |
|
|
10 |
.2.9 |
|
Credit Agreement, dated as of June 24, 2004, among
Riverside Energy Center, LLC, the Lenders named therein, Union
Bank of California, N.A., as the Issuing Bank, Credit Suisse
First Boston, acting through its Cayman Islands Branch, as Lead
Arranger, Book Runner, Administrative Agent and Collateral
Agent, and CoBank, ACB, as Syndication Agent.(z) |
|
|
10 |
.2.10 |
|
Credit Agreement, dated as of June 24, 2004, among Rocky
Mountain Energy Center, LLC, the Lenders named therein, Union
Bank of California, N.A., as the Issuing Bank, Credit Suisse
First Boston, acting through its Cayman Islands Branch, as Lead
Arranger, Book Runner, Administrative Agent and Collateral
Agent, and CoBank, ACB, as Syndication Agent.(z) |
|
|
10 |
.2.11 |
|
Credit Agreement, dated as of February 25, 2005, among
Calpine Steamboat Holdings, LLC, the Lenders named therein,
Calyon New York Branch, as a Lead Arranger, Underwriter, Co-Book
Runner, Administrative Agent, Collateral Agent and LC Issuer,
CoBank, ACB, as a Lead Arranger, Underwriter, Co-Syndication
Agent and Co-Book Runner, HSH Nordbank AG, as a Lead Arranger,
Underwriter and Co-documentation Agent, UFJ Bank Limited, as a
Lead Arranger, Underwriter and Co-Documentation Agent, and
Bayerische Hypo-Und Vereinsbank AG, New York Branch, as a
Lead Arranger, Underwriter and Co-Syndication Agent.(z) |
|
|
10 |
.3 |
|
Security Agreements |
|
|
10 |
.3.1 |
|
Guarantee and Collateral Agreement, dated as of July 16,
2003, made by the Company, JOQ Canada, Inc., Quintana Minerals
(USA) Inc., and Quintana Canada Holdings LLC, in favor of The
Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.2 |
|
First Amendment Pledge Agreement, dated as of July 16,
2003, made by JOQ Canada, Inc., Quintana Minerals (USA) Inc.,
and Quintana Canada Holdings LLC in favor of The Bank of
New York, as Collateral Trustee.(r) |
|
|
10 |
.3.3 |
|
First Amendment Assignment and Security Agreement, dated as of
July 16, 2003, made by the Company in favor of The Bank of
New York, as Collateral Trustee.(r) |
|
|
10 |
.3.4.1 |
|
Second Amendment Pledge Agreement (Stock Interests), dated as of
July 16, 2003, made by the Company in favor of The Bank of
New York, as Collateral Trustee.(r) |
|
|
10 |
.3.4.2 |
|
Amendment No. 1 to the Second Amendment Pledge Agreement
(Stock Interests), dated as of November 18, 2003, made by
the Company in favor of The Bank of New York, as Collateral
Trustee.(t) |
|
|
10 |
.3.5.1 |
|
Second Amendment Pledge Agreement (Membership Interests), dated
as of July 16, 2003, made by the Company in favor of The
Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.5.2 |
|
Amendment No. 1 to the Second Amendment Pledge Agreement
(Membership Interests), dated as of November 18, 2003, made
by the Company in favor of The Bank of New York, as Collateral
Trustee.(t) |
|
|
10 |
.3.6 |
|
First Amendment Note Pledge Agreement, dated as of July 16,
2003, made by the Company in favor of The Bank of New York, as
Collateral Trustee.(r) |
140
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.3.7.1 |
|
Collateral Trust Agreement, dated as of July 16, 2003,
among the Company, JOQ Canada, Inc., Quintana Minerals (USA)
Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as
Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit
Partners L.P., as Administrative Agent, and The Bank of New
York, as Collateral Trustee.(r) |
|
|
10 |
.3.7.2 |
|
First Amendment to the Collateral Trust Agreement, dated as of
November 18, 2003, among the Company, JOQ Canada, Inc.,
Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC,
Wilmington Trust Company, as Trustee, The Bank of Nova Scotia,
as Agent, Goldman Sachs Credit Partners L.P., as Administrative
Agent, and The Bank of New York, as Collateral Trustee.(t) |
|
|
10 |
.3.8 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (Multistate), dated as of July 16, 2003, from the
Company to Messrs. Denis OMeara and James Trimble, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.9 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (Multistate), dated as of July 16, 2003, from the
Company to Messrs. Kemp Leonard and John Quick, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.10 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (Colorado), dated as of July 16, 2003, from the
Company to Messrs. Kemp Leonard and John Quick, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.11 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (New Mexico), dated as of July 16, 2003, from the
Company to Messrs. Kemp Leonard and John Quick, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.12 |
|
Form of Amended and Restated Mortgage, Assignment, Security
Agreement and Financing Statement (Louisiana), dated as of
July 16, 2003, from the Company to The Bank of New York, as
Collateral Trustee.(r) |
|
|
10 |
.3.13 |
|
Form of Amended and Restated Deed of Trust with Power of Sale,
Assignment of Production, Security Agreement, Financing
Statement and Fixture Filings (California), dated as of
July 16, 2003, from the Company to Chicago Title Insurance
Company, as Trustee, and The Bank of New York, as
Collateral Trustee.(r) |
|
|
10 |
.3.14 |
|
Form of Deed to Secure Debt, Assignment of Rents and Security
Agreement (Georgia), dated as of July 16, 2003, from the
Company to The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.15 |
|
Form of Mortgage, Assignment of Rents and Security Agreement
(Florida), dated as of July 16, 2003, from the Company to
The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.16 |
|
Form of Deed of Trust, Assignment of Rents and Security
Agreement and Fixture Filing (Texas), dated as of July 16,
2003, from the Company to Malcolm S. Morris, as Trustee, in
favor of The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.17 |
|
Form of Deed of Trust, Assignment of Rents and Security
Agreement (Washington), dated as of July 16, 2003, from the
Company to Chicago Title Insurance Company, in favor of The Bank
of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.18 |
|
Form of Deed of Trust, Assignment of Rents, and Security
Agreement (California), dated as of July 16, 2003, from the
Company to Chicago Title Insurance Company, in favor of The Bank
of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.19 |
|
Form of Mortgage, Collateral Assignment of Leases and Rents,
Security Agreement and Financing Statement (Louisiana), dated as
of July 16, 2003, from the Company to The Bank of New York,
as Collateral Trustee.(r) |
|
|
10 |
.3.20 |
|
Amended and Restated Hazardous Materials Undertaking and
Indemnity (Multistate), dated as of July 16, 2003, by the
Company in favor of The Bank of New York, as Collateral
Trustee.(r) |
141
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.3.21 |
|
Amended and Restated Hazardous Materials Undertaking and
Indemnity (California), dated as of July 16, 2003, by the
Company in favor of The Bank of New York, as Collateral
Trustee.(r) |
|
|
10 |
.3.22 |
|
Designated Asset Sale Proceeds Account Control Agreement,
dated as of July 16, 2003, among the Company, Union Bank of
California, N.A., and The Bank of New York, as Collateral
Agent.(t) |
|
|
10 |
.4 |
|
Power Purchase and Other Agreements. |
|
|
10 |
.4.1 |
|
Master Transaction Agreement, dated September 7, 2005,
among the Company, Calpine Energy Services, L.P., The Bear
Stearns Companies Inc., and such other parties as may become
party thereto from time to time. Approximately two pages of this
Exhibit 10.3.1 have been omitted pursuant to a request for
confidential treatment. The omitted language has been filed
separately with the SEC.(aa) |
|
|
10 |
.4.2 |
|
Power Purchase and Sale Agreements with the State of California
Department of Water Resources comprising Amended and Restated
Cover Sheet and Master Power Purchase and Sale Agreement, dated
as of April 22, 2002 and effective as of May 1, 2004,
between Calpine Energy Services, L.P. and the State of
California Department of Water Resources together with Amended
and Restated Confirmation (Calpine 1), Amended and
Restated Confirmation (Calpine 2), Amended and
Restated Confirmation (Calpine 3) and Amended and
Restated Confirmation (Calpine 4), each dated as of
April 22, 2002, and effective as of May 1, 2002,
between Calpine Energy Services, L.P., and the State of
California Department of Water Resources.(bb) |
|
|
10 |
.5 |
|
Management Contracts or Compensatory Plans or Arrangements. |
|
|
10 |
.5.1 |
|
Employment Agreement, effective as of January 1, 2005,
between the Company and Mr. Peter Cartwright.(cc)(dd) |
|
|
10 |
.5.2 |
|
Employment Agreement, effective as of December 12, 2005,
between the Company and Mr. Robert P. May.(*)(dd) |
|
|
10 |
.5.3 |
|
Employment Agreement, effective as of January 30, 2006,
between the Company and Mr. Scott J. Davido.(*)(dd) |
|
|
10 |
.5.5 |
|
Consulting Contract, dated as of January 1, 2005, between
the Company and Mr. George J. Stathakis.(hh)(dd) |
|
|
10 |
.5.6 |
|
Form of Indemnification Agreement for directors and
officers.(gg)(dd) |
|
|
10 |
.5.7 |
|
Form of Indemnification Agreement for directors and
officers.(f)(dd) |
|
|
10 |
.5.8.1 |
|
Calpine Corporation 1996 Stock Incentive Plan and forms of
agreements there under.(t)(dd) |
|
|
10 |
.5.8.2 |
|
Amendment to Calpine Corporation 1996 Stock Incentive
Plan.(z)(dd) |
|
|
10 |
.5.9 |
|
Calpine Corporation U.S. Severance Program.(*)(dd) |
|
|
10 |
.5.10 |
|
Base Salary, Bonus, Stock Option Grant and Restricted Stock
Summary Sheet.(cc)(dd) |
|
|
10 |
.511 |
|
Form of Stock Option Agreement.(cc)(dd) |
|
|
10 |
.5.12 |
|
Form of Restricted Stock Agreement.(cc)(dd) |
|
|
10 |
.5.13 |
|
Calpine Corporation 2003 Management Incentive Plan.(hh)(dd) |
|
|
10 |
.5.14 |
|
2000 Employee Stock Purchase Plan.(ii)(dd) |
|
|
12 |
.1 |
|
Statement on Computation of Ratio of Earnings to Fixed
Charges.(*) |
|
|
21 |
.1 |
|
Subsidiaries of the Company.(*) |
|
|
24 |
.1 |
|
Power of Attorney of Officers and Directors of Calpine
Corporation (set forth on the signature pages of this report).(*) |
|
|
31 |
.1 |
|
Certification of the Chairman, President and Chief Executive
Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.(*) |
|
|
31 |
.2 |
|
Certification of the Executive Vice President and Chief
Financial Officer Pursuant to Rule 13a-14(a) or
Rule 15d-14(a) under the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.(*) |
142
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
32 |
.1 |
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.(*) |
|
|
99 |
.1 |
|
Acadia Power Partners, LLC and Subsidiary, Consolidated
Financial Statements, July 31, 2005 and December 31,
2004 and 2003.(*) |
|
|
(*) |
Filed herewith. |
|
(a) |
Incorporated by reference to Calpine Corporations Current
Report on
Form 8-K/ A filed
with the SEC on September 14, 2004. |
|
(b) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on June 23, 2005. |
|
(c) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on July 13, 2005. |
|
(d) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 2004, filed with the SEC on August 9, 2004. |
|
(e) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 2005, filed with the SEC on August 9, 2005. |
|
(f) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K dated
December 31, 2001, filed with the SEC on March 29,
2002. |
|
(g) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-4
(Registration Statement
No. 333-06259)
filed with the SEC on June 19, 1996. |
|
(h) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K for the
year ended December 31, 2000, filed with the SEC on
March 15, 2001. |
|
(i) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
March 31, 2004, filed with the SEC on May 10, 2004. |
|
(j) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 1997, filed with the SEC on August 14, 1997. |
|
(k) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-4
(Registration Statement
No. 333-41261)
filed with the SEC on November 28, 1997. |
|
(l) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-4
(Registration Statement
No. 333-61047)
filed with the SEC on August 10, 1998. |
|
(m) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-3/ A
(Registration Statement
No. 333-72583)
filed with the SEC on March 8, 1999. |
|
(n) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-3
(Registration
No. 333-76880)
filed with the SEC on January 17, 2002. |
|
(o) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on September 30, 2004. |
|
(p) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
dated October 16, 2001, filed with the SEC on
November 13, 2001. |
|
(q) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-3/ A
(Registration
No. 333-57338)
filed with the SEC on April 19, 2001. |
|
(r) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 2003, filed with the SEC on August 14, 2003. |
|
(s) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
September 30, 2003, filed with the SEC on November 13,
2003. |
|
(t) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K for the
year ended December 31, 2003, filed with the SEC on
March 25, 2004. |
143
|
|
(u) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on October 6, 2004. |
|
(v) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form 8-A/ A
(Registration No. 001-12079) filed with the SEC on
September 28, 2001. |
|
(w) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on March 23, 2005. |
|
(x) |
This document has been omitted in reliance on
Item 601(b)(4)(iii) of
Regulation S-K.
Calpine Corporation agrees to furnish a copy of such document to
the SEC upon request. |
|
(y) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
September 30, 2004, filed with the SEC on November 9,
2004. |
|
(z) |
Description of such Amendment is incorporated by reference to
Item 1.01 of Calpine Corporations Current Report on
Form 8-K filed
with the SEC on September 20, 2005. |
|
(aa) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
September 30, 2005, filed with the SEC on November 9,
2005. |
|
(bb) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K/ A dated
December 31, 2003, filed with the SEC on September 13,
2004 |
|
(cc) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on March 17, 2005. |
|
(dd) |
Management contract or compensatory plan or arrangement. |
|
(ee) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on December 27, 2005. |
|
(ff) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on February 3, 2006. |
|
(gg) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-1/ A
(Registration Statement
No. 333-07497)
filed with the SEC on August 22, 1996. |
|
(hh) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K for the
year ended December 31, 2004, filed with the SEC on
March 31, 2005. |
|
(ii) |
Incorporated by reference to Calpine Corporations
Definitive Proxy Statement on Schedule 14A dated
April 13, 2000, filed with the SEC on April 13, 2000. |
144
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
Scott J. Davido |
|
Executive Vice President, |
|
Chief Financial Officer and |
|
Chief Restructuring Officer |
Date: May 19, 2006
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT: That the undersigned officers
and directors of Calpine Corporation do hereby constitute and
appoint Robert P. May and Scott J. Davido, and each of them, the
lawful attorney and agent or attorneys and agents with power and
authority to do any and all acts and things and to execute any
and all instruments which said attorneys and agents, or either
of them, determine may be necessary or advisable or required to
enable Calpine Corporation to comply with the Securities and
Exchange Act of 1934, as amended, and any rules or regulations
or requirements of the Securities and Exchange Commission in
connection with this
Form 10-K Annual
Report. Without limiting the generality of the foregoing power
and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and
directors in the capacities indicated below to this
Form 10-K Annual
Report or amendments or supplements thereto, and each of the
undersigned hereby ratifies and confirms all that said attorneys
and agents, or either of them, shall do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several
counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this
Power of Attorney as of the date indicated opposite the name.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ ROBERT P. MAY
Robert P. May |
|
Chief Executive Officer and Director (Principal Executive
Officer) |
|
May 19, 2006 |
|
/s/ SCOTT J. DAVIDO
Scott J. Davido |
|
Executive Vice President,
Chief Financial Officer and
Chief Restructuring Officer
(Principal Financial Officer) |
|
May 19, 2006 |
|
/s/ CHARLES B.
CLARK, JR.
Charles B. Clark, Jr. |
|
Senior Vice President and
Corporate Controller
(Principal Accounting Officer) |
|
May 19, 2006 |
145
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ KENNETH T. DERR
Kenneth T. Derr |
|
Director |
|
May 19, 2006 |
|
/s/ WILLIAM J. KEESE
William J. Keese |
|
Director |
|
May 19, 2006 |
|
/s/ DAVID C. MERRITT
David C. Merritt |
|
Director |
|
May 19, 2006 |
|
/s/ WALTER L. REVELL
Walter L. Revell |
|
Director |
|
May 19, 2006 |
|
/s/ GEORGE J. STATHAKIS
George J. Stathakis |
|
Director |
|
May 19, 2006 |
|
/s/ SUSAN WANG
Susan Wang |
|
Director |
|
May 19, 2006 |
146
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Page | |
|
|
|
|
| |
Report of Independent Registered Public
Accounting Firm |
|
|
148 |
|
Consolidated Balance Sheets
December 31, 2005 and 2004 |
|
|
150 |
|
Consolidated Statements of Operations for
the Years Ended December 31, 2005, 2004, and 2003 |
|
|
152 |
|
Consolidated Statements of Comprehensive
Income and Stockholders Equity (Deficit) For the Years
Ended December 31, 2005, 2004, and 2003 |
|
|
153 |
|
Consolidated Statements of Cash Flows For
the Years Ended December 31, 2005, 2004, and 2003 |
|
|
154 |
|
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2005, 2004, and 2003 |
|
|
157 |
|
|
|
|
Organization and Operations of the
Company |
|
|
157 |
|
|
|
|
Summary of Significant Accounting
Policies |
|
|
157 |
|
|
|
|
Bankruptcy Proceedings |
|
|
176 |
|
|
|
|
Calpine Debtors Condensed Combined
Financial Statements |
|
|
181 |
|
|
|
|
Available-for-Sale Debt Securities |
|
|
184 |
|
|
|
|
Impairments |
|
|
185 |
|
|
|
|
Property, Plant and Equipment, Net, and
Capitalized Interest |
|
|
187 |
|
|
|
|
Goodwill and Other Intangible Assets |
|
|
192 |
|
|
|
|
Acquisitions |
|
|
193 |
|
|
|
|
Investments |
|
|
195 |
|
|
|
|
Notes Receivable and Other
Receivables |
|
|
202 |
|
|
|
|
Canadian Power and Gas Trusts |
|
|
203 |
|
|
|
|
Discontinued Operations |
|
|
204 |
|
|
|
|
Debt |
|
|
212 |
|
|
|
|
Notes Payable and Other Borrowings |
|
|
218 |
|
|
|
|
Notes Payable to Calpine Capital
Trusts |
|
|
220 |
|
|
|
|
Preferred Interests |
|
|
221 |
|
|
|
|
Capital Lease Obligations |
|
|
223 |
|
|
|
|
CCFC Financing |
|
|
225 |
|
|
|
|
CalGen Financing |
|
|
226 |
|
|
|
|
Other Construction/ Project Financing |
|
|
229 |
|
|
|
|
DIP Facility |
|
|
232 |
|
|
|
|
Senior Notes |
|
|
234 |
|
|
|
|
Liabilities Subject to Compromise |
|
|
234 |
|
|
|
|
Provision for Income Taxes |
|
|
245 |
|
|
|
|
Employee Benefit Plans |
|
|
248 |
|
|
|
|
Stockholders Equity (Deficit) |
|
|
250 |
|
|
|
|
Customers |
|
|
251 |
|
|
|
|
Derivative Instruments |
|
|
253 |
|
|
|
|
Earnings (Loss) per Share |
|
|
258 |
|
|
|
|
Commitments and Contingencies |
|
|
260 |
|
|
|
|
Operating Segments |
|
|
275 |
|
|
|
|
California Power Market |
|
|
277 |
|
|
|
|
Subsequent Events |
|
|
280 |
|
|
|
|
Quarterly Consolidated Financial Data
(unaudited) |
|
|
284 |
|
147
Report of Independent Registered Public Accounting Firm
To the Board of Directors
and Stockholders of Calpine Corporation:
We have completed integrated audits of Calpine
Corporations 2005 and 2004 consolidated financial
statements and of its internal control over financial reporting
as of December 31, 2005, and an audit of its 2003
consolidated financial statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement
schedule
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Calpine
Corporation and its subsidiaries at December 31, 2005 and
2004, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As described in Note 3 to the consolidated
financial statements, the Company has suffered recurring losses
from operations and on December 20, 2005, filed a voluntary
petition for reorganization under Chapter 11 of the United
States Bankruptcy Code, which raises substantial doubt about the
Companys ability to continue as a going concern.
Managements plans in regard to these matters are also
described in Note 3. The consolidated financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which they
calculate diluted earnings per share effective April 1,
2004, changed the manner in which they report gains and losses
on certain derivative instruments not held for trading purposes
and account for certain derivative contracts with a price
adjustment feature effective October 1, 2003, changed the
manner in which they account for variable interests in special
purpose entities effective December 31, 2003, and changed
the manner in which they account for variable interests in all
non-special purpose entities effective March 31, 2004.
Internal control over financial reporting
Also, we have audited managements assessment, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A, that Calpine Corporation
did not maintain effective internal control over financial
reporting as of December 31, 2005, because the Company did
not maintain effective controls over the accounting for the
determination of deferred income tax assets and liabilities and
the related income tax provision (benefit), based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express opinions
on managements assessment and on the effectiveness of the
Companys internal control over financial reporting based
on our audit.
We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was
148
maintained in all material respects. An audit of internal
control over financial reporting includes obtaining an
understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weakness has been identified and included in
managements assessment. As of December 31, 2005, the
Company did not maintain effective controls over the accounting
for the determination of deferred income tax assets and
liabilities and the related income tax provision (benefit).
Specifically, the Company did not have effective controls in
place to timely reconcile the underlying data being provided by
the accounting department to the tax department to ensure the
accuracy and validity of the Companys tax calculations,
principally related to the book and tax basis of its property,
plant and equipment. This control deficiency could result in a
misstatement of deferred income tax assets and liabilities,
valuation allowances and the related income tax provision
(benefit) that could result in a material misstatement to
annual or interim financial statements that would not be
prevented or detected. This material weakness was considered in
determining the nature, timing, and extent of audit tests
applied in our audit of the 2005 consolidated financial
statements, and our opinion regarding the effectiveness of the
Companys internal control over financial reporting does
not affect our opinion on those consolidated financial
statements.
In our opinion, managements assessment that Calpine
Corporation did not maintain effective internal control over
financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework
issued by the COSO. Also, in our opinion, because of the
effect of the material weakness described above on the
achievement of the objectives of the control criteria, Calpine
Corporation has not maintained effective internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the COSO.
As disclosed in the fifth paragraph of Managements Report
on Internal Control Over Financial reporting, subsequent to
December 31, 2005, the Company has experienced events which
the Company expects to have an adverse effect on the
Companys internal control over financial reporting.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
May 19, 2006
149
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
share and per share amounts) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
785,637 |
|
|
$ |
718,023 |
|
|
Accounts receivable, net of allowance of $12,686 and $7,317
|
|
|
1,025,886 |
|
|
|
1,043,061 |
|
|
Margin deposits and other prepaid expense
|
|
|
434,363 |
|
|
|
439,698 |
|
|
Inventories
|
|
|
150,444 |
|
|
|
171,639 |
|
|
Restricted cash
|
|
|
457,510 |
|
|
|
593,304 |
|
|
Current derivative assets
|
|
|
489,499 |
|
|
|
324,206 |
|
|
Current assets held for sale
|
|
|
39,542 |
|
|
|
142,096 |
|
|
Other current assets
|
|
|
45,156 |
|
|
|
131,538 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,428,037 |
|
|
|
3,563,565 |
|
|
|
|
|
|
|
|
|
Restricted cash, net of current portion
|
|
|
613,440 |
|
|
|
157,868 |
|
|
Notes receivable, net of current portion
|
|
|
165,124 |
|
|
|
203,680 |
|
|
Project development costs
|
|
|
24,232 |
|
|
|
150,179 |
|
|
Investments
|
|
|
83,620 |
|
|
|
373,108 |
|
|
Deferred financing costs
|
|
|
210,809 |
|
|
|
406,844 |
|
|
Prepaid lease, net of current portion
|
|
|
515,828 |
|
|
|
424,586 |
|
|
Property, plant and equipment, net
|
|
|
14,119,215 |
|
|
|
18,397,743 |
|
|
Goodwill
|
|
|
45,160 |
|
|
|
45,160 |
|
|
Other intangible assets, net
|
|
|
54,143 |
|
|
|
68,423 |
|
|
Long-term derivative assets
|
|
|
714,226 |
|
|
|
506,050 |
|
|
Long-term assets held for sale
|
|
|
|
|
|
|
2,260,401 |
|
|
Other assets
|
|
|
570,963 |
|
|
|
658,481 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
20,544,797 |
|
|
$ |
27,216,088 |
|
|
|
|
|
|
|
|
150
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
share and per share amounts) | |
|
LIABILITIES & STOCKHOLDERS EQUITY (DEFICIT) |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
399,450 |
|
|
$ |
980,280 |
|
|
Accrued payroll and related expense
|
|
|
29,483 |
|
|
|
87,659 |
|
|
Accrued interest payable
|
|
|
195,980 |
|
|
|
385,794 |
|
|
Income taxes payable
|
|
|
99,073 |
|
|
|
57,234 |
|
|
Notes payable and other borrowings, current portion
|
|
|
188,221 |
|
|
|
200,076 |
|
|
Preferred interests, current portion
|
|
|
9,479 |
|
|
|
8,641 |
|
|
Capital lease obligations, current portion
|
|
|
191,497 |
|
|
|
5,490 |
|
|
CCFC financing, current portion
|
|
|
784,513 |
|
|
|
3,208 |
|
|
CalGen financing, current portion
|
|
|
2,437,982 |
|
|
|
|
|
|
Construction/project financing, current portion
|
|
|
1,160,593 |
|
|
|
93,393 |
|
|
Senior notes and term loans, current portion
|
|
|
641,652 |
|
|
|
718,449 |
|
|
Current derivative liabilities
|
|
|
728,894 |
|
|
|
356,030 |
|
|
Current liabilities held for sale
|
|
|
|
|
|
|
86,458 |
|
|
Other current liabilities
|
|
|
275,595 |
|
|
|
302,680 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,142,412 |
|
|
|
3,285,392 |
|
|
Notes payable and other borrowings, net of current portion
|
|
|
558,353 |
|
|
|
769,490 |
|
|
Notes payable to Calpine Capital Trusts
|
|
|
|
|
|
|
517,500 |
|
|
Preferred interests, net of current portion
|
|
|
583,417 |
|
|
|
497,896 |
|
|
Capital lease obligations, net of current portion
|
|
|
95,260 |
|
|
|
283,429 |
|
|
CCFC financing, net of current portion
|
|
|
|
|
|
|
783,542 |
|
|
CalGen financing
|
|
|
|
|
|
|
2,395,332 |
|
|
Construction/project financing, net of current portion
|
|
|
1,200,432 |
|
|
|
1,905,658 |
|
|
Convertible Senior Notes
|
|
|
|
|
|
|
1,255,298 |
|
|
DIP Facility
|
|
|
25,000 |
|
|
|
|
|
|
Senior notes, net of current portion
|
|
|
|
|
|
|
8,532,664 |
|
|
Deferred income taxes, net of current portion
|
|
|
353,386 |
|
|
|
885,754 |
|
|
Deferred revenue
|
|
|
138,653 |
|
|
|
114,202 |
|
|
Long-term derivative liabilities
|
|
|
919,084 |
|
|
|
516,230 |
|
|
Long-term liabilities held for sale
|
|
|
|
|
|
|
176,298 |
|
|
Other liabilities
|
|
|
151,437 |
|
|
|
316,285 |
|
|
|
|
|
|
|
|
Total liabilities not subject to compromise
|
|
|
11,167,434 |
|
|
|
22,234,970 |
|
Liabilities subject to compromise
|
|
|
14,610,064 |
|
|
|
|
|
Commitments and contingencies (see Note 31)
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
275,384 |
|
|
|
393,445 |
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value per share; authorized
10,000,000 shares; none issued and outstanding in 2005 and
2004
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value per share; authorized
2,000,000,000 shares; issued and outstanding
569,081,863 shares in 2005 and 536,509,231 shares in
2004
|
|
|
569 |
|
|
|
537 |
|
|
Additional paid-in capital
|
|
|
3,265,458 |
|
|
|
3,151,577 |
|
|
Additional paid-in capital, loaned shares
|
|
|
258,100 |
|
|
|
258,100 |
|
|
Additional paid-in capital, returnable shares
|
|
|
(258,100 |
) |
|
|
(258,100 |
) |
|
Retained earnings (accumulated deficit)
|
|
|
(8,613,160 |
) |
|
|
1,326,048 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(160,952 |
) |
|
|
109,511 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(5,508,085 |
) |
|
|
4,587,673 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$ |
20,544,797 |
|
|
$ |
27,216,088 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
151
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share | |
|
|
amounts) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity and steam revenue
|
|
$ |
6,278,840 |
|
|
$ |
5,165,347 |
|
|
$ |
4,291,174 |
|
Transmission sales revenue
|
|
|
11,479 |
|
|
|
20,003 |
|
|
|
15,347 |
|
Sales of purchased power and gas for hedging and optimization
|
|
|
3,667,992 |
|
|
|
3,376,293 |
|
|
|
4,033,193 |
|
Mark-to-market activities, net
|
|
|
11,385 |
|
|
|
13,404 |
|
|
|
(26,439 |
) |
Other revenue
|
|
|
142,962 |
|
|
|
73,335 |
|
|
|
107,895 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
10,112,658 |
|
|
|
8,648,382 |
|
|
|
8,421,170 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant operating expense
|
|
|
717,393 |
|
|
|
727,911 |
|
|
|
599,324 |
|
Royalty expense
|
|
|
36,948 |
|
|
|
28,370 |
|
|
|
24,634 |
|
Transmission purchase expense
|
|
|
87,598 |
|
|
|
74,818 |
|
|
|
34,690 |
|
Purchased power and gas expense for hedging and optimization
|
|
|
3,417,153 |
|
|
|
3,198,690 |
|
|
|
3,962,613 |
|
Fuel expense
|
|
|
4,623,286 |
|
|
|
3,587,416 |
|
|
|
2,636,744 |
|
Depreciation and amortization expense
|
|
|
506,441 |
|
|
|
446,018 |
|
|
|
381,980 |
|
Operating plant impairments
|
|
|
2,412,586 |
|
|
|
|
|
|
|
|
|
Operating lease expense
|
|
|
104,709 |
|
|
|
105,886 |
|
|
|
112,070 |
|
Other cost of revenue
|
|
|
151,467 |
|
|
|
99,324 |
|
|
|
62,288 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
12,057,581 |
|
|
|
8,268,433 |
|
|
|
7,814,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(1,944,923 |
) |
|
|
379,949 |
|
|
|
606,827 |
|
(Income) loss from unconsolidated investments
|
|
|
(12,119 |
) |
|
|
14,088 |
|
|
|
(75,724 |
) |
Equipment, development project and other impairments
|
|
|
2,117,665 |
|
|
|
46,894 |
|
|
|
67,979 |
|
Long-term service agreement cancellation charge
|
|
|
34,095 |
|
|
|
7,735 |
|
|
|
16,255 |
|
Project development expense
|
|
|
27,623 |
|
|
|
19,889 |
|
|
|
18,208 |
|
Research and development expense
|
|
|
19,235 |
|
|
|
18,396 |
|
|
|
10,630 |
|
Sales, general and administrative expense
|
|
|
239,857 |
|
|
|
220,567 |
|
|
|
204,106 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(4,371,279 |
) |
|
|
52,380 |
|
|
|
365,373 |
|
Interest expense
|
|
|
1,397,288 |
|
|
|
1,095,419 |
|
|
|
695,504 |
|
Distributions on trust preferred securities
|
|
|
|
|
|
|
|
|
|
|
46,610 |
|
Interest (income)
|
|
|
(84,226 |
) |
|
|
(54,766 |
) |
|
|
(39,190 |
) |
Minority interest expense
|
|
|
42,454 |
|
|
|
34,735 |
|
|
|
27,330 |
|
(Income) from repurchase of various issuances of debt
|
|
|
(203,341 |
) |
|
|
(246,949 |
) |
|
|
(278,612 |
) |
Other (income) expense, net
|
|
|
72,388 |
|
|
|
(121,062 |
) |
|
|
(46,564 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before reorganization items, provision (benefit)
for income taxes, discontinued operations and cumulative effect
of a change in accounting principle
|
|
|
(5,595,842 |
) |
|
|
(654,997 |
) |
|
|
(39,705 |
) |
Reorganization items
|
|
|
5,026,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provisions (benefit) for income taxes,
discontinued operations and cumulative effect of a change in
accounting principle
|
|
|
(10,622,352 |
) |
|
|
(654,997 |
) |
|
|
(39,705 |
) |
Benefit for income taxes
|
|
|
(741,398 |
) |
|
|
(235,314 |
) |
|
|
(26,433 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before discontinued operations and cumulative effect of a
change in accounting principle
|
|
|
(9,880,954 |
) |
|
|
(419,683 |
) |
|
|
(13,272 |
) |
Discontinued operations, net of tax provision of $131,746,
$8,860 and $20,513
|
|
|
(58,254 |
) |
|
|
177,222 |
|
|
|
114,351 |
|
Cumulative effect of a change in accounting principle, net of
tax provision of $ , $ , and $110,913
|
|
|
|
|
|
|
|
|
|
|
180,943 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(9,939,208 |
) |
|
$ |
(242,461 |
) |
|
$ |
282,022 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
463,567 |
|
|
|
430,775 |
|
|
|
390,772 |
|
|
Income (loss) before discontinued operations and cumulative
effect of a change in accounting principle
|
|
$ |
(21.32 |
) |
|
$ |
(0.97 |
) |
|
$ |
(0.03 |
) |
|
Discontinued operations, net of tax
|
|
|
(0.12 |
) |
|
|
0.41 |
|
|
|
0.29 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(21.44 |
) |
|
$ |
(0.56 |
) |
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding before
dilutive effect of certain convertible securities
|
|
|
463,567 |
|
|
|
430,775 |
|
|
|
396,219 |
|
|
Income (loss) before discontinued operations and cumulative
effect of a change in accounting principle
|
|
$ |
(21.32 |
) |
|
$ |
(0.97 |
) |
|
$ |
(0.03 |
) |
|
Discontinued operations, net of tax
|
|
|
(0.12 |
) |
|
|
0.41 |
|
|
|
0.29 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(21.44 |
) |
|
$ |
(0.56 |
) |
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
152
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND
STOCKHOLDERS EQUITY (DEFICIT)
For the Years Ended December 31, 2005, 2004, and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive | |
|
|
|
|
|
|
|
|
|
|
Income (Loss) | |
|
|
|
|
|
|
|
|
|
|
Net Unrealized Gain (Loss) from | |
|
|
(in thousands except per share amounts) |
|
|
|
|
|
Retained | |
|
| |
|
Total | |
|
|
|
|
Additional | |
|
Earnings | |
|
|
|
Available- | |
|
Foreign | |
|
Stockholders | |
|
|
Common | |
|
Paid-In | |
|
(Accumulated | |
|
Cash Flow | |
|
For-Sale | |
|
Currency | |
|
Equity | |
|
|
Stock | |
|
Capital | |
|
Deficit) | |
|
Hedges(1) | |
|
Investments | |
|
Translation | |
|
(Deficit) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, January 1, 2003
|
|
$ |
381 |
|
|
$ |
2,802,503 |
|
|
$ |
1,286,487 |
|
|
$ |
(224,414 |
) |
|
$ |
|
|
|
$ |
(13,043 |
) |
|
$ |
3,851,914 |
|
|
Issuance of 34,194,063 shares of common stock, net of
issuance costs
|
|
|
34 |
|
|
|
175,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,097 |
|
|
Tax benefit from stock options exercised and other
|
|
|
|
|
|
|
2,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,097 |
|
|
Stock compensation expense
|
|
|
|
|
|
|
16,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) before
comprehensive income items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,045,180 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
282,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,022 |
|
|
Comprehensive pre-tax gain before reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,481 |
|
|
|
|
|
|
|
|
|
|
|
112,481 |
|
|
Reclassification adjustment for loss included in net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,620 |
|
|
|
|
|
|
|
|
|
|
|
55,620 |
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(74,106 |
) |
|
|
|
|
|
|
|
|
|
|
(74,106 |
) |
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,056 |
|
|
|
200,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
576,073 |
|
Balance, December 31, 2003
|
|
$ |
415 |
|
|
$ |
2,995,735 |
|
|
$ |
1,568,509 |
|
|
$ |
(130,419 |
) |
|
$ |
|
|
|
$ |
187,013 |
|
|
$ |
4,621,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 32,499,106 shares of common stock, net of
issuance costs
|
|
|
33 |
|
|
|
130,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,174 |
|
|
Issuance of 89,000,000 shares of loaned common stock
|
|
|
89 |
|
|
|
258,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,189 |
|
|
Returnable shares
|
|
|
|
|
|
|
(258,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,100 |
) |
|
Tax benefit from stock options exercised and other
|
|
|
|
|
|
|
4,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,773 |
|
|
Stock compensation expense
|
|
|
|
|
|
|
20,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) before
comprehensive income items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,964 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(242,461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242,461 |
) |
|
Comprehensive pre-tax gain (loss) before reclassification
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,071 |
) |
|
|
19,239 |
|
|
|
|
|
|
|
(86,832 |
) |
|
Reclassification adjustment for (gain) loss included in net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,888 |
|
|
|
(18,281 |
) |
|
|
|
|
|
|
71,607 |
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,451 |
|
|
|
(376 |
) |
|
|
|
|
|
|
6,075 |
|
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,067 |
|
|
|
62,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189,544 |
) |
Balance, December 31, 2004
|
|
$ |
537 |
|
|
$ |
3,151,577 |
|
|
$ |
1,326,048 |
|
|
$ |
(140,151 |
) |
|
$ |
582 |
|
|
$ |
249,080 |
|
|
$ |
4,587,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 32,572,632 shares of common stock, net of
issuance costs
|
|
|
32 |
|
|
|
97,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,640 |
|
|
Stock compensation expense
|
|
|
|
|
|
|
16,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) before
comprehensive income items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,913 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(9,939,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,939,208 |
) |
|
Comprehensive pre-tax gain (loss) before reclassification
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,583 |
) |
|
|
(958 |
) |
|
|
|
|
|
|
(436,541 |
) |
|
Reclassification adjustment for (gain) loss included in net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405,524 |
|
|
|
|
|
|
|
|
|
|
|
405,524 |
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,483 |
|
|
|
376 |
|
|
|
|
|
|
|
11,859 |
|
|
Foreign currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251,305 |
) |
|
|
(251,305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,209,671 |
) |
Balance, December 31, 2005
|
|
$ |
569 |
|
|
$ |
3,265,458 |
|
|
$ |
(8,613,160 |
) |
|
$ |
(158,727 |
) |
|
$ |
|
|
|
$ |
(2,225 |
) |
|
$ |
(5,508,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes AOCI from cash flow hedges held by unconsolidated
investees. At December 31, 2005, 2004 and 2003, these
amounts were $0, $1,698 and $6,911, respectively. |
The accompanying notes are an integral part of these
consolidated financial statements.
153
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2004, and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(9,939,208 |
) |
|
$ |
(242,461 |
) |
|
$ |
282,022 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization(1)
|
|
|
760,023 |
|
|
|
833,375 |
|
|
|
732,410 |
|
|
Oil and gas impairments
|
|
|
|
|
|
|
202,120 |
|
|
|
2,931 |
|
|
Operating plant impairments
|
|
|
2,412,586 |
|
|
|
|
|
|
|
|
|
|
Equipment, development project and other impairments
|
|
|
2,361,435 |
|
|
|
42,374 |
|
|
|
56,458 |
|
|
Deferred income taxes, net
|
|
|
(609,652 |
) |
|
|
(226,454 |
) |
|
|
150,323 |
|
|
Gain on sale of assets
|
|
|
(326,176 |
) |
|
|
(349,611 |
) |
|
|
(65,351 |
) |
|
Foreign currency transaction loss (gain)
|
|
|
53,586 |
|
|
|
25,122 |
|
|
|
33,346 |
|
|
Cumulative change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(180,943 |
) |
|
Income from repurchase of various issuances of debt
|
|
|
(203,341 |
) |
|
|
(246,949 |
) |
|
|
(278,612 |
) |
|
Minority interest expense
|
|
|
42,454 |
|
|
|
34,735 |
|
|
|
27,330 |
|
|
Change in net derivative liability
|
|
|
25,035 |
|
|
|
14,743 |
|
|
|
59,490 |
|
|
(Income) loss from unconsolidated investments in power projects
|
|
|
(12,280 |
) |
|
|
9,717 |
|
|
|
(76,704 |
) |
|
Distributions from unconsolidated investments in power projects
|
|
|
24,962 |
|
|
|
29,869 |
|
|
|
141,627 |
|
|
Stock compensation expense
|
|
|
19,283 |
|
|
|
20,929 |
|
|
|
16,072 |
|
|
Other
|
|
|
2,146 |
|
|
|
|
|
|
|
|
|
|
Reorganization items
|
|
|
5,012,765 |
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(42,437 |
) |
|
|
(99,447 |
) |
|
|
(221,243 |
) |
|
Other current assets
|
|
|
(23,266 |
) |
|
|
(118,790 |
) |
|
|
(160,672 |
) |
|
Other assets
|
|
|
(95,722 |
) |
|
|
(95,699 |
) |
|
|
(143,654 |
) |
|
Accounts payable and accrued expense
|
|
|
(111,282 |
) |
|
|
231,827 |
|
|
|
(111,901 |
) |
|
Other liabilities
|
|
|
(59,272 |
) |
|
|
(55,505 |
) |
|
|
27,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(708,361 |
) |
|
|
9,895 |
|
|
|
290,559 |
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(773,988 |
) |
|
|
(1,545,480 |
) |
|
|
(1,886,013 |
) |
|
Disposals of property, plant and equipment
|
|
|
2,066,242 |
|
|
|
1,066,481 |
|
|
|
206,804 |
|
|
Disposal of subsidiary
|
|
|
|
|
|
|
85,412 |
|
|
|
|
|
|
Disposal of investment
|
|
|
36,900 |
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(187,786 |
) |
|
|
(6,818 |
) |
|
Advances to joint ventures
|
|
|
|
|
|
|
(8,788 |
) |
|
|
(54,024 |
) |
|
Sale of collateral securities
|
|
|
|
|
|
|
93,963 |
|
|
|
|
|
|
Project development costs
|
|
|
(14,880 |
) |
|
|
(29,308 |
) |
|
|
(35,778 |
) |
|
Purchases of HIGH TIDES securities
|
|
|
|
|
|
|
(110,592 |
) |
|
|
|
|
|
Disposal of HIGH TIDES securities
|
|
|
132,500 |
|
|
|
|
|
|
|
|
|
|
Cash flows from derivatives not designated as hedges
|
|
|
102,698 |
|
|
|
16,499 |
|
|
|
42,342 |
|
|
(Increase) decrease in restricted cash
|
|
|
(535,621 |
) |
|
|
210,762 |
|
|
|
(766,841 |
) |
|
(Increase) decrease in notes receivable
|
|
|
837 |
|
|
|
10,235 |
|
|
|
(21,135 |
) |
|
Cash effect of deconsolidation of Canadian Operations
|
|
|
(90,897 |
) |
|
|
|
|
|
|
|
|
|
Other
|
|
|
(6,334 |
) |
|
|
(2,824 |
) |
|
|
6,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
917,457 |
|
|
|
(401,426 |
) |
|
|
(2,515,365 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from notes payable and lines of credit
|
|
|
6,289 |
|
|
|
101,781 |
|
|
|
1,672,871 |
|
|
Repayments of notes payable and lines of credit
|
|
|
(204,074 |
) |
|
|
(256,141 |
) |
|
|
(1,768,704 |
) |
|
Borrowings from project financing
|
|
|
750,484 |
|
|
|
3,743,930 |
|
|
|
1,548,601 |
|
|
Repayments of project financing
|
|
|
(185,775 |
) |
|
|
(3,006,374 |
) |
|
|
(1,638,519 |
) |
|
Proceeds from issuance of Convertible Notes
|
|
|
650,000 |
|
|
|
867,504 |
|
|
|
650,000 |
|
|
Repurchases of Convertible Senior Notes
|
|
|
(15 |
) |
|
|
(834,765 |
) |
|
|
(455,447 |
) |
|
DIP facility borrowings
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
Repayments and repurchases of senior notes
|
|
|
(880,063 |
) |
|
|
(871,309 |
) |
|
|
(1,139,812 |
) |
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
878,814 |
|
|
|
3,892,040 |
|
|
Proceeds from issuance of preferred interests(2)
|
|
|
865,000 |
|
|
|
360,000 |
|
|
|
|
|
|
Redemptions of preferred interests
|
|
|
(778,641 |
) |
|
|
(97,095 |
) |
|
|
(368 |
) |
|
Repayment of Calpine Capital Trust convertible debentures
|
|
|
(517,500 |
) |
|
|
(483,500 |
) |
|
|
|
|
|
Proceeds from Deer Park prepaid commodity contract
|
|
|
263,623 |
|
|
|
|
|
|
|
|
|
|
Costs of Deer Park prepaid commodity contract
|
|
|
(20,315 |
) |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
4 |
|
|
|
98 |
|
|
|
15,951 |
|
|
Proceeds from income trust offerings
|
|
|
|
|
|
|
|
|
|
|
159,727 |
|
|
Financing costs
|
|
|
(96,966 |
) |
|
|
(204,139 |
) |
|
|
(323,167 |
) |
|
Other
|
|
|
(36,980 |
) |
|
|
(31,752 |
) |
|
|
10,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(159,929 |
) |
|
|
167,052 |
|
|
|
2,623,986 |
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(181 |
) |
|
|
16,101 |
|
|
|
13,140 |
|
Net increase (decrease) in cash and cash equivalents including
discontinued operations cash
|
|
|
48,986 |
|
|
|
(208,378 |
) |
|
|
412,320 |
|
Change in discontinued operations cash classified as current
assets held for sale
|
|
|
18,628 |
|
|
|
(28,427 |
) |
|
|
(24,863 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
67,614 |
|
|
|
(236,805 |
) |
|
|
387,457 |
|
Cash and cash equivalents, beginning of period
|
|
|
718,023 |
|
|
|
954,828 |
|
|
|
567,371 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
785,637 |
|
|
$ |
718,023 |
|
|
$ |
954,828 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized
|
|
$ |
1,315,538 |
|
|
$ |
939,243 |
|
|
$ |
462,714 |
|
|
Income taxes
|
|
$ |
26,104 |
|
|
$ |
22,877 |
|
|
$ |
18,415 |
|
|
Reorganization items included in operating activities
|
|
$ |
13,744 |
|
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
Includes depreciation and amortization that is also recorded in
sales, general and administrative expense and interest expense. |
|
(2) |
2005 amount relates to the $260.0 million Calpine
Jersey II, $155.0 million Metcalf, $150.0 million
CCFC, and $300.0 million CCFC offerings of redeemable
preferred securities. See Note 17 of the accompanying notes. |
Schedule of non-cash investing and financing activities:
|
|
|
|
|
2005 contribution of turbines to Greenfield joint venture
investment resulting in a non-cash decrease in property, plant
and equipment of $62.1 million, and non-cash increases in
Investments of $40.7 million and in other assets of
$21.4 million. |
|
|
|
2005 Consolidation of our Acadia joint venture investment
resulting in non-cash increases in property, plant and equipment
of $478.4 million and minority interest of
$275.4 million and a non-cash decrease in Investments of
$203.0 million. |
|
|
|
2005 issuance of 27.5 million shares of Calpine
common stock in exchange for $94.3 million in
principal amount at maturity of 2014 Convertible Notes. |
|
|
|
2004 issuance of 24.3 million shares of Calpine common
stock in exchange for $40.0 million par value of HIGH TIDES
I and $75.0 million par value of HIGH TIDES II. |
|
|
|
2004 capital lease entered into for the King City facility for
an initial asset balance of $114.9 million. |
|
|
|
2004 issuance of 89 million shares of Calpine common stock
pursuant to a Share Lending Agreement. See Note 27 for more
information. |
|
|
|
2004 acquisition of the remaining 50% interest in the Aries
Power Plant for net amounts of $3.7 million cash and
$220.0 million of assumed liabilities, including debt of
$173.2 million. |
|
|
|
2003 issuance of 30 million shares of Calpine common stock
in exchange for $182.5 million of debt, convertible debt
and preferred securities. |
The accompanying notes are an integral part of these
consolidated financial statements.
156
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2005, 2004, and 2003
|
|
1. |
Organization and Operations of the Company |
Calpine Corporation, a Delaware corporation, and subsidiaries
(collectively, we, us, or
our) are engaged in the generation of electricity in
the U.S. and Canada and were engaged in the generation of
electricity in the United Kingdom until the sale of Saltend in
July 2005. We are involved in the development, construction,
ownership and operation of power generation facilities and the
sale of electricity and its by-product, thermal energy,
primarily in the form of steam. We have ownership interests in,
and operate, gas-fired power generation and cogeneration
facilities and gas pipelines, geothermal steam fields and
geothermal power generation facilities in the United States.
Until we sold our remaining oil and gas assets in July 2005, we
also had ownership interests in gas fields and gathering systems
in the United States. In Canada, we have ownership interests in,
and operate, gas-fired power generation facilities. In Mexico,
we were a joint venture participant in a gas-fired power
generation facility under construction but, in April 2006, we
consummated the sale of our interest in the facility to our
joint venture partners. See Note 34 for more information on
this sale. We market electricity produced by our generating
facilities to utilities and other third party purchasers.
Thermal energy produced by the gas-fired power cogeneration
facilities is primarily sold to industrial users. We offer to
third parties energy procurement, settlement, scheduling and
risk management services, and combustion turbine component
parts. See Note 13 for a discussion of our discontinued
operations.
On December 20 and 21, 2005, we and many of our direct and
indirect wholly owned subsidiaries in the United States filed
voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code in the U.S. Bankruptcy Court and, in
Canada, 12 of our indirect, wholly owned Canadian subsidiaries
were granted relief under the CCAA. Thereafter additional wholly
owned indirect subsidiaries of ours also commenced
Chapter 11 cases under the Bankruptcy Code in the
U.S. Bankruptcy Court. Additional subsidiaries could file
in the future. The Chapter 11 cases of the
U.S. Debtors are being jointly administered for procedural
purposes only in the U.S. Bankruptcy Court under the case
captioned In re Calpine Corporation et al., Case
No. 05-60200 (BRL), and the CCAA cases of the Canadian
Debtors are being jointly administered by the Canadian Court.
See Note 3 for a discussion of the bankruptcy cases.
|
|
2. |
Summary of Significant Accounting Policies |
Principles of Consolidation The accompanying
consolidated financial statements include accounts of us and our
wholly owned and majority-owned subsidiaries, except for most of
our Canadian and other foreign subsidiaries, which were
deconsolidated on December 20, 2005, due to filing under
the CCAA in Canada. For further information regarding the
deconsolidation of the Canadian entities, see Note 10. The
results of operation of these deconsolidated entities from
December 21, 2005, to December 31, 2005, were
insignificant to our overall results of operations. We adopted
FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, an interpretation of ARB 51 for our
investments in SPEs as of December 31, 2003. These
consolidated financial statements as of December 31, 2005,
2004 and 2003, and for the twelve months ended December 31,
2005 and 2004, also include the accounts of those special
purpose VIEs for which we are the Primary Beneficiary. We
adopted FIN 46, as revised for our investments in non-SPE
VIEs on March 31, 2004. These consolidated financial
statements as of December 31, 2005 and 2004, and for the
twelve and nine months ended December 31, 2005 and 2004,
respectively, include the accounts of non-special purpose VIEs
for which we are the Primary Beneficiary. Certain
less-than-majority-owned subsidiaries are accounted for using
the equity method or cost method. For equity method investments,
our share of income is calculated according to our equity
ownership or according to the terms of the appropriate
partnership agreement. For cost method investments, income is
recognized when equity distributions are received. All
intercompany accounts and transactions are eliminated in
consolidation.
157
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounting for Reorganization The
accompanying consolidated financial statements of Calpine
Corporation have been prepared in accordance with Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, and on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, as a
result of the bankruptcy filings, such realization of assets and
satisfaction of liabilities are subject to a significant number
of uncertainties. Calpines consolidated financial
statements do not reflect adjustments that might be required if
we (or each of the Calpine Debtors) are unable to continue as a
going concern.
SOP 90-7 requires
the following for Debtor entities:
|
|
|
|
|
Reclassification of unsecured or under-secured pre-petition
liabilities to a separate line item in the balance sheet which
we have called Liabilities Subject to Compromise; |
|
|
|
Non-accrual of interest expense for financial reporting
purposes, to the extent not paid during bankruptcy and not
expected to be an allowable claim. However, unpaid contractual
interest is calculated for disclosure purposes. |
|
|
|
Adjust any unamortized deferred financing costs and
discounts/premiums associated with debt classified as LSTC to
reflect the expected amount of the probable allowed claim. As a
result of applying this guidance, we have written off
approximately $148.1 million for the year ended
December 31, 2005, as a charge to reorganization items
related to certain debt instruments deemed subject to
compromise, in order to reflect this debt at the amount of the
probable allowed claim; |
|
|
|
Segregation of reorganization items (direct and incremental
costs, such as professional fees, of being in bankruptcy) as a
separate line item in the statement of operations outside of
income from continuing operations; |
|
|
|
Evaluation of actual or potential bankruptcy claims, which are
not already reflected as a liability on the balance sheet, under
SFAS No. 5, Accounting for Contingencies.
Due to the close proximity of our bankruptcy filing date to our
fiscal year-end date, we have been presented with only a limited
number of significant claims meeting the SFAS No. 5
criteria (probable and can be reasonably estimated) to be
accrued at December 31, 2005, the most significant of which
we expect could total approximately $3.8 billion related to
U.S. parent guarantees of our deconsolidated Canadian
subsidiary debt. If valid unrecorded claims, including parent
guarantees of subsidiary debt, meeting the SFAS No. 5
criteria are presented to us in future periods, we would accrue
for these amounts, also at the expected amount of the allowed
claim rather than at the expected settlement amount. |
|
|
|
Disclosure of condensed combined debtor entity financial
information, if our consolidated financial statements include
material subsidiaries that did not file for bankruptcy
protection. |
|
|
|
Upon confirmation of our plan of reorganization, and our
emergence from Chapter 11 reorganization, fresh-start
reporting must be adopted if the reorganization value of
our assets immediately before the date of confirmation is less
than the total of all post-petition liabilities and allowed
claims, and if holders of existing voting shares immediately
before confirmation receive less than 50 percent of the
voting shares of the emerging entity. Essentially, the
reorganization value of the entity, as mutually agreed to by the
debtor-in-possession
and its creditors, would be allocated to the entitys
assets in conformity with the procedures specified by
SFAS No. 141, Business Combinations. |
Impairment Evaluation of Long-Lived Assets, Including
Intangibles and Investments We evaluate our
property, plant and equipment, equity method investments,
patents and specifically identifiable intangibles, when events
or changes in circumstances indicate that the carrying value of
such assets may not be recoverable. Factors which could trigger
an impairment include significant underperformance relative to
historical or projected future operating results, significant
changes in the manner of our use of the acquired
158
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets or the strategy for our overall business, significant
negative industry or economic trends or a determination that a
suspended project is not likely to be completed.
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, we
evaluate the impairment of our operating plants by first
estimating projected undiscounted pre-interest expense and
pre-tax expense cash flows associated with the asset. The
significant assumptions that we use in our undiscounted future
cash flow estimates include (1) the future supply and
demand relationships for electricity and natural gas,
(2) the expected pricing for those commodities,
(3) the likelihood of continued development, (4) the
resultant spark spreads in the various regions where we generate
and (5) that we will hold these assets over their
depreciable lives. If we conclude that it is more likely than
not that an operating power plant will be sold or abandoned, we
perform an evaluation of the probability-weighted expected
future cash flows, giving consideration to both (1) the
continued ownership and operation of the power plant, and
(2) consummating a sale transaction or abandonment of the
plant. In the event such cash flows are not expected to be
sufficient to recover the recorded value of the assets, the
assets are written down to their estimated fair values, which
are determined by the best available information which may
include but not be limited to, comparable sales, discounted cash
flow valuations and third party appraisals. Certain of our
generating assets are located in regions with depressed demands
and market spark spreads. Our forecasts assume that spark
spreads will increase in future years in these regions as the
supply and demand relationships improve. There can be no
assurance that this will occur. Further, utilizing this
methodology, we have recently determined that certain of our
operating plants have been impaired. See Note 6 for a
discussion of impairment charges recorded during the fourth
quarter of 2005 related to these operating plants.
All construction and development projects and unassigned
turbines are reviewed for impairment whenever there is an
indication of potential reduction in fair value. Equipment
assigned to such projects is not evaluated for impairment
separately, as it is integral to the assumed future operations
of the project to which it is assigned. If it is determined that
it is no longer probable that the projects will be completed and
all capitalized costs recovered through future operations, the
carrying values of the projects would be written down to the
recoverable value in accordance with the provisions of
SFAS No. 144.
A significant portion of our overall cost of constructing a
power plant is the cost of the gas turbine-generators, steam
turbine-generators and related equipment (collectively the
turbines). The turbines are ordered primarily from
three large manufacturers under long-term, build to order
contracts. Payments are generally made over a two to four year
period for each turbine. The turbine prepayments are included as
a component of
construction-in-progress
if the turbines are assigned to specific projects probable of
being built, and interest is capitalized on such costs. Turbines
assigned to specific projects are not evaluated for impairment
separately from the project as a whole. Prepayments for turbines
that are not assigned to specific projects that are probable of
being built are carried in other assets, and interest is not
capitalized on such costs. Additionally, our commitments
relating to future turbine payments are discussed in
Note 31 of the Notes to Consolidated Financial Statements.
To the extent that there are more turbines on order than are
allocated to specific construction projects, we determine the
probability that new projects will be initiated to utilize the
turbines or that the turbines will be resold to third parties.
Completion of in-progress projects or the initiation of new
projects is uncertain due to our recent bankruptcy filings. We
have reviewed our unassigned equipment for potential impairment
based on probability-weighted alternatives of utilizing the
equipment for future projects versus selling the equipment.
Utilizing this methodology, we have currently, and in the past,
determined that certain equipment held for use has been
impaired. We have recorded these impairment charges to the
Equipment, development project and other impairments
line of the Consolidated Statement of Operations. See
Note 6 for a discussion of impairment charges recorded
during the fourth quarter of 2005 related to our development
projects and unassigned turbines.
159
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For equity and cost method investments (including notes
receivables from those entities) and assets identified as held
for sale, the book value is compared to the estimated fair value
to determine if an impairment loss is required. For equity
method investments, we would record a loss when the decline in
value is other-than-temporary.
Unrestricted Subsidiaries The information in
this paragraph is required to be provided under the terms of the
Second Priority Secured Debt Instruments. We have designated
certain of our subsidiaries as unrestricted
subsidiaries under the Second Priority Secured Debt
Instruments. A subsidiary with unrestricted status
thereunder generally is not required to comply with the
covenants contained therein that are applicable to
restricted subsidiaries. We have designated Calpine
Gilroy 1, Inc., Calpine Gilroy 2, Inc. and Calpine
Gilroy Cogen, L.P. as unrestricted subsidiaries for
purposes of the Second Priority Secured Debt Instruments.
Reclassifications Certain prior years
amounts in the consolidated financial statements were
reclassified to conform to the 2005 presentation. Sales of
purchased gas for hedging and optimization were combined with
sales of purchased power for hedging and optimization and are
now being reported as sales of purchased power and gas for
hedging and optimization. Purchased gas expense for hedging and
optimization was combined with purchased power expense for
hedging and optimization and is now being reported as purchased
power and gas expense for hedging and optimization. Equipment
cancellation and impairment cost is now being reported as
equipment, development project and other impairments. Oil and
gas sales and oil and gas operating expense were reclassified to
other revenue and other cost of revenue, respectively.
Certain prior year amounts have also been reclassified to
conform with discontinued operations presentation. See
Note 13 for information on our discontinued operations.
Use of Estimates in Preparation of Financial
Statements The preparation of financial
statements in conformity with GAAP in the U.S. requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from
those estimates. The most significant estimates with regard to
these financial statements relate to useful lives and carrying
values of assets (including the carrying value of projects in
development, construction, and operation), provision for income
taxes, fair value calculations of derivative instruments and
associated reserves, capitalization of interest, primary
beneficiary determination for our investments in VIEs, expected
amount of bankruptcy claims, the outcome of pending litigation,
and prior to the divestiture of our remaining oil and gas assets
(see Note 13 for more information regarding this sale),
estimates of oil and gas reserve quantities used to calculate
depletion, depreciation and impairment of oil and gas property
and equipment.
Foreign Currency Translation We own
subsidiary entities in several countries, most of which have
been deconsolidated (see Note 4) due to the filings under
the CCAA of approximately 12 of our Canadian entities on
December 20, 2005. These entities generally have functional
currencies other than the U.S. dollar; in most cases, the
functional currency was consistent with the local currency of
the host country where the particular entity was located. In
accordance with FASB No. 52, Foreign Currency
Translation, we historically translated the financial
statements of our foreign subsidiaries from their respective
functional currencies into the U.S. dollar, which is our
reporting currency.
For the years ended December 31, 2005, 2004 and 2003, we
recognized foreign currency transaction losses from continuing
operations of $14.7 million, $41.6 million and
$34.5 million, respectively, which were recorded within
Other Income on our Consolidated Statements of Operations.
Additionally, we settled a series of forward foreign exchange
contracts associated with the sale of our Canadian oil and gas
assets in 2004. See Note 13 for further discussion of the
settlement of these contracts within discontinued operations.
160
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair Value of Financial Instruments The
carrying value of accounts receivable, marketable securities,
accounts payable and other payables approximate their respective
fair values due to their short maturities. See Note 23 for
disclosures regarding the fair value of the senior notes.
Cash and Cash Equivalents We consider all
highly liquid investments with an original maturity of three
months or less to be cash equivalents. The carrying amount of
these instruments approximates fair value because of their short
maturity.
We have certain project finance facilities and lease agreements
that establish segregated cash accounts. These accounts have
been pledged as security in favor of the lenders to such project
finance facilities, and the use of certain cash balances on
deposit in such accounts with our project financed securities is
limited to the operations of the respective projects. At
December 31, 2005 and 2004, $518.1 million and
$284.4 million, respectively, of the cash and cash
equivalents balance that was unrestricted was subject to such
project finance facilities and lease agreements. In addition, at
December 31, 2005 and 2004, $1.0 million and
$232.4 million, respectively, of our consolidated cash and
cash equivalents was held in bank accounts outside the United
States. The decrease was due to the sale of Saltend and the
deconsolidation of the majority of our Canadian and other
foreign subsidiaries.
Accounts Receivable and Accounts Payable
Accounts receivable and payable represent amounts due from
customers and owed to vendors. Accounts receivable are recorded
at invoiced amounts, net of reserves and allowances and do not
bear interest. Reserve and allowance accounts represent our best
estimate of the amount of probable credit losses in our existing
accounts receivable. We review the financial condition of
customers prior to granting credit. We determine the allowance
based on a variety of factors, including the length of time
receivables are past due, economic trends and conditions
affecting our customer base, significant one-time events and
historical write-off experience. Also, specific provisions are
recorded for individual receivables when we become aware of a
customers inability to meet its financial obligations,
such as in the case of bankruptcy filings or deterioration in
the customers operating results or financial position. We
review the adequacy of our reserves and allowances quarterly.
Generally, past due balances over 90 days and over a
specified amount are individually reviewed for collectibility.
Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for
recovery is considered remote.
The accounts receivable and payable balances also include
settled but unpaid amounts relating to hedging, balancing,
optimization and trading activities of CES. Some of these
receivables and payables with individual counterparties are
subject to master netting agreements whereby we legally have a
right of offset and we settle the balances net. However, for
balance sheet presentation purposes and to be consistent with
the way we present the majority of amounts related to hedging,
balancing and optimization activities in our Consolidated
Statements of Operations under SAB No. 101
Revenue Recognition in Financial Statements, as
amended by SAB No. 104 Revenue Recognition
and Issue No. 99-19 Reporting Revenue Gross as a
Principal Versus Net as an Agent, we present our
receivables and payables on a gross basis. CES receivable
balances (which comprise the majority of the accounts receivable
balance at December 31, 2005) greater than 30 days
past due are individually reviewed for collectibility, and if
deemed uncollectible, are charged off against the allowance
accounts or reversed out of revenue after all means of
collection have been exhausted and the potential for recovery is
considered remote. We do not have any off-balance-sheet credit
exposure related to our customers.
Margin Deposits As of December 31, 2005
and 2004, we had margin deposits with third parties of
$287.5 million and $276.5 million, respectively, to
support commodity transactions. Counterparties had deposited
with us $27.0 million and $27.6 million as margin
deposits at December 31, 2005 and 2004, respectively.
161
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories Our inventories primarily include
spare parts, stored gas and oil as well as
work-in-process.
Inventories are valued at the lower of cost or market. The cost
for spare parts as well as stored gas and oil is generally
determined using the weighted average cost method.
Work-in-process is
generally determined using the specific identification method
and represents the value of manufactured goods during the
manufacturing process. The inventory balance at
December 31, 2005, was $150.4 million. This balance is
comprised of $84.4 million of spare parts,
$46.2 million of stored gas and oil and $19.8 million
of work-in-process. The
inventory balance at December 31, 2004, was
$171.6 million. This balance is comprised of
$109.9 million of spare parts, $52.6 million of stored
gas and oil and $9.1 million of
work-in-process.
Available-for-Sale Debt Securities See
Note 5 for a discussion of our accounting policy for our
available-for-sale debt securities.
Property, Plant and Equipment, Net See
Note 7 for a discussion of our accounting policy for
property, plant, and equipment, net.
Asset Retirement Obligation The Company
adopted SFAS No. 143, Accounting for Asset
Retirement Obligations on January 1, 2003. As
required by SFAS No. 143, we recorded liabilities
equal to the present value of expected future asset retirement
obligations at January 1, 2003. We identified obligations
related to operating gas-fired power plants, geothermal power
plants and oil and gas properties. The liabilities are partially
offset by increases in net assets recorded as if the provisions
of SFAS No. 143 had been in effect at the date the
obligation was incurred, which for power plants is generally the
start of construction, typically building up during construction
until commercial operations for the facility is achieved.
Notes Receivable Generally, notes
receivable are recorded at the face amount, net of allowances.
Our notes bear interest at rates that approximate current market
interest rates at the time of issuance. Certain of our long-term
notes receivable have no stated rate and are recorded by
discounting expected future cash flows using then current
interest rates at which similar loans would be made to borrowers
with similar credit ratings and remaining maturities. We intend
to hold our notes receivable to maturity. The amortization of
the discount is recognized as interest income, using the
effective interest method, over the repayment term of the notes
receivable. We review the financial condition of customers prior
to granting credit. The allowance represents our best estimate
of the amount of probable credit losses in our existing notes
receivable. We determine the allowance based on a variety of
factors, including economic trends and conditions and
significant events affecting the note issuer, the length of time
principal and interest payments are past due and historical
write-off experience. Also, specific provisions are recorded for
individual notes receivable when we become aware of a
customers inability to meet its financial obligations,
such as in the case of bankruptcy filings or deterioration in
the customers operating results or financial position. We
review the adequacy of our notes receivable allowance quarterly.
Generally, individual past due amounts are reviewed for
collectibility. Interest income is reserved when amounts are
more than 90 days past due, or sooner if circumstances
indicate recoverability is not reasonably assured. Past due
amounts are charged off against the allowance after all means of
collection are exhausted and the potential for recovery is
considered remote.
Project Development Costs We capitalize
project development costs once it is determined that it is
highly probable that such costs will be realized through the
ultimate construction of a power plant. These costs include
professional services, salaries, permits, capitalized interest,
and other costs directly related to the development of a new
project. Upon commencement of construction, these costs are
transferred to construction in progress, a component of
property, plant and equipment. Upon the
start-up of plant
operations, these construction costs are reclassified as
buildings, machinery and equipment, also a component of
property, plant and equipment, and are depreciated as a
component of the total cost of the plant over its estimated
useful life. Capitalized project costs are charged to expense if
we determine that the project is no longer probable or to the
extent it is impaired. Outside services and other third party
costs are capitalized for acquisition projects. See Note 6
for a discussion of impaired projects at December 31, 2005.
162
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments See Note 10 for a discussion
of our accounting policies for investments.
Restricted Cash We are required to maintain
cash balances that are restricted by provisions of certain of
our debt and lease agreements or by regulatory agencies. These
amounts are held by depository banks in order to comply with the
contractual provisions requiring reserves for payments such as
for debt service, rent service, major maintenance and debt
repurchases. Funds that can be used to satisfy obligations due
during the next twelve months are classified as current
restricted cash, with the remainder classified as non-current
restricted cash. Restricted cash is generally invested in
accounts earning market rates; therefore the carrying value
approximates fair value. Such cash is excluded from cash and
cash equivalents in the Consolidated Statements of Cash Flows.
The table below represents the components of our consolidated
restricted cash as of December 31, 2005 and 2004 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Current | |
|
Non-Current | |
|
Total | |
|
Current | |
|
Non-Current | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Debt service
|
|
$ |
152,512 |
|
|
$ |
118,000 |
|
|
$ |
270,512 |
|
|
$ |
160,655 |
|
|
$ |
120,106 |
|
|
$ |
280,761 |
|
Rent reserve
|
|
|
50,020 |
|
|
|
|
|
|
|
50,020 |
|
|
|
51,632 |
|
|
|
|
|
|
|
51,632 |
|
Construction/major maintenance
|
|
|
77,448 |
|
|
|
36,732 |
|
|
|
114,180 |
|
|
|
20,252 |
|
|
|
7,195 |
|
|
|
27,447 |
|
Proceeds from assets sales
|
|
|
|
|
|
|
406,905 |
|
|
|
406,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized letters of credit and other credit support
|
|
|
148,959 |
|
|
|
9,327 |
|
|
|
158,286 |
|
|
|
329,280 |
|
|
|
9,140 |
|
|
|
338,420 |
|
Other
|
|
|
28,571 |
|
|
|
42,476 |
|
|
|
71,047 |
|
|
|
31,485 |
|
|
|
21,427 |
|
|
|
52,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
457,510 |
|
|
$ |
613,440 |
|
|
$ |
1,070,950 |
|
|
$ |
593,304 |
|
|
$ |
157,868 |
|
|
$ |
751,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of a prior business acquisition, which included certain
facilities subject to a pre-existing operating lease, we
acquired certain restricted cash balances comprised of a
portfolio of debt securities. This portfolio is classified as
held-to-maturity
because we have the intent and ability to hold the securities to
maturity. The securities are held in escrow accounts to support
operating activities of the leased facilities and consist of a
$17.0 million debt security maturing in 2015 and a
$7.4 million debt security maturing in 2023. This portfolio
is stated at amortized cost, adjusted for amortization of
premiums and accretion discounts to maturity.
163
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Of our restricted cash at December 31, 2005 and 2004,
$303.9 million and $276.0 million, respectively,
relates to the assets of the following entities, each an entity
with its existence separate from us and our other subsidiaries
(in millions).
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
PCF
|
|
$ |
178.1 |
|
|
$ |
175.6 |
|
Gilroy Energy Center, LLC
|
|
|
57.0 |
|
|
|
53.5 |
|
Riverside Energy Center, LLC
|
|
|
29.5 |
|
|
|
7.1 |
|
Rocky Mountain Energy Center, LLC
|
|
|
25.7 |
|
|
|
18.1 |
|
Calpine Northbrook Energy Marketing, LLC
|
|
|
7.3 |
|
|
|
6.0 |
|
Calpine King City Cogen, LLC
|
|
|
4.8 |
|
|
|
6.7 |
|
Calpine Fox LLC
|
|
|
1.0 |
|
|
|
|
|
PCF III
|
|
|
0.5 |
|
|
|
1.5 |
|
Calpine Energy Management, L.P.
|
|
|
|
|
|
|
6.9 |
|
Creed Energy Center, LLC
|
|
|
|
|
|
|
0.3 |
|
Goose Haven Energy Center, LLC
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
$ |
303.9 |
|
|
$ |
276.0 |
|
|
|
|
|
|
|
|
Deferred Financing Costs The deferred
financing costs related to our First Priority Notes and project
financings are amortized over the life of the related debt,
ranging from 4 to 20 years, using the effective interest
rate method. Costs incurred in connection with obtaining other
financing are deferred and amortized over the life of the
related debt. However, when timing of debt transactions involve
contemporaneous exchanges of cash between us and the same
creditor(s) in connection with the issuance of a new debt
obligation and satisfaction of an existing debt obligation,
deferred financing costs are accounted for in accordance with
EITF Issue No. 96-19, Debtors Accounting for a
Modification or Exchange of Debt Instruments. Depending on
whether the transaction qualifies as an extinguishment or
modification, EITF Issue No. 96-19 requires us to either
write off the original deferred financing costs and capitalize
the new issuance costs or continue to amortize the original
deferred financing costs and immediately expense the new
issuance costs. Following our bankruptcy filing on
December 20, 2005, we expensed to reorganization items
$135.1 million of unamortized deferred financing costs
associated with debt subject to compromise. See Note 2
under section Accounting for Reorganization for more
information regarding the application of SOP 90-7.
Goodwill and Other Intangible Assets Goodwill
is recorded when the purchase price of an acquisition exceeds
the estimated fair value of the net identified tangible and
intangible assets acquired. We perform an impairment review, at
least annually, for our reporting unit with assigned goodwill
using a fair value approach, whenever events or changes in
circumstances indicate that the goodwill asset may not be fully
recoverable. Reporting units may be operating segments, or one
level below an operating segment, referred to as a component.
Under the fair value approach, whenever the carrying value of
the reporting unit, including the goodwill asset, exceeds the
fair value of the reporting unit (generally based on the
reporting units future estimated discounted cash flows),
then the goodwill asset may be impaired and the Company is
required to compare the implied fair value of the reporting
units goodwill with the carrying amount of the reporting
units goodwill. If the carrying amount of the reporting
units goodwill is greater than the implied fair value of
the reporting units goodwill an impairment loss must be
recognized for the excess. In determining the carrying value of
the reporting unit, our consolidated assets, including all
recorded goodwill, must be allocated to each identified
reporting unit. This allocation requires judgment as certain
corporate assets are not dedicated to specific reporting units.
164
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Acquisition-related intangibles reflected in the balance sheet
line item Other intangible assets include patents,
power purchase agreements, fuel supply and fuel management
agreements and geothermal lease rights. Patents are amortized on
a straight-line basis over the life of the patent. Power
purchase agreements and fuel agreements are amortized as the
commodity is delivered in accordance with the underlying
contract. Geothermal lease rights are generally amortized on a
straight line basis over the life of the project. The
amortization periods for our other intangible assets range from
5 to 23 years. In the reporting period following the period
in which identified intangible assets become fully amortized,
the fully amortized balances are removed from the gross asset
and accumulated amortization amounts. We periodically perform a
review of our other intangible assets whenever events or changes
in circumstances indicate that the useful life is shorter than
originally estimated or that the carrying amount of assets may
not be recoverable. If such events and changes in circumstances
have occurred, we assess the recoverability of identified
intangible assets by comparing the future estimated undiscounted
net cash flows associated with the related other intangible
asset over its remaining life against its carrying amount.
Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets.
Concentrations of Credit Risk Financial
instruments which potentially subject us to concentrations of
credit risk consist primarily of cash, accounts receivable,
notes receivable and commodity contracts. Our cash accounts are
generally held in FDIC insured banks. Our accounts and notes
receivable are concentrated within entities engaged in the
energy industry, mainly within the United States. We generally
do not require collateral for accounts receivable from end-user
customers, but for trading counterparties, we evaluate the net
accounts receivable, accounts payable, and fair value of
commodity contracts and may require security deposits or letters
of credit to be posted if exposure reaches a certain level.
Deferred Revenue Our deferred revenue
consists primarily of deferred gains related to certain
sale/leaseback transactions as well as deferred revenue for
long-term power supply contracts including contracts accounted
for as operating leases.
Trust Preferred Securities Prior to the
adoption of FIN 46, as originally issued, for special
purpose VIEs on October 1, 2003, our HIGH
TIDES I, II, and III were accounted for as a
minority interest in the balance sheet and reflected as
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts. The
distributions were reflected in the Consolidated Statements of
Operations as distributions on trust preferred
securities through September 30, 2003. Financing
costs related to these issuances are netted with the principal
amounts and were accreted as minority interest expense over the
securities
30-year maturity using
the straight-line method, which approximated the effective
interest rate method. Upon the adoption of FIN 46, we
deconsolidated the Calpine Capital Trusts. Consequently, the
HIGH TIDES were replaced on our Consolidated Balance Sheet with
the convertible debentures that had been issued by us to the
Calpine Capital Trusts. Due to the relationship with the Calpine
Capital Trusts, we considered each of them to be a related
party. The interest payments on the convertible debentures were
reflected in the Consolidated Statements of Operations as
interest expense. In 2004 and 2005, we repaid all
the convertible debentures payable to the Calpine Capital
Trusts, each of which then used the proceeds to redeem all of
its outstanding HIGH TIDES. See Note 16 for further
information.
Preferred Interests As outlined in
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, we classify preferred interests that embody
obligations to transfer cash to the preferred interest holder as
debt. These instruments require us to make priority
distributions of available cash, as defined in each preferred
interest agreement, representing a return of the preferred
interest holders investment over a fixed period of time
and at a specified rate of return in priority to certain other
distributions to equity holders. The return on investment is
recorded as interest expense under the interest method over the
term of the priority period. See Note 17 for a further
discussion of our accounting policies for preferred interests.
165
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue Recognition We are primarily an
electric generation company with consolidated revenues being
earned from operating a portfolio of mostly wholly owned plants.
Income from unconsolidated investments is also earned from
plants in which our ownership interest is 50% or less or we are
not the Primary Beneficiary under FIN 46-R, and
which are accounted for under the equity method or cost method.
In conjunction with our electric generation business, we also
produce, as a by-product, thermal energy for sale to customers,
principally steam hosts at our cogeneration sites. In addition,
prior to the sale of our remaining oil and gas assets in July
2005 (see Note 12 for further information), we acquired and
produced natural gas for our own consumption and sold oil
produced to third parties.
Where applicable, revenues are recognized under EITF Issue
No. 91-06, Revenue Recognition of Long Term Power
Sales Contracts, ratably over the terms of the related
contracts. To protect and enhance the profit potential of our
electric generation plants, we, through our subsidiary, CES,
enter into electric and gas hedging, balancing, and optimization
transactions, subject to market conditions, and CES has also,
from time to time, entered into contracts considered energy
trading contracts under EITF Issue
No. 02- 03,
Issues Related to Accounting for Contracts Involved in
Energy Trading and Risk Management. CES executes these
transactions primarily through the use of physical forward
commodity purchases and sales and financial commodity swaps and
options. With respect to its physical forward contracts, CES
generally acts as a principal, takes title to the commodities,
and assumes the risks and rewards of ownership. Therefore, when
CES does not hold these contracts for trading purposes and, in
accordance with SAB No. 104, and EITF Issue
No. 99-19, we record settlement of the majority of
CESs non-trading physical forward contracts on a gross
basis.
We, through our wholly owned subsidiary, PSM, design and
manufacture certain spare parts for gas turbines. In the past,
we have also generated revenue by occasionally loaning funds to
power projects, and have provided O&M services to third
parties and to certain unconsolidated power projects. We also
sold engineering and construction services to third parties for
power projects. Further details of our revenue recognition
policy for each type of revenue transaction are provided below:
|
|
|
Accounting for Commodity Contracts |
Commodity contracts are evaluated to determine whether the
contract is (1) accounted for as a lease,
(2) accounted for as a derivative or (3) accounted for
as an executory contract and additionally whether the financial
statement presentation is gross or net.
Leases Commodity contracts are evaluated for
lease accounting in accordance with SFAS No. 13,
Accounting for Leases, and EITF Issue
No. 01-08, Determining Whether an Arrangement
Contains a Lease. EITF Issue No. 01-08 clarifies the
requirements of identifying whether an arrangement should be
accounted for as a lease at its inception. The guidance in the
consensus is designed to broaden the scope of arrangements, such
as PPAs, accounted for as leases. EITF Issue No. 01-08
requires both parties to an arrangement to determine whether a
service contract or similar arrangement is, or includes, a lease
within the scope of SFAS No. 13, Accounting for
Leases. The consensus is being applied prospectively to
arrangements agreed to, modified, or acquired in business
combinations on or after July 1, 2003. Prior to adopting
EITF Issue No. 01-08, we had accounted for certain
contractual arrangements as leases under existing industry
practices, and the adoption of EITF Issue No. 01-08 did not
materially change our accounting for leases. Under the guidance
of SFAS No. 13, Accounting for Leases,
operating leases with minimum lease rentals which vary over time
must be levelized over the term of the contract. We currently
levelize these contract revenues on a straight-line basis. See
Note 31 for additional information on our operating leases.
For income statement presentation purposes, income from PPAs
accounted for as leases is classified within
E&S revenue in our Consolidated Statements of
Operations.
166
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Derivative Instruments
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended and
interpreted by other related accounting literature, establishes
accounting and reporting standards for derivative instruments
(including certain derivative instruments embedded in other
contracts). SFAS No. 133 requires companies to record
derivatives on their balance sheets as either assets or
liabilities measured at their fair value unless exempted from
derivative treatment as a normal purchase and sale. All changes
in the fair value of derivatives are recognized currently in
earnings unless specific hedge criteria are met, which requires
that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
Accounting for derivatives at fair value requires us to make
estimates about future prices during periods for which price
quotes are not available from sources external to us. As a
result, we are required to rely on internally developed price
estimates when external price quotes are unavailable. We derive
our future price estimates, during periods where external price
quotes are unavailable, based on an extrapolation of prices from
periods where external price quotes are available. We perform
this extrapolation using liquid and observable market prices and
extending those prices to an internally generated long-term
price forecast based on a generalized equilibrium model.
SFAS No. 133 sets forth the accounting requirements
for cash flow and fair value hedges. SFAS No. 133
provides that the effective portion of the gain or loss on a
derivative instrument designated and qualifying as a cash flow
hedging instrument be reported as a component of OCI and be
reclassified into earnings in the same period during which the
hedged forecasted transaction affects earnings. The remaining
gain or loss on the derivative instrument, if any, must be
recognized currently in earnings. SFAS No. 133
provides that the changes in fair value of derivatives
designated as fair value hedges and the corresponding changes in
the fair value of the hedged risk attributable to a recognized
asset, liability, or unrecognized firm commitment be recorded in
earnings. If the fair value hedge is effective, the amounts
recorded will offset in earnings.
With respect to cash flow hedges, if the forecasted transaction
is no longer probable of occurring, the associated gain or loss
recorded in OCI is recognized currently. In the case of fair
value hedges, if the underlying asset, liability or firm
commitment being hedged is disposed of or otherwise terminated,
the gain or loss associated with the underlying hedged item is
recognized currently. If the hedging instrument is terminated
prior to the occurrence of the hedged forecasted transaction for
cash flow hedges, or prior to the settlement of the hedged
asset, liability or firm commitment for fair value hedges, the
gain or loss associated with the hedge instrument remains
deferred.
Where our derivative instruments were subject to the special
transition adjustment for the estimated future economic benefits
of certain contracts upon adoption of DIG Issue No. C20,
Scope Exceptions: Interpretation of the Meaning of Not
Clearly and Closely Related in Paragraph 10(b) regarding
Contracts with a Price Adjustment Feature, we will
amortize the corresponding asset recorded upon adoption of DIG
Issue No. C20 through a charge to earnings in future
periods. Accordingly on October 1, 2003, the date we
adopted DIG Issue No. C20, we recorded other current assets
and other assets of approximately $33.5 million and
$259.9 million, respectively, and a gain from the
cumulative effect of a change in accounting principle of
approximately $181.9 million, net of $111.5 million of
tax. For all periods subsequent to October 1, 2003, we have
accounted for the contracts as normal purchases and sales under
the provisions of DIG Issue No. C20.
Mark-to-Market, net
activity includes realized settlements of and unrealized
mark-to-market gains
and losses on both power and gas derivative instruments not
designated as cash flow hedges, including those held for trading
purposes. Gains and losses due to ineffectiveness on hedging
instruments are also included in unrealized
mark-to-market gains
and losses. Trading activity is presented net in accordance with
EITF Issue No. 02-03.
167
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Executory Contracts Where commodity contracts
do not qualify as leases or derivatives, the contracts are
classified as executory contracts. These contracts apply
traditional accrual accounting unless the revenue must be
levelized per EITF Issue No. 91-06. We currently account
for one commodity contract under EITF Issue No. 91-06,
under which the revenues are levelized over the term of the
agreement.
Financial Statement Presentation Where our
derivative instruments are subject to a netting agreement and
the criteria of FIN 39 Offsetting of Amounts Related
to Certain Contracts (An Interpretation of APB Opinion
No. 10 and SFAS No. 105) are met, we
present our derivative assets and liabilities on a net basis in
our balance sheet. We have chosen this method of presentation
because it is consistent with the way related
mark-to-market gains
and losses on derivatives are recorded in our Consolidated
Statements of Operations and within OCI.
Presentation of revenue under EITF Issue
No. 03-11
Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to SFAS No. 133 and Not
Held for Trading Purposes As Defined in EITF Issue
No. 02-03: Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management
Activities We account for certain
of our power sales and purchases on a net basis under EITF Issue
No. 03-11, which
we adopted on a prospective basis on October 1, 2003.
Transactions with either of the following characteristics are
presented net in our consolidated financial statements:
(1) transactions executed in a
back-to-back buy and
sale pair, primarily because of market protocols; and
(2) physical power purchase and sale transactions where our
power schedulers net the physical flow of the power purchase
against the physical flow of the power sale (or book
out the physical power flows) as a matter of scheduling
convenience to eliminate the need to schedule actual power
delivery. These book out transactions may occur with the same
counterparty or between different counterparties where we have
equal but offsetting physical purchase and delivery commitments.
In accordance with EITF Issue
No. 03-11, we
netted the following amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Sales of purchased power for hedging and optimization
|
|
$ |
1,129,773 |
|
|
$ |
1,676,003 |
|
|
$ |
256,573 |
|
|
|
|
|
|
|
|
|
|
|
Purchased power expense for hedging and optimization
|
|
$ |
1,129,773 |
|
|
$ |
1,676,003 |
|
|
$ |
256,573 |
|
|
|
|
|
|
|
|
|
|
|
Electricity and Steam Revenue This is
composed of fixed capacity payments, which are not related to
production, and variable energy payments, which are related to
production. Capacity revenues include, besides traditional
capacity payments, other revenues such as RMR and Ancillary
Service revenues. Our thermal and other revenue consists of host
steam sales and other thermal revenue.
Transmission Sales Revenue From
time-to-time, we sell
excess transmission capacity. The cost of transmission capacity
is recorded within cost of revenue as transmission purchase
expense.
Other Revenue This includes O&M contract
revenue, PSM and TTS revenue from sales to third parties,
engineering and construction revenue and miscellaneous revenue.
Plant Operating Expense This primarily
includes employee expenses, repairs and maintenance, insurance,
and property taxes.
Purchased Power and Purchased Gas Expense The
cost of power purchased from third parties for hedging,
balancing and optimization activities is recorded as purchased
power expense. We record the cost of gas purchased from third
parties for the purposes of consumption in our power plants as
fuel expense, while gas purchased from third parties for
hedging, balancing and optimization activities is recorded as
purchased gas expense for hedging and optimization. Certain
hedging, balancing and optimization activity is presented
168
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
net in accordance with EITF Issue
No. 03-11. See
discussion above under Financial Statement
Presentation.
Research and Development Expense We engage in
research and development activities through PSM. Research and
development activities related to the design and manufacturing
of high performance combustion system and turbine blade parts
are accounted for in accordance with SFAS No. 2,
Accounting for Research and Development Costs. Our
research and development expense includes costs incurred for
conceptual formulation and design of new vanes, blades,
combustors and other replacement parts for the industrial gas
turbine industry.
Provision (Benefit) for Income Taxes
SFAS No. 109 requires all available evidence, both
positive and negative, to be considered whether, based on the
weight of that evidence, a valuation allowance is needed. Future
realization of the tax benefit of an existing deductible
temporary difference or carryforward ultimately depends on the
existence of sufficient taxable income of the appropriate
character within the carryback or carryforward periods available
under the tax law. We considered all possible sources of taxable
income that may be available under the tax law to realize a tax
benefit for deductible temporary differences and loss
carryforwards including future reversals of existing taxable
temporary differences.
The valuation allowance was based on the historical earnings
patterns within individual tax jurisdictions that make it
uncertain that we will have sufficient income in the appropriate
jurisdictions to realize the full value of the assets.
At December 31, 2005, we had credit carryforwards of
$63.3 million. These credits relate to Energy Credits,
Research and Development Credits, and Alternative Minimum Tax
Credits. The NOL carryforward consists of federal carryforwards
of approximately $2.9 billion which expire between 2023 and
2026. The federal NOL carryforwards available are subject to
limitations on their annual usage.
For the year ended December 31, 2005, we determined it is
more likely than not a portion of our deferred tax assets will
not be realized as the planned sale of certain appreciated
assets to generate taxable income is no longer feasible due to
our bankruptcy filings imposing restrictions on our entering
into such transactions and executing other tax planning
strategies. Given our current financial condition, management
determined it was appropriate to record a valuation allowance on
all deferred tax assets to the extent not offset by taxable
income generated by reversing taxable temporary differences of
the appropriate character within the carryback or carryforward
periods. We will continue to evaluate the realizability of the
deferred tax assets on a quarterly basis.
We provide for United States income taxes on the earnings of
foreign subsidiaries unless they are considered permanently
invested outside the United States. At December 31, 2005,
we had no cumulative undistributed earnings of foreign
subsidiaries.
Our effective income tax rates for continuing operations were
7.0%, 35.9% and 66.6% in fiscal 2005, 2004 and 2003,
respectively. The effective tax rate in all periods is the
result of profits (losses) that we and our subsidiaries earned
in various tax jurisdictions, both foreign and domestic, that
apply a broad range of income tax rates. The provision for
income taxes differs from the tax computed at the federal
statutory income tax rate due primarily to state taxes, tax
credits, other permanent differences and earnings considered as
permanently reinvested in foreign operations. Future effective
tax rates could be adversely affected if earnings are lower than
anticipated in countries where we have lower statutory rates, if
unfavorable changes in tax laws and regulations occur, or if we
experience future adverse determinations by taxing authorities
after any related litigation. Our foreign taxes at rates other
than statutory include the benefit of cross border financings as
well as withholding taxes and foreign valuation allowance.
169
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We account for income tax contingencies in accordance with both
SFAS No. 109, Accounting for Income Taxes
and SFAS No. 5 Accounting for
Contingencies. The calculation of tax liabilities involves
significant judgment in estimating the impact of uncertainties
in the application of complex tax laws. Resolution of these
uncertainties in a manner inconsistent with our expectations
could have a material impact on our results of operations. We
are currently under IRS examination for fiscal year 1999 through
2002. We believe we have made adequate tax payments and/or
accrued adequate amounts such that the outcome of audits will
have no material adverse effect on our financial
statements.
Comprehensive Income (Loss) Comprehensive
income is the total of net income and all other non-owner
changes in equity. Comprehensive income includes our net income,
unrealized gains and losses from derivative instruments that
qualify as cash flow hedges, unrealized gains and losses from
available-for-sale securities which are marked to market, our
share of our equity method investees OCI, and the effects
of foreign currency translation adjustments. We report AOCI in
our Consolidated Balance Sheets.
Insurance Program CPN Insurance Corporation,
a wholly owned captive insurance subsidiary, charges us premium
rates to insure casualty lines (workers compensation,
automobile liability, and general liability) as well as all risk
property insurance including business interruption. Accruals for
casualty claims under the captive insurance program are recorded
on a monthly basis, and are based upon the estimate of the total
cost of the claims incurred during the policy period. Accruals
for claims under the captive insurance program pertaining to
property, including business interruption claims, are recorded
on a claims-incurred basis. In consolidation, claims are accrued
on a gross basis before deductibles. The captive provides
insurance coverage with limits up to $25 million per
occurrence for property claims, including business interruption,
and up to $500,000 per occurrence for casualty claims.
Intercompany transactions between the captive insurance program
and Calpine affiliates are eliminated in consolidation.
Stock-Based Compensation On January 1,
2003, we prospectively adopted the fair value method of
accounting for stock-based employee compensation pursuant to
SFAS No. 123 as amended by SFAS No. 148.
SFAS No. 148 amended SFAS No. 123 to provide
alternative methods of transition for companies that voluntarily
change their accounting for stock-based compensation from the
less preferred intrinsic value based method to the more
preferred fair value based method. Prior to its amendment,
SFAS No. 123 required that companies enacting a
voluntary change in accounting principle from the intrinsic
value methodology provided by APB Opinion No. 25 could only
do so on a prospective basis; no adoption or transition
provisions were established to allow for a restatement of prior
period financial statements. SFAS No. 148 provides two
additional transition options to report the change in accounting
principle the modified prospective method and the
retroactive restatement method. Additionally,
SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the method used on reported results. We elected to adopt the
provisions of SFAS No. 123 on a prospective basis;
consequently, we are required to provide a pro-forma disclosure
of net income and EPS as if SFAS No. 123 accounting
had been applied to all prior periods presented within our
financial statements. As shown below, the adoption of
SFAS No. 123 has had a material impact on our
financial statements. The table below also reflects the pro
forma impact of stock-based compensation on our net income
(loss) and earnings (loss) per share for the years ended
December 31, 2005, 2004 and 2003, had we applied the
accounting
170
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provisions of SFAS No. 123 to our financial statements
in years prior to adoption of SFAS No. 123 on
January 1, 2003 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(9,939,208 |
) |
|
$ |
(242,461 |
) |
|
$ |
282,022 |
|
|
Pro Forma
|
|
|
(9,940,776 |
) |
|
|
(247,316 |
) |
|
|
270,418 |
|
Earnings (loss) per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(21.44 |
) |
|
$ |
(0.56 |
) |
|
$ |
0.72 |
|
|
|
Pro Forma
|
|
|
(21.44 |
) |
|
|
(0.57 |
) |
|
|
0.69 |
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(21.44 |
) |
|
$ |
(0.56 |
) |
|
$ |
0.71 |
|
|
|
Pro Forma
|
|
|
(21.44 |
) |
|
|
(0.57 |
) |
|
|
0.68 |
|
Stock-based compensation cost included in net income (loss), as
reported
|
|
$ |
16,273 |
|
|
$ |
12,734 |
|
|
$ |
9,724 |
|
Stock-based compensation cost included in net income (loss), pro
forma
|
|
|
17,841 |
|
|
|
17,589 |
|
|
|
21,328 |
|
The range of fair values of our stock options granted in 2005,
2004 and 2003 were as follows, based on varying historical stock
option exercise patterns by different levels of our employees:
$1.27 $2.92 in 2005, $1.83 $4.45 in 2004
and $1.50 $4.38 in 2003 on the date of grant using
the Black-Scholes option pricing model with the following
weighted-average assumptions: expected dividend yields of 0%,
expected volatility of 58% 92% for 2005,
69% 98% for 2004 and 70% 113% for 2003,
risk-free interest rates of 3.39% 4.45% for 2005,
2.35% 4.54% for 2004 and 1.39% 4.04% for
2003, and expected option terms of 1.1
7.3 years for 2005, 3 9.5 years for 2004
and 1.5 9.5 years for 2003.
In December 2004, FASB issued SFAS No. 123 (revised
2004), Share Based Payments. This statement,
referred to as SFAS No. 123-R, revises
SFAS No. 123 and supersedes APB Opinion No. 25
and its related implementation guidance. See
New Accounting Pronouncements
SFAS No. 123-R below for further information.
Operational Data Operational data (including,
but not limited to, MW, MWh, MMBtu, MMcfe, and Bcfe) throughout
this Form 10-K is
unaudited.
|
|
|
New Accounting Pronouncements |
|
|
|
SFAS No. 123-R and Related FSPs |
In December 2004, FASB issued SFAS No. 123-R, which
revises SFAS No. 123, and supersedes APB Opinion
No. 25 and its related implementation guidance. This
statement requires a public entity to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award
(with limited exceptions), which must be recognized over the
requisite service period (usually the vesting period) during
which an employee is required to provide service in exchange for
the award. The statement applies to all share-based payment
transactions in which an entity acquires goods or services by
issuing (or offering to issue) its shares, share options, or
other equity instruments or by incurring liabilities to an
employee or other supplier (a) in amounts based, at least
in part, on the price of the entitys shares or other
equity instruments or (b) that require or may require
settlement by issuing the entitys equity shares or other
equity instruments.
171
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The new guidance requires the accounting for any excess tax
benefits to be consistent with the existing guidance under
SFAS No. 123, which provides a two-transaction model
summarized as follows:
|
|
|
|
|
If settlement of an award creates a tax deduction that exceeds
compensation cost, the additional tax benefit would be recorded
as a contribution to
paid-in-capital. |
|
|
|
If the compensation cost exceeds the actual tax deduction, the
write-off of the unrealized excess tax benefits would first
reduce any available paid-in capital arising from prior excess
tax benefits, and any remaining amount would be charged against
the tax provision in the income statement. |
The new guidance also amends SFAS No. 95,
Statement of Cash Flows, to require that excess tax
benefits be reported as a financing cash inflow rather than as
an operating cash inflow. However, the statement does not change
the accounting guidance for share-based payment transactions
with parties other than employees provided in
SFAS No. 123 as originally issued and EITF Issue
No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services. Further, SFAS 123-R
does not address the accounting for employee share ownership
plans, which are subject to AICPA Statement of Position 93-6,
Employers Accounting for Employee Stock Ownership
Plans.
The statement applies to all awards granted, modified,
repurchased, or cancelled after January 1, 2006, and to the
unvested portion of all awards granted prior to that date.
Public entities that used the fair-value-based method for either
recognition or disclosure under SFAS No. 123 may adopt
SFAS 123-R using a modified version of prospective
application pursuant to which compensation cost for the portion
of awards for which the employees requisite service has
not been rendered, which awards are outstanding as of
January 1, 2006, must be recognized as the requisite
service is rendered on or after that date. The compensation cost
for that portion of those awards shall be based on the original
grant-date fair value of those awards as calculated for
recognition under SFAS No. 123. The compensation cost
for those earlier awards shall be attributed to periods
beginning on or after January 1, 2006 using the attribution
method that was used under SFAS No. 123. Furthermore,
the method of recognizing forfeitures must now be based on an
estimated forfeiture rate and can no longer be based on
forfeitures as they occur.
Adoption of SFAS No. 123-R is not expected to
materially impact our consolidated results of operations, cash
flows or financial position, due to our prior adoption of
SFAS No. 123 as amended by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure on January 1, 2003.
SFAS No. 148 allowed companies to adopt the
fair-value-based method for recognition of compensation expense
under SFAS No. 123 using prospective application.
Under that transition method, compensation expense was
recognized in our Consolidated Statement of Operations only for
stock-based compensation granted after the adoption date of
January 1, 2003. Furthermore, as we have chosen the
multiple option approach in recognizing compensation expense
associated with the fair value of each option granted, nearly
94% of the total fair value of the stock option is recognized by
the end of the third year of the vesting period, and therefore
remaining compensation expense associated with options granted
before January 1, 2003, is expected to be immaterial.
FASB is expected to revise SFAS No. 128,
Earnings Per Share to make it consistent with
International Accounting Standard No. 33, Earnings
Per Share, so that EPS computations will be comparable on
a global basis. This proposed exposure draft, as currently
written, would be effective for interim and annual periods
ending after June 15, 2006 and will require restatement of
prior periods diluted EPS, except that retrospective application
would be prohibited for contracts that were either settled in
cash prior to adoption or modified prior to adoption to require
cash settlement. The proposed changes will affect the
application of the treasury
172
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock method and contingently issuable (based on conditions
other than market price) share guidance for computing
year-to-date diluted
EPS. In addition to modifying the
year-to-date
calculation mechanics, the proposed revision to
SFAS No. 128 would eliminate a companys ability
to overcome the presumption of share settlement for those
instruments or contracts that can be settled, at the issuer or
holders option, in cash or shares. Under the revised
guidance, FASB has indicated that any possibility of share
settlement other than in an event of bankruptcy will require a
presumption of share settlement when calculating diluted EPS.
The Companys 2023 Convertible Notes and 2014 Convertible
Notes contain provisions that would require share settlement in
the event of conversion under certain events of default,
including but not limited to a bankruptcy-related event of
default. Additionally, the 2023 Convertible Notes include a
provision allowing the Company to meet a put with either cash or
shares of stock. The Companys 2015 Convertible Notes allow
for share settlement of the principal only in the case of
certain bankruptcy-related events of default. Therefore, a
presumption of share settlement is required for the 2014
Convertible Notes and the 2023 Convertible Notes, but is not
required for the 2015 Convertible Notes. Depending on the degree
to which the respective series of Convertible Notes are
ultimately compromised as a result of the Companys
bankruptcy filing, the revised guidance could result in a
significant increase in the potential dilution to the
Companys EPS, particularly when the price of the
Companys common stock is low, since
SFAS No. 128-R requires that the more dilutive of
calculations be used considering both:
|
|
|
|
|
normal conversion assuming a combination of cash and variable
number of shares; and |
|
|
|
conversion during events of default other than bankruptcy
assuming 100% shares at the fixed conversion rate, or, in the
case of 2023 Convertible Notes, meeting a put entirely with
shares of stock. |
In November 2004, FASB issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43,
Chapter 4. This statement amends the guidance in ARB
No. 43, Chapter 4, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated
that ... under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as
current period charges. . . .
SFAS No. 151 requires those items to be recognized as
a current-period charge regardless of whether they meet the
criterion of so abnormal. In addition,
SFAS No. 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities. The provisions of
SFAS No. 151 are applicable to inventory costs
incurred during fiscal years beginning after June 15, 2005.
Adoption of this statement is not expected to materially impact
our consolidated results of operations, cash flows or financial
position.
In December 2004, FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets. This statement
eliminates the exception in APB Opinion No. 29,
Accounting for Nonmonetary Transactions for
nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. It requires exchanges of
productive assets to be accounted for at fair value, rather than
at carryover basis, unless (1) neither the asset received
nor the asset surrendered has a fair value that is determinable
within reasonable limits or (2) the transaction lacks
commercial substance (as defined). A nonmonetary exchange has
commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange.
SFAS No. 153 will not apply to the transfers of
interests in assets in exchange for an interest in a joint
venture and amends SFAS No. 66, Accounting for
Sales of Real Estate to clarify that exchanges of real
estate for real estate should be accounted for under APB Opinion
No. 29. It also amends SFAS No. 140, to
173
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
remove the existing scope exception relating to exchanges of
equity method investments for similar productive assets to
clarify that such exchanges are within the scope of
SFAS No. 140 and not APB Opinion No. 29.
SFAS No. 153 is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. Adoption of this statement did not
materially impact our consolidated results of operations, cash
flows or financial position.
In May 2005, FASB issued SFAS No. 154,
Accounting Changes and Error Corrections. This
statement replaces APB Opinion No. 20, Accounting
Changes, and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements, and
changes the requirements for the accounting for and reporting of
a change in accounting principle. SFAS No. 154 applies
to all voluntary changes in accounting principle. APB Opinion
No. 20 previously required that most voluntary changes in
accounting principle be recognized by including in net income
for the period of the change the cumulative effect of changing
to the new accounting principle. SFAS No. 154 requires
retrospective application to prior periods financial
statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or
the cumulative effect of the change. When it is impracticable to
determine the cumulative effect of applying a change in
accounting principle to all prior periods,
SFAS No. 154 requires that the new accounting
principle be applied as if it were adopted prospectively from
the earliest date practicable.
SFAS No. 154 also requires that a change in
depreciation, amortization, or depletion method for long-lived,
nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle.
SFAS No. 154 is effective for fiscal years beginning
after December 15, 2005. Adoption of this statement is not
expected to materially impact our consolidated results of
operations, cash flows or financial position.
At the November 2004 EITF meeting, final consensus was reached
on EITF Issue
No. 03-13,
Applying the Conditions in Paragraph 42 of FASB
Statement No. 144 in Determining Whether to Report
Discontinued Operations. EITF Issue No.
03-13 is effective
prospectively for disposal transactions entered into after
January 1, 2005, and provides a model to assist in
evaluating (a) which cash flows should be considered in the
determination of whether cash flows of the disposal component
have been or will be eliminated from the ongoing operations of
the entity and (b) the types of continuing involvement that
constitute significant continuing involvement in the operations
of the disposal component. We have applied the model outlined in
EITF Issue
No. 03-13 in our
evaluation of the September 2004 sale of the Canadian and
U.S. Rocky Mountain oil and gas assets, the July 2005 sales
of the remaining oil and gas assets and the Saltend facility,
the sale of the Morris facility in August 2005 and the sale of
the Ontelaunee facility in October 2005 in determining whether
or not the cash flows related to these components have been or
will be permanently eliminated from our ongoing operations.
At the September 15, 2005, EITF meeting, consensus was
reached on EITF Issue No. 04-13, Accounting for
Purchases and Sales of Inventory with the Same
Counterparty. EITF Issue No. 04-13 provides
accounting guidance for entities that may sell inventory to
another entity in the same line of business from which it also
purchases inventory. The scope of EITF Issue No. 04-13
excludes inventory purchase and sales arrangements that
(a) are accounted for as derivatives under
SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities or (b) involve
exchanges of software or exchanges of real estate.
174
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The guidance requires inventory transactions with the same
counterparty to be recorded at either fair value or carrying
value and if multiple sale and purchase transactions have
occurred, possibly recording as a single transaction.
Determining whether transactions are recognized at fair value or
carrying value is based upon the type of inventories being
exchanged. Determining whether two or more inventory purchase
and sale transactions are recorded as a single transaction is
based upon whether the transactions were entered into in
contemplation of one another.
EITF Issue No. 04-13 should be applied to new arrangements
entered into, and modifications or renewals of existing
arrangements, beginning in the first interim or annual reporting
period beginning after March 15, 2006. The carrying amount
of the inventory that was acquired under these types of
arrangements prior to the initial application of EITF Issue
No. 04-13 and that still remains in an entitys
statement of financial position at the date of initial
application of EITF Issue No. 04-13 is unchanged. Early
application is permitted in periods for which financial
statements have not been issued. We elected to early adopt in
the first quarter of 2005 and this adoption had no impact our
consolidated results of operations, cash flows or financial
position.
In April 2005 FASB issued FIN 47 to clarify the meaning of
the term conditional asset retirement obligation,
which refers to legal obligations that companies must perform in
order to retirement long-lived assets for which the timing
and/or method of settlement are conditional upon future events
that may or may not be within the control of the entity.
FIN 47 also clarifies that the obligation to perform the
asset retirement is unconditional, despite the uncertainty that
exists in regard to the timing and method of settlement, and
requires the uncertainty about the timing and method of
settlement for a conditional ARO to be considered in estimating
the ARO when sufficient information exists. FIN 47 provides
further guidance as to when sufficient information exists to
reasonably estimate the fair value of an ARO. The Interpretation
is effective for fiscal years ending after December 15,
2005 (December 31, 2005 for us) with early adoption
allowed. Implementation of this new guidance did not materially
impact our consolidated results of operations, cash flows or
financial position.
In February 2006 FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial
Instruments an amendment of FASB Statements
No. 133 and 140, to resolve issues addressed in DIG
Issue No. D1, Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets.
SFAS No. 155 permits fair value remeasurement for
hybrid financial instruments containing embedded derivatives,
clarifies that certain types of financial instruments are not
subject to the requirements of SFAS No. 133, requires
an evaluation of interests in securitized financial assets to
determine whether an embedded derivative requires bifurcation,
clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives and amends
SFAS No. 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest
other than another derivative financial instrument.
SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an
entitys first fiscal year that begins after
September 15, 2006. We do not expect the adoption of this
statement to have a material impact on our results of
operations, cash flows or financial position.
In March 2006 FASB issued FASB Statement No. 156,
Accounting for Servicing of Financial Assets
An Amendment of FASB Statement No. 140. The new
statement addresses the recognition and measurement of
separately recognized servicing assets and liabilities and
provides an approach to simplify
175
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
efforts to obtain hedge-like (offset) accounting. The
statement also (i) clarifies when an obligation to service
financial assets should be separately recognized as a servicing
asset or a servicing liability, (ii) requires that a
separately recognized servicing asset or servicing liability be
initially measured at fair value, if practicable,
(iii) permits an entity with a separately recognized
servicing asset or servicing liability to choose either the
amortization or fair value method for subsequent measurement and
(iv) permits a servicer that uses derivative financial
instruments to offset risks on servicing to report both the
derivative financial instrument and related servicing asset or
liability by using a consistent measurement attribute, or fair
value. SFAS is effective for all separately recognized servicing
assets and liabilities acquired or issued after the beginning of
an entitys fiscal year that begins after
September 15, 2006, with early adoption permitted. We do
not expect the adoption of this statement to have a material
impact on our results of operations, cash flows or financial
position.
|
|
3. |
Bankruptcy Proceedings |
On December 20, 2005 and December 21, 2005, Calpine
and 254 of its wholly owned subsidiaries in the United States
filed voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code in the U.S. Bankruptcy Court and, in
Canada, 12 of its Canadian subsidiaries were granted relief in
the Canadian Court under the CCAA, which, like Chapter 11,
allows for reorganization under the protection of the court
system. On December 27 and 29, 2005, January 8 and 9, 2006,
February 3, 2006, and May 2, 2006, 19 additional
wholly owned subsidiaries of Calpine commenced Chapter 11
cases in the U.S. Bankruptcy Court. Certain other
subsidiaries could file in the U.S. or Canada in the
future. We refer to the filers collectively as the Calpine
Debtors. The Chapter 11 cases of the
U.S. Debtors are being jointly administered for procedural
purposes only by the U.S. Bankruptcy Court under the case
captioned In re Calpine Corporation et al., Case
No. 05-60200 (BRL).
Our bankruptcy filings were preceded by the convergence of a
number of factors. Among other things, during that time we were
continuing to experience a tight liquidity situation due in part
to our obligations to service our debt and certain of our
preferred equity securities. Our debt and preferred equity
instruments also contained restrictions on our ability to raise
further capital, whether through financings, asset sales or
otherwise, or restricted the use of the proceeds of any such
transactions. At the same time, market spark spreads were being
adversely impacted by excess capacity in certain of our energy
markets, which had resulted in our facilities running at a
reduced average baseload capacity factor of 43.9% by 2005. Our
fuel costs were also adversely impacted by historically high
prices for natural gas in late 2005 at a time when we were more
exposed to gas price volatility after the sale in July 2005 of
substantially all of our remaining oil and gas reserves. Higher
gas prices also increased our collateral support obligations to
counter-parties. Also during that time, we experienced certain
adverse litigation outcomes, particularly in a litigation we
brought in the Delaware Chancery Court against the collateral
agent and trustees representing our First and Second Priority
Notes regarding our use of certain of the proceeds of the sale
of our oil and natural gas reserves. Accordingly, as we brought
new, partially uncontracted capacity into commercial operations,
we were not able to realize sufficient incremental spark spread
margins to meet our increased debt service and preferred equity
obligations and to fund our operations, while restrictions in
our debt and preferred equity instruments prevented us from
pursuing alternative funding opportunities or reducing those
obligations. See Note 31 for more information concerning
the Delaware Chancery Court litigation, and Note 13 for
more information regarding the sale of our oil and natural gas
reserves.
The Calpine Debtors are continuing to operate their business as
debtors-in-possession
under the jurisdiction of the Bankruptcy Courts and in
accordance with the applicable provisions of the Bankruptcy
Code, the Federal Rules of Bankruptcy Procedure, the CCAA and
applicable court orders, as well as other applicable laws and
rules. In general, as
debtors-in-possession,
each of the Calpine Debtors is authorized to continue to operate
as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the prior
approval of the applicable Bankruptcy Court.
176
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
With respect to the U.S. bankruptcy cases, the Office of
the United States Trustee has appointed a committee of unsecured
creditors for Calpine Corporation, and there has also been
formed an ad hoc committee of second lien creditors. The Office
of the United States Trustee has also appointed a committee of
equity security holders of Calpine Corporation.
The Canadian Debtors obtained an Initial Order from the Canadian
Court granting those entities protection under the CCAA.
Pursuant to the Initial Order, the Canadian Debtors are
authorized to continue operations. In accordance with procedures
under the CCAA, a court monitor was appointed by the Canadian
Court to assess the Canadian Debtors and report its findings to
the Canadian Court. Ernst & Young Inc. was appointed as
the monitor and has been reporting to the Canadian Court from
time to time on various matters including the Canadian
Debtors cash flow, asset transfers and other developments
in the Canadian cases.
On December 20, 2005, the U.S. Debtors entered into
the $2.0 billion DIP Facility. On December 21, 2005,
the U.S. Bankruptcy Court granted interim approval of the
DIP Facility, but initially limited our access under the DIP
Facility to $500 million under the revolving credit
facility. On January 26, 2006 the U.S. Bankruptcy
Court entered a final order approving the DIP Facility and
removing the limitation on our ability to borrow thereunder. The
syndication of the DIP Facility was closed on February 23,
2006. Deutsche Bank Securities Inc. and Credit Suisse were
co-lead arrangers for the DIP Facility, which will remain in
place until the earlier of an effective plan of reorganization
or December 20, 2007. In connection with and as a condition
to the closing, on February 3, 2006, we acquired ownership
of The Geysers, which had previously been leased pursuant to a
leveraged lease. We used borrowings under the DIP Facility to
pay a portion of the purchase price for The Geysers and to
retire certain facility operating lease and related debt
obligations. The DIP Facility is secured by first priority liens
on all of the unencumbered assets of the U.S. Debtors,
including The Geysers, and junior liens on all of their
encumbered assets. In addition, the DIP Facility was amended on
May 3, 2006, to, among other things, provide us with
extensions of time (i) to provide certain financial
information to the DIP Facility lenders, including financial
statements for the year ended December 31, 2005 (which are
included in this Report), and for the quarter ended
March 31, 2006 and (ii) to cause GPC to file for
protection under Chapter 11 of the Bankruptcy Code. See
Note 22 of the Notes to Consolidated Financial Statements
for further details regarding the DIP Facility.
In addition, the U.S. Bankruptcy Court approved cash
collateral and adequate assurance stipulations in connection
with the approval of the DIP Facility, which has allowed our
business activities to continue to function. We have also sought
and obtained U.S. Bankruptcy Court approval through our
first day and subsequent motions to continue to pay
critical vendors, meet our pre-petition and post-petition
payroll to obligations, maintain our cash management systems,
collateralize certain of our gas supply contracts, enter into
and collateralize trading contracts, pay our taxes, continue to
provide employee benefits, maintain our insurance programs and
implement an employee severance program, which has allowed us to
continue to operate the existing business in the ordinary
course. In addition, the U.S. Bankruptcy Court has approved
certain trading notification and transfer procedures designed to
allow us to restrict trading in our common stock (and related
securities) which could negatively impact our accrued NOLs and
other tax attributes, and granted us extensions of time to file
and seek approval of a plan of reorganization and to assume or
reject real property leases.
Subject to certain exceptions under the Bankruptcy Code and the
CCAA, as applicable, our bankruptcy filings automatically stayed
the initiation or continuation of most actions against the
Calpine Debtors, including most actions to collect pre-petition
indebtedness or to exercise control over the property of the
Calpine Debtors estates. One exception to this stay is
certain types of actions or proceedings by a governmental agency
to enforce its police or regulatory powers. As a result of this
stay, absent an order of the Bankruptcy Court, creditors are
precluded from collecting pre-petition debts, and substantially
all pre-petition
177
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities are subject to compromise under a plan or plans of
reorganization to be developed by the Calpine Debtors later in
the bankruptcy cases.
The U.S. Bankruptcy Court has established August 1,
2006 as a bar date for filing proofs of claim against the
U.S. Debtors estates; and the Canadian Court has
established June 30, 2006, as a bar date for filing claims
against the Canadian Debtors estates. We have not fully
analyzed the validity and enforceability of any submitted proofs
of claim filed against the Calpine Debtors estates to
date. In addition, because the bar dates have not yet occurred,
we expect that additional proofs of claim will be filed.
Accordingly, it is not possible at this time to determine the
extent of the claims that may be filed, whether or not such
claims will be disputed, or whether or not such claims will be
subject to discharge in the bankruptcy proceedings. Nor is it
possible at this time to determine whether to establish any
claims reserves. Once all applicable bar dates are established
and all claims against the Calpine Debtors are filed, we will
review all claims filed and begin the claims reconciliation
process. In connection with the review and reconciliation
process, we will also determine the reserves, if any, that may
be established in respect of such claims.
Under the Bankruptcy Code, we have the right to assume, assume
and assign, or reject certain executory contracts and unexpired
leases, subject to the approval of the Bankruptcy Court and
certain other conditions. Generally, the assumption of an
executory contract or unexpired lease requires a debtor to cure
certain existing defaults under the contract. Rejection of an
executory contract or unexpired lease is typically treated as a
breach occurring as of the moment immediately preceding the
Chapter 11 filing. Subject to certain exceptions, this
rejection relieves the debtor from performing its future
obligations under the contract but entitles the counterparty to
assert a pre-petition general unsecured claim for damages.
Parties to executory contracts or unexpired leases rejected by a
debtor may file proofs of claim against that debtors
estate for damages. Due to ongoing evaluation of contracts for
assumption or rejection and the uncertain nature of many of the
potential claims for damages, we cannot project the magnitude of
these potential claims at this time.
We continue to evaluate our executory contracts and real
property leases in order to determine which contracts will be
assumed, assumed and assigned, or rejected. Once the evaluation
is complete with respect to each particular contract or lease,
the applicable Calpine Debtors file the appropriate motion with
the Bankruptcy Court seeking approval to assume, assume and
assign, or reject the contract or lease. Pursuant to applicable
orders of the U.S. Bankruptcy Court, if a Calpine Debtor
seeks to reject a contract or lease, the contract or lease
counterparties then have an opportunity to file objections. The
Bankruptcy Court then determines whether to grant or deny such
motions and, if an objection has been filed, will conduct a
hearing to determine any matters raised by the objection. As of
the date of this filing, the Calpine Debtors have identified the
following significant contracts and leases to be rejected:
|
|
|
|
|
On December 21, 2005, we filed a motion with the
U.S. Bankruptcy Court to reject eight PPAs and to enjoin
FERC from asserting jurisdiction over the rejections. The
U.S. Bankruptcy Court issued a temporary restraining order
against FERC and set the matter for a hearing on January 5,
2006. Under most of the PPAs sought to be rejected, we are
obligated to sell power at prices that are significantly lower
than currently-prevailing market prices. At the time of filing
the motion, we forecasted that it would cost us in excess of
$1.2 billion if we were required to continue to perform
under these PPAs rather than to sell the contracted energy at
current market prices. On December 29, 2005, certain
counterparties to the various PPAs filed an action in the SDNY
Court arguing that the U.S. Bankruptcy Court did not have
jurisdiction over the dispute. On January 5, 2006, the SDNY
Court entered an order that had the effect of transferring our
motion seeking to reject the eight PPAs and our related request
for an injunction against FERC to the SDNY Court from the
U.S. Bankruptcy Court. Earlier, however, on
December 19, 2005, CDWR, a counterparty to one of the eight
PPAs, had filed a complaint with FERC seeking to obtain
injunctive relief to prevent us from rejecting our PPA with CDWR
and contending that FERC had exclusive jurisdiction over the
matter. On January 3, |
178
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
2006, FERC determined that it did not have exclusive
jurisdiction, and that the matter could be heard by the
U.S. Bankruptcy Court. However, despite the FERC ruling, on
January 27, 2006, the SDNY Court determined that FERC had
jurisdiction over whether the contracts could be rejected. We
appealed the SDNY Courts decision to the United States
Court of Appeals for the Second Circuit. The appeal was heard on
April 10, 2006 and we have not yet received a decision. We
can not determine at this time whether the SDNY Court, the
U.S. Bankruptcy Court or FERC will ultimately determine
whether we may reject any or all of the eight PPAs, or when such
determination will be made. In the meantime, three of the PPAs
have been terminated by the applicable counterparties, and we
continue to perform under those PPAs that remain in effect. |
|
|
|
On February 6, 2006, we filed a notice of rejection of our
leasehold interests in the Rumford power plant and the Tiverton
power plant with the U.S. Bankruptcy Court, and noticed the
surrender of the two plants to their owner-lessor. The
owner-lessor has declined to take possession and control of the
plants, which are not currently being dispatched but are being
maintained in operating condition. The deadline for filing
objections to the notice of rejection, which pursuant to a
U.S. Bankruptcy Court order regarding expedited lease
rejection procedures was originally set for February 16,
2006, was consensually extended to April 14, 2006. Both the
indenture trustee related to the leaseholds and the owner-lessor
filed objections to the rejection notice on that date.
Additionally, the indenture trustee filed a motion to withdraw
the reference of the rejection notice to the SDNY Court, arguing
that the U.S. Bankruptcy Court does not have jurisdiction
over the lease rejection dispute. The ISO New England, Inc.
has separately filed a motion to withdraw the reference of the
rejection notice to the SDNY Court on similar grounds. A hearing
is currently scheduled for May 24, 2006 before the
U.S. Bankruptcy Court to determine whether or not to
approve the rejection and any other matters raised by the
objections. However, such hearing date is subject to change. The
Rumford and Tiverton power plants represent a combined
530 MW of installed capacity with the output sold into the
New England wholesale market. |
|
|
|
In February 2006, we filed notices of rejection with the
U.S. Bankruptcy Court relating to our office leases in
Portland, Oregon and in Deer Park, Texas. In March 2006, we
filed notices of rejection relating to our office leases in
Denver and Fort Collins, Colorado and in Tampa, Florida. In
April 2006, we filed a notice of rejection relating to our
office lease in Atlanta, Georgia. The rejection of each of the
foregoing leases has been approved by the U.S. Bankruptcy
Court. We anticipate that it is more likely than not that we
will file further notices of rejection with respect to
additional office leases; in particular, we announced in April
2006 that we intend to close our Dublin, California and Boston,
Massachusetts offices. |
At this time, it is not possible to accurately predict the
effects of the reorganization process on the business of the
Calpine Debtors or if and when some or all of the Calpine
Debtors may emerge from bankruptcy. The prospects for future
results depend on the timely and successful development,
confirmation and implementation of a plan or plans of
reorganization. There can be no assurance that a successful plan
or plans of reorganization will be proposed by the Calpine
Debtors, supported by the Calpine Debtors creditors or
confirmed by the Bankruptcy Courts, or that any such plan or
plans will be consummated. The ultimate recovery, if any, that
creditors and equity security holders receive will not be
determined until confirmation of a plan or plans of
reorganization. No assurance can be given as to what values, if
any, will be ascribed in the bankruptcy cases to the interests
of each of the various creditor and equity or other security
holder constituencies, and it is possible that the equity
interests in or other securities issued by Calpine and the other
Calpine Debtors will be restructured in a manner that will
substantially reduce or eliminate any remaining value of such
equity interests or other securities, or that certain creditors
may ultimately receive little or no payment with respect to
their claims. Whether or not a plan or plans of reorganization
are approved, it is possible that the assets of any one or more
of the Calpine Debtors may be liquidated.
179
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of our bankruptcy filings and the other matters
described herein, including the uncertainties related to the
fact that we have not yet had time to complete and have approved
a plan of reorganization, there is substantial doubt about our
ability to continue as a going concern. The accompanying
consolidated financial statements have been prepared on a going
concern basis, which assumes continuity of operations and
realization of assets and satisfaction of liabilities in the
ordinary course of business, and in accordance with SOP 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code. The consolidated financial statements
do not include any adjustments that might be required should we
be unable to continue to operate as a going concern. In
accordance with SOP 90-7, all pre-petition liabilities subject
to compromise have been segregated in the consolidated balance
sheets and classified as LSTC, at the estimated amount of
allowable claims. Interest expense related to pre-petition LSTC
has been reported only to the extent that it will be paid during
the pendency of the bankruptcy cases. Liabilities not subject to
compromise are separately classified as current or noncurrent.
Expenses, provisions for losses resulting from reorganization
and certain other items directly related to our bankruptcy case
are reported separately as reorganization expenses due to
bankruptcy. Cash used for reorganization items is disclosed in
the consolidated statements of cash flows.
Our ability to continue as a going concern, including our
ability to meet our ongoing operational obligations, is
dependent upon, among other things: (i) our ability to
maintain adequate cash on hand; (ii) our ability to
generate cash from operations; (iii) the cost, duration and
outcome of the restructuring process; (iv) our ability to
comply with our DIP Facility agreement and the adequate
assurance provisions of the Cash Collateral Order and
(v) our ability to achieve profitability following a
restructuring. These challenges are in addition to those
operational and competitive challenges faced by us in connection
with our business. In conjunction with our advisors, we are
working to design and implement strategies to ensure that we
maintain adequate liquidity and will be able to continue as a
going concern. See Bankruptcy Considerations in the
Overview section of Managements Discussion and
Analysis for further discussion of managements plans.
However, there can be no assurance as to the success of such
efforts.
180
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4. |
Calpine Debtors Condensed Combined Financial Statements |
Condensed combined financial statements of the Debtors are set
forth below.
Condensed Combined Balance Sheet
As of December 31, 2005
|
|
|
|
|
|
|
|
|
Debtors | |
|
|
| |
|
|
(In billions) | |
Assets:
|
|
|
|
|
|
Current assets
|
|
$ |
5.5 |
|
|
Restricted cash, net of current portion
|
|
|
.5 |
|
|
Investments
|
|
|
2.1 |
|
|
Property, plant and equipment, net
|
|
|
7.7 |
|
|
Other assets
|
|
|
1.6 |
|
|
|
|
|
|
|
Total assets
|
|
$ |
17.4 |
|
|
|
|
|
Liabilities not subject to compromise:
|
|
|
|
|
|
Current liabilities
|
|
$ |
4.9 |
|
|
Long-term debt
|
|
|
.2 |
|
Long-term derivative liabilities
|
|
|
.7 |
|
Other liabilities
|
|
|
.2 |
|
Liabilities subject to compromise
|
|
|
16.7 |
|
Minority interest
|
|
|
.3 |
|
Stockholders equity (deficit)
|
|
|
(5.6 |
) |
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$ |
17.4 |
|
|
|
|
|
See Note 24 for additional discussion of liabilities
subject to compromise.
181
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed Combined Statements of Operations
For the Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
Debtors | |
|
|
| |
|
|
(In billions) | |
Total revenue
|
|
$ |
11.6 |
|
Total cost of revenue
|
|
|
14.3 |
|
Operating expenses
|
|
|
2.2 |
|
|
|
|
|
|
Loss from operations
|
|
|
(4.9 |
) |
Interest expense
|
|
|
1.0 |
|
Other (income) expense, net
|
|
|
(.1 |
) |
Reorganization items, net
|
|
|
5.0 |
|
Benefit for income taxes
|
|
|
.8 |
|
|
|
|
|
|
Income (loss) from continuing operations before discontinued
operations
|
|
|
(10.0 |
) |
Income from discontinued operations, net of tax
|
|
|
.1 |
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(9.9 |
) |
|
|
|
|
Condensed Combined Statements of Cash Flows
For the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
U.S. | |
|
|
Debtors | |
|
|
| |
|
|
(In millions) | |
Net cash provided by (used in):
|
|
|
|
|
|
Operating
|
|
$ |
(1,520.3 |
) |
|
Investing activities
|
|
|
2,113.1 |
|
|
Financing activities
|
|
|
(630.7 |
) |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(.1 |
) |
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(38.0 |
) |
Cash and cash equivalents, beginning of year
|
|
|
481.9 |
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
443.9 |
|
|
|
|
|
Cash paid for reorganization items included in operating
activities
|
|
$ |
13.8 |
|
|
|
|
|
The Calpine Debtors Condensed Combined Financial
Statements exclude the financial statements of the Calpine
Non-Debtor parties. Transactions and balances of receivables and
payables between Calpine Debtors are eliminated in
consolidation. However, the Calpine Debtors Condensed
Combined Balance Sheet includes receivables from related
Non-Debtor parties and payables to related Non-Debtor parties.
Actual settlement of these related party receivables and
payables is, by historical practice, made on a net basis.
The Calpine Debtors have discontinued recording interest on
unsecured or undersecured liabilities subject to compromise.
Contractual interest on liabilities subject to compromise not
reflected in the financial
182
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statements was approximately $17.9 million; representing
interest expense from the bankruptcy filing on December 20,
2005 through December 31, 2005.
Reorganization items represent the direct and incremental costs
of being in bankruptcy, such as professional fees, pre-petition
liability claim adjustments and losses related to terminated
contracts that are probable and can be estimated. Reorganization
items, as shown in the Condensed Combined Statements of
Operations above, consist of expense or income incurred or
earned as a direct and incremental result of the bankruptcy
filings. The table below lists the significant items within this
category for the year ended December 31, 2005 (in millions).
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
Provision for allowable claims
|
|
$ |
3,791.5 |
|
Impairment of investment in Canadian subsidiaries
|
|
|
879.1 |
|
Write-off of unamortized deferred financing costs and debt
discounts
|
|
|
148.1 |
|
Loss on terminated contracts, net
|
|
|
139.4 |
|
Professional fees
|
|
|
36.4 |
|
Other reorganization items
|
|
|
32.0 |
|
|
|
|
|
|
Total reorganization items
|
|
$ |
5,026.5 |
|
|
|
|
|
We determined it was necessary to deconsolidate most of our
Canadian and other foreign entities due to our loss of control
over these entities upon the filing by the Canadian Debtors for
protection under the CCAA in Canada. The Canadian Debtor
entities are not under the jurisdiction of the
U.S. Bankruptcy Court and are separately administered under
the CCAA by the Canadian Court. In conjunction with the
deconsolidation, we reviewed all intercompany guarantees. We
identified guarantees by U.S. parent entities of debt (and
accrued interest payable) of approximately $5.1 billion
issued by entities in the Canadian debtor chains as constituting
probable allowable claims against the U.S. parent entities.
Some of the guarantee exposures are redundant, such as the
Calpine Corporation guarantee to ULC I security holders and the
Calpine Corporation guarantee of QCHs subscription
agreement obligations associated with the hybrid notes structure
in support of the ULC I Unsecured Notes. Under the guidance
of SOP 90-7
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, we determined the duplicative
guarantees were probable of being allowed into the claim pool by
the U.S. Bankruptcy Court. We accrued an additional amount
of approximately $3.8 billion as reorganization items
related to these duplicative guarantees.
As a result of the deconsolidation, we adopted the cost method
of accounting for our investment in our Canadian and other
foreign entities. Upon adoption of the cost method, we evaluated
our investment balances and intercompany notes receivable from
these entities for impairment. We determined that our entire
investment in these entities had experienced
other-than-temporary decline in value and was impaired. We also
concluded that all intercompany notes receivable balances from
these entities were uncollectible, as the notes were unsecured
and protected by the automatic stay under the CCAA.
Consequently, we fully impaired these investment and receivable
assets at December 31, 2005, resulting in an
$879.1 million charge to reorganization items.
Deferred financing costs and debt discounts relate to our
unsecured or under-secured pre-petition debt, which has been
reclassified on the balance sheet to Liabilities Subject to
Compromise following our bankruptcy filings on December 20,
2005, and were written-off to reorganization items as these
capitalized costs were determined to have no future value.
183
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Calpine Debtors recorded a loss on certain commodity contracts
that were terminated by the counterparties to such contracts
after our bankruptcy filings, in accordance with their claim
that our bankruptcy filings constituted an event of default
under the terms of those contracts. We recorded the fair value
of those commodity contracts on the date of termination as a
reorganization item. Calpine Debtors also have some commodity
contracts that meet the accounting definition of a derivative,
but we have elected to account for them under the normal
purchase and sale exemption under the derivative accounting
rules. If a normal contract is terminated, we may no longer be
able to assert probability of physical delivery over the
contract term, and therefore, such contract will no longer be
eligible for the normal purchase and sale exemption. Once we
lose our ability to continue normal purchase and sale treatment,
we must record the fair value of such contracts in our balance
sheet with the related offset to earnings. No amounts have been
recorded as of December 31, 2005, for normal contracts for
which we have filed motions to reject, as such motions are
pending final approval or denial by the courts and regulators.
Professional fees relate primarily to expenses incurred to
secure the DIP Facility and the fees of attorneys and
consultants working directly on the bankruptcy filings and our
plan of reorganization.
Other reorganization items consist primarily of non-cash charges
related to certain interest rate swaps that no longer meet the
hedge effectiveness criteria under SFAS No. 133 as a
result of our payment default or expected payment default on the
underlying debt instruments due to the bankruptcy filing.
|
|
5. |
Available-for-Sale Debt Securities |
During 2004, we exchanged 24.3 million shares of Calpine
common stock in privately negotiated transactions for
approximately $115.0 million par value of HIGH TIDES I and
II securities. In connection with the repayment of the trust
debentures (see Note 16) these securities were repurchased
by the Calpine Capital Trusts, resulting in a realized gain of
approximately $6.1 million.
On September 30, 2004, we repurchased, in a privately
negotiated transaction, par value $115.0 million HIGH
TIDES III securities for $111.6 million, which
included $1.0 million for accrued interest. Due to the
deconsolidation of the Calpine Capital Trusts upon the adoption
of FIN 46 as of December 31, 2003, the terms of the
underlying convertible debentures between us and Trust III
and the requirements of SFAS 140, the repurchased HIGH
TIDES III could not be offset against the convertible
debentures. The repurchased HIGH TIDES III were accounted
for as available-for-sale securities and recorded in Other
Assets at the fair market value of $111.6 million at
December 31, 2004.
On July 13, 2005, we repaid the convertible debentures held
by Trust III, which used those proceeds to redeem the
outstanding HIGH TIDES III. See Note 14 for more
information. The redemption price paid per each $50 principal
amount of HIGH TIDES III was $50, for a total redemption
price of $115.0 million, plus accrued and unpaid
distributions to the redemption date in the amount of $0.50. The
redemption of the HIGH TIDES III available-for-sale
securities previously purchased and held by us resulted in a
realized gain of approximately $4.4 million. We have no
available-for-sale debt securities recorded in the Consolidated
Condensed Balance Sheet at December 31, 2005.
184
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fourth quarter of 2005, we concluded that impairment
indicators existed at December 31, 2005, and that certain
of our assets were impaired. This conclusion resulted from a
convergence of multiple facts and circumstances arising during
the fourth quarter of 2005, including:
|
|
|
|
|
Restrictions on us and our subsidiaries that arise from our
December 20, 2005, bankruptcy filings, including the need
to obtain support or approvals from the Bankruptcy Courts,
creditors committees and DIP Facility lenders to execute
certain of our key business decisions; |
|
|
|
Our current status as a Chapter 11 debtor, current credit
constraints and focus on reorganizing and emerging from
bankruptcy have made us less likely to commit to expending
additional capital in the foreseeable future for certain of our
development and construction projects; |
|
|
|
Near-term action to sell or abandon operating plants that
currently have significant negative cash flow is more likely as
part of our reorganization and restructuring process; |
|
|
|
Debt covenant restrictions, including under the DIP Facility,
and recent court rulings restrict or prevent the use of proceeds
from the sale of assets, or use of cash from operations, for
development and construction projects; |
|
|
|
Among other things, our bankruptcy filings and related credit
constraints make it much more difficult to secure long-term PPAs
with electrical utilities or other customers that would have
made it possible to finance the construction of projects or
allow merchant power plants with current negative cash flow
(until spot market prices and spark spreads recover) to become
profitable. For example, because credit support is required by
prospective long-term PPA customers due to our financial
condition and bankruptcy filings, it has become increasingly
difficult for us to enter into PPAs; |
|
|
|
Our access to capital on attractive terms for development
projects has been reduced; and |
|
|
|
Historically high and very volatile natural gas prices in recent
times have made many customers hesitant to commit to long-term
base load PPAs for gas-fired electrical generation. |
This table presents the major components of the impairment
charges recorded for the year ended December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value | |
|
|
|
|
|
|
before | |
|
Impairment | |
|
New Cost | |
Project Description |
|
Impairment | |
|
Charge | |
|
Basis | |
|
|
| |
|
| |
|
| |
Operating plants
|
|
$ |
3,182,392 |
|
|
$ |
(2,412,586 |
) |
|
$ |
769,806 |
|
|
|
|
|
|
|
|
|
|
|
Development and construction projects and assets
|
|
$ |
3,314,418 |
|
|
$ |
(1,957,498 |
) |
|
$ |
1,356,920 |
|
Joint venture investments
|
|
|
238,297 |
|
|
|
(134,469 |
) |
|
|
103,828 |
|
Notes receivable
|
|
|
38,644 |
|
|
|
(25,698 |
) |
|
|
12,946 |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating project impairment charges
|
|
|
3,591,359 |
|
|
|
(2,117,665 |
) |
|
|
1,473,694 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,773,751 |
|
|
$ |
(4,530,251 |
) |
|
$ |
2,243,500 |
|
|
|
|
|
|
|
|
|
|
|
The impairment charges, which relate to 16 of our operating
plants with a peak capacity of 5,268 MW were generally the
result of our determination that the likelihood of sale or
abandonment of certain of our plants had increased and totaled
approximately $2.4 billion for the year ended
December 31, 2005. Expected future cash expenditures total
approximately $6.0 million, related primarily to sales
costs. For power plants
185
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that are considered potential sale or abandonment candidates, we
probability-weighted the estimated net proceeds from sale or
abandonment with the projected pre-interest expense, pre-tax
cash flows over the plants economically useful lives,
assuming no sale or abandonment. Assessing the probability of
sale or abandonment versus continuing to own and operate the
facility and developing estimates of future cash flows and
probability-weighted cash flow scenarios requires significant
judgment, and our estimates of future cash flows and
probabilities could be considerably different from actual
results or outcomes and we may incur future impairment charges
related to these and other operating plants.
|
|
|
Development and Construction Projects and Assets |
The impairment charges related to development and construction
projects and assets (excluding joint venture investments, which
are discussed below) totaled approximately $2.0 billion.
Expected future cash expenditures total approximately
$8 million, related primarily to costs to ready equipment
for sale. The impairment charge is the result of our conclusion
that the projects are no longer probable of being successfully
completed by us and that project costs are no longer expected to
be fully recovered by us through future operations.
|
|
|
Joint Venture Investments |
In November 2005 we contributed three combustion gas turbine
generators and one steam turbine generator with a book value of
approximately $154.1 million in exchange for a 50% interest
in Greenfield LP. See Note 10 for a description of this
transaction and resulting investment. Mitsui contributed
monetary assets to the joint venture project for the other 50%
equity interest. In accordance with APB No. 29, we recorded
the value of our investment at its implied fair value of
approximately $40.7 million, based on the value of monetary
assets contributed to the joint venture entity by the other 50%
equity partner. This transfer resulted in a $93.1 million
impairment charge in the quarter ended December 31, 2005.
Subsequent to December 31, 2005, we completed the sale of
our 45% interest in the Valladolid project to the two remaining
partners. See Note 34 for a description of this sale. The
carrying value of our investment was approximately
$84.2 million. As part of our year-end close process
related to our assessment of the fair value of this equity
method investment, we determined that the investment had
experienced an other-than-temporary decline in value, based on
our probability weighted estimate of future discounted cash
flows, giving effect to the likelihood of completing the sale.
We concluded that a non-cash impairment charge of approximately
$41.3 million was required for the year ended
December 31, 2005. Future cash expenditures necessary to
exit this investment are not expected to be significant. See
Note 10 for a description of this investment.
The table below summarizes the impairment charges related to our
joint venture investment projects during the year-ended
December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value | |
|
|
|
Carrying Value | |
|
|
before | |
|
|
|
after | |
Project Description |
|
Impairment | |
|
Impairments | |
|
Impairment | |
|
|
| |
|
| |
|
| |
Greenfield LP(1)
|
|
$ |
154,060 |
|
|
$ |
(93,132 |
) |
|
$ |
60,928 |
|
Valladolid
|
|
|
84,237 |
|
|
|
(41,337 |
) |
|
|
42,900 |
|
|
|
|
|
|
|
|
|
|
|
|
Total joint venture investments
|
|
$ |
238,297 |
|
|
$ |
(134,469 |
) |
|
$ |
103,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
At December 31, 2005, our investment in Greenfield LP was
approximately $40.7 million, representing the fair value of
the turbines of approximately $60.9 million less a receivable
from the joint venture of |
186
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
approximately $20.2 million which we treated as a return of
capital. See Note 10 for a discussion of this investment. |
|
|
|
Notes receivable impairments |
In accordance with SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, we recorded a bad debt
allowance of approximately $25.7 million on a note
receivable balance of approximately $38.6 million due from
an affiliate of Panda. The note is guaranteed by Panda and
collateralized by Pandas carried interest in our Oneta
power plant. See Note 11 for a discussion of the impairment.
See also Reorganization Items under Note 4 for a discussion
of an impairment charge of approximately $0.9 billion
related to our investment in certain Canadian Debtors.
As we develop and implement our business plan, there could be
additional impairment charges in future periods.
|
|
7. |
Property, Plant and Equipment, Net, and Capitalized
Interest |
As of December 31, 2005 and 2004, the components of
property, plant and equipment, are stated at cost less
accumulated depreciation as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Buildings, machinery, and equipment
|
|
$ |
14,023,358 |
|
|
$ |
14,615,907 |
|
Oil and gas pipelines
|
|
|
106,752 |
|
|
|
90,625 |
|
Geothermal properties
|
|
|
480,149 |
|
|
|
474,869 |
|
Other
|
|
|
178,145 |
|
|
|
206,049 |
|
|
|
|
|
|
|
|
|
|
|
14,788,404 |
|
|
|
15,387,450 |
|
Less: Accumulated depreciation
|
|
|
(1,872,989 |
) |
|
|
(1,416,586 |
) |
|
|
|
|
|
|
|
|
|
|
12,915,415 |
|
|
|
13,970,864 |
|
Land
|
|
|
92,595 |
|
|
|
104,972 |
|
Construction in progress
|
|
|
1,111,205 |
|
|
|
4,321,907 |
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
14,119,215 |
|
|
$ |
18,397,743 |
|
|
|
|
|
|
|
|
See Note 6 for a discussion of impairments.
Total depreciation expense for the years ended December 31,
2005, 2004 and 2003 was $526.0 million, $465.2 million
and $400.7 million, respectively.
We have various debt instruments that are secured by certain of
our property, plant and equipment. See Notes 14
24 for a detailed discussion of such instruments.
|
|
|
Buildings, Machinery and Equipment |
This component primarily includes electric power plants and
related equipment. Depreciation is recorded utilizing the
straight-line method over the estimated original composite
useful life, generally 35 years for baseload power plants,
exclusive of the estimated salvage value, typically 10%. Peaking
facilities are generally depreciated over 40 years, less
the estimated salvage value of 10%. We capitalize costs for
major turbine generator refurbishments, which include such
significant items as combustor parts (e.g. fuel nozzles,
transition pieces, and baskets), compressor blades,
vanes and diaphragms. These refurbishments are done either under
LTSAs by the original equipment manufacturer or by our Turbine
Maintenance Group. The capitalized costs
187
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are depreciated over their estimated useful lives ranging from 2
to 20 years. At December 31, 2005, the weighted
average life was approximately 6 years. We expense annual
planned maintenance. Included in buildings, machinery and
equipment are assets under capital leases. See Note 18 for
more information regarding these assets under capital leases.
Certain capital improvements associated with leased facilities
may be deemed to be leasehold improvements and are amortized
over the shorter of the term of the lease or the economic life
of the capital improvement.
On July 7, 2005, we, along with our subsidiaries Calpine
Gas Holdings LLC and Calpine Fuels Corporation, sold
substantially all of our remaining domestic oil and gas assets
(other than certain gas pipeline assets) to Rosetta for
$1.05 billion, less certain transaction fees and expenses.
The disposition qualified as discontinued operations upon our
commitment to a plan of divesture in the quarter ended
June 30, 2005. See Note 13 for more information
regarding our discontinued operations.
We historically followed the successful efforts method of
accounting for oil and natural gas activities. Under the
successful efforts method, lease acquisition costs and all
development costs were capitalized. Exploratory drilling costs
were capitalized until the results were determined. If proved
reserves were not discovered, the exploratory drilling costs
were expensed. Other exploratory costs were expensed as
incurred. Interest costs related to financing major oil and gas
projects in progress were capitalized until the projects were
evaluated or until the projects were substantially complete and
ready for their intended use if the projects were evaluated as
successful. The provision for depreciation, depletion, and
amortization was based on the capitalized costs as determined
above, plus future abandonment costs net of salvage value, using
the units of production method with lease acquisition costs
amortized over total proved reserves and other costs amortized
over proved developed reserves. The amounts remaining at
December 31, 2005 and 2004, represent pipeline assets,
which are depreciated over 30 years.
Prior to the sale of these oil and gas production assets and
reserves in July 2005, we assessed the impairment for oil and
gas properties periodically (at least annually) to determine if
impairment of such properties were necessary. Management
utilized its year-end reserve report prepared by a licensed
independent petroleum engineering firm and related market
factors to estimate the future cash flows for all proved
developed (producing and non-producing) and proved undeveloped
reserves. Property impairments occurred if a field discovered
lower than anticipated reserves, reservoirs produced below
original estimates or if commodity prices fell to a level that
significantly affected anticipated future cash flows on the
property. Proved oil and gas property values were reviewed when
circumstances suggest the need for such a review and, if
required, the proved properties were written down to their
estimated fair value based on proved reserves and other market
factors. Unproved properties were reviewed quarterly to
determine if there had been impairment of the carrying value,
with any such impairment charged to expense in the current
period. As a result of decreases in proved undeveloped reserves
located in South Texas and proved developed non-producing
reserves in Offshore Gulf of Mexico, a non-cash impairment
charge of approximately $202.1 million was recorded for the
year ended December 31, 2004, which was reclassified to
discontinued operations upon the sale of our oil and gas assets
in July 2005.
We capitalize costs incurred in connection with the development
of geothermal properties, including costs of drilling wells and
overhead directly related to development activities as well as
costs of production equipment, the related facilities and the
operating power plants. Proceeds from the sale of geothermal
properties are applied against capitalized costs, with no gain
or loss recognized.
188
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Geothermal costs, including an estimate of future costs to be
incurred, costs to optimize the productivity of the assets, and
the estimated costs to dismantle, are amortized by the units of
production method based on the estimated total productive output
over the estimated useful lives of the related steam fields.
Depreciation of the buildings and roads is computed using the
straight-line method over their estimated useful lives. It is
reasonably possible that the estimate of useful lives, total
unit-of-production or
total capital costs to be amortized using the
units-of-production
method could differ materially in the near term from the amounts
assumed in arriving at current depreciation expense. These
estimates are affected by such factors as our ability to
continue selling electricity to customers at estimated prices,
changes in prices of alternative sources of energy such as
hydro-generation and gas, and changes in the regulatory
environment. Geothermal steam turbine generator refurbishments
are expensed as incurred.
This component primarily includes software and ERCs. Software is
amortized over its estimated useful life, generally 3 to
5 years. We hold ERCs that must generally be acquired
during the permitting process for power plants in construction.
ERCs are related to reductions in environmental emissions that
result from some action like increasing energy efficiency, and
are measured and registered in a way so that they can be bought,
sold and traded. The lives of the ERCs are usually consistent
with the life of the related plant. The gross ERC balance
recorded in property, plant and equipment and included in
Other above was $69.6 million and
$103.6 million as of December 31, 2005 and 2004,
respectively. Of this balance $30.8 million and
$21.3 million related to plants in operation as of
December 31, 2005 and 2004, respectively. The depreciation
expense recorded in 2005, 2004 and 2003 related to ERCs was
$0.7 million, $0.5 million and $0.5 million,
respectively. During 2005, ERCs available for sale were
reclassified from property, plant and equipment to the
Other assets line of the Consolidated Balance Sheet.
As of December 31, 2005, the total of such ERCs in
Other assets was $20.1 million.
CIP is primarily attributable to gas-fired power projects under
construction including prepayments on gas and steam turbine
generators and other long lead-time items of equipment for
certain development projects not yet in construction. Upon
commencement of plant operation, these costs are transferred to
the applicable property category, generally buildings, machinery
and equipment.
|
|
|
Capital Spending Development and Construction |
CIP, development costs in process and unassigned equipment
consisted of the following at December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment | |
|
Project | |
|
|
|
|
# of | |
|
|
|
Included in | |
|
Development | |
|
Unassigned | |
|
|
Projects | |
|
CIP | |
|
CIP | |
|
Costs | |
|
Equipment | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Projects in active construction(1)
|
|
|
4 |
|
|
$ |
662,952 |
|
|
$ |
247,916 |
|
|
$ |
|
|
|
$ |
|
|
Projects in suspended construction
|
|
|
3 |
|
|
|
265,416 |
|
|
|
167,447 |
|
|
|
|
|
|
|
|
|
Projects in suspended development
|
|
|
6 |
|
|
|
167,859 |
|
|
|
167,800 |
|
|
|
24,232 |
|
|
|
|
|
Other capital projects
|
|
|
NA |
|
|
|
14,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unassigned equipment
|
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction and development costs
|
|
|
|
|
|
$ |
1,111,205 |
|
|
$ |
583,163 |
|
|
$ |
24,232 |
|
|
$ |
137,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(1) |
There were a total of four consolidated projects in active
construction at December 31, 2005. Additionally, we had two
projects in active construction that are recorded in
unconsolidated investments and are not included in the table
above. |
Projects in Active Construction Subsequent to
December 31, 2005, we entered into a non-binding letter of
intent contemplating the negotiation of a definitive agreement
for the sale of Otay Mesa Energy Center, which is included in
this table as a project in active construction and on which we
recorded an impairment charge in the period ending
December 31, 2005. See Note 34 for a description of
the agreement. The remaining three consolidated projects in
active construction are projected to come on line during 2006 or
later. These projects will bring on line approximately
747 MW of base load capacity (871 MW with peaking
capacity). Interest and other costs related to the construction
activities necessary to bring these projects to their intended
use are being capitalized. At December 31, 2005, the total
projected cost to complete these three projects was
approximately $215.2 million, which we primarily expect to
fund under project financing facilities.
Projects in Suspended Construction There are
an additional three projects in suspended construction. These
projects would bring on line approximately 1,769 MW of base
load capacity (2,035 MW with peaking capacity). Work and
capitalization of interest on the three projects has been
suspended or delayed and we recorded impairment charges on all
three of these projects in the period ending December 31,
2005.
Projects in Suspended Development We have
ceased capitalization of additional development costs and
interest expense on certain development projects on which work
has been suspended. Capitalization of costs may recommence as
work on these projects resumes, if certain milestones and
criteria are met indicating that it is again highly probable
that the costs will be recovered through future operations. As
is true for all projects, the suspended projects are reviewed
for impairment whenever there is an indication of potential
reduction in a projects fair value. Further, if it is
determined that it is no longer probable that the projects will
be completed and all capitalized costs recovered through future
operations, the carrying values of the projects would be written
down to their recoverable value. In fact, we recorded
substantial impairment charges on certain of these projects in
the period ending December 31, 2005. These projects would
bring on line approximately 1,533 MW of base load capacity
(2,210 MW with peaking capacity).
Other Capital Projects Other capital projects
primarily consist of enhancements to operating power plants,
geothermal resource and facilities development, as well as
software developed for internal use.
On July 29, 2005, we completed the sale of our Inland
Empire Energy Center development project to General Electric for
approximately $30.9 million. The project will be financed,
owned and operated by General Electric. We will manage plant
construction, market the plants output, and manage its
fuel requirements. We have an option to purchase the facility in
years seven through fifteen following the commercial operation
date and General Electric can require us to purchase the
facility for a limited period of time in the fifteenth year, all
subject to satisfaction of various terms and conditions. If we
purchase the facility under the call or put, General Electric
will continue to provide critical plant maintenance services
throughout the remaining estimated useful life of the facility.
Because of continuing involvement related to the purchase option
and put, we deferred the gain of approximately $10 million
until the call or put option is either exercised or expires.
Unassigned Equipment As of December 31,
2005, we had made progress payments on four turbines and other
equipment with an aggregate carrying value of
$137.8 million. This unassigned equipment is classified on
the balance sheet as other assets because it is not assigned to
specific development and construction projects. We are holding
this equipment for potential use on future projects. It is
possible that some of this unassigned equipment may eventually
be sold. For equipment that is not assigned to development or
construction projects, interest is not capitalized.
190
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capitalized Interest We capitalize interest
on capital invested in projects during the advanced stages of
development and the construction period in accordance with
SFAS No. 34, Capitalization of Interest
Cost, as amended by SFAS No. 58,
Capitalization of Interest Cost in Financial Statements
That Include Investments Accounted for by the Equity Method (an
Amendment of FASB Statement No. 34). Our qualifying
assets include CIP, construction costs related to unconsolidated
investments in power projects under construction, advanced stage
development costs considered highly probable of completion,
including assets classified from
time-to-time as held
for sale. For the years ended December 31, 2005, 2004 and
2003, the total amount of interest capitalized was
$196.1 million, $376.1 million and
$444.5 million, including $38.2 million,
$49.1 million and $66.0 million, respectively, of
interest incurred on funds borrowed for specific construction
projects and $157.9 million, $327.0 million and
$378.5 million, respectively, of interest incurred on
general corporate funds used for construction. Upon commencement
of plant operation, capitalized interest, as a component of the
total cost of the plant, is amortized over the estimated useful
life of the plant. The decrease in the amount of interest
capitalized during the year ended December 31, 2005,
reflects the completion of construction for several power
plants, the suspension of certain of our development and
construction projects, and a reduction in our development and
construction program in general.
In accordance with SFAS No. 34, we determine which
debt instruments best represent a reasonable measure of the cost
of financing construction assets in terms of interest cost
incurred that otherwise could have been avoided. These debt
instruments and associated interest cost are included in the
calculation of the weighted average interest rate used for
capitalizing interest on general funds. Historically, the
primary debt instruments included in the rate calculation of
interest incurred on general corporate funds have been our
Senior Notes, our term loan facilities and our secured working
capital revolving credit facility with adjustments made as debt
is retired or new debt is issued. We filed for protection on
December 20, 2005, and subsequent to this date the debt
instruments included in the rate calculation were the first
priority Senior Notes and the DIP Facility. At the bankruptcy
filing date, unsecured and undersecured Senior Notes and Term
Loans were classified to Liabilities Subject to
Compromise and were removed from the rate calculation for
the period subsequent to the bankruptcy filing date. See
Note 3 of the Notes to Consolidated Financial Statements
for more information on the bankruptcy filing.
191
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Asset Retirement Obligations |
The information below reconciles the values, as of
December 31, 2005, of the asset retirement obligation
related to our continuing operations from the date the liability
was recorded (in thousands):
|
|
|
|
|
|
|
|
Total | |
|
|
| |
Asset retirement obligation at January 1, 2004
|
|
$ |
23,551 |
|
|
Liabilities incurred
|
|
|
3,492 |
|
|
Liabilities settled
|
|
|
(324 |
) |
|
Accretion expense
|
|
|
5,174 |
|
|
Revisions in the estimated cash flows
|
|
|
|
|
|
Other (primarily foreign currency translation)
|
|
|
(1,897 |
) |
|
|
|
|
Asset retirement obligation at December 31, 2004
|
|
$ |
29,996 |
|
|
Liabilities incurred
|
|
|
156 |
|
|
Liabilities settled
|
|
|
|
|
|
Accretion expense
|
|
|
3,634 |
|
|
Revisions in the estimated cash flows
|
|
|
(129 |
) |
|
Other (primarily Canadian and other foreign subsidiaries
deconsolidation)
|
|
|
(846 |
) |
|
|
|
|
Asset retirement obligation at December 31, 2005
|
|
$ |
32,811 |
|
|
|
|
|
|
|
8. |
Goodwill and Other Intangible Assets |
As of December 31, 2005, we completed our annual goodwill
impairment test as required under SFAS No. 142,
Goodwill and Other Intangible Assets, and determined
that the fair value of the reporting units with goodwill
exceeded their net carrying values. Therefore, our goodwill
asset was not impaired as of December 31, 2005. Subsequent
goodwill impairment tests will be performed, at a minimum, in
December of each year in conjunction with our annual reporting
process. The entire balance of goodwill, $45.2 million, has
been assigned to the PSM reporting unit, which is included in
the Other category as defined by SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information.
The components of the amortizable intangible assets consist of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
As of December 31, 2005 | |
|
As of December 31, 2004 | |
|
|
Average | |
|
| |
|
| |
|
|
Useful Life/ | |
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Accumulated | |
|
|
Contract Life | |
|
Amount(1) | |
|
Amortization(1) | |
|
Amount(1) | |
|
Amortization(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Patents
|
|
|
5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
485 |
|
|
$ |
(417 |
) |
Power purchase agreements
|
|
|
23 |
|
|
|
85,099 |
|
|
|
(46,237 |
) |
|
|
85,099 |
|
|
|
(43,115 |
) |
Fuel supply and fuel management contracts
|
|
|
23 |
|
|
|
5,000 |
|
|
|
(2,039 |
) |
|
|
5,000 |
|
|
|
(1,826 |
) |
Geothermal lease rights(2)
|
|
|
20 |
|
|
|
8,108 |
|
|
|
(650 |
) |
|
|
19,518 |
|
|
|
(550 |
) |
Other
|
|
|
15 |
|
|
|
5,887 |
|
|
|
(1,025 |
) |
|
|
4,755 |
|
|
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
104,094 |
|
|
$ |
(49,951 |
) |
|
$ |
114,857 |
|
|
$ |
(46,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Fully amortized intangible assets are not included. |
|
(2) |
Geothermal lease rights relate to undeveloped properties at The
Geysers. Certain of these properties were no longer probable of
development, and we recorded an impairment charge of
approximately $11.4 mil- |
192
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
lion in the period ended December 31, 2005. This charge is
reflected in the Equipment, development project and other
impairments line item of the Consolidated Statements of
Operations. See Note 6 for more information regarding the
impairment of our development projects. |
Amortization expense of Other intangible assets was
$4.0 million, $4.6 million and $4.9 million, in
2005, 2004 and 2003, respectively. Assuming no future
impairments of these assets or additions as the result of
acquisitions, annual amortization expense will be
$3.9 million in 2006, $4.0 million in 2007,
$4.0 million in 2008, $4.0 million in 2009 and
$3.0 million in 2010.
As a result of the bankruptcy filings, we are not currently
evaluating any opportunities to acquire power generating
facilities or other significant assets and there were no mergers
or acquisitions consummated during the year ended
December 31, 2005. In prior years, acquisition activity was
dependent on the availability of financing on attractive terms
and the expectation of returns that met our long-term
requirements. The following material mergers and acquisitions
were consummated during the years ended December 31, 2004
and 2003. For all business combinations, the results of
operations of the acquired companies were incorporated into our
consolidated financial statements commencing on the date of
acquisition.
|
|
|
Calpine Cogeneration Company Transaction |
On March 23, 2004, we completed the acquisition of the
remaining 20% interest in Calpine Cogen, which held interests in
six power facilities, from NRG Energy, Inc. for approximately
$2.5 million. We purchased our initial 80% interest in
Calpine Cogen (formerly known as Cogeneration Corporation of
America) from NRG in 1999. Prior to the 2004 acquisition, we
consolidated the assets of Calpine Cogen in our financial
statements and reflected the 20% interest held by NRG as a
minority interest. NRGs minority interest had a carrying
value of approximately $37.5 million at the time of
acquisition. The carrying value of the underlying assets was
adjusted downward on a pro-rata basis for the difference between
the purchase price and the carrying value of NRGs minority
interest. As a result of this transaction, we had a 100%
interest in the Newark, Parlin, Morris and Pryor facilities, an
83% interest in the Philadelphia Water Project and a 50%
interest in the Grays Ferry Power Plant. In 2005, we sold our
interests in the Grays Ferry Power Plant and the Morris facility.
On March 26, 2004, we acquired the remaining 50% interest
in the Aries Power Plant from a subsidiary of Aquila, Inc. (we
refer to Aquila and its subsidiaries collectively as
Aquila). At the same time, Aries terminated a
tolling contract with another subsidiary of Aquila. Aquila paid
$5 million in cash and assigned certain transmission and
other rights to us. We and Aquila also amended a master netting
agreement between us, and as a result, we returned cash margin
deposits totaling $10.8 million to Aquila. Contemporaneous
with the closing of the acquisition, Aries existing
construction loan was converted to two term loans totaling
$178.8 million. We contributed $15 million of equity
to Aries in connection with the term out of the construction
loan.
193
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts below represent 50% of the fair value of the assets
acquired and liabilities assumed in the transaction as of the
closing date. These amounts together with 50% of the investment
owned by us prior to the acquisition are now fully consolidated
into our financial statements.
|
|
|
|
|
|
|
Debit/ (Credit) | |
|
|
| |
Current assets
|
|
$ |
1,028 |
|
Contracts
|
|
|
2,505 |
|
Property, plant and equipment
|
|
|
100,793 |
|
Other assets
|
|
|
1,902 |
|
Current liabilities
|
|
|
(1,978 |
) |
Derivative liability
|
|
|
(16,022 |
) |
Long-term debt
|
|
|
(88,228 |
) |
|
|
|
Brazos Valley Power Plant Transaction |
On March 31, 2004, we closed on the purchase of the
570-MW natural
gas-fired Brazos Valley Power Plant located in Fort Bend
County, Texas, for total consideration of approximately
$181.1 million. We used the net proceeds from the sale in
January 2004 of our 50% undivided interest in the Lost Pines 1
facility and cash on hand to acquire Brazos Valley in a
transaction structured as a tax deferred like-kind exchange
under IRS Section 1031. The equity interests in Brazos
Valley were pledged as part of the collateral package supporting
the CCFC notes and term loans. The fair value of the Brazos
Valley facility was equal to the purchase price and as a result,
the entire purchase price was allocated to the power plant
assets and is recorded in property plant and equipment in our
Consolidated Balance Sheets.
|
|
|
Thomassen Turbine Systems Transaction |
On February 26, 2003, we, through our wholly owned
subsidiary Calpine European Finance, LLC, purchased 100% of the
outstanding stock of BBPTS from its parent company, Babcock
Borsig. Immediately following the acquisition, the BBPTS name
was changed to Thomassen Turbine Systems, B.V. Our total cost of
the acquisition was $12.0 million and was comprised of two
pieces. The first was a $7.0 million cash payment to
Babcock Borsig to acquire the outstanding stock of TTS. Included
in this payment was the right to a note receivable valued at
11.9 million Euro (approximately US$12.9 million on
the acquisition date) due from TTS, which we acquired from
Babcock Borsig for $1.00. Additionally, as of the date of the
acquisition, TTS owed $5.0 million in payments to another
of our wholly owned subsidiaries, PSM, under a pre-existing
license agreement. Because of the acquisition, TTS ceased to
exist as a third party debtor to us, thereby resulting in a
reduction of third party receivables of $5.0 million from
our consolidated perspective. In December 2005, we
deconsolidated TTS along with most of our Canadian and other
foreign subsidiaries. See Note 10 for more information on
the deconsolidation.
Pro Forma Effects of Acquisitions
Acquired businesses are consolidated upon the closing date of
the acquisition. The table below reflects the unaudited pro
forma combined results of operations for all business
combinations during 2004 and 2003, as
194
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
if the acquisitions had taken place at the beginning of fiscal
year 2003. Our consolidated financial statements include the
effects of Calpine Cogen, Aries, Brazos Valley and TTS:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(in thousands, except per | |
|
|
share amounts) | |
Total revenue
|
|
$ |
8,938,746 |
|
|
$ |
8,714,609 |
|
Income (loss) before discontinued operations and cumulative
effect of accounting changes
|
|
$ |
(485,746 |
) |
|
$ |
(62,163 |
) |
Net income (loss)
|
|
$ |
(250,176 |
) |
|
$ |
266,743 |
|
Net income (loss) per basic share
|
|
$ |
(0.58 |
) |
|
$ |
0.68 |
|
Net income (loss) per diluted share
|
|
$ |
(0.58 |
) |
|
$ |
0.67 |
|
In managements opinion, these unaudited pro forma amounts
are not necessarily indicative of what the actual combined
results of operations might have been if the 2004 and 2003
acquisitions had been effective at the beginning of fiscal year
2003. In addition, they are not intended to be a projection of
future results and do not reflect all the synergies that might
be achieved from combined operations.
Our investments in power projects are integral to our
operations. As discussed in Note 2, our joint venture
investments were evaluated under FIN 46-R to determine
which, if any, entities were VIEs. Based on this evaluation, we
determined that Acadia PP, Whitby, Valladolid, Greenfield LP and
AELLC were VIEs, in which we held a significant variable
interest. During the latter half of 2005, due to the
restructuring of the CES tolling arrangement with Acadia PP, we
reconsidered our investment in Acadia PP under FIN 46-R. As
a result, we determined that we were the Primary
Beneficiary under FIN 46-R and, accordingly, have
consolidated Acadia PP as discussed below. In the fourth quarter
of 2004, we changed from the equity method to the cost method to
account for our investment in AELLC as discussed below. In the
fourth quarter of 2005, we also deconsolidated most of our
Canadian and other foreign entities, including Whitby, and began
to account for them under the cost method. We continue to
account for our unconsolidated joint venture investments in
Valladolid (prior to its sale in April 2006) and Greenfield LP
in accordance with APB Opinion No. 18, The Equity
Method of Accounting For Investments in Common Stock and
FIN 35, Criteria for Applying the Equity Method of
Accounting for Investments in Common Stock (An Interpretation of
APB Opinion No. 18).
Valladolid is the owner of a
525-MW natural
gas-fired energy center currently under construction sponsored
by CFE at Valladolid, Mexico in the Yucatan Peninsula. The
project was a joint venture between us, Mitsui and Chubu, both
headquartered in Japan. As of December 31, 2005, we owned
45% of the entity, while Mitsui and Chubu each owned 27.5%. Our
maximum potential exposure to loss at December 31, 2005,
was limited to the book value of our investment of approximately
$42.9 million. See Note 34 regarding the subsequent
sale of our interest in Valladolid. Also, see Note 6
regarding the impairment charge due to the other-than-temporary
decline in value of this investment.
Greenfield LP is the owner of a
1,005-MW combined cycle
generation facility under construction in the Township of St.
Clair in Ontario, Canada. In April 2005, Greenfield LP entered
into a 20-year Clean
Energy Supply Contract with the Ontario Power Authority to sell
clean energy from the power plant. In November 2005 we
contributed three combustion gas turbine generators and one
steam turbine generator with a book value of approximately
$154.1 million in exchange for a 50% interest in Greenfield
LP. Mitsui owns the other 50% interest. As of December 31,
2005 our investment interest in the project was
$40.7 million, representing the fair value of the turbines
of approximately $60.9 million less a receivable of
approximately $20.2 million from Mitsui that was recorded
upon transfer of the turbines, which represented a return of
capital. This
195
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
receivable is reflected in the Other assets line of
the Consolidated Balance Sheet as of December 31, 2005. Our
maximum potential exposure to loss at December 31, 2005, is
limited to the book value of our investment of approximately
$40.7 million. Also, see Note 6 regarding the
impairment charge due to the other-than-temporary decline in
value of this investment.
AELLC is the owner of Androscoggin Energy Center, a
136-MW natural
gas-fired cogeneration facility located in Maine and is a joint
venture between us, affiliates of Wisvest Corporation and IP. On
November 3, 2004, a jury verdict was rendered against AELLC
in a breach of contract dispute with IP. See Note 3 for
more information about the legal proceeding. We recorded our
$11.6 million share of the award amount in the third
quarter of 2004. On November 26, 2004, AELLC filed a
voluntary petition for relief under Chapter 11 of the
Bankruptcy Code. As a result of the bankruptcy filing by AELLC,
we have lost significant influence and control of the project
and have adopted the cost method of accounting for our
investment in AELLC. Also, in December 2004, we determined that
our investment in AELLC, including outstanding notes receivable
and O&M receivable, was impaired and recorded a
$5.0 million impairment reserve. The facility had
third-party debt of $63.4 million outstanding as of
December 31, 2004, primarily consisting of
$60.3 million in construction debt. The debt was
non-recourse to Calpine Corporation. On April 12, 2005,
AELLC sold three fixed-price gas contracts to Merrill Lynch
Commodities Canada, ULC, and used a portion of the proceeds to
pay down its remaining construction debt. As of
December 31, 2005, the facility had third-party debt
outstanding of $3.1 million. Subsequent to
December 31, 2005, AELLC received confirmation of its
reorganization plan. See Note 31 for more information.
Whitby is the owner of a
50-MW natural gas-fired
cogeneration facility located in Ontario, Canada and is a joint
venture between us and a privately held enterprise. The
below-mentioned deconsolidation of our Canadian and other
foreign entities included our subsidiary that held the 50%
ownership interest in the Whitby joint venture. Consequently, we
considered our ownership interest in Whitby as a part of the
deconsolidation and fully impaired it. We use the cost method to
account for this investment.
SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries requires consolidation of all majority-owned
subsidiaries unless control is temporary or does not rest with
the majority owner (as, for instance, where the subsidiary is in
legal reorganization or in bankruptcy). Upon filing for
bankruptcy in the United States and Canada on December 20,
2005, we determined that it was necessary to deconsolidate most
of our Canadian and other foreign subsidiaries because the
Canadian debtor cases are not administered within the same
jurisdiction as the bankruptcy cases of Calpine Corporation and
the other U.S. Debtors, and as a result, we had lost the
elements of control (as described in SFAS No. 94)
necessary to continue to consolidate these Canadian and other
foreign subsidiaries. We deconsolidated these subsidiaries as of
December 20, 2005 and have subsequently accounted for our
investment in our Canadian and other foreign subsidiaries under
the cost method. Upon adoption of the cost method, we evaluated
our investment balances and intercompany notes receivable from
these entities for impairment. We determined that our entire
investment in these entities had experienced
other-than-temporary decline in value and was impaired. We also
concluded that all intercompany notes receivable balances from
these entities were uncollectible, as the notes were unsecured
and protected by the automatic stay under the CCAA.
Consequently, we fully impaired these investment and receivable
assets at December 31, 2005, resulting in a
$879.1 million charge to reorganization items. After full
impairment of our investment in these subsidiaries, our cost
basis is $0 at December 31, 2005.
When we deconsolidated our Canadian and other foreign
subsidiaries, we deconsolidated approximately $2.0 billion
of debt to third parties issued by certain of these
subsidiaries. See Note 24 for a description of these debt
instruments. Additionally, Calpine Corporation has guaranteed
the debt obligations to the security holders of certain of the
deconsolidated debt, in some cases through redundant or
overlapping arrangements. The beneficiaries of those guarantees,
including the security holders, may submit claims against us in
the U.S. Bankruptcy Court (on the bais of such guarantees).
Consequently, in accordance with
SOP 90-7, we
196
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
have also recorded approximately $3.8 billion of LSTC and
reorganization item expense, which is our assessment of the
probable allowable claims. This is notwithstanding the fact that
we expect that the ultimate settlement of the claims will be
capped at the amount actually owed to the applicable holders of
the deconsolidated debt, or approximately $2 billion.
Acadia PP is the owner of a
1,210-MW electric
wholesale generation facility located in Louisiana and is a
partnership between us and a subsidiary of Cleco. On
May 12, 2003, we completed the restructuring of our
interest in Acadia PP. As part of the transaction, the
partnership terminated its
580-MW,
20-year tolling
arrangement with a subsidiary of Aquila, Inc. in return for a
cash payment of $105.5 million. Acadia PP recorded a gain
of $105.5 million and then made a $105.5 million
distribution to us. Contemporaneously, our wholly owned
subsidiary, CES, entered into a new
20-year,
580-MW tolling contract
with Acadia PP. CES now markets all of the output from the
Acadia Energy Center under the terms of this new contract and an
existing 20-year
tolling agreement. Cleco receives priority cash distributions as
its consideration for the restructuring. Also, as a result of
this transaction, we recorded, as our share of the termination
payment from the Aquila subsidiary, a $52.8 million gain as
of December 31, 2003, which was recorded within
Income from unconsolidated investments in the
Consolidated Statements of Operations. Due to the restructuring
of our interest in Acadia PP, we were required to reconsider our
investment in the entity under FIN 46 and determined that
we were not the Primary Beneficiary and accordingly
we continued to account for our investment using the equity
method. As mentioned above, in the second half of 2005, CES
restructured its tolling agreement with Acadia PP to include
additional payments from CES to Acadia Power Holdings, a Cleco
subsidiary that holds its investment in Acadia PP. This
restructuring of the tolling and related agreements caused us to
re-evaluate our economic interest in the partnership. Based on
our reassessment, we determined that we became the Primary
Beneficiary of this VIE and we now consolidate Acadia PP.
Our consolidated financial statements include the assets and
liabilities of Acadia PP at December 31, 2005. We have also
reflected Clecos 50% interest in the partnership,
approximately $275.4 million, as a minority interest in our
balance sheet at December 31, 2005. See also Note 3
for a legal proceeding involving Acadia PP.
Of the following investments, Valladolid III Energy Center
and Greenfield Energy Center are accounted for under the equity
method while Androscoggin Energy Center, Whitby Cogeneration and
the Canadian and other foreign subsidiaries are accounted for
under the cost method (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership | |
|
Investment Balance at | |
|
|
Interest as of | |
|
December 31, | |
|
|
December 31, | |
|
| |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Valladolid III Energy Center(1)
|
|
|
45.0 |
% |
|
$ |
42,900 |
|
|
$ |
77,401 |
|
Greenfield Energy Centre(2)
|
|
|
50.0 |
% |
|
|
40,698 |
|
|
|
|
|
Androscoggin Energy Center(3)
|
|
|
32.3 |
% |
|
|
|
|
|
|
|
|
Whitby Cogeneration(3)
|
|
|
50.0 |
% |
|
|
|
|
|
|
32,528 |
|
Other Canadian and other foreign subsidiaries(3)
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
Grays Ferry Power Plant(4)
|
|
|
50.0 |
% |
|
|
|
|
|
|
48,558 |
|
Acadia Energy Center(5)
|
|
|
50.0 |
% |
|
|
|
|
|
|
214,501 |
|
Other
|
|
|
|
|
|
|
22 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in power projects
|
|
|
|
|
|
$ |
83,620 |
|
|
$ |
373,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Subsequent to December 31, 2005, we sold our 45% interest
in Valladolid to Mitsui and Chubu. See Notes 6 and 34 for
more information. |
|
(2) |
In addition to our investment in Greenfield LP, as of
December 31, 2005 we had a receivable from Mitsui of
approximately $20.2 million. |
197
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(3) |
These investments were fully impaired at December 31, 2005.
Also, the investment in Androscoggin Energy Center excludes
certain Notes Receivable. See Note 10 for more information
on such notes receivable. |
|
(4) |
On July 8, 2005, we completed the sale of the Grays Ferry
Power Plant, in which we held a 50% interest, for gross proceeds
of $37.4 million. In June 2005, we recorded to the
Other expense (income), net line of the Consolidated
Condensed Statement of Operations an $18.5 million
impairment charge. This transaction did not qualify as a
discontinued operation under the guidance of
SFAS No. 144, which specifically excludes equity
method investments from its scope, unless the investment is part
of a larger disposal group. |
|
(5) |
As discussed above, this investment is consolidated into our
financial statements as of December 31, 2005. |
The following details our income and distributions from
investments in unconsolidated power projects (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Unconsolidated | |
|
|
|
|
Investments in Power Projects | |
|
Distributions | |
|
|
| |
|
| |
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Valladolid III Energy Center
|
|
$ |
(213 |
) |
|
$ |
76 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Androscoggin Energy Center
|
|
|
|
|
|
|
(23,566 |
) |
|
|
(7,478 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Whitby Cogeneration
|
|
|
2,234 |
|
|
|
1,433 |
|
|
|
303 |
|
|
|
4,533 |
|
|
|
1,499 |
|
|
|
|
|
Grays Ferry Power Plant
|
|
|
(739 |
) |
|
|
(2,761 |
) |
|
|
(1,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Acadia Energy Center
|
|
|
10,872 |
|
|
|
14,142 |
|
|
|
75,272 |
|
|
|
20,231 |
|
|
|
21,394 |
|
|
|
136,977 |
|
Aries Power Plant(1)
|
|
|
|
|
|
|
(4,264 |
) |
|
|
(3,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Calpine Natural Gas Trust(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,127 |
|
|
|
1,959 |
|
Gordonsville Power Plant(3)
|
|
|
|
|
|
|
|
|
|
|
11,985 |
|
|
|
|
|
|
|
|
|
|
|
2,672 |
|
Other
|
|
|
(35 |
) |
|
|
12 |
|
|
|
(1 |
) |
|
|
198 |
|
|
|
849 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
12,119 |
|
|
$ |
(14,928 |
) |
|
$ |
75,259 |
|
|
$ |
24,962 |
|
|
$ |
29,869 |
|
|
$ |
141,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on loans to power projects(4)
|
|
$ |
|
|
|
$ |
840 |
|
|
$ |
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
12,119 |
|
|
$ |
(14,088 |
) |
|
$ |
75,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
On March 26, 2004, we acquired the remaining 50% interest
in the Aries Power Plant. See Note 9 for a discussion of
the acquisition. |
|
(2) |
On September 2, 2004, we completed the sale of our equity
investment in CNGT. See Note 13 for more information on the
2004 sale of the Canadian natural gas reserves and petroleum
assets. |
|
(3) |
On November 26, 2003, we completed the sale of our 50%
interest in the Gordonsville Power Plant. Under the terms of the
transaction, we received $36.2 million in cash for our
$25.4 million investment and recorded a pre-tax gain of
$7.1 million. |
|
(4) |
At December 31, 2005 and 2004, loans to power projects
represented an outstanding loan to our 32.3% owned investment,
AELLC, in the amount of $4.0, million after impairment charges
and reserves. |
198
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The combined summarized results of operations and financial
position of 50% or less owned investments are summarized below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Condensed statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
171,065 |
|
|
$ |
237,983 |
|
|
$ |
416,506 |
|
|
Gross profit(1)
|
|
|
112,551 |
|
|
|
45,994 |
|
|
|
147,247 |
|
|
Income (loss) from continuing operations before extraordinary
items and cumulative effect of a change in accounting principle
|
|
|
(30,930 |
) |
|
|
(9,230 |
) |
|
|
174,730 |
|
|
Net income (loss)
|
|
|
(30,930 |
) |
|
|
(9,230 |
) |
|
|
174,730 |
|
Condensed balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
101,538 |
|
|
$ |
67,022 |
|
|
|
|
|
|
Non-current assets
|
|
|
456,201 |
|
|
|
897,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
557,739 |
|
|
$ |
964,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
199,468 |
|
|
$ |
150,716 |
|
|
|
|
|
|
Non-current liabilities
|
|
|
226,680 |
|
|
|
114,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$ |
426,148 |
|
|
$ |
265,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The 2005 gross profit primarily consists of revenue AELLC
received from the April 2005 sale of fixed price gas contracts
as explained above. |
199
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The summarized results of operations from the date of
deconsolidation to December 31, 2005, and financial
position as of December 31, 2005, of our Canadian and other
foreign subsidiaries are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
2005 | |
|
|
| |
Condensed statements of operations:
|
|
|
|
|
|
Revenue
|
|
$ |
12,453 |
|
|
Gross profit
|
|
|
(1,355 |
) |
|
Loss from continuing operations before extraordinary items and
cumulative effect of a change in accounting principle
|
|
|
(55,898 |
) |
|
Net loss
|
|
|
(55,898 |
) |
Condensed balance sheets:
|
|
|
|
|
|
Current assets
|
|
$ |
250,969 |
|
|
Non-current assets
|
|
|
571,288 |
|
|
|
|
|
|
|
Total assets
|
|
$ |
822,257 |
|
|
|
|
|
|
Current liabilities
|
|
$ |
122,962 |
|
|
Non-current liabilities
|
|
|
41,587 |
|
|
|
|
|
|
|
Total liabilities not subject to compromise
|
|
$ |
164,549 |
|
|
|
|
|
|
|
Liabilities subject to compromise
|
|
$ |
2,171,893 |
|
|
|
|
|
The debt on the books of the unconsolidated investments is not
reflected on our balance sheet. At December 31, 2005 and
2004, investee debt was approximately $2,161.7 million and
$133.9 million, respectively. Approximately
$1,971.2 million, related to our deconsolidated Canadian
and other foreign subsidiaries at December 31, 2005. Based
on our pro rata ownership share of each of the investments, our
share of such debt would be approximately $2,057.7 million
and $46.6 million for the respective periods. However,
except for the debt of the deconsolidated Canadian and other
foreign entities, as previously mentioned, all such debt is
non-recourse to us.
|
|
|
Related-Party Transactions with Unconsolidated
Investments |
We and certain of our equity and cost method affiliates have
entered into various service agreements with respect to power
projects. Following is a general description of each of the
various agreements:
Operation and Maintenance Agreements We
operate and maintain the Androscoggin Energy Center. This
includes routine maintenance, but not major maintenance, which
is typically performed under agreements with the equipment
manufacturers. Responsibilities include development of annual
budgets and operating plans. Payments include reimbursement of
costs, including our internal personnel and other costs, and
annual fixed fees.
Construction Management Services Agreements
We provide construction management services to Valladolid and
Greenfield LP. Payments include reimbursement of costs,
including our internal personnel and other costs. See
Note 34 for an update on the sale of Valladolid.
Administrative Services Agreements We handle
administrative matters such as bookkeeping for certain
unconsolidated investments. Payment is on a cost reimbursement
basis, including our internal costs, with no additional fee.
200
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capital Lease Agreement See Note 18 for
a complete discussion of our capital lease agreement with CPIF,
a related party.
Power Marketing Agreement CES enters into
trading agreements with CES Canada to buy and sell power under
the terms of the Edison Electric Institute.
Gas Supply Agreement CES also enters into
trading agreements with CES Canada to buy and sell gas under the
terms of the North American Energy Standards Board.
The power and gas supply contracts with CES are accounted for as
either purchase and sale arrangements or as tolling
arrangements. In a purchase and sale arrangement, title and risk
of loss associated with the purchase of gas is transferred from
CES to the project at the gas delivery point. In a tolling
arrangement, title to fuel provided to the project does not
transfer, and CES pays the project a capacity and variable fee
based on the specific terms of the power marketing and/or gas
supply agreement. CES maintains two tolling agreements with
Acadia PP. The two tolling agreements are included in the
amounts below through the fourth quarter of 2005 at which time
we began consolidating Acadia PP. In addition to the power
marketing agreements and gas supply agreements, CES enters into
standard industry financial instruments with CES Canada.
The related party balances as of December 31, 2005 and
2004, reflected in the accompanying consolidated balance sheets,
and the related party transactions for the years ended
December 31, 2005, 2004 and 2003, reflected in the
accompanying consolidated statements of operations, are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
As of December 31, |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Accounts receivable
|
|
$ |
5,073 |
|
|
$ |
765 |
|
Note receivable
|
|
|
4,037 |
|
|
|
4,037 |
|
Other receivables
|
|
|
641 |
|
|
|
|
|
Accounts payable
|
|
|
352 |
|
|
|
9,489 |
|
Other current liabilities
|
|
|
24,645 |
|
|
|
|
|
Liabilities subject to compromise
|
|
|
6,193,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Revenue
|
|
$ |
4,814 |
|
|
$ |
1,241 |
|
|
$ |
3,493 |
|
Cost of revenue
|
|
|
79,248 |
|
|
|
115,008 |
|
|
|
82,205 |
|
Interest expense
|
|
|
58 |
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
840 |
|
|
|
1,117 |
|
Gain on sale of assets
|
|
|
|
|
|
|
6,240 |
|
|
|
62,176 |
|
Reorganization items
|
|
|
4,654,202 |
|
|
|
|
|
|
|
|
|
201
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11. |
Notes Receivable and Other Receivables |
As of December 31, 2005 and 2004, the components of notes
receivable were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
PG&E (Gilroy) note
|
|
$ |
135,045 |
|
|
$ |
145,853 |
|
Panda note
|
|
|
12,946 |
|
|
|
38,644 |
|
Eastman note
|
|
|
19,413 |
|
|
|
19,748 |
|
Androscoggin note
|
|
|
4,037 |
|
|
|
4,037 |
|
Other
|
|
|
6,419 |
|
|
|
7,168 |
|
|
|
|
|
|
|
|
|
Total notes receivable
|
|
|
177,860 |
|
|
|
215,450 |
|
|
Less: Notes receivable, current portion included in other
current assets
|
|
|
(12,736 |
) |
|
|
(11,770 |
) |
|
|
|
|
|
|
|
|
|
Notes receivable, net of current portion
|
|
$ |
165,124 |
|
|
$ |
203,680 |
|
|
|
|
|
|
|
|
Gilroy had a long-term PPA with PG&E for the sale of energy
through 2018. The terms of the PPA provided for 120 MW of
firm capacity and up to 10 MW of as-delivered capacity. On
December 2, 1999, the CPUC approved the restructuring of
the PPA between Gilroy and PG&E. Under the terms of the
restructuring, PG&E and Gilroy were each released from
performance under the PPA effective November 1, 2002, and,
in addition to the normal capacity revenue Gilroy earned for the
period from September 1999 to October 2002, Gilroy was also
entitled to restructured capacity revenue it would have earned
over the November 2002 through March 2018 time period, for which
PG&E issued notes to us. These notes are scheduled to be
paid by PG&E during the period from February 2003 to
September 2014.
On December 4, 2003, we announced that we had sold to a
group of institutional investors our right to receive payments
from PG&E under the notes for $133.4 million in cash.
Because the transaction did not satisfy the criteria for sales
treatment under SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities a Replacement of FASB Statement
No. 125, it was reflected in the consolidated
financial statements as a secured financing, with a note payable
of $133.4 million. The receivable balance and note payable
balance are both reduced as PG&E makes payments to the
buyers of the Gilroy notes issued by PG&E. The
$24.1 million difference between the $157.5 million
book value of the Gilroy notes at the transaction date and the
$133.4 million cash received is recognized as additional
interest expense over the repayment term. We will continue to
record interest income over the repayment term and interest
expense will be accreted on the amortizing note payable balance.
Pursuant to the applicable transaction agreements, each of
Gilroy and Gilroy 1, the general partner of Gilroy, has
been established as an entity with its existence separate from
us and other subsidiaries of ours. We consolidate these entities.
In June 2000, we entered into a series of agreements to acquire
turbines and development rights related to the construction,
ownership and operation of the Oneta facility from Panda. PLC, a
subsidiary of Panda, retained an interest in a portion of the
income generated from Oneta as part of the consideration. As
part of the transaction, we extended PLC a loan bearing an
interest rate of LIBOR plus 5%. The loan is collateralized by
PLCs carried interest in the income generated from Oneta,
which achieved full commercial operations in June 2003, and is
guaranteed by Panda.
202
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On November 5, 2003, Panda filed suit against us and
certain of our affiliates alleging, among other things, that we
breached duties of care and loyalty allegedly owed to them by
failing to correctly construct and operate the Oneta facility in
accordance with Pandas original plans. Panda alleges that
it is entitled to a portion of the profits from Oneta and that
our actions reduced the profits from Oneta, thereby undermining
Pandas ability to repay monies owed to us under the loan.
We have filed a counterclaim against PLC and a motion to dismiss
as to the causes of action alleging federal and state securities
laws violations. The court recently granted our motion to
dismiss, but allowed Panda an opportunity to re-plead. This
litigation was stayed as a result of our bankruptcy filings on
December 20, 2005. See Note 31 for more information on
the litigation.
Panda defaulted on the loan, which was due on December 1,
2003. We continue to calculate interest income using the default
interest rate of 9.0%, but have fully reserved the interest
since that the default date. Based upon our qualitative and
quantitative analysis (using a discounted cash flow model at a
market interest rate commensurate with the risks currently
associated with the collateral) as of December 31, 2005,
the fair value of the collateral securing the Panda note appears
to be reduced. Therefore, the note receivable is impaired, as
the primary source of recovery is through the collateral value.
We have written down the note balance as of December 31,
2005, to the estimated fair value of the collateral (see
Note 6).
In August 2000, we entered into an ESA with Eastman at its
Columbia facility in South Carolina. As part of the ESA, we
financed the construction of the HTM facilities. Under this ESA,
Eastman will repay us $20.0 million for the HTM financed
facilities over a period of 20 years beginning in April
2004 at an annual interest rate of 9.76%.
We have a note receivable from our unconsolidated cost method
investee AELLC, the owner of the Androscoggin facility. We
ceased accruing interest income on our note receivable related
to unreimbursed administration costs associated with our
management of the project after a jury verdict was rendered
against AELLC in a breach of contract dispute. In December 2004,
we determined that our investment in Androscoggin was impaired
and recorded a $5.0 million impairment reserve. On
December 31, 2005 and 2004, the carrying value after
reserves of our notes receivable balance due from AELLC was
$4.0 million. See Note 10 for further information.
|
|
12. |
Canadian Power and Gas Trusts |
Calpine Power Income Fund On August 29,
2002, we announced we had completed a Cdn$230 million
(US$147.5 million) initial public offering of our Canadian
income fund, CPIF. The 23 million trust units issued to the
public were priced at Cdn$10 per trust unit, with an
initial yield of 9.35% per annum. On September 20,
2002, the syndicate of underwriters fully exercised the
over-allotment option that it was granted as part of the initial
public offering of trust units and acquired 3,450,000 additional
trust units of CPIF at Cdn$10 per trust unit, generating
Cdn$34.5 million (US$21.9 million). CPIF used the
proceeds of the initial offering and over-allotment to purchase
an equity interest in CPLP, which holds two of our Canadian
power generating assets, the Island Cogeneration Facility and
the Calgary Energy Centre. CPIF also used a portion of the
proceeds to make a loan to a subsidiary of ours which owns our
other Canadian power generating asset, the equity investment in
the Whitby cogeneration plant. Combined, these assets represent
approximately 168.3 net MW of power generating capacity.
On February 13, 2003, we completed a secondary offering of
17,034,234 warranted units of CPIF for gross proceeds of
Cdn$153.3 million (US$100.9 million). The warranted
units were sold to a syndicate of
203
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
underwriters at a price of Cdn$9.00. Each warranted unit
consisted of one trust unit and one-half of one trust unit
purchase warrant. Each warrant entitled the holder to purchase
one trust unit at a price of Cdn$9.00 per trust unit at any
time on or prior to December 30, 2003, after which time the
warrant became null and void. During 2003 a total of 8,508,517
warrants were exercised, resulting in cash proceeds to us of
Cdn$76.6 million (US$56.7 million). CPIF used the
proceeds from the secondary offering and warrant exercise to
purchase an additional equity interest in CPLP.
We currently hold less than 1% of CPIFs trust units;
however, we retain a 30% subordinated equity interest in
CPLP and have a significant continuing involvement in the assets
transferred to CPLP. The assets of CPLP were included in our
consolidated balance sheet under the guidance of
SFAS No. 66, Accounting for Sales of Real
Estate due to our significant continuing involvement in
the assets transferred to CPLP until CPLP was deconsolidated
along with most of our Canadian and other foreign subsidiaries
as further discussed in Note 10. The financial results of
CPLP were also consolidated in our financial statements until
December 20, 2005.
The proceeds from the initial public offering, the exercise of
the underwriters over-allotment, the proceeds from the secondary
offering of warranted units and the proceeds from the exercise
of warrants represented CPIFs 70% equity interest in CPLP
and its underlying generating assets and were recorded as
minority interests in our consolidated balance sheet prior to
the deconsolidation of most of our Canadian and other foreign
subsidiaries as described in Note 10. Because of our equity
ownership in CPLP, we consider CPIF a related party. See
Note 18 for a discussion of the capital lease transaction
with CPIF.
Calpine Natural Gas Trust On October 15,
2003, we closed the initial public offering of CNGT. A total of
18,454,200 trust units were issued at a price of
Cdn$10.00 per trust unit for gross proceeds of
approximately Cdn$184.5 million (US$139.4 million).
CNGT acquired select natural gas and petroleum properties from
us with the proceeds from the initial public offering,
Cdn$61.5 million (US$46.5 million) proceeds from a
concurrent issuance of units to a Canadian affiliate of ours,
and Cdn$40.0 million (US$30.2 million) proceeds from
bank debt. Net proceeds to us totaled approximately
Cdn$207.9 million (US$157.1 million), reflecting a
gain of $62.2 million on the sale of the properties. On
October 22, 2003, the syndicate of underwriters fully
exercised the over-allotment option associated with the initial
public offering of trust units, resulting in additional cash to
the CNGT. As a result of the exercise of the over-allotment
option, we acquired an additional 615,140 trust units at
Cdn$10.0 per trust unit for a cash payment to the CNGT of
Cdn$6.2 million (US$4.7 million). Prior to the
subsequent sale of this investment, we held 25 percent of
the outstanding trust units of CNGT and accounted for it using
the equity method.
On September 2, 2004, we completed the sale of our equity
investment in the CNGT. In accordance with
SFAS No. 144 our 25% equity method investment in the
CNGT was considered part of the larger disposal group and
therefore evaluated and accounted for as a discontinued
operation. See Note 13 for more information on the sale of
the Canadian natural gas reserves and petroleum assets. In
addition, we considered CNGT a related party and disclosed all
transactions up through the date of sale as such. See
Note 10 for more information on related party transactions
with unconsolidated investments.
|
|
13. |
Discontinued Operations |
Prior to our bankruptcy filings in December 2005, we had adopted
a strategy of conserving our core strategic assets and
selectively disposing of certain less strategically important
assets. Our historical reportable segments under
SFAS No. 131 consisted of Oil and Gas Production
and Marketing, Electric Generation and
Marketing, and Other. After the sale of our
remaining oil and gas assets in July 2005, we eliminated the Oil
and Gas Production and Marketing segment from our
SFAS No. 131 disclosures in Note 32. Set forth
below are our asset disposals by our historical reportable
segments that impacted our consolidated financial statements as
of December 31, 2005, 2004 and 2003.
204
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Oil and Gas Production and Marketing |
On November 20, 2003, we completed the sale of our Alvin
South Field oil and gas assets located near Alvin, Texas for
approximately $0.06 million to Cornerstone Energy, Inc. As
a result of the sale, we recognized a pre-tax loss of
$0.2 million.
On September 1, 2004, we along with our subsidiary CNGLP,
completed the sale of our Rocky Mountain oil and gas assets,
which were primarily concentrated in two geographic areas: the
Colorado Piceance Basin and the New Mexico San Juan Basin.
Together, these assets represented approximately 120 Bcfe
of proved gas reserves, producing approximately 16.3 Mmcfe
per day of gas. Under the terms of the agreement we received net
cash payments of approximately $218.7 million, and recorded
a pre-tax gain of approximately $103.7 million.
In connection with the sale of the Rocky Mountain gas reserves,
the New Mexico San Juan Basin sales agreement allows for
the buyer and us to execute a ten-year gas purchase agreement
for 100% of the underlying gas production of sold reserves, at
market index prices. Any agreement would be subject to mutually
agreeable collateral requirements and other customary terms and
provisions.
On September 2, 2004, we completed the sale of our Canadian
oil and gas assets. These Canadian assets represented
approximately 221 Bcfe of proved reserves, producing
approximately 61 Mmcfe per day. Included in this sale was
our 25% interest in approximately 80 Bcfe of proved
reserves (net of royalties) and 32 Mmcfe per day of
production owned by the CNGT. In accordance with
SFAS No. 144, our 25% equity method investment in the
CNGT was considered part of the larger disposal group (i.e.,
assets to be disposed of together as a group in a single
transaction to the same buyer), and therefore evaluated and
accounted for as discontinued operations. Under the terms of the
agreement, we received cash payments of approximately
Cdn$808.1 million, or approximately US$626.4 million.
We recorded a pre-tax gain of approximately $104.5 million
on the sale of these Canadian assets net of $20.1 million
in foreign exchange losses recorded in connection with the
settlement of forward contracts entered into to preserve the US
dollar value of the Canadian proceeds.
In connection with the sale of our Canadian oil and gas assets,
we entered into a seven-year gas purchase agreement beginning on
March 31, 2005, and expiring on October 31, 2011, that
allows, but does not require, us to purchase gas from the buyer
at current market index prices. The agreement is not asset
specific and can be settled by any production that the buyer has
available.
We believe that all final terms of the gas purchase agreements
described above are on a market value and arms length
basis. If we elect in the future to exercise a call option over
production from the disposed components, we will consider the
call obligation to have been met as if the actual production
delivered to us under the call was from assets other than those
constituting the disposed components.
On July 7, 2005, we completed the sale of substantially all
of our remaining oil and gas assets to Rosetta for
$1.05 billion, less approximately $60 million of
estimated transaction fees and expenses. We recorded a pre-tax
gain of approximately $340.1 million, which is reflected in
discontinued operations in the year ended December 31,
2005. Approximately $75 million of the purchase price is
being withheld pending the transfer of certain properties with a
book value as of December 31, 2005 of approximately
$39 million.
In connection with the sale of the oil and gas assets to
Rosetta, we entered into a two-year gas purchase agreement with
Rosetta, expiring on December 31, 2009, for 100% of the
production of the Sacramento basin assets, which represent
approximately 44% of the reserve assets sold to Rosetta. We will
pay the prevailing current market index price for all gas
purchased under the agreement. We believe the gas purchase
agreement was negotiated on an arms length basis and
represents fair value for the production. Therefore, the
agreement
205
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
does not provide us with significant influence over
Rosettas ability to realize the economic risks and rewards
of owning the assets.
The following summary disclosures have been made in accordance
with SFAS No. 69, Disclosures About Oil and Gas
Producing Activities (An Amendment of FASB Statements 19, 25, 33
and 39). This data is a summary of the historical
information which, prior to the divesture of substantially all
of our remaining oil and gas assets in July 2005, had been
provided as Supplemental Information in our 2004 Annual Report
on Form 10-K. We no longer own sufficient oil and gas
assets to remain subject to the SFAS No. 69 disclosure
requirements, but have provided this summary information for the
benefit of the user in understanding our historical oil and gas
assets. Users of this information should be aware that the
process of estimating quantities of proved, proved developed and
proved undeveloped crude oil and natural gas reserves has in the
past been very complex, requiring significant subjective
decisions in the evaluation of all available geological,
engineering and economic data for each reservoir. The data for a
given reservoir could change substantially over time as a result
of numerous factors including, but not limited to, additional
development activity, evolving production history and continual
reassessment of the viability of production under varying
economic conditions. Consequently, material revisions to reserve
estimates have in the past occurred from time to time. The
significance of the subjective decisions required and variances
in available data for various reservoirs makes these estimates
generally less precise than other estimates presented in
connection with financial statement disclosures.
Proved reserves represent estimated quantities of natural gas
and crude oil that geological and engineering data demonstrate,
with reasonable certainty, to be recoverable in future years
from known reservoirs under economic and operating conditions
existing at the time the estimates were made. Estimates of
proved reserves as of December 31, 2004, 2003 and 2002,
were based on estimates made by independent petroleum reservoir
engineers.
|
|
|
Net Proved Reserve Summary Unaudited |
The following table sets forth our historical net proved
reserves at December 31 for each of the three years in the
period ended December 31, 2004, as estimated by our
independent petroleum consultants.
During 2004 we revised downward our estimate of continuing
proved reserves by a total of approximately 58 Bcfe or 12%.
Approximately 69% of the total revision was attributable to the
downward revision of the estimate of proved reserves in our
South Texas fields. The downward revisions of the estimates were
due to information received from production results and drilling
activity that occurred during 2004. As a result of the decreases
in proved reserves, a non-cash impairment charge of
approximately $202.1 million was recorded for the year
ended December 31, 2004, which was reclassified to
discontinued operations. For the years ended December 31,
2003 and 2002, the impairment charge reclassified to
discontinued operations was $2.9 million
206
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and $3.4 million, respectively. The following data relates
to our oil and gas assets which were reclassified to
held-for-sale in the corresponding balance sheets as of the
dates indicated.
|
|
|
|
|
|
|
|
|
Unaudited | |
|
|
| |
(Bcfe)(1) equivalents(4):
|
|
|
|
|
|
Net proved reserves at December 31, 2002
|
|
|
978 |
|
|
Net proved reserves at December 31, 2003
|
|
|
821 |
|
|
Net proved reserves at December 31, 2004
|
|
|
389 |
|
Net proved developed reserves:
|
|
|
|
|
|
Natural gas (Bcf)(1)
|
|
|
|
|
|
|
December 31, 2002
|
|
|
640 |
|
|
|
December 31, 2003
|
|
|
545 |
|
|
|
December 31, 2004
|
|
|
256 |
|
|
Natural gas liquids and crude oil (MBbl)(2)(3)
|
|
|
|
|
|
|
December 31, 2002
|
|
|
14,132 |
|
|
|
December 31, 2003
|
|
|
8,690 |
|
|
|
December 31, 2004
|
|
|
1,402 |
|
|
Bcf(1) equivalents(4)
|
|
|
|
|
|
|
December 31, 2002
|
|
|
725 |
|
|
|
December 31, 2003
|
|
|
596 |
|
|
|
December 31, 2004
|
|
|
264 |
|
|
|
(1) |
Billion cubic feet or billion cubic feet equivalent, as
applicable. |
|
(2) |
Thousand barrels. |
|
(3) |
Includes crude oil, condensate and natural gas liquids. |
|
(4) |
Natural gas liquids and crude oil volumes have been converted to
equivalent gas volumes using a conversion factor of six cubic
feet of gas to one barrel of natural gas liquids and crude oil. |
|
|
|
Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves Unaudited |
The following information was developed utilizing procedures
prescribed by SFAS No. 69 and based on natural gas and
crude oil reserve and production volumes estimated by
independent petroleum reservoir engineers. This information
should not be relied upon in evaluating us or our performance,
as substantially all of our remaining oil and gas assets were
sold in July 2005. Further, information contained in the
following table should not be considered as representative of
realistic assessments of future cash flows, nor should the
standardized measure of discounted future net cash flows be
viewed as representative of the value of our historical oil and
gas assets, which were classified as held-for-sale in our
balance sheet as of the dates indicated. The discounted future
net cash flows presented below were based on sales prices, cost
rates and statutory income tax rates in existence as of the date
of the projections. Estimates of natural gas and crude oil
reserves may have been revised in future periods, development
and production of the reserves may have occurred in periods
other than those assumed, and actual prices realized and costs
incurred may have varied significantly from those used. Income
tax expense was computed using expected future tax rates and
giving effect to tax deductions and credits available, under
then existing current laws, and which relate to oil and gas
producing activities. Management did not rely upon the following
information in making investment and
207
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operating decisions. Such decisions were based upon a wide range
of factors, including estimates of probable as well as proved
reserves and varying price and cost assumptions considered more
representative of a range of possible economic conditions that
may have been anticipated.
|
|
|
|
|
|
|
|
Unaudited | |
|
|
(in millions) | |
|
|
| |
December 31, 2004:
|
|
|
|
|
|
Standardized measure of discounted future net cash flows
relating to proved gas, natural gas liquids and crude oil
reserves
|
|
$ |
653 |
|
December 31, 2003:
|
|
|
|
|
|
Standardized measure of discounted future net cash flows
relating to proved gas, natural gas liquids and crude oil
reserves
|
|
$ |
1,341 |
|
December 31, 2002:
|
|
|
|
|
|
Standardized measure of discounted future net cash flows
relating to proved gas, natural gas liquids and crude oil
reserves
|
|
$ |
1,259 |
|
|
|
|
Electric Generation and Marketing |
On January 15, 2004, we completed the sale of our 50%
undivided interest in the
545-MW Lost Pines
1 Power Project to GenTex Power Corporation, an affiliate
of the LCRA. Under the terms of the agreement, we received a
cash payment of $148.6 million and recorded a pre-tax gain
of $35.3 million. In addition, CES entered into a tolling
agreement with LCRA providing CES the option to
purchase 250 MW of electricity through
December 31, 2004.
On July 28, 2005, we completed the sale of our
1,200-MW Saltend Energy
Centre for approximately $862.9 million, $14.5 million
of which related to estimated working capital adjustments. We
recorded a pre-tax gain in 2005 of approximately
$22.2 million, which is reflected in discontinued
operations, as a result of the disposal. As described in
Note 31, certain bondholders filed a lawsuit concerning the
use of proceeds from the sale of Saltend.
On August 2, 2005, we completed the sale of our interest in
the 156-MW Morris
Energy Center in Illinois for $84.5 million. We had
previously determined that the facility was impaired at
June 30, 2005. We recorded an impairment charge of
$106.2 million upon our commitment to a plan of divesture
of the facility and based on the difference between the
estimated sale price and the facilitys book value. This
charge was reclassified to discontinued operations once the sale
had closed. We also recorded a pre-tax loss on the sale of
$0.4 million, which is reflected in discontinued operations.
On October 6, 2005, we completed the sale for
$212.3 million of our
561-MW Ontelaunee
Energy Center in Pennsylvania, which is reflected in the
Consolidated Condensed Balance Sheets at December 31, 2004,
as current and long-term assets and liabilities held for sale,
in accordance with SFAS No. 144. We recorded an
impairment charge of $137.1 million for the difference
between the estimated sale price of the facility (less estimated
selling costs) and its book value upon our commitment to a plan
of divesture of the facility. This charge is reflected in
discontinued operations as of December 31, 2005.
In connection with the sale of Ontelaunee, we entered into a
ten-year LTSA with the buyer, under which we will provide major
maintenance services and parts supply for the significant
equipment of the facility, and a five-year O&M agreement
under which we provide services related to the
day-to-day operations
and maintenance of the facility. Pricing of the LTSA and O&M
service contracts is based on actual cost plus a margin and will
result in estimated annual gross cash inflows of approximately
$3.3 million and $2.7 million, respectively. We also
entered into a six-month ESA under which CES provides power
management, fuel
208
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
management, risk management, and other services related to the
Ontelaunee facility, with expected gross cash inflows of
approximately $0.4 million annually. The ESA can be renewed
after six months upon the mutual agreement of the parties. Under
the terms of the ESA, CES functions in an agency role and has no
delivery or price risk and has no economic risk or reward of
ownership in the operations of the Ontelaunee facility. The
gross cash flows associated with the LTSA, O&M and ESA
agreements are insignificant to us and are considered indirect
cash flows under EITF
No. 03-13. Also,
we have no significant continuing involvement in the financial
and economic decision making of the disposed facility.
On July 31, 2003, we completed the sale of our specialty
data center engineering business and recorded a pre-tax loss on
the sale of $11.6 million.
We made reclassifications to current and prior period financial
statements to reflect the sale of these oil and gas, power plant
and other assets and liabilities and to separately reclassify
the operating results of the assets sold and the gain (loss) on
sale of those assets from the operating results of continuing
operations to discontinued operations.
Current assets held for sale as of December 31, 2005, were
approximately $39.5 million, which represent the book value
of the remaining oil and gas properties, which are being held in
escrow until consents can be
209
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
obtained. The table below present the assets and liabilities
held for sale by segment as of December 31, 2004 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
Electric | |
|
Oil and Gas | |
|
|
|
|
Generation | |
|
Production | |
|
|
|
|
and Marketing | |
|
and Marketing | |
|
Total | |
|
|
| |
|
| |
|
| |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
65,405 |
|
|
$ |
|
|
|
$ |
65,405 |
|
|
Accounts receivable, net
|
|
|
54,095 |
|
|
|
|
|
|
|
54,095 |
|
|
Inventories
|
|
|
7,756 |
|
|
|
|
|
|
|
7,756 |
|
|
Prepaid expenses
|
|
|
14,840 |
|
|
|
|
|
|
|
14,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets held for sale
|
|
|
142,096 |
|
|
|
|
|
|
|
142,096 |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
1,632,131 |
|
|
|
606,520 |
|
|
|
2,238,651 |
|
|
Other assets
|
|
|
20,826 |
|
|
|
924 |
|
|
|
21,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets held for sale
|
|
$ |
1,652,957 |
|
|
$ |
607,444 |
|
|
$ |
2,260,401 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
34,070 |
|
|
$ |
|
|
|
$ |
34,070 |
|
|
Current derivative liabilities
|
|
|
8,935 |
|
|
|
|
|
|
|
8,935 |
|
|
Other current liabilities
|
|
|
42,187 |
|
|
|
1,266 |
|
|
|
43,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities held for sale
|
|
|
85,192 |
|
|
|
1,266 |
|
|
|
86,458 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net of current portion
|
|
|
135,985 |
|
|
|
|
|
|
|
135,985 |
|
|
Long-term derivative liabilities
|
|
|
10,367 |
|
|
|
|
|
|
|
10,367 |
|
|
Other liabilities
|
|
|
21,562 |
|
|
|
8,384 |
|
|
|
29,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities held for sale
|
|
$ |
167,914 |
|
|
$ |
8,384 |
|
|
$ |
176,298 |
|
|
|
|
|
|
|
|
|
|
|
The tables below present significant components of our income
from discontinued operations for the years ended
December 31, 2005, 2004 and 2003, respectively (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
Electric | |
|
Oil and Gas | |
|
|
|
|
Generation | |
|
Production | |
|
|
|
|
and Marketing | |
|
and Marketing | |
|
Other |
|
Total | |
|
|
| |
|
| |
|
|
|
| |
Total revenue
|
|
$ |
369,796 |
|
|
$ |
25,129 |
|
|
$ |
|
|
|
$ |
394,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal before taxes
|
|
$ |
21,537 |
|
|
$ |
336,894 |
|
|
$ |
|
|
|
$ |
358,431 |
|
Operating income (loss) from discontinued operations before taxes
|
|
|
(318,499 |
) |
|
|
33,560 |
|
|
|
|
|
|
|
(284,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before taxes
|
|
$ |
(296,962 |
) |
|
$ |
370,454 |
|
|
$ |
|
|
|
$ |
73,492 |
|
Income tax provision (benefit)
|
|
$ |
(9,027 |
) |
|
$ |
140,773 |
|
|
$ |
|
|
|
$ |
131,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from discontinued operations, net of tax
|
|
$ |
(287,935 |
) |
|
$ |
229,681 |
|
|
$ |
|
|
|
$ |
(58,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
210
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
Electric | |
|
Oil and Gas | |
|
|
|
|
Generation | |
|
Production | |
|
|
|
|
and Marketing | |
|
and Marketing | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Total revenue
|
|
$ |
525,177 |
|
|
$ |
91,421 |
|
|
$ |
|
|
|
$ |
616,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal before taxes
|
|
$ |
35,327 |
|
|
$ |
208,172 |
|
|
$ |
|
|
|
$ |
243,499 |
|
Operating income (loss) from discontinued operations before taxes
|
|
|
41,607 |
|
|
|
(99,024 |
) |
|
|
|
|
|
|
(57,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before taxes
|
|
$ |
76,934 |
|
|
$ |
109,148 |
|
|
$ |
|
|
|
$ |
186,082 |
|
Income tax provision (benefit)
|
|
$ |
14,066 |
|
|
$ |
(5,206 |
) |
|
$ |
|
|
|
$ |
8,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$ |
62,868 |
|
|
$ |
114,354 |
|
|
$ |
|
|
|
$ |
177,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
|
| |
|
|
Electric | |
|
Oil and Gas | |
|
|
|
|
Generation | |
|
Production | |
|
|
|
|
and Marketing | |
|
and Marketing | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Total revenue
|
|
$ |
466,074 |
|
|
$ |
106,412 |
|
|
$ |
3,748 |
|
|
$ |
576,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal before taxes
|
|
$ |
|
|
|
$ |
(235 |
) |
|
$ |
(11,571 |
) |
|
$ |
(11,806 |
) |
Operating income (loss) from discontinued operations before taxes
|
|
|
(16,738 |
) |
|
|
170,326 |
|
|
|
(6,918 |
) |
|
|
146,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before taxes
|
|
$ |
(16,738 |
) |
|
$ |
170,091 |
|
|
$ |
(18,489 |
) |
|
$ |
134,864 |
|
Income tax provision (benefit)
|
|
|
1,038 |
|
|
|
26,501 |
|
|
|
(7,026 |
) |
|
|
20,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$ |
(17,776 |
) |
|
$ |
143,590 |
|
|
$ |
(11,463 |
) |
|
$ |
114,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We allocate interest to discontinued operations in accordance
with EITF Issue No. 87-24, Allocation of Interest to
Discontinued Operations. We include interest expense on
debt which is required to be repaid as a result of a disposal
transaction in discontinued operations. Additionally, other
interest expense that cannot be attributed to our other
operations is allocated based on the ratio of net assets to be
sold less debt that is required to be paid as a result of the
disposal transaction to the sum of our total net assets plus our
consolidated debt, excluding (a) debt of the discontinued
operation that will be assumed by the buyer,
211
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(b) debt that is required to be paid as a result of the
disposal transaction and (c) debt that can be directly
attributed to our other operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) | |
Interest Expense Allocation |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Electric generation and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saltend Energy Centre
|
|
$ |
45,080 |
|
|
$ |
14,613 |
|
|
$ |
7,203 |
|
|
Ontelaunee Energy Center
|
|
|
12,264 |
|
|
|
13,304 |
|
|
|
11,724 |
|
|
Morris Energy Center and Lost Pines
|
|
|
3,662 |
|
|
|
7,295 |
|
|
|
8,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
61,006 |
|
|
$ |
35,212 |
|
|
$ |
27,490 |
|
|
|
|
|
|
|
|
|
|
|
Oil and gas production and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian and Rockies
|
|
$ |
|
|
|
$ |
17,893 |
|
|
$ |
19,797 |
|
|
Remaining oil and gas assets
|
|
|
10,295 |
|
|
|
8,518 |
|
|
|
3,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,295 |
|
|
$ |
26,411 |
|
|
$ |
23,223 |
|
|
|
|
|
|
|
|
|
|
|
On December 20 and 21, 2005, we and many of our wholly
owned direct and indirect subsidiaries filed for bankruptcy
protection as discussed in Note 3.
In accordance with
SOP 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, we continue to accrue and recognize
interest expense on debt that is considered to be fully secured
or of Non-Debtor entities.
Throughout Notes 14 through 24, amounts outstanding
represent the carrying value of the debt instrument, which is
the face value of the debt net of any unamortized discount or
premium.
Due to the bankruptcy filings, which generally constituted
events of default under the majority of our debt instruments,
and our failure to comply with certain other financial covenants
thereunder as a result of such filings, we are in technical
default on most of our pre-petition debt obligations. Except as
otherwise may be determined by the Bankruptcy Courts, the
automatic stay protection afforded by the Chapter 11 and
CCAA proceedings prevents any action from being taken against
any of the Calpine Debtors with regard to any of the defaults
under the pre-petition debt obligations. However, as a result of
being in violation of most of our pre-petition debt obligations,
a significant portion of our outstanding debt maturities has
been reclassified
212
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to current liabilities. The following table represents the
maturities of our pre-petition debt obligations in accordance
with SFAS No. 78 Classification of Obligations
that are Callable by the Creditor.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) | |
|
|
December 31, 2005 | |
|
|
| |
|
|
Current | |
|
Long-Term | |
|
Total | |
|
|
| |
|
| |
|
| |
Notes payable and other borrowings
|
|
$ |
188,221 |
|
|
$ |
558,353 |
|
|
$ |
746,574 |
|
Preferred interests
|
|
|
9,479 |
|
|
|
583,417 |
|
|
|
592,896 |
|
Capital lease obligations
|
|
|
191,497 |
|
|
|
95,260 |
|
|
|
286,757 |
|
CCFC financing
|
|
|
784,513 |
|
|
|
|
|
|
|
784,513 |
|
CalGen financing
|
|
|
2,437,982 |
|
|
|
|
|
|
|
2,437,982 |
|
Construction/project financing
|
|
|
1,160,593 |
|
|
|
1,200,432 |
|
|
|
2,361,025 |
|
DIP Facility
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
Senior notes and term loans
|
|
|
641,652 |
|
|
|
|
|
|
|
641,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,413,937 |
|
|
$ |
2,462,462 |
|
|
$ |
7,876,399 |
|
|
|
|
|
|
|
|
|
|
|
The table below represents the contractual maturities of our
pre-petition debt obligations if we had not made the bankruptcy
filings and had not otherwise triggered any events of default
thereunder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) | |
|
(in thousands) | |
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Current | |
|
Long-Term | |
|
Total | |
|
Current | |
|
Long-Term | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Notes payable and other borrowings
|
|
$ |
188,221 |
|
|
$ |
558,353 |
|
|
$ |
746,574 |
|
|
$ |
200,076 |
|
|
$ |
769,490 |
|
|
$ |
969,566 |
|
Notes payable to Calpine Capital Trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
517,500 |
|
|
|
517,500 |
|
Preferred interests
|
|
|
9,479 |
|
|
|
583,417 |
|
|
|
592,896 |
|
|
|
8,641 |
|
|
|
497,896 |
|
|
|
506,537 |
|
Capital lease obligations
|
|
|
8,133 |
|
|
|
278,624 |
|
|
|
286,757 |
|
|
|
5,490 |
|
|
|
283,429 |
|
|
|
288,919 |
|
CCFC financing
|
|
|
3,208 |
|
|
|
781,305 |
|
|
|
784,513 |
|
|
|
3,208 |
|
|
|
783,542 |
|
|
|
786,750 |
|
CalGen financing
|
|
|
|
|
|
|
2,437,982 |
|
|
|
2,437,982 |
|
|
|
|
|
|
|
2,395,332 |
|
|
|
2,395,332 |
|
Construction/project financing
|
|
|
79,594 |
|
|
|
2,281,431 |
|
|
|
2,361,025 |
|
|
|
93,393 |
|
|
|
1,905,658 |
|
|
|
1,999,051 |
|
DIP Facility
|
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes and term loans
|
|
|
|
|
|
|
641,652 |
|
|
|
641,652 |
|
|
|
718,449 |
|
|
|
8,532,664 |
|
|
|
9,251,113 |
|
Convertible Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,255,298 |
|
|
|
1,255,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
288,635 |
|
|
$ |
7,587,764 |
|
|
$ |
7,876,399 |
|
|
$ |
1,029,257 |
|
|
$ |
16,940,809 |
|
|
$ |
17,970,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Debt Maturities Certain notes payable,
preferred interests, capital lease obligations, the CCFC and
CalGen financings, construction/project financings (excluding
Aries) and the First Priority Notes are currently considered not
subject to compromise under the bankruptcy cases either because
they are considered to be fully secured or because the entity
that issued the debt has not filed for bankruptcy protection. The
213
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contractual annual principal repayments or maturities (assuming
no events of default) of these debt instruments, as of
December 31, 2005, are as follows (in thousands):
|
|
|
|
|
|
|
2006
|
|
$ |
288,635 |
|
2007
|
|
|
335,037 |
|
2008
|
|
|
242,242 |
|
2009
|
|
|
1,438,381 |
|
2010
|
|
|
1,264,277 |
|
Thereafter
|
|
|
4,365,852 |
|
|
|
|
|
|
Total debt
|
|
|
7,934,424 |
|
(Discount)/ Premium
|
|
|
(58,025 |
) |
|
|
|
|
|
|
Total
|
|
$ |
7,876,399 |
|
|
|
|
|
Debt Extinguishments Senior Notes
extinguished through open market repurchases and unscheduled
payments during 2005 and 2004 totaled $917.1 million and
$1,668.3 million, respectively, in aggregate outstanding
principal amount for a repurchase price of $685.5 million
and $1,394.0 million, respectively, plus accrued interest.
In 2005, we recorded a pre-tax gain on these transactions in the
amount of $220.1 million, which was $231.6 million,
net of write-offs of $9.3 million of unamortized deferred
financing costs and $2.2 million of unamortized premiums or
discounts and legal costs. In 2004 we recorded a pre-tax gain on
these transactions in the amount of $254.8 million, which
was $274.4 million, net of write-offs of $19.1 million
of unamortized deferred financing costs and $0.5 million of
unamortized premiums or discounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Principal | |
|
Amount | |
|
Principal | |
|
Amount | |
Debt Security |
|
Amount | |
|
Paid | |
|
Amount | |
|
Paid | |
|
|
| |
|
| |
|
| |
|
| |
2006 Convertible Notes
|
|
$ |
|
|
|
$ |
|
|
|
$ |
658.7 |
|
|
$ |
657.7 |
|
2023 Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
266.2 |
|
|
|
177.0 |
|
95/8
% First Priority Senior Notes Due 2014
|
|
|
138.9 |
|
|
|
138.9 |
|
|
|
|
|
|
|
|
|
81/4
% Senior Notes Due 2005
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
38.9 |
|
|
|
34.9 |
|
101/2
% Senior Notes Due 2006
|
|
|
13.5 |
|
|
|
12.4 |
|
|
|
13.9 |
|
|
|
12.4 |
|
75/8
% Senior Notes Due 2006
|
|
|
9.4 |
|
|
|
8.7 |
|
|
|
103.1 |
|
|
|
96.5 |
|
83/4
% Senior Notes Due 2007
|
|
|
5.0 |
|
|
|
3.2 |
|
|
|
30.8 |
|
|
|
24.4 |
|
77/8
% Senior Notes Due 2008
|
|
|
53.5 |
|
|
|
39.6 |
|
|
|
78.4 |
|
|
|
56.5 |
|
81/2
% Senior Notes Due 2008
|
|
|
159.8 |
|
|
|
102.6 |
|
|
|
344.3 |
|
|
|
249.4 |
|
83/8
% Senior Notes Due 2008
|
|
|
|
|
|
|
|
|
|
|
6.1 |
|
|
|
4.0 |
|
73/4
% Senior Notes Due 2009
|
|
|
41.0 |
|
|
|
24.8 |
|
|
|
11.0 |
|
|
|
8.1 |
|
85/8
% Senior Notes Due 2010
|
|
|
86.2 |
|
|
|
59.1 |
|
|
|
|
|
|
|
|
|
81/2
% Senior Notes Due 2011
|
|
|
405.8 |
|
|
|
292.2 |
|
|
|
116.9 |
|
|
|
73.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
917.1 |
|
|
$ |
685.5 |
|
|
$ |
1,668.3 |
|
|
$ |
1,394.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes 15 24 below for a description of each
of our debt obligations.
Debt, Lease and Indenture Covenant Compliance
Our DIP Facility contains financial and other restrictive
covenants that limit or prohibit our ability to incur
indebtedness, make prepayments on or purchase indebtedness in
whole or in part, pay dividends, make investments, lease
properties, engage in transactions
214
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
with affiliates, create liens, consolidate or merge with another
entity or allow one of our subsidiaries to do so, sell assets,
and acquire facilities or other businesses. We are currently in
compliance, or have received waivers of any non-compliance, with
all of such financial and other restrictive covenants. Any
failure to comply could give the lenders the right to accelerate
the maturity of all debt outstanding thereunder if the default
was not cured or waived. In addition, certain instruments
related to our non-debtor entities contain financial and other
restrictive covenants which, if violated, would permit the
holders of such debt to elect to accelerate the maturity of
their debt.
In addition, our debt instruments, including our senior notes
indentures and our credit facilities, including our project
financings, contain financial and other restrictive covenants
and events of default that limit or prohibit our ability to
incur indebtedness, make prepayments on or purchase indebtedness
in whole or in part, pay dividends, make investments, lease
properties, engage in transactions with affiliates, create
liens, consolidate or merge with another entity or allow one of
our subsidiaries to do so, sell assets, and acquire facilities
or other businesses. In particular, our bankruptcy filings
constituted an event of default or otherwise triggered repayment
obligations under the instruments governing substantially all of
our outstanding indebtedness, other than indebtedness of our
subsidiaries or affiliates that are not Calpine Debtors. As a
result of the events of default, the debt outstanding under the
affected debt instruments generally became automatically and
immediately due and payable. We believe that any efforts to
enforce such payment obligations are stayed as a result of the
bankruptcy filings and subject to our bankruptcy cases.
If, in addition to the events of default caused by our
bankruptcy filings, we were to breach the financial or other
restrictive covenants under certain of our debt instruments, it
could give holders of debt under the relevant instruments the
right to accelerate the maturity of all debt outstanding
thereunder (if such debt were not already accelerated) if the
default were not cured or waived. Currently, except as described
further below, we believe that we are in compliance with our
obligations under the various indentures and debt and lease
instruments of Non-Debtor entities, or that any non-compliance
thereunder has been cured or waived.
In addition to the event of default caused as a result of our
bankruptcy filings, we may not be in compliance with certain
other covenants under the indentures or other debt or lease
instruments, the obligations under all of which have been
accelerated, of Calpine Debtor entities. In particular:
|
|
|
|
|
We were required to use the proceeds of certain asset sales and
issuances of preferred stock completed in 2005 to make capital
expenditures, to acquire permitted assets or capital stock, or
to repurchase or repay indebtedness in the first three quarters
of 2006. However, as a result of the bankruptcy filings, we have
not been, and do not expect to be, able to do so. |
|
|
|
We sold our remaining oil and gas assets on July 7, 2005.
The gas component of such sale constituted a sale of
designated assets under certain of our indentures,
which restrict the use of the proceeds of sales of designated
assets. In accordance with the indentures, we used
$138.9 million of the net proceeds of $902.8 million
from the sale to repurchase First Priority Notes from holders
pursuant to an offer to purchase. We used approximately
$308.2 million, plus accrued interest, of the net proceeds
to purchase natural gas assets in storage, and the remaining
$406.9 million remains in a restricted designated asset
sale proceeds account pursuant to the indentures governing the
First and Second Priority Notes. As further described in
Note 31, the Delaware Chancery Court found in November 2005
that our use of the approximately $308.2 million of
proceeds to make purchases of gas assets in storage was in
violation of such indentures and ordered that amount to be
returned to a designated asset sale proceeds account. The
Delaware Supreme Court affirmed the Delaware Chancery
Courts decision in December 2005. To date, we have not
been able to refund the proceeds that were used to purchase gas
assets to such account. |
215
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition, we own a 50% interest in Acadia Power Partners, LLC
through our wholly owned subsidiary, Calpine Acadia Holdings,
LLC, which is a U.S. Debtor. The remaining 50% is owned by
a subsidiary of Cleco, Acadia Power Holdings, LLC. Calpine
Acadia and Acadia Power Holdings are subject to a limited
liability company agreement which, among other things, governs
their relationship with regard to ownership of Acadia Power
Partners. The limited liability company agreement provides that
bankruptcy of Calpine Acadia is an event of default under such
agreement and sets forth certain exclusive remedies in the event
that an event of default occurs, including winding up Acadia
Power Partners or permitting the non-defaulting party to buy out
the defaulting partys interest at market value less 20%.
However, we believe that any efforts to enforce such remedies
would be stayed as a result of the bankruptcy filings and
subject to our bankruptcy cases.
In connection with the sale/leaseback transaction at the Agnews
power plant, we are technically not in compliance with the
insurance requirements set forth in the financing documents. We
have obtained a partial waiver from the financing parties
regarding the insurance requirements and are currently seeking
to obtain a complete waiver. In addition, Agnews has failed to
deliver to the financing parties certain financial reports and
operational reports as required under the financing documents.
Such failure, may, with the passage of time and the giving of
notice, constitute an event of default under the financing
documents. We expect that Agnews will deliver such information
prior to an event of default occurring.
Blue Spruce Energy Center. In connection with the project
financing transaction by Blue Spruce, an event of default
existed under the project credit agreement as of
December 31, 2005, due to cross default provisions related
to the bankruptcy filing by CES. We are in the process of
negotiating an amendment and waiver under the project credit
agreement from the lender. Nonetheless, although the debt has
not been accelerated, we have determined that we are required to
classify the debt as current until such waiver is executed.
CCFC. In connection with the note and term loan financing
at CCFC, CCFC has entered into waiver agreements under the
indenture governing its notes and the credit agreement governing
its term loans. The waiver agreements provide for the waiver of
certain defaults that occurred following our bankruptcy filings
as a result of the failure of CES to make certain payments to
CCFC under a PPA with CCFC. The waiver agreements were executed
upon the receipt by CCFC of the consent of a majority of the
holders of CCFCs notes and the agreement of a majority of
the CCFC term loan lenders pursuant to a consent solicitation
and request for amendment initiated on February 22, 2006.
CCFC made a consent payment of $1.89783 per each $1,000
principal amount of notes or term loans held by consenting
noteholders or term loan lenders, as applicable. On
April 11, 2006, CCFC notified its noteholders and term loan
lenders that, as of April 7, 2006, a default had occurred
under the indenture and credit agreement due to the failure of
CES to make a payment with respect to a hedging transaction
under the PPA with CCFC. If such default is not cured, or the
PPA is not replaced with a substantially similar agreement,
within 60 days following the occurrence of the default,
such default will become an event of default under
the note indenture and the term loan credit agreement. In
addition, CCFC has not yet provided certain financial and other
information required to be delivered to its noteholders and term
loan lenders. Such failure may, with the passage of time and the
giving of notice, constitute an event of default. We expect that
CCFC will deliver such information prior to an event of default
occurring. As a result of such failure, the CCFC notes and term
loans have been classified as current.
CCFCP. In connection with the redeemable preferred shares
issued by CCFCP, CCFCP has entered into an agreement with its
preferred members holding a majority of the CCFCP redeemable
preferred shares amending its LLC operating agreement. The
amendment agreement, among other things, acknowledges that the
waiver agreements under the CCFC indenture and credit agreement
satisfied the provisions of a standstill agreement entered into
on February 24, 2006, between CCFCP and its preferred
members pursuant to which
216
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the preferred members had agreed not to declare a Voting
Rights Trigger Event, as defined in CCFCPs LLC
operating agreement, to have occurred or to seek to appoint
replacement directors to the board of CCFCP, provided that
certain conditions were met, including obtaining such waiver
agreements. Accordingly, the terms of the standstill agreement
were satisfied. A new Voting Rights Trigger Event may occur if
the defaults under the CCFC indenture and credit agreement
described above become events of default. In addition, CCFCP has
not yet provided certain financial and other information
required to be delivered to its preferred members. Such failure
may, with the passage of time and the giving of notice,
constitute a Voting Rights Trigger Event. We expect that CCFCP
will deliver such information prior to a Voting Rights Trigger
Event occurring. Upon the occurrence of a CCFCP Voting Rights
Trigger Event, the holders of the CCFCP redeemable preferred
shares may, at their option, remove and replace the existing
CCFCP directors unless and until the CCFCP Voting Rights Trigger
Event has been waived by the holders of a majority of the CCFCP
redeemable preferred shares or until the consequences of the
CCFCP Voting Rights Trigger Event have been fully cured.
Fox Energy Center. In connection with the sale/leaseback
transaction at the Fox power plant, the bankruptcy filings by
certain affiliates of Fox on December 20, 2005, constituted
an event of default under the lease and certain other agreements
relating to the sale/leaseback transaction. In addition, we
failed to pay a portion of the rent payment due on
March 30, 2006, which payment default is also an event of
default under the lease and certain other agreements relating to
the sale/leaseback transaction. We have entered into forbearance
agreements with the Fox owner lessor and owner participant,
pursuant to which they have agreed not to exercise certain
rights and remedies under the lease and other agreements
relating to such events of default. The forbearance agreements
have been extended for seven-day periods while we seek to
resolve the defaults. We are considering all options with
respect to the Fox power plant, which is one of the designated
projects for which further funding has been limited in
connection with our bankruptcy cases, including a possible sale
of our interest in the facility. As a result of the outstanding
events of default, our obligations with respect to the Fox
sale/leaseback transaction are classified as current.
Freeport Energy Center and Mankato Energy Center. In
connection with the project financing transaction by Freeport
and Mankato, an event of default existed under the project
credit agreement as of December 31, 2005, due to cross
default provisions related to the bankruptcy filings by certain
Calpine affiliates. Subsequent to December 31, 2005, the
lenders under the project credit agreement provided a waiver of
the event of default.
Metcalf Energy Center. In connection with the financing
transactions by Metcalf, certain events of default occurred
under the Metcalf credit agreement as a result of our bankruptcy
filings and related failures to fulfill certain payment
obligations under a PPA between CES and Metcalf. Metcalf and the
lenders under the credit agreement entered into a Debt Waiver
Agreement, dated as of April 18, 2006, pursuant to which
the lenders have agreed to waive such defaults. Such events of
default also triggered a Voting Rights Trigger Event
under Metcalfs LLC agreement, which contains the terms of
Metcalfs redeemable preferred shares. Upon the occurrence
of a Metcalf Voting Rights Trigger Event, the holders of the
Metcalf redeemable preferred shares may, at their option, remove
and replace the existing Metcalf directors unless and until the
Metcalf Voting Rights Trigger Event has been waived by the
holders of a majority of the Metcalf redeemable preferred shares
or until the consequences of the Metcalf Voting Rights Trigger
Event have been fully cured. Metcalf has entered into a waiver
agreement with the requisite lenders under the credit agreement
waiving the foregoing events of default in exchange for a fee of
20 basis points (0.20%) of the total outstanding amounts of
the loans and Metcalfs commitment to assert claims in the
bankruptcy cases against Calpine, CES, and CCMC. Metcalf is
currently seeking to resolve any issues with the holders of its
redeemable preferred shares with respect to the Voting Rights
Trigger Event through waivers or other means.
217
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Newark Power Plant and Parlin Power Plant. In connection
with our financing transaction at the Newark and Parlin power
plants, both of which are designated projects for which further
funding has been limited in connection with our bankruptcy
cases, we have been unable to fully comply with respect to
certain covenants under the credit agreement relating to the
financing due to our bankruptcy filings and the failure to
fulfill requirements relating to the payment of certain
obligations, and to otherwise comply with terms of certain of
the Newark and Parlin project agreements. We are in the process
of seeking a cooperation agreement with the lender including at
least a short term waiver or forbearance with respect to any
potential defaults that may have occurred with respect to these
projects.
Pasadena Power Plant. In connection with our Pasadena
lease financing transaction, the bankruptcy filings by us and
certain of our subsidiaries on December 20, 2005,
constituted an event of default under Pasadenas facility
lease and certain other agreements relating to the transaction,
which resulted in events of default under the indenture
governing certain notes issued by the Pasadena owner lessor. We
have entered into a forbearance agreement with the holders of a
majority of the outstanding notes pursuant to which the
noteholders have agreed to forebear from taking any action with
respect to such events of default, which forbearance agreement
has been extend from month to month until May 1, 2006. We
are currently seeking a further extension of the forbearance
agreement while we seek to resolve the defaults through waivers
or other means. As a result of such defaults our obligations
with respect to this lease financing have been classified as
current.
Riverside Energy Center and Rocky Mountain Energy Center.
In connection with the project financing transactions by
Riverside and Rocky Mountain, an event of default occurred under
the project credit agreements as of December 31, 2005, due
to cross default provisions related to the bankruptcy filings by
certain Calpine affiliates. Subsequent to December 31,
2005, the lenders under the project credit agreements provided
an omnibus amendment and waiver of such events of default.
|
|
15. |
Notes Payable and Other Borrowings |
The components of notes payable and other borrowings and related
issued letters of credit are (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings Outstanding | |
|
Letters of Credit Issued | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Corporate Cash Collateralized Letter of Credit Facility
|
|
$ |
|
|
|
$ |
|
|
|
$ |
140,270 |
|
|
$ |
233,271 |
|
Calpine Northbrook Energy Marketing, LLC note
|
|
|
29,442 |
|
|
|
52,294 |
|
|
|
|
|
|
|
|
|
Calpine Commercial Trust
|
|
|
|
|
|
|
34,255 |
|
|
|
|
|
|
|
|
|
Power Contract Financing III, LLC
|
|
|
56,316 |
|
|
|
51,592 |
|
|
|
|
|
|
|
|
|
Power Contract Financing, L.L.C.
|
|
|
540,269 |
|
|
|
688,366 |
|
|
|
|
|
|
|
|
|
Gilroy note payable(1)
|
|
|
117,719 |
|
|
|
125,478 |
|
|
|
|
|
|
|
|
|
Other
|
|
|
2,828 |
|
|
|
17,581 |
|
|
|
4,591 |
|
|
|
6,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable and other borrowings
|
|
$ |
746,574 |
|
|
$ |
969,566 |
|
|
$ |
144,861 |
|
|
$ |
239,429 |
|
|
Less: notes payable and other borrowings, current portion
|
|
|
188,221 |
|
|
|
200,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and other borrowings, net of current portion
|
|
$ |
558,353 |
|
|
$ |
769,490 |
|
|
$ |
144,861 |
|
|
$ |
239,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
See Note 11 for information regarding the Gilroy note
payable. |
218
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Notes Payable and Other Borrowings |
Corporate Cash Collateralized Letter of Credit
Facility On September 30, 2004, we
established a $255 million Cash Collateralized Letter of
Credit Facility with Bayerische Landesbank, to which all letters
of credit issued under our previously-existing $300 million
working capital revolver and $200 million cash
collateralized letter of credit facility were transitioned. No
new letters of credit can be issued under this facility
subsequent to the Petition Date. Bayerische Landesbank has
reimbursed beneficiaries for Letter of Credit draws made on
certain letters of credit, which has subsequently reduced our
cash collateral.
Calpine Northbrook Energy Marketing, LLC Note
On September 23, 2003, CNEM, a wholly owned stand-alone
subsidiary of CNEM Holdings, LLC, which is a wholly owned
indirect subsidiary of CES, amended and restated a May 14,
2003, credit agreement with affiliates of Deutsche Bank
providing for an $82.8 million loan facility secured by an
existing PPA with the BPA. Under the
100-MW fixed-price PPA,
CNEM delivers baseload power to BPA through December 31,
2006. As a part of the secured transaction, CNEM entered into a
PPA with a third party to purchase a like amount of power based
on spot prices and a fixed-price swap agreement with an
affiliate of Deutsche Bank, which together effectively locked in
the price of the purchased power. The terms of both PPAs are
through December 31, 2006. To complete the transactions,
CNEM then entered into the amended and restated credit agreement
and borrowed $82.8 million secured by the BPA contract, the
spot market PPA, the fixed price swap agreement and the equity
interests in CNEM. The spread between the price for power under
the BPA contract and the price for power under the fixed price
swap agreement provides the cash flow to pay CNEMs debt
and other expenses. Proceeds from the borrowing were used by
CNEM primarily to purchase the PPA with BPA from CES, which then
used the proceeds for general corporate purposes as well as to
pay fees and expenses associated with this transaction. CNEM
will make quarterly principal and interest payments on the loan,
which matures on December 31, 2006. The effective interest
rate, after amortization of deferred financing charges, was
12.3% and 12.2% per annum at December 31, 2005
and 2004, respectively.
Pursuant to the applicable transaction agreements, each of CNEM
and its parent, CNEM Holdings, LLC, have been established as an
entity with its existence separate from us and our subsidiaries.
In accordance with FIN 46-R, we consolidate these entities.
The above-mentioned PPA with BPA, which was acquired by CNEM
from CES, the spot market PPA with a third party and the swap
agreement, which were entered into by CNEM and the
$82.8 million loan, are assets and liabilities of CNEM,
separate from our assets and liabilities and those of our other
subsidiaries. The only significant asset of CNEM Holdings, LLC
is its equity interest in CNEM. CNEM is a Non-Debtor entity.
Consequently, the loan is not deemed to be subject to compromise.
Calpine Commercial Trust In May 2004, in
connection with the King City transaction, Calpine Canada Power
Limited, a wholly owned subsidiary of ours, entered into a loan
with Calpine Commercial Trust. Interest on the loan accrues at
13% per annum, and the loan has principal and interest
payments scheduled through maturity in December 2010. The
effective interest rate of this loan is 17% for 2005 and 2004.
We deconsolidated Calpine Canada Power Limited in December 2005
as described in Note 10 and this note payable is now
reflected on our balance sheet as a related party
Note Payable subject to compromise.
Power Contract Financing III, LLC On
June 2, 2004, our wholly owned subsidiary PCF III
issued $85.0 million of notes collateralized by
PCF IIIs ownership interest in PCF. PCF III owns
all of the equity interests in PCF, which holds the PSA with
CDWR described below, and maintains a debt reserve fund which
had a balance of approximately $94.4 million at
December 31, 2005 and 2004. PCF III received cash
proceeds of approximately $49.8 million from the issuance
of the notes, which was distributed to us. At December 31,
2005 and 2004, the effective interest rate on the PCF III
notes was 12.0% per annum. PCF III is a Non-Debtor entity.
Consequently, the PCF III notes are not deemed to be
subject to compromise.
219
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Power Contract Financing, L.L.C. On
June 13, 2003, PCF, an indirect wholly owned subsidiary of
ours, completed an offering of $339.9 million of
5.2% Senior Secured Notes Due 2006 and $462.3 million
of 6.256% Senior Secured Notes Due 2010. The two tranches
of PCFs Senior Secured Notes are secured by fixed cash
flows from a fixed-priced, long-term power sales agreement with
CDWR, pursuant to which PCF sells electricity to CDWR, and a
fixed-priced, long-term PPA with a third party, pursuant to
which PCF purchases from the third party the electricity
necessary to fulfill its obligations to CDWR under the power
sales agreement. The spread between the price for power under
the CDWR power sales agreement and the price for power under the
third party PPA provides the cash flow to pay debt service on
the Senior Secured Notes and PCFs other expenses. The
Senior Secured Notes are non-recourse to us and our other
subsidiaries. At December 31, 2005, the two tranches of
Senior Secured Notes were rated Baa2 by Moodys and
BBB (with a negative outlook) by S&P. During the years
2005 and 2004, $148.1 million and $113.9 million of
the 5.2% Senior Secured Notes was repaid, based on the
Senior Secured Notes repayment schedules. The effective
interest rates on the 5.2% Senior Secured Notes and
6.256% Senior Secured Notes, after amortization of deferred
financing costs, was 8.4% and 9.5% per annum, respectively,
at December 31, 2005, and 8.4% and 9.4% per annum,
respectively, at December 31, 2004.
Pursuant to the applicable transaction agreements, PCF has been
established as an entity with its existence separate from us and
other subsidiaries of ours. In accordance with FIN 46-R, we
consolidate this entity. See Note 2 for more information on
FIN 46-R. The power sales agreement with CDWR and the PPA
with the third party, which were acquired by PCF from CES, and
the Senior Secured Notes are assets and liabilities of PCF,
separate from our assets and liabilities and those of other
subsidiaries of ours. The proceeds of the Senior Secured Notes
were primarily used by PCF to purchase from CES the power sales
agreement with CDWR and PPA with the third party. PCF is a
non-debtor entity. Consequently, the Senior Secured Notes are
not deemed to be subject to compromise.
|
|
16. |
Notes Payable to Calpine Capital Trusts |
In 1999 and 2000, we, through our wholly owned subsidiaries,
Calpine Capital Trust, Calpine Capital Trust II, and
Calpine Capital Trust III, statutory business trusts
created under Delaware law, completed offerings of HIGH TIDES at
a value of $50.00 per HIGH TIDES. A summary of these
offerings follows in the table below ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
|
|
|
|
Stated | |
|
|
|
Common | |
|
First | |
|
Initial | |
|
|
|
|
|
|
Interest | |
|
Offering | |
|
Shares per | |
|
Redemption | |
|
Redemption | |
|
|
Issue Date | |
|
Shares | |
|
Rate | |
|
Amount | |
|
1 High Tide | |
|
Date | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
HIGH TIDES I
|
|
|
October 1999 |
|
|
|
5,520,000 |
|
|
|
5.75 |
% |
|
$ |
276,000 |
|
|
|
3.4620 |
|
|
|
November 5, 2002 |
|
|
|
101.440 |
% |
HIGH TIDES II
|
|
|
January and February 2000 |
|
|
|
7,200,000 |
|
|
|
5.50 |
% |
|
|
360,000 |
|
|
|
1.9524 |
|
|
|
February 5, 2003 |
|
|
|
101.375 |
% |
HIGH TIDES III
|
|
|
August 2000 |
|
|
|
10,350,000 |
|
|
|
5.00 |
% |
|
|
517,500 |
|
|
|
1.1510 |
|
|
|
August 5, 2003 |
|
|
|
101.250 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,070,000 |
|
|
|
|
|
|
$ |
1,153,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net proceeds from each of the offerings were used by the
Calpine Capital Trusts to purchase convertible debentures of
ours, which represented substantially all of the respective
Trusts assets. We effectively guaranteed all of the
respective Calpine Capital Trusts obligations under the
HIGH TIDES. The HIGH TIDES had liquidation values of
$50.00 per HIGH TIDES, or $1.2 billion in total for
all of the issuances.
During 2004 we exchanged 24.3 million shares of Calpine
common stock in privately negotiated transactions for
approximately $115.0 million par value of HIGH TIDES I and
HIGH TIDES II. Also, in
220
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2004, we repurchased, in a privately negotiated transaction, par
value of $115.0 million HIGH TIDES III for cash of
$111.6 million. Due to the deconsolidation of the Trusts
upon the adoption of FIN 46 as of December 31, 2003,
the terms of the underlying debentures and the requirements of
SFAS 140, the repurchased HIGH TIDES I, II and
III preferred securities could not be offset against the
convertible subordinated debentures and were accounted for as
available-for-sale securities and recorded in Other assets at
fair market value at December 31, 2004, with the difference
from their repurchase price recorded in OCI.
On October 20, 2004, we repaid the $276.0 million and
$360.0 million convertible debentures held by Trust I
and Trust II, respectively. The proceeds were used by
Trust I to redeem its outstanding
53/4%
HIGH TIDES I and by Trust II to redeem its outstanding
51/2
% HIGH TIDES II. The redemption price paid per each
$50 principal amount of such HIGH TIDES I and HIGH TIDES II
was $50 plus accrued and unpaid distributions to the redemption
date. The redemption included the $115.0 million par value
of HIGH TIDES I and II previously purchased and held by us and
resulted in a net loss of $7.8 million, comprised of a gain
of $6.1 million related to the HIGH TIDES I and II
available-for-sale securities previously purchased in privately
negotiated transactions, against a write-off of
$13.9 million of unamortized deferred financing costs.
On July 13, 2005, we repaid the $517.5 million
convertible debenture held by Trust III, which then applied
the proceeds to redeem the HIGH TIDES III. The redemption
price paid per each $50 principal amount of such HIGH
TIDES III was $50 plus accrued and unpaid distributions to
the redemption date. The redemption included the
$115 million of HIGH TIDES III previously purchased
and held by us and resulted in a net loss of $8.5 million,
comprised of a gain of $4.4 million related to the HIGH
TIDES III available-for-sale securities previously
purchased in privately negotiated transactions, against a
write-off of $12.9 million of unamortized deferred
financing costs.
The components of Preferred Interests are (in thousands:)
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings Outstanding | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Preferred interest in Auburndale Power Plant
|
|
$ |
78,076 |
|
|
$ |
79,135 |
|
Preferred interest in Gilroy Energy Center, LLC
|
|
|
59,820 |
|
|
|
67,402 |
|
Preferred interest in Calpine Jersey I and II
|
|
|
|
|
|
|
360,000 |
|
Preferred interest in Metcalf Energy Center, LLC
|
|
|
155,000 |
|
|
|
|
|
Preferred interest in CCFC Preferred Holdings, LLC
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preferred interests
|
|
$ |
592,896 |
|
|
$ |
506,537 |
|
|
Less: preferred interests, current portion
|
|
|
9,479 |
|
|
|
8,641 |
|
|
|
|
|
|
|
|
Preferred interests, net of current portion, and term loan
|
|
$ |
583,417 |
|
|
$ |
497,896 |
|
|
|
|
|
|
|
|
In May 2003, FASB issued SFAS No. 150, which
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 applies
specifically to a number of financial instruments that companies
have historically presented within their financial statements
either as equity or between the liabilities section and the
equity section, rather than as liabilities.
SFAS No. 150 was effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
was effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted
SFAS No. 150 on July 1, 2003. For those
instruments required to be recorded as debt,
SFAS No. 150 does not permit reclassification of prior
period amounts to conform to the current period presentation.
The adoption of SFAS No. 150 and related balance sheet
reclassifications did not have an effect
221
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on net income or total stockholders equity (deficit) but
have impacted our
debt-to-equity and
debt-to-capitalization
ratios.
Auburndale Power Plant On September 3,
2003, we announced that our subsidiary, Auburndale Holdings, LLC
had completed the sale of a 70% preferred interest in our
Auburndale power plant to Pomifer Power Funding, LLC, a
subsidiary of ArcLight Energy Partners Fund I, L.P., for
$88.0 million. This preferred interest meets the criteria
of a mandatorily redeemable financial instrument and has been
classified as debt under the guidance of SFAS No. 150,
due to certain preferential distributions to Pomifer Power
Fundings LLC. The preferential distributions are to be paid
quarterly beginning in November 2003 and total approximately
$204.7 million over an
11-year period. The
preferred interest holders recourse is limited to the net
assets of the entity and distribution terms are defined in the
amended and restated LLC operating agreement. We have not
guaranteed the payment of these preferential distributions. We
hold the remaining interest in the facility and provide it with
O&M services. Although we cannot readily determine the
potential cost to repurchase the interest in Auburndale
Holdings, LLC, the carrying value at December 31, 2005 and
2004, of the preferred interest was $78.1 million and
$79.1 million, respectively. The effective interest rate on
the preferred interest, after amortization of deferred financing
charges, was 16.6% and 17.1% per annum at December 31,
2005 and 2004, respectively. Auburndale is a Non-Debtor entity.
Consequently, these debt instruments are not deemed to be
subject to compromise.
Gilroy Energy Center, LLC On
September 30, 2003, GEC, a wholly owned subsidiary of our
subsidiary GEC Holdings, LLC, completed an offering of
$301.7 million of 4% Senior Secured Notes Due 2011.
See Note 21 for more information on this secured financing
in connection with which GEC acquired a long-term power sales
agreement with CDWR by means of a series of capital
contributions by CES and certain of its affiliates. In
connection with the issuance of the secured notes, we received
funding on a third party preferred equity investment in GEC
Holdings, LLC totaling $74.0 million. This preferred
interest meets the criteria of a mandatorily redeemable
financial instrument and has been classified as debt under the
guidance of SFAS No. 150, due to certain preferential
distributions to the third party. The preferential distributions
are due semi-annually beginning in March 2004 through September
2011 and total approximately $113.3 million over the
eight-year period. Although we cannot readily determine the
potential cost to repurchase the interest in GEC Holdings, LLC,
the carrying value at December 31, 2005 and 2004, of the
preferred interest was $59.8 million and
$67.4 million, respectively. The effective interest rate on
the preferred interest, after amortization of deferred financing
charges, was 14.6% and 12.2% per annum at December 31,
2005 and 2004, respectively. GEC is a Non-Debtor entity.
Consequently, these instruments are not deemed to be subject to
compromise.
Pursuant to the applicable transaction agreements, GEC has been
established as an entity with its existence separate from us and
other subsidiaries of ours. We consolidate this entity. A
long-term PPA between CES and the CDWR has been acquired by GEC
by means of a series of capital contributions by CES and certain
of its affiliates and is an asset of GEC, and the secured notes
and preferred interest are liabilities of GEC, separate from the
assets and liabilities of Calpine and our other subsidiaries. In
addition to the PPA and eleven peaker power plants owned
directly or indirectly by GEC, GECs assets include cash
and a 100% equity interest in each of Creed and Goose Haven,
each of which is a wholly owned subsidiary of GEC and a
guarantor of the 4% Senior Secured Notes Due 2011 issued by
GEC. Each of Creed and Goose Haven has been established as an
entity with its existence separate from us and other
subsidiaries of ours. Creed and Goose Haven each have assets
consisting of various power plants and other assets. GEC, Creed
and Goose Haven are Non-Debtor entities. Consequently, the
4% Senior Secured Notes Due 2011 and the preferred interest
are not deemed to be subject to compromise.
Calpine Jersey I and II On October 26,
2004, our indirect, wholly owned subsidiary Calpine Jersey I
completed a $360 million offering of two-year redeemable
preferred shares priced at LIBOR plus 700 basis
222
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
points. On January 31, 2005, our indirect, wholly owned
subsidiary Calpine Jersey II completed a $260 million
offering of redeemable preferred shares due July 30, 2005,
priced at LIBOR plus 850 basis points.
The redeemable preferred shares issued by Calpine Jersey I and
Calpine Jersey II were repurchased on July 28, 2005,
when we completed the sale of Saltend. Of the total gross
proceeds of $862.9 million from the sale of Saltend,
approximately $647.1 million was used to redeem the
$360.0 million two-year redeemable preferred shares issued
by Calpine Jersey I, and the $260.0 million redeemable
preferred shares due June 20, 2005, issued by Calpine
Jersey II, including interest and termination fees of
$16.3 million and $10.8 million, respectively. As
discussed in Note 31, certain bondholders initiated a
lawsuit concerning the use of the remaining proceeds from the
sale of Saltend.
Metcalf Energy Center, LLC On June 20,
2005, our indirect subsidiary Metcalf, completed a
$155.0 million offering of
5.5-year redeemable
preferred shares priced at LIBOR plus 900 basis points.
Concurrent with the closing, Metcalf entered into a five-year,
$100.0 million senior term loan at LIBOR plus
300 basis points. Proceeds from the senior term loan were
used to refinance all outstanding indebtedness under
Metcalfs existing $100.0 million non-recourse
construction credit facility. The effective interest rate on the
redeemable preferred shares, after amortization of deferred
financing charges, was 12.2% per annum at December 31,
2005. The redeemable preferred shares are accounted for as
long-term debt in accordance with SFAS No. 150. Metcalf is
a Non-Debtor entity. Consequently, these instruments are not
deemed to be subject to compromise.
CCFC Preferred Holdings, LLC On
August 12, 2005, our subsidiary CCFCP, an indirect parent
of CCFC, issued $150.0 million of Class A Redeemable
Preferred Shares due 2006 priced at LIBOR plus 950 basis
points. The Class A redeemable preferred shares were
repurchased in full on October 14, 2005.
On October 14, 2005, CCFCP issued $300.0 million of
6-year redeemable
preferred shares priced at LIBOR plus 950 basis points. The
6-year redeemable
preferred shares are mandatorily redeemable on the maturity date
and are accounted for as long-term debt in accordance with
SFAS No. 150. Any related preferred dividends will be
accounted for as interest expense in accordance with
SFAS No. 150. The effective interest rate, after
amortization of deferred financing charges, was 14.2% per
annum at December 31, 2005. CCFCP is a Non-Debtor entity.
Consequently, these instruments are not deemed to be subject to
compromise.
|
|
18. |
Capital Lease Obligations |
In the first quarter of 2004, CPIF, a related party, acquired
the King City power plant from a third party lessor in a
transaction that closed May 19, 2004. See Note 12 for
a discussion of our relationship with CPIF. CPIF became the new
lessor of the facility, which it purchased subject to our
pre-existing operating lease. We restructured certain provisions
of the operating lease, including a
10-year extension and
the elimination of the collateral requirements necessary to
support the original lease payments. The base term of the
restructured lease expires in 2028 with a renewal option at the
then fair market rental value of the facility. Due to the lease
extension and other modifications to the original lease, the
lease was reevaluated under SFAS No. 13,
Accounting for Leases, and determined to be a
capital lease. The present value of the minimum lease payments
totaled approximately $114.9 million which represented more
than 90% of the fair value of the facility. As a result, we
recorded a capital lease asset of $114.9 million as
property, plant and equipment in the Consolidated Balance
Sheets. This asset will be depreciated over the
24-year base lease
term. In recording the capital lease obligation, the outstanding
deferred lease incentive liability ($53.7 million including
the current portion as of December 31, 2003) recorded as
part of the original operating lease transaction, and the
prepaid operating lease payments asset ($69.4 million
including the current portion as of December 31, 2003)
accumulated under the original operating lease terms, were
eliminated. The difference between these two balances on
May 19, 2004, was approximately $19.9 million and is
reflected as a discount to the $114.9 million
223
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
capital lease obligation. This discount will be accreted as
additional interest expense using the effective interest method
over the 24-year base lease term. The net capital lease
obligation originally recorded as debt in the Consolidated
Balance Sheet was $94.9 million.
Pursuant to the applicable transaction agreements, each of
Calpine King City Cogen, LLC, Calpine Securities Company, L.P.,
a parent company of Calpine King City Cogen, LLC and Calpine
King City, LLC, an indirect parent company of Calpine Securities
Company, L.P., has been established as an entity with its
existence separate from us and other subsidiaries of ours. We
consolidate these entities.
Calpine Corporations bankruptcy filing has resulted in an
event of default under King City Cogens lease agreement
with King City, L.P., and under a loan agreement between King
City, L.P. and GE VFS Financing Holdings, Inc., an affiliate of
GE, entered into in connection with the King City Cogen
leveraged lease financing. Pursuant to the leveraged lease
financing, King City, L.P. has assigned its rights under the
lease to GE VFS. On December 20, 2005, King City Cogen
entered into a forbearance agreement with GE VFS, whereby GE VFS
agreed to forbear from taking any action arising from any events
of default or potential events of default occurring as a result
of our bankruptcy filings through April 20, 2006. On
April 13, 2006, the forbearance agreement was extended
through January 1, 2007. Upon expiration of the forbearance
agreement, GE VFS may exercise remedies including accelerating
its loan with King City, L.P. and/or requiring King City, L.P.
to take certain measures including acceleration of the lease
obligations of King City Cogen.
We assumed and consolidated other capital leases in conjunction
with certain acquisitions. As of December 31, 2005 and
2004, the asset balances for the leased assets totaled
$322.0 million and $322.3 million, respectively, with
accumulated amortization of $54.1 million and
$41.8 million, respectively. Of these balances, as of
December 31, 2005 and 2004, $114.9 million of leased
assets and $7.4 million and $2.7 million,
respectively, of accumulated amortization related to the King
City power plant, which is leased from a related party. The
primary types of property leased by us are power plants and
related equipment. The leases generally provide for the lessee
to pay taxes, maintenance, insurance, and certain other
operating costs of the leased property. The lease terms range up
to 28 years. Some of the lease agreements contain customary
restrictions on dividends, additional debt and further
encumbrances similar to those typically found in project
financing agreements. In determining whether a lease qualifies
for capital lease treatment, in accordance with
SFAS No. 13, Accounting for Leases, we
include all increases due to step rent provisions/escalation
clauses in our minimum lease payments for our capital lease
obligations. Certain capital improvements associated with leased
facilities may be deemed to be leasehold improvements and are
amortized over the shorter of the term of the lease or the
economic life of the capital improvement. Lease concessions
including taxes and insurance are excluded from the minimum
lease payments. Our minimum lease payments are not tied to an
existing variable index or rate.
224
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of
the net minimum lease payments as of December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
King City | |
|
|
|
|
|
|
Capital Lease | |
|
Other | |
|
|
|
|
with Related | |
|
Capital | |
|
|
|
|
Party | |
|
Leases | |
|
Total | |
|
|
| |
|
| |
|
| |
Years Ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$ |
33,158 |
|
|
$ |
20,298 |
|
|
$ |
53,456 |
|
|
2007
|
|
|
16,552 |
|
|
|
20,460 |
|
|
|
37,012 |
|
|
2008
|
|
|
16,199 |
|
|
|
21,855 |
|
|
|
38,054 |
|
|
2009
|
|
|
16,592 |
|
|
|
21,600 |
|
|
|
38,192 |
|
|
2010
|
|
|
19,526 |
|
|
|
22,447 |
|
|
|
41,973 |
|
|
Thereafter
|
|
|
157,047 |
|
|
|
245,864 |
|
|
|
402,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
259,074 |
|
|
|
352,524 |
|
|
|
611,598 |
|
Less: Amount representing interest(1)
|
|
|
162,095 |
|
|
|
162,746 |
|
|
|
324,841 |
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
96,979 |
|
|
|
189,778 |
|
|
|
286,757 |
|
Less: Capital lease obligations, current portion
|
|
|
2,360 |
|
|
|
189,137 |
|
|
|
191,497 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, net of current portion
|
|
$ |
94,619 |
|
|
$ |
641 |
|
|
$ |
95,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amount necessary to reduce net minimum lease payments to present
value calculated at the incremental borrowing rate at the time
of acquisition. |
Due to the bankruptcy filing, which generally constituted an
event default and our failure to comply with certain financial
covenants under the majority of our debt instruments, we are in
technical default on most of our pre-petition debt obligations.
Except as otherwise may be determined by the Bankruptcy Court,
the automatic stay protection afforded by the Chapter 11
proceedings prevents any action from being taken against any of
the Calpine Debtors with regard to any of the defaults under the
pre-petition debt obligations. However, as a result of being in
violation of most of our pre-petition debt obligations, a
significant portion of our outstanding capital lease obligation
has been reclassified to current liabilities.
The components of CCFC financing as of December 31, 2005
and 2004, are (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at | |
|
|
December 31, | |
|
|
| |
|
|
2005(1) | |
|
2004 | |
|
|
| |
|
| |
Second Priority Senior Secured Floating Rate Notes Due 2011
|
|
$ |
409,539 |
|
|
$ |
408,568 |
|
First Priority Senior Secured Institutional Term Loans Due 2009
|
|
|
374,974 |
|
|
|
378,182 |
|
|
|
|
|
|
|
|
|
Total CCFC financing
|
|
|
784,513 |
|
|
|
786,750 |
|
Less: Current portion
|
|
|
784,513 |
|
|
|
3,208 |
|
|
|
|
|
|
|
|
|
CCFC financing, net of current portion
|
|
$ |
|
|
|
$ |
783,542 |
|
|
|
|
|
|
|
|
|
|
(1) |
Due to technical default under the indenture, all amounts are
recorded as current liabilities as of December 31, 2005. |
225
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 1999, our subsidiary, CCFC, entered into a
$1.0 billion non-recourse revolving construction credit
facility with a consortium of banks. The lead arranger was The
Bank of Nova Scotia and the lead syndication agent was Credit
Suisse First Boston. The CCFC credit facility was utilized to
finance the construction of certain of our gas-fired power
plants. We repaid the outstanding balance of $880.1 million
in August 2003 in connection with the financing described below.
On August 14, 2003, CCFC and its wholly owned subsidiary,
CCFC Finance Corp., closed an institutional term loan and
secured notes financing, realizing gross proceeds of
$750 million. The financing included $385.0 million of
First Priority Senior Secured Institutional Term Loans Due 2009
offered at 98% of par and priced at LIBOR plus 600 basis
points, with a LIBOR floor of 150 basis points, and
$365.0 million of Second Priority Senior Secured Floating
Rate Notes Due 2011 offered at 98% of par and priced at LIBOR
plus 850 basis points, with a LIBOR floor of 125 basis
points. Net proceeds (after payment of transaction fees and
expenses, including the fee payable to J. Aron &
Company, the counterparty to a six-year index hedge with CCFC)
were utilized to repay a majority of CCFCs indebtedness
under the CCFC credit facility, which was scheduled to mature in
the fourth quarter of 2003. On September 25, 2003, CCFC and
CCFC Finance Corp. closed on an additional $50.0 million of
the CCFC Senior Notes offered at 99% of par. The CCFC Term Loans
and Secured Notes are collateralized through a combination of
pledges of the equity interests in and/or assets (other than
excluded assets) of CCFC and its subsidiaries, other than CCFC
Finance Corp. The CCFC Secured Noteholders and Term Loan
lenders recourse is limited to such collateral and none of
the CCFC indebtedness is guaranteed by us. S&P has assigned
a CCC- (with a negative outlook) corporate credit rating to
CCFC, a CCC rating (with a negative outlook) to the CCFC Term
Loans and a CC rating (with a negative outlook) to the CCFC
Senior Notes. The effective interest rate of the CCFC Senior
Notes, after amortization of discount and deferred financing
costs, was 12.4% per annum at December 31, 2005, and
10.8% at December 31, 2004. The effective interest rate of
the CCFC Term Loans, after amortization of discount and deferred
financing costs, was 10.2% per annum at December 31,
2005, and 8.5% at December 31, 2004. CCFC and its
subsidiaries, including CCFC Finance Corp., are Non-Debtor
entities. Consequently, the CCFC Term Loans and CCFC Senior
Notes are not deemed to be subject to compromise.
The components of the CalGen financing as of December 31,
2005 and 2004, are (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of Credit | |
|
|
Outstanding at | |
|
Outstanding at | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
First Priority Secured Floating Rate Notes Due 2009
|
|
$ |
235,000 |
|
|
$ |
235,000 |
|
|
$ |
|
|
|
$ |
|
|
Second Priority Secured Floating Rate Notes Due 2010
|
|
|
633,239 |
|
|
|
631,639 |
|
|
|
|
|
|
|
|
|
Third Priority Secured Floating Rate Notes Due 2011
|
|
|
680,000 |
|
|
|
680,000 |
|
|
|
|
|
|
|
|
|
Third Priority Secured Fixed Rate Notes Due 2011
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
First Priority Secured Term Loans Due 2009
|
|
|
600,000 |
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
Second Priority Secured Term Loans Due 2010
|
|
|
98,944 |
|
|
|
98,693 |
|
|
|
|
|
|
|
|
|
First Priority Secured Revolving Loans
|
|
|
40,799 |
|
|
|
|
|
|
|
158,335 |
|
|
|
189,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CalGen financing(1)
|
|
$ |
2,437,982 |
|
|
$ |
2,395,332 |
|
|
$ |
158,335 |
|
|
$ |
189,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Due to the defaults occurring as a result of the Chapter 11
filings of Calgen and its subsidiaries, including CalGen Finance
Corp., under the CalGen Secured Note indentures and the CalGen
Term Loan agreements, all amounts are recorded as current
liabilities. |
226
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In October 2000, our wholly owned subsidiary CalGen (then called
Calpine Construction Finance Company II, LLC) entered into
a $2.5 billion non-recourse revolving construction credit
facility with a consortium of banks. The lead arrangers were The
Bank of Nova Scotia and Credit Suisse First Boston. The CalGen
credit facility was utilized to finance the construction of
certain of our gas-fired power plants. We repaid the outstanding
balance of this debt in March 2004 from the proceeds of the
financing described below.
On March 23, 2004, CalGen and its wholly owned subsidiary,
CalGen Finance Corp., closed an institutional term loan (the
CalGen Term Loans) and secured notes (the
CalGen Secured Notes) financing realizing net
proceeds (after payment of transaction fees and expenses,
including the fee payable to Morgan Stanley, the counterparty to
a three-year index hedge with CalGen) in the approximate amount
of $2.3 billion. The interest rates associated with the
CalGen Term Loans and Secured Notes are as follows:
|
|
|
Description |
|
Interest Rate |
|
|
|
First Priority Secured Floating Rate Notes Due 2009
|
|
LIBOR plus 375 basis points |
Second Priority Secured Floating Rate Notes Due 2010
|
|
LIBOR plus 575 basis points |
Third Priority Secured Floating Rate Notes Due 2011
|
|
LIBOR plus 900 basis points |
Third Priority Secured Fixed Rate Notes Due 2011
|
|
11.50% |
First Priority Secured Term Loans Due 2009
|
|
LIBOR plus 375 basis points(1) |
Second Priority Secured Term Loans Due 2010
|
|
LIBOR plus 575 basis points(2) |
First Priority Secured Revolving Loans
|
|
LIBOR plus 350 basis points(3) |
|
|
(1) |
We may also elect a Base Rate plus 275 basis points. |
|
(2) |
We may also elect a Base Rate plus 475 basis points. |
|
(3) |
We may also elect a Base Rate plus 250 basis points. |
The CalGen Term Loans and Secured Notes are collateralized
through a combination of pledges of the equity interests in
CalGen and its first tier subsidiary, CalGen Expansion Company,
liens on the assets of 13 of CalGens 14 power generating
facilities (all of CalGens facilities other than its
Goldendale facility) and related assets located throughout the
United States. The CalGen Term Loan lenders and Secured
Noteholders recourse is limited to such collateral, and
none of the indebtedness is guaranteed by us. Net proceeds were
used to refinance amounts outstanding under the CalGen credit
facility, which was scheduled to mature in November 2004, and to
pay fees and transaction costs associated with the refinancing.
Concurrently with this refinancing, we amended and restated the
CalGen credit facility to reduce the commitments under the
facility to $200.0 million and extend its maturity to March
2007. Borrowings under the amended and restated CalGen credit
facility bear interest at LIBOR plus 350 basis points (or,
at our
227
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
election, the Base Rate plus 250 basis points). Interest
rates and effective interest rates, after amortization of
deferred financing costs are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 Effective Interest | |
|
2004 Effective Interest | |
|
|
Rate after Amortization of | |
|
Rate after Amortization of | |
|
|
Deferred Financing Costs | |
|
Deferred Financing Costs | |
|
|
| |
|
| |
First Priority Secured Floating Rate Notes Due 2009
|
|
|
7.5 |
% |
|
|
5.8 |
% |
Second Priority Secured Floating Rate Notes Due 2010
|
|
|
9.7 |
% |
|
|
8.1 |
% |
Third Priority Secured Floating Rate Notes Due 2011
|
|
|
12.6 |
% |
|
|
10.9 |
% |
Third Priority Secured Fixed Rate Notes Due 2011
|
|
|
11.8 |
% |
|
|
11.8 |
% |
First Priority Secured Term Loans Due 2009
|
|
|
7.6 |
% |
|
|
5.8 |
% |
Second Priority Secured Term Loans Due 2010
|
|
|
9.8 |
% |
|
|
8.0 |
% |
First Priority Secured Revolving Loans
|
|
|
14.6 |
% |
|
|
17.5 |
% |
CalGen and its subsidiaries, including CalGen Finance Corp., are
U.S. Debtors, but the CalGen Term Loans and Secured Notes
and the CalGen credit facility are considered to be fully
secured. Consequently, the CalGen Term Loans, CalGen Secured
Notes and CalGen credit facility are not deemed to be subject to
compromise.
228
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
21. |
Other Construction/ Project Financing |
The components of our other construction/project financing as of
December 31, 2005 and 2004, are (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of Credit | |
|
|
Outstanding at | |
|
Outstanding at | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
Projects |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Pasadena Cogeneration, L.P.
|
|
$ |
282,222 |
|
|
$ |
282,896 |
|
|
$ |
|
|
|
$ |
|
|
Broad River Energy LLC
|
|
|
265,217 |
|
|
|
275,112 |
|
|
|
|
|
|
|
|
|
Otay Mesa Energy Center, LLC Ground Lease
|
|
|
7,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
Gilroy Energy Center, LLC
|
|
|
223,218 |
|
|
|
261,382 |
|
|
|
|
|
|
|
|
|
Blue Spruce Energy Center, LLC
|
|
|
96,395 |
|
|
|
98,272 |
|
|
|
|
|
|
|
|
|
Riverside Energy Center, LLC
|
|
|
355,293 |
|
|
|
368,500 |
|
|
|
|
|
|
|
|
|
Rocky Mountain Energy Center, LLC
|
|
|
245,872 |
|
|
|
264,900 |
|
|
|
|
|
|
|
|
|
Calpine Fox LLC
|
|
|
347,828 |
|
|
|
266,075 |
|
|
|
10,000 |
|
|
|
75,000 |
|
Metcalf Energy Center, LLC
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mankato Energy Center, LLC
|
|
|
151,230 |
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
Freeport Energy Center, LP
|
|
|
163,603 |
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
MEP Pleasant Hill, LLC(1)
|
|
|
|
|
|
|
174,914 |
|
|
|
|
|
|
|
|
|
Bethpage Energy Center 3, LLC
|
|
|
123,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,361,025 |
|
|
|
1,999,051 |
|
|
$ |
60,000 |
|
|
$ |
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
1,160,593 |
|
|
|
93,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term construction/project financing
|
|
$ |
1,200,432 |
|
|
$ |
1,905,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Classified as liability subject to compromise as of
December 21, 2005, due to our bankruptcy filings on
December 20, 2005. |
Pasadena Cogeneration, L.P. In September
2000, we completed the financing, which matures in 2048, for
both Phase I and Phase II of the Pasadena, Texas
cogeneration project. Under the terms of the financing, we
received $400.0 million in gross proceeds. The actual
interest rate at December 31, 2005 and 2004, was 8.6%. The
effective interest rate, after amortization of deferred
financing charges, was 8.7% at December 31, 2005 and 2004.
Pasadena Cogeneration, LP is a Non-Debtor entity and therefore
the debt amounts are not subject to compromise. However, due to
certain defaults or events of default these debt amounts have
been reclassified as current liabilities. (See Note 14 for
a discussion of covenant compliance.)
Broad River Energy LLC In October 2001, we
completed the financing, which matures in 2041, for the Broad
River Energy Center in South Carolina. Under the terms of the
financing, we received $300.0 million in gross proceeds.
The actual interest rate at December 31, 2005 and 2004, was
8.1%. The effective interest rate, after amortization of
deferred financing charges, was also 8.1% at December 31,
2005 and 2004. Broad River Energy LLC is a U.S. Debtor.
Therefore the debt amounts are not subject to compromise. Due to
certain defaults or events of default these debt amounts have
been reclassified as current liabilities.
Otay Mesa Energy Center, LLC On July 8,
2003, Otay Mesa Generating Company, LLC, entered into a
$7.0 million ground lease and easement agreement with
D&D Landholdings. Otay Mesa Generating
229
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company, LLC was merged into Calpine Corporation on
July 16, 2003. The ground lease and easement agreements
were subsequently transferred to Otay Mesa Energy Center, LLC,
which was formed in October 2003. The lease and easement
agreement expires on December 1, 2033. The actual interest
rate at December 31, 2005 and 2004, was 12.7% and 12.6%,
respectively. The effective interest rate after amortization of
deferred financing charges was 12.9% and 12.8% at
December 31, 2005 and 2004, respectively. Otay Mesa Energy
Center, LLC is a Non-Debtor entity and therefore the debt
amounts are not subject to compromise. See Note 34 for a
discussion of the potential disposition of this facility.
Gilroy Energy Center, LLC On
September 30, 2003, GEC, a wholly owned subsidiary of our
subsidiary GEC Holdings, LLC, completed an offering of
$301.7 million of 4% Senior Secured Notes Due 2011.
The GEC notes are secured by GECs and its
subsidiaries 11 peaking units located at nine
power-generating sites in northern California. The GEC notes
also are secured by a long-term PPA with CDWR for 495 MW of
peaking capacity, which is being served by the 11 peaking units.
In addition, payment of the principal and interest on the GEC
notes when due is insured by an unconditional and irrevocable
financial guaranty insurance policy that was issued by a third
party simultaneously with the delivery of the GEC notes.
Proceeds of the GEC notes offering (after payment of transaction
expenses, including payment of the financial guaranty insurance
premium, which are capitalized and included in deferred
financing costs on our Consolidated Balance Sheets) were used to
reimburse costs incurred in connection with the development and
construction of the peaker projects. The GEC noteholders
recourse is limited to the financial guaranty insurance policy
and, to the extent payment is not made under such policy, to the
assets of GEC and its subsidiaries. We have not guaranteed the
GEC notes. The actual interest rate at December 31, 2005
and 2004, was 4%. The effective interest rate, after
amortization of deferred financing charges, was 7.4% and 6.7% at
December 31, 2005 and 2004, respectively. In connection
with this offering, we received funding on a third party
preferred equity investment in GEC Holdings, LLC totaling
$74.0 million. See Note 17 for more information
regarding this preferred equity interest. GEC is a Non-Debtor
entity and therefore the debt amounts are not subject to
compromise.
Blue Spruce Energy Center, LLC On
November 7, 2003, we completed a $140.0 million term
loan financing for the Blue Spruce Energy Center. The term loan
is made up of two facilities, Tranche A (for
$100 million) and Tranche B (for $40 million),
which have 15-year and
6-year repayment terms,
respectively. At December 31, 2005 and 2004, there was
$96.4 and $98.3 million, respectively, outstanding under
Tranche A. Tranche B was fully repaid during 2004 and
may not be reborrowed. The actual interest rate for
Tranche A at December 31, 2005 and 2004, was 11.0% and
9.1%, respectively. The effective interest rate for
Tranche A, after amortization of deferred financing costs,
was 10.6% and 9.1%, respectively, at December 31, 2005 and
2004. Blue Spruce Energy Center, LLC is a U.S. NonDebtor
and therefore the debt amounts are not subject to compromise.
However, due to certain defaults or events of default these debt
amounts have been reclassified as current liabilities. (See
Note 14 for a discussion of covenant compliance.)
Riverside Energy Center, LLC and Rocky Mountain Energy
Center, LLC On February 20, 2004, we
completed $250.0 million of non-recourse project financing
for Rocky Mountain Energy Center and, on August 25, 2003,
we completed $230.0 million of non-recourse project
financing for Riverside Energy Center. These loans were
refinanced on June 29, 2004, with the proceeds from
$633.4 million of First Priority Secured Floating Rate Term
Loans Due 2011 priced at LIBOR plus 425 basis points and a
$28.1 million letter of credit-linked deposit facility
provided to Rocky Mountain Energy Center, LLC and Riverside
Energy Center, LLC, wholly owned stand-alone subsidiaries of
Calpine Riverside Holdings, LLC. In connection with this
refinancing, we wrote off $13.2 million in deferred
financing costs. In addition, approximately $160.0 million
was used to reimburse us for costs incurred in connection with
the development and construction of the Rocky Mountain and
Riverside facilities. We also received approximately
$79.0 million in proceeds via a combination of cash and
increased credit capacity as a result of the elimination of
certain reserves and cancellation of letters of credit
associated with the original non-recourse project financings.
The actual interest rate of the
230
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Rocky Mountain facility at December 31, 2005 and 2004, was
8.6%. The effective interest rate of the Rocky Mountain facility
at December 31, 2005 and 2004, after amortization of
deferred financing costs, was 9.9% and 10.2%, respectively. The
actual interest rate of the Riverside facility at
December 31, 2005 and 2004, was 8.8% and 6.4%,
respectively. The effective interest rate of the Riverside
facility, after amortization of deferred financing costs, was
9.4% and 9.2%, at December 31, 2005 and 2004, respectively.
Riverside Energy Center, LLC and Rocky Mountain Energy Center,
LLC are Non-Debtor entities and therefore the debt amounts are
not subject to compromise.
Calpine Fox LLC On November 19, 2004, we
entered into a $400 million
25-year, non-recourse
sale/leaseback transaction with affiliates of GECF for the
560-MW Fox Energy
Center then under construction in Wisconsin. The proceeds were
used to reimburse us for construction capital spent on the
project, repay existing debt associated with equipment for the
project and complete the construction of the facility. Once
construction was completed, we leased the Fox power plant from
GECF under a 25-year
facility lease. The lease is renewable at our option for a
15-year term. Due to
significant continuing involvement, as defined in
SFAS No. 98, Accounting for Leases, the
transaction does not currently qualify for sale lease-back
accounting under that statement and has been accounted for as a
financing. The proceeds received from GECF are recorded as debt
in our Consolidated Balance Sheets. For so long as we continue
to lease the facility, the power plant assets will be
depreciated over their estimated useful life and the lease
payments will be applied to principal and interest expense using
the effective interest method until such time as our continuing
involvement is removed, expires or is otherwise eliminated. Once
we no longer have significant continuing involvement in the
power plant assets, the legal sale will be recognized for
accounting purposes and the underlying lease will be evaluated
and classified in accordance with SFAS No. 13,
Accounting for Leases. The actual interest rate at
December 31, 2005 and 2004, was 8.3% and 7.1%,
respectively. The effective interest rate after amortization of
deferred financing charges at December 31, 2005 and 2004,
was 8.8% and 7.4%, respectively. The Fox Energy Center was
subsequently identified as one of a number of designated
projects that, absent the consent of the creditor committees or
unless ordered by the U.S. Bankruptcy Court, may not
receive further funding, other than certain limited amounts that
were agreed to by the creditor committees. We are currently
evaluating options with respect to this facility. Calpine Fox
LLC is a Non-Debtor entity and therefore the debt amounts are
not subject to compromise. However, due to certain defaults or
events of default these debt amounts have been reclassified as
current liabilities. (See Note 14 for a discussion of
covenant compliance.)
Metcalf Energy Center, LLC On
January 28, 2005, Metcalf entered into a
$100.0 million, non-recourse construction credit facility
for the 602-MW natural
gas-fired Metcalf Energy Center in San Jose, California.
Loans extended to Metcalf under the construction credit facility
were used to fund the balance of construction activities for the
power plant. This credit facility was refinanced on
June 20, 2005, with the proceeds of Metcalfs
five-year, $100.0 million senior term loan priced at LIBOR
plus 300 basis points. Concurrently with the refinancing of
the construction credit facility with the proceeds of the senior
term loan, Metcalf consummated the sale of $155.0 million
of 5.5-year redeemable
preferred shares priced at LIBOR plus 900 basis points. See
Note 17 for more information regarding the redeemable
preferred shares. The actual and effective interest rates after
amortization of deferred financing charges under the senior term
loan, were 7.4% and 7.7%, respectively, at December 31,
2005. Metcalf Energy Center, LLC is a Non-Debtor entity and
therefore the debt amounts are not subject to compromise.
Mankato Energy Center, LLC and Freeport Energy Center,
LP On March 1, 2005, our indirect
subsidiary, Calpine Steamboat Holdings, LLC, closed on a
$503.0 million non-recourse project finance facility that
provided $466.5 million to complete the construction of the
Mankato Energy Center in Blue Earth County, Minnesota, and the
Freeport Energy Center in Freeport, Texas. The remaining
$36.5 million of the facility provides a letter of credit
for Mankato ($25 million in use as of December 31,
2005) that is required pursuant to Mankatos PPA with
Northern States Power Company. The project finance facility is
structured
231
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
as a construction loan, converting to a term loan upon
commercial operation of the plants, and matures in December
2011. The facility was initially priced at LIBOR plus 1.75%. The
actual interest rate at December 31, 2005, was 6.1% for
both Mankato and Freeport. The effective interest rate after
amortization of deferred financing charges at December 31,
2005, was 6.5% and 5.9% for Mankato and Freeport, respectively.
Mankato Energy Center, LLC and Freeport Energy Center, LP are
Non-Debtor entities and therefore the debt amounts are not
subject to compromise.
Bethpage Energy Center 3, LLC On
June 30, 2005, we received funding on a $123.1 million
non-recourse project finance facility to complete the
construction of the
79.9-MW Bethpage Energy
Center 3. The financing is comprised of a $108.5 million
first lien loan and a $14.6 million second lien loan,
carrying a term of 20 years and 15 years,
respectively. Approximately $74.4 million of the funding
was used to reimburse us for costs spent on the project. The
balance of funds were used for transaction expenses, the final
completion of the project, and to fund certain reserve accounts.
The actual and effective interest rates after amortization of
deferred financing charges under the first lien loan at
December 31, 2005, were 6.1% and 6.8%, respectively. The
actual and effective interest rates after amortization of
deferred financing charges under the second lien loan at
December 31, 2005, were 7.9% and 8.6%, respectively.
Bethpage Energy Center 3, LLC is a U.S. Debtor,
however, the project financing is considered to be fully
secured. Consequently, this debt financing is not deemed to be
subject to compromise. Due to certain defaults or events of
default these debt amounts have been reclassified as current
liabilities.
On December 22, 2005, Calpine Corporation, as borrower,
entered into the DIP Facility with Deutsche Bank Securities,
Inc. and Credit Suisse, as joint syndication agents, Deutsche
Bank Trust Company Americas as administrative agent for the
first priority lenders and Credit Suisse as administrative agent
for the second priority lenders. The DIP Facility is guaranteed
by each of the other U.S. Debtors. On January 26,
2006, the U.S. Bankruptcy Court granted final approval of the
DIP Facility, and on February 23, 2006, the
DIP Facility was amended and restated and the term loans
were funded. On May 3, 2006, the DIP Facility was further
amended. See Note 34 for more information.
Pursuant to the DIP Facility, and applicable orders of the
U.S. Bankruptcy Court, the lenders have made available to
Calpine up to $2 billion comprising a $1 billion
revolving loan and letter of credit facility, a
$400 million first priority term loan facility and a
$600 million second priority term loan facility. The
proceeds of borrowings and letters of credit issued under the
DIP Facility will be used, among other things, for working
capital and other general corporate purposes. A portion of the
DIP Facility was used to purchase The Geysers, including the
redemption of the lesser notes. In addition, pursuant to the
May 3, 2006 amendment, borrowings under the DIP Facility
may be used to repay a portion of the First Priority Notes. We
had borrowed $25 million under the DIP Facility as of
December 31, 2005.
|
|
|
|
|
|
|
|
December 22, 2005 | |
|
|
| |
|
|
(In thousands) | |
First Priority Facility Commitments
|
|
|
|
|
|
Revolving Credit Facility(1)(2)
|
|
$ |
1,000,000 |
|
|
First Priority Term Loan(2)
|
|
|
400,000 |
|
Second Priority Facility Commitments
|
|
|
|
|
|
Second Priority Term Loan(2)
|
|
$ |
600,000 |
|
|
|
(1) |
Commitments for letters of credit ($300 million) and
swingline loans ($10 million) can be drawn against the
revolving credit facility. The DIP Facility will remain in place
until the earlier of an effective plan of reorganization on
December 20, 2007. |
232
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(2) |
Pursuant to the interim order issued by the US Bankruptcy Court
on December 22, 2005, the US Debtors were only authorized
to borrow an aggregate amount up to $500,000,000 under the
Revolving Credit Facility and nothing under either term facility
until the final order was issued by the US Bankruptcy Court on
January 26, 2006. |
Interest terms on Eurodollar loans are Eurodollar rate
(LIBOR) plus a margin, as follows:
|
|
|
|
|
|
|
Margin | |
|
|
December 22, 2005 | |
|
|
| |
Revolving Loans and Swingline Loans
|
|
|
2.25 |
% |
First Priority Term Loan
|
|
|
2.25 |
% |
Second Priority Term Loan
|
|
|
4.00 |
% |
The DIP Facility is secured by first priority liens on all of
the U.S. Debtors unencumbered assets, in particular all of
The Geysers assets, and junior liens on all of the U.S.
Debtors encumbered assets.
Covenant Restrictions Our DIP Facility
includes financial and other covenants that impose substantial
restrictions on our financial and business operations. Our
ability to comply with these covenants depends in part on our
ability to implement our restructuring program during the
bankruptcy cases. The DIP Facility contains events of default
customary for DIP financings of this type, including cross
defaults and certain change of control events. These
restrictions limit or prohibit our ability to, among other
things:
|
|
|
|
|
incur additional indebtedness and issue preferred stock; |
|
|
|
make prepayments on or purchase indebtedness in whole or in part; |
|
|
|
pay dividends and other distributions with respect to our
capital stock or repurchase our capital stock or make other
restricted payments; |
|
|
|
make certain investments; |
|
|
|
enter into transactions with affiliates; |
|
|
|
create or incur liens to secure debt; |
|
|
|
consolidate or merge with another entity, or allow one of our
subsidiaries to do so; |
|
|
|
lease, transfer or sell assets and use proceeds of permitted
asset leases, transfers or sales; |
|
|
|
incur dividend or other payment restrictions affecting certain
subsidiaries; |
|
|
|
make capital expenditures; |
|
|
|
engage in certain business activities; and |
|
|
|
acquire facilities or other businesses. |
Our ability to comply with these covenants may be affected by
events beyond our control, and any material deviations from our
forecasts could require us to seek waivers or amendments of
covenants or alternative sources of financing or to reduce
expenditures, however, we cannot assure you that such efforts
would be successful. If they are not, and we are unable to
comply with the terms of the DIP Facility, it could adversely
impact the timing of, and our ultimate ability to successfully
implement, a plan of reorganization.
233
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
First Priority Senior Secured Notes Due 2014 |
Senior Notes not subject to compromise consist of the following
as of December 31, 2005 and 2004, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Outstanding as |
|
Fair Value as of |
|
|
|
|
First | |
|
of December 31, |
|
December 31, |
|
|
Interest | |
|
Call | |
|
|
|
|
|
|
Rates | |
|
Date | |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
| |
|
| |
|
|
|
|
|
|
|
|
First Priority Senior Secured Notes Due 2014
|
|
|
95/8% |
|
|
|
(12 |
) |
|
$641,652 |
|
$778,971 |
|
$660,902 |
|
$801,367 |
On September 30, 2004, we issued $785 million of First
Priority Notes, offered at 99.212% of par. The First Priority
Notes are secured by substantially all of the assets owned
directly by Calpine Corporation, and by the stock of
substantially all of Calpine Corporations first-tier
subsidiaries. We may redeem some or all of the First Priority
Notes at any time on or after October 1, 2009, at specified
redemption prices plus accrued and unpaid interest. At any time
prior to October 1, 2009, we may redeem some or all of the
First Priority Notes at a price equal to 100% of their principal
amount plus an applicable premium and accrued and unpaid
interest. In addition, at any time prior to October 1,
2007, we may redeem up to 35% of the aggregate principal amount
of the First Priority Notes with the net proceeds from one or
more public equity offerings at a stated redemption price.
Interest is payable on the First Priority Notes on April 1
and October 1 of each year, beginning on April 1,
2005. The First Priority Notes mature on September 30,
2014. At December 31, 2005, the book and face value of
these notes were $641.7 million and $646.1 million,
respectively. The effective interest rate on these notes, after
amortization of deferred financing costs, was approximately
10.0% per annum at December 31, 2005 and 2004.
The U.S. Bankruptcy Court approved our motion to repay the
outstanding principal amount of First Priority Notes at par
($646.1 million) plus accrued and unpaid interest by order
dated May 10, 2006, as amended by its amended order dated
May 17, 2006. We expect to use the approximately
$412 million of cash that remains on deposit in a
restricted designated asset sale proceeds account relating to
the July 2005 sale of our oil and gas reserves, with the balance
of the funds necessary to effect the repayment coming from
borrowings under the DIP Facility. Such repayment would not
include a make whole premium to which holders of the
First Priority Notes claim they are entitled, however, the
repayment would be without prejudice to the rights of the
holders of the First Priority Notes to pursue their claim to
such make whole premium.
For information regarding liabilities of our subsidiaries not
subject to compromise, see Notes 14 through 23.
|
|
24. |
Liabilities Subject to Compromise |
Liabilities Subject to Compromise Liabilities
subject to compromise include unsecured and undersecured
liabilities incurred prior to the Petition Date and exclude
liabilities that are fully secured or liabilities of our
subsidiaries or affiliates that have not made bankruptcy filings
and other approved payments such as taxes and payroll. In
accordance with
SOP 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, we ceased to accrue and recognize
interest expense on liabilities subject to compromise, except
that paid pursuant to the Cash Collateral Order. In addition,
deferred financing costs and debt discounts related to LSTC were
adjusted to reflect the related debt at its expected probable
allowed claim amount, which resulted in the write-off of
approximately $148.1 million to reorganization items.
However, we are making periodic cash payments to second lien
lenders through June 30, 2006, in accordance with the Cash
Collateral Order. The amounts of various categories of
liabilities of which we are aware that are subject to compromise
are set forth below. These amounts represent our best estimates
of known or potential pre-petition liabilities that are probable
of resulting in an allowed claim against us in connection with
the
234
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
bankruptcy filings and are recorded at the estimated amount of
the allowed claim which may differ from the amount for which the
liability will be settled. Such claims remain subject to future
adjustments. Adjustments may result from negotiations, actions
of the Bankruptcy Courts, rejection of executory contracts and
unexpired leases, the determination as to the value of any
collateral securing claims, proofs of claim or other events. We
expect that the liabilities of the Calpine Debtors will exceed
the fair value of their assets. This is expected to result in
claims being paid at less than 100% of their face value, and the
equity of Calpines stockholders could be diluted or
eliminated entirely. In addition, the claims bar
dates the dates by which claims against the
Calpine Debtors must be filed with the applicable
Bankruptcy Court have been set for August 1,
2006 by the U.S. Bankruptcy Court with respect to claims
against the U.S. Debtors and June 30, 2006 by the
Canadian Court with respect to claims against the Canadian
Debtors. Accordingly, not all potential claims would have been
filed as of December 31, 2005, and we expect that
additional claims will be filed against us prior to the claims
bar dates; however, the amount of such claims cannot be
estimated at this time. Any claims filed may result in
additional liabilities, some or all of which may be subject to
compromise, and the amounts of which may be material to us.
The amounts of LSTC at December 31, 2005 consisted of the
following millions:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$ |
724.2 |
|
Derivative liabilities
|
|
|
133.6 |
|
Project financing
|
|
|
166.5 |
|
Convertible notes
|
|
|
1,823.5 |
|
Second priority senior secured notes
|
|
|
3,671.9 |
|
Unsecured senior notes
|
|
|
1,880.0 |
|
Notes payable and other liabilities related party
|
|
|
1,078.0 |
|
Provision for allowable claims
|
|
|
5,132.4 |
|
|
|
|
|
|
Total liabilities subject to compromise
|
|
$ |
14,610.1 |
|
|
|
|
|
As a result of our bankruptcy filings, the fair value cannot be
reasonably determined for the outstanding debt that is included
in Liabilities Subject to Compromise on the Consolidated Balance
Sheet.
MEP Pleasant Hill, LLC On March 26,
2004, in connection with the closing of our acquisition of
Aquilas 50% interest in the Aries Power Plant, the
existing construction loan related to this project was converted
to two term loans totaling $178.8 million. At
December 31, 2005 and 2004, the Tranche A term loan
had an aggregate principal amount of $119.8 million and
$126.8 million, respectively, with quarterly payments due
through and maturity in December 2016. At December 31, 2005
and 2004, the Tranche B term loan had an aggregate
principal amount of $46.7 million and $48.1 million,
respectively, with quarterly payments due through maturity in
December 2019. After taking interest rate swaps into
consideration, the effective interest rate on the Tranche A
term loan at December 31, 2005 and 2004, was 13.4% and
8.2%, respectively. After taking interest rate swaps into
consideration, the effective interest rate on the Tranche B
term loan at December 31, 2005 and 2004, was 10.3% and
8.6%, respectively. MEP Pleasant Hill, LLC is a U.S. Debtor
and, based on our analysis, the debt balance exceeded the fair
value of the underlying facility. Consequently, the debt was
under-secured and is deemed to be subject to compromise.
235
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of | |
|
|
|
|
December 31, | |
|
December 31, | |
|
|
Interest | |
|
| |
|
| |
|
|
Rates | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Convertible Notes
|
|
|
4 |
% |
|
$ |
1,311 |
|
|
$ |
1,326 |
|
|
$ |
1,311 |
|
|
$ |
1,326 |
|
|
2023 Convertible Notes
|
|
|
43/4 |
% |
|
|
633,775 |
|
|
|
633,775 |
|
|
|
160,424 |
|
|
|
633,775 |
|
|
2014 Convertible Notes
|
|
|
6 |
%(1) |
|
|
538,374 |
|
|
|
620,197 |
|
|
|
108,011 |
|
|
|
716,055 |
|
|
2015 Convertible Notes
|
|
|
73/4 |
% |
|
|
650,000 |
|
|
|
|
|
|
|
327,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes
|
|
|
|
|
|
$ |
1,823,460 |
|
|
$ |
1,255,298 |
|
|
$ |
597,021 |
|
|
$ |
1,351,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The 2014 Convertible Notes pay interest each March 30 and
September 30 at the rate of 6% per annum, except that
no interest is paid on or accrues for the March 30 and
September 30, 2007, 2008 and 2009 interest payment dates.
Instead, beginning on September 30, 2006, the original
principal amount of $839 per note increases by $0.1469
daily to $1,000 principal amount per note at September 30,
2009. Thereafter, the principal amount of the notes does not
increase, and the notes resume paying interest on each
March 30 and September 30 at the rate of 6% per
annum. |
|
|
|
4% Convertible Senior Notes Due 2006 |
In December 2001 and January 2002, we completed the issuance of
$1.2 billion in aggregate principal amount of 2006
Convertible Notes. The 2006 Convertible Notes are convertible,
at the option of the holder, into shares of our common stock at
a price of $18.07. Holders had the right to require us to
repurchase all or a portion of their 2006 Convertible Notes on
December 26, 2004, at 100% of their principal amount plus
any accrued and unpaid interest for (at our option) cash, shares
of our common stock, or a combination of cash and stock. During
2004 and 2003 we repurchased approximately $658.7 million
and $474.9 million, respectively, in aggregate outstanding
principal amount of the 2006 Convertible Notes at a repurchase
price of $657.7 million and $458.8 million,
respectively, plus accrued interest. Additionally, during 2003
approximately $65.0 million in aggregate outstanding
principal amount of the 2006 Convertible Notes were exchanged
for 12.0 million shares of Calpine common stock in
privately negotiated transactions. During 2004 and 2003 we
recorded a pre-tax loss of $5.3 million and a pre-tax gain
of $13.6 million, respectively, on these transactions, net
of write-offs of the associated unamortized deferred financing
costs and unamortized premiums or discounts. There were no
transactions related to the 2006 Convertible Notes during 2005.
The effective interest rate on these notes at December 31,
2005 and 2004, after amortization of deferred financing costs,
was 4.0% and 4.6% per annum, respectively. At
December 31, 2005, approximately $1.3 million of the
2006 Convertible Notes remained outstanding.
|
|
|
43/4%
Contingent Convertible Senior Notes Due 2023 |
On November 17, 2003, we completed the issuance of
$650 million of 2023 Convertible Notes and, on
January 9, 2004, one of the initial purchasers of the 2023
Convertible Notes exercised in full its option to purchase an
additional $250.0 million of these notes. The 2023
Convertible Notes are convertible, at the option of the holder,
into cash and into a variable number of shares of our common
stock based on a conversion value derived from the conversion
price of $6.50 per share. The number of shares to be
delivered upon conversion will be determined by the market price
of our common shares at the time of conversion. Holders have the
right to require us to repurchase all or a portion of the 2023
Convertible Notes on November 15, 2009, November 15,
2013, and November 15, 2018, at 100% of their principal
amount plus any
236
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accrued and unpaid interest and liquidated damages, if any, up
to the date of repurchase. Otherwise, conversion is subject to
certain conditions, including (1) a common stock price
condition, which requires that our common stock price for at
least 20 trading days in the period of 30 consecutive trading
days ending on the last trading day of the calendar quarter
preceding the quarter in which the conversion occurs, at more
than 120% of the conversion price per share of our common stock
in effect on that 30th trading day and (2) a trading
price condition, which requires that the trading price of $1,000
principal amount of the 2023 Convertible Notes for each day of a
five-day period be less than 95% of the product of the closing
sale price of our common stock on that day multiplied by the
applicable conversion rate. Holders have a limited amount of
time to convert their 2023 Convertible Notes once a conversion
condition has been achieved. Generally, upon conversion, we
would be required to deliver the par value of the 2023
Convertible Notes in cash and any additional conversion value in
common stock. However, if the 2023 Convertible Notes are put
back to us on November 15, 2009, November 15, 2013 or
November 15, 2018, we have the right to pay the repurchase
price in cash, shares of our common stock, or a combination of
cash and stock. In addition, if the 2023 Convertible Notes are
converted during certain events of default, including the event
of default that has occurred as a result of our bankruptcy
filings, we are required to deliver the par value of the notes
solely in shares of our common stock. For a summary of the
theoretical maximum additional shares potentially issuable under
our contingent convertible notes, see Note 30.
During 2004, we repurchased approximately $266.2 million in
aggregate outstanding principal amount of 2023 Convertible Notes
at a repurchase price of $177.0 million plus accrued
interest. At December 31, 2005, there was
$633.8 million in outstanding principal amount of 2023
Convertible Notes. The effective interest rate on these notes,
after amortization of deferred financing costs, was
approximately 5.2% and 5.3% per annum at December 31,
2005 and 2004, respectively.
|
|
|
Contingent Convertible Notes Due 2014 |
On September 30, 2004, we completed the issuance of
$736 million aggregate principal amount at maturity of 2014
Convertible Notes, offered at 83.9% of par. The 2014 Convertible
Notes are convertible into cash and into a variable number of
shares of our common stock based on a conversion value derived
from the conversion price of $3.85 per share. The number of
shares to be delivered upon conversion will be determined by the
market price of Calpine common shares at the time of conversion.
However, conversion is subject to certain conditions, including
(1) a common stock price condition, which requires that our
common stock price for at least 20 trading days in the period of
30 consecutive trading days ending on the last trading day of
the calendar quarter preceding the quarter in which the
conversion occurs, at more than 120% of the conversion price per
share of our common stock in effect on that 30th trading
day and (2) a trading price condition, which requires that
the trading price of $1,000 principal amount at maturity of the
2014 Convertible Notes for each day of a five-day period be less
than 95% of the product of the closing sale price of our common
stock on that day multiplied by the applicable conversion rate.
Holders have a limited amount of time to convert their notes
once a conversion condition has been achieved.
The 2014 Convertible Notes pay cash interest at a rate of 6%,
except that in years three, four and five, in lieu of interest,
the original principal amount of $839 per note will accrete
daily beginning September 30, 2006, to the full principal
amount of $1,000 per note at September 30, 2009. For
accounting purposes, we have calculated the effective interest
rate of the 2014 Convertible Notes capturing the 6% stated rate
and the 16.1% discount and are recording interest expense over
the 10-year term of the
instrument using the effective interest method in accordance
with
paragraphs 13-15
of APB Opinion No. 21, Interest on Receivables and
Payables. Generally, upon conversion of the 2014
Convertible Notes, we are required to deliver the accreted
principal amount of the notes in cash and any additional
conversion value in common stock. However, if the 2014
Convertible Notes are converted during certain events of
default, including the event of default that has occurred as a
result of our bankruptcy filings, we are required to deliver the
par value of the notes solely in
237
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shares of our common stock. For a summary of the theoretical
maximum additional shares potentially issuable under our
contingent convertible notes, see Note 30.
On June 28, 2005, we exchanged 27.5 million shares of
Calpine common stock in privately negotiated transactions for
$94.3 million in aggregate principal amount at maturity of
our 2014 Convertible Notes. This resulted in a pre-tax loss of
$8.3 million, comprised of a gain of $8.9 million, net
of write-offs of $2.8 million unamortized deferred
financing costs and $14.4 million unamortized discount and
legal costs.
At December 31, 2005, there was $538.4 million in
aggregate outstanding principal amount of these notes. The
effective interest rate on these notes, after amortization of
deferred financing costs, was approximately 7.0% and
6.3% per annum at December 31, 2005 and 2004,
respectively.
In conjunction with the issuance of the 2014 Convertible Notes
offering, we entered into a ten-year Share Lending Agreement
with DB London, under which we loaned DB London 89 million
shares of newly issued Calpine common stock. DB London sold the
entire 89 million shares on September 30, 2004, at a
price of $2.75 per share in a registered public offering.
We did not receive any of the proceeds of the public offering.
DB London is required to return the loaned shares to us no later
than the end of the ten-year term of the Share Lending
Agreement, or earlier under certain circumstances. Once loaned
shares are returned, they may not be re-borrowed under the Share
Lending Agreement. Under the Share Lending Agreement, DB London
is required to post and maintain collateral in the form of cash,
government securities, certificates of deposit, high-grade
commercial paper of U.S. issuers or money market shares at
least equal to 100% of the market value of the loaned shares as
security for the obligation of DB London to return the loaned
shares to us. This collateral is held in an account at a DB
London affiliate. We have no access to the collateral unless DB
London defaults under its obligations.
The Share Lending Agreement is similar to an accelerated share
repurchase transaction which is addressed by EITF Issue
No. 99-07, Accounting for an Accelerated Share
Repurchase Program. This EITF issue requires an
accelerated share repurchase transaction to be accounted for as
two transactions: a treasury stock purchase and a forward sales
contract. The Share Lending Agreement involved the issuance of
89 million shares of our common stock in exchange for a
physically settling forward contract for the reacquisition of
the shares at a future date. We recorded the issuance of shares
in equity at the fair value of the common stock on the date of
issuance in the amount of $258.1 million. As there was
minimal cash consideration in the transaction, the requirement
for the return of these shares is considered to be a prepaid
forward purchase contract. We have evaluated the prepaid forward
contract under the guidance of SFAS No. 133, and
determined that the instrument was not a derivative in its
entirety and that the embedded derivative would not require
separate accounting. The hybrid contract was classified similar
to a shareholder loan which was recorded in equity at the fair
value of the common stock on the date of issuance in the amount
of $258.1 million.
Under SFAS No. 150, entities that have entered into a
forward contract that requires physical settlement by repurchase
of a fixed number of the issuers equity shares of common
stock in exchange for cash shall exclude the common shares to be
redeemed or repurchased when calculating basic and diluted EPS.
The Share Lending Agreement does not provide for cash
settlement, but rather physical settlement is required (i.e. the
shares must be returned by the end of the arrangement). We
analogize to the guidance in SFAS No. 150 such that
the prepaid forward contract results in a reduction in the
number of outstanding shares used to calculate basic and diluted
EPS. Consequently, the 89 million shares of common stock
subject to the Share Lending Agreement are excluded from the EPS
calculation.
238
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
73/4%
Contingent Convertible Notes Due 2015 |
On June 23, 2005, we completed the issuance of
$650 million of 2015 Convertible Notes. We used a portion
of the net proceeds to repurchase $338 million of our
81/2
% Senior Notes due 2011 (included in Senior Notes
repurchase amounts below (see Second Priority
and Unsecured Senior Notes Subject to Compromise). We
used the remaining net proceeds of $402.5 million towards
the redemption in full of the HIGH TIDES III. See
Note 16 for more information regarding the redemption of
the HIGH TIDES III and the related underlying debentures.
The 2015 Convertible Notes are convertible, at the option of the
holder, into cash and into a variable number of shares of our
common stock based on a conversion value derived from the
conversion price of $4.00 per share. The number of shares
to be delivered upon conversion will be determined by the market
price of Calpine common shares at the time of conversion.
However, conversion is subject to certain conditions, including
(1) a common stock price condition, which requires that our
common stock price for at least 20 trading days in the period of
30 consecutive trading days ending on the last trading day of
the calendar quarter preceding the quarter in which the
conversion occurs at more than 120% of the conversion price per
share of our common stock in effect on that 30th trading
day and (2) a trading price condition, which requires that
the trading price of $1,000 principal amount of the 2015
Convertible Notes for each day of a five-day period be less than
95% of the product of the closing sale price of our common stock
on that day multiplied by the applicable conversion rate.
Holders of the 2015 Convertible Notes have a limited amount of
time to convert their notes once a conversion condition has been
achieved. Generally, upon conversion of the 2015 Convertible
Notes, we are required to deliver the par value of the 2015
Convertible Notes in cash and any additional conversion value in
common stock. However, if the 2015 Convertible Notes are
converted during certain bankruptcy-related events of default,
including the event of default that has occurred as a result of
our bankruptcy filings, we are required to deliver the par value
of the 2015 Convertible Notes solely in shares of our common
stock. For a summary of the theoretical maximum additional
shares potentially issuable under our contingent convertible
notes, see Note 30.
If a conversion event were to occur under any of the contingent
convertible notes, the outstanding principal amount due under
these notes would effectively become a demand note during the
conversion window and such outstanding principal amount would be
reflected as a current liability on our consolidated balance
sheet. In addition, if a conversion event were to occur and
contingent convertible notes were tendered for conversion,
provisions of our outstanding indentures may require us to
refinance such tendered notes in order to comply with our
conversion obligations.
At December 31, 2005, there was $650 million in
outstanding borrowings under these notes. The effective interest
rate on those notes after amortization of deferred financing
costs, was approximately 8.0% per annum at
December 31, 2005.
239
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Second Priority Senior Secured Notes and Term Loans |
Second Priority Senior Secured Notes and Term Loans subject to
compromise consist of the following as of December 31, 2005
and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of | |
|
|
|
|
First | |
|
December 31, | |
|
December 31, (3) | |
|
|
Interest | |
|
Call | |
|
| |
|
| |
|
|
Rates | |
|
Date | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Second Priority Senior Secured Notes and Term Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Priority Senior Secured Term Loan B Due 2007
|
|
|
|
(4) |
|
|
(5 |
) |
|
$ |
733,125 |
|
|
$ |
740,625 |
|
|
$ |
687,305 |
|
|
$ |
677,672 |
|
|
Second Priority Senior Secured Floating Rate Notes Due 2007
|
|
|
|
(6) |
|
|
(2 |
) |
|
|
488,750 |
|
|
|
493,750 |
|
|
|
453,316 |
|
|
|
449,313 |
|
|
Second Priority Senior Secured Notes Due 2010
|
|
|
81/2 |
% |
|
|
(2 |
) |
|
|
1,150,000 |
|
|
|
1,150,000 |
|
|
|
922,875 |
|
|
|
987,563 |
|
|
Second Priority Senior Secured Notes Due 2011
|
|
|
97/8 |
% |
|
|
(1 |
) |
|
|
400,000 |
|
|
|
393,150 |
|
|
|
312,000 |
|
|
|
344,006 |
|
|
Second Priority Senior Secured Notes Due 2013
|
|
|
83/4 |
% |
|
|
(2 |
) |
|
|
900,000 |
|
|
|
900,000 |
|
|
|
724,500 |
|
|
|
740,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Second Priority Senior Secured Notes and Term Loans
|
|
|
|
|
|
|
|
|
|
|
3,671,875 |
|
|
|
3,677,525 |
|
|
|
3,099,996 |
|
|
|
3,198,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Second Priority Senior Secured Notes and Term Loans,
current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
|
|
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Priority Senior Secured Notes and Term Loans, net of
current portion
|
|
|
|
|
|
|
|
|
|
$ |
3,671,875 |
|
|
$ |
3,665,025 |
|
|
$ |
3,099,996 |
|
|
$ |
3,186,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Not redeemable prior to maturity. |
|
(2) |
At any time before July 15, 2005, with respect to the
Second Priority Senior Secured Floating Rate Notes Due 2007 (the
2007 notes) and before July 15, 2006, with
respect to the Second Priority Senior Secured Notes Due 2010
(the 2010 notes) and the Second Priority Senior
Secured Notes Due 2013 (the 2013 notes), on one or
more occasions, we can choose to redeem up to 35% of the
outstanding principal amount of the applicable series of notes,
including any additional notes issued in such series, with the
net cash proceeds of any one or more public equity offerings so
long as (1) we pay holders of the notes a redemption price
equal to par plus the applicable Eurodollar rate then in effect
with respect to the 2007 notes, 108.500% with respect to the
2010 notes, and 108.750% with respect to the 2013 notes, at the
face amount of the notes we redeem, plus accrued interest;
(2) we must redeem the notes within 45 days of such
public equity offering; and (3) at least 65% of the
aggregate principal amount of the applicable series of notes
originally issued under the applicable indenture, including the
principal amount of any additional notes, remains outstanding
immediately after each such redemption. |
|
(3) |
Represents the market value of the notes at the respective dates. |
|
(4) |
U.S. Prime Rate in combination with the Federal Funds
Effective Rate, plus a spread. |
|
(5) |
We may not voluntarily prepay these notes prior to July 15,
2005, except that we may on any one or more occasions make such
prepayment with the proceeds of one or more public equity
offerings. |
240
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(6) |
British Bankers Association LIBOR Rate for deposits in
U.S. dollars for a period of three months, plus a spread. |
|
|
|
Second Priority Senior Secured Term Loan B Due 2007 |
We must repay these term loans in 16 consecutive quarterly
installments, commencing on October 15, 2003, and ending on
July 15, 2007, the first fifteen of which installments will
be 0.25% of the original principal amount of the notes. The
final installment, on July 15, 2007, will be 96.25% of the
original principal amount. Interest is payable on each quarterly
payment date occurring after the closing date of July 16,
2003. At December 31, 2005, both the book and face value of
these notes was $733.1 million. The effective interest
rate, after amortization of deferred financing costs, was 9.6%
and 7.8% per annum at December 31, 2005 and 2004,
respectively.
|
|
|
Second Priority Senior Secured Floating Rate Notes Due
2007 |
We must repay these notes in 16 consecutive quarterly
installments, commencing on October 15, 2003, and ending on
July 15, 2007, the first fifteen of which installments will
be 0.25% of the original principal amount of the notes. The
final installment, on July 15, 2007, will be 96.25% of the
original principal amount. Interest is payable on each quarterly
payment date occurring after the closing date of July 16,
2003. At December 31, 2005, both the book and face value of
these notes was $488.8 million. The effective interest
rate, after amortization of deferred financing costs, was 9.7%
and 7.8% per annum at December 31, 2005 and 2004,
respectively.
|
|
|
81/2%
Second Priority Senior Secured Notes Due 2010 |
Interest is payable on these notes on January 15 and July 15 of
each year. The notes will mature on July 15, 2010. On or
before July 15, 2006, on one or more occasions, we may use
the proceeds from one or more public equity offerings to redeem
up to 35% of the aggregate principal amount of the notes at the
stated redemption price of 108.5%. At December 31, 2005,
both the book and face value of these notes were
$1,150.0 million. The effective interest rate, after
amortization of deferred financing costs, was
8.9% per annum at December 31, 2005 and 2004.
|
|
|
97/8%
Second Priority Senior Secured Notes Due 2011 |
Interest is payable on these notes on June 1 and
December 1 of each year, commencing on June 1, 2004.
The notes will mature on December 1, 2011, and are not
redeemable prior to maturity. At December 31, 2005, the
book and face value of these notes were $400.0 million. The
effective interest rate, after amortization of deferred
financing costs, was 10.7% per annum at December 31,
2005 and 2004.
|
|
|
83/4%
Second Priority Senior Secured Notes Due 2013 |
Interest is payable on these notes on January 15 and July 15 of
each year. The notes will mature on July 15, 2013. On or
before July 15, 2006, on one or more occasions, we may use
the proceeds from one or more public equity offerings to redeem
up to 35% of the aggregate principal amount of the notes at the
stated redemption price of 108.75%. At December 31, 2005,
both the book and face value of these notes were
$900.0 million. The effective interest rate, after
amortization of deferred financing costs, was 9.0% per
annum at December 31, 2005 and 2004.
241
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have completed a series of public and private debt offerings
since 1994. Interest on such debt is payable quarterly or
semiannually at specified rates. Deferred financing costs are
amortized over the respective lives of the notes using the
effective interest method. There are no sinking fund or
mandatory redemptions of principal before the maturity dates of
each series of debt. Certain of the Senior Note indentures limit
our ability to incur additional debt, pay dividends, sell assets
and enter into certain transactions. As of December 31,
2005, as a result of our bankruptcy filings, we were in default
under each series of our Senior Notes. The effective interest
rates for each of our Senior Notes outstanding at
December 31, 2005, are consistent with the respective notes
outstanding during 2004, unless otherwise noted.
Unsecured Senior Notes which are subject to compromise consist
of the following as of December 31, 2005 and 2004, (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of | |
|
|
|
|
First | |
|
December 31, | |
|
December 31, (3) | |
|
|
Interest | |
|
Call | |
|
| |
|
| |
|
|
Rates | |
|
Date | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Unsecured Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes Due 2005
|
|
|
81/4 |
% |
|
|
|
(2) |
|
$ |
|
|
|
$ |
185,949 |
|
|
$ |
|
|
|
$ |
188,424 |
|
Senior Notes Due 2006
|
|
|
101/2 |
% |
|
|
2001 |
|
|
|
139,205 |
|
|
|
152,695 |
|
|
|
57,625 |
|
|
|
151,359 |
|
Senior Notes Due 2006
|
|
|
75/8 |
% |
|
|
|
(1) |
|
|
102,194 |
|
|
|
111,563 |
|
|
|
42,921 |
|
|
|
109,332 |
|
Senior Notes Due 2007
|
|
|
83/4 |
% |
|
|
2002 |
|
|
|
190,299 |
|
|
|
195,305 |
|
|
|
79,926 |
|
|
|
177,728 |
|
* Senior Notes Due 2007(4)
|
|
|
83/4 |
% |
|
|
|
(2) |
|
|
|
|
|
|
165,572 |
|
|
|
|
|
|
|
150,671 |
|
Senior Notes Due 2008
|
|
|
77/8 |
% |
|
|
|
(1) |
|
|
173,761 |
|
|
|
227,071 |
|
|
|
67,332 |
|
|
|
191,875 |
|
* Senior Notes Due 2008
|
|
|
81/2 |
% |
|
|
|
(2) |
|
|
|
|
|
|
1,581,539 |
|
|
|
|
|
|
|
1,347,472 |
|
* Senior Notes Due 2008(5)
|
|
|
83/8 |
% |
|
|
|
(2) |
|
|
|
|
|
|
160,050 |
|
|
|
|
|
|
|
121,638 |
|
Senior Notes Due 2009
|
|
|
73/4 |
% |
|
|
|
(1) |
|
|
180,602 |
|
|
|
221,539 |
|
|
|
75,853 |
|
|
|
177,231 |
|
Senior Notes Due 2010
|
|
|
85/8 |
% |
|
|
|
(2) |
|
|
411,137 |
|
|
|
496,973 |
|
|
|
131,564 |
|
|
|
402,548 |
|
Senior Notes Due 2011
|
|
|
81/2 |
% |
|
|
|
(2) |
|
|
682,791 |
|
|
|
1,063,850 |
|
|
|
211,665 |
|
|
|
792,568 |
|
* Senior Notes Due 2011(6)
|
|
|
87/8 |
% |
|
|
|
(2) |
|
|
|
|
|
|
232,511 |
|
|
|
|
|
|
|
167,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unsecured Senior Notes
|
|
|
|
|
|
|
|
|
|
$ |
1,879,989 |
|
|
$ |
4,794,617 |
|
|
$ |
666,886 |
|
|
$ |
3,978,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Due to Canadian Bankruptcy filing, these Senior Notes have been
deconsolidated as of December 20, 2005, and appear for 2004
for historical purposes only. At December 31, 2005, the
outstanding balances were: $170.9 million for the
83/4% Senior
Notes Due 2007; $1,422.7 million for the
81/2% Senior
Notes Due 2008; $139.3 million for the
83/8% Senior
Notes Due 2008; and $210.0 million for the
87/8
% Senior Notes Due 2011. |
|
(1) |
Not redeemable prior to maturity. |
|
(2) |
Redeemable by us at any time prior to maturity. |
|
(3) |
Represents the market values of the Senior Notes at the
respective dates. |
|
(4) |
Issued and payable in Canadian dollars. |
|
(5) |
Issued and payable in Euros. |
|
(6) |
Issued and payable in Sterling. |
242
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Unsecured Senior Notes Due 2005 |
Interest on the
81/4% notes
was payable semi-annually on February 15 and August 15. The
notes matured on August 15, 2005, and the remaining
outstanding
81/4
% notes were repaid at face value for a total of
$182.1 million plus accrued interest. The effective
interest rate, after amortization of deferred financing costs,
was 8.7% per annum at each of December 31, 2005 and
2004.
|
|
|
Unsecured Senior Notes Due 2006 |
Interest on the
101/2% notes
is payable semi-annually on May 15 and November 15 each year.
The notes mature on May 15, 2006, and are redeemable, at
our option, at any time on or after May 15, 2001, at
various redemption prices. In addition, we may redeem up to
$63.0 million of the
101/2
% notes from the proceeds of any public equity
offering. At December 31, 2005, both the book value and
face value of these notes were $139.2 million. The
effective interest rate, after amortization of deferred
financing costs, was 11.2% per annum at December 31,
2005, and 11.0% per annum at December 31, 2004.
Interest on the
75/8
% notes is payable semi-annually on April 15 and
October 15 each year. These notes matured on April 15,
2006, and were not redeemable prior to maturity. At
December 31, 2005, the book value and face value of these
notes were $102.2 million. The effective interest rate,
after amortization of deferred financing costs, was 8.3% and
8.0% per annum at December 31, 2005 and 2004,
respectively.
|
|
|
Unsecured Senior Notes Due 2007 |
Interest on the
83/4
% notes maturing on July 15, 2007, is payable
semi-annually on January 15 and July 15 each year. These notes
are redeemable, at our option, at any time on or after
July 15, 2002, at various redemption prices. In addition,
we may redeem up to $96.3 million of these notes from the
proceeds of any public equity offering. At December 31,
2005, both the book value and face value of these notes were
$190.3 million. The effective interest rate, after
amortization of deferred financing costs, was 9.3% and
9.2% per annum at December 31, 2005 and 2004,
respectively.
Interest on the
83/4
% notes issued by our subsidiary, ULC I, and
maturing on October 15, 2007, is payable semi-annually on
April 15 and October 15 each year. These notes may be redeemed
prior to maturity, at any time in whole or from time to time in
part, at a redemption price equal to the greater of (a) the
Discounted Value, which equals the sum of the
present values of all remaining scheduled payments of principal
and interest, or (b) 100% of the principal amount plus
accrued and unpaid interest to the redemption date. These notes
are fully and unconditionally guaranteed by us. At
December 31, 2005, the book value of these notes was
$170.9 million. The effective interest rate, after
amortization of deferred financing costs and the effect of cross
currency swaps, was 9.4% at December 31, 2004. We
deconsolidated most of our Canadian and other foreign
subsidiaries, including ULC I, on December 20, 2005.
See Note 10 for information regarding the Canadian
deconsolidation.
|
|
|
Unsecured Senior Notes Due 2008 |
Interest on the
77/8
% notes is payable semi-annually on April 1 and
October 1 each year. These notes mature on April 1,
2008, and are not redeemable prior to maturity. At
December 31, 2004, the book value and face value of these
notes were $173.8 million. The effective interest rate,
after amortization of deferred financing costs, was
8.2% per annum at December 31, 2005, and 8.1% at
December 31, 2004. The notes are fully and unconditionally
guaranteed by us.
Interest on the
81/2
% notes issued by our subsidiary ULC I is payable
semi-annually on May 1 and November 1 each year. The
notes mature on May 1, 2008, or may be redeemed prior to
maturity at a redemption price equal to 100% of the principal
amount plus accrued and unpaid interest plus a make-whole
243
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
premium. At December 31, 2005, the book value and face
value of these notes were $1,422.7 million. The effective
interest rate, after amortization of deferred financing costs,
was 8.8% per annum at December 31, 2004. These notes
are fully and unconditionally guaranteed by us. We
deconsolidated most of our Canadian and other foreign
subsidiaries, including ULC I, on December 20, 2005.
See Note 10 for information regarding the deconsolidation.
Interest on the
83/8
% notes issued by our subsidiary ULC II is
payable semi-annually on April 15 and October 15 each year.
These notes mature on October 15, 2008, or may be redeemed
prior to maturity at a redemption price equal to 100% of the
principal amount plus accrued and unpaid interest plus a
make-whole premium. These notes are fully and unconditionally
guaranteed by us. At December 31, 2005, the book value of
these notes was $139.3 million. The effective interest
rate, after amortization of deferred financing costs and the
effect of cross currency swaps, was 8.6% per annum at
December 31, 2004. We deconsolidated most of our Canadian
and other foreign subsidiaries, including ULC II, on
December 20, 2005. See Note 10 for information
regarding the deconsolidation.
|
|
|
Unsecured Senior Notes Due 2009 |
Interest on these
73/4
% notes is payable semi-annually on April 15 and
October 15 each year. The notes mature on April 15, 2009,
and are not redeemable prior to maturity. At December 31,
2005, the book value and face value of these notes were
$180.6 million. The effective interest rate, after
amortization of deferred financing costs, was 8.0% per
annum at December 31, 2005 and 2004.
|
|
|
Unsecured Senior Notes Due 2010 |
Interest on these
85/8
% notes is payable semi-annually on August 15 and
February 15 each year. The notes mature on August 15, 2010,
and may be redeemed at any time prior to maturity at a
redemption price equal to 100% of their principal amount plus
accrued and unpaid interest plus a make-whole premium. At
December 31, 2005, the book value and face value of these
notes were $411.1 million. The effective interest rate,
after amortization of deferred financing costs, was
8.8% per annum at December 31, 2005 and 2004.
|
|
|
Unsecured Senior Notes Due 2011 |
Interest on the
81/2
% notes is payable semi-annually on February 15 and
August 15 each year. The notes mature on February 15, 2011,
and may be redeemed prior to maturity at a redemption price
equal to 100% of the principal amount plus accrued and unpaid
interest plus a make-whole premium. At December 31, 2005,
the book value and face value of these notes were
$682.8 million. The effective interest rate, after
amortization of deferred financing costs and the effect of
interest rate swaps, was 9.0% and 8.4% per annum at
December 31, 2005 and 2004, respectively.
Interest on the
87/8% notes
issued by our subsidiary ULC II is payable semi-annually on
April 15 and October 15 each year. The
87/8
% notes mature on October 15, 2011, and may be
redeemed prior to maturity at a redemption price equal to 100%
of the principal amount plus accrued and unpaid interest plus a
make-whole premium. These notes are fully and unconditionally
guaranteed by us. At December 31, 2005, the book value of
these notes was $210.0 million. The effective interest
rate, after amortization of deferred financing costs and the
effect of cross currency swaps, was 9.3% per annum at
December 31, 2004. We deconsolidated most of our Canadian
and other foreign subsidiaries, including ULC II, on
December 20, 2005. See Note 10 for information
regarding the deconsolidation.
244
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Notes Payable and Other Liabilities
Related Party |
The Notes payable and other liabilities-related party balance at
December 31, 2005, was $1.1 billion. Prior to our
deconsolidation of the majority of our Canadian and other
foreign subsidiaries on December 20, 2005, these
liabilities were eliminated in consolidation. However, as a
result of the deconsolidation, these liabilities are considered
subject to compromise.
|
|
|
Provision for Allowable Claims |
In conjunction with the deconsolidation, we reviewed all
intercompany guarantees. We identified guarantees by
U.S. parent entities of debt (and accrued interest payable)
of approximately $5.1 billion issued by certain of our
deconsolidated Canadian entities as constituting probable
allowable claims against the U.S. parent entities. Some of
the guarantee exposures are redundant, such as the Calpine
Corporation guarantee to ULC I security holders and the Calpine
Corporation guarantee of QCHs subscription agreement
obligations associated with the hybrid notes structure in
support of the ULC I Unsecured Notes. Under the guidance of
SOP 90-7
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, we determined the duplicative
guarantees were probable of being allowed into the claim pool by
the U.S. Bankruptcy Court. We accrued an additional amount
of approximately $3.8 billion as reorganization items
related to these duplicative guarantees.
|
|
25. |
Provision for Income Taxes |
The jurisdictional components of income (loss) from continuing
operations and before provision for income taxes at
December 31, 2005, 2004, and 2003, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
U.S.
|
|
$ |
(9,971,966 |
) |
|
$ |
(406,577 |
) |
|
$ |
(92,335 |
) |
International
|
|
|
(650,386 |
) |
|
|
(248,420 |
) |
|
|
52,630 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
$ |
(10,622,352 |
) |
|
$ |
(654,997 |
) |
|
$ |
(39,705 |
) |
|
|
|
|
|
|
|
|
|
|
The components of the provision (benefit) for income taxes for
the years ended December 31, 2005, 2004, and 2003, consists
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
51,913 |
|
|
$ |
|
|
|
$ |
350 |
|
|
State
|
|
|
5,410 |
|
|
|
1,198 |
|
|
|
|
|
|
Foreign
|
|
|
78,431 |
|
|
|
1,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
135,754 |
|
|
|
2,494 |
|
|
|
350 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(779,490 |
) |
|
|
(140,726 |
) |
|
|
(44,661 |
) |
|
State
|
|
|
(67,573 |
) |
|
|
24,184 |
|
|
|
(1,893 |
) |
|
Foreign
|
|
|
(30,089 |
) |
|
|
(121,266 |
) |
|
|
19,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
(877,152 |
) |
|
|
(237,808 |
) |
|
|
(26,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$ |
(741,398 |
) |
|
$ |
(235,314 |
) |
|
$ |
(26,433 |
) |
|
|
|
|
|
|
|
|
|
|
245
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of our overall actual effective tax rate
(benefit) to the statutory U.S. Federal income tax rate of
35% to pretax income from continuing operations is as follows
for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected tax (benefit) rate at United States statutory tax rate
|
|
|
(35.00 |
)% |
|
|
(35.00 |
)% |
|
|
(35.00 |
)% |
State income tax (benefit), net of federal benefit
|
|
|
(0.58 |
)% |
|
|
2.39 |
% |
|
|
(2.03 |
)% |
Depletion and other permanent items
|
|
|
(0.02 |
)% |
|
|
0.50 |
% |
|
|
1.41 |
% |
Valuation allowances against future tax benefits
|
|
|
13.14 |
% |
|
|
4.54 |
% |
|
|
|
|
Tax credits
|
|
|
(0.01 |
)% |
|
|
(0.21 |
)% |
|
|
(4.10 |
)% |
Foreign tax at rates other than U.S. statutory rate
|
|
|
1.55 |
% |
|
|
(8.12 |
)% |
|
|
(12.95 |
)% |
Non-deductible reorganization items
|
|
|
13.27 |
% |
|
|
|
|
|
|
|
|
Other, net (including U.S. tax on Foreign Income)
|
|
|
0.65 |
% |
|
|
|
|
|
|
(13.93 |
)% |
|
|
|
|
|
|
|
|
|
|
Effective income tax (benefit) rate
|
|
|
(7.00 |
)% |
|
|
(35.90 |
)% |
|
|
(66.60 |
)% |
|
|
|
|
|
|
|
|
|
|
The components of the deferred income taxes, net as of
December 31, 2005 and 2004, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss and credit carryforwards
|
|
$ |
1,174,980 |
|
|
$ |
1,095,688 |
|
|
Taxes related to risk management activities and
SFAS No. 133
|
|
|
89,122 |
|
|
|
71,226 |
|
|
Reorganization and impairments
|
|
|
837,762 |
|
|
|
|
|
|
Other differences(1)
|
|
|
|
|
|
|
324,040 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets before valuation allowance
|
|
|
2,101,864 |
|
|
|
1,490,954 |
|
|
Valuation allowance
|
|
|
(1,639,222 |
) |
|
|
(62,822 |
) |
|
|
|
|
|
|
|
|
|
Total Deferred tax assets
|
|
|
462,642 |
|
|
|
1,428,132 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property differences
|
|
|
(706,661 |
) |
|
|
(2,238,278 |
) |
|
Other differences(1)
|
|
|
(122,317 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred tax liabilities
|
|
|
(828,978 |
) |
|
|
(2,238,278 |
) |
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
|
(366,336 |
) |
|
|
(810,146 |
) |
|
Less: Current portion: asset/(liability)(1)
|
|
|
(12,950 |
) |
|
|
75,608 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net of current portion
|
|
$ |
(353,386 |
) |
|
$ |
(885,754 |
) |
|
|
|
|
|
|
|
|
|
(1) |
Current portion of net deferred income taxes are classified
within other current liabilities in 2005 and other current
assets in 2004 on the Consolidated Balance Sheets. |
The NOL carryforward consists of federal carryforwards of
approximately $2.9 billion which expire between 2023 and
2025. The federal NOL carryforwards available are subject to
limitations on their annual usage. We have provided a valuation
allowance of $1.6 billion on certain federal, state and
foreign tax jurisdiction deferred tax assets to reduce the gross
amount of these assets to the extent necessary to result in an
amount that is more likely than not of being realized.
SFAS 109 requires all available evidence, both positive and
negative, to be considered to determine whether, based on the
weight of that evidence, a valuation allowance is needed. Future
realization of the tax benefit of an existing deductible
temporary difference or carryforward ultimately depends on the
existence of
246
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sufficient taxable income of the appropriate character within
the carryback or carryforward periods available under the tax
law.
During the fourth quarter of 2005, we filed for bankruptcy and
recorded significant restructuring charges. As a result,
management determined that the realization of deferred tax
assets from future profitable operations is not more likely than
not as of December 31, 2005. Under these circumstances,
deferred tax assets may only be recognized to the extent such
benefits may be realized through future reversals of taxable
temporary differences. We have performed such an analysis, and a
valuation allowance has been provided against deferred tax
assets to the extent they cannot be used to offset future income
arising from the expected reversal of taxable differences.
Further, as per Section 382 of the Internal Revenue code
which stipulates that certain transfers of our equity, or
issuances of equity in connection with our restructuring, may
impair our ability to utilize our federal income tax net
operating loss carryforwards in the future. Under federal income
tax law, a corporation is generally permitted to deduct from
taxable income in any year net operating losses carried forward
from prior years. As mentioned above, we have NOL carryforwards
of approximately $2.9 billion as of December 31, 2005.
Our ability to deduct NOL carryforwards could be subject to a
significant limitation if we were to undergo an ownership
change during or as a result of our Chapter 11
filings. During the pendency of these proceedings, the U.S.
Bankruptcy Court has entered an order that places certain
limitations on trading in our common stock or certain
securities, including options, convertible into our common
stock. However, we can provide no assurances that these
limitations will prevent an ownership change or that
our ability to utilize our net loss carryforwards may not be
significantly limited as a result of our reorganization.
Primarily due to the inability under generally accepted
accounting principles to assume future profits and due to our
reduced ability to implement tax planning strategies to utilize
our NOLs while in bankruptcy, we concluded that valuation
allowances on a portion of our deferred tax assets were
required. In addition, we expect that a portion of the losses
that we expect to incur in 2006 will not generate tax benefits
and, therefore, additional valuation allowances may be required.
For the years ended December 31, 2005, 2004 and 2003, the
net change in the valuation allowance was an increase (decrease)
of $1,576 million, $43.5 million and
$(7.3) million, respectively, and is primarily related to
loss carryforwards that are not currently realizable.
We are under an IRS review for the years 1999 through 2002 and
are periodically under audit for various state and foreign
jurisdictions for income and sales and use taxes. We believe
that the ultimate resolution of these examinations will not have
a material effect on our consolidated financial position.
Our foreign subsidiaries had no cumulative undistributed
earnings at December 31, 2005. No tax benefit was provided
on certain reorganization items attributable to the guarantee of
deconsolidated foreign subsidiary debts due to the uncertainty
of our ability to realize future tax deductions.
On October 22, 2004, the American Jobs Creation Act of 2004
was signed into law. This legislation contains a number of
changes to the Internal Revenue Code. We have analyzed the law
in order to determine its effects. The two most notable
provisions are those dealing with the reduced tax rate on the
repatriation of money from foreign operations and the deduction
for domestic-based manufacturing activity. We determined that we
qualify for both of these provisions. Since we are projecting
that we will continue to generate NOLs for at least the next
twelve months, we cannot take advantage of the domestic-based
manufacturing deduction at this time.
247
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
26. |
Employee Benefit Plans |
The Company maintains two defined contribution savings plans
that are intended to be tax exempt under Sections 401(a)
and 501(a) of the Internal Revenue Code. One plan generally
covers employees who are not covered by a collective bargaining
agreement (the Non-Union Plan), and the other plan
covers employees who are covered by a collective bargaining
agreement (the Union Plan). Employees eligible to
participate in the Non-Union Plan may begin participating
immediately upon hire. Employees eligible to participate in the
Union Plan must complete four months of service before
commencing participation. The Non-Union Plan provides for tax
deferred salary deductions, after-tax employee contributions and
employer profit-sharing contributions in cash of 4% of
employees salaries up to IRS limits. The maximum employer
contributions to the Non-Union Plan per employee was $8,400 for
2005, $8,200 for 2004 and $8,000 for 2003. Employer
profit-sharing
contributions to the Non-Union Plan in 2005, 2004, and 2003
totaled $12.3 million, $12.4 million, and
$10.4 million, respectively. The Union Plan provides for
tax deferred salary deductions, after-tax employee
contributions, employer matching contributions of 50% of
employee deferrals up to a maximum of 6% of compensation, and
employer profit-sharing contributions in cash of 6% of
employees salaries up to IRS limits. The maximum employer
contributions to the Union Plan per employee was $18,900 for
2005, $18,450 for 2004 and $18,000 for 2003. Employer matching
contributions to the Union Plan in 2005, 2004, and 2003 totaled
$107,093, $117,396, and $90,914, respectively and employer
profit-sharing contributions to the Union Plan in 2005, 2004,
and 2003 totaled $250,734, $271,212, and $216,739, respectively.
|
|
|
2000 Employee Stock Purchase Plan |
We adopted the 2000 ESPP in May 2000; the ESPP was suspended
effective November 29, 2005. Prior to the suspension,
eligible employees could purchase, in the aggregate, up to
28,000,000 shares of common stock at semi-annual intervals
through periodic payroll deductions. The purchase price for
shares under the ESPP was 85% of the lower of (i) the fair
market value of the common stock on the participants entry
date into the offering period, or (ii) the fair market
value on the semi-annual purchase date. The purchase price
discount was significant enough to cause the ESPP to be
considered compensatory under SFAS No. 123. As a
result, awards under the ESPP are accounted for as stock-based
compensation in accordance with SFAS No. 123.
Purchases under the ESPP were limited to a maximum value of
$25,000 per calendar year based on the Internal Revenue
Code Section 423 limitation. Shares could be purchased on
May 31 and November 30 of each year until termination
of the ESPP on May 31, 2010, limited to 2,400 shares
per purchase interval. Under the ESPP, 2,408,378 and
4,545,858 shares were issued at a weighted average fair
value of $2.53 and $3.26 per share in 2005 and 2004,
respectively. As a result of the suspension of the ESPP
effective November 29, 2005, no shares were issued on the
scheduled purchase date of November 30, 2005. See
Note 2 for information related to our stock-based
compensation expense.
|
|
|
1996 Stock Incentive Plan |
We adopted the SIP in September 1996. The SIP succeeded our
previously adopted stock option program. Prior to our adoption
of SFAS No. 123 prospectively on January 1, 2003,
we accounted for the SIP under APB Opinion No. 25, under
which no compensation cost was recognized through
December 31, 2002. See Note 2 for the effects the SIP
would have on our financial statements if stock-based
compensation had been accounted for under SFAS No. 123
prior to January 1, 2003.
For the year ended December 31, 2005, we granted options to
purchase 8,242,710 shares of common stock and issued
1,247,427 restricted shares of which 946,222 shares were
unvested and 301,205 were cancelled. Over the life of the SIP,
options exercised have equaled 5,353,308, leaving 37,090,268
granted and not yet exercised. Under the SIP, the option
exercise price generally equals the stocks fair market
value on
248
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
date of grant. The SIP options generally vest ratably over four
years with a maximum exercise period of 7 or 10 years after
grant date.
In connection with the merger with Encal in 2001, we adopted
Encals existing stock option plan. All outstanding options
under the Encal stock option plan were converted at the time of
the merger into options to purchase our common stock. No new
options may be granted under the Encal stock option plan. As of
December 31, 2005, there were no options granted and
exercisable under the Encal and Calpine 1992 stock option plans
due to expiration of option awards thereunder during 2005.
Changes in options outstanding, granted, exercisable and
canceled during the years 2005, 2004, and 2003, under the option
plans of Calpine and Encal are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
Available for | |
|
Outstanding | |
|
Average | |
|
|
Option or | |
|
Number of | |
|
Exercise | |
|
|
Award | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
Outstanding January 1, 2003
|
|
|
10,161,914 |
|
|
|
30,104,947 |
|
|
$ |
9.30 |
|
|
Granted
|
|
|
(5,998,585 |
) |
|
|
5,998,585 |
|
|
|
3.93 |
|
|
Exercised
|
|
|
|
|
|
|
(536,730 |
) |
|
|
2.01 |
|
|
Canceled
|
|
|
1,725,221 |
|
|
|
(1,725,221 |
) |
|
|
13.59 |
|
|
Canceled options(1)
|
|
|
(72,470 |
) |
|
|
|
|
|
|
|
|
|
Share awards
|
|
|
|
|
|
|
(3,150 |
) |
|
|
4.03 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2003
|
|
|
5,816,080 |
|
|
|
33,838,431 |
|
|
$ |
8.25 |
|
|
Additional shares reserved
|
|
|
21,000,000 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(5,660,262 |
) |
|
|
5,660,262 |
|
|
|
5.47 |
|
|
Exercised
|
|
|
|
|
|
|
(3,629,824 |
) |
|
|
0.83 |
|
|
Canceled
|
|
|
1,089,032 |
|
|
|
(1,089,032 |
) |
|
|
18.21 |
|
|
Canceled options(1)
|
|
|
(38,945 |
) |
|
|
|
|
|
|
|
|
|
Share awards
|
|
|
|
|
|
|
(1,980 |
) |
|
|
4.33 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2004
|
|
|
22,205,905 |
|
|
|
34,777,857 |
|
|
|
8.42 |
|
|
Granted
|
|
|
(8,242,710 |
) |
|
|
8,242,710 |
|
|
|
3.38 |
|
|
Exercised
|
|
|
|
|
|
|
(1,679,650 |
) |
|
|
1.25 |
|
|
Canceled
|
|
|
4,250,649 |
|
|
|
(4,250,649 |
) |
|
|
8.58 |
|
|
Canceled options(1)
|
|
|
(425,232 |
) |
|
|
|
|
|
|
|
|
|
Restricted award shares
|
|
|
(1,247,427 |
) |
|
|
|
|
|
|
3.32 |
|
|
Canceled restricted award shares
|
|
|
301,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2005
|
|
|
16,842,390 |
|
|
|
37,090,268 |
|
|
$ |
7.62 |
|
Options exercisable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
22,953,781 |
|
|
|
8.02 |
|
|
December 31, 2004
|
|
|
|
|
|
|
22,949,497 |
|
|
|
9.30 |
|
|
December 31, 2005
|
|
|
|
|
|
|
27,185,497 |
|
|
|
8.78 |
|
|
|
(1) |
Represents cessation of options awarded under the Encal and the
Calpine 1992 stock option plans. |
249
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information concerning
outstanding and exercisable options at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
Number of | |
|
Remaining | |
|
Average | |
|
Number of | |
|
Average | |
|
|
Options | |
|
Contractual | |
|
Exercise | |
|
Options | |
|
Exercise | |
Range of Exercise Prices |
|
Outstanding | |
|
Life in Years | |
|
Price | |
|
Exercisable | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$ 0.645 - $ 2.640
|
|
|
3,916,638 |
|
|
|
2.42 |
|
|
$ |
2.144 |
|
|
|
3,831,638 |
|
|
$ |
2.134 |
|
$ 2.650 - $ 3.320
|
|
|
6,222,204 |
|
|
|
6.16 |
|
|
|
3.317 |
|
|
|
1,656,864 |
|
|
|
3.315 |
|
$ 3.440 - $ 3.860
|
|
|
4,502,400 |
|
|
|
3.75 |
|
|
|
3.841 |
|
|
|
4,490,900 |
|
|
|
3.842 |
|
$ 3.910 - $ 3.980
|
|
|
4,735,074 |
|
|
|
7.03 |
|
|
|
3.980 |
|
|
|
3,147,397 |
|
|
|
3.980 |
|
$ 4.010 - $ 5.240
|
|
|
2,670,284 |
|
|
|
6.32 |
|
|
|
5.146 |
|
|
|
2,127,788 |
|
|
|
5.123 |
|
$ 5.330 - $ 5.560
|
|
|
4,626,019 |
|
|
|
8.15 |
|
|
|
5.560 |
|
|
|
2,084,052 |
|
|
|
5.559 |
|
$ 5.565 - $ 9.955
|
|
|
5,972,331 |
|
|
|
4.84 |
|
|
|
8.715 |
|
|
|
5,542,057 |
|
|
|
8.800 |
|
$10.000 - $48.150
|
|
|
4,313,821 |
|
|
|
4.45 |
|
|
|
27.656 |
|
|
|
4,174,274 |
|
|
|
28.084 |
|
$48.188 - $56.920
|
|
|
129,647 |
|
|
|
5.24 |
|
|
|
51.333 |
|
|
|
128,677 |
|
|
|
51.320 |
|
$56.990 - $56.990
|
|
|
1,850 |
|
|
|
5.33 |
|
|
|
56.990 |
|
|
|
1,850 |
|
|
|
56.990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,090,268 |
|
|
|
5.43 |
|
|
|
7.623 |
|
|
|
27,185,497 |
|
|
|
8.778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27. |
Stockholders Equity (Deficit) |
Public trading of our common stock commenced on
September 20, 1996, on the NYSE under the symbol
CPN. Prior to that, there was no public market for
our common stock. On December 2, 2005, the NYSE notified us
that it was suspending trading in our common stock prior to the
opening of the market on December 6, 2005, and, on
December 5, 2005, the NYSE issued a press release stating
that any application by the NYSE to the SEC to delist our common
stock was pending the completion of applicable procedures. The
SEC granted the NYSEs application to delist our common
stock effective March 15, 2006. Since December 6,
2005, our common stock has traded under the symbol
CPNLQ.PK
over-the-counter on the
Pink Sheets. Certain restrictions in trading are imposed under a
U.S. Bankruptcy Court order that requires certain direct
and indirect holders (or persons who may become direct or
indirect holders) of our common stock to provide the
U.S. Debtors, their counsel and the U.S. Bankruptcy
Court advance notice of their intent to buy or sell our common
stock (including options to acquire common stock and other
equity linked instruments) prior to effectuating any such
transfer. There were approximately 2,345 common stockholders of
record at December 31, 2005. No dividends were paid for the
years ended December 31, 2005 and 2004.
Increase in Authorized Shares On June 2,
2004, after receiving shareholder approval at our 2004 annual
meeting, we filed amended certificates with the Delaware
Secretary of State to increase the number of authorized shares
of common stock to 2,000,000,000 from 1,000,000,000.
On September 30, 2004, in conjunction with the 2014
Convertible Notes offering, we entered into a ten-year Share
Lending Agreement with DB London, under which we loaned DB
London 89 million shares of newly issued Calpine common
stock. DB London sold the 89 million shares on
September 30, 2004, at a price of $2.75 per share in a
registered public offering. We did not receive any of the
proceeds of the public offering. As discussed in Note 22,
the requirement to return these shares is considered to be a
prepaid forward purchase contract and we analogize to the
guidance in SFAS No. 150 so that the 89 million
shares of common stock subject to the Share Lending Agreement
are excluded from the EPS calculation. See Note 24 for more
information regarding the 2014 Convertible Notes offering and
the Share Lending Agreement.
250
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On June 28, 2005, we issued 27.5 million shares of
Calpine common stock to extinguish a portion of our 2014
Convertible Notes. See Note 24 for further information
regarding this transaction.
|
|
|
Preferred Stock and Preferred Share Purchase Rights |
Preferred Shares Authorized Under our
certificate of incorporation we are authorized to issue
10,000,000 shares of preferred stock. On December 31,
2005, there were no shares of our preferred stock outstanding or
issuable.
On June 5, 1997, we adopted a stockholders rights
plan. The rights plan was amended on September 19, 2001,
September 28, 2004, and March 18, 2005. To implement
the rights plan, we had declared a dividend of one preferred
share purchase right for each outstanding share of our common
stock held of record as of June 18, 1997, and issued one
preferred share purchase right with respect to each share of our
common stock that became outstanding thereafter until the rights
expired on May 1, 2005, as described below. The rights
would have become exercisable and traded independently from our
common stock upon the public announcement of the acquisition by
a person or group of 15% or more of our common stock, or ten
days after commencement of a tender or exchange offer that would
result in the acquisition of 15% or more of our common stock.
The rights expired on May 1, 2005, pursuant to the
March 18, 2005, amendment to the rights plan. Accordingly,
on December 31, 2005, there were no rights outstanding.
In each of 2005, 2004 and 2003, we had one significant customer
that accounted for more than 10% of our annual consolidated
revenues: CDWR. See California Department of
Water Resources below for a discussion of our contracts
with CDWR.
For the years ended December 31, 2005, 2004, and 2003, CDWR
revenues were $1,225.5 million, $1,148.0 million and
$1,219.7 million, respectively.
Our receivables from CDWR at December 31, 2005, 2004 and
2003, were $102.4 million, $98.5 million and
$97.8 million, respectively.
We are seeking to reject one of the CDWR contracts, referred to
as Contract 2, related to two of our California facilities,
Delta Energy Center and Los Medanos Energy Center. For a
discussion of the status of the proceedings regarding our notice
of rejection, see Note 3.
Our customer and supplier base is concentrated within the energy
industry. Additionally, we have exposure to trends within the
energy industry, including declines in the creditworthiness of
our marketing counterparties. Currently, certain of our
counterparties within the energy industry have below investment
grade credit ratings. However, we do not currently have any
significant exposure to counterparties that are not paying on a
current basis.
|
|
|
California Department of Water Resources |
In 2001, California adopted legislation permitting it to issue
long-term revenue bonds to fund wholesale purchases of power by
CDWR. The bonds will be repaid with the proceeds of payments by
retail power customers over time. CES and CDWR entered into four
long-term supply contracts during 2001. We have recorded
deferred revenue in connection with one of the long-term power
supply contracts (Contract 3). All
251
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of our accounts receivables from CDWR are current, with the
exception of approximately $1.0 million, which we are
working to resolve with the customer.
In early 2002, the CPUC and the California EOB filed complaints
under Section 206 of the FPA with the FERC alleging that
the prices and terms of the long-term contracts with CDWR were
unjust and unreasonable and contrary to the public interest (the
206 Complaint). The contracts entered into by CES
and CDWR were subject to the 206 Complaint.
On April 22, 2002, we announced that we had renegotiated
CESs long-term power contracts with CDWR and settled the
206 Complaint. The Office of the Governor, the CPUC, the EOB and
the Attorney General for the State of California all endorsed
the renegotiated contracts and dropped all pending claims
against us and our affiliates, including any efforts by the CPUC
and the EOB to seek refunds from us and our affiliates through
the FERC California Refund Proceedings. In connection with the
renegotiation, we agreed to pay $6 million over three years
to the Attorney General to resolve any and all possible claims.
See Note 33 for additional information with respect to
California Power Market matters.
As noted above, we are seeking to reject CDWR Contract 2,
which requires us to provide energy from two of our California
facilities, Delta Energy Center and Los Medanos Energy Center,
to CDWR through 2009. For a discussion of the status of the
proceedings regarding our notice of rejection, see Note 3.
CDWR Contract 4, which related to our Los Esteros facility,
expired by its terms on March 6, 2006, and is no longer in
effect.
We record income under PPAs that are accounted for as operating
leases under SFAS No. 13, Accounting for
Leases, and EITF Issue No. 01-08. For income
statement presentation purposes, this income is classified
within E&S revenue in the Consolidated Statements of
Operations.
The total contractual future minimum lease payments for these
PPAs are as follows (in thousands):
|
|
|
|
|
|
2006
|
|
$ |
175,349 |
|
2007
|
|
|
213,431 |
|
2008
|
|
|
285,386 |
|
2009
|
|
|
288,516 |
|
2010
|
|
|
291,693 |
|
Thereafter
|
|
|
2,553,024 |
|
|
|
|
|
|
Total
|
|
$ |
3,807,399 |
|
|
|
|
|
Our treasury department includes a credit group focused on
monitoring and managing counterparty risk. The credit group
monitors our net exposure with each counterparty on a daily
basis. The analysis is performed on a
mark-to-market basis
using the forward curves analyzed by our Risk Controls group.
The net exposure is compared against a counterparty credit risk
threshold which is determined based on each counterpartys
credit rating and evaluation of the financial statements. Our
credit group monitors these thresholds to determine the need for
additional collateral or restriction of activity with the
counterparty.
252
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
29. |
Derivative Instruments |
|
|
|
Commodity Derivative Instruments |
As an IPP primarily focused on generation of electricity using
gas-fired turbines, our natural physical commodity position is
short fuel (i.e., natural gas consumer) and
long power (i.e., electricity seller). To manage
forward exposure to price fluctuation in these and (to a lesser
extent) other commodities, we enter into derivative commodity
instruments. We enter into commodity instruments to convert
floating or indexed electricity and gas (and to a lesser extent
oil and refined product) prices to fixed prices in order to
lessen our vulnerability to reductions in electricity prices for
the electricity we generate, and to increases in gas prices for
the fuel we consume in our power plants. The hedging, balancing
and optimization activities that we engage in are directly
related to our asset-based business model of owning and
operating gas-fired electric power plants and are designed to
protect our spark spread (the difference between our
fuel cost and the revenue we receive for our electric
generation). We hedge exposures that arise from the ownership
and operation of power plants and related sales of electricity
and purchases of natural gas. We also utilize derivatives to
optimize the returns we are able to achieve from these assets.
From time to time we have entered into contracts considered
energy trading contracts under EITF Issue No. 02-03.
However, our traders have low capital at risk and value at risk
limits for energy trading, and, at any given time, our risk
management policy limits our net sales of power to our
generation capacity and limits our net purchases of gas to our
fuel consumption requirements on a total portfolio basis. This
model is markedly different from that of companies that engage
in significant commodity trading operations that are unrelated
to underlying physical assets. Derivative commodity instruments
are accounted for under the requirements of
SFAS No. 133.
We also routinely enter into physical commodity contracts for
sales of our generated electricity to ensure favorable
utilization of generation assets. Such contracts often meet the
criteria of SFAS No. 133 as derivatives but are
generally eligible for the normal purchases and sales exception.
Some of those contracts that are not deemed normal purchases and
sales can be designated as hedges of the underlying consumption
of gas or production of electricity.
|
|
|
Interest Rate and Currency Derivative Instruments |
We also enter into various interest rate swap agreements to
hedge against changes in floating interest rates on certain of
our project financing facilities and to adjust the mix between
fixed and floating rate debt in our capital structure to desired
levels. Certain of the interest rate swap agreements effectively
convert floating rates into fixed rates so that we can predict
with greater assurance what our future interest costs will be
and protect ourselves against increases in floating rates.
In conjunction with our capital markets activities, we from
time-to-time enter into
various forward interest rate agreements to hedge against
interest rate fluctuations that may occur after we have decided
to issue long-term fixed rate debt but before the debt is
actually issued. The forward interest rate agreements
effectively prevent the interest rates on anticipated future
long-term debt from increasing beyond a certain level, allowing
us to predict with greater assurance what our future interest
costs on fixed rate long-term debt will be.
Also, in conjunction with our capital market activities, we
enter into various interest rate swap agreements to hedge
against the change in fair value on certain of our fixed rate
Senior Notes. These interest rate swap agreements effectively
convert fixed rates into floating rates so that we can predict
with greater assurance what the fair value of our fixed rate
Senior Notes will be and protect ourselves against unfavorable
future fair value movements.
Additionally, from
time-to-time we have
and may in the future enter into various foreign currency swap
agreements to hedge against changes in exchange rates on certain
of our Senior Notes denominated in
253
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
currencies other than the U.S. dollar. Such foreign
currency swaps effectively convert floating exchange rates into
fixed exchange rates so that we can predict with greater
assurance what our U.S. dollar cost will be for purchasing
foreign currencies to satisfy the interest and principal
payments on these Senior Notes.
|
|
|
Summary of Derivative Values |
The table below reflects the amounts (in thousands) that are
recorded as assets and liabilities at December 31, 2005,
for our derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity | |
|
|
|
|
Interest Rate | |
|
Derivative | |
|
Total | |
|
|
Derivative | |
|
Instruments | |
|
Derivative | |
|
|
Instruments | |
|
Net | |
|
Instruments | |
|
|
| |
|
| |
|
| |
Current derivative assets
|
|
$ |
1,089 |
|
|
$ |
488,410 |
|
|
$ |
489,499 |
|
Long-term derivative assets
|
|
|
4,176 |
|
|
|
710,050 |
|
|
|
714,226 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
5,265 |
|
|
$ |
1,198,460 |
|
|
$ |
1,203,725 |
|
|
|
|
|
|
|
|
|
|
|
Current derivative liabilities
|
|
$ |
2,334 |
|
|
$ |
726,560 |
|
|
$ |
728,894 |
|
Long-term derivative liabilities
|
|
|
7,370 |
|
|
|
911,714 |
|
|
|
919,084 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$ |
9,704 |
|
|
$ |
1,638,274 |
|
|
$ |
1,647,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative assets (liabilities)
|
|
$ |
(4,439 |
) |
|
$ |
(439,814 |
) |
|
$ |
(444,253 |
) |
|
|
|
|
|
|
|
|
|
|
Of our net derivative assets, $179.0 million and
$28.2 million are net derivative assets of PCF and CNEM,
respectively, each of which is an entity with its existence
separate from us and other subsidiaries of ours, as discussed
more fully in Note 14. We fully consolidate CNEM and we
record the derivative assets of PCF in our balance sheet.
On March 31, 2005, Deer Park, an indirect, wholly owned
subsidiary of Calpine, entered into agreements to sell power to
and buy gas from MLCI. The agreements cover 650 MW of Deer
Parks capacity, and deliveries under the agreements began
on April 1, 2005, and continue through December 31,
2010. To assure performance under the agreements, Deer Park
granted MLCI a collateral interest in the Deer Park Energy
Center. The power and gas agreements contain terms as follows:
Power Agreements Under the terms of the power
agreements, Deer Park will sell power to MLCI at fixed and index
prices with a discount to prevailing market prices at the time
the agreements were executed. In exchange for the discounted
pricing, Deer Park received an initial cash payment of
$195.8 million, net of $17.3 million in transaction
costs during the first quarter of 2005, and subsequently
received additional cash payments of $76.4 million, net of
$2.9 million in transaction costs, as additional power
transactions were executed with discounts to prevailing market
prices. The cash received by Deer Park is sufficiently small
compared to the amount that would be required to fully prepay
for the power to be delivered under the agreements that the
agreements have been determined to be derivatives in their
entirety under SFAS No. 133. The value of the
derivative liability at December 31, 2005, was
$284.2 million. As Deer Park makes power deliveries under
the agreements, the liability will be satisfied and,
accordingly, the derivative liability will be reduced, and Deer
Park will record corresponding gains in income, supplementing
the revenues recognized based on discounted pricing as
deliveries take place. The upfront payments received by Deer
Park from the transaction are recorded as cash flows from
financing activity in accordance with guidance contained in
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.
SFAS No. 149 requires that companies present cash
flows from derivatives that contain an
other-than-insignificant financing element as cash
flows from financing activities. Under SFAS No. 149, a
contract that
254
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at its inception includes off-market terms, or requires an
up-front cash payment, or both is deemed to contain an
other-than-insignificant financing element.
Gas Agreements Under the terms of the gas
agreements, Deer Park will receive quantities of gas such that,
when combined with fuel supply provided by Deer Parks
steam host, Deer Park will have sufficient contractual fuel
supply to meet the fuel needs required to generate the power
under the power agreements. Deer Park will pay both fixed and
variable prices under the gas agreements. To the extent that
Deer Park receives fixed prices for power, Deer Park will
receive a volumetrically proportionate quantity of gas supply at
fixed prices thereby fixing the spread between the revenue Deer
Park receives under the fixed price power sales and the cost it
pays under the fixed price gas purchases. To the extent that
Deer Park receives index-based prices for its power sales, it
will pay index-based prices for a volumetrically proportionate
amount of its gas supply.
|
|
|
Relationship of Net Derivative Assets or Liabilities to
AOCI |
At any point in time, it is unlikely that total net derivative
assets and liabilities will equal AOCI, net of tax from
derivatives, for three primary reasons:
|
|
|
|
|
Tax effect of OCI When the values and
subsequent changes in values of derivatives that qualify as
effective hedges are recorded into OCI, they are initially
offset by a derivative asset or liability. Once in OCI, however,
these values are tax effected against a deferred tax liability
or asset account, thereby creating an imbalance between net OCI
and net derivative assets and liabilities. |
|
|
|
Derivatives not designated as cash flow hedges and hedge
ineffectiveness Only derivatives that qualify as
effective cash flow hedges will have an offsetting amount
recorded in OCI. Derivatives not designated as cash flow hedges
and the ineffective portion of derivatives designated as cash
flow hedges will be recorded into earnings instead of OCI,
creating a difference between net derivative assets and
liabilities and pre-tax OCI from derivatives. |
|
|
|
Termination of effective cash flow hedges prior to
maturity Following the termination of a cash
flow hedge, changes in the derivative asset or liability are no
longer recorded to OCI. At this point, an AOCI balance remains
that is not recognized in earnings until the forecasted
initially hedged transactions occur. As a result, there will be
a temporary difference between OCI and derivative assets and
liabilities on the books until the remaining OCI balance is
recognized in earnings. |
Below is a reconciliation of our net derivative liabilities to
our accumulated other comprehensive loss, net of tax from
derivative instruments at December 31, 2005 (in thousands):
|
|
|
|
|
|
Net derivative liabilities
|
|
$ |
(444,253 |
) |
Derivatives not designated as cash flow hedges and recognized
hedge ineffectiveness
|
|
|
549,696 |
|
Cash flow hedges terminated prior to maturity
|
|
|
(353,293 |
) |
Deferred tax asset attributable to accumulated other
comprehensive loss on cash flow hedges
|
|
|
89,123 |
|
|
|
|
|
|
Accumulated other comprehensive loss from derivative
instruments, net of tax(1)
|
|
$ |
(158,727 |
) |
|
|
|
|
|
|
(1) |
Amount represents one portion of our total AOCI balance. |
255
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The asset and liability balances for our commodity derivative
instruments represent the net totals after offsetting certain
assets against certain liabilities under the criteria of
FIN 39. For a given contract, FIN 39 will allow the
offsetting of assets against liabilities so long as four
criteria are met: (1) each of the two parties under
contract owes the other determinable amounts; (2) the party
reporting under the offset method has the right to set off the
amount it owes against the amount owed to it by the other party;
(3) the party reporting under the offset method intends to
exercise its right to set off; and (4) the right of set-off
is enforceable by law. The table below reflects both the amounts
(in thousands) recorded as assets and liabilities by us and the
amounts that would have been recorded had our commodity
derivative instrument contracts not qualified for offsetting as
of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
Gross | |
|
Net | |
|
|
| |
|
| |
Current derivative assets
|
|
$ |
2,612,436 |
|
|
$ |
488,410 |
|
Long-term derivative assets
|
|
|
1,300,990 |
|
|
|
710,050 |
|
|
|
|
|
|
|
|
|
Total derivative assets
|
|
$ |
3,913,426 |
|
|
$ |
1,198,460 |
|
|
|
|
|
|
|
|
Current derivative liabilities
|
|
$ |
2,850,587 |
|
|
$ |
726,560 |
|
Long-term derivative liabilities
|
|
|
1,502,653 |
|
|
|
911,714 |
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
$ |
4,353,240 |
|
|
$ |
1,638,274 |
|
|
|
|
|
|
|
|
|
|
Net commodity derivative (liabilities)
|
|
$ |
(439,814 |
) |
|
$ |
(439,814 |
) |
|
|
|
|
|
|
|
The table above excludes the value of interest rate and currency
derivative instruments.
The tables below reflect the impact of unrealized
mark-to-market gains
(losses) on our pre-tax earnings, both from cash flow hedge
ineffectiveness and from the changes in market value of
derivatives not designated as hedges of cash flows, for the
years ended December 31, 2005, 2004 and 2003, respectively
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
Hedge | |
|
Undesignated | |
|
|
|
|
Ineffectiveness | |
|
Derivatives | |
|
Total | |
|
|
| |
|
| |
|
| |
Natural gas derivatives(1)
|
|
$ |
(1,951 |
) |
|
$ |
(9,042 |
) |
|
$ |
(10,993 |
) |
Power derivatives(1)
|
|
|
(4,638 |
) |
|
|
(79,467 |
) |
|
|
(84,105 |
) |
Interest rate derivatives(2)
|
|
|
161 |
|
|
|
(2,527 |
) |
|
|
(2,366 |
) |
Currency derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(6,428 |
) |
|
$ |
(91,036 |
) |
|
$ |
(97,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
Hedge | |
|
Undesignated | |
|
|
|
|
Ineffectiveness | |
|
Derivatives | |
|
Total | |
|
|
| |
|
| |
|
| |
Natural gas derivatives(1)
|
|
$ |
5,827 |
|
|
$ |
(10,700 |
) |
|
$ |
(4,873 |
) |
Power derivatives(1)
|
|
|
1,814 |
|
|
|
(31,666 |
) |
|
|
(29,852 |
) |
Interest rate derivatives(2)
|
|
|
1,492 |
|
|
|
6,035 |
|
|
|
7,527 |
|
Currency derivatives
|
|
|
|
|
|
|
(12,897 |
) |
|
|
(12,897 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
9,133 |
|
|
$ |
(49,228 |
) |
|
$ |
(40,095 |
) |
|
|
|
|
|
|
|
|
|
|
256
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
|
| |
|
|
Hedge | |
|
Undesignated | |
|
|
|
|
Ineffectiveness | |
|
Derivatives | |
|
Total | |
|
|
| |
|
| |
|
| |
Natural gas derivatives(1)
|
|
$ |
3,153 |
|
|
$ |
7,768 |
|
|
$ |
10,921 |
|
Power derivatives(1)
|
|
|
(5,001 |
) |
|
|
(56,693 |
) |
|
|
(61,694 |
) |
Interest rate derivatives(2)
|
|
|
(974 |
) |
|
|
|
|
|
|
(974 |
) |
Currency derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(2,822 |
) |
|
$ |
(48,925 |
) |
|
$ |
(51,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents the unrealized portion of
mark-to-market activity
on gas and power transactions. The unrealized portion of
mark-to-market activity
is combined with the realized portions of
mark-to-market activity
and presented in the Consolidated Statements of Operations as
mark-to-market
activities, net. |
|
(2) |
Recorded within Other Income. |
The table below reflects the contribution of our cash flow hedge
activity to pre-tax earnings based on the reclassification
adjustment from OCI to earnings for the years ended
December 31, 2005, 2004 and 2003, respectively (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Natural gas and crude oil derivatives
|
|
$ |
136,767 |
|
|
$ |
58,308 |
|
|
$ |
40,752 |
|
Power derivatives
|
|
|
(521,119 |
) |
|
|
(128,556 |
) |
|
|
(79,233 |
) |
Interest rate derivatives
|
|
|
(16,984 |
) |
|
|
(17,625 |
) |
|
|
(27,727 |
) |
Foreign currency derivatives
|
|
|
(4,188 |
) |
|
|
(2,015 |
) |
|
|
10,588 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$ |
(405,524 |
) |
|
$ |
(89,888 |
) |
|
$ |
(55,620 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005, the maximum length of time over
which we were hedging our exposure to the variability in future
cash flows for forecasted transactions was 3 and 11 years,
for commodity and interest rate derivative instruments,
respectively. We estimate that pre-tax losses of
$185 million would be reclassified from AOCI into earnings
during the twelve months ended December 31, 2006, as the
hedged transactions affect earnings assuming constant gas and
power prices, interest rates, and exchange rates over time;
however, the actual amounts that will be reclassified will
likely vary based on the probability that gas and power prices
as well as interest rates and exchange rates will, in fact,
change. Therefore, management is unable to predict what the
actual reclassification from OCI to earnings (positive or
negative) will be for the next twelve months.
The table below presents (in thousands) the pre-tax gains
(losses) currently held in OCI that will be recognized annually
into earnings, assuming constant gas and power prices, interest
rates, and exchange rates over time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 & | |
|
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
After | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Gas OCI
|
|
$ |
305,259 |
|
|
$ |
11,800 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
317,059 |
|
Power OCI
|
|
|
(484,439 |
) |
|
|
(33,757 |
) |
|
|
(5,956 |
) |
|
|
(4,336 |
) |
|
|
(3,037 |
) |
|
|
|
|
|
|
(531,525 |
) |
Interest rate OCI
|
|
|
(5,798 |
) |
|
|
(5,267 |
) |
|
|
(4,516 |
) |
|
|
(3,989 |
) |
|
|
(2,265 |
) |
|
|
(11,550 |
) |
|
|
(33,385 |
) |
Foreign currency OCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax OCI
|
|
$ |
(184,978 |
) |
|
$ |
(27,224 |
) |
|
$ |
(10,472 |
) |
|
$ |
(8,325 |
) |
|
$ |
(5,302 |
) |
|
$ |
(11,550 |
) |
|
$ |
(247,851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
257
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
30. |
Earnings (Loss) per Share |
Basic loss per common share was computed by dividing net loss by
the weighted average number of common shares outstanding for the
respective periods. The dilutive effect of the potential
exercise of outstanding options to purchase shares of common
stock is calculated using the treasury stock method. The
dilutive effect of the assumed conversion of certain convertible
securities into our common stock is based on the dilutive common
share equivalents and the after tax distribution expense avoided
upon conversion. The reconciliation of basic and diluted loss
per common share is shown in the following table (in thousands,
except per share data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Net | |
|
|
|
Net | |
|
|
|
Net | |
|
|
|
|
Income | |
|
Shares | |
|
EPS | |
|
Income | |
|
Shares | |
|
EPS | |
|
Income | |
|
Shares | |
|
EPS | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations and cumulative
effect of a change in accounting principle
|
|
$ |
(9,880,954 |
) |
|
|
463,567 |
|
|
$ |
(21.32 |
) |
|
$ |
(419,683 |
) |
|
|
430,775 |
|
|
$ |
(0.97 |
) |
|
$ |
(13,272 |
) |
|
|
390,772 |
|
|
$ |
(0.03 |
) |
|
Discontinued operations, net of tax
|
|
|
(58,254 |
) |
|
|
|
|
|
|
(0.12 |
) |
|
|
177,222 |
|
|
|
|
|
|
|
0.41 |
|
|
|
114,351 |
|
|
|
|
|
|
|
0.29 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,943 |
|
|
|
|
|
|
|
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(9,939,208 |
) |
|
|
463,567 |
|
|
$ |
(21.44 |
) |
|
$ |
(242,461 |
) |
|
|
430,775 |
|
|
$ |
(0.56 |
) |
|
$ |
282,022 |
|
|
|
390,772 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issuable upon exercise of stock options using
treasury stock method
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations and cumulative
effect of a change in accounting principle
|
|
$ |
(9,880,954 |
) |
|
|
463,567 |
|
|
$ |
(21.32 |
) |
|
$ |
(419,683 |
) |
|
|
430,775 |
|
|
$ |
(0.97 |
) |
|
$ |
(13,272 |
) |
|
|
396,219 |
|
|
$ |
(0.03 |
) |
|
Discontinued operations, net of tax
|
|
|
(58,254 |
) |
|
|
|
|
|
|
(0.12 |
) |
|
|
177,222 |
|
|
|
|
|
|
|
0.41 |
|
|
|
114,351 |
|
|
|
|
|
|
|
0.29 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,943 |
|
|
|
|
|
|
|
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(9,939,208 |
) |
|
|
463,567 |
|
|
$ |
(21.44 |
) |
|
$ |
(242,461 |
) |
|
|
430,775 |
|
|
$ |
(0.56 |
) |
|
$ |
282,022 |
|
|
|
396,219 |
|
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We incurred losses before discontinued operations for the year
ended December 31, 2005 and losses before discontinued
operations and cumulative effect of a change in accounting
principle for the year ended December 31, 2004. As a
result, basic shares were used in the calculations of fully
diluted loss per share for these periods, under the guidelines
of SFAS No. 128 as using the basic shares produced the
more dilutive effect on the loss per share. Potentially
convertible securities, shares to be purchased under our ESPP
and unexercised employee stock options to purchase a weighted
average of 0.1 million, 47.2 million and
127.1 million shares of our common stock were not included
in the computation of diluted shares outstanding during the
years ended December 31, 2005, 2004 and 2003, respectively,
because such inclusion would be anti-dilutive.
258
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2005, 2004 and 2003,
approximately 0.1 million, 8.9 million and
61.0 million, respectively, weighted common shares of our
outstanding 2006 Convertible Notes were excluded from the
diluted EPS calculations as the inclusion of such shares would
have been anti-dilutive.
In connection with the convertible debentures payable to
Trust I, Trust II and Trust III, net of
repurchases on a weighted average basis, there were
4.6 million, 34.4 million and 44.1 million common
shares potentially issuable, respectively, that were excluded
from the diluted EPS calculation for the years ended
December 31, 2005, 2004 and 2003 as their inclusion would
be anti-dilutive. The convertible debentures payable to
Trust III were redeemed in full on July 13, 2005, and
the convertible debentures payable to Trusts I and II were
redeemed in full on October 20, 2004.
For the years ended December 31, 2005, 2004 and 2003, under
the net share settlement method and in accordance with the new
guidance of
EITF 04-08, there
were no shares potentially issuable and thus potentially
included in the diluted EPS calculation under our 2023
Convertible Notes, 2014 Convertible Notes and 2015 Convertible
Notes because our closing stock price at each period end was
below the conversion price. However, subject to potential
compromise of these convertible notes pursuant to our bankruptcy
cases, in future reporting periods after we have emerged from
bankruptcy, if the closing price of our common stock is above
the conversion price for a series of these convertible notes and
we have income before discontinued operations and cumulative
effect of change in accounting principle, as set forth in
Note 24, the holders of such series of convertible notes
would be entitled, upon conversion, to receive the conversion
value of such convertible notes in cash up to the applicable
principal amount of the note, and in a number of shares of our
common stock for the conversion value in excess of such
principal amount. In addition, if any of such convertible notes
were converted during the pending of our bankruptcy cases, we
would be required to deliver the par value solely in shares of
our common stock. The maximum potential shares issuable under
the conversion provisions of these convertible notes would be as
presented below, assuming that 100% of each series of such
convertible note remains outstanding following our emergence
from bankruptcy. The actual number of potential shares issuable
will depend on the potential compromise of these convertible
notes pursuant to our bankruptcy cases and the closing price of
our common stock at conversion.
|
|
|
|
|
2023 Convertible Notes If our closing stock
price is above the instruments conversion price of $6.50,
a maximum of approximately 97.5 million shares would be
included (if dilutive) in the diluted EPS calculation; |
|
|
|
2015 Convertible Notes If our closing stock
price is above the instruments conversion price of $4.00,
a maximum of approximately 163.0 million shares would be
included (if dilutive) in the diluted EPS calculation; |
|
|
|
2014 Convertible Notes If our closing stock
price is above the instruments conversion price of $3.85,
a maximum of approximately 139.8 million shares would be
included (if dilutive) in the diluted EPS calculation; |
For the year ended December 31, 2005, 1.2 million
weighted average common shares of our contingently issuable
(unvested) restricted stock was excluded from the
calculation of diluted EPS because our closing stock price had
not reached the price at which the shares vest, and as discussed
above, inclusion would be anti-dilutive.
As discussed in Note 24, in conjunction with the offering
of the 2014 Convertible Notes in September 2004, we entered into
a ten-year Share Lending Agreement with DB London, under which
we loaned DB London 89 million newly issued shares of
our common stock. We excluded the 89 million shares of
common stock subject to the Share Lending Agreement from the EPS
calculation.
259
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
See Note 2 for a discussion of the potential impact of
SFAS No. 128-R on the calculation of diluted EPS.
31. Commitments and
Contingencies
A. LTSA Cancellations On July 5,
2005, we executed an agreement with Siemens-Westinghouse to
settle various matters related to certain warranty disputes and
to terminate certain LTSAs. We received approximately
$25.5 million as a net settlement payment related to these
matters. Consequently, $10.8 million was recorded as a
reduction in plant operating expense relating to warranty
recoveries and contract settlements of prior period repair
expenses. The remaining settlement proceeds were applied as a
reduction to capitalized turbine costs.
On July 7, 2005, we announced that we had entered into a
15-year Master Products
and Services Agreement with GE. A related agreement replaces the
nine remaining LTSAs covering our GE 7FA turbine fleet. We
expect to benefit from improved power plant performance and
O&M flexibility to service our plants to further lower
costs. Historically, GE provided full-service turbine
maintenance for a select number of our power plants. Under the
new agreement, we will supplement our operations with a variety
of GE services. As of December 31, 2005, we operate
multiple power plants that are powered by GE gas turbines,
representing approximately 12,824 MW of capacity. We
recorded LTSA cancellation expense of $34.1 million during
the year 2005.
B. Turbines The table below sets forth
future turbine payments for construction and development
projects, as well as for unassigned turbines. It includes
previously delivered turbines and payments required for the
potential cancellation costs of the remaining 9 gas and 13 steam
turbines pursuant to restructurings in 2003 of turbine purchase
agreements. The table does not include payments that would
result if we were to release for manufacturing any of these
remaining 22 turbines.
|
|
|
|
|
|
Year |
|
Total | |
|
|
| |
|
|
(In thousands) | |
2006
|
|
$ |
17,578 |
|
2007
|
|
|
4,432 |
|
2008
|
|
|
2,699 |
|
|
|
|
|
|
Total
|
|
$ |
24,709 |
|
|
|
|
|
The following table sets forth an analysis of our turbine
restructuring reserves from January 1, 2003, to
December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
Turbine | |
|
|
Restructuring | |
|
|
Accrual | |
|
|
| |
As of January 1, 2003
|
|
$ |
24,824 |
|
|
Payments
|
|
|
(15,805 |
) |
|
Adjustments to accrual
|
|
|
(473 |
) |
|
|
|
|
As of December 31, 2003
|
|
$ |
8,546 |
|
|
Payments
|
|
|
(4,498 |
) |
|
|
|
|
As of December 31, 2004
|
|
$ |
4,048 |
|
|
Payments
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
$ |
4,048 |
|
|
|
|
|
260
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
C. Other Restructuring Charges In fiscal
years 2003, 2004 and 2005, in connection with managements
plan to reduce costs and improve operating efficiencies, we
recorded restructuring charges primarily comprised of severance
and benefits related to the involuntary termination of employees
and charges related to the vacancy of a number of facilities.
The following table sets forth our restructuring reserves
relating to our vacancy of various facilities from
January 1, 2003, to December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
Accrued Rent- | |
|
Accrued Rent- | |
|
Accrued Rent | |
|
|
Short-Term | |
|
Long-Term | |
|
Liability | |
|
|
| |
|
| |
|
| |
As of January 1, 2003
|
|
$ |
4,009 |
|
|
$ |
2,370 |
|
|
$ |
6,379 |
|
|
Additions
|
|
|
2,062 |
|
|
|
8,341 |
|
|
|
10,403 |
|
|
Reclass from long-term
|
|
|
825 |
|
|
|
(825 |
) |
|
|
|
|
|
Amortization
|
|
|
(3,718 |
) |
|
|
(162 |
) |
|
|
(3,880 |
) |
|
Adjustments to accrual
|
|
|
(166 |
) |
|
|
195 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003
|
|
$ |
3,012 |
|
|
$ |
9,919 |
|
|
$ |
12,931 |
|
|
Additions
|
|
|
1,313 |
|
|
|
354 |
|
|
|
1,667 |
|
|
Reclass from long-term
|
|
|
2,512 |
|
|
|
(2,512 |
) |
|
|
|
|
|
Amortization
|
|
|
(2,585 |
) |
|
|
|
|
|
|
(2,585 |
) |
|
Accretion
|
|
|
|
|
|
|
1,325 |
|
|
|
1,325 |
|
|
Adjustments to accrual
|
|
|
12 |
|
|
|
54 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004
|
|
$ |
4,264 |
|
|
$ |
9,140 |
|
|
$ |
13,404 |
|
|
Additions
|
|
|
281 |
|
|
|
1,373 |
|
|
|
1,654 |
|
|
Reclass from long-term
|
|
|
3,300 |
|
|
|
(3,300 |
) |
|
|
|
|
|
Amortization
|
|
|
(4,156 |
) |
|
|
|
|
|
|
(4,156 |
) |
|
Accretion
|
|
|
|
|
|
|
982 |
|
|
|
982 |
|
|
Adjustments to accrual (primarily Canadian and other foreign
subsidiaries deconsolidation)
|
|
|
(837 |
) |
|
|
(1,121 |
) |
|
|
(1,958 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
$ |
2,852 |
|
|
$ |
7,074 |
|
|
$ |
9,926 |
|
|
|
|
|
|
|
|
|
|
|
The 2003 charge of $10.4 million was recorded in the
Sales, general and administrative expense line item
on the Consolidated Statements of Operations for the year ended
December 31, 2003. In 2004, $1.5 million of the
vacancy related charges were recorded in the Discontinued
operations, net line and $0.1 million in the
Sales, general and administrative expense line of
the Consolidated Statements of Operations for the year ended
December 31, 2004. The $1.7 million of vacancy related
changes for the year ended December 31, 2005, were recorded
in the Sales, general and administrative expense
line item on the Consolidated Statements of Operations.
261
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth our restructuring reserves
relating to our involuntary termination of employees from
January 1, 2003, to December 31, 2005 (in thousands):
|
|
|
|
|
|
|
Severance | |
|
|
Liability | |
|
|
| |
January 1, 2003
|
|
$ |
1,556 |
|
Additions
|
|
|
3,914 |
|
Payments
|
|
|
(5,191 |
) |
Adjustments
|
|
|
414 |
|
|
|
|
|
As of December 31, 2003
|
|
$ |
693 |
|
Additions
|
|
|
6,154 |
|
Payments
|
|
|
(5,292 |
) |
Adjustments
|
|
|
(1,555 |
) |
|
|
|
|
As of December 31, 2004
|
|
$ |
|
|
Additions
|
|
|
6,241 |
|
Payments
|
|
|
(598 |
) |
Adjustments
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
$ |
5,643 |
|
|
|
|
|
Severance-related charges of $1.1 million were recorded in
the Plant operating expense line with the remaining
$2.8 million in the Selling, general and
administrative expense line of the Consolidated Statements
of Operations for the year ended December 31, 2003.
Severance-related charges of $6.2 million were recorded in
the Discontinued operations, net line of the
Consolidated Statements of Operations for the year ended
December 31, 2004. Severance-related charges of
$6.2 million were recorded in the Selling, general
and administrative expense line of the Consolidated
Statement of Operations for the year ended December 31,
2005.
D. Power Plant Operating Leases We have
entered into long-term operating leases for power generating
facilities, expiring through 2049, including renewal options.
Many of the lease agreements provide for renewal options at fair
value, and some of the agreements contain customary restrictions
on dividends, additional debt and further encumbrances similar
to those typically found in project finance agreements. In
accordance with SFAS No. 13, Accounting for
Leases and SFAS No. 98, our operating leases are
not reflected on our balance sheet. Lease payments on our
operating leases which contain escalation clauses or step rent
provisions are recognized on a straight-line basis. Certain
capital improvements associated with leased facilities may be
deemed to be leasehold improvements and are amortized over the
shorter of the term
262
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the lease or the economic life of the capital improvement.
Future minimum lease payments under these leases are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Watsonville
|
|
|
1995 |
|
|
$ |
2,905 |
|
|
$ |
2,905 |
|
|
$ |
2,905 |
|
|
$ |
4,065 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,780 |
|
Greenleaf
|
|
|
1998 |
|
|
|
6,604 |
|
|
|
6,999 |
|
|
|
6,290 |
|
|
|
7,697 |
|
|
|
6,440 |
|
|
|
22,931 |
|
|
|
56,961 |
|
Geysers
|
|
|
1999 |
|
|
|
61,965 |
|
|
|
47,150 |
|
|
|
42,886 |
|
|
|
34,566 |
|
|
|
22,899 |
|
|
|
83,118 |
|
|
|
292,584 |
|
KIAC
|
|
|
2000 |
|
|
|
23,875 |
|
|
|
23,845 |
|
|
|
24,473 |
|
|
|
24,537 |
|
|
|
24,548 |
|
|
|
215,535 |
|
|
|
336,813 |
|
Rumford/ Tiverton
|
|
|
2000 |
|
|
|
45,000 |
|
|
|
45,000 |
|
|
|
45,000 |
|
|
|
45,000 |
|
|
|
205,924 |
|
|
|
321,038 |
|
|
|
706,962 |
|
South Point
|
|
|
2001 |
|
|
|
9,620 |
|
|
|
9,620 |
|
|
|
9,620 |
|
|
|
9,620 |
|
|
|
9,620 |
|
|
|
297,570 |
|
|
|
345,670 |
|
RockGen
|
|
|
2001 |
|
|
|
26,088 |
|
|
|
27,478 |
|
|
|
28,732 |
|
|
|
29,360 |
|
|
|
29,250 |
|
|
|
140,003 |
|
|
|
280,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
176,057 |
|
|
$ |
162,997 |
|
|
$ |
159,906 |
|
|
$ |
154,845 |
|
|
$ |
298,681 |
|
|
$ |
1,080,195 |
|
|
$ |
2,032,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2005, 2004, and 2003, rent expense for power plant operating
leases amounted to $104.7 million, $105.9 million and
$112.1 million, respectively. We guarantee
$1.6 billion of the total future minimum lease payments of
our consolidated subsidiaries.
Subsequent to December 31, 2005, we filed a notice of
rejection of our leasehold interests in the Rumford and Tiverton
power plants as part of our Chapter 11 cases. See
Note 3 for more information on our notices of rejection and
the bankruptcy cases.
E. Production Royalties and Leases We
are committed under numerous geothermal leases and
right-of-way, easement
and surface agreements. The geothermal leases generally provide
for royalties based on production revenue with reductions for
property taxes paid. The
right-of-way, easement
and surface agreements are based on flat rates or adjusted based
on CPI changes and are not material. Under the terms of most
geothermal leases, the royalties accrue as a percentage of
electrical revenues. Certain properties also have net profits
and overriding royalty interests that are in addition to the
land base lease royalties. Some lease agreements contain clauses
providing for minimum lease payments to lessors if production
temporarily ceases or if production falls below a specified
level. As part of finalizing the DIP Facility, subsequent to
December 31, 2005, we paid off the existing operating lease
and related debt for The Geysers geothermal assets. With this
transaction, we have 100% ownership interest in The Geysers. See
Note 34 for more information on this transaction.
Production royalties for gas-fired and geothermal facilities for
the years ended December 31, 2005, 2004, and 2003, were
$36.9 million, $28.4 million and $24.6 million,
respectively.
F. Office and Equipment Leases We lease
our corporate, regional and satellite offices as well as some of
our office equipment under noncancellable operating leases
expiring through 2014. Future minimum lease payments under these
leases are as follows (in thousands):
|
|
|
|
|
|
2006
|
|
$ |
22,910 |
|
2007
|
|
|
21,287 |
|
2008
|
|
|
20,109 |
|
2009
|
|
|
19,851 |
|
2010
|
|
|
20,070 |
|
Thereafter
|
|
|
41,945 |
|
|
|
|
|
|
Total
|
|
$ |
146,172 |
|
|
|
|
|
263
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Lease payments are subject to adjustments for our pro rata
portion of annual increases or decreases in building operating
costs. In 2005, 2004, and 2003, rent expense for noncancellable
operating leases amounted to $24.3 million,
$29.7 million and $21.6 million, respectively.
Subsequent to December 31, 2005, we filed notices of
rejection of certain of our office leases. See Note 3 for
more information regarding the notices of rejection of certain
of our office leases.
G. Natural Gas Purchases We enter into
gas purchase contracts of various terms with third parties to
supply gas to our gas-fired cogeneration projects.
H. Guarantees As part of our normal
business operations, we enter into various agreements providing,
or otherwise arrange, financial or performance assurance to
third parties on behalf of our subsidiaries. Such arrangements
include guarantees, standby letters of credit and surety bonds.
These arrangements are entered into primarily to support or
enhance the creditworthiness otherwise attributed to a
subsidiary on a stand-alone basis, thereby facilitating the
extension of sufficient credit to accomplish the
subsidiaries intended commercial purposes.
We routinely issue guarantees to third parties in connection
with contractual arrangements entered into by our direct and
indirect wholly owned subsidiaries in the ordinary course of
such subsidiaries respective business, including power and
natural gas purchase and sale arrangements and contracts
associated with the development, construction, operation and
maintenance of our fleet of power generating facilities and
natural gas facilities. Under these guarantees, if the
subsidiary in question were to fail to perform its obligations
under the guaranteed contract, giving rise to a default and/or
an amount owing by the subsidiary to the third party under the
contract, we could be called upon to pay such amount to the
third party or, in some instances, to perform the
subsidiarys obligations under the contract. It is our
policy to attempt to negotiate specific limits or caps on our
overall liability under these types of guarantees; however, in
some instances, our liability is not limited by way of such a
contractual liability cap.
At December 31, 2005, guarantees of subsidiary debt,
standby letters of credit and surety bonds to third parties and
guarantees of subsidiary operating lease payments and their
respective expiration dates were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments Expiring |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Guarantee of subsidiary debt(5)
|
|
$ |
24,425 |
|
|
$ |
198,859 |
|
|
$ |
1,592,342 |
|
|
$ |
22,131 |
|
|
$ |
11,040 |
|
|
$ |
590,287 |
|
|
$ |
2,439,084 |
|
Standby letters of credit(1)(3)
|
|
|
361,104 |
|
|
|
8,298 |
|
|
|
898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370,300 |
|
Surety bonds(2)(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,395 |
|
|
|
11,395 |
|
Guarantee of subsidiary operating lease payments(3)
|
|
|
81,772 |
|
|
|
82,487 |
|
|
|
115,604 |
|
|
|
113,977 |
|
|
|
263,041 |
|
|
|
900,742 |
|
|
|
1,557,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
467,301 |
|
|
$ |
289,644 |
|
|
$ |
1,708,844 |
|
|
$ |
136,108 |
|
|
$ |
274,081 |
|
|
$ |
1,502,424 |
|
|
$ |
4,378,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The standby letters of credit disclosed above include those
disclosed in Notes 15 and 20. |
|
(2) |
The surety bonds do not have expiration or cancellation dates. |
|
(3) |
These are off balance sheet obligations. |
|
(4) |
As of December 31, 2005, $7,061 of cash collateral is
outstanding related to these bonds. |
|
(5) |
Includes the guarantee of our ULCI and ULCII subsidiary debt
which was deconsolidated along with most of our Canadian and
other foreign subsidiaries on December 20, 2005. |
The majority of our off balance sheet commitments are stayed due
to our bankruptcy filings on December 20, 2005. However,
pending resolution of bankruptcy claims, these amounts represent
our current
264
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commitments. The balance of the guarantees of subsidiary debt,
standby letters of credit and surety bonds were as follows (in
thousands):
|
|
|
|
|
|
|
Balance at | |
|
|
December 31, 2005 | |
|
|
| |
Guarantee of subsidiary debt
|
|
$ |
2,439,084 |
|
Standby letters of credit
|
|
|
370,300 |
|
Surety bonds
|
|
|
11,395 |
|
|
|
|
|
|
|
$ |
2,820,779 |
|
|
|
|
|
We have guaranteed the repayment of Senior Notes (original
principal amount of $2,597.2 million) issued by two wholly
owned finance subsidiaries of ours, ULC I and ULC II.
However, amounts outstanding under these two entities have been
reduced to $1,943.0 million and $2,139.7 million at
December 31, 2005 and 2004, respectively, due to
repurchases of such Senior Notes which are held by subsidiaries
of ours. King City Cogen, a wholly owned subsidiary of ours, has
guaranteed to Calpine Commercial Trust, an unaffiliated entity,
a loan made by the Calpine Commercial Trust to our wholly owned
subsidiary, Calpine Canada Power Limited. Outstanding balances
of the loan at December 31, 2005 and 2004, were
$28.7 million and $37.7 million, respectively. As of
December 31, 2005, we have guaranteed $265.2 million
and $76.6 million, respectively, of project financing for
the Broad River Energy Center and Pasadena Power Plant and
$275.1 million and $72.4 million, respectively, as of
December 31, 2004, for these power plants. In 2004, we had
obligations related to the HIGH TIDES III in the amount of
$517.5 million under the convertible debentures held by
Trust III related to the HIGH TIDES III. In 2005 we
repaid these convertible debentures. (See Note 5 for more
information.) With respect to our Hidalgo facility, we agreed to
indemnify Duke Capital Corporation in the amount of
$101.4 million as of December 31, 2005 and 2004, in
the event Duke Capital Corporation is required to make any
payments under its guarantee of the Hidalgo Lease. As of
December 31, 2005 and 2004, we have also guaranteed
$24.2 million and $31.7 million, respectively, of
other miscellaneous debt. In addition, as a result of the
deconsolidation of our Canadian and other foreign subsidiaries,
we deconsolidated approximately $2.0 billion of debt that
is guaranteed by Calpine Corporation (or a consolidated
subsidiary thereof) through, in some cases, redundant guarantee
structures that are expected to give rise to allowable claims in
excess of the amount of debt outstanding to third party
securities holders. Accordingly, we recorded approximately
$3.8 billion of additional LSTC related to the ULC I,
ULC II, and the King City Cogen loan guarantees, some of
which, as in the case of ULC I guarantees, were redundant.
As of December 31, 2005, all of the guaranteed debt is
recorded on our Consolidated Balance Sheet, except for
ULC I, ULC II and the Calpine Commercial Trust loan,
which were deconsolidated on December 20, 2005. As of
December 31, 2004, all of the guaranteed debt was recorded
on our Consolidated Balance Sheet.
We routinely arrange for the issuance of letters of credit and
various forms of surety bonds to third parties in support of our
subsidiaries contractual arrangements of the types
described above and may guarantee the operating performance of
some of our partially owned subsidiaries up to our ownership
percentage. The letters of credit outstanding under various
credit facilities support CES risk management, and other
operational and construction activities. Of the total letters of
credit outstanding, $2.5 million were issued to support CES
risk management at December 31, 2005 and 2004. In the event
a subsidiary were to fail to perform its obligations under a
contract supported by such a letter of credit or surety bond,
and the issuing bank or surety were to make payment to the third
party, we would be responsible for reimbursing the issuing bank
or surety within an agreed timeframe, typically a period of 1 to
10 days. To the extent liabilities are incurred as a result
of activities covered by letters of credit or the surety bonds,
such liabilities are included in the Consolidated Balance Sheets.
265
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The debt on the books of the unconsolidated investments is not
reflected on our balance sheet. At December 31, 2005,
investee debt was approximately $2,161.7 million. Of the
$2,161.7 million, $1,971.2 million related to our
deconsolidated Canadian and other foreign subsidiaries. Based on
our ownership share of each of the investments, our share of
such debt would be approximately $2,057.7 million. Except
for the debt of the deconsolidated Canadian and other foreign
subsidiaries, all such debt is non-recourse to us.
In the course of our business, we and our subsidiaries have
entered into various purchase and sale agreements relating to
stock and asset acquisitions or dispositions. These purchase and
sale agreements customarily provide for indemnification by each
of the purchaser and the seller, and/or their respective parent,
to the counter-party for liabilities incurred as a result of a
breach of a representation or warranty by the indemnifying
party. These indemnification obligations generally have a
discrete term and are intended to protect the parties against
risks that are difficult to predict or impossible to quantify at
the time of the consummation of a particular transaction.
Additionally, we and our subsidiaries from time to time assume
other indemnification obligations in conjunction with
transactions other than purchase or sale transactions. These
indemnification obligations generally have a discrete term and
are intended to protect our counterparties against risks that
are difficult to predict or impossible to quantify at the time
of the consummation of a particular transaction, such as the
costs associated with litigation that may result from the
transaction.
We have in a few limited circumstances directly or indirectly
guaranteed the performance of obligations by unrelated third
parties. These circumstances have arisen in situations in which
a third party has contractual obligations with respect to the
construction, operation or maintenance of a power generating
facility or related equipment owned in whole or in part by us.
Generally, the third partys obligations with respect to
related equipment are guaranteed for our direct or indirect
benefit by the third partys parent or other party. A
financing party or investor in such facility or equipment may
negotiate for us also to guarantee the performance of such third
partys obligations as additional support for the third
partys obligations. For example, in conjunction with the
financing of the construction of our California peaker
facilities, we guaranteed for the benefit of the lenders certain
warranty obligations of third party suppliers and contractors.
I. Litigation
We are party to various litigation matters arising out of the
normal course of business, the more significant of which are
summarized below. The ultimate outcome of each of these matters
cannot presently be determined, nor can the liability that could
potentially result from a negative outcome be reasonably
estimated presently for every case. The liability we may
ultimately incur with respect to any one of these matters in the
event of a negative outcome may be in excess of amounts
currently accrued with respect to such matters and, as a result
of these matters, may potentially be material to our
Consolidated Financial Statements. Further, we and the majority
of our subsidiaries filed for bankruptcy protection in the
United States and Canada on December 20, 2005, and
additional subsidiaries have filed thereafter. Bankruptcy law in
the United States (and the CCAA in Canada) provides for an
automatic stay of most litigation involving those entities
effective the date of the filing. Unless indicated otherwise,
each case listed below was stayed on December 20, 2005. See
Note 3 for information regarding the bankruptcy matters.
Securities Class Action Lawsuits. Beginning on
March 11, 2002, fifteen complaints seeking class action
status for securities claims against Calpine and other
individual defendants were filed in the U.S. District Court for
the Northern District of California against Calpine and certain
of its employees, officers, and directors. All of these actions
were ultimately assigned to Judge Saundra Brown Armstrong, and
Judge Armstrong ordered the actions consolidated for all
purposes on August 16, 2002, as In re Calpine Corp.
Securities Litigation, Master File No. C 02-1200 SBA. Judge
Armstrong denied the motion for class certification on
August 10, 2005. In November 2005, the parties executed a
settlement agreement. No defendant made any admission of
liability. The settlement resolved the only claim remaining in
these
266
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consolidated actions, which was a claim by two plaintiffs for an
alleged violation of Section 11 of the Securities Act of
1933. All of the other claims brought in the consolidated
actions were dismissed with prejudice by a February 2004 order.
Pursuant to the settlement agreement, on December 5, 2005,
Judge Armstrong entered a judgment of dismissal with prejudice,
dismissing the consolidated actions and all claims asserted
therein with prejudice. The settlement amount has been paid by
insurance and the matter is resolved.
Hawaii Structural Ironworkers Pension Fund v. Calpine,
et al. This case is a Section 11 case brought as a
class action on behalf of purchasers in Calpines April
2002 stock offering. This case was filed in San Diego
County Superior Court on March 11, 2003. Defendants won a
motion to transfer the case to Santa Clara County.
Defendants in this case are Calpine, Peter Cartwright, Ann B.
Curtis, John Wilson, Kenneth Derr, George Stathakis, Credit
Suisse First Boston, Banc of America Securities, Deutsche Bank
Securities, and Goldman, Sachs & Co. The Hawaii Fund
alleges that the prospectus and registration statement for the
April 2002 offering had false or misleading statements
regarding: Calpines actual financial results for 2000 and
2001; Calpines projected financial results for 2002;
Mr. Cartwrights agreement not to sell or purchase
shares within 90 days of the offering; and Calpines
alleged involvement in wash trades. A central
allegation of the complaint is that a March 2003 restatement
concerning the accounting for two sales-leaseback transactions
revealed that Calpine had misrepresented its financial results
in the prospectus/registration statement for the April 2002
offering. This action is stayed as to Calpine pursuant to
federal bankruptcy law. There is no trial date in this action.
We consider this lawsuit to be without merit and, should the
case proceed against Calpine, intend to continue to defend
vigorously against the allegations. In addition, Calpine has
filed a motion with the bankruptcy court to extend the automatic
stay to the individual defendants listed above (or enjoin
further prosecution of the action). The Hawaii Fund has opposed
that motion. The motion is scheduled to be heard on June 5,
2006.
Phelps v. Calpine Corporation, et al. On
April 17, 2003, James Phelps filed a class action complaint
in the Northern District of California, alleging claims under
the Employee Retirement Income Security Act (ERISA).
On May 19, 2003, a nearly identical class action complaint
was filed in the Northern District by Lenette Poor-Herena. The
parties agreed to have both of the ERISA actions assigned to
Judge Armstrong, who oversees the above-described federal
securities class action and the Gordon derivative action (see
below). On August 20, 2003, pursuant to an agreement
between the parties, Judge Armstrong ordered that the two ERISA
actions be consolidated under the caption, In re Calpine Corp.
ERISA Litig., Master File
No. C 03-1685
SBA (the ERISA Class Action). Plaintiff James
Phelps filed a consolidated ERISA complaint on January 20,
2004 (Consolidated Complaint). Ms. Poor-Herena
is not identified as a plaintiff in the Consolidated Complaint.
The Consolidated Complaint defines the class as all participants
in, and beneficiaries of, the Calpine Corporation Retirement
Savings Plan for whose accounts investments were made in Calpine
stock during the period from January 5, 2001, to the
present. The Consolidated Complaint names as defendants Calpine,
the members of its Board of Directors, the Calpine Corporation
Retirement Savings Plans Advisory Committee and its
members (Kati Miller, Lisa Bodensteiner, Rick Barraza, Tom
Glymph, Patrick Price, Trevor Thor, Bob McCaffrey, and Bryan
Bertacchi), signatories of the Calpine Corporation Retirement
Savings Plans Annual Return/ Report of Employee Benefit
Plan Forms 5500 for 2001 and 2002 (Pamela J. Norley and
Marybeth Kramer-Johnson, respectively), an employee of a
consulting firm hired by the Calpine Corporation Retirement
Savings Plan (Scott Farris), and unidentified fiduciary
defendants. The Consolidated Complaint alleges that defendants
breached their fiduciary duties involving the Calpine
Corporation Retirement Savings Plan, in violation of ERISA, by
misrepresenting Calpines actual financial results and
earnings projections, failing to disclose certain transactions
between Calpine and Enron that allegedly inflated Calpines
revenues, failing to disclose that the shortage of power in
California during 2000-2001 was due to withholding of capacity
by certain power companies, failing to investigate whether
Calpine common stock was an appropriate investment for the
Calpine Corporation Retirement Savings Plan, and failing to take
appropriate actions to
267
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
prevent losses to the Calpine Corporation Retirement Savings
Plan. In addition, the Consolidated Complaint alleges that
certain of the individual defendants suffered from conflicts of
interest due to their sales of Calpine stock during the class
period.
Defendants moved to dismiss the Consolidated Complaint. Judge
Armstrong granted the motion and dismissed three of the four
claims with prejudice. The remaining claim, for
misrepresentation, was dismissed with leave to amend. Plaintiff
filed an Amended Consolidated Complaint on June 3, 2005.
The Amended Consolidated Complaint names as defendants Calpine
Corporation and the members of the Advisory Committee for the
Calpine Corporation Retirement Savings Plan. Defendants filed
motions to dismiss the Amended Consolidated Complaint. The Court
granted Defendants motions and dismissed the
plaintiffs Amended Consolidated Complaint with prejudice
on December 5, 2005. Plaintiff appealed the Courts
dismissal orders to the Ninth Circuit Court of Appeals. The
Ninth Circuit has extended the stay to the other
defendants, has suspended the briefing schedule on the appeal as
to all parties, and has requested a status report on or before
June 28, 2006. We consider this lawsuit to be without merit
and, should the case proceed against Calpine, intend to continue
to defend vigorously against the allegations. In addition, as
discussed above, Calpine has filed a motion with the bankruptcy
court to extend the automatic stay to the individual defendants
listed above (or enjoin further prosecution of the action).
Plaintiff has opposed the motion. The motion is scheduled to be
heard on June 5, 2006.
Johnson v. Peter Cartwright, et al. On
December 17, 2001, a shareholder filed a derivative lawsuit
on behalf of Calpine against its directors and one of its senior
officers. This lawsuit is styled Johnson vs. Cartwright,
et al. (No. CV803872) and is pending in California
Superior Court in Santa Clara County, California. Calpine
is a nominal defendant in this lawsuit, which alleges claims
relating to purportedly misleading statements about Calpine and
stock sales by certain of the director defendants and the
officer defendant. On July 1, 2003, the Court granted
Calpines motion to stay this proceeding until In re
Calpine Corporation Securities Litigation, an action
then-pending in the Northern District of California, was
resolved, or until further order of the Court. As indicated
above, In re Calpine Corporation Securities Litigation was
resolved by a settlement. The Court has not lifted the stay in
this case, and in any event this case is stayed as to Calpine
pursuant to federal bankruptcy law. We consider this lawsuit to
be without merit and, should the case proceed against Calpine,
intend to defend vigorously against the allegations if the stay
is lifted. In addition, as discussed above, Calpine has filed a
motion with the bankruptcy court to extend the automatic stay to
the individual defendants in this action (or enjoin further
prosecution of the action). Plaintiff has opposed the motion.
The motion is scheduled to be heard on June 5, 2006.
Gordon v. Peter Cartwright, et al. On
August 8, 2002, a shareholder filed a derivative suit in
the United States District Court for the Northern District
of California on behalf of Calpine against its directors,
captioned Gordon v. Cartwright, et al. similar to
Johnson v. Cartwright. Motions were filed to dismiss the
action against certain of the director defendants on the grounds
of lack of personal jurisdiction, as well as to dismiss the
complaint in total on other grounds. In February 2003, plaintiff
agreed to stay these proceedings until In re Calpine Corporation
Securities Litigation was resolved, and to dismiss without
prejudice certain director defendants. The Court did not rule on
the motions to dismiss the complaint on non-jurisdictional
grounds. On March 4, 2003, plaintiff filed papers with the
court voluntarily agreeing to dismiss without prejudice his
claims against three of the outside directors. In December 2005,
plaintiff voluntarily dismissed this action on his own
initiative and the matter is now resolved.
International Paper Company v. Androscoggin Energy
LLC. In October 2000, IP filed a complaint against AELLC
alleging that AELLC breached certain contractual representations
and warranties arising out of an Amended ESA by failing to
disclose facts surrounding the termination, effective
May 8, 1998, of one of AELLCs fixed-cost gas supply
agreements. The steam price paid by IP under the ESA is derived
from AELLCs price of gas under its gas supply agreements.
We had acquired a 32.3% economic interest and a
268
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
49.5% voting interest in AELLC as part of the SkyGen
transaction, which closed in October 2000. On November 7,
2002, the court issued an opinion granting summary judgment to
IP on the liability aspect of a particular claim against AELLC.
At trial, on November 3, 2004, a jury verdict in the amount
of $41 million was rendered in favor of IP holding AELLC
liable on the misrepresentation claim, but not on the breach of
contract claim. The verdict amount was based on calculations
proffered by IPs damages experts. AELLC has made an
additional accrual to recognize the jury verdict, and the
Company has recognized its 32.3% share. AELLC filed a post-trial
motion challenging both the determination of its liability and
the damages award and, on November 16, 2004, the court
entered an order staying the execution of the judgment.
Given the adverse verdict, on or about November 26, 2004,
AELLC filed a petition for relief under Chapter 11 of the
Bankruptcy Code. On or about January 9, 2006, AELLC filed
its Second Amended Plan of Reorganization (the AELLC
Plan) and, on or about February 15, 2006, the
U.S. Bankruptcy Court entered its order confirming the
AELLC Plan (the Confirmation Order). In the course
of obtaining confirmation of the AELLC Plan, AELLC resolved all
objections to claims against the AELLC estate, with the
exception of: (1) the secured tax claims of the Town of
Jay; and (2) possible claims for damages arising out of the
rejection of executory contracts pursuant to the AELLC Plan.
Under the AELLC Plan, which provides for liquidation and
distribution of substantially all of AELLCs assets, the
secured tax claims will be paid in full with interest, all other
secured and priority claims will be paid in full, certain claims
of IP will be released for consideration detailed in the AELLC
Plan, and all unsecured claims (including any allowed rejection
damages claims) will receive a pro rata portion of remaining
cash, in full satisfaction of such claims. The projected
distribution to unsecured creditors (other than IP) is 30-40% of
the allowed amount of such claims. All claims of all creditors
of AELLC will be resolved pursuant to the AELLC Plan. Membership
interests in AELLC will receive nothing under the AELLC Plan and
will be cancelled. Following consummation of the AELLC Plan,
AELLC will cease all commercial operations. Reference may be
made to the AELLC Plan and the Confirmation Order for additional
information regarding the treatment of AELLCs assets and
all claims.
Panda Energy International, Inc., et al. v. Calpine
Corporation, et al. On November 5, 2003, Panda
Energy International, Inc. and certain related parties,
including PLC II, LLC, (collectively Panda)
filed suit against the Company and certain of its affiliates
alleging, among other things, that the Company breached duties
of care and loyalty allegedly owed to Panda by failing to
correctly construct and operate the Oneta power plant, which the
Company acquired from Panda, in accordance with Pandas
original plans. Panda alleges that it is entitled to a portion
of the profits of the Oneta plant and that the Companys
actions have reduced the profits from Oneta thereby undermining
Pandas ability to repay monies owed to the Company on
December 1, 2003, under a promissory note on which
approximately $38.6 million (including interest) is
currently outstanding. The Company has filed a counterclaim
against Panda based on a guaranty, and has also filed a motion
to dismiss as to the causes of action alleging federal and state
securities laws violations. The court recently granted the
Companys motion to dismiss the above claims, but allowed
Panda an opportunity to replead. We consider Pandas
lawsuit to be without merit and intend to vigorously defend it.
The Company stopped accruing interest income on the promissory
note due December 1, 2003, as of the due date because of
Pandas default on repayment of the note. Trial was set for
May 22, 2006. The action has been stayed due to the
bankruptcy filing.
Snohomish PUD No. 1, et al. v. FERC (regarding
Nevada Power Company and Sierra Pacific Power Company v.
Calpine Energy Services, L.P. complaint dismissed by FERC).
On December 4, 2001, Nevada Power Company (NPC)
and Sierra Pacific Power Company (SPPC) filed a
complaint with FERC under Section 206 of the FPA against a
number of parties to their PPAs, including Calpine. NPC and SPPC
allege in their complaint, that the prices they agreed to pay in
certain of the PPAs, including those signed with Calpine, were
negotiated during a time when the spot power market was
dysfunctional and that they are unjust and unreasonable. The
complaint therefore sought modification of the contract prices.
The administrative law judge issued an Initial Decision on
December 19, 2002, that found for Calpine and the other
respondents in
269
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the case and denied NPC and SPPC the relief that they were
seeking. In a June 26, 2003 order, FERC affirmed the
judges findings and dismissed the complaint, and
subsequently denied rehearing of that order. The matter is
pending on appeal before the United States Court of Appeals for
the Ninth Circuit. The Company has participated in briefing and
arguments before the Ninth Circuit defending the FERC orders,
but the Company is not able to predict at this time the outcome
of the Ninth Circuit appeal. There has been no activity since
the December 20, 2005 automatic stay.
Transmission Service Agreement with Nevada Power Company.
On September 30, 2004, NPC filed a complaint in state
district court of Clark County, Nevada against Calpine
Corporation (Calpine), Moapa Energy Center, LLC,
Firemans Fund Insurance Company (FFIC)
and unnamed parties alleging, among other things, breach by
Calpine of its obligations under a Transmission Service
Agreement (TSA) between Calpine and NPC for
400 MW of transmission capacity and breach by FFIC of its
obligations under a surety bond, which surety bond was issued by
FFIC to NPC to support Calpines obligations under the TSA.
This proceeding was removed from state court to United States
District Court for the District of Nevada. On December 10,
2004, FFIC filed a Motion to Dismiss, which was granted on
May 25, 2005 with respect to claims asserted by NPC that
FFIC had breached its obligations under the surety bond by not
honoring NPCs demand that the full amount of the surety
bond ($33,333,333.00) be paid to NPC in light of Calpines
failure to provide replacement collateral upon the expiration of
the surety bond on May 1, 2004. NPCs Motion to Amend
the Complaint was granted on November 17, 2005 and the
Amended Complaint was filed December 8, 2005. FFICs
answer is pending. There has been no action as to Calpine and
Moapa since the automatic stay took effect.
Calpine Canada Natural Gas Partnership v. Enron Canada
Corp. On February 6, 2002, Calpine Canada filed a
complaint in the Alberta Court of Queens Branch alleging that
Enron Canada Corp. (Enron Canada) owed it
approximately US$1.5 million from the sale of gas in
connection with two Master Firm gas Purchase and Sale
Agreements. To date, Enron Canada has not sought bankruptcy
relief and has counterclaimed in the amount of
US$18 million. We are still at the Discovery stage. The
Company believes that Enron Canadas counterclaim is
without merit and intends to vigorously defend against it.
Please note that a majority of Calpine Corporations
Canadian subsidiaries (including the Plaintiff referenced above)
filed for Bankruptcy protection under the Companies
Creditors Arrangement Act R.S.C 1985, c. C-36 on
December 20, 2005. Canadian Bankruptcy law provides for an
automatic stay of any litigation involving those entities
effective the date of the filing. There has been no action in
this matter since the automatic stay took effect.
Estate of Jones, et al. v. Calpine Corporation. On
June 11, 2003, the Estate of Darrell Jones and the Estate
of Cynthia Jones filed a complaint against Calpine in the United
States District Court for the Western District of Washington.
Calpine purchased Goldendale Energy, Inc., a Washington
corporation, from Mr. Darrell Jones of National Energy
Systems Company (NESCO). The agreement provided,
among other things, that upon Substantial Completion
of the Goldendale facility, Calpine would pay Mr. Jones
(i) $6.0 million and (ii) $18.0 million less
$0.2 million per day for each day that elapsed between
July 1, 2002, and the date of substantial completion.
Substantial completion of the Goldendale facility occurred in
September 2004 and the daily reduction in the payment amount has
reduced the $18.0 million payment to zero. The complaint
alleged that by not achieving substantial completion by
July 1, 2002, Calpine breached its contract with
Mr. Jones, violated a duty of good faith and fair dealing,
and caused an inequitable forfeiture. On July 28, 2003,
Calpine filed a motion to dismiss the complaint for failure to
state a claim upon which relief can be granted. The court
granted Calpines motion to dismiss the complaint on
March 10, 2004. Calpine filed a motion to recover
attorneys fees from NESCO, which was granted at a reduced
amount. Calpine held back $100,000 of the $6 million
payment to the estates (which has been remitted) to ensure
payment of the fees. Plaintiffs appealed. Both parties filed
briefs with the appellate court and oral argument was heard on
October 17, 2005. The matter was automatically stayed on
December 20, 2005. In January, plaintiffs filed a
270
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
motion for relief from stay. On February 21, 2006, the
bankruptcy court approved the parties stipulation lifting the
stay for the limited purpose of allowing the appellate court to
issue its decision. On March 22, 2006, the appellate court
reversed the lower courts decision and remanded the case
to the trial court. The automatic stay prevents further action
until lifted.
Hulsey, et al. v. Calpine Corporation. On
September 20, 2004, Virgil D. Hulsey, Jr. (a current
employee) and Ray Wesley (a former employee) filed a class
action wage and hour lawsuit against Calpine Corporation and
certain of its affiliates. The complaint alleges that the
purported class members were entitled to overtime pay and
Calpine failed to pay the purported class members at legally
required overtime rates. The matter was transferred to the
Santa Clara County Superior Court and Calpine filed an
answer, denying plaintiffs claims. In late 2005, the
parties tentatively agreed to settle the case and a motion to
preliminarily approve the settlement was set for
January 10, 2006. The case was stayed on December 20,
2005. Accordingly, the motion was taken off calendar and there
has been no further activity in the case.
Auburndale Power Partners and Cutrale. Calpine
Corporation owns an interest in the Auburndale PP cogeneration
facility, which provides steam to Cutrale, a juice company. The
Auburndale PP facility currently operates on a
cycling basis whereby the plant operates only a
portion of the day. During the hours that the Auburndale PP
facility is not operating, Auburndale PP does not provide steam
to Cutrale. Cutrale filed an arbitration claim alleging that
they were entitled to damages due to Auburndale PPs
failure to provide them with steam 24 hours a day.
Auburndale PP disagreed with Cutrales position based on
its interpretation of the contractual language in the Steam
Supply Agreement. Binding arbitration was conducted on the
contractual interpretation issue only (reserving the
remedy/damage issue for a second phase of arbitration) and the
arbitrator found in favor of Cutrales contractual
interpretation. Following the first phase of arbitration, the
parties agreed to settle the matter for a payment to Cutrale of
approximately $1.0 million. Additionally, Cutrale will
receive free steam over the life of the contract, which has a
value of approximately $10 million based on current market
curves. The settlement was finalized on November 16, 2005.
Harbert Distressed Investment Master Fund, Ltd. v. Calpine
Canada Energy Finance II ULC, et al. On
May 5, 2005, Harbert Distressed Investment Master Fund,
Ltd. (the Harbert Fund) filed an Originating Notice
(Application) (the Original Application) in the
Supreme Court of Nova Scotia (the Nova Scotia Court)
against Calpine Corporation and certain of its subsidiaries,
including Calpine Canada Energy Finance II ULC
(Finance II), the issuer of certain bonds (the
Bonds) held by the Harbert Fund, and Calpine Canada
Resources Company (CCRC), the parent company of
Finance II and the indirect parent company of the company
that owned the Saltend facility. Calpine Corporation has
guaranteed the Bonds. In June 2005, the indenture trustee
Wilmington Trust Company (the Trustee) joined the
Original Application as co-applicant on behalf of all holders of
the Bonds (Bondholders). The Harbert Fund and the
Trustee alleged that Calpine Corporation, CCRC and
Finance II violated the Harbert Funds rights under
Nova Scotia laws in connection with certain financing
transactions completed by CCRC or subsidiaries of CCRC,
including in relation to a Term Debenture (the Term
Debenture) between CCRC and Finance II. The matter
proceeded to a full hearing in July 2005.
On August 2, 2005, the Nova Scotia Court issued Written
Reasons for Decision (the Decision) which dismissed
the Harbert Funds Original Application for relief and
denied all relief to the Harbert Fund and all other Bondholders
that purchased Bonds on or after September 1, 2004.
However, the Nova Scotia Court stated that a remedy should be
granted to any Bondholder, other than the Calpine respondent
companies, that purchased Bonds prior to September 1, 2004
and that continued to hold those Bonds on August 2, 2005
(the Eligible Bondholders). On October 7, 2005,
the Trustee and the Harbert Fund filed an Originating Notice
(Application) in the Nova Scotia Court against CCRC seeking
leave to commence a derivative proceeding on behalf of
Finance II (the Harbert/ WTC Leave Application)
against CCRC claiming certain relief including orders requiring
CCRC to retain in its control the net proceeds from the sale of
Saltend, and
271
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
prohibiting CCRC from incurring further indebtedness ranking
senior in priority to its indebtedness under the Term Debenture
and from making future transfers of funds for intercompany
obligations or assets of diminished or dubious value while the
Term Debenture remains in force.
On October 11, 2005, Finance II and CCRC filed an
Interlocutory Notice Application (the Calpine Preliminary
Application) seeking a dismissal or alternatively a stay
of the Harbert/ WTC Leave Application on the bases of res
judicata and abuse of process, arguing that the claims and
relief sought by the applicants in the Harbert/ WTC Leave
Application are the same, or arise out of the same facts and
circumstances, as the claims and relief that those applicants
sought, and were denied, in the Original Application. On
November 18, 2005, just prior to the hearing of the Calpine
Preliminary Application, the Trustee served an update report
advising that the aggregate amount of Eligible Bondholders was
approximately (at then current exchange rates)
US$42,125,000. On November 21 and 22, 2005, the Calpine
Preliminary Application was argued. The Nova Scotia Court
reserved its decision at that time, but on December 15,
2005, issued a brief letter granting the Calpine
respondents application and dismissing the Harbert/ WTC
Leave Application, with written reasons to follow.
On November 30, 2005, the Trustee filed a Final Report
confirming the aggregate face value of Bonds held by Eligible
Bondholders was (at then current exchange rates)
approximately US$42,125,000. Specifically, the Trustee reported
that in total there were 12 Sterling Eligible Bondholders
totaling £16,750,000 and 13 Euro Eligible Bondholders
totaling
11,424,000. On December 19 and 20, 2005, the parties
re-appeared before the Nova Scotia Court to settle the terms of
the final order (the Final Order) implementing the
Decision in the Original Action. After argument, and to enable
the parties to address an application by the Trustee to produce
further information and documentation, this application was
adjourned to January 12, 2006. In addition to
Calpines Chapter 11 filing, on December 20,
2005, Finance II and CCRC instituted proceedings (the
CCAA Proceedings) under the Companies
Creditors Arrangement Act before the Court of Queens Bench
of Alberta (the Alberta Court). As a result of the
Chapter 11 and the CCAA Proceedings, all Canadian
proceedings are stayed, and in particular the application to
settle the Final Order in the Original Application has been
adjourned indefinitely, no final order implementing the Decision
in the Original Application or confirming the dismissal of the
Harbert/ WTC Leave Application have been entered and the appeal
periods connected therewith have not commenced to run. However,
please note that the Trustee obtained an order from the Alberta
Court in the CCAA Proceedings on January 31, 2006 lifting
the stay for the limited purpose of allowing Bankruptcy
Petitions to be filed, which application the Canadian Calpine
companies did not oppose. This is a common step taken in
Canadian CCAA proceedings by creditors to freeze the running of
time limits in the event it is later discovered a reviewable
transaction occurred on the eve of insolvency.
By letter dated February 21, 2006, the Nova Scotia Court
asked the parties to the Original Application and the Harbert/
WTC Leave Application if they were in a position to advise how
they intended to proceed in these matters. The Calpine
respondents confirmed to the Nova Scotia Court by letter dated
February 23, 2006 that the stay in the CCAA Proceedings had
been extended by the Alberta Court to April 20, 2006 by
Order entered January 16, 2006, and that as such the stay
remained in effect. While the Harbert Fund did not dispute that
the stay remained in effect, by letter dated February 21,
2006 it advised the Nova Scotia Court it expected to receive a
report from the Monitor in the CCAA Proceedings by mid-March
2006, which disclosure was required to enable the Harbert
finance to determine its future steps, including as to whether
to apply to the Alberta Court to attempt to lift the stay. As
such, the Harbert Fund asked the Nova Scotia Court to allow it
until the end of March 2006 to respond with its intended
position. To date, the Trustee has not specifically responded to
the Nova Scotia Courts February 21, 2006 letter, but
it is expected that the Trustees position is the same as
Harberts position. By order dated April 11, 2006, the
Alberta Court extended the Stay in the CCAA Proceedings to
July 20, 2006.
272
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with the Chapter 11 Filing and the CCAA
Proceedings, Calpine Corporation gave undertakings to the
Alberta Court and to the Trustee that: (i) the net Saltend
sale proceeds remain at Calpine UK Holdings Limited, a
subsidiary of CCRC; (ii) Calpine Corporation intends to
continue to hold the monies there and will provide advance
notice to the Trustee and the service list in the CCAA
Proceedings if that intention changes; (iii) the Saltend
sale proceeds held at Calpine UK Holdings Limited are not
pledged as collateral for the US DIP; and (iv) Calpine
Corporation will provide advance notice to the Trustee and the
service list in the CCAA Proceedings of any filing of Calpine UK
Holdings Limited in Canada, the US or the UK.
Harbert Convertible Arbitrage Master Fund, Ltd.
et al. v. Calpine Corporation. Plaintiff Harbert
Convertible Arbitrage Master Fund, Ltd. and two affiliated funds
filed this action on July 11, 2005, in Supreme Court, New
York County, State of New York, and filed an amended complaint
on July 19, 2005. In their amended complaint, plaintiffs
allege that in a July 5, 2005 letter to Calpine they
provided reasonable evidence as required under the
indenture governing the 2014 Convertible Notes that, on one or
more days beginning on July 1, 2005, the Trading Price of
the 2014 Convertible Notes was less than 95% of the product of
the Common Stock Price multiplied by the Conversion Rate, as
those terms are defined in the indenture, and that Calpine
therefore was required to instruct the Bid Solicitation Agent
for the 2014 Convertible Notes to determine the Trading Price
beginning on the next Trading Day. If the Trading Price as
determined by the Bid Solicitation Agent was below 95% of the
product of the Common Stock Price multiplied by the Conversion
Rate for the next five consecutive Trading Days, then the 2014
Convertible Notes would become convertible into cash and common
stock for a limited period of time. Plaintiffs have asserted a
claim for breach of contract, seeking unspecified damages,
because Calpine did not instruct the Bid Solicitation Agent to
begin to calculate the Trading Price. In addition, plaintiffs
sought a declaration that Calpine had a duty, based on the
statements in the July 5th letter, to commence the bid
solicitation process, and also sought injunctive relief to force
Calpine to instruct the Bid Solicitation Agent to determine the
Trading Price of the Notes.
On November 18, 2005, Harbert filed a second amended
complaint for breach and anticipatory breach of indenture, which
also added the Trustee as a plaintiff. At a court hearing on
November 22, counsel for Harbert and the Trustee again
sought an expedited trial, stating that plaintiffs were willing
to forego affirmative discovery and could respond to
Calpines forthcoming discovery requests promptly. The
Court ordered Harbert and the Trustee to provide specified
discovery immediately, to respond promptly to any additional
discovery demands from Calpine, and ordered the parties to
commence depositions in January. The Court did not set a firm
trial date, but suggested that a trial could occur by early
March. Calpine moved to dismiss the second amended complaint on
December 13, 2005. In the meantime, Harbert and the Trustee
delayed providing any discovery, stating their belief that a
bankruptcy filing was imminent that could moot the case or in
any event stay it. The matter was stayed on December 20,
2005.
Whitebox Convertible Arbitrage Fund, L.P.,
et al. v. Calpine Corporation. Plaintiff Whitebox
Convertible Arbitrage Fund, L.P. and seven affiliated funds
filed an action in the Supreme Court, New York County, State of
New York, for breach of contract on October 17, 2004. The
factual allegations and legal basis for the claims set forth in
that action are nearly identical to those set forth in the
Harbert Convertible filings. On October 19, 2005, the
Whitebox plaintiffs filed a motion for preliminary injunctive
relief, but withdrew the motion on November 7, 2005.
Whitebox had informed Calpine and the Court that the Trustee was
considering intervening in the case and/or filing a similar
action for the benefit of all holders of the 2014 Convertible
Notes. The matter was stayed on December 20, 2005.
Calpine Corporation v. The Bank of New York, Collateral
Trustee for Senior Secured Note Holders, et al. In
September of 2005, Calpine received a letter from The Bank of
New York, the Collateral Trustee (the Collateral
Trustee) for Calpines senior secured debt holders,
informing Calpine of disagreements
273
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
purportedly raised by certain holders of First Priority Notes
regarding the Companys reinvestment of the proceeds from
its recent sale of natural gas assets to Rosetta. As a result of
these concerns, the Collateral Trustee informed the Company that
it would not allow further withdrawals from the gas sale
proceeds account until these disagreements were resolved. On
September 26, 2005, Calpine filed a Declaratory Relief
Action in the Delaware Court of Chancery against the Collateral
Trustee and Wilmington Trust Company, as trustee for the First
Priority Notes (the First Priority Trustee), seeking
a declaration that Calpines past and proposed purchases of
natural gas assets were permitted by the indenture for the First
Priority Notes and related documents, and also seeking an
injunction compelling the Collateral Trustee to release funds
requested to be withdrawn.
The First Priority Trustee counterclaimed, seeking an order
compelling the Company to, among other things, (i) pay
damages in an amount not less than $365 million plus
prejudgment interest either to the First Priority Trustee or
into the gas sale proceeds account; (ii) return to the gas
sale proceeds account all amounts previously withdrawn from such
account and used by the Company to purchase natural gas in
storage; and (iii) indemnify the First Priority Trustee for
all expenses incurred in connection with defending the lawsuit
and pursuing counterclaims. In addition, Wilmington Trust, in
its capacity as Indenture Trustee (the Second Priority
Trustee) for the holders of certain Second Priority Notes
of the Company, intervened on behalf of the holders of the
Second Priority Notes. The Company filed a motion to dismiss the
First Priority Trustees counterclaims on the grounds that
the holders of the First Priority Notes (and the First Priority
Trustee on behalf of the holders of the First Priority Notes)
had no remaining right under the indenture governing the First
Priority Notes to obtain the relief requested because the
Company had made, and the holders of the First Priority Notes
had subsequently declined, an offer to purchase all of the First
Priority Notes at par. A bench trial on the above claims was
held before the Delaware Court of Chancery on November 11,
2005.
Following a one-day bench trial, post-trial briefing and oral
argument, the Delaware Chancery Court ruled against Calpine on
November 22, 2005, holding that Calpines use of
approximately $313 million of gas sale proceeds to purchase
certain gas storage inventory violated the indentures governing
Calpines Second Priority Notes and that use of the
proceeds for similar contracts was impermissible. The Chancery
Court denied the First Priority Trustees counterclaims on
the grounds asserted in the Companys motion to
dismiss namely, that the First Priority Trustee had
no right to the requested relief under the indenture governing
the First Priority Notes because the holders of the First
Priority Notes had declined an offer made by the Company to
purchase all of the First Priority Notes at par. On
December 5, 2005, the Court entered a Final Order and
Judgment affording Calpine until January 22, 2006, to
restore to a collateral account $311,782,955.55, plus interest.
Calpine appealed, and the First Priority Trustee and Second
Priority Trustee cross-appealed. On December 16, 2005, the
Delaware Supreme Court affirmed the Chancery Courts ruling
that Calpines use of proceeds was impermissible; reversed
the decision that the First Priority Trustee lacked standing to
object to such use; and directed the Chancery Court to issue a
modified final order in accordance with the Supreme Courts
decision. An Amended Final Order was entered by the Chancery
Court on December 20, 2005. Later that same day, the case
was stayed upon Calpines Chapter 11 filing.
Scott, et al. v. Calpine Corporation. On
September 13, 2005, Calpine received a letter from an
attorney representing one current and six former employees
located in the Houston, Texas office. The letter alleges claims
of racial discrimination, retaliation, slander, a hostile work
environment and constructive discharge. The seven individuals
also filed Notices of Charges of Discrimination with the
U.S. Equal Employment Opportunity Commission. Outside
counsel was retained and investigated the claims. In December
2005, Calpine filed a detailed response with the EEOC to each of
the seven charges. On February 2, 2006, the EEOC dismissed
each of the seven charges and issued Notice of Suit Rights to
each of the claimants. We consider the allegations of the seven
claimants to be without merit and intend to defend vigorously
against any claims filed in the bankruptcy (or legal action
filed elsewhere).
274
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
See Note 3 for a description of the bankruptcy cases,
including the description of a pending proceeding regarding our
motion to reject eight PPAs and related FERC and other court
proceedings. See also Note 33 for information concerning
several matters with respect to the California power market.
In addition, the Company is involved in various other claims and
legal actions arising out of the normal course of its business.
The Company does not expect that the outcome of these
proceedings will have a material adverse effect on its financial
position or results of operations.
32. Operating Segments
We are first and foremost an electric generating company. In
pursuing this business strategy, it was our objective to produce
a portion of our fuel consumption requirements from our own
natural gas reserves (equity gas). In July 2005, we
sold substantially all of our remaining domestic oil and gas
assets to Rosetta. See Note 13 for a discussion of the
divestiture of our oil and gas assets. As a result of the sale
of substantially all of our oil and gas assets, we now have two
reportable segments, Electric Generation and
Marketing and Other. The revenue and expense
from the Oil and Gas Production and Marketing
reportable segment has been reclassified to discontinued
operations and the assets have been reclassified into current
and long-term assets held for sale. The remaining gas pipeline
and transportation assets previously included in this reportable
segment have been reflected in the table below within
Other.
The Electric Generation and Marketing segment includes the
development, acquisition, ownership and operation of power
production facilities, including hedging, balancing,
optimization, and trading activity transacted on behalf of our
power generation facilities. The Other segment includes the
activities of our parts and services businesses and our gas
pipeline assets.
We evaluate performance based upon several criteria including
profits before tax. The accounting policies of the operating
segments are the same as those described in Note 2. The
financial results for our operating segments have been prepared
on a basis consistent with the manner in which our management
internally disaggregates financial information for the purposes
of assisting in making internal operating decisions.
Certain costs related to company-wide functions are allocated to
each segment, such as interest expense and interest income,
based on a ratio of segment assets to total assets. The
Depreciation and amortization line reported below
discloses only such amounts as included in Total cost of
revenue of the Consolidated Statements of Operations. Due
to the integrated nature of the business segments, estimates and
judgments have been made in allocating certain revenue and
expense items, and reclassifications have been made to prior
periods to present the allocation consistently.
275
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric | |
|
|
|
|
|
|
|
|
Generation | |
|
|
|
Corporate and | |
|
|
|
|
and Marketing | |
|
Other | |
|
Eliminations | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$ |
10,011,789 |
|
|
$ |
239,700 |
|
|
$ |
(138,831 |
) |
|
$ |
10,112,658 |
|
Depreciation and amortization expense included in cost of revenue
|
|
|
503,992 |
|
|
|
3,661 |
|
|
|
(1,212 |
) |
|
|
506,441 |
|
Operating plant impairments
|
|
|
2,412,586 |
|
|
|
|
|
|
|
|
|
|
|
2,412,586 |
|
(Income) loss from unconsolidated investments
|
|
|
(12,119 |
) |
|
|
|
|
|
|
|
|
|
|
(12,119 |
) |
Equipment, development project and other impairments
|
|
|
2,091,967 |
|
|
|
|
|
|
|
25,698 |
|
|
|
2,117,665 |
|
Interest expense
|
|
|
1,318,121 |
|
|
|
21,213 |
|
|
|
57,954 |
|
|
|
1,397,288 |
|
Interest (income)
|
|
|
(79,454 |
) |
|
|
(1,279 |
) |
|
|
(3,493 |
) |
|
|
(84,226 |
) |
(Income) from repurchase of various issuances of debt
|
|
|
|
|
|
|
|
|
|
|
(203,341 |
) |
|
|
(203,341 |
) |
Other (income) expense, net
|
|
|
53,713 |
|
|
|
2,617 |
|
|
|
16,058 |
|
|
|
72,388 |
|
Income (loss) before reorganization items, provision (benefit)
for income taxes, and discontinued operations
|
|
|
(5,535,921 |
) |
|
|
(72,142 |
) |
|
|
12,221 |
|
|
|
(5,595,842 |
) |
Reorganization items
|
|
|
296,187 |
|
|
|
(145,757 |
) |
|
|
4,876,080 |
|
|
|
5,026,510 |
|
Provision (benefit) for income taxes
|
|
|
(769,399 |
) |
|
|
28,001 |
|
|
|
|
|
|
|
(741,398 |
) |
Total assets
|
|
|
19,380,779 |
|
|
|
311,902 |
|
|
|
852,116 |
|
|
|
20,544,797 |
|
Investment in power projects and oil and gas properties
|
|
|
83,620 |
|
|
|
|
|
|
|
|
|
|
|
83,620 |
|
Property additions
|
|
|
784,562 |
|
|
|
6,156 |
|
|
|
31,589 |
|
|
|
822,307 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$ |
8,580,461 |
|
|
$ |
117,797 |
|
|
$ |
(49,876 |
) |
|
$ |
8,648,382 |
|
Depreciation and amortization expense included in cost of revenue
|
|
|
441,215 |
|
|
|
3,637 |
|
|
|
1,166 |
|
|
|
446,018 |
|
(Income) loss from unconsolidated investments
|
|
|
14,088 |
|
|
|
|
|
|
|
|
|
|
|
14,088 |
|
Equipment, development project and other impairments
|
|
|
46,371 |
|
|
|
523 |
|
|
|
|
|
|
|
46,894 |
|
Interest expense
|
|
|
1,010,937 |
|
|
|
49,243 |
|
|
|
35,239 |
|
|
|
1,095,419 |
|
Interest (income)
|
|
|
(50,542 |
) |
|
|
(2,462 |
) |
|
|
(1,762 |
) |
|
|
(54,766 |
) |
(Income) from repurchase of various issuances of debt
|
|
|
|
|
|
|
|
|
|
|
(246,949 |
) |
|
|
(246,949 |
) |
Other (income) expense, net
|
|
|
(197,760 |
) |
|
|
7,243 |
|
|
|
69,455 |
|
|
|
(121,062 |
) |
Income (loss) before reorganization items, provision (benefit)
for income taxes, and discontinued operations
|
|
|
(563,659 |
) |
|
|
(129,667 |
) |
|
|
38,329 |
|
|
|
(654,997 |
) |
Provision (benefit) for income taxes
|
|
|
(200,606 |
) |
|
|
(49,273 |
) |
|
|
14,565 |
|
|
|
(235,314 |
) |
Total assets
|
|
|
25,117,106 |
|
|
|
1,223,454 |
|
|
|
875,528 |
|
|
|
27,216,088 |
|
Investments in power projects and oil and gas properties
|
|
|
373,108 |
|
|
|
|
|
|
|
|
|
|
|
373,108 |
|
Property additions
|
|
|
1,457,819 |
|
|
|
5,343 |
|
|
|
18,417 |
|
|
|
1,481,579 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$ |
8,380,469 |
|
|
$ |
51,439 |
|
|
$ |
(10,738 |
) |
|
$ |
8,421,170 |
|
Depreciation and amortization expense included in cost of revenue
|
|
|
359,005 |
|
|
|
20,967 |
|
|
|
2,008 |
|
|
|
381,980 |
|
(Income) loss from unconsolidated investments
|
|
|
(75,724 |
) |
|
|
|
|
|
|
|
|
|
|
(75,724 |
) |
Equipment, development project and other impairments
|
|
|
67,979 |
|
|
|
|
|
|
|
|
|
|
|
67,979 |
|
Interest expense
|
|
|
611,048 |
|
|
|
48,554 |
|
|
|
35,902 |
|
|
|
695,504 |
|
Interest (income)
|
|
|
(34,431 |
) |
|
|
(2,736 |
) |
|
|
(2,023 |
) |
|
|
(39,190 |
) |
(Income) from repurchase of various issuances of debt
|
|
|
|
|
|
|
|
|
|
|
(278,612 |
) |
|
|
(278,612 |
) |
Other (income) expense, net
|
|
|
(46,461 |
) |
|
|
(46,581 |
) |
|
|
46,478 |
|
|
|
(46,564 |
) |
Income (loss) before reorganization items, provision (benefit)
for income taxes, and discontinued operations
|
|
|
(57,970 |
) |
|
|
(20,164 |
) |
|
|
38,429 |
|
|
|
(39,705 |
) |
Provision (benefit) for income taxes
|
|
|
(33,374 |
) |
|
|
(7,662 |
) |
|
|
14,603 |
|
|
|
(26,433 |
) |
Cumulative effect of a change in accounting principle, net of tax
|
|
|
183,270 |
|
|
|
(1,443 |
) |
|
|
(884 |
) |
|
|
180,943 |
|
276
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Geographic Area Information |
During the year ended December 31, 2005, we owned
continuing interests in 89 operating power plants in the United
States, and three operating power plants in Canada. We also
owned TTS in The Netherlands. See Note 10 for a discussion
of the deconsolidation of our Canadian and other foreign
subsidiaries. Geographic revenue and property, plant and
equipment information is based on physical location of the
assets at the end of each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States | |
|
Canada | |
|
Europe | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
9,955,907 |
|
|
$ |
105,497 |
|
|
$ |
51,254 |
|
|
$ |
10,112,658 |
|
Property, plant and equipment, net
|
|
|
14,118,795 |
|
|
|
|
|
|
|
420 |
|
|
|
14,119,215 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
8,512,769 |
|
|
$ |
93,071 |
|
|
$ |
42,542 |
|
|
$ |
8,648,382 |
|
Property, plant and equipment, net
|
|
|
17,893,678 |
|
|
|
498,136 |
|
|
|
5,929 |
|
|
|
18,397,743 |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
8,276,392 |
|
|
$ |
121,218 |
|
|
$ |
23,560 |
|
|
$ |
8,421,170 |
|
33. California Power Market
California Refund Proceeding. On August 2, 2000, the
California Refund Proceeding was initiated by a complaint made
at FERC by SDG&E under Section 206 of the FPA alleging,
among other things, that the markets operated by the CAISO and
the CalPX were dysfunctional. FERC established a refund
effective period of October 2, 2000 to June 19, 2001
(the Refund Period), for sales made into those
markets.
On December 12, 2002, an Administrative Law Judge issued a
Certification of Proposed Finding on California Refund Liability
making an initial determination of refund liability. On
March 26, 2003, FERC issued an order adopting many of the
findings set forth in the December 12 Certification. In
addition, as a result of certain findings by the FERC staff
concerning the unreliability or misreporting of certain reported
indices for gas prices in California during the Refund Period,
FERC ordered that the basis for calculating a partys
potential refund liability be modified by substituting a gas
proxy price based upon gas prices in the producing areas plus
the tariff transportation rate for the California gas price
indices previously adopted in the California Refund Proceeding.
We believe, based on the available information, that any refund
liability that may be attributable to us could total
approximately $10.1 million (plus interest, if applicable),
after taking the appropriate set-offs for outstanding
receivables owed to us by the CalPX and the CAISO. We believe we
have appropriately reserved for the refund liability that by our
current analysis would potentially be owed under the refund
calculation clarification in the March 26 Order. The final
determination of the refund liability and the allocation of
payment obligations among the numerous buyers and sellers in the
California markets is subject to further Commission proceedings
to ascertain the allocation of payment obligations among the
numerous buyers and sellers in the California markets.
Furthermore, it is possible that there will be further
proceedings to require refunds from certain sellers for periods
prior to the originally designated Refund Period. In addition,
the FERC orders concerning the Refund Period, the method for
calculating refund liability and numerous other issues are
pending on appeal before the U.S. Court of Appeals for the
Ninth Circuit. At this time, we are unable to predict the timing
of the completion of these proceedings or the final refund
liability. Thus, the impact on our business is uncertain.
On April 22, 2002, we entered into a settlement with the
Governor of the State of California, acting on behalf of the
executive branch of the State of California, the California EOB,
the California Public Utilities Commission, and the People of
the State of California by and through the Attorney General (the
AG)
277
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(collectively, the California State Releasing
Parties). Our settlement resulted in a FERC order issued
on March 26, 2004, which partially dismissed us from the
California Refund Proceeding to the extent that any refunds are
owed for power sold by us to CDWR or any of the other California
State Releasing Parties.
On September 9, 2004, the Ninth Circuit Court of Appeals
issued a decision on appeal (State of California, Ex. Rel.
Bill Lockyer, Attorney General v. Federal Energy Regulatory
Commission) of a Petition for Review of an order issued by
FERC in FERC Docket No. EL02-71 wherein the AG had filed a
complaint (the AG Complaint) under Sections 205
and 206 of the FPA alleging that parties who misreported or did
not properly report market based transactions were in violation
of their market based rate tariff and, as a result, were not
accorded protection under section 206 of the FPA from
retroactive refund liability. The Ninth Circuit remanded the
order to FERC for rehearing. FERC is required to determine
whether refunds should be required for violation of reporting
requirements prior to October 2, 2000. The proceeding on
remand has not yet been established. In connection with its
settlement agreement with the California State Releasing Parties
(including the AG), we and our affiliates settled all claims
related to the AG Complaint.
FERC Investigation into Western Markets. On
February 13, 2002, FERC initiated an investigation of
potential manipulation of electric and natural gas prices in the
western United States. This investigation was initiated as a
result of allegations that Enron and others, through their
affiliates, had used their market position to distort electric
and natural gas markets in the West. The scope of the
investigation was to consider whether, as a result of any
manipulation in the short-term markets for electric energy or
natural gas or other undue influence on the wholesale markets by
any party since January 1, 2000, the rates of the long-term
contracts subsequently entered into in the West were potentially
unjust and unreasonable. On August 13, 2002, the FERC staff
issued the Initial Report on Company-Specific Separate
Proceedings and Generic Reevaluations; Published Natural Gas
Price Data; and Enron Trading Strategies (the Initial
Report), summarizing its initial findings in this
investigation. There were no findings or allegations of
wrongdoing by us set forth or described in the Initial Report.
On March 26, 2003, the FERC staff issued a final report in
this investigation (the Final Report). In the Final
Report, the FERC staff recommended that FERC issue a show cause
order to a number of companies, including us, regarding certain
power scheduling practices that may have been in violation of
the CAISOs or the CalPXs tariff. The Final Report
also recommended that FERC modify the basis for determining
potential liability in the California Refund Proceeding
discussed above.
On June 25, 2003, FERC issued a number of orders associated
with these investigations, including the issuance of two show
cause orders to certain industry participants. FERC did not
subject us to either of the show cause orders. Also on
June 25, 2003, FERC issued an order directing the FERC
Office of Markets and Investigations to investigate further
whether market participants who bid a price in excess of $250/
MWh into markets operated by either the CAISO or the CalPX
during the period of May 1, 2000, to October 2, 2000,
may have violated CAISO and CalPX tariff prohibitions. By letter
dated May 12, 2004, the Director of FERCs Office of
Market Oversight and Investigation notified us that the
investigation of us in this proceeding has been terminated.
Also during the summer of 2003, FERCs Office of Market
Oversight and Investigations began an investigation of
generators in California to determine whether California
generators improperly physically withheld power from the
California markets between May 1, 2000 and June 30,
2001. On June 30, 2004, we were notified by FERC that its
investigation of us in this matter had been terminated.
CPUC Proceeding Regarding QF Contract Pricing for Past
Periods. Our QF contracts with PG&E provide that the
CPUC has the authority to determine the appropriate utility
avoided cost to be used to set energy payments by
determining the short run avoided cost (SRAC) energy
price formula. In mid-2000, our QF facilities elected the option
set forth in Section 390 of the California Public Utilities
Code, which provided QFs the right to elect to receive energy
payments based on the CalPX market clearing price instead of the
SRAC price administratively determined by the CPUC. Having
elected such option, our QF facilities
278
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
were paid based upon the CalPX Price for various periods
commencing in the summer of 2000 until January 19, 2001,
when the CalPX ceased operating a day-ahead market. The CPUC has
conducted proceedings (R.99-11-022) to determine whether the
CalPX Price was the appropriate price for the energy component
upon which to base payments to QFs which had elected the
CalPX-based pricing option. In late 2000, the CPUC Commissioner
assigned to the matter issued a proposed decision to the effect
that the CalPX Price was the appropriate energy price to pay QFs
who selected the pricing option then offered by
Section 390, but the CPUC has yet to issue a final
decision. Therefore, it is possible that the CPUC could order a
payment adjustment based on a different energy price
determination. On April 29, 2004, PG&E, the Utility
Reform Network, a consumer advocacy group, and the Office of
Ratepayer Advocates, an independent consumer advocacy department
of the CPUC (collectively, the PG&E Parties),
filed a Motion for Briefing Schedule Regarding True-Up of
Payments to QF Switchers (the April 29 Motion). The
April 29 Motion requested that the CPUC set a briefing schedule
in the R.99-11-022 docket to determine what is the appropriate
price that should be paid to the QFs that had switched to the
CalPX Price. The PG&E Parties allege that the appropriate
price should be determined using the methodology that has been
developed thus far in the California Refund Proceeding discussed
above. Supplemental pleadings have been filed on the April 29
Motion, but neither the CPUC nor the assigned administrative law
judge has issued any rulings with respect to either the April 29
Motion or the initial Emergency Motion. On August 16, 2005,
the Administrative Law Judge assigned to hear the April 29
Motion issued a ruling setting October 11, 2005, as the
date for filing prehearing conference statements and
October 17, 2005, as the date of the prehearing conference.
In our response, filed on October 11, 2005, we urged that
the April 29 Motion should be dismissed, but if dismissal were
not granted, then discovery, testimony and hearings would be
required. The assigned Administrative Law Judge has not yet
issued a formal ruling following the October 17, 2005
prehearing conference. We believe that the PX Price was the
appropriate price for energy payments and that the basis for any
refund liability based on the interim determination by the FERC
in the California Refund Proceeding is unfounded, but there can
be no assurance that this will be the outcome of the CPUC
proceedings.
On April 14, 2006, our QFs with existing QF contracts with
PG&E executed amendments to, among other matters, adjust the
energy price paid and to be paid to QFs and extinguish any
potential refund obligation to PG&E for energy payments
these QFs received based on the PX Price. The effectiveness of
our individual amendments to these existing QF contracts is
subject, where applicable, to creditors committee, project
lender(s), U.S. Bankruptcy Court and CPUC approval. If
effective, each amendment would authorize PG&E to pay an
adjusted energy price under our existing QF contracts
prospectively for a number of years as part of the consideration
for the extinguishment of the potential for any retroactive
refund liability relating to the energy payments based on the PX
Price. On April 18, 2006, PG&E and the Independent
Energy Producers Association filed a joint motion requesting
that the CPUC approve the settlement and the individual QF
contract amendments, including our existing QF contracts. Any
comments on the settlement and amendments are to be filed by
May 18, 2006.
Geysers RMR Section 206 Proceeding. CAISO, EOB,
CPUC, PG&E, SDG&E, and Southern California Edison
Company (collectively referred to as the Buyers
Coalition) filed a complaint on November 2, 2001, at
FERC requesting the commencement of a FPA Section 206
proceeding to challenge one component of a number of separate
settlements previously reached on the terms and conditions of
RMR Contracts with certain generation owners, including GPC,
which settlements were also previously approved by FERC. RMR
Contracts require the owner of the specific generation unit to
provide energy and ancillary services when called upon to do so
by the ISO to meet local transmission reliability needs or to
manage transmission constraints. The Buyers Coalition asked FERC
to find that the availability payments under these RMR Contracts
are not just and reasonable. On June 3, 2005, FERC issued
an order dismissing the Buyers Coalitions complaint
against all named generation owners, including GPC. On
August 2, 2005, FERC issued an order denying requests for
rehearing of its order. On September 23, 2005, the Buyers
Coalition (with the exclusion of the
279
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CAISO) filed a Petition for Review with the U.S. Court of
Appeals for the D.C. Circuit, seeking review of FERCs
order dismissing the complaint.
Delta RMR Proceeding. Through our subsidiary Delta Energy
Center, LLC, we are party to a recurring, yearly RMR contract
with the CAISO originally entered into in 2003. When the Delta
RMR contract was first offered by us, several issues about the
contract were disputed, including whether the CAISO accepted
Deltas bid for RMR service; whether the CAISO was bound by
Deltas bid price; and whether Deltas bid price was
just and reasonable. The Delta RMR contract was filed and
accepted by FERC effective February 10, 2003, subject to
refund. On May 30, 2003, the CAISO, PG&E and Delta
entered into a settlement regarding the Delta RMR contract (the
Delta RMR Settlement). Under the terms of the Delta
RMR Settlement, the parties agreed to interim RMR rates which
Delta would collect, subject to refund, from February 10,
2003, forward. The parties agreed to defer further proceedings
on the Delta RMR contract until a similar RMR proceeding (the
Mirant RMR Proceeding) was resolved by FERC. Under
the terms of the Delta RMR Settlement, Delta continued to
provide services to the CAISO pursuant to the interim RMR rates,
terms and conditions. Since the Delta RMR Settlement, Delta and
CAISO have entered into RMR contracts for the years 2003, 2004
and 2005 pursuant to the terms of the Delta RMR Settlement.
On June 3, 2005, FERC issued a final order in the Mirant
RMR Proceeding, resolving that proceeding and triggering the
reopening of the Delta RMR Settlement. On November 30,
2005, Delta filed revisions to the Delta RMR contract with FERC,
proposing to change the method by which RMR rates are calculated
for Delta effective January 1, 2006. On January 27,
2006, FERC issued an order accepting the new Delta RMR rates
effective January 1, 2006 and consolidated the issues from
the Delta RMR Settlement with the 2006 RMR case. FERC set the
proceeding for hearing, but has suspended hearing procedures
pending settlement discussions among the parties with respect to
the rates for both the February 10, 2003 through
December 31, 2005, period and the calendar year 2006
period. In addition, to resolve credit concerns raised by
certain intervening parties, Delta has begun to direct into an
escrow account the difference between the previously-filed rate
and the 2006 rate pending the determination by FERC as to
whether Delta is obligated to refund some portion of the rate
collected in 2006. We are unable at this time to predict the
result of any settlement process or the ultimate ruling by the
FERC on the rates for Deltas RMR services for the period
between February 10, 2003 and December 31, 2005 or for
calendar year 2006.
34. Subsequent Events
On January 26, 2006, the U.S. Bankruptcy Court granted
final approval of our $2 billion DIP Facility. The DIP
Facility will be used to fund our operations during our
Chapter 11 restructuring. In addition, as described below,
a portion of the DIP Facility was used to retire certain
facility operating lease obligations at The Geysers. In
addition, pursuant to the May 3, 2006 amendment, borrowings
under the DIP Facility may be used to repay a portion of the
First Priority Notes. The DIP Facility closed on
December 22, 2005, with limited access to the commitments,
pursuant to the interim order of the U.S. Bankruptcy Court and
was amended and restated on February 23, 2006, funding the
term loans. It consisted of a $1 billion revolving credit
facility (including a $300 million letter of credit
subfacility and a $10 million swingline subfacility),
priced at LIBOR plus 225 basis points; $400 million
first-priority term loan, priced at LIBOR plus 225 basis
points or base rate plus 125 basis points; and $600 million
second-priority term loan, priced at LIBOR plus 400 basis
points or the base rate plus 300 basis points. The DIP Facility
will remain in place until the earlier of an effective plan of
reorganization or December 20, 2007.
On February 1, 2006, we announced the initial steps of a
comprehensive program designed to stabilize, improve and
strengthen our core power generation business and financial
health and, on March 3, 2006, we announced a corporate
management and organizational restructuring as one of the steps
in implementing this program. Pursuant to this program, we
indicated that we will focus on power generation and related
280
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commercial activities in the United States while reducing
activities and curtailing expenditures in certain non-core areas
and business units. On April 4, 2006, we identified
approximately 20 power plants in operation or under construction
that are no longer considered to be core operations due to a
combination of factors, including financial performance, market
prospects, and strategic fit. Accordingly, we will be seeking to
sell the majority of these assets by the end of 2006. In
addition, we will close our office in Boston, Massachusetts, and
have closed our offices in Dublin, California, Denver and Fort
Collins, Colorado, Deer Park, Texas, Portland, Oregon, Tampa,
Florida and Atlanta, Georgia. As we complete asset sales and
construction activities, we expect to reduce our workforce by
approximately 1,100 positions, or over one third of our
pre-petition date workforce by the end of 2006. At the
completion of this effort, we expect to retain a generating
portfolio of clean and reliable geothermal and natural gas-fired
power plants located in our key North American markets.
On February 3, 2006, as part of finalizing the collateral
structure of the $2 billion DIP Facility, we closed a
transaction pursuant to which we acquired The Geysers operating
lease assets and paid off the related lessors third party
debt for approximately $275.1 million. As a result of this
transaction, we became the 100% owner of The Geysers assets. Our
DIP Facility is secured by first priority liens on The Geysers
assets, together with first priority liens on all of the other
unencumbered assets, and junior liens on all of the encumbered
assets, of the U.S. Debtors. Previously, we had leased the
19 Geysers power plants pursuant to a leveraged lease.
On February 6, 2006, we filed a notice of rejection of our
leasehold interests in the Rumford power plant and the Tiverton
power plant with the U.S. Bankruptcy Court, and noticed the
surrender of the two plants to their owner-lessor. The
owner-lessor has declined to take possession and control of the
plants, which are not currently being dispatched but are being
maintained in operating condition. The deadline for filing
objections to the notice of rejection, which pursuant to a
U.S. Bankruptcy Court order regarding expedited lease
rejection procedures was originally set for February 16,
2006, was consensually extended to April 14, 2006. Both the
indenture trustee related to the leaseholds and the owner-lessor
filed objections to the rejection notice on that date.
Additionally, the indenture trustee filed a motion to withdraw
the reference of the rejection notice to the SDNY Court, arguing
that the U.S. Bankruptcy Court does not have jurisdiction
over the lease rejection dispute. The ISO New England, Inc.
has separately filed a motion to withdraw the reference of the
rejection notice to the SDNY Court on similar grounds. A hearing
is currently scheduled for May 24, 2006 before the
U.S. Bankruptcy Court to determine whether or not to
approve the rejection and any other matters raised by the
objections. However, such hearing date is subject to change. The
Rumford and Tiverton power plants represent a combined
530 MW of installed capacity with the output sold into the
New England wholesale market.
On February 15, 2006, we entered into a non-binding letter
of intent contemplating the negotiation of a definitive
agreement for the sale of Otay Mesa Energy Center to
San Diego Gas & Electric. The letter included a
period of exclusivity which expired May 1, 2006. The
parties are discussing a possible extension of exclusivity. Any
final, definitive agreement would require the approval of the
California Public Utilities Commission and the Bankruptcy Court
over our Chapter 11 cases. Construction of the Otay Mesa
Energy Center, a 593-MW
power plant, located in San Diego County, began in 2001 and
has proceeded only gradually while we have sought certain
regulatory approvals and, more recently, as a result of the
negotiations with SDG&E.
On March 1, 2006, upon receipt of Bankruptcy Court
approval, we implemented a severance program that provides
eligible employees, whose employment is involuntarily terminated
in connection with workforce reductions, with certain severance
benefits, including base salary continuation for specified
periods based on the employees position and length of
service.
On March 3, 2006, pursuant to the Cash Collateral Order,
the U.S. Debtors and the Official Committee of Unsecured
Creditors of Calpine Corporation and the Ad Hoc Committee of
Second Lien Holders of
281
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Calpine Corporation agreed, in consultation with the indenture
trustee for the First Priority Notes on the designation of nine
projects that, absent the consent of the Committees or unless
ordered by the Bankruptcy Court, may not receive funding, other
than in certain limited amounts that were agreed to by the U.S.
Debtors and the Committees in consultation with the First
Priority Notes trustees. The nine designated projects are the
Clear Lake power plant, Dighton power plant, Fox Energy Center,
Newark power plant, Parlin power plant, Pine Bluff Energy
Center, Rumford power plant, Texas City power plant, and
Tiverton power plant. The U.S. Debtors may determine, in
consultation with the Committees and the First Priority Notes
trustee, that additional projects should be added to, or that
certain of the foregoing projects should be deleted from, the
list of designated projects.
On March 15, 2006, CCFC entered into agreements amending,
respectively, the indenture governing its $415.0 million
aggregate principal amount of Second Priority Senior Secured
Floating Rate Notes due 2011 and the credit agreement governing
its $385.0 million in aggregate principal amount of First
Priority Senior Secured Institutional Term Loans due 2009. CCFC
also entered into waiver agreements providing for the waiver of
certain defaults that occurred following our bankruptcy filings
as a result of the failure of CES to make certain payments to
CCFC under a PPA with CCFC. Each of the amendment agreements
(i) provides that it would be an event of default under the
indenture or the credit agreement, as applicable, if CES were to
seek to reject the PPA in connection with the bankruptcy cases
and (ii) allows CCFC to make a distribution to its indirect
parent, CCFCP, to permit CCFCP to make a scheduled dividend
payment on its redeemable preferred shares. The amendment
agreements and waiver agreements were executed upon the receipt
by CCFC of the consent of a majority of the holders of the notes
and the agreement of a majority of the term loan lenders
pursuant to a consent solicitation and request for amendment
initiated on February 22, 2006 as amended on March 10,
2006. CCFC made a consent payment of $1.89783 per each
$1,000 principal amount of notes or term loans held by
consenting noteholders or term loan lenders, as applicable. None
of CCFCP, CCFC, or any of their direct and indirect
subsidiaries, is a Calpine Debtor or has otherwise sought
protection under the Bankruptcy Code.
Also on March 15, 2006, CCFCP entered into an agreement
with its preferred members holding a majority of the redeemable
preferred shares issued by CCFCP amending its LLC operating
agreement. The amendment agreement, among other things,
acknowledges that the waiver agreements under the CCFC indenture
and credit agreement satisfied the provisions of a standstill
agreement entered into on February 24, 2006, between CCFCP
and its preferred members pursuant to which the preferred
members had agreed not to declare a Voting Rights Trigger
Event, as defined in CCFCPs LLC operating agreement,
to have occurred or to seek to appoint replacement directors to
the board of CCFCP, provided that certain conditions were met,
including obtaining such waiver agreements. The amendment
agreement also gives preferred members the right to designate a
replacement for one of the independent directors of CCFCP; prior
to the amendment, the preferred members had the right to consent
to the designation, but not to designate, any replacement
independent director. Neither CCFCP nor any of its subsidiaries,
which include CCFC and CCFCs subsidiaries, has made a
bankruptcy filing or otherwise sought protection under the
Bankruptcy Code.
On March 30, 2006, the Master Transaction Agreement, dated
September 7, 2005, among Bear Stearns, CalBear, Calpine and
Calpines indirect, wholly owned subsidiaries CES and CMSC,
was terminated. Under the Master Transaction Agreement, CalBear
and Bear Stearns were entitled to terminate the Master
Transaction Agreement upon certain events of default by Calpine,
CES or CMSC, including a bankruptcy filing by one or more of
them. In connection with the termination of the Master
Transaction Agreement, the related agreements entered into
thereunder were also terminated, including (i) the Agency
and Services Agreement by and among CMSC and CalBear, pursuant
to which CMSC acted as CalBears exclusive agent for gas
and power trading, (ii) the Trading Master Agreement among
CES, CMSC and CalBear, pursuant to which CalBear had executed
credit enhancement trades on behalf of CES and (iii) the
ISDA Master Agreement, Schedule, and applicable annexes between
CES and CalBear to effectuate the credit enhance-
282
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ment trades. As a result of the termination of the Master
Transaction Agreement and related agreements, CMSC has the
obligation to liquidate all trading positions of CalBear and
terminate all transactions done in the name of CalBear, except
as otherwise approved by CalBear. Bear Stearns may, at its
option, take over such liquidation from CMSC. In addition, Bear
Stearns continues to maintain ownership of all of the third
party master agreements executed in connection with the CalBear
relationship.
In the first quarter of 2006 we expect to record a charge for an
expected allowable claim related to a guarantee by Calpine
Corporation of obligations under a tolling agreement between
CESCP and Calgary Energy Centre Limited Partnership. CESCP
repudiated this tolling agreement in January 2006, and as a
consequence, we expect to record a charge of approximately
$233 million as a reorganization item expense in the three
month period ended March 31, 2006.
On April 11, 2006, CCFC notified the holders of its notes
and term loans that, as of April 7, 2006, a default had
occurred under the credit agreement governing the term loans and
the indenture governing the notes due to the failure of CES to
make a payment with respect to a hedging transaction under the
PPA with CCFC. If such default is not cured, or the PPA is not
replaced with a substantially similar agreement, within
60 days following the occurrence of the default, such
default will become an event of default under the
instruments governing the term loans and the notes.
On April 11, 2006, the U.S. Bankruptcy Court granted
our application for an extension of the period during which we
have the exclusive right to file a reorganization plan or plans
from April 20, 2006 to December 31, 2006, and granted
us the exclusive right until March 31, 2007, to solicit
acceptances of such plan or plans. In addition, the
U.S. Bankruptcy Court granted each of the U.S. Debtors
an additional 90 days (or until July 18, 2006, for
most of the U.S. Debtors) to assume or reject
non-residential real property leases. Also on April 11,
2006, the U.S. Bankruptcy Court granted our application for
the repayment of a portion of a loan we had extended to CPN
Insurance Corporation, our wholly owned captive insurance
subsidiary. The repayment of this loan facilitates our ability
to continue to provide a portion of our insurance needs through
our subsidiary and thus provides us additional flexibility to be
able to continue to implement a favorable property insurance
program.
On April 18, 2006, we completed the sale of our 45%
indirect equity interest in the
525-MW
Valladolid III Energy Center to the two remaining partners
in the project, Mitsui and Chubu, for $42.9 million, less a
10% holdback and transaction fees. Under the terms of the
purchase and sale agreement, we received cash proceeds of
$38.6 million at closing. The 10% holdback, plus interest,
will be returned to us in one years time. We eliminated
$87.8 million of non-recourse unconsolidated project debt,
representing our 45% share of the total project debt of
approximately $195.0 million. In addition, funds held in
escrow for credit support of $9.4 million were released to
us. We recorded an impairment charge of $41.3 million for
our investment in the project during the year ended
December 31, 2005.
The DIP Facility was amended on May 3, 2006. Among other
things, the amendment provides extensions of time to provide
certain financial information (including financial statements
for the year ended December 31, 2005, and the quarter ended
March 31, 2006) to the DIP Facility lenders and, provided
that we obtain the approval of the U.S. Bankruptcy Court to
repurchase the First Priority Notes, allows us to use borrowings
under the DIP Facility to repurchase a portion of such First
Priority Notes. The U.S. Bankruptcy Court approved our
repurchase of the First Priority Notes by order dated
May 10, 2006 as amended by its amended order dated
May 17, 2006.
For a discussion of certain events relating to our bankruptcy
proceedings see Note 3. See
Notes 14-24 for a
complete discussion of our various debt instruments including
certain covenant violations resulting from our bankruptcy
filings.
283
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
35. Quarterly Consolidated
Financial Data (unaudited)
Our quarterly operating results have fluctuated in the past and
may continue to do so in the future as a result of a number of
factors, including, but not limited to, the timing and size of
acquisitions and dispositions, the completion of development
projects, the timing and amount of curtailment of operations
under the terms of certain PPAs, the degree of risk management
and trading activity, and variations in levels of production.
Furthermore, the majority of the dollar value of capacity
payments under certain of our PPAs are received during the
months of May through October.
On December 20, 2005, Calpine and the majority of its
wholly owned subsidiaries in the United States filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy
Code in the Bankruptcy Court and, in Canada, under the CCAA.
Our quarter ended December 31, 2005 statement of
operations data below reflects the application of Statement of
Position 90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code. See Notes 3 and 4 for more
information on the bankruptcy filing.
During the fourth quarter of 2005, we determined it was
necessary to deconsolidate most of our Canadian and other
foreign entities due to our loss of control over these entities
upon filing for bankruptcy protection under the CCAA in Canada.
As a result of the deconsolidation, we adopted the cost method
of accounting for our investment in these entities. Upon
adoption of the cost method, we evaluated our investment
balances and intercompany notes receivable from these entities
for impairment. We determined that our entire investment in
these entities had experienced other-than-temporary decline in
value and was impaired. We also concluded that all intercompany
notes receivable balances from these entities were
uncollectible, as the notes were unsecured and protected by the
automatic stay under the CCAA. Consequently, we fully impaired
these investment and receivable assets at December 31,
2005, resulting in a $879.1 million charge to
reorganization items.
284
CALPINE CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Also during the fourth quarter of 2005, we determined that
certain operating plants, development and construction projects,
investments and other assets were impaired. We recorded
impairment charges totaling $4,530.3 million. See
Note 6 for more information regarding these impairments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended | |
|
|
| |
|
|
December 31, | |
|
September 30, | |
|
June 30, | |
|
March 31, | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
2005 Common stock price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
3.05 |
|
|
$ |
3.88 |
|
|
$ |
3.60 |
|
|
$ |
3.80 |
|
|
Low
|
|
|
0.20 |
|
|
|
2.26 |
|
|
|
1.45 |
|
|
|
2.64 |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
2,586,430 |
|
|
$ |
3,281,590 |
|
|
$ |
2,198,907 |
|
|
$ |
2,045,731 |
|
(Income) from repurchase of various issuances of debt
|
|
|
(36,885 |
) |
|
|
(15,530 |
) |
|
|
(129,154 |
) |
|
|
(21,772 |
) |
Operating plant impairments
|
|
|
2,412,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
(2,346,247 |
) |
|
|
239,127 |
|
|
|
78,458 |
|
|
|
83,739 |
|
Equipment, development project and other impairments
|
|
|
2,117,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(4,488,655 |
) |
|
|
175,164 |
|
|
|
(78,632 |
) |
|
|
20,844 |
|
Reorganization items
|
|
|
5,026,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations
|
|
|
(9,259,478 |
) |
|
|
(242,435 |
) |
|
|
(208,182 |
) |
|
|
(170,859 |
) |
Discontinued operations, net of tax
|
|
|
4,150 |
|
|
|
25,744 |
|
|
|
(90,276 |
) |
|
|
2,128 |
|
Net income (loss)
|
|
$ |
(9,255,329 |
) |
|
$ |
(216,690 |
) |
|
$ |
(298,458 |
) |
|
$ |
(168,731 |
) |
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations
|
|
$ |
(19.33 |
) |
|
$ |
(0.51 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.38 |
) |
|
Discontinued operations, net of tax
|
|
|
0.01 |
|
|
|
0.06 |
|
|
|
(0.20 |
) |
|
|
|
|
|
Net income (loss)
|
|
|
(19.32 |
) |
|
|
(0.45 |
) |
|
|
(0.66 |
) |
|
|
(0.38 |
) |
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations
|
|
$ |
(19.33 |
) |
|
$ |
(0.51 |
) |
|
$ |
(0.46 |
) |
|
$ |
(0.38 |
) |
|
Discontinued operations, net of tax
|
|
|
0.01 |
|
|
|
0.06 |
|
|
|
(0.20 |
) |
|
|
|
|
|
Net income (loss)
|
|
|
(19.32 |
) |
|
|
(0.45 |
) |
|
|
(0.66 |
) |
|
|
(0.38 |
) |
2004 Common stock price per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
4.08 |
|
|
$ |
4.46 |
|
|
$ |
4.98 |
|
|
$ |
6.42 |
|
|
Low
|
|
|
2.24 |
|
|
|
2.87 |
|
|
|
3.04 |
|
|
|
4.35 |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
2,182,050 |
|
|
$ |
2,411,732 |
|
|
$ |
2,189,128 |
|
|
$ |
1,865,472 |
|
(Income) from repurchase of various issuances of debt
|
|
|
(76,401 |
) |
|
|
(167,154 |
) |
|
|
(2,559 |
) |
|
|
(835 |
) |
Gross profit
|
|
|
71,458 |
|
|
|
226,445 |
|
|
|
33,144 |
|
|
|
48,902 |
|
Income (loss) from operations
|
|
|
(45,725 |
) |
|
|
142,323 |
|
|
|
(32,062 |
) |
|
|
(12,156 |
) |
Income (loss) before discontinued operations
|
|
|
(225,208 |
) |
|
|
28,878 |
|
|
|
(69,887 |
) |
|
|
(153,466 |
) |
Discontinued operations, net of tax
|
|
|
(58,488 |
) |
|
|
112,247 |
|
|
|
41,189 |
|
|
|
82,274 |
|
Net income (loss)
|
|
|
(283,696 |
) |
|
|
141,125 |
|
|
|
(28,698 |
) |
|
|
(71,192 |
) |
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations
|
|
$ |
(0.51 |
) |
|
$ |
0.07 |
|
|
$ |
(0.17 |
) |
|
$ |
(0.37 |
) |
|
Discontinued operations, net of tax
|
|
|
(0.13 |
) |
|
|
0.25 |
|
|
|
0.10 |
|
|
|
0.20 |
|
|
Net income (loss)
|
|
$ |
(0.64 |
) |
|
$ |
0.32 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.17 |
) |
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before discontinued operations
|
|
|
(0.51 |
) |
|
|
0.07 |
|
|
|
(0.17 |
) |
|
|
(0.37 |
) |
|
Discontinued operations, net of tax
|
|
|
(0.13 |
) |
|
|
0.25 |
|
|
|
0.10 |
|
|
|
0.20 |
|
|
Net income (loss)
|
|
$ |
(0.64 |
) |
|
$ |
0.32 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.17 |
) |
285
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to | |
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
Balance at | |
|
|
|
Other | |
|
|
|
|
|
|
|
|
Beginning | |
|
Charged to | |
|
Comprehensive | |
|
|
|
|
|
Balance at | |
Description |
|
of Year | |
|
Expense | |
|
Loss | |
|
Reductions(1) | |
|
Other(2) | |
|
End of Year | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
7,317 |
|
|
$ |
11,645 |
|
|
$ |
|
|
|
$ |
(3,267 |
) |
|
$ |
(3,009 |
) |
|
$ |
12,686 |
|
|
Allowance for doubtful accounts with related party Canadian and
other foreign subsidiaries
|
|
|
|
|
|
|
54,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,830 |
|
|
Reserve for notes receivable
|
|
|
2,910 |
|
|
|
28,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,846 |
|
|
Reserve for interest and notes receivable with related party
Canadian and other foreign subsidiaries
|
|
|
|
|
|
|
228,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,014 |
|
|
Gross reserve for California Refund Liability
|
|
|
12,905 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,995 |
|
|
Reserve for investment in Androscoggin Energy Center
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
Reserve for derivative assets
|
|
|
3,268 |
|
|
|
4,077 |
|
|
|
3 |
|
|
|
(3,862 |
) |
|
|
|
|
|
|
3,486 |
|
|
Deferred tax asset valuation allowance
|
|
|
62,822 |
|
|
|
1,576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,639,222 |
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
7,282 |
|
|
$ |
6,119 |
|
|
$ |
|
|
|
$ |
(6,486 |
) |
|
$ |
402 |
|
|
$ |
7,317 |
|
|
Reserve for notes receivable
|
|
|
273 |
|
|
|
2,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,910 |
|
|
Gross reserve for California Refund Liability
|
|
|
12,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,905 |
|
|
Reserve for investment in Androscoggin Energy Center
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
Reserve for derivative assets
|
|
|
7,454 |
|
|
|
2,825 |
|
|
|
173 |
|
|
|
(7,184 |
) |
|
|
|
|
|
|
3,268 |
|
|
Repayment reserve for third-party default on emission reduction
credits settlement
|
|
|
3,000 |
|
|
|
2,850 |
|
|
|
|
|
|
|
(5,850 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax asset valuation allowance
|
|
|
19,335 |
|
|
|
43,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,822 |
|
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
5,057 |
|
|
$ |
2,190 |
|
|
$ |
|
|
|
$ |
(383 |
) |
|
$ |
418 |
|
|
$ |
7,282 |
|
|
Reserve for notes receivable
|
|
|
|
|
|
|
273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273 |
|
|
Gross reserve for California Refund Liability
|
|
|
10,700 |
|
|
|
2,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,905 |
|
|
Reserve for derivative assets
|
|
|
16,452 |
|
|
|
19,459 |
|
|
|
3,640 |
|
|
|
(32,097 |
) |
|
|
|
|
|
|
7,454 |
|
|
Gain reserved on certain Enron transactions
|
|
|
17,862 |
|
|
|
|
|
|
|
|
|
|
|
(17,862 |
) |
|
|
|
|
|
|
|
|
|
Repayment reserve for third-party default on emission reduction
credits settlement
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
Deferred tax asset valuation allowance
|
|
|
26,665 |
|
|
|
|
|
|
|
|
|
|
|
(7,330 |
) |
|
|
|
|
|
|
19,335 |
|
|
|
(1) |
Represents write-offs of accounts considered to be uncollectible
and recoveries of amounts previously written off or reserved. |
|
(2) |
Primarily relates to amounts recorded on our deconsolidated
Canadian and other foreign subsidiaries for the year ended
December 31, 2005, and to foreign currency translation
adjustments for the years ended December 31, 2004 and 2003. |
286
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
2 |
.1 |
|
Purchase and Sale Agreement, dated July 1, 2004, among
Calpine Corporation (the Company), Calpine Natural
Gas L.P. and Pogo Producing Company.(a) |
|
|
2 |
.2 |
|
Purchase and Sale Agreement, dated July 1, 2004, among the
Company, Calpine Natural Gas L.P. and Bill Barrett
Corporation.(a) |
|
|
2 |
.3 |
|
Asset and Trust Unit Purchase and Sale Agreement, dated
July 1, 2004, among the Company, Calpine Canada Natural Gas
Partnership, Calpine Energy Holdings Limited, PrimeWest Gas
Corp. and PrimeWest Energy Trust.(a) |
|
|
2 |
.4 |
|
Share Sale and Purchase Agreement, made as of May 28, 2005,
among the Company, Calpine UK Holdings Limited, Quintana Canada
Holdings, LLC, International Power PLC, Mitsui & Co.,
Ltd. and Normantrail (UK CO 3) Limited. Approximately four
pages of this Exhibit 2.4 have been omitted pursuant to a
request for confidential treatment. The omitted language has
been filed separately with the SEC.(b) |
|
|
2 |
.5 |
|
Purchase and Sale Agreement dated July 7, 2005, by and
among Calpine Gas Holdings LLC, Calpine Fuels Corporation, the
Company, Rosetta Resources Inc., and the other Subject Companies
identified therein.(c) |
|
|
2 |
.6 |
|
Agreement dated as of December 20, 2005, by and among Steam
Heat LLC, Thermal Power Company and, for certain limited
purposes, Geysers Power Company, LLC.(*) |
|
|
3 |
.1.1 |
|
Amended and Restated Certificate of Incorporation of the
Company, as amended through June 2, 2004.(d) |
|
|
3 |
.1.2 |
|
Amendment to Amended and Restated Certificate of Incorporation
of the Company, dated June 20, 2005.(e) |
|
|
3 |
.2 |
|
Amended and Restated By-laws of the Company.(f) |
|
|
4 |
.1.1 |
|
Indenture dated as of May 16, 1996, between the Company and
U.S. Bank (as successor trustee to Fleet National Bank), as
Trustee, including form of Notes.(g) |
|
|
4 |
.1.2 |
|
First Supplemental Indenture dated as of August 1, 2000,
between the Company and U.S. Bank (as successor trustee to
Fleet National Bank), as Trustee.(h) |
|
|
4 |
.1.3 |
|
Second Supplemental Indenture dated as of April 26, 2004,
between the Company and U.S. Bank (as successor trustee to
Fleet National Bank), as Trustee.(i) |
|
|
4 |
.2.1 |
|
Indenture dated as of July 8, 1997, between the Company and
The Bank of New York, as Trustee, including form of Notes.(j) |
|
|
4 |
.2.2 |
|
Supplemental Indenture dated as of September 10, 1997,
between the Company and The Bank of New York, as Trustee.(k) |
|
|
4 |
.2.3 |
|
Second Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
|
|
4 |
.2.4 |
|
Third Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.3.1 |
|
Indenture dated as of March 31, 1998, between the Company
and The Bank of New York, as Trustee, including form of Notes.(l) |
|
|
4 |
.3.2 |
|
Supplemental Indenture dated as of July 24, 1998, between
the Company and The Bank of New York, as Trustee.(l) |
|
|
4 |
.3.3 |
|
Second Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
|
|
4 |
.3.4 |
|
Third Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.4.1 |
|
Indenture dated as of March 29, 1999, between the Company
and The Bank of New York, as Trustee, including form of Notes.(m) |
|
|
4 |
.4.2 |
|
First Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
287
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.4.3 |
|
Second Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.5.1 |
|
Indenture dated as of March 29, 1999, between the Company
and The Bank of New York, as Trustee, including form of Notes.(m) |
|
|
4 |
.5.2 |
|
First Supplemental Indenture dated as of July 31, 2000,
between the Company and The Bank of New York, as Trustee.(h) |
|
|
4 |
.5.3 |
|
Second Supplemental Indenture dated as of April 26, 2004,
between the Company and The Bank of New York, as Trustee.(i) |
|
|
4 |
.6.1 |
|
Indenture dated as of August 10, 2000, between the Company
and Wilmington Trust Company, as Trustee.(n) |
|
|
4 |
.6.2 |
|
First Supplemental Indenture dated as of September 28,
2000, between the Company and Wilmington Trust Company, as
Trustee.(h) |
|
|
4 |
.6.3 |
|
Second Supplemental Indenture dated as of September 30,
2004, between the Company and Wilmington Trust Company, as
Trustee.(o) |
|
|
4 |
.6.3 |
|
Third Supplemental Indenture dated as of June 23, 2005,
between the Company and Wilmington Trust Company, as Trustee.(b) |
|
|
4 |
.7.1 |
|
Amended and Restated Indenture dated as of October 16,
2001, between Calpine Canada Energy Finance ULC and Wilmington
Trust Company, as Trustee.(p) |
|
|
4 |
.7.2 |
|
Guarantee Agreement dated as of April 25, 2001, between the
Company and Wilmington Trust Company, as Trustee.(q) |
|
|
4 |
.7.3 |
|
First Amendment, dated as of October 16, 2001, to Guarantee
Agreement dated as of April 25, 2001, between the Company
and Wilmington Trust Company, as Trustee.(p) |
|
|
4 |
.8.1 |
|
Indenture dated as of October 18, 2001, between Calpine
Canada Energy Finance II ULC and Wilmington Trust Company,
as Trustee.(p) |
|
|
4 |
.8.2 |
|
First Supplemental Indenture, dated as of October 18, 2001,
between Calpine Canada Energy Finance II ULC and Wilmington
Trust Company, as Trustee.(p) |
|
|
4 |
.8.3 |
|
Guarantee Agreement dated as of October 18, 2001, between
the Company and Wilmington Trust Company, as Trustee.(p) |
|
|
4 |
.8.4 |
|
First Amendment, dated as of October 18, 2001, to Guarantee
Agreement dated as of October 18, 2001, between the Company
and Wilmington Trust Company, as Trustee.(p) |
|
|
4 |
.9 |
|
Indenture, dated as of June 13, 2003, between Power
Contract Financing, L.L.C. and Wilmington Trust Company, as
Trustee, Accounts Agent, Paying Agent and Registrar,
including form of Notes.(r) |
|
|
4 |
.10 |
|
Indenture, dated as of July 16, 2003, between the Company
and Wilmington Trust Company, as Trustee, including form of
Notes.(r) |
|
|
4 |
.11 |
|
Indenture, dated as of July 16, 2003, between the Company
and Wilmington Trust Company, as Trustee, including form of
Notes.(r) |
|
|
4 |
.12 |
|
Indenture, dated as of July 16, 2003, between the Company
and Wilmington Trust Company, as Trustee, including form of
Notes.(r) |
|
|
4 |
.13.1 |
|
Indenture, dated as of August 14, 2003, among Calpine
Construction Finance Company, L.P., CCFC Finance Corp., each of
Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power
Partnership, as Guarantors, and Wilmington Trust FSB, as
Trustee, including form of Notes.(s) |
|
|
4 |
.13.2 |
|
Supplemental Indenture, dated as of September 18, 2003,
among Calpine Construction Finance Company, L.P., CCFC Finance
Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and
Hermiston Power Partnership, as Guarantors, and Wilmington Trust
FSB, as Trustee.(s) |
|
|
4 |
.13.3 |
|
Second Supplemental Indenture, dated as of January 14,
2004, among Calpine Construction Finance Company, L.P., CCFC
Finance Corp., each of Calpine Hermiston, LLC, CPN Hermiston,
LLC and Hermiston Power Partnership, as Guarantors, and
Wilmington Trust FSB, as Trustee.(t) |
288
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.13.4 |
|
Third Supplemental Indenture, dated as of March 5, 2004,
among Calpine Construction Finance Company, L.P., CCFC Finance
Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and
Hermiston Power Partnership, as Guarantors, and Wilmington Trust
FSB, as Trustee.(t) |
|
|
4 |
.13.5 |
|
Fourth Supplemental Indenture, dated as of March 15, 2006,
among Calpine Construction Finance Company, L.P., CCFC Finance
Corp., each of Calpine Hermiston, LLC, CPN Hermiston, LLC and
Hermiston Power Partnership, as Guarantors, and Wilmington Trust
FSB, as Trustee.(*) |
|
|
4 |
.13.6 |
|
Waiver Agreement, dated as of March 15, 2006, among Calpine
Construction Finance Company, L.P., CCFC Finance Corp.,
each of Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston
Power Partnership, as Guarantors, and Wilmington Trust FSB, as
Trustee.(*) |
|
|
4 |
.14 |
|
Indenture, dated as of September 30, 2003, among Gilroy
Energy Center, LLC, each of Creed Energy Center, LLC and Goose
Haven Energy Center, as Guarantors, and Wilmington Trust
Company, as Trustee and Collateral Agent, including form of
Notes.(s) |
|
|
4 |
.15 |
|
Indenture, dated as of November 18, 2003, between the
Company and Wilmington Trust Company, as Trustee, including form
of Notes.(t) |
|
|
4 |
.16 |
|
Amended and Restated Indenture, dated as of March 12, 2004,
between the Company and Wilmington Trust Company, including form
of Notes.(t) |
|
|
4 |
.17.1 |
|
First Priority Indenture, dated as of March 23, 2004, among
Calpine Generating Company, LLC, CalGen Finance Corp. and
Wilmington Trust Company, as Trustee, including form of Notes.(t) |
|
|
4 |
.17.2 |
|
Second Priority Indenture, dated as of March 23, 2004,
among Calpine Generating Company, LLC, CalGen Finance Corp. and
Wilmington Trust Company, as Trustee, including form of Notes.(t) |
|
|
4 |
.17.3 |
|
Third Priority Indenture, dated as of March 23, 2004, among
Calpine Generating Company, LLC, CalGen Finance Corp. and
Wilmington Trust Company, as Trustee, including form of Notes.(t) |
|
|
4 |
.18 |
|
Indenture, dated as of June 2, 2004, between Power Contract
Financing III, LLC and Wilmington Trust Company, as
Trustee, Accounts Agent, Paying Agent and Registrar,
including form of Notes.(d) |
|
|
4 |
.19 |
|
Indenture, dated as of September 30, 2004, between the
Company and Wilmington Trust Company, as Trustee, including form
of Notes.(u) |
|
|
4 |
.20.1 |
|
Amended and Restated Rights Agreement, dated as of
September 19, 2001, between Calpine Corporation and
Equiserve Trust Company, N.A., as Rights Agent.(v) |
|
|
4 |
.20.2 |
|
Amendment No. 1 to Rights Agreement, dated as of
September 28, 2004, between Calpine Corporation and
Equiserve Trust Company, N.A., as Rights Agent.(o) |
|
|
4 |
.20.3 |
|
Amendment No. 2 to Rights Agreement, dated as of
March 18, 2005, between Calpine Corporation and Equiserve
Trust Company, N.A., as Rights Agent.(w) |
|
|
4 |
.21.1 |
|
Second Amended and Restated Limited Liability Company Operating
Agreement of CCFC Preferred Holdings, LLC, dated as of
October 14, 2005, containing terms of its 6-Year Redeemable
Preferred Shares Due 2011.(*) |
|
|
4 |
.21.2 |
|
Consent, Acknowledgment and Amendment, dated as of
March 15, 2006, among Calpine CCFC Holdings, Inc. and the
Redeemable Preferred Members party thereto.(*) |
|
|
4 |
.22 |
|
Third Amended and Restated Limited Liability Company Operating
Agreement of Metcalf Energy Center, LLC, dated as of
June 20, 2005, containing terms of its 5.5-year redeemable
preferred shares.(*) |
|
|
4 |
.23 |
|
Pass Through Certificates (Tiverton and Rumford) |
|
|
4 |
.23.1 |
|
Pass Through Trust Agreement dated as of December 19, 2000,
among Tiverton Power Associates Limited Partnership, Rumford
Power Associates Limited Partnership and State Street Bank and
Trust Company of Connecticut, National Association, as Pass
Through Trustee, including the form of Certificate.(h) |
289
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.23.2 |
|
Participation Agreement dated as of December 19, 2000,
among the Company, Tiverton Power Associates Limited
Partnership, Rumford Power Associates Limited Partnership, PMCC
Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, National Association, as Pass
Through Trustee.(h) |
|
|
4 |
.23.3 |
|
Appendix A Definitions and Rules of
Interpretation.(h) |
|
|
4 |
.23.4 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
December 19, 2000, between PMCC Calpine New England
Investment LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
including the forms of Lessor Notes.(h) |
|
|
4 |
.23.5 |
|
Calpine Guaranty and Payment Agreement (Tiverton) dated as of
December 19, 2000, by the Company, as Guarantor, to PMCC
Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State
Street Bank and Trust Company of Connecticut, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
as Pass Through Trustee.(h) |
|
|
4 |
.23.6 |
|
Calpine Guaranty and Payment Agreement (Rumford) dated as of
December 19, 2000, by the Company, as Guarantor, to PMCC
Calpine New England Investment LLC, PMCC Calpine NEIM LLC, State
Street Bank and Trust Company of Connecticut, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
as Pass Through Trustee.(h) |
|
|
4 |
.24 |
|
Pass Through Certificates (South Point, Broad River and RockGen) |
|
|
4 |
.24.1 |
|
Pass Through Trust Agreement A dated as of October 18,
2001, among South Point Energy Center, LLC, Broad River Energy
LLC, RockGen Energy LLC and State Street Bank and Trust Company
of Connecticut, National Association, as Pass Through Trustee,
including the form of 8.400% Pass Through Certificate,
Series A.(f) |
|
|
4 |
.24.2 |
|
Pass Through Trust Agreement B dated as of October 18,
2001, among South Point Energy Center, LLC, Broad River Energy
LLC, RockGen Energy LLC and State Street Bank and Trust Company
of Connecticut, National Association, as Pass Through Trustee,
including the form of 9.825% Pass Through Certificate,
Series B.(f) |
|
|
4 |
.24.3 |
|
Participation Agreement (SP-1) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-1, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-1, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.4 |
|
Participation Agreement (SP-2) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-2, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-2, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.5 |
|
Participation Agreement (SP-3) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-3, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-3, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.6 |
|
Participation Agreement (SP-4) dated as of October 18,
2001, among the Company, South Point Energy Center, LLC, South
Point OL-4, LLC, Wells Fargo Bank Northwest, National
Association, as Lessor Manager, SBR OP-4, LLC, State Street Bank
and Trust Company of Connecticut, National Association, as
Indenture Trustee, and State Street Bank and Trust Company of
Connecticut, National Association, as Pass Through Trustee,
including Appendix A Definitions and Rules of
Interpretation.(f) |
290
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.24.7 |
|
Participation Agreement (BR-1) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-1, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-1, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.8 |
|
Participation Agreement (BR-2) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-2, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-2, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.9 |
|
Participation Agreement (BR-3) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-3, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-3, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.10 |
|
Participation Agreement (BR-4) dated as of October 18,
2001, among the Company, Broad River Energy LLC, Broad River
OL-4, LLC, Wells Fargo Bank Northwest, National Association, as
Lessor Manager, SBR OP-4, LLC, State Street Bank and Trust
Company of Connecticut, National Association, as Indenture
Trustee, and State Street Bank and Trust Company of Connecticut,
National Association, as Pass Through Trustee, including
Appendix A Definitions and Rules of
Interpretation.(f) |
|
|
4 |
.24.11 |
|
Participation Agreement (RG-1) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-1, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-1, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.12 |
|
Participation Agreement (RG-2) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-2, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-2, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.13 |
|
Participation Agreement (RG-3) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-3, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-3, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.14 |
|
Participation Agreement (RG-4) dated as of October 18,
2001, among the Company, RockGen Energy LLC, RockGen OL-4, LLC,
Wells Fargo Bank Northwest, National Association, as Lessor
Manager, SBR OP-4, LLC, State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee, and
State Street Bank and Trust Company of Connecticut, National
Association, as Pass Through Trustee, including Appendix
A Definitions and Rules of Interpretation.(f) |
|
|
4 |
.24.15 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-1, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
291
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.24.16 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-2, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
|
|
4 |
.24.17 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-3, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
|
|
4 |
.24.18 |
|
Indenture of Trust, Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement, dated as of
October 18, 2001, between South Point OL-4, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of South Point Lessor Notes.(f) |
|
|
4 |
.24.19 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-1, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.20 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-2, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.21 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-3, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.22 |
|
Indenture of Trust, Mortgage, Security Agreement and Fixture
Filing, dated as of October 18, 2001, between Broad River
OL-4, LLC and State Street Bank and Trust Company of
Connecticut, National Association, as Indenture Trustee,
Mortgagee and Account Bank, including the form of Broad
River Lessor Notes.(f) |
|
|
4 |
.24.23 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-1, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.24 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-2, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.25 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-3, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.26 |
|
Indenture of Trust, Mortgage and Security Agreement, dated as of
October 18, 2001, between RockGen OL-4, LLC and State
Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee and Account Bank,
including the form of RockGen Lessor Notes.(f) |
|
|
4 |
.24.27 |
|
Calpine Guaranty and Payment Agreement (South Point SP-1) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.28 |
|
Calpine Guaranty and Payment Agreement (South Point SP-2) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
292
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
4 |
.24.29 |
|
Calpine Guaranty and Payment Agreement (South Point SP-3) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.30 |
|
Calpine Guaranty and Payment Agreement (South Point SP-4) dated
as of October 18, 2001, by Calpine, as Guarantor, to South
Point OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.31 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-1) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.32 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-2) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.33 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-3) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.34 |
|
Calpine Guaranty and Payment Agreement (Broad River BR-4) dated
as of October 18, 2001, by Calpine, as Guarantor, to Broad
River OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust
Company of Connecticut, as Indenture Trustee, and State Street
Bank and Trust Company of Connecticut, as Pass Through
Trustee.(f) |
|
|
4 |
.24.35 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-1) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-1, LLC, SBR OP-1, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
4 |
.24.36 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-2) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-2, LLC, SBR OP-2, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
4 |
.24.37 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-3) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-3, LLC, SBR OP-3, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
4 |
.24.38 |
|
Calpine Guaranty and Payment Agreement (RockGen RG-4) dated as
of October 18, 2001, by Calpine, as Guarantor, to RockGen
OL-4, LLC, SBR OP-4, LLC, State Street Bank and Trust Company of
Connecticut, as Indenture Trustee, and State Street Bank and
Trust Company of Connecticut, as Pass Through Trustee.(f) |
|
|
10 |
.1 |
|
DIP Financing Agreements |
|
|
10 |
.1.1.1 |
|
$2,000,000,000 Amended & Restated Revolving Credit, Term
Loan and Guarantee Agreement, dated as of February 23,
2006, among the Company, as borrower, the Subsidiaries of the
Company named therein, as guarantors, the Lenders from time to
time party thereto, Credit Suisse Securities (USA) LLC and
Deutsche Bank Trust Company Americas, as Joint Syndication
Agents, Deutsche Bank Securities Inc. and Credit Suisse
Securities (USA) LLC, as Joint Lead Arrangers and Joint
Bookrunners, and Credit Suisse and Deutsche Bank Trust Company
Americas, as Joint Administrative Agents.(*) |
293
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.1.1.2 |
|
First Consent, Waiver and Amendment, dated as of May 3,
2006, to and under the Amended and Restated Revolving Credit,
Term Loan and Guarantee Agreement, dated as of February 23,
2006, among Calpine Corporation, as borrower, its subsidiaries
named therein, as guarantors, the Lenders party thereto,
Deutsche Bank Trust Company Americas, as administrative
agent for the First Priority Lenders, Credit Suisse, Cayman
Islands Branch, as administrative agent for the Second Priority
Term Lenders.(*) |
|
|
10 |
.1.2 |
|
Amended and Restated Security and Pledge Agreement, dated as of
February 23, 2006, among the Company, the Subsidiaries of
the Company signatory thereto and Deutsche Bank Trust Company
Americas, as collateral agent.(*) |
|
|
10 |
.2 |
|
Financing and Term Loan Agreements |
|
|
10 |
.2.1 |
|
Share Lending Agreement, dated as of September 28, 2004,
among the Company, as Lender, Deutsche Bank AG London, as
Borrower, through Deutsche Bank Securities Inc., as agent for
the Borrower, and Deutsche Bank Securities Inc., in its capacity
as Collateral Agent and Securities Intermediary.(o) |
|
|
10 |
.2.2 |
|
Amended and Restated Credit Agreement, dated as of
March 23, 2004, among Calpine Generating Company, LLC, the
Guarantors named therein, the Lenders named therein, The Bank of
Nova Scotia, as Administrative Agent, LC Bank, Lead Arranger and
Sole Bookrunner, Bayerische Landesbank Cayman Islands Branch, as
Arranger and Co-Syndication Agent, Credit Lyonnais New York
Branch, as Arranger and Co-Syndication Agent, ING Capital LLC,
as Arranger and Co-Syndication Agent, Toronto-Dominion (Texas)
Inc., as Arranger and Co-Syndication Agent, and Union Bank of
California, N.A., as Arranger and Co-Syndication Agent.(t) |
|
|
10 |
.2.3.1 |
|
Letter of Credit Agreement, dated as of July 16, 2003,
among the Company, the Lenders named therein, and The Bank of
Nova Scotia, as Administrative Agent.(r) |
|
|
10 |
.2.3.2 |
|
Amendment to Letter of Credit Agreement, dated as of
September 30, 2004, between the Company and The Bank of
Nova Scotia, as Administrative Agent.(y) |
|
|
10 |
.2.4 |
|
Letter of Credit Agreement, dated as of September 30, 2004,
between the Company and Bayerische Landesbank, acting through
its Cayman Islands Branch, as the Issuer.(y) |
|
|
10 |
.2.5 |
|
Credit Agreement, dated as of July 16, 2003, among the
Company, the Lenders named therein, Goldman Sachs Credit
Partners L.P., as Sole Lead Arranger, Sole Bookrunner and
Administrative Agent, The Bank of Nova Scotia, as Arranger and
Syndication Agent, TD Securities (USA) Inc., ING (U.S.) Capital
LLC and Landesbank Hessen-Thuringen, as Co-Arrangers, and Credit
Lyonnais New York Branch and Union Bank of California, N.A., as
Managing Agents.(r) |
|
|
10 |
.2.6.1 |
|
Credit and Guarantee Agreement, dated as of August 14,
2003, among Calpine Construction Finance Company, L.P., each of
Calpine Hermiston, LLC, CPN Hermiston, LLC and Hermiston Power
Partnership, as Guarantors, the Lenders named therein, and
Goldman Sachs Credit Partners L.P., as Administrative Agent and
Sole Lead Arranger.(s) |
|
|
10 |
.1.6.2 |
|
Amendment No. 1 to the Credit and Guarantee Agreement,
dated as of September 12, 2003, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(s) |
|
|
10 |
.2.6.3 |
|
Amendment No. 2 to the Credit and Guarantee Agreement,
dated as of January 13, 2004, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(t) |
|
|
10 |
.2.6.4 |
|
Amendment No. 3 to the Credit and Guarantee Agreement,
dated as of March 5, 2004, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(t) |
294
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.2.6.5 |
|
Amendment No. 4 to the Credit and Guarantee Agreement,
dated as of March 15, 2006, among Calpine Construction
Finance Company, L.P., each of Calpine Hermiston, LLC, CPN
Hermiston, LLC and Hermiston Power Partnership, as Guarantors,
the Lenders named therein, and Goldman Sachs Credit Partners
L.P., as Administrative Agent and Sole Lead Arranger.(*) |
|
|
10 |
.2.6.6 |
|
Waiver Agreement, dated as of March 15, 2006 among Calpine
Construction Finance Company, L.P., each of Calpine Hermiston,
LLC, CPN Hermiston, LLC and Hermiston Power Partnership, as
Guarantors, the Lenders named therein, and Goldman Sachs Credit
Partners L.P., as Administrative Agent and Sole Lead Arranger.(*) |
|
|
10 |
.2.7 |
|
Credit and Guarantee Agreement, dated as of March 23, 2004,
among Calpine Generating Company, LLC, the Guarantors named
therein, the Lenders named therein, Morgan Stanley Senior
Funding, Inc., as Administrative Agent, and Morgan Stanley
Senior Funding, Inc., as Sole Lead Arranger and Sole
Bookrunner.(t) |
|
|
10 |
.2.8 |
|
Credit and Guarantee Agreement, dated as of March 23, 2004,
among Calpine Generating Company, LLC, the Guarantors named
therein, the Lenders named therein, Morgan Stanley Senior
Funding, Inc., as Administrative Agent, and Morgan Stanley
Senior Funding, Inc., as Sole Lead Arranger and Sole
Bookrunner.(t) |
|
|
10 |
.2.9 |
|
Credit Agreement, dated as of June 24, 2004, among
Riverside Energy Center, LLC, the Lenders named therein, Union
Bank of California, N.A., as the Issuing Bank, Credit Suisse
First Boston, acting through its Cayman Islands Branch, as Lead
Arranger, Book Runner, Administrative Agent and Collateral
Agent, and CoBank, ACB, as Syndication Agent.(z) |
|
|
10 |
.2.10 |
|
Credit Agreement, dated as of June 24, 2004, among Rocky
Mountain Energy Center, LLC, the Lenders named therein, Union
Bank of California, N.A., as the Issuing Bank, Credit Suisse
First Boston, acting through its Cayman Islands Branch, as Lead
Arranger, Book Runner, Administrative Agent and Collateral
Agent, and CoBank, ACB, as Syndication Agent.(z) |
|
|
10 |
.2.11 |
|
Credit Agreement, dated as of February 25, 2005, among
Calpine Steamboat Holdings, LLC, the Lenders named therein,
Calyon New York Branch, as a Lead Arranger, Underwriter, Co-Book
Runner, Administrative Agent, Collateral Agent and LC Issuer,
CoBank, ACB, as a Lead Arranger, Underwriter, Co-Syndication
Agent and Co-Book Runner, HSH Nordbank AG, as a Lead Arranger,
Underwriter and Co-documentation Agent, UFJ Bank Limited, as a
Lead Arranger, Underwriter and Co-Documentation Agent, and
Bayerische Hypo-Und Vereinsbank AG, New York Branch, as a
Lead Arranger, Underwriter and Co-Syndication Agent.(z) |
|
|
10 |
.3 |
|
Security Agreements |
|
|
10 |
.3.1 |
|
Guarantee and Collateral Agreement, dated as of July 16,
2003, made by the Company, JOQ Canada, Inc., Quintana Minerals
(USA) Inc., and Quintana Canada Holdings LLC, in favor of The
Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.2 |
|
First Amendment Pledge Agreement, dated as of July 16,
2003, made by JOQ Canada, Inc., Quintana Minerals (USA) Inc.,
and Quintana Canada Holdings LLC in favor of The Bank of
New York, as Collateral Trustee.(r) |
|
|
10 |
.3.3 |
|
First Amendment Assignment and Security Agreement, dated as of
July 16, 2003, made by the Company in favor of The Bank of
New York, as Collateral Trustee.(r) |
|
|
10 |
.3.4.1 |
|
Second Amendment Pledge Agreement (Stock Interests), dated as of
July 16, 2003, made by the Company in favor of The Bank of
New York, as Collateral Trustee.(r) |
|
|
10 |
.3.4.2 |
|
Amendment No. 1 to the Second Amendment Pledge Agreement
(Stock Interests), dated as of November 18, 2003, made by
the Company in favor of The Bank of New York, as Collateral
Trustee.(t) |
|
|
10 |
.3.5.1 |
|
Second Amendment Pledge Agreement (Membership Interests), dated
as of July 16, 2003, made by the Company in favor of The
Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.5.2 |
|
Amendment No. 1 to the Second Amendment Pledge Agreement
(Membership Interests), dated as of November 18, 2003, made
by the Company in favor of The Bank of New York, as Collateral
Trustee.(t) |
295
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.3.6 |
|
First Amendment Note Pledge Agreement, dated as of July 16,
2003, made by the Company in favor of The Bank of New York, as
Collateral Trustee.(r) |
|
|
10 |
.3.7.1 |
|
Collateral Trust Agreement, dated as of July 16, 2003,
among the Company, JOQ Canada, Inc., Quintana Minerals (USA)
Inc., Quintana Canada Holdings LLC, Wilmington Trust Company, as
Trustee, The Bank of Nova Scotia, as Agent, Goldman Sachs Credit
Partners L.P., as Administrative Agent, and The Bank of New
York, as Collateral Trustee.(r) |
|
|
10 |
.3.7.2 |
|
First Amendment to the Collateral Trust Agreement, dated as of
November 18, 2003, among the Company, JOQ Canada, Inc.,
Quintana Minerals (USA) Inc., Quintana Canada Holdings LLC,
Wilmington Trust Company, as Trustee, The Bank of Nova Scotia,
as Agent, Goldman Sachs Credit Partners L.P., as Administrative
Agent, and The Bank of New York, as Collateral Trustee.(t) |
|
|
10 |
.3.8 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (Multistate), dated as of July 16, 2003, from the
Company to Messrs. Denis OMeara and James Trimble, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.9 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (Multistate), dated as of July 16, 2003, from the
Company to Messrs. Kemp Leonard and John Quick, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.10 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (Colorado), dated as of July 16, 2003, from the
Company to Messrs. Kemp Leonard and John Quick, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.11 |
|
Form of Amended and Restated Mortgage, Deed of Trust,
Assignment, Security Agreement, Financing Statement and Fixture
Filing (New Mexico), dated as of July 16, 2003, from the
Company to Messrs. Kemp Leonard and John Quick, as
Trustees, and The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.12 |
|
Form of Amended and Restated Mortgage, Assignment, Security
Agreement and Financing Statement (Louisiana), dated as of
July 16, 2003, from the Company to The Bank of New York, as
Collateral Trustee.(r) |
|
|
10 |
.3.13 |
|
Form of Amended and Restated Deed of Trust with Power of Sale,
Assignment of Production, Security Agreement, Financing
Statement and Fixture Filings (California), dated as of
July 16, 2003, from the Company to Chicago Title Insurance
Company, as Trustee, and The Bank of New York, as
Collateral Trustee.(r) |
|
|
10 |
.3.14 |
|
Form of Deed to Secure Debt, Assignment of Rents and Security
Agreement (Georgia), dated as of July 16, 2003, from the
Company to The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.15 |
|
Form of Mortgage, Assignment of Rents and Security Agreement
(Florida), dated as of July 16, 2003, from the Company to
The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.16 |
|
Form of Deed of Trust, Assignment of Rents and Security
Agreement and Fixture Filing (Texas), dated as of July 16,
2003, from the Company to Malcolm S. Morris, as Trustee, in
favor of The Bank of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.17 |
|
Form of Deed of Trust, Assignment of Rents and Security
Agreement (Washington), dated as of July 16, 2003, from the
Company to Chicago Title Insurance Company, in favor of The Bank
of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.18 |
|
Form of Deed of Trust, Assignment of Rents, and Security
Agreement (California), dated as of July 16, 2003, from the
Company to Chicago Title Insurance Company, in favor of The Bank
of New York, as Collateral Trustee.(r) |
|
|
10 |
.3.19 |
|
Form of Mortgage, Collateral Assignment of Leases and Rents,
Security Agreement and Financing Statement (Louisiana), dated as
of July 16, 2003, from the Company to The Bank of New York,
as Collateral Trustee.(r) |
296
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.3.20 |
|
Amended and Restated Hazardous Materials Undertaking and
Indemnity (Multistate), dated as of July 16, 2003, by the
Company in favor of The Bank of New York, as Collateral
Trustee.(r) |
|
|
10 |
.3.21 |
|
Amended and Restated Hazardous Materials Undertaking and
Indemnity (California), dated as of July 16, 2003, by the
Company in favor of The Bank of New York, as Collateral
Trustee.(r) |
|
|
10 |
.3.22 |
|
Designated Asset Sale Proceeds Account Control Agreement,
dated as of July 16, 2003, among the Company, Union Bank of
California, N.A., and The Bank of New York, as Collateral
Agent.(t) |
|
|
10 |
.4 |
|
Power Purchase and Other Agreements. |
|
|
10 |
.4.1 |
|
Master Transaction Agreement, dated September 7, 2005,
among the Company, Calpine Energy Services, L.P., The Bear
Stearns Companies Inc., and such other parties as may become
party thereto from time to time. Approximately two pages of this
Exhibit 10.3.1 have been omitted pursuant to a request for
confidential treatment. The omitted language has been filed
separately with the SEC.(aa) |
|
|
10 |
.4.2 |
|
Power Purchase and Sale Agreements with the State of California
Department of Water Resources comprising Amended and Restated
Cover Sheet and Master Power Purchase and Sale Agreement, dated
as of April 22, 2002 and effective as of May 1, 2004,
between Calpine Energy Services, L.P. and the State of
California Department of Water Resources together with Amended
and Restated Confirmation (Calpine 1), Amended and
Restated Confirmation (Calpine 2), Amended and
Restated Confirmation (Calpine 3) and Amended and
Restated Confirmation (Calpine 4), each dated as of
April 22, 2002, and effective as of May 1, 2002,
between Calpine Energy Services, L.P., and the State of
California Department of Water Resources.(bb) |
|
|
10 |
.5 |
|
Management Contracts or Compensatory Plans or Arrangements. |
|
|
10 |
.5.1 |
|
Employment Agreement, effective as of January 1, 2005,
between the Company and Mr. Peter Cartwright.(cc)(dd) |
|
|
10 |
.5.2 |
|
Employment Agreement, effective as of December 12, 2005,
between the Company and Mr. Robert P. May.(*)(dd) |
|
|
10 |
.5.3 |
|
Employment Agreement, effective as of January 30, 2006,
between the Company and Mr. Scott J. Davido.(*)(dd) |
|
|
10 |
.5.5 |
|
Consulting Contract, effective as of January 1, 2005,
between the Company and Mr. George J. Stathakis.(hh)(dd) |
|
|
10 |
.5.6 |
|
Form of Indemnification Agreement for directors and
officers.(gg)(dd) |
|
|
10 |
.5.7 |
|
Form of Indemnification Agreement for directors and
officers.(f)(dd) |
|
|
10 |
.5.8.1 |
|
Calpine Corporation 1996 Stock Incentive Plan and forms of
agreements there under.(t)(dd) |
|
|
10 |
.5.8.2 |
|
Amendment to Calpine Corporation 1996 Stock Incentive
Plan.(z)(dd) |
|
|
10 |
.5.9 |
|
Calpine Corporation U.S. Severance Program.(*)(dd) |
|
|
10 |
.5.10 |
|
Base Salary, Bonus, Stock Option Grant and Restricted Stock
Summary Sheet.(cc)(dd) |
|
|
10 |
.5.11 |
|
Form of Stock Option Agreement.(cc)(dd) |
|
|
10 |
.5.12 |
|
Form of Restricted Stock Agreement.(cc)(dd) |
|
|
10 |
.5.13 |
|
Calpine Corporation 2003 Management Incentive Plan.(hh)(dd) |
|
|
10 |
.5.14 |
|
2000 Employee Stock Purchase Plan.(ii)(dd) |
|
|
12 |
.1 |
|
Statement on Computation of Ratio of Earnings to Fixed
Charges.(*) |
|
|
21 |
.1 |
|
Subsidiaries of the Company.(*) |
|
|
24 |
.1 |
|
Power of Attorney of Officers and Directors of Calpine
Corporation (set forth on the signature pages of this report).(*) |
|
|
31 |
.1 |
|
Certification of the Chairman, President and Chief Executive
Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.(*) |
297
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
31 |
.2 |
|
Certification of the Executive Vice President and Chief
Financial Officer Pursuant to Rule 13a-14(a) or
Rule 15d-14(a) under the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.(*) |
|
|
32 |
.1 |
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.(*) |
|
|
99 |
.1 |
|
Acadia Power Partners, LLC and Subsidiary, Consolidated
Financial Statements, July 31, 2005 and December 31,
2004 and 2003.(*) |
|
|
(*) |
Filed herewith. |
|
(a) |
Incorporated by reference to Calpine Corporations Current
Report on
Form 8-K/ A filed
with the SEC on September 14, 2004. |
|
(b) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on June 23, 2005. |
|
(c) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on July 13, 2005. |
|
(d) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 2004, filed with the SEC on August 9, 2004. |
|
(e) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 2005, filed with the SEC on August 9, 2005. |
|
(f) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K dated
December 31, 2001, filed with the SEC on March 29,
2002. |
|
(g) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-4
(Registration Statement
No. 333-06259)
filed with the SEC on June 19, 1996. |
|
(h) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K for the
year ended December 31, 2000, filed with the SEC on
March 15, 2001. |
|
(i) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
March 31, 2004, filed with the SEC on May 10, 2004. |
|
(j) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 1997, filed with the SEC on August 14, 1997. |
|
(k) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-4
(Registration Statement
No. 333-41261)
filed with the SEC on November 28, 1997. |
|
(l) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-4
(Registration Statement
No. 333-61047)
filed with the SEC on August 10, 1998. |
|
(m) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-3/ A
(Registration Statement
No. 333-72583)
filed with the SEC on March 8, 1999. |
|
(n) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-3
(Registration
No. 333-76880)
filed with the SEC on January 17, 2002. |
|
(o) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on September 30, 2004. |
|
(p) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
dated October 16, 2001, filed with the SEC on
November 13, 2001. |
|
(q) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-3/ A
(Registration
No. 333-57338)
filed with the SEC on April 19, 2001. |
|
(r) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
June 30, 2003, filed with the SEC on August 14, 2003. |
298
|
|
(s) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
September 30, 2003, filed with the SEC on November 13,
2003. |
|
(t) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K for the
year ended December 31, 2003, filed with the SEC on
March 25, 2004. |
|
(u) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on October 6, 2004. |
|
(v) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form 8-A/ A
(Registration No. 001-12079) filed with the SEC on
September 28, 2001. |
|
(w) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on March 23, 2005. |
|
(x) |
This document has been omitted in reliance on
Item 601(b)(4)(iii) of
Regulation S-K.
Calpine Corporation agrees to furnish a copy of such document to
the SEC upon request. |
|
(y) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
September 30, 2004, filed with the SEC on November 9,
2004. |
|
(z) |
Description of such Amendment is incorporated by reference to
Item 1.01 of Calpine Corporations Current Report on
Form 8-K filed
with the SEC on September 20, 2005. |
|
(aa) |
Incorporated by reference to Calpine Corporations
Quarterly Report on
Form 10-Q dated
September 30, 2005, filed with the SEC on November 9,
2005. |
|
(bb) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K/ A dated
December 31, 2003, filed with the SEC on September 13,
2004 |
|
(cc) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on March 17, 2005. |
|
(dd) |
Management contract or compensatory plan or arrangement. |
|
(ee) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on December 27, 2005. |
|
(ff) |
Incorporated by reference to Calpine Corporations Current
Report on Form 8-K
filed with the SEC on February 3, 2006. |
|
(gg) |
Incorporated by reference to Calpine Corporations
Registration Statement on
Form S-1/ A
(Registration Statement
No. 333-07497)
filed with the SEC on August 22, 1996. |
|
(hh) |
Incorporated by reference to Calpine Corporations Annual
Report on
Form 10-K for the
year ended December 31, 2004, filed with the SEC on
March 31, 2005. |
|
(ii) |
Incorporated by reference to Calpine Corporations
Definitive Proxy Statement on Schedule 14A dated
April 13, 2000, filed with the SEC on April 13, 2000. |
299