SAN JOSE, Calif., Jan. 31, 2002 — Calpine Corporation today reported it achieved 63 percent growth in recurring diluted earnings per share for 2001 compared with the year earlier, despite a challenging year for the U.S. power industry and national economy.
“2001 was both a rewarding and challenging year for Calpine and the U.S. power sector. Not only did we conclude a five-year period in which recurring earnings per share grew at a compound annual rate of 78 percent, we successfully executed on our long-term strategy of building the nation’s most efficient, low-cost fleet of power generating facilities. This considerably strengthens our competitive advantage in today’s challenging market climate,” said Calpine Chairman, CEO and President Peter Cartwright.
“Calpine nearly doubled its generating capacity in attractive power markets across North America and added its first European project in the United Kingdom. We secured attractive multi-year contracts with large load-serving entities and considerably enhanced our natural gas asset base to fuel our fleet of low-cost gas-fired facilities. These accomplishments combine to strengthen Calpine’s business, positioning us to meet our long-term growth objectives when market conditions recover.
“Calpine’s 2001 achievements occurred despite the reductions in demand due to the national economic recession and unusually mild weather — short-term challenges that should not obscure the very real long-term need for new power generating capacity in the markets we serve,” continued Cartwright. “We enter 2002 mindful of the many uncertainties in today’s economy. While we are focused on continuing to build our capacity to meet long-term power needs, we will do so on an economically sound basis and with disciplined attention to liquidity and evolving conditions in the power markets.”
2001 Annual and Fourth Quarter Financial Results
Financial results for the three and twelve months ended December 31, 2001 reflected the continued execution of Calpine’s strategy to own and operate low-cost generating facilities in key North American power markets and Calpine Energy Services’ successful risk management and optimization program. However, as a result of the nationwide economic slowdown, the industry experienced lower industrial demand during 2001, which, along with unusually mild weather, substantially reduced prices for power and spark spreads.
Calpine recorded certain significant results arising from activities that are ancillary to the marketing of its electric generation and oil and gas production. The company considers these ancillary activities to be integral to its operating activities and expects to continue to record results of similar activities in the future. Those significant ancillary activities for the quarter ended December 31, 2001 include on a pre-tax basis, approximately $20.3 million related to gains on the sale of non-strategic oil and gas properties and of excess emission reduction credits, and $28.1 million related to the settlement and termination of a contract with a gas supplier. These increases were partially offset by a $9.0 million discount related to the sale of the company’s Pacific Gas and Electric Company (PG&E) receivables.
Calpine’s Power Systems Manufacturing subsidiary continued to execute on its business model with the licensing of combustion system technology for gas turbines. The company recorded technology licensing revenue of $10.6 million in the quarter and expects to further benefit in the future from a related development and supply agreement. Calpine also benefited from a lower effective tax rate in 2001 compared to 2000, primarily as a result of the cross border financing structures for its Canadian and U.K. operations.
A significant event that affected the power industry during the quarter was the Chapter 11 bankruptcy of Enron Corporation and its subsidiaries (Enron). Calpine has no net collection exposure with Enron. A netting agreement is in place, allowing the company to offset the amounts owed by certain of the Enron subsidiaries to Calpine with the amounts Calpine owes to those subsidiaries. On December 10, 2001, Calpine terminated all contracts with Enron. The company expects to have a net payable to Enron upon settlement. In addition, Calpine’s current business with Enron is limited to fully collateralized transactions.
Market- Power Generation Program
In 2001, Calpine increased its power generation portfolio by 90 percent over 2000, adding more than 5,200 megawatts (mw) of capacity to its gas-fired portfolio in key power markets.
Calpine continues to strengthen its position as the low-cost producer in the markets it serves. The company manages every aspect of a power generating facility — from development through design, engineering and construction management, into operations, fuel supply and power marketing. Its regional systems of fuel-efficient generating facilities incorporate advanced combined-cycle technology, which allows Calpine to generate electricity up to 40% more efficiently to lower energy prices and conserve natural gas, while advancing air quality goals.
Calpine continues to expand and diversify its fully integrated fuels program to help lower costs and maximize the value of its North American energy centers. In 2001, Calpine significantly strengthened its portfolio of low-cost natural gas reserves in strategic gas markets. To date, the company owns 1.3 trillion cubic feet equivalent of proved natural gas reserves in Canada and the United States.
Access to capital on attractive terms is integral to Calpine’s program of Repowering America. Notwithstanding recent uncertainties in the domestic energy and capital markets, Calpine continued to demonstrate its ability to raise substantial capital to meet both its liquidity needs and its 2002 construction financing requirements. In 2001, Calpine completed approximately $10.5 billion of financing transactions, and earlier this month, the company received commitments for an additional $1 billion unsecured working capital credit facility.
An important goal of the company is to restore its investment grade status with Moody’s Investors Service and Fitch, Inc. and to attain an initial investment grade rating from Standard & Poor’s. Calpine continues to work closely with the rating agencies as they evolve their rating criteria for this industry with the goal of achieving and maintaining investment grade status. Calpine continues to explore various alternatives that may be used to further strengthen its creditworthiness, including joint ventures, outsourcing the marketing of certain blocks of power, additional equity and tolling agreements.
“We face challenges that are likely to continue well into 2002; however, we believe demand for power from efficient, modern plants will out-pace supply and improve pricing over the longer term. While many of our competitors are abandoning the market, canceling projects and selling assets, Calpine has developed a 2002 business plan that balances the pace of its development power program with its need to reduce capital spending and adapt to current market conditions. This plan retains our ability to respond quickly when power demand increases as a result of economic recovery and more normal weather patterns — but only when new projects meet our exacting investment criteria,” Cartwright said. “Calpine has built a foundation of assets that will allow us to continue to grow, and to grow profitably.”
As outlined on January 16, 2002, Calpine has segmented its development program into two distinct components, a firm program and a flexible program.
Under the firm program, Calpine will continue to advance those projects already in construction in 2002. The company currently has 27 gas-fired energy centers under construction, totaling 15,200 mw of capacity, across a diversified range of key power markets. This program is expected to create strong cash flow and earnings and will more than double Calpine’s generating base, increasing generating capacity from 11,100 mw today, to 23,200 mw by the end of 2002. Calpine has secured multi-year contracts with large load-serving entities, industrial customers and other wholesale counterparties for approximately 65% of its portfolio in 2002. Calpine expects to have 26,300 mw on line in 2003. Calpine will continuously monitor its construction capital expenditures to assure that this program remains in alignment with power market conditions and the availability of capital at attractive terms.
The flexible program represents an additional 15,100 mw of gas-fired generation. Development of these projects is expected to continue until they are ready for construction, at which point they will be placed on hold pending further review by the company. Construction will proceed only when there is an established market need for additional generating resources at prices that will allow the company to meet its established investment criteria.
Calpine remains focused on enhancing the financial strength of the company and ensuring sufficient liquidity. During 2002, the capital required to fund the construction of 27 projects is expected to be approximately $2.5 billion. In addition, approximately $250 million is planned for major maintenance for operating plants and capital for gas operations.
Funds available in 2002 include approximately $1.8 billion of cash resources©, approximately $875 million of borrowing capacity under working capital(d) and construction revolvers, estimated annual operating cash flow(e) of $1.2 billion, and approximately $500 million of projected proceeds from a planned sale/leaseback of certain peaking facilities. These will be used in part to repay $819 million of zero coupon convertible debentures and $330 million of cash lease payments.
In addition, Calpine is currently evaluating other sources of liquidity that could yield an estimated $1.5 billion. These include additional lease financing, the sale of non-strategic power and gas assets and the monetization of certain receivables. Further, Calpine has existing power sales agreements with a current present value above market of $6.5 billion.
“Calpine has the people, the resources and the proven strategy in place to enable us to deliver value for our shareholders, our customers and our employees. We are proud that Calpine achieved earnings growth of 63 percent in such challenging times, and we are committed to executing our program in 2002 and beyond,” Cartwright said.
Based in San Jose, Calif., Calpine Corporation is an independent power company that is dedicated to providing customers with clean, efficient, natural gas-fired power generation.
It generates and markets power, through plants it develops, owns and operates, in 29 states in the United States, three provinces in Canada and in the United Kingdom. Calpine also is the world’s largest producer of renewable geothermal energy, and it owns 1.3 trillion cubic feet equivalent of proved natural gas reserves in Canada and the United States. The company was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information about Calpine, visit its website at www.calpine.com.