State Power Play: AG Fights Calpine Plan

California's top prosecutor says Calpine's Chapter 11 reorganization plan would allow the troubled power producer to back out of contracts with sta...
Stephen TaubAugust 2, 2007

California’s attorney general is trying to kill Calpine’s reorganization plan. Calling it “fatally flawed,” Jerry Brown asked a bankruptcy judge to reject the power company’s plan to emerge from bankruptcy, asserting that it would illegally allow Calpine to eliminate a power supply contract signed with the state, according to the Associated Press.

Brown argued that only the Federal Energy Regulatory Commission (FERC) has the power to end the contract. Reportedly, the California Department of Water Resources, which signed the contract, and other state agencies joined Brown in an objection filed with the U.S. Bankruptcy Court in Manhattan, said the wire service. The power purchase agreement was signed in 2001 during the California energy crisis.

Under the arrangement, Calpine agreed to supply state utilities with 1,000 megawatts of electricity through 2009 for $59.60 per megawatt hour. Calpine asked the bankruptcy judge for permission to terminate the contract, because the price was below current market prices, added the wire service. The contested contract is the sole remaining contract among eight that Calpine tried to terminate as part of its bankruptcy reorganization. Calpine has settled its disputes with the counterparties to the other seven contracts.

In January 2006, the U.S. District Court in Manhattan ruled that FERC had ultimate authority to determine whether Calpine could cancel contracts in a bankruptcy proceeding. Calpine has appealed that decision, and it is still pending, the AP noted. “Calpine cannot disregard the District Court’s order and the (Federal Power Act) simply by using the word ‘repudiate’ in its plan, instead of ‘reject,’” the state agencies reportedly said in their objection.

Calpine filed a reorganization plan in June. Under that plan, the bankrupt power producer had estimated that unsecured creditors’ claims would be paid in full. Common stockholders and holders of subordinated equity securities claims would receive between nothing and as much as $3.53 a share. In addition, a group of banks — including Goldman Sachs, Credit Suisse, Deutsche Bank, and Morgan Stanley — had upped their exit financing to $8 billion in secured financing, or $3 billion more than the existing exit facility.

Last week, Calpine said that it submit a new plan later this summer after “certain parties” had given the company and its affiliates a new idea for restructuring the company. The alternative plan would provide guaranteed distributions to the debtors’ stakeholders. As a result, Calpine said it, and its affiliates have decided to take “a brief period of time” to investigate the possibility of the alternative structure, which potentially could offer recoveries superior to those under the current plan.