Calpine - the fall of a merchant power company

The Calpine Power Income Fund has ownership in a number of power generation assets. Among these, the Fund owns Island Cogen in Campbell River.

Island Cogen, as you remember, was the first and only plant that BC Hydro was able to have built as part of its gas-fired generation scheme for Vancouver Island. (Less successful components of that plan were the GSX Pipeline, Port Alberni Cogeneration, Port Alberni Generation Project, Vancouver Island Generation Project and Duke Point Power - may they all rest in peace and never again rise from the ashes.)

BC Hydro was dating Calpine back in 2000-2002 as the private builder/owner of the Port Alberni and Nanaimo projects. During that period, Calpine bought Island Cogen. Calpine eventually extricated itself from VIGP, leaving BC Hydro dateless in Nanaimo until Pristine Power showed up (in the Call for Tenders process, which was the electricity generation equivalent for that reality show the band INXS did in selecting a new lead singer. How many people on this list know what I'm referring to?)

Island Cogen has a long term contract to supply electricity to BC Hydro, and BC Hydro in turn has an obligation to supply natural gas to Island Cogen. Oh, sorry, you remember all this.

Back to the story.

Calpine is a US-based merchant power company. It owns a number of Canadian subsidiaries. Many of these subsidiaries are involved in a complex set of relationships with the Calpine Power Income Fund.

Late last year, Calpine, the US mothership, "filed for voluntary reorganization under Chapter 11 of the US Bankruptcy Code and ... certain of its subsidiaries and affiliates in Canada intend to file under the Canadian Companies' Creditors Arrangement Act in Canada. These proceedings apply to some but not all Calpine entities that are central to Calpine Power Income Fund."
http://tinyurl.com/8qexb

There's now much legal sword rattling between some of the Canadian subsidiaries and the Fund:

30-Jan-2006 "Calpine Power Income Fund And Its Manager In Dispute Over Management Matters"
30-Jan-2006 "Calpine Power Income Fund Announces Default Avoided On Its King City Project"
08-Dec-2005 "Calpine Power Income Fund Announces Change To Board"
and so on...
www.calpinepif.com/investors/news.php

Interesting tidbit: One of the "independent" trustees of the Fund is Murray Birch. Some may remember Mr. Birch. He's the guy that stepped down as a commissioner conducting the BCUC review of the BC Hydro - Duke Point Power EPA. It was the work of Bill Andrews, counsel for the GSX Concerned Citizens Coalition that forced this issue, and caused Mr. Birch to jump before he was pushed. The issue? Mr. Birch was acting CEO of Alliance Pipeline, and it was inappropriate that he preside over a decision related to energy purchases. It would have made an even juicier "apprehension of bias" had we been aware of his role with respect to the Calpine Fund and Island Cogen.
http://www.sqwalk.com/blog2004/000241.html

Hmm. Does this mean anything for Island Cogen? Probably not. As a new facility with a long-term customer for all its product, if Calpine or the Fund go awry, the Island Cogen asset will not fail to attract new owners.

Here's what the markets think of this:

Calpine Power Income Fund (CF.UN:TSX)

The Fund took a hit when the Calpine Chapter 11 filing happened in December, but it seems to have recovered somewhat.

Calpine Corp. (CPN: NYSE)

Oops.