project finance loans, private placements, leveraged leases and open-ended revolving credits.
Calpine’s financing of a 240 MW gas-fired power project in Pasadena, Texas, in 1996 is con-
sidered to have been the first merchant power project financing in the US market. The com-
pany’s US$170 million financing for a power plant in Tiverton, Rhode Island, in 1998
included a two-year construction loan and a five-year term loan, which made it the first appli-
cation of mini-perm financing in the US domestic IPP industry. In 1999 Calpine created the
first open-ended revolving-credit project finance construction facility for a portfolio of green-
field merchant plants. It was worth US$1 billion and had a term of four years. Under a simi-
lar but larger financing in 2000 Calpine was able to borrow for the advance purchase of new
turbines as well as for new plant construction. This new approach to power plant construction
financing was motivated by an evolving merchant power environment that made traditional
project financing difficult in view of Calpine’s extraordinary growth rate.
Background
Profile of Calpine
Calpine is based in San Jose, California. The company was founded in 1984 by Peter
Cartwright and Electrowatt, a Swiss engineering firm. The name is a portmanteau word based
on ‘California’ and ‘Alpine’.
Calpine has grown substantially in recent years and continues to have ambitious growth
targets. As of March 2001 the company owned interests in 50 power plants with a net capac-
ity of 5,849 MW. It also had 25 gas-fired plants under construction and had announced plans
to develop an additional 28 gas-fired projects, including new power plants and expansions of
current facilities, with a net capacity of 15,142 MW. Upon completion of the projects under
construction Calpine expected to have interests in 74 power plants in 21 states with a total net
capacity of 19,877 MW. Of this total generating capacity, 96 per cent would be attributable
to gas-fired facilities and 4 per cent to geothermal facilities. As a result of its expansion pro-
gramme Calpine’s revenues, cash flow, earnings, and assets grew significantly in the period
1996–2000, as shown in Exhibit 14.1.
Calpine has remained profitable and its business does not resemble Enron’s. However, it
has recently had to scale back its acquisition and capital spending plans, sell nonstrategic
assets, and reduce debt, because of the weakness of the US economy, falling electricity prices
and overall industry risk concerns stemming
from the Enron bankruptcy.
The US power market
The power industry is the third largest industry
in the United States, with end-user electricity
sales of over US$215 billion in 2000, produced
by power generation facilities with 860,000
MW of capacity. In response to increasing cus-
tomer demand for access to low-cost electrici-
ty and enhanced services, new regulatory
initiatives have been adopted, at both the fed-
eral and the state level, to increase competition
CALPINE, UNITED STATESExhibit 14.1
Calpine’s growth record, 1996–2000Compound
1996 2000 annual
(US$ (US$ growth
millions) millions) rate (%)
Total revenue 214.6 2,282.8 81
EBITDA 110.7 825.9 65
Net income 18.7 323.5 104
Total assets 1,031.4 9,737.5 75
Source: Company Annual Report.