CPN Calpine Corp.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Form 10-Q

	(Mark One)
	[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011
Or
	[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission File No. 001-12079

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Calpine Corporation

(A Delaware Corporation)

I.R.S. Employer Identification No. 77-0212977

717 Texas Avenue, Suite 1000, Houston, Texas 77002

Telephone: (713) 830-2000

Not Applicable

(Former Address)

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. [X] Yes[   ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes[   ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer	[X]	Accelerated filer	[   ]
	Non-accelerated filer	[   ]    (Do not check if a smaller reporting company)	Smaller reporting company	[   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[   ] Yes               [X] No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

[X] Yes               [   ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 487,845,813 shares of common stock, par value $0.001 per share, outstanding on October 25, 2011.

 
 

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CALPINE CORPORATION AND SUBSIDIARIES

REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2011

INDEX
	Page
Definitions	iii
Forward-Looking Statements	ix
Where You Can Find Other Information	x
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010	1
Consolidated Condensed Balance Sheets at September 30, 2011, and December 31, 2010	2
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010	3
Notes to Consolidated Condensed Financial Statements	5
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Introduction and Overview	32
Results of Operations	37
Commodity Margin and Adjusted EBITDA	43
Liquidity and Capital Resources	51
Risk Management and Commodity Accounting	59
New Accounting Standards and Disclosure Requirements	62
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.  Controls and Procedures	63
PART II — OTHER INFORMATION
Item 1.  Legal Proceedings	64
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 6.  Exhibits	65
Signatures	66

 
 

DEFINITIONS

As used in this Report, the following abbreviations and terms have the meanings as listed below. Additionally, the terms “Calpine,” “we,” “us” and “our” refer to Calpine Corporation and its consolidated subsidiaries, unless the context clearly indicates otherwise. The term “Calpine Corporation” refers only to Calpine Corporation and not to any of its subsidiaries. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Report.

ABBREVIATION		DEFINITION
2010 Form 10-K		Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on February 17, 2011
2017 First Lien Notes		The $1.2 billion aggregate principal amount of 7.25% senior secured notes due 2017, issued October 21, 2009, in exchange for a like principal amount of term loans under the First Lien Credit Facility
2019 First Lien Notes		The $400 million aggregate principal amount of 8.0% senior secured notes due 2019, issued May 25, 2010
2020 First Lien Notes		The $1.1 billion aggregate principal amount of 7.875% senior secured notes due 2020, issued July 23, 2010
2021 First Lien Notes		The $2.0 billion aggregate principal amount of 7.50% senior secured notes due 2021, issued October 22, 2010
2023 First Lien Notes		The $1.2 billion aggregate principal amount of 7.875% senior secured notes due 2023, issued January 14, 2011
AB 32		California Assembly Bill 32
Adjusted EBITDA		EBITDA as adjusted for the effects of (a) impairment charges, (b) major maintenance expense, (c) operating lease expense, (d) unrealized gains or losses on commodity derivative mark-to-market activity, (e) adjustments to reflect only the Adjusted EBITDA from our unconsolidated investments, (f) stock-based compensation expense, (g) gains or losses on sales, dispositions or retirements of assets, (h) non-cash gains and losses from foreign currency translations, (i) gains or losses on the repurchase or extinguishment of debt, (j) Conectiv acquisition-related costs, (k) Adjusted EBITDA from our discontinued operations, (l) reorganization items and (m) other extraordinary, unusual or non-recurring items
Aircraft Services		Aircraft Services Corporation, an affiliate of GE Energy Financial Services, Inc.
AOCI		Accumulated Other Comprehensive Income
Average availability		Represents the total hours during the period that our plants were in-service or available for service as a percentage of the total hours in the period
Average capacity factor, excluding peakers		Represents a measure of total actual generation as a percent of total potential generation. It is calculated by dividing (a) total MWh generated by our power plants, excluding peakers, by (b) the product of multiplying (i) the average total MW in operation, excluding peakers, during the period by (ii) the total hours in the period
BLM		Bureau of Land Management of the U.S. Department of the Interior
Blue Spruce		Blue Spruce Energy Center, LLC, formerly an indirect, wholly owned subsidiary that owned Blue Spruce Energy Center, a 310 MW natural gas-fired, peaker power plant located in Aurora, Colorado, which was sold on December 6, 2010
Btu		British thermal unit(s), a measure of heat content

CAA		Federal Clean Air Act, U.S. Code Title 42, Chapter 85
CAISO		California Independent System Operator
CalGen		Calpine Generating Company, LLC, an indirect, wholly owned subsidiary
CalGen Third Lien Debt		Together, the $680 million Third Priority Secured Floating Rate Notes Due 2011, issued by CalGen and CalGen Finance Corp.; and the $150 million 11.50% Third Priority Secured Notes Due 2011, issued by CalGen and CalGen Finance Corp., in each case repaid on March 29, 2007
Calpine Equity Incentive Plans		Collectively, the Director Plan and the Equity Plan, which provide for grants of equity awards to Calpine employees and non-employee members of Calpine’s Board of Directors
CARB		California Air Resources Board
CCFC		Calpine Construction Finance Company, L.P., an indirect, wholly owned subsidiary
CCFC Notes		The $1.0 billion aggregate principal amount of 8.0% Senior Secured Notes due 2016 issued May 19, 2009, by CCFC and CCFC Finance Corp.
CEHC		Conectiv Energy Holding Company, LLC, a wholly owned subsidiary of Conectiv
Chapter 11		Chapter 11 of the U.S. Bankruptcy Code
CO 2		Carbon dioxide
COD		Commercial operations date
Cogeneration		Using a portion or all of the steam generated in the power generating process to supply a customer with steam for use in the customer’s operations
Commodity expense		The sum of our expenses from fuel and purchased energy expense, fuel transportation expense, transmission expense and cash settlements from our marketing, hedging and optimization activities including natural gas transactions hedging future power sales that are included in our mark-to-market activity in fuel and purchased energy expense, but excludes the unrealized portion of our mark-to-market activity
Commodity Margin		Non-GAAP financial measure that includes power and steam revenues, sales of purchased power and physical natural gas, capacity revenue, REC revenue, sales of surplus emission allowances, transmission revenue and expenses, fuel and purchased energy expense, fuel transportation expense, RGGI compliance and other environmental costs, and cash settlements from our marketing, hedging and optimization activities including natural gas transactions hedging future power sales that are included in mark-to-market activity, but excludes the unrealized portion of our mark-to-market activity and other revenues
Commodity revenue		The sum of our revenues from power and steam sales, sales of purchased power and physical natural gas, capacity revenue, REC revenue, sales of surplus emission allowances, transmission revenue, and cash settlements from our marketing, hedging and optimization activities that are included in our mark-to-market activity in operating revenues, but excludes the unrealized portion of our mark-to-market activity
Company		Calpine Corporation, a Delaware corporation, and its subsidiaries
Conectiv		Conectiv, LLC, a wholly owned subsidiary of PHI

Conectiv Acquisition		The acquisition of all of the membership interests in CEHC pursuant to the Conectiv Purchase Agreement on July 1, 2010, whereby we acquired all of the power generation assets of Conectiv from PHI, which included 18 operating power plants and York Energy Center that was under construction and achieved COD on March 2, 2011, with 4,491 MW of capacity
Conectiv Purchase Agreement		Purchase Agreement by and among PHI, Conectiv, CEHC and NDH dated as of April 20, 2010
Corporate Revolving Facility		The $1.0 billion aggregate revolving credit facility credit agreement, dated as of December 10, 2010, among Calpine Corporation, Goldman Sachs Bank USA, as administrative agent, Goldman Sachs Credit Partners L.P., as collateral agent, the lenders party thereto and the other parties thereto
CPUC		California Public Utilities Commission
Director Plan		The Amended and Restated Calpine Corporation 2008 Director Incentive Plan
Dodd-Frank Act		The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EBITDA		Earnings before interest, taxes, depreciation and amortization
Effective Date		January 31, 2008, the date on which the conditions precedent enumerated in the Plan of Reorganization were satisfied or waived and the Plan of Reorganization became effective
Emergence Date Market Capitalization		The weighted average trading price of Calpine Corporation’s common stock over the 30-day period following the date on which it emerged from Chapter 11 bankruptcy protection, as defined in and calculated pursuant to Calpine Corporation’s amended and restated certificate of incorporation and reported in its Current Report on Form 8-K filed with the SEC on March 25, 2008
EPA		U.S. Environmental Protection Agency
Equity Plan		The Amended and Restated Calpine Corporation 2008 Equity Incentive Plan
ERCOT		Electric Reliability Council of Texas
Exchange Act		U.S. Securities Exchange Act of 1934, as amended
FDIC		U.S. Federal Deposit Insurance Corporation
FERC		U.S. Federal Energy Regulatory Commission
First Lien Credit Facility		Credit Agreement, dated as of January 31, 2008, as amended by the First Amendment to Credit Agreement and Second Amendment to Collateral Agency and Intercreditor Agreement, dated as of August 20, 2009, among Calpine Corporation, as borrower, certain subsidiaries of the Company named therein, as guarantors, the lenders party thereto, Goldman Sachs Credit Partners L.P., as administrative agent and collateral agent, and the other agents named therein
First Lien Notes		Collectively, the 2017 First Lien Notes, the 2019 First Lien Notes, the 2020 First Lien Notes, the 2021 First Lien Notes and the 2023 First Lien Notes
GE		General Electric International, Inc.
Geysers Assets		Our geothermal power plant assets, including our steam extraction and gathering assets, located in northern California consisting of 15 operating power plants and one plant not in operation
GHG(s)		Greenhouse gas(es), primarily carbon dioxide (CO 2 ), and including methane (CH 4 ), nitrous oxide (N 2 O), sulfur hexafluoride (SF 6 ), hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs)

Greenfield LP		Greenfield Energy Centre LP, a 50% partnership interest between certain of our subsidiaries and a third party which operates the Greenfield Energy Centre, a 1,038 MW natural gas-fired, combined-cycle power plant located in Ontario, Canada
Heat Rate(s)		A measure of the amount of fuel required to produce a unit of power
ISRA		Industrial Site Recovery Act
kWh		Kilowatt-hour(s), a measure of power produced
LIBOR		London Inter-Bank Offered Rate
Los Esteros Project Debt		Credit Agreement dated August 23, 2011, between Los Esteros Critical Energy Facility, LLC, as borrower, and the lenders named therein
Mankato		Mankato Energy Center, a 375 MW natural gas-fired, combined-cycle power plant located in Mankato, Minnesota
Market Capitalization		As of any date, Calpine Corporation’s then market capitalization calculated using the rolling 30-day weighted average trading price of Calpine Corporation’s common stock, as defined in and calculated in accordance with the Calpine Corporation amended and restated certificate of incorporation
Market Heat Rate(s)		The regional power price divided by the corresponding regional natural gas price
MMBtu		Million Btu
MRTU		CAISO’s Market Redesign and Technology Upgrade
MW		Megawatt(s), a measure of plant capacity
MWh		Megawatt hour(s), a measure of power produced
NDH		New Development Holdings, LLC, an indirect, wholly owned subsidiary
NDH Project Debt		The $1.3 billion senior secured term loan facility and the $100 million revolving credit facility issued on July 1, 2010, under the credit agreement, dated as of June 8, 2010, among NDH, as borrower, Credit Suisse AG, as administrative agent, collateral agent, issuing bank and syndication agent, Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc. and Deutsche Bank Securities Inc., as joint book-runners and joint lead arrangers, Credit Suisse AG, Citibank, N.A., and Deutsche Bank Trust Company Americas, as co-documentation agents and the lenders party thereto repaid on March 9, 2011
New Term Loan		The $360 million first lien senior secured term loan, dated June 17, 2011, among Calpine Corporation, as borrower, and the lenders party hereto, and Morgan Stanley Senior Funding, Inc., as administrative agent and Goldman Sachs Credit Partners L.P., as collateral agent
NOL(s)		Net operating loss(es)
NOx		Nitrogen oxides
NYMEX		New York Mercantile Exchange
OCI		Other Comprehensive Income
OMEC		Otay Mesa Energy Center, LLC, an indirect, wholly owned subsidiary that owns the Otay Mesa Energy Center, a 608 MW natural gas-fired, combined-cycle power plant located in San Diego county, California

OTC		Over-the-Counter
PG&E		Pacific Gas & Electric Company
PHI		Pepco Holdings, Inc.
PJM		Pennsylvania – New Jersey – Maryland Interconnection
Plan of Reorganization		Sixth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the U.S. Bankruptcy Code filed by the U.S. Debtors with the U.S. Bankruptcy Court on December 19, 2007, as amended, modified or supplemented through the filing of this Report
PPA(s)		Any term power purchase agreement or other contract for a physically settled sale (as distinguished from a financially settled future, option or other derivative or hedge transaction) of any power product, including power, capacity and/or ancillary services, in the form of a bilateral agreement or a written or oral confirmation of a transaction between two parties to a master agreement, including sales related to a tolling transaction in which the purchaser provides the fuel required by us to generate such power and we receive a variable payment to convert the fuel into power and steam
PUCT		Public Utility Commission of Texas
PURPA		U.S. Public Utility Regulatory Policies Act of 1978
QF(s)		Qualifying facility(ies), which are cogeneration facilities and certain small power production facilities eligible to be “qualifying facilities” under PURPA, provided that they meet certain power and thermal energy production requirements and efficiency standards. QF status provides an exemption from U.S. Public Utility Holding Company Act of 2005 and grants certain other benefits to the QF
REC		Renewable Energy Credit
RGGI		Regional Greenhouse Gas Initiative
Rocky Mountain		Rocky Mountain Energy Center, LLC, formerly an indirect, wholly owned subsidiary that owned Rocky Mountain Energy Center, a 621 MW natural gas-fired, combined-cycle power plant located in Keenesburg, Colorado, which was sold on December 6, 2010
RPS		Renewable Portfolio Standards
Russell City		Russell City Energy Center, a 619 MW natural gas-fired, combined-cycle power plant under construction and located in Hayward, California, of which, Calpine owns 75%
Russell City Project Debt		Credit Agreement dated June 24, 2011, between Russell City Energy Company, LLC, as borrower, and the lenders named therein
SEC		U.S. Securities and Exchange Commission
SO 2		Sulfur dioxide
South Point		South Point Energy Center, a 530 MW natural gas-fired, combined-cycle power plant located in Mohave Valley, Arizona
Spark Spread(s)		The difference between the sales price of power per MWh and the cost of fuel to produce it

Steam Adjusted Heat Rate		The adjusted Heat Rate for our natural gas-fired power plants, excluding peakers, calculated by dividing (a) the fuel consumed in Btu reduced by the net equivalent Btu in steam exported to a third party by (b) the kWh generated. Steam Adjusted Heat Rate is a measure of fuel efficiency, so the lower our Steam Adjusted Heat Rate, the lower our cost of generation
Term Loan		The $1.3 billion first lien senior secured term loan, dated March 9, 2011, among Calpine Corporation, as borrower, and the lenders party hereto, and Morgan Stanley Senior Funding, Inc., as administrative agent, Goldman Sachs Credit Partners L.P., as collateral agent, Citibank, N.A., Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc., as co-documentation agents and Goldman Sachs Bank USA as syndication agent
U.S. Debtors		Calpine Corporation and each of its subsidiaries and affiliates that filed voluntary petitions for reorganization under Chapter 11 of the U.S. 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. 05-60200 (BRL)
U.S. GAAP		Generally accepted accounting principles in the U.S.
VAR		Value-at-risk
VIE(s)		Variable interest entity(ies)
Whitby		Whitby Cogeneration Limited Partnership, a 50% partnership interest between certain of our subsidiaries and a third party which operates the Whitby 50 MW natural gas-fired, simple-cycle cogeneration power plant located in Ontario, Canada
York Energy Center		565 MW dual fuel, combined-cycle generation power plant (formerly known as the Delta Project) located in Peach Bottom Township, Pennsylvania, included in the Conectiv Acquisition, which achieved COD on March 2, 2011

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Forward-looking statements may appear throughout this report, including without limitation, “Management’s Discussion and Analysis.” We use words such as “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will,” “should,” “estimate,” “potential,” “project” 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:

 

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Financial results that may be volatile and may not reflect historical trends due to, among other things, fluctuations in prices for commodities such as natural gas and power, changes in U.S. macroeconomic conditions, fluctuations in liquidity and volatility in the energy commodities markets and our ability to hedge risks;

 

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Regulation in the markets in which we participate and our ability to effectively respond to changes in laws and regulations or the interpretation thereof including changing market rules and evolving federal, state and regional laws and regulations including those related to the environment and derivative transactions;

 

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The unknown future impact on our business from the Dodd-Frank Act and the rules to be promulgated under it;

 

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Our ability to manage our liquidity needs and to comply with covenants under our First Lien Notes, Corporate Revolving Facility, Term Loan, New Term Loan, CCFC Notes and other existing financing obligations;

 

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Risks associated with the operation, construction and development of power plants including unscheduled outages or delays and plant efficiencies;

 

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Risks related to our geothermal resources, including the adequacy of our steam reserves, unusual or unexpected steam field well and pipeline maintenance requirements, variables associated with the injection of wastewater to the steam reservoir and potential regulations or other requirements related to seismicity concerns that may delay or increase the cost of developing or operating geothermal resources;

 

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Competition, including risks associated with marketing and selling power in the evolving energy markets;

 

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The expiration or early termination of our PPAs and the related results on revenues;

 

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Future capacity revenues may not occur at expected levels;

 

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Natural disasters, such as hurricanes, earthquakes and floods, acts of terrorism or cyber attacks that may impact our power plants or the markets our power plants serve and our corporate headquarters;

 

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Disruptions in or limitations on the transportation of natural gas, fuel oil and transmission of power;

 

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Our ability to manage our customer and counterparty exposure and credit risk, including our commodity positions;

 

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Our ability to attract, motivate and retain key employees;

 

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Present and possible future claims, litigation and enforcement actions; and

 

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Other risks identified in this Report and our 2010 Form 10-K.

Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. Our forward-looking statements speak only as of the date of this Report. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

Where You Can Find Other Information

Our website is www.calpine.com. Information contained on our website is not part of this Report. Information that we furnish or file with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to or exhibits included in these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are also available at the SEC’s website at www.sec.gov. You may obtain and copy any document we furnish or file with the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may 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.

 
 

PART I –– FINANCIAL INFORMATION

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