Judge Refuses to Consider Voiding Calpine Contracts

A federal judge said Calpine Corp. (CPN), the power-plant owner that filed the largest bankruptcy of 2005, needs regulatory approval to drop eight money-losing contracts.

U.S. District Judge Richard Casey in New York rejected Calpine's request to consider voiding the power contracts and impose new terms on customers. Utilities owned by Edison International (EIX) and PG&E Corp. (PCG) said the matter should be decided by the Federal Energy Regulatory Commission. The judge agreed.

FERC ``has exclusive jurisdiction over the disposition of the energy contracts in this case,'' Casey said in a 19-page decision. He lifted an order restricting FERC from determining what happens to the energy contracts.

Calpine said in December that it's losing about $1.1 million a day on the contracts. Earlier this month, FERC said it had no intention of considering Calpine's request.

``A solvent company could not choose to stop performance and expect anything other than swift FERC action,'' Casey said. ``The bankruptcy code should not be read to interfere with FERC jurisdiction.''

Calpine plans to appeal the decision, company spokeswoman Katherine Potter said. ``The decision does not address the merits of the contract rejection. We do believe there is a compelling case for rejection of these power contracts.''

Potter said Calpine's power plants will continue normal operations.

Increase Cost

Brian Grieco, a lawyer with Hogan and Hartson who's representing Edison, declined to comment. ``The decision speaks for itself,'' he said.

FERC spokesman Bryan Lee said the commission had no comment on the ruling. ``We still have it under review,'' he said in a telephone interview.

In addition to the utilities, California Attorney General Bill Lockyer also opposes Calpine's bid to have a federal judge toss out the contracts, saying such a move would increase the cost of power in his state.

The largest contract Calpine wants to drop is one with the California Department of Water Resources for 1,000 megawatts of power, enough for 800,000 average U.S. homes around-the-clock until the end of 2009. Canceling that contract would have cost ratepayers an additional $900 million for electricity, Lockyer said.

The agency has been paying $59.60 per megawatt for the electricity, used by customers of PG&E. The agency bought power for the utility after it became insolvent in 2001.

Gas Prices Tripled

Calpine said it would lose $663 million over the life of the state contract. Natural gas prices have tripled since the agreement was last renegotiated in April 2001.

Casey is the same judge who ruled in 2003 that a federal court could not intervene in the commission's decision to force then-bankrupt NRG Energy Inc. (NRG) to continue supplying power to a subsidiary of Northeast Utilities under a money-losing deal.

Calpine filed for bankruptcy on Dec. 20 with $26.6 billion in assets and more than $22.5 billion in debt. The filing followed the ouster of top executives after they lost a three- month fight with bondholders over the right to use proceeds from asset sales to buy fuel.

Calpine's 8.5 percent note maturing in 2008 rose 2 cents today to 37 cents on the dollar, as of 4:10 p.m. in New York, according to Trace, the bond-price reporting system of the NASD.

The bankruptcy case is Calpine Corp., 05-60200, U.S. Bankruptcy Court, Southern District of New York.

To contact the reporter on this story: Tom Becker in the New York federal court at tbecker5@bloomberg.net.

To contact the editor responsible for this story: Patrick Oster at poster@Bloomberg.net

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