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December 02, 2005
California Energy Company in Big Trouble
Did you hear about CalPine? They were one of the largest electrical generators in the U.S. and California and they also have the largest number of natural gas fired generators. CalPine uses a modern triple recovery turbine which makes the process very clean and efficient. That's the good part. The bad part is these generators are not efficient enough to be cost effective at today's spot price on natural gas.
Two years ago the stock was trading around $80, today it hit .30 cents. Ouch!
CPN was beset by a lot of problems, but the biggest flaw was it's business model, that demanded the continued low cost of natural gas in order to be competitive. That theory almost bankrupted the State of California two years ago when the state's big energy plan did not allow Pacific Gas and Electric (PCG) to pass along increased wholesale prices for energy to consumers, thus defying one of the most basic laws of economics. CPN was similarly unprepared to meet today's high wholesale cost for natural gas. This has made their fleet of gas fired generators cost inefficient when compared to all other forms of energy generation.
CPN announced today they will not be able to meet their debt obligations and reiterated they may be seeking bankruptcy protection. How this will affect electrical rates in California remains to be seen, but I would think it won't be good. We may see a government bailout to keep these costly (but clean) natural gas generators going or we could see rate increases in line with NG price hikes, or they could head straight into bankruptsy, among a number of choices now on the table.
Posted by Post Scripts at December 2, 2005 12:12 PM
Comments
They have that nice nuclear plant sitting dormant. Perhaps they could use that.
Posted by: Jordan Frazer at December 5, 2005 08:45 AM