Calpine granted court OK of power purchase agreement reinstatement

By Caroline Salls

Pittsburgh, Nov. 15 - Calpine Corp. obtained court approval of a power purchase agreement reinstatement agreement with Otay Mesa Energy Center, LLC and San Diego Gas & Electric Co. that will allow it to continue power plant development, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The company also received court approval for debtor Calpine Power Co. to pledge its membership interest in Otay Mesa to third-party project financing parties in connection with Otay Mesa's incurrence of enough debt financing for the acquisition, construction, ownership, operation, maintenance or leasing of a 596-megawatt gas-fired combined cycle power plant in San Diego County, Calif., which is under development.

Calpine will post a $25 million letter of credit in support of the amended power purchase agreement, and Calpine will make up to $35 million in additional capital contributions to Otay Mesa to advance the development and engineering of the project and to ensure Otay Mesa will be able to obtain project financing.

Calpine also received court confirmation that $28.4 million intercompany payables due to Calpine from Otay Mesa are characterized as equity in Calpine Power and ultimately as investments in Otay Mesa.

According to the motion, Calpine Power, the direct parent of Otay Mesa, and Calpine, the direct parent of Calpine Power, will ultimately realize about $113 million to $130 million in estimated equity value related to the Otay Mesa project.

Calpine said a critical element of the project's ultimate viability and its timely start of operations is entry into a long-term power purchase agreement with San Diego Gas & Electric, under which Otay Mesa will provide energy, capacity and ancillary services to in exchange for payment and other services.

Calpine, a San Jose, Calif.-based power company, filed for bankruptcy on Dec. 20, 2005. Its Chapter 11 case number is 05-60200.

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