Calpine Goes for the Win-Win
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In the recently deregulated California energy industry, the Calpine Corporation of San Jose, CA, has charged out in front as what Electric Light & Power (EL&P) calls "one of the nation's fastest growing independent power producers (IPPs)." What is the key to their success? The answer is that Calpine simply goes for win-win business solutions; they strive to meet not only their own goals, but also those of their customers, investors, neighbors, employees, and even the environment. Much of this is reflected in their mission statement: "Calpine is a fully integrated power company dedicated to providing customers with low-cost, reliable and environmentally sound electricity."
Calpine began operation in 1984 as a company that provides management services to other IPPs. Since then it has become a major player, earning $45.7 million in 1998 income, and 555.9 million in gross revenue for the same year, according to EL&P. These numbers are double those of 1997 figures.
To achieve this growth, Calpine's approach seems to include investing wisely in construction projects and acquisitions, improving the efficiency and "cleanliness" of their power plants, and employing a talented, entrepreneurial staff. These three strengths enable win-win solutions for Calpine and the public. N/AE="1">Acquiring More "Power"
The recent deregulation of the California energy industry allows IPPs like Calpine to pursue rapid growth by building new power plants and purchasing existing power plants. Calpine has taken advantage of this situation to focus on combined-cycle, gas-fired power and geothermal power. Both are efficient, clean, sources of energy, and Calpine builds or acquires plants that its staff find "meet [their] stringent criteria, provide significant potential for revenue, cash flow and earnings growth and provide the opportunity to enhance operating efficiencies."
One example of a well-calculated construction choice is Calpine's recent commitment to build on the Fort Mojave Indian Reservation in Arizona. After 18 months of stringent environmental review, Calpine broke ground on May 21, 1999 to build a state-of-the-art, clean, safe, and efficient, natural gas-fired power plant. The 540-MW, $275-million plant is scheduled to begin operation in early 2001. The construction project alone will create 250 jobs, 20 staff members will operate the completed plant, and the project will generate property taxes for tribal educational and community programs. This is a win-win business plan: the plant will add to tribal economic development while providing clean, competitively-priced power to Arizona, Nevada, and California energy markets.
In addition to funding strategic, new power plants, Calpine also purchases aging power plants, refurbishes them, and operates them at a profit by improving their efficiency. At least 23 such acquisitions are already complete, including two recent purchases of geothermal power plants and steam fields at The Geysers 90 miles northeast of San Francisco. In March 1999, Calpine paid $101 million for steam fields that supply geothermal energy to nearby plants. Two months later they paid $212.8 million for the 14 geothermal power plants in the area, allowing them to integrate the steam field and power plant operations into an efficient, unified system. Tapping into the world's largest geothermal resource, the newly acquired plants provide more than 1000 MW of capacity. The purchase also makes Calpine the nation's largest geothermal and green power producer.
Upon completion of current projects and acquisitions, Calpine will reach a capacity of more than 7,200 MW in 11 states across the U.S. And according to Business Wire, Calpine's five-year plan is to boast 15,000 MW of "clean, competitively-priced power generation in key energy markets across the nation." But Calpine seems interested in more than "acquiring more power." In many press releases, articles, and quotes, the following terms appear regularly: green, clean, environmentally friendly, and efficient.
The pet peeve of Peter Cartwright, Calpine's CEO and chairman, is inefficient power plants. April C. Murelio, associate editor at EL&P, quotes Cartwright as saying, "We don't drive 30-year-old cars, or operate 30-year-old computers, or use 30-year-old telephones, so why do we continue to generate electricity and pollute our air with aging power plants? It doesn't really make sense, and it certainly doesn't make sense in a competitive market." Cartwright has pointed out that approximately 45% of today's operating power plants are more than 25 years old, 18% are more than 35 years old, and "many are much older." By eliminating inefficient plants, Cartwright sees a potential for $20 to $40 billion in national annual fuel savings, as well as positive benefits to our environment.
Calpine's niche, then, is building or refurbishing power plants so that they are efficient, clean, and competitive. Calpine clearly considers more than just making a profit; they care about the industry, the technology, their impact on communities, and their effect on the environment.
This "big picture" attitude seems to start at the top and trickle down through the company business. Calpine executives and spokespersons repeatedly stress that the company wants to run the safest, cleanest, and most technologically-advanced, efficient, and competitive power plants across the United States.
These admirable goals and the constant flow of construction projects and acquisitions are a lot to manage. Employing a talented, experienced, innovative and forward-thinking staff, Calpine moves forward steadily. Their Website indicates that they believe their competitive advantage comes from "expertise in design engineering, procurement, finance, construction management, fuel and resource acquisition, operations and power marketing." Despite low unemployment nationally and the difficulty in locating, training, and then holding onto high-quality personnel, Calpine seems to be prospering. Somehow, they've developed a way of attracting, incentivizing, and otherwise motivating a devoted team with diverse backgrounds. Other firms could probably learn lessons from Calpine's staffing strategy.
Calpine clearly sees deregulation as an opportunity—their prosperity and tremendous growth attests to it. They examine local needs and markets, carefully pick new projects, and make wise construction and acquisition decisions. They consider benefits not only to themselves, but also benefits to communities and the environment. In addition, the Calpine staff clearly maintains a high standard of expertise in technical knowledge and research, management skills, finance, and marketing. As Calpine shows: one must be multi-dimensional to be successful.
Steve Hoffman is president of <%=company%>, a California-based firm that specializes in writing for the energy industry. His column appears every Monday on poweronline.
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