Calpine's CEO, CFO give up jobs in shake-up

Calpine board member Kenneth Derr, who retired as Chevron Corp.’s CEO in 1999, will lead the company temporarily. Eric Pryor, a Kelly subordinate, is now Calpine’s interim CFO.

Cartwright, 75, and Kelly, 47, presided over an aggressive expansion that transformed once-tiny Calpine into one of the nation’s largest wholesalers of electricity. The company operates 92 plants in 21 states and Canada with a total capacity of 26,500 megawatts — enough to provide power to about 20 million homes.

But the buildup saddled Calpine with heavy debt that has become even more burdensome as the company’s losses have piled up during the past two years amid weak customer demand and rising expenses for natural gas — the fuel that it relied upon to generate a more environmental-friendly form of electricity.

Calpine’s escalating problems have raised worries that the company will seek refuge in bankruptcy court, despite Cartwright’s resolve to avoid that desperate measure.

With Calpine’s founder out of the way, "the probability of a bankruptcy is somewhat higher than before,” said Maxcor Financial analyst Daniele Seitz.

That prospect alarmed investors as Calpine’s shares lost more than half their value, plunging 71 cents Tuesday to close at 54 cents on the New York Stock Exchange.

The price decline served as another sobering reminder of how far the company has fallen since its profits soared along with electricity prices five years ago. Calpine’s annual profit peaked at $648 million in 2001 — a year in which the company’s shares climbed above $58.

Calpine’s fortunes declined along with electricity prices after 2001. More recently, the company has been stung by rising costs for natural gas. The combination has lumped Calpine with losses totaling $926 million since the end of 2001.

The ill-advised expansion has left Calpine with debts totaling $17.2 billion through September — a huge load for a company whose market value has shriveled below $400 million.

The company’s downfall made it only a matter of time before Calpine’s board jettisoned Cartwright, Seitz said. "Investors were so angry that something had to give,” she said. "I am sure the board heard an earful of disconcerted expression.”

Calpine spokeswoman Katherine Potter declined to comment on the reasons for Cartwright’s departure. Efforts to contact Cartwright at home Tuesday were unsuccessful.

Calpine intends to hire permanent replacement for Cartwright within a few weeks, Potter said.

The announcement of Cartwright’s departure coincides with the sudden availability of two executives credited for helping to turn around Dynegy Inc., another once high-flying power wholesaler whose stock price plummeted below $1 as its finances unraveled three years ago.

With its stock price now back above $4, Dynegy said Tuesday that Nick J. Caruso, who helped orchestrate the recovery as chief financial officer, will be leaving the Houston-based company along with Carol F. Graebner, who had been general counsel. A Dynegy spokesman declined to discuss the executives’ future plans.

Derr, who has been a Calpine director since 2001, has a history with Dynegy. Chevron first acquired its 37 percent stake in Dynegy while Derr was running Chevron.

Whomever takes the reins at Calpine will probably try to raise money to repay debt by selling more of the company’s power plants — a process that Cartwright had already started earlier this year.

Cartwright had hoped to reduce the company’s debt by $3 billion this year, but Calpine warned earlier this month that it probably wouldn’t attain the goal. Calpine has pared its debt by about $800 million since the end of 2004.

Even Calpine’s debt-reduction efforts came back to bite the company during the summer when management used more than $300 million from an asset sale to buy more natural gas.

Some of the bondholders holding Calpine’s debt protested, arguing the company should hold on the money to cover its bills. The dispute prompted a bank trustee in September to freeze about $400 million being held in an escrow court.

Calpine sued for its right to withdraw that money only to suffer another setback last week in the Delaware Court of Chancery, where a judge ruled the company has previously misspent $313 million. The bondholders want Calpine to return the money to the escrow account, but Judge Leo Strine still hasn’t decided on a remedy.<