Reliant Energy Services earned $3.5 million by overscheduling power last summer.This is a substantial amount of money, but it's so little compared to the magnitude of the overall energy crisis that it makes me wonder what's going on here.
There's no way you can shift blame from Davis to energy companies unless you find profits that are substantial, not puny.
Dog Gone, I'm about to make a very small investment in Calpine. I remember you were broadly against it; could you summarize your reasons again? It seems to me that Calpine was unfairly tarred with the Enron brush, and so it should pop back up to a higher amount, say $20 or so from its current value of under $10. I have a great deal of respect for your judgement in these matters, so your ideas would be appreciated.
D
My bias against Calpine was largely derived from the fact that it was California's biggest private power producer, selling at the same spot market as everyone else, but was immune to any criticism (and rarely even a mention) by Governor Davis. Then the cronyism links and financial ties to the Davis administration started coming out, and I thought it stunk.
Calpine was doing many of the same things as Enron insofar as trading power and booking a lot of profits that weren't very real. But one big difference is that Calpine really did generate electricity and there are hard assets in that company.
It's quite obvious that they bit off more than they could chew in terms of expansion plans, and they've had to cancel or "postpone indefinitely" a majority of their new plant projects. They've taken a major beating in the credit markets and they are clearly in far worse shape than they were before this whole episode began.
I simply don't know what the book value of their current assets are, and it's entirely possible that the stock has been oversold. It seems likely to me that the entire power sector has been oversold as nervous investors are dumping everything related to power.
That probably means that some of these stocks are selling at a bargain rate right now because this country needs more of what these companies are selling. Whichever companies pick up the pieces and become dominant are likely to score major gains in the years ahead.
Whether Calpine is one of those, I'm not sure. They made some really bad decisions that cost them billions of dollars, and the management hasn't changed.
Maybe they've learned from their lesson, but I'm not convinced of it. They still want to invest hundreds of millions of dollars in California power plants, and California has demonstrated repeatedly that it's willing to put hundreds of millions of costly roadblocks in the path of power generators.
If you're making a small investment, I wouldn't oppose investing in Calpine. I think if you want to be sure of some solid gains with a larger investment, I would buy stock in several of these companies because the sector, as a whole, is certain to rebound.