This Reuters/NY Times article reports that Peter Cartwright, the 75-year-old founder and chief executive of Calpine Corp., and Robert Kelly, the company’s CFO, resigned under pressure from the Calpine board amidst widespread speculation that the company is going to commence a corporate reorganization under chapter 11 a week after an adverse Delaware court ruling restricted the company’s ability to use cash from some of its asset sales. Calpine stock — which traded as high as $56 a share in 2001 — was down 71 cents to 54 cents a share as of the close of New York Stock Exchange composite trading yesterday.
Mr. Cartwright’s departure is widely viewed as the end of his goal to create a massive national power wholesaler in deregulated markets that could sell electricity without being limited to serving a specific territory or utility. Cartwright began the strategy in the mid-1990s and racked up $17 billion in debt as the company built a huge fleet of gas-fired plants in an effort to become the biggest power generator to wholesale power markets that had been deregulated and utilities that were leaving plant development to others. However, the company’s strategy has been under pressure over the past several years from increasing natural-gas prices (which ratchet up the fuel cost of the company’s power plants) and lackluster profit margins on the sale of wholesale electricity. That set the stage for the company’s sale of assets and the shut-down of money-losing power plants, which in turn led to last week’s adverse court decision. That decision concluded that Calpine had improperly spent $313 million on fuel for its power plants that came from $852 million in proceeds from the sale of assets that were collateral for corporate notes.
Interestingly, a few years back, with Calpine’s stock trading around $40 a share, Cartwright refused to have the company sell shares to raise capital because he did not want the dilution that would result from the stock issues. So instead, he took on the $17 billion in debt. Now, natural gas prices have tripled, Calpine has lost almost $700 million so far this year, the company can’t pay interest on its debt, bankruptcy looms, Cartwright is gone and the stock is at 20 cents.
What was that about not wanting dilution?