California Atty. Gen. Jerry Brown asked a bankruptcy judge to toss out Calpine Corp.'s "fatally flawed" debt-repayment plan because it would nullify a large electricity contract the San Jose power producer signed with the state during the 2000-to-2001 energy crisis.
The state's contract, which Calpine tried to cancel when it sought Bankruptcy Court protection in late 2005, can be invalidated only by the Federal Energy Regulatory Commission, Brown and other state representatives said in documents filed late Wednesday with the U.S. Bankruptcy Court in Manhattan, N.Y.
"What California wants to do is preserve this contract because it's a good deal," Brown said in an interview Thursday. "We're taking an aggressive position."
Calpine spokesman Mel Scott said the company would not elaborate on the position it took in its Bankruptcy Court filings. The company has said it was entitled to dump the contract because it could get more money for the power under today's market prices.
Calpine, which remains one of California's largest electricity providers, has sold assets but has continued to operate throughout the bankruptcy process. In California, it sells power produced by natural-gas-fired plants and by naturally formed geysers in the northern part of the state.
During the energy crisis, Calpine signed four power supply contracts with the state. One has expired and three are still in effect. The disputed contract calls for Calpine to provide the state with 1,000 megawatts of electricity around the clock, at a fixed price, to areas served by PG&E Corp.'s Pacific Gas & Electric Co. through 2009.
"If Calpine walks away from the contract, then someone's going to have to replace that power on behalf of consumers," said Erik Saltmarsh, executive director and chief counsel of the state Electricity Oversight Board. "We're guessing that that could cost $150 million to $200 million more than the contract power."
The added cost would be borne by California consumers, who are already footing the bill for a host of high-priced contracts the state signed amid the power shortages and chaos of the electricity market meltdown. The state has renegotiated some deals and fought others, contending that the prices in the contracts were inflated by illegal market manipulation.
If Calpine reneged on the contract, California would have to try to recover the extra costs by filing an unsecured claim in Bankruptcy Court -- alongside thousands of others -- and then hope that it would get some money back through Calpine's reorganization plan, Saltmarsh said.
In their Wednesday filings, Brown, Saltmarsh and representatives of the state Department of Water Resources cited a January 2006 ruling by the U.S. District Court, which concluded that the disputed power contract was the exclusive jurisdiction of federal energy regulators and could not be acted upon in Bankruptcy Court.
Calpine has appealed that decision. When it filed its Chapter 11 reorganization proposal with the Bankruptcy Court on June 20, Calpine listed the California contract in question as "repudiated," meaning that the company would not comply with terms of the deal once it won approval for its plan for leaving bankruptcy.
"Calpine cannot disregard the District Court's order. . . simply by using the word 'repudiate' instead of 'reject,' " the state said in its filing. "The result would be the same. . . Calpine would cease performing under the [state] contract."
Saltmarsh added, "They've never come forward and said, 'Court, save me from taking a loss on this contract over the next two years.' They've just said, 'We are selling power for less than what we think we could do with a new power deal.' "