Calpine Corporation (CPN) is one of the largest power producers in the United States. Its generation capacity is nearly 27,000 megawatts. More than 90% of Calpine’s power plants are fired by natural gas. So cheaper natural gas can significantly benefit Calpine in the short to medium term. Calpine earns substantial revenue from its competitive business segment in the northeastern United States, Texas, and California.
Calpine is one of the picks of Marc Lasry’s portfolio in the contest Portfolio with Purpose.
Calpine expects its revenues from the wholesale segment to increase in the coming quarters due to higher capacity prices in Northeastern power markets. But its margins may weaken due to lower power prices.
In its 3Q15 results commentary, Calpine management forecasted a 5% drop in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to $1.88 billion from $1.98 in 2015. Calpine also forecasts lower capacity revenues in 2016. Weaker power prices are the major concerns that may dampen Calpine’s earnings.
In contrast, many utilities (XLU) with higher exposure to unregulated operations have seen headwinds from the last couple of years. However, Calpine was able to generate fair amount of free cash flow during the same period. This may open doors for Calpine to go for attractive dividend payments and mergers and acquisitions.