$200 million in new investment, purchase agreements lift prospects

[caption id="attachment_20572" align="alignright" width="216" caption="One of Calpine's The Geysers power plants in the Mayacamas Mountians north of Santa Rosa"][/caption]

THE GEYSERS –  Five years after contemplating selling its facilities at The Geysers during a difficult bankruptcy, Calpine is on steady ground at the world's premier geothermal field.

According to Alex Makler, Calpine vice president of strategic orientation, the energy company is continuing its capital investment – $200 million over several years – in equipment at The Geysers while picking up additional leases as they come available.

Demand for clean, reliable geothermal energy continues to grow among California utilities, which are attempting to reach a goal of making renewable energy 20 percent of their portfolios by the end of this year.

Calpine recently signed a four-year geothermal power purchase agreement with San Diego Gas & Electric for 25 megawatts of electricity, enough to power 15,000 households.

PG&E currently has two power purchase agreements with Calpine for geothermal energy totaling about 375 megawatts per year: enough renewable energy to meet the needs of more than 450,000 households.

Following expiration between the end of 2012 and the end of 2014, the California Public Utilities Commission is expected to extend the term for Geysers energy through 2021, increasing total capacity to about 425 megawatts from 2010 through 2017.

Calpine also sells 225 megawatts of geothermal energy to Southern California Edison under a 10-year agreement signed in 2007, enough electricity to power 130,000 average homes.

With a capacity of 725 megawatts, Calpine's Geysers facility is easily the largest geothermal operation in the world, even though capacity has diminished over the period of time its steam field has been depleted by drilling.

The resource, an ancient underground lake protected by a layer of impervious rock, is not replenished by rainfall, as engineers once believed, according to studies by the U.S. Geological Survey.

However, more efficient drilling technologies and the injection of treated wastewater – 1 million gallons a day pumped from Santa Rosa – has lengthened the life of the resource considerably.

"The Geysers story is a story of water management," said Mr. Makler. "The Santa Rosa project arrested the decline of the resource and increased production by 85 megawatts."

That's enough to power the entire city of San Francisco, without straining the state's water supply.

"Prior to the wastewater project we improved efficiency by bringing the field operations under common ownership," said Mr. Makler.

The nation's largest independent power producer nearly went under five years ago, when sinking fuel prices and debt of $22 billion caused it to file the ninth-largest Chapter 11 since 1980.

Scrambling to sell off assets, Calpine evaluated the commercial and strategic value of the 19 power plants it had acquired from PG&E following deregulation of the California power industry in 1998.

At the time industry experts put the value of The Geysers operation at $2 billion.

But the company decided instead to invest in its mountaintop asset, redrilling wells, rebuilding turbines and expanding production.

Today Calpine employs 350 at The Geysers. Its stock, trading on the New York Stock Exchange for $1.45 in a pre-bankruptcy low, now hovers around $12.25.

While the bulk of its electricity comes from natural-gas-fired plants, the plumes of steam rising over the Mayacamas at The Geysers are environmental feathers in its cap.

For nine consecutive years Calpine's  The Geysers operation has won the California Department of Conservation award.