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In that same article, Stephen Simpson goes on to say...

As time passes, I get more skeptical about this company and whether management can really do what's needed to shore up the balance sheet and restore the company to profitability.

He's finally getting skeptical? I'm wondering if Stephen ever reads this board! Here's your answer, Stephen: management CAN'T do what's needed to shore up the balance sheet and it will NEVER restore the company to profitability.

There are a lot of reasons to draw these conclusions, which one can find in my messages on this board the past few months. But here's the absolute easiest way to look at it.

IF this management team could have fixed its balance sheet, or made the company profitable, it would have done so a long time ago. Time has demonstrated that this management team does not have the will or the skill to accomplish these goals, nor does it have any dedication to preserving the value of common stock.

They have made many, many predictions in the past three or four years, about how much they were going to make next quarter, or the next year, or whatever. More recently, they predicted a certain dollar figure in debt reduction during 2005, and an accompanying reduction of interest expense.

NONE OF THAT HAS EVER HAPPENED. And now, of course, the debt-reduction prediction is being cast in doubt. None of this should be a surprise. Calpine management can't predict its own future partly because it does not know what it is doing, and partly because its ineptitude over the years has put it in increasingly dependent positions, where does not have enough control, over enough factors, to escape from trouble. So it has a nearly perfect record of negative surprises, one after another.

Classic example: Calpine used to own a bunch of natural gas, whose purpose was to hedge the company's risk of profit squeezes in the case of rising gas prices. Well, this year was THE year of rising gas prices. But Calpine had messed everything up so badly that they were forced to sell those gas fields before the big spike in gas prices hit.

Meanwhile, what are these analysts smoking, not to notice that the company took $100 million loss on a power plant sale in the third quarter? When hurricanes kept knocking out power distribution systems across the south, thus forcing the company to sit through outages, why didn't these analysts take notice? When the company made its decision to sell off plants in diverse geographic locations, and to concentrate most of its non-California eggs in the basket of Texas and the Southeast, why didn't those analysts recognize the risk that concentration created -- to things like natural disasters?

Oh well. Stephen sounds surprised by the results, but I would have been SHOCKED if the company had met its own guidance, or the consensus estimates on the street. Most of the street has been unbelievably stupid about this company and this stock. Perhaps I'm being too caustic, but I honestly think that nothing other than greed or stupidity in the investor community could explain the fact that the stock has not gone to zippo already.

I do like some of the fundamentals of the electricity business, but I'd much rather look at utilities like Huaneng Power (NYSE: HNP) and E.ON (NYSE: EON), infrastructure plays like General Cable (NYSE: BGC) and ABB (NYSE: ABB), or maybe coal and gas suppliers, before I'd look to Calpine.

Well, that is a real apples-to-oranges-to-passionfruit range of stocks to compare to CPN! My goodness. Calpine is a merchant power company. It is not in the same space as coal and gas E&P companies. And the latter are not, strictly speaking, electricity plays. After all, many people use natural gas directly for heating and cooking. These are all related to energy, yes, but if you want to talk about electricity per se you should be talking about DUK, DYN, NRG, and so on.

The gas and coal companies have already been pretty well bid up by the rest of the market, so I'm not sure there's much upside in most of them right now. I don't know what fundamentals Stephen is talking about -- if he knows of some well-run, profitable companies with no overhanging risk --trading at a low valuation-- well, it would be great to hear about them!

In any case, Calpine is about to finish the year far short of its stated debt-reduction goals, with no profit in sight, and lawsuits springing up every time it tries a new sleight-of-hand maneuver to keep the Repo man at bay. Let it not be a surprise to anybody when these facts are reported in the coming weeks.

Sorry to be such a wet blanket, but it makes me angry that these guys continue to mislead the market, and to play games with investors' hopes, while never being able to deliver. They do not deserve to be taken seriously, and I don't think they deserve to remain on the S&P 500. They are a great example of how not to run a company.
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