S&P's Calpine ratings unaffected

Standard & Poor's said that its ratings on Calpine Corp. (D) are not immediately affected, but that the company's attempt to reject certain power contracts could materially erode the recovery for bondholders.

Calpine claims that eight of its purchased-power contracts require the company to sell power at a loss, potentially costing the company $1.2 billion over the contracts' terms. In Calpine's Chapter 11 bankruptcy filing, the company is attempting to reject these contracts, though S&P said that, given the history of power companies attempting to reject power contracts in bankruptcy, it is questionable whether Calpine can successfully reject these contracts.

S&P described the issue as involving a "jurisdictional quagmire" among the bankruptcy court, the district court, and the FERC. Recent cases have reached different conclusions as to which entity - the FERC, a district court or a bankruptcy court -has the power to determine whether a debtor in bankruptcy may reject an executory wholesale energy contract subject to FERC regulation.

Whatever the outcome, the only thing that is clear is that the jurisdictional issues remain murky, the agency said. Without clear and consistent appellate court decisions, it does not appear that the jurisdictional issues will be resolved in the near future.

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