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IN RE CALPINE CORPORATION ERISA LITIGATION

December 5, 2005.

In re: CALPINE CORPORATION ERISA LITIGATION. THIS DOCUMENT APPLIES TO ALL ACTIONS.


The opinion of the court was delivered by: SAUNDRA ARMSTRONG, District Judge

ORDER

This matter comes before the Court on Calpine's Motion to Dismiss Plaintiff's Amended Consolidated Complaint [Docket No. 106] and the Committee Defendants' Motion to Dismiss the Amended Consolidated Complaint [Docket No. 110]. Having read and considered the papers presented by the parties, the Court finds this matter appropriate for disposition without a hearing. The Court hereby GRANTS both Calpine's Motion to Dismiss Plaintiff's Amended Consolidated Complaint and the Committee Defendants' Motion to Dismiss the Amended Consolidated Complaint WITHOUT LEAVE TO AMEND.

BACKGROUND

  A. Factual Background

  1. Parties

  Defendant Calpine Corporation ("Calpine" or the "Company"), a Delaware corporation, is a leading independent power company engaged in the development, acquisition, ownership, and operation of power generation facilities and the sale of electricity predominantly in the United States, but also in Canada and the United Kingdom. Corrected Amended Consolidated Compl. ("ACC") at ¶ 8. Calpine is also the world's largest producer of renewable geothermal energy. Id. Calpine is the designated Plan Administrator and a named fiduciary of the Calpine Corporation Retirement Savings Plan (the "Plan"), a 401(k) plan established and sponsored by Calpine. Id. at ¶¶ 1, 3, 9-10.

  Defendant Investment Advisory Committee ("Advisory Committee") is a fiduciary delegate of Calpine with the duty and responsibility to directly monitor the Plan. Id. at ¶ 12. Through its individual members, the Advisory Committee exercised discretionary authority with respect to the management, administration, and oversight of the Plan and the management and disposition of the Plan's assets. Id. Defendants Kati Miller ("Miller"), Lisa Bodensteiner ("Bodensteiner"), Rick Barraza ("Barraza"), Tom Glymph ("Glymph"), Trevor Thor ("Thor"), Bob McCaffrey ("McCaffrey"), and Bryan Bertacchi ("Bertacchi") were members of the Advisory Committee during the relevant period. Id. at ¶¶ 13-16, 18-20. Defendant Patrick Price ("Price") was Calpine's Director of Compensation Benefits and Corporate Employment and also a member of the Advisory Committee during the relevant period. Id. at ¶ 17.

  Plaintiff James Phelps ("Plaintiff") was an employee of Calpine and a participant in the Plan during the relevant period. Id. at ¶¶ 1, 3.

  2. Allegations

  At the end of calendar year 2000, Calpine's portfolio included forty-four power plants, with an aggregate capacity of 4,273 megawatts. ACC at ¶ 53. Twenty five of those power plants were gas-fired cogeneration plants with a total capacity of 3,385 megawatts and nineteen geothermal power generation facilities with a total capacity of 888 megawatts. Id. In 2000, Calpine raised approximately $8.1 billion through equity and bond offerings and renewal lease financing. Id. at ¶ 55. Due to "skyrocketing" energy prices, the Company also enjoyed record earnings. Id. at ¶ 56.

  In the Company's 2000 Annual Report, the Company stated:
In the past year, a series of factors have reduced the supply of power to California, which has resulted in wholesale power prices that have been significantly higher than historical levels. Several factors contributed to this increase. These included:
— significantly increased volatility in prices and supplies of natural gas;
— an unusually dry fall and winter in the Pacific Northwest, which reduced the amount of available hydroelectric power from that region (typically, California imports a portion of its power from this source);
— the large number of power generating facilities in California nearing the end of their useful lives, resulting in increased downtime (either for repairs or because they have exhausted their air pollution credits and replacement credits have become too costly to acquire on the secondary market); and — continued obstacles to new power plant construction in California, which deprived the market of new power sources that could have, in part, ameliorated the adverse effects of the foregoing factors.
Id. at ¶ 67.

  On January 5, 2001, Calpine announced that it was increasing its earnings expectations for 2000 and 2001 to approximately $1.05 per share for fiscal year end 2000 ("FY00") and to $1.25 per share for fiscal year end 2001 ("FY01"). Id. at ¶ 63. This earnings announcement exceeded analyst expectations of $0.96 per share for FY00 and $1.20 per share for FY01. Id. Calpine's stock climbed to $35.06. Id. at ¶ 54.

  On or about February 2, 2001, the Company announced in a press release that by 2005, it planned to be at 70,000 megawatts of electric generating capacity. Id. at ¶¶ 58, 64. On February 6, 2001, the Company announced that, before the taking of an extraordinary charge, net income for FY00 was $324.7 million. Id. at ¶ 64. This represented a 238% increase over the Company's 1999 net income. Id.

  On February 28, 2001, the Company announced that it had signed two long-term power sales contracts with the California Department of Water Resources ("CDWR"), providing up to $8.3 billion in potential revenues. Id. at ¶ 65. On or about March 15, 2001, the Company filed its FY00 Form 10-K with the Securities Exchange Commission ("SEC").

  On December 9, 2001, an article was published in the New York Times regarding Calpine's relationship with Enron. Id. at ¶¶ 59, 93. The article noted in part:
Gains from trading energy commodities and energy derivatives made up the difference. For the first nine months of 2001, 10 percent of Calpine's $1.1 billion in gross profit came from derivatives trading activity, which because of the way the company accounts for the transaction flows directly into the income statement. Another 18 percent came from trading energy itself.
. . .
Enron was the biggest player in that field, and the resemblance is not coincidental. Mr. Posoli, who created Calpine's trading arm, came to the company from Enron. He spent most of his four years at Enron in the group that traded energy derivatives before joining Calpine in 1999.
. . .
In the third quarter of 2001, $768 million, or 26 percent, of Calpine's revenue came from Enron. Also in the quarter, Enron bought 6.5 million megawatt hours of electricity from Calpine. Dividing revenue generated by Enron by the megawatt hours it bought from Calpine produces an average cost per megawatt hour of $119.13 to Enron.
This Cost is significantly higher than what other Calpine customers paid in the same period. Calpine's revenue for all megawatt hours sold during the third quarter averaged just over $84. Sales to non-Enron customers averaged a rate of $75.48 per megawatt hour.
. . .
But a search through energy commission's filings back to February 2000 shows only one other power sale agreement that Calpine struck with Enron — and that was one covering Jan. 13 and 14, 2001. This transaction could not account for the third-quarter business.
Id. at ¶ 93.*fn1

  By December 14, 2001, Moody's Investors Service announced that it would cut the credit rating on Calpine's $11.6 billion of debt to "junk." Id. at ¶ 59. Subsequently, Calpine's shares plummeted from a starting price of $21.37 at the opening of trading on December 10, 2001 to a closing price of $13.20 on December 14, 2001. Id. at ¶ 60.

  On April 22, 2002, Calpine settled with the Attorney General of California, thereby ending the State's investigation into allegedly illegal electricity pricing practices in California. Id. at ¶ 84. Calpine paid $6 million in fines. Id.

  On January 28, 2004, Calpine settled with the Commodity Futures Trading Commission ("CFTC"), thereby ending the CFTC's investigation regarding allegedly improper energy trade reporting. Id. at ¶ 96. Calpine paid $1.5 million in fines. Id.

  In May 23, 2004, Peter Cartwright, the Company's founder, Chairman of the Board, and Chief Executive Officer, publicly stated that Calpine's relationship with Enron was minimal and that other market and regulatory factors were ...


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