MANKATO, MN-Calpine recently began construction of a 365-megawatt power plant in this southwestern Minnesota city after reaching a deal earlier in the year to sell the energy to Xcel Energy. San Jose, CA-based Calpine Corp., the largest US owner of natural-gas-fired power plants, is riding out a slump in US electricity markets by building eight new plants.

All of the plants have multi-year contracts that will provide more consistent earnings and help convince the company’s lenders to renegotiate debt, company officials say. Calpine earlier this year won a contract to sell power to utility owner Xcel Energy Inc. from the plant it is now building. The plant is expected to be ready in 2006. Calpine submitted the lowest bid to Xcel and agreed to a clause that allows Xcel to step in and complete the plant if Calpine defaults.

“Calpine’s proposed plant is a good fit with other projects in the generation portfolio that resulted from Xcel Energy’s solicitation of proposals to meet the growing energy needs of our 1.5 million electricity customers in Minnesota and neighboring states,” says David Eves, Xcel Energy’s vice president for resource planning and acquisition. The Minnesota contract includes a requirement for 280 megawatts of intermediate power plus an additional 85 megawatts of peaking capability, for service beginning in 2006.

New construction such as the Mankato plant is funded with project financing, meaning lenders don’t have a claim on Calpine’s other assets in a bankruptcy. The company expects to raise about $1.225 billion in such financing through 2007.

Calpine has 91 plants with combined capacity of 26,200 megawatts, enough power for almost 21 million US homes, says the plants now under construction will boost capacity by 22%.

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