Calpine’s Contract Request Is Blocked

Calpine Corp. can’t seek permission from U.S. Bankruptcy Court to drop eight unprofitable contracts that are costing the struggling power-plant owner about $1.1 million a day, a U.S. District Court judge ruled Wednesday.

Units of Rosemead-based Edison International and San Francisco-based PG&E; Corp., among others, said that because voiding the power contracts raised significant questions of law outside of bankruptcy, it was an issue more properly decided in District Court than in Bankruptcy Court.

U.S. District Judge Richard Casey in New York agreed, ruling that the contracts question would stay in his court. Bankruptcy Judge Burton Lifland canceled the hearing on the contracts that had been scheduled in his court for today.

San Jose-based Calpine, in one of its first acts after filing for bankruptcy protection, sought to reject eight “financially burdensome and unprofitable” contracts that it claimed would cost it $1.1 million a day in 2006 alone and a total of $1.2 billion over their remaining terms. California and several utilities oppose voiding the contracts, saying it will lead to higher rates.

Casey said that the resolution of the matter “requires substantial consideration” of the intersection between federal and bankruptcy law and that outstanding case law and administrative rulings did not resolve the issue. The court will now take up the question of how to determine the fate of the contracts, which are a key issue in Calpine’s bankruptcy, lawyers for the plaintiffs said

Calpine said in a statement that “there is a compelling case for rejection of the contracts and [we] look forward to presenting our case.”