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Basis of Presentation and Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2017
Accounting Policies [Abstract] |
Summary of significant accounting policies | Basis of Presentation and Summary of Significant Accounting Policies We are a power generation company engaged in the ownership and operation of primarily natural gas-fired and geothermal power plants in North America. We have a significant presence in major competitive wholesale power markets in California (included in our West segment), Texas (included in our Texas segment) and the Northeast and Mid-Atlantic regions (included in our East segment) of the U.S. We sell power, steam, capacity, renewable energy credits and ancillary services to our customers, which include utilities, independent electric system operators, industrial and agricultural companies, retail power providers, municipalities and other governmental entities, power marketers as well as retail commercial, industrial, governmental and residential customers. We continue to focus on getting closer to our customers through expansion of our retail platform which began with the acquisition of Champion Energy in 2015 and was followed by the acquisitions of Calpine Solutions in late 2016 and North American Power in early 2017. We purchase primarily natural gas and some fuel oil as fuel for our power plants and engage in related natural gas transportation and storage transactions. We also purchase power for sale to our customers and purchase electric transmission rights to deliver power to our customers. Additionally, consistent with our Risk Management Policy, we enter into natural gas, power, environmental product, fuel oil and other physical and financial commodity contracts to hedge certain business risks and optimize our portfolio of power plants. Merger Agreement — On August 17, 2017, we entered into the Merger Agreement with Volt Parent, LP (“Volt Parent”) and Volt Merger Sub, Inc. (“Merger Sub”), a wholly-owned subsidiary of Volt Parent, pursuant to which Merger Sub will merge with and into Calpine, with Calpine surviving the Merger as a subsidiary of Volt Parent. At the effective time of the Merger, each share of Calpine’s common stock outstanding as of immediately prior to the effective time of the Merger (excluding common shares held directly by Volt Parent or Merger Sub, common shares held by Calpine as treasury stock, common shares that are subject to vesting or other applicable lapse restrictions, common shares held by any subsidiary of either Calpine or Volt Parent (other than Merger Sub), common shares held by Volt Energy Holdings, LP (“Volt Energy”), an affiliate of Energy Capital Partners III, LLC (“ECP”), and common shares pursuant to which dissenting rights under Delaware law have been properly exercised and not withdrawn or lost) will, at the effective time of the Merger, cease to be outstanding and be converted into the right to receive $15.25 per share in cash or approximately $5.6 billion. Calpine currently expects the Merger to be completed in the first quarter of 2018, subject to approval by stockholders representing a majority of outstanding shares of Calpine common stock, the receipt of certain regulatory approvals and the satisfaction or waiver of certain other customary closing conditions. The Merger Agreement provides that, during the period beginning on August 17, 2017 and continuing through October 2, 2017, Calpine and its subsidiaries could solicit, initiate, facilitate or encourage “Alternative Transaction Proposals” (as defined in the Merger Agreement) from certain third parties. No Alternative Transaction Proposals were received prior to October 2, 2017. On October 2, 2017, we became subject to customary “no shop” restrictions prohibiting us from soliciting, facilitating, encouraging, discussing, negotiating or cooperating with respect to any “Alternative Transaction Proposals” or providing information to or participating in any discussions or negotiations with third parties regarding “Alternative Transaction Proposals”, subject to certain customary exceptions to permit our Board of Directors to comply with its fiduciary duties. The Board of Directors has unanimously resolved to recommend that Calpine’s stockholders vote in favor of adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger. Calpine’s stockholders will be asked to vote on the adoption of the Merger Agreement at a special stockholders’ meeting that will be held on a date to be announced as promptly as reasonably practicable following the customary SEC review process. The consummation of the Merger is subject to a condition that the Merger Agreement be adopted by the affirmative vote of the holders of at least a majority of the outstanding shares of Calpine’s common stock entitled to vote, the receipt of certain regulatory approvals and the satisfaction or waiver of certain other customary closing conditions. The Merger Agreement contains certain termination rights, including, among others, the right of Calpine to terminate the Merger Agreement to accept a “Superior Proposal”, subject to specified limitations and payment by Calpine of a termination fee. The Merger Agreement also provides that Volt Parent will be required to pay Calpine a reverse termination fee under specified circumstances. For further information on the Merger and the Merger Agreement, please refer to the Current Report on Form 8-K filed on August 22, 2017 and the preliminary proxy statement filed on October 19, 2017 by Calpine. The foregoing descriptions of the Merger Agreement is subject to, and qualified in its entirety by, the full text of the agreement as attached as an exhibit to the Form 8-K filed on August 22, 2017, and is incorporated by reference herein. On September 15, 2017, we amended our Corporate Revolving Facility to, among other things, provide that the Merger does not constitute a “Change of Control” thereunder, effective upon consummation of the Merger. On October 20, 2017, we further amended our Corporate Revolving Facility to extend the maturity and reduce the capacity under the revolving credit facility from $1.79 billion to $1.47 billion. Both amendments to the Corporate Revolving Facility are effective upon consummation of the Merger. During the three and nine months ended September 30, 2017, we recorded approximately $11 million in merger-related costs which was recorded in other operating expenses on our Consolidated Condensed Statement of Operation and primarily related to legal, investment banking and other professional fees associated with the Merger. Basis of Interim Presentation — The accompanying unaudited, interim Consolidated Condensed Financial Statements of Calpine Corporation, a Delaware corporation, and consolidated subsidiaries have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the Consolidated Condensed Financial Statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. Certain information and note disclosures, normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, these financial statements should be read in conjunction with our audited Consolidated Financial Statements for the year ended December 31, 2016, included in our 2016 Form 10-K. The results for interim periods are not indicative of the results for the entire year primarily due to acquisitions and disposals of assets, seasonal fluctuations in our revenues and expenses, timing of major maintenance expense, variations resulting from the application of the method to calculate the provision for income tax for interim periods, volatility of commodity prices and mark-to-market gains and losses from commodity and interest rate derivative contracts. Use of Estimates in Preparation of Financial Statements — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures included in our Consolidated Condensed Financial Statements. Actual results could differ from those estimates. Reclassifications — We have reclassified certain prior period amounts for comparative purposes. These reclassifications did not have a material effect on our financial condition, results of operations or cash flows. Cash and Cash Equivalents — We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. We have cash and cash equivalents held in non-corporate accounts relating to certain project finance facilities and lease agreements that require us to establish and maintain segregated cash accounts. These accounts have been pledged as security in favor of the lenders under such project finance facilities, and the use of certain cash balances on deposit in such accounts is limited, at least temporarily, to the operations of the respective projects. Restricted Cash — Certain of our debt agreements, lease agreements or other operating agreements require us to establish and maintain segregated cash accounts, the use of which is restricted, making these cash funds unavailable for general use. These amounts are held by depository banks in order to comply with the contractual provisions requiring reserves for payments such as for debt service, rent and major maintenance or with applicable regulatory requirements. Funds that can be used to satisfy obligations due during the next 12 months are classified as current restricted cash, with the remainder classified as non-current restricted cash. Restricted cash is generally invested in accounts earning market rates; therefore, the carrying value approximates fair value. Such cash is excluded from cash and cash equivalents on our Consolidated Condensed Balance Sheets and Statements of Cash Flows. The table below represents the components of our restricted cash as of September 30, 2017 and December 31, 2016 (in millions):
| September 30, 2017 |  | December 31, 2016
| Current |  | Non-Current |  | Total |  | Current |  | Non-Current |  | Total
Debt service | $ | 22 |  |  | $ | 7 |  |  | $ | 29 |  |  | $ | 11 |  |  | $ | 8 |  |  | $ | 19 |
Construction/major maintenance | 25 |  |  | 17 |  |  | 42 |  |  | 45 |  |  | 6 |  |  | 51 |
Security/project/insurance | 145 |  |  | — |  |  | 145 |  |  | 114 |  |  | — |  |  | 114 |
Other | 4 |  |  | 2 |  |  | 6 |  |  | 3 |  |  | 1 |  |  | 4 |
Total | $ | 196 |  |  | $ | 26 |  |  | $ | 222 |  |  | $ | 173 |  |  | $ | 15 |  |  | $ | 188 |
Property, Plant and Equipment, Net — At September 30, 2017 and December 31, 2016, the components of property, plant and equipment are stated at cost less accumulated depreciation as follows (in millions):
| September 30, 2017 |  | December 31, 2016 |  | Depreciable Lives
Buildings, machinery and equipment | $ | 16,512 |  |  | $ | 16,468 |  |  | 3 | – | 46 | Years
Geothermal properties | 1,480 |  |  | 1,377 |  |  | 13 | – | 58 | Years
Other | 235 |  |  | 259 |  |  | 3 | – | 46 | Years
| 18,227 |  |  | 18,104 |  |  |  |  |  |
Less: Accumulated depreciation | 6,265 |  |  | 5,865 |  |  |  |  |  |
| 11,962 |  |  | 12,239 |  |  |  |  |  |
Land | 117 |  |  | 116 |  |  |  |  |  |
Construction in progress | 754 |  |  | 658 |  |  |  |  |  |
Property, plant and equipment, net | $ | 12,833 |  |  | $ | 13,013 |  |  |  |  |  |
Capitalized Interest — The total amount of interest capitalized was $7 million and $5 million for the three months ended September 30, 2017 and 2016, respectively and $20 million and $14 million during the nine months ended September 30, 2017 and 2016, respectively. Goodwill — We have not recorded any impairment losses associated with our goodwill. The change in goodwill by segment during the nine months ended September 30, 2017 was as follows (in millions):
| West |  | Texas |  | East |  | Total
Goodwill at December 31, 2016 | $ | 68 |  |  | $ | 31 |  |  | $ | 88 |  |  | $ | 187 |
Acquisition of North American Power | — |  |  | — |  |  | 49 |  |  | 49 |
Purchase price allocation adjustments(1) | (2 | ) |  | 1 |  |  | 8 |  |  | 7 |
Goodwill at September 30, 2017 | $ | 66 |  |  | $ | 32 |  |  | $ | 145 |  |  | $ | 243 |
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(1) | The purchase price allocation adjustment in the East segment represents adjustments of $17 million for North American Power and $(9) million for Calpine Solutions.
Related Party — Under the Accounts Receivables Sales Program, at September 30, 2017 and December 31, 2016, we had $228 million and $211 million, respectively, in trade accounts receivable outstanding that were sold to Calpine Receivables and $40 million and $32 million, respectively, in notes receivable from Calpine Receivables which were recorded on our Consolidated Condensed Balance Sheets. During the nine months ended September 30, 2017, we sold an aggregate of $1.6 billion in trade accounts receivable and recorded $1.6 billion in proceeds. For a further discussion of the Accounts Receivable Sales Program and Calpine Receivables, see Notes 2 and 5 in our 2016 Form 10-K. Derivative Instruments — During 2008, we established our accounting policy related to the presentation of our derivative instruments on our Consolidated Condensed Balance Sheets. Historically, we separately reflected on a gross basis the fair value of our current and long-term derivative assets and liabilities and related cash collateral executed with the same counterparty under a master netting arrangement. Effective September 30, 2017, we reflect on a net basis the fair value amounts associated with our current and long-term derivative assets and liabilities and the related amounts recognized for the right to reclaim, or the obligation to return, cash collateral on our Consolidated Condensed Balance Sheets. This policy is preferable as it more accurately reflects counterparty credit risk, liquidity risk and the contractual rights and obligations under these arrangements. The revised presentation of our derivative instruments is considered a change in accounting principle; thus, we retroactively applied the new accounting to our Consolidated Condensed Balance Sheet as of December 31, 2016 which did not result in a change in our total stockholder’s equity, results of operations or cash flows for any previously reported periods. See Notes 5, 6 and 7 for additional information on the assets and liabilities that are reflected on a net basis in our Consolidated Condensed Balance Sheets. The table below reflects the effect of the new accounting on previously reported financial information (in millions):
|  | As Previously Reported |  | Effect of Offsetting Adjustment |  | As Adjusted
Consolidated Condensed Balance Sheet as of December 31, 2016 |  |  |  |  |  |
Margin deposits and other prepaid expense |  | $ | 441 |  |  | $ | (77 | ) |  | $ | 364 |
Derivative assets, current |  | $ | 1,725 |  |  | $ | (1,504 | ) |  | $ | 221 |
Total current assets |  | $ | 4,432 |  |  | $ | (1,581 | ) |  | $ | 2,851 |
Long-term derivative assets |  | $ | 543 |  |  | $ | (243 | ) |  | $ | 300 |
Total assets |  | $ | 19,317 |  |  | $ | (1,824 | ) |  | $ | 17,493 |
Derivative liabilities, current |  | $ | 1,630 |  |  | $ | (1,492 | ) |  | $ | 138 |
Other current liabilities |  | $ | 528 |  |  | $ | (5 | ) |  | $ | 523 |
Total current liabilities |  | $ | 3,702 |  |  | $ | (1,497 | ) |  | $ | 2,205 |
Long-term derivative liabilities |  | $ | 476 |  |  | $ | (327 | ) |  | $ | 149 |
Total liabilities |  | $ | 15,978 |  |  | $ | (1,824 | ) |  | $ | 14,154 |
Consolidated Condensed Statement of Cash Flows for the Nine Months Ended September 30, 2016 |  |  |  |  |  |
Change in operating assets and liabilities, net of effects of acquisitions: |  |  |  |  |  |
Derivative instruments, net |  | $ | (71 | ) |  | $ | (83 | ) |  | $ | (154 | )
Other assets |  | $ | (75 | ) |  | $ | 76 |  |  | $ | 1 |
Accounts payable and accrued expenses |  | $ | 46 |  |  | $ | 7 |  |  | $ | 53 |
Net cash provided by operating activities |  | $ | 667 |  |  | $ | — |  |  | $ | 667 |
New Accounting Standards and Disclosure Requirements Revenue Recognition — In May 2014, the FASB issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers.” The comprehensive new revenue recognition standard will supersede all existing revenue recognition guidance. The core principle of the standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires expanded disclosures surrounding revenue recognition. The standard allows for either full retrospective or modified retrospective adoption. In August 2015, the FASB deferred the effective date of Accounting Standards Update 2014-09 for public entities by one year, such that the standard will become effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The standard permits entities to adopt early, but only as of the original effective date. In March 2016, the FASB issued Accounting Standards Update 2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” which clarifies implementation guidance for principal versus agent considerations in the new revenue recognition standard. In May 2016, the FASB issued Accounting Standards Update 2016-12 “Narrow-Scope Improvements and Practical Expedients” which addresses assessing the collectability of a contract, the presentation of sales taxes and other taxes collected from customers, non-cash consideration and completed contracts and contract modifications at transition. We plan to adopt the standard in the first quarter of 2018 using the modified retrospective transition approach. We are finalizing our evaluation of the effect the revenue recognition standards will have on our revenue contracts such as our PPAs and tolling agreements as well as the additional disclosure requirements associated with the new standard; however, we do not expect the adoption of this standard will have a material effect on our financial condition, results of operations or cash flows. Upon adoption, we intend to elect the practical expedient that would allow an entity to recognize revenue in the amount to which the entity has the right to invoice to the extent we determine that we have a right to consideration from the customer in an amount that corresponds directly with the value provided based on our performance completed to date. Inventory — In July 2015, the FASB issued Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory.” The standard changes the inventory valuation method from the lower of cost or market to the lower of cost or net realizable value for inventory valued under the first-in, first-out or average cost methods. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods and requires prospective adoption with early adoption permitted. We adopted Accounting Standards Update 2015-11 in the first quarter of 2017 which did not have a material effect on our financial condition, results of operations or cash flows. Leases — In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases.” The comprehensive new lease standard will supersede all existing lease guidance. The standard requires that a lessee should recognize a right-to-use asset and a lease liability for substantially all operating leases based on the present value of the minimum rental payments. Entities may make an accounting policy election to not recognize lease assets and liabilities for leases with a term of 12 months or less. For lessors, the accounting for leases remains substantially unchanged. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning after December 15, 2018, including interim periods within that reporting period and requires modified retrospective adoption with early adoption permitted. We expect to adopt the standard in the first quarter of 2019. We have completed our initial evaluation of the standard and believe that the key changes that will affect us relate to our accounting for operating leases that are currently off-balance sheet and tolling contracts which we currently account for as operating leases. Additionally, we are evaluating the potential effects of the removal of the real estate guidance currently applicable to lessors that will be abrogated under Accounting Standards Update 2014-09, “Revenue from Contracts with Customers.” We are also considering electing the practical expedient in our implementation of the standard; however, this may change as we complete our assessment of the standard. Statement of Cash Flows — In August 2016, the FASB issued Accounting Standards Update 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” The standard addresses several matters of diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows including the presentation of debt extinguishment costs and distributions received from equity method investments. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods and requires retrospective adoption with early adoption permitted. We do not anticipate a material effect on our financial condition, results of operations or cash flows as a result of adopting this standard. Restricted Cash — In November 2016, the FASB issued Accounting Standards Update 2016-18, “Restricted Cash.” The standard requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts in the statement of cash flows and also requires disclosures regarding the nature of restrictions on cash, cash equivalents and restricted cash. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods and requires retrospective adoption with early adoption permitted. We do not anticipate a material effect on our financial condition, results of operations or cash flows as a result of adopting this standard. Intangibles – Goodwill and Other — In January 2017, the FASB issued Accounting Standards Update 2017-04, “Simplifying the Test for Goodwill Impairment.” The standard eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. The standard is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. We do not anticipate a material effect on our financial condition, results of operations or cash flows as a result of adopting this standard. Derivatives and Hedging — In August 2017, the FASB issued Accounting Standards Update 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” The standard better aligns an entity’s hedging activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The standard will prospectively make hedge accounting easier to apply to hedging activities and also enhances disclosure requirements for how hedge transactions are reflected in the financial statements when hedge accounting is elected. The standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently assessing the future effect this standard may have on our financial condition, results of operations or cash flows.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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