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Thursday PM May 22nd, 2008

Calpine Corporation considers $11.3 billion stock offer from NRG Energy…Congress continues probe of rising oil prices and profits…Government says home prices fell 3.1 percent in first quarter compared with last year…

NRG Energy is hoping to double its electricity capacity. The power wholesaler has offered to buy rival Calpine Corporation for about $11.3 billion in stock. Calpine, which has dual headquarters in San Jose, California and Houston, revealed details of the unsolicited bid. The announcement came after one of its shareholders released a letter stating that an offer had been made last week. Princeton, New Jersey-based NRG confirmed it made the offer May 14th. The bid was initially valued at $22.98 per share but ended Wednesday valued at $22.70 per share. NRG estimated it would have to acquire about 500 million Calpine shares, putting the estimated cost at $11.3 billion, based on current value. The takeover attempt comes less than four months after Calpine emerged from a two-year stint operating under Chapter 11 bankruptcy protection.

Drivers getting an early start on Memorial Day weekend may be in for a rude awakening. Gasoline prices have edged up to a new record high, reaching a national average above $3.83 a gallon. That’s according to AAA and the Oil Price Information Service. And some analysts predict gas will rise past $4 as early as next week. Gas prices are already above that point at many stations around the nation. Oil prices set a new record of $135.09 in overnight trading.

Oil industry executives got another rough reception before a Congressional panel. Senators didn’t mince words Wednesday in blasting oil executives for rising prices and profits. Illinois Democrat Richard Durbin asked bluntly if there’s a corporate conscience. The executives say the oil industry’s profits are in line with those of other industries. And ExxonMobil Senior Vice President Stephen Simon said they’re being squeezed by higher costs. Crude oil prices are continuing a record upward push with no end in sight. Blame goes to a combination of supply worries, rising global demand and a slumping dollar. The price in Asia, for the first time, topped $135 a barrel. Oil industry leaders are urging lawmakers to allow more domestic exploration.

Energy Secretary Samuel Bodman says extraordinarily high energy prices are a result of a surge in demand, global political instability and concern about global warming. In remarks prepared for a House hearing, Bodman said these factors have created a high-priced energy environment and that in oil “demand has outstripped supply.” Bodman was to testify before a House committee on global warming. Bodman’s appearance came as crude oil prices for the first time pushed above $135 a barrel. His remarks were aimed at all energy sources from coal to petroleum. Bodman called for developing more traditional energy sources such as domestic oil, but also technologies aimed at conservation and alternative energy sources.

Secretary Bodman is rejecting a call by some members of Congress to release oil from the government’s emergency stockpile. Bodman told a House hearing that oil is needed to respond to future supply emergencies and not to influence prices. He also says he does not believe that rampant market speculation is causing record high oil prices. The high prices have helped force gasoline to $4 a gallon and are increasing other costs. Bodman says it’s a matter of supply and demand that can be traced to essentially flat global production over the last three years. Massachusetts Congressman Edward Markey says the release of government oil is justified because the country is “in an economic crisis.”

A Canadian citizen convicted of being a middleman in a check fraud scheme that stole $350,000 from Enron has been sentenced in Wilmington, Delaware. Russell Berscht was also convicted for $2.2 million in wire and bank fraud involving altered checks from Compaq and several other Texas companies. The checks had been stolen in Texas by a Nigerian theft ring before being altered. The fraud was discovered by investigators looking into larger problems at Enron that led to its downfall.

U.S. home prices have posted their sharpest first-quarter decline since the government began keeping track 17 years ago. The Office of Federal Housing Enterprise Oversight says home prices fell 3.1 percent in the first quarter compared with last year. The index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record. Prices were lower in 43 states. California and Nevada had the biggest declines. The government index is calculated by tracking mortgage loans that are bought or backed by the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac.

Long-term mortgage rates have been slipping a bit. Freddie Mac reports the average for 30-year fixed-rate mortgages has dropped to 5.98 percent this week, down from 6.01 percent last week. For 15-year fixed-rate mortgages, it puts the average at 5.55 percent, down from 5.6 percent last week. And on one-year Treasury-indexed adjustable rate mortgages, the average this week is 5.24 percent, up from last week’s average of 5.18 percent. Freddie Mac Chief Economist Frank Nothaft says long-term rates edged lower on news of weaker economic activity, including industrial production and consumer sentiment.

Standard & Poor’s says that subprime mortgages
bundled into securities that were rated between 2005 and 2007 are seeing rising defaults. Subprime mortgages are loans given to customers with poor credit history. At the end of April, delinquencies among so-called 2005 vintage loans reached nearly 37 percent. That’s an increase of two percent from the previous month. Delinquent loans from 2006 totaled 37 percent–a four percent jump from March. Nearly 26 percent of loans from 2007 were delinquent at the end of April–a six percent increase from a month earlier.

President Bush is urging Congress to pass a war funding bill that does not “tie the hands” of U.S. commanders in Iraq and Afghanistan. Bush spoke this morning at Fort Bragg in North Carolina, where he was welcoming troops home from the two theaters of fighting. The president implored lawmakers to come to a consensus on giving U.S. troops the resources they need to complete their mission. An agreement last night gave Republicans a clear path to kill numerous domestic programs and pass a “clean” war funding bill as demanded by the president. But doing so will take difficult votes on whether to extend unemployment benefits and expand veterans’ education benefits.

The House has passed a $54 billion tax package that renews dozens of targeted tax breaks and temporarily expands the refundable child tax credit available to lower income families. House Speaker Nancy Pelosi says the measure “would cut taxes for millions of middle-income families.” Republicans oppose the bill because it fails to keep more middle class taxpayers from being caught by the alternative minimum tax and it also requires some hedge fund managers and others working for offshore corporations to pay more taxes. The bill faces an uncertain future in the Senate and President Bush has threatened a veto.

Brushing aside a veto by President Bush, Congress has enacted a massive election-year farm bill. The 82-13 vote in the Senate followed a 316-108 vote in the House last night. However, not all of the bill Congress passed last week is becoming law right away. Because of a printing error, the version that Bush vetoed was missing 34 pages on international food aid and trade. That mistake may require Congress to send the White House yet another bill. House Republicans called the error a sign of the Democrats’ incompetence, but Senate Majority Leader Harry Reid said the process is entirely legal. Former Senate Parliamentarian Robert Dove agreed, saying, “it really doesn’t matter what Congress actually does, all that matters is what goes to the President.”

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