Calpine Corp., one of the top power producers in the country filed for Chapter 11 protection in the Bankruptcy Court for the Southern District of New York in Manhattan on December 20, 2005. Calpine is based in San Jose, California. Calpine expanded in the 1990s, but the energy crisis in California and Enron's collapse damaged the market for companies like Calpine. One of the priorities for Calpine is to get out of long-term powers sales agreements. These contracts, entered into by Calpine are now requiring Calpine to sell electricity below its cost or market prices. In a move to protect itself, Pacific Gas & Electric Co., California's biggest utility, has asked the California Public Utilities Commission for permission to buy gas supplies to keep Calpine plants operating. This is one of the first large bankruptcies to be filed under the new laws which became effective on October 17, 2005. As such, it will be watched by many to determine the impact of the new law on such a large case. One provision which may be argued early on is the compensation for key employees, or Key Employee Retention Plans ("KERP"). Under amended 11 U.S.C. ? 503(c), KERPs may not be proposed arbitrarily. In order for a KERP to be approved, the debtor must provide evidence in the record that the insider has a "bona fide job offer from another business at the same or greater rate of compensation" and that his services are "essential to the survival of the business." Further, ? 503(c) caps the retention compensation at 10 times the amount of the mean transfer given to non-management employees during the same calender year, or not more than 25% greater the amount of similar payments to such an insider during the prior calender year if no transfers were made to non-management employees. The day before the filing, Calpine gave CEO Robert May a compensation package which could pay him more than $21 million over the next two years. The package promises May a minimum of $8.75 million, including a $2 million signing bonus that was due Tuesday, the day of filing. If a bankruptcy court approves a reorganization plan within a year after he leaves, the package provides for a $12 million bonus. It will be interesting to see how the bankruptcy court treats this compensation package. Ray