Calpine ( CPN) emerged Thursday as the latest whipping boy of the battered power sector, following a weak quarterly performance and a gloomy forecast for the entire year. The California power producer posted second-quarter profits of $73 million, or 19 cents a share, a week after warning that net income could be as low as $72 million -- just two-thirds of the $105 million it earned a year ago. The company also slashed its full-year earnings guidance to between 80 cents and $1 a share, down sharply from the $1.50 it projected three months ago. Calpine blamed its dismal performance on weak power prices and deteriorating market conditions that have proven worse than the company's worst-case scenario. "We predicted 2002 would be a challenging year," said Calpine Chief Executive Peter Cartwright. "Unfortunately, that was an accurate prediction." Shares of Calpine plunged 15% to close at $4.20 following news of the company's downturn. Some observers described the company's performance as even worse than it appears. Only by capitalizing certain interest payments, rather than expensing them, did Calpine avoid a quarter in the red, they said. (The practice is allowed under generally accepted accounting practices.) Absent asset sales, Calpine could face liquidity problems and difficulty servicing debt by the end of the year, they added. Calpine assured investors that it's making significant progress toward bolstering its financial condition. "Things are going a little slower than we wanted them to, but for good operational reasons," Cartwright said. "We're very confident about reaching our liquidity goals." Unlike many power companies, which are selling off assets to pay down debt, Calpine plans to use some of its proceeds to fund the construction of power plants. Although the company could face hefty write-downs for abandoning the projects, some have questioned the economic feasibility of Calpine's construction program in today's poor market conditions. Calpine itself said it's seeking to cancel or restructure contracts to purchase up to 89 turbines for projects it has already planned. "We're putting on hold most development projects and raising additional cash through financing and asset sales," Cartwright said. "We've laid out a program for Calpine to get through the year." The company offered no earnings guidance for 2003 but predicted much flusher times by 2004, when its major construction phase will be completed. After that, the company said it will face a new dilemma -- deciding how to spend all the excess cash it generates. For now, Calpine continues to struggle with low investor confidence in both the debt and equities markets. Its bonds are currently trading at about half face-value, and its stock dipped to a near-record low of $2.60 last month. The same stock commanded $37 during the heady, pre-Enron days of a year ago.