10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

Form 10-Q

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

_______________

Calpine Corporation

(A Delaware Corporation)

I.R.S. Employer Identification No. 77-0212977

50 West San Fernando Street, San Jose, California 95113

717 Texas Avenue, Houston, Texas 77002

Telephone: (408) 995-5115

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          [X] Yes      [   ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   [   ]            Accelerated filer   [X]           Non-accelerated filer   [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).          [   ] Yes      [X] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  482,200,119 shares of Common Stock, par value $.001 per share, outstanding on November 2, 2007.

CALPINE CORPORATION AND SUBSIDIARIES

(Debtor-in-Possession)

REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2007

INDEX
	Page
PART I — FINANCIAL INFORMATION
Item 1.  Financial Statements
Consolidated Condensed Balance Sheets at September 30, 2007 and December 31, 2006	1
Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006	2
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006	3
Notes to Consolidated Condensed Financial Statements	5
1.  Basis of Presentation and Summary of Significant Accounting Policies	5
2.  Chapter 11 Cases and Related Disclosures	8
3.  Property, Plant and Equipment, Net and Capitalized Interest	14
4.  Investments	14
5.  Asset Sales	15
6.  Comprehensive Income (Loss)	16
7.  Debt	17
8.  Derivative Instruments	20
9.  Earnings (Loss) Per Share	21
10.  Commitments and Contingencies	22
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Forward-Looking Information	28
Executive Overview	29
Results of Operations	32
Non-GAAP Financial Measures	40
Operating Performance Metrics	42
Liquidity and Capital Resources	45
Recent Regulatory Developments	53
Financial Market Risks	53
Recent Accounting Pronouncements	56
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.  Controls and Procedures	56
PART II — OTHER INFORMATION
Item 1.  Legal Proceedings	59
Item 3.  Defaults Upon Senior Securities	59
Item 5.  Other Information	59
Item 6.  Exhibits	60
Signatures	61

i

DEFINITIONS

As used in this Report, the abbreviations contained herein have the meanings set forth below. Additionally, the terms, “Calpine,” “we,” “us” and “our” refer to Calpine Corporation and its consolidated subsidiaries, unless the context clearly indicates otherwise. For clarification, such terms will not include the Canadian and other foreign subsidiaries that were deconsolidated as of the Petition Date, as a result of the filings by the Canadian Debtors under the CCAA in the Canadian Court. The term “Calpine Corporation” shall refer only to Calpine Corporation and not to any of its subsidiaries. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments thereto in each case as amended, restated, supplemented or otherwise modified to the date of filing of this Report.

ABBREVIATION	DEFINITION
2006 Form 10-K	Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC on March 14, 2007
2014 Convertible Notes	Calpine Corporation’s Contingent Convertible Notes Due 2014
2015 Convertible Notes	Calpine Corporation’s 7 3/4% Contingent Convertible Notes Due 2015
2023 Convertible Notes	Calpine Corporation’s 4 3/4% Contingent Convertible Senior Notes Due 2023
345(b) Waiver Order	Order, dated May 4, 2006, pursuant to Section 345(b) of the Bankruptcy Code authorizing continued use of existing investment guidelines and continued operation of certain bank accounts
401(k) Plan	Calpine Corporation Retirement Savings Plan
Acadia PP	Acadia Power Partners, LLC
AOCI	Accumulated Other Comprehensive Income
APH	Acadia Power Holdings, LLC, a wholly owned subsidiary of Cleco
Bankruptcy Code	U.S. Bankruptcy Code
Bankruptcy Courts	The U.S. Bankruptcy Court and the Canadian Court
BLM	Bureau of Land Management of the U.S. Department of the Interior
Btu(s)	British thermal unit(s)
CAA	Federal Clean Air Act of 1970
Calgary Energy Centre	Calgary Energy Centre Limited Partnership
CalGen	Calpine Generating Company, LLC
CalGen First Lien Debt	Collectively, $235,000,000 First Priority Secured Floating Rate Notes Due 2009 issued by CalGen and CalGen Finance; $600,000,000 First Priority Secured Institutional Term Loans Due 2009 issued by CalGen; and the CalGen First Priority Revolving Loans
CalGen First Priority Revolving Loans	$200,000,000 First Priority Revolving Loans issued on or about March 23, 2004, pursuant to that Amended and Restated Agreement, among CalGen, the guarantors party thereto, the lenders party thereto, The Bank of Nova Scotia, as administrative agent, L/C Bank, lead arranger and sole bookrunner, Bayerische Landesbank, Cayman Islands Branch, as arranger and co-syndication agent, Credit Lyonnais, New York Branch, as arranger and co-syndication agent, ING Capital LLC, as arranger and co-syndication agent, Toronto Dominion (Texas) Inc., as arranger and co-syndication agent, and Union Bank of California, N.A., as arranger and co-syndication agent
CalGen Second Lien Debt	Collectively, $640,000,000 Second Priority Secured Floating Rate Notes Due 2010 issued by CalGen and CalGen Finance; and $100,000,000 Second Priority Secured Institutional Term Loans Due 2010 issued by CalGen

ii

ABBREVIATION	DEFINITION
CalGen Third Lien Debt	Collectively, $680,000,000 Third Priority Secured Floating Rate Notes Due 2011 issued by CalGen and CalGen Finance; and $150,000,000 11 1/2% Third Priority Secured Notes Due 2011 issued by CalGen and CalGen Finance
CalGen Notes	Collectively, $235,000,000 First Priority Secured Floating Rate Notes Due 2009, $640,000,000 Second Priority Secured Floating Rate Notes Due 2010, $680,000,000 Third Priority Secured Floating Rate Notes Due 2011 and $150,000,000 11 1/2% Third Priority Secured Notes Due 2011, each issued by CalGen and CalGen Finance
CalGen Secured Debt	Collectively, the CalGen First Lien Debt, the CalGen Second Lien Debt and the CalGen Third Lien Debt
CalGen Term Loans	Collectively, $600,000,000 First Priority Secured Institutional Term Loans Due 2009 and $100,000,000 Second Priority Secured Institutional Term Loans Due 2010, each issued by CalGen
Calpine Debtor(s)	The U.S. Debtors and the Canadian Debtors
Canadian Court	The Court of Queen’s Bench of Alberta, Judicial District of Calgary
Canadian Debtor(s)	The subsidiaries and affiliates of Calpine Corporation that have been granted creditor protection under the CCAA in the Canadian Court
Canadian Settlement Agreement	Settlement Agreement dated as of July 24, 2007, by and between Calpine Corporation, on behalf of itself and its U.S. subsidiaries, Calpine Canada Energy Ltd., Calpine Canada Power Ltd., Calpine Canada Energy Finance ULC, Calpine Energy Services Canada Ltd., Calpine Canada Resources Company, Calpine Canada Power Services Ltd., Calpine Canada Energy Finance II ULC, Calpine Natural Gas Services Limited, 3094479 Nova Scotia Company, Calpine Energy Services Canada Partnership, Calpine Canada Natural Gas Partnership, Calpine Canadian Saltend Limited Partnership and HSBC Bank USA, National Association, as successor indenture trustee
Cash Collateral Order	Second Amended Final Order of the U.S. Bankruptcy Court Authorizing Use of Cash Collateral and Granting Adequate Protection, dated February 24, 2006 as modified by orders of the U.S. Bankruptcy Court dated June 21, 2006, July 12, 2006, October 25, 2006, November 15, 2006, December 20, 2006, December 28, 2006, January 17, 2007, and March 1, 2007
CCAA	Companies’ Creditors Arrangement Act (Canada)
CCFC	Calpine Construction Finance Company, L.P.
CCFCP	CCFC Preferred Holdings, LLC
CCRC	Calpine Canada Resources Company, formerly Calpine Canada Resources Ltd.
CDWR	California Department of Water Resources
CES	Calpine Energy Services, L.P.
CES-Canada	Calpine Energy Services Canada Partnership
Chapter 11	Chapter 11 of the Bankruptcy Code
Cleco	Cleco Corp.
Company	Calpine Corporation, a Delaware corporation, and subsidiaries
Convertible Notes	Collectively, the 2014 Convertible Notes, the 2015 Convertible Notes, the 2023 Convertible Notes and Calpine Corporation’s 4% Convertible Senior Notes due 2006
Creditors’ Committee	The Official Committee of Unsecured Creditors of Calpine Corporation appointed by the Office of the U.S. Trustee

iii

ABBREVIATION	DEFINITION
DB London	Deutsche Bank AG London
Deer Park	Deer Park Energy Center Limited Partnership
DIP Facility	The Revolving Credit, Term Loan and Guarantee Agreement, dated as of March 29, 2007, among the Company, as borrower, certain of the Company’s subsidiaries, as guarantors, the lenders party thereto, Credit Suisse, Goldman Sachs Credit Partners L.P. and JPMorgan Chase Bank, N.A., as co-syndication agents and co-documentation agents, General Electric Capital Corporation, as sub-agent, and Credit Suisse, as administrative agent and collateral agent, with Credit Suisse Securities (USA) LLC, Goldman Sachs Credit Partners L.P., JPMorgan Securities Inc., and Deutsche Bank Securities Inc. acting as Joint Lead Arrangers and Bookrunners
DIP Order	Order of the U.S. Bankruptcy Court dated March 12, 2007, approving the DIP Facility
Disclosure Statement	Disclosure Statement for Debtors’ Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code filed by the U.S. Debtors with the U.S. Bankruptcy Court on June 20, 2007, as amended, modified or supplemented through the filing of this Report, and as it may be further amended, modified or supplemented from time to time
EBITDA	Earnings before interest, taxes, depreciation, and amortization
EPA	U.S. Environmental Protection Agency
ERISA	Employee Retirement Income Security Act
ERO	Electric Reliability Organization
Exchange Act	U.S. Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FFIC	Fireman’s Fund Insurance Company
FIN	FASB Interpretation Number
First Priority Notes	9 5/8% First Priority Senior Secured Notes Due 2014
First Priority Trustee	Until February 2, 2006, Wilmington Trust Company, as trustee, and from February 3, 2006, and thereafter, Law Debenture Trust Company of New York, as successor trustee, under the Indenture, dated as of September 30, 2004, with respect to the First Priority Notes
FPA	Federal Power Act
FSP	FASB Staff Position
GAAP	Generally accepted accounting principles in the U.S.
Geysers Assets	19 geothermal power plant assets located in northern California
GHG	Greenhouse gases
Greenfield LP	Greenfield Energy Centre LP
Harbert Convertible Fund	Harbert Convertible Arbitrage Master Fund, L.P.
Harbert Distressed Fund	Harbert Distressed Investment Master Fund, Ltd.
Heat Rate	A measure of the amount of fuel required to produce a unit of electricity
IRS	U.S. Internal Revenue Service
King City Cogen	Calpine King City Cogen, LLC
KWh	Kilowatt hour(s)

iv

ABBREVIATION	DEFINITION
LIBOR	London Inter-Bank Offered Rate
LSTC	Liabilities subject to compromise
Metcalf	Metcalf Energy Center, LLC
MMBtu	Million Btu
Moapa	Moapa Energy Center, LLC
MW	Megawatt(s)
MWh	Megawatt hour(s)
NERC	North American Electric Reliability Council
Ninth Circuit Court of Appeals	U.S. Court of Appeals for the Ninth Circuit
NOL(s)	Net operating loss(es)
Non-Debtor(s)	The subsidiaries and affiliates of Calpine Corporation that are not Calpine Debtors
Non-U.S. Debtor(s)	The consolidated subsidiaries and affiliates of Calpine Corporation that are not U.S. Debtor(s)
Northern District Court	U.S. District Court for the Northern District of California
NPC	Nevada Power Company
OCI	Other Comprehensive Income
OMEC	Otay Mesa Energy Center, LLC
Original DIP Facility	The Revolving Credit, Term Loan and Guarantee Agreement, dated as of December 22, 2005, as amended on January 26, 2006, and as amended and restated by that certain Amended and Restated Revolving Credit, Term Loan and Guarantee Agreement, dated as of February 23, 2006, among Calpine Corporation, as borrower, the Guarantors party thereto, the Lenders from time to time party thereto, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc., as joint syndication agents, Deutsche Bank Trust Company Americas, as administrative agent for the First Priority Lenders, General Electric Capital Corporation, as Sub-Agent for the Revolving Lenders, Credit Suisse, as administrative agent for the Second Priority Term Lenders, Landesbank Hessen Thuringen Girozentrale, New York Branch, General Electric Capital Corporation and HSH Nordbank AG, New York Branch, as joint documentation agents for the First Priority Lenders and Bayerische Landesbank, General Electric Capital Corporation and Union Bank of California, N.A., as joint documentation agents for the Second Priority Lenders
Panda	Panda Energy International, Inc., and related party PLC II, LLC
PCF	Power Contract Financing, L.L.C.
PCF III	Power Contract Financing III, LLC
Petition Date	December 20, 2005
Plan of Reorganization	Debtors’ Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code filed by the U.S. Debtors with the U.S. Bankruptcy Court on June 20, 2007, as amended, modified or supplemented through the filing of this Report, and as it may be further amended, modified or supplemented from time to time

v

ABBREVIATION	DEFINITION
Plan Supplement	Supplement to Debtors’ Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code filed by the U.S. Debtors with the U.S. Bankruptcy Court on June 20, 2007, as amended, modified or supplemented through the filing of this Report, and as it may be further amended, modified or supplemented from time to time
PPA(s)	Any contract for a physically settled sale (as distinguished from a financially settled future, option or other derivative or hedge transaction) of any electric power product, including electric energy, capacity and/or ancillary services, in the form of a bilateral agreement or a written or oral confirmation of a transaction between two parties to a master agreement, including sales related to a tolling transaction in which part of the consideration provided by the purchaser of an electric power product is the fuel required by the seller to generate such electric power
PSM	Power Systems Manufacturing, LLC
RMR Contract(s)	Reliability Must Run contract(s)
Rosetta	Rosetta Resources, Inc.
SDG&E	San Diego Gas & Electric Company
SDNY Court	U.S. District Court for the Southern District of New York
SEC	U.S. Securities and Exchange Commission
Second Priority Debt	Collectively, the Second Priority Notes and Calpine Corporation’s Senior Secured Term Loans Due 2007
Second Priority Notes	Calpine Corporation’s Second Priority Senior Secured Floating Rate Notes Due 2007, 8 1/2% Second Priority Senior Secured Notes Due 2010, 8 3/4% Second Priority Senior Secured Notes Due 2013 and 9 7/8% Second Priority Senior Secured Notes Due 2011
Securities Act	U.S. Securities Act of 1933, as amended
SFAS	Statement of Financial Accounting Standards
SPPC	Sierra Pacific Power Company
TSA(s)	Transmission service agreement(s)
ULC I	Calpine Canada Energy Finance ULC
ULC II	Calpine Canada Energy Finance II ULC
Unsecured Notes	Collectively, Calpine Corporation’s 7 7/8% Senior Notes due 2008, 7 3/4% Senior Notes due 2009, 8 5/8% Senior Notes due 2010 and 8 1/2% Senior Notes due 2011, which constitutes a portion of Calpine Corporation’s unsecured senior notes
Unsecured Noteholders	Collectively, the holders of the Unsecured Notes
U.S.	United States of America
U.S. Bankruptcy Court	U.S. Bankruptcy Court for the Southern District of New York
U.S. Debtor(s)	Calpine Corporation and each of its subsidiaries and affiliates that have filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court, which matters are being jointly administered in the U.S. Bankruptcy Court under the caption In re Calpine Corporation, et al., Case No. 05-60200 (BRL)

vi

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CALPINE CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONSOLIDATED CONDENSED BALANCE SHEETS

September 30, 2007 and December 31, 2006

(Unaudited)

	September 30,			December 31,
	2007			2006
	(in millions, except
	share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	1,703		$	1,077
Accounts receivable, net of allowance of $54 and $32		1,047			735
Inventories		117			184
Margin deposits and other prepaid expense		395			359
Restricted cash, current		406			426
Current derivative assets		227			152
Assets held for sale		198			154
Other current assets		55			81
Total current assets		4,148			3,168
Property, plant and equipment, net		12,452			13,603
Restricted cash, net of current portion		155			192
Investments		249			129
Long-term derivative assets		257			352
Other assets		972			1,146
Total assets	$	18,233		$	18,590
LIABILITIES & STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	614		$	440
Accrued interest payable		187			406
Debt, current		4,875			4,569
Current derivative liabilities		280			225
Income taxes payable		39			99
Other current liabilities		466			319
Total current liabilities		6,461			6,058
Debt, net of current portion		3,129			3,352
Deferred income taxes, net of current portion		655			490
Long-term derivative liabilities		429			475
Other long-term liabilities		269			345
Total liabilities not subject to compromise		10,943			10,720
Liabilities subject to compromise		11,667			14,757
Commitments and contingencies (see Note 10)
Minority interest		8			266
Stockholders’ equity (deficit):
Preferred stock, $.001 par value per share; authorized 10,000,000 shares; none issued and outstanding in 2007 and 2006		—			—
Common stock, $.001 par value per share; authorized 2,000,000,000 shares; 568,772,999 issued and 482,200,119 outstanding in 2007 and 568,764,920 issued and 529,764,920 outstanding in 2006		1			1
Additional paid-in capital		3,270			3,270
Additional paid-in capital, loaned shares		7			145
Additional paid-in capital, returnable shares		(7	)		(145	)
Accumulated deficit		(7,543	)		(10,378	)
Accumulated other comprehensive loss		(113	)		(46	)
Total stockholders’ deficit		(4,385	)		(7,153	)
Total liabilities and stockholders’ deficit	$	18,233		$	18,590

The accompanying notes are an integral part of these

Consolidated Condensed Financial Statements.

1

CALPINE CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2007 and 2006

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(in millions, except share and per share amounts)
Revenue:
Electricity and steam revenue	$	1,690		$	1,842		$	4,412		$	4,070
Sales of purchased power and gas for hedging and optimization		540			273			1,357			891
Mark-to-market activities, net		2			28			5			88
Other revenue		7			15			55			57
Total revenue		2,239			2,158			5,829			5,106
Cost of revenue:
Plant operating expense		182			175			561			520
Purchased power and gas expense for hedging and optimization		370			296			1,046			857
Fuel expense		1,114			1,106			2,989			2,474
Depreciation and amortization expense		114			121			350			350
Operating plant impairments		—			—			—			53
Operating lease expense		15			11			39			53
Other cost of revenue		32			39			112			128
Total cost of revenue		1,827			1,748			5,097			4,435
Gross profit		412			410			732			671
Equipment, development project and other impairments		—			(4	)		2			64
Sales, general and administrative expense		33			49			112			147
Other operating expense		12			10			22			25
Income from operations		367			355			596			435
Interest expense		602			228			1,176			820
Interest (income)		(14	)		(19	)		(48	)		(59	)
Minority interest expense		1			7			—			10
Other (income) expense, net		(127	)		(10	)		(134	)		7
Income (loss) before reorganization items and income taxes		(95	)		149			(398	)		(343	)
Reorganization items		(3,940	)		146			(3,366	)		1,099
Income (loss) before income taxes		3,845			3			2,968			(1,442	)
Provision (benefit) for income taxes		51			1			133			(36	)
Income (loss) before cumulative effect of a change in accounting principle		3,794			2			2,835			(1,406	)
Cumulative effect of a change in accounting principle, net of tax		—			—			—			1
Net income (loss)	$	3,794		$	2		$	2,835		$	(1,405	)

Basic earnings (loss) per common share:
Weighted average shares of common stock outstanding (in thousands)		479,312		479,136		479,208		479,136
Income (loss) before cumulative effect of a change in accounting principle	$	7.92	$	—	$	5.92	$	(2.93	)
Cumulative effect of a change in accounting principle, net of tax		—		—		—		—
Net income (loss)	$	7.92	$	—	$	5.92	$	(2.93	)

Diluted earnings (loss) per common share:
Weighted average shares of common stock outstanding (in thousands)		479,617		479,136		479,543		479,136
Income (loss) before cumulative effect of a change in accounting principle	$	7.91	$	—	$	5.91	$	(2.93	)
Cumulative effect of a change in accounting principle, net of tax		—		—		—		—
Net income (loss)	$	7.91	$	—	$	5.91	$	(2.93	)

The accompanying notes are an integral part of these

Consolidated Condensed Financial Statements.

2

CALPINE CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2007 and 2006

(Unaudited)

	Nine Months Ended September 30,
	2007			2006
	(in millions)
Cash flows from operating activities:
Net income (loss)	$	2,835		$	(1,405	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization(1)		420			437
Impairment charges		2			117
Deferred income taxes, net		132			(36	)
Loss on sale of assets, excluding reorganization items		24			2
Foreign currency transaction gain, excluding reorganization items		(2	)		(2	)
Gain on settlement of notes receivable		—			(6	)
Mark-to-market activities, net		(5	)		(88	)
Non-cash derivative activities		2			120
Non-cash reorganization items		(3,459	)		976
Other		5			34
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(316	)		155
Other assets		19			22
Accounts payable, liabilities subject to compromise and accrued expenses		383			(238	)
Other liabilities		53			79
Net cash provided by operating activities		93			167
Cash flows from investing activities:
Purchases of property, plant and equipment		(173	)		(159	)
Disposals of property, plant and equipment		32			13
Acquisitions, net of cash acquired		—			(267	)
Disposals of investments, turbines and power plants		507			38
Advances to joint ventures		(73	)		(31	)
Return of investment in Canadian Debtors		75			—
Return of investment in joint ventures		104			—
Cash flows from derivatives not designated as hedges		(21	)		(95	)
Decrease in restricted cash		57			442
Cash effect of deconsolidation of OMEC		(29	)		—
Other		4			13
Net cash provided by (used in) investing activities		483			(46	)

The accompanying notes are an integral part of these

Consolidated Condensed Financial Statements.

3

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

	Nine Months Ended September 30,
	2007			2006
	(in millions)
Cash flows from financing activities:
Repayments of notes payable and lines of credit	$	(135	)	$	(174	)
Borrowings under project financing		16			121
Repayments of project financing		(108	)		(109	)
Repayments of CalGen Secured Debt		(224	)		—
Borrowings under DIP Facility		614			1,150
Repayments of DIP Facility		(28	)		(178	)
Repayments and repurchases of Senior Notes		—			(646	)
Redemptions of preferred interests		(9	)		(9	)
Financing costs		(81	)		(34	)
Other		5			(21	)
Net cash provided by financing activities		50			100
Net increase in cash and cash equivalents, including discontinued operations cash		626			221
Change in discontinued operations cash classified as assets held for sale		—			(18	)
Net increase in cash and cash equivalents		626			203
Cash and cash equivalents, beginning of period		1,077			786
Cash and cash equivalents, end of period	$	1,703		$	989
Cash paid (received) during the period for:
Interest, net of amounts capitalized	$	926		$	772
Income taxes	$	1		$	—
Reorganization items included in operating activities, net	$	88		$	78
Reorganization items included in investing activities, net	$	(582	)	$	—
Reorganization items included in financing activities, net	$	74		$	34

__________

(1)   Includes depreciation and amortization that is also recorded in sales, general and administrative expense and interest expense.

	Nine Months Ended September 30,
	2007		2006
	(in millions)
Supplemental disclosure of non-cash investing and financing activities:
DIP Facility borrowings used to extinguish the Original DIP Facility principal ($989), CalGen Secured Debt principal ($2,309) and operating liabilities ($88)	$	3,386	$	—
Project financing ($159) and operating liabilities ($33) extinguished with sale of Aries Power Plant	$	192	$	—
Fair value of loaned common stock returned	$	138	$	72
Letter of credit draws under the CalGen Secured Debt used for operating activities	$	16	$	71
Capital contribution (equipment) to Greenfield LP	$	—	$	28
Fair value of Metcalf cooperation agreement, with offsets to notes payable ($6) and operating liabilities ($6)	$	12	$	—
Acquisition of property, plant and equipment for Geysers Assets, with offsets to operating assets	$	—	$	181

The accompanying notes are an integral part of these

Consolidated Condensed Financial Statements.

4

CALPINE CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

1.  Basis of Presentation and Summary of Significant Accounting Policies

Basis of Interim Presentation — The accompanying unaudited interim Consolidated Condensed Financial Statements of Calpine Corporation, a Delaware corporation, and our 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 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 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, 2006, included in our 2006 Form 10-K. The results for interim periods are not necessarily indicative of the results for the entire year.

We are engaged in predominantly one line of business, the generation and sale of electricity and electricity-related products. We manage and operate our business as a single segment, and, therefore, no segment information is presented.

On May 3, 2007, OMEC, an indirect wholly owned subsidiary and the owner of the Otay Mesa Energy Center, entered into a ten-year tolling agreement with SDG&E. OMEC also entered into a ground sublease and easement agreement with SDG&E which, among other things, provides for a put option by OMEC to sell, and a call option by SDG&E to buy, the Otay Mesa power plant at the end of the tolling agreement. OMEC is a variable interest entity. The tolling agreement and the put and call options were determined to absorb the majority of risk from the entity such that we are not OMEC’s primary beneficiary. Accordingly, we deconsolidated OMEC during the second quarter of 2007, and our investment in OMEC is accounted for under the equity method. The deconsolidation of OMEC resulted in a reduction in construction in progress of $144 million, cash of $29 million, debt of $7 million, other current and non-current assets of $12 million and other current and non-current liabilities of $22 million. See Note 4 for further discussion.

Reclassifications — Certain prior years’ amounts on the Consolidated Condensed Financial Statements were reclassified to conform to the current period presentation.

          Cash and Cash Equivalents — We have certain project finance facilities and lease agreements that establish 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. At September 30, 2007, and December 31, 2006, $198 million and $391 million, respectively, of the cash and cash equivalents balance that was unrestricted was subject to such project finance facilities and lease agreements.

Restricted Cash — We are required to maintain cash balances that are restricted by provisions of certain of our debt and lease agreements or by regulatory agencies. 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, major maintenance and debt repurchases. Funds that can be used to satisfy obligations due during the next twelve 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 the Consolidated Condensed Balance Sheets and Statements of Cash Flows.

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The table below represents the components of our consolidated restricted cash as of September 30, 2007, and December 31, 2006 (in millions):

	September 30, 2007						December 31, 2006
	Current		Non-Current		Total		Current		Non-Current		Total
Debt service	$	88	$	111	$	199	$	148	$	114	$	262
Rent reserve		13		—		13		58		—		58
Construction/major maintenance		99		22		121		83		28		111
Security/project reserves		151		—		151		46		32		78
Collateralized letters of credit and other credit support		4		—		4		29		—		29
Other		51		22		73		62		18		80
Total	$	406	$	155	$	561	$	426	$	192	$	618

Commodity Margin Deposits and Other Collateral — As of September 30, 2007, and December 31, 2006, to support commodity transactions, we had margin deposits with third parties of $249 million and $214 million, respectively. Counterparties had margin deposits with us of $41 million and nil at September 30, 2007, and December 31, 2006, respectively. In addition, we have granted additional first priority liens on the assets currently subject to first priority liens under the DIP Facility as collateral under certain of our power agreements, natural gas agreements and interest rate swap agreements that qualify as “eligible commodity hedge agreements” under the DIP Facility in order to reduce the cash collateral and letters of credit that we would otherwise be required to provide to the counterparties under such agreements. The counterparties under such agreements will share the benefits of the collateral subject to such first priority liens ratably with the lenders under the DIP Facility. As of September 30, 2007, and December 31, 2006, our net discounted exposure under the power and natural gas agreements collateralized by such first priority liens was approximately $4 million and nil, respectively, and our net discounted exposure under the interest rate swap agreements collateralized by such first priority liens was approximately $51 million and nil, respectively.

Income Taxes — For the three months ended September 30, 2007 and 2006, our effective tax rate was 1.3% and 42.0%, respectively. For the nine months ended September 30, 2007 and 2006, our effective tax rate was 4.5% and 2.5%, respectively. The quarterly tax provision on continuing operations was significantly impacted by the valuation allowance recorded against certain deferred tax assets. For the three and nine months ended September 30, 2007, we determined the annual effective tax rate method of computing the tax provision at the interim period did not provide meaningful results due to uncertainty in reliably estimating the projected annual effective tax rate for 2007. Therefore, income taxes for the three and nine months ended September 30, 2007, were computed based on actual results. We calculated our tax provision by netting deferred tax assets against deferred tax liabilities that we anticipate will be realized within the statutory carryforward period allowed under the Internal Revenue Code and relevant state tax statutes and established a valuation allowance against the remaining deferred tax assets.

The tax benefit or provision recorded on our Consolidated Condensed Statements of Operations is primarily the result of transactions (including asset impairments and dispositions) that impact the difference between the book and tax basis of our assets and the related deferred tax liabilities. The difference in the amount of the tax benefit or provision between the three and nine months ended September 30, 2007, as compared to the same periods in the prior year, relates primarily to the nature and amount of asset impairments or dispositions in the respective periods.

Under federal income tax law, a corporation is generally permitted to deduct from taxable income in any year NOLs carried forward from prior years, subject to certain time limitations as prescribed by the Internal Revenue Code. Our ability to deduct such NOL carryforwards could be subject to a significant limitation if we were to undergo an “ownership change” during or as a result of our Chapter 11 cases or the implementation of our Plan of Reorganization, which contemplates the cancellation of our outstanding common stock and the distribution of reorganized Calpine Corporation common stock. In order to allow us to preserve our ability to utilize our NOLs, the U.S. Bankruptcy Court has entered orders that place certain limitations on trading in our common stock or certain securities, including options, convertible into our common stock during the pendency of the Chapter 11 cases and has also provided potentially retroactive application of notice and sell-down procedures for trading in claims against the U.S. Debtors’ estates, which claims trading could also negatively impact our

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accumulated NOLs and other tax attributes. In addition, we have proposed in our Plan of Reorganization restrictions on certain transfers of reorganized Calpine Corporation common stock following our emergence from Chapter 11 in order to allow us to take advantage of special rules under the Internal Revenue Code that apply when an “ownership change” occurs pursuant to the implementation of a plan of reorganization under the Bankruptcy Code. In general, these special rules allow for a more favorable utilization of NOL carryforwards than would otherwise have been available following an “ownership change” not in connection with a plan of reorganization. The ultimate realization of our NOLs will depend on several factors, such as whether limitations on trading in our common stock will prevent an “ownership change” and the amount of our indebtedness that is cancelled through the Chapter 11 cases. If a portion of our debt is cancelled upon emergence from Chapter 11, the amount of the cancelled debt would reduce tax attributes such as our NOLs and tax basis on fixed assets. Depending on the terms of our Plan of Reorganization ultimately confirmed, any income from debt cancellations could partially or fully utilize our available NOLs.

Additionally, the NOL carryforwards of CCFC (a Non-Debtor) may be limited due to transactions related to the preferred interests issued by CCFC’s indirect parent, CCFCP, which may be deemed an “ownership change” under federal income tax law. If an “ownership change” occurred, any limitation on the CCFC NOL carryforwards would not have a material impact on our Consolidated Condensed Financial Statements due to the full valuation allowance recorded against such carryforwards.

GAAP requires that all available evidence, both positive and negative, be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward periods available under the tax law. Primarily due to our inability to assume future profits and due to our reduced ability to implement tax-planning strategies to utilize our NOLs while in Chapter 11, we concluded that valuation allowances on a portion of our deferred tax assets were required.

In June 2006, the FASB issued FIN No. 48 “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement 109.” FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

We adopted FIN 48 on January 1, 2007, as required. As of that date, we had an accrued liability of approximately $153 million related to uncertain tax positions, primarily related to federal, state and withholding taxes. Also included are estimated interest and penalties that we record to income tax expense. However, due to our ongoing Chapter 11 cases, some portion of this accrued amount may not be paid until we emerge from Chapter 11. There was no effect on the January 1, 2007, accumulated deficit balance as a result of the adoption of FIN 48. However, as a result of the adoption of FIN 48, we reduced our deferred tax assets by approximately $106 million. The decrease in the deferred tax assets was offset by an equal reduction in the related valuation allowance. In addition, future changes in the accrued liability for uncertain tax positions are not expected to impact our effective tax rate in the foreseeable future due to the existence of the valuation allowances.

During the three months ended September 30, 2007, we increased our liability for uncertain tax positions by $11 million to reflect the impact of foreign currency fluctuations on Canadian denominated tax liabilities. During the nine months ended September 30, 2007, our liability for uncertain tax positions was unchanged as the increase during the third quarter of 2007 was offset by a decrease of $11 million during the first half of 2007, based on information contained in a recently issued IRS revenue agent report. As a result of these items, our liability for uncertain tax positions is $153 million at September 30, 2007. Within the next 12 months, we anticipate that we will resolve uncertain tax positions related to certain withholding taxes that we expect would result in a $75 million reduction of our liability for uncertain tax positions.

The IRS completed its field examination of our U.S. income tax returns for the 1999 through 2002 tax years. The U.S. Joint Committee on Taxation is currently reviewing the examination report and we expect the audit to be concluded during 2007. At that time, the 1999 through 2002 tax years will be effectively closed. We do not believe the examination will result in a material impact on our Consolidated Condensed Financial Statements. The 2003 through 2006 tax years are still subject

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to IRS examination. Due to significant NOLs incurred in these years, any IRS adjustment of these returns would likely result in a reduction of the deferred tax assets already subject to valuation allowances rather than a cash payment of taxes.

We are currently under examination in various states in which we operate. We anticipate that any state tax assessment will not have a material impact on our Consolidated Condensed Financial Statements. Following the deconsolidation of our Canadian and other foreign subsidiaries as of the Petition Date, we do not expect to incur any additional foreign tax liability.

Recent Accounting Pronouncements

SFAS No. 157

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and enhances disclosures about fair value measurements. SFAS No. 157 applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, with early adoption encouraged. We are currently assessing the impact this standard will have on our results of operations, cash flows and financial position.

SFAS No. 159

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates with unrealized gains and losses on items for which the fair value option has been elected to be reported in earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value nor does it eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted provided that the entity also elects to apply SFAS No. 157. We are currently assessing the impact this standard will have on our results of operations, cash flows and financial position.

FASB Staff Position No. FIN 39-1

In April 2007, the FASB staff issued FSP FIN 39-1, “Amendment of FASB Interpretation No. 39.” FSP FIN 39-1 requires an entity to offset the fair value amounts recognized for cash collateral paid or cash collateral received against the fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement, if the entity elects to offset fair value amounts recognized as derivative instruments. Under the provisions of this pronouncement, a reporting entity shall make an accounting decision whether or not to offset fair value amounts. The guidance in FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early application permitted. We expect that we will not elect to apply the netting provisions allowed under FSP FIN 39-1.

2.  Chapter 11 Cases and Related Disclosures

Summary of Proceedings

General Bankruptcy Matters — Since the Petition Date, Calpine Corporation and 274 of its wholly owned subsidiaries in the U.S. have filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court. Similarly, since the Petition Date, 12 of Calpine’s Canadian subsidiaries have filed for creditor protection under the CCAA in the Canadian Court. Certain other subsidiaries could file under Chapter 11 in the U.S. or for creditor protection under the CCAA in Canada in the future. The information in this Report principally describes the Chapter 11 cases and only describes

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the CCAA proceedings where they have a material effect on our operations or where such information provides necessary background information.

The Calpine Debtors are continuing to operate their business as debtors-in-possession and will continue to conduct business in the ordinary course under the protection of the Bankruptcy Courts during the pendency of our Chapter 11 cases and CCAA proceedings. Generally, pursuant to automatic stay provisions under the Bankruptcy Code and orders (which currently extend through December 20, 2007) granted by the Canadian Court, while a plan or plans of reorganization (with respect to the U.S. Debtors) or arrangement (with respect to the Canadian Debtors) are developed, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Calpine Debtors are stayed while the Calpine Debtors continue their business operations as debtors-in-possession.

As a result of our Chapter 11 filings and the other matters described herein, including uncertainties related to the fact that we have not yet had time to obtain confirmation of a plan or plans of reorganization, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to maintain adequate cash on hand; (ii) our ability to generate cash from operations; (iii) the cost, duration and outcome of our restructuring process; (iv) our ability to comply with the terms of our existing financing obligations and anticipated exit financing and the adequate assurance provisions of the Cash Collateral Order; and (v) our ability to achieve profitability following a restructuring. These challenges are in addition to those operational and competitive challenges faced by us in connection with our business. In conjunction with our advisors, we have implemented and continue to implement strategies to aid our liquidity and our ability to continue as a going concern. However, there can be no assurance as to the success of such efforts.

Plan of Reorganization — On June 20, 2007, the U.S. Debtors filed the Plan of Reorganization with the U.S. Bankruptcy Court, together with the Disclosure Statement and portions of the Plan Supplement. The Plan of Reorganization, as well as the Disclosure Statement and Plan Supplement have been amended several times since June 20, 2007.

The Plan of Reorganization provides for the treatment of claims of creditors on a “waterfall” basis that allocates value to our creditors and shareholders in accordance with the priorities of the Bankruptcy Code. Pursuant to the Plan of Reorganization, allowed administrative claims and priority tax claims would be paid in full in cash or cash equivalents, as would allowed first and second lien debt claims. Other allowed secured claims would be reinstated, paid in full in cash or cash equivalents, or have the collateral securing such claims returned to the secured creditor. Allowed unsecured claims would receive a pro rata distribution of common stock of the reorganized Calpine Corporation; allowed unsecured convenience claims (all claims $50,000 or less) would be paid in full in cash or cash equivalents. Any remaining value after such allowed creditors’ claims have been paid would be distributed pro rata to existing holders of allowed interests (primarily holders of existing Calpine Corporation common stock) and holders of subordinated equity securities claims in the form of reorganized Calpine Corporation common stock.

The Plan of Reorganization assumes that allowed claims plus Non-Debtor net project debt of $3.9 billion will range from $20.3 billion to $22.0 billion after completion of the claims objection, reconciliation and resolution process. However, because disputed claims, including litigation instituted by us challenging so-called “make whole,” premium, or “no-call” claims, have not yet been finally adjudicated, and our total enterprise value upon emergence has not yet been finally determined, no assurances can be given that actual recoveries to creditors and interest holders will not be materially higher or lower than proposed in the Plan of Reorganization. We intend to file an update to the valuation analysis of our total enterprise value upon emergence no later than ten days prior to the voting and objection deadline of November 30, 2007. The Disclosure Statement contains detailed information about the Plan of Reorganization, a historical profile of our business, a description of proposed distributions to creditors, and an analysis of the Plan of Reorganization’s feasibility, as well as many of the technical matters required for the exit process, such as descriptions of who will be eligible to vote on the Plan of Reorganization and the voting process itself. The information contained in the Disclosure Statement is subject to change, whether as a result of further amendments to the Plan of Reorganization, actions of third parties or otherwise.

On September 25, 2007, the U.S. Bankruptcy Court approved the adequacy of the Disclosure Statement, the solicitation and notice procedures with respect to confirmation of the Plan of Reorganization and the form of various ballots

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and notices in connection therewith. The U.S. Bankruptcy Court established September 27, 2007, as the record date for determining eligibility to vote on the Plan of Reorganization. We completed the distribution of solicitation packages by October 5, 2007, the deadline for distribution set by the U.S. Bankruptcy Court.

The Plan of Reorganization will become effective only if it receives the requisite approval and is confirmed by the U.S. Bankruptcy Court. The voting and objection deadline with respect to the Plan of Reorganization is scheduled for November 30, 2007, at which time we expect that our Plan of Reorganization, as it may be further amended, will be accepted and approved by our creditors. The confirmation hearing in the U.S. Bankruptcy Court is scheduled to begin on December 17, 2007. If the U.S. Bankruptcy Court confirms the Plan of Reorganization, we expect to emerge from Chapter 11 shortly thereafter. However, there can be no assurance that we will be successful in obtaining the necessary votes to approve the Plan of Reorganization, that the U.S. Bankruptcy Court will confirm the Plan of Reorganization or that it will be implemented successfully.

We had the exclusive right until August 20, 2007, to solicit acceptance of the Plan of Reorganization. The exclusivity period has expired and competing plans of reorganization may be filed by third parties.

U.S. Debtors Condensed Combined Financial Statements

Condensed Combined Financial Statements of the U.S. Debtors are set forth below.

Condensed Combined Balance Sheets

September 30, 2007 and December 31, 2006

	U.S. Debtors
	September 30,			December 31,
	2007			2006
	(in millions)
Assets:
Current assets	$	5,324		$	4,746
Restricted cash, net of current portion		35			47
Investments		2,589			2,147
Property, plant and equipment, net		7,001			7,629
Other assets		964			1,192
Total assets	$	15,913		$	15,761
Liabilities not subject to compromise:
Current liabilities	$	5,739		$	5,271
Long-term debt		409			411
Long-term derivative liabilities		365			375
Other long-term liabilities		578			454
Liabilities subject to compromise		13,385			16,453
Stockholders’ deficit		(4,563	)		(7,203	)
Total liabilities and stockholders’ deficit	$	15,913		$	15,761

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Condensed Combined Statements of Operations

For the Three and Nine Months Ended September 30, 2007 and 2006

	U.S. Debtors
	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(in millions)
Total revenue	$	2,163		$	2,110		$	5,509		$	4,744
Total cost of revenue		1,916			1,929			5,348			4,501
Operating (income) expense(1)		(62	)		(46	)		(51	)		134
Income from operations		309			227			212			109
Interest expense		498			113			876			503
Other (income) expense, net		(138	)		(32	)		(136	)		(38	)
Reorganization items		(3,833	)		145			(3,348	)		1,099
Provision for income taxes		40			30			110			7
Income (loss) before cumulative effect of a change in accounting principle		3,742			(29	)		2,710			(1,462	)
Cumulative effect of a change in accounting principle		—			—			—			1
Net income (loss)	$	3,742		$	(29	)	$	2,710		$	(1,461	)

__________

(1)   Includes equity in (income) loss of affiliates.

Condensed Combined Statements of Cash Flows

For the Nine Months Ended September 30, 2007 and 2006

	U.S. Debtors
	2007			2006
	(in millions)
Net cash provided by (used in):
Operating activities	$	(54	)	$	(113	)
Investing activities		472			90
Financing activities		273			272
Net increase in cash and cash equivalents		691			249
Cash and cash equivalents, beginning of year		883			444
Effect on cash of new debtor filings		—			66
Cash and cash equivalents, end of year	$	1,574		$	759
Net cash paid for reorganization items included in operating activities	$	88		$	78
Net cash received from reorganization items included in investing activities	$	(577	)	$	—
Net cash paid for reorganization items included in financing activities	$	74		$	34

Basis of Presentation — The U.S. Debtors’ Condensed Combined Financial Statements exclude the financial statements of the Non-U.S. Debtor parties. Transactions and balances of receivables and payables between U.S. Debtors are eliminated in consolidation. However, the U.S. Debtors’ Condensed Combined Balance Sheets include receivables from and payables to related Non-U.S. Debtor parties. Actual settlement of these related party receivables and payables is, by historical practice, made on a net basis.

Interest Expense — Due to the uncertainty with respect to whether our Plan of Reorganization as ultimately confirmed will include post-petition interest, which could become a substantial allowed claim, interest expense related to our pre-petition LSTC has been reported to date only to the extent that it will be paid during the pendency of our Chapter 11 cases or is permitted by the Cash Collateral Order or pursuant to orders of the U.S. Bankruptcy Court. Contractual interest (at non-default rates) to unrelated parties on LSTC not reflected on our Consolidated Condensed Financial Statements was $61

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million and $158 million for the three months ended September 30, 2007 and 2006, respectively, and $181 million and $318 million for the nine months ended September 30, 2007 and 2006, respectively. Pursuant to the Cash Collateral Order, we make periodic cash adequate protection payments to the holders of Second Priority Debt; originally payments were made only through June 30, 2006, but, by order entered December 28, 2006, the U.S. Bankruptcy Court modified the Cash Collateral Order to provide for periodic adequate protection payments on a quarterly basis to the holders of the Second Priority Debt through December 31, 2007. Thereafter, unless we have a confirmed plan or plans of reorganization and are no longer subject to U.S. Bankruptcy Court jurisdiction, the holders of the Second Priority Debt must seek further orders from the U.S. Bankruptcy Court for any further amounts to be paid. We have not yet made a determination as to whether any portion of the adequate protection payments represents payment of principal and, therefore, have reported the full amount of the adequate protection payments as interest expense on our Consolidated Condensed Statements of Operations.

Reorganization Items — Reorganization items represent the direct and incremental costs related to our Chapter 11 cases, such as professional fees, pre-petition liability claim adjustments and losses that are probable and can be estimated, net of interest income earned on accumulated cash during the Chapter 11 process and gains on the sale of assets related to our restructuring activities. Our restructuring activities may result in additional charges and other adjustments for expected allowed claims (including claims that have been allowed by the U.S. Bankruptcy Court) and other reorganization items that could be material to our financial position or results of operations in any given period. The table below lists the significant components of reorganization items for the three and nine months ended September 30, 2007 and 2006 (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Provision for expected allowed claims(1)	$	(4,030	)	$	94		$	(3,695	)	$	883
Gains on asset sales		(36	)		—			(286	)		—
Asset impairments(2)		—			—			120			2
DIP Facility financing and CalGen Secured Debt repayment costs		22			3			182			35
Professional fees		44			39			139			107
Interest (income) on accumulated cash		(16	)		(5	)		(39	)		(18	)
Other(3)		76			15			213			90
Total reorganization items	$	(3,940	)	$	146		$	(3,366	)	$	1,099

__________

(1)   Represents our estimate of the expected allowed claims related primarily to guarantees of subsidiary obligations for the nine months ended September 30, 2006, the rejection or repudiation of leases and other executory contracts in both current and prior year periods and the effects of approved settlements during the three and nine months ended September 30, 2007. See further discussion below in “— Chapter 11 Claims Assessment.”

(2)   Impairment charges for the nine months ended September 30, 2007, primarily relate to recording our interest in Acadia PP at fair value less cost to sell. See Note 5 for additional information.

(3)   Other reorganization items consist primarily of adjustments for foreign exchange rate changes on LSTC denominated in a foreign currency and governed by foreign law and employee severance and incentive costs in all periods.

Chapter 11 Claims Assessment

The U.S. Bankruptcy Court established August 1, 2006, as the bar date for filing proofs of claim against the U.S. Debtors’ estates, other than claims against Calpine Geysers Company, L.P., as to which the bar date was October 31, 2006, and Santa Rosa Energy Center LLC, as to which the bar date was November 5, 2007. Under certain limited circumstances, some creditors will be permitted to file claims after the applicable bar dates. Accordingly, it is possible that not all potential claims were filed as of the filing of this Report. The differences between amounts recorded by the U.S. Debtors and proofs of claim filed by the creditors are investigated and resolved through the claims reconciliation process. Because of the number of creditors and claims, the claims reconciliation process may take considerable time to complete and we expect will continue after our emergence from Chapter 11.

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Notwithstanding the foregoing, we have recognized certain charges related to allowed claims or expected allowed claims. The U.S. Bankruptcy Court will ultimately determine liability amounts that will be allowed for claims. As claims are resolved, or where better information becomes available and is evaluated, we will make adjustments to the liabilities recorded on our Consolidated Condensed Financial Statements as appropriate. Any such adjustments could be material to our financial position or results of operations in any given period.

Liabilities Subject to Compromise — The amounts of LSTC at September 30, 2007, and December 31, 2006, consisted of the following (in millions):

	September 30,		December 31,
	2007		2006
Provision for expected allowed claims(1)	$	3,626	$	5,921
Second Priority Debt(2)		3,672		3,672
Unsecured senior notes		1,880		1,880
Convertible Notes		1,824		1,824
Notes payable and other liabilities — related party		261		1,077
Accounts payable and accrued liabilities		404		383
Total liabilities subject to compromise	$	11,667	$	14,757

__________

(1)   The remaining balance in the provision for expected allowed claims at September 30, 2007, represents our allowed or expected allowed claims (at current exchange rates) for U.S. Debtor guarantees of debt issued by certain of our deconsolidated Canadian entities, expected allowed claims related to the rejection or repudiation of leases and other executory contracts and the results of other approved settlements. The provision for expected allowed claims was adjusted during the three months ended September 30, 2007, to record the effects of the Canadian Settlement Agreement described below.

(2)   As our total enterprise value upon emergence has not been finally determined, we have not yet concluded whether our Second Priority Debt is fully secured or undersecured. We do, however, believe that there is uncertainty about whether the market value of the assets collateralizing the obligations owing in respect of the Second Priority Debt is less than, equals or exceeds the amount of these obligations. Therefore, in accordance with the applicable accounting standards, we have classified the Second Priority Debt as LSTC.

Canadian Settlement Agreement — On July 30, 2007, we entered into the Canadian Settlement Agreement after the Bankruptcy Courts approved the terms of our two previously disclosed proposed settlements with the Canadian Debtors and with an ad hoc committee of holders of notes issued by our subsidiary ULC I and guaranteed by Calpine Corporation. The Canadian Settlement Agreement, which encompasses both proposed settlements, resolves virtually all major cross-border issues among the parties relating to pre-petition intercompany balances, our direct and indirect guarantees of the ULC I notes and our guarantee of the ULC II notes and related interest. The material contingencies within the Canadian Settlement Agreement were resolved by September 30, 2007. As a result, the provision for expected allowed claims in reorganization items was reduced by approximately $4.1 billion and interest expense was increased by approximately $0.3 billion on our Consolidated Condensed Statements of Operations during the three months ended September 30, 2007.

Second Priority Debt Settlement Agreement — On August 8, 2007, the U.S. Bankruptcy Court approved a settlement with the Ad Hoc Committee of Second Lien Holders of Calpine Corporation and Wilmington Trust Company as indenture trustee for the Second Priority Notes. Pursuant to the settlement, approximately $289 million of claims for make whole premiums and/or damages asserted against the U.S. Debtors by the holders of the Second Priority Debt will be replaced by a secured claim for $60 million that shall be paid in cash and an unsecured claim for $40 million. As a result, we recorded expense of $100 million to the provision for expected allowed claims in reorganization items on our Consolidated Condensed Statements of Operations during the three months ended September 30, 2007.

Convertible Notes — On August 10, 2007, the U.S. Bankruptcy Court approved our limited objection to certain claims asserted by holders of the Convertible Notes, disallowing claims seeking damages for alleged breach of “conversion

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rights.” The U.S. Bankruptcy Court’s decision does not affect a previous agreement to allow claims for repayment of principal and interest on the Convertible Notes.

Unsecured Notes Settlement Agreement — On October 10, 2007, the U.S. Bankruptcy Court approved the settlement agreement with the Unsecured Noteholders and the indenture trustee for such Unsecured Notes. Under the agreement, $109 million of claims for make whole premiums asserted against the U.S. Debtors were replaced with unsecured claims totaling $54 million. In addition, the U.S. Debtors have agreed to pay the reasonable professional fees incurred by the Unsecured Noteholders and the indenture trustee. As a result, we recorded expense of $54 million to the provision for expected allowed claims in reorganization items on our Consolidated Condensed Statements of Operations during the three months ended September 30, 2007.

3.  Property, Plant and Equipment, Net and Capitalized Interest

As of September 30, 2007, and December 31, 2006, the components of property, plant and equipment were stated at cost less accumulated depreciation as follows (in millions):

	September 30,			December 31,
	2007			2006
Buildings, machinery and equipment	$	13,520		$	13,993
Geothermal properties		935			934
Other		249			272
		14,704			15,199
Less: Accumulated depreciation		(2,481	)		(2,253	)
		12,223			12,946
Land		78			85
Construction in progress		151			572
Property, plant and equipment, net	$	12,452		$	13,603

Construction in Progress — In April 2007, the Freeport Energy Center in Freeport, Texas began commercial operations. Accordingly, the power plant’s construction in progress costs were transferred to the applicable property category, primarily buildings, machinery and equipment. See also Note 1 for a discussion of the impact of the deconsolidation of OMEC and Note 5 for a discussion of the construction projects classified as assets held for sale.

4.  Investments

At September 30, 2007, and December 31, 2006, our joint venture and other equity investments included the following (in millions):

	Ownership
	Interest as of	Investment Balance at
	September 30,	September 30,		December 31,
	2007	2007		2006
Greenfield LP	50%	$	90	$	129
OMEC	100%		159		—
Total investments in power projects		$	249	$	129

        Greenfield Energy Centre LP — Greenfield LP is a limited partnership between certain subsidiaries of ours and of Mitsui & Co., Ltd., formed for the purpose of constructing and operating the Greenfield Energy Centre, a 1,005-MW natural gas-fired power plant in Ontario, Canada. We and Mitsui & Co., Ltd. each hold a 50% interest in Greenfield LP. Our investment is accounted for under the equity method. On May 31, 2007, Greenfield LP entered into a Can$648 million non-recourse project finance facility, which is structured as a construction loan that will convert to an 18-year term loan once the power plant begins commercial operations. Borrowings under the project finance facility are initially priced at LIBOR plus 1.2% or prime rate plus 0.2%.

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During the three and nine months ended September 30, 2007, we contributed nil and $68 million, respectively, as an additional investment in Greenfield LP. In connection with obtaining the project financing in May 2007, for the three and nine months ended September 30, 2007, we received cash of $12 million and $104 million, respectively, from Greenfield LP as a return of our investment.

Otay Mesa Energy Center, LLC — OMEC, an indirect wholly owned subsidiary, is the owner of the Otay Mesa Energy Center, a 596-MW natural gas-fired power plant currently under construction in southern San Diego County, California. We deconsolidated OMEC during the second quarter of 2007 as described further in Note 1. On May 3, 2007, OMEC entered into a $377 million non-recourse project finance facility to finance the construction of the Otay Mesa power plant. The project finance facility is structured as a construction loan, converting to a term loan upon commercial operation of the Otay Mesa power plant, and matures in April 2019. Borrowings under the project finance facility are initially priced at LIBOR plus 1.5%.

Other — We also hold a 100% interest in certain Canadian and other foreign subsidiaries most of which were deconsolidated as of the Petition Date, due to filings by certain of the Canadian subsidiaries for creditor protection under the CCAA in Canada. All of these investments were fully impaired as of the Petition Date, and are accounted for under the cost method.

5.  Asset Sales

On January 16, 2007, we completed the sale of the Aries Power Plant, a 590-MW natural gas-fired power plant in Pleasant Hill, Missouri, to Dogwood Energy LLC, an affiliate of Kelson Holdings, LLC, for $234 million, plus certain per diem expenses incurred by us for running the power plant after December 21, 2006, through the closing of the sale. We recorded a pre-tax gain of approximately $78 million during the first quarter of 2007. As part of the sale we were also required to use a portion of the proceeds received to repay approximately $159 million principal amount of financing obligations, $8 million in accrued interest, $11 million in accrued swap liabilities and $14 million in debt pre-payment and make whole premium fees to our project lenders.

On February 21, 2007, we completed the sale of substantially all of the assets of the Goldendale Energy Center, a 247-MW natural gas-fired power plant located in Goldendale, Washington, to Puget Sound Energy LLC for approximately $120 million, plus the assumption by Puget Sound of certain liabilities. We recorded a pre-tax gain of approximately $31 million during the first quarter of 2007.

On March 22, 2007, we completed the sale of substantially all of the assets of PSM, a designer, manufacturer and marketer of turbine and combustion components, to Alstom Power Inc. for approximately $242 million, plus the assumption by Alstom Power Inc. of certain liabilities. In connection with the sale, we entered into a parts supply and development agreement with PSM whereby we have committed to purchase turbine parts and other services totaling approximately $200 million over a five-year period. Additionally, we recorded a pre-tax gain of $135 million during the first quarter of 2007 as the risks and other incidents of ownership were transferred to Alstom Power Inc.

On July 6, 2007, we completed the sale of the Parlin Power Plant, a 118-MW natural gas-fired power plant in Parlin, New Jersey, to EFS Parlin Holdings, LLC, an affiliate of General Electric Capital Corporation, for approximately $3 million in cash, plus the assumption by EFS Parlin Holdings, LLC of certain liabilities and the agreement to waive certain asserted claims against the Parlin Power Plant. We recorded a pre-tax gain of approximately $40 million during the three months ended September 30, 2007.

On September 13, 2007, we completed the sale of our 50% ownership interest in Acadia PP, the owner of the Acadia Energy Center, a 1,212-MW natural gas-fired power plant located near Eunice, Louisiana, to Cajun Gas Energy, L.L.C. for consideration totaling approximately $189 million consisting of $104 million in cash and the payment of $85 million in priority distributions due to Cleco (the indirect owner, through its subsidiary APH, of the remaining 50% ownership interest in Acadia PP) in accordance with the limited liability company agreement, plus the assumption by Cajun Gas Energy, L.L.C. of certain liabilities. We recorded a pre-tax loss of $6 million during the three months ended September 30, 2007, after

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having recorded a pre-tax, predominately non-cash impairment charge of approximately $89 million during the second quarter of 2007, to record our interest in Acadia PP at fair value less cost to sell, both of which charges are included in reorganization items on our Consolidated Condensed Statements of Operations. Additionally, in connection with the sale, we entered into a settlement agreement with Cleco, which was approved by the U.S. Bankruptcy Court on May 9, 2007, under which Cleco received an allowed unsecured claim against us in the amount of $85 million as a result of the rejection by CES of two long-term PPAs for the output of the Acadia Energy Center and our guarantee of those agreements. We recorded expense of $85 million for this allowed claim during the second quarter of 2007, which is included in reorganization items on our Consolidated Condensed Statements of Operations.

The sales of the Aries Power Plant, the Goldendale Energy Center, the Parlin Power Plant and our interest in Acadia PP discussed above did not meet the criteria for discontinued operations due to our continuing activity in the markets in which these power plants operate; therefore, the results of operations for all periods prior to sale are included in our continuing operations. Similarly, we have determined that the sale of PSM does not meet the criteria for discontinued operations due to our continuing involvement through the parts supply and development agreement; therefore, the results of operations for all periods prior to sale are included in our continuing operations.

Assets Held for Sale — We are actively marketing two projects for which construction was suspended in 2005 due to our Chapter 11 filings. As a result, our assets held for sale consist of construction in progress of $198 million at September 30, 2007.

6.  Comprehensive Income (Loss)

Comprehensive income (loss) is the total of net income (loss) and all other non-owner changes in equity. Comprehensive income (loss) includes our net income (loss), unrealized gains and losses from derivative instruments that qualify as cash flow hedges, our share of equity method investee’s OCI, and the effects of foreign currency translation adjustments. We report AOCI on our Consolidated Condensed Balance Sheets. The table below details the components of our comprehensive income (loss) during the three and nine months ended September 30, 2007 and 2006 (in millions).

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net income (loss)	$	3,794		$	2		$	2,835		$	(1,405	)
Other comprehensive income (loss):
Comprehensive pre-tax gain (loss) on cash flow hedges before reclassification adjustment		(51	)		(30	)		(56	)		43
Reclassification adjustment for (gains) losses included in net income (loss)		(12	)		93			17			104
Foreign currency translation loss		(4	)		—			(15	)		(2	)
Income tax provision		(4	)		(20	)		(13	)		(53	)
Total comprehensive income (loss)	$	3,723		$	45		$	2,768		$	(1,313	)

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7.  Debt

Long-term debt at September 30, 2007, and December 31, 2006, was as follows (in millions):

	September 30		December 31,
	2007		2006
DIP Facility	$	3,980	$	—
Original DIP Facility		—		997
CalGen financing		—		2,511
Construction/project financing		1,953		2,203
CCFC financing		779		782
Preferred interests		575		584
Notes payable and other borrowings		433		564
Capital lease obligations		284		280
Total debt (not subject to compromise)		8,004		7,921
Less: Amounts reclassified to debt, current portion		677		3,051
Less: Current maturities		4,198		1,518
Debt (not subject to compromise), net of current portion	$	3,129	$	3,352

DIP Facility — On March 29, 2007, we completed the refinancing of the Original DIP Facility with our $5.0 billion DIP Facility. The DIP Facility consists of a $4.0 billion first priority senior secured term loan and a $1.0 billion first priority senior secured revolving credit facility together with an uncommitted term loan facility that permits us to raise up to $2.0 billion of incremental term loan funding on a senior secured basis with the same priority as the current debt under the DIP Facility. The DIP Facility is priced at LIBOR plus 2.25% or base rate plus 1.25% and matures on the earlier of the effective date of a confirmed plan or plans of reorganization or March 29, 2009. We have the option to convert the DIP Facility into our exit financing, provided certain conditions are met, which would extend the maturity date to March 29, 2014. We expect the effective date of our Plan of Reorganization will be within the next twelve months; therefore, borrowings under the DIP Facility are classified as current at September 30, 2007. In addition to refinancing the Original DIP Facility, borrowings under the DIP Facility were applied on March 29, 2007, to the repayment of the approximately $2.5 billion outstanding principal amount of CalGen Secured Debt (see “— Repayment of CalGen Secured Debt” below). In connection with the refinancing of our Original DIP Facility, we incurred transaction costs of $52 million which are included in reorganization items on our Consolidated Condensed Statements of Operations.

On July 11, 2007, the U.S. Bankruptcy Court authorized us to enter into a commitment letter to fund additional credit facilities, pay associated commitment and other fees, and to amend the DIP Facility to provide for additional secured exit financing of up to $3.0 billion in addition to amounts currently available under the DIP Facility upon conversion of the DIP Facility to exit financing, for a total of $8.0 billion. The amendment of the DIP Facility is subject to further conditions, including obtaining necessary approvals of lenders under the DIP Facility. The commitment to fund the additional facilities under the amended DIP Facility will expire on January 31, 2008, if certain conditions, including effectiveness of the Plan of Reorganization, are not met. In connection with the commitment letter to fund this additional exit financing, we incurred transaction costs of $22 million which are included in reorganization items on our Consolidated Condensed Statements of Operations.

The DIP Facility contains restrictions on the U.S. Debtors, including limiting their ability to, among other things: (i) incur additional indebtedness; (ii) create or incur liens to secure debt; (iii) lease, transfer or sell assets or use proceeds of permitted asset leases, transfers or sales; (iv) issue capital stock; (v) make investments; and (vi) conduct certain types of business.

Our ability to utilize the DIP Facility is subject to the DIP Order. Subject to the exceptions set forth in the DIP Order, the obligations of the U.S. Debtors under the DIP Facility are an allowed administrative expense claim in each of the loan parties’ Chapter 11 cases, and are collateralized by (i) a perfected first priority lien on, and security interest in, all present and after-acquired property of the U.S. Debtors not subject to a valid, perfected and non-avoidable lien in existence on the

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Petition Date or to a valid lien in existence on the Petition Date and subsequently perfected (excluding rights in avoidance actions), (ii) a perfected junior lien on, and security interest in, all present and after-acquired property of the U.S. Debtors that is otherwise subject to a valid, perfected and non-avoidable lien in existence on the Petition Date or a valid lien in existence on the Petition Date that is subsequently perfected and (iii) to the extent applicable, a perfected first priority priming lien on, and security interest in, all present and after-acquired property of the U.S. Debtors that is subject to the replacement liens granted pursuant to and under the Cash Collateral Order.

As of September 30, 2007, there was $4.0 billion outstanding under the term loan facility, no borrowings outstanding under the revolving credit facility and $219 million of letters of credit issued against the revolving credit facility.

Repayment of CalGen Secured Debt — On March 29, 2007, we repaid the approximately $2.5 billion outstanding principal amount of CalGen Secured Debt, primarily with borrowings under the DIP Facility term loan facility plus approximately $224 million of cash on hand at CalGen. To effectuate the repayment of the CalGen Secured Debt, the U.S. Debtors requested that the U.S. Bankruptcy Court allow the U.S. Debtors’ limited objection to claims filed by the holders of the CalGen Secured Debt. The U.S. Bankruptcy Court granted the U.S. Debtors’ limited objection in part, finding that the CalGen Secured Debt lenders were not entitled to a secured claim for a pre-payment premium under the CalGen loan documents. However, the U.S. Bankruptcy Court granted the CalGen Secured Debt lenders an unsecured claim for damages. Specifically, the U.S. Bankruptcy Court held that (i) the holders of the CalGen First Lien Debt are entitled to an unsecured claim for damages in the amount of 2.5% of the outstanding principal, (ii) the holders of the CalGen Second Lien Debt are entitled to an unsecured claim for damages in the amount of 3.5% of the outstanding principal, and (iii) the holders of the CalGen Third Lien Debt are entitled to an unsecured claim for damages in the amount of 3.5% of the outstanding principal. As a result of the DIP Order and repayment of CalGen Secured Debt, we recorded expense of $32 million to write off the remaining unamortized discount and deferred financing costs and recorded $76 million as our estimate of the expected allowed claims resulting from the unsecured claims for damages granted to the holders of the CalGen Secured Debt. These expenses are included in reorganization items on our Consolidated Condensed Statements of Operations for the nine months ended September 30, 2007. Both we and the holders of the CalGen Secured Debt have appealed the DIP Order to the SDNY Court. In this appeal, the holders of the CalGen Secured Debt are arguing for larger, secured damages claims and we are arguing that no damages should arise in connection with the repayment of the CalGen Secured Debt. We are seeking permission from the U.S. Bankruptcy Court to amend our Plan of Reorganization to pay the damages, if any, awarded to the holders of the CalGen Secured Debt in full and in cash or cash equivalents in the amount ultimately determined on appeal by a final order, regardless of whether such claims are deemed secured or remain unsecured. The holders of the CalGen Secured Debt are also seeking interest on their claims at the default rate. The U.S. Bankruptcy Court concluded that a decision on default interest was premature. Accordingly, we have not accrued any default interest for the CalGen Secured Debt as of September 30, 2007. Under the CalGen Secured Debt agreements, the lenders could receive additional default interest of 1% on the CalGen Notes and 2% on the CalGen Term Loans from December 21, 2005, through March 29, 2007.

Annual Debt Maturities

Contractual annual principal repayments or maturities of debt instruments not subject to compromise, as of September 30, 2007, are as follows (in millions):

October through December 2007	$	28
2008		4,197
2009		600
2010		525
2011		1,822
Thereafter		866
Total debt		8,038
(Discount) Premium		(34	)
Total	$	8,004

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Debt, Lease and Indenture Covenant Compliance

Our filings under Chapter 11 and the CCAA constituted events of default or otherwise triggered repayment obligations under the instruments governing substantially all of the indebtedness of the Calpine Debtors outstanding at the Petition Date. As a result of the events of default, the debt outstanding under the affected debt instruments generally became automatically and immediately due and payable. We believe that any efforts to enforce such payment obligations against U.S. Debtors are stayed as a result of the Chapter 11 filings and subject to our Chapter 11 cases. Although the CCAA does not provide an automatic stay, the Canadian Court has granted a stay to the Canadian Debtors that currently extends through December 20, 2007. Such events of default generally also constituted breaches of executory contracts and unexpired leases of U.S. Debtors. Actions taken by counterparties or lessors based on such breaches, we believe, are also stayed as a result of the Chapter 11 filings. However, under the Bankruptcy Code, we must cure all pre-petition defaults of executory contracts and unexpired leases that we seek to assume. Once we assume an executory contract or unexpired lease pursuant to an order of the U.S. Bankruptcy Court, such executory contract or unexpired lease becomes a post-petition obligation of the applicable U.S. Debtor, and efforts on the part of counterparties or lessors to enforce the U.S. Debtor’s obligations under such contracts or leases may or may not be stayed as a result of the Chapter 11 filings.

In addition, as described further below, the Chapter 11 filings by certain of the U.S. Debtors caused, directly or indirectly, defaults or events of default under the debt of certain Non-Debtor entities. Such events of default (or defaults that become events of default) could give holders of debt under the relevant instruments the right to accelerate the maturity of all debt outstanding thereunder if the defaults or events of default were not cured or waived. There can be no assurance that such waivers can be obtained or defaults otherwise cured.

Calpine Debtor Entities

Pursuant to the DIP Facility, we are subject to a number of affirmative and restrictive covenants, reporting requirements and financial covenants which are customary for DIP financings of this nature. As of September 30, 2007, we were in compliance with the DIP Facility covenants.

In addition to the events of default caused as a result of our Chapter 11 or CCAA filings, we may not be in compliance with certain other covenants under the indentures or other debt or lease instruments of certain Calpine Debtor entities, the obligations under all of which have been accelerated as discussed above.

Non-Debtor Entities

As of September 30, 2007, we were in compliance with our obligations under the instruments governing the debt of our Non-Debtor entities, except as described below.

Blue Spruce Energy Center.  In connection with the project financing transaction by Blue Spruce, an event of default existed under the project credit agreement, due to cross default provisions related to the Chapter 11 filing by CES. Subsequently, we obtained an amendment and waiver under the project credit agreement from the lender, which waived the event of default unless and until the CES tolling agreement related to the Blue Spruce power plant is rejected in the Chapter 11 cases. In addition, we have failed to deliver certain financial information for this project within the times provided under the project credit agreement. Accordingly, our obligations under this financing have been classified as current.

Calpine King City Cogen.  In connection with the sale/leaseback transaction at the King City Power Plant, the Chapter 11 filings by certain affiliates of King City Cogen constituted an event of default under the lease agreement. We have obtained a forbearance agreement that is in effect until January 1, 2008. As a result of the expiration date of the forbearance agreement, our obligations under this financing have been classified as current.

Pasadena Power Plant.  In connection with our Pasadena lease financing transaction, our Chapter 11 filings constituted an event of default under Pasadena’s participation agreement and certain other agreements relating to the transaction, which resulted in events of default under the indenture governing certain notes issued by the Pasadena owner-

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lessor. We entered into a forbearance agreement with the holders of a majority of the outstanding notes pursuant to which the noteholders have agreed to forbear from taking any action with respect to the events of default. Such forbearance agreement has lapsed and there is currently no forbearance agreement in place. In addition, we allowed the incurrence and existence of certain liens, permitted certain prohibited intercompany arrangements, failed to obtain certain insurance waivers, transferred beneficial interests in certain Calpine subsidiaries and experienced other defaults. As a result, our obligations with respect to this lease financing have been classified as current.

8.  Derivative Instruments

The table below reflects the amounts that are recorded as assets and liabilities at September 30, 2007, for our derivative instruments (in millions):

				Commodity
	Interest Rate			Derivative			Total
	Derivative			Instruments			Derivative
	Instruments			Net			Instruments
Current derivative assets	$	2		$	225		$	227
Long-term derivative assets		—			257			257
Total assets	$	2		$	482		$	484
Current derivative liabilities	$	18		$	262		$	280
Long-term derivative liabilities		39			390			429
Total liabilities	$	57		$	652		$	709
Net derivative assets (liabilities)	$	(55	)	$	(170	)	$	(225	)

Of our net derivative liabilities at September 30, 2007, $53 million are net derivative assets of PCF, which is an entity with its existence separate from us and other subsidiaries of ours, and $94 million are net derivative liabilities of Deer Park. We fully consolidate Deer Park and PCF. As a result, we present the assets and liabilities of these entities on our Consolidated Condensed Balance Sheets.

During the nine months ended September 30, 2007, we entered into several interest rate swaps to reduce the risk of unfavorable changes in variable interest rates related to changes in LIBOR associated with both existing and anticipated debt issuances. These swaps have an aggregate notional amount of $5.0 billion and range in maturity through September 2012. At September 30, 2007, the fair value of these swaps of $(51) million is included in our net derivative liabilities.

Below is a reconciliation of our net derivative liabilities to our accumulated other comprehensive loss, net of tax from derivative instruments at September 30, 2007 (in millions):

	September 30,
	2007
Net derivative liabilities	$	(225	)
Derivatives not designated as cash flow hedges and recognized hedge ineffectiveness		131
Cash flow hedges terminated prior to maturity		(14	)
Cumulative OCI tax benefit		12
Accumulated other comprehensive loss from derivative instruments, net of tax(1)	$	(96	)

____________

(1)   Amount represents one portion of our total AOCI balance of $(113).

Mark-to-market activities, net as shown on our Consolidated Condensed Statements of Operations includes realized settlements of and unrealized mark-to-market gains and losses on both power and gas derivative instruments not designated as cash flow hedges. Gains (losses) due to ineffectiveness on hedging instruments were nil and $1 million for the three months ended September 30, 2007 and 2006, respectively, and $1 million and $(2) million for the nine months ended September 30, 2007 and 2006, respectively. Hedge ineffectiveness is included in unrealized mark-to-market gains and losses.

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The table below reflects the contribution of our cash flow hedge activity to pre-tax earnings based on the reclassification adjustment from AOCI to earnings for the three and nine months ended September 30, 2007 and 2006, respectively (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Natural gas derivatives	$	(77	)	$	43		$	(92	)	$	227
Power derivatives		89			(135	)		85			(325	)
Interest rate derivatives		—			(1	)		(10	)		(6	)
Total derivatives	$	12		$	(93	)	$	(17	)	$	(104	)

As of September 30, 2007, the maximum length of time over which we were hedging our exposure to the variability in future cash flows for forecasted transactions was 6 years for both commodity and interest rate derivative instruments. We currently estimate that pre-tax gains of $22 million would be reclassified from AOCI into earnings during the twelve months ended September 30, 2008, as the hedged transactions affect earnings assuming constant gas and power prices and interest rates over time; however, the actual amounts that will be reclassified will likely vary based on the probability that gas and power prices as well as interest rates will, in fact, change. Therefore, management is unable to predict what the actual reclassification from AOCI to earnings (positive or negative) will be for the next twelve months.

The table below presents the pre-tax gains (losses) currently held in AOCI that will be recognized annually into earnings, assuming constant gas and power prices and interest rates over time (in millions).

	2007			2008			2009			2010			2011			Thereafter			Total
Natural gas derivatives	$	(48	)	$	(27	)	$	1		$	(1	)	$	(3	)	$	(4	)	$	(82	)
Power derivatives		60			35			(24	)		(15	)		(9	)		(6	)		41
Interest rate derivatives		(3	)		(20	)		(26	)		(9	)		2			(11	)		(67	)
Total pre-tax AOCI	$	9		$	(12	)	$	(49	)	$	(25	)	$	(10	)	$	(21	)	$	(108	)

9.  Earnings (Loss) per Share

Reconciliations of the amounts used in the basic and diluted earnings (loss) per common share computations are:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2007	2006	2007	2006
	(shares in thousands)
Diluted weighted average shares calculation:
Weighted average shares outstanding (basic)	479,312	479,136	479,208	479,136
Plus: Incremental shares from unexercised in-the-money stock options	305	—	335	—	(1)
Weighted average shares outstanding (diluted)	479,617	479,136	479,543	479,136

__________

(1)   As we incurred net losses during the nine months ending September 30, 2006, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

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We excluded the following items from diluted earnings (loss) per common share:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2007	2006	2007	2006
	(shares in thousands)
Unexercised out-of-the-money stock options	16,944	24,889	18,585	30,159
Restricted stock awards(1)	500	709	553	797
Convertible Notes(2)	399,914	399,914	399,914	399,914
DB London shares(3)	2,427	64,000	2,427	64,000

__________

(1)   Excluded from diluted weighted average shares outstanding because our closing stock price had not reached the price at which the shares vest.

(2)   Excluded from diluted weighted average shares outstanding because we believe the conversion rights were terminated upon our Chapter 11 filings. On August 10, 2007, the U.S. Bankruptcy Court disallowed the claims for conversion right damages by the holders of the Convertible Notes on the basis that, among other things, such conversion rights had terminated upon our Chapter 11 filings. Accordingly, we have excluded the Convertible Notes from diluted weighted average shares outstanding.

(3)   Excluded from basic and diluted weighted average shares outstanding as the share lending agreement with DB London requires physical settlement of these common shares.

10.  Commitments and Contingencies

We are party to various litigation matters arising out of the normal course of business, the more significant of which are summarized below. The ultimate outcome of each of these matters cannot presently be determined, nor can the liability that could potentially result from a negative outcome be reasonably estimated presently for every case. The liability we may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result of these matters, may potentially be material to our financial position or results of operations. Further, we and the majority of our subsidiaries filed either for reorganization under Chapter 11 in the U.S. Bankruptcy Court or creditor protection under the CCAA in the Canadian Court on the Petition Date, and additional subsidiaries have filed thereafter. Generally, pursuant to automatic stay provisions under the Bankruptcy Code and orders (which currently extend through December 20, 2007) granted by the Canadian Court, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as pending litigation against the Calpine Debtors are stayed while the Calpine Debtors continue their business operations as debtors-in-possession. Accordingly, unless indicated otherwise, each pre-petition litigation matter listed below is currently stayed. To the extent that there are any judgments against us in any of these matters during the pendency of our Chapter 11 cases, we expect that such judgments would be classified as LSTC. See Note 2 for information regarding our Chapter 11 cases and CCAA proceedings. In addition to the Chapter 11 cases and CCAA proceedings (in connection with which certain of the matters described below arose), and the other matters described below, we are involved in various other claims and legal actions arising out of the normal course of our business. We do not expect that the outcome of such other claims and legal actions will have a material adverse effect on our financial position or results of operations.

Pre-Petition Litigation

Hawaii Structural Ironworkers Pension Fund v. Calpine, et al.  This case was filed in San Diego County Superior Court on March 11, 2003, and subsequently transferred to Santa Clara County Superior Court. Defendants in this case are Calpine Corporation, Peter Cartwright, Ann B. Curtis, John Wilson, Kenneth Derr, George Stathakis, Credit Suisse First Boston, Banc of America Securities, Deutsche Bank Securities, and Goldman, Sachs & Co. The Hawaii Structural Ironworkers Pension Fund alleges that the prospectus and registration statement for the April 2002 offering contained false or misleading statements regarding: Calpine’s actual financial results for 2000 and 2001; Calpine’s projected financial results for 2002; Mr. Cartwright’s agreement not to sell or purchase shares within 90 days of the April 2002 offering; and Calpine’s alleged involvement in “wash trades.” This action is stayed as to Calpine Corporation as a result of our Chapter 11 filing and

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to the individual defendants listed above by an order of the U.S. Bankruptcy Court, and to the underwriter defendants listed above by an order of the Superior Court. There is no trial date in this action. The parties attended a mediation in August 2007,  which did not result in a settlement; however, the parties are discussing scheduling a second mediation in the future. We consider this lawsuit to be without merit and, should the case proceed against Calpine Corporation, intend to continue to defend vigorously against the allegations.

In re Calpine Corp. ERISA Litig.  Two nearly identical class action complaints alleging claims under ERISA (Phelps v. Calpine Corporation, et al. and Lenette Poor-Herena v. Calpine Corporation et al.) were consolidated under the caption In re Calpine Corp. ERISA Litig., Master File No. C 03-1685 SBA, in the Northern District Court. Plaintiff Poor-Herena subsequently dropped her claim. The consolidated complaint, which names as defendants Calpine Corporation, the members of Calpine Corporation’s Board of Directors, the 401(k) Plan’s Advisory Committee and its members, signatories of the 401(k) Plan’s Annual Return/Report of Employee Benefit Plan Forms 5500 for 2001 and 2002, an employee of a consulting firm hired by the 401(k) Plan, and unidentified fiduciary defendants, alleged claims under ERISA on behalf of the participants in the 401(k) Plan from January 5, 2001, to the present who invested in the Calpine unitized stock fund. The consolidated complaint alleged that defendants breached their fiduciary duties under ERISA by permitting participants to buy and hold interests in the Calpine unitized stock fund. All claims were dismissed with prejudice by the Northern District Court. The plaintiff appealed the dismissal to the Ninth Circuit Court of Appeals. As a result of the Chapter 11 filings, the appeal was automatically stayed with respect to Calpine Corporation. In addition, Calpine Corporation filed a motion with the U.S. Bankruptcy Court to extend the automatic stay to the individual defendants. Plaintiff opposed the motion and a hearing was scheduled for June 5, 2006; however, prior to the hearing, the parties stipulated to allow the appeal to the Ninth Circuit Court of Appeals to proceed. If the Northern District Court ruling is reversed, the plaintiff may then seek leave from the U.S. Bankruptcy Court to proceed with the action. Plaintiff’s opening brief was filed with the Ninth Circuit Court of Appeals on November 6, 2006. Further briefing on the appeal was then stayed pending completion of the parties’ participation in the Ninth Circuit Court of Appeals’ alternative dispute resolution program. On March 21, 2007, the parties reached an agreement in principle to settle the claims of plaintiff and the purported class in return for a payment of approximately $4 million by Calpine’s fiduciary insurance carrier, the net proceeds of which will ultimately be deposited into individual plan members’ accounts. The settlement is subject to definitive documentation and approval by the U.S. Bankruptcy Court and the Northern District Court.

Johnson v. Peter Cartwright, et al.  On December 17, 2001, a shareholder filed a derivative lawsuit on behalf of Calpine Corporation against its directors and one of its senior officers. This lawsuit is styled Johnson vs. Cartwright, et al. (No. CV803872) and is pending, but stayed, in Santa Clara County Superior Court. Calpine Corporation is a nominal defendant in this lawsuit, which alleges claims relating to purportedly misleading statements about Calpine Corporation and stock sales by certain of the director defendants and the officer defendant. On July 1, 2003, the Santa Clara County Superior Court granted Calpine Corporation’s motion to stay this proceeding until In re Calpine Corporation Securities Litigation, an action then-pending in the Northern District of California, was resolved, or until its further order. In re Calpine Corporation Securities Litigation was resolved by a settlement in November 2005. This case is stayed as to Calpine Corporation as a result of our Chapter 11 filing. In addition, Calpine Corporation filed a motion with the U.S. Bankruptcy Court to extend the automatic stay to the individual defendants and plaintiff opposed the motion. On June 5, 2006, the motion was granted by the U.S. Bankruptcy Court extending the stay to the individual defendants and ruling that plaintiff has no standing to pursue derivative claims. Calpine Corporation objected to the claim against it, and that claim has been expunged by order of the U.S. Bankruptcy Court. The case remains stayed as to Calpine Corporation and the individual defendants. We consider this lawsuit to be without merit and, should the case proceed against Calpine Corporation, intend to continue to defend vigorously against the allegations if the stay is lifted.

Panda Energy International, Inc., et al. v. Calpine Corporation, et al.  On November 5, 2003, Panda filed suit in the U.S. District Court, Northern District of Texas against Calpine Corporation and certain of its affiliates alleging, among other things, that defendants breached duties of care and loyalty allegedly owed to Panda by failing to correctly construct and operate the Oneta Energy Center, the development rights of which we had acquired from Panda, in accordance with Panda’s original plans. Panda alleges that it is entitled to a portion of the profits of the Oneta Energy Center and that the defendant’s actions have reduced the profits from Oneta Energy Center thereby undermining Panda’s ability to repay monies owed to Calpine on December 1, 2003, under a promissory note on which approximately $51 million (including related interest) was

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outstanding at September 30, 2007. Calpine has filed a counterclaim against Panda and related parties based on a guaranty and loan agreement. Defendants have also been successful in dismissing the causes of action alleged by Panda for federal and state securities laws violations. We consider Panda’s lawsuit to be without merit and intend to continue to vigorously defend it. Calpine stopped accruing interest income on the promissory note due December 1, 2003, as of the due date because of Panda’s default on repayment of the note. Trial was set for May 22, 2006, but did not proceed due to the stay. Calpine filed a motion to lift the automatic stay to pursue our counterclaim on October 3, 2007. The motion is currently scheduled for hearing on November 14, 2007.

Snohomish PUD No. 1, et al. v. FERC (regarding Nevada Power Company and Sierra Pacific Power Company v. Calpine Energy Services, L.P. complaint dismissed by FERC).  On December 4, 2001, NPC and SPPC filed a complaint with FERC under Section 206 of the FPA against a number of parties to their PPAs, including CES. NPC and SPPC allege in their complaint that the prices they agreed to pay in certain of the PPAs, including those signed with CES, were negotiated during a time when the spot power market was dysfunctional and that they are unjust and unreasonable. The complaint therefore sought modification of the contract prices. The administrative law judge issued an Initial Decision on December 19, 2002, that found for CES and the other respondents in the case and denied NPC and SPPC the relief that they were seeking. In a June 26, 2003 order, FERC affirmed the judge’s findings and dismissed the complaint, and subsequently denied rehearing of that order. The case was appealed to the Ninth Circuit Court of Appeals. On December 19, 2006, the Ninth Circuit Court of Appeals issued a decision finding that FERC erred in its legal analysis and remanded the cases to FERC for further review. CES, along with other suppliers, filed a Petition for Certiorari with the U.S. Supreme Court on May 3, 2007, asking the Court to review the Ninth Circuit Court of Appeals’ decision. Several additional Petitions for Certiorari were filed by other power suppliers affected by the Ninth Circuit Court of Appeals’ decision. The U.S. Supreme Court granted Certiorari on September 25, 2007. However, Calpine, NPC and SPPC have settled the dispute pursuant to a settlement agreement discussed in Transmission Service Agreement with Nevada Power Company below. In addition, NPC and SPPC filed a motion at FERC on September 28, 2007, to withdraw with prejudice their original complaint and are seeking approval of the settlement agreement. The effectiveness of the settlement agreement approved by the U.S. Bankruptcy Court is not subject to FERC approval.

Transmission Service Agreement with Nevada Power Company.  On September 30, 2004, NPC filed a complaint in state district court of Clark County, Nevada against Calpine Corporation, Moapa, FFIC and unnamed parties alleging, among other things, breach by Calpine Corporation of its obligations under a TSA between Calpine Corporation and NPC for 400 MW of transmission capacity and breach by FFIC of its obligations under a surety bond, which surety bond was issued by FFIC to NPC to support Calpine Corporation’s obligations under this TSA. This proceeding was removed from state court to the U.S. District Court for the District of Nevada. On December 10, 2004, FFIC filed a motion to dismiss, which was granted on May 25, 2005 with respect to claims asserted by NPC that FFIC had breached its obligations under the surety bond by not honoring NPC’s demand that the full amount of the surety bond ($33 million) be paid to NPC in light of Calpine Corporation’s failure to provide replacement collateral upon the expiration of the surety bond on May 1, 2004. NPC’s motion to amend the complaint was granted on November 17, 2005 and its amended complaint was filed December 8, 2005. This case was stayed as to Calpine Corporation and Moapa on the Petition Date, but not as to co-defendant FFIC. On February 10, 2006, FFIC filed a motion to dismiss NPC’s amended complaint for failure to state a claim against FFIC. On June 1, 2006, the district court issued an order denying FFIC’s motion. FFIC answered the amended complaint on June 16, 2006. On August 1, 2006, the U.S. Debtors filed an adversary complaint and motion against NPC seeking an extension of the automatic stay, or in the alternative, a temporary injunction to preclude NPC from pursuing its derivative claims against FFIC while the U.S. Debtors restructured. On August 16, 2006, NPC agreed to take no further action in the Nevada district court litigation until the U.S. Bankruptcy Court ruled on the U.S. Debtors’ motion. The Creditors’ Committee and FFIC filed motions to intervene in the adversary proceeding, which were granted on October 25, 2006. Also on October 25, 2006, the U.S. Bankruptcy Court granted the U.S. Debtors’ motion, enjoining prosecution of the NPC action until after the successful implementation of a plan or plans of reorganization or further order of the U.S. Bankruptcy Court. On November 1, 2006, NPC filed a notice of appeal of the U.S. Bankruptcy Court’s decision enjoining prosecution of the NPC action. On March 28, 2007, the SDNY Court issued an opinion and order affirming the U.S. Bankruptcy Court’s stay orders. The appeal to the SDNY Court was subsequently dismissed. On April 25, 2007, NPC filed a Notice of Appeal to the SDNY Court appealing the March 28, 2007 order. The appeal was subsequently dismissed. Calpine, NPC and SPPC entered into a settlement

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agreement dated September 18, 2007, resolving all claims under this case and the case entitled Snohomish PUD No. 1, et al. v. FERC (regarding Nevada Power Company and Sierra Pacific Power Company v. Calpine Energy Services, L.P. complaint dismissed by FERC), including providing NPC a release of claims against FFIC, and allowing general unsecured claims totaling $21 million. The settlement agreement was approved by the U.S. Bankruptcy Court on October 10, 2007. As a result, we recorded additional expense of $19 million in reorganization items on our Consolidated Condensed Statements of Operations during the three months ended September 30, 2007.

Harbert Distressed Investment Master Fund, Ltd. v. Calpine Canada Energy Finance II ULC, et al.  On May 5, 2005, the Harbert Distressed Fund filed an application in the Supreme Court of Nova Scotia against Calpine Corporation and certain of its subsidiaries, including ULC II, the issuer of certain senior notes held by the Harbert Distressed Fund, and CCRC, the parent company of ULC II. Calpine Corporation has guaranteed the ULC II senior notes. In June 2005, the ULC II senior notes indenture trustee joined the application as co-applicant on behalf of all holders of the ULC II senior notes. The Harbert Distressed Fund and the ULC II senior notes indenture trustee alleged that Calpine Corporation, CCRC and ULC II violated the Harbert Distressed Fund’s rights under Nova Scotia laws in connection with certain financing transactions completed by CCRC or subsidiaries of CCRC.

On August 2, 2005, the Supreme Court of Nova Scotia denied all relief to the Harbert Distressed Fund and all other holders of the ULC II senior notes that purchased ULC II senior notes on or after September 1, 2004. However, the Supreme Court of Nova Scotia did state that a remedy should be granted to any holder of ULC II senior notes, other than the Calpine respondent companies, that purchased ULC II senior notes prior to September 1, 2004, and that continued to hold those ULC II senior notes on August 2, 2005, and in connection therewith ordered CCRC to maintain control of the net proceeds from the July 2005 sale of the Saltend Energy Centre until a final order was issued. On November 30, 2005, the ULC II senior notes indenture trustee filed a final report confirming the aggregate face value of bonds held by holders of the ULC II senior notes that purchased such ULC II senior notes prior to September 30, 2004, and that continued to hold those ULC II senior notes on August 2, 2005, was (at then-current exchange rates) approximately $42 million.

On December 19 and 20, 2005, the parties reappeared before the Supreme Court of Nova Scotia to settle the terms of the final order. After argument, and to enable the parties to address an application by the ULC II senior notes indenture trustee to produce further information and documentation, this application was adjourned to January 12, 2006. On the Petition Date, in addition to Calpine’s Chapter 11 filing, the Canadian Debtors, including ULC II and CCRC instituted the CCAA proceedings before the Canadian Court. As a result of the Chapter 11 cases and CCAA proceedings, all Canadian legal proceedings are stayed, and in particular the application to settle the final order in the application has been adjourned indefinitely.

In connection with the CCAA proceedings, Calpine Corporation had given undertakings to the Canadian Court and to the ULC II senior notes indenture trustee that: (i) the net Saltend Energy Centre sale proceeds remained at Calpine UK Holdings Limited, a subsidiary of CCRC; (ii) Calpine Corporation intended to continue to hold the monies there and would provide advance notice to the ULC II senior notes indenture trustee and the service list in the CCAA proceedings if that intention changed; (iii) the Saltend Energy Centre sale proceeds held at Calpine UK Holdings Limited were not pledged as collateral for the DIP Facility; and (iv) Calpine Corporation would provide advance notice to the ULC II senior notes indenture trustee and the service list in the CCAA proceedings of any filing of Calpine UK Holdings Limited in Canada, the U.S. or the United Kingdom. On July 31, 2006, consistent with the undertakings given to the Canadian Court and the order entered by the Supreme Court of Nova Scotia dated August 2, 2005, the Canadian Debtors gave notice that the net proceeds of the Saltend Energy Centre sale were being (and now have been) repatriated to Canadian Debtor CCRC.

Harbert Convertible Arbitrage Master Fund, Ltd. et al. v. Calpine Corporation.  Plaintiff Harbert Convertible Fund and two affiliated funds filed this action on July 11, 2005, in the New York County Supreme Court, and filed an amended complaint on July 19, 2005. In their amended complaint, plaintiffs allege that in a July 5, 2005 letter to Calpine Corporation they provided “reasonable evidence” as required under the indenture governing the 2014 Convertible Notes that, on one or more days beginning on July 1, 2005, the trading price of the 2014 Convertible Notes was less than 95% of the product of the common stock price multiplied by the conversion rate, as those terms are defined in the 2014 Convertible Notes indenture, and that Calpine Corporation therefore was required to instruct the bid solicitation agent for the 2014 Convertible Notes to

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determine the trading price beginning on the next trading day. If the trading price as determined by the bid solicitation agent as below 95% of the product of the common stock price multiplied by the conversion rate for the next five consecutive trading days, then the 2014 Convertible Notes would become convertible into cash and common stock for a limited period of time. Plaintiffs have asserted a claim for breach of contract, seeking unspecified damages, because Calpine Corporation did not instruct the bid solicitation agent to begin to calculate the trading price. In addition, plaintiffs sought a declaration that Calpine had a duty, based on the statements in the letter dated July 5, 2005, to commence the bid solicitation process, and also sought injunctive relief to force Calpine Corporation to instruct the bid solicitation agent to determine the trading price of the 2014 Convertible Notes.

On November 18, 2005, Harbert Convertible Fund filed a second amended complaint for breach and anticipatory breach of indenture, which also added the 2014 Convertible Notes trustee as a plaintiff. At a court hearing on November 22, 2005, counsel for Harbert Convertible Fund and the 2014 Convertible Notes trustee sought an expedited trial, stating that plaintiffs were willing to forego affirmative discovery and could respond to Calpine Corporation’s forthcoming discovery requests promptly. The New York County Supreme Court ordered Harbert Convertible Fund and the 2014 Convertible Notes trustee to provide specified discovery immediately, to respond promptly to any additional discovery demands from Calpine Corporation, and ordered the parties to commence depositions in January 2006. The New York County Supreme Court did not set a firm trial date, but suggested that a trial could occur by early March 2006. Calpine Corporation moved to dismiss the second amended complaint on December 13, 2005. In the meantime, Harbert Convertible Fund and the 2014 Convertible Notes trustee delayed providing any discovery, stating their belief that a bankruptcy filing was imminent that could moot the case or in any event stay it. There has been no activity since the Petition Date.

Whitebox Convertible Arbitrage Fund, L.P., et al. v. Calpine Corporation.  Plaintiff Whitebox Convertible Arbitrage Fund, L.P. and seven affiliated funds filed an action in the New York County Supreme Court for breach of contract on October 17, 2004. The factual allegations and legal basis for the claims set forth in that action are nearly identical to those set forth in the Harbert Convertible Fund filings. On October 19, 2005, the Whitebox plaintiffs filed a motion for preliminary injunctive relief, but withdrew the motion on November 7, 2005. Whitebox had informed Calpine Corporation and the New York County Supreme Court that the trustee was considering intervening in the case and/or filing a similar action for the benefit of all holders of the 2014 Convertible Notes. There has been no activity since the Petition Date.

Pit River Tribe, et al. v. Bureau of Land Management, et al.  On June 17, 2002, Pit River filed suit in the U.S. District Court for the Eastern District of California seeking to enjoin further exploration, construction and development of the Calpine Fourmile Hill Project at Glass Mountain. It challenges the validity of the decisions of the BLM and the Forest Service to permit the development of the project under leases previously issued by the BLM. The lawsuit also sought to invalidate the leases. Only declaratory and equitable relief were sought. Our answer was submitted on August 20, 2002. Cross-motions for summary judgment on all claims in the lawsuit were submitted in May and June 2003. The court held oral argument on the motions on September 10, 2003, and took the motions under advisement. Defendants’ motions for summary judgment were granted on February 13, 2004, and the lawsuit was dismissed. Plaintiff filed an appeal to the Ninth Circuit Court of Appeals on April 15, 2004. Briefing on the appeal was completed on December 6, 2004. Following our Chapter 11 filing, we and Pit River filed a stipulation with the U.S. Bankruptcy Court to lift the automatic stay to allow the appeal to proceed with oral arguments, which were held on February 14, 2006. On November 5, 2006, the Ninth Circuit Court of Appeals issued a decision granting the plaintiffs relief by holding that the BLM had not complied with the National Environmental Policy Act when granting the lease extensions and, therefore, held that the extensions were invalid. We are currently reviewing the order and considering our alternatives. On February 20, 2007, the federal appellees filed a Petition for Panel Rehearing of the November 5, 2006, order. We filed our Petition for Rehearing and Suggestion for Rehearing En Banc on February 21, 2007. On April 18, 2007, the Ninth Circuit Court of Appeals issued an order denying both the federal appellees’ and our Petitions for Rehearing. The remedy phase of the Ninth Circuit Court of Appeals’ opinion is stayed, but we are in communication with the U.S. Department of Justice regarding the possible remedies which could be argued to the District Court.

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Post-Petition Litigation

Chapter 11 Related Litigation

Appeal Related to Rejection of Power Purchase Agreements.  On December 21, 2005, we filed a motion with the U.S. Bankruptcy Court to reject eight PPAs and to enjoin FERC from asserting jurisdiction over the rejections. The U.S. Bankruptcy Court issued a temporary restraining order against FERC and set the matter for a hearing on January 5, 2006. Under most of the PPAs sought to be rejected, we are obligated to sell power at prices that are significantly lower than currently prevailing market prices. On December 29, 2005, certain counterparties to the various PPAs filed an action in the SDNY Court arguing that the U.S. Bankruptcy Court did not have jurisdiction over the dispute. On January 5, 2006, the SDNY Court entered an order that had the effect of transferring our motion seeking to reject the eight PPAs and our related request for an injunction against FERC to the SDNY Court from the U.S. Bankruptcy Court. Earlier, however, on December 19, 2005, CDWR, a counterparty to one of the eight PPAs, had filed a complaint with FERC seeking to obtain injunctive relief to prevent us from rejecting our PPA with CDWR and contending that FERC had exclusive jurisdiction over the matter. On January 3, 2006, FERC determined that it did not have exclusive jurisdiction, and that the matter could be heard by the U.S. Bankruptcy Court. However, despite the FERC ruling, on January 27, 2006, the SDNY Court determined that FERC had jurisdiction over whether the contracts could be rejected. We appealed the SDNY Court’s decision to the U.S. Court of Appeals for the Second Circuit. The appeal was heard on April 10, 2006. Prior to receiving a decision on the appeal, three of the PPAs were terminated by the applicable counterparties and the remaining five PPAs are the subject of negotiated settlements. Accordingly, on June 11, 2007, we sent a letter to the Court of Appeals for the Second Circuit informing the Court that all of the PPA disputes had been resolved and that we withdrew the appeal.

First Priority Notes Make Whole Litigation.  In June 2006, pursuant to orders of the U.S. Bankruptcy Court, we completed repayment of the First Priority Notes at par ($646 million) plus accrued and unpaid interest. The repayment orders provided that such repayment was without prejudice to the rights of the holders of the First Priority Notes to pursue their demand for payment of a “make whole” premium they alleged to be due as a result of our repayment of First Priority Notes prior to their stated maturity. The First Priority Trustee appealed each of the repayment orders to the SDNY Court. In addition, the First Priority Trustee filed an adversary proceeding in the U.S. Bankruptcy Court on behalf of the holders of the First Priority Notes seeking a declaratory judgment on the merits of their demand for a “make whole” premium. On June 21, 2006, the U.S. Bankruptcy Court entered an order approving our request to extend the date by which we were required to answer or otherwise move with respect to the First Priority Trustee’s adversary proceeding until ten days after a final order was entered in the First Priority Trustee’s appeal to the SDNY Court of the repayment orders. The First Priority Trustee then appealed the U.S. Bankruptcy Court’s June 21, 2006, order to the SDNY Court as well, and on July 24, 2006, the SDNY Court entered an order consolidating both appeals. On January 9, 2007, the SDNY Court affirmed the U.S. Bankruptcy Court’s repayment orders, and dismissed for lack of appellate jurisdiction the First Priority Trustee’s appeal of the U.S. Bankruptcy Court’s June 21, 2006, order. On February 8, 2007, the First Priority Trustee filed a notice of appeal of the SDNY Court’s opinion to the Second Circuit Court of Appeals. On April 20, 2007, the Second Circuit Court of Appeals approved the parties’ stipulation to dismiss the First Priority Trustee’s appeals. The First Priority Trustee’s adversary proceeding remains pending in the U.S. Bankruptcy Court. On May 21, 2007, we filed an answer to the First Priority Trustee’s complaint in the adversary proceeding. That same day, the Creditors’ Committee filed an answer and counterclaim against the First Priority Trustee, the collateral trustee for the First Priority Notes, and the holders of the First Priority Notes. This counterclaim alleged that the First Priority Notes were not “Priority Lien” or “Secured Debt” under the terms of the applicable collateral trust agreement. The First Priority Trustee moved to dismiss the Creditors’ Committee counterclaim on June 15, 2007, and the collateral trustee did the same on June 25, 2007. A day later, the U.S. Bankruptcy Court entered an order setting a briefing schedule for the First Priority Trustee’s and our respective motions for summary judgment on the merits of the First Priority Trustee’s demand for a “make whole” premium. All of these motions for summary judgment are fully briefed and the hearing on the motions for summary judgment is currently scheduled for November 27, 2007.

Rosetta Avoidance Action.  On June 29, 2007, Calpine Corporation filed a petition in the U.S. Bankruptcy Court against Rosetta for avoidance and recovery of a fraudulent transfer. In July 2005, Calpine Corporation had sold substantially all its remaining domestic oil and gas assets for $1.1 billion to a group led by Calpine Corporation insiders who constituted the management team of Rosetta, which prior to the sale was a subsidiary of Calpine Corporation. The petition alleges that

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Rosetta’s purchase of the domestic oil and natural gas assets prior to Calpine Corporation’s Chapter 11 filing was for less than reasonably equivalent value. We are seeking monetary damages for the value Rosetta did not pay Calpine Corporation for the assets it acquired, plus interest, which is currently estimated to be approximately $400 million. However, discovery and further analysis may result in changes to that amount. In the alternative, we are seeking the return of the domestic oil and natural gas assets from Rosetta. On September 10, 2007, Rosetta filed a motion to dismiss or, in the alternative, to stay the proceeding. We filed an objection to Rosetta’s motion on September 24, 2007. The motion to dismiss was denied by the U.S. Bankruptcy Court on October 24, 2007. As such, the parties will proceed with the adversary proceeding.

Other Post-Petition Matters

Communications with the SEC — We have been contacted by and have had discussions with the staff of the SEC regarding our financial statements and internal controls over financial reporting. We are cooperating with the SEC staff and voluntarily complying with their requests. We have not been informed whether we are under investigation. Our management has informed the SEC staff that we believe our financial statements and periodic reports filed with the SEC are compliant with the rules and regulations of the SEC and GAAP.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

In addition to historical information, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We use words such as “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: (i) the risks and uncertainties associated with our Chapter 11 cases and CCAA proceedings, including our ability to successfully reorganize and emerge from Chapter 11; (ii) our ability to implement our business plan; (iii) financial results that may be volatile and may not reflect historical trends; (iv) seasonal fluctuations of our results; (v) potential volatility in earnings associated with fluctuations in prices for commodities such as natural gas and power; (vi) our ability to manage liquidity needs and comply with covenants related to our existing financing obligations and anticipated exit financing; (vii) the direct or indirect effects on our business of our impaired credit including increased cash collateral requirements in connection with the use of commodity contracts; (viii) transportation of natural gas and transmission of electricity; (ix) the expiration or termination of our PPAs and the related results on revenues; (x) risks associated with the operation of power plants including unscheduled outages; (xi) factors that impact the output of our geothermal resources and generation facilities, including unusual or unexpected steam field well and pipeline maintenance and variables associated with the waste water injection projects that supply added water to the steam reservoir; (xii) risks associated with power project development and construction activities; (xiii) our ability to attract, retain and motivate key employees; (xiv) our ability to attract and retain customers and counterparties; (xv) competition; (xvi) risks associated with marketing and selling power from plants in the evolving energy markets; (xvii) present and possible future claims, litigation and enforcement actions; (xviii) effects of the application of laws or regulations, including changes in laws or regulations or the interpretation thereof; and (xix) other risks identified in this Report and our 2006 Form 10-K. You should also carefully review other reports that we file with the SEC, including without limitation our 2006 Form 10-K. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise.

We file annual, quarterly and other reports, proxy statements and other information with the SEC. You may obtain and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549-1004. The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file

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electronically with the SEC. Our SEC filings, including exhibits filed therewith, are accessible through the Internet at that website.

Our reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, are available for download, free of charge, as soon as reasonably practicable after these reports are filed with the SEC, at our website at http://www.calpine.com. The content of our website is not a part of this Report. You may request a copy of our SEC filings, at no cost to you, by writing or telephoning us at: Calpine Corporation, 50 West San Fernando Street, San Jose, California 95113, attention: Corporate Communications, telephone: (408) 995-5115. We will not send exhibits to the documents, unless the exhibits are specifically requested and you pay our fee for duplication and delivery.

Executive Overview

Our Business

We are a wholesale power company that operates and develops clean, reliable and cost-competitive power generation facilities primarily in the U.S. Our core business and primary source of revenue is the generation and sale of electricity and electricity-related products across the U.S. through the operation of our portfolio of generation assets. We protect and enhance the value of our assets with sophisticated commercial risk management and asset optimization, related to the dispatch and maintenance of our power plants. Since the Petition Date, we have been operating as debtors-in-possession pursuant to the Bankruptcy Code.

We operate a fleet of power generation facilities with nearly 24,000 MW of capacity as of September 30, 2007, making us one of the largest wholesale power producers in the U.S. Our portfolio is comprised of two fuel-efficient and clean power generation technologies: natural gas-fired combustion (primarily combined-cycle) facilities and renewable geothermal facilities. We own or lease 63 operating natural gas-fired power facilities in 18 states across the U.S. as well as 19 (17 active) geothermal facilities in the Geysers region of northern California. Our geothermal facilities comprise the largest producing geothermal resource in the U.S. Our natural gas-fired portfolio is equipped with state-of-the-art power generation technologies and is recognized as one of the most environmentally friendly and fuel-efficient fleets in the U.S.

We are focused on maximizing value by leveraging our portfolio of power plants, geographic diversity and operational and commercial expertise to provide the optimal combination of products and services to our customers. To accomplish this goal, we seek to maximize asset performance, optimize the management of our commodity exposure and take advantage of growth and development opportunities.

Plan of Reorganization

On June 20, 2007, the U.S. Debtors filed the Plan of Reorganization with the U.S. Bankruptcy Court, together with the Disclosure Statement and portions of the Plan Supplement. The Plan of Reorganization, as well as the Disclosure Statement and Plan Supplement have been amended several times since June 20, 2007.

The Plan of Reorganization provides for the treatment of claims of creditors on a “waterfall” basis that allocates value to our creditors and shareholders in accordance with the priorities of the Bankruptcy Code. Pursuant to the Plan of Reorganization, allowed administrative claims and priority tax claims would be paid in full in cash or cash equivalents, as would allowed first and second lien debt claims. Other allowed secured claims would be reinstated, paid in full in cash or cash equivalents, or have the collateral securing such claims returned to the secured creditor. Allowed unsecured claims would receive a pro rata distribution of common stock of the reorganized Calpine Corporation; allowed unsecured convenience claims (all claims $50,000 or less) would be paid in full in cash or cash equivalents. Any remaining value after such allowed creditors’ claims have been paid would be distributed pro rata to existing holders of allowed interests (primarily holders of existing Calpine Corporation common stock) and holders of subordinated equity securities claims in the form of reorganized Calpine Corporation common stock.

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The Plan of Reorganization assumes that allowed claims plus Non-Debtor net project debt of $3.9 billion will range from $20.3 billion to $22.0 billion after completion of the claims objection, reconciliation and resolution process. However, because disputed claims, including litigation instituted by us challenging so-called “make whole,” premium, or “no-call” claims, have not yet been finally adjudicated, and our total enterprise value upon emergence has not yet been finally determined, no assurances can be given that actual recoveries to creditors and interest holders will not be materially higher or lower than proposed in the Plan of Reorganization. We intend to file an update to the valuation analysis of our total enterprise value upon emergence no later than ten days prior to the voting and objection deadline of November 30, 2007. The Disclosure Statement contains detailed information about the Plan of Reorganization, a historical profile of our business, a description of proposed distributions to creditors, and an analysis of the Plan of Reorganization’s feasibility, as well as many of the technical matters required for the exit process, such as descriptions of who will be eligible to vote on the Plan of Reorganization and the voting process itself. The information contained in the Disclosure Statement is subject to change, whether as a result of further amendments to the Plan of Reorganization, actions of third parties or otherwise.

On September 25, 2007, the U.S. Bankruptcy Court approved the adequacy of the Disclosure Statement, the solicitation and notice procedures with respect to confirmation of the Plan of Reorganization and the form of various ballots and notices in connection therewith. The U.S. Bankruptcy Court established September 27, 2007, as the record date for determining eligibility to vote on the Plan of Reorganization. We completed the distribution of solicitation packages by October 5, 2007, the deadline for distribution set by the U.S. Bankruptcy Court. Nothing contained in this Report is intended to be, nor should it be construed as, a solicitation for a vote on the Plan of Reorganization.

The Plan of Reorganization will become effective only if it receives the requisite approval and is confirmed by the U.S. Bankruptcy Court. The voting and objection deadline with respect to the Plan of Reorganization is scheduled for November 30, 2007, at which time we expect that our Plan of Reorganization, as it may be further amended, will be accepted and approved by our creditors. The confirmation hearing in the U.S. Bankruptcy Court is scheduled to begin on December 17, 2007. If the U.S. Bankruptcy Court confirms the Plan of Reorganization, we expect to emerge from Chapter 11 shortly thereafter. However, there can be no assurance that we will be successful in obtaining the necessary votes to approve the Plan of Reorganization, that the U.S. Bankruptcy Court will confirm the Plan of Reorganization or that it will be implemented successfully.

We have in place the $5.0 billion DIP Facility, which we believe will be sufficient to support our operations for the anticipated duration of our Chapter 11 cases and which may be converted to exit financing upon our emergence from Chapter 11. We have also secured a commitment for additional exit financing of up to $3.0 billion which, together with the amounts available upon conversion of the DIP Facility to exit financing will total $8.0 billion. See “— Liquidity and Capital Resources — DIP Facility.” The commitment to fund the additional facilities under the amended DIP Facility will expire on January 31, 2008, if certain conditions, including effectiveness of the Plan of Reorganization, are not met.

We had the exclusive right until August 20, 2007, to solicit acceptance of the Plan of Reorganization. The exclusivity period has expired and competing plans of reorganization may be filed by third parties.

2007 Outlook

We expect our results of operations to continue to be impacted by our actions while in Chapter 11 as well as future power prices, fuel prices, fuel availability and unit availability. Spreads between power and fuel prices are expected to remain volatile as power and fuel prices change based on demand, weather and other factors.

In addition, we expect that our financial results could be volatile throughout 2007 and through our emergence from Chapter 11 as our restructuring activities will likely result in additional charges for expected allowed claims, adjustments to existing provisions for expected allowed claims based upon approved settlements or resolutions and other reorganization items that could be material to our financial position or results of operations in any given period.

30

Future Performance Indicators

Our historical financial performance is likely not indicative of our future financial performance during the pendency of the Chapter 11 cases and CCAA proceedings or beyond because, among other things: (i) we generally will not accrue interest expense on our debt classified as LSTC during the pendency of our Chapter 11 cases, except pursuant to orders of the U.S. Bankruptcy Court; (ii) we have and expect to further dispose of, or restructure agreements relating to, certain plants that do not generate positive cash flow or which are otherwise considered non-strategic; (iii) we have implemented overhead reduction programs, including staff reductions and non-core office closures; (iv) we have been able to or have sought to reject, repudiate or terminate certain unprofitable or burdensome contracts and leases, and we may further seek to reject, repudiate or terminate contracts and leases in the future; (v) we have been able to or are seeking to assume certain beneficial contracts and leases, and we may further seek to assume contracts and leases in the future in accordance with the time frames set forth in the Bankruptcy Code; (vi) we have deconsolidated certain Canadian and other foreign subsidiaries as a result of the CCAA proceedings and currently account for our investment in such entities under the cost method; (vii) as part of our emergence from Chapter 11, we may be required to adopt fresh start accounting in a future period, resulting in the remeasurement of our assets and liabilities to fair value as of the fresh start reporting date, which may differ materially from historical balances; and (viii) if fresh start accounting is required, our financial results after the application of fresh start accounting may be different from historical trends.

We believe that we have taken and will continue to take the necessary steps to successfully emerge from Chapter 11. We are currently soliciting votes on our Plan of Reorganization; however, until we have a confirmed plan or plans or reorganization, we believe the following factors are important in assessing our ability to continue to fund our operations and to successfully reorganize and emerge from Chapter 11 as a sustainable, competitive and profitable power company: (i) reducing our activities in certain non-core areas and lowering overhead and operating expenses; (ii) improving the profitability of our operations; (iii) complying with the covenants related to our existing financing obligations and anticipated exit financing; (iv) successfully executing our anticipated exit financing to provide adequate capital upon emergence from Chapter 11; and (v) stabilizing and increasing future contractual cash flows.

31

Results of Operations for the Three Months Ended September 30, 2007 and 2006

Set forth below are the results of operations for the three months ended September 30, 2007, as compared to the same period in 2006 (in millions, except for unit pricing information, MWh and percentages). In the comparative tables below, increases in revenue/income or decreases in expense (favorable variances) are shown without parentheses while decreases in revenue/income or increases in expense (unfavorable variances) are shown with parentheses in the “$ Change” and “% Change” columns.

	Three Months Ended September 30,
	2007			2006			$ Change			% Change
Revenue:
Electricity and steam revenue	$	1,690		$	1,842		$	(152	)		(8	)%
Sales of purchased power and gas for hedging and optimization		540			273			267			98
Mark-to-market activities, net		2			28			(26	)		(93	)
Other revenue		7			15			(8	)		(53	)
Total revenue		2,239			2,158			81			4
Cost of revenue:
Plant operating expense		182			175			(7	)		(4	)
Purchased power and gas expense for hedging and optimization		370			296			(74	)		(25	)
Fuel expense		1,114			1,106			(8	)		(1	)
Depreciation and amortization expense		114			121			7			6
Operating lease expense		15			11			(4	)		(36	)
Other cost of revenue		32			39			7			18
Total cost of revenue		1,827			1,748			(79	)		(5	)
Gross profit		412			410			2			—
Equipment, development project and other impairments		—			(4	)		(4	)		#
Sales, general and administrative expense		33			49			16			33
Other operating expense		12			10			(2	)		(20	)
Income from operations		367			355			12			3
Interest expense		602			228			(374	)		#
Interest (income)		(14	)		(19	)		(5	)		(26	)
Minority interest expense		1			7			6			86
Other (income) expense, net		(127	)		(10	)		117			#
Income (loss) before reorganization items and income taxes		(95	)		149			(244	)		#
Reorganization items		(3,940	)		146			4,086			#
Income before income taxes		3,845			3			3,842			#
Provision for income taxes		51			1			(50	)		#
Net income	$	3,794		$	2		$	3,792			#

__________

# Variance of 100% or greater

Total revenue for the three months ended September 30, 2007, increased by $81 million, or 4%, as compared to the same period a year ago, primarily due to a 98% increase in sales of purchased power and gas for hedging and optimization which was partially offset by an 8% decrease in electricity and steam revenue. In addition, mark-to-market activity decreased $26 million when compared to the same period in 2006, as discussed further below. The increase in sales of purchased power and gas primarily resulted from higher hedging and optimization activity during the third quarter of 2007 compared to the same period in 2006. The reduction in the availability of credit and the termination or disruption of certain customer

32

relationships due to our Chapter 11 filings had curtailed the amount of hedging and optimization activity during 2006 while these conditions have been less of a factor in 2007. Correspondingly, purchased power and gas expense for hedging and optimization also increased by 25% for similar reasons.

Electricity and steam revenue, as shown in the following table, decreased primarily due to an 11% decrease in energy revenue driven by a 4% decrease in generation and 7% lower realized energy revenue per MWh. Our average baseload MW in operation declined 9% due largely to our asset sales in late 2006 and in 2007. In addition to this decline, some of our markets, particularly Texas, experienced cooler than average temperatures during the three months ended September 30, 2007, resulting in decreased demand over the same period a year ago when we had experienced warmer than average weather in most of our markets. For the three months ended September 30, 2007, our average baseload capacity factor increased to 54.6% from 52.1% in the same period in 2006. See “— Operating Performance Metrics,” below for an explanation of average baseload capacity factor. Capacity revenues, which are not related to production and include traditional capacity payments and other revenues (such as RMR Contract, resource adequacy and ancillary service revenues), decreased by 4% during the three months ended September 30, 2007. Thermal and other revenue, which primarily consists of host steam sales, increased $19 million or 20% resulting primarily from favorable pricing on a renegotiated steam contract which became effective in early 2007.

	Three Months Ended September 30,
	2007		2006		$ Change			% Change
	(Dollars in millions, except pricing data)
Electricity and steam revenue:
Energy	$	1,316	$	1,475	$	(159	)		(11	)%
Capacity		259		271		(12	)		(4	)
Thermal and other		115		96		19			20
Total electricity and steam revenue	$	1,690	$	1,842	$	(152	)		(8	)
MWh generated (in thousands)		27,223		28,385		(1,162	)		(4	)
Average electricity and steam revenue per MWh generated*	$	62.08	$	64.89	$	(2.81	)		(4	)
Average energy revenue per MWh generated	$	48.34	$	51.96	$	(3.62	)		(7	)

__________

* Exclusive of hedging and optimization activity.

Mark-to-market activities, which are shown on a net basis and detailed in the table below, result from general market price movements against our open commodity and interest rate derivative positions not designated as hedges. These commodity and interest rate positions represent a small portion of our overall commodity and interest rate contract position.

	Three Months Ended September 30,
	2007			2006			$ Change			% Change
	(Dollars in millions)
Mark-to-market activities, net:
Deer Park Energy Center	$	36		$	27		$	9			33	%
Gas		(14	)		9			(23	)		#
Power		(14	)		13			(27	)		#
Interest rate swaps and other		(6	)		(21	)		15			71
Total mark-to-market activities, net	$	2		$	28		$	(26	)		(93	)

__________

# Variance of 100% or greater

During the three months ended September 30, 2007, the $9 million favorable mark-to-market variance relating to the Deer Park Energy Center is primarily due to unrealized gains on power derivatives relating to our Deer Park power plant.

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The unfavorable mark-to-market variance in gas is primarily due to losses during the three months ended September 30, 2007, on certain gas positions used to economically hedge one of our transport contracts. The unfavorable mark-to-market variance in power is primarily due to losses on certain power trades used to economically hedge one of our transmission contracts.

Although the above-mentioned gas and power positions are economic hedges, they do not qualify for hedge accounting under derivative accounting rules and are marked-to-market through earnings. Further, we account for the hedged items (the transport and transmission contracts) on an accrual basis and the offsetting economic gains are not recognized through mark-to-market earnings in the same accounting period.

Fuel expense increased during the three months ended September 30, 2007, as compared to the same period in 2006 primarily due to a 14% increase in average fuel cost per MMBtu partially offset by a 10% decrease in the MMBtu of fuel consumed by the generating plants as a result of decreased production during the three months ended September 30, 2007, as compared to the same period in 2006.

As a result of the foregoing items, gross profit for the three months ended September 30, 2007, improved by $2 million compared to the same period in 2006.

Interest expense increased primarily due to $318 million in post-petition interest related to the ULC I notes recorded during the three months ended September 30, 2007, resulting from the Canadian Settlement Agreement, while no similar expense was recorded in the comparable period of the prior year. Also contributing to the increase was a $92 million increase in interest expense related to the additional adequate protection payments granted to the holders of our Second Priority Debt. We had discontinued these adequate protection payments as of June 30, 2006, based on previous orders of the U.S. Bankruptcy Court, until the additional adequate protection payments were granted in December 2006. The increase was partially offset by the net effect of the refinancings of the CalGen Secured Debt and the Original DIP Facility in late March 2007 using funds available under the DIP Facility, which carries lower interest rates, as well as an additional $16 million decrease due to the extinguishment of certain project financing as a result of our asset sales, principally related to the Fox Energy Center. See Note 2 of the Notes to Consolidated Condensed Financial Statements and “— Liquidity and Capital Resources” below for further information related to our recognition of interest expense for the Second Priority Debt during our reorganization as well as for the Canadian Settlement Agreement. We currently accrue interest on our pre-petition LSTC only to the extent that it will be paid during the pendency of our Chapter 11 cases or is permitted by the Cash Collateral Order or pursuant to orders of the U.S. Bankruptcy Court. Our Plan of Reorganization ultimately confirmed could include allowed claims for substantial post-petition interest which could further negatively impact the comparability of future interest expense.

Other income, net increased primarily as a result of $129 million in income pertaining to a claim settlement with a customer which received court approval during the three months ended September 30, 2007. The claim, which was approved by the court hearing the customer’s bankruptcy case, related to the customer’s rejection of our energy services agreement following the customer’s bankruptcy filing and is unrelated to our Chapter 11 cases. The increase was partially offset by $7 million in foreign exchange losses and a $5 million settlement arising from pre-petition litigation related to the Goldendale Energy Center, both of which were recorded during the three months ended September 30, 2007.

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The table below lists the significant components of reorganization items for the three months ended September 30, 2007 and 2006.

	Three Months Ended September 30,
	2007			2006			$ Change			% Change
	(Dollars in millions)
Provision for expected allowed claims	$	(4,030	)	$	94		$	4,124			#	%
Gains on asset sales		(36	)		—			36			—
DIP Facility financing costs		22			3			(19	)		#
Professional fees		44			39			(5	)		(13	)
Interest (income) on accumulated cash		(16	)		(5	)		11			#
Other		76			15			(61	)		#
Total reorganization items	$	(3,940	)	$	146		$	4,086			#

__________

# Variance of 100% or greater

Provision for Expected Allowed Claims — During the three months ended September 30, 2007, our provision for expected allowed claims consisted primarily of (i) a $4.1 billion credit related to the settlement of claims with respect to Calpine Corporation’s direct and indirect guarantees of the ULC I notes, the release of our guarantee of the ULC II notes following repayment of those notes in September 2007 and pre-petition intercompany balances, (ii) accruals totaling $154 million for make whole premiums and/or damages related to the Second Priority Debt and Unsecured Notes settlements and (iii) a $98 million credit resulting from the negotiated settlement of repudiated gas transportation contracts. During the three months ended September 30, 2006, our provision for expected allowed claims consisted primarily of an accrual of $94 million related to an expected allowed claim for a repudiated gas transportation contract.

Gain on Asset Sales — During the three months ended September 30, 2007, gains on asset sales related primarily to our sale of the Parlin Power Plant. See Note 5 of the Notes to Consolidated Condensed Financial Statements and “— Liquidity and Capital Resources — Asset Sales” below for further information.

DIP Facility Financing Costs — During the three months ended September 30, 2007, we recorded transaction costs of $22 million related to the execution of a commitment letter to fund our additional exit financing. See Note 7 of the Notes to Consolidated Condensed Financial Statements and “— Liquidity and Capital Resources — DIP Facility” below for further information.

Other — Other reorganization items for the three months ended September 30, 2007, increased primarily due to a $60 million increase in foreign exchange losses on LSTC denominated in a foreign currency over the comparable period in the prior year.

We recorded a tax provision of $51 million during the three months ended September 30, 2007, as compared to a tax provision of $1 million during the same period in 2006. See Note 1 of the Notes to Consolidated Condensed Financial Statements for further information regarding our income taxes.

35

Results of Operations for the Nine Months Ended September 30, 2007 and 2006

Set forth below are the results of operations for the nine months ended September 30, 2007, as compared to the same period in 2006 (in millions, except for unit pricing information, MWh and percentages). In the comparative tables below, increases in revenue/income or decreases in expense (favorable variances) are shown without parentheses while decreases in revenue/income or increases in expense (unfavorable variances) are shown with parentheses in the “$ Change” and ‘‘% Change” columns.

	Nine Months Ended September 30,
	2007			2006			$ Change			% Change
Revenue:
Electricity and steam revenue	$	4,412		$	4,070		$	342			8	%
Sales of purchased power and gas for hedging and optimization		1,357			891			466			52
Mark-to-market activities, net		5			88			(83	)		(94	)
Other revenue		55			57			(2	)		(4	)
Total revenue		5,829			5,106			723			14
Cost of revenue:
Plant operating expense		561			520			(41	)		(8	)
Purchased power and gas expense for hedging and optimization		1,046			857			(189	)		(22	)
Fuel expense		2,989			2,474			(515	)		(21	)
Depreciation and amortization expense		350			350			—			—
Operating plant impairments		—			53			53			#
Operating lease expense		39			53			14			26
Other cost of revenue		112			128			16			13
Total cost of revenue		5,097			4,435			(662	)		(15	)
Gross profit		732			671			61			9
Equipment, development project and other impairments		2			64			62			97
Sales, general and administrative expense		112			147			35			24
Other operating expense		22			25			3			12
Income from operations		596			435			161			37
Interest expense		1,176			820			(356	)		(43	)
Interest (income)		(48	)		(59	)		(11	)		(19	)
Minority interest expense		—			10			10			#
Other (income) expense, net		(134	)		7			141			#
Loss before reorganization items and income taxes		(398	)		(343	)		(55	)		(16	)
Reorganization items		(3,366	)		1,099			4,465			#
Income (loss) before income taxes		2,968			(1,442	)		4,410			#
Provision (benefit) for income taxes		133			(36	)		(169	)		#
Income (loss) before cumulative effect of a change in accounting principle		2,835			(1,406	)		4,241			#
Cumulative effect of a change in accounting principle, net of tax		—			1			(1	)		#
Net income (loss)	$	2,835		$	(1,405	)	$	4,240			#

__________

# Variance of 100% or greater

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Total revenue for the nine months ended September 30, 2007, increased by $723 million, or 14%, as compared to the same period a year ago, primarily due to an 8% increase in electricity and steam revenue and a 52% increase in sales of purchased power and gas for hedging and optimization. Mark-to-market activity decreased $83 million when compared to the same period in 2006, as discussed further below. The increase in sales of purchased power and gas primarily resulted from higher hedging and optimization activity and from marginally higher commodity prices during the nine months ended September 30, 2007, compared to the same period in 2006. The reduction in the availability of credit and the termination or disruption of certain customer relationships due to our Chapter 11 filings and reduced generation in 2006 had curtailed the amount of hedging and optimization activity during that period while these conditions have been less of a factor in 2007. Correspondingly, purchased power and gas expense for hedging and optimization also increased by 22% for similar reasons.

Electricity and steam revenue, as shown in the following table, increased primarily due to a 9% increase in energy revenue driven by a 10% increase in generation. Our average baseload MW in operation declined 8% due largely to our asset sales in late 2006 and in 2007. Despite this decline, most of our markets experienced favorable temperatures during the first half of 2007, resulting in increased demand over the same period a year ago when we had experienced mild weather in most of our markets. Some of our markets, particularly Texas, experienced cooler than average temperatures during the third quarter of 2007, resulting in decreased demand over the same period a year ago when we had experienced warmer than average weather in most of our markets. For the nine months ended September 30, 2007, our average baseload capacity factor increased to 46.5% from 39.2% in the same period in 2006. See “— Operating Performance Metrics,” below for an explanation of average baseload capacity factor. Capacity revenues, which are not related to production and include traditional capacity payments and other revenues (such as RMR Contract, resource adequacy and ancillary service revenues), decreased by 1% during the nine months ended September 30, 2007. Thermal and other revenue, which primarily consists of host steam sales, increased by $69 million or 25% resulting primarily from favorable pricing on a renegotiated steam contract which became effective in early 2007.

	Nine Months Ended September 30,
	2007		2006		$ Change			% Change
	(Dollars in millions, except pricing data)
Electricity and steam revenue:
Energy	$	3,349	$	3,068	$	281			9	%
Capacity		718		726		(8	)		(1	)
Thermal and other		345		276		69			25
Total electricity and steam revenue	$	4,412	$	4,070	$	342			8
MWh generated (in thousands)		69,005		62,826		6,179			10
Average electricity and steam revenue per MWh generated*	$	63.94	$	64.78	$	(0.84	)		(1	)
Average energy revenue per MWh generated	$	48.53	$	48.83	$	(0.30	)		(1	)

__________

* Exclusive of hedging and optimization activity.

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Mark-to-market activities, which are shown on a net basis and detailed in the table below, result from general market price movements against our open commodity and interest rate derivative positions not designated as hedges. These commodity and interest rate positions represent a small portion of our overall commodity and interest rate contract position.

	Nine Months Ended September 30,
	2007			2006			$ Change			% Change
	(Dollars in millions)
Mark-to-market activities, net:
Deer Park Energy Center	$	83		$	41		$	42			#	%
Gas		(49	)		43			(92	)		#
Power		(24	)		(5	)		(19	)		#
Interest rate swaps and other		(5	)		9			(14	)		#
Total mark-to-market activities, net	$	5		$	88		$	(83	)		(94	)

__________

# Variance of 100% or greater

During the nine months ended September 30, 2007, the $42 million favorable mark-to-market variance relating to the Deer Park Energy Center is primarily due to gains on power derivatives relating to our Deer Park power plant.

The unfavorable mark-to-market variance in gas is primarily due to losses during the nine months ended September 30, 2007, on certain gas positions used to economically hedge one of our transport contracts. The unfavorable mark-to-market variance in power is primarily due to losses during the nine months ended September 30, 2007, on certain power trades used to economically hedge one of our transmission contracts.

Although the above-mentioned gas and power positions are economic hedges, they do not qualify for hedge accounting under derivative accounting rules and are marked-to-market through earnings. Further, we account for the hedged items (the transport and transmission contracts) on an accrual basis and the offsetting economic gains are not recognized through mark-to-market earnings in the same accounting period.

Plant operating expense increased primarily due to an increase of $38 million in major maintenance and equipment failure costs during the nine months ended September 30, 2007, compared to the same period in the prior year. During the nine months ended September 30, 2006, major maintenance costs were lower than normal due to decreased generation owing to weakened demand; as a result, certain major maintenance work was delayed until later in 2006 or deferred until 2007. Equipment failure costs increased during the nine months ended September 30, 2007, due to losses on the retirement of scrap parts related to outages.

Fuel expense increased during the nine months ended September 30, 2007, as compared to the same period in 2006 primarily due to a 12% increase in the average fuel cost per MMBtu and a 9% increase in MMBtu of fuel consumed by generating plants as a result of increased production, primarily during the first half of 2007, as compared to the same period in 2006.

During the nine months ended September 30, 2006, we recorded total impairment charges of $117 million primarily due to $64 million relating to turbine-generator equipment and $50 million relating to Fox Energy Center. The majority of our impairment charges recorded during the nine months ended September 30, 2007, related to our restructuring activities and are included in reorganization items as discussed below.

Operating lease expense decreased by $14 million primarily due to a decrease of $9 million related to the rejection of the Rumford and Tiverton leases in June 2006. The decrease is also partly attributable to a $2 million decrease associated with a sale-leaseback agreement at the Geysers Assets that was cancelled in February 2006.

As a result of the foregoing items, gross profit for the nine months ended September 30, 2007, improved by $61 million, or 9%, compared to the same period in 2006.

38

Sales, general and administrative expense decreased primarily due to the overall reduction in workforce and resultant $12 million net reduction in personnel cost as well as higher allocations of information technology costs to power plant operating expense of $20 million.

Interest expense increased primarily due to $318 million in post-petition interest related to the ULC I notes recorded during the three months ended September 30, 2007, resulting from the Canadian Settlement Agreement, while no similar expense was recorded in the comparable period of the prior year. Also contributing to the increase was a $118 million increase in interest expense related to the additional adequate protection payments granted to the holders of our Second Priority Debt in December 2006. We had discontinued these adequate protection payments as of June 30, 2006. The increase was partially offset by the net effect of the refinancings of the CalGen Secured Debt and the Original DIP Facility in late March 2007 using funds available under the DIP Facility, which carries lower interest rates, the repayment of the First Priority Notes in May and June of 2006 using funds available under the Original DIP Facility which carried lower interest rates, and an additional $31 million decrease due to the extinguishment of certain project financing as a result of our asset sales, principally related to the Fox Energy Center. See Note 2 of the Notes to Consolidated Condensed Financial Statements and “— Liquidity and Capital Resources” below for further information related to our recognition of interest expense for the Second Priority Debt during our reorganization as well as for the Canadian Settlement Agreement. We currently accrue interest on our pre-petition LSTC only to the extent that it will be paid during the pendency of our Chapter 11 cases or is permitted by the Cash Collateral Order or pursuant to orders of the U.S. Bankruptcy Court. Our Plan of Reorganization ultimately confirmed could include allowed claims for substantial post-petition interest which could further negatively impact the comparability of future interest expense.

Other (income) expense, net increased primarily as a result of $129 million in income pertaining to a claim settlement with a customer which received court approval during the three months ended September 30, 2007. The claim, which was approved by the court hearing the customer’s bankruptcy case, related to the customer’s rejection of our energy services agreement following the customer’s bankruptcy filing and is unrelated to our Chapter 11 cases.

The table below lists the significant components of reorganization items for the nine months ended September 30, 2007 and 2006.

	Nine Months Ended September 30,
	2007			2006			$ Change			% Change
	(Dollars in millions)
Provision for expected allowed claims	$	(3,695	)	$	883		$	4,578			#	%
Gains on asset sales		(286	)		—			286			—
Asset impairments		120			2			(118	)		#
DIP Facility financing and CalGen Secured Debt repayment costs		182			35			(147	)		#
Professional fees		139			107			(32	)		(30	)
Interest (income) on accumulated cash		(39	)		(18	)		21			#
Other		213			90			(123	)		#
Total reorganization items	$	(3,366	)	$	1,099		$	4,465			#

__________

# Variance of 100% or greater

Provision for Expected Allowed Claims — During the nine months ended September 30, 2007, our provision for expected allowed claims consisted primarily of (i) a $4.1 billion credit related to the settlement of claims with respect to Calpine Corporation’s direct and indirect guarantees of the ULC I notes, the release of our guarantee of the ULC II notes following repayment of those notes in September 2007 and pre-petition intercompany balances, (ii) accruals totaling $154 million for make whole premiums and/or damages related to the Second Priority Debt and Unsecured Notes settlements, (iii) $112 million resulting from the repudiation of a gas transportation contract, (iv) a $98 million credit resulting from the negotiated settlement of repudiated gas transportation contracts, (v) $85 million related to the settlement agreement with Cleco as a result of the rejection of two PPAs for the output of the Acadia Energy Center, (vi) an additional accrual of $81 

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million resulting from the rejection of certain leases and other agreements related to the Rumford and Tiverton power plants for which we have agreed to allow general unsecured claims in the aggregate of $190 million, and (vii) $65 million resulting from a stipulated settlement related to the RockGen Energy Center. During the nine months ended September 30, 2006, our provision for expected allowed claims related primarily to repudiated gas transportation and power transmission contracts, the rejection of the Rumford and Tiverton power plant leases, the write-off of prepaid lease expense and certain fees and expenses related to the transaction and a claim resulting from Calpine Corporation’s guarantee related to CES-Canada’s repudiation of its tolling contract with Calgary Energy Centre.

Gains on Asset Sales — During the nine months ended September 30, 2007, gains on asset sales primarily resulted from the sale of the Aries Power Plant, Goldendale Energy Center, PSM and Parlin Power Plant during 2007 with no comparable activity in the prior year. See Note 5 of the Notes to Consolidated Condensed Financial Statements and “—Liquidity and Capital Resources — Asset Sales” below for further information.

Asset Impairments — During the nine months ended September 30, 2007, asset impairment charges were primarily due to a pre-tax, predominately non-cash impairment charge of approximately $89 million in reorganization items to record our interest in Acadia PP at fair value less cost to sell. See Note 5 of the Notes to Consolidated Condensed Financial Statements and “— Liquidity and Capital Resources — Asset Sales” below for further information. Asset impairment charges during the comparable period in 2006 relating primarily to turbine-generator equipment and Fox Energy Center are discussed above.

DIP Facility Financing and CalGen Secured Debt Repayment Costs — During the nine months ended September 30, 2007, we recorded costs related to the refinancing of our Original DIP Facility and repayment of the CalGen Secured Debt consisting of (i) $52 million of DIP Facility transaction costs, (ii) the write-off of $32 million in unamortized discount and deferred financing costs related to the CalGen Secured Debt and (iii) $76 million as our estimate of the expected allowed claims resulting from the unsecured claims for damages granted to the holders of the CalGen Secured Debt. We also recorded transaction costs of $22 million related to the execution of a commitment letter to fund our additional exit financing during the current year period. See Note 7 of the Notes to Consolidated Condensed Financial Statements and “— Liquidity and Capital Resources — DIP Facility and — Repayment of CalGen Secured Debt” below for further information.

Professional Fees — The increase in professional fees for the nine months ended September 30, 2007, over the comparable period in 2006 resulted primarily from an increase in activity managed by our third party advisors including our Plan of Reorganization, litigation and claims reconciliation matters.

Other — Other reorganization items increased primarily due to a $104 million increase in foreign exchange losses on LSTC denominated in a foreign currency over the comparable period in the prior year and a charge of $14 million during the nine months ended September 30, 2007, resulting from debt pre-payment and make whole premium fees to the project lenders related to the sale of the Aries Power Plant.

We recorded a tax provision of $133 million during the nine months ended September 30, 2007, as compared to a tax benefit of $36 million during the same period in 2006. See Note 1 of the Notes to Consolidated Condensed Financial Statements for further information regarding our income taxes.

Non-GAAP Financial Measures

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes financial information prepared in accordance with GAAP, as well as certain non-GAAP financial measures, such as all-in realized spark spread, as defined and calculated in “— Operating Performance Metrics.” In addition, our management utilizes another non-GAAP financial measure, Adjusted EBITDA, as a measure of our liquidity and performance. Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.

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We define Adjusted EBITDA as EBITDA as adjusted for certain items described below and presented in the accompanying reconciliation. Adjusted EBITDA is not a measure calculated in accordance with GAAP, and should be viewed as a supplement to and not a substitute for our results of operations presented in accordance with GAAP. Adjusted EBITDA does not purport to represent cash flow from operations or net income (loss) as defined by GAAP as an indicator of operating performance. Furthermore, Adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.

We believe Adjusted EBITDA is used by and useful to investors and other users of our financial statements in analyzing our liquidity as it is the basis for a material covenant under our DIP Facility which is our primary source of financing during the Chapter 11 cases. Under the DIP Facility, we are required to maintain certain levels of Adjusted EBITDA (called “Consolidated EBITDA” in the DIP Facility) on a rolling 12 month basis and as of certain points in time. Non-compliance with this covenant could result in the lenders requiring us to immediately repay all amounts borrowed. In addition, if we cannot satisfy this financial covenant, we may be prohibited from engaging in other activities, such as incurring additional indebtedness.

We believe Adjusted EBITDA is also used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.

Additionally, we believe that investors commonly adjust EBITDA information to eliminate the effect of restructuring and other expenses, which vary widely from company to company and impair comparability. As we define it, Adjusted EBITDA excludes the impact of reorganization items and impairment charges, among other items as detailed in the below reconciliation. We are currently recognizing substantial reorganization items, both direct and incremental, in connection with our Chapter 11 cases. In addition, we have incurred substantial asset impairment charges related to our Chapter 11 filings and actions we have taken with respect to our portfolio of assets. Since the Petition Date, these reorganization items and impairment charges have been significant but are not expected to continue at these levels as we emerge from Chapter 11. Therefore, we exclude reorganization items and impairment charges from Adjusted EBITDA as our management believes that these items would distort their ability to efficiently view and assess our core operating trends.

Our management uses Adjusted EBITDA (i) as a measure of liquidity in determining our ability to maintain borrowings under the DIP Facility, (ii) as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends; (iii) as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and (iv) in communications with our Board of Directors, shareholders, creditors, analysts and investors concerning our financial performance.

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The below table provides a reconciliation of Adjusted EBITDA to our cash flow from operations and GAAP net income (loss):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(in millions)
Cash provided by operating activities	$	268		$	371		$	93		$	167
Less:
Changes in operating assets and liabilities, excluding the effects of acquisition		217			85			139			18
Additional adjustments to reconcile GAAP net income (loss) to net cash provided by operating activities from both continuing and discontinued operations:
Depreciation and amortization expense(1)		136			148			420			437
Deferred income taxes, net		50			1			132			(36	)
Mark-to-market activities, net		(2	)		(28	)		(5	)		(88	)
Non-cash reorganization items		(3,956	)		106			(3,459	)		976
Impairment charges and other		29			57			31			265
GAAP net income (loss)		3,794			2			2,835			(1,405	)
Add:
Adjustments to reconcile GAAP net loss to Adjusted EBITDA:
Interest expense, net of interest income		588			209			1,128			761
Depreciation and amortization expense(1)		125			134			383			389
Income tax provision (benefit)		51			1			133			(36	)
Impairment charges		—			(4	)		2			117
Reorganization items		(3,940	)		146			(3,366	)		1,099
Major maintenance expense		4			31			78			64
Operating lease expense		15			11			39			53
(Gains) on derivatives (non-cash portion)		(6	)		(28	)		(18	)		(178	)
Non-cash loss on repurchase of debt		—			—			—			18
Claim settlement income		(129	)		—			(129	)		—
Other		3			(11	)		(4	)		(6	)
Adjusted EBITDA	$	505		$	491		$	1,081		$	876

__________

(1)   Depreciation and amortization in the GAAP net income (loss) calculation includes items, such as deferred financing costs and discounts/premiums, which are included in interest expense, net of interest income in the Adjusted EBITDA calculation.

Operating Performance Metrics

In understanding our business, we believe that certain operating performance metrics and non-GAAP financial measures are particularly important. These are described below:

· MWh generated.  We generate power that we sell to third parties. These sales are recorded as electricity and steam revenue. The volume in MWh is a direct indicator of our level of electricity generation activity.

· Average availability and average baseload capacity factor.  Availability represents the percent of total hours during the period that our plants were available to run after taking into account the downtime associated with both scheduled and unscheduled outages. The baseload capacity factor is calculated by dividing (a) total MWh generated by our power plants (excluding peaker facilities) by the product of multiplying (b) the weighted average

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MW in operation during the period by (c) the total hours in the period. The average baseload capacity factor is thus a measure of total actual generation as a percent of total potential generation. If we elect not to generate during periods when electricity pricing is too low or gas prices too high to operate profitably, the baseload capacity factor will reflect that decision as well as both scheduled and unscheduled outages due to maintenance and repair requirements.

· Average Heat Rate for gas-fired fleet of power plants (excluding peakers) expressed in Btus of fuel consumed per KWh generated.  We calculate the average Heat Rate for our gas-fired power plants (excluding peaker facilities) by dividing (a) fuel consumed in Btu by (b) KWh generated. The resultant Heat Rate is a measure of fuel efficiency, so the lower the Heat Rate, the lower our cost of generation. We also calculate a “steam-adjusted” Heat Rate, in which we adjust the fuel consumption in Btu down by the equivalent heat content in steam or other thermal energy exported to a third party, such as to steam hosts for our cogeneration facilities.

· Average all-in realized electric price expressed in dollars per MWh generated.  Our risk management and optimization activities are integral to our power generation business and directly impact our total realized revenues from generation. Accordingly, we calculate the all-in realized electric price per MWh generated by dividing (a) adjusted electricity and steam revenue, which includes capacity revenues, energy revenues, thermal revenues, the spread on sales of purchased electricity for hedging, balancing, and optimization activity and generating revenue recorded in mark-to-market activities, net, by (b) total generated MWh in the period.

· Average cost of natural gas expressed in dollars per MMBtu of fuel consumed.  Our risk management and optimization activities related to fuel procurement directly impact our total fuel expense. The fuel costs for our gas-fired power plants are a function of the price we pay for fuel purchased and the results of the fuel hedging, balancing, and optimization activities. Accordingly, we calculate the cost of natural gas per MMBtu of fuel consumed in our power plants by dividing (a) adjusted fuel expense, which includes the cost of fuel consumed by our plants (adding back cost of inter-company gas pipeline costs, which is eliminated in consolidation), the spread on sales of purchased gas for hedging, balancing, and optimization activity, and fuel expense related to generation recorded in mark-to-market activities, net by (b) the heat content in millions of Btu of the fuel we consumed in our power plants for the period.

· All-in realized spark spread expressed in dollars per MWh generated.  Our risk management activities focus on managing the spark spread for our portfolio of power plants, the spread between the sales price for electricity generated and the cost of fuel. We calculate all-in realized spark spread by subtracting (a) adjusted fuel expense from (b) adjusted electricity and steam revenue. We calculate the all-in realized spark spread per MWh generated by dividing all-in realized spark spread by total MWh generated in the period.

· Average plant operating expense per MWh.  To assess trends in electric power plant operating expense, or POX, per MWh, we divide POX by total MWh generated in the period.

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The table below shows the operating performance metrics for continuing operations discussed above.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(in thousands, except hours in period, percentages,
	Heat Rate, price and cost information)
Operating Performance Metrics:
MWh generated		27,223			28,385			69,005			62,826
Average availability		93.9	%		95.8	%		91.5	%		92.6	%
Average baseload capacity factor:
Average total MW in operation		24,854			26,900			25,098			26,942
Less: Average MW of peaker facilities		3,019			2,965			3,013			2,965
Average baseload MW in operation		21,835			23,935			22,085			23,977
Hours in the period		2,208			2,208			6,552			6,552
Potential baseload generation (MWh)		48,212			52,848			144,701			157,097
Actual total generation (MWh)		27,223			28,385			69,005			62,826
Less: Actual peaker facilities’ generation (MWh)		880			866			1,651			1,230
Actual baseload generation (MWh)		26,343			27,519			67,354			61,596
Average baseload capacity factor		54.6	%		52.1	%		46.5	%		39.2	%
Average Heat Rate for gas-fired power plants (excluding peakers)(Btu’s/KWh):
Not steam adjusted		8,107			7,999			8,213			8,372
Steam adjusted		7,211			7,213			7,172			7,235
Average all-in realized electric price:
Electricity and steam revenue	$	1,689,992		$	1,842,575		$	4,411,782		$	4,070,045
Spread on sales of purchased power for hedging and optimization		166,097			(32,372	)		307,149			28,461
Revenue related to power generation in mark-to-market activity, net		78,241			56,413			230,074			142,585
Adjusted electricity and steam revenue	$	1,934,330		$	1,866,616		$	4,949,005		$	4,241,091
MWh generated		27,223			28,385			69,005			62,826
Average all-in realized electric price per MWh	$	71.05		$	65.76		$	71.72		$	67.51
Average cost of natural gas:
Fuel expense	$	1,114,132		$	1,105,248		$	2,989,318		$	2,473,657
Fuel cost elimination		4,602			3,132			12,646			9,158
Spread on sales of purchased gas for hedging and optimization		(4,520	)		(8,920	)		(4,362	)		(5,148	)
Fuel expense related to power generation in mark-to-market activity, net		42,677			35,111			155,663			111,409
Adjusted fuel expense	$	1,156,891		$	1,134,571		$	3,153,265		$	2,589,076
MMBtu of fuel consumed by generating plants		174,719			195,181			462,567			426,027
Average cost of natural gas per MMBtu	$	6.62		$	5.81		$	6.82		$	6.08
MWh generated		27,223			28,385			69,005			62,826
Average cost of adjusted fuel expense per MWh	$	42.50		$	39.97		$	45.70		$	41.21
All-in realized spark spread:
Adjusted electricity and steam revenue	$	1,934,330		$	1,866,616		$	4,949,005		$	4,241,091
Less: Adjusted fuel expense		1,156,891			1,134,571			3,153,265			2,589,076
All-in realized spark spread	$	777,439		$	732,045		$	1,795,740		$	1,652,015
MWh generated		27,223			28,385			69,005			62,826
All-in realized spark spread per MWh	$	28.56		$	25.79		$	26.02		$	26.30
Average plant operating expense (POX) per actual MWh:
POX	$	182,137		$	174,552		$	560,852		$	519,877
POX per actual MWh	$	6.69		$	6.15		$	8.13		$	8.27

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Liquidity and Capital Resources

Currently, the Calpine Debtors continue to conduct business in the ordinary course as debtors-in-possession under the protection of the Bankruptcy Courts. Accordingly, the matters described in this section may be significantly affected by our Chapter 11 cases and CCAA proceedings, and by the risks and other factors described in “Forward-Looking Statements,” including the risk factors included in Item 1A. “Risk Factors” included in our 2006 Form 10-K.

Our business is capital intensive. Our ability to successfully reorganize and emerge from Chapter 11 protection, while continuing to operate our current fleet of power plants, including completing our remaining plants under construction and maintaining our relationships with vendors, suppliers, customers and others with whom we conduct or seek to conduct business, is dependent on the continued availability of capital on attractive terms. We have in place the $5.0 billion DIP Facility, which we believe will be sufficient to support our operations for the anticipated duration of our Chapter 11 cases and which may be converted to exit financing upon our emergence from Chapter 11. We have also secured a commitment for additional exit financing of up to $3.0 billion which, together with the amounts available upon conversion of the DIP Facility to exit financing will total $8.0 billion. We expect the amounts under the DIP Facility and commitment for additional exit financing will be sufficient to emerge from Chapter 11 and support our operations upon our emergence from Chapter 11. See “— DIP Facility” below for further information. We have obtained U.S. Bankruptcy Court approval of several other matters that we believe are important to maintaining our ability to operate in the ordinary course during our Chapter 11 cases, including (i) our cash management program (as described under “Cash Management” below), (ii) payments to our employees, vendors and suppliers necessary in order to keep our facilities operational and (iii) procedures for the rejection of certain leases and executory contracts.

We currently obtain cash from our general operations, borrowings under credit facilities, including the DIP Facility, sale or partial sale of certain assets, and project financings or refinancings. In the past, we have also obtained cash from issuances of debt, equity, trust preferred securities and convertible debentures and contingent convertible notes; proceeds from sale/leaseback transactions; and contract monetizations, and we or our subsidiaries may in the future complete similar transactions in order to fund our ongoing operations. We utilize cash to fund our operations, service or prepay debt obligations, develop and construct power generation facilities, finance capital expenditures, support our hedging, balancing and optimization activities, and meet our other cash and liquidity needs. We do not intend, nor do we anticipate being able, to pay any cash dividends on our common stock in the foreseeable future because of our Chapter 11 cases and liquidity constraints. In addition, our ability to pay cash dividends is restricted under certain of our indentures and our other debt agreements. Future cash dividends, if any, following our emergence from Chapter 11 will be at the discretion of our Board of Directors and will depend upon, among other things, our future operations and earnings, capital requirements, general financial condition, contractual restrictions and such other factors as our Board of Directors may deem relevant. Trading in our common stock during the pendency of our Chapter 11 cases and CCAA proceedings is highly speculative and poses substantial risks. The U.S. Bankruptcy Court has imposed restrictions on trading in our common stock and certain securities, including options, convertible into our common stock, and, in order to preserve our ability to utilize our NOL carryforwards after the effective date of the Plan of Reorganization, we have proposed restrictions on certain transfers of the reorganized Calpine Corporation common stock. Holders of our common stock may not be able to resell such securities and, in connection with our reorganization, may have their securities cancelled and receive no payment or other consideration in return.

In order to improve our liquidity position, we have taken steps to stabilize, improve and strengthen our power generation business and our financial health by reducing activities and curtailing expenditures in certain non-core areas. We expect to continue our efforts to reduce overhead and discontinue activities that do not have compelling profit potential, particularly in the near term. Our development activities have been reduced, and we have only one project currently in active development. We are actively marketing two projects for which construction was suspended in 2005. We continue to review our remaining, less advanced development opportunities, which we have put on hold, to determine what actions we should take; we may pursue new opportunities that arise, particularly if power contracts and financing are available and attractive returns are expected. We have completed the sale of certain of our power plants or other assets, and expect that, as a result of our ongoing review process, additional power plants or other assets may be sold or the agreements relating to certain of our

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facilities may be restructured, or that commercial operations may be suspended at certain of our power plants. See “— Asset Sales” below for further details.

We pay current interest on debt of the Calpine Debtors that has been determined to be fully secured and make payments of interest or principal, as applicable, on the debt of our subsidiaries that have not filed for protection under Chapter 11 nor are subject to the CCAA proceedings. Pursuant to the Cash Collateral Order, we make periodic cash adequate protection payments to the holders of Second Priority Debt; originally payments were made only through June 30, 2006, but, by order entered December 28, 2006, the U.S. Bankruptcy Court modified the Cash Collateral Order to provide for periodic adequate protection payments on a quarterly basis to the holders of outstanding Second Priority Debt through December 31, 2007. Thereafter, unless we have a confirmed plan or plans of reorganization and are no longer subject to U.S. Bankruptcy Court jurisdiction, the holders of Second Priority Debt must seek further orders from the U.S. Bankruptcy Court for any further amounts to be paid. We have not yet made a determination as to whether any portion of the adequate protection payments represents payment of principal and, therefore, have reported the full amount of the adequate protection payments as interest expense on our Consolidated Condensed Statements of Operations. We do not generally pay interest or make other debt service payments on the debt of the Calpine Debtors classified as LSTC other than pursuant to applicable U.S. Bankruptcy Court orders. As a result, for the three months ended September 30, 2007 and 2006, our actual interest payments to unrelated parties were less by $61 million and $192 million, respectively, and for the nine months ended September 30, 2007 and 2006, were less by $139 million and $352 million, respectively, than the contractually specified interest payments (at non-default rates) would have been.

As a result of our Chapter 11 filings and the other matters described herein, including uncertainties related to the fact that we have not yet had time to obtain confirmation of a plan or plans of reorganization, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to maintain adequate cash on hand; (ii) our ability to generate cash from operations; (iii) the cost, duration and outcome of our restructuring process; (iv) our ability to comply with the terms of our existing financing obligations and anticipated exit financing and the adequate assurance provisions of the Cash Collateral Order; and (v) our ability to achieve profitability following a restructuring. These challenges are in addition to those operational and competitive challenges faced by us in connection with our business. In conjunction with our advisors, we have implemented and continue to implement strategies to aid our liquidity and our ability to continue as a going concern. However, there can be no assurance as to the success of such efforts.

DIP Facility — On March 29, 2007, we completed the refinancing of the Original DIP Facility with our $5.0 billion DIP Facility. The DIP Facility consists of a $4.0 billion first priority senior secured term loan and a $1.0 billion first priority senior secured revolving credit facility together with an uncommitted term loan facility that permits us to raise up to $2.0 billion of incremental term loan funding on a senior secured basis with the same priority as the current debt under the DIP Facility. The DIP Facility is priced at LIBOR plus 2.25% or base rate plus 1.25% and matures on the earlier of the effective date of a confirmed plan or plans of reorganization or March 29, 2009. We have the option to convert the DIP Facility into our exit financing, provided certain conditions are met, which would extend the maturity date to March 29, 2014. We expect the effective date of our Plan of Reorganization will be within the next twelve months; therefore, borrowings under the DIP Facility are classified as current at September 30, 2007. In addition to refinancing the Original DIP Facility, borrowings under the DIP Facility were applied on March 29, 2007, to the repayment of the approximately $2.5 billion outstanding principal amount of CalGen Secured Debt (see “— Repayment of CalGen Secured Debt” below). In connection with the refinancing of our Original DIP Facility, we incurred transaction costs of $52 million which are included in reorganization items on our Consolidated Condensed Statements of Operations.

On July 11, 2007, the U.S. Bankruptcy Court authorized us to enter into a commitment letter to fund additional credit facilities, pay associated commitment and other fees, and to amend the DIP Facility to provide for additional secured exit financing of up to $3.0 billion in addition to amounts currently available under the DIP Facility upon conversion of the DIP Facility to exit financing, for a total of $8.0 billion. The amendment of the DIP Facility is subject to further conditions, including obtaining necessary approvals of lenders under the DIP Facility. The commitment to fund the additional facilities under the amended DIP Facility will expire on January 31, 2008, if certain conditions, including effectiveness of the Plan of Reorganization, are not met. In connection with the commitment letter to fund this additional exit financing, we incurred

46

transaction costs of $22 million which are included in reorganization items on our Consolidated Condensed Statements of Operations.

The DIP Facility contains restrictions on the U.S. Debtors, including limiting their ability to, among other things: (i) incur additional indebtedness; (ii) create or incur liens to secure debt; (iii) lease, transfer or sell assets or use proceeds of permitted asset leases, transfers or sales; (iv) issue capital stock; (v) make investments; and (vi) conduct certain types of business.

Our ability to utilize the DIP Facility is subject to the DIP Order. Subject to the exceptions set forth in the DIP Order, the obligations of the U.S. Debtors under the DIP Facility are an allowed administrative expense claim in each of the loan parties’ Chapter 11 cases, and are collateralized by (i) a perfected first priority lien on, and security interest in, all present and after-acquired property of the U.S. Debtors not subject to a valid, perfected and non-avoidable lien in existence on the Petition Date or to a valid lien in existence on the Petition Date and subsequently perfected (excluding rights in avoidance actions), (ii) a perfected junior lien on, and security interest in, all present and after-acquired property of the U.S. Debtors that is otherwise subject to a valid, perfected and non-avoidable lien in existence on the Petition Date or a valid lien in existence on the Petition Date that is subsequently perfected and (iii) to the extent applicable, a perfected first priority priming lien on, and security interest in, all present and after-acquired property of the U.S. Debtors that is subject to the replacement liens granted pursuant to and under the Cash Collateral Order.

As of September 30, 2007, there was $4.0 billion outstanding under the term loan facility, no borrowings outstanding under the revolving credit facility and $219 million of letters of credit issued against the revolving credit facility.

Repayment of CalGen Secured Debt — On March 29, 2007, we repaid the approximately $2.5 billion outstanding principal amount of CalGen Secured Debt, primarily with borrowings under the DIP Facility term loan facility plus approximately $224 million of cash on hand at CalGen. To effectuate the repayment of the CalGen Secured Debt, the U.S. Debtors requested that the U.S. Bankruptcy Court allow the U.S. Debtors’ limited objection to claims filed by the holders of the CalGen Secured Debt. The U.S. Bankruptcy Court granted the U.S. Debtors’ limited objection in part, finding that the CalGen Secured Debt lenders were not entitled to a secured claim for a pre-payment premium under the CalGen loan documents. However, the U.S. Bankruptcy Court granted the CalGen Secured Debt lenders an unsecured claim for damages. Specifically, the U.S. Bankruptcy Court held that (i) the holders of the CalGen First Lien Debt are entitled to an unsecured claim for damages in the amount of 2.5% of the outstanding principal, (ii) the holders of the CalGen Second Lien Debt are entitled to an unsecured claim for damages in the amount of 3.5% of the outstanding principal, and (iii) the holders of the CalGen Third Lien Debt are entitled to an unsecured claim for damages in the amount of 3.5% of the outstanding principal. As a result of the DIP Order and repayment of CalGen Secured Debt, we recorded expense of $32 million to write off the remaining unamortized discount and deferred financing costs and recorded $76 million as our estimate of the expected allowed claims resulting from the unsecured claims for damages granted to the holders of the CalGen Secured Debt. These expenses are included in reorganization items on our Consolidated Condensed Statements of Operations for the nine months ended September 30, 2007. Both we and the holders of the CalGen Secured Debt have appealed the DIP Order to the SDNY Court. In this appeal, the holders of the CalGen Secured Debt are arguing for larger, secured damages claims and we are arguing that no damages should arise in connection with the repayment of the CalGen Secured Debt. We are seeking permission from the U.S. Bankruptcy Court to amend our Plan of Reorganization to pay the damages, if any, awarded to the holders of the CalGen Secured Debt in full and in cash or cash equivalents in the amount ultimately determined on appeal by a final order, regardless of whether such claims are deemed secured or remain unsecured. The holders of the CalGen Secured Debt are also seeking interest on their claims at the default rate. The U.S. Bankruptcy Court concluded that a decision on default interest was premature. Accordingly, we have not accrued any default interest for the CalGen Secured Debt as of September 30, 2007. Under the CalGen Secured Debt agreements, the lenders could receive additional default interest of 1% on the CalGen Notes and 2% on the CalGen Term Loans from December 21, 2005, through March 29, 2007.

Cash Management — We have received U.S. Bankruptcy Court approval to continue to manage our cash in accordance with our pre-existing intercompany cash management system during the pendency of the Chapter 11 cases. This program allows us to maintain bank and other investment accounts and to continue to manage our cash on an integrated basis through Calpine Corporation. Such cash management systems are subject to the requirements of the DIP Facility, the Cash

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Collateral Order and the 345(b) Waiver Order. Pursuant to the cash management system, and in accordance with our cash collateral requirements in connection with the DIP Facility and relevant U.S. Bankruptcy Court orders, intercompany transfers are generally recorded as intercompany loans. Upon the closing of the DIP Facility, the cash balances of the U.S. Debtors (each of whom is a participant in the cash management system), which had been subject to a lien in favor of the Original DIP Facility lenders, became subject to security interests in favor of the DIP Facility lenders. The DIP Facility provides that all unrestricted cash of the U.S. Debtors and certain other subsidiaries exceeding a $25 million threshold be maintained in a concentration account with one of the DIP Facility agents. In addition, the DIP Facility provides that the DIP Facility agent may elect to require all unrestricted cash of the U.S. Debtors and certain other subsidiaries, including amounts below the $25 million threshold, be maintained in the concentration account.

In addition, during the pendency of our Chapter 11 cases, in lieu of distributions, our U.S. Debtor subsidiaries are permitted under the terms of the Cash Collateral Order to make transfers from their excess cash flow in the form of loans to other U.S. Debtors, notwithstanding the existence of any default or event of default related to our Chapter 11 cases.

Off Balance Sheet Commitments of Unconsolidated Subsidiaries — The following describes the debt on the books of our unconsolidated subsidiaries which is not reflected on our Consolidated Condensed Balance Sheets.

On May 3, 2007, OMEC entered into a $377 million non-recourse project finance facility to finance the construction of the Otay Mesa Energy Center, a 596-MW natural gas-fired power plant under construction in southern San Diego County, California. The project finance facility is structured as a construction loan, converting to a term loan upon commercial operation of the Otay Mesa power plant, and matures in April 2019. Borrowings under the project finance facility are initially priced at LIBOR plus 1.5%.

On May 31, 2007, Greenfield LP entered into a Can$648 million non-recourse project finance facility to finance the construction of the Greenfield Energy Centre, a 1,005-MW natural gas-fired power plant currently under construction in St. Clair Township, Ontario, Canada. Greenfield LP is a limited partnership between certain subsidiaries of ours and of Mitsui & Co., Ltd. We and Mitsui & Co., Ltd. each hold a 50% interest in Greenfield LP. The project finance facility is structured as a construction loan that will convert to an 18-year term loan once the power plant begins commercial operations. Borrowings under the project finance facility are initially priced at LIBOR plus 1.2% or prime rate plus 0.2%.

Cash Flow Activities — The following table summarizes our cash flow activities for the periods indicated (in millions):

	Nine Months Ended September 30,
	2007		2006
Beginning cash and cash equivalents	$	1,077	$	786
Net cash provided by (used in):
Operating activities		93		167
Investing activities		483		(46	)
Financing activities		50		100
Net increase in cash and cash equivalents including discontinued operations cash		626		221
Change in discontinued operations cash classified as assets held for sale		—		(18	)
Net increase in cash and cash equivalents		626		203
Ending cash and cash equivalents	$	1,703	$	989

Cash flows from operating activities for the nine months ended September 30, 2007, resulted in net inflows of $93 million compared to net inflows of $167 million in the same period in 2006. This decrease in net inflows was primarily due to a $154 million increase in cash paid for interest resulting from the payment of additional adequate protection payments on our Second Priority Debt during 2007. The increase in interest payments was partially offset by an increase in income from operations for the nine months ended September 30, 2007, as compared to the same period in 2006. See “— Results of Operations for the Nine Months Ended September 30, 2007” for a discussion of changes in the components of our income from operations and interest expense period over period.

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Cash flows from investing activities for the nine months ended September 30, 2007, resulted in net inflows of $483 million, as compared to net outflows of $46 million for the same period in 2006, an increase of $529 million. The increase in cash flows from investing activities was largely the result of proceeds from asset sales in 2007 of $507 million compared to $38 million 2006. Asset sales in 2007 included PSM, the Aries Power Plant, the Goldendale Energy Center, the Parlin Power Plant and our 50% ownership interest in Acadia PP. Also contributing to the increase in cash flows from investing activities for the nine months ended September 30, 2007, was a total return of investment of $179 million in Greenfield LP and the Canadian Debtors. The net inflows during 2007 were partially offset by a $385 million decrease in the net reduction of restricted cash to $57 million for the nine months ended September 30, 2007, from $442 million for the same period in 2006. The decrease in restricted cash during the nine months ended September 30, 2006, was primarily due to the repayment of the First Priority Notes. The increase in cash and cash equivalents resulting from the decrease in restricted cash during 2006 was partially offset by outflows of $267 million for the purchase of the Geysers Assets.

Cash flows from financing activities for the nine months ended September 30, 2007, resulted in net inflows of $50 million, as compared to net inflows of $100 million for the same period in 2006. This decrease in net inflows is primarily due to a reduction in our net borrowings of $29 million and an increase in our financing costs of $47 million during the nine months ended September 30, 2007, as compared to the same period in 2006. The increase in our financing costs is due to an $18 million increase in costs related to our DIP Facility, $22 million in transaction costs during 2007 related to the execution of a commitment letter to fund our additional exit financing and an increase of $6 million in project financing costs.

Negative Working Capital — At September 30, 2007, we had negative working capital of $2.3 billion which is primarily due to the classification of $4.0 billion of borrowings under the DIP Facility as current because we expect the effective date of our Plan of Reorganization will be within the next twelve months. Additionally, defaults under certain of our indentures and other financing instruments required us to record approximately $677 million of debt as current that otherwise would have been recorded as non-current. Generally, we are seeking waivers or other resolutions with respect to the defaults in the case of Non-Debtor entities. With respect to the Calpine Debtor entities, such obligations may have been accelerated due to such defaults, but generally, all actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date are stayed in accordance with the Bankruptcy Code or orders of the Canadian Court, as applicable, while the Calpine Debtors continue their business operations as debtors-in-possession. See Note 7 of the Notes to Consolidated Condensed Financial Statements for further discussion of our debt, lease and indenture covenant compliance.

Letter of Credit Facilities — At September 30, 2007, and December 31, 2006, we had $369 million and $264 million, respectively, in letters of credit outstanding under various credit facilities to support our risk management and other operational and construction activities.

Commodity Margin Deposits and Other Credit Support — As of September 30, 2007, and December 31, 2006, to support commodity transactions, we had margin deposits with third parties of $249 million and $214 million, respectively; we had gas and power prepayment balances of $86 million and $114 million, respectively; and had letters of credit outstanding of $35 million and $2 million, respectively, which are included in the letter of credit facilities discussed above. Counterparties had margin deposits with us of $41 million and nil at September 30, 2007, and December 31, 2006, respectively. In addition, we have granted additional first priority liens on the assets currently subject to first priority liens under the DIP Facility as collateral under certain of our power agreements, natural gas agreements and interest rate swap agreements that qualify as “eligible commodity hedge agreements” under the DIP Facility in order to reduce the cash collateral and letters of credit that we would otherwise be required to provide to the counterparties under such agreements. The counterparties under such agreements will share the benefits of the collateral subject to such first priority liens ratably with the lenders under the DIP Facility. As of September 30, 2007, and December 31, 2006, our net discounted exposure under the power and natural gas agreements collateralized by such first priority liens was approximately $4 million and nil, respectively, and our net discounted exposure under the interest rate swap agreements collateralized by such first priority liens was approximately $51 million and nil, respectively.

We use margin deposits, first priority liens (as described above), prepayments and letters of credit as credit support for commodity procurement and risk management activities. Future cash collateral and first priority lien requirements may increase based on the extent of our involvement in standard contracts and movements in commodity prices and also based on

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our credit ratings and general perception of creditworthiness in this market. While we believe that we have adequate liquidity to support our operations at this time, it is difficult to predict future developments and the amount of credit support that we may need to provide as part of our business operations.

Asset Sales — A significant component of our restructuring activities has been to conserve our core strategic assets and selectively dispose of certain less strategically important assets. Since the Petition Date, pursuant to the Cash Collateral Order, we agreed that we would limit the amount of funds available to support the operations of 14 designated projects. These designated projects were: Acadia Energy Center, Aries Power Plant, Clear Lake Power Plant, Dighton Power Plant, Fox Energy Center, Pryor Power Plant, Newark Power Plant, Parlin Power Plant, Pine Bluff Energy Center, Hog Bayou Energy Center, Rumford Power Plant, Santa Rosa Energy Center, Texas City Power Plant and Tiverton Power Plant. In accordance with the Cash Collateral Order, it is possible that additional power plants will be added (or certain of the listed plants may be removed) as designated projects. As of the filing of this Report, five of the 14 designated projects have been sold (Acadia, Aries, Dighton, Fox and Parlin), two (Rumford and Tiverton) have been turned over to a receiver appointed by the SDNY Court following our rejection of the related power plant leases and surrender of the facilities and, at five of the projects (Texas City, Clear Lake, Pine Bluff, Hog Bayou and Santa Rosa), we have restructured agreements or reconfigured equipment such that continued operation of the facilities is merited, although eventual sale remains a possibility. As a result of these actions, each of Aries Power Plant, Clear Lake Power Plant, Dighton Power Plant, Fox Energy Center, Rumford Power Plant, Texas City Power Plant and Tiverton Power Plant were removed from the list of designated projects. We have not yet determined what actions we will take with respect to other designated projects; however, it is possible that we could seek to sell our interests in those facilities or, as applicable, reject the related leases.

During the nine months ended September 30, 2007, and through the filing of this Report, we have taken the following actions with respect to sales of our designated projects:

· On January 16, 2007, we completed the sale of the Aries Power Plant, a 590-MW natural gas-fired power plant in Pleasant Hill, Missouri, to Dogwood Energy LLC, an affiliate of Kelson Holdings, LLC for $234 million, plus certain per diem expenses incurred by us for running the power plant after December 21, 2006, through the closing of the sale. We recorded a pre-tax gain of approximately $78 million during the first quarter of 2007. As part of the sale we were also required to use a portion of the proceeds received to repay approximately $159 million principal amount of financing obligations, $8 million in accrued interest, $11 million in accrued swap liabilities and $14 million in debt pre-payment and make whole premium fees to our project lenders.

· On July 6, 2007, we completed the sale of the Parlin Power Plant, a 118-MW natural gas-fired power plant in Parlin, New Jersey, to EFS Parlin Holdings, LLC, an affiliate of General Electric Capital Corporation, for approximately $3 million in cash, plus the assumption by EFS Parlin Holdings, LLC of certain liabilities and the agreement to waive certain asserted claims against the Parlin Power Plant. We recorded a pre-tax gain of approximately $40 million during the three months ended September 30, 2007.

· On September 13, 2007, we completed the sale of our 50% ownership interest in Acadia PP, the owner of the Acadia Energy Center, a 1,212-MW natural gas-fired power plant located near Eunice, Louisiana, to Cajun Gas Energy, L.L.C. for consideration totaling approximately $189 million consisting of $104 million in cash and the payment of $85 million in priority distributions due to Cleco (the indirect owner, through its subsidiary APH, of the remaining 50% ownership interest in Acadia PP) in accordance with the limited liability company agreement, plus the assumption by Cajun Gas Energy, L.L.C. of certain liabilities. We recorded a pre-tax loss of $6 million during the three months ended September 30, 2007, after having recorded a pre-tax, predominately non-cash impairment charge of approximately $89 million during the second quarter of 2007, to record our interest in Acadia PP at fair value less cost to sell, both of which charges are included in reorganization items on our Consolidated Condensed Statements of Operations. Additionally, in connection with the sale, we entered into a settlement agreement with Cleco, which was approved by the U.S. Bankruptcy Court on May 9, 2007, under which Cleco received an allowed unsecured claim against us in the amount of $85 million as a result of the

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rejection by CES of two long-term PPAs for the output of the Acadia Energy Center and our guarantee of those agreements. We recorded expense of $85 million for this allowed claim during the second quarter of 2007, which is included in reorganization items on our Consolidated Condensed Statements of Operations. 

In addition to the sales of our designated projects, the following asset sale activities have also taken place during the nine months ended September 30, 2007, and through the filing of this Report:

· On February 21, 2007, we completed the sale of substantially all of the assets of the Goldendale Energy Center, a 247-MW natural gas-fired power plant located in Goldendale, Washington, to Puget Sound Energy LLC for approximately $120 million, plus the assumption by Puget Sound of certain liabilities. We recorded a pre-tax gain of approximately $31 million during the first quarter of 2007.

· On March 22, 2007, we completed the sale of substantially all of the assets of PSM, a designer, manufacturer and marketer of turbine and combustion components, to Alstom Power Inc. for approximately $242 million, plus the assumption by Alstom Power Inc. of certain liabilities. In connection with the sale, we entered into a parts supply and development agreement with PSM whereby we have committed to purchase turbine parts and other services totaling approximately $200 million over a five-year period. Additionally, we recorded a pre-tax gain of $135 million during the first quarter of 2007 as the risks and other incidents of ownership were transferred to Alstom Power Inc.

Chapter 11 Claims Assessment — Our Consolidated Condensed Financial Statements include, as liabilities subject to compromise, certain pre-petition liabilities recorded on our Consolidated Condensed Balance Sheet as of the Petition Date and subsequent estimates of expected allowed claims relating to rejected and repudiated contracts, guarantees, litigation, accounts payable and accrued liabilities, debt and other liabilities. We expect that our estimates, although based on the best available information, will change due to actions of the U.S. Bankruptcy Court, negotiations, rejection or repudiation of executory contracts and unexpired leases, and the determination as to the value of any collateral securing claims, proofs of claim or other events.

The following table summarizes the claims in our Chapter 11 cases as of September 30, 2007:

			Total Claims
	Total Number		Exposure
	Of Claims		(in millions)
Total claims filed		18,467	$	111,740
Less:
Disallowed and expunged claims				72,159
Withdrawn claims				8,127
Redundant claims				1,049
Other claims with basis for objection or reduction				18,888
Total estimate of liquidated claims exposure			$	11,517
Amounts recorded as liabilities not subject to compromise				184
Total estimate of liquidated claims exposure (net of amounts not subject to compromise)			$	11,333

Of the approximately $11.5 billion of filed and scheduled liquidated claims, we have recorded approximately $184 million as liabilities not subject to compromise and approximately $11.7 billion as LSTC on our Consolidated Condensed Balance Sheet as of September 30, 2007. The difference between the total estimated liquidated claims exposure (net of amounts not subject to compromise) and LSTC is approximately $334 million and primarily relates to claims in process of reconcilement, claims for unliquidated amounts and scheduled amounts where no claims have been filed.

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During the nine months ended September 30, 2007, and through the filing of this Report, we have settled the following significant claims:

· On July 30, 2007, we entered into the Canadian Settlement Agreement after the Bankruptcy Courts approved the terms of our two previously disclosed proposed settlements with the Canadian Debtors and with an ad hoc committee of holders of notes issued by our subsidiary ULC I and guaranteed by Calpine Corporation. The Canadian Settlement Agreement, which encompasses both proposed settlements, resolves virtually all major cross-border issues among the parties relating to pre-petition intercompany balances, our direct and indirect guarantees of the ULC I notes and our guarantee of the ULC II notes and related interest. The material contingencies within the Canadian Settlement Agreement were resolved by September 30, 2007. As a result, the provision for expected allowed claims in reorganization items was reduced by approximately $4.1 billion and interest expense was increased by approximately $0.3 billion on our Consolidated Condensed Statements of Operations during the three months ended September 30, 2007.

· On August 8, 2007, the U.S. Bankruptcy Court approved a settlement with the Ad Hoc Committee of Second Lien Holders of Calpine Corporation and Wilmington Trust Company as indenture trustee for the Second Priority Notes. Pursuant to the settlement, approximately $289 million of claims for make whole premiums and/or damages asserted against the U.S. Debtors by the holders of the Second Priority Debt will be replaced by a secured claim for $60 million that shall be paid in cash and an unsecured claim for $40 million. As a result, we recorded expense of $100 million to the provision for expected allowed claims in reorganization items on our Consolidated Condensed Statements of Operations during the three months ended September 30, 2007.

· On August 10, 2007, the U.S. Bankruptcy Court approved our limited objection to certain claims asserted by holders of the Convertible Notes, disallowing claims seeking damages for alleged breach of “conversion rights.” The U.S. Bankruptcy Court’s decision does not affect a previous agreement to allow claims for repayment of principal and interest on the Convertible Notes.

· On October 10, 2007, the U.S. Bankruptcy Court approved the settlement agreement with the Unsecured Noteholders and the indenture trustee for such Unsecured Notes. Under the agreement, $109 million of claims for make whole premiums asserted against the U.S. Debtors were replaced with unsecured claims totaling $54 million. In addition, the U.S. Debtors have agreed to pay the reasonable professional fees incurred by the Unsecured Noteholders and the indenture trustee. As a result, we recorded expense of $54 million to the provision for expected allowed claims in reorganization items on our Consolidated Condensed Statements of Operations during the three months ended September 30, 2007.

Debt, Lease and Indenture Covenant Compliance — See Note 7 of the Notes to Consolidated Condensed Financial Statements for compliance information.

Special Purpose Subsidiaries — Pursuant to applicable transaction agreements, we have established certain of our entities separate from Calpine and our other subsidiaries. In accordance with applicable accounting standards, we consolidate these entities. As of the date of filing this Report, these entities included: Rocky Mountain Energy Center, LLC, Riverside Energy Center, LLC, Calpine Riverside Holdings, LLC, PCF, PCF III, Gilroy Energy Center, LLC, Calpine Gilroy Cogen, L.P., Calpine Gilroy 1, Inc., King City Cogen, Calpine Securities Company, L.P. (a parent company of King City Cogen), Calpine King City, LLC (an indirect parent company of Calpine Securities Company, L.P.), Calpine Deer Park Partner, LLC, Calpine DP, LLC, Deer Park, CCFCP, Metcalf and Russell City Energy Company, LLC.

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Recent Regulatory Developments

Since the filing of our 2006 Form 10-K, the following significant regulatory developments have occurred:

U.S. Supreme Court Case Regarding Regulation of GHG

On April 2, 2007, the U.S. Supreme Court issued a decision in Commonwealth of Massachusetts v. EPA, finding in favor of the Commonwealth of Massachusetts that the CAA requires the EPA to regulate GHG from new motor vehicles once the EPA concludes that such emissions contribute to climate change. In doing so, the U.S. Supreme Court reversed the lower court’s ruling and remanded the case for further proceedings. We had submitted an amicus curiae brief in support of the position of the Commonwealth of Massachusetts, arguing that the U.S. Supreme Court’s ruling would effectively determine the EPA’s authority to regulate air pollution associated with climate change from all sources, including power plants. We do not know at this time what further action the lower court or the EPA will take in response to the U.S. Supreme Court’s ruling, or how it may ultimately affect us or our industry. Our general position with respect to these laws attempts to take advantage of our relatively clean portfolio of power plants as compared to our competitors.

NERC Compliance Requirements

Pursuant to the Energy Policy Act of 2005, FERC certified NERC as the ERO to develop mandatory and enforceable electric system reliability standards applicable throughout the U.S., which are subject to FERC review and approval. Once approved, the reliability standards may be enforced by FERC independently, or, alternatively, by the ERO and regional reliability organizations with frontline responsibility for auditing, investigating and otherwise ensuring compliance with reliability standards, subject to FERC oversight. In March 2007, FERC approved 83 reliability standards that became enforceable as of June 18, 2007, and additional ones are pending finalization. All owners, operators, and users of the bulk electric system, including us, are required to comply. Monetary penalties of up to $1 million per day per violation may be assessed for violations of the reliability standards. We have submitted to the regional reliability organizations self-reports of potential violations of an administrative nature that existed prior to the June 18, 2007, mandatory effective date, and NERC has stated that such pre-existing violations would not be subject to penalties as long as mitigation plans are in place to remedy those violations. We have submitted mitigation plans with all regional reliability organizations in which we operate outlining our plan to achieve full compliance before the end of 2007. We will continue to use best efforts to comply with all applicable reliability standards, but because this regulatory program is new, there is no precedent for how the reliability standards and enforcement regime may affect us or our assets.

Financial Market Risks

As we are primarily focused on the generation of electricity using gas-fired turbines, our natural physical commodity position is “short” fuel (i.e., natural gas consumer) and “long” power (i.e., electricity seller). To manage forward exposure to price fluctuation in these and (to a lesser extent) other commodities, we enter into derivative commodity instruments.

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The change in fair value of outstanding commodity derivative instruments from January 1, 2007, through September 30, 2007, is summarized in the table below (in millions):

Fair value of commodity contracts outstanding at January 1, 2007	$	(202	)
(Gains) losses recognized or otherwise settled during the period(1)		81
Fair value attributable to new contracts		(75	)
Changes in fair value attributable to price movements		26
Fair value of commodity contracts outstanding at September 30, 2007(2)	$	(170	)

____________

(1)   Recognized gains from commodity cash flow hedges of $5 million (represents a portion of the realized value of cash flow hedge activity of $7 million as disclosed in Note 8 of the Notes to Consolidated Condensed Financial Statements) net of losses related to the terminated fair value hedged item of $54 million (represents a portion of sales of purchased power as reported on our Consolidated Condensed Statements of Operations) and losses related to undesignated derivatives of $32 million (represents a portion of the realized mark-to-market activities, net as reported on our Consolidated Condensed Statements of Operations).

(2)   Net commodity derivative liabilities reported in Note 8 of the Notes to Consolidated Condensed Financial Statements.

Of our total mark-to-market gain of $2 million and $5 million for the three and nine months ended September 30, 2007, we had unrealized losses of $(8) million and $(16) million, respectively, and we had realized gains of $10 million and $21 million, respectively. The realized portion included non-cash gains of approximately $22 million and $43 million from amortization of various items for the three and nine months ended September 30, 2007, respectively.

The fair value of outstanding derivative commodity instruments at September 30, 2007, based on price source and the period during which the instruments will mature, are summarized in the table below (in millions):

Fair Value Source	2007			2008-2009			2010-2011			After 2011			Total
Prices actively quoted	$	(39	)	$	12		$	—		$	(10	)	$	(37	)
Prices provided by other external sources		21			(62	)		(92	)		—			(133	)
Total fair value	$	(18	)	$	(50	)	$	(92	)	$	(10	)	$	(170	)

Our risk managers maintain fair value price information derived from various sources in our risk management systems. The propriety of that information is validated by our risk control group. Prices actively quoted include those sourced from commodities exchanges (e.g., New York Mercantile Exchange). Prices provided by other external sources include quotes from commodity brokers and electronic trading platforms.

The counterparty credit quality associated with the fair value of outstanding derivative commodity instruments at September 30, 2007, and the period during which the instruments will mature are summarized in the table below (in millions):

Credit Quality
(Based on Standard & Poor’s Ratings
as of September 30, 2007)	2007			2008-2009			2010-2011			After 2011				Total
Investment grade	$	14		$	328		$	(54	)		$	(10	)	$	278
Non-investment grade		(2	)		(2	)		—				—			(4	)
No external ratings		(30	)		(376	)		(38	)			—			(444	)
Total fair value	$	(18	)	$	(50	)	$	(92	)		$	(10	)	$	(170	)

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The fair value of outstanding derivative commodity instruments and the fair value that would be expected after a ten percent adverse price change are shown in the table below (in millions):

				Fair Value
				After
				10% Adverse
	Fair Value			Price Change
At September 30, 2007:
Electricity	$	(36	)	$	(288	)
Natural gas		(134	)		(299	)
Total	$	(170	)	$	(587	)

Derivative commodity instruments included in the table are those included in Note 8 of the Notes to Consolidated Condensed Financial Statements. The fair value of derivative commodity instruments included in the table is based on present value-adjusted quoted market prices of comparable contracts. The fair value of electricity derivative commodity instruments after a ten percent adverse price change includes the effect of increased power prices versus our derivative forward commitments. Conversely, the fair value of the natural gas derivatives after a ten percent adverse price change reflects a general decline in gas prices versus our derivative forward commitments. Derivative commodity instruments offset the price risk exposure of our physical assets. None of the offsetting physical positions are included in the table above.

Price changes were calculated by assuming an across-the-board ten percent adverse price change regardless of term or historical relationship between the contract price of an instrument and the underlying commodity price. In the event of an actual ten percent change in prices, the fair value of our derivative portfolio would typically change by more than ten percent for earlier forward months and less than ten percent for later forward months because of the higher volatilities in the near term and the effects of discounting expected future cash flows.

Interest Rate Risk — We are exposed to interest rate risk related to our variable rate debt. Interest rate risk represents the potential loss in earnings arising from adverse changes in market interest rates. Our variable rate financings are indexed to base rates, generally LIBOR. Significant LIBOR increases could have a negative impact on our future interest expense.

Our fixed-rate debt instruments do not expose us to the risk of loss in earnings due to changes in market interest rates. In general, such a change in fair value would impact earnings and cash flows only if we were to reacquire all or a portion of the fixed rate debt in the open market prior to their maturity.

Our risk management policy allows us to enter into a variety of derivative instruments to mitigate our exposure to interest rate fluctuations. Currently, we use interest rate swaps to adjust the mix between fixed and floating rate debt to hedge interest rates. We do not use interest rate derivative instruments for speculative or trading purposes. Our interest rate swaps are cash flow hedges and changes in fair value are recorded in OCI to the extent they are effective.

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The following table summarizes the expected maturity of the carrying amounts, weighted average interest rates and fair values for our debt obligations as well as the notional amounts, weighted average interest rates and fair values for our interest rate swaps. The notional amounts of our interest rate swaps are used to calculate the cash flows to be exchanged under the swap agreements. The information presented is as of September 30, 2007 (dollars in millions).

																					Fair Value
																					September 30,
	2007			2008			2009			2010			2011			Thereafter			Total		2007
Debt:
Fixed rate	$	15		$	206		$	218		$	253		$	125		$	820		$	1,637	$	1,608
Average interest rate		9.5	%		6.9	%		7.1	%		7.7	%		9.0	%		9.4	%
Variable rate	$	13		$	3,991		$	382		$	272		$	1,697		$	46		$	6,401	$	6,396
Average interest rate		7.5	%		7.3	%		11.0	%		11.5	%		10.6	%		10.8	%
Interest Rate Instruments:
Variable to fixed swaps(1)	$	5,892		$	5,892		$	5,592		$	3,411		$	1,811		$	1,580			n/a	$	(55	)
Average pay rate		5.0	%		5.0	%		5.0	%		5.2	%		4.9	%		4.9	%
Average receive rate		5.2	%		4.9	%		4.7	%		4.7	%		4.8	%		4.9	%

__________

(1)   Includes interest rate swaps where forecasted issuance of variable rate debt is deemed probable.

Recent Accounting Pronouncements

See Note 1 of the Notes to Consolidated Condensed Financial Statements for a discussion of recent accounting pronouncements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

See “Financial Market Risks” in Item 2.

Item 4.  Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure.

As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date of this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. Management believes that the financial statements included in this Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented. The certificates required by this Item are filed as Exhibits 31.1 and 31.2 to this Report.

56

Substantive Consolidation

As disclosed in our Disclosure Statement filed with the U.S. Bankruptcy Court, our Plan of Reorganization contemplates substantive consolidation of the estates of Calpine and its U.S. Debtor subsidiaries. In bankruptcy cases with affiliated debtors, a bankruptcy court may exercise its equitable powers to authorize the “substantive consolidation” of the estates of affiliated debtors for purposes of the plan of reorganization. Substantive consolidation involves the pooling of assets and liabilities of the affected debtors to effectively treat them as single corporate entity. The determination to substantively consolidate, in this circumstance, depends in part on whether the affairs of the debtors are so entangled that the consolidation will benefit all creditors. After arduous due diligence performed by counsel and financial advisors it was our view that certain of the controls over intercompany accounting, controls that help ensure that intercompany transactions are recorded accurately and can be reconciled, were not operating effectively. Due to the ineffectiveness of certain of the controls over intercompany transactions, we relied on the following compensating controls, which operated at a level of precision that would prevent or detect a misstatement that could be material to the Company:

· The Company’s procedures require all intercompany transactions to be recorded in standardized “affiliate” accounts which are for the exclusive use of recording intercompany transactions, and the balances in such accounts are properly eliminated in consolidation. To ensure that intercompany balances have properly eliminated, “Intercompany Out-of-Balance” reports are run daily during the monthly closing process and distributed to all accountants at the Company to identify and correct any out-of-balance occurrences in each affiliate account.

· To provide reasonable assurance that no intercompany transactions have inadvertently been recorded in accounts set aside for transactions with third parties, the Company performs an analysis of each account with third party balances during the quarterly closing process. These analyses are reviewed by the Company’s accounting management.

In addition to the recurring compensating controls above, subsequent to the Company’s bankruptcy filing, the Company undertook an initiative to review its consolidation process to ensure that all intercompany related transactions eliminated upon consolidation. This review included all intercompany and investment-in-affiliate accounts. Based on this review, the Company’s management team was satisfied that all intercompany account balances are eliminated upon consolidation.

In the implementation of the compensating or mitigating controls, we took into account whether the controls adequately address the risks that a material misstatement of the consolidated financial statements would be prevented or detected in a timely manner. As stated above we concluded that our disclosure controls and procedures were operating at the reasonably effective level. By reasonable assurance we mean a level of detail and degree of assurance that would satisfy a prudent official in the conduct of their own affairs.

Changes in Internal Controls Over Financial Reporting

During the third quarter of 2007, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Calpine have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some

57

persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

58

PART II — OTHER INFORMATION

Item 1.  Legal Proceedings.

See Note 10 of the Notes to Consolidated Condensed Financial Statements for a description of our legal proceedings.

Item 3.  Defaults Upon Senior Securities.

See Note 7 of the Notes to Consolidated Condensed Financial Statements for a description of defaults under our indebtedness.

See also Note 2 of the Notes to Consolidated Condensed Financial Statements for our liabilities subject to compromise, which sets forth the amounts of our indebtedness classified as LSTC. We are no longer paying current interest on any LSTC other than pursuant to applicable U.S. Bankruptcy Court orders. In particular, pursuant to orders of the U.S. Bankruptcy Court, we will make adequate protection payments on the Second Priority Debt through December 31, 2007. Those orders provide that the Second Priority Debt must seek further orders from the U.S. Bankruptcy Court for any further amounts to be paid thereafter. We have not yet made a determination as to whether any portion of the adequate protection payments represents payment of principal and have, therefore, reported the full amount of the adequate protection payments as interest expense on our Consolidated Condensed Statements of Operations. We continue to make current payments of interest and, if applicable, principal on all debt of Non-U.S. Debtor entities, including debt under which there are defaults.

Item 5.  Other Information.

Modifications of Robert P. May Employment Agreements.  On October 10, 2007, the U. S. Bankruptcy Court approved the amendment of Mr. May’s Employment Agreement to extend the term of the Employment Agreement from December 31, 2007 to June 30, 2008. The amendment also provides that if we and Mr. May are unable to negotiate, prior to the end of the term, a new employment arrangement to take effect no later than July 1, 2008, then Mr. May’s employment shall terminate on June 30, 2008, and (a) subject to his providing a release in accordance with the Employment Agreement, Mr. May shall be entitled to receive certain severance benefits described in the Employment Agreement as if his employment had been terminated by us without Cause on June 30, 2008, and (b) if such termination is prior to the date on which the Success Fee is earned and paid pursuant to the Employment Agreement, Mr. May shall be eligible to earn the Success Fee or the Guaranteed Minimum Success Fee in accordance with the provisions of the Employment Agreement, as if his employment had been terminated by us without Cause on June 30, 2008.

Emergence Incentive Plan.  Under our Emergence Incentive Plan, a select group of members of our senior management team, including certain of our executive officers, are eligible for a cash bonus upon our emergence from Chapter 11 to be allocated at the sole discretion of our Chief Executive Officer, Mr. Robert May. At this time, the amount of the emergence bonus is unknown; however, Mr. May has established certain minimum percentage participation allocations for certain participants in the Emergence Incentive Plan. Pursuant to such allocations, Mr. Gregory Doody, a participant in the Emergence Incentive Plan and one of our Named Executive Officers, will receive a minimum of 16% of the Emergence Incentive Plan pool.

Corporate Aircraft Policy.  We arrange for private aircraft to be available for business use by our directors and certain of our Named Executive Officers through a flexjet program. Our general policy, established in August 2007 and made effective as of May 29, 2007, is not to permit any personal use of such aircraft; however, our guidelines permit non-business related flights on a case-by-case basis for charitable causes, emergency family matters (death, illness, etc.), community service, and disaster relief. In addition, the aircraft may be approved for use for commuting to or from business meetings or our principal offices. Although we consider the costs associated with providing private aircraft a necessary business expense rather than a perquisite, we will disclose amounts attributable to personal use of the aircraft by our directors and Named Executive Officers in accordance with SEC guidelines.

59

Item 6.  Exhibits.

The following exhibits are filed herewith unless otherwise indicated:

EXHIBIT INDEX

Exhibit
Number	Description
2.1	Debtors’ Fourth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code.*
3.1.1	Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2006, filed with the SEC on March 14, 2007).
3.2	Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, filed with the SEC on March 29, 2002).
10.1	Settlement Agreement dated as of July 24, 2007, by and between Calpine Corporation, on behalf of itself and its U.S. subsidiaries, Calpine Canada Energy Ltd., Calpine Canada Power Ltd., Calpine Canada Energy Finance ULC, Calpine Energy Services Canada Ltd., Calpine Canada Resources Company, Calpine Canada Power Services Ltd., Calpine Canada Energy Finance II ULC, Calpine Natural Gas Services Limited, 3094479 Nova Scotia Company, Calpine Energy Services Canada Partnership, Calpine Canada Natural Gas Partnership, Calpine Canadian Saltend Limited Partnership and HSBC Bank USA, National Association, as successor indenture trustee (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 3, 2007).
10.2	Amendment, dated October 10, 2007, to Employment Agreement between the Company and Robert P. May.*†
10.3	Employment Separation Agreement dated August 31, 2007, between the Company and Eric N. Pryor.*†
10.4	Letter dated September 20, 2007, from the Company to Gregory Doody.*†
10.5	Aircraft Travel Card Guidelines.*†
31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

____________

* Filed herewith.

† Management contract or compensatory plan or arrangement.

60

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

CALPINE CORPORATION

	By:	/s/  LISA DONAHUE
		Lisa Donahue
		Senior Vice President and
		Chief Financial Officer
Date:  November 6, 2007

	By:	/s/  CHARLES B. CLARK, JR.
		Charles B. Clark, Jr.
		Senior Vice President and
		Chief Accounting Officer
Date:  November 6, 2007

61

The following exhibits are filed herewith unless otherwise indicated:

EXHIBIT INDEX

Exhibit
Number	Description
2.1	Debtors’ Fourth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code.*
3.1.1	Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2006, filed with the SEC on March 14, 2007).
3.2	Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, filed with the SEC on March 29, 2002).
10.1	Settlement Agreement dated as of July 24, 2007, by and between Calpine Corporation, on behalf of itself and its U.S. subsidiaries, Calpine Canada Energy Ltd., Calpine Canada Power Ltd., Calpine Canada Energy Finance ULC, Calpine Energy Services Canada Ltd., Calpine Canada Resources Company, Calpine Canada Power Services Ltd., Calpine Canada Energy Finance II ULC, Calpine Natural Gas Services Limited, 3094479 Nova Scotia Company, Calpine Energy Services Canada Partnership, Calpine Canada Natural Gas Partnership, Calpine Canadian Saltend Limited Partnership and HSBC Bank USA, National Association, as successor indenture trustee (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 3, 2007).
10.2	Amendment, dated October 10, 2007, to Employment Agreement between the Company and Robert P. May.*†
10.3	Employment Separation Agreement dated August 31, 2007, between the Company and Eric N. Pryor.*†
10.4	Letter dated September 20, 2007, from the Company to Gregory Doody.*†
10.5	Aircraft Travel Card Guidelines.*†
31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

____________

* Filed herewith.

† Management contract or compensatory plan or arrangement.

62

EX-2.1

EXHIBIT 2.1

KIRKLAND & ELLIS LLP

Citigroup Center

153 East 53^rd Street

New York, NY  10022-4611

Telephone:  (212) 446-4800

Facsimile:  (212) 446-4900

Richard M. Cieri (RC 6062)

Marc Kieselstein (admitted pro hac vice)

David R. Seligman (admitted pro hac vice)

Edward O. Sassower (ES 5823)

James J. Mazza, Jr. (admitted pro hac vice)

Chad J. Husnick (admitted pro hac vice)

Counsel for the Debtors and Debtors in Possession

UNITED STATES BANKRUPTCY COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

	)
IN RE:	)	CHAPTER 11
	)
CALPINE CORPORATION, ET AL.,	)	CASE NO. 05-60200 (BRL)
	)	JOINTLY ADMINISTERED
DEBTORS.	)
	)

DEBTORS’ FOURTH AMENDED JOINT PLAN OF REORGANIZATION

PURSUANT TO CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE

Dated:  September 27, 2007

TABLE OF CONTENTS

Page

INTRODUCTION			1
ARTICLE I. DEFINED TERMS, RULES OF INTERPRETATION,
	COMPUTATION OF TIME, AND GOVERNING LAW		1
	A.	Defined Terms	1
	B.	Rules of Interpretation and Computation of Time	25
	C.	Reference to Monetary Figures	26
	D.	Reference to the Debtors or Reorganized Debtors	26
ARTICLE II. ADMINISTRATIVE AND PRIORITY CLAIMS			26
	A.	DIP Facility claims	26
	B.	Administrative Claims	26
	C.	Priority Tax Claims	26
ARTICLE III. CLASSIFICATION AND TREATMENT OF CLAIMS AND
	INTERESTS		26
	A.	Classification of Claims and Interests	26
	B.	Treatment of Classes of Claims and Interests	28
	C.	Class Voting Rights	35
	D.	Acceptance or Rejection of the Plan	36
ARTICLE IV. PROVISIONS FOR IMPLEMENTATION OF THE PLAN			37
	A.	Substantive Consolidation	37
	B.	Sources of Consideration for Plan Distributions	37
	C.	Corporate Existence	38
	D.	Vesting of Assets in the Reorganized Debtors	39
	E.	Cancellation of Debt and Equity Securities and Related Obligations	39
	F.	Restructuring Transactions	40
	G.	Post-Confirmation Property Sales	40
	H.	Corporate Action	40
	I.	Certificate of Incorporation and Bylaws	40
	J.	Effectuating Documents, Further Transactions	41
	K.	Exemption from Certain Transfer Taxes and Recording Fees	41
	L.	Directors and Officers of Reorganized Calpine	42
	M.	Directors and Officers of Reorganized Debtors Other Than Calpine	42
	N.	Employee and Retiree Benefits	42
	O.	Management and Director Equity Incentive Plan	43
	P.	Creation of Professional Fee Escrow Account	43
	Q.	Preservation of Rights of Action	43
ARTICLE V. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED
	LEASES		44
	A.	Assumption and Rejection of Executory Contracts and Unexpired Leases	44

i

TABLE OF CONTENTS (cont'd)

	B.	Cure of Defaults for Assumed Executory Contracts and Unexpired Leases	46
	C.	Executory Contracts and Unexpired Leases Relating to Projects to be Sold
		or Surrendered	47
	D.	Preexisting Obligations to the Debtors Under Executory Contracts and
		Unexpired Leases	47
	E.	Claims Based on Rejection or Repudiation of Executory Contracts and
		Unexpired Leases	47
	F.	Intercompany Contracts, Contracts, and Leases Entered Into After the
		Petition Date	47
	G.	Guarantees Issued or Reinstated After the Petition Date	47
	H.	Modification of Executory Contracts and Unexpired Leases Containing
		Equity Owner ship Restrictions	48
	I.	Modifications, Amendments, Supplements, Restatements, or Other
		Agreements	48
	J.	Reservation of Rights	48
	K.	Nonoccurrence of Effective Date	48
ARTICLE VI. PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND
	INTERESTS		48
	A.	Allowance of Claims and Interests	48
	B.	Claims and Interests Administration Responsibilities	49
	C.	Estimation of Claims and Interests	49
	D.	Adjustment to Claims Without Objections	49
	E.	Time to File Objections to Claims	49
	F.	Disallowance of Claims or Interests	49
	G.	Offer of Judgment	50
	H.	Amendments to Claims	50
ARTICLE VII. PROVISIONS GOVERNING DISTRIBUTIONS			50
	A.	Total Enterprise Value for Purposes of Distributions Under the Plan and
		the New Calpine Stock Reserve	50
	B.	Distributions on Account of Claims and Interests Allowed as of the
		Effective Date	51
	C.	Distributions on Account of Claims and Interests Allowed After the
		Effective Date	51
	D.	Delivery of Distributions	53
	E.	Claims Paid or Payable by Third Parties	57
	F.	Treatment of Interests	57
ARTICLE VIII. EFFECT OF CONFIRMATION OF THE PLAN			58
	A.	Discharge of Claims and Termination of Interests	58
	B.	Subordinated Claims	58
	C.	Compromise and Settlement of Claims and Controversies	58
	D.	Releases by the Debtors	59
	E.	Exculpation	59
	F.	Releases by Holders of Claims and Interests	60
	G.	Injunction	60

ii

TABLE OF CONTENTS (cont'd)

	H.	Protection Against Discriminatory Treatment	61
	I.	Setoffs	61
	J.	Recoupment	62
	K.	Release of Liens	62
	L.	Document Retention	62
	M.	Reimbursement or Contribution	62
ARTICLE IX. ALLOWANCE AND PAYMENT OF CERTAIN
	ADMINISTRATIVE CLAIMS		62
	A.	Professional Claims	62
	B.	Other Administrative Claims	64
ARTICLE X. CONDITIONS PRECEDENT TO CONFIRMATION AND
	CONSUMMATION OF THE PLAN		65
	A.	Conditions to Confirmation	65
	B.	Conditions Precedent to Consummation	65
	C.	Waiver of Conditions Precedent	66
	D.	Effect of Non-Occurrence of Conditions to Consummation	66
	E.	Satisfaction of Conditions Precedent to Confirmation	66
ARTICLE XI. MODIFICATION, REVOCATION, OR WITHDRAWAL OF THE
	PLAN		67
	A.	Modification and Amendments	67
	B.	Effect of Confirmation on Modifications	67
	C.	Revocation or Withdrawal of Plan	67
ARTICLE XII. RETENTION OF JURISDICTION			67
ARTICLE XIII. MISCELLANEOUS PROVISIONS			70
	A.	Immediate Binding Effect	70
	B.	Additional Documents	70
	C.	Payment of Statutory Fees	70
	D.	Dissolution of Committees	70
	E.	Reservation of Rights	71
	F.	Successors and Assigns	71
	G.	Service of Documents	72
	H.	Term of Injunctions or Stays	73
	I.	Entire Agreement	73
	J.	Governing Law	73
	K.	Exhibits	73
	L.	Nonseverability of Plan Provisions	74
	M.	Closing of Chapter 11 Cases	74
	N.	Waiver or Estoppel	74
	O.	Conflicts	75

iii

INTRODUCTION

Calpine Corporation and the other debtors in the above-captioned chapter 11 cases (collectively, the “Debtors”) propose the following fourth amended joint plan of reorganization (the “Plan”) for the resolution of outstanding creditor claims against, and equity interests in, the Debtors pursuant to title 11 of the United States Code, 11 U.S.C. §§ 101–1532.  Capitalized terms used in the Plan and not otherwise defined shall have the meanings ascribed to such terms in ‎ARTICLE I.A of the Plan.  Reference is made to the Disclosure Statement, Filed contemporaneously with the Plan, for a discussion of the Debtors’ history, businesses, assets, results of operations, and projections of future operations, as well as a summary and description of the Plan and certain related matters.  The Debtors are the proponents of the Plan within the meaning of section 1129 of the Bankruptcy Code.

ALL HOLDERS OF CLAIMS AND INTERESTS ARE ENCOURAGED TO READ THE PLAN AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.  THE PLAN PROVIDES FOR SUBSTANTIVE CONSOLIDATION OF ALL OF THE ESTATES FOR ALL PURPOSES ASSOCIATED WITH CONFIRMATION AND CONSUMMATION.

ARTICLE I.

DEFINED TERMS, RULES OF INTERPRETATION,

COMPUTATION OF TIME, AND GOVERNING LAW

A.Defined Terms:  As used in the Plan, the capitalized terms below have the following meanings, except as expressly provided or unless the context otherwise requires.  Any term used but not defined in the Plan, but that is used in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that term in the Bankruptcy Code or the Bankruptcy Rules.

1.4.0% Convertible Senior Notes Due 2006:  The $1,200,000,000 4.0% Convertible Senior Notes due December 26, 2006, issued by Calpine pursuant to that certain Indenture, dated as of August 10, 2000, between Calpine and Wilmington Trust Company, as trustee, as supplemented by the First Supplemental Indenture, dated as of September 28, 2000.

2.4.75% Convertible Senior Notes Due 2023:  The $900,000,000 4.75% Convertible Senior Notes due November 15, 2023, issued by Calpine pursuant to that certain Amended and Restated Indenture, dated as of March 12, 2004, between Calpine and Wilmington Trust Company, as trustee.

3.6.00% Contingent Convertible Notes Due 2014:  The $736,000,000 6.00% Contingent Convertible Notes due September 30, 2014, issued by Calpine pursuant to that certain Indenture, dated as of August 10, 2000, between Calpine and Wilmington Trust Company, as trustee, as supplemented by the Second Supplemental Indenture, dated as of September 30, 2004.

4.7.625% Senior Notes Due 2006:  The $250,000,000 7.625% Senior Notes due April 15, 2006, issued by Calpine pursuant to that certain Indenture, dated as of March 29, 1999, between Calpine and The Bank of New York, as trustee, as supplemented by the First

Supplemental Indenture, dated as of July 31, 2000, and the Second Supplemental Indenture, dated as of April 26, 2004.

5.7.75% Contingent Convertible Notes Due 2015:  The $650,000,000 7.75% Contingent Convertible Notes Due June 1, 2015, issued by Calpine pursuant to that certain Indenture, dated as of August 10, 2000, between Calpine and Wilmington Trust Company, as trustee, as supplemented by the Third Supplemental Indenture, dated as of June 23, 2005.

6.7.75% Senior Notes Due 2009:  The $350,000,000 7.75% Senior Notes due April 15, 2009, issued by Calpine pursuant to that certain Indenture, dated as of March 29, 1999, between Calpine and The Bank of New York, as trustee, as supplemented by the First Supplemental Indenture, dated as of July 31, 2000, and the Second Supplemental Indenture, dated as of April 26, 2004.

7.7.875% Senior Notes Due 2008:  The $400,000,000 7.875% Senior Notes due April 1, 2008, issued by Calpine pursuant to that certain Indenture, dated as of March 31, 1998, between Calpine and The Bank of New York, as trustee, as supplemented by the First Supplemental Indenture, dated as of July 24, 1998, the Second Supplemental Indenture, dated as of July 31, 2000, and the Third Supplemental Indenture, dated as of April 26, 2004.

8.8.5% Second Priority Senior Secured Notes Due 2010:  The $1,150,000,000 8.5% Second Priority Senior Secured Notes due July 15, 2010, issued by Calpine pursuant to that certain Indenture dated as of July 16, 2003, between Calpine and Wilmington Trust Company, as trustee.

9.8.5% Senior Notes Due 2011:  The $850,000,000 8.5% Senior Notes due February 15, 2011, issued by Calpine pursuant to that certain Indenture, dated as of August 10, 2000, between Calpine and Wilmington Trust Company, as trustee, as supplemented by the First Supplemental Indenture, dated as of September 28, 2000.

10.8.625% Senior Notes Due 2010:  The $750,000,000 8.625% Senior Notes due August 15, 2010, issued by Calpine pursuant to that certain Indenture, dated as of August 10, 2000, between Calpine and Wilmington Trust Company, as trustee.

11.8.75% Second Priority Senior Secured Notes Due 2013:  The $900,000,000 Second Priority 8.75% Senior Secured Notes due July 15, 2013, issued by Calpine pursuant to that certain Indenture dated as of July 16, 2003, between Calpine and Wilmington Trust Company, as trustee.

12.8.75% Senior Notes Due 2007:  The $275,000,000 8.75% Senior Notes due July 15, 2007, issued by Calpine pursuant to that certain Indenture, dated as of July 8, 1997, between Calpine and The Bank of New York, as trustee, as supplemented by the First Supplemental Indenture, dated as of September 10, 1997, the Second Supplemental Indenture, dated as of July 31, 2000, and the Third Supplemental Indenture, dated as of April 26, 2004.

13.9.625% First Priority Senior Secured Notes Due 2014:  The $785,000,000 9.625% First Priority Senior Secured Notes due September 30, 2014, issued by Calpine pursuant to that

2

certain Indenture, dated as of September 30, 2004, between Calpine and Wilmington Trust Company, as trustee.

14.9.875% Second Priority Senior Secured Notes Due 2011:  The $400,000,000 9.875% Second Priority Senior Secured Notes due December 1, 2011, issued by Calpine pursuant to that certain Indenture, dated as of November 18, 2003, between Calpine and Wilmington Trust Company, as trustee.

15.10.5% Senior Notes Due 2006:  The $180,000,000 10.5% Senior Notes due May 15, 2006, issued by Calpine pursuant to that certain Indenture, dated as of May 16, 1996, between Calpine and U.S. Bank National Association, as successor trustee, as supplemented by the First Supplemental Indenture, dated as of August 1, 2000 and the Second Supplemental Indenture, dated as of April 26, 2004.

16.Accrued Professional Compensation:  At any given moment, all accrued fees and expenses (including success fees) for services rendered by all Professionals through and including the Effective Date, to the extent such fees and expenses have not been paid and regardless of whether a fee application has been Filed for such fees and expenses.  To the extent there is a Final Order denying some or all of a Professional’s fees or expenses, such denied amounts shall no longer be considered Accrued Professional Compensation.

17.Administrative Agents:  In their capacity as such, the administrative agent and its predecessors for the Second Priority Senior Secured Term Loan Due 2007.

18.Administrative Claim:  A Claim for costs and expenses of administration pursuant to sections 503(b), 507(a)(2), 507(b), or 1114(e)(2) of the Bankruptcy Code, including:  (a) the actual and necessary costs and expenses incurred after the Petition Date and through the Effective Date of preserving the Estates and operating the businesses of the Debtors (such as wages, salaries, or commissions for services, and payments for goods and other services and leased premises); (b) compensation for legal, financial advisory, accounting, and other services and reimbursement of expenses Allowed pursuant to sections 328, 330(a), or 331 of the Bankruptcy Code or otherwise for the period commencing on the Petition Date and ending on the Effective Date; (c) all fees and charges assessed against the Estates pursuant to chapter 123 of the Judicial Code; and (d) all requests for compensation or expense reimbursement for making a substantial contribution in the Chapter 11 Cases pursuant to sections 503(b)(3), (4), and (5) of the Bankruptcy Code.

19.Administrative Claim Bar Date:  The deadline for filing requests for payment of Administrative Claims, which shall be thirty days after the Effective Date, unless otherwise ordered by the Bankruptcy Court, except with respect to Professional Claims, which shall be subject to the provisions of ‎ARTICLE IX.

20.Affidavit of Publication:  An affidavit of a representative or agent of a publisher of a periodical certifying that notice has been served through publication in the publisher’s periodical.

21.Affiliate:  Excluding any Canadian Debtor: (a) an Entity that directly or indirectly owns, controls, or holds with power to vote, twenty percent or more of the outstanding voting

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securities of any of the Debtors, other than an Entity that holds such securities (i) in a fiduciary or agency capacity without sole discretionary power to vote such securities or (ii) solely to secure a debt, if such Entity has not in fact exercised such power to vote; (b) a corporation twenty percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by any of the Debtors, or by an Entity that directly or indirectly owns, controls, or holds with power to vote, twenty percent or more of the outstanding voting securities of any of the Debtors, other than an Entity that holds such securities (i) in a fiduciary or agency capacity without sole discretionary power to vote such securities or (ii) solely to secure a debt, if such Entity has not in fact exercised such power to vote; (c) an Entity whose business is operated under a lease or operating agreement by any of the Debtors, or an Entity substantially all of whose property is operated under an operating agreement with any of the Debtors; (d) an Entity that operates the business or substantially all of the property of any of the Debtors under a lease or operating agreement; or (e) the Debtors’ domestic and non-domestic, wholly-owned, direct and indirect subsidiaries that have not commenced cases under chapter 11 of the Bankruptcy Code.

22.Allowed:  With respect to Claims and Interests:  (a) any Claim or Interest, proof of which is timely Filed by the applicable Bar Date (or that by the Bankruptcy Code or Final Order is not or shall not be required to be Filed); (b) any Claim or Interest that is listed in the Schedules as of the Effective Date as not disputed, not contingent, and not unliquidated, and for which no Proof of Claim or Interest has been timely Filed; or (c) any Claim Allowed pursuant to the Plan; provided, however, that with respect to any Claim or Interest described in clauses (a) or (b) above, such Claim or Interest shall be considered Allowed only if and to the extent that (x) with respect to any Unsecured Convenience Class Claim, no objection to Allowance thereof has been interposed on or prior to the Effective Date, (y) with respect to any Claim or Interest that is not an Unsecured Convenience Class Claim, no objection to the Allowance thereof has been interposed within the applicable period of time fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy Court, or (z) such an objection is so interposed and the Claim or Interest shall have been Allowed for distribution purposes only by a Final Order; providedfurther, however, that the Claims and Interests described in clauses (a) and (b) above shall not include any (i) Claim or Interest on account of an option to purchase an Equity Security (the term “option” in this clause (i) does not include a right to convert a debt Security into an Equity Security) that is not exercised by the Voting Deadline and (ii) Interest held by or for the benefit of Calpine, including those Interests held pursuant to the DB Share Lending Agreement.  Except as otherwise specified in the Plan or a Bankruptcy Court order, the amount of an Allowed Claim shall not include interest on such Claim from and after the Petition Date.  For purposes of determining the amount of an Allowed Claim, there shall be deducted therefrom an amount equal to the amount of any Claim that the Debtors may hold against the Holder thereof, to the extent such Claim may be offset, recouped, or otherwise reduced under applicable law.  Any Claim or Interest that has been or is hereafter listed in the Schedules as disputed, contingent, or unliquidated, and for which no Proof of Claim or Interest has been timely Filed, is not considered Allowed and shall be expunged without further action by the Reorganized Debtors and without any further notice to or action, order, or approval of the Bankruptcy Court.

23.Ballot or Ballots:  The ballots upon which Holders of Impaired Claims or Interests entitled to vote shall cast their vote to accept or reject the Plan.

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24.Bankruptcy Code:  Title 11 of the United States Code, 11 U.S.C. §§ 101-1532, as applicable to the Chapter 11 Cases.

25.Bankruptcy Court:  The United States Bankruptcy Court for the Southern District of New York or any other court having jurisdiction over the Chapter 11 Cases.

26.Bankruptcy Rules:  The Federal Rules of Bankruptcy Procedure as applicable to the Chapter 11 Cases, promulgated pursuant to section 2075 of the Judicial Code and the general, local, and chambers rules and orders of the Bankruptcy Court.

27.Bar Date:  August 1, 2006, except as otherwise provided in the Plan or by Bankruptcy Court order.

28.Beneficial Holder:  The Entity holding the beneficial interest in a Claim or Interest.

29.Board Selection Term Sheet:  That certain Term Sheet Regarding Selection of Post-Emergence Board of Directors of Reorganized Calpine Corporation, dated as of June 27, 2007, by and among the Debtors and the Creditors’ Committee.

30.Business Day:  Any day, other than a Saturday, Sunday, or Legal Holiday.

31.CalGen:  Calpine Generating Company, LLC, a Delaware limited liability company.

32.CalGen 11.5% Third Priority Secured Notes Due 2011:  The $150,000,000 11.5% Third Priority Secured Notes due April 4, 2011, issued by CalGen and CalGen Finance pursuant to that certain Third Priority Indenture, dated as of March 23, 2004, among CalGen, CalGen Finance, and Wilmington Trust Company FSB, as third priority trustee.

33.CalGen Amended and Restated Credit Agreement:  The $200,000,000 Amended and Restated Credit Agreement, dated as of March 23, 2004, among CalGen, the guarantors party thereto, the lenders party thereto, The Bank of Nova Scotia, as administrative agent, L/C bank, as lead arranger and sole bookrunner, Bayerische Landesbank, Cayman Islands Branch, as arranger and co-syndication agent, Credit Lyonnais, New York Branch, as arranger and co-syndication agent, ING Capital LLC, as arranger and co-syndication agent, Toronto Dominion (Texas) Inc., as arranger and co-syndication agent, and Union Bank of California, N.A., as arranger and co-syndication agent.

34.CalGen Debt Repayment Order:  That certain Bankruptcy Court order entitled Order Authorizing Debtors to Obtain Post-Petition Financing Pursuant to 11 U.S.C. §§ 105, 361, 362, 364(c)(1), 364(c)(2), 364(c)(3), 364(d) and 364(e) [Docket No. 3972].

35.CalGen Finance:  CalGen Finance Corporation, a Delaware corporation.

36.CalGen First Priority Secured Floating Rate Notes Due 2009:  The $235,000,000 First Priority Secured Floating Rate Notes due April 1, 2009, issued by CalGen and CalGen

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Finance pursuant to that certain First Priority Indenture, dated as of March 23, 2004, between CalGen, CalGen Finance, and Wilmington Trust Company FSB, as first priority trustee.

37.CalGen First Priority Secured Institutional Term Loans Due 2009:  The $600,000,000 First Priority Secured Institutional Term Loans due April 1, 2009, issued by CalGen pursuant to that certain Credit and Guarantee Agreement, dated as of March 23, 2004, between CalGen, the guarantor subsidiaries of CalGen listed therein, Morgan Stanley Senior Funding, Inc., as administrative agent, sole lead arranger, and sole bookrunner, and the various lenders named therein.

38.CalGen Lenders:  The holders of the CalGen Secured Debt.

39.CalGen Second Priority Secured Floating Rate Notes Due 2010:  The $640,000,000 Second Priority Secured Floating Rate Notes due April 1, 2010, issued by CalGen and CalGen Finance pursuant to that certain Second Priority Indenture, dated as of March 23, 2004, between CalGen, CalGen Finance, and Wilmington Trust Company FSB, as second priority trustee.

40.CalGen Second Priority Secured Term Loans Due 2010:  The $100,000,000 Second Priority Second Term Loans due April 1, 2010, issued by CalGen pursuant to that certain Credit and Guarantee Agreement, dated as of March 23, 2004, among CalGen, the guarantor subsidiaries of CalGen listed therein, Morgan Stanley Senior Funding, Inc., as administrative agent, sole lead arranger, and sole bookrunner, and the various lenders named therein.

41.CalGen Secured Debt:  The series of first, second, and third lien financings, and a revolving loan consisting of: the CalGen First Priority Secured Floating Rate Notes Due 2009, the CalGen First Priority Secured Institutional Term Loans Due 2009, the CalGen Second Priority Secured Floating Rate Notes Due 2010, the CalGen Second Priority Secured Term Loans Due 2010, the CalGen Third Priority Secured Floating Rate Notes Due 2011, and the CalGen 11 1/2% Third Priority Secured Notes Due 2011.

42.CalGen Third Priority Secured Floating Rate Notes Due 2011:  The $680,000,000 Third Priority Secured Floating Rate Notes due April 1, 2011, issued by CalGen and CalGen Finance pursuant to that certain Third Priority Indenture, dated as of March 23, 2004, among CalGen, CalGen Finance, and Wilmington Trust Company FSB, as third priority trustee.

43.CalGen Secured Makewhole Claim:  Any Makewhole Claim on account of the CalGen Amended and Restated Credit Agreement, the CalGen First Priority Secured Floating Rate Notes Due 2009, the CalGen First Priority Secured Institutional Term Loans Due 2009, the CalGen Second Priority Secured Floating Rate Notes Due 2010, the CalGen Second Priority Secured Term Loans Due 2010, the CalGen 11.5% Third Priority Secured Notes Due 2011, and the CalGen Third Priority Secured Floating Rate Notes Due 2011 determined by Bankruptcy Court order to be Secured.

44.CalGen Unsecured Makewhole Claim:  Any Makewhole Claim on account of the CalGen Amended and Restated Credit Agreement, the CalGen First Priority Secured Floating Rate Notes Due 2009, the CalGen First Priority Secured Institutional Term Loans Due 2009, the CalGen Second Priority Secured Floating Rate Notes Due 2010, the CalGen Second Priority

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Secured Term Loans Due 2010, the CalGen 11.5% Third Priority Secured Notes Due 2011, and the CalGen Third Priority Secured Floating Rate Notes Due 2011 determined by Bankruptcy Court order not to be Secured.

45.Calpine:  Calpine Corporation, a Delaware corporation.

46.Canadian Bar Date:  August 1, 2006, unless otherwise set in the CCAA Proceedings.

47.Canadian Court:  The Court of Queen’s Bench in Calgary, Alberta, Canada.

48.Canadian Debtor:  Any CCAA Applicant or CCAA Party.

49.Canadian Guarantee Claim:  Any Claim (except ULC1 Settlement Claims and Subordinated Debt Securities Claims) based on a Debtor’s guarantee of a Canadian Debtor’s debt that is not satisfied in full in the CCAA Proceedings.

50.Canadian Intercompany Claim:  A Claim by a Canadian Debtor or a Canadian affiliate of the Debtors.

51.Cash:  Cash and cash equivalents.

52.Cash Collateral Order:  The Bankruptcy Court order entitled, Second Amended Order Authorizing Use of Cash Collateral and Granting Adequate Protection, entered in the Chapter 11 Cases on February 24, 2006 [Docket No. 881].

53.Cause of Action:  Any claim, cause of action, controversy, demand, right, action, Lien, indemnity, guaranty, suit, obligation, liability, damage, judgment, account, defense, offset, power, privilege, license, and franchise of any kind or character whatsoever, known, unknown, contingent or non-contingent, matured or unmatured, suspected or unsuspected, liquidated or unliquidated, disputed or undisputed, secured or unsecured, assertable directly or derivatively, whether arising before, on or after the Petition Date, in contract or in tort, in law or in equity, or pursuant to any other theory of law.  Cause of Action also includes: (a) any right of setoff, counterclaim, or recoupment and any claim on contracts or for breaches of duties imposed by law or in equity; (b) the right to object to Claims or Interests; (c) any claim pursuant to sections 362, 510, 542, 543, 544 through 550, or 553 of the Bankruptcy Code; (d) any claim or defense including fraud, mistake, duress, and usury and any other defenses set forth in section 558 of the Bankruptcy Code; (e) any state law fraudulent transfer claim; (f) any claim or cause of action of any kind against any Released or Exculpated Party based in whole or in part upon acts or omissions occurring prior to or after the Petition Date; and (g) any claim listed in the Plan Supplement.

54.CBA:  Any collective bargaining agreement as defined under section 1113 of the Bankruptcy Code to which one or more of the Debtors is a party.

55.CCAA:  Companies’ Creditors Arrangement Act (Canada).

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56.CCAA Applicant:  Each of Calpine Canada Energy Limited, Calpine Canada Power Ltd., Calpine Canada Energy Finance ULC, Calpine Energy Services Canada Ltd., Calpine Canada Resources Company, Calpine Canada Power Services Ltd., Calpine Canada Energy Finance II ULC, Calpine Natural Gas Services Limited, and 3094479 Nova Scotia Company.

57.CCAA Party:  Each of Calpine Energy Services Canada Partnership, Calpine Canada Natural Gas Partnership, and Calpine Canadian Saltend Limited Partnership.

58.CCAA Proceedings:  The proceedings initiated by the Canadian Debtors in the Canadian Court pursuant to the provisions of the CCAA, with action number 0501-17964, filed on December 20, 2005.

59.CCAA Settlement:  That certain Settlement Agreement, which is incorporated by reference as though fully set forth herein, dated as of July 24, 2007, among Calpine, the Canadian Debtors, and the ULC1 Indenture Trustee, as approved by the Bankruptcy Court pursuant to that certain Order Granting Debtors’ Motion for an Order Pursuant to 11 U.S.C. §§ 105(a) and 363(b) and Bankruptcy Rule 9019(a) to Approve a Settlement with the Calpine Canadian Debtors, entered in the Chapter 11 Cases on July 27, 2007 [Docket No. 5422], and by the Canadian Court pursuant to that certain Order (Canada/U.S. Global Settlement Order), entered in the CCAA Proceedings on July 27, 2007.

60.Certificate:  Any instrument evidencing a Claim or an Interest.

61.Chapter 11 Cases:  The chapter 11 bankruptcy cases Filed by the Debtors on the Petition Date in the Bankruptcy Court, with case numbers 05-06199 through 05-60218, 05-60221 through 05-60278, 05-60281 through 05-60363, 05-60365 through 05-60401, 05-60403 through 05-60441, 05-60443 through 05-60456, 05-60458 through 05-60460, 05-60463 through 05-60468, 05-60476, 05-60477, 06-10026 through 06-10032, 06-10034, 06-10039, 06-10197, 06-10198, 06-10939, and 07-12967.

62.Claim:  Any: (a) claim as defined in section 101(5) of the Bankruptcy Code against a Debtor and (b) with respect to ARTICLES VIII.‎D, ‎E, ‎F, and ‎G, any claim as defined in section 101(5) of the Bankruptcy Code against the applicable Entities referenced therein.

63.Claims and Solicitation Agent:  Kurtzman Carson Consultants LLC, located at 2335 Alaska Avenue, El Segundo, California 90245, (888) 249-2792, retained as the Debtors’ claims and solicitation agent by order dated December 22, 2005, entitled Order Pursuant to 28 U.S.C. § 155(c) and Local Rule 5075-1 of the Local Rules for the Southern District of New York, Authorizing and Approving the Retention of Kurtzman Carson Consultants LLC as Notices, Claims and Balloting Agent to the Debtors [Docket No. 59].

64.Claims Register:  The official register of Claims and Interests maintained by the Claims and Solicitation Agent.

65.Class:  A class of Holders of Claims or Interests as set forth in the Plan.

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66.CM/ECF:  The Bankruptcy Court’s Case Management and Electronic Case Filing system, which can be accessed at https://ecf.nysb.uscourts.gov/cgi-bin/login.pl.

67.Collateral Trust Agreement:  The Collateral Trust Agreement dated as of July 16, 2003 among Calpine, Quintana Minerals (USA), Inc., JOQ Canada, Inc., QCH, The Bank of Nova Scotia, as Agent under the Credit Agreement, Wilmington Trust Company, as Trustee under the 2007 Indenture, Wilmington Trust Company, as Trustee under the 2010 Indenture, Wilmington Trust Company, as Trustee under the 2013 Indenture, Goldman Sachs Credit Partners L.P., as Administrative Agent under the Term Loan Agreement and The Bank of New York, as Collateral Trustee, as amended or supplemented.

68.Collateral Trustee:  In its capacity as such, the collateral trustee and its predecessors under the Collateral Trust Agreement.

69.Confirmation:  The entry of the Confirmation Order, subject to all conditions specified in ‎ARTICLE X having been satisfied or waived pursuant to ‎ARTICLE X.

70.Confirmation Date:  The date upon which the Confirmation Order is entered by the Bankruptcy Court on its docket, within the meaning of Bankruptcy Rules 5003 and 9021.

71.Confirmation Hearing:  The hearing at which the Confirmation Order is first considered by the Bankruptcy Court.

72.Confirmation Hearing Notice:  The notice approved in the Solicitation Procedures Order that sets forth in detail the voting and objection deadlines with respect to the Plan.

73.Confirmation Order:  The order of the Bankruptcy Court confirming the Plan pursuant to section 1129 of the Bankruptcy Code.

74.Consummation:  The occurrence of the Effective Date.

75.Creditor:  A Holder of a Claim.

76.Creditors’ Committee:  The Official Committee of Unsecured Creditors appointed in the Chapter 11 Cases.

77.Cure:  The distribution in the ordinary course of business following the Effective Date of Cash, or such other property as may be ordered by the Bankruptcy Court or agreed upon by the parties (which shall include the Creditors’ Committee), in an amount equal to all unpaid monetary obligations under applicable law (including, to the extent provided for under the applicable assumed contract or unexpired lease, postpetition interest at the contract rate as agreed between the parties (which shall include the Creditors’ Committee) or determined by the Bankruptcy Court) or such lesser amount as may be agreed upon by the parties, under an executory contract or unexpired lease assumed pursuant to section 365 of the Bankruptcy Code, to the extent such obligations are enforceable under the Bankruptcy Code and applicable non-bankruptcy law.

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78.Cure Bar Date:  The deadline for filing requests for payment of Cure, which shall be the later of: (a) thirty days after the Effective Date or (b) thirty days after the assumption of the applicable executory contract or unexpired lease, unless otherwise ordered by the Bankruptcy Court or agreed to by the Debtors and the counterparty to the applicable executory contract or unexpired lease.

79.DB Share Lending Agreement:  That certain Share Lending Agreement, dated as of September 28, 2004, by and among, Calpine Corporation, Deutsche Bank AG London, and Deutsche Bank Securities Inc.

80.Debtor:  Each of the following Entities, followed by a number in parentheses that has been assigned to each such Entity for purposes of identifying such Entity’s Plan in ‎ARTICLE III: Calpine Corporation; Amelia Energy Center, LP; Anacapa Land Company, LLC; Anderson Springs Energy Company; Androscoggin Energy, Inc.; Auburndale Peaker Energy Center, LLC; Augusta Development Company, LLC; Aviation Funding Corp.; Baytown Energy Center, LP; Baytown Power GP, LLC; Baytown Power, LP; Bellingham Cogen, Inc.; Bethpage Energy Center 3, LLC; Bethpage Fuel Management Inc.; Blue Heron Energy Center LLC; Blue Spruce Holdings, LLC; Broad River Energy LLC; Broad River Holding, LLC; CalGen Equipment Finance Company, LLC; CalGen Equipment Finance Holdings, LLC; CalGen Expansion Company, LLC; CalGen Finance Corp.; CalGen Project Equipment Finance Company One, LLC; CalGen Project Equipment Finance Company Three, LLC; CalGen Project Equipment Finance Company Two, LLC; Calpine Acadia Holdings, LLC; Calpine Administrative Services Company, Inc.; Calpine Agnews, Inc.; Calpine Amelia Energy Center GP, LLC; Calpine Amelia Energy Center LP, LLC; Calpine Auburndale Holdings, LLC; Calpine Baytown Energy Center GP, LLC; Calpine Baytown Energy Center LP, LLC; Calpine Bethpage 3 Pipeline Construction Company, Inc.; Calpine Bethpage 3, LLC; Calpine c* Power, Inc.; Calpine CalGen Holdings, Inc.; Calpine California Development Company, LLC; Calpine California Energy Finance, LLC; Calpine California Equipment Finance Company, LLC; Calpine Calistoga Holdings, LLC; Calpine Capital Trust; Calpine Capital Trust II; Calpine Capital Trust III; Calpine Capital Trust IV; Calpine Capital Trust V; Calpine Central Texas GP, Inc.; Calpine Central, Inc.; Calpine Central, LP; Calpine Central-Texas, Inc.; Calpine Channel Energy Center GP, LLC; Calpine Channel Energy Center LP, LLC; Calpine Clear Lake Energy GP, LLC; Calpine Clear Lake Energy, LP; Calpine Cogeneration Corporation; Calpine Construction Management Company, Inc.; Calpine Corpus Christi Energy GP, LLC; Calpine Corpus Christi Energy LP; Calpine Decatur Pipeline Inc.; Calpine Decatur Pipeline, L.P.; Calpine Dighton, Inc.; Calpine East Fuels, Inc.; Calpine East Fuels, LLC; Calpine Eastern Corporation; Calpine Energy Holdings, Inc.; Calpine Energy Services Holdings, Inc.; Calpine Energy Services, LP; Calpine Finance Company; Calpine Freestone Energy GP, LLC; Calpine Freestone Energy, LP; Calpine Freestone, LLC; Calpine Fuels Corporation; Calpine Gas Holdings LLC; Calpine Generating Company, LLC; Calpine Geysers Company, LP; Calpine Gilroy 1, Inc.; Calpine Gilroy 2, Inc.; Calpine Gilroy Cogen, L.P.; Calpine Global Services Company, Inc.; Calpine Gordonsville GP Holdings, LLC; Calpine Gordonsville LP Holdings, LLC; Calpine Gordonsville, LLC; Calpine Greenleaf Holdings, Inc.; Calpine Greenleaf, Inc.; Calpine Hidalgo Design, L.P.; Calpine Hidalgo Energy Center, L.P.; Calpine Hidalgo Holdings, Inc.; Calpine Hidalgo Power GP, LLC; Calpine Hidalgo Power, LP; Calpine Hidalgo, Inc.; Calpine International Holdings, Inc.; Calpine International, LLC; Calpine Investment Holdings, LLC; Calpine Kennedy Airport, Inc.; Calpine Kennedy Operators, Inc.; Calpine KIA, Inc.;

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Calpine Leasing, Inc.; Calpine Long Island, Inc.; Calpine Lost Pines Operations, Inc.; Calpine Louisiana Pipeline Company; Calpine Magic Valley Pipeline, Inc.; Calpine Monterey Cogeneration, Inc.; Calpine MVP, Inc.; Calpine NCTP GP, LLC; Calpine NCTP, LP; Calpine Northbrook Corporation of Maine, Inc.; Calpine Northbrook Energy Holdings, LLC; Calpine Northbrook Energy, LLC; Calpine Northbrook Holdings Corporation; Calpine Northbrook Investors, LLC; Calpine Northbrook Project Holdings, LLC; Calpine Northbrook Services LLC; Calpine Northbrook Southcoast Investors, LLC; Calpine NTC, LP; Calpine Oneta Power I, LLC; Calpine Oneta Power II, LLC; Calpine Oneta Power, LP; Calpine Operating Services Company, Inc.; Calpine Operations Management Company, Inc.; Calpine Pastoria Holdings, LLC; Calpine Philadelphia, Inc.; Calpine Pittsburg, LLC; Calpine Power Company; Calpine Power Equipment, LP; Calpine Power Inc.; Calpine Power Management, Inc.; Calpine Power Management, LP; Calpine Power Services, Inc.; Calpine PowerAmerica - CA, LLC; Calpine PowerAmerica - CT, LLC; Calpine PowerAmerica - MA, LLC; Calpine PowerAmerica - ME, LLC; Calpine PowerAmerica, Inc.; Calpine PowerAmerica, LP; Calpine PowerAmerica-NH, LLC; Calpine PowerAmerica-NY, LLC; Calpine PowerAmerica-OR, LLC; Calpine Producer Services, LP; Calpine Project Holdings, Inc.; Calpine Pryor, Inc.; Calpine Rumford I, Inc.; Calpine Rumford, Inc.; Calpine Schuylkill, Inc.; Calpine Siskiyou Geothermal Partners, L.P.; Calpine Sonoran Pipeline, LLC; Calpine Stony Brook Operators, Inc.; Calpine Stony Brook Power Marketing, LLC; Calpine Stony Brook, Inc.; Calpine Sumas, Inc.; Calpine TCCL Holdings, Inc.; Calpine Texas Pipeline GP, Inc.; Calpine Texas Pipeline LP, Inc.; Calpine Texas Pipeline, L.P.; Calpine Tiverton I, Inc.; Calpine Tiverton, Inc.; Calpine ULC I Holding, LLC; Calpine University Power, Inc.; Calpine Unrestricted Funding, LLC; Calpine Unrestricted Holdings, LLC; Calpine Vapor, Inc.; Carville Energy LLC; CCFC Development Company, LLC; CCFC Equipment Finance Company, LLC; CCFC Project Equipment Finance Company One, LLC; Celtic Power Corporation; CES GP, LLC; CGC Dighton, LLC; Channel Energy Center, LP; Channel Power GP, LLC; Channel Power LP; Clear Lake Cogeneration Limited Partnership; Cogenamerica Asia, Inc.; Cogenamerica Parlin Supply Corporation; Columbia Energy LLC; Corpus Christi Cogeneration, LP; CPN 3rd Turbine, Inc.; CPN Acadia, Inc.; CPN Berks Generation, Inc.; CPN Berks LLC; CPN Bethpage 3rd Turbine Inc.; CPN Cascade, Inc.; CPN Clear Lake, Inc.; CPN Decatur Pipeline, Inc.; CPN Energy Services GP, Inc.; CPN Energy Services LP, Inc.; CPN Freestone, LLC; CPN Funding, Inc.; CPN Morris, Inc.; CPN Oxford, Inc.; CPN Pipeline Company; CPN Pleasant Hill Operating, LLC; CPN Pleasant Hill, LLC; CPN Power Services GP, LLC; CPN Power Services, LP; CPN Pryor Funding Corporation; CPN Telephone Flat, Inc.; Decatur Energy Center, LLC; Deer Park Power GP, LLC; Deer Park Power, LP; Delta Energy Center, LLC; Dighton Power Associates, LP; East Altamont Energy Center, LLC; Fond Du Lac Energy Center, LLC; Fontana Energy Center, LLC; Freestone Power Generation, LP; GEC Bethpage Inc.; Geothermal Energy Partners, LLC; Geysers Power Company II LLC; Geysers Power Company, LLC; Geysers Power I Company; Goldendale Energy Center, LLC; Hammond Energy LLC; Hillabee Energy Center, LLC; Idlewild Fuel Management Corp; JMC Bethpage, Inc.; KIAC Partners; Lake Wales Energy Center, LLC; Lawrence Energy Center, LLC; Lone Oak Energy Center, LLC; Los Esteros Critical Energy Facility, LLC; Los Medanos Energy Center, LLC; Magic Valley Gas Pipeline GP, LLC; Magic Valley Gas Pipeline LP; Magic Valley Pipeline, LP; MEP Pleasant Hill, LLC; MOAPA Energy Center, LLC; Mobile Energy LLC; Modoc Power, Inc.; Morgan Energy Center, LLC; Mount Hoffman Geothermal Company, LP; Mt. Vernon Energy LLC; Newsouth Energy LLC; Nissequogue Cogen Partners; Northwest Cogeneration, Inc.; NTC Five, Inc.; NTC GP, LLC; Nueces Bay Energy, LLC; O.L.S. Energy-

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Agnews, Inc.; Odyssey Land Acquisition Company; Pajaro Energy Center, LLC; Pastoria Energy Center, LLC; Pastoria Energy Facility, LLC; Philadelphia Biogas Supply Inc.; Phipps Bend Energy Center, LLC; Pine Bluff Energy, LLC; Power Investors, LLC; Power Systems Mfg. LLC; Quintana Canada Holdings, LLC; Rockgen Energy LLC; Rumford Power Associates, LP; Russell City Energy Center, LLC; San Joaquin Valley Energy Center, LLC; Santa Rosa Energy Center, LLC; Silverado Geothermal Resources, Inc.; Skipanon Natural Gas, LLC; South Point Energy Center, LLC; South Point Holdings, LLC; Stony Brook Cogeneration, Inc.; Stony Brook Fuel Management Corp.; Sutter Dryers, Inc.; TBG Cogen Partners; Texas City Cogeneration, LP; Texas Cogeneration Company; Texas Cogeneration Five, Inc.; Texas Cogeneration One Company; Thermal Power Company; Thomassen Turbine Systems America, Inc.; Tiverton Power Associates, LP; VEC Holdings, LLC; Venture Acquisition Company; Vineyard Energy Center, LLC; Wawayanda Energy Center, LLC; Whatcom Cogeneration Partners, LP; and Zion Energy LLC.

81.Debtors in Possession:  The Debtors, as debtors in possession in the Chapter 11 Cases, pursuant to sections 1107 and 1108 of the Bankruptcy Code.

82.DIP Facility:  That certain Credit Agreement, by and among the Debtors and the DIP Lenders, dated as of March 29, 2007, and approved by the Bankruptcy Court in an order entitled, Final Order Authorizing Debtors to Obtain Post-Petition Financing Pursuant to 11 U.S.C. §§ 105, 361, 362, 364(c)(1), 364(c)(2), 364(c)(3), and 364(e) [Docket No. 635].

83.DIP Facility Claim:  Any Claim on account of the DIP Facility.

84.DIP Lenders:  General Electric Capital Corporation (including its successors), as sub-agent for the revolving lenders under the DIP Facility (in such capacity and including any successors); Credit Suisse, Goldman Sachs Credit Partners L.P., and JPMorgan Chase Bank, N.A., as co-documentation agents and as co-syndication agents; Credit Suisse, as administrative agent (in such capacity and including any successors) and as collateral agent (in such capacity and including any successors); and each of the financial institutions from time to time party to the DIP Agreement.

85.Disclosure Statement:  The Fourth Amended Disclosure Statement for the Plan describing the Plan, that is prepared and distributed in accordance with sections 1125, 1126(b), and 1145 of the Bankruptcy Code, Bankruptcy Rule 3018, and other applicable law.

86.Disputed:  With respect to any Claim or Interest, any Claim or Interest on the Claims Register that is not yet Allowed.

87.Distribution Agent:  The Reorganized Debtors, or the Entity or Entities chosen by the Reorganized Debtors, with the consent of the Creditors’ Committee, to make or to facilitate distributions pursuant to the Plan.

88.Distribution Date:  The date occurring as soon as reasonably practicable after the Effective Date when distributions under the Plan shall commence, but not later than ten days after the Effective Date, without further Bankruptcy Court order.

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89.Distribution Record Date:  The date for determining which Holders of Allowed Claims and Interests, except Holders of publicly traded Certificates, are eligible to receive distributions pursuant to the Plan, which shall be the Confirmation Date or such other date as designated in the Plan or a Bankruptcy Court order.

90.District Court:  The United States District Court for the Southern District of New York.

91.Effective Date:  The date selected by the Debtors (in consultation with the Creditors’ Committee) that is a Business Day after the Confirmation Date on which the conditions as specified in the Plan have been satisfied or waived.  Unless otherwise specifically provided in the Plan, anything required to be done by the Debtors on the Effective Date may be done on the Effective Date or as soon as reasonably practicable thereafter.

92.Entity:  As defined in section 101(15) of the Bankruptcy Code.

93.Equity Committee:  The Official Committee of Equity Security Holders appointed in the Chapter 11 Cases.

94.Equity Security:  Any equity security as defined in section 101(16) of the Bankruptcy Code in a Debtor.

95.Equity Security Holder:  A Holder of an Interest.

96.Estate:  The bankruptcy estate of any Debtor created by virtue of section 541 of the Bankruptcy Code upon the commencement of the Chapter 11 Cases.

97.Exculpated Claim:  Any Claim related to any act or omission in connection with, relating to, or arising out of the Debtors’ in or out of court restructuring, the Debtors’ Chapter 11 Cases, formulation, preparation, dissemination, negotiation, or filing of the Disclosure Statement or Plan or any contract, instrument, release, or other agreement or document created or entered into in connection with the Disclosure Statement or Plan, the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, or the distribution of property under the Plan or any other agreement.

98.Exculpated Party:  Each of: (a) the Debtors, the Reorganized Debtors, and their Affiliates; (b) the DIP Lenders in their capacities as such; (c) the New Credit Facility Lenders in their capacity as such; (d) with respect to each of the foregoing Entities in clauses (a) through (c), such Entities’ successors and assigns; (e) any statutory committee and the members thereof in their capacity as such; (f) the Second Lien Ad Hoc Committee and the members thereof in their capacity as such; (g) the ULC1 Noteholders Ad Hoc Committee and the members thereof in their capacity as such; (h) the Indenture Trustees; (i) the Administrative Agents; (j) the Collateral Trustee; and (k) with respect to each of the foregoing Entities in clauses (a) through (j), such Entities’ subsidiaries, affiliates, officers, directors, principals, employees, agents, financial advisors, attorneys, accountants, investment bankers, consultants, representatives, and other Professionals, in each case in their capacity as such; provided, however, that clause (k) shall not include officers, directors, or employees of the Debtors who were no longer acting in such capacity on or after the Petition Date.

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99.Federal Judgment Rate:  The federal judgment rate of 4.34%, which was in effect as of the Petition Date.

100.FERC:  Federal Energy Regulatory Commission.

101.FERC Jurisdictional Contract:  Any contract to which one or more of the Debtors is a party containing rates, terms, or conditions subject to the jurisdiction of the FERC pursuant to the Federal Power Act, 16 U.S.C. §§ 824–824n, or the Natural Gas Act, 15 U.S.C. §§ 717–717z.

102.File:  To file with the Bankruptcy Court in the Chapter 11 Cases, or in the case of Proofs of Claim or Interest, to file with the Claims and Solicitation Agent.

103.Final Decree:  The decree contemplated under Bankruptcy Rule 3022.

104.Final Order:  As applicable, an order or judgment of the Bankruptcy Court or other court of competent jurisdiction with respect to the  relevant subject matter, which has not been reversed, stayed, modified, or amended, and as to which the time to appeal or seek certiorari has expired and no appeal or petition for certiorari has been timely taken, or as to which any appeal that has been taken or any petition for certiorari that has been or may be Filed has been resolved by the highest court to which the order or judgment was appealed or from which certiorari was sought; provided, however, that the Debtors or Reorganized Debtors, as applicable, reserve the right to waive any such appeal or similar conditions of a Final Order in consultation with the Creditors’ Committee, and with the consent of the Creditors’ Committee with respect to Final Orders entered in any pending litigation or contested matter to which the Creditors’ Committee is a party, any appeals Filed regarding Confirmation, the resolution of any substantial contribution applications, and the resolution of applications for Professionals’ Claims.

105.First Lien Debt Claim:  Any Claim (not including any First Lien Unsecured Makewhole Claims) on account of the 9.625% First Priority Senior Secured Notes Due 2014.

106.First Lien Makewhole Claim:  Any Makewhole Claim on account of the 9.625% First Priority Senior Secured Notes Due 2014.

107.First Lien Repayment Order:  The Bankruptcy Court order entitled, Order Authorizing Repayment of Principal of First Lien Debt, entered in the Chapter 11 Cases on May 10, 2006 [Docket No. 1542].

108.First Lien Secured Makewhole Claim:  Any First Lien Makewhole Claim determined by Bankruptcy Court order to be Secured.

109.First Lien Unsecured Makewhole Claim:  Any First Lien Makewhole Claim determined by Bankruptcy Court order not to be Secured.

110.General Note Claim:  Any Claim (including any General Note Makewhole Claims, but not including any Subordinated Debt Securities Claims) on account of the: (a) 4.0% Convertible Senior Notes Due 2006; (b) 4.75% Convertible Senior Notes Due 2023; (c) 6.00%

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Contingent Convertible Notes Due 2014; (d) 8.5% Senior Notes Due 2011; and (e) 8.625% Senior Notes Due 2010.

111.General Note Makewhole Claim:  Any Makewhole Claim on account of the: (a) 4.0% Convertible Senior Notes Due 2006; (b) 4.75% Convertible Senior Notes Due 2023; (c) 6.00% Contingent Convertible Notes Due 2014; (d) 8.5% Senior Notes Due 2011; and (e) 8.625% Senior Notes Due 2010.

112.General Unsecured Claim:  Any Claim against any of the Debtors that is not a/an: (a) DIP Facility Claim; (b) Administrative Claim; (c) Priority Tax Claim; (d) First Lien Debt Claim; (e) Second Lien Debt Claim; (f) Other Secured Claim; (g) Other Priority Claim; (h) Senior Note Claim; (i) General Note Claim; (j) Subordinated Note Claim; (k) ULC1 Settlement Claim; (l) Canadian Guarantee Claim; (m) Canadian Intercompany Claim; (n) Rejection Damages Claim; (o) Unsecured Makewhole Claim; (p) Unsecured Convenience Class Claim;  (q) Intercompany Claim; (r) Subordinated Equity Securities Claim; or (s) Subordinated Debt Securities Claim.

113.Governmental Unit:  As defined in section 101(27) of the Bankruptcy Code.

114.Government Bar Date:  August 1, 2006.

115.Holder:  An Entity holding a Claim or Interest, as applicable.

116.Impaired:  With respect to any Class of Claims or Interests, a Class of Claims or Interests that is impaired within the meaning of section 1124 of the Bankruptcy Code.

117.Indemnification Obligation:  A Debtor’s obligation under an executory contract or otherwise to indemnify directors, officers, or employees of the Debtors who served in such capacity at any time, with respect to or based upon any act or omission taken or omitted in any of such capacities, or for or on behalf of any Debtor, pursuant to and to the maximum extent provided by the Debtors’ respective articles of incorporation, certificates of formation, bylaws, similar corporate documents, and applicable law, as in effect as of the Effective Date.

118.Indenture Trustees:  In their capacity as such, the indenture trustees and their predecessors for the: (a) 4.0% Convertible Senior Notes Due 2006; (b) 4.75% Convertible Senior Notes Due 2023; (c) 6.00% Contingent Convertible Notes Due 2014; (d) 7.625% Senior Notes Due 2006; (e) 7.75% Senior Notes Due 2009; (f) 7.875% Senior Notes Due 2008; (g) 8.5% Second Priority Senior Notes Due 2010; (h) 8.5% Senior Notes Due 2011; (i) 8.625% Senior Notes Due 2010; (j) 8.75% Second Priority Senior Notes Due 2013; (k) 8.75% Senior Notes Due 2007; (l) 9.875% Second Priority Senior Secured Notes Due 2011; (m) Second Priority Senior Secured Floating Rate Notes Due 2007; (n) ULC1 8.5% Senior Notes Due 2008; and (o) ULC1 8.75% Senior Notes Due 2007.

119.Insider:  As defined in section 101(31) of the Bankruptcy Code.

120.Intercompany Claim:  A Claim (other than a ULC1 Settlement Claim) held by a Debtor or an Affiliate.

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121.Intercompany Contract:  A contract between two or more Debtors or a contract between one or more Affiliates and one or more Debtors.

122.Intercompany Interest:  An Interest held by a Debtor or an Affiliate.

123.Interest: Any: (a) Equity Security, including all issued, unissued, authorized, or outstanding shares of stock together with any warrants, options, or contractual rights to purchase or acquire such Equity Securities at any time and all rights arising with respect thereto and (b) partnership, limited liability company, or similar interest.

124.Interest Accrual Limitation Date:  The date on which the applicable Claim is satisfied in full.

125.Interim Compensation Order:  The order, entitled Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals, entered by the Bankruptcy Court on January 25, 2006 [Docket No. 617], allowing Estate Professionals to seek interim compensation in accordance with the compensation procedures approved therein, as may have been modified by a Bankruptcy Court order approving the retention of the Professionals.

126.Internal Revenue Code:  Title 26 of the United States Code, 26 U.S.C. §§ 1–9833.

127.Judicial Code:  Title 28 of the United States Code, 28 U.S.C. §§ 1–4001.

128.KIAC And Nissequogue Facilities:  That certain 110 megawatt natural gas-fired cogeneration power plant located at John F. Kennedy International Airport in Queens, New York and that certain 40 megawatt natural gas-fired cogeneration power plant located on the campus of the State University of New York at Stony Brook.

129.KIAC And Nissequogue Leasehold Interests:  That certain leasehold interest granted to KIAC Partners pursuant to that certain Agreement of Lease, dated as of April 28, 1993, by and between KIAC Partners and the Port Authority of New York and New Jersey, and that certain leasehold interest granted to Nissequogue Cogen Partners pursuant to that certain Amended and Restated Lease Agreement, dated as of November 1, 1998, by and between Nissequogue Cogen Partners and the Suffolk County Industrial Development Agency.

130.Legal Holiday:  As defined in Bankruptcy Rule 9006(a).

131.Lien:  As defined in section 101(37) of the Bankruptcy Code.

132.Makewhole Claim:  Any Claim for any makewhole amount, prepayment premium, early termination fee, or other similar amount asserted on account of any notes, indentures, or other instruments issued by the Debtors prior to the Petition Date, including with respect to the: (a) 9.625% First Priority Senior Secured Notes Due 2014; (b) CalGen First Priority Secured Floating Rate Notes Due 2009; (c) CalGen First Priority Secured Institutional Term Loans Due 2009; (d) CalGen Second Priority Secured Floating Rate Notes Due 2010; (e) CalGen Second Priority Secured Term Loans Due 2010; (f) CalGen 11.5% Third Priority Secured Notes Due 2011; (g) CalGen Third Priority Secured Floating Rate Notes Due 2011; (h) 8.5% Second Priority Senior Secured Notes Due 2010; (i) 8.75% Second Priority Senior

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Secured Notes Due 2013; (j) 9.875% Second Priority Senior Secured Notes Due 2011; (k) 8.625% Senior Notes Due 2010; (l) 8.5% Senior Notes Due 2011; (m) 4.0% Convertible Senior Notes Due 2006; (n) 4.75% Convertible Senior Notes Due 2023; (o) 6.00% Contingent Convertible Notes Due 2014; (p) 7.75% Contingent Convertible Notes Due 2015; (q) 8.75% Senior Notes Due 2007; (r) 7.875% Senior Notes Due 2008; (s) 7.625% Senior Notes Due 2006; (t) 7.75% Senior Notes Due 2009; and (u) 8.625% Senior Notes Due 2010.

133.Management and Director Equity Incentive Plan:  A post-Effective Date management and director compensation incentive plan intended for certain management, employees, and directors of certain of the Reorganized Debtors.

134.Master Ballots:  The master ballots upon which the applicable Nominee or other holder of record shall submit on behalf of the Beneficial Holders it represents the votes cast by such Beneficial Holders to accept or reject the Plan.

135.Named Executive Officers:  As defined in Regulation S-K, Item 402(a)(3), 17 C.F.R. § 229.402(a)(3).

136.New Calpine Common Stock:  1,500,000,000 shares of common stock in Reorganized Calpine, par value $0.001 per share, to be authorized pursuant to the Reorganized Calpine Charter, of which up to 500,000,000 shares shall be initially issued and outstanding pursuant to the Plan as of the Effective Date.

137.New Calpine Common Stock Pool For Creditors:  All New Calpine Common Stock to be issued under the Plan, net of any shares reserved for issuance under the Management and Director Equity Incentive Plan.

138.New Calpine Common Stock Pool For Shareholders:  All New Calpine Common Stock to be issued under the Plan remaining in the New Calpine Common Stock Pool For Subordinated Debt Securities Claimants after all Holders of Allowed Claims (other than Subordinated Equity Securities Claims) have been paid in full.

139.New Calpine Common Stock Pool For Subordinated Debt Securities Claimants:  All New Calpine Common Stock to be issued under the Plan remaining in the New Calpine Common Stock Pool For Creditors after all Holders of Allowed Claims (other than Subordinated Debt Securities Claims and Subordinated Equity Securities Claims) have been paid in full.

140.New Calpine Stock Reserve:  The New Calpine Common Stock held in reserve pursuant to ‎ARTICLE VII.C.3.

141.New Calpine Total Enterprise Value:  $20.3 billion, which is the midpoint range of the total enterprise value of the Reorganized Debtors’ set forth in the Disclosure Statement or such amount provided in the Confirmation Order as the total enterprise value of the Reorganized Debtors.

142.New Calpine Trading Restrictions Term Sheet:  That certain Term Sheet for Proposed Trading Restrictions on Reorganized Calpine Common Stock by and among the Debtors and the Creditors’ Committee.

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143.New Credit Facility:  That certain $8.0 billion secured financing facility comprised of a $6.0 billion first lien secured term facility, a $1.0 billion first lien secured revolving facility, and a $1.0 billion second lien secured facility, by and among Reorganized Calpine, as borrower, and Goldman Sachs Credit Partners L.P., as well as other entities, as joint lead arrangers, book runners, and administrative agents, and a syndicate of banks, financial institutions, and other entities, as lenders, and all other documents entered into in connection therewith or contemplated thereby, substantially in the form of that facility referenced in the Order Authorizing the Debtors to (A) Enter Into Commitment Papers; (B) Pay Certain Fees and Expenses Relating Thereto; and (C) Enter Into an Amendment to the DIP Facility [Docket No. 5243].

144.New Credit Facility Lenders:  Goldman Sachs Credit Partners L.P. (including its successors), as administrative agent (in such capacity and including any successors) under the New Credit Facility, Credit Suisse (including its successors), as administrative agent and as collateral agent (in such capacity and including any successors) under the New Credit Facility, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Deutsche Bank Trust Company Americas, and Morgan Stanley Senior Funding (including their respective successors), as co-syndication agents and co-documentation agents under the New Credit Facility (in such capacity and including any successors), and each of the financial institutions from time to time party to the New Credit Facility.

145.Nominee:  Any broker, dealer, commercial bank, trust company, savings and loan, financial institution, or other party in whose name securities are registered or held of record on behalf of a Beneficial Holder.

146.Notice of Confirmation:  That certain notice pursuant to Bankruptcy Rule 3020(c)(2) notifying Holders of Claims and Interests and parties in interest that the Bankruptcy Court has confirmed the Plan.

147.Old Calpine Common Stock:  All of the authorized, issued, and outstanding shares of common stock of Calpine as of immediately prior to the Effective Date.

148.Other Priority Claim:  Any Claim accorded priority in right of payment pursuant to section 507(a) of the Bankruptcy Code, other than a Priority Tax Claim or an Administrative Claim.

149.Other Secured Claim:  Any Secured Claim, other than a: (a) DIP Facility Claim; (b) First Lien Debt Claim; or (c) Second Lien Debt Claim.

150.Periodic Distribution Date:  The first Business Day that is as soon as reasonably practicable occurring approximately ninety days after the Distribution Date, and thereafter, the first Business Day that is as soon as reasonably practicable occurring approximately ninety days after the immediately preceding Periodic Distribution Date.

151.Person:  As defined in section 101(41) of the Bankruptcy Code.

152.Petition Date:  December 20, 2005 for case numbers 05-60199 through 05-60211; December 21, 2005 for case numbers 05-60212 through 05-60218, 05-60221 through 05-60278,

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05-60281 through 05-60363, 05-60365 through 05-60401, 05-60403 through 05-60441, 05-60443 through 05-60456, 05-60458 through 05-60460, and 05-40463; December 27, 2005 for case numbers 05-60464 through 05-60468; December 29, 2005 for case numbers 05-60476 and 05-60477; January 8, 2006 for case numbers 06-10026 through 06-10032; January 9, 2006 for case numbers 06-10034 and 06-10039; February 3, 2006 for case numbers 06-10197 and 06-10198; May 2, 2006 for case number 06-10939; and September 20, 2007 for case number 07-12967; provided, however, for purposes of the Plan, unless otherwise provided, the Petition Date shall be deemed to be December 20, 2005 for all Debtors.

153.PLA:  Any pre-hire project labor agreement to which one or more of the Debtors, is a party.

154.Plan:  This Second Amended Joint Plan of Reorganization for each of the Debtors pursuant to chapter 11 of the Bankruptcy Code, together with the Plan Supplement, either in its present form or as it may be altered, amended, modified, or supplemented from time to time in accordance with the terms of the Plan, the Bankruptcy Code, and the Bankruptcy Rules.

155.Plan Supplement:  The compilation of documents and forms of documents, schedules, and exhibits to the Plan.

156.Plan Supplement Filing Date:  The date that is no later than fourteen days prior to the Voting Deadline or such later date as may be approved by the Bankruptcy Court on notice to parties in interest.

157.PPA Litigation:  That certain matter currently styled as In re Calpine Corp.; Calpine Corp., et al. v. California Dept. of Water Resources, et al.; Docket Nos. 06-0480-BK; 06-0676-BK; 06-0683-BK; 06-0691-BK; 06-0717-BK; and 06-0723-BK.

158.Priority Tax Claim:  Any Claim of the kind specified in section 507(a)(8) of the Bankruptcy Code.

159.Professional:  An Entity: (a) employed pursuant to a Bankruptcy Court order in accordance with sections 327, 363, and 1103 of the Bankruptcy Code and to be compensated for services rendered prior to or on the Confirmation Date, pursuant to sections 327, 328, 329, 330, 363, and 331 of the Bankruptcy Code or (b) awarded compensation and reimbursement by the Bankruptcy Court pursuant to section 503(b)(4) of the Bankruptcy Code.

160.Professional Fee Escrow Account:  An interest-bearing account in an amount equal to the Professional Fee Reserve Amount funded and maintained by the Reorganized Debtors on and after the Effective Date solely for the purpose of paying all Allowed and unpaid fees and expenses of Professionals in the Chapter 11 Cases.

161.Professional Fee Reserve Amount:  Accrued Professional Compensation through the Effective Date as estimated by the Professionals in accordance with ‎ARTICLE IX.A.4.

162.Projects to Be Sold or Surrendered: A power plant facility owned by one or more of the Debtors to be sold or surrendered pursuant to the Plan on or after the Effective Date.

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163.Proof of Claim:  A proof of Claim Filed against any of the Debtors in the Chapter 11 Cases.

164.Proof of Interest:  A proof of Interest Filed against any of the Debtors in the Chapter 11 Cases.

165.QCH:  Quintana Canada Holdings, LLC, a Delaware corporation.

166.Record Date: September 27, 2007.

167.Reinstated:  (a) Leaving unaltered the legal, equitable, and contractual rights to which a Claim entitles the Holder of such Claim or Interest so as to leave such Claim Unimpaired or (b) notwithstanding any contractual provision or applicable law that entitles the Holder of a Claim or Interest to demand or receive accelerated payment of such Claim or Interest after the occurrence of a default: (i) curing any such default that occurred before or after the Petition Date, other than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code or of a kind that section 365(b)(2) expressly does not require to be cured; (ii) reinstating the maturity (to the extent such maturity has not otherwise accrued by the passage of time) of such Claim as such maturity existed before such default; (iii) compensating the Holder of such Claim or Interest for any damages incurred as a result of any reasonable reliance by such Holder on such contractual provision or such applicable law; (iv) if such Claim or Interest arises from a failure to perform a nonmonetary obligation other than a default arising from failure to operate a nonresidential real property lease subject to section 365(b)(1)(A), compensating the Holder of such Claim or Interest (other than the Debtor or an insider) for any actual pecuniary loss incurred by such Holder as a result of such failure; and (v) not otherwise altering the legal, equitable or contractual rights to which such Claim entitles the Holder.

168.Rejected Employment Agreement:  An agreement, other than a CBA or PLA, between or among any of the Debtors and any directors, officers, or employees of any of the Debtors for such Person to serve in such capacity that has been rejected, expired on its own terms, or otherwise terminated by the Debtors on or before the Effective Date.

169.Rejection Damages Claim:  Any Claim on account of the rejection of an executory contract or unexpired lease pursuant to section 365 of the Bankruptcy Code or the repudiation of such contract.

170.Released Party:  Each of: (a) the DIP Lenders in their capacities as such; (b) the New Credit Facility Lenders in their capacities as such; (c) with respect to each of the foregoing Entities in clauses (a) and (b), such Entities’ successors and assigns; (d) any statutory committee and the members thereof in their capacity as such; (e) the Second Lien Ad Hoc Committee and the members thereof in their capacity as such; (f) the ULC1 Noteholders Ad Hoc Committee and the members thereof in their capacity as such; (g) the Indenture Trustees; (h) the Administrative Agents; (i) the Collateral Trustee; (j) with respect to each of the foregoing Entities in clauses (a) through (i), such Entities’ affiliates, subsidiaries, officers, directors, principals, employees, agents, financial advisors, attorneys, accountants, investment bankers, consultants, representatives, and other Professionals, in each case in their capacity as such, and only if serving in such capacity; and (k) the Debtors’ and Reorganized Debtors’ officers, directors,

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principals, employees, agents, financial advisors, attorneys, accountants, investment bankers, consultants, representatives, and other Professionals, in each case in their capacity as such, and only if serving in such capacity.

171.Reorganized Calpine:  Calpine, as reorganized under and pursuant to the Plan, or any successor thereto, by merger, consolidation, or otherwise, on or after the Effective Date.

172.Reorganized Calpine Bylaws:  The bylaws of Reorganized Calpine, which shall be in form and substance acceptable to the Debtors and the Creditors’ Committee, substantially in the form contained in the Plan Supplement to be in effect upon the Effective Date.

173.Reorganized Calpine Charter:  The amended and restated certificate of incorporation of Reorganized Calpine, which shall be in form and substance acceptable to the Debtors and the Creditors’ Committee, substantially in the form contained in the Plan Supplement to be in effect upon the Effective Date.

174.Reorganized Debtors:  The Debtors, as reorganized pursuant to and under the Plan, or any successor thereto, by merger, consolidation, or otherwise, on or after the Effective Date.

175.Roll-Up Transaction:  A dissolution or winding up of the corporate existence of a Reorganized Debtor under applicable state law or the consolidation, merger, contribution of assets, or other transaction in which a Reorganized Debtor merges with or transfers substantially all of its assets and liabilities to another Reorganized Debtor or one or more of their Affiliates, on or after the Effective Date.

176.Schedules:  The schedules of assets and liabilities, schedules of executory contracts, and statement of financial affairs Filed by the Debtors pursuant to section 521 of the Bankruptcy Code, the official bankruptcy forms, and the Bankruptcy Rules.

177.Second Circuit:  The United States Court of Appeals for the Second Circuit.

178.Second Lien Ad Hoc Committee:  The Unofficial Committee of Second Lien Debtholders.

179.Second Lien Debt Claim:  Any Claim (not including any Second Lien Unsecured Makewhole Claims) on account of the: (a) Second Priority Senior Secured Floating Rate Notes Due 2007; (b) 8.5% Second Priority Senior Secured Notes Due 2010; (c) 8.75% Second Priority Senior Secured Notes Due 2013; (d) 9.875% Second Priority Senior Secured Notes Due 2011; and (e) Second Priority Senior Secured Term Loan Due 2007.

180.Second Lien Makewhole Claim:  Any Makewhole Claim on account of the: (a) Second Priority Senior Secured Floating Rate Notes Due 2007; (b) 8.5% Second Priority Senior Secured Notes Due 2010; (c) 8.75% Second Priority Senior Secured Notes Due 2013; (d) 9.875% Second Priority Senior Secured Notes Due 2011; and (e) Second Priority Senior Secured Term Loan Due 2007.

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181.Second Lien Makewhole Settlement Order:  The Bankruptcy Court order entitled, Order Pursuant to 11 U.S.C. § 105(a) and Bankruptcy Rule 9019 Approving Amended Stipulation By and Among the Debtors and Debtors in Possession, the Unofficial Committee of Second Lien Debtholders and Wilmington Trust, as Indenture Trustee for the Second Lien Fixed Rate Notes, entered in the Chapter 11 Cases on August 8, 2007 [Docket No. 5567].

182.Second Lien Secured Makewhole Claim:  Any Second Lien Makewhole Claim determined to be Secured by a Bankruptcy Court order.

183.Second Lien Unsecured Makewhole Claim:  Any Second Lien Makewhole Claim determined not to be Secured by a Bankruptcy Court order.

184.Second Priority Senior Secured Floating Rate Notes Due 2007:  The $500,000,000 Second Priority Senior Secured Floating Rate Notes due 2007, issued by Calpine pursuant to that certain indenture dated as of July 15, 2003, between Calpine and Wilmington Trust Company, as trustee.

185.Second Priority Senior Secured Term Loan Due 2007:  The $750,000,000 Senior Secured Term Loans due 2007, issued pursuant to that certain credit agreement, dated as of July 16, 2003, among Calpine, as borrower, Goldman Sachs Credit Partners, L.P., as sole lead arranger, sole bookrunner and administrative agent and the various co-arrangers, managing agents and lenders named therein.

186.Secured:  When referring to a Claim: (a) secured by a Lien on property in which the Estate has an interest, which Lien is valid, perfected, and enforceable pursuant to applicable law or by reason of a Bankruptcy Court order, or that is subject to setoff pursuant to section 553 of the Bankruptcy Code, to the extent of the value of the creditor’s interest in the Estate’s interest in such property or to the extent of the amount subject to setoff, as applicable, as determined pursuant to section 506(a) of the Bankruptcy Code or (b) Allowed pursuant to the Plan as a Secured Claim.

187.Securities Act:  The Securities Act of 1933, 15 U.S.C. §§ 77a-77aa, or any similar federal, state, or local law.

188.Security:  As defined in section 2(a)(1) of the Securities Act.

189.Senior Note Claim:  Any Claim (including any Senior Note Makewhole Claims, but not including any Subordinated Debt Securities Claims) on account of the: (a) 7.625% Senior Notes Due 2006; (b) 7.75% Senior Notes Due 2009; (c) 7.875% Senior Notes Due 2008; (d) 8.75% Senior Notes Due 2007; and (e) 10.5% Senior Notes Due 2006.

190.Senior Note Makewhole Claim:  Any Makewhole Claim on account of the: (a) 7.625% Senior Notes Due 2006; (b) 7.75% Senior Notes Due 2009; (c) 7.875% Senior Notes Due 2008; (d) 8.75% Senior Notes Due 2007; and (e) 10.5% Senior Notes Due 2006.

191.Servicer:  An indenture trustee, agent, servicer, or other authorized representative of Holders of Claims or Interests recognized by the Debtors.

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192.Solicitation Procedures Order:  That certain order entered by the Bankruptcy Court on September 26, 2007, approving certain solicitation procedures for solicitation of votes on the Plan [Docket No. 6136].

193.Subordinated Debt Securities Claim:  Any Claim of the type described in and subject to subordination pursuant to section 510(b) of the Bankruptcy Code relating to the: (a) 4.0% Convertible Senior Notes Due 2006; (b) 4.75% Convertible Senior Notes Due 2023; (c) 6.00% Contingent Convertible Notes Due 2014; (d) 8.5% Senior Notes Due 2011; (e) 8.625% Senior Notes Due 2010; (f) 7.625% Senior Notes Due 2006; (g) 7.75% Senior Notes Due 2009; (h) 7.875% Senior Notes Due 2008; (i) 8.75% Senior Notes Due 2007; (j) 10.5% Senior Notes Due 2006; (k) ULC1 Notes; (l) ULC2 8.375% Senior Notes Due 2008; (m) ULC2 8.875% Senior Notes Due 2011; and (n) 7.75% Contingent Convertible Notes Due 2015.

194.Subordinated Equity Securities Claim:  Any Claim of the type described in and subject to subordination pursuant to section 510(b) of the Bankruptcy Code relating to any Interest.

195.Subordinated Note Claim:  Any Claim (including any Subordinated Note Makewhole Claim, but not including any Subordinated Debt Securities Claims) on account of the 7.75% Contingent Convertible Notes Due 2015, issued by Calpine pursuant to that certain Indenture, dated as of August 10, 2000, between Calpine and Wilmington Trust Company, as trustee, as supplemented by the Third Supplemental Indenture, dated as of June 23, 2005.

196.Subordinated Note Makewhole Claim:  Any Makewhole Claim on account of the 7.75% Contingent Convertible Notes Due 2015.

197.Supremacy Clause:  Paragraph 2 of Article VI of the United States Constitution.

198.ULC1 8.5% Senior Notes Due 2008:  The $2,030,000,000 8.5% Senior Notes due May 1, 2008, issued by Calpine Canada Energy Finance ULC pursuant to the ULC1 Indenture.

199.ULC1 8.75% Senior Notes Due 2007:  The (CAD) $200,000,000 8.75% Senior Notes due October 15, 2007, issued by Calpine Canada Energy Finance ULC pursuant to the ULC1 Indenture.

200.ULC1 Filed Amount:  The sum of $2,124,356,213.11, being the stated amount of the General Unsecured Claim, as of the Petition Date, of the ULC1 Indenture Trustee, on behalf of the ULC1 Noteholders, against Calpine related to the ULC1 Notes.

201.ULC1 Indenture:  That certain Indenture, dated as of April 25, 2001, between Calpine Canada Energy Finance ULC and Wilmington Trust Company, as indenture trustee, as amended by that certain Amended and Restated Indenture, dated as of October 16, 2001, between Calpine Canada Energy Finance ULC and Wilmington Trust Company, as indenture trustee.

202.ULC1 Indenture Trustee:  HSBC Bank USA, National Association, as successor indenture trustee under the ULC1 Indenture.

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203.ULC1 Indenture Trustee Fees:  The reasonable fees, costs, and expenses of the ULC1 Indenture Trustee, including the reasonable fees, costs, and expenses of its U.S. and Canadian counsel, incurred, and to be incurred, by the ULC1 Indenture Trustee in connection with the Chapter 11 Cases and the CCAA Proceedings through the date of final distribution in respect of the ULC1 Settlement Claims.

204.ULC1 Noteholder:  Any holder of a ULC1 Note.

205.ULC1 Noteholders Ad Hoc Committee:  The informal committee of certain ULC1 Noteholders, as described more particularly in certain verified statements filed with the Bankruptcy Court pursuant to Bankruptcy Rule 2019 at docket numbers 2823, 3285, and 5353, respectively, as may be updated further.

206.ULC1 Noteholders Ad Hoc Committee Fees:  The reasonable fees, costs, and expenses of the ULC1 Noteholders Ad Hoc Committee, including the reasonable fees, costs, and expenses of its U.S. and Canadian counsel and its financial adviser, incurred, and to be incurred, by the ULC1 Noteholders Ad Hoc Committee in connection with the Chapter 11 Cases and the CCAA Proceedings through the date of final distribution in respect of the ULC1 Settlement Claims, in an amount not to exceed $8 million.

207.ULC1 Notes:  The ULC1 8.5% Senior Notes Due 2008 and the ULC1 8.75% Senior Notes Due 2007.

208.ULC1 Settlement Claim:  Any Claim (including those held by the Debtors as of the Petition Date) arising under or relating to the ULC1 Indenture, as such Claims have been compromised and settled pursuant to the CCAA Settlement.

209.ULC2 8.375% Senior Notes Due 2008:  The €175,000,000 8.375% Senior Notes due October 15, 2008, issued pursuant to that certain Indenture, dated as of October 18, 2001, between Calpine Canada Energy Finance I ULC and Wilmington Trust Company, as trustee.

210.ULC2 8.875% Senior Notes Due 2011:  The £200,000,000 8.875% Senior Notes due October 15, 2011, issued pursuant to that certain Indenture, dated as of October 18, 2001, between Calpine Canada Energy Finance II ULC and Wilmington Trust Company, as trustee.

211.Unclaimed Distribution:  Any distribution under the Plan on account of an Allowed Claim or Interest to a Holder that has not: (a) accepted a particular distribution or, in the case of distributions made by check, negotiated such check; (b) given notice to the Reorganized Debtors of an intent to accept a particular distribution; (c) responded to the Debtors’ or Reorganized Debtors’ requests for information necessary to facilitate a particular distribution; or (d) taken any other action necessary to facilitate such distribution.

212.Uniform Commercial Code:  The Uniform Commercial Code as in effect on the Effective Date, as enacted in the applicable state.

213.Unimpaired:  With respect to a Class of Claims or Interests, a Class of Claims or Interests that is unimpaired within the meaning of section 1124 of the Bankruptcy Code.

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214.Unsecured Claim:  Any Senior Note Claim, General Note Claim, Subordinated Note Claim, ULC1 Settlement Claim, Canadian Guarantee Claim, Canadian Intercompany Claim, Rejection Damages Claim, General Unsecured Claim, Unsecured Makewhole Claim, Unsecured Convenience Class Claim, Subordinated Debt Securities Claim, and Subordinated Equity Securities Claim.

215.Unsecured Convenience Class Claim:  Any: (a) Unsecured Claim (including interest accrued only as of the Petition Date) that is $50,000 or less or (b) General Unsecured Claim in excess of $50,000 which the Holder thereof, pursuant to such Holder’s ballot or such other election accepted by the Debtors elects to have reduced to the amount of $50,000 and to be treated as an Unsecured Convenience Class Claim; provided, however, that an Unsecured Convenience Class Claim does not include a Claim on account of publicly or privately held securities.

216.Unsecured Makewhole Claim:  Any First Lien, Second Lien, or CalGen Unsecured Makewhole Claim.

217.Voting Deadline:  November 30, 2007.

B.Rules of Interpretation and Computation of Time:

1.Rules of Interpretation:  For purposes of the Plan:  (a) whenever from the context it is appropriate, each term, whether stated in the singular or the plural, shall include both the singular and the plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, feminine, and the neuter gender; (b) unless otherwise specified, any reference in the Plan to a contract, instrument, release, indenture, or other agreement or document being in a particular form or on particular terms and conditions means that such document shall be substantially in such form or substantially on such terms and conditions; (c) unless otherwise specified, any reference in the Plan to an existing document, schedule, or exhibit, whether or not Filed, shall mean such document, schedule, or exhibit, as it may have been or may be amended, modified, or supplemented; (d) any reference to an Entity as a Holder of a Claim or Interest includes that Entity’s successors and assigns; (e) unless otherwise specified, all references in the Plan to Articles are references to Articles of the Plan or to the Plan; (f) unless otherwise specified, all references in the Plan to exhibits are references to exhibits in the Plan Supplement; (g) the words “herein,” “hereof,” and “hereto” refer to the Plan in its entirety rather than to a particular portion of the Plan; (h) subject to the provisions of any contract, certificate of incorporation, bylaw, instrument, release, or other agreement or document entered into in connection with the Plan, the rights and obligations arising pursuant to the Plan shall be governed by, and construed and enforced in accordance with applicable federal law, including the Bankruptcy Code and Bankruptcy Rules; (i) captions and headings to Articles are inserted for convenience of reference only and are not intended to be a part of or to affect the interpretation of the Plan; (j) unless otherwise set forth in the Plan, the rules of construction set forth in section 102 of the Bankruptcy Code shall apply; (k) any term used in capitalized form in the Plan that is not otherwise defined but that is used in the Bankruptcy Code or the Bankruptcy Rules shall have the meaning assigned to such term in the Bankruptcy Code or the Bankruptcy Rules, as applicable; (l) all references to docket numbers of documents Filed in the Chapter 11 Cases are references to the docket numbers under the Bankruptcy Court’s CM/ECF system; (m)

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all references to statutes, regulations, orders, rules of courts, and the like shall mean as amended from time to time, as applicable to the Chapter 11 Cases, unless otherwise stated; and (n) any immaterial effectuating provisions may be interpreted by the Reorganized Debtors in such a manner that is consistent with the overall purpose and intent of the Plan all without further Bankruptcy Court order.

2.Computation of Time:  In computing any period of time prescribed or allowed, the provisions of Bankruptcy Rule 9006(a) shall apply.  If the date on which a transaction may occur pursuant to the Plan shall occur on a day that is not a Business Day, then such transaction shall instead occur on the next succeeding Business Day.

C.Reference to Monetary Figures:  All references in the Plan to monetary figures shall refer to currency of the United States of America, unless otherwise expressly provided.

D.Reference to the Debtors or Reorganized Debtors:  Except as otherwise specifically provided in the Plan to the contrary, references in the Plan to the Debtors or to the Reorganized Debtors shall mean the Debtors and Reorganized Debtors, as applicable, to the extent the context requires.

ARTICLE II.

ADMINISTRATIVE AND PRIORITY CLAIMS

In accordance with section 1123(a)(1) of the Bankruptcy Code, DIP Facility Claims, Administrative Claims, and Priority Tax Claims have not been classified and thus are excluded from the Classes of Claims set forth in ‎ARTICLE III.

A.DIP Facility Claims:  In full satisfaction, settlement, release, and discharge of and in exchange for each Allowed DIP Facility Claim, the Debtors shall either convert the DIP Facility into the New Credit Facility or pay the DIP Facility Claims in full in Cash.

B.Administrative Claims:  Subject to the provisions of sections 328, 330(a), and 331 of the Bankruptcy Code, in full satisfaction, settlement, release, and discharge of and in exchange for each Allowed Administrative Claim, each Holder thereof shall be paid in full in Cash in accordance with the terms of the applicable contract, if any.

C.Priority Tax Claims:  In full satisfaction, settlement, release, and discharge of and in exchange for each Allowed Priority Tax Claim, unless otherwise agreed (with the consent of the Creditors’ Committee), each Holder thereof shall be paid in full in Cash pursuant to section 1129(a)(9)(C) of the Bankruptcy Code.

ARTICLE III.

CLASSIFICATION AND TREATMENT

OF CLAIMS AND INTERESTS

A.Classification of Claims and Interests:  All Claims and Interests, except DIP Facility Claims, Administrative Claims, and Priority Tax Claims, are classified in the Classes set forth in ‎ARTICLE III.  A Claim or Interest is classified in a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class and is classified in other Classes to

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the extent that any portion of the Claim or Interest qualifies within the description of such other Classes.  A Claim or Interest is also classified in a particular Class for the purpose of receiving distributions pursuant to the Plan only to the extent that such Claim or Interest is an Allowed Claim or Interest in that Class and has not been paid, released, or otherwise satisfied prior to the Effective Date.

1.Substantive Consolidation of Debtors:  Pursuant to ‎ARTICLE IV.A, the Plan provides for the substantive consolidation of the Estates into a single Estate for all purposes associated with Confirmation and Consummation.  As a result of the substantive consolidation of the Estates, each Class of Claims and Interests will be treated as against a single consolidated Estate without regard to the separate identification of the Debtors.

2.Class Identification:  Below is a chart assigning each Class a letter and, in some cases, a number for purposes of identifying each separate Class.

Class	Claim or Interest Type
A-1	First Lien Debt Claims
A-2	Second Lien Debt Claims
A-3	Other Secured Claims
B	Other Priority Claims
C-1	Senior Note Claims
C-2	General Note Claims
C-3	Subordinated Note Claims
C-4	ULC1 Settlement Claims
C-5	Canadian Guarantee Claims
C-6	Canadian Intercompany Claims
C-7	Rejection Damages Claims
C-8	General Unsecured Claims
C-9	Unsecured Makewhole Claims
C-10	Unsecured Convenience Class Claims
C-11	Intercompany Claims
D	Subordinated Debt Securities Claims
E-1	Interests
E-2	Subordinated Equity Securities Claims
E-3	Intercompany Interests

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B.Treatment of Classes of Claims and Interests

To the extent a Class contains Allowed Claims or Interests with respect to a particular Debtor, the treatment provided to each Class for distribution purposes is specified below.

1.Class A-1—First Lien Debt Claims

a.Classification:  Class A-1 consists of all First Lien Debt Claims.

b.Treatment:  Each Allowed First Lien Debt Claim (not including any First Lien Secured Makewhole Claims), already has been paid in full in Cash pursuant to the First Lien Repayment Order.  In satisfaction of each Allowed First Lien Secured Makewhole Claim, each Holder thereof shall be paid in full in Cash.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class A-1 shall not include interest; provided, however, that any Allowed First Lien Secured Makewhole Claim shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.

2.Class A-2—Second Lien Debt Claims

a.Classification:  Class A-2 consists of all Second Lien Debt Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class A-2, each Allowed Second Lien Debt Claim shall be paid in full in Cash.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class A-2 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the contract rate determined by the Bankruptcy Court to the extent not already paid or waived pursuant to the Cash Collateral Order; provided, however, that any portion of the Claims in Class A-2 consisting of Allowed Second Lien Secured Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court to the extent not already paid or waived pursuant to the Cash Collateral Order.  With respect to the Second Priority Senior Secured Term Loan, the contract rate is not less than the base rate.

3.Class A-3—Other Secured Claims

a.Classification:  Class A-3 consists of all Other Secured Claims, against the applicable Debtor.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class A-3, each such Allowed Claim shall be: (i) Reinstated; (ii) paid in full in Cash; or (iii) satisfied in full by a return to such Holder of the collateral securing such Allowed Claim.

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c.Interest Accrued After the Petition Date:  Allowed Claims in Class A-3 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the contract rate determined by the Bankruptcy Court or, if there is no contract, then at the Federal Judgment Rate; provided, however, that Allowed CalGen Secured Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.

4.Class B—Other Priority Claims

a.Classification:  Class B consists of all Other Priority Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class B, each Holder thereof shall be paid in full in Cash.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class B shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the Federal Judgment Rate.

5.Class C-1—Senior Note Claims

a.Classification:  Class C-1 consists of all Senior Note Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-1 (including  any Allowed Senior Note Makewhole Claims), each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class C-1 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the contract rate determined by the Bankruptcy Court; provided, however, that the Allowed Senior Note Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.

6.Class C-2—General Note Claims

a.Classification:  Class C-2 consists of all General Note Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-2 (including any Allowed General Note Makewhole Claims), each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class C-2 shall include unpaid interest accrued after the Petition Date through the Interest Accrual Limitation Date at the contract rate determined by the Bankruptcy Court; provided,

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however, that Allowed General Note Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.

7.Class C-3—Subordinated Note Claims

a.Classification:  Class C-3 consists of all Subordinated Note Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-3 (including any Allowed Subordinated Note Makewhole Claims), each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full; provided, however, that the Holders of Allowed Subordinated Note Claims shall be deemed to consent to the distribution of any portion of their pro rata share of the New Calpine Common Stock to Holders of Allowed Senior Note Claims necessary to satisfy in full any portion of such Allowed Senior Note Claims attributable to principal and interest accrued as of the Petition Date; providedfurther, however, that any obligation of the Holders of Allowed Subordinated Note Claims to consent to the distribution of any portion of their pro rata share of the New Calpine Common Stock to Holders of Allowed Senior Note Claims necessary to satisfy any amounts other than principal and interest accrued as of the Petition Date to Holders of Allowed Senior Note Claims shall be determined by a court of competent jurisdiction.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class C-3 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the contract rate determined by the Bankruptcy Court; provided, however, that Allowed Subordinated Note Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.

8.Class C-4—ULC1 Settlement Claims

a.Classification:  Class C-4 consists of all ULC1 Settlement Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed ULC1 Settlement Claim in Class C-4, each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full.  The aggregate amount of the distribution of the New Calpine Common Stock Pool For Creditors to be made hereunder on account of Allowed ULC1 Settlement Claims in Class C-4 shall be calculated based upon the total amount of the ULC1 Settlement Claims being equal to U.S. $3,505,187,751.63; provided, however, that the aggregate amount of such distribution to be made hereunder on account of all Allowed ULC1 Settlement Claims shall not exceed an amount equal to the aggregate of (i) the outstanding principal balance of the ULC1 Notes (together with any accrued and unpaid interest thereon as of the Petition Date), as set forth in section 3.2(a)(ii)(A) of the CCAA Settlement, plus (ii) accrued and unpaid interest on the ULC1 Filed Amount from the Petition Date up to and including the date set forth in section 3.2(a)(ii)(B) of the

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CCAA Settlement at the contract rate (including interest compounded semi-annually, as set forth in section 3.2(a)(ii)(B) of the CCAA Settlement), plus (iii) the ULC1 Noteholders Ad Hoc Committee Fees, plus (iv) the ULC1 Indenture Trustee Fees, in each of the foregoing instances, subject to the foreign exchange adjustment described in ‎ARTICLE III.B.8.d; provided, however, that the aggregate amount of such distribution to be made hereunder on account of all Allowed ULC1 Settlement Claims shall not include the ULC1 Noteholders Ad Hoc Committee Fees or the ULC1 Indenture Trustee Fees to the extent such fees are paid pursuant to ARTICLES IX.A.‎7 and ‎8.

c.Interest Accrued After the Petition Date:  Allowed ULC1 Settlement Claims shall include interest accrued at the contract rate (including interest compounded semi-annually, as set forth in section 3.2(a)(ii)(B) of the CCAA Settlement) from the Petition Date up to and including the date set forth in section 3.2(a)(ii)(B) of the CCAA Settlement, all as set forth in the CCAA Settlement; provided, however, that such inclusion of interest shall not increase the total distribution limitation contained in section 3.2(b)(ii) of the CCAA Settlement.

d.Foreign Currency Exchange Rate:  Certain components of the ULC1 Settlement Claims are denominated in Canadian dollars.  Without limitation, the indebtedness evidenced by the ULC1 8.75% Senior Notes Due 2007, including principal, and accrued and unpaid interest thereon, and portions of the ULC1 Noteholders Ad Hoc Committee Fees and the ULC1 Indenture Trustee Fees relating to the services of Canadian professionals are and will be denominated in Canadian dollars.  The respective amounts of such components shall be Allowed in the Chapter 11 Cases and distributions in respect thereof under the Plan shall be calculated in U.S. dollars in an amount yielded by the conversion from Canadian dollars at the noon spot rate effective on the fifth Business Day prior to the Distribution Date for U.S. currency of Scotiabank, and such conversion shall be performed by Calpine and subject to the approval of the ULC1 Indenture Trustee.

e.Application of Distributions Under the Plan:  Any distribution received by the ULC1 Indenture Trustee under the Plan shall be applied as follows: first, to the ULC1 Indenture Trustee Fees and the ULC1 Noteholders Ad Hoc Committee Fees; second, to interest accrued after the Petition Date; and third, to the ULC1 Filed Amount.  The portion of any such distribution that is allocable to the ULC1 Ad Hoc Committee Fees shall be remitted by the ULC1 Indenture Trustee to those ULC1 Noteholders who paid such fees in the first instance in accordance with written instructions to be delivered to the ULC1 Indenture Trustee by counsel to the ULC1 Noteholders Ad Hoc Committee.  The ULC1 Indenture Trustee may conclusively rely on such instructions delivered by counsel to the ULC1 Noteholders Ad Hoc Committee and shall have no liability for remitting to such ULC1 Noteholders in accordance with such instructions the portion of such distribution that is allocable to the ULC1 Noteholders Ad Hoc Committee Fees.

9.Class C-5—Canadian Guarantee Claims

a.Classification:  Class C-5 consists of all Canadian Guarantee Claims.

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b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-5, each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full after subtracting any payments received on account of the underlying obligation in the CCAA Proceedings.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class C-5 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the default rate provided in the applicable indenture or, if there is no indenture, then at the Federal Judgment Rate.

10.Class C-6—Canadian Intercompany Claims

a.Classification:  Class C-6 consists of all Canadian Intercompany Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-6, each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full, subject to the cap contained in the CCAA Settlement.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class C-6 shall not include interest pursuant to the terms of the CCAA Settlement.

11.Class C-7—Rejection Damages Claims

a.Classification:  Class C-7 consists of all Rejection Damages Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-7, each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class C-7 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the Federal Judgment Rate unless, upon application by the Holder of such Claim Filed before the Voting Deadline, the Bankruptcy Court orders otherwise prior to or in connection with the Confirmation Hearing.

12.Class C-8—General Unsecured Claims

a.Classification:  Class C-8 consists of all General Unsecured Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-8, each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full.

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c.Interest Accrued After the Petition Date:  Unless otherwise agreed, Allowed Claims in Class C-8 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the Federal Judgment Rate unless, upon application by the Holder of such Claim Filed before the Voting Deadline, the Bankruptcy Court orders otherwise prior to or in connection with the Confirmation Hearing.

d.Election Rights: Each Holder of an Allowed Claim in Class C-8 may elect to be treated as a Holder of an Allowed Unsecured Convenience Class Claim in Class C-10, as applicable, by electing to reduce its Allowed Claim to $50,000 in complete satisfaction of such Allowed Claim.  Any such election must be made on the Ballot, and except as may be agreed to by the Debtors, with the consent of the Creditors’ Committee, or Reorganized Debtors, no Holder of a Claim can elect the treatment described below after the Voting Deadline.  Upon such election, the Claim of such Holder shall be automatically reduced to $50,000.

13.Class C-9—Unsecured Makewhole Claims

a.Classification:  Class C-9 consists of all Unsecured Makewhole Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-9, each Holder thereof shall receive a pro rata share of the New Calpine Common Stock Pool For Creditors until paid in full.

c.Interest Accrued After the Petition Date:  Allowed First Lien Unsecured Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.  Allowed Second Lien Unsecured Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.  Allowed CalGen Unsecured Makewhole Claims shall include interest accrued after the date of repayment of principal through the Interest Accrual Limitation Date at the rate determined by the Bankruptcy Court.

14.Class C-10—Unsecured Convenience Class Claims

a.Classification: Class C-10 consists of all Unsecured Convenience Class Claims.

b.Treatment: In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class C-10, each Holder thereof shall be paid in full in Cash.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class C-10 shall not include any interest accrued after the Petition Date.

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15.Class C-11—Intercompany Claims

a.Classification:  Class C-11 consists of all Intercompany Claims.

b.Treatment:  At the Debtors’ or Reorganized Debtors’ option, in consultation with the Creditors’ Committee, and except as otherwise provided in the Plan, Holders of Claims in Class C-11 shall have such Claims Reinstated or receive no distribution on account of such Claims.

16.Class D—Subordinated Debt Securities Claims

a.Classification:  Class D consists of all Subordinated Debt Securities Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Allowed Claim in Class D, to the extent all Holders of Allowed Claims (other than Subordinated Debt Securities Claims and Subordinated Equity Securities Claims) have been paid in full, each Holder of an Allowed Class D Claim shall receive a pro rata distribution of the New Calpine Common Stock Pool For Subordinated Debt Securities Claimants until paid in full.

c.Interest Accrued After the Petition Date:  Allowed Claims in Class D shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the Federal Judgment Rate.

17.Class E-1—Interests

a.Classification:  Class E-1 consists of all Interests in Calpine.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Interest in Class E-1, to the extent all Holders of Allowed Claims (other than Subordinated Equity Securities Claims) have been paid in full, the Holders of Interests in Class E-1 shall receive a pro rata share of the New Calpine Common Stock Pool For Shareholders.

18.Class E-2—Subordinated Equity Securities Claims

a.Classification:  Class E-2 consists of all Subordinated Equity Securities Claims.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Claim in Class E-2, to the extent all Holders of Allowed Claims (other than Subordinated Equity Securities Claims) have been paid in full, the Holders of Claims in Class E-2 shall receive a pro rata share of the New Calpine Common Stock Pool For Shareholders until paid in full.

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c.Interest Accrued After the Petition Date:  Allowed Claims in Class E-2 shall include interest accrued after the Petition Date through the Interest Accrual Limitation Date at the Federal Judgment Rate.

19.Class E-3—Intercompany Interests

a.Classification:  Class E-3 consists of all Intercompany Interests.

b.Treatment:  In full satisfaction, settlement, release, and discharge of and in exchange for each and every Interest in Class E-3, Interests in Class E-3 shall be Reinstated for the benefit of the Holders thereof in exchange for Reorganized Debtors’ agreement to make certain distributions to the Holders of Allowed Unsecured Claims and Interests under the Plan, to provide management services to certain other Reorganized Debtors, and to use certain funds and assets, to the extent authorized in the Plan, to satisfy certain obligations between and among such Reorganized Debtors.

C.Class Voting Rights:  The voting rights of each Class are as follows.

1.Classes Entitled to Vote:  The following Classes are Impaired and thus entitled to vote to accept or reject the Plan.

Classes

C-1

C-2

C-3

C-4

C-5

C-6

C-7

C-8

C-9

C-10

D

E-1

E-2

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2.Presumed Acceptance of Plan:  The following Classes are Unimpaired and deemed to accept the Plan or are Impaired but deemed to accept the Plan.  Therefore, such Classes are not entitled to vote to accept or reject the Plan and the vote of such Holders of Claims and Interests shall not be solicited.

Classes

A-1

A-2

A-3

B

C-11

E-3

D.Acceptance or Rejection of the Plan

1.Acceptance by Impaired Classes of Claims:  Pursuant to section 1126(c) of the Bankruptcy Code and except as otherwise provided in section 1126(e) of the Bankruptcy Code, an Impaired Class of Claims has accepted the Plan if the Holders of at least two-thirds in dollar amount and more than one-half in number of the Allowed Claims in such Class actually voting have voted to accept the Plan.

2.Acceptance by Impaired Classes of Interests:  Pursuant to section 1126(d) of the Bankruptcy Code and except as otherwise provided in section 1126(e) of the Bankruptcy Code, an Impaired Class of Interests has accepted the Plan if the Holders of at least two-thirds in amount of the Allowed Interests of such Class actually voting have voted to accept the Plan.

3.Tabulation of Votes:  The Debtors will tabulate all votes on the Plan on a consolidated basis for the purpose of determining whether the Plan satisfies sections 1129(a)(8) and (10) of the Bankruptcy Code.  All votes on account of Allowed Claims and Interests shall be counted as if Filed against a single consolidated Estate.

4.Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code:  Section 1129(a)(10) of the Bankruptcy Code shall be satisfied for purposes of Confirmation by acceptance of the Plan by an Impaired Class of Claims.  The Debtors shall seek Confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code with respect to any rejecting Class of Claims or Interests.

5.Controversy Concerning Impairment:  If a controversy arises as to whether any Claims or Interests, or any Class of Claims or Interests, are Impaired, the Bankruptcy Court shall, after notice and a hearing, determine such controversy on or before the Confirmation Date.

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ARTICLE IV.

PROVISIONS FOR IMPLEMENTATION OF THE PLAN

A.Substantive Consolidation:  The Plan shall serve as a motion by the Debtors seeking entry of a Bankruptcy Court order substantively consolidating all of the Estates into a single consolidated Estate for all purposes associated with Confirmation and Consummation.

If substantive consolidation of all of the Estates is ordered, then on and after the Effective Date, all assets and liabilities of the Debtors shall be treated as though they were merged into the Estate of Calpine for all purposes associated with Confirmation and Consummation, and all guarantees by any Debtor of the obligations of any other Debtor shall be eliminated so that any Claim and any guarantee thereof by any other Debtor, as well as any joint and several liability of any Debtor with respect to any other Debtor shall be treated as one collective obligation of the Debtors.  Substantive consolidation shall not affect the legal and organizational structure of the Reorganized Debtors or their separate corporate existences or any prepetition or postpetition guarantees, Liens, or security interests that are required to be maintained under the Bankruptcy Code, under the Plan, or, in connection with contracts or leases that were assumed or entered into during the Chapter 11 Cases.  Any alleged defaults under any applicable agreement with the Debtors, the Reorganized Debtors, or the Affiliates arising from substantive consolidation under the Plan shall be deemed cured as of the Effective Date.

B.Sources of Consideration for Plan Distributions:  The Reorganized Debtors shall fund distributions under the Plan with Cash on hand, existing assets, the post-Confirmation borrowings described below, and the issuance of New Calpine Common Stock.

1.New Credit Facility:  On the Effective Date, the Reorganized Debtors shall enter into the New Credit Facility.  Confirmation shall be deemed approval of the New Credit Facility (including the transactions contemplated thereby, such as any supplementation or additional syndication of the New Credit Facility, and all actions to be taken, undertakings to be made, and obligations to be incurred by the Reorganized Debtors in connection therewith, including the payment of all fees, indemnities, and expenses provided for therein) and authorization for the Reorganized Debtors to enter into and execute the New Credit Facility documents and such other documents as the New Credit Facility Lenders may reasonably require to effectuate the treatment afforded to such lenders pursuant to the New Credit Facility, subject to such modifications as the Reorganized Debtors, with the consent of the Creditors’ Committee as to material modifications, may deem to be reasonably necessary to consummate such New Credit Facility.  The Reorganized Debtors may use the New Credit Facility for any purpose permitted thereunder, including the funding of obligations under the Plan, such as the payment of Administrative Claims, and satisfaction of ongoing working capital needs.

2.New Calpine Common Stock:  On the Effective Date, Reorganized Calpine shall issue New Calpine Common Stock (based upon the New Calpine Total Enterprise Value) for distribution as follows: (a) all New Calpine Common Stock to be issued under the Plan shall be distributed to the New Calpine Common Stock Pool For Creditors (after setting aside sufficient New Calpine Common Stock to fund the Management and Director Equity Incentive Plan); (b) after all Allowed Claims (excluding Subordinated Debt Securities Claims and Subordinated Equity Securities Claims) are satisfied in full, any remaining New Calpine Common Stock to be

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issued under the Plan shall be distributed to the New Calpine Common Stock Pool For Subordinated Debt Securities Claimants; and (c) after all Allowed Subordinated Debt Securities Claims are satisfied in full, any remaining New Calpine Common Stock to be issued under the Plan shall be distributed to the New Calpine Common Stock Pool For Shareholders.

a.Section 1145 Exemption:  Pursuant to section 1145 of the Bankruptcy Code, the offering, issuance, and distribution of any Securities contemplated by the Plan and any and all settlement agreements incorporated therein, including the New Calpine Common Stock, shall be exempt from, among other things, the registration requirements of section 5 of the Securities Act and any other applicable law requiring registration prior to the offering, issuance, distribution, or sale of Securities.  In addition, under section 1145 of the Bankruptcy Code any Securities contemplated by the Plan, including the New Calpine Common Stock, will be freely tradable by the recipients thereof, subject to (i) the provisions of section 1145(b)(1) of the Bankruptcy Code relating to the definition of an underwriter in section 2(a)(11) of the Securities Act, and compliance with any rules and regulations of the Securities and Exchange Commission, if any, applicable at the time of any future transfer of such Securities or instruments; (ii) the restrictions, if any, on the transferability of such Securities and instruments; and (iii) applicable regulatory approval.

b.Listing Rights:  Reorganized Calpine shall use reasonable efforts to list the New Calpine Common Stock on a national securities exchange or for quotation on a national automated interdealer quotation system on the Effective Date, but shall have no liability if it is unable to do so.  Entities receiving distributions of New Calpine Common Stock, by accepting such distributions, shall be deemed to have agreed to cooperate with the Reorganized Debtors’ reasonable requests to assist them in their efforts to list the New Calpine Common Stock on a national securities exchange or quotation system.

c.Restrictions on Resale of Securities to Protect Net Operating Losses:  The Reorganized Calpine Charter shall contain the restrictions on the transfer of New Calpine Common Stock in the same form and substance as those contained in the New Calpine Trading Restriction Term Sheet to minimize the likelihood of any potential adverse federal income tax consequences resulting from an ownership change (as defined in section 382 of the Internal Revenue Code) in Reorganized Calpine.

d.Issuance and Distribution of the New Calpine Common Stock:  The New Calpine Common Stock, when issued or distributed as provided in the Plan, will be duly authorized, validly issued, and, if applicable, fully paid and nonassessable.  Each distribution and issuance referred to in ‎ARTICLE III shall be governed by the terms and conditions set forth in the Plan applicable to such distribution or issuance and by the terms and conditions of the instruments evidencing or relating to such distribution or issuance, which terms and conditions shall bind each Entity receiving such distribution or issuance.

C.Corporate Existence:  Except as otherwise provided in the Plan, each Debtor shall continue to exist after the Effective Date as a separate corporate entity, limited liability company, partnership, or other form, as the case may be, with all the powers of a corporation, limited

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liability company, partnership, or other form, as the case may be, pursuant to the applicable law in the jurisdiction in which each applicable Debtor is incorporated or formed and pursuant to the respective certificate of incorporation and bylaws (or other formation documents) in effect prior to the Effective Date, except to the extent such certificate of incorporation and bylaws (or other formation documents) are amended by the Plan or otherwise, and to the extent such documents are amended, such documents are deemed to be pursuant to the Plan and require no further action or approval.

D.Vesting of Assets in the Reorganized Debtors:  Except as otherwise provided in the Plan or any agreement, instrument, or other document incorporated therein, on the Effective Date, all property in each Estate, all Causes of Action, and any property acquired by any of the Debtors pursuant to the Plan shall vest in each respective Reorganized Debtor, free and clear of all Liens, Claims, charges, or other encumbrances (except for Liens, if any, granted to secure the New Credit Facility and Claims pursuant to the DIP Facility that by their terms survive termination of the DIP Facility).  On and after the Effective Date, except as otherwise provided in the Plan, each Reorganized Debtor may operate its business and may use, acquire, or dispose of property and compromise or settle any Claims, Interests, or Causes of Action without supervision or approval by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules.

E.Cancellation of Debt and Equity Securities and Related Obligations:  On the Effective Date, except as otherwise specifically provided for in the Plan: (1) the Old Calpine Common Stock and any other Certificate, note, bond, indenture, purchase right, option, warrant, or other instrument or document directly or indirectly evidencing or creating any indebtedness or obligation of or ownership interest in the Debtors giving rise to any Claim or Interest (except such Certificates, notes, other instruments or documents evidencing indebtedness or obligations of the Debtors that are Reinstated pursuant to the Plan), shall be cancelled solely as to the Debtors, and the Reorganized Debtors shall not have any continuing obligations thereunder and (2) the obligations of the Debtors pursuant, relating, or pertaining to any agreements, indentures, certificates of designation, bylaws, or certificate or articles of incorporation or similar documents governing the Old Calpine Common Stock and any other Certificates, notes, bonds, indentures, purchase rights, options, warrants, or other instruments or documents evidencing or creating any indebtedness or obligation of the Debtors (except such agreements or Certificates, notes or other instruments evidencing indebtedness or obligations of the Debtors that are specifically Reinstated pursuant to the Plan) shall be released and discharged; provided, however, that notwithstanding Confirmation, any such indenture or agreement that governs the rights of the Holder of a Claim or Interest shall continue in effect solely for purposes of: (w) allowing Holders to receive distributions under the Plan; (x) allowing a Servicer to make distributions on account of such Claims or Interests as provided in ‎ARTICLE VII; (y) permitting such Servicer to maintain any rights and Liens it may have against property other than the Reorganized Debtors’ property for fees, costs, and expenses pursuant to such indenture or other agreement; and (z) governing the rights and obligations of non-Debtor parties to such agreements vis-à-vis each other; provided, further, however, that the preceding proviso shall not affect the discharge of Claims or Interests pursuant to the Bankruptcy Code, the Confirmation Order, or the Plan, or result in any expense or liability to the Reorganized Debtors.  The Reorganized Debtors shall not have any obligations to any Servicer for any fees, costs, or expenses, except as expressly otherwise provided in the Plan.  Notwithstanding the foregoing, the indenture governing the First

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Lien Debt Claims and any related documents thereto governing the rights and obligations of the Debtors and non-Debtor parties with respect to the First Lien Debt Claims shall survive for purposes of the First Lien Makewhole Claim litigation, until such time as the First Lien Debt Claims have been Allowed by a Final Order and the obligations are satisfied in accordance with the terms of the Plan or the First Lien Debt Claims have been disallowed by Final Order.  Nothing in the Plan or Confirmation Order shall affect the continuing effectiveness of the bonds, indentures, and other documents related to the KIAC And Nissequogue Leasehold Interests.

F.Restructuring Transactions:  On the Effective Date or as soon as reasonably practicable thereafter, the Reorganized Debtors may take all actions as may be necessary or appropriate to effect any transaction described in, approved by, contemplated by, or necessary to effectuate the Plan, including: (1) the execution and delivery of appropriate agreements or other documents of merger, consolidation, or reorganization containing terms that are consistent with the terms of the Plan and that satisfy the requirements of applicable law; (2) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any property, right, liability, duty, or obligation on terms consistent with the terms of the Plan; (3) the filing of appropriate certificates of incorporation, merger, or consolidation with the appropriate governmental authorities pursuant to applicable law; (4) the Roll-Up Transactions; and (5) all other actions that the Reorganized Debtors determine are necessary or appropriate, including the making of filings or recordings in connection with the relevant Roll-Up Transactions.  The form of each Roll-Up Transaction shall be determined by the Reorganized Debtor that is party to such Roll-Up Transaction.  Implementation of the Roll-Up Transactions shall not affect any distributions, discharges, exculpations, releases, or injunctions set forth in the Plan.  Prior to the Effective Date, the Debtors shall have obtained the reasonable consent of the Creditors’ Committee regarding their intentions with respect to the Roll-Up Transactions.

G.Post-Confirmation Property Sales:  To the extent the Debtors or Reorganized Debtors, as applicable, sell any of their property prior to or including the date that is one year after Confirmation, the Debtors or Reorganized Debtors, as applicable, may elect to sell such property pursuant to sections 363, 1123, and 1146(a) of the Bankruptcy Code.

H.Corporate Action:  Each of the matters provided for by the Plan involving the corporate structure of the Debtors or corporate or related actions to be taken by or required of the Reorganized Debtors shall, as of the Effective Date, be deemed to have occurred and be effective as provided in the Plan (except to the extent otherwise indicated), and shall be authorized, approved, and, to the extent taken prior to the Effective Date, ratified in all respects without any requirement of further action by Holders of Claims or Interests, directors of the Debtors, or any other Entity.  Without limiting the foregoing, such actions may include:  the adoption and filing of the Reorganized Calpine Charter and Reorganized Calpine Bylaws; the appointment of directors and officers for the Reorganized Debtors; the adoption, implementation, and amendment of the Management and Director Equity Incentive Plan; and consummation or implementation of the New Credit Facility.

I.Certificate of Incorporation and Bylaws:  The certificates of incorporation and bylaws (or other formation documents relating to limited liability companies, limited partnerships, or other forms of Entity) of the Debtors (other than Calpine) shall be amended in a form reasonably acceptable to the Creditors’ Committee as may be required to be consistent with the provisions

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of the Plan and the Bankruptcy Code.  The certificate of incorporation and bylaws of Calpine shall be amended as may be required to be consistent with the provisions of the Plan and the Bankruptcy Code, and the form and substance of the Reorganized Calpine Charter and Reorganized Calpine Bylaws shall be included in the Plan Supplement not less than fourteen days before the Voting Deadline.  The certificate of incorporation of Reorganized Calpine shall be amended to, among other things:  (1) authorize issuance of the shares of New Calpine Common Stock and (2) pursuant to and only to the extent required by section 1123(a)(6) of the Bankruptcy Code, include (a) a provision prohibiting the issuance of non-voting equity securities and (b) a provision setting forth an appropriate distribution of voting power among classes of equity securities possessing voting power, including, in the case of any class of equity securities having a preference over another class of equity securities with respect to dividends, adequate provisions for the election of directors representing such preferred class in the event of default in the payment of such dividends.  On or as soon as reasonably practicable after the Effective Date, to the extent required, each of the Reorganized Debtors (other than Reorganized Calpine) shall file new certificates of incorporation (or other formation documents relating to limited liability companies, limited partnerships, or other forms of Entity) in a form reasonably acceptable to the Creditors’ Committee with the secretary (or equivalent state officer or Entity) of the state under which each such Reorganized Debtor is or is to be incorporated or organized.  On or as soon as reasonably practicable after the Effective Date, to the extent required, Reorganized Calpine shall file the Reorganized Calpine Charter with the secretary (or equivalent state officer or Entity) of the state under which Reorganized Calpine is or is to be incorporated or organized.  After the Effective Date, each Reorganized Debtor may amend and restate its new certificate of incorporation and other constituent documents as permitted by the relevant state corporate law.

J.Effectuating Documents, Further Transactions:  On and after the Effective Date, the Reorganized Debtors, and the officers and members of the boards of directors thereof, are authorized to and may issue, execute, deliver, file, or record such contracts, Securities, instruments, releases, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate, implement, and further evidence the terms and conditions of the Plan and the Securities issued pursuant to the Plan in the name of and on behalf of the Reorganized Debtors, without the need for any approvals, authorizations, or consents except for those expressly required pursuant to the Plan.

K.Exemption from Certain Transfer Taxes and Recording Fees:  Pursuant to section 1146(a) of the Bankruptcy Code, any transfer from a Debtor to a Reorganized Debtor or to any Entity pursuant to, in contemplation of, or in connection with the Plan or pursuant to:  (1) the issuance, distribution, transfer, or exchange of any debt, equity security, or other interest in the Debtors or the Reorganized Debtors; (2) the creation, modification, consolidation, or recording of any mortgage, deed of trust, or other security interest, or the securing of additional indebtedness by such or other means; (3) the making, assignment, or recording of any lease or sublease; or (4) the making, delivery, or recording of any deed or other instrument of transfer under, in furtherance of, or in connection with, the Plan, including any deeds, bills of sale, assignments, or other instrument of transfer executed in connection with any transaction arising out of, contemplated by, or in any way related to the Plan, shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, FERC filing or recording fee, or other similar tax or governmental assessment, and the appropriate state

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or local governmental officials or agents shall forego the collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment.

L.Directors and Officers of Reorganized Calpine:  On the Effective Date, the term of the current members of the board of directors of Calpine shall expire, and the initial board of directors of Reorganized Calpine shall consist of the Persons selected in accordance with the Board Selection Term Sheet, a copy of which shall be included in the Plan Supplement.  In accordance with section 1129(a)(5) of the Bankruptcy Code, the identities and affiliations of any Person proposed to serve as an officer or director of Reorganized Calpine shall have been disclosed at or before the Confirmation Hearing or such earlier date as required by the Board Selection Term Sheet.  To the extent any Person proposed to serve as a board member or an officer of Reorganized Calpine is an Insider, the nature of any compensation for such Person shall have been disclosed at or before the Confirmation Hearing.  The classification and composition of the board of directors of Reorganized Calpine shall be consistent with the Reorganized Calpine Charter and the Reorganized Calpine Bylaws.  Each director or officer of Reorganized Calpine shall serve from and after the Effective Date pursuant to the terms of the Reorganized Calpine Charter, the Reorganized Calpine Bylaws, or other constituent documents, and applicable state corporation law.

M.Directors and Officers of Reorganized Debtors Other Than Calpine:  Unless otherwise provided in the Debtors’ disclosure pursuant to section 1129(a)(5) of the Bankruptcy Code, the officers and directors of each of the Debtors other than Calpine shall continue to serve in their current capacities after the Effective Date.  The classification and composition of the boards of directors of the Reorganized Debtors other than Reorganized Calpine shall be consistent with their respective new certificates of incorporation and bylaws.  Each such director or officer shall serve from and after the Effective Date pursuant to the terms of such new certificate of incorporation, bylaws, other constituent documents, and applicable state corporation law.  In accordance with section 1129(a)(5) of the Bankruptcy Code, the identities and affiliations of any Person proposed to serve as an officer or director of the Reorganized Debtors other than Reorganized Calpine shall have been disclosed at or before the Confirmation Hearing.

N.Employee and Retiree Benefits:  Except with respect to any Rejected Employment Agreements, on and after the Effective Date, the Reorganized Debtors may: (1) honor, in the ordinary course of business, any contracts, agreements, policies, programs, and plans for, among other things, compensation (including equity based and bonus compensation), health care benefits, disability benefits, deferred compensation benefits, travel benefits, savings, severance benefits, retirement benefits, welfare benefits, workers’ compensation insurance, and accidental death and dismemberment insurance for the directors, officers, and employees of any of the Debtors who served in such capacity at any time and (2) distribute or reallocate any unused designated employee success fee and bonus funds related to Confirmation and Consummation in the ordinary course of their business; provided, however, that the Debtors’ or Reorganized Debtors’ performance of any employment agreement that is not a Rejected Employment Agreement will not entitle any Person to any benefit or alleged entitlement under any policy, program, or plan that has expired or been terminated before the Effective Date, or restore, reinstate, or revive any such benefit or alleged entitlement under any such policy, program, or

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plan.  Nothing in the Plan shall limit, diminish, or otherwise alter the Reorganized Debtors’ defenses, claims, Causes of Action, or other rights with respect to any such contracts, agreements, policies, programs, and plans.  Notwithstanding the foregoing, pursuant to section 1129(a)(13) of the Bankruptcy Code, on and after the Effective Date, all retiree benefits (as that term is defined in section 1114 of the Bankruptcy Code), if any, shall continue to be paid in accordance with applicable law.

O.Management and Director Equity Incentive Plan:  The Reorganized Debtors shall implement the Management and Director Equity Incentive Plan, which shall be deemed effective as of the Effective Date.  The terms of the Management and Director Equity Incentive Plan shall be set forth in the Plan Supplement and provide for aggregate grants of New Calpine Common Stock to certain management, employees, and directors of certain of the Reorganized Debtors of between 2% to 3% of the New Calpine Common Stock (inclusive of initial grants and reserves for future grants) to be issued under the Plan.  The compensation committee of the board of directors of Calpine will determine in advance of the Voting Deadline the terms and conditions of the initial grants and the recipients thereof (provided that the Creditors’ Committee’s consent, which shall not be unreasonably withheld, shall be obtained in connection with the terms and conditions of any initial grants and the recipients thereof).  The Debtors will disclose in an exhibit to the Plan Supplement on or before the Plan Supplement Filing Deadline the terms and conditions of the initial grants, the amount of the initial grant for each Named Executive Officer position, and the aggregate amount of the initial grants for all other recipients.  With respect to Robert P. May, as Chief Executive Officer of Reorganized Calpine, if Mr. May has not entered into a new employment agreement with Reorganized Calpine within six months after the Effective Date, the initial grant under the Management and Director Equity Incentive Plan to Mr. May shall be null and void and Mr. May shall not be entitled to any additional compensation on account thereof; provided, however, that if there is a change in control in Reorganized Calpine while Mr. May is employed as the Chief Executive Officer within six months after the Effective Date, the initial grant under the Management and Director Equity Incentive Plan to Mr. May shall vest and remain in full force and effect regardless of whether Mr. May entered into a new employment agreement with Reorganized Calpine within six months after the Effective Date.  All other terms and conditions of the Management and Director Equity Incentive Plan shall be determined by the board of directors of Reorganized Calpine.  For purposes hereof, “change in control” shall mean the sale of all or substantially all of the assets of the Reorganized Debtors or the acquisition by one or more related entities of 50.1% or more of the New Calpine Common Stock.  The board of directors of Reorganized Calpine shall determine the permanent long-term Chief Executive Officer of Reorganized Calpine and shall also discharge its other fiduciary duties in good faith and in accordance with applicable laws and regulations.

P.Creation of Professional Fee Escrow Account:  On the Effective Date, the Reorganized Debtors shall establish the Professional Fee Escrow Account and reserve an amount necessary to pay all of the Accrued Professional Compensation.

Q.Preservation of Rights of Action:  In accordance with section 1123(b) of the Bankruptcy Code, the Reorganized Debtors shall retain and may enforce all rights to commence and pursue, as appropriate, any and all Causes of Action, whether arising before or after the Petition Date, including any actions specifically enumerated in the Plan Supplement, and the Reorganized Debtors’ rights to commence, prosecute, or settle such Causes of Action shall be preserved

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notwithstanding the occurrence of the Effective Date.  The Reorganized Debtors may pursue such Causes of Action, as appropriate, in accordance with the best interests of the Reorganized Debtors.  No Entity may rely on the absence of a specific reference in the Plan, the Plan Supplement, or the Disclosure Statement to any Cause of Action against them as any indication that the Debtors or Reorganized Debtors, as applicable, will not pursue any and all available Causes of Action against them.  The Debtors or Reorganized Debtors, as applicable, expressly reserve all rights to prosecute any and all Causes of Action against any Entity, except as otherwise expressly provided in the Plan.  Unless any Causes of Action against an Entity are expressly waived, relinquished, exculpated, released, compromised, or settled in the Plan or a Bankruptcy Court order, the Reorganized Debtors expressly reserve all Causes of Action, for later adjudication, and, therefore no preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable or otherwise), or laches, shall apply to such Causes of Action upon, after, or as a consequence of the Confirmation or Consummation.

The Reorganized Debtors reserve and shall retain the foregoing Causes of Action notwithstanding the rejection or repudiation of any executory contract or unexpired lease during the Chapter 11 Cases or pursuant to the Plan.  In accordance with section 1123(b)(3) of the Bankruptcy Code, any Causes of Action that a Debtor may hold against any Entity shall vest in the Reorganized Debtors, as the case may be.  The applicable Reorganized Debtor, through its authorized agents or representatives, shall retain and may exclusively enforce any and all such Causes of Action.  The Reorganized Debtors shall have the exclusive right, authority, and discretion to determine and to initiate, file, prosecute, enforce, abandon, settle, compromise, release, withdraw, or litigate to judgment any such Causes of Action and to decline to do any of the foregoing without the consent or approval of any third party or further notice to or action, order, or approval of the Bankruptcy Court, except with respect to any actions pending as of the Effective Date to which the Creditors’ Committee is a party in which case all of the foregoing rights shall be as they were immediately before the Effective Date.

ARTICLE V.

TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

A.Assumption and Rejection of Executory Contracts and Unexpired Leases:  Except as otherwise provided in the Plan, the Debtors’ executory contracts or unexpired leases not assumed or rejected pursuant to a Bankruptcy Court order prior to the Effective Date shall be deemed rejected pursuant to sections 365 and 1123 of the Bankruptcy Code, except for those executory contracts or unexpired leases: (1) listed on the schedule of “Assumed Executory Contracts and Unexpired Leases” in the Plan Supplement; (2) listed on the schedule of “Rejected Executory Contracts and Unexpired Leases” in the Plan Supplement; (3) that are Intercompany Contracts, in which case such Intercompany Contracts are deemed automatically assumed by the applicable Debtor as of the Effective Date, unless such Intercompany Contract previously was rejected by the Debtors pursuant to a Bankruptcy Court order, is the subject of a motion to reject pending on the Effective Date, or is listed on the schedule of “Rejected Executory Contracts and Unexpired Leases” in the Plan Supplement; (4) that are the subject of a motion to assume or reject pending on the Effective Date (in which case such assumption or rejection and the effective date thereof shall remain subject to a Bankruptcy Court order); (5) that are subject to a motion to reject with a requested effective date of rejection after the Effective Date; or (6) that are otherwise expressly

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assumed or rejected pursuant to the Plan (including ‎ARTICLE V as set forth below).  Entry of the Confirmation Order shall constitute a Bankruptcy Court order approving the assumptions or rejections of such executory contracts or unexpired leases as set forth in the Plan, all pursuant to sections 365(a) and 1123 of the Bankruptcy Code.  Unless otherwise indicated, all assumptions or rejections of such executory contracts and unexpired leases in the Plan are effective as of the Effective Date.  Each such executory contract and unexpired lease assumed pursuant to the Plan or by Bankruptcy Court order but not assigned to a third party prior to the Effective Date shall revest in and be fully enforceable by the applicable contracting Reorganized Debtor in accordance with its terms, except as such terms may have been modified by such order.  Notwithstanding anything to the contrary in the Plan, the Debtors or Reorganized Debtors, as applicable, reserve the right to alter, amend, modify, or supplement the schedules of executory contracts or unexpired leases identified in ‎ARTICLE V and in the Plan Supplement at any time through and including the later of fifteen days after the Effective Date or such other date as set forth in ‎ARTICLE V.C; provided, however, that this sentence shall not apply to the executory contracts with Hess Corporation (formerly known as Amerada Hess Corporation), the Industrial Development Corporation of the City of Edinburg, Texas, or BP Amoco Chemical Co.

1.Indemnification Obligations:  Each Indemnification Obligation shall be assumed by the applicable Debtor effective as of the Effective Date, pursuant to sections 365 and 1123 of the Bankruptcy Code, to the extent such Indemnification Obligation is executory, unless such Indemnification Obligation previously was rejected by the Debtors pursuant to a Bankruptcy Court order, is the subject of a motion to reject pending on the Effective Date, or is listed on the schedule of “Rejected Indemnification Obligations for Former Employees” in the Plan Supplement.  Notwithstanding the foregoing, an Indemnification Obligation to any Person who as of the Petition Date no longer was a director, officer, or employee of a Debtor, shall terminate and be discharged pursuant to section 502(e) of the Bankruptcy Code or otherwise, as of the Effective Date; provided, however, that the Reorganized Debtors reserve the right to honor or reaffirm Indemnification Obligations other than those terminated by a prior or subsequent order of the Bankruptcy Court, whether or not executory, in which case such honoring or reaffirmation shall be in complete satisfaction, discharge, and release of any Claim on account of such Indemnification Obligation.  Each Indemnification Obligation that is assumed, deemed assumed, honored, or reaffirmed shall remain in full force and effect, shall not be modified, reduced, discharged, impaired, or otherwise affected in any way, and shall survive Unimpaired and unaffected, irrespective of when such obligation arose.

2.Repudiation of FERC Jurisdictional Contracts:  Each FERC Jurisdictional Contract shall be deemed automatically assumed as of the Effective Date pursuant to sections 365 and 1123 of the Bankruptcy Code, unless such FERC Jurisdictional Contract was previously repudiated by the Debtors by written notice, a Bankruptcy Court order, or is listed on the schedule of “Repudiated FERC Jurisdictional Contracts” in the Plan Supplement (in which list all such listed FERC Jurisdictional Contracts shall be deemed repudiated as of the Effective Date); provided, however, that if a Final Order in the PPA Litigation authorizes the Debtors or Reorganized Debtors, as applicable, to reject any FERC Jurisdictional Contracts, then all FERC Jurisdictional Contracts listed on the schedule of “Repudiated FERC Jurisdictional Contracts” shall be deemed automatically rejected as of the Effective Date.

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B.Cure of Defaults for Assumed Executory Contracts and Unexpired Leases:  With respect to each of the Debtors’ executory contracts or unexpired leases listed on the schedule of “Assumed Executory Contracts and Unexpired Leases,” the Debtors shall have designated a proposed Cure, and the assumption of such executory contract or unexpired lease may be conditioned upon the disposition of all issues with respect to Cure.  Any provisions or terms of the Debtors’ executory contracts or unexpired leases to be assumed pursuant to the Plan that are, or may be, alleged to be in default, shall be satisfied solely by Cure, or by an agreed-upon waiver of Cure.  Except with respect to executory contracts and unexpired leases in which the Debtors and the applicable counterparties have stipulated in writing to payment of Cure, all requests for payment of Cure that differ from the amounts proposed by the Debtors must be Filed with the Claims and Solicitation Agent on or before the Cure Bar Date.  Any request for payment of Cure that is not timely Filed shall be disallowed automatically and forever barred from assertion and shall not be enforceable against any Reorganized Debtor, without the need for any objection by the Reorganized Debtors or further notice to or action, order, or approval of the Bankruptcy Court, and any Claim for Cure shall be deemed fully satisfied, released, and discharged upon payment by the Debtors of the amounts listed on the Debtors’ proposed Cure schedule, notwithstanding anything included in the Schedules or in any Proof of Claim to the contrary; provided, however, that nothing shall prevent the Reorganized Debtors from paying any Cure despite the failure of the relevant counterparty to File such request for payment of such Cure.  The Reorganized Debtors also may settle any Cure without further notice to or action, order, or approval of the Bankruptcy Court.

If the Debtors or Reorganized Debtors, as applicable, object to any Cure or any other matter related to assumption, the Bankruptcy Court shall determine the Allowed amount of such Cure and any related issues.  If there is a dispute regarding such Cure, the ability of the Reorganized Debtors or any assignee to provide “adequate assurance of future performance” within the meaning of section 365 of the Bankruptcy Code, or any other matter pertaining to assumption, then Cure shall occur as soon as reasonably practicable after entry of a Final Order resolving such dispute, approving such assumption (and, if applicable, assignment), or as may be agreed upon by the Debtors, in consultation with the Creditors’ Committee, or Reorganized Debtors, as applicable, and the counterparty to the executory contract or unexpired lease.  Any counterparty to an executory contract and unexpired lease that fails to object timely to the proposed assumption of any executory contract or unexpired lease will be deemed to have consented to such assumption.  The Debtors or Reorganized Debtors, as applicable, reserve the right either to reject or nullify the assumption of any executory contract or unexpired lease no later than thirty days after a Final Order determining the Cure or any request for adequate assurance of future performance required to assume such executory contract or unexpired lease.

Assumption of any executory contract or unexpired lease pursuant to the Plan or otherwise shall result in the full release and satisfaction of any Claims or defaults, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed executory contract or unexpired lease at any time prior to the effective date of assumption.  Any Proofs of Claim filed with respect to an executory contract or unexpired lease that has been assumed shall be deemed disallowed and expunged, without further notice to or action, order, or approval of the Bankruptcy Court.

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C.Executory Contracts and Unexpired Leases Relating to Projects to be Sold or Surrendered:  Each of the Debtors’ executory contracts and unexpired leases listed on the schedule of “Conditionally Assumed Executory Contracts and Unexpired Leases” in the Plan Supplement shall be deemed assumed by the contracting Debtors or Reorganized Debtor, as applicable, on a conditional basis pursuant to sections 365 and 1123 of the Bankruptcy Code, provided that the Debtors, with the reasonable consent of the Creditors’ Committee, or Reorganized Debtors, as applicable, may alter the treatment of such listed executory contracts and unexpired leases through the later of a date that is sixty days after the Effective Date or such other date as set forth in ‎ARTICLE V.A, at which time the executory contracts and unexpired leases remaining on such list are unconditionally assumed so that the Cure provisions of ‎ARTICLE V.B shall apply, and the executory contracts and unexpired leases no longer remaining on such list are unconditionally rejected or repudiated all pursuant to sections 365 and 1123 of the Bankruptcy Code or otherwise.

D.Preexisting Obligations to the Debtors Under Executory Contracts and Unexpired Leases:  Rejection or repudiation of any executory contract or unexpired lease pursuant to the Plan or otherwise shall not constitute a termination of pre-existing obligations owed to the Debtors under such contracts or leases.  In particular, notwithstanding any nonbankruptcy law to the contrary, the Reorganized Debtors expressly reserve and do not waive any right to receive, or any continuing obligation of a counterparty to provide, warranties or continued maintenance obligations on goods previously purchased by the contracting Debtors or Reorganized Debtors, as applicable, from counterparties to rejected or repudiated executory contracts.

E.Claims Based on Rejection or Repudiation of Executory Contracts and Unexpired Leases:  Unless otherwise provided by a Bankruptcy Court order, any Proofs of Claim asserting Claims arising from the rejection or repudiation of the Debtors’ executory contracts and unexpired leases pursuant to the Plan or otherwise must be Filed with the Claims and Solicitation Agent no later than thirty days after the later of the Effective Date or the effective date of rejection or repudiation.  Any Proofs of Claim arising from the rejection or repudiation of the Debtors’ executory contracts or unexpired leases that are not timely Filed shall be disallowed automatically, forever barred from assertion, and shall not be enforceable against any Reorganized Debtor without the need for any objection by the Reorganized Debtors or further notice to or action, order, or approval of the Bankruptcy Court, and any Claim arising out of the rejection or repudiation of the executory contract or unexpired lease shall be deemed fully satisfied, released, and discharged, notwithstanding anything in the Schedules or a Proof of Claim to the contrary.  All Allowed Claims arising from the rejection or repudiation of the Debtors’ executory contracts and unexpired leases shall be classified as Rejection Damages Claims and shall be treated in accordance with ‎ARTICLE III.B.11.

F.Intercompany Contracts, Contracts, and Leases Entered Into After the Petition Date:  Intercompany Contracts, contracts, and leases entered into after the Petition Date by any Debtor, and any executory contracts and unexpired leases assumed by any Debtor, may be performed by the applicable Reorganized Debtor in the ordinary course of business.

G.Guarantees Issued or Reinstated After the Petition Date:  Those guarantee obligations of any Debtor listed in the Plan Supplement shall be deemed Reinstated on the Effective Date, and such obligations, as well as any other guarantee obligations of any Debtor incurred after the

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Petition Date, shall be performed by the applicable Reorganized Debtor in the ordinary course of business pursuant to the terms thereof.

H.Modification of Executory Contracts and Unexpired Leases Containing Equity Ownership Restrictions:  All executory contracts and unexpired leases to be assumed, or conditionally assumed, under the Plan pursuant to sections 365 and 1123 of the Bankruptcy Code shall be deemed so assumed, or so conditionally assumed, without giving effect to any provisions contained in such executory contracts or unexpired leases restricting the change in control or ownership interest composition of any or all of the Debtors, and upon the Effective Date (1) any such restrictions shall be deemed of no further force and effect and (2) any breaches that may arise thereunder as a result of Confirmation or Consummation shall be deemed waived by the applicable non-Debtor counterparty.

I.Modifications, Amendments, Supplements, Restatements, or Other Agreements:  Unless otherwise provided in the Plan, each executory contract or unexpired lease that is assumed shall include all modifications, amendments, supplements, restatements, or other agreements that in any manner affect such executory contract or unexpired lease, and all executory contracts and unexpired leases related thereto, if any, including all easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, and any other interests, unless any of the foregoing agreements has been previously rejected or repudiated or is rejected or repudiated under the Plan.

Modifications, amendments, supplements, and restatements to prepetition executory contracts and unexpired leases that have been executed by the Debtors during the Chapter 11 Cases shall not be deemed to alter the prepetition nature of the executory contract or unexpired lease, or the validity, priority, or amount of any Claims that may arise in connection therewith.

J.Reservation of Rights:  Neither the exclusion nor inclusion of any contract or lease in the Plan Supplement, nor anything contained in the Plan, shall constitute an admission by the Debtors that any such contract or lease is in fact an executory contract or unexpired lease or that any Reorganized Debtor has any liability thereunder.  If there is a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection, the Debtors or Reorganized Debtors, as applicable, shall have thirty days following entry of a Final Order resolving such dispute to alter their treatment of such contract or lease.

K.Nonoccurrence of Effective Date:  In the event that the Effective Date does not occur, the Bankruptcy Court shall retain jurisdiction with respect to any consensual request to extend the deadline for assuming or rejecting unexpired leases pursuant to section 365(d)(4) of the Bankruptcy Code.

ARTICLE VI.

PROCEDURES FOR RESOLVING DISPUTED CLAIMS AND INTERESTS

A.Allowance of Claims and Interests:  After the Effective Date, each Reorganized Debtor shall have and retain any and all rights and defenses such Debtor had with respect to any Claim or Interest immediately prior to the Effective Date, including the Causes of Action referenced in ‎ARTICLE IV.Q.

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B.Claims and Interests Administration Responsibilities:  Except as otherwise specifically provided in the Plan, after the Effective Date, the Reorganized Debtors shall have the sole authority: (1) to File, withdraw, or litigate to judgment, objections to Claims or Interests; (2) to settle or compromise any Disputed Claim or Interest without any further notice to or action, order, or approval by the Bankruptcy Court; and (3) to administer and adjust the Claims Register to reflect any such settlements or compromises without any further notice to or action, order, or approval by the Bankruptcy Court.

C.Estimation of Claims and Interests:  Before or after the Effective Date, the Debtors or Reorganized Debtors, as applicable, may (but are not required to) at any time request that the Bankruptcy Court estimate any Disputed Claim or Interest that is contingent or unliquidated pursuant to section 502(c) of the Bankruptcy Code for any reason, regardless of whether any party previously has objected to such Claim or Interest or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court shall retain jurisdiction to estimate any such Claim or Interest, including during the litigation of any objection to any Claim or Interest or during the appeal relating to such objection.  Notwithstanding any provision otherwise in the Plan, a Claim or Interest that has been expunged from the Claims Register, but that either is subject to appeal or has not been the subject of a Final Order, shall be deemed to be estimated at zero dollars, unless otherwise ordered by the Bankruptcy Court.  In the event that the Bankruptcy Court estimates any contingent or unliquidated Claim or Interest, that estimated amount shall constitute a maximum limitation on such Claim or Interest for all purposes under the Plan (including for purposes of distributions), and the relevant Reorganized Debtor may elect to pursue any supplemental proceedings to object to any ultimate distribution on such Claim or Interest.

D.Adjustment to Claims Without Objection:  Any Claim or Interest that has been paid or satisfied, or any Claim or Interest that has been amended or superseded, may be adjusted or expunged on the Claims Register by the Reorganized Debtors without a claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court.  Beginning on the end of the first full calendar quarter that is at least ninety days after the Effective Date, the Reorganized Debtors shall publish every calendar quarter a list of all Claims or Interests that have been paid, satisfied, amended, or superseded during such prior calendar quarter.

E.Time to File Objections to Claims:  Any objections to Claims shall be Filed on or before the later of (1) the date that is one year after the Effective Date and (2) such date as may be fixed by the Bankruptcy Court, after notice and a hearing, whether fixed before or after the date that is one year after the Effective Date.

F.Disallowance of Claims or Interests:  Any Claims or Interests held by Entities from which property is recoverable under section 542, 543, 550, or 553 of the Bankruptcy Code or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of the Bankruptcy Code, shall be deemed disallowed pursuant to section 502(d) of the Bankruptcy Code, and Holders of such Claims and Interests may not receive any distributions on account of such Claims and Interests until such time as such Causes of Action against that Entity have been settled or a Bankruptcy Court order with respect thereto has been entered and all sums due, if any, to the Debtors by that Entity have been turned over or paid to the Reorganized

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Debtors.  All Claims Filed on account of an Indemnification Obligation to a director, officer, or employee shall be deemed satisfied and expunged from the Claims Register as of the Effective Date to the extent such Indemnification Obligation is assumed (or honored or reaffirmed, as the case may be) pursuant to the Plan, without any further notice to or action, order, or approval of the Bankruptcy Court.  All Claims Filed on account of a guarantee Reinstated pursuant to ‎ARTICLE V.G shall be deemed satisfied and expunged from the Claims Register, without any further notice to or action, order, or approval of the Bankruptcy Court.  All Claims Filed on account of an employee benefit referenced in ‎ARTICLE IV.N shall be deemed satisfied and expunged from the Claims Register as of the Effective Date to the extent the Reorganized Debtors elect to honor such employee benefit, without any further notice to or action, order, or approval of the Bankruptcy Court.

EXCEPT AS OTHERWISE AGREED, ANY AND ALL PROOFS OF CLAIM (INCLUDING SUBORDINATED DEBT AND EQUITY SECURITIES CLAIMS) FILED AFTER THE BAR DATE SHALL BE DEEMED DISALLOWED AND EXPUNGED AS OF THE EFFECTIVE DATE WITHOUT ANY FURTHER NOTICE TO OR ACTION, ORDER, OR APPROVAL OF THE BANKRUPTCY COURT, AND HOLDERS OF SUCH CLAIMS MAY NOT RECEIVE ANY DISTRIBUTIONS ON ACCOUNT OF SUCH CLAIMS, UNLESS ON OR BEFORE THE CONFIRMATION HEARING SUCH LATE CLAIM HAS BEEN DEEMED TIMELY FILED BY A BANKRUPTCY COURT ORDER.

G.Offer of Judgment:  The Reorganized Debtors are authorized to serve upon a Holder of a Claim an offer to allow judgment to be taken on account of such Claim, and, pursuant to Bankruptcy Rules 7068 and 9014, Federal Rule of Civil Procedure 68 shall apply to such offer of judgment.  To the extent the Holder of a Claim or Interest must pay the costs incurred by the Reorganized Debtors after the making of such offer, the Reorganized Debtors are entitled to setoff such amounts against the amount of any distribution to be paid to such Holder without any further notice to or action, order, or approval of the Bankruptcy Court.

H.Amendments to Claims:  On or after the Effective Date, except as provided in ‎ARTICLE V.E, a Claim may not be Filed or amended without the prior authorization of the Bankruptcy Court or the Reorganized Debtors, and any such new or amended Claim Filed shall be deemed disallowed in full and expunged without any further action.

ARTICLE VII.

PROVISIONS GOVERNING DISTRIBUTIONS

A.Total Enterprise Value for Purposes of Distributions Under the Plan and the New Calpine Stock Reserve:  Distributions of New Calpine Common Stock to Holders of Allowed Claims and Interests, and the establishment and maintenance of the New Calpine Stock Reserve, both as described below, shall be based upon, among other things, the New Calpine Total Enterprise Value.  For purposes of distribution, the New Calpine Common Stock shall be deemed to have the value assigned to it based upon, among other things, the New Calpine Total Enterprise Value regardless of the date of distribution.

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B.Distributions on Account of Claims and Interests Allowed as of the Effective Date:  Except as otherwise provided in the Plan, a Final Order, or as agreed to by the relevant parties  (which, prior to its dissolution, shall include the Creditors’ Committee) and subject to the establishment of the New Calpine Stock Reserve, initial distributions under the Plan on account of Claims and Interests Allowed on or before the Effective Date shall be made on the Distribution Date; provided, however, that (1) Allowed Administrative Claims with respect to liabilities incurred by the Debtors in the ordinary course of business during the Chapter 11 Cases or assumed by the Debtors prior to the Effective Date shall be paid or performed in the ordinary course of business in accordance with the terms and conditions of any controlling agreements, course of dealing, course of business, or industry practice and (2) Allowed Priority Tax Claims, unless otherwise agreed, shall be paid in full in Cash on the Distribution Date or over a five-year period as provided in section 1129(a)(9)(C) of the Bankruptcy Code with annual interest provided by applicable non-bankruptcy law.

C.Distributions on Account of Claims and Interests Allowed After the Effective Date:

1.Payments and Distributions on Disputed Claims and Interests:  Except as otherwise provided in the Plan, a Final Order, or as agreed to by the relevant parties, and subject to the establishment of the New Calpine Stock Reserve, distributions under the Plan on account of Disputed Claims and Interests that become Allowed after the Effective Date shall be made on the Periodic Distribution Date that is at least thirty days after the Disputed Claim or Interest becomes an Allowed Claim or Interest; provided, however, that (a) Disputed Administrative Claims with respect to liabilities incurred by the Debtors in the ordinary course of business during the Chapter 11 Cases or assumed by the Debtors on or before the Effective Date that become Allowed after the Effective Date shall be paid or performed in the ordinary course of business in accordance with the terms and conditions of any controlling agreements, course of dealing, course of business, or industry practice and (b) Disputed Priority Tax Claims that become Allowed Priority Tax Claims after the Effective Date, unless otherwise agreed, shall be paid in full in Cash on the Periodic Distribution Date that is at least thirty days after the Disputed Claim becomes an Allowed Claim or over a five-year period as provided in section 1129(a)(9)(C) of the Bankruptcy Code with annual interest provided by applicable non-bankruptcy law.

2.Special Rules for Distributions to Holders of Disputed Claims and Interests:  Notwithstanding any provision otherwise in the Plan and except as otherwise agreed by the relevant parties: (a) no partial payments and no partial distributions shall be made with respect to a Disputed Claim or Interest until all such disputes in connection with such Disputed Claim or Interest have been resolved by settlement or Final Order and (b) any Entity that holds both an Allowed Claim or Interest and a Disputed Claim or Interest shall not receive any distribution on the Allowed Claim or Interest unless and until all objections to the Disputed Claim or Interest have been resolved by settlement or Final Order and the Claims or Interests have been Allowed; provided, however, that the Reorganized Debtors shall make distributions to Holders of Allowed First Lien Debt Claims, Allowed Second Lien Debt Claims, Allowed Other Secured Claims, Allowed General Note Claims, Allowed Senior Note Claims, and Allowed Subordinated Note Claims on account of the Allowed portion of such Holders’ Claims.  In the event that there are Disputed Claims or Interests requiring adjudication and resolution, the Reorganized Debtors shall establish appropriate reserves for potential payment of such Claims or Interests pursuant to

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‎ARTICLE VII.C.3.  Subject to ‎ARTICLE VII, all distributions made pursuant to the Plan on account of an Allowed Claim or Interest shall be made together with any dividends, payments, or other distributions made on account of, as well as any obligations arising from, the distributed property as if such Allowed Claim or Interest had been an Allowed Claim or Interest on the dates distributions were previously made to Holders of Allowed Claims or Interests included in the applicable Class.

3.Reserve of New Calpine Common Stock:  On the Effective Date, the Reorganized Debtors shall maintain in reserve shares of New Calpine Common Stock as the New Calpine Stock Reserve to pay Holders of Allowed Claims and Interests pursuant to the terms of the Plan.  The amount of New Calpine Common Stock withheld as a part of the New Calpine Stock Reserve for the benefit of a Holder of a Disputed Claim or Interest shall be equal to the lesser of: (a) the number of shares necessary to satisfy the distributions required to be made pursuant to the Plan based on the asserted amount of the Disputed Claim or Interest or, if the Claim is denominated as contingent or unliquidated as of the Distribution Record Date, the amount that the Debtors, in consultation with the Creditors’ Committee, elect to withhold on account of such Claim in the New Calpine Stock Reserve; (b) the number of shares necessary to satisfy the distributions required to be made pursuant to the Plan for such Disputed Claim or Interest based on an amount as estimated by the Bankruptcy Court pursuant to section 502(c) of the Bankruptcy Code for purposes of allowance; or (c) the number of shares necessary to satisfy the distributions required to be made pursuant to the Plan based on an amount as may be agreed upon by the Holder of such Disputed Claim or Interest and the Reorganized Debtors.  As Disputed Claims and Interests are Allowed, the Distribution Agent shall distribute, in accordance with the terms of the Plan, New Calpine Common Stock to Holders of Allowed Claims and Interests, and the New Calpine Stock Reserve shall be adjusted.  The Distribution Agent shall withhold in the New Calpine Stock Reserve any dividends, payments, or other distributions made on account of, as well as any obligations arising from, the New Calpine Common Stock initially withheld in the New Calpine Stock Reserve, to the extent that such New Calpine Common Stock continues to be withheld in the New Calpine Stock Reserve at the time such distributions are made or such obligations arise, and such dividends, payments, or other distributions shall be held for the benefit of Holders of Disputed Claims and Interests whose Claims and Interests, if Allowed, are entitled to distributions under the Plan.  Nothing in the Plan shall require the Reorganized Debtors to reserve New Calpine Common Stock on account of agreements, programs, and plans the Debtors may continue to honor after the Effective Date pursuant to ‎ARTICLE IV.N and no such New Calpine Common Stock shall be so reserved.  The Reorganized Debtors may (but are not required to) request estimation for any Disputed Claim or Interest that is contingent or unliquidated, as set forth in ‎ARTICLE VI.C.

Notwithstanding anything in the applicable Holder’s Proof of Claim or otherwise to the contrary, the Holder of a Claim shall not be entitled to receive or recover a distribution under the Plan on account of a Claim in excess of the lesser of the amount: (a) stated in the Holder’s Proof of Claim, if any, as of the Distribution Record Date, plus interest thereon to the extent provided for by the Plan; (b) if the Claim is denominated as contingent or unliquidated as of the Distribution Record Date, the amount that the Debtors, in consultation with the Creditors’ Committee, elect to withhold on account of such Claim in the New Calpine Stock Reserve and set forth in the Plan Supplement, or such other amount as may be estimated by the Bankruptcy Court prior to the Confirmation Hearing; or (c) if

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a Claim has been estimated, the amount deposited in the New Calpine Stock Reserve to satisfy such Claim after such estimation.

For purposes of any shareholder vote occurring after the Effective Date, the Distribution Agent or Servicer, as applicable, shall be deemed to have voted any New Calpine Common Stock held in the New Calpine Stock Reserve in the same proportion as all outstanding shares properly cast in such shareholder vote.

4.Tax Reporting Matters:  Subject to definitive guidance from the Internal Revenue Service or an applicable court to the contrary (including the receipt by the Reorganized Debtors of a private letter ruling or the receipt of an adverse determination by the Internal Revenue Service upon audit, if not contested by the Reorganized Debtors), the Reorganized Debtors shall treat the New Calpine Stock Reserve as a single trust, consisting of separate and independent shares to be established with respect to each Disputed Claim or Interest, in accordance with the trust provisions of the Internal Revenue Code, and, to the extent permitted by law, shall report consistently with the foregoing for federal, state, and local tax purposes.  All Holders of Claims and Interests shall report, for federal, state, and local tax purposes, consistently with the foregoing.

D.Delivery of Distributions

1.Record Date for Distributions:  On the Distribution Record Date, the Claims Register shall be closed and any party responsible for making distributions pursuant to ‎ARTICLE VII shall instead be authorized and entitled to recognize only those record Holders listed on the Claims Register as of the close of business on the Distribution Record Date.  Notwithstanding the foregoing, if a Claim or Interest, other than one based on a publicly traded Certificate is transferred twenty or fewer days before the Distribution Record Date, the Distribution Agent shall make distributions to the transferee only to the extent practical and in any event only if the relevant transfer form contains an unconditional and explicit certification and waiver of any objection to the transfer by the transferor.

2.Distribution Agent:  The Distribution Agent shall make all distributions required under the Plan, except that distributions to Holders of Allowed Claims and Interests governed by a separate agreement and administered by a Servicer shall be deposited with the appropriate Servicer, at which time such distributions shall be deemed complete, and the Servicer shall deliver such distributions in accordance with the Plan and the terms of the governing agreement.

3.Delivery of Distributions in General:  Except as otherwise provided in the Plan, and notwithstanding any authority to the contrary, distributions to Holders of Allowed Claims and Interests shall be made to Holders of record as of the Distribution Record Date by the Distribution Agent or a Servicer, as appropriate: (a) in accordance with Federal Rule of Civil Procedure 4, as modified and made applicable by Bankruptcy Rule 7004; (b) to the signatory set forth on any of the Proofs of Claim or Interest Filed by such Holder or other representative identified therein (or at the last known addresses of such Holder if no Proof of Claim or Interest is Filed or if the Debtors have been notified in writing of a change of address); (c) at the addresses set forth in any written notices of address changes delivered to the Distribution Agent after the date of any related Proof of Claim or Interest; (d) at the addresses reflected in the

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Schedules if no Proof of Claim or Interest has been Filed and the Distribution Agent has not received a written notice of a change of address; or (e) on any counsel that has appeared in the Chapter 11 Cases on the Holder’s behalf.  Except as provided in ARTICLES IV.‎E and IX.A.‎7, distributions under the Plan on account of Allowed Claims and Interests shall not be subject to levy, garnishment, attachment, or like legal process, so that each Holder of an Allowed Claim or Interest shall have and receive the benefit of the distributions in the manner set forth in the Plan.  The Debtors, the Reorganized Debtors, and the Distribution Agent, as applicable, shall not incur any liability whatsoever on account of any distributions under the Plan except for gross negligence or willful misconduct.  Distributions to holders of publicly traded Certificates will be made in accordance with ‎ARTICLE VII.D.10.

4.Accrual of Dividends and Other Rights:  For purposes of determining the accrual of dividends or other rights after the Effective Date, the New Calpine Common Stock shall be deemed distributed as of the Effective Date regardless of the date on which it is actually issued, dated, authenticated, or distributed even though the Reorganized Debtors shall not pay any such dividends or distribute such other rights until distributions of the New Calpine Common Stock actually take place.  Except as specifically otherwise provided in the Plan, in no event shall interest accrue after the Interest Accrual Limitation Date on account of any satisfied portion of an Allowed Claim or Interest.

5.Allocation Between Principal and Accrued Interest:  Except as otherwise provided in the Plan, distributions on account of Allowed Claims and Interests shall be treated as allocated first to principal and interest accrued as of the Petition Date and thereafter, to the extent the New Calpine Total Enterprise Value is sufficient to satisfy such principal and interest accrued as of the Petition Date, any interest accrued from the Petition Date through the Interest Accrual Limitation Date.

6.Compliance Matters:  In connection with the Plan, to the extent applicable, the Reorganized Debtors and the Distribution Agent shall comply with all tax withholding and reporting requirements imposed on them by any Governmental Unit, and all distributions pursuant to the Plan shall be subject to such withholding and reporting requirements.  Notwithstanding any provision in the Plan to the contrary, the Reorganized Debtors and the Distribution Agent shall be authorized to take all actions necessary or appropriate to comply with such withholding and reporting requirements, including liquidating a portion of the distribution to be made under the Plan to generate sufficient funds to pay applicable withholding taxes, withholding distributions pending receipt of information necessary to facilitate such distributions, or establishing any other mechanisms they believe are reasonable and appropriate.  The Reorganized Debtors reserve the right to allocate all distributions made under the Plan in compliance with all applicable wage garnishments, alimony, child support, and other spousal awards, liens, and encumbrances.

7.Foreign Currency Exchange Rate:  Except as otherwise provided in the Plan or a Bankruptcy Court order, as of the Effective Date, any Unsecured Claim asserted in currency(ies) other than U.S. dollars shall be automatically deemed converted to the equivalent U.S. dollar value using the exchange rate as of Tuesday, December 20, 2005, as quoted at 4:00 p.m. (EDT), mid-range spot rate of exchange for the applicable currency as published in The Wall Street Journal, National Edition, on December 21, 2005.

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8.Fractional, De Minimis, Undeliverable, and Unclaimed Distributions:

a.Fractional Distributions:  Notwithstanding any other provision of the Plan to the contrary, payments of fractions of shares of New Calpine Common Stock shall not be made and shall be deemed to be zero, and the Distribution Agent shall not be required to make distributions or payments of fractions of dollars.  Whenever any payment of Cash of a fraction of a dollar pursuant to the Plan would otherwise be required, the actual payment shall reflect a rounding of such fraction to the nearest whole dollar (up or down), with half dollars or less being rounded down.

b.De Minimis Distributions:  Neither the Distribution Agent nor any Servicer shall have any obligation to make a distribution on account of an Allowed Claim or Interest from the New Calpine Stock Reserve or otherwise if: (i) the aggregate amount of all distributions authorized to be made from such New Calpine Stock Reserve or otherwise on the Periodic Distribution Date in question is or has an economic value less than $10,000,000, based on Calpine’s Total Enterprise Value, unless such distribution is a final distribution or (ii) the amount to be distributed to the specific Holder of an Allowed Claim or Interest on the particular Periodic Distribution Date does not constitute a final distribution to such Holder and is or has an economic value less than $500.

c.Undeliverable Distributions:  If any distribution to a Holder of an Allowed Claim or Interest is returned to a Distribution Agent as undeliverable, no further distributions shall be made to such Holder unless and until such Distribution Agent is notified in writing of such Holder’s then-current address, at which time all currently due missed distributions shall be made to such Holder on the next Periodic Distribution Date.  Undeliverable distributions shall remain in the possession of the Reorganized Debtors until such time as a distribution becomes deliverable, or such distribution reverts to the Reorganized Debtors pursuant to ‎ARTICLE VII.D.8.d, and shall not be supplemented with any interest, dividends, or other accruals of any kind.

d.Reversion:  Any distribution under the Plan that is an Unclaimed Distribution for a period of six months after distribution shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code and such Unclaimed Distribution shall revest in the Reorganized Debtors and, to the extent such Unclaimed Distribution is New Calpine Common Stock, shall be deemed cancelled.  Upon such revesting, the Claim or Interest of any Holder or its successors with respect to such property shall be cancelled, discharged, and forever barred notwithstanding any applicable federal or state escheat, abandoned, or unclaimed property laws to the contrary.  The provisions of the Plan regarding undeliverable distributions and Unclaimed Distributions shall apply with equal force to distributions that are issued by the Debtors, made pursuant to any indenture or Certificate (but only with respect to the initial distribution by the Servicer to Holders that are entitled to be recognized under the relevant indenture or Certificate and not with respect to Entities to whom those recognized Holders distribute), notwithstanding any provision in such indenture or Certificate to the contrary and notwithstanding any otherwise applicable federal or state escheat, abandoned, or unclaimed property law.

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9.Manner of Payment Pursuant to the Plan:  Any payment in Cash to be made pursuant to the Plan shall be made at the election of the Reorganized Debtors by check or by wire transfer.  Checks issued by the Distribution Agent or applicable Servicer on account of Allowed Claims and Interests shall be null and void if not negotiated within ninety days after issuance, but may be requested to be reissued until the distribution revests in the Reorganized Debtors pursuant to ‎ARTICLE VII.D.8.d.  The Debtors, with the consent of the Creditors’ Committee, or Reorganized Debtors, as applicable, may agree with any Holder of an Allowed Claim that is to receive New Calpine Common Stock under the Plan to satisfy such Allowed Claim with Cash generated from the sale of New Calpine Common Stock.  The Reorganized Debtors, or one or more third-party brokers or dealers, may effectuate such sales of New Calpine Common Stock, and such New Calpine Common Stock sold shall be entitled to the exemption set forth in ‎ARTICLE IV.B.2.a.

10.Surrender of Cancelled Instruments or Securities:  On the Effective Date or as soon as reasonably practicable thereafter, each Holder of a Certificate shall surrender such Certificate to the Distribution Agent or a Servicer (to the extent the relevant Claim or Interest is governed by an agreement and administered by a Servicer).  Such Certificate shall be cancelled solely with respect to the Debtors, and such cancellation shall not alter the obligations or rights of any non-Debtor third parties vis-à-vis one another with respect to such Certificate.  No distribution of property pursuant to the Plan shall be made to or on behalf of any such Holder unless and until such Certificate is received by the Distribution Agent or the Servicer or the unavailability of such Certificate is reasonably established to the satisfaction of the Distribution Agent or the Servicer pursuant to the provisions of ‎ARTICLE VII.D.11.  Any Holder who fails to surrender or cause to be surrendered such Certificate or fails to execute and deliver an affidavit of loss and indemnity acceptable to the Distribution Agent or the Servicer prior to the first anniversary of the Effective Date, shall have its Claim or Interest discharged with no further action, be forever barred from asserting any such Claim or Interest against the relevant Reorganized Debtor or its property, be deemed to have forfeited all rights, Claims, and Interests with respect to such Certificate, and not participate in any distribution under the Plan;  furthermore, all property with respect to such forfeited distributions, including any dividends or interest attributable thereto, shall revert to the Reorganized Debtors, notwithstanding any federal or state escheat, abandoned, or unclaimed property law to the contrary.  Notwithstanding the foregoing paragraph, ‎ARTICLE VII.D.10 shall not apply to any Claims Reinstated pursuant to the terms of the Plan.

11.Lost, Stolen, Mutilated, or Destroyed Debt Securities:  Any Holder of Allowed Claims or Interests evidenced by a Certificate that has been lost, stolen, mutilated, or destroyed shall, in lieu of surrendering such Certificate, deliver to the Distribution Agent or Servicer, if applicable, an affidavit of loss acceptable to the Distribution Agent or Servicer setting forth the unavailability of the Certificate, and such additional indemnity as may be required reasonably by the Distribution Agent or Servicer to hold the Distribution Agent or Servicer harmless from any damages, liabilities, or costs incurred in treating such Holder as a Holder of an Allowed Claim or Interest.  Upon compliance with this procedure by a Holder of an Allowed Claim or Interest evidenced by such a lost, stolen, mutilated, or destroyed Certificate, such Holder shall, for all purposes pursuant to the Plan, be deemed to have surrendered such Certificate.

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E.Claims Paid or Payable by Third Parties:

1.Claims Paid by Third Parties:  The Claims and Solicitation Agent shall reduce in full a Claim, and such Claim shall be disallowed without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court, to the extent that the Holder of such Claim receives payment in full on account of such Claim from a party that is not a Debtor or Reorganized Debtor.  Subject to the last sentence of this paragraph, to the extent a Holder of a Claim receives a distribution on account of such Claim and receives payment from a party that is not a Debtor or a Reorganized Debtor on account of such Claim, such Holder shall, within two weeks of receipt thereof, repay or return the distribution to the applicable Reorganized Debtor, to the extent the Holder’s total recovery on account of such Claim from the third party and under the Plan exceeds the amount of such Claim as of the date of any such distribution under the Plan.  The failure of such Holder to timely repay or return such distribution shall result in the Holder owing the applicable Reorganized Debtor annualized interest at the Federal Judgment Rate on such amount owed for each Business Day after the two-week grace period specified above until the amount is repaid.  Except to the extent set forth in the Second Lien Makewhole Settlement Order, nothing in the Plan shall affect the rights of the Holders of Second Lien Debt Claims to exercise the subordination rights granted to them in connection with the 6.00% Contingent Convertible Notes Due 2014 and the 7.75% Contingent Senior Convertible Notes Due 2015.

2.Claims Payable by Third Parties:  No distributions under the Plan shall be made on account of an Allowed Claim that is payable pursuant to one of the Debtors’ insurance policies until the Holder of such Allowed Claim has exhausted all remedies with respect to such insurance policy.  To the extent that one or more of the Debtors’ insurers agrees to satisfy in full a Claim (if and to the extent adjudicated by a court of competent jurisdiction), then immediately upon such insurers’ agreement, such Claim may be expunged to the extent of any agreed upon satisfaction on the Claims Register by the Claims and Solicitation Agent without a Claims objection having to be Filed and without any further notice to or action, order, or approval of the Bankruptcy Court.

3.Applicability of Insurance Policies:  Except as otherwise provided in the Plan, distributions to Holders of Allowed Claims shall be in accordance with the provisions of any applicable insurance policy.  Nothing contained in the Plan shall constitute or be deemed a waiver of any Cause of Action that the Debtors or any Entity may hold against any other Entity, including insurers under any policies of insurance, nor shall anything contained herein constitute or be deemed a waiver by such insurers of any defenses, including coverage defenses, held by such insurers.

F.Treatment of Interests:  Notwithstanding anything in the Plan to the contrary, any provision in the Plan pertaining to the allowance of, or to potential distributions to be received in respect of, Interests shall only apply to the extent consistent with the distribution provisions in ARTICLES III.B.‎17, III.B.‎18, and III.B.‎19.

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ARTICLE VIII.

EFFECT OF CONFIRMATION OF THE PLAN

A.Discharge of Claims and Termination of Interests:  Pursuant to section 1141(d) of the Bankruptcy Code, and except as otherwise specifically provided in the Plan, the distributions, rights, and treatment that are provided in the Plan shall be in complete satisfaction, discharge, and release, effective as of the Effective Date, of Claims, Interests, and Causes of Action of any nature whatsoever, including any interest accrued on Claims or Interests from and after the Petition Date, whether known or unknown, against, liabilities of, Liens on, obligations of, rights against, and Interests in, the Debtors or any of their assets or properties, regardless of whether any property shall have been distributed or retained pursuant to the Plan on account of such Claims and Interests, including demands, liabilities, and Causes of Action that arose before the Effective Date, any liability (including withdrawal liability) to the extent such Claims or Interests relate to services performed by employees of the Debtors prior to the Effective Date and that arise from a termination of employment or a termination of any employee or retiree benefit program, regardless of whether such termination occurred prior to or after the Effective Date, any contingent or non-contingent liability on account of representations or warranties issued on or before the Effective Date, and all debts of the kind specified in sections 502(g), 502(h), or 502(i) of the Bankruptcy Code, in each case whether or not: (1) a Proof of Claim or Interest based upon such debt, right, or Interest is Filed or deemed Filed pursuant to section 501 of the Bankruptcy Code; (2) a Claim or Interest based upon such debt, right, or Interest is Allowed pursuant to section 502 of the Bankruptcy Code; or (3) the Holder of such a Claim or Interest has accepted the Plan.  Any default by the Debtors or their Affiliates with respect to any Claim or Interest that existed immediately prior to or on account of the filing of the Chapter 11 Cases shall be deemed Cured on the Effective Date.  The Confirmation Order shall be a judicial determination of the discharge of all Claims and Interests subject to the Effective Date occurring.

B.Subordinated Claims:  The allowance, classification, and treatment of all Allowed Claims and Interests and the respective distributions and treatments under the Plan take into account and conform to the relative priority and rights of the Claims and Interests in each Class in connection with any contractual, legal, and equitable subordination rights relating thereto, whether arising under general principles of equitable subordination, section 510(b) of the Bankruptcy Code, or otherwise.  Pursuant to section 510 of the Bankruptcy Code, the Reorganized Debtors reserve the right to re-classify any Allowed Claim or Interest in accordance with any contractual, legal, or equitable subordination relating thereto.

C.Compromise and Settlement of Claims and Controversies:  Pursuant to section 363 of the Bankruptcy Code and Bankruptcy Rule 9019 and in consideration for the distributions and other benefits provided pursuant to the Plan, the provisions of the Plan shall constitute a good faith compromise of all Claims, Interests, and controversies relating to the contractual, legal, and subordination rights that a Holder of a Claim may have with respect to any Allowed Claim or Interest, or any distribution to be made on account of such an Allowed Claim or Interest.  The entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval of the compromise or settlement of all such Claims, Interests, controversies, as well as a finding by the Bankruptcy Court that such compromise or settlement is in the best interests of the Debtors, their Estates, and Holders of Claims and Interests and is fair, equitable, and reasonable.  In accordance with the provisions of the Plan, pursuant to section 363 of the Bankruptcy Code and Bankruptcy

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Rule 9019(a), without any further notice to or action, order, or approval of the Bankruptcy Court, after the Effective Date, the Reorganized Debtors may compromise and settle Claims against them and Causes of Action against other Entities.

D.Releases by the Debtors:  Pursuant to section 1123(b) of the Bankruptcy Code, and except as otherwise specifically provided in the Plan or the Plan Supplement, for good and valuable consideration, including the service of the Released Parties to facilitate the expeditious reorganization of the Debtors and the implementation of the restructuring contemplated by the Plan, on and after the Effective Date, the Released Parties are deemed released and discharged by the Debtors, the Reorganized Debtors, and the Estates from any and all Claims, obligations, rights, suits, damages, Causes of Action, remedies, and liabilities whatsoever, including any derivative Claims asserted on behalf of the Debtors, whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, in law, equity, or otherwise, that the Debtors, the Reorganized Debtors, the Estates, or their Affiliates would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the Holder of any Claim or Interest or other Entity, based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the Chapter 11 Cases, the purchase, sale, or rescission of the purchase or sale of any security of the Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the business or contractual arrangements between any Debtor and any Released Party, the restructuring of Claims and Interests prior to or in the Chapter 11 Cases, the negotiation, formulation, or preparation of the Plan and Disclosure Statement, or related agreements, instruments, or other documents, upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date, other than Claims or liabilities arising out of or relating to any act or omission of a Released Party that constitutes a failure to perform the duty to act in good faith, with the care of an ordinarily prudent person and in a manner the Released Party reasonably believed to be in the best interests of the Debtors (to the extent such duty is imposed by applicable non-bankruptcy law) where such failure to perform constitutes willful misconduct or gross negligence.  In addition, any and all releases by the Debtors provided for in section 3.6 of the CCAA Settlement are hereby adopted and incorporated as if explicitly set forth herein.

E.Exculpation:  Except as otherwise specifically provided in the Plan or Plan Supplement, no Exculpated Party shall have or incur, and each Exculpated Party is hereby released and exculpated from any Claim, obligation, Cause of Action, or liability for any Exculpated Claim, except for gross negligence or willful misconduct, but in all respects such Entities shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities pursuant to the Plan.  The Debtors and the Reorganized Debtors (and each of their respective Affiliates, agents, directors, officers, employees, advisors, and attorneys) have, and upon Confirmation of the Plan shall be deemed to have, participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code with regard to the distributions of the securities pursuant to the Plan, and therefore are not, and on account of such distributions shall not be, liable at any time for the violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or such distributions made pursuant to the Plan.

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F.Releases by Holders of Claims and Interests:  Except as otherwise specifically provided in the Plan or Plan Supplement, on and after the Effective Date, Holders of Claims and Interests (a) voting to accept the Plan or (b) abstaining from voting on the Plan and electing not to opt out of the release contained in this paragraph (which by definition, does not include Holders of Claims and Interests who are not entitled to vote in favor of or against the Plan), shall be deemed to have conclusively, absolutely, unconditionally, irrevocably, and forever, released and discharged the Debtors, the Reorganized Debtors, and the Released Parties from any and all Claims, Interests, obligations, rights, suits, damages, Causes of Action, remedies, and liabilities whatsoever, including any derivative Claims asserted on behalf of a Debtor, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based on or relating to, or in any manner arising from, in whole or in part, the Debtors, the Debtors’ restructuring, the Debtors’ Chapter 11 Cases, the purchase, sale, or rescission of the purchase or sale of any security of the Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the business or contractual arrangements between any Debtor and any Released Party, the restructuring of Claims and Interests prior to or in the Chapter 11 Cases, the negotiation, formulation, or preparation of the Plan and Disclosure Statement, or related agreements, instruments, or other documents, upon any other act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date, other than Claims or liabilities arising out of or relating to any act or omission of a Debtor, a Reorganized Debtor, or a Released Party that constitutes a failure to perform the duty to act in good faith, with the care of an ordinarily prudent person and in a manner the Debtor, the Reorganized Debtor, or the Released Party reasonably believed to be in the best interests of the Debtors (to the extent such duty is imposed by applicable non-bankruptcy law) where such failure to perform constitutes willful misconduct or gross negligence.  In addition, any and all releases in section 3.6 of the CCAA Settlement are hereby adopted and incorporated as if set forth herein.

G.Injunction:  Except as otherwise expressly provided in the Plan or for obligations issued pursuant to the Plan, all Entities who have held, hold, or may hold Claims against the Released Parties and Exculpated Parties, and all Entities holding Interests, are permanently enjoined, from and after the Effective Date, from: (1) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests; (2) enforcing, attaching, collecting, or recovering by any manner or means any judgment, award, decree or order against such Entities on account of or in connection with or with respect to any such Claims or Interests; (3) creating, perfecting, or enforcing any encumbrance of any kind against such Entities or the property or estates of such Entities on account of or in connection with or with respect to any such Claims or Interests; (4) asserting any right of setoff, subrogation, or recoupment of any kind against any obligation due from such Entities or against the property or Estates of such Entities on account of or in connection with or with respect to any such Claims or Interests unless such Holder has Filed a motion requesting the right to perform such setoff on or before the Confirmation Date, and notwithstanding an indication in a Proof of Claim or Interest or otherwise that such Holder asserts, has, or intends to preserve any right of setoff pursuant to section 553 of the

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Bankruptcy Code or otherwise; and (5) commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such Claims or Interests released or settled pursuant to the Plan.  Nothing in the Plan or Confirmation Order shall preclude any Entity from pursuing an action against one or more of the Debtors in a nominal capacity to recover insurance proceeds so long as the Debtors or Reorganized Debtors, as applicable, in consultation with the Creditors’ Committee, and any such Entity agree in writing that such Entity will: (a) waive all Claims against the Debtors, the Reorganized Debtors, and the Estates related to such action and (b) enforce any judgment on account of such Claim solely against applicable insurance proceeds, if any.

H.Protection Against Discriminatory Treatment:  Consistent with section 525 of the Bankruptcy Code and the Supremacy Clause of the U.S. Constitution, all Entities, including Governmental Units, shall not discriminate against the Reorganized Debtors or deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, the Reorganized Debtors, or another Entity with whom such Reorganized Debtors have been associated, solely because one of the Debtors has been a debtor under chapter 11, has been insolvent before the commencement of the Chapter 11 Cases (or during the Chapter 11 Cases but before the Debtor is granted or denied a discharge) or has not paid a debt that is dischargeable in the Chapter 11 Cases.

I.Setoffs:  Except as otherwise expressly provided for in the Plan, each Reorganized Debtor pursuant to the Bankruptcy Code (including section 553 of the Bankruptcy Code), applicable non-bankruptcy law, or as may be agreed to by the Holder of a Claim or Interest, may setoff against any Allowed Claim or Interest and the distributions to be made pursuant to the Plan on account of such Allowed Claim or Interest (before any distribution is made on account of such Allowed Claim or Interest), any Claims, rights, and Causes of Action of any nature that such Debtor or Reorganized Debtor, as applicable, may hold against the Holder of such Allowed Claim or Interest, to the extent such Claims, rights, or Causes of Action against such Holder have not been otherwise compromised or settled on or prior to the Effective Date (whether pursuant to the Plan or otherwise); provided, however, that neither the failure to effect such a setoff nor the allowance of any Claim or Interest pursuant to the Plan shall constitute a waiver or release by such Reorganized Debtor of any such Claims, rights, and Causes of Action that such Reorganized Debtor may possess against such Holder.  In no event shall any Holder of Claims or Interests be entitled to setoff any Claim or Interest against any Claim, right, or Cause of Action of the Debtor or Reorganized Debtor, as applicable, unless such Holder has Filed a motion with the Bankruptcy Court requesting the authority to perform such setoff on or before the Confirmation Date, and notwithstanding any indication in any Proof of Claim or Interest or otherwise that such Holder asserts, has, or intends to preserve any right of setoff pursuant to section 553 or otherwise.  The setoff(s) and/or netting performed by Reliant Energy Electric Solutions, LLC (“REES”) on or about January 26, 2006 in connection with the transactions giving rise to REES’ Claim Nos. 2888 and 2889 (the “Setoffs and/or Netting”) are not affected by ‎ARTICLE VIII.I.  REES is not required to file the motion required by ‎ARTICLE VIII.I in connection with the Setoffs and/or Netting.  The Debtors reserve their right to object to REES’ Claim Nos. 2888 and 2889; provided, however, that

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the Debtors may not object to REES’ Claims on the basis that REES has not complied with ‎ARTICLE VIII.I.

J.Recoupment:  In no event shall any Holder of Claims or Interests be entitled to recoup any Claim or Interest against any Claim, right, or Cause of Action of the Debtors or the Reorganized Debtors, as applicable, unless such Holder actually has performed such recoupment and provided notice thereof in writing to the Debtors on or before the Confirmation Date, notwithstanding any indication in any Proof of Claim or Interest or otherwise that such Holder asserts, has, or intends to preserve any right of recoupment.

K.Release of Liens:  Except as otherwise provided in the Plan or in any contract, instrument, release, or other agreement or document created pursuant to the Plan, on the Effective Date and concurrently with the applicable distributions made pursuant to ‎ARTICLE VII and, in the case of a Secured Claim, satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date, all mortgages, deeds of trust, Liens, pledges, or other security interests against any property of the Estates shall be fully released, and discharged (except for charging Liens of the Indenture Trustees to the extent the Indenture Trustee’s fees and expenses are not paid pursuant to the Plan), and all of the right, title, and interest of any Holder of such mortgages, deeds of trust, Liens, pledges, or other security interests shall revert to the Reorganized Debtor and its successors and assigns; provided, however, that nothing in the Plan shall release (i) Liens granted by KIAC Partners and Nissequogue Cogen Partners to secure payment of the bonds used to construct the KIAC And Nissequogue Facilities or (ii) the Liens provided to the CalGen Lenders pursuant to the CalGen Debt Repayment Order.

L.Document Retention:  On and after the Effective Date, the Reorganized Debtors may maintain documents in accordance with their current document retention policy, as may be altered, amended, modified, or supplemented by the Reorganized Debtors in the ordinary course of business.

M.Reimbursement or Contribution:  If the Bankruptcy Court disallows a Claim for reimbursement or contribution of an Entity pursuant to section 502(e)(1)(B) of the Bankruptcy Code, then to the extent that such Claim is contingent as of the time of allowance or disallowance, such Claim shall be forever disallowed notwithstanding section 502(j) of the Bankruptcy Code, unless prior to the Effective Date:  (1) such Claim has been adjudicated as noncontingent or (2) the relevant Holder of a Claim has Filed a noncontingent Proof of Claim on account of such Claim and a Final Order has been entered determining such Claim as no longer contingent.

ARTICLE IX.

ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS

A.Professional Claims

1.Final Fee Applications:  All final requests for payment of Claims of a Professional shall be Filed no later than forty-five days after the Effective Date.  After notice and a hearing in accordance with the procedures established by the Bankruptcy Code and prior

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Bankruptcy Court orders, the Allowed amounts of such Professional Claims shall be determined by the Bankruptcy Court.

2.Payment of Interim Amounts:  Except as otherwise provided in the Plan and subject to ‎ARTICLE IX.A.1, Professionals shall be paid pursuant to the Interim Compensation Order.

3.Professional Fee Escrow Account:  In accordance with ‎ARTICLE IX.A.4, on the Effective Date, the Reorganized Debtors shall fund the Professional Fee Escrow Account with Cash equal to the aggregate Professional Fee Reserve Amount for all Professionals.  The Professional Fee Escrow Account shall be maintained in trust for the Professionals with respect to whom fees or expenses have been held back pursuant to the Interim Compensation Order.  Such funds shall not be considered property of the Reorganized Debtors.  The remaining amount of Professional Claims owing to the Professionals shall be paid in Cash to such Professionals by the Reorganized Debtors from the Professional Fee Escrow Account when such Claims are Allowed by a Bankruptcy Court order.  When all Professional Claims have been paid in full, amounts remaining in the Professional Fee Escrow Account, if any, shall be paid to the Reorganized Debtors.

4.Professional Fee Reserve Amount:  To receive payment for unbilled fees and expenses incurred through the Effective Date, on or before the Effective Date, the Professionals shall estimate their Accrued Professional Compensation prior to and as of the Effective Date and shall deliver such estimate to the Debtors and the Creditors’ Committee.  If a Professional does not provide an estimate, the Reorganized Debtors may estimate the unbilled fees and expenses of such Professional; provided, however, that such estimate shall not be considered an admission with respect to the fees and expenses of such Professional.  The total amount so estimated as of the Effective Date shall comprise the Professional Fee Reserve Amount.

5.Post-Effective Date Fees and Expenses:  Except as otherwise specifically provided in the Plan, from and after the Effective Date, the Reorganized Debtors shall, in the ordinary course of business and without any further notice to or action, order, or approval of the Bankruptcy Court, pay in Cash the reasonable legal, professional, or other fees and expenses related to implementation and Consummation incurred by the Reorganized Debtors and incurred by the Creditors’ Committee in connection with those matters for which it remains in existence after the Effective Date pursuant to the Plan.  Upon the Effective Date, any requirement that Professionals comply with sections 327 through 331 and 1103 of the Bankruptcy Code in seeking retention or compensation for services rendered after such date shall terminate, and the Reorganized Debtors may employ and pay any Professional in the ordinary course of business without any further notice to or action, order, or approval of the Bankruptcy Court.

6.Substantial Contribution Compensation and Expenses:  Except as otherwise specifically provided in the Plan, any Entity who requests compensation or expense reimbursement for making a substantial contribution in the Chapter 11 Cases pursuant to sections 503(b)(3), (4), and (5) of the Bankruptcy Code (with the exception of the Indenture Trustees as set forth in ‎ARTICLE IX.A.7) must File an application and serve such application on counsel for the Debtors or Reorganized Debtors, as applicable, and as otherwise required by the Bankruptcy

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Court and the Bankruptcy Code on or before the Administrative Claim Bar Date or be forever barred from seeking such compensation or expense reimbursement.

7.Indenture Trustee, Administrative Agent, and Collateral Trustee Fees, and Indemnification Obligations:  Unless otherwise ordered by the Bankruptcy Court, all reasonable fees and expenses of the Indenture Trustees, the First Lien Indenture Trustee, the Administrative Agents, and the Collateral Trustee (and their counsel, agents, and advisors) that are provided for under the respective indentures and the Collateral Trust Agreement (including, without limitation, in connection with service on the Creditors’ Committee and in connection with distributions under the Plan, but excluding fees and expenses related to litigation of Disputed Claims) shall be paid in full in Cash without a reduction to the recoveries of applicable Holders of Allowed Claims as soon as reasonably practicable after the Effective Date.  Notwithstanding the foregoing, to the extent any fees or expenses of the Indenture Trustees, the First Lien Indenture Trustee, the Administrative Agents, and the Collateral Trustee are not paid (including, without limitation, any fees or expenses incurred in connection with any unresolved litigation relating to Disputed Claims), the Indenture Trustees, the First Lien Indenture Trustee, the Administrative Agents, and the Collateral Trustee may assert their charging liens against any recoveries received on behalf of their respective Holders for payment of such unpaid amounts.  The Debtors’ contractual indemnification obligations to Indenture Trustees asserting a Second Lien Debt Claim, the Administrative Agents, and the Collateral Trustee shall be reinstated as unsecured obligations of the Reorganized Debtors.

8.Payment of ULC1 Noteholders Ad Hoc Committee Fees and ULC1 Indenture Trustee Fees:  Notwithstanding anything to the contrary in the Plan, the ULC1 Noteholders Ad Hoc Committee Fees and the ULC1 Indenture Trustee Fees shall be paid in full by the Debtors, on or as soon as reasonably practicable after the Effective Date, in Cash (in U.S. dollars), without the need for application to, or approval of, the Bankruptcy Court as a “substantial contribution” administrative expense under section 503(b) of the Bankruptcy Code.  Any of such fees that are denominated in Canadian dollars shall be paid by the Debtors in U.S. dollars in accordance with the provisions of ‎ARTICLE III.B.8.d.

9.Payment of Second Lien Ad Hoc Committee Fees:  Notwithstanding anything to the contrary in the Plan, all Claims for reasonable fees and expenses of the professionals and advisors to the Second Lien Ad Hoc Committee shall be paid in full by the Debtors or Reorganized Debtors, as applicable, in accordance with the terms of the Cash Collateral Order.

B.Other Administrative Claims:  All requests for payment of an Administrative Claim must be Filed with the Claims and Solicitation Agent and served upon counsel to the Debtors or Reorganized Debtors, as applicable, on or before the Administrative Claim Bar Date.  Any request for payment of an Administrative Claim pursuant to ‎ARTICLE IX.B that is not timely Filed and served shall be disallowed automatically without the need for any objection by the Debtors or the Reorganized Debtors.  The Reorganized Debtors may settle and pay any Administrative Claim in the ordinary course of business without any further notice to or action, order, or approval of the Bankruptcy Court.  In the event that any party with standing objects to an Administrative Claim, the Bankruptcy Court shall determine the Allowed amount of such Administrative Claim.  Notwithstanding the foregoing, no request for payment of an

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Administrative Claim need be Filed with respect to an Administrative Claim previously Allowed by Final Order.

ARTICLE X.

CONDITIONS PRECEDENT TO CONFIRMATION

AND CONSUMMATION OF THE PLAN

A.Conditions to Confirmation:  The following are conditions precedent to Confirmation that must be satisfied or waived in accordance with ‎ARTICLE X.C:

1.The Bankruptcy Court shall have approved the Disclosure Statement, in a manner acceptable to the Debtors and the Creditors’ Committee, as containing adequate information with respect to the Plan within the meaning of section 1125 of the Bankruptcy Code.

2.The proposed Confirmation Order shall be in form and substance acceptable to the Debtors and the Creditors’ Committee.

3.The terms and conditions of employment or retention of any Persons proposed to serve as Named Executive Officers or directors of Reorganized Calpine, including, without limitation, as to compensation, shall be acceptable to the Debtors and the Creditors’ Committee and be set forth in the Plan Supplement to the extent such terms and conditions of employment or retention differ from those in existence on August 21, 2007.

4.The most current version of the Plan Supplement and all of the schedules, documents, and exhibits contained therein (including the Reorganized Calpine Bylaws and the Reorganized Calpine Charter) shall have been Filed in form and substance acceptable to the Debtors and the Creditors’ Committee.

B.Conditions Precedent to Consummation:  The following are conditions precedent to Consummation that must be satisfied or waived in accordance with ‎ARTICLE X.C:

1.The Bankruptcy Court shall have authorized the assumption and rejection of executory contracts and unexpired leases by the Debtors as contemplated by ‎ARTICLE V.

2.The New Credit Facility shall have been executed and delivered by all of the Entities that are parties thereto, and all conditions precedent to the consummation thereof shall have been waived, with the reasonable consent of the Creditors’ Committee, or satisfied in accordance with the terms thereof, and funding pursuant to the New Credit Facility shall have occurred.

3.The Confirmation Order shall have become a Final Order in form and substance acceptable to the Debtors and the Creditors’ Committee.

4.The final version of the Plan Supplement and all of the schedules, documents, and exhibits contained therein (including the Reorganized Calpine Bylaws and the Reorganized Calpine Charter) shall have been Filed in form and substance acceptable to the Debtors and the Creditors’ Committee without prejudice to the Reorganized Debtors’ rights under the Plan to

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alter, amend, or modify certain of the schedules, documents, and exhibits contained in the Plan Supplement.

5.The Confirmation Date shall have occurred.

6.The New Calpine Common Stock shall have been accepted for listing on a national securities exchange or for quotation on a national automated interdealer quotation system.

C.Waiver of Conditions Precedent:  The Debtors or the Reorganized Debtors, as applicable, with the consent of the Creditors’ Committee and in consultation with the Equity Committee, may waive any of the conditions to Confirmation or Consummation set forth in ‎ARTICLE X at any time, without any notice to parties-in-interest and without any further notice to or action, order, or approval of the Bankruptcy Court, and without any formal action other than proceeding to confirm or consummate the Plan.  A failure to satisfy or waive any condition to Confirmation or Consummation may be asserted as a failure of Confirmation or Consummation regardless of the circumstances giving rise to such failure (including any action or inaction by the party asserting such failure).  The failure of the Debtors or Reorganized Debtors, as applicable, to exercise any of the foregoing rights shall not be deemed a waiver of any other rights, and each such right shall be deemed an ongoing right, which may be asserted at any time.

D.Effect of Non-Occurrence of Conditions to Consummation:  Each of the conditions to Consummation must be satisfied or duly waived pursuant to ‎ARTICLE X.C, and Consummation must occur within 180 days of Confirmation, or by such later date established by Bankruptcy Court order.  If Consummation has not occurred within 180 days of Confirmation, then upon motion by a party in interest made before Consummation and a hearing, the Confirmation Order may be vacated by the Bankruptcy Court; provided, however, that notwithstanding the Filing of such motion to vacate, the Confirmation Order may not be vacated if Consummation occurs before the Bankruptcy Court enters an order granting such motion.  If the Confirmation Order is vacated pursuant to ‎ARTICLE X.D or otherwise, then except as provided in any order of the Bankruptcy Court vacating the Confirmation Order, the Plan will be null and void in all respects, including the discharge of Claims and termination of Interests pursuant to the Plan and section 1141 of the Bankruptcy Code and the assumptions, assignments, or rejections of executory contracts or unexpired leases pursuant to ‎ARTICLE V, and nothing contained in the Plan or Disclosure Statement shall: (1) constitute a waiver or release of any Claims, Interests, or Causes of Action; (2) prejudice in any manner the rights of such Debtor or any other Entity; or (3) constitute an admission, acknowledgment, offer, or undertaking of any sort by such Debtor or any other Entity.

E.Satisfaction of Conditions Precedent to Confirmation:  Upon entry of a Confirmation Order acceptable to the Debtors and the Creditors’ Committee, each of the conditions precedent to Confirmation, as set forth in ‎ARTICLE X.A, shall be deemed to have been satisfied or waived in accordance with the Plan.

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ARTICLE XI.

MODIFICATION, REVOCATION, OR WITHDRAWAL OF THE PLAN

A.Modification and Amendments:  Except as otherwise specifically provided in the Plan, the Debtors, with the consent of the Creditors’ Committee as to material terms, reserve the right to modify the Plan and seek Confirmation consistent with the Bankruptcy Code.  Subject to certain restrictions and requirements set forth in section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019 and those restrictions on modifications set forth in the Plan, each of the Debtors expressly reserves its respective rights to revoke or withdraw, or, with the consent of the Creditors’ Committee, to alter, amend, or modify materially the Plan with respect to such Debtor, one or more times, after Confirmation, and, to the extent necessary, may initiate proceedings in the Bankruptcy Court to so alter, amend, or modify the Plan, or remedy any defect or omission, or reconcile any inconsistencies in the Plan, the Disclosure Statement, or the Confirmation Order, in such matters as may be necessary to carry out the purposes and intent of the Plan.  Any such modification or supplement shall be considered a modification of the Plan and shall be made in accordance with ‎ARTICLE XI.  Upon its Filing, the Plan Supplement may be inspected in the office of the clerk of the Bankruptcy Court or its designee during normal business hours, at the Bankruptcy Court’s website at www.nysb.uscourts.gov, and at the Debtors’ private website at http://www.kccllc.net/calpine.  The documents contained in the Plan Supplement are an integral part of the Plan and shall be approved by the Bankruptcy Court pursuant to the Confirmation Order.

B.Effect of Confirmation on Modifications:  Entry of a Confirmation Order shall mean that all modifications or amendments to the Plan since the solicitation thereof are approved pursuant to section 1127(a) of the Bankruptcy Code and do not require additional disclosure or resolicitation under Bankruptcy Rule 3019.

C.Revocation or Withdrawal of Plan:  The Debtors reserve the right to revoke or withdraw the Plan prior to the Confirmation Date and to file subsequent plans of reorganization.  If a Debtor revokes or withdraws the Plan, or if Confirmation or Consummation does not occur, then: (1) the Plan shall be null and void in all respects; (2) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount certain of any Claim or Interest or Class of Claims or Interests), assumption or rejection of executory contracts or unexpired leases effected by the Plan, and any document or agreement executed pursuant to the Plan, shall be deemed null and void; and (3) nothing contained in the Plan shall: (a) constitute a waiver or release of any Claims or Interests; (b) prejudice in any manner the rights of such Debtor or any other Entity; or (c) constitute an admission, acknowledgement, offer, or undertaking of any sort by such Debtor or any other Entity.

ARTICLE XII.

RETENTION OF JURISDICTION

Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of, or related to, the Chapter 11 Cases and the Plan pursuant to sections 105(a) and 1142 of the Bankruptcy Code, including jurisdiction to:

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1.Allow, disallow, determine, liquidate, classify, estimate, or establish the priority, Secured or unsecured status, or amount of any Claim or Interest, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the Secured or unsecured status, priority, amount, or allowance of Claims or Interests;

2.Decide and resolve all matters related to the granting and denying, in whole or in part, any applications for allowance of compensation or reimbursement of expenses to Professionals authorized pursuant to the Bankruptcy Code or the Plan;

3.Resolve any matters related to: (a) the assumption, assumption and assignment, or rejection of any executory contract or unexpired lease to which a Debtor is party or with respect to which a Debtor may be liable and to hear, determine, and, if necessary, liquidate, any Cure or Claims arising therefrom, including Cure or Claims pursuant to section 365 of the Bankruptcy Code; (b) any potential contractual obligation under any executory contract or unexpired lease that is assumed; (c) the Reorganized Debtors amending, modifying, or supplementing, after the Effective Date, pursuant to ‎ARTICLE V, any executory contracts or unexpired leases to the list of executory contracts and unexpired leases to be assumed or rejected or otherwise; and (d) any dispute regarding whether a contract or lease is or was executory or expired;

4.Ensure that distributions to Holders of Allowed Claims and Interests are accomplished pursuant to the provisions of the Plan;

5.Adjudicate, decide, or resolve any motions, adversary proceedings, contested or litigated matters, and any other matters, and grant or deny any applications involving a Debtor that may be pending on the Effective Date;

6.Adjudicate, decide, or resolve any and all matters related to Causes of Action;

7.Adjudicate, decide, or resolve any and all matters related to section 1141 of the Bankruptcy Code;

8.Enter and implement such orders as may be necessary or appropriate to execute, implement, or consummate the provisions of the Plan and all contracts, instruments, releases, indentures, and other agreements or documents created in connection with the Plan or the Disclosure Statement;

9.Enter and enforce any order for the sale of property pursuant to sections 363, 1123, or 1146(a) of the Bankruptcy Code;

10.Resolve any cases, controversies, suits, disputes, or Causes of Action that may arise in connection with the Consummation, interpretation, or enforcement of the Plan or any Entity’s obligations incurred in connection with the Plan;

11.Issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any Entity with Consummation or enforcement of the Plan;

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12.Resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the releases, injunctions, and other provisions contained in ‎ARTICLE VIII and enter such orders as may be necessary or appropriate to implement such releases, injunctions, and other provisions;

13.Resolve any cases, controversies, suits, disputes, or Causes of Action with respect to the repayment or return of distributions and the recovery of additional amounts owed by the Holder of a Claim or Interest for amounts not timely repaid pursuant to ‎ARTICLE VII.E.1;

14.Enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked, or vacated;

15.Determine any other matters that may arise in connection with or relate to the Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release, indenture, or other agreement or document created in connection with the Plan or the Disclosure Statement;

16.Enter an order or Final Decree concluding or closing the Chapter 11 Cases;

17.Adjudicate any and all disputes arising from or relating to distributions under the Plan;

18.Consider any modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any Bankruptcy Court order, including the Confirmation Order;

19.Determine requests for the payment of Claims and Interests entitled to priority pursuant to section 507 of the Bankruptcy Code;

20.Hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan, or the Confirmation Order, including disputes arising under agreements, documents, or instruments executed in connection with the Plan;

21.Hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code;

22.Hear and determine all disputes involving the existence, nature, or scope of the Debtors’ discharge, including any dispute relating to any liability arising out of the termination of employment or the termination of any employee or retiree benefit program, regardless of whether such termination occurred prior to or after the Effective Date;

23.Enforce all orders previously entered by the Bankruptcy Court; and

24.Hear any other matter not inconsistent with the Bankruptcy Code.

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ARTICLE XIII.

MISCELLANEOUS PROVISIONS

A.Immediate Binding Effect:  Subject to ‎ARTICLE X.B and notwithstanding Bankruptcy Rules 3020(e), 6004(g), or 7062 or otherwise, upon the occurrence of the Effective Date, the terms of the Plan and the Plan Supplement shall be immediately effective and enforceable and deemed binding upon the Debtors, the Reorganized Debtors, and any and all Holders of Claims or Interests (irrespective of whether such Claims or Interests are deemed to have accepted the Plan), all Entities that are parties to or are subject to the settlements, compromises, releases, discharges, and injunctions described in the Plan or herein, each Entity acquiring property under the Plan, and any and all non-Debtor parties to executory contracts and unexpired leases with the Debtors.

B.Additional Documents:  On or before the Effective Date, the Debtors may file with the Bankruptcy Court such agreements and other documents in form and substance acceptable to the Creditors’ Committee as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan.  The Debtors or Reorganized Debtors, as applicable, and all Holders of Claims or Interests receiving distributions pursuant to the Plan and all other parties in interest shall, from time to time, prepare, execute, and deliver any agreements or documents and take any other actions as may be necessary or advisable to effectuate the provisions and intent of the Plan.

C.Payment of Statutory Fees:  All fees payable pursuant to section 1930(a) of the Judicial Code, as determined by the Bankruptcy Court at a hearing pursuant to section 1128 of the Bankruptcy Code, shall be paid for each quarter (including any fraction thereof) until the Chapter 11 Cases are converted, dismissed, or closed, whichever occurs first.

D.Dissolution of Committees:  Upon the Effective Date, the Creditors’ Committee shall dissolve automatically (except with respect to any pending litigation or contested matter to which the Creditors’ Committee is a party, any appeals Filed regarding Confirmation, the resolution of any substantial contribution applications, and the resolution of applications for Professional Claims), and members thereof shall be released and discharged from all rights, duties, responsibilities, and liabilities arising from, or related to, the Chapter 11 Cases and under the Bankruptcy Code; provided, however, that notwithstanding the foregoing: (1) the post-Effective Date Creditors’ Committee shall consist of no more than five members; (2) the Creditors’ Committee shall automatically dissolve upon payment in full of all Allowed Claims (after reconciliation of all Disputed Claims); (3) any consent or consultation rights of the Creditors’ Committee set forth in the Plan will cease to be of any force and effect upon the dissolution of the Creditors’ Committee; and (4) after the Effective Date the Creditors’ Committee shall retain only those professional advisors or experts on terms that are reasonably acceptable to the Reorganized Debtors or authorized to be retained by further order of the Bankruptcy Court; provided, however, that the Creditors’ Committee’s professional advisors and experts that have been retained by Bankruptcy Court order prior to the Effective Date shall be deemed reasonably acceptable to the Reorganized Debtors (but not necessarily as to compensation).  The Reorganized Debtors shall continue to compensate the Creditors’ Committee’s professional advisors for reasonable services provided in connection with any of the foregoing post-Effective Date activities.

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Upon the Effective Date, the Equity Committee shall dissolve automatically, except with respect to applications for Professional Claims, and members thereof shall be released and discharged from all rights, duties, responsibilities, and liabilities arising from, or related to, the Chapter 11 Cases and under the Bankruptcy Code.

E.Reservation of Rights:  Except as expressly set forth in the Plan, the Plan shall have no force or effect unless the Bankruptcy Court shall enter the Confirmation Order.  None of the Filing of the Plan, any statement or provision contained in the Plan, or the taking of any action by any Debtor with respect to the Plan, the Disclosure Statement, or the Plan Supplement shall be or shall be deemed to be an admission or waiver of any rights of any Debtor with respect to the Holders of Claims or Interests prior to the Effective Date.

F.Successors and Assigns:  The rights, benefits, and obligations of any Entity named or referred to in the Plan shall be binding on, and shall inure to the benefit of any heir, executor, administrator, successor or assign, affiliate, officer, director, agent, representative, attorney, beneficiaries, or guardian, if any, of each Entity.

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G.Service of Documents

1.After the Effective Date, any pleading, notice, or other document required by the Plan to be served on or delivered to the Reorganized Debtors shall be served on:

Debtors	Counsel to Debtors
Calpine Corporation 717 Texas Avenue, Suite 1000 Houston, Texas 77002 Attn.:    Gregory L. Doody, Esq.	Kirkland & Ellis LLP 153 East 53rd Street New York, New York 10022 Attn.:    Richard M. Cieri, Esq. and Kirkland & Ellis LLP 200 East Randolph Street Chicago, Illinois 60601 Attn.:    Marc Kieselstein, P.C. David R. Seligman, Esq. James J. Mazza, Jr., Esq.
United States Trustee	Counsel to the DIP Lenders
Office of the United States Trustee for the Southern District of New York 33 Whitehall Street, 21st Floor New York, New York 10004 Attn.:    Paul K. Schwartzberg, Esq.	Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 Attn.:    Peter V. Pantaleo, Esq. David J. Mack, Esq.
Counsel to the Creditors’ Committee	Counsel to the Equity Committee
Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, New York 10022-2524 Attn.:    Michael S. Stamer, Esq. Philip C. Dublin, Esq.	Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, New York 10004 Attn.:    Brad E. Scheler, Esq. Gary L. Kaplan, Esq.
Counsel to Second Lien Ad Hoc Committee	Counsel to Lenders of New Credit Facility
Paul Weiss Rifkind Wharton & Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 Attn.:    Alan W. Kornberg, Esq. Andrew N. Rosenberg, Esq. Elizabeth R. McColm, Esq.	Simpson Thatcher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 Attn.:    Peter V. Pantaleo, Esq. David J. Mack, Esq.

2.After the Effective Date, the Debtors have authority to send a notice to Entities that to continue to receive documents pursuant to Bankruptcy Rule 2002, they must file a renewed request to receive documents pursuant to Bankruptcy Rule 2002.  After the Effective Date, the Debtors are authorized to limit the list of Entities receiving documents pursuant to Bankruptcy Rule 2002 to those Entities who have Filed such renewed requests.

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3.In accordance with Bankruptcy Rules 2002 and 3020(c), within ten business days of the date of entry of the Confirmation Order, the Debtors shall serve the Notice of Confirmation by United States mail, first class postage prepaid, by hand, or by overnight courier service to all parties having been served with the Confirmation Hearing Notice; provided, however, that no notice or service of any kind shall be required to be mailed or made upon any Entity to whom the Debtors mailed a Confirmation Hearing Notice, but received such notice returned marked “undeliverable as addressed,” “moved, left no forwarding address” or “forwarding order expired,” or similar reason, unless the Debtors have been informed in writing by such Entity, or are otherwise aware, of that Entity’s new address. To supplement the notice described in the preceding sentence, within twenty days of the date of the Confirmation Order the Debtors shall publish the Notice of Confirmation once in The Wall Street Journal (National Edition).  Mailing and publication of the Notice of Confirmation in the time and manner set forth in the this paragraph shall be good and sufficient notice under the particular circumstances and in accordance with the requirements of Bankruptcy Rules 2002 and 3020(c), and no further notice is necessary.

H.Term of Injunctions or Stays:  Unless otherwise provided in the Plan or in the Confirmation Order, all injunctions or stays in effect in the Chapter 11 Cases pursuant to sections 105 or 362 of the Bankruptcy Code or any order of the Bankruptcy Court, and extant on the Confirmation Date (excluding any injunctions or stays contained in the Plan or the Confirmation Order) shall remain in full force and effect until the Effective Date.  All injunctions or stays contained in the Plan or the Confirmation Order shall remain in full force and effect in accordance with their terms.

I.Entire Agreement:  Except as otherwise indicated, the Plan and the Plan Supplement supersede all previous and contemporaneous negotiations, promises, covenants, agreements, understandings, and representations on such subjects, all of which have become merged and integrated into the Plan.

J.Governing Law:  Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy Rules) or unless otherwise specifically stated, the laws of the State of New York, without giving effect to the principles of conflict of laws, shall govern the rights, obligations, construction, and implementation of the Plan, any agreements, documents, instruments, or contracts executed or entered into in connection with the Plan (except as otherwise set forth in those agreements, in which case the governing law of such agreement shall control), and corporate governance matters; provided, however, that corporate governance matters relating to Debtors or Reorganized Debtors, as applicable, not incorporated in New York shall be governed by the laws of the state of incorporation of the applicable Debtor or Reorganized Debtor, as applicable.

K.Exhibits:  All exhibits and documents included in the Plan Supplement are incorporated into and are a part of the Plan as if set forth in full in the Plan.  Except as otherwise provided in the Plan, such exhibits and documents included in the Plan Supplement shall be Filed with the Bankruptcy Court on or before the Plan Supplement Filing Date.  After the exhibits and documents are Filed, copies of such exhibits and documents shall have been available upon written request to the Debtors’ counsel at the address above or by downloading such exhibits and documents from the Debtors’ private website at http://www.kccllc.net/calpine or the Bankruptcy

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Court’s website at www.nysb.uscourts.gov.  To the extent any exhibit or document is inconsistent with the terms of the Plan, unless otherwise ordered by the Bankruptcy Court, the non-exhibit or non-document portion of the Plan shall control.

L.Nonseverability of Plan Provisions:  If, prior to Confirmation, any term or provision of the Plan is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision shall then be applicable as altered or interpreted.  Notwithstanding any such holding, alteration, or interpretation, the remainder of the terms and provisions of the Plan will remain in full force and effect and will in no way be affected, impaired, or invalidated by such holding, alteration, or interpretation.  The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is: (1) valid and enforceable pursuant to its terms; (2) integral to the Plan and may not be deleted or modified without the Debtors’ consent and, subject to ‎ARTICLE XI.A, the Creditors’ Committee’s consent; and (3) nonseverable and mutually dependent.

M.Closing of Chapter 11 Cases:  The Reorganized Debtors shall, promptly after the full administration of the Chapter 11 Cases, File with the Bankruptcy Court all documents required by Bankruptcy Rule 3022 and any applicable order of the Bankruptcy Court to close the Chapter 11 Cases.

N.Waiver or Estoppel:  Each Holder of a Claim or an Interest shall be deemed to have waived any right to assert any argument, including the right to argue that its Claim or Interest should be Allowed in a certain amount, in a certain priority, Secured or not subordinated by virtue of an agreement made with the Debtors or their counsel, the Creditors’ Committee or its counsel, the Equity Committee or its counsel, or any other Entity, if such agreement was not disclosed in the Plan, the Disclosure Statement, or papers Filed with the Bankruptcy Court prior to the Confirmation Date.  NOTWITHSTANDING ANYTHING CONTAINED IN THE DISCLOSURE STATEMENT TO THE CONTRARY, AS SET FORTH IN THE PLAN, ACTUAL DISTRIBUTIONS UNDER THE PLAN TO CREDITORS AND, IF APPLICABLE, EQUITY SECURITY HOLDERS WILL BE PREDICATED ON THE NEW CALPINE TOTAL ENTERPRISE VALUE AS DETERMINED BY THE BANKRUPTCY COURT.  NEITHER A VOTE TO ACCEPT THE PLAN BY A CREDITOR OR EQUITY SECURITY HOLDER, NOR THE ACCEPTANCE OF THE PLAN BY ANY CLASS OF CREDITORS OR EQUITY SECURITY HOLDERS, SHALL IN ANY WAY BE DEEMED TO (I) IMPAIR THE RIGHT OF A CREDITOR OR EQUITY SECURITY HOLDER, OR AD HOC COMMITTEE OR OFFICIAL COMMITTEE REPRESENTING THE INTERESTS OF ANY CLASS OF CREDITORS OR EQUITY SECURITY HOLDERS TO ASSERT IN CONNECTION WITH CONFIRMATION THAT THE NEW CALPINE TOTAL ENTERPRISE VALUE IS DIFFERENT FROM THE AMOUNT ESTIMATED BY THE DEBTORS OR ANY OTHER PARTY OR (II) BE DEEMED A WAIVER OF ANY PARTY’S RIGHT TO OBJECT TO THE PLAN UNDER BANKRUPTCY CODE SECTIONS 1129(a)(7) OR 1129(b)(2) BASED ON VALUATION.

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O.Conflicts:  Except as set forth in the Plan, to the extent that any provision of the Disclosure Statement, the Plan Supplement, or any other order (other than the Confirmation Order) referenced in the Plan (or any exhibits, schedules, appendices, supplements, or amendments to any of the foregoing), conflict with or are in any way inconsistent with any provision of the Plan, the Plan shall govern and control.

New York, New York

Dated:  September 27, 2007

CALPINE CORPORATION (for itself and all other Debtors)

By:	/s/ Gregory L. Doody
Name:	Gregory L. Doody
Title:	Executive Vice President, General Counsel, and Secretary

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EX-10.2

EXHIBIT 10.2

EXECUTION COPY

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (the “Agreement”) is entered into effective as of October 10, 2007, between CALPINE CORPORATION, a Delaware corporation (the “Company”), and ROBERT P. MAY (“Executive”) to provide the terms and conditions for Executive’s employment with the Company and its affiliates from time to time (together, the “Group”).

The Board of Directors of the Company (the “Board”) named Executive as Chief Executive Officer of the Company and a member of the Board on December 12, 2005 (the “Start Date”) pursuant to an Employment Agreement dated as of December 12, 2005 (the “Prior Agreement”).

The Company and Executive have agreed that Executive will continue to be employed by the Company and will serve as the Company’s Chief Executive Officer, upon the terms and conditions set forth below.

Accordingly, and in consideration of the mutual obligations set forth in this Agreement, which Executive and the Company agree are sufficient, Executive and the Company agree as follows:

1 Term of Employment.

Executive’s term of employment (“Term of Employment”) begins as of the date hereof and ends on June 30, 2008, subject to the termination provisions of paragraph 4 below.

2 Position and Responsibilities.

During the Term of Employment, Executive shall have the position and responsibilities described below.  Executive shall be employed as the Company’s Chief Executive Officer, with the general executive powers and authority that accompany that position.  Executive shall report directly to the Board and shall have the duties and responsibilities that are typically performed by the chief executive officer of a public company, as well as any other duties consistent with his position that are assigned to Executive by the Board.  Unless and until the Board elects a President of the Company, Executive shall also have the powers, duties and responsibilities that the Company’s Bylaws confer on the President of the Company.  Executive agrees to comply with such lawful policies of the Company as may be adopted from time to time.  Although Executive may be reasonably required to travel from time to time for business reasons, his principal place of employment shall be the Company’s corporate offices wherever located.

(a) Executive shall devote all of his full business time and his best efforts, skill, and attention to the Company’s business and affairs and to promoting the Company’s best interests.

(b) Executive shall serve as a non-chairman member of the Board for as long as Executive continues to be nominated and elected.

(c) Notwithstanding the foregoing, nothing herein shall preclude Executive from (i) serving on the boards of directors of other corporations and/or charitable organizations (subject to the approval of the Board, such approval not to be

unreasonably withheld), (ii) engaging in charitable activities and community affairs, and (iii) managing his personal investments and affairs, provided that any such activities listed in (i) and (ii) above do not interfere in more than a de minimis manner with the proper performance of his duties and responsibilities hereunder and comply with the limitations set forth in paragraph 5.a.

3 Compensation.

For all of his services during the Term of Employment, Executive shall receive the following compensation:

(a) Base Salary.  Executive’s annual base salary shall be $1,500,000 (as may be increased from time to time, the “Base Salary”).  The Board will review the Base Salary at least annually and may increase it at any time for any reason, in its sole discretion; however, it shall have no obligation to do so.

(b) Bonus.  In addition to his Base Salary, Executive shall be eligible to receive an annual cash performance bonus (the “Bonus”) for each fiscal year ending during the Term of Employment if, and to the extent that, (x) except with respect to any Bonus payable earlier as severance under paragraph 4.b.ii.1, Executive remains employed by the Company on the last day of such fiscal year and (y) corporate performance objectives established by the Board are achieved, as determined by the Board or a committee thereof in its sole discretion.  Payment of the Bonus shall be made at the same time that other senior-level executives receive their bonuses, and no later than March 15th of the calendar year after the calendar year in which the Bonus is earned.  The target level for Executive’s Bonus shall be established by the Board (or a committee thereof) in its sole discretion, provided that the minimum target level for any year shall be 100% of the Base Salary (the “Target Annual Bonus”).  However, subject to the minimum Bonuses for the Company’s fiscal years ending December 31, 2006, and December 31, 2007, set forth below, Executive’s actual Bonus in any year may range from 0% to 200% of the Target Annual Bonus:

(i) For the Company’s fiscal year ending December 31, 2006, Executive shall be entitled to receive a minimum Bonus of $2,250,000, to be paid no later than March 15, 2007 but no earlier than January 1, 2007.

(ii) For the Company’s fiscal year ending December 31, 2007, Executive shall be entitled to receive a minimum Bonus of $1,500,000, to be paid no later than March 15, 2008 but no earlier than January 1, 2008.

(c) Benefits.  Executive shall be eligible to participate in all Company benefit plans and programs as are generally available for its senior executives, and his benefits shall be based on the terms of the applicable plan as established by the Company from time to time.  Nothing in this Agreement shall restrict the Company’s ability to change or terminate any or all of its employee benefit plans and programs from time to time; nor shall anything in this Agreement prevent any such change from affecting Executive.

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(d) Signing Bonus.  In addition to the Base Salary and Bonus, Executive shall be entitled to receive a one-time payment of $2,000,000, payable within 15 days of the Start Date.  If Executive resigns his employment without Good Reason or Executive’s employment is terminated by the Company for Cause, Executive shall repay a pro rata portion (based on the number of full calendar months remaining in the initial 24 month term divided by 24 months) of the signing bonus (net of any associated income and employment taxes) within 10 days after such resignation or termination of employment.  Within 10 days after the filing of Executive’s federal income tax return for the year in which such repayment is made, Executive shall pay to the Company the amount by which Executive’s federal and state income tax liability for such year was reduced as a result of such repayment.  If Executive resigns for Good Reason, dies or becomes Disabled or if Executive’s employment is terminated by the Company without Cause, Executive shall be entitled to retain the full amount of the signing bonus.  The Company acknowledges and agrees that the payment of Executive’s signing bonus is unrelated to any services that he performed in the State of California.

(e) Success Fee.  When a plan of reorganization that is confirmed by the Bankruptcy Court becomes effective (the “Plan Effective Date”) during Executive’s tenure as Chief Executive Officer of the Company, Executive shall be entitled to receive a one-time payment in an amount equal to the amount set forth on Exhibit A attached hereto (the “Success Fee”).  If at any time after the Start Date, Executive resigns his employment with Good Reason or Executive’s employment is terminated by the Company without Cause before the Plan Effective Date, Executive shall be entitled to payment of the Success Fee if the Plan Effective Date occurs within 12 months after the date of termination of employment.  In any case such Success Fee shall be due and payable on the Plan Effective Date.  Executive shall not be entitled to all or any portion of the Success Fee if the Company terminates his employment for Cause, Executive resigns his employment without Good Reason or Executive’s employment terminates due to death or Disability before the Plan Effective Date.

(f) Guaranteed Minimum Success Fee.  Executive shall be entitled to receive the guaranteed minimum success fee (the “Guaranteed Minimum Success Fee”) described in this paragraph 3.f; provided, however, to the extent the Success Fee is paid, the Success Fee shall be reduced by the Guaranteed Minimum Success Fee, or any portion thereof, paid to Executive and shall be paid as promptly as practicable in a lump sum.  In such case, no further payment shall be made with respect to the Guaranteed Minimum Success Fee.  The Guaranteed Minimum Success Fee shall be deemed earned as of the date this Agreement is approved by the Bankruptcy Court.

(i) Amount and Payment Schedule.  Executive’s Guaranteed Minimum Success Fee (in addition to the other payments specifically contemplated in this Agreement including, without limitation, the minimum emergence bonus set forth on Exhibit A attached hereto) shall be an annual amount equal to the sum of his (x) annual Base Salary and (y) Target Annual

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Bonus as of the earlier of (a) the date his term of employment under this Agreement terminates or (b) the Plan Effective Date, for one year, provided that if Executive is terminated in calendar year 2006 or 2007, in lieu of the Target Annual Bonus referenced in (y) above, Executive shall receive his minimum Bonus for the applicable year as set forth in paragraph 3(b), above.  The Guaranteed Minimum Success Fee shall be paid to Executive on the earliest of (1) the date Executive is terminated by the Company without Cause, (2) the date Executive terminates his employment for Good Reason and (3) the Plan Effective Date.  Subject to the timing rule described in paragraph 3.f.ii, below, all payments shall be made as promptly as practicable.  Subject to paragraph 3.f above, if the Guaranteed Minimum Success Fee is paid on any date prior to the Plan Effective Date, the Guaranteed Minimum Success Fee shall be paid ratably on the same payment schedule that applied to Executive’s salary as of such date.  If the Guaranteed Minimum Success Fee is paid on the Plan Effective Date, Executive shall be entitled to a lump sum payment.

(ii) Timing.  To the extent necessary to comply with the restriction in Section 409A(a)(2)(B) of the Internal Revenue Code of 1986, as amended (the “Code”) concerning payments to specified employees, the first Guaranteed Minimum Success Fee payment (if the Guaranteed Minimum Success Fee is paid ratably) to Executive shall be made on the first installment date (determined under paragraph 3.f.i, above) that is at least six months after Executive’s termination date.  The first payment shall include any installments that would have been paid previously under paragraph 3.f.i were it not for this special timing rule, plus interest on the delayed installments at an annual rate (compounded monthly) equal to the federal short-term rate (as in effect under Section 1274(d) of the Code on Executive’s termination date).

(g) Relocation.  Executive shall be reimbursed for the following costs associated with relocating to the area in which the Company’s headquarters is located:

(i) All reasonable transaction costs (including any real estate brokerage fees Executive incurs) and reasonable moving expenses incurred by Executive, in each case while an employee of the Company, in connection with moving his household goods from Executive’s current residence to area in which the Company’s headquarters is located, provided that Executive provides appropriate documentation (the “Reimbursement”).  Reimbursements under this paragraph 3(f) below shall be paid on or before March 15th of the calendar year after the calendar year in which the applicable expenses were incurred.  In connection with such payment, during the calendar year after the calendar year in which the applicable expenses are incurred, the Company shall pay Executive an additional payment in an amount such that after the actual payment by Executive of an taxes, if any, imposed in

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connection with the Reimbursement, Executive retains an amount equal to the Reimbursement;

(ii) Reimbursement of all reasonable temporary housing and living expenses incurred by Executive, in each case while an employee of the Company, for the shorter of (A) 9 months or (B) the period from the Start Date until Executive moves to a residence of his choosing in the area in which the Company’s headquarters is located; provided, that the Board may extend such period from time to time.  Reimbursements under this paragraph 3(f) below shall be paid on or before March 15th of the calendar year after the calendar year in which the applicable expenses were incurred.

(h) Legal Fees.  On or before March 30, 2006, or such later date to which Executive and Company mutually agree, the Company shall pay Executive’s reasonable legal fees that are directly related to the negotiation, entry and approval by the Bankruptcy Court of this Agreement and were actually incurred during such negotiation, entry or approval, in an amount not to exceed $50,000.

4 Termination

(a) Termination of Employment.

(i) Termination by the Company for Cause.  The Board may terminate Executive’s employment for Cause at any time after (x) providing Executive with 5 business days’ advance written notice explaining the circumstances that justify the termination (a “Termination Notice”); and (y) except in the case of termination for an event covered by (2) below, providing Executive with the opportunity to appear before the Board prior to any vote to terminate Executive’s employment for Cause, which opportunity may occur during the 5-business-day notice period.  “Cause” means any of the following:  (1) Executive’s breach of any material term of this Agreement that is not corrected within 10 days after delivery of a Termination Notice to Executive with respect to such breach; (2) Executive’s commission of, or formal prosecutorial charge or indictment alleging commission of, a felony or any crime of similar status, any crime involving fraud, or any crime involving moral turpitude (other than motor vehicle related) (it being agreed that in the case of a crime involving moral turpitude, only to the extent such crime materially and adversely affects the business, standing or reputation of the Company or any other member of the Group); (3) Executive’s breach of fiduciary duty to the Company or any other member of the Group that has any material and adverse impact on the Company that is not corrected within 10 days after delivery of a Termination Notice to Executive with respect to such breach; (4) Executive’s misappropriation of funds or material property of the Company or any other member of the Group; (5) Executive’s  refusal to follow the lawful directives of the Board without a materially valid business justification that is not corrected within 10 days after delivery of a Termination Notice to Executive with respect to such refusal; (6) Executive’s fraud related to the Company that is not

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corrected within 10 days after delivery of a Termination Notice to Executive with respect to such fraud; (7) Executive’s material dishonesty, disloyalty, gross negligence or willful misconduct, where such dishonesty, disloyalty, gross negligence or willful misconduct is reasonably likely to result, in substantial and material damage to the Company or any other member of the Group and that is not corrected within 10 days after delivery of a Termination Notice to Executive with respect to such event; (8) Executive’s willful and material violation of any of the Company’s Code of Conduct or employment policies that is not corrected within 10 days after delivery of a Termination Notice to Executive with respect to such violation; or (9) Executive’s material violation of any federal, state or local laws that could result in a direct or indirect financial loss to the Company or any other member of the Group or damage the reputation of the Company or any other member of the Group.

For this definition, no act or omission by the Executive will be “willful” unless it is made by him in bad faith or without a reasonable belief that his act or omission was in the best interests of the Company or the Group.  Any act, or failure to act, based upon the advice of counsel to the Company or any member of the Group shall be presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company and the Group.

(ii) Termination by the Company without Cause.  The Company may terminate Executive’s employment under this Agreement without Cause upon at least 20 days’ prior written notice to Executive.  For purposes hereof, a Termination by the Company without Cause shall also include a termination of Executive’s employment after the parties’ failure to enter into a new employment agreement prior to June 30, 2008 that results in Executive’s termination of employment with the Company on June 30, 2008.

(iii) Death or Disability.  Executive’s employment by the Company will immediately terminate upon Executive’s death and at the option of either Executive or the Company, exercisable upon written notice to the other party, may terminate upon the Executive’s Disability.  For purposes of this Agreement, “Disability” will occur if (A) Executive becomes eligible for benefits under a long-term disability policy provided by the Company, if any, or (B) Executive has become unable, due to physical or mental illness or incapacity, to substantially perform the essential duties of his employment with reasonable accommodation for a period of 90 days or an aggregate of 180 days during any consecutive 12 month period, as determined by an independent physician approved by the Company and Executive.

(iv) Termination by Executive for Good Reason.  Executive may terminate his employment for Good Reason within 90 days of the occurrence of an

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event constituting Good Reason.  “Good Reason” shall mean the occurrence, during the Term of Employment, of any of the following actions or failures to act, but in each case only if it is not consented to by Executive in writing:  (A) a material adverse change in Executive’s duties, reporting responsibilities, titles or elected or appointed offices (including the failure to be elected to the Company’s Board) as in effect immediately prior to the effective date of such change (including but not limited to the appointment of any person to an executive position at the Company that is co-equal or senior to that of Executive); (B) any reduction or failure to pay when due the Executive’s Base Salary, the minimum 2006 and 2007 Bonus, Signing Bonus or Success Fee; (C) any reduction by the Company in Executive’s Target Annual Bonus opportunity; (D) the Company’s breach of any material term of this Agreement that is not corrected within 10 days after delivery of a notice to the Company with respect to such breach or (E) the failure of the Company to obtain the assumption in writing of this Agreement by any successor to or an acquirer of all or substantially all of the assets of the Company on or prior to a merger, consolidation, sale or similar transaction; provided, however, that Executive first notifies the Company in writing of an occurrence constituting Good Reason and the Company fails to cure such occurrence within 30 days of such notice.  For purposes of this definition, none of the actions described in clauses (A) through (E) above shall constitute “Good Reason” with respect to Executive if it was an isolated and inadvertent action not taken in bad faith by the Company and if it is remedied by the Company within 10 days after receipt of written notice thereof given by Executive.

(v) Termination by Executive without Good Reason.  Executive may terminate his employment under this Agreement without Good Reason upon at least 20 days’ prior written notice to the Company.

(b) Consequences of Termination of Employment.

(i) Termination by the Company without Cause or by Executive for Good Reason prior to the Plan Effective Date.  Executive shall receive the benefits described in this paragraph 4.b (excluding the severance benefits set forth in paragraphs 4.b.ii.1 and 4.b.ii.2) if the Executive’s employment is terminated without Cause (under paragraph 4.a.ii) at any time during the Term of Employment or if Executive terminates his employment at any time during the Term of Employment for Good Reason (under paragraph 4.a.iv) prior to the Plan Effective Date.  For a period of one year following the date of termination of Executive’s employment from the Company, the Company shall at its sole cost and expense (but disregarding any individual tax liability of Executive), and at the election of COBRA by Executive, provide Executive (and his spouse and eligible dependents) with group health benefits substantially similar to those benefits that Executive (and his

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spouse and eligible dependents) were receiving immediately before his termination (which may at the Company’s election be pursuant to reimbursement of the applicable COBRA premium).  Such coverage shall be provided to Executive as COBRA benefits and shall terminate prior to the end of the one-year period if Executive, his spouse or eligible dependents are no longer eligible for COBRA coverage.  To the extent possible, the benefits under this section 4.b.i.3 shall be made in a manner that is tax efficient for the Executive so long as there is no adverse tax consequences to the Company.

(ii) Termination by the Company without Cause or by Executive for Good Reason after the Plan Effective Date.  Executive shall receive the benefits described in this paragraph 4.b (including the benefits set forth in paragraph 4.b.i.) if the Executive’s employment is terminated without Cause (under paragraph 4.a.ii) at any time during the Term of Employment or if Executive terminates his employment at any time during the Term of Employment for Good Reason (under paragraph 4.a.iv) after the Plan Effective Date.  If Executive receives the benefits set forth in this paragraph 4.b.ii, Executive shall not be eligible for severance benefits from any other plan, program or policy of the Company then in effect.

1. Amount and Payment Schedule.  Executive’s severance benefit (in addition to the other payments specifically contemplated in this Agreement) shall be an annual amount equal to the sum of his (x) annual Base Salary and (y) Target Annual Bonus as of the date his employment terminates, paid for one year, provided that if Executive is terminated in calendar year 2006 or 2007, in lieu of the Target Annual Bonus referenced in (y) above, Executive shall receive his minimum Bonus for the applicable year as set forth in paragraph 3(b), above.  Subject to the timing rule described in paragraph 4.b.ii.2, below, the severance benefit shall be paid ratably on the same payment schedule that applied to Executive’s salary at the time of his termination.

2. Timing.  To the extent necessary to comply with the restriction in Section 409A(a)(2)(B) of the Internal Revenue Code of 1986, as amended (the “Code”) concerning payments to specified employees, the first severance payment to Executive shall be made on the first installment date (determined under paragraph 4.b.ii.1, above) that is at least six months after Executive’s termination date.  The first payment shall include any installments that would have been paid previously under paragraph 4.b.ii.1 were it not for this special timing rule, plus interest on the delayed installments at an annual rate (compounded monthly) equal to the federal short-term rate (as in

8

      effect under Section 1274(d) of the Code on Executive's termination date).

(iii) Death or Disability.  In the event of termination of Executive’s employment due to death or Disability (under paragraph 4.a.ii), Executive shall be entitled to receive (in addition to any other payments specifically contemplated in this Agreement) a pro rata portion of his Target Annual Bonus for the portion of the calendar year before the date of termination of employment, as promptly as practicable and in any event payable on or before March 15th of the calendar year after the calendar year in which such termination of employment occurs; but Executive shall not be eligible to receive any other severance benefit under this paragraph 4.  Executive’s eligibility (if any) to receive a severance or retirement benefit under any other severance or retirement plan or program maintained by the Company shall be determined by the terms of that plan or program as in effect on his termination date.

(iv) Termination for Cause or Voluntary Termination.   If the Company terminates Executive’s employment for Cause (under paragraph 4.a.i), or if Executive terminates his employment without Good Reason (under paragraph 4.a.v), Executive shall not be eligible to receive any severance benefit under this paragraph 4.b.iv.  Executive’s eligibility (if any) to receive a severance or retirement benefit under any other severance or retirement plan or program maintained by the Company shall be determined by the terms of that plan or program as in effect on his termination date.  The foregoing shall not limit the remedies available to the Group, at law or in equity, for any loss or other injury caused directly or indirectly by Executive.

(v) Earned but Unpaid Bonus.  In addition to any other amounts owed to Executive under this paragraph 4.b, if the Company terminates the Executive’s employment for any reason other than Cause or if Executive terminates employment after December 31 of any year, Executive shall be entitled to receive any Bonus earned by Executive for the preceding year as calculated in accordance with paragraph 3(b) but not yet paid as of the termination date.

(vi) Release.  The Company will not be required to make the payments stated in this paragraph 4 unless the Executive executes and delivers to the Company an agreement releasing from all liability (other than Executive’s rights under this Agreement and any indemnification arrangement of the Company with respect to Executive) the Group and any of their respective past or present directors, officers, employees, shareholders, controlling persons or agents of the Group.  No payment will be made until the period for revocation of the release has ended and unless Executive has not revoked the release.  This agreement will be substantially in the form attached hereto as Exhibit B.

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5 Restrictive Covenants.

(a) Non-Competition.  During the time Executive is employed by the Company and for 12 months thereafter, Executive shall not directly or indirectly manage, operate, participate in, be employed by, perform consulting services for, or otherwise be connected with NRG Energy, Inc., Mirant Corporation, Reliant Energy, Dynegy Inc., Edison Mission Energy/Edison International, Constellation Energy Group, Inc. (FPL Group, Inc.) and Pacific Gas & Electric Company (each a “Competitive Enterprise”); nor shall Executive receive compensation from any other company or business during the time Executive is employed with the Company unless the arrangement giving rise to such compensation has been (i) disclosed to and approved by the Board in advance or (ii) is otherwise permitted by the terms of this Agreement.  Executive may invest in any Competitive Enterprise, provided that Executive and his immediate family members (as defined in Section 1361(c)(B) of the Code) do not own collectively more than three percent of the voting securities of any such entity at any time.

(b) Use and Disclosure of Proprietary Information.

(i) Definition of Proprietary Information.  “Proprietary Information” means confidential or proprietary information, knowledge or data concerning (1) the Group’s businesses, strategies, operations, financial affairs, organizational matters, personnel matters, budgets, business plans, marketing plans, studies, policies, procedures, products, ideas, processes, software systems, trade secrets and technical know-how, (2) any other matter relating to the Group, (3) any matter relating to clients of the Group or other third parties having relationships with the Group and (4) any confidential information from which the Group derives business advantage or economic value.  Proprietary Information includes (A) the names, addresses, phone numbers and buying habits and preferences and other information concerning clients and prospective clients of the Group, and (B) information and materials concerning the personal affairs of employees of the Group.  In addition, Proprietary Information may include information furnished to Executive orally or in writing (whatever the form or storage medium) or gathered by inspection, in each case before or after the date of this Agreement.  Proprietary Information does not include information (X) that was or becomes generally available to Executive on a non-confidential basis, if the source of this information was not reasonably known to Executive to be bound by a duty of confidentiality,  (Y) that was or becomes generally available to the public, other than as a result of a disclosure by Executive, directly or indirectly, or (Z) that Executive can establish was independently developed by Executive without reference to Proprietary Information.

(ii) Acknowledgements.  Executive acknowledges that he will obtain or create Proprietary Information in the course of Executive’s involvement in the Group’s activities and may already have Proprietary Information.

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Executive agrees that the Proprietary Information is the exclusive property of the Group.  In addition, nothing in this Agreement will operate to weaken or waive any rights the Group may have under statutory or common law, or any other agreement, to the prohibition of unfair competition or the protection of trade secrets, confidential business information and other confidential information.

(iii) During Employment.  Executive will use and disclose Proprietary Information only for the Group’s benefit and in accordance with any restrictions placed on its use or disclosure by the Group.

(iv) Post-Employment.  After the termination of Executive’s employment, Executive will not use or disclose any Proprietary Information for any purpose.  For the avoidance of doubt, but without limitation of the foregoing, after termination of Executive’s employment, Executive will not directly or indirectly use Proprietary Information from which the Group derives business advantage or economic benefit to solicit, impair or interfere with, or attempt to solicit, impair or interfere with, any person or entity, who, at the time of the termination of Executive’s employment, is then a customer, vendor or business relationship of the Group (or who Executive knew was a potential customer, vendor or business relationship of the Company within the six months prior to the termination of his Employment).

(c) Non-Solicitation of Employees.  During the Term of Employment and for an 18 month period after termination of Executive’s employment, Executive will not directly or indirectly solicit or attempt to solicit anyone who, at the time of the termination of Executive’s employment, is then an employee of the Group (or who was an employee of the Group within the six months prior to the termination of his Employment) to resign from the Group or to apply for or accept employment with any company or other enterprise.

(d) Non-Disparagement.  During and after Executive’s employment with the Company, the parties mutually covenant and agree that neither will directly or indirectly disparage the other, or make or solicit any comments, statements, or the like to any clients, competitors, suppliers, employees or former employees of the Company, the press, other media, or others that may be considered derogatory or detrimental to the good name or business reputation of the other party.  Nothing herein shall be deemed to constrain either party’s cooperation in any Board authorized investigation or governmental action.  In the event of Executive’s termination or the non-renewal of this Agreement, Executive and Company shall agree on any press release relating to such termination or non-renewal and the Company and Executive shall not publicly discuss or comment on Executive’s termination or non-renewal in any manner other than as mutually agreed in the press release.

6 Excise Tax.  If, (I) in the written opinion of the Company’s independent accountants, (x) any payment or benefit to Executive under this Agreement or otherwise contingent

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upon a change of control (including without limitation, the Success Fee, the Guaranteed Minimum Success Fee and any payments under paragraph 4.b above) is an “excess parachute payment” as defined in Section 280G(b) of the Code, and (y) such excess parachute payment is subject to the excise tax imposed by Section 4999 of the Code (or any similar tax under state or local law) or (II) the Internal Revenue Service determines that any payment or benefit to Executive under this Agreement is an excess parachute payment that is subject to the excise tax imposed by Section 4999 of the Code, the Company shall pay to Executive such amount or amounts necessary to place Executive in the same after-tax position in which Executive would have been if such excise tax (together with any interest and penalties) had not been imposed (the “Gross-Up”).  The Gross-Up shall be in an amount determined by the Company’s independent accountants and shall be paid on or prior to the date the applicable withholding taxes are due. For purposes of determining the amount of the Gross-Up, the Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up is to be made.  Notwithstanding anything to the contrary, the Gross-Up obligation of the Company under this Section shall survive any termination of this Agreement or Executive’s termination of employment.

7 Employment Taxes.  All payments and other compensation under this Agreement shall be subject to withholding of the applicable income and employment taxes.

8 Nonduplication of Benefits.  No term or other provision of this Agreement may be interpreted to require the Company to duplicate any payment or other compensation that Executive is already entitled to receive under a compensation or benefit plan, program, or other arrangement maintained by the Company.

9 Indemnification.  To the fullest extent permitted by applicable law, the Company shall provide indemnification for Executive under its Articles of Incorporation and Bylaws.  Executive shall be covered by the Company’s standard indemnification agreement and by any director’s and officer’s liability insurance policy maintained by the Company.

10 Successors.  Any successor to the Company or to all or substantially all of the Company’s business and/or assets (whether a direct or indirect successor, and whether by purchase, lease, merger, consolidation, liquidation, or otherwise) shall assume the obligations under this Agreement.  In case of any succession, the term “Company” shall refer to the successor.  The terms of this Agreement and all of Executive’s rights hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.

11 No Third-Party Beneficiaries.  Except as provided in paragraph 9 above, nothing in this Agreement may confer upon any person or entity not a party to this Agreement any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement.

12 No Duty to Mitigate.  Executive shall not be required to seek new employment or otherwise to mitigate the payments contemplated by this Agreement.  The payments contemplated by this Agreement shall not be reduced by earnings that Executive may

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receive from any other source; provided, however, that COBRA payments may cease in accordance with the provisions of this Agreement.

13 Notice.  Notices and other communications between the parties to this Agreement shall be delivered in writing and shall be deemed to have been given when personally delivered or on the third business day after mailing by U.S. registered or certified mail, return receipt requested and postage prepaid.

(a) Notices and other communications to Executive shall be addressed to Executive, at the most recent home address that he provided in writing to the Company.

(b) Notices and other communications to the Company shall be addressed to the Company’s corporate headquarters, to the attention of the Company’s Secretary.

14 Waiver and Amendments.  No provision of this Agreement may be modified, waived, or discharged, unless the modification, waiver, or discharge is agreed to in writing signed by Executive and by an authorized representative of the Company (other than Executive).  Unless specifically characterized as a continuing waiver, no waiver of a condition or provision at anyone time may be considered a waiver of the same provision or condition (or any different provision or condition) at any other time.

15 Costs.  In the event that Executive is a prevailing party in any dispute or disagreement with the Company relating to this Agreement and/or the Company’s obligations under this Agreement, the Company will reimburse any expenses, including reasonable attorney’s fees  (and such fees incurred at Executive’s attorney’s normal hourly rates will be presumed reasonable), incurred by Executive as a result of, or in connection with, any such dispute or disagreement.  Nothing herein shall adversely impair or limit any rights Executive has under the Company’s Articles of Incorporation, Bylaws and directors’ and officers’ liability insurance policies.  Notwithstanding anything to the contrary, the obligation of the Company under this Section shall survive any termination of this Agreement or Executive’s termination of employment.

16 Ability to Enter this Agreement.  Executive represents and warrants that neither the execution and delivery of this Agreement nor the performance of Executive’s services hereunder will conflict with, or result in a breach of any employment or other agreement to which Executive is a party or by which Executive might be bound or affected.  Executive further represents and warrants that Executive has full right, power, and authority to enter into and carry out the provisions of this Agreement.

17 Remedy at Law Inadequate.  Executive acknowledges that a remedy at law for any breach or attempted breach of the covenants described in paragraph 5 of this Agreement will be inadequate and agrees that the Group shall be entitled to specific performance and injunctive and other equitable relief in the case of any such breach or attempted breach.

18 American Jobs Creation Act of 2004.  This Agreement shall be construed, administered and interpreted in accordance with a good-faith interpretation of Section 409A of the Code and Section 885 of the American Jobs Creation Act of 2004.  If the Company or Executive determines that any provision of this Agreement is or might be inconsistent with such provisions (including any administrative guidance issued

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thereunder), the parties shall make their best efforts in good faith to agree to such amendments to this Agreement as may be necessary or appropriate to comply with such provisions.

19 Choice of Law.  This Agreement (including its validity, interpretation, construction, and performance) shall be governed by the laws of the State of New York, without regard to any concerning conflicts or choice of law that might otherwise refer construction or interpretation to the substantive law of another jurisdiction.

20 Section Headings.  All headings in this Agreement are inserted for convenience only.  Headings do not constitute a part of the Agreement and may not affect the meaning or interpretation of any term or other provision of this Agreement.

21 Severability and Reformation.  Each substantive provision of this Agreement is a separate agreement, independently supported by good and adequate consideration, and is severable from the other provisions of the Agreement.  If a court of competent jurisdiction determines that any term or provision of this Agreement is unenforceable, then the other terms and provisions of this Agreement shall remain in full force and effect, and the unenforceable terms or provisions shall be equitably modified to the extent necessary to achieve the underlying purpose in an enforceable way.

22 Whole Agreement.  This Agreement reflects the entire understanding and agreement between the Company and Executive regarding Executive’s employment.  This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings, and agreements, including the Prior Agreement, whether oral or written, relating to Executive’s employment with the Company.  The respective rights and obligations of the parties to this Agreement shall survive the termination of Executive’s employment to the extent necessary to give such rights and obligations their intended effect.

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23 Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument.

*           *           *

IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement on [        ], 2007.

CALPINE CORPORATION:

By:	/s/ Kenneth T. Derr	/s/ Robert P. May
	Kenneth T. Derr	Robert P. May, in his individual capacity
	Chairman of the Board of Directors

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EX-10.3

EXHIBIT 10.3

August 31, 2007

Eric Pryor

[Address]

Re.      Employment Separation

Dear Eric:

As you are aware, your employment with Calpine will end effective August 31, 2007 as a result of restructuring activities (“Qualifying Event”).  This letter agreement (the “Agreement”) confirms the terms of your separation from employment with Calpine Corporation, a Delaware corporation or one or more of its subsidiaries (collectively, “Calpine”) and offers you the following benefits in exchange for a release of all claims.

1.           Separation Date.  Your employment with Calpine will be terminated effective August 31, 2007 (the “Separation Date”).

2.           Additional Payment and Benefits.  In exchange for the waiver and release described in Paragraphs 7 and 8 below, Calpine agrees to provide you with an additional payment and benefits as described in the Calpine Corporation U.S. Severance Program and the Severance Benefit Summary Sheet provided to you with this letter. By signing this Agreement, you also warrant that you understand and have read the terms of the Calpine Corporation U.S. Severance Program.  In addition to the payment and benefits described in the attached Summary Sheet, you shall also be eligible to receive a one-time payment of a success fee at the sole discretion of the Chief Executive Officer of Calpine as part of Calpine’s emergence incentive plan.

3.           Participation in Stock/401(k) and Life and Disability Insurance Plans.  As you will no longer be a Calpine employee after the Separation Date, you will not participate in Calpine’s Employee Stock Purchase Plan and life and disability insurance plans after the Separation Date.  Distribution options under Calpine’s 401(k) plan will be pursuant to the plan rules, and you will be provided with notice of such options by separate letter.

4.           Return of Company Property.  You warrant that, by the Separation Date, you will return to your manager or human resources representative all Calpine property or data of any type, including computer and e-mail passwords, that are in your possession or control, without retaining any copies, notes or extracts thereof.

5.           References.  You should direct all requests for employment references to Kelly Zelinski in Calpine’s Human Resources Department, kellyz@calpine.com, or her successor.  Human Resources will respond to all such inquiries by stating that, as a matter of company policy, Calpine declines to provide any information regarding former employees other than the former employee’s dates of employment and job title, and with written authorization from the employee, the former employee’s salary.

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6.           Confidential Information; Use of Confidential Information to Compete.  By signing below, you acknowledge that as a result of your employment with Calpine you have had access to Confidential Information of Calpine (for the purposes of this Agreement, Confidential Information includes but is not limited to trade secrets, inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, customer lists, customer information, and any other information which gives Calpine an opportunity to obtain advantage over competitors who do not know or use it) and that you will hold all such Confidential Information in strictest confidence and will not disclose to any person or entity or make use, directly or indirectly, of such Confidential Information.  You confirm that you will deliver to your manager or human resources representative, within ten (10) days of the Separation Date, all diskettes, documents and data of any nature pertaining to any such Confidential Information and that you have not taken or retained any such diskettes, documents or data or any reproductions.  Nor shall you directly or indirectly use Confidential Information of Calpine to compete with Calpine, or disclose Confidential Information to a competitor of Calpine or to any other person or entity.

7.           Release of Claims.  You acknowledge that you have no claims against Calpine based on your employment with Calpine or the separation of that employment, except for claims asserted as of February 1, 2006 in Virgil D. Hulsey, Jr., et al. v. Calpine Corporation, et al., Case No. 1-04-CV-032103 (CA Superior Court, Santa Clara County), if you are a class member identified in that lawsuit, and except for other claims that are specifically excluded from this release by Paragraph 8, below.  By signing below, you release Calpine and forever discharge Calpine from all claims, demands, causes of action, damages and liabilities, known or unknown, that you have ever had, now have or may claim to have had relating to or arising from your employment with or separation from Calpine, except for claims that are specifically excluded from this release by Paragraph 8, below.

You expressly waive the benefits of Section 1542 of the Civil Code of the State of California (and under other state and federal provisions of similar effect) which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

8.           Waiver of Claims Including Employment-Related Claims. You understand that the release you are providing releases and waives any and all claims you may have against Calpine and its owners, agents, officers, shareholders, employees, directors, attorneys, subscribers, subsidiaries, affiliates, insurers, successors and assigns, whether known or not known, including, without limitation, claims under any employment laws,

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including, but not limited to, claims of unlawful discharge, breach of contract, breach of the covenant of good faith and fair dealing, retaliation, harassment, fraud, violation of public policy, defamation, physical injury, emotional distress, claims for compensation or benefits arising out of your employment or your separation of employment, claims under Title VII of the 1964 Civil Rights Act, as amended, the California Fair Employment and Housing Act, and any other laws and/or regulations relating to employment or employment discrimination, including, without limitation, claims based on age or under the Age Discrimination in Employment Act or Older Workers Benefit Protection Act, provided, that this waiver and release does not extend to: claims for breach of this agreement; claims for legally required indemnification; claims for unemployment compensation benefits, workers’ compensation benefits, or state and/or long term disability benefits; claims asserted in Calpine’s Chapter 11 bankruptcy proceeding for unpaid accrued vacation pay, unpaid deferred compensation, or indemnity, contribution or reimbursement; or claims for acts occurring after the Separation Date.  This waiver and release also does not apply to claims asserted as of February 1, 2006 in Virgil D. Hulsey, Jr., et al., v. Calpine Corporation, et al., Case No. 1-04-CV-032103 (CA Superior Court, Santa Clara County).

9.           Covenant Not to Prosecute.  You agree never, individually or with any person or in any way, to commence, prosecute or cause or permit to be commenced or prosecuted against Calpine, any legal action or other proceeding based upon any claim, demand, cause of action, damage or liability which is released by this Agreement, except as required by law.  If such action has been filed on your behalf, you agree to immediately cause the dismissal of such action with prejudice and without any further right of appeal.

10.           Review of Severance Agreement and Timing of Payment. You acknowledge your understanding that you may take up to forty-five (45) days to consider this Agreement and, by signing below, affirm that you were advised to consult with an attorney before signing this Agreement.  You further acknowledge that you understand you may revoke this Agreement within seven (7) days of signing it, by faxing a written revocation signed by you to Kelly Zelinski, fax number 408-794-4333, so that your fax is received by Ms. Zelinski by the end of that seven (7) day period.  You further agree that the severance pay to be provided to you, identified in paragraph 2 above, in exchange for your agreement will commence one to two pay periods after the end of that seven (7) day revocation period and only after Calpine receives this original signed Agreement, and that this Agreement will not become effective or enforceable until the revocation period has expired.

11.           Legal and Equitable Remedies.  Both you and Calpine have the right to enforce this Agreement and its provisions by injunction, specific performance or other relief without prejudice to any other rights or remedies you may have at law or in equity for breach of this Agreement. You understand and have read the terms of the Calpine Corporation U.S. Severance Program (“the Program”) and understand that under the terms

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of the Program, with respect to claims relating in any way to benefits provided under the Program, you may be required to follow the claims procedures identified in the Program.

12.           Attorneys’ Fees.  If any legal action is brought to enforce the terms of this Agreement, the prevailing party will be entitled to recover its reasonable attorneys’ fees, costs, and expenses from the other party, in addition to any other relief to which such prevailing party may be entitled.

13.           Assignment, Successors and Assigns.  Calpine and you understand that this Agreement will benefit and be binding upon you and your heirs, successors, permitted assigns, and agents.  This Agreement will not benefit any other person or entity except as specifically described in this Agreement.

14.           Confidentiality.  You agree to keep the contents, terms and conditions of this Agreement confidential.  You may disclose this information to your spouse, immediate family, accountants, or attorneys, provided that they first agree not to disclose any information concerning the contents, terms and conditions of this Agreement to anyone.  You also may disclose the contents, terms and conditions of this Agreement to the IRS or other taxing authorities or as required by subpoena or court order. Any breach of this confidentiality provision, or of any other obligation by you set forth in this Agreement, will be deemed a material breach of this Agreement.

15.           Non-Solicitation and Non-Disparagement.  For a two (2) year period after the date of this letter, you agree not to directly or indirectly solicit any employee of Calpine to perform services for another business entity, and not to make any disparaging or derogatory statements about Calpine or its directors, officers, agents or employees.

16.           No Admission of Liability.  This Agreement is not and may not be contended by you to be an admission or evidence of any wrongdoing or liability on Calpine’s part.  This Agreement will be afforded the maximum protection allowable under California Evidence Code Section 1152 and/or other state or Federal provisions of similar effect.

17.           Entire Agreement.  This Agreement constitutes the entire agreement between you and Calpine with respect to the subject matter of this Agreement.  It supersedes all prior negotiations and agreements, whether written or oral, relating to this subject matter except those provisions of prior written agreements that expressly extend beyond the term of your employment.  You acknowledge that neither Calpine nor its agents have made any promise or representation either express or implied, written or oral, which is not contained in this Agreement for the purpose of inducing you to sign this Agreement, and you acknowledge that you have signed this Agreement relying only on the promises and representations stated herein.

August 31, 2007

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18.           Modification.  This Agreement may not be altered, amended, or otherwise changed except by another written agreement that specifically refers to this Agreement, signed by you and by Calpine or its authorized representative.

19.           Governing Law.  This Agreement is governed by and will be interpreted according to the laws of the State of California.  If any term of this Agreement is deemed invalid or unenforceable, the remainder of this Agreement will remain in full force and effect.

20.           Your Understanding.  By signing below, you acknowledge that you have read this Agreement and fully understand and agree to it.

PLEASE READ CAREFULLY.  THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

			CALPINE CORPORATION
Dated:	August 21	, 2007	By:	/s/ Kelly J. Zelinski
			Kelly J. Zelinski
			Vice President of Human Resources

[CONTINUED ON NEXT PAGE]

August 31, 2007

Page 6

I have read the above Agreement, have had an opportunity to obtain legal advice, and by signing below voluntarily accept and agree to its terms including the release of all claims, known and unknown.

			EMPLOYEE
Dated:	August 21	, 2007	By:	/s/ Eric Pryor
				Employee’s Signature
				Eric Pryor
				Print Name
				Print Address
				Print Social Security Number

Please indicate by checking one of the boxes below, whether you choose to receive outplacement services or Calpine subsidized benefit continuation, as described in the Calpine Corporation U.S. Severance Program.

Outplacement Services   [  ]

Subsidized Benefit Continuation  [x]

 *Please note: regardless of your decision above to elect either Outplacement Services or Subsidized Health Benefits continuation (i.e., paid for by Calpine), if you want to continue your health benefits under COBRA you MUST complete and return the separate COBRA enrollment form which will be mailed to your home by United Healthcare Direct Bill 2 – 3 weeks after your termination date.

Calpine is not responsible for interruptions in health care coverage that result from your failure to return the COBRA election form to UnitedHealthcare.

August 31, 2007

Page 7

Affected Employees of Calpine Corporation

You and the employees listed below are eligible to receive severance benefits from Calpine Corporation pursuant to the Calpine Corporation U.S. Severance Program (“the Program”).  To receive benefits, you must sign the Release you have been given and return it to Calpine Corporation, Kelly Zelinski, VP HR , 50 West San Fernando Street, San Jose, CA 95113 by the end of the forty-five (45) day period after you receive this Agreement.

The listing below shows the number of employees eligible and ineligible for benefits by job title.  Eligible employees are those who were notified February 01, 2006 through August 31, 2007 pursuant to the Calpine Corporation U.S. Severance Program.  Ineligible employees are not subject to lay-off under the Program.

The groups of individuals eligible for benefits under this Program consist of certain employees in various job classifications listed below. The criteria used by Calpine for determining eligibility for the reduction in workforce or restructuring activities (“Qualifying Event”) are Calpine’s current and anticipated business needs, and/or the skills and job performance of employees in the affected business units.

Please note that this information is subject to change and may be affected by future employment decisions including those decisions contemplated by the Program.  If you have any questions about this information, contact your Human Resources Representative.

See attached list of Eligible Employees and Ineligible Employees

EX-10.4

EXHIBIT 10.4

September 20, 2007

Mr. Gregory Doody

Calpine Corporation

717 Texas Avenue

Houston, TX 77002

Re:         Calpine Emergence Compensation

Dear Greg:

As you may be aware, on May 15, 2006, Calpine Corporation (“Calpine”) and its debtor affiliates (collectively, the “Debtors”) received Bankruptcy Court approval of the Emergence Incentive Plan (the “EIP”), which provides variable cash awards to approximately twenty select senior employees.  Pursuant to the terms of the EIP, an incentive pool will be created according to certain metrics related to the valuation of Calpine both under the Debtors’ plan of reorganization and based on market value during a certain period after the effective date of the plan (the “EIP Pool”), which, once created, will be distributed to eligible employees solely at my discretion as chief executive officer of Calpine.

This letter is intended to serve as notice to you that you have been chosen to be a participant in the EIP.  This letter is further intended to set forth my intentions regarding distributions under the EIP.  Accordingly, as of the date hereof, you are eligible to receive a minimum of 16% of the EIP Pool so long as the EIP Pool is funded.  The actual percentage of the EIP Pool that is ultimately paid out could be greater.

This proposed distribution percentage is a final and binding decision and cannot be altered except in the event that you are terminated by Calpine for “Cause” or you voluntarily terminate without “Good Reason” (as each of such terms are defined on Exhibit A attached hereto), in which case you will forfeit any right to any distribution from the EIP Pool.  You will remain eligible to receive the proposed distribution set forth herein if you resign for “Good Cause” or are terminated without “Cause,” as those terms are defined in your employment agreement, to the extent you have an employment agreement.  Any distribution out of the EIP Pool will be made during the 2008 calendar year.

Additionally, we have recommended that you participate in two equity grants that we intend to make upon our emergence from bankruptcy – assuming of course that we emerge from bankruptcy as a publicly traded company.  The first grant will be a normal annual grant and the second grant will be a one-time emergence grant.  The specific terms and conditions of the grants – vesting criteria, treatment of unvested equity in various termination scenarios, etc. remain

subject to the consent of our Official Committee of Unsecured Creditors (the “OCUC”).  Therefore, your participation is not yet finalized and is contingent upon approval of our overall management equity plan by the OCUC.  With that said, the amounts below have been approved by the Board of Directors; however, they remain subject to the consent of the OCUC.

Annual Grant Shares                62,400 = 70% Stock Options/30% Restricted Stock

Emergence Grant Shares          138,000 = 25% Stock Options/75% Restricted Stock

I believe the Emergence Incentive Plan allows Calpine to recognize and reward your efforts toward a successful exit from bankruptcy in amounts that are more than competitive.  I also believe the equity grants upon our emergence appropriately positions you to significantly share in the future success of the company.

I look forward to our continued shared success.  Should you have any questions regarding the foregoing, please do not hesitate to contact me.

Sincerely,

/s/ Robert P. May

Robert P. May

Chief Executive Officer

EX-10.5

EXHIBIT 10.5

Aircraft Travel Card Guidelines

Effective date: May 20, 2007

Page 1 of 2

Requests:

· ALL requests for use of the Corporate Aircraft Travel Card will be made using the Calpine Corp. Aircraft Travel Card Request Form (“Travel Request Form”).

o A copy of the form is attached.

o The appropriate business purpose of the requested trip must be provided in sufficient detail to support the trip request.

o All passengers must be listed by name, title and company.

o The requestor will coordinate the specifics of the trip request with the Aircraft Travel Card Coordinator(s).

§ Primary- Joy Toups, Calpine Corp. (713) 570-4573

§ Backup- Jean Russillo, Advanced Travel (888) 650-4063

· The employee requesting the flight must be a direct report of the Chief Executive Officer.

· Final written approval must be obtained from the Chief Executive Officer or designee before the flight can be scheduled.

· Non employees flying because of Calpine business are eligible passengers.

o Professionals and consultants whose travel is reimbursed by Calpine are eligible non employee passengers.

o Members of the Board of directors are eligible non employee passengers.

· No passenger, whether an employee or not, is permitted to fly in a non-business related capacity, except for:

o Charitable causes, emergency family matters (death of a family member, illness, etc.), community service, disaster relief which will be considered on a case by case basis.

· The EVP Shared Services will review all Travel Request Forms for appropriate traveler designation and coordinate with Tax and SEC Reporting as appropriate.

Aircraft Utilization Guidelines:

· For flights on aircraft with eight (8) or fewer passenger seats, five (5) passengers are required on any round-trip (belted lavatory seats are not counted).

· For flights on aircraft with more than eight (8) passenger seats, six (6) passengers are required (belted lavatory seats are not counted).

· Exceptions to the minimum passenger requirements justification must be included on the Travel Request Form and approved by the Chief Executive Officer before the travel booking process begins.

· All Calpine policies, procedures and conduct of employees apply to anyone traveling via use of the Aircraft Travel Card.

Aircraft:

· The Calpine Aircraft Travel Card allows for the use of a wide range of aircraft which will be selected at the time of travel based on the nature and distance of each trip. The aircraft are grouped into three categories including a few examples listed as follows:

Aircraft Travel Card Guidelines

Effective date: May 29, 2007

Page 2 of 2        
      

    

o Light – Citation Ultra, Lear 35, Hawker 400XP

o Mid – Hawker 800XP, Lear 55, Lear 60, Citation VII

o Heavy – Challenger 600, Gulfstream, Falcon 900

      Aircraft Utilization Cost:

· The aircraft are further divided into the Preferred and Select groupings with the Preferred being four to ten years old and the Select slightly older.

o All aircraft are well maintained with the Select aircraft between 20% - 25% less per hour.

o The hourly rates include basic catering. The Air Travel Coordinators will coordinate any required catering.

o Travelers are encouraged to use Select aircraft whenever possible.

· All cost associated with the Aircraft Travel card for a particular trip will be charged to the requesting department.

o The Travel Request Form will include the estimated cost for each trip leg. The requestor will be required to obtain the equivalent round trip commercial airfare should the trip be booked commercially.

· Our Aircraft Travel Card vendor will have a Traveler Profile for each direct report to assist in booking through the Aircraft Travel Card Coordinators other non air reservations such as car service or rental cars.

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Robert P. May, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Calpine Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 6, 2007

/s/  Robert P. May

Robert P. May

CHIEF EXECUTIVE OFFICER

CALPINE CORPORATION

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Lisa Donahue, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Calpine Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 6, 2007

/s/  Lisa Donahue

Lisa Donahue

CHIEF FINANCIAL OFFICER

CALPINE CORPORATION

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Calpine Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge, based upon a review of the Report:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

/s/  ROBERT P. MAY	/s/  LISA DONAHUE
Robert P. May	Lisa Donahue
Chief Executive Officer	Chief Financial Officer
Calpine Corporation	Calpine Corporation

Dated:  November 6, 2007

A signed original of this written statement required by Section 906 has been provided to Calpine Corporation and will be retained by Calpine Corporation and furnished to the Securities and Exchange Commission or its staff upon request.