-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V6rOo4tVTlRvRBMX7zFFLh2riC8O5a7q4Vk2aEXXiIjZiGpyGAgh9UWpTJg2dmog /X1QP8LOv8isUBcTzWO8TA== 0000916457-10-000018.txt : 20100811 0000916457-10-000018.hdr.sgml : 20100811 20100811121242 ACCESSION NUMBER: 0000916457-10-000018 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20100630 FILED AS OF DATE: 20100811 DATE AS OF CHANGE: 20100811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALPINE CORP CENTRAL INDEX KEY: 0000916457 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 770212977 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12079 FILM NUMBER: 101007131 BUSINESS ADDRESS: STREET 1: 717 TEXAS AVENUE STREET 2: SUITE 1000 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7138308775 MAIL ADDRESS: STREET 1: 717 TEXAS AVENUE STREET 2: SUITE 1000 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q/A 1 cpn-q22010_10qa.htm CALPINE CORPORATION SECOND QUARTER 2010 10-Q/A cpn-q22010_10qa.htm





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
Form 10-Q/A

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

For the quarterly period ended June 30, 2010
 
Or
     
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to
Commission File No. 001-12079
_______________


Calpine Corporation
(A Delaware Corporation)
I.R.S. Employer Identification No. 77-0212977

717 Texas Avenue, Suite 1000, Houston, Texas 77002
Telephone: (713) 830-8775

Not Applicable
(Former Address)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes[   ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
[X]
Accelerated filer
[   ]
 
Non-accelerated filer
[   ]    (Do not check if a smaller reporting company)
Smaller reporting company
[   ]

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 by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
[X] Yes               [   ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  444,586,271 shares of Common Stock, par value $.001 per share, outstanding on July 28, 2010.





 
 

 

EXPLANATORY NOTE
 
The sole purpose of this Amendment on Form 10-Q/A to Calpine Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010, (the “Form 10-Q”) filed with the Securities and Exchange Commission on July 29, 2010, is to furnish the interactive data file formatted in XBRL (eXtensible Business Reporting Language) on Exhibit 101 to the Form 10-Q, as required by Rule 405 of Regulation S-T.
 
This Form 10-Q/A speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Form 10-Q. With the exception of including the XBRL documents, this Form 10-Q/A and the original Form 10-Q are the same.

PART II — OTHER INFORMATION

Item 6.  Exhibits

EXHIBIT INDEX

Exhibit
   
Number
 
Description
     
4.1
 
Amended and Restated Indenture, dated May 25, 2010, among Calpine Corporation, the guarantors party thereto and Wilmington Trust Company, as trustee, including the form of the Notes (incorporated by reference to Exhibit 4.1 to Calpine’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 25, 2010).
     
4.2
 
Amended and Restated Indenture, dated July 23, 2010, among Calpine Corporation, the guarantors party thereto and Wilmington Trust Company, as trustee, including the form of the Notes (incorporated by reference to Exhibit 4.1 to Calpine’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2010).
     
10.1
 
Purchase and Sale Agreement by and between Riverside Energy Center, LLC and Calpine Development Holdings, Inc., as Sellers and Public Service Company of Colorado, as Purchaser dated as of April 2, 2010.*††
     
10.2
 
Purchase Agreement by and among Pepco Holdings, Inc., Conectiv, LLC, Conectiv Energy Holding Company, LLC and New Development Holdings, LLC dated as of April 20, 2010 (incorporated by reference to Exhibit 10.1 to Calpine’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 8, 2010.)
     
10.3
 
The Amended and Restated Calpine Corporation 2008 Director Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 5, 2010).†
     
10.4
 
The Amended and Restated Calpine Corporation 2008 Equity Incentive Plan (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 5, 2010).†
     
10.5
 
Credit Agreement dated as of June 8, 2010, among New Development Holdings, LLC, as Borrower, The Lenders Party Hereto and Credit Suisse AG, as Administrative Agent and Collateral Agent; Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc., and Deutsche Bank Securities Inc., as Joint Bookrunners and Joint Lead Arrangers; Credit Suisse AG as Syndication Agent; Credit Suisse AG, Citibank, N.A., and Deutsche Bank Trust Company Americas as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 11, 2010).
     
10.6
 
Calpine Corporation 2010 Calpine Incentive Plan.*†
     
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.*
 
 
 
1

 
 
Exhibit
   
Number
 
Description
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.*
     
101
 
The following unaudited financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed with the Securities and Exchange Commission on July 29, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.**
________
*
Filed with Calpine Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed with the Securities and Exchange Commission on July 29, 2010.
**
Filed herewith.
Management contract or compensation plan or arrangement.
††
Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
2

 

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/  ZAMIR RAUF
 
     
 Zamir Rauf
 
     
 Executive Vice President and
 
     
 Chief Financial Officer
 
         
 
 Date:  August 11, 2010
     



 
 
 
 
 
 
 
 
 
 
 
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America. We have a significant presence in the major competitive power markets in the U.S., including CAISO and ERCOT, and the Conectiv Acquisition on July&#160;1,&#160;2010 (see Note&#160;2), gives us significant presence in the PJM market. We sell wholesale power, steam, regulatory capacity, renewable energy credits and ancillary services to our customers, including industrial companies, retail power providers, utilities, municipalities, independent electric system operators, marketers and others. We engage in the purchase of natural gas as fuel for our power plants and in related natural gas transportation and storage transactions, and in the purc hase of electric transmission rights to deliver power to our customers. We also enter into natural gas and power physical and financial contracts to economically hedge our business risks and optimize our portfolio of power plants.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Basis of Interim Presentation</font>&#160;&#8212;&#160;The accompanying unaudited, interim Consolidated Condensed Financial Statements of Calpine Corporation, a Delaware corporation, and consolidated subsidiaries have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the Consolidated Condensed Financial Statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, these financial statements should be read in con junction with our audited Consolidated Financial Statements for the year ended December 31, 2009, included in our 2009 Form&#160;10-K. The results for interim periods are not necessarily indicative of the results for the entire year primarily due to seasonal fluctuations in our revenues, timing of major maintenance expense, volatility of commodity prices and unrealized gains and losses from derivative contracts.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Consolidation of OMEC&#160;&#8212;&#160;</font>We were required by GAAP to adopt new accounting standards for VIEs which became effective January 1, 2010 and required us to perform an analysis to determine whether we should consolidate any of our previously unconsolidated VIEs or deconsolidate any of our previously consolidated VIEs. We completed our required analysis and determined that we are the primary beneficiary of OMEC. Accordingly, as required by GAAP, we consolidated OMEC effective January&#160;1,&#160;2010. The consolidation of OMEC on January&#160;1,&#160;2010 was accounted for using historical cost and resulted in the addition to our Consolidated Condensed Balance Sheet of approximately $8 million in cash and cash equivale nts, $535 million in net property, plant and equipment, $26 million in other current and non-current assets, $375 million in project debt and $50 million in other current and non-current liabilities, and the removal of $144 million representing our investment balance in OMEC. Our Consolidated Condensed Financial Statements as of and for the three and six months ended June&#160;30,&#160;2010, include the consolidated balances of OMEC. We presented our investment in OMEC&#8217;s net assets, revenues and expenses under the equity method of accounting as of December&#160;31,&#160;2009, and for the three and six months ended June&#160;30,&#160;2009. We made no other changes to our group of subsidiaries that we consolidate as a result of the adoption of these new standards. See Note 4 for further discussion of accounting for our VIEs.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Use of Estimates in Preparation of Financial Statements&#160;&#8212;&#160;</font>The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures included in our Consolidated Condensed Financial Statements. Actual results could differ from those estimates.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Fair Value of Financial Instruments and Derivatives&#160;&#8212;&#160;</font>The carrying values of cash equivalents (including amounts in restricted cash), accounts receivable, accounts payable and other receivables and payables approximate their respective fair values due to their short-term maturities. See Note&#160;6 for disclosures regarding the fair value of our debt instruments and Notes 7 and 8 for disclosures regarding the fair values of our derivative instruments.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Concentrations of Credit Risk&#160;&#8212;&#160;</font>Financial instruments that potentially subject us to credit risk consist of cash and cash equivalents, restricted cash, accounts and notes receivable and derivative assets. Certain of our cash and cash equivalents, as well as our restricted cash balances, exceed FDIC insured limits or are invested in money market accounts with investment banks that are not FDIC insured. We place our cash and cash equivalents and restricted cash in what we believe are credit-worthy financial institutions and certain of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Additionally, we actively monitor th e credit risk of our receivable and derivative counterparties. Our accounts and notes receivable are concentrated within entities engaged in the energy industry, mainly within the U.S. We generally have not collected collateral for accounts receivable from utilities and end-user customers; however, we may require collateral in the future. For financial and commodity counterparties, we evaluate the net accounts receivable, accounts payable and fair value of commodity contracts and may require security deposits, cash margin or letters of credit to be posted if our exposure reaches a certain level or their credit rating declines.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Cash and Cash Equivalents</font>&#160;&#8212;&#160;We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. We have certain project finance facilities and lease agreements that require us to establish and maintain segregated cash accounts which 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 June 30, 2010, and December 31, 2009, we had cash and cash equivalents of $213 million and $264 million, respectively, that were subject to such project finance facilities and lease agreements. Cash and cash equival ent balances that can only be used to settle the obligations of our consolidated VIEs have been disclosed on the face of our Consolidated Condensed Balance Sheets as required under the new accounting standards for VIEs. See Note&#160;4 for a further discussion of accounting for our VIEs.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Restricted Cash&#160;&#8212;&#160;</font>Certain of our debt agreements, lease agreements or other operating agreements require us to establish and maintain segregated cash accounts, the use of which are restricted. 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 or with applicable regulatory requirements. Funds that can be used to satisfy obligations due during the next 12 months are classified as current restricted cash, with the remainder classified as non-current restricted cash. Restricted cash is generally invested in accounts earning market rates; therefore, the carrying value approximates fair va lue. Such cash is excluded from cash and cash equivalents on our Consolidated Condensed Balance Sheets and Statements of Cash Flows. 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No further changes to our determinations of whether we are the primary beneficiary of our VIEs were required during the second quarter of 2010.</font></div></td></tr></table></div> <div> <table width="100%" cellspacing="0" style="FONT-FAMILY: times new roman; FONT-SIZE: 10pt" align="center" border="0" cellpadding="0"> <tr valign="top"> <td style="WIDTH: 36pt"> <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 6pt">&#160; </font></div></td> <td style="WIDTH: 18pt"> <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#8226;</font></div></td> <td> <div align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Disclosure provisions to present separately on the face of the statement of financial position the significant assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE and the significant liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. Our Consolidated Condensed Balance Sheets include these required disclosures. The new standards also reduce required disclosures for consolidated VIEs without such restrictions if we are the equity holder and primary beneficiary.</font></div></td></tr></table></div> <div> <table width="100%" cellspacing="0" style="FONT-FAMILY: times new roman; FONT-SIZE: 10pt" align="center" border="0" cellpadding="0"> <tr valign="top"> <td style="WIDTH: 36pt"> <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 6pt">&#160; </font></div></td> <td style="WIDTH: 18pt"> <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#8226;</font></div></td> <td> <div align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">An additional reconsideration event for determining whether an entity is a VIE if any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of a VIE that most significantly impact the VIE&#8217;s economic performance.</font></div></td></tr></table></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Fair Value Measurements and Disclosures&#160;&#8212;&#160;</font>In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update 2010-06, &#8220;Fair Value Measurements and Disclosures&#8221; to enhance disclosure requirements relating to different levels of assets and liabilities measured at fair value and to clarify certain existing disclosures. The update requires disclosure of significant transfers in and out of levels 1 and 2 and gross presentation of purchases, sales, issuances and settlements in the level 3 reconciliation of beginning and ending balances. The new disclosure requirements relating to level&#160;3 activity are effective for interim and annual periods beginning after December&#160;15,&a mp;#160;2010, and all the other requirements are effective for interim and annual periods beginning after December&#160;15,&#160;2009. We adopted all of the disclosure requirements related to this update for the three and six months ended June&#160;30,&#160;2010 and 2009. Since this update only required additional disclosures, adoption of this standard did not have a material impact on our results of operations, cash flows or financial condition. See Note&#160;7 for disclosure of our fair value measurements in accordance with these disclosure requirements.</font></div> <!--EndFragment--> <!--StartFragment--> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">14.&#160;&#160;Commitments and Contingencies</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Litigation</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We are party to various litigation matters, including regulatory and administrative proceedings 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. We review our litigation activities and determine if an unfavorable outcome to us is considered &#8220;remote,&#8221; &# 8220;reasonably possible&#8221; or &#8220;probable&#8221; as defined by GAAP. Where we have determined an unfavorable outcome is probable and is reasonably estimable, we have accrued for potential litigation losses. Following the Effective Date, pending actions to enforce or otherwise effect repayment of liabilities preceding December 20, 2005, the petition date, as well as pending litigation against the U.S. Debtors related to such liabilities, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the U.S. Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the U.S. Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction. In particular, certain pending actions against us are anticipated to proceed as described below. In addition to the matters described below, we are invo lved in various other claims and legal actions, including regulatory and administrative proceedings 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.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Pit River Tribe, et al. v. Bureau of Land Management, et al.</font>&#160;&#8212;&#160;On June&#160;17,&#160;2002, the Pit River Tribe filed suit against the BLM and other federal agencies in the U.S. District Court for the Eastern District of California (&#8220;District Court&#8221;), seeking to enjoin further exploration, construction and development of the Calpine Fourmile Hill Project in the Glass Mountain and Medicine Lake geothermal areas. Its complaint challenged the validity of the decisions of the BLM and the U.S. Forest Service to permit the development of the proposed project under two geothermal mineral leases previously issued by the BLM. The lawsuit also sought to invalidate the leases. Only declaratory and equitable reli ef was sought.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On November&#160;5, 2006, the U.S. Court of Appeals for the Ninth Circuit (&#8220;Ninth Circuit&#8221;) issued a decision granting the plaintiffs relief by holding that the BLM had not complied with the National Environmental Policy Act and other procedural requirements and, therefore, held that the lease extensions were invalid. The Ninth Circuit remanded the matter back to the District Court to implement its decision. On December&#160;22, 2008 the District Court in turn remanded this matter back to federal agencies for curative action, including whether the leases may be extended. Before the agencies could reconsider, the Pit River Tribe appealed the District Court&#8217;s decision on the basis the original Ninth Circuit decision purportedly invalidated the leases, and therefore, the Pit River Tribe a rgues, the Ninth Circuit did not give the District Court latitude to grant an extension of the leases. Oral argument on the Tribe&#8217;s appeal was held in the Ninth Circuit on March&#160;10, 2010. We anticipate a decision from the Ninth Circuit during the third quarter of 2010.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In addition, the Pit River Tribe and other interested parties filed two separate suits in the District Court seeking to enjoin exploration, construction, and development of the Telephone Flat leases and proposed project at Glass Mountain in May&#160;2004. These two related cases continue to be subject to the discharge injunction as described in the Confirmation Order. Similar to above, we are now in communication with the U.S. Department of Justice regarding these two cases; but, the cases remain mostly inactive pending the outcome of the above described Pit River Tribe case.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Environmental Matters</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We are subject to complex and stringent environmental laws and regulations related to the operation of our power plants. On occasion, we may incur environmental fees, penalties and fines associated with the normal operation of our power plants. We do not, however, have environmental violations or other matters that would have a material impact on our financial condition, results of operations or cash flows, or that would significantly change our operations of our power plants. A summary of our larger environmental matters is as follows:</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Texas City and Clear Lake Environmental Matters&#160;&#8212;&#160;</font>As part of an internal review of our Texas City and Clear Lake power plants, we determined that these power plants were in violation of the requirements of the Acid Rain Program found in Title 40&#160;of the U.S. Federal Code of Regulations Parts&#160;72-78. These power plants were originally exempt from these provisions because each plant was a qualifying cogeneration power plant in operation before November&#160;1990 with qualifying original PPAs in place. However, the PPAs expired in 2002 for our Texas City power plant and in 1999 for our Clear Lake power plant. To remedy the violations, the power plants were required to retire the number of SO<font style="DISP LAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances equal to actual SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emitted since the expiration of the exemption and remit an excess emission fee for each ton of SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emitted during the period of non-compliance. We self-reported the excess emissions to the TCEQ and the EPA. Compliance agreements between each power plant and the TCEQ were executed on September&#160;26, 2008, which shielded the power plants from enforcement by the TCEQ. To remedy these violations with the EPA, both power plants retired SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances equivalent to their historic applicable emissions after expiration of the exemption in July of 2010. In addition, the EPA required payment of excess emission fees of $146,966 and $127,767 for Clear Lake and Texas City, respectively, which were remitted to the EPA in July of 2010. Accordingly, we now consider this matter closed.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Remediation of Certain Assets Acquired from Conectiv</font>&#160;&#8212;&#160;As part of the Conectiv Acquisition on July 1, 2010, we assumed environmental remediation liabilities related to certain of the assets located in New Jersey that are subject to the Industrial Site Recovery Act and could incur expenditures related thereto of up to $10 million. Pursuant to the Conectiv Purchase Agreement, PHI is responsible for any amounts that exceed $10 million. We have engaged a licensed site remediation professional who is evaluating the recognized environmental conditions as a preliminary step of the site investigation phase and ultimate cleanup plan.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Heat Input Issues at Certain Assets Acquired from Conectiv</font>&#160;&#8212;&#160;In 2010, prior to the Conectiv Acquisition, Conectiv received Title V air permits for its Cumberland 1 and Sherman Avenue peaker power plants from the NJDEP. These permits include heat input limits that may restrict operation at full capacity and are the subject of ongoing litigation between Conectiv and the NJDEP prompted by two Administrative Orders and Notices of Civil Administrative Penalty Assessment issued to Conectiv by the NJDEP. PHI asserts that the NJDEP does not have the authority to limit heat input in Title V air permits. We have submitted timely appeals of the Sherman Avenue and Cumberland 1 Title V air permits and continue to work with the NJDEP to ensu re that all of the Conectiv New Jersey assets may operate at full load. Currently, these restrictions require one of our peaker power plants (Deepwater Unit 1) to operate at approximately 8 MW less than its full capacity. We are preparing an application to modify the Deepwater Unit 1 permit to reclaim the 8 MW limitation, but there can be no assurance that our application will be successful and we may continue to be subject to the aforementioned limitation.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Other Contingencies</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Lyondell Bankruptcy&#160;&#8212;&#160;</font>On January&#160;6, 2009, Lyondell, including its subsidiary Houston Refining LP, filed for protection under Chapter&#160;11 in the U.S. Bankruptcy Court. Channel Energy Center leases its project site from Houston Refining LP and is granted certain easements in, over, under and on the site pursuant to the lease. Channel Energy Center provides power and steam to Houston Refining LP pursuant to a power services agreement and, pursuant to a power plant services agreement, provides clarified water and treated water to Houston Refining LP. Channel Energy Center is provided with raw water, refinery gas and certain other power plant services by Houston Refining LP. On April 23, 2010, the U.S. Bankruptcy Co urt approved Lyondell&#8217;s plan of reorganization, which includes acceptance of the project site lease and power and plant services agreements described above. Additionally, we received approximately $13 million in settlement under Lyondell&#8217;s plan of reorganization to cure prepetition defaults under the assumed agreements during the second quarter of 2010. We reversed our bad debt allowance of approximately $10 million, which is reported as a component of sales, general and other administrative expense on our Consolidated Condensed Statement of Operations during the first quarter of 2010. We now consider this matter closed.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Distribution of Calpine Common Stock under our Plan of Reorganization&#160;&#8212;&#160;</font>Through the filing of this Report, approximately 441 million shares have been distributed to holders of allowed unsecured claims and approximately 44&#160;million shares remain in reserve for distribution to holders of disputed claims whose claims ultimately become allowed under our Plan of Reorganization. To the extent that any of the reserved shares remain undistributed upon resolution of the remaining disputed claims, such shares will not be returned to us but rather will be distributed pro rata to claimants with allowed claims to increase their recovery. We are not required to issue additional shares above the 485 million shares authorized to settle unsecured claims, even if the shares remaining for distribution are not sufficient to fully pay all allowed unsecured claims. However, certain disputed claims, including prepayment premium and default interest claims asserted by the holders of CalGen Third Lien Debt, may be required to be settled with available cash and cash equivalents to the extent reorganized Calpine Corporation common stock held in reserve pursuant to our Plan of Reorganization for such claims is insufficient in value to satisfy such claims in full. We consider such an outcome to be unlikely. To the extent that holders of the CalGen Third Lien Debt have claims that remain unsettled or outstanding, they assert that they continue to have lien rights to the assets of the CalGen entities until the pending claims asserted in the case styled:&#160;&#160;<font style="FONT-STYLE: italic; DISPLAY: inline">HSBC Bank USA, NA as Indenture Trustee, et al v. Calpine Corporation, et al.</font> Case No. 1: 07-cv-03088, S.D.N.Y. are resolved either through court action or settlement. We dispute such allegations and contend that all liens were released when the CalGen secured claims were paid in full under the terms of applicable court orders and our Plan of Reorganization as confirmed. We continue to engage in settlement discussions with the various constituencies in this dispute.</font></div> <!--EndFragment--> <!--StartFragment--> <div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">5.&#160;&#160;Comprehensive Income (Loss)</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Comprehensive income (loss) includes our net loss, unrealized gains and losses from derivative instruments, net of tax that qualify as cash flow hedges, our share of equity method investees&#8217; OCI and the effects of foreign currency translation adjustments. See Note 8 for further discussion of our accounting for derivative instruments designated as cash flow hedges and the related amounts recorded in OCI. We report AOCI on our Consolidated Condensed Balance Sheets. 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DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On July&#160;1,&#160;2010, we, through our indirect, wholly owned subsidiary NDH, completed the Conectiv Acquisition. The assets acquired include 18 operating power plants and one plant under construction, with approximately 4,490&#160;MW of capacity (including completion of the York Energy Center under construction and scheduled upgrades). We did not acquire Conectiv&#8217;s trading book, load serving auction obligations or collateral requirements. Additionally, we did not assume any of Conectiv&#8217;s off-site environmental liabilities, environmental remediation liabilities related to certain assets located in New Jersey that are subject to the Industrial Site Recovery Act in excess of $10 million or certain pre-close pension and retirement welfare liabilities. Our final purchase price at closing was approximately $1.63 billion, including a $60 million reduction in the closing payment attributable to lower capital expenditures incurred by PHI than were scheduled and a $49 million increase in the closing payment for the estimated value of the fuel inventory at closing. As part of the Conectiv Acquisition, NDH received a cash contribution from Calpine Corporation of $110 million to fund future capital expenditures to complete the York Energy Center. We financed the transaction through available cash and bank debt of $1.3 billion provided under the NDH Project Debt. 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We expensed transaction and acquisition-related costs as incurred through June&#160;30,&#160;2010 of approximately $19 million, which is included in sales, general and other administrative expense on our Consolidated Condensed Statements of Operations for the three and six months ended June&#160;30,&#160;2010. As of the filing of this Report, the accounting for the Conectiv Acquisition is not complete as the appraisals necessary to assess the fair value of the net assets acquired are not final and we are still in the process of determining the tax basis of these assets; however, we conducted an assessment of our net assets acquired and assigned preliminary values to identifiable assets and liabilities at their estimated fair values on the acquisition date. 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First Lien Credit Facility term loans require quarterly payments of principal equal to 0.25% of the original principal amount of First Lien Credit Facility term loans subject to adjustments as a result of First Lien Note offerings and repayments from excess cash flows. In May 2010, we repaid approximately $394 million and in July 2010, we repaid approximately $1.1 billion of the First Lien Credit Facility term loans with proceeds received from the issuance of the 2019 and 2020 First Lien Notes (as further discussed below). The First Lien Credit Facility matures on March&#160;29, 2014.</font><br/> </div><br/> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The obligations under our First Lien Credit Facility are unconditionally guaranteed by certain of our direct and indirect domestic subsidiaries and are secured by a security interest in substantially all of the tangible and intangible assets of Calpine Corporation and certain of the guarantors. The obligations under our First Lien Credit Facility are also secured by a pledge of the equity interests of the direct subsidiaries of certain of the guarantors, subject to certain exceptions, including exceptions for equity interests in foreign subsidiaries, existing contractual prohibitions and prohibitions under other legal requirements. Our First Lien Credit Facility also requires compliance with financial covenants that include a maximum ratio o f total net debt to Consolidated EBITDA (as defined in the First Lien Credit Facility), a minimum ratio of Consolidated EBITDA to cash interest expense, and a maximum ratio of total senior net debt to Consolidated EBITDA.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Issuance of 2019 First Lien Notes</font>&#160;&#8212;&#160;On May&#160;25,&#160;2010, we issued&#160;$400 million in aggregate principal amount of 8% senior secured notes due 2019 in a private placement. The 2019 First Lien Notes were issued under an amended and restated&#160;indenture, dated as of May&#160;25, 2010, among Calpine, the guarantors party thereto and&#160;Wilmington&#160;Trust Company, as trustee. The 2019 First Lien Notes bear interest at 8% payable semi-annually on February&#160;15 and August&#160;15&#160;of each year beginning on August&#160;15, 2010. Interest is due to the holders of record on February 1 and August 1 immediately preceding the applicable interest payment date. The 2019 First Lien Notes will mature on August&#160;15, 2019. Proceeds received from the issuance of the 2019 First Lien Notes were used to repay approximately $394 million of the First Lien Credit Facility term loans on May 25, 2010. We recorded additional deferred financing costs of approximately $8 million on our Consolidated Condensed Balance Sheet and we recorded $7 million in debt extinguishment costs from the write-off of unamortized deferred financing costs related to the repayment of the First Lien Credit Facility term loans for the three and six months ended June 30, 2010.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Issuance of 2020 First Lien Notes</font>&#160;&#8212;&#160;On July&#160;23, 2010, we issued $1.1 billion in aggregate principal amount of 7.875% senior secured notes due 2020 in a private placement. The 2020 First Lien Notes were issued under an amended and restated indenture, dated as of July 23, 2010, among Calpine, the guarantors party thereto and Wilmington Trust Company, as </font>trustee. The 2020 First Lien Notes bear interest at 7.875% payable semi-annually on January 31 and July 31 of each year beginning on January&#160;31,&#160;2011. Interest is due to the holders of record on January 15 and July 15 immediately preceding the applicable inter est payment date. The 2020 First Lien Notes will mature on July&#160;31,&#160;2020. Proceeds received from the issuance of the 2020 First Lien Notes were used to repay approximately $1.1 billion of the First Lien Credit Facility term loans on July 23, 2010.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our First Lien Notes are guaranteed by each of our current and future domestic subsidiaries that are guarantors under the First Lien Credit Facility and rank equally in right of payment with all of our and the guarantors&#8217; other existing and future senior indebtedness, and will be effectively subordinated in right of payment to all existing and future liabilities of our subsidiaries that do not guarantee our First Lien Notes. Our First Lien Notes are secured equally and ratably with indebtedness incurred under our First Lien Credit Facility and certain other indebtedness that is permitted to be secured by such assets by a first-priority lien, subject to certain exceptions and permitted liens, on substantially all of our and certain of the guarantors&#8217; existing and future assets.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">NDH Project Debt</font>&#160;&#8212;&#160;On June 8, 2010, NDH entered into a credit agreement to fund the Conectiv Acquisition and the remaining capital expenditures to complete the York Energy Center under construction. Our NDH Project Debt includes a $1.3 billion seven-year senior secured term facility and a $100 million three-year senior secured revolving credit facility, of which up to $50 million will be available through a subfacility in the form of letters of credit. On July 1, 2010, the term facility was funded in the amount of $1.3 billion. The NDH Project Debt was issued with an original issue discount of $28 million and we recorded deferred financing costs of approximately $40 million, which we recorded on our Consolidated Condensed Balan ce Sheet on July 1, 2010. Our NDH Project Debt bears interest at a floating rate, at our option, at a rate per annum equal to the alternate base rate or the adjusted LIBOR (subject to a minimum of 1.5%), plus, in each case, the applicable margin, which varies for the revolving credit facility (as defined in our NDH Project Debt agreement). An amount equal to 0.25% of the aggregate principal amount of the senior secured term facility outstanding on July 1, 2010, which was $1.3 billion, will be payable at the end of each quarter commencing with the first full quarter after July 1, 2010, with the remaining balance payable on July&#160;1,&#160;2017. Additional repayments of principal will be required from excess cash flows (as defined in our NDH Project Debt agreement). No amortization will be required with respect to the revolving credit facility.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">NDH&#8217;s obligations under the NDH Project Debt are unconditionally guaranteed by each existing and subsequently acquired or organized domestic, wholly owned subsidiary of NDH (including the entities acquired) and will be secured by a first-priority lien on substantially all of NDH&#8217;s and the guarantors&#8217; existing and future assets, in each case subject to certain exceptions and permitted liens. NDH and its subsidiaries (subject to certain exceptions) have made certain representations and warranties and are required to comply with various affirmative and negative covenants including, among others, certain limitations and prohibitions relating to additional indebtedness, liens, restricted payments, mergers and asset sales and certain financial covenants relating to limitations on capital expenditure s, minimum interest coverage and maximum leverage. The NDH Project Debt is subject to customary events of default included in financing transactions, including, among others, failure to make payments when due, certain defaults under other material indebtedness, breach of certain covenants, breach of certain representations and warranties, involuntary or voluntary bankruptcy, and material judgments. Neither Calpine Corporation nor any of its subsidiaries, other than NDH and its subsidiaries (subject to certain exceptions), are guarantors under the NDH Project Debt.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As part of the Conectiv Acquisition and NDH Project Debt, we entered into various intercompany agreements with our NDH subsidiaries for the related sales and purchases of power, natural gas and the operation and maintenance of our NDH power plants, which will not materially impact our results of operations, financial condition or cash flows on a consolidated basis. While there is no direct recourse by holders of the NDH Project Debt to Calpine Corporation, a substantial portion of the commodity price risk related to NDH&#8217;s power generation is absorbed by Calpine Energy Services, L.P. as an indirect, wholly owned subsidiary of Calpine Corporation, which purchases the power generated by NDH under an intercompany tolling agreement, which is also guaranteed by Calpine Corporation.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">OMEC Debt&#160;&#8212;&#160;</font>As further discussed in Note 1, we added approximately $375 million in project debt to our Consolidated Condensed Balance Sheet when we consolidated OMEC effective January 1, 2010. As of June 30, 2010, OMEC had approximately $370 million in project debt outstanding, which is included in the balance under the caption &#8220;Project financing, notes payable and other&#8221; in the table above. OMEC has a $377 million non-recourse project term loan which matures in April&#160;2019. 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We enter into a variety of derivative instruments, including physical commodity contracts and financial commodity instruments such as OTC and exchange traded swaps, futures, options, forward agreements and instruments that settle on the power price to natural gas price relationships (Heat Rate swaps and options) for the purchase and sale of power, natural gas, and emission allowances to attempt to economically hedge a portion of the commodity price risk associated with our assets and thus maximize risk-adjusted returns. By entering into these transactions, we are able to economically hedge a portion of our spark spread at estimated generation and prevailing price levels.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Interest Rate Swaps&#160;&#8212;&#160;</font>A significant portion of our debt is indexed to base rates, primarily LIBOR. We use interest rate swaps to adjust the mix between fixed and variable rate debt to hedge our interest rate risk for potential adverse changes in interest rates. 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If our credit rating were to be downgraded, it could require us to post additional collateral or could potentially allow our counterparty to request immediate, full settlement on certain derivative instruments in liability positions. Currently, we do not believe that it is probable that a counterparty would request full and immediate settlement or that any additional collateral posted as a result of a credit rating downgrade would be material. The aggregate fair value of our derivative liabilities with credit-contingent provisions as of June 30, 2010, was $23 million for which we have posted collateral of $4 million by posting margin deposits or granted additional first priority liens on the assets currently subject to first priority liens under our First Lien Credit Facility.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Accounting for Derivative Instruments</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We recognize all derivative instruments that qualify for derivative accounting treatment as either assets or liabilities and measure those instruments at fair value unless they qualify for, and we elect, the normal purchase normal sale exemption. For transactions in which we elect the normal purchase normal sale exemption, gains and losses are not reflected on our Consolidated Condensed Statements of Operations until the settlement dates.&#160;Revenues and fuel costs derived from instruments that qualify for hedge accounting are recorded in the same period and in the same financial statement line item as the item being hedged. Hedge accounting requires us to formally document, designate and assess the effectiveness of </font>transa ctions that receive hedge accounting. We present the cash flows from our derivatives in the same category as the item being hedged within operating activities on our Consolidated Condensed Statements of Cash Flows unless they contain an other-than-insignificant financing element in which case their cash flows are classified within financing activities.</font></div></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Cash Flow Hedges</font>&#160;&#8212;&#160;We report the effective portion of the unrealized gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument as a component of OCI and reclassify such gains and losses into earnings in the same period during which the hedged forecasted transaction affects earnings. Gains and losses due to ineffectiveness on commodity hedging instruments are included in unrealized mark-to-market gains and losses, and are recognized currently in earnings as a component of operating revenues (for power contracts and Heat Rate swaps and options), fuel and purchased energy expense (for natural gas contracts, swaps and options) and interest expense (for interest rate swaps). If it is determi ned that the forecasted transaction is no longer probable of occurring, then hedge accounting will be discontinued prospectively and future changes in fair value are recorded in earnings. If the hedging instrument is terminated or de-designated prior to the occurrence of the hedged forecasted transaction, the net accumulated gain or loss associated with the changes in fair value of the hedge instrument remains deferred in OCI until such time as the forecasted transaction impacts earnings, or until it is determined that the forecasted transaction is probable of not occurring.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Derivatives Not Designated as Hedging Instruments</font>&#160;&#8212;&#160;Along with our portfolio of transactions which are accounted for as hedges under GAAP, we enter into power, natural gas and interest rate transactions that primarily act as economic hedges to our asset portfolio, but either do not qualify as hedges under the hedge accounting guidelines or qualify under the hedge accounting guidelines and the hedge accounting designation has not been elected. Changes in fair value of derivatives not designated as hedging instruments are recognized currently in earnings as a component of operating revenues (for power contracts and Heat Rate swaps and options), fuel and purchased energy expense (for natural gas contracts, swaps and options) and i nterest expense (for interest rate swaps).</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Derivatives Included on Our Consolidated Condensed Balance Sheets</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The following tables present the fair values of our net derivative instruments recorded on our Consolidated Condensed Balance Sheets by hedge type and location at June&#160;30, 2010, and December&#160;31, 2009 (in millions):</font></div> <div style="TEXT-INDENT: 0pt; 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FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">(1)</font></div></td> <td> <div align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Included in interest expense on our Consolidated Condensed Statements of Operations.</font></div></td></tr></table></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">&#160;</font></div> <div> <table width="100%" cellpadding="0" cellspacing="0" border="0" style="FONT-FAMILY: times new roman; FONT-SIZE: 10pt" align="center"> <tr valign="top"> <td style="WIDTH: 18pt"> <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">(2)</font></div></td> <td> <div align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Included in operating revenues and fuel and purchased energy expense on our Consolidated Condensed Statements of Operations.</font></div></td></tr></table></div></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold"><br/> </font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-WEIGHT: normal">Assuming constant June 30, 2010 power and natural gas prices and interest rates, we estimate that pre-tax net losses of $3 million would be reclassified from AOCI into earnings during the next 12 months as the hedged transactions settle; however, the actual amounts that will be reclassified will likely vary based on changes in natural gas and power prices as well as interest rates. Therefore, we are unable to predict what the actual reclassification from AOCI to earnings (positive or negative) will be for the next 12 months. As of June&#160;30, 2010, approximately $70 million in unrealized losses were recorded in AOCI for interest rate swaps that were hedging the variable interes t rates on approximately $1.1 billion of First Lien Credit Facility term loans, which were repaid with the proceeds received from the issuance of the 2020 First Lien Notes on July 23, 2010 (see Note 6 for further discussion of our issuance of the 2020 First Lien Notes). These interest rate swaps will no longer qualify as cash flow hedges and the corresponding amounts will be reclassified into earnings during the third quarter of 2010 as additional interest expense. <font style="DISPLAY: inline; FONT-FAMILY: times new roman; FONT-SIZE: 10pt; FONT-WEIGHT: normal">Additionally, prospective changes in the fair value of these interest rate swaps will also be recorded in earnings as interest expense.</font></font></font></font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">&#160;</font></div></div> <!--EndFragment--> </div></div> Calpine Corp 0000916457 Yes --12-31 Large Accelerated Filer Yes 2010 Q2 10-Q 2010-06-30 false <!--StartFragment--> <div align="justify" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">7.&#160;&#160;Fair Value Measurements</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Derivatives&#160;&#8212;&#160;</font>The primary factors affecting the fair value of our commodity derivative instruments at any point in time are the volume of open derivative positions (MMBtu and MWh); market price levels, principally for power and natural gas; our credit standing and that of our counterparties; and prevailing interest rates. Prices for power and natural gas are volatile, which can result in material changes in the fair value measurements reported in our financial statements in the future.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We utilize market data, such as pricing services and broker quotes, and assumptions that we believe market participants would use in pricing our assets or liabilities including assumptions about risks and the risks inherent to the inputs in the valuation technique. These inputs can be either readily observable, market corroborated or generally unobservable. The market data obtained from broker pricing services is evaluated to determine the nature of the quotes obtained and, where accepted as a reliable quote, used to validate our assessment of fair value; however, other qualitative assessments are used to determine the level of activity in any given market. We primarily apply the market approach and income approach for recurring fair value m easurements and utilize what we believe to be the best available information. We utilize valuation techniques that seek to maximize the use of observable inputs and minimize the use of unobservable inputs. We classify fair value balances based on the observability of those inputs.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The fair value of our derivatives includes consideration of the credit standing of our counterparties and the impact of credit enhancements, if any. We have included an estimate of nonperformance risk in the determination of fair value based on </font>our expectation of how market participants would determine fair value. Such valuation adjustments are generally based on market evidence, if available, or our best estimate.</font></div></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our level&#160;1 fair value derivative instruments primarily consist of natural gas swaps, futures and options traded on the NYMEX.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our level&#160;2 fair value derivative instruments primarily consist of interest rate swaps and OTC power and natural gas forwards and swaps for which market-based pricing inputs are observable. Generally, we obtain our level&#160;2 pricing inputs from markets and pricing services such as the Intercontinental Exchange and Bloomberg. To the extent we obtain prices from brokers in the marketplace, we have procedures in place to ensure that such prices represent executable prices for market participants. In certain instances, our level&#160;2 derivative instruments may utilize models to measure fair value. These models are primarily industry-standard models that incorporate various assumptions, including quoted interest rates, correlation, volatility, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our level&#160;3 fair value derivative instruments primarily consist of our OTC power and natural gas forwards and options where pricing inputs are unobservable, as well as other complex and structured transactions. Complex or structured transactions are tailored to our or our customers&#8217; needs and can introduce the need for internally-developed model inputs which might not be observable in or corroborated by the market. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in level&#160;3. Our valuation models may incorporate historical correlation information and extrapolate available broker and other information to future periods. In cases where there is no corroborating market information available to support significant model inputs, we initially us e the transaction price as the best estimate of fair value. OTC options are valued using industry-standard models, including the Black-Scholes pricing model. At each balance sheet date, we perform an analysis of all instruments subject to fair value measurement and include in level&#160;3 all of those whose fair value is based on significant unobservable inputs.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Margin Deposits</font>&#160;&#8212;&#160;Our margin deposits are cash and cash equivalents and are generally classified within level&#160;1 of the fair value hierarchy as the amounts approximate fair value.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The following tables present our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June&#160;30, 2010, and December&#160;31, 2009, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 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We had $(1) million in losses and $11 million in gains transferred out of level 3 into level 2 for the six months ended June 30, 2010 and 2009, respectively. Transfers out of level 3 into level 2 were due to changes in market liquidity in various power markets.</font></div></td></tr></table></div></div> <!--EndFragment--> <!--StartFragment--> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">10.&#160;&#160;Income Taxes</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">For federal income tax reporting purposes, our consolidated GAAP financial reporting group is comprised primarily of two separate tax reporting groups, CCFC and its subsidiaries, which we refer to as the CCFC group, and Calpine Corporation and its subsidiaries other than CCFC, which we refer to as the Calpine group. In 2005, CCFCP issued the CCFCP Preferred Shares, which resulted in the deconsolidation of the CCFC group for income tax purposes. On July 1, 2009, the CCFCP Preferred Shares were redeemed; however, CCFCP continues to be a partnership and therefore, the CCFC group remains deconsolidated from Calpine Corporation for federal income tax reporting purposes. As of June 30, 2010, the CCFC group did not have a valuation allowance record ed against its deferred tax assets, whereas the Calpine group continued to have a valuation allowance. For the three and six months ended June 30, 2010 and 2009, we used the effective rate method to determine both the CCFC and Calpine groups&#8217; tax provision; however, our income tax rates did not bear a customary relationship to statutory income tax rates primarily as a result of the impact of state income taxes, changes in unrecognized tax benefits, the Calpine group valuation allowance and intraperiod tax allocations discussed below. Our consolidated income tax expense from continuing operations and imputed tax rate was approximately $6 million and (5)% and approximately $15 million and (20)% for the three months ended June&#160;30,&#160;2010 and 2009, respectively, and approximately $17 million and (11)% and approximately $24 million and (53)% for the six months ended June&#160;30,&#160;2010 and 2009, respectively. <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT - -SIZE: 10pt">Our income tax expense from continuing operations included an intraperiod tax allocation (benefit) expense of a net ($31) million and $14 million for the three months ended June 30, 2010 and 2009, respectively, and a net ($16) million, which includes approximately $13 million in tax expense related to a prior period, and $27 million for the six months ended June 30, 2010 and 2009, respectively, with an offsetting tax expense (benefit)&#160;allocated between&#160;discontinued operations&#160;or OCI in each respective period.</font></font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Valuation Allowance&#160;&#8212;&#160;</font>GAAP requires that we consider all available evidence, both positive and negative, and tax planning strategies to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce the value of deferred tax assets. 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. In prior periods, we provided a valuation allowance on certain federal, state and foreign tax jurisdiction defe rred tax assets of the Calpine group to reduce the gross amount of these assets to the extent necessary to result in an amount that is more likely than not of being realized. Projected future income from reversals of existing taxable temporary differences and tax planning strategies allowed a larger portion of the deferred tax assets to be offset against deferred tax liabilities resulting in a significant release of previously recorded valuation allowance in prior periods; however, we have not released any additional previously recorded valuation allowance in 2010.</font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Income Tax Audits &#8212; </font>In September 2009, we received notice from the Canadian Revenue Authority (&#8220;CRA&#8221;) of their intent to conduct a limited scope income tax audit on four of our Canadian subsidiaries for the tax years ending 2005 through 2008. We have timely responded to their request for information and&#160;received notice from the CRA that they have completed their audit of transactions within Canada and no changes were proposed. The CRA international audit division continues to review cross border transactions within the audit period. At this time, we are unable to determine the likelihood of a material adverse assessment.</font& gt;</font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We remain subject to other various audits and reviews by state taxing authorities; however, we do not expect these will have a material effect on our tax provision. Any NOLs we claim in future years to reduce taxable income could be subject to U.S. Internal Revenue Service examination regardless of when the NOLs occurred. Due to significant NOLs, any adjustment of state returns or federal returns from 2006 and forward would likely result in a reduction of deferred tax assets rather than a cash payment of income taxes.</font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Unrecognized Tax Benefits and Liabilities</font>&#160;&#8212;&#160;As of June&#160;30,&#160;2010, we had unrecognized tax benefits of $87 million. If recognized within the next 12 months, $40 million of our unrecognized tax benefits could impact the annual effective tax rate and $47 million related to deferred tax assets could be offset against the recorded valuation allowance resulting in no impact to our effective tax rate. We also had accrued interest and penalties of $18 million for income tax matters as of June 30, 2010. The amount of unrecognized tax benefits decreased by $11 million for the six months ended June&#160;30, 2010, primarily as a res ult of $9 million related to a hedging position terminated for CCFC group and $2 million related to depreciation taken on a position for a capitalized asset. <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The decrease related to temporary differences in tax reporting and did not impact the annual effective tax rate. </font>We believe it is reasonably possible that a decrease of approximately $1 million in unrecognized tax benefits could occur within the next 12 months primarily related to state tax liabilities and state interest and penalties.</font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">NOL Carryforwards&#160;&#8212;&#160;</font>Under federal income tax law, our NOL carryforwards can be utilized to reduce future taxable income subject to certain limitations, including if we were to undergo an ownership change as defined by Section 382 of the Internal Revenue Code. We experienced an ownership change on the Effective Date as a result of the cancellation of our old common stock and the distribution of our new common stock pursuant to our Plan of Reorganization. However, this ownership change and the resulting annual limitations are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income within the carryforward periods. If a subsequent ownership change were to occur as a result of future transactions in our stock, accompanied by a significant reduction in our market value immediately prior to the ownership change, our ability to utilize the NOL carryforwards may be significantly limited. The Calpine group adjusted its NOL for prior periods through December 31, 2009, increasing it by approximately $175 million. These adjustments consisted of $49 million to reduce the NOL for excluded cancellation of debt income, a $230 million increase in prior period NOLs for development costs and construction in progress relating to abandoned projects and other decreases of $6 million.<br/> </font></font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;</font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">To manage the risk of significant limitations on our ability to utilize our tax NOL carryforwards, our amended and restated certificate of incorporation permits our Board of Directors to meet to determine whether to impose certain transfer restrictions on our common stock in the following circumstances: if, prior to February&#160;1, 2013, our Market Capitalization declines by at least 35% from our Emergence Date Market Capitalization of approximately $8.6 billion (in each case, as defined in and calculated pursuant to our amended and restated certificate of incorporation) and at least 25 percentage points of shift in ownership has occurred with respect to our equity for purposes of Section&#160;382 of the Internal Revenue Code. We be lieve as of the filing of this Report, neither circumstance was met. While we do not&#160;believe an ownership change of 25 percentage points has occurred, the change in ownership is only slightly less than 25%. Accordingly, the transfer restrictions have not been put in place by our Board of Directors; however, if both of the foregoing events were to occur together and our Board of Directors were to elect to impose them, they could become operative in the future. There can be no assurance that the circumstances will not be met in the future, or in the event that they are met, that our Board of Directors would choose to impose these restrictions or that, if imposed, such restrictions would prevent an ownership change from occurring.<br/> </font></font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;</font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Should our Board of Directors elect to impose these restrictions, they shall have the authority and discretion to determine and establish the definitive terms of the transfer restrictions, provided that the transfer restrictions apply to purchases by owners of 5% or more of our common stock, including any owners who would become owners of 5% or more of our common stock via such purchase. 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We also revised the estimated useful lives of our remaining composite pools to 37 years and 47 years for our combined-cycle and simple-cycle power plant assets, respectively, based in part on the results of our separate useful life study. Our change in useful lives is considered a change in accounting estimate and resulted in changes to our depreciation expense prospectively.</font& gt;</div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Straight Line Method for our Geysers Assets&#160;&#8212;&#160;</font>During the three and six months ended June&#160;30,&#160;2009, our Geysers Assets used the units of production method for depreciation. 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Our change in the method of depreciation for our Geysers Assets is considered a change in accounting estimate inseparable from a change in accounting principle, and resulted in changes to depreciation expense prospectively.</font></div> <!--EndFragment--> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">13.&#160;&#160;Segment Information</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We assess our business on a regional basis due to the impact on our financial performance of the differing characteristics of these regions, particularly with respect to competition, regulation and other factors impacting supply and demand. At June&#160;30, 2010, our reportable segments were West (including geothermal), Texas, Southeast and North (including Canada). 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These plans are administered by the Compensation Committee of our Board of Directors and provide for the issuance of equity awards to all employees as well as the non-employee members of our Board of Directors. 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Employment inducement options to purchase a total of 4,636,734 shares were granted outside of the Calpine Equity Incentive Plans in connection with the hiring of our Chief Executive Officer and our Chief Legal Officer in August&#160;2008, and our Chief Commercial Officer in September&#160;2008; however, no grants of options or shares of restricted stock were made outside of the Calpine Equity Incentive Plans during the six months ended June 30, 2010 and 2009.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We use the Black-Scholes option-pricing model to estimate the fair value of our employee stock options on the grant date, which takes into account the exercise price and expected life of the stock option, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the stock option as of the grant date. 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At June 30, 2010, there was unrecognized compensation cost of $23 million related to options, $17 million related to restricted stock and $1 million related to restricted stock units, which is expec ted to be recognized over a weighted average period of 1.7 years for options, 2.1 years for restricted stock and 0.9 years for restricted stock units. 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FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <!--EndFragment--> <div align="justify" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><!--StartFragment--> <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-WEIGHT: bold">9.&#160;&#160;Use of Collateral</font> </font> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We use margin deposits, prepayments and letters of credit as credit support with and from our counterparties for commodity procurement and risk management activities. 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We have the following types of VIEs:</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">VIEs with a Purchase Option&#160;&#8212;&#160;</font>We have six power plants with PPAs or other agreements that provide third parties the option to purchase power plant assets, an equity interest, or a portion of the future cash flows generated from an asset. The purchase options are exercisable only within a specified period of time upon expiration of the PPA or other agreements which expire at various dates occurring from 2011 &#8211; 2032.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Subsidiaries with Project Debt&#160;&#8212;&#160;</font>Certain of our subsidiaries have project debt that contains provisions which we have determined create variability. We retain ownership and absorb the full risk of loss and potential for reward once the project debt is paid in full. Actions by the lender to assume control of collateral can occur only under limited circumstances such as upon the occurrence of an event of default, which we have determined to be unlikely. See Note&#160;6 for further information regarding our project debt and Note&#160;1 for information regarding our restricted cash balances.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Subsidiaries with PPAs&#160;&#8212;&#160;</font>Certain of our wholly owned subsidiaries have PPAs that are deemed to be a form of subordinated financial support and thus constitute a VIE.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Other VIEs&#160;&#8212;&#160;</font>Our other consolidated VIEs as of December&#160;31,&#160;2009, primarily consisted of monetized assets secured by financing for our PCF and PCF III subsidiaries. These financings were fully repaid during the first quarter of 2010 and are no longer VIEs.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">New Accounting Standards and Disclosure Requirements for VIEs</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Implementation&#160;&#8212;&#160;</font>As further discussed in Note 1, new accounting standards became effective January 1, 2010 related to accounting for and consolidation of VIEs, which required us to perform an analysis of whether we are the primary beneficiary of our VIEs. The new standards generally replaced the quantitative-based risks and rewards calculation for determining which enterprise, if any, is the primary beneficiary of a VIE to a more qualitative assessment with an approach focused on identifying which enterprise has both the power to direct the activities of a VIE that most significantly impact the VIE&#8217;s economic performance and the obligation to absorb losses or receive benefits from the VIE.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As required, we performed an analysis of all of our VIEs effective January 1, 2010 and, with the exception of OMEC, our determination of the primary beneficiary did not change. We concluded that we hold the obligation to absorb losses and receive benefits in all of our VIEs where we hold the majority equity interest. Therefore, our analysis to determine the primary beneficiary focused on determining which variable interest holder has the power to direct the most significant activities of the VIE (the primary beneficiary). Our analysis included consideration of the following primary activities which we believe to have a significant impact on a power plant&#8217;s financial performance: operations and maintenance, plant dispatch, fuel strategy as well as our ability to control or influence contracting and overall plant s trategy. Our approach to determining which entity holds the powers and rights was based on powers held as of the balance sheet date. Contractual terms that will apply in future periods, such as a purchase or sale option, were not considered in our analysis. Based on our analysis, we determined that we hold the power and rights to direct the most significant activities of all our wholly owned VIEs.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">OMEC&#160;&#8212;&#160;</font>During the second quarter of 2007, we determined that SDG&amp;E had a greater variability of risk compared to us based upon the prior consolidation accounting standards, which focused on which party held the greater variability in the obligation to absorb the losses or the right to receive benefits from the VIE or both. We determined that SDG&amp;E held the greater variability as a result of a put option held by OMEC to sell the Otay Mesa Energy Center for $280 million to SDG&amp;E, and a call option held by SDG&amp;E to purchase the Otay Mesa Energy Center for $377 million in 2019. Accordingly, we were not the primary beneficiary, consolidation was not appropriate and we accounted for our investment in O MEC under the equity method of accounting through December&#160;31,&#160;2009.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The transfer of ownership in conjunction with the exercise of the put/call option, which was the driving factor in the quantitative determination of the primary beneficiary under the previous accounting standards, would not occur until 2019. 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General Electric International, Inc.&#160;holds a put option whereby they can require us to purchase the power plant, if certain plant performance criteria are met during year&#160;15 after the start of commercial operation. 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Margin deposits and other prepaid expense Fair values as of the balance sheet date for all assets resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed of within a year or the normal operating cycle, presented gross of the effects of master netting agreements. Derivative assets, current Fair values as of the balance sheet date for all assets resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed of greater than a year, presented gross of the effect of master netting agreements. Long-term derivative assets Fair values as of the balance sheet date for all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed of within a year, presented gross of master netting arrangements. Derivatives liabilities, current Fair values as of the balance sheet date for all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed greater than a year, presented gross of master netting arrangements. Long-term derivative liabilities Entity Registrant Name Entity Central Index Key Entity Currrent Reporting Status Current Fiscal Year End Date Entity Filer Category Entity Well Known Seasoned Issuer Document Fiscal Year Focus Document Type Document Period End Date Amendment Flag Document Fiscal Period Focus Document and Company Information Loss before reorganization items, income taxes and discontinued operations Loss before reorganization items, income taxes and discontinued operations Loss before reorganization items, income taxes and discontinued operations The portion of earnings (loss) from continuing operations before income taxes that is attributable to operations. Loss before income taxes and discontinued operations Loss before income taxes and discontinued operations Basis of Presentation and Summary of Significant Accounting Policies Description containing the organization, consolidation and basis of interim presentation of financial statements disclosure. Also includes description of all significant accounting policies of the reporting entity required for the interim period. Consolidated Condensed Statements of Operations Consolidated Condensed Balance Sheets Consolidated Condensed Balance Sheets Consolidated Statement of Cash Flows Increase Decrease in Cash from Consolidation or Deconsolidation of VIEs Cash acquired due to consolidation of OMEC Cash acquired due to consolidation of OMEC This item represents disclosure of the amount of contributions made to unconsolidated subsidiaries, certain corporate joint ventures, and certain noncontrolled corporation; these investments are accounted for under the equity method of accounting, which are classified as investing activities. Contributions to unconsolidated investments Title for required cash payments as presented on the Statement of Cash Flows Cash paid during the period for: The net cash payments made during the period for reorganization items included in operating activities on the statement of cash flows Reorganization items included in operating activities, net Noncash changes in other liabilities through the issuance of debt and included in the supplemental noncash investing activities on the statement of cash flows Settlement of commodity contract with project financing Noncash changes in accounts payable through the issuance of debt and included in the supplemental noncash investing activities on the statement of cash flows Change in capital expenditures included in accounts payable Noncash changes in different classifications of debt through the issuance of other debt or refinancing and included in the supplemental noncash financing activities on the statement of cash flows Settlement of LSTC through issuance of reorganized Calpine Corporation common stock Cash flows from operating activities: Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Deferred income taxes Loss on disposal of assets Unrealized mark-to-market activity, net Other operating activities Other operating activities Change in operating assets and liabilities: Accounts receivable Other assets Other assets Other liabilities Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities Cash flows from investing activities: Purchases of property, plant and equipment Disposals of property, plant and equipment Proceeds from sale of power plants, turbines and investments Proceeds from sale of power plants, turbines and investments (Increase) decrease in restricted cash (Increase) decrease in restricted cash Net cash provided by (used in) investing activities Net cash provided by (used in) investing activities Cash flows from financing activities: Issuance of First Lien Notes Repayments on First Lien Credit Facility Repayments on First Lien Credit Facility Financing costs Financing costs Net cash used in financing activities Net cash used in financing activities Net decrease in cash and cash equivalents Net decrease in cash and cash equivalents Interest, net of amounts capitalized Income taxes Supplemental disclosure of non-cash investing and financing activities: Stock-based compensation expense Accounts payable and accrued expenses Accounts payable and accrued expenses Other investing activities Other investing activities Other financing activities Basis of Presentation and Summary of Significant Accounting Policies [Abstract] Property, Plant and Equipment, Net [Abstract] Property, Plant and Equipment, Net Variable Interest Entities and Unconsolidated Investments [Abstract] Comprehensive Income (Loss) [Abstract] Debt [Abstract] Fair Value Measurements [Abstract] Derivative Instruments [Abstract] Use of 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Stock, shares Interest (income) Interest (income) Loss before discontinued operations Loss before discontinued operations Discontinued operations, net of tax expense Loss before discontinued operations per share Discontinued operations, net of tax expense per share Income (loss) before discontinued operations attributable to Calpine Discontinued operations, net of tax, attributable to Calpine Assets held for sale Liabilities held for sale Long-term liabilities held for sale Repayments of project financing, notes payable and other Repayments of project financing, notes payable and other Borrowings from project financing, notes payable and other Balance Sheet (Parentheticals) Basic and diluted loss per common share attributable to Calpine: Entity Common Stock Shares Outstanding Refund of financing costs Cash received from refund of financing costs from institutions during the period Operating Revenues Total cost of revenue Total cost of revenue Plant operating expense Depreciation and amortization expense Cash and cash equivalents at carrying value attributable to VIE Related to VIEs, it includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original ma turities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits should not be reported as cash and cash equivalents. Restricted cash and cash equivalents at carrying value attributable to VIE Related to VIEs, the carrying amounts of cash and cash equivalent items which are restricted as to withdrawal or usage. Restrictions may include legally restricted deposits held as compensating balances against short-term borrowing arrangements, contracts entered into with others, or entity statements of intention with regard to particular deposits; however, time deposits and short-term certificates of deposit are not generally included in legally restricted deposits. Excludes compensating balance arrangements that are not agreements which legally restrict the use of cash amounts shown on the balance sheet. For a classified balance sheet represents the current portion only (the noncurrent portion has a separate concept); there is a separate and distinct element for unclassified presentations. Assets held for sale current attributtable to VIE Related to VIEs, current assets (normally turning over within one year or one business cycle if longer) that are held for sale apart from normal operations and anticipated to be sold within one year. Property plant and equipment net attributable to VIE For VIEs, tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. Restricted cash and cash equivalents noncurrent attributable to VIE Related to VIEs, cash and equivalents whose use in whole or in part is restricted for the long-term, generally by contractual agreements or regulatory requirements. Debt current attributable to VIE Related to VIEs, carrying value as of the balance sheet date of the sum of short-term debt and current maturities of long-term debt and capital lease obligations, which are due within one year (or one business cycle if longer). Long term debt noncurrent attributable to VIE Related to VIEs, sum of the carrying values as of the balance sheet date of all long-term debt, which is debt initially having maturities due after one year from the balance sheet date or beyond the operating cycle, if longer, but excluding the portions thereof scheduled to be repaid within one year (current maturities) or the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. Commitments and contingencies (See Note 14) Weighted Average Number of Shares Outstanding, Basic and Diluted Number of basic shares, after adjustment for contingently issuable shares and other shares not deemed outstanding, determined by relating the portion of time within a reporting period that common shares have been outstanding to the total time in that period and the average number of shares issued and outstanding that are used in calculating diluted EPS, determined based on the timing of issuance of shares in the period. Income (Loss) from Continuing Operations, Per Basic and Diluted Share The amount of income (loss) from continuing operations per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. Income (Loss) from Discontinued Operations, Net of Tax, Per Basic and Diluted Share The amount of income (loss) from disposition of discontinued operations, net of related tax effect, per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. Earnings Per Share, Basic and Diluted The amount of net income or loss for the period per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. Depreciation and amortization expense (1) Accounts payable Income from unconsolidated investments in power plants EX-101.PRE 7 cpn-20100630_pre.xml XBRL TAXONOMY PRESENTATION LINKBASE XML 8 R19.xml IDEA: Commitments and Contingencies  2.2.0.7 false Commitments and Contingencies 19 - Disclosure - Commitments and Contingencies true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 0 cpn_CommitmentsAndContingenciesDisclosureTextBlockAbstract cpn false na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 1 us-gaap_CommitmentsAndContingenciesDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <!--StartFragment--> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">14.&#160;&#160;Commitments and Contingencies</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Litigation</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We are party to various litigation matters, including regulatory and administrative proceedings 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. We review our litigation activities and determine if an unfavorable outcome to us is considered &#8220;remote,&#8221; &# 8220;reasonably possible&#8221; or &#8220;probable&#8221; as defined by GAAP. Where we have determined an unfavorable outcome is probable and is reasonably estimable, we have accrued for potential litigation losses. Following the Effective Date, pending actions to enforce or otherwise effect repayment of liabilities preceding December 20, 2005, the petition date, as well as pending litigation against the U.S. Debtors related to such liabilities, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the U.S. Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the U.S. Bankruptcy Court to the extent the parties to such litigation have obtained relief from the permanent injunction. In particular, certain pending actions against us are anticipated to proceed as described below. In addition to the matters described below, we are invo lved in various other claims and legal actions, including regulatory and administrative proceedings 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.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Pit River Tribe, et al. v. Bureau of Land Management, et al.</font>&#160;&#8212;&#160;On June&#160;17,&#160;2002, the Pit River Tribe filed suit against the BLM and other federal agencies in the U.S. District Court for the Eastern District of California (&#8220;District Court&#8221;), seeking to enjoin further exploration, construction and development of the Calpine Fourmile Hill Project in the Glass Mountain and Medicine Lake geothermal areas. Its complaint challenged the validity of the decisions of the BLM and the U.S. Forest Service to permit the development of the proposed project under two geothermal mineral leases previously issued by the BLM. The lawsuit also sought to invalidate the leases. Only declaratory and equitable reli ef was sought.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On November&#160;5, 2006, the U.S. Court of Appeals for the Ninth Circuit (&#8220;Ninth Circuit&#8221;) issued a decision granting the plaintiffs relief by holding that the BLM had not complied with the National Environmental Policy Act and other procedural requirements and, therefore, held that the lease extensions were invalid. The Ninth Circuit remanded the matter back to the District Court to implement its decision. On December&#160;22, 2008 the District Court in turn remanded this matter back to federal agencies for curative action, including whether the leases may be extended. Before the agencies could reconsider, the Pit River Tribe appealed the District Court&#8217;s decision on the basis the original Ninth Circuit decision purportedly invalidated the leases, and therefore, the Pit River Tribe a rgues, the Ninth Circuit did not give the District Court latitude to grant an extension of the leases. Oral argument on the Tribe&#8217;s appeal was held in the Ninth Circuit on March&#160;10, 2010. We anticipate a decision from the Ninth Circuit during the third quarter of 2010.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In addition, the Pit River Tribe and other interested parties filed two separate suits in the District Court seeking to enjoin exploration, construction, and development of the Telephone Flat leases and proposed project at Glass Mountain in May&#160;2004. These two related cases continue to be subject to the discharge injunction as described in the Confirmation Order. Similar to above, we are now in communication with the U.S. Department of Justice regarding these two cases; but, the cases remain mostly inactive pending the outcome of the above described Pit River Tribe case.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Environmental Matters</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We are subject to complex and stringent environmental laws and regulations related to the operation of our power plants. On occasion, we may incur environmental fees, penalties and fines associated with the normal operation of our power plants. We do not, however, have environmental violations or other matters that would have a material impact on our financial condition, results of operations or cash flows, or that would significantly change our operations of our power plants. A summary of our larger environmental matters is as follows:</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Texas City and Clear Lake Environmental Matters&#160;&#8212;&#160;</font>As part of an internal review of our Texas City and Clear Lake power plants, we determined that these power plants were in violation of the requirements of the Acid Rain Program found in Title 40&#160;of the U.S. Federal Code of Regulations Parts&#160;72-78. These power plants were originally exempt from these provisions because each plant was a qualifying cogeneration power plant in operation before November&#160;1990 with qualifying original PPAs in place. However, the PPAs expired in 2002 for our Texas City power plant and in 1999 for our Clear Lake power plant. To remedy the violations, the power plants were required to retire the number of SO<font style="DISP LAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances equal to actual SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emitted since the expiration of the exemption and remit an excess emission fee for each ton of SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emitted during the period of non-compliance. We self-reported the excess emissions to the TCEQ and the EPA. Compliance agreements between each power plant and the TCEQ were executed on September&#160;26, 2008, which shielded the power plants from enforcement by the TCEQ. To remedy these violations with the EPA, both power plants retired SO<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: sub">2</font> emission allowances equivalent to their historic applicable emissions after expiration of the exemption in July of 2010. In addition, the EPA required payment of excess emission fees of $146,966 and $127,767 for Clear Lake and Texas City, respectively, which were remitted to the EPA in July of 2010. Accordingly, we now consider this matter closed.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Remediation of Certain Assets Acquired from Conectiv</font>&#160;&#8212;&#160;As part of the Conectiv Acquisition on July 1, 2010, we assumed environmental remediation liabilities related to certain of the assets located in New Jersey that are subject to the Industrial Site Recovery Act and could incur expenditures related thereto of up to $10 million. Pursuant to the Conectiv Purchase Agreement, PHI is responsible for any amounts that exceed $10 million. We have engaged a licensed site remediation professional who is evaluating the recognized environmental conditions as a preliminary step of the site investigation phase and ultimate cleanup plan.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Heat Input Issues at Certain Assets Acquired from Conectiv</font>&#160;&#8212;&#160;In 2010, prior to the Conectiv Acquisition, Conectiv received Title V air permits for its Cumberland 1 and Sherman Avenue peaker power plants from the NJDEP. These permits include heat input limits that may restrict operation at full capacity and are the subject of ongoing litigation between Conectiv and the NJDEP prompted by two Administrative Orders and Notices of Civil Administrative Penalty Assessment issued to Conectiv by the NJDEP. PHI asserts that the NJDEP does not have the authority to limit heat input in Title V air permits. We have submitted timely appeals of the Sherman Avenue and Cumberland 1 Title V air permits and continue to work with the NJDEP to ensu re that all of the Conectiv New Jersey assets may operate at full load. Currently, these restrictions require one of our peaker power plants (Deepwater Unit 1) to operate at approximately 8 MW less than its full capacity. We are preparing an application to modify the Deepwater Unit 1 permit to reclaim the 8 MW limitation, but there can be no assurance that our application will be successful and we may continue to be subject to the aforementioned limitation.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt" align="left"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Other Contingencies</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Lyondell Bankruptcy&#160;&#8212;&#160;</font>On January&#160;6, 2009, Lyondell, including its subsidiary Houston Refining LP, filed for protection under Chapter&#160;11 in the U.S. Bankruptcy Court. Channel Energy Center leases its project site from Houston Refining LP and is granted certain easements in, over, under and on the site pursuant to the lease. Channel Energy Center provides power and steam to Houston Refining LP pursuant to a power services agreement and, pursuant to a power plant services agreement, provides clarified water and treated water to Houston Refining LP. Channel Energy Center is provided with raw water, refinery gas and certain other power plant services by Houston Refining LP. On April 23, 2010, the U.S. Bankruptcy Co urt approved Lyondell&#8217;s plan of reorganization, which includes acceptance of the project site lease and power and plant services agreements described above. Additionally, we received approximately $13 million in settlement under Lyondell&#8217;s plan of reorganization to cure prepetition defaults under the assumed agreements during the second quarter of 2010. We reversed our bad debt allowance of approximately $10 million, which is reported as a component of sales, general and other administrative expense on our Consolidated Condensed Statement of Operations during the first quarter of 2010. We now consider this matter closed.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Distribution of Calpine Common Stock under our Plan of Reorganization&#160;&#8212;&#160;</font>Through the filing of this Report, approximately 441 million shares have been distributed to holders of allowed unsecured claims and approximately 44&#160;million shares remain in reserve for distribution to holders of disputed claims whose claims ultimately become allowed under our Plan of Reorganization. To the extent that any of the reserved shares remain undistributed upon resolution of the remaining disputed claims, such shares will not be returned to us but rather will be distributed pro rata to claimants with allowed claims to increase their recovery. We are not required to issue additional shares above the 485 million shares authorized to settle unsecured claims, even if the shares remaining for distribution are not sufficient to fully pay all allowed unsecured claims. However, certain disputed claims, including prepayment premium and default interest claims asserted by the holders of CalGen Third Lien Debt, may be required to be settled with available cash and cash equivalents to the extent reorganized Calpine Corporation common stock held in reserve pursuant to our Plan of Reorganization for such claims is insufficient in value to satisfy such claims in full. We consider such an outcome to be unlikely. To the extent that holders of the CalGen Third Lien Debt have claims that remain unsettled or outstanding, they assert that they continue to have lien rights to the assets of the CalGen entities until the pending claims asserted in the case styled:&#160;&#160;<font style="FONT-STYLE: italic; DISPLAY: inline">HSBC Bank USA, NA as Indenture Trustee, et al v. Calpine Corporation, et al.</font> Case No. 1: 07-cv-03088, S.D.N.Y. are resolved either through court action or settlement. We dispute such allegations and contend that all liens were released when the CalGen secured claims were paid in full under the terms of applicable court orders and our Plan of Reorganization as confirmed. We continue to engage in settlement discussions with the various constituencies in this dispute.</font></div> <!--EndFragment--> 14.&#160;&#160;Commitments and Contingencies Litigation We are party to various litigation matters, including regulatory and administrative proceedings false false false us-types:textBlockItemType textblock Includes disclosure of commitments and contingencies. This element may be used as a single block of text to encapsulate the entire disclosure including data and tables. 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The First Lien Credit Facility matures on March&#160;29, 2014.</font><br/> </div><br/> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The obligations under our First Lien Credit Facility are unconditionally guaranteed by certain of our direct and indirect domestic subsidiaries and are secured by a security interest in substantially all of the tangible and intangible assets of Calpine Corporation and certain of the guarantors. The obligations under our First Lien Credit Facility are also secured by a pledge of the equity interests of the direct subsidiaries of certain of the guarantors, subject to certain exceptions, including exceptions for equity interests in foreign subsidiaries, existing contractual prohibitions and prohibitions under other legal requirements. Our First Lien Credit Facility also requires compliance with financial covenants that include a maximum ratio o f total net debt to Consolidated EBITDA (as defined in the First Lien Credit Facility), a minimum ratio of Consolidated EBITDA to cash interest expense, and a maximum ratio of total senior net debt to Consolidated EBITDA.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Issuance of 2019 First Lien Notes</font>&#160;&#8212;&#160;On May&#160;25,&#160;2010, we issued&#160;$400 million in aggregate principal amount of 8% senior secured notes due 2019 in a private placement. The 2019 First Lien Notes were issued under an amended and restated&#160;indenture, dated as of May&#160;25, 2010, among Calpine, the guarantors party thereto and&#160;Wilmington&#160;Trust Company, as trustee. The 2019 First Lien Notes bear interest at 8% payable semi-annually on February&#160;15 and August&#160;15&#160;of each year beginning on August&#160;15, 2010. Interest is due to the holders of record on February 1 and August 1 immediately preceding the applicable interest payment date. The 2019 First Lien Notes will mature on August&#160;15, 2019. Proceeds received from the issuance of the 2019 First Lien Notes were used to repay approximately $394 million of the First Lien Credit Facility term loans on May 25, 2010. We recorded additional deferred financing costs of approximately $8 million on our Consolidated Condensed Balance Sheet and we recorded $7 million in debt extinguishment costs from the write-off of unamortized deferred financing costs related to the repayment of the First Lien Credit Facility term loans for the three and six months ended June 30, 2010.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Issuance of 2020 First Lien Notes</font>&#160;&#8212;&#160;On July&#160;23, 2010, we issued $1.1 billion in aggregate principal amount of 7.875% senior secured notes due 2020 in a private placement. The 2020 First Lien Notes were issued under an amended and restated indenture, dated as of July 23, 2010, among Calpine, the guarantors party thereto and Wilmington Trust Company, as </font>trustee. The 2020 First Lien Notes bear interest at 7.875% payable semi-annually on January 31 and July 31 of each year beginning on January&#160;31,&#160;2011. Interest is due to the holders of record on January 15 and July 15 immediately preceding the applicable inter est payment date. The 2020 First Lien Notes will mature on July&#160;31,&#160;2020. Proceeds received from the issuance of the 2020 First Lien Notes were used to repay approximately $1.1 billion of the First Lien Credit Facility term loans on July 23, 2010.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our First Lien Notes are guaranteed by each of our current and future domestic subsidiaries that are guarantors under the First Lien Credit Facility and rank equally in right of payment with all of our and the guarantors&#8217; other existing and future senior indebtedness, and will be effectively subordinated in right of payment to all existing and future liabilities of our subsidiaries that do not guarantee our First Lien Notes. Our First Lien Notes are secured equally and ratably with indebtedness incurred under our First Lien Credit Facility and certain other indebtedness that is permitted to be secured by such assets by a first-priority lien, subject to certain exceptions and permitted liens, on substantially all of our and certain of the guarantors&#8217; existing and future assets.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">NDH Project Debt</font>&#160;&#8212;&#160;On June 8, 2010, NDH entered into a credit agreement to fund the Conectiv Acquisition and the remaining capital expenditures to complete the York Energy Center under construction. Our NDH Project Debt includes a $1.3 billion seven-year senior secured term facility and a $100 million three-year senior secured revolving credit facility, of which up to $50 million will be available through a subfacility in the form of letters of credit. On July 1, 2010, the term facility was funded in the amount of $1.3 billion. The NDH Project Debt was issued with an original issue discount of $28 million and we recorded deferred financing costs of approximately $40 million, which we recorded on our Consolidated Condensed Balan ce Sheet on July 1, 2010. Our NDH Project Debt bears interest at a floating rate, at our option, at a rate per annum equal to the alternate base rate or the adjusted LIBOR (subject to a minimum of 1.5%), plus, in each case, the applicable margin, which varies for the revolving credit facility (as defined in our NDH Project Debt agreement). An amount equal to 0.25% of the aggregate principal amount of the senior secured term facility outstanding on July 1, 2010, which was $1.3 billion, will be payable at the end of each quarter commencing with the first full quarter after July 1, 2010, with the remaining balance payable on July&#160;1,&#160;2017. Additional repayments of principal will be required from excess cash flows (as defined in our NDH Project Debt agreement). No amortization will be required with respect to the revolving credit facility.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">NDH&#8217;s obligations under the NDH Project Debt are unconditionally guaranteed by each existing and subsequently acquired or organized domestic, wholly owned subsidiary of NDH (including the entities acquired) and will be secured by a first-priority lien on substantially all of NDH&#8217;s and the guarantors&#8217; existing and future assets, in each case subject to certain exceptions and permitted liens. NDH and its subsidiaries (subject to certain exceptions) have made certain representations and warranties and are required to comply with various affirmative and negative covenants including, among others, certain limitations and prohibitions relating to additional indebtedness, liens, restricted payments, mergers and asset sales and certain financial covenants relating to limitations on capital expenditure s, minimum interest coverage and maximum leverage. The NDH Project Debt is subject to customary events of default included in financing transactions, including, among others, failure to make payments when due, certain defaults under other material indebtedness, breach of certain covenants, breach of certain representations and warranties, involuntary or voluntary bankruptcy, and material judgments. Neither Calpine Corporation nor any of its subsidiaries, other than NDH and its subsidiaries (subject to certain exceptions), are guarantors under the NDH Project Debt.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As part of the Conectiv Acquisition and NDH Project Debt, we entered into various intercompany agreements with our NDH subsidiaries for the related sales and purchases of power, natural gas and the operation and maintenance of our NDH power plants, which will not materially impact our results of operations, financial condition or cash flows on a consolidated basis. While there is no direct recourse by holders of the NDH Project Debt to Calpine Corporation, a substantial portion of the commodity price risk related to NDH&#8217;s power generation is absorbed by Calpine Energy Services, L.P. as an indirect, wholly owned subsidiary of Calpine Corporation, which purchases the power generated by NDH under an intercompany tolling agreement, which is also guaranteed by Calpine Corporation.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">OMEC Debt&#160;&#8212;&#160;</font>As further discussed in Note 1, we added approximately $375 million in project debt to our Consolidated Condensed Balance Sheet when we consolidated OMEC effective January 1, 2010. As of June 30, 2010, OMEC had approximately $370 million in project debt outstanding, which is included in the balance under the caption &#8220;Project financing, notes payable and other&#8221; in the table above. OMEC has a $377 million non-recourse project term loan which matures in April&#160;2019. 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In addition, we completed a life study for each of our natural gas-fired power plants and our Geysers Assets, and changed our estimate of the remaining useful lives of our power plants and the useful lives and salvage values of our rotable parts utilized in our natural gas-fired power plants.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Component Depreciation for Rotable Parts at our Natural Gas-Fired Power Plants&#160;&#8212;&#160;</font>During the three and six months ended June&#160;30, 2009, we used the composite depreciation method for all of our natural gas-fired power plant assets. Under this method, all assets comprising each power plant were combined into one group and depreciated under a composite depreciation rate. Effective October 1, 2009, we componentized our rotable parts for our natural gas-fired power plant assets for purposes of calculating depreciation. The change in the method of depreciation for rotable parts was considered a change in accounting estimate inseparable from a change in accounting principle, and resulted in changes to our depreciation expense p rospectively. The change to component depreciation for our rotable parts utilized in our natural gas-fired power plants also resulted in changes to the useful lives of our rotable parts which are now generally estimated to range from 3 to 18 years. Furthermore, we reduced our estimate of salvage value for our rotable parts to 0.15% of original cost to reflect our expectation with these separable parts. Prior to this change, our composite useful lives for our natural gas-fired power plant assets, including our rotable parts, were 35 years and 40 years for our combined-cycle and our simple-cycle power plant assets, respectively. We also revised the estimated useful lives of our remaining composite pools to 37 years and 47 years for our combined-cycle and simple-cycle power plant assets, respectively, based in part on the results of our separate useful life study. Our change in useful lives is considered a change in accounting estimate and resulted in changes to our depreciation expense prospectively.</font& gt;</div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Straight Line Method for our Geysers Assets&#160;&#8212;&#160;</font>During the three and six months ended June&#160;30,&#160;2009, our Geysers Assets used the units of production method for depreciation. Our units of production depreciation rate was calculated using a depreciable base of the net book value of the Geysers Assets plus the expected future capital expenditures over the economic life of the geothermal reserves. The rate of depreciation per MWh was determined by dividing the depreciable base by total expected future generation. As a result of our change from the units of production method to the straight line method for our Geysers Assets, and based in part on the results of our separate useful life study, we revised our estimates of the remaining composite useful lives of our Geysers Assets effective October&#160;1,&#160;2009 to 59 years and 13 years for our Geysers steam extraction and gathering assets and our Geysers power plant assets, respectively. Our change in the method of depreciation for our Geysers Assets is considered a change in accounting estimate inseparable from a change in accounting principle, and resulted in changes to depreciation expense prospectively.</font></div> <!--EndFragment--> 3.&#160;&#160;Property, Plant and Equipment, Net As of June 30, 2010, and December 31, 2009, the components of property, plant and equipment were stated at false false false us-types:textBlockItemType textblock Disclosure includes the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain or loss recognized in the income statement and the income statement caption that includes that gain or loss, amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. 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DISPLAY: block"><br/> </div> <!--EndFragment--> 13.&#160;&#160;Segment Information We assess our business on a regional basis due to the impact on our financial performance of the differing characteristics false false false us-types:textBlockItemType textblock This element may be used to capture the complete disclosure of reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10% or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 131 false 1 2 false UnKnown UnKnown UnKnown false true XML 13 R12.xml IDEA: Fair Value Measurements  2.2.0.7 false Fair Value Measurements 12 - Disclosure - Fair Value Measurements true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 0 cpn_FairValueMeasurementsAbstract cpn false na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 1 us-gaap_FairValueMeasurementInputsDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <!--StartFragment--> <div align="justify" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">7.&#160;&#160;Fair Value Measurements</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Derivatives&#160;&#8212;&#160;</font>The primary factors affecting the fair value of our commodity derivative instruments at any point in time are the volume of open derivative positions (MMBtu and MWh); market price levels, principally for power and natural gas; our credit standing and that of our counterparties; and prevailing interest rates. Prices for power and natural gas are volatile, which can result in material changes in the fair value measurements reported in our financial statements in the future.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We utilize market data, such as pricing services and broker quotes, and assumptions that we believe market participants would use in pricing our assets or liabilities including assumptions about risks and the risks inherent to the inputs in the valuation technique. These inputs can be either readily observable, market corroborated or generally unobservable. The market data obtained from broker pricing services is evaluated to determine the nature of the quotes obtained and, where accepted as a reliable quote, used to validate our assessment of fair value; however, other qualitative assessments are used to determine the level of activity in any given market. We primarily apply the market approach and income approach for recurring fair value m easurements and utilize what we believe to be the best available information. We utilize valuation techniques that seek to maximize the use of observable inputs and minimize the use of unobservable inputs. We classify fair value balances based on the observability of those inputs.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The fair value of our derivatives includes consideration of the credit standing of our counterparties and the impact of credit enhancements, if any. We have included an estimate of nonperformance risk in the determination of fair value based on </font>our expectation of how market participants would determine fair value. Such valuation adjustments are generally based on market evidence, if available, or our best estimate.</font></div></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our level&#160;1 fair value derivative instruments primarily consist of natural gas swaps, futures and options traded on the NYMEX.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our level&#160;2 fair value derivative instruments primarily consist of interest rate swaps and OTC power and natural gas forwards and swaps for which market-based pricing inputs are observable. Generally, we obtain our level&#160;2 pricing inputs from markets and pricing services such as the Intercontinental Exchange and Bloomberg. To the extent we obtain prices from brokers in the marketplace, we have procedures in place to ensure that such prices represent executable prices for market participants. In certain instances, our level&#160;2 derivative instruments may utilize models to measure fair value. These models are primarily industry-standard models that incorporate various assumptions, including quoted interest rates, correlation, volatility, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Our level&#160;3 fair value derivative instruments primarily consist of our OTC power and natural gas forwards and options where pricing inputs are unobservable, as well as other complex and structured transactions. Complex or structured transactions are tailored to our or our customers&#8217; needs and can introduce the need for internally-developed model inputs which might not be observable in or corroborated by the market. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in level&#160;3. Our valuation models may incorporate historical correlation information and extrapolate available broker and other information to future periods. In cases where there is no corroborating market information available to support significant model inputs, we initially us e the transaction price as the best estimate of fair value. OTC options are valued using industry-standard models, including the Black-Scholes pricing model. 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In 2005, CCFCP issued the CCFCP Preferred Shares, which resulted in the deconsolidation of the CCFC group for income tax purposes. On July 1, 2009, the CCFCP Preferred Shares were redeemed; however, CCFCP continues to be a partnership and therefore, the CCFC group remains deconsolidated from Calpine Corporation for federal income tax reporting purposes. As of June 30, 2010, the CCFC group did not have a valuation allowance record ed against its deferred tax assets, whereas the Calpine group continued to have a valuation allowance. For the three and six months ended June 30, 2010 and 2009, we used the effective rate method to determine both the CCFC and Calpine groups&#8217; tax provision; however, our income tax rates did not bear a customary relationship to statutory income tax rates primarily as a result of the impact of state income taxes, changes in unrecognized tax benefits, the Calpine group valuation allowance and intraperiod tax allocations discussed below. Our consolidated income tax expense from continuing operations and imputed tax rate was approximately $6 million and (5)% and approximately $15 million and (20)% for the three months ended June&#160;30,&#160;2010 and 2009, respectively, and approximately $17 million and (11)% and approximately $24 million and (53)% for the six months ended June&#160;30,&#160;2010 and 2009, respectively. <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT - -SIZE: 10pt">Our income tax expense from continuing operations included an intraperiod tax allocation (benefit) expense of a net ($31) million and $14 million for the three months ended June 30, 2010 and 2009, respectively, and a net ($16) million, which includes approximately $13 million in tax expense related to a prior period, and $27 million for the six months ended June 30, 2010 and 2009, respectively, with an offsetting tax expense (benefit)&#160;allocated between&#160;discontinued operations&#160;or OCI in each respective period.</font></font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Valuation Allowance&#160;&#8212;&#160;</font>GAAP requires that we consider all available evidence, both positive and negative, and tax planning strategies to determine whether, based on the weight of that evidence, a valuation allowance is needed to reduce the value of deferred tax assets. 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. In prior periods, we provided a valuation allowance on certain federal, state and foreign tax jurisdiction defe rred tax assets of the Calpine group to reduce the gross amount of these assets to the extent necessary to result in an amount that is more likely than not of being realized. Projected future income from reversals of existing taxable temporary differences and tax planning strategies allowed a larger portion of the deferred tax assets to be offset against deferred tax liabilities resulting in a significant release of previously recorded valuation allowance in prior periods; however, we have not released any additional previously recorded valuation allowance in 2010.</font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Income Tax Audits &#8212; </font>In September 2009, we received notice from the Canadian Revenue Authority (&#8220;CRA&#8221;) of their intent to conduct a limited scope income tax audit on four of our Canadian subsidiaries for the tax years ending 2005 through 2008. We have timely responded to their request for information and&#160;received notice from the CRA that they have completed their audit of transactions within Canada and no changes were proposed. The CRA international audit division continues to review cross border transactions within the audit period. At this time, we are unable to determine the likelihood of a material adverse assessment.</font& gt;</font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We remain subject to other various audits and reviews by state taxing authorities; however, we do not expect these will have a material effect on our tax provision. Any NOLs we claim in future years to reduce taxable income could be subject to U.S. Internal Revenue Service examination regardless of when the NOLs occurred. Due to significant NOLs, any adjustment of state returns or federal returns from 2006 and forward would likely result in a reduction of deferred tax assets rather than a cash payment of income taxes.</font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Unrecognized Tax Benefits and Liabilities</font>&#160;&#8212;&#160;As of June&#160;30,&#160;2010, we had unrecognized tax benefits of $87 million. If recognized within the next 12 months, $40 million of our unrecognized tax benefits could impact the annual effective tax rate and $47 million related to deferred tax assets could be offset against the recorded valuation allowance resulting in no impact to our effective tax rate. We also had accrued interest and penalties of $18 million for income tax matters as of June 30, 2010. The amount of unrecognized tax benefits decreased by $11 million for the six months ended June&#160;30, 2010, primarily as a res ult of $9 million related to a hedging position terminated for CCFC group and $2 million related to depreciation taken on a position for a capitalized asset. <font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The decrease related to temporary differences in tax reporting and did not impact the annual effective tax rate. </font>We believe it is reasonably possible that a decrease of approximately $1 million in unrecognized tax benefits could occur within the next 12 months primarily related to state tax liabilities and state interest and penalties.</font></font></div> <div style="TEXT-ALIGN: left; TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div style="TEXT-ALIGN: justify; TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">NOL Carryforwards&#160;&#8212;&#160;</font>Under federal income tax law, our NOL carryforwards can be utilized to reduce future taxable income subject to certain limitations, including if we were to undergo an ownership change as defined by Section 382 of the Internal Revenue Code. We experienced an ownership change on the Effective Date as a result of the cancellation of our old common stock and the distribution of our new common stock pursuant to our Plan of Reorganization. However, this ownership change and the resulting annual limitations are not expected to result in the expiration of our NOL carryforwards if we are able to generate sufficient future taxable income within the carryforward periods. If a subsequent ownership change were to occur as a result of future transactions in our stock, accompanied by a significant reduction in our market value immediately prior to the ownership change, our ability to utilize the NOL carryforwards may be significantly limited. The Calpine group adjusted its NOL for prior periods through December 31, 2009, increasing it by approximately $175 million. These adjustments consisted of $49 million to reduce the NOL for excluded cancellation of debt income, a $230 million increase in prior period NOLs for development costs and construction in progress relating to abandoned projects and other decreases of $6 million.<br/> </font></font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;</font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">To manage the risk of significant limitations on our ability to utilize our tax NOL carryforwards, our amended and restated certificate of incorporation permits our Board of Directors to meet to determine whether to impose certain transfer restrictions on our common stock in the following circumstances: if, prior to February&#160;1, 2013, our Market Capitalization declines by at least 35% from our Emergence Date Market Capitalization of approximately $8.6 billion (in each case, as defined in and calculated pursuant to our amended and restated certificate of incorporation) and at least 25 percentage points of shift in ownership has occurred with respect to our equity for purposes of Section&#160;382 of the Internal Revenue Code. We be lieve as of the filing of this Report, neither circumstance was met. While we do not&#160;believe an ownership change of 25 percentage points has occurred, the change in ownership is only slightly less than 25%. Accordingly, the transfer restrictions have not been put in place by our Board of Directors; however, if both of the foregoing events were to occur together and our Board of Directors were to elect to impose them, they could become operative in the future. There can be no assurance that the circumstances will not be met in the future, or in the event that they are met, that our Board of Directors would choose to impose these restrictions or that, if imposed, such restrictions would prevent an ownership change from occurring.<br/> </font></font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;</font></div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Should our Board of Directors elect to impose these restrictions, they shall have the authority and discretion to determine and establish the definitive terms of the transfer restrictions, provided that the transfer restrictions apply to purchases by owners of 5% or more of our common stock, including any owners who would become owners of 5% or more of our common stock via such purchase. 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A portion of the 485 million authorized shares was immediately distributed, and the remainder was reserved for distribution to holders of certain disputed claims that, although allowed as of the Effective Date, are unresolved. To the extent that any of the reserved shares remain undistributed upon resolution of the disputed claims, such shares will not be returned to us but rather will be distributed pro rata to claimants with allowed claims to increase their recovery. Therefore , pursuant to our Plan of Reorganization, all 485 million shares ultimately will be distributed. Accordingly, although the reserved shares are not yet issued and outstanding, all conditions of distribution had been met for these reserved shares as of the Effective Date, and such shares are considered issued and are included in our calculation of weighted average shares outstanding. We also include restricted stock units for which no future service is required as a condition to the delivery of the underlying common stock in our calculation of weighted average shares outstanding.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As we incurred a net loss for the three and six months ended June&#160;30, 2010 and 2009, diluted loss per share for those periods 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 have the following types of VIEs:</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">VIEs with a Purchase Option&#160;&#8212;&#160;</font>We have six power plants with PPAs or other agreements that provide third parties the option to purchase power plant assets, an equity interest, or a portion of the future cash flows generated from an asset. The purchase options are exercisable only within a specified period of time upon expiration of the PPA or other agreements which expire at various dates occurring from 2011 &#8211; 2032.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Subsidiaries with Project Debt&#160;&#8212;&#160;</font>Certain of our subsidiaries have project debt that contains provisions which we have determined create variability. We retain ownership and absorb the full risk of loss and potential for reward once the project debt is paid in full. Actions by the lender to assume control of collateral can occur only under limited circumstances such as upon the occurrence of an event of default, which we have determined to be unlikely. See Note&#160;6 for further information regarding our project debt and Note&#160;1 for information regarding our restricted cash balances.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Subsidiaries with PPAs&#160;&#8212;&#160;</font>Certain of our wholly owned subsidiaries have PPAs that are deemed to be a form of subordinated financial support and thus constitute a VIE.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Other VIEs&#160;&#8212;&#160;</font>Our other consolidated VIEs as of December&#160;31,&#160;2009, primarily consisted of monetized assets secured by financing for our PCF and PCF III subsidiaries. These financings were fully repaid during the first quarter of 2010 and are no longer VIEs.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">New Accounting Standards and Disclosure Requirements for VIEs</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Implementation&#160;&#8212;&#160;</font>As further discussed in Note 1, new accounting standards became effective January 1, 2010 related to accounting for and consolidation of VIEs, which required us to perform an analysis of whether we are the primary beneficiary of our VIEs. The new standards generally replaced the quantitative-based risks and rewards calculation for determining which enterprise, if any, is the primary beneficiary of a VIE to a more qualitative assessment with an approach focused on identifying which enterprise has both the power to direct the activities of a VIE that most significantly impact the VIE&#8217;s economic performance and the obligation to absorb losses or receive benefits from the VIE.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As required, we performed an analysis of all of our VIEs effective January 1, 2010 and, with the exception of OMEC, our determination of the primary beneficiary did not change. We concluded that we hold the obligation to absorb losses and receive benefits in all of our VIEs where we hold the majority equity interest. Therefore, our analysis to determine the primary beneficiary focused on determining which variable interest holder has the power to direct the most significant activities of the VIE (the primary beneficiary). Our analysis included consideration of the following primary activities which we believe to have a significant impact on a power plant&#8217;s financial performance: operations and maintenance, plant dispatch, fuel strategy as well as our ability to control or influence contracting and overall plant s trategy. Our approach to determining which entity holds the powers and rights was based on powers held as of the balance sheet date. Contractual terms that will apply in future periods, such as a purchase or sale option, were not considered in our analysis. Based on our analysis, we determined that we hold the power and rights to direct the most significant activities of all our wholly owned VIEs.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">OMEC&#160;&#8212;&#160;</font>During the second quarter of 2007, we determined that SDG&amp;E had a greater variability of risk compared to us based upon the prior consolidation accounting standards, which focused on which party held the greater variability in the obligation to absorb the losses or the right to receive benefits from the VIE or both. We determined that SDG&amp;E held the greater variability as a result of a put option held by OMEC to sell the Otay Mesa Energy Center for $280 million to SDG&amp;E, and a call option held by SDG&amp;E to purchase the Otay Mesa Energy Center for $377 million in 2019. Accordingly, we were not the primary beneficiary, consolidation was not appropriate and we accounted for our investment in O MEC under the equity method of accounting through December&#160;31,&#160;2009.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The transfer of ownership in conjunction with the exercise of the put/call option, which was the driving factor in the quantitative determination of the primary beneficiary under the previous accounting standards, would not occur until 2019. Neither we, nor SDG&amp;E, hold any powers under the combination put/call option as of January&#160;1, 2010. Accordingly, we did not include the benefits and obligations of the put/call option in the new determination of the primary beneficiary under the current accounting standards. Based upon our analysis, we believe&#160;the significant activity that&#160;has the most impact on the financial performance of OMEC&#160;is operations and maintenance which is controlled by us. As a result, we changed our determination of primary beneficiary from SDG&amp;E to us ef fective January&#160;1,&#160;2010.</font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;</font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">New Disclosures &#8212; </font>Implementation of the new accounting standards also required separate disclosure on the face of our Consolidated Condensed Balance Sheet of the significant assets of a consolidated VIE that can only be used to settle obligations of the consolidated VIE and the significant liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary separately.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">In determining which assets of our VIEs met the separate disclosure criteria, we reviewed all of our VIEs and determined this separate disclosure requirement was met where Calpine Corporation was substantially limited or prohibited from access to assets (primarily cash and cash equivalents, restricted cash and property, plant and equipment), where the VIE was not a guarantor or grantor under our primary debt facilities (our First Lien Credit Facility and First Lien Notes) and where there were prohibitions of the VIE under agreements that prohibited guaranteeing the debt of Calpine Corporation or its other subsidiaries and where the amounts were material to our financial statements. In determining which liabilities of our VIEs met the separate disclosure criteria, we reviewed all of our VIEs and determined this separate dis closure requirement was met where our VIEs had project financing that prohibits the VIE from providing guarantees on the debt of others, where Calpine Corporation has not provided a corporate guarantee and where the amounts were material to our financial statements.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The VIEs meeting the above disclosure criteria are wholly owned subsidiaries of Calpine Corporation and include natural gas-fired power plants with an aggregate capacity of approximately 10,835 MW. For these VIEs, we may provide other operational and administrative support through various affiliate contractual arrangements between the VIEs, Calpine Corporation and its other wholly owned subsidiaries whereby we support the VIE through the reimbursement of costs and/or the purchase and sale of energy.&#160;Calpine Corporation and its other wholly owned subsidiaries did not provide any significant support in the form of cash contributions other than amounts contractually required during the three and six months ended June 30, 2010 and 2009.</font></div> <div align="center" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;</font></div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Unconsolidated VIEs and Investments</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We have a 50% partnership interest in Greenfield LP and a 50% equity interest in Whitby where we do not have the power to direct the most significant activities of these entities and therefore do not consolidate them. Greenfield LP and Whitby are also VIEs. We account for these entities under the equity method of accounting and include our net equity interest in investments on our Consolidated Condensed Balance Sheets as we exercise significant influence over their operating and financial policies. During 2009, we were not the primary beneficiary of OMEC and did not consolidate OMEC. 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We have a significant presence in the major competitive power markets in the U.S., including CAISO and ERCOT, and the Conectiv Acquisition on July&#160;1,&#160;2010 (see Note&#160;2), gives us significant presence in the PJM market. We sell wholesale power, steam, regulatory capacity, renewable energy credits and ancillary services to our customers, including industrial companies, retail power providers, utilities, municipalities, independent electric system operators, marketers and others. We engage in the purchase of natural gas as fuel for our power plants and in related natural gas transportation and storage transactions, and in the purc hase of electric transmission rights to deliver power to our customers. We also enter into natural gas and power physical and financial contracts to economically hedge our business risks and optimize our portfolio of power plants.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Basis of Interim Presentation</font>&#160;&#8212;&#160;The accompanying unaudited, interim Consolidated Condensed Financial Statements of Calpine Corporation, a Delaware corporation, and consolidated subsidiaries have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the Consolidated Condensed Financial Statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, these financial statements should be read in con junction with our audited Consolidated Financial Statements for the year ended December 31, 2009, included in our 2009 Form&#160;10-K. 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We completed our required analysis and determined that we are the primary beneficiary of OMEC. Accordingly, as required by GAAP, we consolidated OMEC effective January&#160;1,&#160;2010. The consolidation of OMEC on January&#160;1,&#160;2010 was accounted for using historical cost and resulted in the addition to our Consolidated Condensed Balance Sheet of approximately $8 million in cash and cash equivale nts, $535 million in net property, plant and equipment, $26 million in other current and non-current assets, $375 million in project debt and $50 million in other current and non-current liabilities, and the removal of $144 million representing our investment balance in OMEC. Our Consolidated Condensed Financial Statements as of and for the three and six months ended June&#160;30,&#160;2010, include the consolidated balances of OMEC. We presented our investment in OMEC&#8217;s net assets, revenues and expenses under the equity method of accounting as of December&#160;31,&#160;2009, and for the three and six months ended June&#160;30,&#160;2009. We made no other changes to our group of subsidiaries that we consolidate as a result of the adoption of these new standards. 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Funds that can be used to satisfy obligations due during the next 12 months are classified as current restricted cash, with the remainder classified as non-current restricted cash. Restricted cash is generally invested in accounts earning market rates; therefore, the carrying value approximates fair va lue. Such cash is excluded from cash and cash equivalents on our Consolidated Condensed Balance Sheets and Statements of Cash Flows. 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Inventory primarily consists of spare parts, stored natural gas, emission reduction credits and natural gas exchange imbalances. Inventory, other than spare parts, is stated primarily at the lower of cost or market value under the weighted average cost method. 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Our Consolidated Condensed Balance Sheets include these required disclosures. The new standards also reduce required disclosures for consolidated VIEs without such restrictions if we are the equity holder and primary beneficiary.</font></div></td></tr></table></div> <div> <table width="100%" cellspacing="0" style="FONT-FAMILY: times new roman; FONT-SIZE: 10pt" align="center" border="0" cellpadding="0"> <tr valign="top"> <td style="WIDTH: 36pt"> <div><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 6pt">&#160; </font></div></td> <td style="WIDTH: 18pt"> <div style="TEXT-INDENT: 0pt; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#8226;</font></div></td> <td> <div align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">An additional reconsideration event for determining whether an entity is a VIE if any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of a VIE that most significantly impact the VIE&#8217;s economic performance.</font></div></td></tr></table></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Fair Value Measurements and Disclosures&#160;&#8212;&#160;</font>In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update 2010-06, &#8220;Fair Value Measurements and Disclosures&#8221; to enhance disclosure requirements relating to different levels of assets and liabilities measured at fair value and to clarify certain existing disclosures. The update requires disclosure of significant transfers in and out of levels 1 and 2 and gross presentation of purchases, sales, issuances and settlements in the level 3 reconciliation of beginning and ending balances. The new disclosure requirements relating to level&#160;3 activity are effective for interim and annual periods beginning after December&#160;15,&a mp;#160;2010, and all the other requirements are effective for interim and annual periods beginning after December&#160;15,&#160;2009. We adopted all of the disclosure requirements related to this update for the three and six months ended June&#160;30,&#160;2010 and 2009. Since this update only required additional disclosures, adoption of this standard did not have a material impact on our results of operations, cash flows or financial condition. See Note&#160;7 for disclosure of our fair value measurements in accordance with these disclosure requirements.</font></div> <!--EndFragment--> 1.&#160;&#160;Basis of Presentation and Summary of Significant Accounting Policies We are an independent wholesale power generation company engaged in the false false false us-types:textBlockItemType textblock Description containing the organization, consolidation and basis of interim presentation of financial statements disclosure. Also includes description of all significant accounting policies of the reporting entity required for the interim period. 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Restrictions may include legally restricted deposits held as compensating balances against short-term borrowing arrangements, contracts entered into with others, or entity statements of intention with regard to particular deposits; however, time deposits and short-term certificates of deposit are not generally included in legally restricted deposits. Excludes compensating balance arrangements that are not agreements which legally restrict the use of cash amounts shown on the balance sheet. For a classified balance sheet represents the current portion only (the noncurrent portion has a separate concept); there is a separate and distinct element for unclassified presentations. No authoritative reference available. false 6 1 cpn_AssetsHeldForSaleCurrentAttributtableToVIE cpn false debit instant Related to VIEs, current assets (normally turning over within one year or one business cycle if longer) that are held for... false false false false false false false false false false false false 1 false true false false 548000000 548 false false false 2 false false false false 0 0 false false false xbrli:monetaryItemType monetary Related to VIEs, current assets (normally turning over within one year or one business cycle if longer) that are held for sale apart from normal operations and anticipated to be sold within one year. No authoritative reference available. false 7 1 cpn_PropertyPlantAndEquipmentNetAttributableToVIE cpn false debit instant For VIEs, tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to... false false false false false false false false false false false false 1 false true false false 5208000000 5208 false false false 2 false true false false 5319000000 5319 false false false xbrli:monetaryItemType monetary For VIEs, tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. No authoritative reference available. false 8 1 cpn_RestrictedCashAndCashEquivalentsNoncurrentAttributableToVIE cpn false debit instant Related to VIEs, cash and equivalents whose use in whole or in part is restricted for the long-term, generally by contractual... false false false false false false false false false false false false 1 false true false false 40000000 40 false false false 2 false true false false 45000000 45 false false false xbrli:monetaryItemType monetary Related to VIEs, cash and equivalents whose use in whole or in part is restricted for the long-term, generally by contractual agreements or regulatory requirements. No authoritative reference available. false 9 1 cpn_DebtCurrentAttributableToVIE cpn false debit instant Related to VIEs, carrying value as of the balance sheet date of the sum of short-term debt and current maturities of... false false false false false false false false false false false false 1 false true false false 575000000 575 false false false 2 false true false false 106000000 106 false false false xbrli:monetaryItemType monetary Related to VIEs, carrying value as of the balance sheet date of the sum of short-term debt and current maturities of long-term debt and capital lease obligations, which are due within one year (or one business cycle if longer). 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No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair values as of the balance sheet date for all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed greater than a year, presented gross of master netting arrangements. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The portion of earnings (loss) from continuing operations before income taxes that is attributable to operations. No authoritative reference available. Related to VIEs, current assets (normally turning over within one year or one business cycle if longer) that are held for sale apart from normal operations and anticipated to be sold within one year. No authoritative reference available. The amount of income (loss) from continuing operations per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. No authoritative reference available. No authoritative reference available. No authoritative reference available. Noncash changes in accounts payable through the issuance of debt and included in the supplemental noncash investing activities on the statement of cash flows No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The net cash payments made during the period for reorganization items included in operating activities on the statement of cash flows No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Cash received from refund of financing costs from institutions during the period No authoritative reference available. No authoritative reference available. No authoritative reference available. The amount of net income or loss for the period per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. No authoritative reference available. No authoritative reference available. No authoritative reference available. Loss before reorganization items, income taxes and discontinued operations No authoritative reference available. Number of basic shares, after adjustment for contingently issuable shares and other shares not deemed outstanding, determined by relating the portion of time within a reporting period that common shares have been outstanding to the total time in that period and the average number of shares issued and outstanding that are used in calculating diluted EPS, determined based on the timing of issuance of shares in the period. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair values as of the balance sheet date for all liabilities resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed of within a year, presented gross of master netting arrangements. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Related to VIEs, it includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note p urchased three years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits should not be reported as cash and cash equivalents. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. This item represents disclosure of the amount of contributions made to unconsolidated subsidiaries, certain corporate joint ventures, and certain noncontrolled corporation; these investments are accounted for under the equity method of accounting, which are classified as investing activities. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Related to VIEs, carrying value as of the balance sheet date of the sum of short-term debt and current maturities of long-term debt and capital lease obligations, which are due within one year (or one business cycle if longer). No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Related to VIEs, sum of the carrying values as of the balance sheet date of all long-term debt, which is debt initially having maturities due after one year from the balance sheet date or beyond the operating cycle, if longer, but excluding the portions thereof scheduled to be repaid within one year (current maturities) or the normal operating cycle, if longer, and after deducting unamortized discount or premiums, if any. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Related to VIEs, cash and equivalents whose use in whole or in part is restricted for the long-term, generally by contractual agreements or regulatory requirements. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair values as of the balance sheet date for all assets resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed of greater than a year, presented gross of the effect of master netting agreements. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Related to VIEs, the carrying amounts of cash and cash equivalent items which are restricted as to withdrawal or usage. Restrictions may include legally restricted deposits held as compensating balances against short-term borrowing arrangements, contracts entered into with others, or entity statements of intention with regard to particular deposits; however, time deposits and short-term certificates of deposit are not generally included in legally restricted deposits. Excludes compensating balance arrangements that are not agreements which legally restrict the use of cash amounts shown on the balance sheet. For a classified balance sheet represents the current portion only (the noncurrent portion has a separate concept); there is a separate and distinct element for unclassified presentations. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Fair values as of the balance sheet date for all assets resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed of greater than a year, presented gross of the effect of master netting agreements. No authoritative reference available. For VIEs, tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. No authoritative reference available. Fair values as of the balance sheet date for all assets resulting from contracts that meet the criteria of being accounted for as derivative instruments and which are expected to be converted into cash or otherwise disposed of within a year or the normal operating cycle, presented gross of the effects of master netting agreements. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Noncash changes in other liabilities through the issuance of debt and included in the supplemental noncash investing activities on the statement of cash flows No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. Increase Decrease in Cash from Consolidation or Deconsolidation of VIEs No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. The amount of income (loss) from disposition of discontinued operations, net of related tax effect, per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. No authoritative reference available. 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We enter into a variety of derivative instruments, including physical commodity contracts and financial commodity instruments such as OTC and exchange traded swaps, futures, options, forward agreements and instruments that settle on the power price to natural gas price relationships (Heat Rate swaps and options) for the purchase and sale of power, natural gas, and emission allowances to attempt to economically hedge a portion of the commodity price risk associated with our assets and thus maximize risk-adjusted returns. 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These transactions primarily act as economic hedges for our interest cash flow.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As of June&#160;30,&#160;2010, the maximum length of our PPAs extends approximately 22 years into the future and the maximum length of time over which we were hedging using commodity and interest rate derivative instruments was 3 and 16 years, respectively.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> <div align="justify" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">As of June&#160;30,&#160;2010, and December&#160;31,&#160;2009, the net forward notional buy (sell) position of our outstanding commodity and interest rate swap contracts that did not qualify under the normal purchase normal sale exemption were as follows (in millions):</font></font></div> <div style="TEXT-INDENT: 0pt; 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FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">&#160;</font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">Certain of our derivative instruments contain credit-contingent provisions that require us to maintain our current credit rating or higher from each of the major credit rating agencies. If our credit rating were to be downgraded, it could require us to post additional collateral or could potentially allow our counterparty to request immediate, full settlement on certain derivative instruments in liability positions. Currently, we do not believe that it is probable that a counterparty would request full and immediate settlement or that any additional collateral posted as a result of a credit rating downgrade would be material. The aggregate fair value of our derivative liabilities with credit-contingent provisions as of June 30, 2010, was $23 million for which we have posted collateral of $4 million by posting margin deposits or granted additional first priority liens on the assets currently subject to first priority liens under our First Lien Credit Facility.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Accounting for Derivative Instruments</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We recognize all derivative instruments that qualify for derivative accounting treatment as either assets or liabilities and measure those instruments at fair value unless they qualify for, and we elect, the normal purchase normal sale exemption. For transactions in which we elect the normal purchase normal sale exemption, gains and losses are not reflected on our Consolidated Condensed Statements of Operations until the settlement dates.&#160;Revenues and fuel costs derived from instruments that qualify for hedge accounting are recorded in the same period and in the same financial statement line item as the item being hedged. Hedge accounting requires us to formally document, designate and assess the effectiveness of </font>transa ctions that receive hedge accounting. We present the cash flows from our derivatives in the same category as the item being hedged within operating activities on our Consolidated Condensed Statements of Cash Flows unless they contain an other-than-insignificant financing element in which case their cash flows are classified within financing activities.</font></div></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Cash Flow Hedges</font>&#160;&#8212;&#160;We report the effective portion of the unrealized gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument as a component of OCI and reclassify such gains and losses into earnings in the same period during which the hedged forecasted transaction affects earnings. Gains and losses due to ineffectiveness on commodity hedging instruments are included in unrealized mark-to-market gains and losses, and are recognized currently in earnings as a component of operating revenues (for power contracts and Heat Rate swaps and options), fuel and purchased energy expense (for natural gas contracts, swaps and options) and interest expense (for interest rate swaps). If it is determi ned that the forecasted transaction is no longer probable of occurring, then hedge accounting will be discontinued prospectively and future changes in fair value are recorded in earnings. If the hedging instrument is terminated or de-designated prior to the occurrence of the hedged forecasted transaction, the net accumulated gain or loss associated with the changes in fair value of the hedge instrument remains deferred in OCI until such time as the forecasted transaction impacts earnings, or until it is determined that the forecasted transaction is probable of not occurring.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><font style="FONT-STYLE: italic; DISPLAY: inline">Derivatives Not Designated as Hedging Instruments</font>&#160;&#8212;&#160;Along with our portfolio of transactions which are accounted for as hedges under GAAP, we enter into power, natural gas and interest rate transactions that primarily act as economic hedges to our asset portfolio, but either do not qualify as hedges under the hedge accounting guidelines or qualify under the hedge accounting guidelines and the hedge accounting designation has not been elected. Changes in fair value of derivatives not designated as hedging instruments are recognized currently in earnings as a component of operating revenues (for power contracts and Heat Rate swaps and options), fuel and purchased energy expense (for natural gas contracts, swaps and options) and i nterest expense (for interest rate swaps).</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block">&#160;</div> <div align="left" style="TEXT-INDENT: 0pt; DISPLAY: block; MARGIN-LEFT: 27pt; MARGIN-RIGHT: 0pt"><font style="FONT-STYLE: italic; DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt; FONT-WEIGHT: bold">Derivatives Included on Our Consolidated Condensed Balance Sheets</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The following tables present the fair values of our net derivative instruments recorded on our Consolidated Condensed Balance Sheets by hedge type and location at June&#160;30, 2010, and December&#160;31, 2009 (in millions):</font></div> <div style="TEXT-INDENT: 0pt; 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For a first quarter 2006 quarterly report, which may also provide financial information from prior periods, the first fiscal quarter should be given as the fiscal period focus. Values: FY, Q1, Q2, Q3, Q4, H1, H2, M9, T1, T2, T3, M8, CY. No authoritative reference available. false 11 1 dei_DocumentType dei false na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 10-Q 10-Q false false false 2 false false false false 0 0 false false false us-types:SECReportItemType na The type of document being provided (such as 10-K, 10-Q, N-1A, etc). The document type should be limited to the same value as the supporting SEC submission type. The acceptable values are as follows: S-1, S-3, S-4, S-11, F-1, F-3, F-4, F-9, F-10, 6-K, 8-K, 10, 10-K, 10-Q, 20-F, 40-F, N-1A, 485BPOS, NCSR, N-Q, and Other. No authoritative reference available. false 12 1 dei_DocumentPeriodEndDate dei false na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 2010-06-30 2010-06-30 false false false 2 false false false false 0 0 false false false xbrli:dateItemType date The end date of the period reflected on the cover page if a periodic report. For all other reports and registration statements this will be the filing date. The format of the date is CCYY-MM-DD. No authoritative reference available. false 13 1 dei_AmendmentFlag dei false na duration No definition available. false false false false false false false false false false false false 1 false false false false 0 0 false false false false false 2 false false false false 0 0 false false false xbrli:booleanItemType na If the value is true, then the document as an amendment to previously-filed/accepted document. No authoritative reference available. false 14 1 dei_EntityCommonStockSharesOutstanding dei false na instant No definition available. false false false false false false false false false false false false 1 false false false false 0 0 false false false 2 false true false false 444586271 444586271 false false false xbrli:sharesItemType shares Indicate number of shares outstanding of each of registrant's classes of common stock, as of latest practicable date. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 2 -Article 5 false 6 2 us-gaap_OperatingCostsAndExpenses us-gaap true debit duration No definition available. false false false false false false false false false false false false 1 false true false false 213000000 213 false false false 2 false true false false 206000000 206 false false false 3 false true false false 431000000 431 false false false 4 false true false false 449000000 449 false false false xbrli:monetaryItemType monetary Generally recurring costs associated with normal operations except for the portion of these expenses which can be clearly related to production and included in cost of sales or services. Excludes Selling, General and Administrative Expense. 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No authoritative reference available. true 10 1 us-gaap_GrossProfit us-gaap true credit duration No definition available. false false false false false false false false false false false label false 1 false true false false 157000000 157 false false false 2 false true false false 189000000 189 false false false 3 false true false false 330000000 330 false false false 4 false true false false 455000000 455 false false false xbrli:monetaryItemType monetary Aggregate revenue less cost of goods and services sold or operating expenses directly attributable to the revenue generation activity. No authoritative reference available. false 11 1 us-gaap_SellingGeneralAndAdministrativeExpense us-gaap true debit duration No definition available. false false false false false false false false false false false false 1 false true false false 53000000 53 false false false 2 false true false false 48000000 48 false false false 3 false true false false 78000000 78 false false false 4 false true false false 93000000 93 false false false xbrli:monetaryItemType monetary The aggregate total costs related to selling a firm's product and services, as well as all other general and administrative expenses. Direct selling expenses (for example, credit, warranty, and advertising) are expenses that can be directly linked to the sale of specific products. Indirect selling expenses are expenses that cannot be directly linked to the sale of specific products, for example telephone expenses, Internet, and postal charges. 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Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 9 -Article 5 false 19 1 cpn_IncomeLossBeforeReorganizationItemsAndIncomeTaxesAndDiscontinuedOperations cpn false na duration Loss before reorganization items, income taxes and discontinued operations false false false false false false false false false false false totallabel false 1 false true false false -112000000 -112 false false false 2 false true false false -72000000 -72 false false false 3 false true false false -157000000 -157 false false false 4 false true false false -41000000 -41 false false false xbrli:monetaryItemType monetary Loss before reorganization items, income taxes and discontinued operations No authoritative reference available. true 20 1 us-gaap_ReorganizationItems us-gaap true debit duration No definition available. false false false false false false false false false false true negated false 1 false false false false 0 0 false false false 2 false true false false 3000000 3 false false false 3 false false false false 0 0 false false false 4 false true false false 6000000 6 false false false xbrli:monetaryItemType monetary Total amount of reorganization items. 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No authoritative reference available. true 22 1 us-gaap_IncomeTaxExpenseBenefit us-gaap true debit duration No definition available. false false false false false false false false false false false label false 1 false true false false 6000000 6 false false false 2 false true false false 15000000 15 false false false 3 false true false false 17000000 17 false false false 4 false true false false 24000000 24 false false false xbrli:monetaryItemType monetary The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to continuing operations. 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Includes the following (net of tax): income (loss) from operations during the phase-out period, gain (loss) on disposal, provision (or any reversals of earlier provisions) for loss on disposal, and adjustments of a prior period gain (loss) on disposal. 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If the entity does not present consolidated financial statements, the amount of profit or loss for the period, net of income taxes. 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No authoritative reference available. false 30 3 cpn_IncomeLossFromContinuingOperationsBasicAndDiluted cpn false na duration The amount of income (loss) from continuing operations per each share of common stock outstanding during the reporting period... false false false false false false false false false false false label true 1 true true false false -0.25 -0.25 false false false 2 true true false false -0.18 -0.18 false false false 3 true true false false -0.35 -0.35 false false false 4 true true false false -0.14 -0.14 false false false us-types:perShareItemType decimal The amount of income (loss) from continuing operations per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. No authoritative reference available. false 31 3 cpn_IncomeLossFromDiscontinuingOperationsBasicAndDiluted cpn false na duration The amount of income (loss) from disposition of discontinued operations, net of related tax effect, per each share of common... false false false false false false false false false false false label true 1 true true false false 0.01 0.01 false false false 2 true true false false 0.02 0.02 false false false 3 true true false false 0.02 0.02 false false false 4 true true false false 0.05 0.05 false false false us-types:perShareItemType decimal The amount of income (loss) from disposition of discontinued operations, net of related tax effect, per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. No authoritative reference available. false 32 3 cpn_NetIncomeLossBasicAndDiluted cpn false na duration The amount of net income or loss for the period per each share of common stock outstanding during the reporting period and... false false false false false false false false false false false label true 1 true true false false -0.24 -0.24 false false false 2 true true false false -0.16 -0.16 false false false 3 true true false false -0.33 -0.33 false false false 4 true true false false -0.09 -0.09 false false false us-types:perShareItemType decimal The amount of net income or loss for the period per each share of common stock outstanding during the reporting period and for each share of common stock and dilutive common stock equivalents during the reporting period. No authoritative reference available. false 4 31 false Millions Thousands NoRounding false true XML 27 FilingSummary.xml IDEA: XBRL DOCUMENT 2.2.0.7 true Sheet 00 - Document - Document and Company Information Document and Company Information http://www.calpine.com/role/DocumentandCompanyInformation false R1.xml false Sheet 01 - Statement - Consolidated Condensed Statements of Operations (Unaudited) Consolidated Condensed Statements of Operations (Unaudited) http://www.calpine.com/role/ConsolidatedCondensedStatementsofOperations false R2.xml false Sheet 02 - Statement - Consolidated Condensed Balance Sheets (Unaudited) Consolidated Condensed Balance Sheets (Unaudited) http://www.calpine.com/role/ConsolidatedCondensedBalanceSheets false R3.xml false Sheet 03 - Statement - Consolidated Condensed Statements of Cash Flows (Unaudited) Consolidated Condensed Statements of Cash Flows (Unaudited) http://www.calpine.com/role/ConsolidatedCondensedStatementsofCashFlows false R4.xml false Sheet 04 - Statement - Balance Sheet Parentheticals (Unaudited) Balance Sheet Parentheticals (Unaudited) http://www.calpine.com/role/BalanceSheetParentheticals false R5.xml false Sheet 06 - Disclosure - Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies http://www.calpine.com/role/BasisofPresentationandSummaryofSignificantAccountingPolicies false R6.xml false Sheet 07 - Disclosure - Conectiv Acquisition and Planned Divestiture of Blue Spruce and Rocky Mountain Conectiv Acquisition and Planned Divestiture of Blue Spruce and Rocky Mountain http://www.calpine.com/role/ConectivAcquisitionandPlannedDivestitureofBlueSpruceandRockyMountain false R7.xml false Sheet 08 - Disclosure - Property Plant and Equipment, Net Property Plant and Equipment, Net http://www.calpine.com/role/PropertyPlantandEquipmentNet false R8.xml false Sheet 09 - Disclosure - Variable Interest Entities And Unconsolidated Investments Variable Interest Entities And Unconsolidated Investments http://www.calpine.com/role/VariableInterestEntitiesAndUnconsolidatedInvestments false R9.xml false Sheet 10 - Disclosure - Comprehensive Income (Loss) Comprehensive Income (Loss) http://www.calpine.com/role/ComprehensiveIncomeLoss false R10.xml false Sheet 11 - Disclosure - Debt Debt http://www.calpine.com/role/Debt false R11.xml false Sheet 12 - Disclosure - Fair Value Measurements Fair Value Measurements http://www.calpine.com/role/FairValueMeasurements false R12.xml false Sheet 13 - Disclosure - Derivative Instruments Derivative Instruments http://www.calpine.com/role/DerivativeInstruments false R13.xml false Sheet 14 - Disclosure - Use of Collateral Use of Collateral http://www.calpine.com/role/UseofCollateral false R14.xml false Sheet 15 - Disclosure - Income Taxes Income Taxes http://www.calpine.com/role/IncomeTaxes false R15.xml false Sheet 16 - Disclosure - Loss Per Share Loss Per Share http://www.calpine.com/role/LossPerShare false R16.xml false Sheet 17 - Disclosure - Stock-Based Compensation Stock-Based Compensation http://www.calpine.com/role/StockBasedCompensation false R17.xml false Sheet 18 - Disclosure - Segment Information Segment Information http://www.calpine.com/role/SegmentInformation false R18.xml false Sheet 19 - Disclosure - Commitments and Contingencies Commitments and Contingencies http://www.calpine.com/role/CommitmentsandContingencies false R19.xml false Book All Reports All Reports false 1 9 0 0 2 142 true false I-FY2009 51 I-FY2008 1 I-Q22010 53 D-YTD2009 58 I-Q22010Shares 1 D-Q22010 27 I-Q22009 1 D-YTD2010 80 D-Q22009 28 true true EXCEL 28 Financial_Report.xls IDEA: XBRL DOCUMENT begin 644 Financial_Report.xls M[[N_34E-12U697)S:6]N.B`Q+C`-"E@M1&]C=6UE;G0M5'EP93H@5V]R:V)O M;VL-"D-O;G1E;G0M5'EP93H@;75L=&EP87)T+W)E;&%T960[(&)O=6YD87)Y M/2(M+2TM/5].97AT4&%R=%\Q.#`U-3AC9%\P.#$R7S0Y8S)?83)B,%\Q9&-E M83`P,#(W,F$B#0H-"E1H:7,@9&]C=6UE;G0@:7,@82!3:6YG;&4@1FEL92!7 M96(@4&%G92P@86QS;R!K;F]W;B!A'!L;W)E&UL;G,Z=CTS1")U&UL;G,Z;STS1")U&UL/@T*(#QX.D5X8V5L5V]R:V)O;VL^#0H@(#QX M.D5X8V5L5V]R:W-H965T#I%>&-E;%=O#I%>&-E;%=O#I%>&-E;%=O#I.86UE/@T*("`@(#QX.E=O#I%>&-E;%=O#I.86UE/D)A;&%N8V5?4VAE971?4&%R96YT:&5T:6-A;'-? 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The assets acquired include 18 operating power plants and one plant under construction, with approximately 4,490&#160;MW of capacity (including completion of the York Energy Center under construction and scheduled upgrades). We did not acquire Conectiv&#8217;s trading book, load serving auction obligations or collateral requirements. Additionally, we did not assume any of Conectiv&#8217;s off-site environmental liabilities, environmental remediation liabilities related to certain assets located in New Jersey that are subject to the Industrial Site Recovery Act in excess of $10 million or certain pre-close pension and retirement welfare liabilities. Our final purchase price at closing was approximately $1.63 billion, including a $60 million reduction in the closing payment attributable to lower capital expenditures incurred by PHI than were scheduled and a $49 million increase in the closing payment for the estimated value of the fuel inventory at closing. As part of the Conectiv Acquisition, NDH received a cash contribution from Calpine Corporation of $110 million to fund future capital expenditures to complete the York Energy Center. We financed the transaction through available cash and bank debt of $1.3 billion provided under the NDH Project Debt. See Note&#160;6 for further discussion of the NDH Project Debt.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The Conectiv Acquisition provides us with a significant presence in the PJM market, one of the most robust competitive power markets in the U.S., and positions us with three scale markets instead of two (CAISO and ERCOT) giving us greater geographic diversity.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> <div align="justify" style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We accounted for the Conectiv Acquisition under the acquisition method of accounting in accordance with GAAP; however, the assets acquired are not reflected on our Consolidated Condensed Balance Sheet as of June&#160;30,&#160;2010, as the Conectiv Acquisition occurred subsequent to our balance sheet date. 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FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">On April&#160;2, 2010, we, through our wholly owned subsidiaries Riverside Energy Center, LLC and Calpine Development Holdings, Inc., entered into an agreement with PSCo to sell 100% of our ownership interests in Blue Spruce and Rocky Mountain for approximately $739 million, subject to certain working capital adjustments at closing. 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These plans are administered by the Compensation Committee of our Board of Directors and provide for the issuance of equity awards to all employees as well as the non-employee members of our Board of Directors. 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Subsequent to the amendments of the Calpine Equity Incentive Plans, there are 567,000 and 27,533,000 shares, respectively, of our common stock authorized for issuance to participants.</font></font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">The equity awards granted under the Calpine Equity Incentive Plans include both graded and cliff vesting options which vest over periods between one and five years, contain contractual terms of seven and ten years and are subject to forfeiture provisions under certain circumstances, including termination of employment prior to vesting. Employment inducement options to purchase a total of 4,636,734 shares were granted outside of the Calpine Equity Incentive Plans in connection with the hiring of our Chief Executive Officer and our Chief Legal Officer in August&#160;2008, and our Chief Commercial Officer in September&#160;2008; however, no grants of options or shares of restricted stock were made outside of the Calpine Equity Incentive Plans during the six months ended June 30, 2010 and 2009.</font></div> <div style="TEXT-INDENT: 0pt; DISPLAY: block"><br/> </div> <div style="TEXT-INDENT: 36pt; DISPLAY: block; MARGIN-LEFT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt">We use the Black-Scholes option-pricing model to estimate the fair value of our employee stock options on the grant date, which takes into account the exercise price and expected life of the stock option, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the stock option as of the grant date. For our restricted stock and restricted stock units, we use our closing stock price on the date of grant, or the last trading day preceding the grant date for restricted stock granted on non-trading days, as the fair value for measuring compensation expense. Stock-based compensation expense is recognized over the period in which the related employee services are rendered. The service period is generally presumed to begin on t he grant date and end when the equity award is fully vested. We use the graded vesting attribution method to recognize fair value of the equity award over the service period. For example, the graded vesting attribution method views one three-year option grant with annual graded vesting as three separate sub-grants, each representing 33 1/3% of the total number of stock options granted. The first sub-grant vests over one year, the second sub-grant vests over two years and the third sub-grant vests over three years. 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FONT-FAMILY: Times New Roman; FONT-SIZE: 10pt"><br/> </font></div> <!--EndFragment--> 12.&#160;&#160;Stock-Based Compensation The Calpine Equity Incentive Plans were approved as part of our Plan of Reorganization. These plans are administered false false false us-types:textBlockItemType textblock Disclosure of components of a stock option or other award plan under which share-based compensation is awarded to employees, typically comprised of the amount of unearned compensation (deferred compensation cost), compensation expense, and changes in the quantity and fair value of the shares granted, exercised, forfeited, and issued and outstanding pertaining to that plan. Disclosure may also include nature and general terms of such arrangements that existed during the period and potential effects of those arrangements on shareholders, effect of compensation cost arising from share-based payment arrangements on the income statement, method of estimating the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period, cash flow effects resulting from share-based payment arrangements and, for registrants that accelerate vesting of out of the money share options, reasons for the decision to accelerate. Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 false 1 2 false UnKnown UnKnown UnKnown false true
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