Exhibit 10.6.19

 

  LOGO [g19164logo1.jpg]     390 lnterlocken Crescent     Suite 410    
Broomfield, CO 80482     USA     Tel: +1 720 566 9920     Fax: +1 720 566 9680  
  www.paconsulting.com  

December 7, 2005

Kenneth D. Cory

Calpine Corporation

50 West San Fernando Street

San Jose, CA 95113

Via e-mail: kcory@calpine.com

Dear Dr. Cory:

This letter (the “Confirmation Letter”) confirms the engagement (the
“Engagement”) of PA Consulting Group, Inc. (“PA”) by Calpine Corporation
(“Calpine”). Per our discussion this morning, we understand that PA will be
working at your direction and the direction of Calpine’s executive management
team. These services will include evaluating Calpine’s business alternatives in
light of commodity market conditions and their impacts on asset and company
operations, cash flows, collateral requirements now and moving forward and
values.

As you are aware, PA has built a distinguished reputation within the global
energy industry through its expertise in independent market analysis and
management consulting. PA Is a leader in providing analysis of market structure,
generation, transmission, environmental, contractual, and risk management and
trading issues, often in the context of financial restructuring and business
planning. PA has worked with multiple energy asset owners and investors to
develop or revise corporate strategies during the downturn of the industry over
the past few years, and, consequently, PA is widely recognized for its market
insight and independence.

This letter contains the scope of work, highlights members of the project team,
and sets forth the commercial arrangements and terms of business under which PA
will operate.

Engagement Scope

PA will assist Calpine and it’s advisors in the development of a going forward
business plan. PA will conduct due diligence with respect to Calpine and its
assets in order to project cash flows, assess asset and company values, and
evaluate business plan alternatives. This effort may, as requested by Calpine,
consist of six primary categories of tasks:

 

1. Asset operations review

PA will apply its tested due diligence approach to thoroughly review Calpine’s
inventory of assets. This “funnel” process will start with a high-level overview
to rapidly provide an initial assessment and continue until the impacts of
detailed asset operating characteristics are analyzed. Assets reviewed will
include generating units, greenfield development projects, gas assets, fuel
supply or transport agreements, power sales agreements, and long-term
maintenance service agreements.

continued

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continued    PA

 

2. Trading activities review

Trading activities (whether oriented toward speculating on market prices or
hedging asset cash flows) have tremendous value and liquidity implications and
often invite stakeholder scrutiny. In addition to reviewing the long-term
contracts tied to specific assets, at the request of Calpine, PA will examine
the trading positions and risk management activities of Calpine and its
entities. The assessment will address market value (MTM), market and credit risk
factors (such as hedge benefits and counterparty exposures), and liquidity risks
(such as potential collateral requirements, to the extent these are not resolved
by CalBear).

 

3. Market commodity price forecasting

PA will provide forecasts of commodity prices in the regions in which Calpine
operates. These regional forecasts will address fuel prices (coal, natural gas,
and fuel oil), electric supply and demand conditions, transmission constraints,
hydro generation conditions, emissions allowance costs, and new construction
costs. The market forecasts will serve as the basis for projecting asset earning
power and collateral value. The electric forecast will include PA’s regional
model and LMP models where appropriate.

 

4. Asset and company gross margin, EBITDA, and cash flow forecasting

PA will project Calpine’s performance using an approach that PA has consistently
applied to evaluate multiple types of electric generating assets and asset
portfolios. This approach focuses on a fundamental analysis of each asset’s
earning power. Given the asset characteristics and the forecasted conditions in
each regional market, PA will project the revenues and costs resulting from the
specific operations of each asset. Area of analysis will include environmental
issues, impacts of LTSA’s, transmission constraints and fuel availability and
deliverability.

After projecting market conditions and asset performance, PA will assess other
cash drivers (such as capital expenditures, corporate overhead, and changes in
working capital) to complete a cash flow forecast, which will help to assess the
debt service/maturity coverage and identify potential debt restructuring
alternatives.

 

5. Asset collateral valuation

PA will, at the request of Calpine, assess the values of the assets (and the
entities and consolidated company) and their ability to support debt as
collateral. In addition to valuing the assets according to their cash flows, PA
will provide information regarding comparable asset sales and their implications
for potential sale values.

Business alternatives assessment

Tasks 1-5 will provide a foundation for recommendations regarding Calpine’s
strategic alternatives. Strategic options for consideration could include asset
sales, greenfield development project suspension or completion, energy
management agreements for specific assets, capital expenditure alternatives,
etc. and shall be performed at the request of Calpine. Deliverables for each of
the six tasks will be agreed upon as the work progresses and might include due
diligence reports, commodity price forecasts, asset performance forecasts and
values, market expert reports, and expert testimony.

continued

 

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continued    PA

 

Engagement Team Highlights

PA’s Global Energy Practice includes approximately 100 staff members and offers
expertise in disciplines such as energy economics, asset operations, accounting,
finance, energy trading, and risk management. By combining functional expertise
with practical industry experience, we are prepared to identify and quantify the
critical issues faced by Calpine.

The core team for the Engagement will include individuals who have worked
together during numerous energy industry-restructuring efforts over the past few
years (PA contributed to the restructuring of PGE National Energy Group, NRG
Energy, Dynegy, Allegheny Energy, Edison Mission Energy, Exelon Boston
Generating, and Mirant).

Commercial Arrangements

PA proposes to conduct this project on a time and materials basis with labor
billed at our standard commercial rates, as follows:

Table 1

Commercial Billing Rates

 

Title / Role

   Hourly Billing Rate

Partner

   $545 -$620

Managing Consultant

   $465

Principal Consultant

   $350

Consultant

   $300

Consultant Analyst / Analyst

   $245

Technical Associate

   $120

Administrator

   $65

In addition, we will also be reimbursed for reasonable and documented
third-party out-of-pocket expenses including, but not limited to, costs of
reproduction, reasonable travel and subsistence expenses which have been
previously agreed and approved by Calpine. All expenses will be billed directly.

PA will submit invoices, with supporting receipts or backup documentation, to
Calpine for review, and Calpine will review the some upon receipt. If Calpine
rejects any charges on an invoice, the parties will use their best efforts to
resolve the dispute promptly.

Terms of Business

The terms and conditions set forth in this Confirmation Letter, together with
the attached US Terms of Business Consulting Services (US ToBC 2003.1) agreement
will govern the Engagement. We understand and agree that our work on this matter
will be solely for Calpine and its subsidiaries and/or affiliates and not for
any third party, and that the intellectual property in all work papers, reports,
and schedules prepared by PA as part of the Engagement shall be treated In
accordance with the attached terms of business and shall be considered
confidential.

Upon your review of the letter agreement, we would be pleased to answer any
questions you may have regarding our approach, the scope, or the terms of
business. I may be contacted by phone at (720) 566-9920.

continued

 

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continued    PA

 

If you find the proposal satisfactory, please complete, sign, and return this
letter to my attention at PA’s Denver office. Please also fax a copy to me at
(720) 566-9680. Thank you for considering PA. Please do not hesitate to call me
should you have any inquiries or concerns.

We look forward to starting the assignment.

Sincerely,

 

/s/ Todd Filsinger

Todd Filsinger Member of PA’s Management Group

Encs Commercial Terms of Business US ToBC 2003.1

cc: Bryan Savage

 

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continued    PA

 

Authorization to Commence Work

Parties signing this Agreement warrant that they are duly authorized to sign on
behalf of their respective organizations. We hereby agree and accept the
Proposal dated December 7, 2005 and the Commercial Terms of Business US ToBC
2003.1.

 

Signed for and on behalf of PA Consulting Group, Inc.     Signed for and on
behalf of Calpine Corporation

/s/ Todd Filsinger

   

/s/ Kenneth D. Cory

Name:   Todd Filsinger     Name:   Kenneth D. Cory Title:   Member of PA’s
Management Group     Title:   Vice President – Strategy Date:   December 7, 2005
    Date:  

 

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US TERMS OF BUSINESS

CONSULTING SERVICES

(REFERENCE: US ToBC 2003.1

     These US Terms of Business Consulting Services (the “Terms”) have been
entered into as of December 14 2005, (the “Effective Date”) between PA
CONSULTING GROUP, INC. whose principal office is located at 1750 Pennsylvania
NW, Suite 1000, Washington, DC 20006 (“PA”) and Calpine Corporation whose
principal office is located at 50 West San Fernando Street San Jose, CA 95113
(the “Client”) (each, a “Party;” collectively, the “Parties.”) These Terms,
together with the Confirmation Letter dated December 7, 2005, which is
incorporated herein by this reference, form our agreement (“Agreement”) In the
event of any inconsistency between these Terms and the Confirmation Letter, the
Confirmation Letter shall govern.

1.

   PA’s Obligations   

1.1

   PA will perform the services set forth herein (the “Services”) with
reasonable care and skill in accordance with good practice within the consulting
industry, using appropriately qualified staff.

1.2

   PA will so far as it is practical use the consultants identified to the
Client in the Agreement. However, PA may replace these personnel with
consultants of equivalent skills and experience (including third party
consultants), subject to the Client’s prior written consent, not to be
unreasonably delayed, made conditional or withheld. Client agrees that PA may
continue to provide consulting services (including by way of example only,
public forecasts) to other clients (including by way of example only, Calpine
generators).

1.3

   PA will use best efforts to meet agreed or estimated timescales.

2.

   Client’s Obligations

2.1

   The Client will provide such facilities, materials, information and resources
for the performance of the Services as reasonably requested by PA. The Client
will reasonably cooperate with PA as necessary during the performance of the
Services and shall respond to PA’s reasonable requests for consultation,
information, decisions and approvals.

3.

   Fees and Payment

3.1

   An estimate of fees and expenses for the Services is set out In the
Agreement, which is calculated on an agreed upon time and material basis. This
estimate is not an offer to perform the Services for a fixed price. All fees and
charges due under the Agreement are exclusive of VAT, sales and use and similar
taxes of any kind.

3.2

   All properly invoiced amounts shall be due and paid to PA within forty-five
(45) days after invoice receipt

4.

   Forecasts and Recommendations / Third Party Services

4.1

   Statements made by PA relating to the Services, and all surveys, forecasts,
recommendations and opinions (together “Forecasts”) in any proposal, report,
presentation or other communication by PA are made In good faith on the basis of
information available at the time. Forecasts are not a representation,
undertaking or warranty as to outcome or achievable results.

 

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4.2    Implementation of the results of the Services and completion of any
project of which the Services form part may require the involvement or
supervision of or giving advice to third parties engaged by the Client. PA
strongly recommends that the Client obtain independent advice before entering
into any legally binding commitment with any such third parties. 4.3    PA may,
during its performance of the Services, make statements about or recommendations
of third party software, equipment or services. No warranty shall be
attributable to PA regarding its recommendation of any such software, equipment
or services, and the Client shall look solely to the warranties and remedies
provided by any such third party with whom it may contract. 5.   
Confidentiality 5.1    PA and the Client each undertake, during the provision of
Services and for two (2) years after completion of the Services or earlier
termination of the Agreement, to keep confidential information that can
reasonably be understood to be confidential received from, or on behalf of the
other Party in relation to the Agreement, whether orally, electronically or in
permanent form (“Confidential Information”). Either Party may disclose
Confidential Information to its employees, attorney, accountants, consultants,
subcontractors and advisors, and those of other companies in its Group, on a
need-to-know basis who are In all cases contractually obliged to the disclosing
Party (including within an employment contract) to keep the information
confidential. “Group” means companies which control, are controlled by or are
under common control with one of the Parties. 5.2    Confidential Information
excludes any information which is (i) in the receiving Party’s possession at the
time of disclosure (other than by breach of the Agreement); (ii) received from a
third party (other than one whom the receiving Party knows or should reasonably
assume is not entitled to disclose it); (iii) published before or after the date
of disclosure through no fault of the receiving Party; (iv) independently
developed by the receiving Party without the use of the Confidential
Information; or (v) required to be disclosed by operation of law or a competent
regulatory authority. 5.3    If PA and the Client have separately entered into
an agreement in respect of any Confidential Information (“NDA”) with each other,
this Agreement shall prevail over the terms of the NDA in the event of any
conflict or inconsistency between the Agreement and the NDA. 6.    Intellectual
Property and Rights of Use 6.1    “IP” means all forms of intellectual property,
including, without limitation, property in and rights under registered and
unregistered copyright, domestic and foreign patents, conceptual solutions,
circuit layout rights, performance rights, design rights, designs, database
rights, trade names, registered and unregistered trademarks, service marks,
corporate names, internet domain names, trade dress, brand names, computer
programs, trade secrets, methodologies, ideas, processes, inventions, methods,
tools and know-how, formulae and recipes and entitlement to make application for
formal or otherwise enhanced rights of any such nature. 6.2    IP and rights to
IP owned by any Party on the date of the Agreement (“Background IP”) shall
remain the property of that Party.

 

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6.3    The Client hereby grants to PA a royalty-free, non-exclusive,
non-transferable license to use the Client’s Background IP as required to allow
PA to perform its obligations under the Agreement. 6.5    PA Warrants that to
the best of PA’s knowledge and belief the results of the Services shall not
infringe the copyright of any third party. 6.6    PA does not conduct any
searches of registrable IP, and thus does not warrant that any such IP will be
outside the scope of any patent or other IP registration. Notwithstanding the
foregoing, PA agrees to indemnify and hold harmless Client and shall defend any
action brought against Client arising from any claim that Client’s use of PA’s
IP under the terms of this Agreement infringes any patent, copyright, trademark,
trade secret, or other proprietary right belonging to a third party (“Third
Party Claim”) and to hold Client harmless from any and all liabilities, losses,
costs, damages, expenses, and reasonable attorney’s fees that result from any
such Third Party Claim. 7.    Liability 7.1    PA accepts liability without
limitation for death or personal injury to any person due to its negligence or
the negligence of its employees. 7.2    PA accepts liability for physical damage
to or loss of the Client’s tangible property, including loss of data, if the
damage or loss is due to PA’s negligence or breach of contract. For the purposes
of this clause, liability will be capped at US$750,000 in respect of any one
incident or series of connected incidents and is further capped at a maximum
aggregated amount of US $3,000,000 in respect of all claims failing within the
amblt of this clause 7.2. 7.3    In respect of any liability other than those
falling within clauses 6.6, 7.1 and 7.2, neither Party’s total liability arising
out of or in connection with the Agreement shall exceed in aggregate 150% of the
fees paid by the Client. 7.4    Neither Party shall be liable to the other
Party, whether in contract, tort (including negligence) or otherwise for:   

(i)     Any loss of profit, loss of contracts, loss of benefit, loss of
anticipated savings, loss of reputation, loss of goodwill or loss of use
suffered or Incurred directly or indirectly by the Client;

  

(ii)    Any consequential or indirect loss or damage howsoever arising and of
whatsoever nature; and

  

(iii)  Any punitive or exemplary damages.

7.5    Nothing in this Clause 7 shall limit the liability of either party for
fraud or deceit. 7.6    Each Party shall have the obligation to prove, minimise
and mitigate all losses claimed under this Agreement.

 

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7.7    PA agrees to maintain general liability, auto liability and workers
compensation coverage with limits not less than $1,000,000 each occurrence. Such
coverage shall include Client as an additional insured. 8.    Indemnities 8.1   
Each Party (the “Indemnifying Party”) agrees to indemnify the other Party (the
“Indemnified Party”) against any third party claim brought against the
Indemnified Party in respect of any injury, damage or loss occasioned by the
Indemnifying Party or a third party’s use, or with respect to the Services
performed hereunder, regardless of whether that third party claim is brought
against the Indemnified Party in contract, tort (including negligence) or
otherwise. 9.    Force Majeure 9.1    Neither Party will be liable for any
breach of the Agreement which results from that Party being prevented, hindered
or delayed from observing or performing its obligations under the Agreement by
an act beyond its reasonable control. The Party so affected will, as soon as
reasonably possible, give notice to the other Party of the occurrence of such
event. 10.    Termination 10.1    The Agreement may be terminated by either
Party at any time, for convenience, on ten days’ written notice to the other
Party. 10.2    Termination will not affect any accrued rights and liabilities
arising out of the Agreement. 10.3    Where PA is entitled to terminate the
Agreement it may, instead, elect (without prejudice to PA’s other rights and
remedies including its right to terminate) to suspend performance by giving
written notice to that effect to the Client. 11.    Term 11.1    The term of the
Agreement shall be from the date of signing the Agreement until the date that
the Services performed hereunder are completed, unless terminated as described
in clause 10 hereof. 12.    General 12.1    Non-Solicitation – Both Parties
undertake, during the performance of the Services and for six months from their
completion, not knowingly directly or indirectly solicit any of the other
Party’s employees (whether as an employee or an independent contractor) who is
or has been concerned with or engaged in the performance or procurement of the
Services. This clause 12.1 will not prevent either Party from advertising for
staff in public media. 12.2    Counterparts – The Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same Instrument.

 

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12.3    Third Party Beneficiaries – Unless expressly stated otherwise in the
Agreement, each Party intends that the Agreement shall not benefit or create any
right or cause of action in or on behalf of any person other than the Parties.
Notwithstanding the foregoing, the Agreement shall be binding upon and inure to
the benefit of the Parties’ successors and permitted assigns. 12.4    Assignment
– Neither party shall assign the Agreement or any right arising under it without
PA’s the other party’s prior written consent which shall not be unreasonably or
untimely withheld; provided, however, that Client may assign its rights and
obligations hereunder to an affiliate or another entity involved in the subject
matter of the Services or in connection with any merger, acquisition or similar
event. Client shall provide PA written notice of any such assignment. 12.5   
Publicity – Neither Party will make any public statement or release any public
material relating to the Services or their performance under the Agreement
without the prior written consent of the other Party. PA may include the
Client’s name on its published list of clients. PA may also refer to the
Services without mentioning the Client by name. 12.6    Entire Agreement –
Subject to clause 5.3, the Agreement contains the entire understanding and
agreement of the Parties with respect to the subject matter thereof. There is no
express or implied prior understanding, warranty, representation or undertaking
which is not included in or superseded by the Agreement. PA and the Client agree
that all implied terms relating to fitness for purpose implied both by statute
and by law hereby are excluded. 12.7    Amendment – Any amendment to the
Agreement will only be valid if it is agreed to by both Parties in writing. 12.8
   Waiver – Delay or omission by a Party in exercising its rights or remedies
hereunder will not be deemed a waiver of any such right or remedy. 12.9   
Notice – Notices and other communications to be served under the Agreement shall
be in writing and shall be deemed given when (i) delivered by hand, (ii) one (1)
business day after mailed, to the addressee, if sent by Express Mail, Fed Ex, or
other express delivery service (or two (2) business days, if mailed to a
destination outside the United States), (iii) three (3) business days after
mailed, to the addressee, by regular mail delivery of the U.S. Postal Service,
or (iv) on receipt of a transmission report, if sent by facsimile (in all cases
in the absence of evidence of earlier delivery), to the addressee at the address
set forth in the Agreement. 12.10    Severability – If any of the provisions of
the Agreement is judged to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of the Agreement will
not in any way be affected or impaired thereby. 12.11    Governing Law – The
Agreement will be governed by and construed in accordance with the laws of the
State of New York, regardless of the law that might be applied under principles
of conflicts of laws. 12.12    Jurisdiction – Any legal action or proceeding
with respect to the Agreement may be brought in

 

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the courts of the State of New York or of the United States of America for the
Southern District of New York and, by execution and delivery of the Agreement,
each Party hereby accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each Party
further irrevocably consents to the service of process out of any of the
aforementioned courts in any action or proceeding by the mailing of copies
thereof by guaranteed overnight courier to such Party at its address set forth
in the Agreement, such service to become effective seven (7) business days after
such mailing. Nothing in the Agreement shall affect either Party’s’ right to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Client in any other U.S.
jurisdiction. Each Party hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with the Agreement brought in the
courts referred to above and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.

 

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