EXHIBIT 10.1

MASTER POWER PURCHASE AND SALE AGREEMENT
THIRD AMENDED AND RESTATED CONFIRMATION LETTER

This Third Amended and Restated Confirmation Letter (“Third Amended and Restated
Confirmation” or “Confirmation”), dated December 7, 2007 (the “Effective Date”),
shall, from and after the Start Date (defined below), amend and restate in its
entirety the Transaction agreed to on April 22, 2002 and effective May 1, 2002
(the “Original Calpine 2 Confirmation”), as amended by the Amendment dated
October 23, 2003 (the "2003 Amendment") and the Letter Amendment dated October
29, 2003 (the "2003 Letter Amendment") as amended by the Modification Letter
dated March 30, 2005 (the "2005 Modification Letter") and as conditionally
amended and restated pursuant to the Second Amended and Restated Confirmation
Letter dated as of April 6, 2005 (the “2005 Contingent Settlement Agreement”)
(the Original Calpine 2 Confirmation, as amended by the 2003 Amendment, the 2003
Letter Amendment, the 2005 Modification Letter and the 2005 Contingent
Settlement Agreement, is referred to as the “Original Transaction”), between
Calpine Energy Services, L.P. ("Party A" or “Seller”) and State of California
Department of Water Resources with respect to its responsibilities pursuant to
California Water Code Section 80000 et seq. regarding the Department of Water
Resources Electric Power Fund separate and apart from its powers and
responsibilities with respect to the State Water Resources Development System
("Party B" or “Buyer”) regarding the purchase and sale of the Product under the
terms and conditions as set forth herein below. This Third Amended and Restated
Confirmation Letter is entered into by Party A and Party B pursuant to and in
accordance with the Master Power Purchase and Sale Agreement between Party A and
Party B, as modified by that certain Amended and Restated Cover Sheet between
Party A and Party B dated April 22, 2002 (the “Cover Sheet”; such Master Power
Purchase and Sale Agreement as modified by the Cover Sheet being referred to as
the "Master Agreement"), and constitutes part of and is subject to the terms and
provisions of such Master Agreement. Terms used but not defined herein shall
have the meanings ascribed to them in the Master Agreement.  In the event of any
inconsistency between any of the terms herein and in the Master Agreement, the
terms of this Confirmation shall control. This Confirmation and the Master
Agreement are referred to collectively as the “Agreement”.
 
NOW THEREFORE, the Parties agree as follows:
 
Start Date:  00:00:01 PPT January 1, 2008.
 
Seller:  Calpine Energy Services, L.P. (Party A)
 
Buyer:  State of California Department of Water Resources (Party B)
 
Product:
 
[]           Into _________________, Seller’s Daily Choice
 
[]           Firm (LD)
 
[]           Firm (No Force Majeure)
 
[]           System Firm

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   (Specify System:   )   

 
[]           Unit Firm
 

 (Specify Unit(s):   )   

 
T           Other:
 
(A)  All rights to Energy production capacity (“Capacity”) of the Facility and
all Energy produced by the Facility as measured at the Delivery Point and
dispatched by Buyer or the CAISO as provided herein, subject to the requirements
and limitations on dispatch set forth below.  As set forth below all Capacity
and Energy shall be made available exclusively to Buyer, and Seller shall have
no rights to market or sell Energy or Capacity from the Facility to any person
other than Buyer.
 
(B)  The amount of Capacity and Energy available for dispatch shall be reduced
to the extent (i) any portion of the Facility is not available due to full or
partial Forced Outage, (ii) any portion of the Facility is not available due to
Force Majeure, (iii) all or any part of the Capacity of the Facility or the
production of Energy from all or any part of such Capacity is prevented or
limited by Buyer’s failure to perform its obligations hereunder, including any
failure to dispatch Energy or deliver gas in accordance with the provisions of
this Confirmation, (iv) the delivery of Energy from the Facility is prevented or
limited by the failure of electric transmission at and from the Delivery Point
or the physical curtailment of transmission at the Delivery Point by the CAISO
or the transmission owner or by the failure of gas transportation before and to
the Gas Delivery Point, (v) the performance of all or any part of the Facility
is limited due to physical variations or deviations in the operating levels of
the Units which are caused by ambient conditions, quality of gas delivered to
the Facility, or the rate of gas delivery to the Facility, or (vi) all or any
part of the Capacity of the Facility or the production of Energy from all or any
part of such Capacity is limited or unavailable as the result of a Planned
Outage to the extent permitted herein; provided, however, that such events were
not within the reasonable control of, or the result of the negligence of Seller
and which, by the exercise of due diligence, Seller is unable to overcome or
avoid or cause to be avoided; provided further, that Buyer’s sole remedies for
failure to deliver Energy scheduled by Buyer hereunder shall be the Availability
Adjustment Payment provided in Special Condition (4), cover damages as provided
in Special Condition 6 and termination payment for default provided in Special
Condition 10.  (The circumstances described in clauses (ii) through (v) above
are referred to herein as “Excused Outages”.) Subject to the prior execution of
a confidentiality agreement in the form attached hereto as Exhibit F, Seller
shall provide Buyer with access to all its relevant records, data, employees and
contractors as reasonably necessary to verify to Buyer's reasonable
satisfaction the occurrence of any of the above events.
 
(C)  Buyer shall have the exclusive right to all capacity attributes associated
with the operation and ownership of the Facility, including, without limitation,
the ability to schedule and dispatch the Capacity of the Facility (i) in the
Ancillary Services markets, (ii) to supply reliability must run capacity, and
(iii) to supply RA Capacity or similar capacity attributes, given the
limitations provided in clause (B) above and otherwise set forth herein
(collectively, the “Capacity Attributes”).  Capacity Attributes shall be subject
to the Facility’s actual physical limitations.  Seller represents that neither
the Facility nor
 

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the individual Units provide “black start” capability, but that the Facility and
Units are capable of providing all other Ancillary Services (except that
“regulation” service will not be available until February 1, 2008), reliability
must run service and RA Capacity, as such products are defined in the CAISO
Tariff as of the Effective Date.  The Parties shall (1) cooperate with the CAISO
to qualify the Facility to provide Ancillary Services in the CAISO markets or to
the CAISO directly; (2) follow the reporting requirements that the California
Public Utilities Commission (“CPUC”) has established and may establish in the
future with respect to RA Capacity as required for Resource Adequacy Requirement
eligibility, and to comply with the Resource Adequacy requirements in Section 40
of the CAISO Tariff; and (3) cooperate with the CAISO regarding the provision of
reliability must run service to CAISO from the Facility, including the
negotiation, execution and filing of the CAISO pro forma reliability must run
agreement.  Except as expressly set forth in the next paragraph, nothing in this
Agreement shall require Seller to modify the Facility in any manner in order to
provide Ancillary Services that it is not capable of providing from the Facility
on the Effective Date, but Seller shall not be relieved of its obligation
hereunder to provide Energy, Capacity, RA Capacity or reliability must run
service, as such products are defined in the CAISO Tariff as in effect on the
Effective Date, solely because a modification to the Facility would be required
to do so.
 
In the event that subsequent to the Effective Date, the Facility requires a
capital improvement or other capital expenditure in order (i) to provide
Ancillary Services requested by Buyer which the Unit is not capable of providing
as of the Effective Date, (ii) to provide a resource adequacy product different
from the RA Capacity product defined in the CAISO Tariff as in effect on the
Effective Date, or (iii) to provide any reliability must run service different
from the reliability must run service defined in the CAISO Tariff as in effect
on the Effective Date, Seller shall provide notice thereof to Buyer. Such notice
shall include both a description of and a fixed cost for such the capital
improvements or other capital expenditures (which fixed cost may contain an
allowance for contingencies and for overhead and construction supervision
incurred by the Seller, but may not otherwise contain a profit component).
 
Upon receipt of such notice, Buyer shall have the right to direct the Seller to
make, and Seller agrees to make, such capital improvements if (i) Buyer agrees
to reimburse the Seller for Buyer’s pro rata share of such capital improvements
upon completion thereof and (ii) the cost of capital improvements does not,
together with the cost of any capital improvements requested by Buyer under
Special Condition 8, exceed five million dollars ($5,000,000), or, if the
combined cost of such improvements and the improvements requested by Buyer under
Special Condition 8 does exceed five million dollars ($5,000,000), Buyer agrees
to reimburse Seller for all costs in excess of five million dollars ($5,000,000)
in the aggregate.  Buyer shall reimburse Seller for Buyer’s share of the cost of
such capital improvements promptly upon completion thereof.  The Parties’
respective pro rata shares shall be based on the useful life of such capital
improvements and shall be agreed upon by the Parties prior to the commencement
of any work on, such improvements.
 
If Seller would be unable to provide such Capacity Attributes without such
capital improvements or other capital expenditures, and if neither Buyer nor
Seller is obligated or elects to make such capital improvements or other capital
expenditures, then such
 

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event shall be treated as an event of Force Majeure, but only to the extent
Seller’s is unable to provide such Capacity Attributes as a result of the
failure to make such capital improvements or other capital expenditures.
 
Any payments received by the Seller from any third party associated with the
commitment or sale of any of the Facility’s Capacity Attributes shall be paid to
Buyer promptly upon receipt thereof; provided, however, that Buyer shall be
solely and exclusively responsible for complying with the obligations of such
commitments or sales, including the cost of supplying the gas to the Facility to
generate the Energy required thereunder.
 
[]           Transmission Contingency (If not marked, no transmission
contingency):  N/A
 

 
[]
FT-Contract Path Contingency
[]
Seller
[]
Buyer
                   
[]
FT-Delivery Point Contingency
[]
Seller
[]
Buyer
                   
[]
Transmission Contingent
[]
Seller
[]
Buyer
                   
[]
Other transmission contingency
         

 

 (Specify:   )   

 
Contract Quantity:  180 MW until adjusted pursuant to Special Condition (3)
 
Delivery Point:
 
(i)  
Prior to implementation of MRTU:  The single CAISO Meter at the Facility 115 kV
switchyard connected to the CAISO control grid.

 
(ii)  
Upon implementation of MRTU:  The P-Node associated with the single CAISO Meter
at the Facility 115 kV switchyard connected to the CAISO control grid.

 
Gas Delivery Point: The PG&E revenue gas meter located at the Facility.
 
Contract Price:
 
(I)
Capacity Payment:  Buyer shall pay to Seller in arrears a monthly Capacity
Payment equal to the product of the (i) Contract Quantity times (ii) $2.00
kW-month.

 
(II)
Variable Operations and Maintenance Charge (VOM):  Buyer shall pay to Seller
$4.00 per MWh escalating at 4% per annum commencing upon the first anniversary
of the Start Date for each MWh of Energy produced by the Units pursuant to a
dispatch by Buyer and delivered by Seller to Buyer.

 
Delivery Period:  Start Date through 24:00:00 PPT December 31, 2009; provided,
however, that Buyer shall have the option ("Option") in Buyer's sole discretion
to extend the Delivery Period to December 31, 2012 by delivering written notice
to Seller not later than September 30, 2009 stating that the Delivery Period
shall be extended to December 31, 2012 (unless in either case the Delivery
Period is sooner terminated as provided in this Agreement).
 
Special Conditions:
 
(1)
Dispatch, Scheduling and Fuel Management.

 
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(a)           Buyer shall have the full and exclusive right (except to the
extent otherwise directed or dispatched by the CAISO) to dispatch the delivery
of Energy and schedule the provision of Ancillary Services that the Facility is
capable of providing from the Available Capacity of the Facility 24 hours per
day, 365 days per year during the Delivery Period; provided that if Buyer from
time to time wants to make a dispatch during Extended Dispatch Hours, Buyer
shall (i) provide notice to Seller at least eight (8) hours before the first
Extended Dispatch Hour that Buyer wants to have the Facility available for
dispatch, which notice shall also specify all Extended Dispatch Hours during the
next twenty-four (24) hours or longer period that Buyer wants the Facility
available for dispatch, and (ii) pay Seller for all such Extended Dispatch Hours
so specified in such notice at the rate of $320 for the first four (4) hours, or
any portion thereof, and $80 per hour for each hour after the first four hours,
in order to compensate Seller for its incremental staffing costs to accommodate
such availability and dispatch.  Any such notice covering a period of
twenty-four (24) hours or less may not be modified or revoked once given.  Any
such notice covering a period in excess of twenty-four (24) hours may be
modified or revoked on twenty-four (24) hours notice.  These rates will increase
at 4% per annum beginning on the first anniversary of the Start Date and on each
such anniversary thereafter.  Buyer’s dispatch of the Facility is also subject
to the following:
 
(i)      Buyer shall notify Seller by email the quantity of MWhs to be generated
and the duration of any dispatch in accordance with the communications protocol
substantially in the form attached hereto as Exhibit A, which shall be completed
by the Parties prior to the Start Date.
 
(ii)      It shall be in Seller’s sole discretion which Unit(s) shall be
operated to comply with Buyer’s dispatch instructions.
 
(iii)     Buyer’s dispatch of the Facility shall be limited to four (4) Starts
per available Unit per calendar day and to no more than 700 starts per Unit per
Contract Year.
 
(iv)     Buyer’s dispatch of the Facility shall be limited in a manner to permit
a period of ‘downtime’ (i.e. between the time the breaker is open to the time
the breaker is closed) of no less than thirty (30) minutes after a Unit stop
(i.e. after the breaker is opened).
 
(v)      Buyer’s dispatch of the Facility shall be limited such that the minimum
run time for each Unit that has been dispatched is no less than one hour.
 
(vi)     Buyer’s dispatch of the Facility shall be limited such that the minimum
loading for any Unit shall be no less than 20 MW and the maximum dispatch shall
not exceed the Available Capacity.
 
(vii)  Buyer’s dispatch of the Facility shall comply with the operating
limitations described on Exhibit B, as such exhibit may be amended as provided
in Special Condition 1(m) below.
 
(viii)  Buyer agrees to dispatch the Facility in accordance with all applicable
Laws and any operation instructions imposed by the CAISO, WECC or NERC
associated with a System Emergency.
 
 
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(ix)     Buyer may not dispatch the Facility in excess of the Available Capacity
and may not dispatch any Unit that is unavailable due to a Planned Outage
scheduled in accordance with Special Condition 2(d).
 
(x)     Buyer shall cooperate with Seller during any period of testing under
this Confirmation.  Buyer shall take the Energy and supply the fuel during
testing and receive all revenue from the sale of Energy during testing.
 
(b)           Prior to implementation of MRTU by CAISO, Seller shall be the
Scheduling Coordinator for the Facility.  As Scheduling Coordinator, Seller
shall schedule Energy deliveries to Buyer or Buyer’s Scheduling Coordinator,
through an Inter-SC Trade, equal to the Energy properly dispatched by Buyer
hereunder.  CAISO charges and revenues for the provision of imbalance energy by
or to CAISO, together with any revenues with respect to the provision of
Ancillary Services or Capacity Attributes, shall be passed through from Seller
to Buyer; provided that, Seller shall be responsible for any penalties imposed
by the CAISO under the CAISO Tariff as the result of Seller’s breach of its
obligations under this Agreement or its obligations as Scheduling Coordinator
for the Facility under the CAISO Tariff.
 
(c)           Upon implementation of MRTU by the CAISO, Buyer shall have the
option to elect to be the Scheduling Coordinator for the Facility upon sixty
(60) days advance written notice to Seller.  When acting as Scheduling
Coordinator, (i) Buyer shall be solely responsible for complying with the
obligations applicable to Scheduling Coordinators under the CAISO Tariff,
including timely submission of schedules; (ii) Buyer shall be responsible for
all CAISO charges and shall receive all CAISO revenues; provided, however, that
Seller shall be responsible for and shall reimburse Buyer for penalties imposed
by the CAISO under the CAISO Tariff as the result of Seller’s breach of its
obligations under this Agreement or to comply with the requirements applicable
to generators under the CAISO Tariff, to the extent such failure is not the
result of any failure by Buyer to comply either with its obligations hereunder
(e.g. to deliver gas), or its obligations as Scheduling Coordinator under the
CAISO Tariff; (iii) Buyer shall promptly notify the CAISO of any Facility outage
with respect to which Seller has provided notice to Buyer and shall promptly
adjust the CAISO schedule for the Facility in accordance with the intra-day
scheduling requirements of the CAISO Tariff upon notice from Seller of a
Facility outage pursuant to Special Condition (2); (iv) Buyer shall reimburse
Seller for any penalties, fines, fees or other charges assessed upon Seller by
the CAISO caused by Buyer’s failure to comply with its obligations under this
Agreement or as the Scheduling Coordinator for the Facility, including the
failure by Buyer to dispatch the Units as required by the CAISO during a System
Emergency; provided however such reimbursement by Buyer shall not be required to
the extent Buyer’s failure to comply with its obligations under this Agreement
or as the Scheduling Coordinator for the Facility is the result of Seller’s
breach of its obligations under this Agreement or to comply with the
requirements applicable to generators under the CAISO Tariff, including without
limitation the requirement to provide timely notice of the Available Capacity of
the Facility pursuant to Special Condition 2(b).  Subject to the prior execution
of a confidentiality agreement in the form attached hereto as Exhibit F, Seller
and Buyer shall each provide the other with access to all its respective
relevant records, data, employees
 
 
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and contractors reasonably necessary to verify to each Party's reasonable
satisfaction the occurrence of any of the above events.
 
(d)           During the period after the implementation of MRTU by the CAISO,
in the event Buyer has not elected hereunder to be the Scheduling Coordinator
for the Facility, Seller shall be the Scheduling Coordinator for the
Facility.  The Parties agree that, while Seller is the Scheduling Coordinator,
Energy shall be scheduled in the Day Ahead or Real Time Markets as requested by
Buyer consistent with the requirements and limitations of this Agreement as an
Inter-SC Trade at the P node for the Facility, and the Buyer shall direct the
Seller (as the Scheduling Coordinator of the Facility) to self-schedule or
submit a production bid curve consistent with the requirements and limitations
of this Agreement into the CAISO market. Such Inter-SC Trades shall be used to
balance out the CAISO payments to Seller for the injection of the scheduled
energy on to the CAISO grid and the CAISO charge to Buyer or Buyer’s agent for
the withdrawal of the scheduled energy from the CAISO grid.  If Seller’s
injection of energy from the Facility on to the CAISO grid is greater than the
amount of energy settled through such Inter-SC Trade as provided in this Special
Condition 1(d), Seller shall pay over to Buyer that portion of the payment from
the CAISO to Seller for the injection of such energy on to the CAISO grid
attributable to the excess energy actually injected on to the CAISO grid .  If
Seller’s injection of energy from the Facility on to the CAISO grid is less than
the amount of energy settled through such Inter-SC Trade as provided in this
Special Condition 1(d), Buyer shall pay to Seller an amount equal to the amount
paid to Buyer (or Buyer’s agent) by the CAISO for the excess of the amount of
energy settled through such Inter-SC Trade over the amount of energy actually
injected on to the CAISO grid.  Otherwise, Buyer shall be responsible for all
CAISO charges except for any penalties imposed by the CAISO under the CAISO
Tariff as the result of Seller’s breach of its obligations under this Agreement
or its obligations as Scheduling Coordinator for the Facility under the CAISO
Tariff.  The parties further agree (i) to schedule Ancillary Services by
entering Inter-SC Trades at the P node for the Facility in the Day Ahead or Real
Time Markets as requested by the Buyer consistent with the requirements and
limitations of and obligations of the Parties under this Agreement and (ii) to
cooperate in scheduling Inter-SC Trades to account for the IFM Load Uplift
Obligations of buyer or Buyer's agent as a result of Seller's submission (as
Scheduling Coordinator) of self-schedules at the direction of Buyer or Buyer's
agent consistent with the requirements and limitations of and obligations of the
Parties under this Agreement.
 
(e)           Within ninety (90) days after the Effective Date, Buyer and Seller
shall jointly review the roles and responsibilities of a Generator Operator
(GOP) and a Generator Owner (GO) of the Facility under the applicable rules and
regulations of WECC and NERC and shall agree on an initial allocation of such
roles and responsibilities between them consistent with the requirements of this
Agreement, which shall then be attached to this Confirmation as Exhibit E. Buyer
and Seller acknowledge that the rules and regulations of WECC and NERC with
respect to these roles and responsibilities and with respect to plant
reliability in general may change over time and agree to cooperate both in
complying with the WECC and NERC requirements in accordance with such initial
allocation and in revising such allocation from time to time as necessary to
comply, in a manner consistent with this Agreement, with changes in such rules
and regulations or in their implementation.  The Party responsible for complying
with a particular role or
 
 
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responsibility (the “Responsible Party”) shall pay or reimburse, as
applicable, the other Party (the “Other Party”) for any penalties, fines, fees
or other charges assessed upon the Other Party by the WECC or NERC associated
with the Responsible Party’s failure to comply with such role or responsibility,
provided that the Other Party shall cooperate with the Responsible Party in
complying with such role or responsibility, including providing such
information, giving such notices and taking such actions as the Other Party is
uniquely in a position to do.  Subject to the prior execution of a
confidentiality agreement in the form attached hereto as Exhibit F, Seller and
Buyer shall each provide the other with access to all its respective relevant
records, data, employees and contractors as reasonably necessary to verify to
each Party's reasonable satisfaction the occurrence of any of the above events.
 
(f)           Buyer shall be Fuel Manager for the Facility.
 
(g)           Buyer shall be responsible for the nomination and delivery of the
fuel to the Gas Delivery Point and for all local distribution charges, including
any surcharges, provided under the PG&E gas tariff and rules.
 
(h)           Seller shall be responsible for any gas imbalances resulting from
Seller’s unexcused failure to deliver Energy dispatched by Buyer for the minimum
period of time necessary to adjust CAISO schedules and gas nominations on an
intra-day basis, or from Seller’s failure to timely notify Buyer of a Forced
Outage, a Planned Outage or a Facility outage due to Force Majeure.  Buyer shall
be responsible for any gas imbalance caused by a Facility outage from any other
cause, including any failure by Seller to deliver Energy due to a failure by
Buyer to comply with its obligations hereunder as Fuel Manager.
 
(i)           Buyer shall be responsible for compliance with the PG&E tariff and
rules, including compliance with any instructions regarding Emergency Flow Order
(EFO) or Operational Flow Order (OFO) conditions.
 
(j)           Buyer shall be responsible for the quality of the fuel delivered
to the Facility, including compliance of such fuel with the PG&E gas tariff and
rules concerning gas quality and the Btu content of the fuel delivered to the
Gas Delivery Point.
 
(k)           Buyer shall be responsible for any penalties, fines, fees or other
charges assessed upon Seller by PG&E associated with Buyer’s, or its agent’s,
failure to comply with the obligations of a Fuel Manager under PG&E’s tariff and
rules, including the obligations under Special Conditions 1(g) through
1(j).   Subject to the prior execution of a confidentiality agreement in the
form attached hereto as Exhibit F, Seller shall provide Buyer with access to all
its relevant records, data, employees and contractors as reasonably necessary
to verify to Buyer's reasonable satisfaction the occurrence of any of the above
events.
 
(l)           Buyer may designate one or more persons to act as its agent under
this Special Condition (1) in performing its functions and obligations as
Scheduling Coordinator or Fuel Manager.  Buyer shall provide Seller with written
notice designating its agent(s), including all necessary and customary contact
information.  Nothing in this paragraph (e) shall relieve Buyer of its
obligations as Scheduling Coordinator or Fuel Manager.
 
 
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(m)           Within ninety (90) days after Effective Date, Buyer and Seller
shall jointly review the limitations on the operation of the Facility due to the
conditions and requirements of applicable Permits, the physical limitations of
the Facility equipment and Good Utility Practices and shall amend Exhibit B to
the extent they agree is appropriate and consistent with this Agreement to
reflect such operating limitations.
 
(2)
Seller’s Performance Rights and Obligations.

 
(a)           Seller agrees to operate and maintain the Facility in accordance
with Good Utility Practices, including, without limitation, complying with
applicable Law, the requirements of applicable Permits and Seller’s
Interconnection Obligations including maintaining the capability of the Facility
to provide Energy, Capacity, RA Capacity or reliability must run service, as
such products are defined in the CAISO Tariff as in effect on the Effective
Date.
 
(b)           Unless Seller notifies Buyer otherwise, the Available Capacity of
the Facility shall be equal to the Contract Quantity.  Seller shall notify Buyer
promptly, and in all events within 30 minutes, after Seller becomes aware that
the Available Capacity of all the Units is less than the Contract
Quantity.  Seller shall also notify Buyer promptly, and in all events within 30
minutes, after Seller becomes aware of any other changes in the Available
Capacity.  Any notice of the Available Capacity of the Units shall continue in
effect unless and until changed by a subsequent notice by Seller of the
Available Capacity.  All notices under this Special Condition (2) shall be
provided in accordance with the communications protocol to be agreed by the
Parties as provided in Special Condition 1(a)(i).
 
(c)           Seller shall be allowed sixty (60) Unit-Days of Planned Outage in
aggregate for all of the Units per Contract Year.  As used herein, a “Unit-Day”
means one day for one Unit, to be applied to the Units in Seller’s sole
discretion.  By way of example only, 60 Unit-Days could mean 60 days of Planned
Outage for one Unit, or 15 days of Planned Outage each for four Units, or other
combinations totaling 60 Unit-Days.  Any increment of a Day shall count as a
“Unit-Day”.  Seller shall notify Buyer of its proposed schedule of Planned
Outages that constitute “planned outages” under the NERC Generating Unit
Availability Data System (GADS) reporting guidelines for the Units for each
Contract Year on or before thirty (30) days preceding such Contract Year.  If
Seller wants to conduct any such Planned Outage at a different time than shown
on such schedule, Seller and Buyer shall cooperate and agree on a mutually and
reasonably acceptable time to reschedule such Planned Outage.  If Buyer wants
Seller to conduct any such Planned Outage at a different time than shown on such
schedule, Seller and Buyer shall cooperate and agree on a mutually and
reasonably acceptable time to reschedule such Planned Outage, but Buyer shall
reimburse Seller for all incremental costs incurred by Seller in rescheduling
such Planned Outage.  Seller shall also be entitled to schedule Planned Outages
that constitute “maintenance outages” under the NERC Generating Unit
Availability Data System (GADS) reporting guidelines during the Contract Year on
ten (10) days prior notice to Buyer, but if Buyer reasonably requests that such
Planned Outage be conducted at a different time, Seller and Buyer shall
cooperate and agree on a mutually and reasonably acceptable time to schedule
such Planned Outage.  Each Party shall make all reasonable efforts, consistent
with Good Utility Practices, to accommodate the other Party’s schedule requests
with respect to Planned Outages and shall agree to any
 
 
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schedule changes if (i) directed by the CAISO or (ii) if necessary to avoid a
Unit being or becoming unavailable as a result of maintenance that cannot,
consistent with Good Utility Practices, be delayed until the next scheduled
Planned Outage, including any subsequent maintenance that may be necessary to
follow-up on a temporary remedy made in response to a Forced
Outage.  Notwithstanding anything to the contrary herein, a Planned Outage may
not immediately follow a Forced Outage unless either the Planned Outage was
scheduled prior to the occurrence of the Forced Outage or Seller has remedied
the Forced Outage prior to the commencement of the Planned
Outage.  Notwithstanding the foregoing, Seller shall not conduct Planned Outages
during the months of January, June through September, and December.

(d)           Metering will conform to CAISO standards or the equivalent. Seller
will provide such CAISO metering settlement data to Buyer as Seller and Buyer
(or Buyer’s agent designated pursuant to Special Condition 1(l)) may agree in
the communications protocol to be agreed by the Parties as provided in Special
Condition 1(a)(i).
 
(e)           Seller shall notify Buyer within 30 minutes after the occurrence
of any outage and shall thereafter provide Buyer daily verbal or written updates
of the status of such outage.  Within five (5) Business Days after the
occurrence of such outage, Seller shall (i) investigate the cause of such outage
diligently and in good faith, (ii) notify Buyer of the course and results of
such investigation, (iii) notify Buyer of the cause of such outage and expected
duration of such outage, and (iv) subject to the prior execution of a
confidentiality agreement in the form attached as Exhibit F, provide Buyer any
information reasonably necessary to verify to Buyer's reasonable
satisfaction the cause of the outage.
 
(3)
Capacity Adjustment Payment:

 
(a)           During the period beginning March 1 and ending May 31 in each
Contract Year, unless otherwise agreed, Seller will conduct a performance test
of the Facility (“Annual Performance Test”) in accordance with the Test
Procedures attached hereto as Exhibit D; provided, however, that if the capacity
of the Facility or any Unit has been reduced as a result of a Forced Outage, or
Force Majeure and the effect of such Forced Outage, or Force Majeure cannot be
eliminated or remedied in time to conduct the Annual Performance Test within the
time period above, the time for conducting the Annual Performance Test shall be
extended as necessary to eliminate or remedy the effect of such Forced Outage,
or Force Majeure and to permit the Annual Performance Test to be conducted with
all Units fully operational.
 
(b)           If the Contract Quantity as determined by the Annual Performance
Test is equal to or greater than 95% of the Target Capacity, no Capacity Penalty
will be payable hereunder until the next Annual Performance Test.  If the
Contract Quantity as determined by the Annual Performance Test is less than 95%
of the Target Capacity, Seller will pay Buyer a monthly Capacity Adjustment
Payment (prorated for partial months) equal to $13,111 times the difference
between the 95% of Target Capacity and the Contract Quantity as determined by
the Annual Performance Test.  Seller shall continue to pay any applicable
monthly Capacity Adjustment Payment until the Contract Quantity is re-determined
pursuant to the next Annual Performance Test or an Additional Performance Test
pursuant to Special Condition 3(c) below.
 
 
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(c)           If the Contract Quantity as determined by the Annual Performance
Test is less than 95% of the Target Capacity, Seller may request up to two
additional performance tests in any Contract Year (an “Additional Performance
Test”), to be conducted in the same manner as the Annual Performance Test.  If
the Contract Quantity as determined by the Additional Performance Test is equal
to or greater than 95% of the Target Capacity, no further Capacity Penalty will
be payable hereunder until the next Annual Performance Test.  If the Contract
Quantity as determined by the Additional Performance Test is less than 95% of
the Target Capacity, Seller will continue to pay Buyer a monthly Capacity
Adjustment Payment (prorated for partial months) equal to $13,111 times the
difference between the 95% of Target Capacity and the Contract Quantity as
determined by the Additional Performance Test.  Seller shall continue to pay any
applicable monthly Capacity Adjustment Payment until the Contract Quantity is
re-determined pursuant to the next Annual Performance Test or an Additional
Performance Test pursuant to this Special Condition 3(c).
 
(d)           The “Target Capacity” of the Facility is equal to 180 MW less 0.25
MW per Unit for each 5,000 hours of operation per Unit, without proration (i.e.
the reduction in the Target Capacity will only be applied for a full 5,000 hours
of operation or integral multiples thereof).
 
(4)
Availability Adjustment Payment:

 
(a)           Within ten (10) days of the end of each calendar month, an
Availability Factor (AF) shall be determined as follows:
 
AF = TME/MME
 
Target AF = 0.97 for the calendar months of June through September and 0.94 for
each other calendar month.
 
 
TME  (Total  Monthly  Energy)  =  Σ  TDE  for  all  Normal  Dispatch  Hours  and  each
Extended Dispatch Hour for which Buyer has given notice of requested
availability pursuant to Special Condition 1(a) in the calendar month
 
 
 
 MME (Maximum Monthly Energy) = the sum, over each Normal Dispatch Hour and each
Extended Dispatch Hour for which Buyer has given notice of requested
availability pursuant to Special Condition 1(a) in the calendar month, of the
following sum each such hour: (i) Contract Quantity, less (ii) the quantity of
Contract Quantity that is unavailable due to an Excused Outage (provided that
such quantity shall not include any quantity of Contract Quantity included in
item (ii) of TDE), less (iii) the quantity of the Contract Quantity that is
unavailable due to a Planned Outage scheduled pursuant to Special Condition (2).
     
 TDE (Total Delivered Energy) = the sum of (i) Energy delivered from the
Facility by Seller in accordance with this Confirmation, plus (ii)

 
 
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uninstructed imbalance energy delivered by the CAISO (a) due to physical
variations in the operating level of the Facility excused hereunder, and (b) for
the minimum period of time necessary under the CAISO Tariff to adjust schedules
or output in the event of an outage of the Facility, plus (iii)  the amount of
Energy that could have been produced from the Available Capacity but which was
not scheduled by Buyer; provided, that no energy excluded from the MME shall be
included in the TDE.

 
 
(b)           If in any calendar month, the AF is less than the Target AF
applicable to such calendar month, Seller shall pay to Buyer an Availability
Adjustment Payment equal to the product of (i) the difference of the Target AF
for the calendar month less the AF for such calendar month times (ii) 100 times
(iii) $30,000.
 
(5)
Heat Rate Adjustment Payment:

 
(a)           As part of the Annual Performance Test conducted pursuant to
Special Condition 3(a), Seller shall also conduct a test of the heat rate of the
Facility, in accordance with the Test Procedures attached hereto as Exhibit D.
 
(b)           If the Facility Heat Rate as determined by the Annual Performance
Test is equal to or less than the Target Heat Rate, no Heat Rate Adjustment
Payment will be payable hereunder until the next Annual Performance Test.  If
the Facility Heat Rate as determined by the Annual Performance Test is greater
than the Target Heat Rate, then, beginning 30 days after the Annual Performance
Test, Seller will pay Buyer a daily Heat Rate Adjustment Payment equal to the
product of (i) the excess of the Facility Heat Rate over the Target Heat Rate,
times (ii) the Gas Index for such day, times (iii) the amount of Energy
delivered to Buyer hereunder for such day.  Seller shall pay such amount for
every day from the time the Heat Rate Adjustment Payment commences until the
Facility Heat Rate is re-determined to be less than or equal to the Target Heat
Rate pursuant to the next Annual Performance Test or an Additional Performance
Test.  The Heat Rate Adjustment Payment shall be payable monthly in arrears.
 
(c)           If the Facility Heat Rate as determined by the Annual Performance
Test is greater than the Target Heat Rate, Seller may request up to two
Additional Performance Tests in any Contract Year for purposes of re-determining
the Facility Heat Rate.  If the Facility Heat Rate as determined by the
Additional Performance Test is less than or equal to the Target Heat Rate, no
further Heat Rate Adjustment Payment will be payable hereunder until the next
Annual Performance Test.  If the Facility Heat Rate as determined by the
Additional Performance Test is greater than the Target Heat Rate, Seller will
continue to pay Buyer the Heat Rate Adjustment Payment determined in the same
manner as in Special Condition 5(b) above but on the basis of the Facility Heat
Rate as determined by the Additional Performance Test.  Seller shall continue to
pay such amount until the Facility Heat Rate is re-determined pursuant to the
next Annual Performance Test or another Additional Performance Test.
 
(d)           The “Target Heat Rate” is equal to 10,500 Btu/kWh plus 30 Btu/kWh
for each 5,000 hours of operation per Unit without proration (i.e. the increase
in the Target Heat
 
 
12

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Rate will only be applied for a full 5,000 hours of operation or integral
multiples thereof).  The “Gas Index” is equal to the “PG&E Citygate” midpoint
price as reported in Gas Daily for the applicable day.
 
(6)         Cover Damages.  Except as otherwise excused herein, in addition to
any Availability Adjustment Payment under Special Condition (4), Article IV of
the Master Agreement shall apply to the failure of Seller to deliver or Buyer to
receive Energy scheduled by Buyer accordance with this Agreement except that
Seller shall not be liable for damages under Article IV of the Master Agreement
to the extent that Seller has notified Buyer that the Capacity of or Energy
available for dispatch from the Facility has been reduced due to a Forced
Outage, an Excused Outage or a Planned Outage (provided notice shall not be
required with respect to Excused Outages described in clauses (iii), (iv) or (v)
of paragraph (B) in the description of Product).  For purposes of Article IV of
the Master Agreement, the “Contract Price” shall be equal to (A) the product of
(i) 10,500 Btu/kWh times (ii) the sum of (1) Gas Index plus (2) the local
distribution charges, including any surcharges, for gas deliveries on PG&E’s
system, plus (B) the applicable VOM.
 
(7)         Special Maintenance Payment.  If, as a result of dispatches by Buyer
hereunder, any Unit is operated more than 4,000 hours during the Delivery Period
and all Units have on a combined basis been operated for more than 16,000 hours,
Buyer shall make a special maintenance payment to Seller of $1,000,000 per Unit
for each 4,000 hours (or integral multiple thereof) that such Unit is operated
during the Delivery Period.
 
(8)         Governmental Charges.  In addition to the obligations under Article
9 of the Master Agreement, and notwithstanding anything in this Agreement to the
contrary, Buyer shall reimburse Seller for all newly imposed taxes, charges or
fees assessed or levied by any governmental authority in respect of any
Greenhouse Gases emitted by or attributed to the Facility, within forty-five
(45) days of Buyer’s receipt from Seller of documentation establishing (i) that
Seller is actually liable for the tax, charge, fee or cost in respect of
Greenhouse Gases emitted by or attributed to the operation of the Facility
during the Delivery Period; (ii) that, as of the date of execution of this
Agreement, the legislation or regulation imposing the tax, charge, fee or cost
was not effective or scheduled to become effective; (iii) the amount of the tax,
charge, fee or cost; (iv) that the tax, charge, fee or cost was imposed on
Seller by a governmental authority that has valid jurisdiction over Seller or
the Facility; (v) that Seller has paid the tax, charge, fee or cost for which
Seller seeks reimbursement from Buyer, and (vi) that Seller took all reasonable
steps to mitigate the amount of such tax, charge, fee or cost; provided,
however, that Buyer shall not be obligated to reimburse any fines or penalties
incurred as a result of Seller’s failure to comply with applicable law or
Permits.
 
For purposes of the foregoing, except as provided in this paragraph, reasonable
steps shall not be deemed to require Seller to modify or make capital
improvements to the Facility, or to continue to operate the Facility if
modifications, capital improvements or other capital expenditures would be
required to do so in compliance with applicable law or Permit conditions related
to Greenhouse Gases, regardless of whether or not such modifications, capital
improvements or other capital expenditures would reduce or eliminate taxes,
charges or fees otherwise payable by Buyer or are required in order for the
Facility to continue to operate at any level.  If modifications or capital
improvements to the Facility or other capital expenditures would be required in
order to operate the
 
 
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Facility in compliance with applicable law or Permit conditions related to
Greenhouse Gases, Seller shall provide notice thereof to Buyer. Such notice
shall include both a description of and a fixed cost for such the capital
improvements or other capital expenditures (which fixed cost may contain an
allowance for contingencies and for overhead and construction supervision
incurred by the Seller, but may not otherwise contain a profit component).
 
Upon receipt of such notice, Buyer shall have the right to direct the Seller to
make, and Seller agrees to make, such capital improvements if (i) Buyer agrees
to reimburse the Seller for Buyer’s pro rata share of such capital improvements
upon completion thereof and (ii) the cost of capital improvements does not,
together with the cost of any capital improvements requested by Buyer under
paragraph (C) of the description of Product, exceed five million dollars
($5,000,000), or, if the combined cost of such improvements and the improvements
requested by Buyer under paragraph (C) of the description of Product does exceed
five million dollars ($5,000,000), Buyer agrees to reimburse Seller for all
costs in excess of five million dollars ($5,000,000) in the aggregate.  Buyer
shall reimburse Seller for Buyer’s share of the cost of such capital
improvements promptly upon completion thereof.  The Parties’ respective pro rata
shares shall be based on the useful life of such capital improvements and shall
be agreed upon by the Parties prior to the commencement of any work on, such
improvements.
 
If the operating level of the Facility would be reduced or the Facility would
not be able to continue to operate without such modifications, capital
improvements or other capital expenditures, and if neither Buyer nor Seller is
obligated or elects to make such modifications, capital improvements or other
capital expenditures, then such event shall be treated as an event of Force
Majeure, but only to the extent of such reduction in operating level or ability
to operate.
 
“Greenhouse Gases” means emissions into the atmosphere of (i) carbon dioxide
(CO2), nitrous oxide (N2O) and methane (CH4), which are produced as the result
of combustion or transport of fossil fuels, (ii) hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs) and sulfur hexafluoride (SF6) generated as a result of
the operation of the Facility, and (iii) other greenhouse gases (GHGs) that have
been determined by the United Nations Intergovernmental Panel on Climate Change
to contribute to the actual or potential threat of altering the Earth’s climate
by trapping heat in the atmosphere.  Greenhouse Gases may be defined or
expressed in terms of a ton of CO2-equivalent in order to allow comparison
between the different effects of gases on the environment.  Gases or emissions
that are regulated due to impacts other than global warming (e.g. toxicity or
creation of smog) shall not, to the extent of such other regulation, be
considered “Greenhouse Gases” for the purposes of this Confirmation, but shall
be considered “Greenhouse Gases” to the extent they are regulated due to impacts
on global warming.

(9)
Events of Default.  In addition to the Events of Default specified in Section
5.1 of the Master Agreement, the following shall constitute Events of Default by
Seller:

 
(a)
The Availability Factor calculated pursuant to Special Condition (4) is less
than 0.70 for six (6) consecutive months.

 
 
14

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(b)
The Contract Quantity as shown by any Annual Performance Test is less than 150
MW unless a Contract Quantity of 150 MW or more is subsequently demonstrated by
an Additional Performance Test within six (6) months after such Annual
Performance Test; provided, however, if Seller is prevented or delayed in
conducting such Additional Performance Test by Force Majeure, such six (6) month
period shall be extended by the period of such delay.

(10)
Payment on Termination; Limitation of Liability.

 
(a)
With respect to this Confirmation, the Master Agreement (including Sections 5.2
and 5.3) is hereby amended to provide that in the event Buyer terminates this
Transaction as the result of an Event of Default where Seller is the Defaulting
Party, the Termination Payment shall, notwithstanding anything to the contrary
contained in the Master Agreement, be equal to the net present value (using a
discount rate equal to the “Present Value Rate” set forth in Section 5.3 of the
Master Agreement) as of the date of termination of the product of (i) the Target
AF, times (ii) 100, times (iii) $26,400 for each month remaining in the Delivery
Period.  Except for reasonable attorneys’ fees incurred in enforcing this
Agreement and interest due and owing on unpaid amounts that are past due, such
Termination Payment shall be the only amount payable by Seller as the result of
the termination of this transaction by Buyer due to an Event of Default by
Seller.

 
 
(b)
Notwithstanding anything herein or in the Master Agreement to the contrary, the
total payments by Seller under Special Conditions 3, 4 and 10(a) shall not
exceed the Termination Payment that would be payable under Special Condition
10(a) if this Transaction were to be terminated as the result of an Event of
Default where Seller is the Defaulting Party on the Start Date, i.e. if such
Termination Payment were to be determined for the entire Delivery Period, plus
any interest due and owing thereon, reasonable attorneys’ fees incurred in
enforcing this Agreement and the pro rata portion of the cost of capital
improvements paid for by Buyer pursuant to paragraph (C) of the description of
Product and/or Special Condition 8, as applicable, based on the amount by which
the portion of the Delivery Period during which such improvements were to be
used was shortened due to early termination of this Confirmation.

 

(11)
Notice of Events Beyond Seller’s Control; Termination.

 
(a)
Seller shall notify Buyer within 30 minutes after the occurrence of an outage
due to Force Majeure and shall thereafter provide Buyer daily verbal or written
updates of the status of such outage.  Within five (5) Business Days after the
occurrence of such outage, Seller shall (i) investigate the cause of such outage
diligently and in good faith, (ii) notify Buyer of the course and results of
such investigation, (iii) notify Buyer of the cause of such outage and expected
duration of such outage, and (iv) subject to the prior execution of a
confidentiality agreement in the form attached as Exhibit F, provide Buyer any
information reasonably necessary to verify to Buyer's reasonable
satisfaction the cause of the outage.  Seller shall provide Buyer with daily
updates including all information

 
 
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listed in (i) through (iv) above.  Promptly, but in any event within ten (10)
Business Days, after notice is given pursuant to the preceding sentence, the
Parties shall meet to discuss the basis and terms upon which the arrangements
set out in this Agreement shall be continued, taking into account the effects of
such event or circumstance.

 
(b)
In the event Seller claims that some or all of the Capacity of or Energy
available for dispatch from the Facility is not available due to Force Majeure
for a cumulative total of three hundred sixty-five (365) days, Buyer shall have
the right, at its election, to terminate this Confirmation on ten (10) Business
Days notice to Seller with no further liability for either Party following such
termination, except for a true up for amounts accrued hereunder prior to the
date of termination, including amounts due for Product supplied to Buyer
hereunder, the pro rata portion of the cost of capital improvements paid for by
Buyer pursuant to paragraph (C) of the description of Product and/or Special
Condition 8, as applicable, based on the amount by which the Delivery Period
during which such improvements were to be used was shortened due to early
termination of this Confirmation and other payments and charges accrued by
either Party prior to such termination, all of which shall be settled and paid
within five (5) Business Days after the date of termination.  Within ten (10)
Business Days after such termination, Buyer shall return the letter of credit
described in Special Condition 14 to Seller.

(12)
Insurance.  Seller shall at its sole expense purchase from and maintain in a
company or companies lawfully authorized to conduct business in the jurisdiction
where the Facility is located having an A rating in Best’s Key Rating Guide the
insurance described below.  Buyer shall be named as an additional insured to the
extent of the indemnity obligations assumed hereunder by Seller under all
coverages required under this Agreement except All Risk Property Insurance and
Workers Compensation.  Seller shall provide Buyer certificates of insurance and
blanket endorsements (if applicable) for each policy described below within ten
(10) Business Days of Buyer’s request therefor.  The certificates must state
that coverage will not be cancellable except after thirty (30) days prior
written notice (ten (10) days in the event of non-payment of premiums) has been
given to Buyer.  All policies of insurance required below shall include a waiver
by the insurer of any rights of subrogation against the Buyer.

All Risk Property Insurance – Seller will procure and maintain all risk property
insurance including coverage for physical damage, boiler and machinery and extra
expense during the operation of the Facility, and business income.  Coverage
valuation shall be the actual repair or replacement costs but no greater than
the full replacement cost of the Facility.  Coverage will also apply during
inland transit.  Such coverage shall allow for reasonable deductibles and
sublimits for specific perils as consistent with Prudent Industry Practice.

Commercial General Liability – Seller will carry commercial general liability
coverage with limits of $1 million per occurrence, $2 million in aggregate.  The
insurance will
 
 
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cover claims brought against Seller for third party bodily injury (including
death), personal injury and property damage.  The coverage will include
provisions for broad form property damage, explosion, collapse and underground
hazard coverage (XCU), cross liability, severability of interest, broad form
contractual liability, and completed operations.

Excess Liability/Umbrella Coverage – Seller will carry excess liability/umbrella
coverage insurance of $9 million per occurrence so that the total coverage for
Commercial General Liability and Excess Liability/Umbrella Coverage shall be at
least $5 million per occurrence, however, such $10 million total coverage may be
made up of any combination of Commercial General Liability and Excess
Liability/Umbrella Coverage at Seller’s sole discretion.

Workers Compensation – Seller will carry workers compensation insurance covering
statutory workers compensation obligations as required by state law.  The
coverage will also include $1 million in Employers Liability coverage insuring
Claims brought by employees brought outside the California workers’ compensation
statute.  Seller will also require workers compensation coverage of any
contractors employed for maintenance of the facility.

(13)
Certain Representations and Defaults.  Notwithstanding anything in this
Confirmation or the Master Agreement to the contrary, the Chapter 11 Proceeding
shall not constitute an Event of Default by Seller or Seller’s Guarantor under
Section 5.1 of the Master Agreement, and Seller’s representations under Sections
10.2(v) and 10.2(vi) are deemed to contain an exception for the Chapter 11
Proceeding.

 
(14)
Performance Assurance.  In order to provide security for the payment of amounts
that may be payable by Seller to Buyer hereunder, Seller will deliver to Buyer
(a) a letter of credit in the face amount of Twenty Million Dollars
($20,000,000) in the form of Exhibit C attached hereto within three (3) Business
Days after the Effective Date, and (b) such written assurances as Buyer may
reasonably request that the Guarantee Agreement given by Calpine Corporation to
the Buyer dated as of August 31, 2005, pursuant to paragraph (t) of the “Other
Changes” section of the Cover Sheet, secures, and shall continue to secure
following the “effective date” of Calpine Corporation’s Chapter 11 Plan of
Reorganization, the prompt and complete payment when due, by acceleration or
otherwise, of all amounts payable by Seller under this Confirmation.

 
(15)
General.  With respect to this Confirmation, the last sentence appearing in
Section 5.2 of the Master Agreement shall not apply.  For purposes of clarity,
Party A and Party B further agree that the occurrence of a Regulatory Event may
not provide a basis for an Event of Default under Section 5.1 of the Master
Agreement.  In addition to Buyer’s other rights to assign or novate this
Agreement under the Master Agreement, Buyer shall have the right to assign the
Option to Pacific Gas and Electric Company (“PG&E”) and its rights under this
Agreement upon exercise of the Option if (i) such assignment is made prior to
July 1, 2009, and (ii) PG&E has a long term senior unsecured debt rating of at
least BBB from Standard & Poor’s and Baa2 from Moody’s Investor Services at the
time of such assignment.  PG&E shall have the right to exercise the Option in
accordance with its terms if (1) it has a long term senior unsecured debt rating
of at least BBB from

 
 
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Standard & Poor’s and Baa2 from Moody’s Investor Services at the time of such
exercise and (2) it agrees to assume all of Buyer’s obligations under this
Agreement when it exercises the Option (with appropriate modifications as
necessary to reflect the change in status of the parties to this Agreement).  If
Buyer assigns the Option to PG&E and PG&E exercises the Option in compliance
with the foregoing requirements, Seller agrees to enter into a new agreement
with PG&E on the same terms and conditions as this Agreement with respect to the
period after the exercise of the Option, but, except as specifically provided in
the preceding sentence, Seller shall have no obligation to modify any right or
obligation under this Agreement in connection with any such assignment of the
Option to or the exercise of the Option by PG&E.

 
(16)
Definitions.  When used in this Confirmation, the following terms shall have the
following defined meanings:

 
“Ancillary Services” has the meaning defined in the CAISO Tariff.
 
“Available Capacity” means the Contract Quantity less any portion of the
Contract Quantity that is not available as the result of any of the matters
described in clauses (i) through (vi) of paragraph (B) of the description of
Product.
 
“CAISO” means the California Independent System Operator Corporation or any
successor entity performing similar functions.
 
“CAISO Tariff” means the CAISO FERC Electric Tariff, First Replacement Volume
No. 1, as it may be amended, supplemented or replaced (in whole or in part) from
time to time.
 
“Chapter 11 Proceeding” means the jointly administered bankruptcy cases under
Chapter 11 of the United States Bankruptcy Code, 11 U.S.C., of Calpine
Corporation and its affiliated debtors, Case No. 05-60200(BRL) 11 in the United
States Bankruptcy Court, Southern District of New York.
 
“Contract Year” means each calendar year during the Delivery Period commencing
upon 00:00:01 PPT on January 1 and ending upon 24:00:00 PPT December 31.
 
“CPUC” means the California Public Utilities Commission or a successor
governmental agency performing the same or similar functions.
 
“Dispatch Hours” means the Normal Dispatch Hours and the Extended Dispatch
Hours.

“Extended Dispatch Hours” means all hours other than Normal Dispatch Hours.

“Facility” means the Los Esteros Critical Energy Facility located at 800 Thomas
Foon Chew Way, San Jose, CA 95134 and consisting of four Units.
 
“Fuel Manager” means the person responsible for the procurement, nomination,
balancing of natural gas delivered to the Facility.

“Forced Outage” means a force outage or force derating as defined in the NERC
Generating Unit Availability Data System (GADS) reporting guidelines of a Unit
(but only, in the case of a partial forced outage or partial force derating, to
the extent thereof) that is not the result of an Excused Outage or a Force
Majeure.

 
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“Gas Index” has the meaning defined in Special Condition 5(d).

“Good Utility Practices” has the meaning defined in the CAISO Tariff.
 
“IFM Load Uplift Obligations” has the meaning defined in the CAISO Tariff.

“Interconnection Obligations” means Seller’s obligations set forth in the
Generator Interconnection Agreement, dated as of April 19, 2002, between Los
Esteros Critical Energy Facility LLC and PG&E, the Generator Special Facilities
Agreement, dated as of April 19, 2002, between Los Esteros Critical Energy
Facility LLC and PG&E, the Participating Generator Agreement, dated as of
November 22, 2002, between Los Esteros Critical Energy Facility LLC and the
CAISO, and the Natural Gas Service Agreement, dated as of December 11, 2002,
between Los Esteros Critical Energy Facility LLC and PG&E.

“Inter-SC Trade” has the meaning defined in the CAISO Tariff.

“MRTU” means the Market Redesign and Technology Upgrade to be implemented by
CAISO on or about April 1, 2008 which includes a transmission congestion
management system that uses locational marginal pricing to assign prices to
energy at Nodes on the transmission system.

“Node” has the meaning defined in the CAISO Tariff.

“Normal Dispatch Hours” means collectively, the hours ending (HE) 0700 through
HE 2200 Monday through Friday (other than NERC holidays) and HE 1100 through HE
2200 Saturday, Sunday and NERC holidays.

“Permits” means the permits and other governmental approvals necessary to
operate the Facility.

“Planned Outage” means a “planned outage” or a “maintenance outage” as defined
in the NERC Generating Unit Availability Data System (GADS) reporting
guidelines.

“PPT” means the then prevailing time in the Pacific Time Zone.

“RA Capacity” means the maximum megawatt amount that the CAISO recognizes from a
Unit that qualifies for Buyer’s Resource Adequacy Requirements and is associated
with the Unit’s Capacity Attributes.

“Resource Adequacy” means the procurement obligation of load serving entities,
including Buyer, as such obligations are described in CPUC Decisions D.04-10-035
and D. 05-10-042 and subsequent CPUC decisions addressing Resource Adequacy
issues, as those obligations may be altered from time to time in the CPUC
Resource Adequacy Rulemakings (R.) 04-04-003 and (R.) 05-12-013 or by any
successor proceeding, and all
 
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other Resource Adequacy obligations established by any other entity, including
the CAISO.

“Resource Adequacy Requirements” means Buyer’s Resource Adequacy or successor
program requirements, as the CPUC, the CAISO or other regional entity may
prescribe.

“Start” shall mean each instance where (i) a Unit start sequence was initiated
to meet a dispatch or schedule; and (ii) the Unit reached the required dispatch
or schedule level within 30 minutes (or 10 minutes in the case of an emergency
after instruction by the Department).

“Unit” means each combustion turbine and related physical assets that comprise a
single electric generating unit with a capacity of approximately 45 MW
constituting part of the Facility.

 
 
 
Calpine Energy Services, L.P.
State of California Department of Water Resources separate and apart from its
powers and responsibilities with respect to the State Water Resources
Development System
 
 
 
By:
   /s/ Jeffrey P. Kinneman          12/7/07  
By:
   /s/ Timothy J. Haines          12/7/07   
Name:
Jeffrey P. Kinneman
 
Name:
 Timothy J. Haines  
Title:
 Vice President  
Title:
 Deputy Director  
 
 
 
 

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EXHIBIT A
 
COMMUNICATIONS PROTOCOL
 

 
1.  
SCHEDULING:

a.  
Buyer shall notify Seller of a dispatch according to the requirements of the
Confirmation and the applicable CAISO market rules in place at the time.

b.  
Buyer may schedule the Facility in the Day Ahead or Hour Ahead markets by
sending notice to Seller by email (see Attachment 1 for an example). Buyer may
dispatch the Facility between a minimum loading of 20 MW per Unit and a maximum
dispatch of the Available Capacity of the Facility, and otherwise subject to the
conditions listed in Special Condition 1 (a).

c.  
Normal Dispatch Hours (NDH) are:

i.  
HE 0700 – HE 2200 Monday thru Friday except NERC Holidays

ii.  
HE 1100 – HE 2200 Saturday, Sunday and NERC Holidays

d.  
Extended Dispatch Hours (EDH) are:

i.  
All other hours except NDH.

ii.  
Buyer shall send an email notice to Seller at least 8 hours prior to the first
hour of any EDH dispatch indicating which EDH to make the Facility available as
well as specifying the EDH during the next 24 hours.  Any such notice covering a
period of twenty-four (24) hours or less may not be modified or revoked once
given.  Any such notice covering a period in excess of twenty-four (24) hours
may be modified or revoked on twenty-four (24) hours notice.

2.  
PLANNED OUTAGE:

a.  
Seller shall send a written notice of the Annual Planned Outage Plan (Plan) to
Buyer at least 30 days prior to the start of each Contract Year, except for the
first Contract Year, for which the Plan will be delivered within one (1) week
after the Effective Date. The Plan will show the date and duration of all
planned outages for the Contract Year, and the reason for each Planned Outage.

b.  
If Seller determines during the Contract Year a deviation from the Plan is
required, the Seller shall send written notice to the Buyer at least 10 business
days prior to the start of any Planned Outage change. Buyer shall respond in
writing 5 business days after receipt of such notice from Seller.

c.  
Seller shall send a written report to Buyer within 30 days of the end of each
Contract Year describing the total hours each Unit has operated since the start
of the Contract (See Special Condition 7)

3.  
FORCED OUTAGES:

a.  
Seller shall notify Buyer and Buyer’s Agent by phone or email within 30 minutes
of any Forced Outage. Seller shall also allow access by Buyer and Buyer’s Agent
to the CAISO SLIC files for the Facility to verify information on Facility
outages

 
 
21

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and derates. If the Forced Outage occurs during a plant operation, Buyer and
Seller agree to cooperate in making schedule changes as needed.

b.  
If the Forced Outage lasts longer than 1 day, the Seller shall notify the Buyer
and Buyer’s Agent promptly in writing and shall provide daily verbal or written
updates as to the Facility’s status during a Forced Outage.

4.  
FORCE MAJEURE:

a.  
Seller shall notify Buyer by phone or email within 30 minutes after the
occurrence of an outage due to Force Majeure and shall thereafter provide Buyer
daily verbal or written updates of the status of such outage.  Within five (5)
Business Days after the occurrence of such outage, Seller shall (i) investigate
the cause of such outage diligently and in good faith, (ii) notify Buyer of the
course and results of such investigation, (iii) notify Buyer of the cause of
such outage and expected duration of such outage, and (iv) subject to the prior
execution of a confidentiality agreement in the form attached as Exhibit F,
provide Buyer any information reasonably necessary to verify to Buyer’s
reasonable satisfaction the cause of the outage.  Seller shall provide Buyer
with daily updates including all information listed in (i) through (iv)
above.  Promptly, but in any event within ten (10) Business Days, after notice
is given pursuant to the preceding sentence, the Parties shall meet to discuss
the basis and terms upon which the arrangements set out in the Agreement shall
be continued, taking into account the effects of such event or circumstance.

 
5.  
ANNUAL PERFORMANCE TESTING/OTHER TESTING:

 a.  
The Annual Performance Tests shall be performed between March 1 and May 31 of
each Contract Year per the procedures listed in Exhibit D.

a.  
Seller shall notify Buyer in writing at least 30 days prior to the start of each
Contract Year (except for the first Contract Year, for which such notice will be
delivered within [one (1) week] after the Effective Date) listing all known
tests and dates of such tests.  Seller and Buyer shall mutually work together to
coordinate testing of the Facility such that multiple testing requirements shall
occur during the same test whenever possible to minimize the number of test run
hours each Contract Year. Seller shall prepare and submit its written, proposed
test procedure and schedule to Buyer no less than fourteen (14) business days
before the proposed test date for Buyer's acceptance and, within ten (10)
business days of such submittal, Buyer and Seller shall meet to review and
discuss the proposed test procedure and schedule.  Within five (5) business days
of such meeting or waiver thereof, Buyer shall submit either its written
acceptance or comments, including the reasons for such comments, on the proposed
test procedure and schedule to Seller.  The failure by Buyer to submit such
written acceptance or comment within the required time shall constitute
acceptance of the proposed test procedure and schedule by Buyer.   After receipt
of Buyer’s comments, Buyer and Seller shall cooperate and shall mutually agree
on the final schedule and test procedure for such performance tests.

 
6.  
METERING/SETTLEMENTS:

 
22

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a.  
Seller shall make available to the Buyer and Buyer’s Agent the original CAISO
Electric Metering files for the Facility.

b.  
Seller shall make available to Buyer and Buyer’s Agent natural gas pipeline
statements as necessary to determine actual gas meter data for the Facility.

 
23

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EXHIBIT A - ATTACHMENT 1

SAMPLE DISPATCH NOTICE
 
 
CALPINE
 
 
PHONE
EMAIL
Issue Date
 
xxx, Facility Manager
   
xxx
xxx
Flow Date:
         
 
Plant:
 
Los
Esteros
Day Ahead Power Scheduling
   
xxx
xxx
   
 
Hour Ahead Power Scheduling
 
xxx
xxx
   
 
Gas Scheduling
   
xxx
xxx
   
 
Gas Scheduling (24-Hour Call)
   
xxx
xxx
   
 
 
           
 
PG&E
           
 
 
           
 
Day Ahead Power Scheduling
   
xxx
xxx
   
 
Hour Ahead Power Scheduling
 
xxx
xxx
   
 
Gas Scheduling
   
xxx
xxx
   
 
 
           
 
 
 
 
 
 
 
 
 

November 30, 2007
 
 
 
     
 
 
 
 
 
     
 
Declared
Hour
Derate
Dispatched
     
 
Unit
Ending
MW
MW
     
 

Los Esteros Energy Center
100
 
 
     
 
Los Esteros Energy Center
200
 
 
     
 
Los Esteros Energy Center
300
 
 
     
 
Los Esteros Energy Center
400
 
 
     
 
Los Esteros Energy Center
500
 
 
     
 
Los Esteros Energy Center
600
 
 
     
 
Los Esteros Energy Center
700
 
 
     
 
Los Esteros Energy Center
800
 
 
     
 
Los Esteros Energy Center
900
 
180.0
     
 
Los Esteros Energy Center
1000
 
180.0
     
 
Los Esteros Energy Center
1100
 
180.0
     
 
Los Esteros Energy Center
1200
 
180.0
     
 
Los Esteros Energy Center
1300
 
180.0
     
 
Los Esteros Energy Center
1400
 
180.0
     
 
Los Esteros Energy Center
1500
 
180.0
     
 
Los Esteros Energy Center
1600
 
180.0
     
 
Los Esteros Energy Center
1700
 
180.0
     
 
Los Esteros Energy Center
1800
 
180.0
     
 
Los Esteros Energy Center
1900
 
180.0
     
 
Los Esteros Energy Center
2000
 
180.0
     
 
Los Esteros Energy Center
2100
 
180.0
     
 
Los Esteros Energy Center
2200
 
 
     
 
Los Esteros Energy Center
2300
 
 
     
 
Los Esteros Energy Center
2400
 
 
     
 
 
 
 
 
     
 

 
 
24

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Total
 
2340
     
 
 
 
 
 
 
 
 
 

 
 
25

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EXHIBIT B
 
OPERATING LIMITATIONS
 

1.  
Operating Range

 
 
Minimum Output
20 MW
 
 
 
 
 
 
Maximum Output
180 MW or Available Capacity
 

2.  
Ramp Rates

 
a.      Minimum Ramp Rate
 
 

 
Number of Units Operating
Ramp Rates (MW/min)
 
 
1
4
 
 
2
8
 
 
3
12
 
 
4
16
 

 
b.      Maximum Ramp Rate
 
 

 
Number of Units Operating
Ramp Rates (MW/min)
 
 
1
9
 
 
2
18
 
 
3
27
 
 
4
36
 

 
 
3.  
Minimum Down Time                                          30 minutes

4.  
Minimum Run Time                                              60 minutes

5.  
Maximum Units in Start Up                                   4

6.  
Maximum Units in Shut Down                               4

7.  
Start Times (from initial notification to min load)

a.  
Normal Start                                            30 minutes

b.  
Fast Start                                                 10 minutes

 
8.          Total NOx emissions are limited to 74.9 tons/year

26

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EXHIBIT C
 
FORM OF LETTER OF CREDIT
 
[Issuing Bank Letterhead]
 
[Address]
 

 
Date: _________
 
Irrevocable Standby Letter of Credit Number:________
 
  Beneficiary:     California Department of Water Resources
  
  Address:
 
  Applicant:     Calpine Energy Services, L.P.
 
  Address:
 

 
[Advising Bank, if applicable]
[Confirming Bank, if applicable]
Amount:  USD 20,000,000 (Twenty Million US Dollars)

We hereby issue our Irrevocable Standby Letter of Credit at this office in your
favor for the account of Applicant by sight payment against the following
documents:
 
1.           Your sight draft drawn on us marked “drawn under [Issuing Bank]
[Letter of Credit Number] dated [Date]”;
 
AND
 
2.           Beneficiary’s signed statement certifying:
 
“Applicant is in default under that certain Third Amended and Restated
Confirmation Agreement dated December __, 2007 by and between Applicant and
Beneficiary and the amount drawn hereunder is not greater than the amount due
and owing to Beneficiary pursuant to that agreement.”
 
OR
 
“This Letter of Credit will expire in thirty (30) calendar days or less and
Applicant has not provided a replacement letter of credit or alternate security
acceptable to the Beneficiary.”
 
This Letter of Credit expires at our counters located at [INSERT ADDRESS]
on  [INSERT DATE], (“Expiration Date”) but the Expiration Date shall be
automatically extended without amendment for a period of one year and on each
successive Expiration Date, unless at least sixty (60) days before the then
current Expiration Date, we notify you by registered mail or courier that we
elect not to renew this Letter of Credit for such additional period.
 
Special Conditions:

27

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1.           Partial drawing(s) are permitted.
 
2.           All banking charges associated with this Letter of Credit are for
the account of the Applicant.
 
3.           This Letter of Credit is transferable upon request as provided in
the next paragraph.
 
Beneficiary may transfer or assign this Letter of Credit upon presentation to us
of this Letter of Credit, Beneficiary’s signed statement that it has assigned
that certain Third Amended and Restated Confirmation Agreement dated December
__, 2007 by and between Applicant and Beneficiary to the transferee in
compliance with the terms thereof, and such other documentation we may
reasonably request to evidence such assignment.  Consent of the Applicant to
assign this Letter of Credit under these circumstances shall not be required,
but shall be required in all other circumstances.
 
We hereby engage with you that draft(s) drawn under and in compliance with the
terms of this Letter of Credit will be duly honored if drawn and presented for
payment at any time before the close of business [INSERT TIME] at our counters
located at [INSERT ADDRESS] on or before the Expiration Date or in the event of
Force Majeure, as defined under Article 17 of the Uniform Customs and Practice
for Documentary Credits (1993 Revision) International Chamber of Commerce
Publication No. 500 (“UCP”), interrupting our business, within fifteen (15) days
after resumption of our business, whichever is later.
 
Except as otherwise stated herein, this credit is subject to the UCP and, with
respect to matters not so covered, this Letter of Credit is subject to and
governed by the Laws of the State of New York.
 
If you have any questions regarding this Letter of Credit, please call
[Telephone No.].
 
By:  __________________
 
Authorized Signature
 
Name: _________________
 
Title: __________________
 
 
28

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EXHIBIT D

PERFORMANCE TESTING PROCEDURES
 
FOR COMMERCIAL OPERATIONS
 

 
1.         Purpose of the Performance Test.

During the period beginning March 1 and ending May 31 in each Contract Year,
unless otherwise agreed, Seller will conduct a Performance Test of the Facility
(“Annual Performance Test”) to determine the Contract Quantity. Periodically
throughout the Delivery Period, Buyer and/or Seller may perform additional
performance tests.  The purpose of this Exhibit D is to provide the guidelines
under which these performance tests will be conducted.
 
2,          Test Procedure and Schedule.

 
The Seller shall prepare and submit its written, proposed test procedure and
schedule to Buyer no less than fourteen (14) business days before the proposed
test date for Buyer's acceptance and, within ten (10) business days of such
submittal, Buyer and the Seller shall meet to review and discuss the proposed
test procedure and schedule.  For Performance Tests other than  the initial
test, Buyer and the Seller may waive such meeting by mutual agreement.

Within five (5) business days of such meeting or waiver thereof, Buyer shall
submit either its written acceptance or comments, including the reasons for such
comments, on the proposed test procedure and schedule to the Seller.  The
failure by Buyer to submit  such written acceptance or comment within the
required time shall constitute acceptance of the proposed test procedure and
schedule by Buyer.   Other than this deemed approval by the Buyer, the parties
shall mutually agree on the final test procedure that shall be the approved test
procedure.

The Seller shall provide written notice to Buyer of changes, if any,  to the
approved test procedure and schedule and the reason(s) therefore as soon as
reasonably practicable, such changes being subject to Buyer's approval.

The proposed and approved test procedures shall comply with the requirements of
Section 3 of the Performance Test Code ASME PTC 22-1997 for Gas Turbine Power
Plants (“PTC 22”).

3.           Scheduling of Annual Performance Tests.

Seller shall give the Buyer five business days notice before the commencement of
the performance test.  A capacity and heat rate test of the Facility shall be
performed. Except for the fuel costs, which will be paid for or provided by
Buyer, this performance test shall be paid for by the Seller.
 
 
29

--------------------------------------------------------------------------------

 
Periodically Buyer may call for additional performance tests in addition to the
required annual test for the determination of Contract Quantity.  The
incremental costs of this test shall be born by Buyer.  Seller shall give the
Departement 10 business days notice before the commencement of the performance
test.

4.           Test Conditions.

 
A.
Start-Up and Stabilization Period.  Prior to the start of the test, the Facility
shall be started, synchronized and brought to full load using normal start
procedures and then operated continuously at full load for as long as it is
necessary, but in no case for no less than one hour, for all measured parameters
to achieve stable, normal conditions such that any variations in such parameters
will be within the tolerances provided in Table 3.3.3 of PTC 22.

 
B.
Operating Personnel.  The Facility shall be operated by Seller’s operating
personnel.

 
 
C.
Duration.  The duration of the test shall be four continuous (4) hours, which
shall commence only upon satisfactory completion of the Start-Up and
Stabilization Period.

 
 
D.
Operating Procedures and Conditions.   At all times, the Facility shall be
operated in compliance with the approved test procedure, Prudent Industry
Practice and all operating procedures recommended, required or established by
(i) the manufacturer or supplier of the Facility's equipment (ii) the firm(s)
that engineered and designed the Facility and (iii) the contractor(s) that
constructed the Facility.  

 
At no time during the test shall the Facility be subject to disruptions or
abnormal conditions including, but not limited to, any (i) unstable conditions,
(ii) equipment, operating, or regulatory restrictions, or (iii) changes in load
from full load other than those fluctuations naturally arising from variations
in ambient temperature.  
 
 
E.
Applicable Laws and Permits.  At all times, the Facility shall be in compliance
with all applicable laws, regulations and permits, including, but not limited
to, those governing safety and air and water emissions.  

 
 
F.
Data Collection.  At a minimum, the following parameters will be measured and
recorded simultaneously at no greater than fifteen  minute intervals except for
fuel samples:

1.  
Instantaneous ambient relative humidity (%)

2.  
Instantaneous ambient barometric pressure (inches Hg)

3.  
Instantaneous ambient temperature (°F)

4.  
Net output since last measurement at the Energy Delivery Point (kWh)

5.  
CEMS data required per air permit

 
 
30

--------------------------------------------------------------------------------

 
6.  
Turbine speed (rpm)

7.  
Turbine temperatures (°F)

8.  
Turbine pressures (psig)

9.  
Fuel flow at the Gas Delivery Point.

10.  
fuel samples once per test to be tested by an indpendent laboratory.

Upon mutual agreement of the Parties, additional parameters may be measured and
recorded simultaneously with the required parameters.  

 
G.
Instrumentation and Metering.    The Seller shall provide all instrumentation,
metering and data collection equipment required to perform the test.  Wherever
possible, the instrumentation, metering and data collection equipment that will
be used for monitoring and controlling the operation of the Facility and
collecting the data required for the Seller to prepare and submit its monthly
invoice to Buyer shall be used for the test.  The Seller shall calibrate or
cause to be calibrated all such instrumentation, metering and data collection
equipment no more than three (3) months prior to the date of the test.  All
electrical metering equipment shall utilize the plant’s installed CAISO metering
equipment calibrated to CAISO standards.

 
5.           Determination of Contract Quantity and Creation of Ambient Facility
Output Table.
 
The Seller shall perform the calculation of Contract Quantity correcting the
measured  data  to the following adjustments:

The net output for each data interval shall be adjusted to Contract Conditions
by first adjusting for differences, if any, between the ambient relative
humidity for that data interval and Contract Conditions using the performance
curves provided by the manufacturer then adjusting that result for differences,
if any, between the ambient barometric pressure for that data interval  and
Contract Conditions using the performance curves provided by the manufacturer,
and, finally, adjusting that result for differences, if any, between
the  ambient temperature for that data interval and Contract Conditions using
the manufacturer’s performance curve .

Using the resulting net output data from this sequential, three-step adjustment
process, the  net kW output at Contract Conditions at the Energy Delivery Point
shall be calculated for each of the sixteen (16) consecutive fifteen (15) minute
intervals comprising the test.  The average of the sixteen average net kW values
thus calculated shall be the Contract Quantity.

Using the manufacturer’s performance curve, the Contract quantity as calculated
above for the Facility, comprising those Units meeting the requirements of
Section 4.03, shall be used to generate an “Ambient Facility Output Table”
relating expected Facility output (in MW) to ambient temperature, such that the
Contract Quantity of the Facility shall be the expected Facility output at
Contract Conditions in the Ambient Facility Output Table,
 
 
31

--------------------------------------------------------------------------------

 
and the expected Facility output at other ambient temperatures shall relate to
Contract quantity in the same proportion as the points on the manufacturer’s
performance curve relate to that curve at Contract Conditions.

As used herein, “Contract Conditions” means an ambient temperature of 59º F,
relative humidity of 60% and atmospheric pressure adjusted to site elevation.

6.           Test Reports.
 
Within ten (10) business days after the completion of the performance test, the
Seller shall prepare and submit to Buyer a written report of the test in
accordance with Section 6 of PTC 22.  At a minimum, the report shall include (i)
the approved test procedure, (ii) a record of the personnel present for the test
whether serving in an operating, testing, monitoring or other such participatory
role, (iii) documentation of the satisfactory completion of the start-up and
stabilization period, (iv) a record of any unusual or abnormal conditions or
events that occurred during the test and any actions taken in response thereto,
(v) the  measured  data, (vi) a verification of the validity of the test in
accordance with Section 3.5.1 of PTC 22, (vii) the adjusted data with supporting
calculations, (viii) Contract Quantity with supporting calculations, and (ix)
the Seller’s statement of either the Seller’s acceptance of the test or the
Seller’s rejection of the test and reason(s) therefore.  Within five (5)
business days after receipt of such report, Buyer shall notify the Seller in
writing of either Buyer’s acceptance of the test or Buyer’s rejection of the
test and reason(s) therefore.
 
7.           Test Acceptance and Re-Testing.  
 
If the Seller and Buyer both accept a test, the Contract Quantity shall be
updated to reflect the results of such test effective upon the first day of the
month following the month in which Buyer receives the Seller’s test report.

If the Seller is unable to complete a test for any reason, it shall be permitted
to reconduct such test.

8.           Cost and Revenue.

 
Buyer shall bear all fuel costs, for tests and receive all revenues from the
sale of such Energy generated during the tests.  The hours of operation during
such test shall not be counted towards the annual limits on operating hours that
Buyer may dispatch.

With respect to re-tests requested by Buyer, Buyer shall bear all costs,
including fuel costs, for tests and receive all revenues from the sale of such
Energy generated during the tests.  The hours of operation during such test
shall not be counted towards the annual limits on operating hours that Buyer may
dispatch.

 
32

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EXHIBIT E

DIVISION OF GENERATOR OPERATOR (GOP) AND
 GENERATOR OWNER (GO) RESPONSIBILITIES

[To be attached after negotiation by the Parties
in accordance with Special Condition 1(e)]

33

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EXHIBIT F

[FORM OF] CONFIDENTIALITY AGREEMENT

 
This CONFIDENTIALITY AGREEMENT (this “Agreement”) is dated as of
[______________], (the “Effective Date”) and is by and among Calpine Corporation
(the “Calpine”), Calpine Energy Services, L.P. (“CES”; together, Calpine and CES
are the “Calpine Parties”) and the California Department of Water Resources,
acting solely under the authority and powers created by California Assembly Bill
1 from the First Extraordinary Session of 2000-2001, codified in Sections 80000
through 80270 of the California Water Code (“CERS”). The Calpine Parties and
CERS are sometimes collectively referred to herein as the “Parties” and
individually as a “Party.”

W I T N E S S E T H:

WHEREAS, CES and CERS are parties to that certain Master Power Purchase and Sale
Amended and Restated Confirmation Letter Agreement dated April 22, 2002,
effective May 1, 2002, as amended by the Amendment dated October 23, 2003 and
the Letter Amendment dated October 29, 2003, as amended and restated by the
Third Amended and Restated Confirmation Letter dated December __, 2007 (the
"Third Amendment", collectively “Contract 2”).

WHEREAS, Calpine is a guarantor of CES’ obligations under Contract 2 pursuant to
that certain Amended and Restated Guarantee Agreement, dated as of August 31,
2005.

WHEREAS, from time-to-time in connection with the administration of Contract 2,
CES may be required to provide CERS certain confidential information, and which
pursuant to the terms of Contract 2, CES and CERS have agreed to make the
provision of such confidential information subject to a confidentiality
agreement.

WHEREAS, each of the Parties acknowledges and agrees, as set forth in this
Agreement, that the Evaluation Material (as defined below)  provided by the
other Party, before or after the execution of this Agreement, is considered by
the Disclosing Party to be proprietary and highly confidential and that the
unrestricted disclosure of such confidential information by one Party could
result in substantial and irreparable harm to the other Party, which harm would
be extremely difficult to quantify.

NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parties hereto expressly agree as follows:

1.           Evaluation Material.  The term “Receiving Party” shall mean a Party
that receives Evaluation Material from the other Parties pursuant to this
Agreement and Contract 2, and the term “Disclosing Party” shall mean a Party to
this Agreement that provides or discloses
 
 
34

--------------------------------------------------------------------------------

 
its Evaluation Material to a Receiving Party.  The term “Evaluation Material”
means any and all information, in any form or medium, written or oral,
concerning or relating to the Disclosing Party (whether prepared by the
Disclosing Party, its Representatives or otherwise) that is furnished to the
Receiving Party by or on behalf of the Disclosing Party and that (i) relates to
the performance under and administration of Contract 2 and (ii) is clearly
labeled as “confidential” (for written materials) or otherwise designated as
confidential (for other communications), including without limitation all oral
and written information relating to evaluations, plans, programs,  suppliers,
facilities, equipment and other assets, processes, trade secrets, know-how,
patent applications that have not been published, technology and other
confidential information and intellectual property of the Disclosing Party
relevant to any inquiry made by the Receiving Party in connection with the
performance under and administration of, Contract 2.  In addition, “Evaluation
Material” shall be deemed to include all notes, analyses, studies,
interpretations, memoranda and other documents, material or reports (in any form
or medium) prepared by a Receiving Party or any of its Representatives that
contain, reflect or are based upon, in whole or part, the information furnished
to or on behalf of the Receiving Party as contemplated hereby.  The term
“Evaluation Material” shall not include information that: (a) is or becomes
available to the public generally, other than as a result of disclosure by the
Receiving Party or one of its Representatives in breach of the terms of this
Agreement; (b) becomes available to the Receiving Party from a source other than
the Disclosing Party or one of its Representatives, including without limitation
prior to the Effective Date, provided that such source is not bound by a
confidentiality agreement with or does not have a contractual, legal or
fiduciary obligation of confidentiality to the Disclosing Party or any other
person with respect to such information; or (c) has been independently acquired
or developed by the Receiving Party without using any Evaluation Material or
violating any of its obligations under this Agreement.  The term
“Representatives” means the directors, officers, partners, managers, members,
employees, advisors, agents and other representatives of a Party and their
subsidiaries and affiliates, including without limitation attorneys,
accountants, consultants, financial advisors, and joint venture participant,
actual or potential source of debt or equity financing or any other third-party
financing source with respect to the Transaction.

2.           Use of Evaluation Material and Confidentiality.

(a)           The Parties hereto agree that the Receiving Party and its
Representatives shall use the Evaluation Material of the Disclosing Party solely
in connection with the purposes set forth in Contract 2 and that the Evaluation
Material will be kept confidential and the Receiving Party further agrees to
protect the Evaluation Material against disclosure; provided however that the
Receiving Party may disclose Evaluation Material as follows: (i) to such of its
Representatives who need such information to assist the Receiving Party in its
evaluation, it being understood that such Representatives shall be informed at
the time of disclosure by the Receiving Party of the confidential nature of such
information; (ii) as expressly contemplated by this Agreement; and (iii) to the
extent that the Disclosing Party gives its prior written consent to such
disclosure.

(b)           As a condition to the furnishing of Evaluation Material to the
Representatives of a Party, each Party shall cause its Representatives to treat
such information in accordance with the provisions of this Agreement and to
perform or to comply with the obligations of the Receiving Party with respect to
the Evaluation Material as contemplated hereby.  Each of the Parties hereto
 
 
35

--------------------------------------------------------------------------------

 
agrees that it will be fully responsible for any breach of any of the provisions
of this Agreement by its Representatives and agrees to take, at its sole cost
and expense, all necessary measures to restrain its Representatives from any
prohibited or unauthorized disclosure or use of the Evaluation Material,
including without limitation the initiation of court proceedings.

(c)           If the Receiving Party or any of its Representatives are requested
or required to disclose any Evaluation Material, including terms and conditions
being negotiated, by law, regulation, the applicable rules of any national
securities exchange or other market or reporting system, oral questions,
interrogatories, requests for information or other documents in legal
proceedings, subpoena, civil investigative demand or any other similar process,
such Party shall provide the Disclosing Party with prompt written notice of any
such request or requirement so that the Disclosing Party has an opportunity to
seek a protective order or other appropriate remedy or waive compliance with the
provisions of this Agreement.  If the Disclosing Party waives compliance with
the provisions of this Agreement with respect to a specific request or
requirement, the Receiving Party and its Representatives shall disclose only
that portion of the Evaluation Material that is expressly covered by such waiver
and which is necessary to disclose in order to comply with such request or
requirement.  The Receiving Party and its Representatives shall cooperate in a
reasonable manner with the Disclosing Party in attempting to preserve the
confidentiality of the Evaluation Material.  If (in the absence of a waiver by
the Disclosing Party) the Disclosing Party has not secured a protective order or
other appropriate remedy despite attempting to do so, and the Receiving Party or
one of its Representatives is nonetheless then legally compelled to disclose any
Evaluation Material, the Receiving Party or such Representative may, without
liability hereunder, disclose only that portion of the Evaluation Material that
is necessary to be disclosed.  In the event that disclosure is made in
accordance with this subsection, the Receiving Party shall exercise and cause
its Representatives to exercise reasonable efforts to preserve the
confidentiality of the Evaluation Material, including obtaining reliable
assurance at the sole expense of the Receiving Party that confidential treatment
shall be accorded any Evaluation Material so furnished.

3.           Accuracy of Information.  Each Party represents and warrants that
the Evaluation Material provided hereunder for validation purposes shall be an
original document or a true, correct and complete copy of what it purports to be
and shall be consistent with records, notices and reports provided by such Party
to the CAISO, NERC or other independent organizations.

4.           Access.  In the event that either Party desires physical access to
any property or facilities of the other Party or any of its subsidiaries, such
Party agrees to indemnify, defend and hold harmless the other Party, its
affiliates, subsidiaries, directors and employees from and against any and all
losses, damages, liabilities, assessments, costs, charges, claims and causes of
action (including without limitation reasonable attorneys’ fees and costs) for
personal injury, death or property damage occurring on or to such property as a
result of the entry of such Party (including its Representatives) onto such
premises.  Each Party agrees to comply fully with all rules, regulations and
instructions issued by the other Party regarding the actions of such Party
(including its Representatives) while upon, entering or leaving the property of
the other Party or any of its subsidiaries.
 
 
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5.           Remedies.  It is understood and agreed that money damages would not
be a sufficient remedy for any breach of this Agreement by any Party hereto or
any of its Representatives and that the non-breaching Party be entitled to
equitable relief, including injunction and specific performance, as a remedy of
such breach.  Such remedies shall not be deemed to be the exclusive remedies for
a breach of this Agreement, but shall be in addition to all other remedies
available at law or equity to the non-breaching Party.  In the event of
litigation relating to this Agreement, if a court of competent jurisdiction
determines that a Party or any of its Representatives has breached this
Agreement, or if a Party does not prevail in any such action, such breaching or
non-prevailing Party shall be liable for and pay to the other Party on demand
the reasonable legal fees and expenses incurred by the non-breaching or
prevailing Party in connection with such litigation, including any appeal
therefrom. The restrictions expressed in this Agreement in no way supersede or
eliminate any rights which a Party may have pursuant to Federal or state law
pertaining to trade secrets or proprietary information and, in the event that
any such Federal or state law provides greater protections of any Evaluation
Material than the protections set forth in this Agreement, such greater
protections shall apply to such Evaluation Material.

6.           Waivers and Amendments.  No failure or delay by either Party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other
exercise thereof or the exercise of any other right, power or privilege
hereunder.  No alteration, amendment, change or supplement hereto shall be
binding or effective unless the same is set forth in writing signed by a duly
authorized representative of each Party.  No provision hereof or right hereunder
may be waived except by a separate written letter executed by an authorized
officer of the waiving Party, which writing expressly waives an identified
portion of this Agreement.

7.           Notices.  All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, one business day after being sent to the recipient by reputable
overnight courier service (charges prepaid) or five business days after being
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to each Party at the address indicated on the signature page to
this Agreement or to such other address or to the attention of such other person
as the recipient Party has specified by prior written notice to the sending
Party.

8.           Choice or Law/Consent to Jurisdiction.  The validity,
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California without regard to the conflicts of laws
principles thereof.  Each Party hereby irrevocably and unconditionally consents
to the exclusive jurisdiction of the federal and state courts in the State of
California for any action, suit or proceeding arising out of or related
hereto.  Each Party hereto further hereby irrevocably and unconditionally waives
any objection to the laying of venue of any action, suit or proceeding arising
out of or relating to this Agreement in the federal and state courts of the
State of California, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in any inconvenient forum.
 
 
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9.           Severability.  If any provision or portion of this Agreement should
be determined by any court or agency of competent jurisdiction to be invalid,
illegal or unreasonable, in whole or in part in any jurisdiction, and such
determination should become final, such provision or portion shall be deemed to
be severed in such jurisdiction, but only to the extent required to render the
remaining provisions and portions of this Agreement enforceable, and this
Agreement as thus amended shall be enforced in such jurisdiction to give effect
to the intention of the Parties insofar as that is possible, and further, the
Agreement shall continue without amendment in full force and effect in all other
jurisdictions.  In the event of any such determination, the Parties shall
negotiate in good faith to modify this Agreement to fulfill as closely as
possible the original intents and purposes hereof.

10.           Construction.  Each of the Parties hereto will be responsible for
any breach of the provisions of this Agreement by their respective subsidiaries
and affiliates and any other person to whom the Receiving Party (or its
Representatives) provides any Evaluation Material.  The term “person” as used in
this Agreement shall be interpreted broadly to include the media and any
corporation, group, individual or other entity.  The word “including” (and all
variations) shall mean including without limitation.  The Parties have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise.

11.           Counterparts.  For the convenience of the Parties, any number of
counterparts of this Agreement may be executed by the Parties hereto.  Each such
counterpart shall be, and shall be deemed to be, an original instrument, but all
such counterparts taken together shall constitute one and the same Agreement.  A
facsimile copy of this Agreement or any signatures hereon shall be considered as
originals for all purposes.

12.           Successors and Assigns.  The benefits of this Agreement shall
inure to the respective successors and assigns of the Parties hereto, and the
obligations and liabilities assumed in this Agreement by the Parties hereto
shall be binding upon their respective successors and assigns.

13.           Headings.  The headings to the Sections and subsections contained
herein are for identification purposes only and are not to be construed as part
of this Agreement.

14.           Entire Agreement.  This Agreement embodies the entire agreement
and understanding of the Parties hereto and supersedes any and all prior
agreements, arrangements and understandings, written or oral, relating to the
matters provided for herein.

15.           Term.  Unless a shorter period of time is specified elsewhere in
this Agreement, all obligations of the Parties shall expire on the fifth
anniversary of the Effective Date; provided that no such expiration shall
relieve either Party from liability in respect of breaches by such Party prior
to such expiration.
 
 
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[signature page follows]
 

 

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IN WITNESS WHEREOF, the Parties hereto have executed or caused this Agreement to
be executed by their duly authorized officers as of the Effective Date.
 
 
 
CALPINE CORPORATION
 
 
 
 
 
 
By:
 
 
 
Name:
 
 
 
Title:
 
 
 
Date:
 
 

 
Address:
 
 
 
Calpine Corporation
 
Attn:  Vice President and Assistant General Counsel
 
3475 Hopyard Road, Suite 345.
 
Pleasanton, CA 94588
 
Facsimile:  (925) 479-7303
 
Telephone:  (925) 479-6600
 
 
 
With a copy to:
 
 
 
Calpine Corporation
 
Attention:  General Counsel
 
50 West San Fernando Street
 
San Jose, CA  95113
 
Facsimile: (408) 975-4648
 
Telephone:  (408) 995-5115
 
 
 
 
 
 
 
CALPINE ENERGY SERVICES, L.P.

 
By:
 
 
 
Name:
 
 
 
Title:
 
 
 
Date:
 
 

 
Address:
 
 
 
Calpine Energy Services, L.P.
 
Attn: Director, Commodity Contracts
 
717 Texas Avenue
 
Houston, TX 77002
 
Facsimile:  (713) 830-2001
 
Telephone:  (713) 830-8845

 
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CALIFORNIA DEPARTMENT OF WATER
RESOURCES, acting solely under the authority and
powers created by California Assembly Bill 1 from the
First Extraordinary Session of 2000 – 2001, codified in
Sections 80000 – 80270 of the California Water Code

 
By:
 
 
 
Name:
 
 
 
Title:
 
 
 
Date:
 
 

 
Address:
 
 
 
California Department of Water Resource
 
Attn:  Deputy Drector
 
3301 El Camino Ave., Suite 120
 
Sacramento, CA 95821
 
Facsimile:  (916) 574-2512
 
Telephone:  (916) 574-2733

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