##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission file numbers:
333-117335
333-117335-40
 Calpine Generating Company, LLC
 (A Delaware Limited Liability Company)
 CalGen Finance Corp.
 (A Delaware Corporation)
 I.R.S. Employer Identification Nos.  77-0555128
20-1162632
 
 o þ
  o o þ
 o þ




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##### 



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
 REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2006
 TABLE OF CONTENTS
 Page No.PART
I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Condensed Balance Sheets at March 31, 2006 and December 31, 2005
    
    
    6Consolidated Condensed Statements of Operations for the Three Months Ended
March 31, 2006 and 2005
    
    
    7Consolidated Condensed Statements of Cash Flows for the Three Months Ended
March 31, 2006 and 2005
    
    
    8Notes to Consolidated Condensed Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    43PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    45Item 3. Defaults Under Senior Securities
    
    
    45Item 6. Exhibits
    
    
    45Signatures
    
    
    46Membership Interest Purchase AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906
  2




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DEFINITIONS
  ABBREVIATION
    
    DEFINITION1933 Act
    
    Securities Act of 1933, as amended1934 Act
    
    Securities Exchange Act of 1934, as amended2004 Refinancing
    
    Refinancing of the Construction Facility, consummated on March 23, 2004, in which
CalGen issued the Notes and Term Loans and entered into the Revolving Credit
Facility2005 Form 10-K
    
    Annual Report of CalGen on Form 10-K for the year ended December 31, 2005, filed
with the SEC on September 29, 2006345(b) Waiver Order
    
    Order pursuant to Section 345(b) of the Bankruptcy Code authorizing continued (i)
use of existing investment guidelines and (ii) operation of certain bank accounts
dated May 4, 2006Bankruptcy Code
    
    United States Bankruptcy CodeBankruptcy Court
    
    United States Bankruptcy Court for the Southern District of New YorkBtu
    
    British thermal unitsCAISO
    
    California Independent System OperatorCalGen Debtors
    
    CalGen and each of its subsidiaries that filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy CourtCalGen Holdings
    
    Calpine CalGen Holdings, Inc.Calpine or Parent
    
    Calpine CorporationCASCI
    
    Calpine Administrative Services Company, Inc.Cash Collateral Order
    
    Second Amended Final Order of the Bankruptcy Court Authorizing Use of Cash
Collateral and Granting Adequate Protection, dated February 24, 2006, as modified
by orders entered by the Bankruptcy Court on June 21, 2006, July 12, 2006, October
25, 2006, and November 15, 2006CCFC II
    
    Calpine Construction Finance Company II, LLC, which was renamed Calpine Generating
Company, LLC (referred to herein as CalGen) in connection with the 2004
RefinancingCES
    
    Calpine Energy Services, L.P.Chapter 11
    
    Chapter 11 of the Bankruptcy CodeConstruction Facility
    
    $2.5 billion Credit Agreement, dated as of October 16, 2000, among CCFC II, as
borrower, the lenders from time to time party thereto, The Bank of Nova Scotia, as
lead arranger, co-syndication agent and bookrunner, Credit Suisse First Boston,
acting through its New York Branch, as lead arranger and administrative agent,
Banc of America Securities LLC, and ING (U.S.) Capital LLC, as arrangers and
co-syndication agents, BayerischeLandesbank Girozentrale, as arranger,
co-documentation agent and LC bank, and CIBC World Markets Corp., Dresdner
Kleinword Benson North America Services LLC, and TD Securities (USA) Inc., as
arrangers and co-documentation agentsCOSCI
    
    Calpine Operating Services Company, Inc.Debtors
    
    Calpine Corporation and each of its subsidiaries, including the CalGen Debtors,
that have filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code in the Bankruptcy CourtDecatur
    
    Decatur Energy Center, LLCDIP Facility
    
    Revolving Credit, Term Loan and Guarantee Agreement, dated as of December 22,
2005, as amended on January 26, 2006, and as amended and restated by that certain
Amended and Restated Revolving Credit, Term Loan and Guarantee Agreement, dated as
of February 23, 2006, among Calpine Corporation, as borrower, the Guarantors party
thereto, the Lenders from time to time party thereto, Credit Suisse Securities
(USA) LLC and Deutsche Bank Securities Inc., as joint syndication agents, Deutsche
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ABBREVIATION
    
    DEFINITIONBank Trust Company Americas, as administrative agent for the First Priority
Lenders, General Electric Capital Corporation, as sub-agent for the Revolving
Lenders, Credit Suisse, as administrative agent for the Second Priority Term
Lenders, Landesbank Hessen Thuringen Girozentrale, New York Branch, General
Electric Capital Corporation and HSH Nordbank AG, New York Branch, as joint
documentation agents for the First Priority Lenders and Bayerische Landesbank,
General Electric Capital Corporation and Union Bank of California, N.A., as joint
documentation agents for the Second Priority LendersE&S
    
    Electricity and steamEITF
    
    Emerging Issues Task ForceERCOT
    
    Electric Reliability Council of TexasFASB
    
    Financial Accounting Standards BoardFERC
    
    Federal Energy Regulatory CommissionFIN 45
    
    FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Othersan
Interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34FIN 46
    
    FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB 51FIN 46-R
    
    FIN 46 (revised December 31, 2003)Fixed Price Agreement
    
    WECC Fixed Price Gas Sale and Power Purchase Agreement, dated as of March 23,
2004, among CES, CalGen, Delta Energy Center, LLC and Los Medanos Energy Center,
LLCGAAP
    
    Accounting principles generally accepted in the United States of AmericaHeat Rate
    
    A measure of the amount of fuel required to produce a unit of electricityIndex Based Agreement
    
    Index Based Gas Sale and Power Purchase Agreement, dated as of March 23, 2004,
among CES, CalGen and the subsidiaries of CalGen party theretoIndex Hedge
    
    ISDA Master Agreement, Schedule and Confirmation, dated as of March 12, 2004,
between CalGen and MSCG, guaranteed by Morgan Stanley pursuant to the Guaranty,
dated as of March 12, 2004, of Morgan Stanley in favor of MSCGKW
    
    Kilowatt(s)KWh
    
    Kilowatt hour(s)LIBOR
    
    London Inter-Bank Offered RateLSTC
    
    Liabilities subject to compromiseLTSA
    
    Long term service agreementMaintenance Agreement
    
    Master Maintenance Services Agreement, dated as of March 23, 2004, among CalGen,
the subsidiaries of CalGen party thereto and COSCIMMBtu
    
    Million British thermal unitsMorgan Stanley
    
    Morgan Stanley & Co. IncorporatedMSCG
    
    Morgan Stanley Capital Group, Inc.MW
    
    Megawatt(s)MWh
    
    Megawatt hour(s)NESCO
    
    National Energy Systems CompanyNOL(s)
    
    Net operating loss(es)Notes
    
    First Priority Secured Floating Rate Notes due 2009, Second Priority Secured
Floating Rate Notes due 2010, Third Priority Secured Floating Rate Notes due 2011
and Third Priority Secured Notes due 2011 in the amounts of $235 million, $640
million, $680 million and $150 million, respectivelyO&M
    
    Operations and maintenanceO&M Agreement
    
    Master Operation and Maintenance Agreement, dated as of March 23, 2004, among
CalGen, its subsidiaries party thereto and COSCIPanda
    
    Panda Energy International, Inc. and certain related parties, including PLC II, LLCPetition Date
    
    December 20, 2005
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ABBREVIATION
    
    DEFINITIONPG&E
    
    Pacific Gas and Electric CompanyPOX
    
    Plant operating expenseRevolving Credit Facility
    
    Amended and Restated Credit Agreement, dated as of March 23, 2004, among Calpine
Generating Company, LLC, as borrower, the Guarantors party thereto from time to
time, the Lenders party thereto from time to time, The Bank of Nova Scotia, as
administrative agent, LC Bank, lead arranger and sole bookrunner, and Bayerische
Landesbank Cayman Islands Branch, Credit Lyonnais New York Branch, ING Capital
LLC, Toronto Dominion (Texas) Inc. and Union Bank of California, N.A., as
arrangers and co-syndication agents, with respect to $200,000,000 First Priority
Secured Revolving LoansRMR
    
    Reliability-Must-RunSAB
    
    Staff Accounting BulletinSEC
    
    United States Securities and Exchange CommissionSFAS
    
    Statement of Financial Accounting StandardsSGA
    
    Sales, General and AdministrativeSolutia
    
    Solutia, Inc.SOP 90-7
    
    Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy CodeSubsidiary Guarantors
    
    Each of the following subsidiaries of CalGen: CalGen Expansion Company, LLC,
Baytown Energy Center, LP, Calpine Baytown Energy Center GP, LLC, Calpine Baytown
Energy Center LP, LLC, Baytown Power GP, LLC, Baytown Power, LP, Carville Energy
LLC, Channel Energy Center, LP, Calpine Channel Energy Center GP, LLC, Calpine
Channel Energy Center LP, LLC, Channel Power GP, LLC, Channel Power, LP, Columbia
Energy LLC, Corpus Christi Cogeneration LP, Nueces Bay Energy LLC, Calpine
Northbrook Southcoast Investors, LLC, Calpine Corpus Christi Energy GP, LLC,
Calpine Corpus Christi Energy, LP, Decatur Energy Center, LLC, Delta Energy
Center, LLC, CalGen Project Equipment Finance Company Two, LLC, Freestone Power
Generation LP, Calpine Freestone, LLC, CPN Freestone, LLC, Calpine Freestone
Energy GP, LLC, Calpine Freestone Energy, LP, Calpine Power Equipment LP, Los
Medanos Energy Center, LLC, CalGen Project Equipment Finance Company One, LLC,
Morgan Energy Center, LLC, Pastoria Energy Facility L.L.C., Calpine Pastoria
Holdings, LLC, Calpine Oneta Power, L.P. , Calpine Oneta Power I, LLC, Calpine
Oneta Power II, LLC, Zion Energy LLC, CalGen Project Equipment Finance Company
Three LLC, CalGen Equipment Finance Holdings, LLC and CalGen Equipment Finance
Company, LLC.Term Loans
    
    First Priority Secured Term Loans due 2009 and Second Priority Secured Term Loans
due 2010 in the amounts of $600 million and $100 million, respectivelyVIEs
    
    Variable Interest EntitiesWater Agreement
    
    Raw Water Service Agreement, dated April 12, 2000 among Contra Costa Water
District, Calpine Construction Finance Company, L.P. and Delta Energy Center, LLCWorking Capital Facility
    
    Working Capital Facility Agreement, dated as of March 23, 2004, among CalGen, as
borrower, CalGen Holdings, as lender, and, for the limited purpose set forth
therein, Calpine, as guarantor, with respect to $750 million of unsecured
subordinated revolving loans
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 2006 and December 31, 2005
(Unaudited)
 March 31, 2006
    
    
    December 31, 2005(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    215,642
    
    
    $
    143,456Restricted cash, current
    
    
    56
    
    
    
    55Accounts receivable, net of allowance of $5,077 and $4,649
    
    
    41,329
    
    
    
    70,614Accounts receivable  related party, net of allowance of $102,816 and $102,816
    
    
    2,879
    
    
    
    5,455Notes receivable, current portion
    
    
    414
    
    
    
    436Inventories
    
    
    20,535
    
    
    
    20,396Current derivative assets
    
    
    20,429
    
    
    
    16,380Deferred tax asset
    
    
    5,560
    
    
    
    5,055Prepaid and other current assets
    
    
    20,105
    
    
    
    19,481Total current assets
    
    
    326,949
    
    
    
    281,328Property, plant and equipment, net
    
    
    5,009,256
    
    
    
    5,053,715Notes receivable, net of current portion
    
    
    18,870
    
    
    
    18,977Restricted cash, net of current portion
    
    
    95
    
    
    
    95Deferred financing costs, net
    
    
    36,617
    
    
    
    40,043Long-term derivative assets
    
    
    
    
    
    
    8,178Other assets
    
    
    60,786
    
    
    
    31,719Total assets
    
    $
    5,452,573
    
    
    $
    5,434,055LIABILITIES & MEMBERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    73,093
    
    
    $
    101,105Notes payable, current
    
    
    158
    
    
    
    171Priority notes, term loans and other financings, current
    
    
    2,508,800
    
    
    
    2,437,982Accrued interest payable
    
    
    91,362
    
    
    
    61,401Other current liabilities
    
    
    200
    
    
    
    1,839Total current liabilities
    
    
    2,673,613
    
    
    
    2,602,498Notes payable, net of current portion
    
    
    1,956
    
    
    
    1,943Deferred tax liability
    
    
    78,805
    
    
    
    73,130Deferred revenue
    
    
    9,430
    
    
    
    8,770Other liabilities
    
    
    25,082
    
    
    
    17,478Total liabilities not subject to compromise
    
    
    2,788,886
    
    
    
    2,703,819Liabilities subject to compromise
    
    
    19,266
    
    
    
    25,592Commitments and contingencies (see Note 10)Members equity
    
    
    2,644,421
    
    
    
    2,704,644Total liabilities and members equity
    
    $
    5,452,573
    
    
    $
    5,434,055
 The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
 March 31, 2006
    
    
    March 31, 2005(Restated)(In thousands)Revenue:Electricity and steam revenue  related party
    
    $
    360,028
    
    
    $
    345,326Electricity
and steam revenue  third party
    
    
    124,343
    
    
    
    108,359Total electricity and steam revenue
    
    
    484,371
    
    
    
    453,685Mark-to-market derivative activity, net
    
    
    (4,129
    )
    
    
    (7,285
    )Sale of purchased power
    
    
    
    
    
    
    4,680Other revenue
    
    
    2,790
    
    
    
    1,200Total revenue
    
    
    483,032
    
    
    
    452,280Cost of revenue:Plant operating expense
    
    
    39,492
    
    
    
    43,474Fuel expense
    
    
    378,836
    
    
    
    334,555Purchased
power expense
    
    
    8,824
    
    
    
    4,418Depreciation
and amortization expense
    
    
    41,153
    
    
    
    40,643Total cost of revenue
    
    
    468,305
    
    
    
    423,090Gross profit
    
    
    14,727
    
    
    
    29,190Sales, general and administrative expense
    
    
    2,336
    
    
    
    3,251Other
operating (income) expense
    
    
    
    
    
    
    (1,500
    )Income from operations
    
    
    12,391
    
    
    
    27,439Interest expense  third party
    
    
    68,907
    
    
    
    50,749Interest income
    
    
    (2,274
    )
    
    
    (789
    )Other (income) expense, net
    
    
    (53
    )
    
    
    613Loss before
income tax expense (benefit)
    
    
    (54,189
    )
    
    
    (23,134
    )Income tax
expense (benefit)
    
    
    5,287
    
    
    
    (8,860
    )Net loss
    
    $
    (59,476
    )
    
    $
    (14,274
    )
 The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
 March 31, 2006
    
    
    March 31, 2005(Restated)(In thousands)Cash flows from operating activities:Net loss
    
    $
    (59,476
    )
    
    $
    (14,274
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    41,153
    
    
    
    40,643Amortization of discount and deferred financing costs
    
    
    3,426
    
    
    
    2,982Deferred income tax
    
    
    5,170
    
    
    
    (8,860
    )Mark-to-market derivative activities, net
    
    
    4,129
    
    
    
    7,285Loss on asset disposal
    
    
    1,290
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    29,285
    
    
    
    (3,664
    )Accounts receivable  related party
    
    
    3,536
    
    
    
    31,054Inventories
    
    
    (139
    )
    
    
    (34
    )Prepaid and other current assets
    
    
    (389
    )
    
    
    (4,650
    )Other assets
    
    
    1,007
    
    
    
    2,115Accounts payable and accrued liabilities
    
    
    5,341
    
    
    
    (21,662
    )Accrued interest payable
    
    
    29,961
    
    
    
    24,895Other accrued liabilities
    
    
    8,073
    
    
    
    1,639Net cash provided by operating activities
    
    
    72,367
    
    
    
    57,469Cash flows from investing activities:Increase in restricted cash
    
    
    (1
    )
    
    
    (176
    )Payment of deferred transmission credit
    
    
    (2,709
    )
    
    
    (783
    )Proceeds from deferred transmission credits
    
    
    2,400
    
    
    
    379Purchases of property, plant and equipment
    
    
    
    
    
    
    (31,168
    )Receipts from notes receivable
    
    
    129
    
    
    
    Net cash used in investing activities
    
    
    (181
    )
    
    
    (31,748
    )Net increase in cash and cash equivalents (1)
    
    
    72,186
    
    
    
    25,721Cash and cash equivalents, beginning of period
    
    
    143,456
    
    
    
    64,538Cash and cash equivalents, end of period
    
    $
    215,642
    
    
    $
    90,259Supplemental cash flow information:Cash paid for interest, net of amounts capitalized
    
    $
    34,952
    
    
    $
    22,236Non cash investing and financing transactions:Drawings under letters of credit under the revolving credit facility
issued to vendors related to affiliate gas purchases
    
    $
    40,818
    
    
    $
    Drawings under letters of credit as a security deposit under the
revolving credit facility to third party
    
    $
    30,000
    
    
    $
    Capital expenditures included in accounts payable
    
    $
    
    
    
    $
    1,587Disposition of property, plant and equipment through affiliate transfer
    
    $
    961
    
    
    $
    Record provision for retention payable
    
    $
    489
    
    
    $
    
 
 (1)
    
    No cash was provided by or used in financing activities for the three months ended March 31, 2006 and 2005. The accompanying notes are an integral part of these Consolidated Condensed Financial Statements
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
 1. Basis of Interim Presentation and Summary of Significant Accounting Policies
 Basis of Interim Presentation
   Summary of Significant Accounting Policies
 Use of Estimates in Preparation of Financial Statements
 Restricted Cash
 Provision
(Benefit) for Income Taxes
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
    Recent Accounting Pronouncements
 SFAS No. 154
  FASB Interpretation No. 48
  SFAS No. 157
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
  SAB No. 108
  2. Chapter 11 Cases and Going Concern
 In re
Calpine Corporation et al.
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
   Significant Pending Matters and Recent Developments 
  12




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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
  
    
    On September 12, 2006, we filed with the Bankruptcy Court a notice of rejection of a
transportation contract between Columbia Energy LLC, a CalGen Debtor, and South Carolina
Pipeline Corporation. The contract, which is scheduled to expire on November 30, 2023, was
for transportation capacity on an intrastate pipeline that exceeded the Columbia
facilitys requirements. On September 25, 2006, South Carolina Pipeline Corporation filed
certain objections to the rejection notice which were ultimately resolved by the parties,
and, on October 25, 2006, the Bankruptcy Court entered the parties stipulation settling
this matter. Under the stipulation, the effective date of rejection is October 25, 2006,
and South Carolina Pipeline Corporation must file its claim for rejection damages by
December 22, 2006.
    
    On October 20, 2006, Columbia Energy LLC entered into a stipulation settling Southern
Natural Gas Companys administrative expense claim relating to a firm transportation
natural gas pipeline contract between the parties. Under the stipulation, Columbia agreed
to pay $2.4 million for actual post-petition utilization of the contract. Columbia ceased
using the contract on June 24, 2006, and Southern Natural Gas Company has agreed to waive
any right to seek payment of an administrative expense claim for the period after Columbia
ceased using the contract. Southern Natural Gas Company has also agreed not to oppose any
motion to reject the contract. The  Bankruptcy Court approved the
stipulation on November 8, 2006.
  
    
    On October 12, 2006, the Bankruptcy Court approved our motion to assume five agreements
relating to operation of the Channel Energy Center, a 531-MW gas-fired combined cycle
cogeneration plant located near Houston, Texas. The five agreements assumed are (i) the
Amended and Restated Ground Lease and Easement Agreement, (ii) the Operating Lease
Agreement, (iii) the Development, Construction, Operation and Maintenance Agreement, (iv)
the Facility Services Agreement and (v) the Energy Services Agreement, all of which are
between Channel Energy Center LP and Lyondell-CITGO Refining L.P.
    
    On December 6, 2006, the Bankruptcy Court approved the
Debtors motion to assume the facility site lease
 and energy services agreement underlying our Corpus Christi
facility, a 437-MW gas-fired combined
cycle cogeneration plant located near Corpus Christi, Texas, and
approved a settlement agreement and
 amendments to the facility site lease and energy services agreement
with CITGO Refining and Chemicals Company L.P.,
the counterparty to the facility site lease and energy services agreement, pursuant to which certain disputes under those
 agreements have been resolved.
 de minimis
 
    
    On November 3, 2006, we entered into an asset purchase agreement with Puget Sound
Energy to sell substantially all of the assets of the Goldendale Energy Center, a 271-MW
natural gas fired combined cycle power plant located in Goldendale, Washington, for
approximately $100 million. On December 6, 2006, the Bankruptcy
Court approved an auction process in which qualifying bidders can
make competing offers on the transaction. The sale hearing is
currently scheduled for February 7, 2007, before the Bankruptcy Court. Closing of the transaction is subject to certain additional conditions including
receipt of any required regulatory approvals.
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
 3. Restatement
  Income taxes 
 Fuel expense 
 Deferred transmission credits 
 Other
operating (income) expense 
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CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
  Three Months Ended March 31, 2005As previouslyreported
    
    RestatedConsolidated Condensed Statement of OperationsFuel expense
    
    $
    340,725
    
    
    $
    334,555Total cost of revenue
    
    
    429,260
    
    
    
    423,090Gross profit
    
    
    23,020
    
    
    
    29,190Other
operating (income) expense
    
    
    
    
    
    
    (1,500
    )Income from operations
    
    
    19,769
    
    
    
    27,439Income tax benefit
    
    
    
    
    
    
    (8,860
    )Net loss
    
    $
    (30,804
    )
    
    $
    (14,274
    )Consolidated Condensed Statement of Cash FlowsDeferred income tax
    
    $
    
    
    
    $
    (8,860
    )Accounts
receivable  related party
    
    $
    37,224
    
    
    $
    31,054Other assets
    
    $
    2,064
    
    
    $
    2,115Accounts
payable and accrued liabilities
    
    $
    (20,162
    )
    
    $
    (21,662
    )Cash
provided by operating activities
    
    $
    57,418
    
    
    $
    57,469Payments of deferred transmission credit
    
    $
    
    
    
    $
    (783
    )Proceeds
from deferred transmission credit
    
    $
    
    
    
    $
    379Cash used in investing activities
    
    $
    (31,697
    )
    
    $
    (31,748
    )
 4. Property, Plant and Equipment, Net
  March 31,
    
    
    December 31,2006
    
    
    2005Buildings, machinery and equipment
    
    $
    5,561,405
    
    
    $
    5,563,844Less: Accumulated depreciation and amortization
    
    
    (560,003
    )
    
    
    (517,983
    )5,001,402
    
    
    
    5,045,861Land
    
    
    7,854
    
    
    
    7,854Property, plant and equipment, net
    
    $
    5,009,256
    
    
    $
    5,053,715
  Impairment Evaluation
  15




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
   5. Debt
 DIP Facility
    Notes and Term Loans
  16




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
 Carrying Amount atFace Amount
    
    
    Description
    
    Interest Rate
    
    March 31, 2006(In millions)
    
    
    
    
    
    
    (In millions)$
    235.0
    
    
    First Priority Secured Floating Rate Notes Due 2009
    
    LIBOR plus 375 basis points(1)
    
    $
    235.0640.0
    
    
    Second Priority Secured Floating Rate Notes Due 2010
    
    LIBOR plus 575 basis points(2)
    
    
    633.6680.0
    
    
    Third Priority Secured Floating Rate Notes Due 2011
    
    LIBOR plus 900 basis points
    
    
    680.0150.0
    
    
    Third Priority Secured Notes Due 2011
    
    11.50%
    
    
    150.0600.0
    
    
    First Priority Secured Term Loans due 2009
    
    LIBOR plus 375 basis points(1)
    
    
    600.0100.0
    
    
    Second Priority Secured Term Loans due 2010
    
    LIBOR plus 575 basis points(2)
    
    
    99.0Revolving Credit Facility
    
    Base (8%) plus 250 basis points, or  LIBOR plus 350 basis points
    
    
    111.2$
    2,405.0
    
    
    
    
    
    
    $
    2,508.8
 
 (1)
    
    The Company may also elect a Base Rate plus 275 basis points.(2)
    
    The Company may also elect a Base Rate plus 475 basis points.  Other Financings
    17




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
 Covenant Compliance
   6. Liabilities Subject to Compromise
   Pre-petition accounts payable
    
    $
    11,660Accrued liabilities
    
    
    7,606Total liabilities subject to compromise
    
    $
    19,266
 7. Significant Customers
  Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Revenues:CES
    
    $
    360,028
    
    
    $
    345,326
  18




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
  March 31, 2006
    
    
    December 31, 2005Receivables:CES
    
    $
    137,942
    
    
    $
    136,220Net receivable (payable) from affiliates under netting agreement
    
    
    (33,248
    )
    
    
    (28,449
    )Net receivable from affiliates under netting agreement
    
    
    104,694
    
    
    
    107,771Other affiliates
    
    
    1,001
    
    
    
    500Less allowance for doubtful accounts
    
    
    (102,816
    )
    
    
    (102,816
    )Net accounts receivable  related party
    
    $
    2,879
    
    
    $
    5,455
 8. Related Party Transactions
      9. Derivative Instruments
  19




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
   March 31, 2006Current derivative assets
    
    $
    20,429Long-term derivative assets
    
    
    Total derivative assets
    
    $
    20,429
  Three Months EndedMarch 31,2006
    
    
    2005Unrealized mark-to-market loss
    
    $
    (728
    )
    
    $
    (1,674
    )Realized mark-to-market loss
    
    
    (3,401
    )
    
    
    (5,611
    )Total mark-to-market derivative activities, net
    
    $
    (4,129
    )
    
    $
    (7,285
    )
 10. Commitments and Contingencies
 Commitments
   Guarantees
  Litigation
  20




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
   Estate of Jones, et al. v. Calpine
 Solutia
Bankruptcy
 21




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
 Panda Energy International, Inc., et al. v. Calpine, et al.
 Delta RMR Proceeding.
    22




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
 11. Guarantor Subsidiaries  Supplemental Consolidating Financial Statements
   23




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
March 31, 2006
(Unaudited)
(In thousands)
 Subsidiary
    
    Other
    
    Consolidating
    
    CalGenCalGen
    
    Guarantors
    
    Subsidiaries
    
    Adjustments
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    215,605
    
    
    $
    34
    
    
    $
    3
    
    
    $
    
    
    
    $
    215,642Restricted cash, current
    
    
    
    
    
    
    1
    
    
    
    55
    
    
    
    
    
    
    
    56Accounts receivable, net of allowance of $5,077
    
    
    2,043
    
    
    
    39,027
    
    
    
    259
    
    
    
    
    
    
    
    41,329Accounts receivable  related party, net of
allowance $102,816
    
    
    (271,338
    )
    
    
    303,369
    
    
    
    (32,636
    )
    
    
    3,484
    
    
    
    2,879Notes receivable, current
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    414Inventories
    
    
    
    
    
    
    19,467
    
    
    
    1,068
    
    
    
    
    
    
    
    20,535Current derivative assets
    
    
    20,429
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,429Deferred tax asset
    
    
    
    
    
    
    5,560
    
    
    
    
    
    
    
    
    
    
    
    5,560Prepaid and other current assets
    
    
    827
    
    
    
    18,694
    
    
    
    584
    
    
    
    
    
    
    
    20,105Total current assets
    
    
    (32,434
    )
    
    
    386,566
    
    
    
    (30,667
    )
    
    
    3,484
    
    
    
    326,949Property, plant and equipment, net
    
    
    
    
    
    
    4,918,917
    
    
    
    90,339
    
    
    
    
    
    
    
    5,009,256Investment in affiliates
    
    
    2,648,907
    
    
    
    
    
    
    
    
    
    
    
    (2,648,907
    )
    
    
    Notes receivable, net of current portion
    
    
    
    
    
    
    18,870
    
    
    
    
    
    
    
    
    
    
    
    18,870Notes receivable, affiliates
    
    
    2,563,545
    
    
    
    
    
    
    
    
    
    
    
    (2,563,545
    )
    
    
    Restricted cash, net of current portion
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    95Deferred financing costs, net
    
    
    36,617
    
    
    
    34,936
    
    
    
    1,681
    
    
    
    (36,617
    )
    
    
    36,617Other assets
    
    
    30,000
    
    
    
    35,866
    
    
    
    90
    
    
    
    (5,170
    )
    
    
    60,786Total assets
    
    $
    5,246,635
    
    
    $
    5,395,155
    
    
    $
    61,538
    
    
    $
    (5,250,755
    )
    
    $
    5,452,573LIABILITIES & MEMBERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,811
    
    
    $
    69,554
    
    
    $
    1,728
    
    
    $
    
    
    
    $
    73,093Notes payable, current
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    158Priority notes, term loans and other
financings, current
    
    
    2,508,800
    
    
    
    2,394,835
    
    
    
    113,965
    
    
    
    (2,508,800
    )
    
    
    2,508,800Accrued interest payable
    
    
    91,362
    
    
    
    87,174
    
    
    
    4,188
    
    
    
    (91,362
    )
    
    
    91,362Other current liabilities
    
    
    
    
    
    
    195
    
    
    
    5
    
    
    
    
    
    
    
    200Total current liabilities
    
    
    2,601,973
    
    
    
    2,551,916
    
    
    
    119,886
    
    
    
    (2,600,162
    )
    
    
    2,673,613Notes payable, net of current portion
    
    
    
    
    
    
    1,956
    
    
    
    
    
    
    
    
    
    
    
    1,956Deferred tax liability
    
    
    241
    
    
    
    74,542
    
    
    
    5,708
    
    
    
    (1,686
    )
    
    
    78,805Deferred revenue
    
    
    
    
    
    
    9,430
    
    
    
    
    
    
    
    
    
    
    
    9,430Other liabilities
    
    
    
    
    
    
    25,082
    
    
    
    
    
    
    
    
    
    
    
    25,082Total liabilities not subject to compromise
    
    
    2,602,214
    
    
    
    2,662,926
    
    
    
    125,594
    
    
    
    (2,601,848
    )
    
    
    2,788,886Liabilities subject to compromise
    
    
    
    
    
    
    18,651
    
    
    
    615
    
    
    
    
    
    
    
    19,266Commitments and contingencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Members equity (deficit)
    
    
    2,644,421
    
    
    
    2,713,578
    
    
    
    (64,671
    )
    
    
    (2,648,907
    )
    
    
    2,644,421Total liabilities and members equity
    
    $
    5,246,635
    
    
    $
    5,395,155
    
    
    $
    61,538
    
    
    $
    (5,250,755
    )
    
    $
    5,452,573
 24




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
December 31, 2005
(Unaudited)
(In thousands)
 Subsidiary
    
    Other
    
    Consolidating
    
    CalGenCalGen
    
    Guarantors
    
    Subsidiaries
    
    Adjustments
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    143,427
    
    
    $
    26
    
    
    $
    3
    
    
    $
    
    
    
    $
    143,456Restricted cash, current
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    55Accounts receivable, net of allowance of $4,649
    
    
    
    
    
    
    70,480
    
    
    
    134
    
    
    
    
    
    
    
    70,614Accounts receivable  related party, net of allowance
$102,816
    
    
    (2,479
    )
    
    
    214,403
    
    
    
    321
    
    
    
    (206,790
    )
    
    
    5,455Notes receivable, current
    
    
    
    
    
    
    436
    
    
    
    
    
    
    
    
    
    
    
    436Inventories
    
    
    
    
    
    
    19,329
    
    
    
    1,067
    
    
    
    
    
    
    
    20,396Current derivative assets
    
    
    16,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,380Deferred tax asset
    
    
    
    
    
    
    5,055
    
    
    
    
    
    
    
    
    
    
    
    5,055Prepaid and other current assets
    
    
    497
    
    
    
    18,768
    
    
    
    216
    
    
    
    
    
    
    
    19,481Total current assets
    
    
    157,825
    
    
    
    328,497
    
    
    
    1,796
    
    
    
    (206,790
    )
    
    
    281,328Property, plant and equipment, net
    
    
    
    
    
    
    4,962,724
    
    
    
    90,991
    
    
    
    
    
    
    
    5,053,715Investment in affiliates
    
    
    2,725,161
    
    
    
    
    
    
    
    
    
    
    
    (2,725,161
    )
    
    
    Notes receivable, net of current portion
    
    
    
    
    
    
    18,977
    
    
    
    
    
    
    
    
    
    
    
    18,977Notes receivable, affiliate
    
    
    2,459,340
    
    
    
    
    
    
    
    
    
    
    
    (2,459,340
    )
    
    
    Restricted cash, net of current portion
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    95Deferred financing costs, net
    
    
    40,043
    
    
    
    38,205
    
    
    
    1,838
    
    
    
    (40,043
    )
    
    
    40,043Long-term derivative assets
    
    
    8,178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,178Other assets
    
    
    1,686
    
    
    
    31,719
    
    
    
    
    
    
    
    (1,686
    )
    
    
    31,719Total assets
    
    $
    5,392,233
    
    
    $
    5,380,122
    
    
    $
    94,720
    
    
    $
    (5,433,020
    )
    
    $
    5,434,055LIABILITIES & MEMBERS EQUITYCurrent liabilities:Accounts payable
    
    $
    188,206
    
    
    $
    67,037
    
    
    $
    52,652
    
    
    $
    (206,790
    )
    
    $
    101,105Notes payable, current
    
    
    
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    171Priority notes, term loans and other financings, current
    
    
    2,437,982
    
    
    
    2,327,872
    
    
    
    110,110
    
    
    
    (2,437,982
    )
    
    
    2,437,982Accrued interest payable
    
    
    61,401
    
    
    
    58,586
    
    
    
    2,815
    
    
    
    (61,401
    )
    
    
    61,401Other current liabilities
    
    
    
    
    
    
    1,695
    
    
    
    144
    
    
    
    
    
    
    
    1,839Total current liabilities
    
    
    2,687,589
    
    
    
    2,455,361
    
    
    
    165,721
    
    
    
    (2,706,173
    )
    
    
    2,602,498Notes payable, net of current portion
    
    
    
    
    
    
    1,943
    
    
    
    
    
    
    
    
    
    
    
    1,943Deferred tax liability
    
    
    
    
    
    
    69,577
    
    
    
    5,239
    
    
    
    (1,686
    )
    
    
    73,130Deferred revenue
    
    
    
    
    
    
    8,770
    
    
    
    
    
    
    
    
    
    
    
    8,770Other liabilities
    
    
    
    
    
    
    17,478
    
    
    
    
    
    
    
    
    
    
    
    17,478Total liabilities not subject to compromise
    
    
    2,687,589
    
    
    
    2,553,129
    
    
    
    170,960
    
    
    
    (2,707,859
    )
    
    
    2,703,819Liabilities subject to compromise
    
    
    
    
    
    
    24,977
    
    
    
    615
    
    
    
    
    
    
    
    25,592Commitments and contingenciesMembers equity (deficit)
    
    
    2,704,644
    
    
    
    2,802,016
    
    
    
    (76,855
    )
    
    
    (2,725,161
    )
    
    
    2,704,644Total liabilities and members equity
    
    $
    5,392,233
    
    
    $
    5,380,122
    
    
    $
    94,720
    
    
    $
    (5,433,020
    )
    
    $
    5,434,055
 25




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the three months ended March 31, 2006
(Unaudited)
(In thousands)
 Subsidiary
    
    Other
    
    Consolidating
    
    CalGenCalGen
    
    Guarantors
    
    Subsidiaries
    
    Adjustments
    
    ConsolidatedRevenue:Electricity and steam revenue  related party
    
    $
    
    
    
    $
    352,048
    
    
    $
    7,980
    
    
    $
    
    
    
    $
    360,028Electricity and steam revenue  third-party
    
    
    
    
    
    
    124,218
    
    
    
    125
    
    
    
    
    
    
    
    124,343Total electricity and steam revenue
    
    
    
    
    
    
    476,266
    
    
    
    8,105
    
    
    
    
    
    
    
    484,371Mark-to-market derivative activity, net
    
    
    (4,129
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,129
    )Other revenue
    
    
    
    
    
    
    2,790
    
    
    
    
    
    
    
    
    
    
    
    2,790Total revenue
    
    
    (4,129
    )
    
    
    479,056
    
    
    
    8,105
    
    
    
    
    
    
    
    483,032Cost of revenue:Plant operating expense
    
    
    
    
    
    
    36,497
    
    
    
    2,995
    
    
    
    
    
    
    
    39,492Fuel expense
    
    
    
    
    
    
    372,746
    
    
    
    6,090
    
    
    
    
    
    
    
    378,836Purchased power
    
    
    
    
    
    
    8,824
    
    
    
    
    
    
    
    
    
    
    
    8,824Depreciation and amortization expense
    
    
    
    
    
    
    40,502
    
    
    
    651
    
    
    
    
    
    
    
    41,153Total cost of revenue
    
    
    
    
    
    
    458,569
    
    
    
    9,736
    
    
    
    
    
    
    
    468,305Gross profit (loss)
    
    
    (4,129
    )
    
    
    20,487
    
    
    
    (1,631
    )
    
    
    
    
    
    
    14,727Sales, general and administrative expense
    
    
    465
    
    
    
    1,808
    
    
    
    63
    
    
    
    
    
    
    
    2,336Income (loss) from operations
    
    
    (4,594
    )
    
    
    18,679
    
    
    
    (1,694
    )
    
    
    
    
    
    
    12,391Interest expense  third party
    
    
    68,907
    
    
    
    65,778
    
    
    
    3,129
    
    
    
    (68,907
    )
    
    
    68,907Interest income
    
    
    (70,353
    )
    
    
    (828
    )
    
    
    
    
    
    
    68,907
    
    
    
    (2,274
    )Equity loss in subsidiary
    
    
    56,706
    
    
    
    
    
    
    
    
    
    
    
    (56,706
    )
    
    
    Other (income) expense, net
    
    
    (619
    )
    
    
    481
    
    
    
    85
    
    
    
    
    
    
    
    (53
    )Loss before income taxes
    
    
    (59,235
    )
    
    
    (46,752
    )
    
    
    (4,908
    )
    
    
    56,706
    
    
    
    (54,189
    )Income taxes
    
    
    241
    
    
    
    4,577
    
    
    
    469
    
    
    
    
    
    
    
    5,287Net loss
    
    $
    (59,476
    )
    
    $
    (51,329
    )
    
    $
    (5,377
    )
    
    $
    56,706
    
    
    $
    (59,476
    )
 26




---



##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
For the three months ended March 31, 2005
(Unaudited)
(Restated, in thousands)
 Subsidiary
    
    Other
    
    Consolidating
    
    CalGenCalGen
    
    Guarantors
    
    Subsidiaries
    
    Adjustments
    
    ConsolidatedRevenue:Electricity and steam revenue  related party
    
    $
    
    
    
    $
    329,878
    
    
    $
    15,448
    
    
    $
    
    
    
    $
    345,326Electricity and steam revenue  third-party
    
    
    
    
    
    
    108,359
    
    
    
    
    
    
    
    
    
    
    
    108,359Total electricity and steam revenue
    
    
    
    
    
    
    438,237
    
    
    
    15,448
    
    
    
    
    
    
    
    453,685Mark-to-market derivative activity, net
    
    
    (7,285
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,285
    )Sale of purchased power
    
    
    
    
    
    
    4,680
    
    
    
    
    
    
    
    
    
    
    
    4,680Other revenue
    
    
    
    
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    1,200Total revenue
    
    
    (7,285
    )
    
    
    444,117
    
    
    
    15,448
    
    
    
    
    
    
    
    452,280Cost of revenue:Plant operating expense
    
    
    
    
    
    
    39,708
    
    
    
    3,766
    
    
    
    
    
    
    
    43,474Fuel expense
    
    
    
    
    
    
    323,048
    
    
    
    11,507
    
    
    
    
    
    
    
    334,555Purchased power
    
    
    
    
    
    
    4,418
    
    
    
    
    
    
    
    
    
    
    
    4,418Depreciation and amortization expense
    
    
    
    
    
    
    38,842
    
    
    
    1,801
    
    
    
    
    
    
    
    40,643Total cost of revenue
    
    
    
    
    
    
    406,016
    
    
    
    17,074
    
    
    
    
    
    
    
    423,090Gross profit (loss)
    
    
    (7,285
    )
    
    
    38,101
    
    
    
    (1,626
    )
    
    
    
    
    
    
    29,190Sales, general and administrative expense
    
    
    185
    
    
    
    2,898
    
    
    
    168
    
    
    
    
    
    
    
    3,251Other
    
    
    
    
    
    
    (1,500
    )
    
    
    
    
    
    
    
    
    
    
    (1,500
    )Income (loss) from operations
    
    
    (7,470
    )
    
    
    36,703
    
    
    
    (1,794
    )
    
    
    
    
    
    
    27,439Interest expense  third party
    
    
    50,749
    
    
    
    48,215
    
    
    
    2,534
    
    
    
    (50,749
    )
    
    
    50,749Interest income
    
    
    (51,058
    )
    
    
    (480
    )
    
    
    
    
    
    
    50,749
    
    
    
    (789
    )Equity loss in subsidiary
    
    
    9,903
    
    
    
    
    
    
    
    
    
    
    
    (9,903
    )
    
    
    Other (income) expense, net
    
    
    (77
    )
    
    
    600
    
    
    
    90
    
    
    
    
    
    
    
    613Loss before income taxes
    
    
    (16,987
    )
    
    
    (11,632
    )
    
    
    (4,418
    )
    
    
    9,903
    
    
    
    (23,134
    )Income taxes
    
    
    (2,713
    )
    
    
    (4,455
    )
    
    
    (1,692
    )
    
    
    
    
    
    
    (8,860
    )Net loss
    
    $
    (14,274
    )
    
    $
    (7,177
    )
    
    $
    (2,726
    )
    
    $
    9,903
    
    
    $
    (14,274
    )
 27




---



##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW
For the three months ended March 31, 2006
(Unaudited)
(In thousands)
 Subsidiary
    
    Other
    
    Consolidating
    
    CalGenCalGen
    
    Guarantors
    
    Subsidiaries
    
    Adjustments
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (59,476
    )
    
    $
    (51,329
    )
    
    $
    (5,377
    )
    
    $
    56,706
    
    
    $
    (59,476
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation and amortization
    
    
    
    
    
    
    40,502
    
    
    
    651
    
    
    
    
    
    
    
    41,153Amortization of discount and deferred financing
costs
    
    
    3,426
    
    
    
    3,269
    
    
    
    157
    
    
    
    (3,426
    )
    
    
    3,426Deferred
income tax
    
    
    241
    
    
    
    4,460
    
    
    
    469
    
    
    
    
    
    
    
    5,170Mark-to-market
derivative activities, net
    
    
    4,129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,129Loss on asset disposal
    
    
    
    
    
    
    1,290
    
    
    
    
    
    
    
    
    
    
    
    1,290Equity loss in subsidiary
    
    
    (56,706
    )
    
    
    
    
    
    
    
    
    
    
    56,706
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (2,043
    )
    
    
    31,453
    
    
    
    (125
    )
    
    
    
    
    
    
    29,285Accounts receivable  related party
    
    
    296,867
    
    
    
    (124,368
    )
    
    
    50,518
    
    
    
    (219,481
    )
    
    
    3,536Inventories
    
    
    
    
    
    
    (138
    )
    
    
    (1
    )
    
    
    
    
    
    
    (139
    )Prepaid and other current assets
    
    
    (330
    )
    
    
    309
    
    
    
    (368
    )
    
    
    
    
    
    
    (389
    )Other assets
    
    
    1,686
    
    
    
    (4,073
    )
    
    
    (90
    )
    
    
    3,484
    
    
    
    1,007Accounts payable and accrued liabilities
    
    
    (145,577
    )
    
    
    62,153
    
    
    
    (47,207
    )
    
    
    135,972
    
    
    
    5,341Accrued interest payable
    
    
    29,961
    
    
    
    28,588
    
    
    
    1,373
    
    
    
    (29,961
    )
    
    
    29,961Other accrued liabilities
    
    
    
    
    
    
    8,073
    
    
    
    
    
    
    
    
    
    
    
    8,073Net cash
provided by operating activities
    
    
    72,178
    
    
    
    189
    
    
    
    
    
    
    
    
    
    
    
    72,367Cash flows
from investing activities:Increase in restricted cash
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Payment of deferred transmission credit
    
    
    
    
    
    
    (2,709
    )
    
    
    
    
    
    
    
    
    
    
    (2,709
    )Proceeds from deferred transmission credits
    
    
    
    
    
    
    2,400
    
    
    
    
    
    
    
    
    
    
    
    2,400Receipts from notes receivable
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    129Net cash used in investing activities
    
    
    
    
    
    
    (181
    )
    
    
    
    
    
    
    
    
    
    
    (181
    )Net increase in cash and cash equivalents(1)
    
    
    72,178
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    72,186Cash and cash equivalents, beginning of period
    
    
    143,427
    
    
    
    26
    
    
    
    3
    
    
    
    
    
    
    
    143,456Cash and cash equivalents, end of period
    
    $
    215,605
    
    
    $
    34
    
    
    $
    3
    
    
    $
    
    
    
    $
    215,642
 
 (1)
    
    No cash was provided by or used in financing activities for
the three months ended March 31, 2006.
 28




---



##### Table of Contents



CALPINE GENERATING COMPANY, LLC
(a wholly-owned subsidiary of Calpine Corporation)
(Debtor-in-Possession)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
For the three months ended March 31, 2005
(Unaudited)
(Restated, in thousands)
 Subsidiary
    
    Other
    
    Consolidating
    
    CalGenCalGen
    
    Guarantors
    
    Subsidiaries
    
    Adjustments
    
    ConsolidatedCash flows from operating activities:Net loss
    
    $
    (14,274
    )
    
    $
    (7,177
    )
    
    $
    (2,726
    )
    
    $
    9,903
    
    
    $
    (14,274
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    
    
    
    
    38,842
    
    
    
    1,801
    
    
    
    
    
    
    
    40,643Amortization of discount and deferred financing costs
    
    
    3,244
    
    
    
    2,833
    
    
    
    149
    
    
    
    (3,244
    )
    
    
    2,982Deferred
income tax
    
    
    (2,713
    )
    
    
    (4,455
    )
    
    
    (1,692
    )
    
    
    
    
    
    
    (8,860
    )Mark-to-market
derivative activities, net
    
    
    7,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,285Equity loss in subsidiary
    
    
    9,903
    
    
    
    
    
    
    
    
    
    
    
    (9,903
    )
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    (122
    )
    
    
    (3,518
    )
    
    
    (24
    )
    
    
    
    
    
    
    (3,664
    )Accounts receivable  related party
    
    
    26,058
    
    
    
    2,590
    
    
    
    2,406
    
    
    
    
    
    
    
    31,054Inventories
    
    
    
    
    
    
    (6
    )
    
    
    (28
    )
    
    
    
    
    
    
    (34
    )Prepaid and other current assets
    
    
    (509
    )
    
    
    (3,564
    )
    
    
    (577
    )
    
    
    
    
    
    
    (4,650
    )Other assets
    
    
    (28,181
    )
    
    
    2,115
    
    
    
    
    
    
    
    28,181
    
    
    
    2,115Accounts payable and accrued liabilities
    
    
    89
    
    
    
    (21,411
    )
    
    
    (340
    )
    
    
    
    
    
    
    (21,662
    )Accrued interest payable
    
    
    24,895
    
    
    
    23,754
    
    
    
    1,141
    
    
    
    (24,895
    )
    
    
    24,895Other accrued liabilities
    
    
    
    
    
    
    1,615
    
    
    
    24
    
    
    
    
    
    
    
    1,639Net cash provided by operating activities
    
    
    25,675
    
    
    
    31,618
    
    
    
    134
    
    
    
    42
    
    
    
    57,469Cash flows from investing activities:Increase in restricted cash
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    (176
    )Payment of deferred transmission credit
    
    
    
    
    
    
    (783
    )
    
    
    
    
    
    
    
    
    
    
    (783
    )Proceeds from deferred transmission credits
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    379Sale (purchases) of property, plant and equipment
    
    
    42
    
    
    
    (31,211
    )
    
    
    43
    
    
    
    (42
    )
    
    
    (31,168
    )Net cash provided by (used in) investing activities
    
    
    42
    
    
    
    (31,615
    )
    
    
    (133
    )
    
    
    (42
    )
    
    
    (31,748
    )Net increase
in cash and cash equivalents(1)
    
    
    25,717
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    25,721Cash and cash equivalents, beginning of period
    
    
    64,510
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    64,538Cash and cash equivalents, end of period
    
    $
    90,227
    
    
    $
    31
    
    
    $
    1
    
    
    $
    
    
    
    $
    90,259
 
 (1)
    
    No cash was provided by or used in financing activities for
the three months ended March 31, 2005.
 29




---



##### Table of Contents



Item 2. Managements Discussion and Analysis (MD&A) of Financial Condition and Results of
Operations.
 In addition to historical information, this report contains forward-looking statements within
the meaning of Section 27A of the 1933 Act and Section 21E of the 1934 Act. We use words such as
believe, intend, expect, anticipate, plan, may, will and similar expressions to
identify forward-looking statements. Such statements include, among others, those concerning our
expected financial performance and strategic and operational plans, as well as all assumptions,
expectations, predictions, intentions or beliefs about future events. You are cautioned that any
such forward-looking statements are not guarantees of future performance and that a number of risks
and uncertainties could cause actual results to differ materially from those anticipated in the
forward-looking statements. Such risks and uncertainties include, but are not limited to, (i) the
risks and uncertainties associated with our Chapter 11 cases, including impact on operations; (ii)
risks relating to the Chapter 11 filings by Calpine and certain of its affiliates including CES,
COSCI and CASCI, which risks include: risks related to the ability of Calpine and its affiliates to
continue to perform under the various affiliate agreements, including the Fixed Price and Index
Based Agreements, and their ability to attract, retain and motivate key employees who provide
services to us; (iii) our and their ability to successfully implement new strategies; (iv) our
ability to successfully reorganize and emerge from Chapter 11; (v) our ability to attract and
retain customers and counterparties; (vi) our ability to implement our business plan; (vii)
financial results that may be volatile and may not reflect historical trends; (viii) our ability to
manage liquidity needs and comply with financing obligations; (ix) the direct or indirect effects
on our business of our and our affiliates (including Calpines) impaired credit; (x) potential
volatility in earnings and requirements for cash collateral associated with the use of commodity
contracts; (xi) price and supply of natural gas; (xii) risks associated with the operation of power
plants including unscheduled outages of operating plants; (xiii) quarterly and seasonal
fluctuations of our results; (xiv) competition; (xv) risks associated with marketing and selling
power from plants in the evolving energy markets; (xvi) present and possible future claims,
litigation and enforcement actions; (xvii) effects of the application of laws or regulations,
including changes in laws or regulations or the interpretation thereof; (xviii) restrictions
imposed by the instruments governing our debt, and (xix) other risks identified in this report and
the other reports that we file with the SEC, including, without limitation our 2005 Form 10-K . We
undertake no obligation to update any forward-looking statements, whether as a result of new
information, future developments or otherwise.
   Overview
   30




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##### Table of Contents



Restatement
  Income taxes 
 31




---



##### Table of Contents



Fuel expense 
 Deferred transmission credits 
 Other
operating (income) expense 
 Results of Operations
 Three Months Ended March 31, 2006, Compared to Three Months Ended March 31, 2005
  32




---



##### Table of Contents



Three Months EndedMarch 31,2006
    
    2005
    
    $ Change
    
    % Change(Restated)Revenue:Electricity and steam revenue  related party
    
    $
    360.0
    
    
    $
    345.3
    
    
    $
    14.7
    
    
    
    4.3
    %Electricity
and steam revenue  third party
    
    
    124.3
    
    
    
    108.4
    
    
    
    15.9
    
    
    
    14.7
    %Mark-to-market derivative activity, net
    
    
    (4.1
    )
    
    
    (7.3
    )
    
    
    3.2
    
    
    
    43.8
    %Sale of purchased power
    
    
    
    
    
    
    4.7
    
    
    
    (4.7
    )
    
    
    (100.0
    )%Other revenue
    
    
    2.8
    
    
    
    1.2
    
    
    
    1.6
    
    
    
    133.3
    %Total revenue
    
    
    483.0
    
    
    
    452.3
    
    
    
    30.7
    
    
    
    6.8
    %Cost of revenue:Plant operating expense
    
    
    39.5
    
    
    
    43.5
    
    
    
    4.0
    
    
    
    9.2
    %Fuel expense
    
    
    378.8
    
    
    
    334.6
    
    
    
    (44.2
    )
    
    
    (13.2
    )%Purchased power
    
    
    8.8
    
    
    
    4.4
    
    
    
    (4.4
    )
    
    
    (100.0
    )%Depreciation and amortization expense
    
    
    41.2
    
    
    
    40.6
    
    
    
    (0.6
    )
    
    
    (1.5
    )%Total cost of revenue
    
    
    468.3
    
    
    
    423.1
    
    
    
    (45.2
    )
    
    
    (10.7
    )%Gross profit
    
    
    14.7
    
    
    
    29.2
    
    
    
    (14.5
    )
    
    
    (49.7
    )%Sales, general and administrative expense
    
    
    2.3
    
    
    
    3.3
    
    
    
    1.0
    
    
    
    30.3
    %Other
    
    
    
    
    
    
    (1.5
    )
    
    
    (1.5
    )
    
    
    (100.0
    )%Income from operations
    
    
    12.4
    
    
    
    27.4
    
    
    
    (15.0
    )
    
    
    (54.7
    )%Interest expense  third-party
    
    
    68.9
    
    
    
    50.7
    
    
    
    (18.2
    )
    
    
    (35.9
    )%Interest income
    
    
    (2.3
    )
    
    
    (0.8
    )
    
    
    1.5
    
    
    
    187.5
    %Other (income) expense, net
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    0.7
    
    
    
    116.7
    %Loss before
income tax expense (benefit)
    
    
    (54.1
    )
    
    
    (23.1
    )
    
    
    (31.0
    )
    
    
    (134.2
    )%Income tax
expense (benefit)
    
    
    5.3
    
    
    
    (8.8
    )
    
    
    (14.1
    )
    
    
    (160.2
    )%Net loss
    
    $
    (59.4
    )
    
    $
    (14.3
    )
    
    $
    (45.1
    )
    
    
    (315.4
    )%
  33




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##### Table of Contents



Liquidity and Capital Resources
    Chapter 11 Cases and Financing Activities
  34




---



##### Table of Contents



DIP Facility.
  Cash
Management.
   35




---



##### Table of Contents



Rejection of Executory Contracts and Unexpired Leases.
 
    
    On September 12, 2006, we filed with the Bankruptcy Court of a notice of rejection of a
transportation contract between Columbia Energy LLC, a CalGen Debtor, and South Carolina
Pipeline Corporation. The contract, which is scheduled to expire on November 30, 2023, was
for transportation capacity on an intrastate pipeline that exceeded the Columbia
facilitys requirements. On September 25, 2006, South Carolina Pipeline Corporation filed
certain objections to the rejection notice which were ultimately resolved by the parties,
and, on October 25, 2006, the Bankruptcy Court entered the parties stipulation settling
this matter. Under the stipulation, the effective date of rejection is October 25, 2006,
and South Carolina Pipeline Corporation must file its claim for rejection damages by
December 22, 2006.
    
    On October 20, 2006, Columbia Energy LLC entered into a stipulation settling Southern
Natural Gas Companys administrative expense claim relating to a firm transportation
natural gas pipeline contract between the parties. Under the stipulation, Columbia agreed
to pay $2.4 million for actual post-petition utilization of the contract. Columbia ceased
using the contract on June 24, 2006, and Southern Natural Gas Company has agreed to waive
any right to seek payment of an administrative expense claim for the period after Columbia
ceased using the contract. Southern Natural Gas Company has also agreed not to oppose any
motion to reject the contract. The Bankruptcy Court approved the
stipulation on November 8, 2006.
  
    
    On October 12, 2006, the Bankruptcy Court approved our motion to assume five agreements
relating to operation of the Channel Energy Center, a 531-MW gas-fired combined cycle
cogeneration plant located near Houston, Texas. The five agreements assumed are (i) the
Amended and Restated Ground Lease and Easement Agreement, (ii) the Operating Lease
Agreement, (iii) the Development, Construction, Operation and Maintenance Agreement, (iv)
the Facility Services Agreement and (v) the Energy Services Agreement, all of which are
between Channel Energy Center LP and Lyondell-CITGO Refining L.P.
 
    
    On December 6, 2006, the Bankruptcy Court approved the
Debtors  motion to assume the facility site lease
 and energy services agreement underlying our Corpus Christi
facility, a 437-MW gas-fired combined
cycle cogeneration plant located near Corpus Christi, Texas, and
approved a settlement agreement and
 amendments to the facility site lease and energy services agreement
with CITGO Refining and Chemicals Company L.P.,
the counterparty to the facility site lease and energy services agreement, pursuant to which certain disputes under those
 agreements have been resolved.
 Asset Sale de minimis
 
    
    On November 3, 2006, we entered into an asset purchase
agreement with Puget Sound Energy to sell substantially all of
the assets of the Goldendale Energy Center, a 271-MW natural
gas fired combined cycle power plant located in Goldendale,
Washington, for approximately $100 million. On December 6, 2006, the
Bankruptcy Court approved  an auction
process in which qualifying bidders can make competing offers on the
transaction. The sale hearing is currently scheduled for February 7,
2007, before the Bankruptcy Court. Closing of the transaction is subject to certain
additional conditions including receipt of any required regulatory approvals.
 Cash Flow Activities
 Three Months Ended March 31,2006
    
    
    2005(Restated)(In millions)Beginning cash and cash equivalents
    
    $
    143.5
    
    
    $
    64.5Net cash provided by (used in):Operating activities
    
    
    72.4
    
    
    
    57.5Investing activities
    
    
    (0.2
    )
    
    
    (31.7
    )Financing activities
    
    
    
    
    
    
    Net increase in cash and cash equivalents
    
    
    72.2
    
    
    
    25.8Ending cash and cash equivalents
    
    $
    215.7
    
    
    $
    90.3
 36




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##### Table of Contents



Letter of Credit Facilities
 Negative Working Capital
 Credit Considerations
  Capital Expenditures and Sources
 Distributions to Sole Member
 Capital
Availability
 37




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##### Table of Contents



Compliance with Debt Covenants
 Guarantees
 Performance Indicators 
 Off-Balance Sheet Commitments
 Performance Metrics
  MWh generated.
 Average availability and average baseload capacity factor.
 Average Heat Rate for gas-fired fleet of power plants expressed in Btus of fuel consumed per
KWh generated.
 Average all-in realized electric price expressed in dollars per MWh generated.
 Average cost of natural gas expressed in dollars per MMBtus of fuel consumed.
 38




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##### Table of Contents



Average spark spread expressed in dollars per MWh generated.
 Average POX per MWh.
 39




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##### Table of Contents



Three Months EndedMarch 31, 2006
    
    March 31, 2005(Restated)(in thousands except hours in period,
percentages, Heat Rate, price and
cost information)Operating Performance Metrics:Total deliveries of power:MWh generated and delivered
    
    
    6,039
    
    
    
    6,584Average availability
    
    
    92.0
    %
    
    
    91.2
    %Average baseload capacity factor:Average total MW in operation
    
    
    9,815
    
    
    
    9,065Less: Average MW of pure peakers
    
    
    513
    
    
    
    513Average baseload MW in operation
    
    
    9,302
    
    
    
    8,552Hours in the period
    
    
    2,160
    
    
    
    2,160Potential baseload generation (MWh)
    
    
    20,092
    
    
    
    18,472Actual total generation (MWh)
    
    
    6,039
    
    
    
    6,584Less: Actual pure peakers generation (MWh)
    
    
    
    
    
    
    Actual baseload generation (MWh)
    
    
    6,039
    
    
    
    6,584Average baseload capacity factor
    
    
    30.1
    %
    
    
    35.6
    %Average Heat Rate for gas-fired power plants (excluding peakers) (Btus/KWh):Not steam adjusted
    
    
    8,481
    
    
    
    8,124Steam adjusted
    
    
    7,208
    
    
    
    7,052Average all-in realized electric price:Electricity and steam revenue
    
    $
    484,371
    
    
    $
    453,685Spread on sales of purchased power for hedging and optimization
    
    
    (7,136
    )
    
    
    262Adjusted electricity and steam revenue
    
    $
    477,235
    
    
    $
    453,947MWh generated
    
    
    6,039
    
    
    
    6,584Average all-in realized electric price per MWh
    
    $
    79.02
    
    
    $
    68.95Average
cost of natural gas:Adjusted fuel expense
    
    $
    378,836
    
    
    $
    334,555MMBtu of fuel consumed by generating plants
    
    
    51,220
    
    
    
    53,484Average adjusted cost of natural gas per MMBtu
    
    $
    7.39
    
    
    $
    6.26MWh generated
    
    
    6,039
    
    
    
    6,584Average adjusted cost of fuel burned by power plants per MWh
    
    $
    62.73
    
    
    $
    50.81Average spark spread:Adjusted electricity and steam revenue
    
    $
    477,235
    
    
    $
    453,947Less: Fuel expense
    
    
    378,836
    
    
    
    334,555Less: Realized amortization expense on Index Hedge
    
    
    3,401
    
    
    
    5,611Spark spread
    
    $
    94,998
    
    
    $
    113,781MWh generated
    
    
    6,039
    
    
    
    6,584Average spark spread per MWh
    
    $
    15.73
    
    
    $
    17.28Average POX per normalized MWh (for comparison purposes we also include POX per
actual MWh):Average total consolidated MW in operations
    
    
    9,815
    
    
    
    9,065Hours in the period
    
    
    2,160
    
    
    
    2,160Total potential MWh
    
    
    21,200
    
    
    
    19,580Normalized MWh (at 70% capacity factor)
    
    
    14,840
    
    
    
    13,706POX
    
    $
    39,492
    
    
    $
    43,474POX per normalized MWh
    
    $
    2.66
    
    
    $
    3.17POX per actual MWh
    
    $
    6.54
    
    
    $
    6.60
 40




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##### Table of Contents



Financial Market Risks
 Debt Financing
  Fair Value2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    3/31/2006 (1)First Priority Secured Floating Rate Notes Due 2009
    
    $
    
    
    
    $
    1,175
    
    
    $
    2,350
    
    
    $
    231,475
    
    
    $
    
    
    
    $
    
    
    
    $
    246,750Second Priority Secured Floating Rate Notes Due 2010
    
    
    
    
    
    
    
    
    
    
    3,200
    
    
    
    6,400
    
    
    
    624,039
    
    
    
    
    
    
    
    677,202Third Priority Secured Floating Rate Notes Due 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    680,000
    
    
    
    746,300Total Floating Rate Notes(2)
    
    
    
    
    
    
    1,175
    
    
    
    5,550
    
    
    
    237,875
    
    
    
    624,039
    
    
    
    680,000
    
    
    
    1,670,252First Priority Secured Term Loans Due 2009
    
    
    
    
    
    
    3,000
    
    
    
    6,000
    
    
    
    591,000
    
    
    
    
    
    
    
    
    
    
    
    600,000Second Priority Secured Term Loans Due 2010
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    1,000
    
    
    
    97,506
    
    
    
    
    
    
    
    99,006Total Floating Rate Term Loans(3)
    
    
    
    
    
    
    3,000
    
    
    
    6,500
    
    
    
    592,000
    
    
    
    97,506
    
    
    
    
    
    
    
    699,006Revolving Credit Facility(3)
    
    
    
    
    
    
    111,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,155Working Capital Facility(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Other Financings
    
    
    
    
    
    
    111,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,155Grand total variable-rate debt instruments
    
    $
    
    
    
    $
    115,330
    
    
    $
    12,050
    
    
    $
    829,875
    
    
    $
    721,545
    
    
    $
    680,000
    
    
    $
    2,480,413
 
 (1)
    
    Fair value equals carrying value, which is the aggregate principal amount subject to
variable rate risk.(2)
    
    Interest rate based on LIBOR plus a spread.(3)
    
    Interest rate based on LIBOR plus a spread; however the Company may elect the base rate
plus a spread (see Note 5 of the Notes to Consolidated Condensed Financial Statements). Derivatives
   Fair value of contracts outstanding at January 1, 2006
    
    $
    24,558Changes in fair value attributable to new contracts
    
    
    Amortization during the period, net (1)
    
    
    (3,401
    )Changes in fair value attributable to price movements, net
    
    
    (728
    )Fair value of contracts outstanding at March 31, 2006 (2)
    
    $
    20,429
 
 (1)
    
    Non-cash losses from roll-off (amortization) of deferred
premium (see discussion in Note 9 of the Notes to Consolidated Condensed Financial Statements).(2)
    
    Net derivative assets are reported in Note 9 of the Notes to Consolidated Condensed
Financial Statements. 41




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##### Table of Contents



Fair Value Source
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    After 2010
    
    
    TotalPrices actively quoted
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Prices provided by other external sources
    
    
    12,964
    
    
    
    7,465
    
    
    
    
    
    
    
    
    
    
    
    20,429Prices based on models and other valuation methods
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fair value
    
    $
    12,964
    
    
    $
    7,465
    
    
    $
    
    
    
    $
    
    
    
    $
    20,429
    Fair ValueAfter 10% AdverseFair Value
    
    Price ChangeAt March 31, 2006:Other mark-to-market activity
    
    $
    20,429
    
    
    $
    20,011
   Recent Accounting Pronouncements
  Recent Regulatory Developments
 EPAct 2005
 42




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##### Table of Contents



Market Developments
  Climate Change.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
    43




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##### Table of Contents



Status of Remediation of the Material Weakness
   
    
    Implementing software to perform the tax depreciation, supporting book to tax
reconciliations and valuation allowance computations. This software will be run parallel
with the spreadsheet calculations during 2006;
    
    Implemented quarterly meetings between the Tax and Accounting Departments to ensure
timely performance of book-tax reconciliations;
    
    Implemented consistent terminology related to fixed asset transactions types in the
accounting system to ensure effective conversion of accounting data for use in the tax
calculation; and
    
    Hired a Director of Federal Income Tax Accounting.
   
    
    Implemented a system to automate the calculation of our affiliate billings in the fourth quarter of 2005;
    
    Enhanced our general review procedures over revenues generated from CES; and
    
    Implemented additional analytical review and managerial approval of the monthly billings.
    44




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 3. Defaults Upon Senior Securities .
   
 Item 6. Exhibits.
  
 EXHIBIT INDEX
 Exhibit Number
    
    Description3.1
    
    Amended and Restated Certificate of
Formation of  Calpine Generating Company, LLC (incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement on Form
S-4 (Registration No. 333-117335), filed with the SEC on July 13, 2004).3.2
    
    Certificate of Incorporation of CalGen Finance Corp. (incorporated by
reference to Exhibit 3.2 to the Companys Registration Statement on Form
S-4 (Registration No. 333-117335), filed with the SEC on July 13, 2004).*3.3
    
    Limited Liability Company Operating
Agreement of  Calpine Generating Company, LLC (incorporated by
reference to Exhibit 3.93 to the Companys Registration Statement on Form
S-4 (Registration No. 333-117335), filed with the SEC on July 13, 2004).3.4
    
    Bylaws of CalGen Finance Corp. (incorporated by reference to Exhibit 3.94
to the Companys Registration Statement on Form S-4 (Registration No.
333-117335), filed with the SEC on July 13, 2004).10.1.1
    
    $2,000,000,000 Amended and Restated Revolving Credit, Term Loan and
Guarantee Agreement, dated as of February 23, 2006, among Calpine
Corporation, as borrower, its subsidiaries named therein, as guarantors,
the Lenders from time to time party thereto, Credit Suisse Securities
(USA) LLC and Deutsche Bank Trust Company Americas, as Joint Syndication
Agents, Deutsche Bank Securities Inc. and Credit Suisse and Deutsche Bank
Trust Company Americas, as Joint Administrative Agents (incorporated by
reference to Exhibit 10.1.1.1 to Calpine Corporations Annual Report on
Form 10-K for the year ended December 31, 2005, filed with the SEC on May
19, 2006).10.1.2
    
    First Consent, Waiver and Amendment, dated as of May 3, 2006, to and under
the Amended and Restated Revolving Credit, Term Loan and Guarantee
Agreement, dated as of February 23, 2006, among Calpine Corporation, as
borrower, its subsidiaries named therein, as guarantors, the Lenders party
thereto, Deutsche Bank Trust Company Americas, as administrative agent for
the First Priority Lenders, and Credit Suisse, Cayman Islands Branch, as
administrative agent for the Second Priority Term Lenders (incorporated by
reference to Exhibit 10.1.1.2 to Calpine Corporations Annual Report on
Form 10-K for the year ended December 31, 2005, filed with the SEC on May
19, 2006).10.1.3
    
    Consent, dated as of June 28, 2006, under the Amended and Restated
Revolving Credit, Term Loan and Guarantee Agreement, dated as of February
23, 2006, among Calpine Corporation, as borrower, its subsidiaries named
therein, as guarantors, the Lenders party thereto, Deutsche Bank Trust
Company Americas, as administrative agent for the First Priority Lenders,
and Credit Suisse, Cayman Islands Branch, as administrative agent for the
Second Priority Term Lenders. (incorporated by reference to Exhibit
10.1.1.3 to Calpine Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, filed with the SEC on August 14, 2006).10.1.4
    
    Second Amendment, dated as of September 25, 2006, to the Amended and
Restated Revolving Credit, Term Loan and Guarantee Agreement, dated as of
February 23, 2006, among Calpine Corporation, as borrower, its
subsidiaries named therein, as guarantors, the Lenders party thereto,
Deutsche Bank Trust Company Americas, as administrative agent for the
First Priority Lenders, Credit Suisse, Cayman Islands Branch, as
administrative agent for the Second Priority Term
Lenders (incorporated by
reference to Exhibit 10.1.1.4 to Calpine Corporations Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, filed with the SEC on
November 9, 2006).10.1.5
    
    Letter Agreement, dated October 18, 2006, relating to the Amended and
Restated Revolving Credit, Term Loan and Guarantee Agreement, dated as of
February 23, 2006, among Calpine Corporation, as borrower, its
subsidiaries named therein, as guarantors, the Lenders party thereto,
Deutsche Bank Trust Company Americas, as administrative agent for the
First Priority Lenders, and Credit Suisse, Cayman Islands Branch, as
administrative agent for the Second Priority Term Lenders (incorporated by
reference to Exhibit 10.1.1.5 to Calpine Corporations Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, filed with the SEC on
November 9, 2006).10.2
    
    Membership Interest Purchase Agreement, dated as of November 3, 2006, by
and between Goldendale Energy Center, LLC, as seller, and Puget Sound
Energy Center, as buyer.*31.1
    
    Certification of the President and Corporate Secretary pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of the Chief Financial Officer and Treasurer pursuant to
Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*32.1
    
    Certification of President and Corporate Secretary and Chief Financial
Officer and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed herewith. 45




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##### Table of Contents



CALPINE GENERATING COMPANY, LLC
CALGEN FINANCE CORP.By:
    /s/ CHARLES B. CLARK, Jr.Charles B. Clark, Jr.Chief Financial Officer and Treasurer
(Principal Financial Officer) 
 46




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##### Table of Contents



EXHIBIT INDEX


Exhibit Number
    
    Description3.1
    
    Amended and Restated Certificate of Formation of Calpine Generating Company, LLC (incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement on Form
S-4 (Registration No. 333-117335), filed with the SEC on July 13, 2004).3.2
    
    Certificate of Incorporation of CalGen Finance Corp. (incorporated by
reference to Exhibit 3.2 to the Companys Registration Statement on Form
S-4 (Registration No. 333-117335), filed with the SEC on July 13, 2004).*3.3
    
    Limited Liability Company Operating Agreement of Calpine Generating Company, LLC (incorporated by
reference to Exhibit 3.93 to the Companys Registration Statement on Form
S-4 (Registration No. 333-117335), filed with the SEC on July 13, 2004).3.4
    
    Bylaws of CalGen Finance Corp. (incorporated by reference to Exhibit 3.94
to the Companys Registration Statement on Form S-4 (Registration No.
333-117335), filed with the SEC on July 13, 2004).10.1.1
    
    $2,000,000,000 Amended and Restated Revolving Credit, Term Loan and
Guarantee Agreement, dated as of February 23, 2006, among Calpine
Corporation, as borrower, its subsidiaries named therein, as guarantors,
the Lenders from time to time party thereto, Credit Suisse Securities
(USA) LLC and Deutsche Bank Trust Company Americas, as Joint Syndication
Agents, Deutsche Bank Securities Inc. and Credit Suisse and Deutsche Bank
Trust Company Americas, as Joint Administrative Agents (incorporated by
reference to Exhibit 10.1.1.1 to Calpine Corporations Annual Report on
Form 10-K for the year ended December 31, 2005, filed with the SEC on May
19, 2006).10.1.2
    
    First Consent, Waiver and Amendment, dated as of May 3, 2006, to and under
the Amended and Restated Revolving Credit, Term Loan and Guarantee
Agreement, dated as of February 23, 2006, among Calpine Corporation, as
borrower, its subsidiaries named therein, as guarantors, the Lenders party
thereto, Deutsche Bank Trust Company Americas, as administrative agent for
the First Priority Lenders, and Credit Suisse, Cayman Islands Branch, as
administrative agent for the Second Priority Term Lenders (incorporated by
reference to Exhibit 10.1.1.2 to Calpine Corporations Annual Report on
Form 10-K for the year ended December 31, 2005, filed with the SEC on May
19, 2006).10.1.3
    
    Consent, dated as of June 28, 2006, under the Amended and Restated
Revolving Credit, Term Loan and Guarantee Agreement, dated as of February
23, 2006, among Calpine Corporation, as borrower, its subsidiaries named
therein, as guarantors, the Lenders party thereto, Deutsche Bank Trust
Company Americas, as administrative agent for the First Priority Lenders,
and Credit Suisse, Cayman Islands Branch, as administrative agent for the
Second Priority Term Lenders. (incorporated by reference to Exhibit
10.1.1.3 to Calpine Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006, filed with the SEC on August 14, 2006).10.1.4
    
    Second Amendment, dated as of September 25, 2006, to the Amended and
Restated Revolving Credit, Term Loan and Guarantee Agreement, dated as of
February 23, 2006, among Calpine Corporation, as borrower, its
subsidiaries named therein, as guarantors, the Lenders party thereto,
Deutsche Bank Trust Company Americas, as administrative agent for the
First Priority Lenders, Credit Suisse, Cayman Islands Branch, as
administrative agent for the Second Priority Term
Lenders (incorporated by
reference to Exhibit 10.1.1.4 to Calpine Corporations Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, filed with the SEC on
November 9, 2006).10.1.5
    
    Letter Agreement, dated October 18, 2006, relating to the Amended and
Restated Revolving Credit, Term Loan and Guarantee Agreement, dated as of
February 23, 2006, among Calpine Corporation, as borrower, its
subsidiaries named therein, as guarantors, the Lenders party thereto,
Deutsche Bank Trust Company Americas, as administrative agent for the
First Priority Lenders, and Credit Suisse, Cayman Islands Branch, as
administrative agent for the Second Priority Term Lenders (incorporated by
reference to Exhibit 10.1.1.5 to Calpine Corporations Quarterly Report on
Form 10-Q for the quarter ended September 30, 2006, filed with the SEC on
November 9, 2006).10.2
    
    Membership Interest Purchase Agreement, dated as of November 3, 2006, by
and between Goldendale Energy Center, LLC, as seller, and Puget Sound
Energy Center, as buyer.*31.1
    
    Certification of the President and Corporate Secretary pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of the Chief Financial Officer and Treasurer pursuant to
Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*32.1
    
    Certification of President and Corporate Secretary and Chief Financial
Officer and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*





|  |  |                
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|* |  | Filed herewith.