ex_10-1.htm


     

    EXHIBIT
      10.1



    
      MASTER
        POWER PURCHASE AND
        SALE
        AGREEMENT

    

    
      THIRD
        AMENDED AND
        RESTATED CONFIRMATION
        LETTER

    

    


    This
      Third Amended and Restated
      Confirmation Letter (“Third Amended and Restated Confirmation” or
“Confirmation”), dated December
      7, 2007 (the “Effective Date”), shall,
from and after the
      Start Date (defined below), amend
      and restate in its entirety the Transaction agreed to on April 22, 2002 and
      effective May 1, 2002 (the “Original Calpine 2 Confirmation”), as amended by the
      Amendment dated October 23, 2003 (the "2003 Amendment") and the Letter Amendment
      dated October 29, 2003 (the "2003 Letter Amendment") as amended by the
      Modification Letter dated March 30, 2005 (the "2005 Modification Letter") and
      as
      conditionally amended and restated pursuant to the Second Amended and Restated
      Confirmation Letter dated as of April 6, 2005 (the “2005 Contingent Settlement
      Agreement”) (the Original Calpine 2 Confirmation, as amended by the 2003
      Amendment, the 2003 Letter Amendment, the 2005 Modification Letter and the
      2005
      Contingent Settlement Agreement, is referred to as the “Original Transaction”),
      between Calpine Energy Services, L.P. ("Party A" or “Seller”) and State of
      California Department of Water Resources with respect to its responsibilities
      pursuant to California Water Code Section 80000 et seq. regarding the Department
      of Water Resources Electric Power Fund separate and apart from its powers and
      responsibilities with respect to the State Water Resources Development System
      ("Party B" or “Buyer”)
      regarding the purchase
and
      sale of the Product under
      the terms and
      conditions as set forth herein below. This Third Amended and Restated
      Confirmation Letter is entered into by Party A and Party B pursuant to and
      in
      accordance with the Master Power Purchase and Sale Agreement between Party
      A and
      Party B, as modified by that certain Amended and Restated Cover Sheet between
      Party A and Party B dated April 22, 2002 (the “Cover Sheet”; such Master Power
      Purchase and Sale Agreement as modified by the Cover Sheet being referred to
      as
      the "Master Agreement"), and constitutes part of and is subject to the terms
      and
      provisions of such Master Agreement. Terms used but not defined herein shall
      have the meanings ascribed to them in the Master Agreement.  In the
      event of any inconsistency between any of the terms herein and in the Master
      Agreement, the terms of this Confirmation shall control. This Confirmation
      and
      the Master Agreement are referred to collectively as the
“Agreement”.

     

    NOW
      THEREFORE, the Parties agree as follows:

     

    Start
      Date:  00:00:01 PPT January 1, 2008.

     

    Seller:  Calpine
      Energy Services, L.P. (Party A)

     

    Buyer:  State
      of California
      Department of Water Resources (Party
      B)

     

    Product:

     

    []           Into
      _________________, Seller’s Daily Choice

     

    []           Firm
      (LD)

     

    []           Firm
      (No Force Majeure)

     

    []           System
      Firm


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    
      	 	 (Specify
              System:	 	) 	 


    

     

    []           Unit
      Firm

     

    
      	
            	 (Specify
              Unit(s):	 	) 	 


    

     

    T           Other:

     

    (A)  All
      rights to Energy production capacity (“Capacity”) of the Facility and all Energy
      produced by the Facility as measured at the Delivery Point and dispatched by
      Buyer or the CAISO as provided herein, subject to the requirements and
      limitations on dispatch set forth below.  As set forth below all
      Capacity and Energy shall be made available exclusively to Buyer, and Seller
      shall have no rights to market or sell Energy or Capacity from the Facility
      to
      any person other than Buyer.

     

    (B)  The
      amount of Capacity and Energy available for dispatch shall be reduced to the
      extent (i) any portion of the Facility is not available due to full or partial
      Forced Outage, (ii) any portion of the Facility is not available due to Force
      Majeure, (iii) all or any part of the Capacity of the Facility or the production
      of Energy from all or any part of such Capacity is prevented or limited by
      Buyer’s failure to perform its obligations hereunder, including any failure to
      dispatch Energy or deliver gas in accordance with the provisions of this
      Confirmation, (iv) the delivery of Energy from the Facility is prevented or
      limited by the failure of electric transmission at and from the Delivery Point
      or the physical curtailment of transmission at the Delivery Point by
      the CAISO or the transmission owner or by the failure of gas transportation
      before and to the Gas Delivery Point, (v) the performance of all or any part
      of
      the Facility is limited due to physical variations or deviations in the
      operating levels of the Units which are caused by ambient conditions, quality
      of
      gas delivered to the Facility, or the rate of gas delivery to the Facility,
      or
      (vi) all or any part of the Capacity of the Facility or the production of Energy
      from all or any part of such Capacity is limited or unavailable as the result
      of
      a Planned Outage to the extent permitted herein; provided, however, that such
      events were not within the reasonable control of, or the result of the
      negligence of Seller and which, by the exercise of due diligence, Seller is
      unable to overcome or avoid or cause to be avoided; provided further, that
      Buyer’s sole remedies for failure to deliver Energy scheduled by Buyer hereunder
      shall be the Availability Adjustment Payment provided in Special Condition
      (4),
      cover damages as provided in Special Condition 6 and termination payment for
      default provided in Special Condition 10.  (The circumstances
      described in clauses (ii) through (v) above are referred to herein as “Excused
      Outages”.) Subject to the prior execution of a confidentiality agreement in the
      form attached hereto as Exhibit F, Seller shall provide Buyer with access to
      all
      its relevant records, data, employees and contractors as reasonably necessary
      to verify to Buyer's reasonable satisfaction the occurrence of
      any of the above events.

     

    (C)  Buyer
      shall have the exclusive right to all capacity attributes associated with the
      operation and ownership of the Facility, including, without limitation, the
      ability to schedule and dispatch the Capacity of the Facility (i) in the
      Ancillary Services markets, (ii) to supply reliability must run capacity, and
      (iii) to supply RA Capacity or similar capacity attributes, given the
      limitations provided in clause (B) above and otherwise set forth herein
      (collectively, the “Capacity Attributes”).  Capacity Attributes shall
      be subject to the Facility’s actual physical limitations.  Seller
      represents that neither the Facility nor

     


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    the
      individual Units provide “black start” capability, but that the Facility and
      Units are capable of providing all other Ancillary Services (except that
“regulation” service will not be available until February 1, 2008), reliability
      must run service and RA Capacity, as such products are defined in the CAISO
      Tariff as of the Effective Date.  The Parties shall (1) cooperate with
      the CAISO to qualify the Facility to provide Ancillary Services in the CAISO
      markets or to the CAISO directly; (2) follow the reporting requirements that
      the
      California Public Utilities Commission (“CPUC”) has established and may
      establish in the future with respect to RA Capacity as required for Resource
      Adequacy Requirement eligibility, and to comply with the Resource Adequacy
      requirements in Section 40 of the CAISO Tariff; and (3) cooperate with the
      CAISO
      regarding the provision of reliability must run service to CAISO from the
      Facility, including the negotiation, execution and filing of the CAISO pro
      forma
      reliability must run agreement.  Except as expressly set forth in the
      next paragraph, nothing in this Agreement shall require Seller to modify the
      Facility in any manner in order to provide Ancillary Services that it is not
      capable of providing from the Facility on the Effective Date, but Seller shall
      not be relieved of its obligation hereunder to provide Energy, Capacity, RA
      Capacity or reliability must run service, as such products are defined in the
      CAISO Tariff as in effect on the Effective Date, solely because a modification
      to the Facility would be required to do so.

     

    In
      the event that subsequent to the Effective Date, the Facility requires a capital
      improvement or other capital expenditure in order (i) to provide Ancillary
      Services requested by Buyer which the Unit is not capable of providing as of
      the
      Effective Date, (ii) to provide a resource adequacy product different
      from the RA Capacity product defined in the CAISO Tariff as in
      effect on the Effective Date, or (iii) to provide any reliability must run
      service different from the reliability must run service defined in
      the CAISO Tariff as in effect on the Effective Date, Seller shall provide
      notice thereof to Buyer. Such notice shall include both a description of and
      a
      fixed cost for such the capital improvements or other capital expenditures
      (which fixed cost may contain an allowance for contingencies and for overhead
      and construction supervision incurred by the Seller, but may not otherwise
      contain a profit component).

     

    Upon
      receipt of such notice, Buyer shall have the right to direct the Seller to
      make,
      and Seller agrees to make, such capital improvements if (i) Buyer agrees to
      reimburse the Seller for Buyer’s pro rata share of such capital improvements
      upon completion thereof and (ii) the cost of capital improvements does not,
      together with the cost of any capital improvements requested by Buyer under
      Special Condition 8, exceed five million dollars ($5,000,000), or, if the
      combined cost of such improvements and the improvements requested by Buyer
      under
      Special Condition 8 does exceed five million dollars ($5,000,000),
      Buyer agrees to reimburse Seller for all costs in excess of five million
      dollars ($5,000,000) in the aggregate.  Buyer shall reimburse Seller
      for Buyer’s share of the cost of such capital improvements promptly upon
      completion thereof.  The Parties’ respective pro rata shares shall be
      based on the useful life of such capital improvements and shall be agreed upon
      by the Parties prior to the commencement of any work on, such
      improvements.

     

    If
      Seller would be unable to provide such Capacity Attributes without such capital
      improvements or other capital expenditures, and if neither Buyer nor Seller
      is
      obligated or elects to make such capital improvements or other capital
      expenditures, then such

     


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


    event
      shall be treated as an event of Force Majeure, but only to the extent Seller’s
      is unable to provide such Capacity Attributes as a result of the failure to
      make
      such capital improvements or other capital expenditures.

     

    Any
      payments received by the Seller from any third party associated with the
      commitment or sale of any of the Facility’s Capacity Attributes shall be paid to
      Buyer promptly upon receipt thereof; provided, however, that Buyer shall be
      solely and exclusively responsible for complying with the obligations of such
      commitments or sales, including the cost of supplying the gas to the Facility
      to
      generate the Energy required thereunder.

     

    []           Transmission
      Contingency (If not marked, no transmission
      contingency):  N/A

     

    
      
        	 	
                []

              	
                FT-Contract
                  Path Contingency

              	
                []

              	
                Seller

              	
                []

              	
                Buyer

              	 
	 	 	 	 	 	 	 	 
	 	
                []

              	
                FT-Delivery
                  Point Contingency

              	
                []

              	
                Seller

              	
                []

              	
                Buyer

              	 
	 	 	 	 	 	 	 	 
	 	
                []

              	
                Transmission
                  Contingent

              	
                []

              	
                Seller

              	
                []

              	
                Buyer

              	 
	 	 	 	 	 	 	 	 
	 	
                []

              	
                Other
                  transmission contingency

              	 	 	 	 	 


      

    

     

    
      	
            	 (Specify:	 	) 	 


    

     

    Contract
      Quantity:  180 MW until adjusted pursuant to Special
      Condition (3)

     

    Delivery
      Point:

     

    
      	
              (i)  

            	
              Prior
                to implementation of MRTU:  The single CAISO Meter at the
                Facility 115 kV switchyard connected to the CAISO control
                grid.

            


    

     

    
      	
              (ii)  

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

            


    

     

    Gas
      Delivery Point: The PG&E revenue gas meter located at the
      Facility.

     

    Contract
      Price:

     

    
      	
              (I)

            	
              Capacity
                Payment:  Buyer shall pay to Seller in arrears a
                monthly Capacity Payment equal to the product of the (i) Contract
                Quantity
                times (ii) $2.00 kW-month.

            


    

     

    
      	
              (II)

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

            


    

     

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

    

     

    Special
      Conditions:

     

    
      	
              (1)

            	
              Dispatch,
                Scheduling and Fuel
                Management.

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (a)           Buyer
      shall have the full and exclusive right (except to the extent otherwise directed
      or dispatched by the CAISO) to dispatch the delivery of Energy and schedule
      the
      provision of Ancillary Services that the Facility is capable of providing from
      the Available Capacity of the Facility 24 hours per day, 365 days per year
      during the Delivery Period; provided that if Buyer from time to time wants
      to
      make a dispatch during
      Extended Dispatch Hours, Buyer shall (i) provide notice to Seller at least
      eight
      (8) hours before the first Extended Dispatch Hour that Buyer wants to have
      the
      Facility available for dispatch, which notice shall also specify all Extended
      Dispatch Hours during the next twenty-four (24) hours or longer period that
      Buyer wants the Facility available for dispatch, and (ii) pay Seller for all
      such Extended Dispatch Hours so specified in such notice at the rate of $320
      for
      the first four (4) hours, or any portion thereof, and $80 per hour for each
      hour
      after the first four hours, in order to compensate Seller for its incremental
      staffing costs to accommodate such availability and dispatch.  Any
      such notice covering a period of twenty-four (24) hours or less may not be
      modified or revoked once given.  Any such notice covering a period in
      excess of twenty-four (24) hours may be modified or revoked on twenty-four
      (24)
      hours notice.  These rates will increase at 4% per annum beginning on
      the first anniversary of the Start Date and on each such anniversary
      thereafter.  Buyer’s dispatch of the Facility is also subject to the
      following:

     

    (i)      Buyer
      shall notify Seller by email the quantity of MWhs to be generated and the
      duration of any dispatch in accordance with the communications protocol
      substantially in the form attached hereto as Exhibit A, which shall be completed
      by the Parties prior to the Start Date.

     

    (ii)  
         It shall be in Seller’s sole discretion which Unit(s) shall be
      operated to comply with Buyer’s dispatch instructions.

     

    (iii)     Buyer’s
      dispatch of the Facility shall be limited to four (4) Starts per available
      Unit
      per calendar day and to no more than 700 starts per Unit per Contract
      Year.

     

    (iv)     Buyer’s
      dispatch of the Facility shall be limited in a manner to permit a period of
      ‘downtime’ (i.e. between the time the breaker is open to the time the breaker is
      closed) of no less than thirty (30) minutes after a Unit stop (i.e. after the
      breaker is opened).

     

    (v)      Buyer’s
      dispatch of the Facility shall be limited such that the minimum run time for
      each Unit that has been dispatched is no less than one hour.

     

    (vi)     Buyer’s
      dispatch of the Facility shall be limited such that the minimum loading for
      any
      Unit shall be no less than 20 MW and the maximum dispatch shall not exceed
      the
      Available Capacity.

     

    (vii)  Buyer’s
      dispatch of the Facility shall comply with the operating limitations described
      on Exhibit B, as such exhibit may be amended as provided in Special Condition
      1(m) below.

     

    (viii)  Buyer
      agrees to dispatch the Facility in accordance with all applicable Laws and
      any
      operation instructions imposed by the CAISO, WECC or NERC associated with a
      System Emergency.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (ix)    
      Buyer
      may not dispatch the Facility in excess of the Available Capacity and may not
      dispatch any Unit that is unavailable due to a Planned Outage scheduled in
      accordance with Special Condition 2(d).

     

    (x)    
      Buyer shall cooperate with Seller during any period of testing under this
      Confirmation.  Buyer shall take the Energy and supply the fuel during
      testing and receive all revenue from the sale of Energy during
      testing.

     

    (b)           Prior
      to implementation of MRTU by CAISO, Seller shall be the Scheduling Coordinator
      for the Facility.  As Scheduling Coordinator, Seller shall schedule
      Energy deliveries to Buyer or Buyer’s Scheduling Coordinator, through an
      Inter-SC Trade, equal to the Energy properly dispatched by Buyer
      hereunder.  CAISO charges and revenues for the provision of imbalance
      energy by or to CAISO, together with any revenues with respect to the provision
      of Ancillary Services or Capacity Attributes, shall be passed through from
      Seller to Buyer; provided that, Seller shall be responsible for any penalties
      imposed by the CAISO under the CAISO Tariff as the result of Seller’s breach of
      its obligations under this Agreement or its obligations as Scheduling
      Coordinator for the Facility under the CAISO Tariff.

     

    (c)           Upon
      implementation of MRTU by the CAISO, Buyer shall have the option to elect to
      be
      the Scheduling Coordinator for the Facility upon sixty (60) days advance written
      notice to Seller.  When acting as Scheduling Coordinator, (i) Buyer
      shall be solely responsible for complying with the obligations applicable to
      Scheduling Coordinators under the CAISO Tariff, including timely submission
      of
      schedules; (ii) Buyer shall be responsible for all CAISO charges and shall
      receive all CAISO revenues; provided, however, that Seller shall be responsible
      for and shall reimburse Buyer for penalties imposed by the CAISO under the
      CAISO
      Tariff as the result of Seller’s breach of its obligations under this Agreement
      or to comply with the requirements applicable to generators under the CAISO
      Tariff, to the extent such failure is not the result of any failure by Buyer
      to
      comply either with its obligations hereunder (e.g. to deliver gas), or its
      obligations as Scheduling Coordinator under the CAISO Tariff; (iii) Buyer shall
      promptly notify the CAISO of any Facility outage with respect to which Seller
      has provided notice to Buyer and shall promptly adjust the CAISO schedule for
      the Facility in accordance with the intra-day scheduling requirements of the
      CAISO Tariff upon notice from Seller of a Facility outage pursuant to Special
      Condition (2); (iv) Buyer shall reimburse Seller for any penalties, fines,
      fees
      or other charges assessed upon Seller by the CAISO caused by Buyer’s failure to
      comply with its obligations under this Agreement or as the Scheduling
      Coordinator for the Facility, including the failure by Buyer to dispatch the
      Units as required by the CAISO during a System Emergency; provided however
      such
      reimbursement by Buyer shall not be required to the extent Buyer’s failure to
      comply with its obligations under this Agreement or as the Scheduling
      Coordinator for the Facility is the result of Seller’s breach of its obligations
      under this Agreement or to comply with the requirements applicable to generators
      under the CAISO Tariff, including without limitation the requirement to provide
      timely notice of the Available Capacity of the Facility pursuant to Special
      Condition 2(b).  Subject to the prior execution of a confidentiality
      agreement in the form attached hereto as Exhibit F, Seller and Buyer shall
      each
      provide the other with access to all its respective relevant records, data,
      employees

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    and
      contractors reasonably necessary to verify to each Party's reasonable
      satisfaction the occurrence of any of the above events.

     

    (d)           During
      the period after the implementation of MRTU by the CAISO, in the event Buyer
      has
      not elected hereunder to be the Scheduling Coordinator for the Facility, Seller
      shall
      be the Scheduling Coordinator for the Facility.  The Parties agree
      that, while Seller is the Scheduling Coordinator, Energy shall be scheduled
      in
      the Day Ahead or Real Time Markets as requested by Buyer consistent with the
      requirements and limitations of this Agreement as an Inter-SC Trade at the
      P
      node for the Facility, and the Buyer shall direct the Seller (as the Scheduling
      Coordinator of the Facility) to self-schedule or submit a production bid curve
      consistent with the requirements and limitations of this Agreement into the
      CAISO market. Such Inter-SC Trades shall be used to balance out the CAISO
      payments to Seller for the injection of the scheduled energy on to the CAISO
      grid and the CAISO charge to Buyer or Buyer’s agent for the withdrawal of the
      scheduled energy from the CAISO grid.  If Seller’s injection of energy
      from the Facility on to the CAISO grid is greater than the amount of energy
      settled through such Inter-SC Trade as provided in this Special Condition 1(d),
      Seller shall pay over to Buyer that portion of the payment from the CAISO to
      Seller for the injection of such energy on to the CAISO grid attributable to
      the
      excess energy actually injected on to the CAISO grid .  If Seller’s
      injection of energy from the Facility on to the CAISO grid is less than the
      amount of energy settled through such Inter-SC Trade as provided in this Special
      Condition 1(d), Buyer shall pay to Seller an amount equal to the amount paid
      to
      Buyer (or Buyer’s agent) by the CAISO for the excess of the amount of energy
      settled through such Inter-SC Trade over the amount of energy actually injected
      on to the CAISO grid.  Otherwise, Buyer shall be responsible for all
      CAISO charges except for any penalties imposed by the CAISO under the CAISO
      Tariff as the result of Seller’s breach of its obligations under this Agreement
      or its obligations as Scheduling Coordinator for the Facility under the CAISO
      Tariff.  The parties further agree (i) to schedule Ancillary
      Services by entering Inter-SC Trades at the P node for the Facility in the
      Day
      Ahead or Real Time Markets as requested by the Buyer consistent with the
      requirements and limitations of and obligations of the Parties under this
      Agreement and (ii) to cooperate in scheduling Inter-SC Trades to account for
      the
      IFM Load Uplift Obligations of buyer or Buyer's agent as a result of Seller's
      submission (as Scheduling Coordinator) of self-schedules at the direction of
      Buyer or Buyer's agent consistent with the requirements and limitations of
      and
      obligations of the Parties under this Agreement.

     

    (e)           Within
      ninety (90) days after the Effective Date, Buyer and Seller shall jointly
      review the roles and responsibilities of a Generator Operator
      (GOP) and a Generator Owner (GO) of the Facility under the applicable rules
      and regulations of WECC and NERC and shall agree on an initial allocation of
      such roles and responsibilities between them consistent with the requirements
      of
      this Agreement, which shall then be attached to this Confirmation as Exhibit
      E.
      Buyer and Seller acknowledge that the rules and regulations of WECC and NERC
      with respect to these roles and responsibilities and with respect to plant
      reliability in general may change over time and agree to cooperate
      both in complying with the WECC and NERC requirements in accordance
      with such initial allocation and in revising such allocation from time to
      time as necessary to comply, in a manner consistent with this Agreement, with
      changes in such rules and regulations or in their implementation.  The
      Party responsible for complying with a particular role or

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    responsibility
      (the “Responsible Party”) shall pay or reimburse, as applicable, the other
      Party (the “Other Party”) for any penalties, fines, fees or other charges
      assessed upon the Other Party by the WECC or NERC associated with the
      Responsible Party’s failure to comply with such role or responsibility, provided
      that the Other Party shall cooperate with the Responsible Party in complying
      with such role or responsibility, including providing such information, giving
      such notices and taking such actions as the Other Party is uniquely in a
      position to do.  Subject to the prior execution of a confidentiality
      agreement in the form attached hereto as Exhibit F, Seller and Buyer shall
      each
      provide the other with access to all its respective relevant records, data,
      employees and contractors as reasonably necessary to verify to each Party's
      reasonable satisfaction the occurrence of any of the above
      events.

     

    (f)           Buyer
      shall be Fuel Manager for the Facility.

     

    (g)           Buyer
      shall be responsible for the nomination and delivery of the fuel to the Gas
      Delivery Point and for all local distribution charges, including any surcharges,
      provided under the PG&E gas tariff and rules.

     

    (h)           Seller
      shall be responsible for any gas imbalances resulting from Seller’s unexcused
      failure to deliver Energy dispatched by Buyer for the minimum period of time
      necessary to adjust CAISO schedules and gas nominations on an intra-day basis,
      or from Seller’s failure to timely notify Buyer of a Forced Outage, a Planned
      Outage or a Facility outage due to Force Majeure.  Buyer shall be
      responsible for any gas imbalance caused by a Facility outage from any other
      cause, including any failure by Seller to deliver Energy due to a failure by
      Buyer to comply with its obligations hereunder as Fuel Manager.

     

    (i)           Buyer
      shall be responsible for compliance with the PG&E tariff and rules,
      including compliance with any instructions regarding Emergency Flow Order (EFO)
      or Operational Flow Order (OFO) conditions.

     

    (j)           Buyer
      shall be responsible for the quality of the fuel delivered to the Facility,
      including compliance of such fuel with the PG&E gas tariff and rules
      concerning gas quality and the Btu content of the fuel delivered to the Gas
      Delivery Point.

     

    (k)           Buyer
      shall be responsible for any penalties, fines, fees or other charges assessed
      upon Seller by PG&E associated with Buyer’s, or its agent’s, failure to
      comply with the obligations of a Fuel Manager under PG&E’s tariff and rules,
      including the obligations under Special Conditions 1(g) through
      1(j).   Subject to the prior execution of a confidentiality
      agreement in the form attached hereto as Exhibit F, Seller shall provide Buyer
      with access to all its relevant records, data, employees and contractors as
      reasonably necessary to verify to Buyer's reasonable satisfaction the
      occurrence of any of the above events.

     

    (l)           Buyer
      may designate one or more persons to act as its agent under this Special
      Condition (1) in performing its functions and obligations as Scheduling
      Coordinator or Fuel Manager.  Buyer shall provide Seller with written
      notice designating its agent(s), including all necessary and customary contact
      information.  Nothing in this paragraph (e) shall relieve Buyer of its
      obligations as Scheduling Coordinator or Fuel Manager.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (m)           Within
      ninety (90) days after Effective Date, Buyer and Seller shall jointly review
      the
      limitations on the operation of the Facility due to the conditions and
      requirements of applicable Permits, the physical limitations of the Facility
      equipment and Good Utility Practices and shall amend Exhibit B to the extent
      they agree is appropriate and consistent with this Agreement to reflect such
      operating limitations.

     

    
      	
              (2)

            	
              Seller’s
                Performance Rights and
                Obligations.

            


    

     

    (a)           Seller
      agrees to operate and maintain the Facility in accordance with Good Utility
      Practices, including, without limitation, complying with applicable Law, the
      requirements of applicable Permits and Seller’s Interconnection
      Obligations including maintaining the capability of the Facility to provide
      Energy, Capacity, RA Capacity or reliability must run service, as such products
      are defined in the CAISO Tariff as in effect on the Effective Date.

     

    (b)           Unless
      Seller notifies Buyer otherwise, the Available Capacity of the Facility shall
      be
      equal to the Contract Quantity.  Seller shall notify Buyer promptly,
      and in all events within 30 minutes, after Seller becomes aware that the
      Available Capacity of all the Units is less than the Contract
      Quantity.  Seller shall also notify Buyer promptly, and in all events
      within 30 minutes, after Seller becomes aware of any other changes in the
      Available Capacity.  Any notice of the Available Capacity of the Units
      shall continue in effect unless and until changed by a subsequent notice by
      Seller of the Available Capacity.  All notices under this Special
      Condition (2) shall be provided in accordance with the communications protocol
      to be agreed by the Parties as provided in Special Condition
      1(a)(i).

     

    (c)           Seller
      shall be allowed sixty (60) Unit-Days of Planned Outage in aggregate for all
      of
      the Units per Contract Year.  As used herein, a “Unit-Day” means one
      day for one Unit, to be applied to the Units in Seller’s sole
      discretion.  By way of example only, 60 Unit-Days could mean 60 days
      of Planned Outage for one Unit, or 15 days of Planned Outage each for four
      Units, or other combinations totaling 60 Unit-Days.  Any increment of
      a Day shall count as a “Unit-Day”.  Seller shall notify Buyer of its
      proposed schedule of Planned Outages that constitute “planned outages” under the
      NERC Generating Unit Availability Data System (GADS) reporting guidelines for
      the Units for each Contract Year on or before thirty (30) days preceding such
      Contract Year.  If Seller wants to conduct any such Planned Outage at
      a different time than shown on such schedule, Seller and Buyer shall cooperate
      and agree on a mutually and reasonably acceptable time to reschedule such
      Planned Outage.  If Buyer wants Seller to conduct any such Planned
      Outage at a different time than shown on such schedule, Seller and Buyer shall
      cooperate and agree on a mutually and reasonably acceptable time to reschedule
      such Planned Outage, but Buyer shall reimburse Seller for all incremental costs
      incurred by Seller in rescheduling such Planned Outage.  Seller shall
      also be entitled to schedule Planned Outages that constitute “maintenance
      outages” under the NERC Generating Unit Availability Data System (GADS)
      reporting guidelines during the Contract Year on ten (10) days prior notice
      to
      Buyer, but if Buyer reasonably requests that such Planned Outage be conducted
      at
      a different time, Seller and Buyer shall cooperate and agree on a mutually
      and
      reasonably acceptable time to schedule such Planned Outage.  Each
      Party shall make all reasonable efforts, consistent with Good Utility Practices,
      to accommodate the other Party’s schedule requests with respect to Planned
      Outages and shall agree to any

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    schedule
      changes if (i) directed by the CAISO or (ii) if necessary to avoid a Unit being
      or becoming unavailable as a result of maintenance that cannot, consistent
      with
      Good Utility Practices, be delayed until the next scheduled Planned Outage,
      including any subsequent maintenance that may be necessary to
      follow-up on a temporary remedy made in response to a Forced
      Outage.  Notwithstanding anything to the contrary herein, a
      Planned Outage may not immediately follow a Forced Outage unless either the
      Planned Outage was scheduled prior to the occurrence of the Forced Outage or
      Seller has remedied the Forced Outage prior to the commencement of the Planned
      Outage.  Notwithstanding the foregoing, Seller shall not conduct
      Planned Outages during the months of January, June through September, and
      December.

    


    (d)           Metering
      will conform to CAISO standards or the equivalent. Seller will provide such
      CAISO metering settlement data to Buyer as Seller and Buyer (or Buyer’s agent
designated
      pursuant to Special Condition 1(l)) may agree in the communications protocol
      to
      be agreed by the Parties as provided in Special Condition 1(a)(i).

     

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

     

    
      	
              (3)

            	
              Capacity
                Adjustment Payment:

            


    

     

    (a)           During
      the period beginning March 1 and
      ending May 31 in
      each Contract Year, unless otherwise
      agreed, Seller will conduct a performance test of the Facility (“Annual
      Performance Test”) in accordance with the Test Procedures attached hereto as
      Exhibit D; provided, however, that if the capacity of the Facility or any Unit
      has been reduced as a result of a Forced Outage, or Force Majeure and the effect
      of such Forced Outage, or Force Majeure cannot be eliminated or remedied in
      time
      to conduct the Annual Performance Test within the time period above, the time
      for conducting the Annual Performance Test shall be extended as necessary to
      eliminate or remedy the effect of such Forced Outage, or Force Majeure and
      to
      permit the Annual Performance Test to be conducted with all Units fully
      operational.

     

    (b)           If
      the Contract Quantity as determined by the Annual Performance Test is equal
      to
      or greater than 95% of the Target Capacity, no Capacity Penalty will be payable
      hereunder until the next Annual Performance Test.  If the Contract
      Quantity as determined by the Annual Performance Test is less than 95% of the
      Target Capacity, Seller will pay Buyer a monthly Capacity Adjustment Payment
      (prorated for partial months) equal to $13,111 times the difference between
      the
      95% of Target Capacity and the Contract Quantity as determined by the Annual
      Performance Test.  Seller shall continue to pay any applicable monthly
      Capacity Adjustment Payment until the Contract Quantity is re-determined
      pursuant to the next Annual Performance Test or an Additional Performance Test
      pursuant to Special Condition 3(c) below.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (c)           If
      the Contract Quantity as determined by the Annual Performance Test is less
      than
      95% of the Target Capacity, Seller may request up to two additional performance
      tests in any Contract Year (an “Additional Performance Test”), to be conducted
      in the same manner as the Annual Performance Test.  If the Contract
      Quantity as determined by the Additional Performance Test is equal to or greater
      than 95% of the Target Capacity, no further Capacity Penalty will be payable
      hereunder until the next Annual Performance Test.  If the Contract
      Quantity as determined by the Additional Performance Test is less than 95%
      of
      the Target Capacity, Seller will continue to pay Buyer a monthly Capacity
      Adjustment Payment (prorated for partial months) equal to $13,111 times the
      difference between the 95% of Target Capacity and the Contract Quantity as
      determined by the Additional Performance Test.  Seller shall continue
      to pay any applicable monthly Capacity Adjustment Payment until the Contract
      Quantity is re-determined pursuant to the
      next Annual Performance Test or an Additional Performance Test pursuant to
      this
      Special Condition 3(c).

     

    (d)           The
      “Target Capacity” of the Facility is equal to 180 MW less 0.25 MW per Unit for
      each 5,000 hours of operation per Unit, without proration (i.e. the reduction
      in
      the Target Capacity will only be applied for a full 5,000 hours of operation
      or
      integral multiples thereof).

     

    
      	
              (4)

            	
              Availability
                Adjustment Payment:

            


    

     

    (a)           Within
      ten (10) days of the end of each
      calendar month, an Availability Factor (AF) shall be determined as
      follows:

     

    AF
      = TME/MME

     

    Target
      AF = 0.97 for the calendar months
      of June through September and 0.94 for each other calendar
      month.

     

    
      	
               

            	
              TME  (Total  Monthly  Energy)  =  Σ  TDE  for  all  Normal  Dispatch  Hours  and  each
                Extended Dispatch Hour for which Buyer has given notice of requested
                availability pursuant
                to Special Condition 1(a) in the calendar month

            
	
               

            	
               

            
	 	
               MME
                (Maximum Monthly Energy) = the sum, over each Normal Dispatch Hour
                and
                each Extended Dispatch Hour for which Buyer has given notice of requested
                availability pursuant
                to Special Condition 1(a) in the calendar month, of the following
                sum each
                such hour: (i) Contract Quantity, less (ii) the quantity of Contract
                Quantity that is unavailable due to an Excused Outage (provided that
                such
                quantity shall not include any quantity of Contract Quantity included
                in
                item (ii) of TDE), less (iii) the quantity of the Contract Quantity
                that
                is unavailable due to a Planned Outage scheduled pursuant to Special
                Condition (2).

            
	 	 
	 	
               TDE
                (Total Delivered Energy) = the sum of (i) Energy delivered from the
                Facility by Seller
                in accordance with this
                Confirmation, plus (ii) 

            


    

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

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

            


    

     

     

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

     

    
      	
              (5)

            	
              Heat
                Rate Adjustment
                Payment:

            


    

     

    (a)           As
      part of the Annual Performance Test
      conducted pursuant to Special Condition 3(a), Seller shall also conduct a test
      of the heat rate of the Facility, in accordance with the Test Procedures
      attached hereto as Exhibit D.

     

    (b)           If
      the Facility Heat Rate as
      determined by the Annual Performance Test is equal to or less than the Target
      Heat Rate, no Heat Rate Adjustment Payment will be payable hereunder until
      the
      next Annual Performance Test.  If the Facility Heat Rate as determined
      by the Annual Performance Test is greater than the Target Heat Rate, then,
      beginning 30 days after the Annual Performance Test, Seller will pay Buyer
      a
      daily Heat Rate Adjustment Payment equal to the product of (i) the excess of
      the
      Facility Heat Rate over the Target Heat Rate, times (ii) the Gas Index for
      such
      day, times (iii) the amount of Energy delivered to Buyer hereunder for such
      day.  Seller shall pay such amount for every day from the time the
      Heat Rate Adjustment Payment commences until the Facility Heat Rate is
      re-determined to be less than or equal to the Target Heat Rate pursuant to
      the
      next Annual Performance Test or an Additional Performance Test.  The
      Heat Rate Adjustment Payment shall be payable monthly in arrears.

     

    (c)           If
      the Facility Heat Rate as determined by the Annual Performance Test is greater
      than the Target Heat Rate, Seller may request up to two Additional Performance
      Tests in any Contract Year for purposes of re-determining the Facility Heat
      Rate.  If the Facility Heat Rate as determined by the Additional
      Performance Test is less than or equal to the Target Heat Rate, no further
      Heat
      Rate Adjustment Payment will be payable hereunder until the next Annual
      Performance Test.  If the Facility Heat Rate as determined by the
      Additional Performance Test is greater than the Target Heat Rate, Seller will
      continue to pay Buyer the Heat Rate Adjustment Payment determined in the same
      manner as in Special Condition 5(b) above but on the basis of the Facility
      Heat
      Rate as determined by the Additional Performance Test.  Seller shall
      continue to pay such amount until the Facility Heat Rate is re-determined
      pursuant to the next Annual Performance Test or another Additional Performance
      Test.

     

    (d)           The
      “Target Heat Rate” is equal to 10,500 Btu/kWh plus 30 Btu/kWh for each 5,000
      hours of operation per Unit without proration (i.e. the increase in the Target
      Heat

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Rate
      will only be applied for a full 5,000 hours of operation or integral multiples
      thereof).  The “Gas Index” is equal to the “PG&E Citygate”
midpoint price as reported in Gas Daily for the applicable
      day.

     

    (6)         Cover
      Damages.  Except as otherwise excused herein, in addition to
      any Availability Adjustment Payment under Special Condition (4), Article IV
      of
      the Master Agreement shall apply to the failure of Seller to deliver or Buyer
      to
      receive Energy scheduled by Buyer accordance with this Agreement except that
      Seller shall not be liable for damages under Article IV of the Master Agreement
      to the extent that Seller has notified Buyer that the Capacity of or Energy
      available for dispatch from the Facility has been reduced due to a Forced
      Outage, an Excused Outage or a Planned Outage (provided notice shall not be
      required with respect to Excused Outages described in clauses (iii), (iv) or
      (v)
      of paragraph (B) in the description of Product).  For purposes of
      Article IV of the Master Agreement, the “Contract Price” shall be equal to (A)
      the product of (i) 10,500 Btu/kWh times (ii) the sum of (1) Gas Index plus
      (2)
      the local distribution charges, including any surcharges, for gas deliveries
      on
      PG&E’s system, plus (B) the applicable VOM.

     

    (7)         Special
      Maintenance Payment.  If, as a result of dispatches by Buyer
      hereunder, any Unit is operated more than 4,000 hours during the Delivery Period
      and all Units have on a combined basis been operated for more than 16,000 hours,
      Buyer shall make a special maintenance payment to Seller of $1,000,000 per
      Unit
      for each 4,000 hours (or integral multiple thereof) that such Unit is operated
      during the Delivery Period.

     

    (8)         Governmental
      Charges.  In addition to the obligations under Article 9 of
      the Master Agreement, and notwithstanding anything in this Agreement to the
      contrary, Buyer shall reimburse Seller for all newly imposed taxes, charges
      or
      fees assessed or levied by any governmental authority in respect of any
      Greenhouse Gases emitted by or attributed to the Facility, within forty-five
      (45) days of Buyer’s receipt from Seller of documentation establishing (i) that
      Seller is actually liable for the tax, charge, fee or cost in respect of
      Greenhouse Gases emitted by or attributed to the operation of the Facility
      during the Delivery Period; (ii) that, as of the date of execution of this
      Agreement, the legislation or regulation imposing the tax, charge, fee or cost
      was not effective or scheduled to become effective; (iii) the amount of the
      tax,
      charge, fee or cost; (iv) that the tax, charge, fee or cost was imposed on
      Seller by a governmental authority that has valid jurisdiction over Seller
      or
      the Facility; (v) that Seller has paid the tax, charge, fee or cost for which
      Seller seeks reimbursement from Buyer, and (vi) that Seller took all reasonable
      steps to mitigate the amount of such tax, charge, fee or cost; provided,
      however, that Buyer shall not be obligated to reimburse any fines or penalties
      incurred as a result of Seller’s failure to comply with applicable law or
      Permits.

     

    For
      purposes of the foregoing, except as provided in this paragraph, reasonable
      steps shall not be deemed to require Seller to modify or make capital
      improvements to the Facility, or to continue to operate the Facility if
      modifications, capital improvements or other capital expenditures would be
      required to do so in compliance with applicable law or Permit conditions related
      to Greenhouse Gases, regardless of whether or not such modifications, capital
      improvements or other capital expenditures would reduce or eliminate taxes,
      charges or fees otherwise payable by Buyer or are required in order for the
      Facility to continue to operate at any level.  If modifications or
      capital improvements to the Facility or other capital expenditures would be
      required in order to operate the

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Facility
      in compliance with applicable law or Permit conditions related to Greenhouse
      Gases, Seller shall provide notice thereof to Buyer. Such notice shall include
      both a description of and a fixed cost for such the capital improvements or
      other capital expenditures (which fixed cost may contain an allowance for
      contingencies and for overhead and construction supervision incurred by the
      Seller, but may not otherwise contain a profit component).

     

    Upon
      receipt of such notice, Buyer shall have the right to direct the Seller to
      make,
      and Seller agrees to make, such capital improvements if (i) Buyer agrees to
      reimburse the Seller for Buyer’s pro rata share of such capital improvements
      upon completion thereof and (ii) the cost of capital improvements does not,
      together with the cost of any capital improvements requested by Buyer under
      paragraph (C) of the description of Product, exceed five million dollars
      ($5,000,000), or, if the combined cost of such improvements and the improvements
      requested by Buyer under paragraph (C) of the description of Product does exceed
      five million dollars ($5,000,000), Buyer agrees to reimburse Seller for all
      costs in excess of five million dollars ($5,000,000) in the
      aggregate.  Buyer shall reimburse Seller for Buyer’s share of the cost
      of such capital improvements promptly upon completion thereof.  The
      Parties’ respective
      pro rata shares shall be based on the useful life of such capital improvements
      and shall be agreed upon by the Parties prior to the commencement of any work
      on, such improvements.

     

    If
      the operating level of the Facility would be reduced or the Facility would
      not
      be able to continue to operate without such modifications, capital improvements
      or other capital expenditures, and if neither Buyer nor Seller is obligated
      or
      elects to make such modifications, capital improvements or other capital
      expenditures, then such event shall be treated as an event of Force Majeure,
      but
      only to the extent of such reduction in operating level or ability to
      operate.

     

    “Greenhouse
      Gases” means emissions into the atmosphere of (i) carbon dioxide (CO2), nitrous
      oxide
      (N2O) and
      methane (CH4),
      which are produced as the result of combustion or transport of fossil fuels,
      (ii) hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride
      (SF6) generated
      as a result of the operation of the Facility, and (iii) other greenhouse gases
      (GHGs) that have been determined by the United Nations Intergovernmental Panel
      on Climate Change to contribute to the actual or potential threat of altering
      the Earth’s climate by trapping heat in the atmosphere.  Greenhouse
      Gases may be defined or expressed in terms of a ton of CO2-equivalent
      in order
      to allow comparison between the different effects of gases on the
      environment.  Gases or emissions that are regulated due to impacts
      other than global warming (e.g. toxicity or creation of smog) shall not, to
      the
      extent of such other regulation, be considered “Greenhouse Gases” for the
      purposes of this Confirmation, but shall be considered “Greenhouse Gases” to the
      extent they are regulated due to impacts on global warming.

    


    
      	
              (9)

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

            


    

    


    
      	
               

            	
              (a)

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

            


    

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
      	
               

            	
              (b)

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

            


    

    


    
      	
              (10)

            	
              Payment
                on Termination; Limitation of
                Liability.

            


    

    


    
      	
               

            	
              (a)

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

            


    

     

    
      	
               

            	
              (b)

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

            


    

     

    


    
      	
              (11)

            	
              Notice
                of Events Beyond Seller’s Control;
                Termination.

            


    

    


    
      	
               

            	
              (a)

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

            


    

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
      	
               

            	
               

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

            




    
      	
               

            	
              (b)

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

            


    


    
      	
              (12)

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

            


    

    


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

    


    Commercial
      General Liability – Seller will carry commercial general liability
      coverage with limits of $1 million per occurrence, $2 million in
      aggregate.  The insurance will

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    cover
      claims brought against Seller for third party bodily injury (including death),
      personal injury and property damage.  The coverage will include
      provisions for broad form property damage, explosion, collapse and underground
      hazard coverage (XCU), cross liability, severability of interest, broad form
      contractual liability, and completed operations.

    


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

    


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

    


    
      	
              (13)

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

            


    

     

    
      	
              (14)

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

            


    

     

    
      	
              (15)

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

            


    

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

     

    
      	
               

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

            


    

     

    
      	
              (16)

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

            


    

     

    “Ancillary
      Services” has the meaning defined in the CAISO Tariff.

     

    “Available
      Capacity” means the Contract Quantity less any portion of the Contract Quantity
      that is not available as the result of any of the matters described in clauses
      (i) through (vi) of paragraph (B) of the description of Product.

     

    “CAISO”
      means the California Independent System Operator Corporation or any successor
      entity performing similar functions.

     

    “CAISO
      Tariff” means the CAISO FERC Electric Tariff, First Replacement Volume No. 1, as
      it may be amended, supplemented or replaced (in whole or in part) from time
      to
      time.

     

    “Chapter
      11 Proceeding” means the jointly administered bankruptcy cases under Chapter 11
      of the United States Bankruptcy Code, 11 U.S.C., of Calpine Corporation and
      its
      affiliated debtors, Case No. 05-60200(BRL) 11 in the United States Bankruptcy
      Court, Southern District of New York.

     

    “Contract
      Year” means each calendar year during the Delivery Period commencing upon
      00:00:01 PPT on January 1 and ending upon 24:00:00 PPT December 31.

     

    “CPUC”
      means the California Public Utilities Commission or a successor governmental
      agency performing the same or similar functions.

     

    “Dispatch
      Hours” means the Normal Dispatch
      Hours and
the Extended
      Dispatch Hours.

    


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

    


    “Facility”
means
      the Los Esteros
      Critical Energy Facility located at 800 Thomas Foon Chew
      Way, San
      Jose, CA 95134
      and consisting of four
      Units.

     

    “Fuel
      Manager” means the person
      responsible for the procurement, nomination, balancing of natural gas delivered
      to the Facility.

    


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

    


     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

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

    


    “Good
      Utility Practices” has the meaning defined in the CAISO Tariff.

     

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

    


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

    


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

    


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

    


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

    


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

    


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

    


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

    


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

    


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


    


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

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    other
      Resource Adequacy obligations established by any other entity, including the
      CAISO.

    


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

    


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

    


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

    


     

    
      	
               

            	
               

            
	
              Calpine
                Energy Services, L.P.

            	
              State
                of California Department of Water Resources separate and apart from
                its
                powers and responsibilities with respect to the State Water Resources
                Development System

            
	
               

            	 	
               

            
	
              By:

            	  
              /s/ Jeffrey P.
              Kinneman          12/7/07	 	
              By:

            	   /s/
              Timothy J. Haines         
              12/7/07 	 
	
              Name:

            	
              Jeffrey
                P. Kinneman

            	 	
              Name:

            	 Timothy
              J. Haines	 
	
              Title:

            	 Vice
              President	 	
              Title:

            	 Deputy
              Director	 
	
               

            	 	
               

            	 


    

    



    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    


    EXHIBIT
      A

     

    COMMUNICATIONS
      PROTOCOL

     

    


     

    
      
        	
                1.  

              	
                SCHEDULING:

              


      

      
        	
                a.  

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

              


      

      
        	
                b.  

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

              


      

      
        	
                c.  

              	
                Normal
                  Dispatch Hours (NDH) are:

              


      

      
        	
                i.  

              	
                HE
                  0700 – HE 2200 Monday thru Friday except NERC
                  Holidays

              


      

      
        	
                ii.  

              	
                HE
                  1100 – HE 2200 Saturday, Sunday and NERC
                  Holidays

              


      

      
        	
                d.  

              	
                Extended
                  Dispatch Hours (EDH) are:

              


      

      
        	
                i.  

              	
                All
                  other hours except NDH.

              


      

      
        	
                ii.  

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

              


      

      


      
        	
                2.  

              	
                PLANNED
                  OUTAGE:

              


      

      
        	
                a.  

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

              


      

      
        	
                b.  

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

              


      

      
        	
                c.  

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

              


      

      


      
        	
                3.  

              	
                FORCED
                  OUTAGES:

              


      

    

    
      	
              a.  

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

            


    

     

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    
      
        	
                 

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

              


      

      
        	
                b.  

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

              


      

      


      
        	
                4.  

              	
                FORCE
                  MAJEURE:

              


      

      
        	
                a.  

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

              


      

       

      
        	
                5.  

              	
                ANNUAL
                  PERFORMANCE TESTING/OTHER TESTING:

              


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

                


          	
                  a.  

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

                


        

      

       

      
        	
                6.  

              	
                METERING/SETTLEMENTS:

              


 

    

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    
      
        	
                a.  

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

              


      

      
        	
                b.  

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

              


      

      
 

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

    

    EXHIBIT
      A - ATTACHMENT 1

    
      
SAMPLE
        DISPATCH NOTICE

       

       

      
        
          	
                  CALPINE

                	
                   

                	
                   

                	
                  PHONE

                	
                  EMAIL

                	
                  Issue
                    Date

                	 
	
                  xxx,
                    Facility Manager

                	 	 	
                  xxx

                	
                  xxx

                	
                  Flow
                    Date:

                	 
	 	 	 	 	
                   

                	
                  Plant:

                	 	
                  Los

                  Esteros

                
	
                  Day
                    Ahead Power Scheduling

                	 	 	
                  xxx

                	
                  xxx

                	 	 	
                   

                
	
                  Hour
                    Ahead Power Scheduling

                	 	
                  xxx

                	
                  xxx

                	 	 	
                   

                
	
                  Gas
                    Scheduling

                	 	 	
                  xxx

                	
                  xxx

                	 	 	
                   

                
	
                  Gas
                    Scheduling (24-Hour Call)

                	 	 	
                  xxx

                	
                  xxx

                	 	 	
                   

                
	
                   

                	 	 	 	 	 	 	
                   

                
	
                  PG&E

                	 	 	 	 	 	 	
                   

                
	
                   

                	 	 	 	 	 	 	
                   

                
	
                  Day
                    Ahead Power Scheduling

                	 	 	
                  xxx

                	
                  xxx

                	 	 	
                   

                
	
                  Hour
                    Ahead Power Scheduling

                	 	
                  xxx

                	
                  xxx

                	 	 	
                   

                
	
                  Gas
                    Scheduling

                	 	 	
                  xxx

                	
                  xxx

                	 	 	
                   

                
	
                   

                	 	 	 	 	 	 	
                   

                
	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                


        

        
          	
                  November
                    30, 2007

                	
                   

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                   

                	
                   

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Declared

                	
                  Hour

                	
                  Derate

                	
                  Dispatched

                	 	 	 	
                   

                
	
                  Unit

                	
                  Ending

                	
                  MW

                	
                  MW

                	 	 	 	
                   

                


        

        
        

        
          	
                  Los
                    Esteros Energy Center

                	
                  100

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  200

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  300

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  400

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  500

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  600

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  700

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  800

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  900

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1000

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1100

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1200

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1300

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1400

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1500

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1600

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1700

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1800

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  1900

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  2000

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  2100

                	
                   

                	
                  180.0

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  2200

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  2300

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                  Los
                    Esteros Energy Center

                	
                  2400

                	
                   

                	
                   

                	 	 	 	
                   

                
	
                   

                	
                   

                	 	
                   

                	 	 	 	
                   

                


        

         

         

        
          
            
            

          

          
            24

            
              

            

          

          
            
            

          

        

         

        
 

        
          	
                   

                	
                  Total

                	 	
                  2340

                	 	 	 	
                   

                
	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                	
                   

                


        

      

       

       

    

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    

      EXHIBIT
        B

       

      OPERATING
        LIMITATIONS

       

      


      
        	
                1.  

              	
                Operating
                  Range

              


      

       

      
        
          	
                   

                	
                  Minimum
                    Output

                	
                  20
                    MW

                	
                   

                
	
                   

                	
                   

                	
                   

                	
                   

                
	
                   

                	
                  Maximum
                    Output

                	
                  180
                    MW or Available
                    Capacity

                	
                   

                


        

        


        
          	
                  2.  

                	
                  Ramp
                    Rates

                


        

        


        
          	
                   

                	
                  a.      Minimum
Ramp
                    Rate

                	
                   

                	
                   

                


        

        


        
          	
                   

                	
                  Number
                    of Units
                    Operating

                	
                  Ramp
                    Rates
                    (MW/min)

                	
                   

                
	
                   

                	
                  1

                	
                  4

                	
                   

                
	
                   

                	
                  2

                	
                  8

                	
                   

                
	
                   

                	
                  3

                	
                  12

                	
                   

                
	
                   

                	
                  4

                	
                  16

                	
                   

                


        

        


        
          	
                   

                	
                  b.      Maximum
Ramp
                    Rate

                	
                   

                	
                   

                


        

        


        
          	
                   

                	
                  Number
                    of Units
                    Operating

                	
                  Ramp
                    Rates
                    (MW/min)

                	
                   

                
	
                   

                	
                  1

                	
                  9

                	
                   

                
	
                   

                	
                  2

                	
                  18

                	
                   

                
	
                   

                	
                  3

                	
                  27

                	
                   

                
	
                   

                	
                  4

                	
                  36

                	
                   

                


        



       

       

      
        	
                3.  

              	
                Minimum
                  Down
                  Time                                          30
                  minutes

              


      

      


      
        	
                4.  

              	
                Minimum
                  Run
                  Time                                              60
                  minutes

              


      

      


      
        	
                5.  

              	
                Maximum
                  Units in Start
                  Up                                   4

              


      

      


      
        	
                6.  

              	
                Maximum
                  Units in Shut
                  Down                               4

              


      

      


      
        	
                7.  

              	
                Start
                  Times (from initial
                  notification to min load)

              


      

      


      
        	
                a.  

              	
                Normal
                  Start                                            30
                  minutes

              


      

      
        	
                b.  

              	
                Fast
                  Start                                                 10
                  minutes

              


      

       

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


      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      


      
        EXHIBIT
C

         

        FORM
          OF LETTER OF
          CREDIT

         

        [Issuing
          Bank
          Letterhead]

         

        [Address]

         

        


         

        Date:
          _________

         

        Irrevocable
          Standby Letter of Credit
          Number:________

         

        
          	
                   
                    Beneficiary:     California
                    Department of
                    Water
                    Resources

                    

                   
                    Address:

                   

                	
                   
                    Applicant:     Calpine
                    Energy Services,
                    L.P.

                   

                   
                    Address:

                   

                


        

         

        [Advising
          Bank, if
          applicable]

        [Confirming
          Bank, if
          applicable]

        Amount:  USD
          20,000,000
          (Twenty Million US Dollars)

        


        We
          hereby issue our Irrevocable Standby
          Letter of Credit at this
          office in your favor for the account of Applicant by sight payment against
          the
          following documents:

         

        1.           Your
          sight draft drawn on us marked
“drawn under [Issuing
          Bank]
          [Letter of Credit Number] dated [Date]”;

         

        AND

         

        2.           Beneficiary’s
          signed statement certifying:

         

        “Applicant
          is in default under that
          certain Third Amended and Restated Confirmation Agreement
          dated
          December __, 2007 by and
          between Applicant and Beneficiary and the amount drawn hereunder is not
          greater
          than the amount due and owing to Beneficiary pursuant
          to that
          agreement.”

         

        OR

         

        “This
          Letter of Credit will expire in
          thirty (30) calendar days or less and Applicant has not provided a replacement
          letter of credit or alternate security acceptable to the
          Beneficiary.”

         

        This
          Letter of Credit expires at our counters
          located at [INSERT
          ADDRESS] on  [INSERT DATE], (“Expiration Date”)
          but the Expiration Date shall be
          automatically extended without amendment for a period of one year and on
          each
          successive Expiration Date, unless at least sixty (60) days
          before the then current Expiration
          Date, we notify you by registered mail or courier that we elect not to
          renew
          this Letter of Credit for such additional period.

         

        Special
          Conditions:

        


        
          
            
              
              

            

            
              27

              
                

              

            

            
              
              

            

          

        

        


        1.           Partial
          drawing(s) are
          permitted.

         

        2.           All
          banking charges
          associated with this Letter
          of Credit are for the account of the Applicant.

         

        3.           This
          Letter of Credit is
          transferable upon
          request as provided in the
          next paragraph.

         

        Beneficiary
          may transfer or assign this
          Letter of Credit upon presentation to us of this Letter of Credit,
          Beneficiary’s
          signed statement that it has assigned
          that certain Third Amended and Restated Confirmation Agreement dated December
          __, 2007 by and between Applicant and Beneficiary to the transferee in
          compliance with the terms thereof, and such other
          documentation we may reasonably
          request to evidence such assignment.  Consent of the Applicant to
          assign this Letter of Credit under these circumstances
shall
          not be required, but shall be required
          in all other
          circumstances.

         

        We
          hereby engage with you that draft(s) drawn
          under and in
          compliance with the terms of this Letter of Credit will be duly honored
          if drawn
          and presented for payment at any time before the close of business [INSERT
          TIME]
          at our counters located at [INSERT ADDRESS] on or before the Expiration
          Date or in the event of Force
          Majeure, as defined under Article 17 of the Uniform Customs and Practice
          for
          Documentary Credits (1993 Revision) International Chamber of Commerce
          Publication No. 500 (“UCP”),
          interrupting our business, within
          fifteen
          (15) days after resumption of our
          business, whichever is later.

         

        Except
          as otherwise stated herein, this
          credit is subject to the UCP
          and, with respect to matters not so
          covered, this Letter of Credit is subject to and governed by the Laws of
          the
          State of New
          York.

         

        If
          you have any questions regarding this
          Letter of Credit, please call [Telephone No.].

         

        By:  __________________

         

        Authorized
          Signature

         

        Name:
          _________________

         

        Title:
          __________________

         

         

        
          
            
            

          

          
            28

            
              

            

          

          
            
            

          

        

      

       

      
        EXHIBIT
          D

        


        PERFORMANCE
          TESTING
          PROCEDURES

         

        FOR
          COMMERCIAL
          OPERATIONS

         

        


         

        1.         Purpose
          of the Performance
          Test.

        


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

         

        2,         
Test
          Procedure and Schedule.


         

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

        


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

        


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

        


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

        


        3.           Scheduling
          of Annual Performance
          Tests.

        


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

         

         

        
          
            
            

          

          
            29

            
              

            

          

          
            
            

          

        

         

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

        


        4.           Test
          Conditions.

        


        
          	
                   

                	
                  A.

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

                


        

        


        
          	
                   

                	
                  B.

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

                


        

         

        
          	
                   

                	
                  C.

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

                


        

         

        
          	
                   

                	
                  D.

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

                


        

         

        At
          no time during the test shall the
          Facility be subject to disruptions or abnormal conditions including, but
          not
          limited to, any (i) unstable conditions, (ii) equipment, operating, or
          regulatory restrictions, or (iii) changes in load from full load other
          than
          those fluctuations naturally arising from variations in ambient
          temperature.  

         

        
          	
                   

                	
                  E.

                	
                  Applicable
                    Laws and
                    Permits.  At all times, the Facility shall be in compliance with
                    all applicable laws, regulations and permits, including, but
                    not limited
                    to, those governing safety and air and water
                    emissions.  

                


        

         

        
          	
                   

                	
                  F.

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

                


        

        


        
          	
                  1.  

                	
                  Instantaneous
                    ambient relative
                    humidity (%)

                


        

        
          	
                  2.  

                	
                  Instantaneous
                    ambient barometric
                    pressure (inches Hg)

                


        

        
          	
                  3.  

                	
                  Instantaneous
                    ambient temperature
                    (°F)

                


        

        
          	
                  4.  

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

                


        

        
          	
                  5.  

                	
                  CEMS
                    data required per air
                    permit

                


        

        
        

         

         

        
          
            
            

          

          
            30

            
              

            

          

          
            
            

          

        

        
 

        
          	
                  6.  

                	
                  Turbine
                    speed
                    (rpm)

                


        

        
          	
                  7.  

                	
                  Turbine
                    temperatures
                    (°F)

                


        

        
          	
                  8.  

                	
                  Turbine
                    pressures
                    (psig)

                


        

        
          	
                  9.  

                	
                  Fuel
                    flow at the Gas
                    Delivery Point.

                


        

        
          	
                  10.  

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

                


        

        


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

        


        
          	
                   

                	
                  G.

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

                


        

         

        5.           Determination
          of Contract Quantity and
          Creation of Ambient Facility Output
          Table.

         

        The
          Seller shall perform the calculation
          of Contract
          Quantity correcting the
          measured  data  to the following
          adjustments:

        


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

        


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

        


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

         

         

        
          
            
            

          

          
            31

            
              

            

          

          
            
            

          

        

         

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

        


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

        


        6.           Test
          Reports.

         

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

         

        7.           Test
          Acceptance and
          Re-Testing.  

         

        If
          the Seller and Buyer
          both accept a test, the Contract Quantity
          shall be updated to reflect the results
          of such test effective upon the first day of the month following the month
          in
          which Buyer
          receives the Seller’s test
          report.

        


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

        


        8.           Cost
          and
          Revenue.


         

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

        


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

        


         

      

      
        
          
            
            

          

          
            32

            
              

            

          

          
            
            

          

        

        EXHIBIT
          E

        


        DIVISION
          OF GENERATOR OPERATOR (GOP)
AND

         GENERATOR
          OWNER (GO)
          RESPONSIBILITIES

        


        [To
          be attached after negotiation by the
          Parties

        in
          accordance with Special Condition
          1(e)]

        


        


        
          
            
              
              

            

            
              33

              
                

              

            

            
              
              

              
              

            

          

        

        


        EXHIBIT
          F

        


        [FORM
          OF] CONFIDENTIALITY
          AGREEMENT

        
 

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

          


          W
            I T N E S S E T H:

          


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

          


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

          


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

          


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

          


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

          


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

           

           

          
            
              
              

            

            
              34

              
                

              

            

            
              
              

            

          

           

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

          


          2.           Use
            of Evaluation Material and Confidentiality.

          


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

          


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

           

           

          
            
              
              

            

            
              35

              
                

              

            

            
              
              

            

          

           

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

          


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

          


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

          


          4.           Access.  In
            the event that either Party desires physical access to any property or
            facilities of the other Party or any of its subsidiaries, such Party
            agrees to
            indemnify, defend and hold harmless the other Party, its affiliates,
            subsidiaries, directors and employees from and against any and all losses,
            damages, liabilities, assessments, costs, charges, claims and causes
            of action
            (including without limitation reasonable attorneys’ fees and costs) for personal
            injury, death or property damage occurring on or to such property as
            a result of
            the entry of such Party (including its Representatives) onto such
            premises.  Each Party agrees to comply fully with all rules,
            regulations and instructions issued by the other Party regarding the
            actions of
            such Party (including its Representatives) while upon, entering or leaving
            the
            property of the other Party or any of its subsidiaries.

           

           

          
            
              
              

            

            
              36

              
                

              

            

            
              
              

            

          

           

          5.           Remedies.  It
            is understood and agreed that money damages would not be a sufficient
            remedy for
            any breach of this Agreement by any Party hereto or any of its Representatives
            and that the non-breaching Party be entitled to equitable relief, including
            injunction and specific performance, as a remedy of such breach.  Such
            remedies shall not be deemed to be the exclusive remedies for a breach
            of this
            Agreement, but shall be in addition to all other remedies available at
            law or
            equity to the non-breaching Party.  In the event of litigation
            relating to this Agreement, if a court of competent jurisdiction determines
            that
            a Party or any of its Representatives has breached this Agreement, or
            if a Party
            does not prevail in any such action, such breaching or non-prevailing
            Party
            shall be liable for and pay to the other Party on demand the reasonable
            legal
            fees and expenses incurred by the non-breaching or prevailing Party in
            connection with such litigation, including any appeal therefrom. The
            restrictions expressed in this Agreement in no way supersede or eliminate
            any
            rights which a Party may have pursuant to Federal or state law pertaining
            to
            trade secrets or proprietary information and, in the event that any such
            Federal
            or state law provides greater protections of any Evaluation Material
            than the
            protections set forth in this Agreement, such greater protections shall
            apply to
            such Evaluation Material.

          


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

          


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

          


          8.           Choice
            or Law/Consent to Jurisdiction.  The validity,
            interpretation, performance and enforcement of this Agreement shall be
            governed
            by the laws of the State of California without regard to the conflicts
            of laws
            principles thereof.  Each Party hereby irrevocably and unconditionally
            consents to the exclusive jurisdiction of the federal and state courts
            in the
            State of California for any action, suit or proceeding arising out of
            or related
            hereto.  Each Party hereto further hereby irrevocably and
            unconditionally waives any objection to the laying of venue of any action,
            suit
            or proceeding arising out of or relating to this Agreement in the federal
            and
            state courts of the State of California, and hereby further irrevocably
            and
            unconditionally waives and agrees not to plead or claim in any such court
            that
            any such action, suit or proceeding brought in any such court has been
            brought
            in any inconvenient forum.

           

           

          
            
              
              

            

            
              37

              
                

              

            

            
              
              

            

          

           

          9.           Severability.  If
            any provision or portion of this Agreement should be determined by any
            court or
            agency of competent jurisdiction to be invalid, illegal or unreasonable,
            in
            whole or in part in any jurisdiction, and such determination should become
            final, such provision or portion shall be deemed to be severed in such
            jurisdiction, but only to the extent required to render the remaining
            provisions
            and portions of this Agreement enforceable, and this Agreement as thus
            amended
            shall be enforced in such jurisdiction to give effect to the intention
            of the
            Parties insofar as that is possible, and further, the Agreement shall
            continue
            without amendment in full force and effect in all other
            jurisdictions.  In the event of any such determination, the Parties
            shall negotiate in good faith to modify this Agreement to fulfill as
            closely as
            possible the original intents and purposes hereof.

          


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

          


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

          


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

          


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

          


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

          


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

           

           

          
            
              
              

            

            
              38

              
                

              

            

            
              
              

            

          

          


          [signature
            page follows]

           

          


           


          
            
              
              

            

            
              39

              
                

              

            

            
              
              

            

          

           

        

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

           

           

          
            	
                     

                  	
                    CALPINE
                      CORPORATION

                  	 
	
                     

                  	
                     

                  	
                     

                  	 
	
                     

                  	
                    By:

                  	
                     

                  	 
	
                     

                  	
                    Name:

                  	
                     

                  	 
	
                     

                  	
                    Title:

                  	
                     

                  	 
	
                     

                  	
                    Date:

                  	
                     

                  	 


          

          


          
            	
                     

                  	
                    Address:

                  
	
                     

                  	
                     

                  
	
                     

                  	
                    Calpine
                      Corporation

                  
	
                     

                  	
                    Attn:  Vice
                      President and Assistant General Counsel

                  
	
                     

                  	
                    3475
                      Hopyard Road, Suite 345.

                  
	
                     

                  	
                    Pleasanton,
                      CA 94588

                  
	
                     

                  	
                    Facsimile:  (925)
                      479-7303

                  
	
                     

                  	
                    Telephone:  (925)
                      479-6600

                  
	
                     

                  	
                     

                  
	
                     

                  	
                    With
                      a copy to:

                  
	
                     

                  	
                     

                  
	
                     

                  	
                    Calpine
                      Corporation

                  
	
                     

                  	
                    Attention:  General
                      Counsel

                  
	
                     

                  	
                    50
                      West San Fernando Street

                  
	
                     

                  	
                    San
                      Jose, CA  95113

                  
	
                     

                  	
                    Facsimile:
                      (408) 975-4648

                  
	
                     

                  	
                    Telephone:  (408)
                      995-5115

                  
	
                     

                  	
                     

                  
	
                     

                  	
                     

                  
	
                     

                  	
                     

                  
	
                     

                  	
                    CALPINE
                      ENERGY SERVICES, L.P.

                  


          

          


          
            	
                     

                  	
                    By:

                  	
                     

                  	 
	
                     

                  	
                    Name:

                  	
                     

                  	 
	
                     

                  	
                    Title:

                  	
                     

                  	 
	
                     

                  	
                    Date:

                  	
                     

                  	 


          

          


          
            	
                     

                  	
                    Address:

                  
	
                     

                  	
                     

                  
	
                     

                  	
                    Calpine
                      Energy Services, L.P.

                  
	
                     

                  	
                    Attn: Director,
                      Commodity Contracts

                  
	
                     

                  	
                    717
                      Texas Avenue

                  
	
                     

                  	
                    Houston,
                      TX 77002

                  
	
                     

                  	
                    Facsimile:  (713)
                      830-2001

                  
	
                     

                  	
                    Telephone:  (713)
                      830-8845

                  


          

          
 

          
            
              
              

            

            
              40

              
                

              

            

            
              
              

            

          


          


          
            	
                     

                  	
                    CALIFORNIA
                      DEPARTMENT OF WATER

                    RESOURCES,
                      acting solely under the authority and

                    powers
                      created by California Assembly Bill 1 from the

                    First
                      Extraordinary Session of 2000 – 2001, codified in

                    Sections
                      80000 – 80270 of the California Water
                      Code

                  


          

          


          
            	
                     

                  	
                    By:

                  	
                     

                  	 
	
                     

                  	
                    Name:

                  	
                     

                  	 
	
                     

                  	
                    Title:

                  	
                     

                  	 
	
                     

                  	
                    Date:

                  	
                     

                  	 


          

          


          
            	
                     

                  	
                    Address:

                  
	
                     

                  	
                     

                  
	
                     

                  	
                    California
                      Department of Water Resource

                  
	
                     

                  	
                    Attn:  Deputy
                      Drector

                  
	
                     

                  	
                    3301
                      El Camino Ave., Suite 120

                  
	
                     

                  	
                    Sacramento,
                      CA 95821

                  
	
                     

                  	
                    Facsimile:  (916)
                      574-2512

                  
	
                     

                  	
                    Telephone:  (916)
                      574-2733

                  


          

          

41