Document:

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                                                                    EXHIBIT 10.4

(MULTICURRENCY -- CROSS BORDER)

                                     ISDA(R)

                  International Swap Dealers Association, Inc.

                                MASTER AGREEMENT

                           dated as of MARCH 12, 2004

MORGAN STANLEY CAPITAL GROUP INC.                CALPINE GENERATING COMPANY, LLC
........................................and......................................
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.

Accordingly, the parties agree as follows:--

1.    INTERPRETATION

(a)   DEFINITIONS. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.

(b)   INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.

(c)   SINGLE AGREEMENT. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.

2.    OBLIGATIONS

(a)   GENERAL CONDITIONS.

      (i) Each party will make each payment or delivery specified in each
      Confirmation to be made by it, subject to the other provisions of this
      Agreement.

      (ii) Payments under this Agreement will be made on the due date for value
      on that date in the place of the account specified in the relevant
      Confirmation or otherwise pursuant to this Agreement, in freely
      transferable funds and in the manner customary for payments in the
      required currency. Where settlement is by delivery (that is, other than by
      payment), such delivery will be made for receipt on the due date in the
      manner customary for the relevant obligation unless otherwise specified in
      the relevant Confirmation or elsewhere in this Agreement.

      (iii) Each obligation of each party under Section 2(a)(i) is subject to
      (1) the condition precedent that no Event of Default or Potential Event of
      Default with respect to the other party has occurred and is continuing,
      (2) the condition precedent that no Early Termination Date in respect of
      the relevant Transaction has occurred or been effectively designated and
      (3) each other applicable condition precedent specified in this Agreement.

       Copyright (c) 1992 by International Swap Dealers Association, Inc.

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(b)   CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.

(c)   NETTING. If on any date amounts would otherwise be payable: --

      (i)   in the same currency; and

      (ii)  in respect of the same Transaction,

by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.

The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.

(d)   DEDUCTION OR WITHHOLDING FOR TAX.

      (i) GROSS-UP. All payments under this Agreement will be made without any
      deduction or withholding for or on account of any Tax unless such
      deduction or withholding is required by any applicable law, as modified by
      the practice of any relevant governmental revenue authority, then in
      effect. If a party is so required to deduct or withhold, then that party
      ("X") will: --

            (1)   promptly notify the other party ("Y") of such requirement;

            (2)   pay to the relevant authorities the full amount required to be
                  deducted or withheld (including the full amount required to be
                  deducted or withheld from any additional amount paid by X to Y
                  under this Section 2(d)) promptly upon the earlier of
                  determining that such deduction or withholding is required or
                  receiving notice that such amount has been assessed against Y;

            (3)   promptly forward to Y an official receipt (or a certified
                  copy), or other documentation reasonably acceptable to Y,
                  evidencing such payment to such authorities; and

            (4)   if such Tax is an Indemnifiable Tax, pay to Y, in addition to
                  the payment to which Y is otherwise entitled under this
                  Agreement, such additional amount as is necessary to ensure
                  that the net amount actually received by Y (free and clear of
                  Indemnifiable Taxes, whether assessed against X or Y) will
                  equal the full amount Y would have received had no such
                  deduction or withholding been required. However, X will not be
                  required to pay any additional amount to Y to the extent that
                  it would not be required to be paid but for: --

                  (A)   the failure by Y to comply with or perform any agreement
                        contained in Section 4(a)(i), 4(a)(iii) or 4(d); or

                  (B)   the failure of a representation made by Y pursuant to
                        Section 3(f) to be accurate and true unless such failure
                        would not have occurred but for (I) any action taken by
                        a taxing authority, or brought in a court of competent
                        jurisdiction, on or after the date on which a
                        Transaction is entered into (regardless of whether such
                        action is taken or brought with respect to a party to
                        this Agreement) or (II) a Change in Tax Law.

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      (ii)  LIABILITY. IF: --

            (1)   X is required by any applicable law, as modified by the
            practice of any relevant governmental revenue authority, to make any
            deduction or withholding in respect of which X would not be required
            to pay an additional amount to Y under Section 2(d)(i)(4);

            (2)   X does not so deduct or withhold; and

            (3)   a liability resulting from such Tax is assessed directly
                  against X,

      then, except to the extent Y has satisfied or then satisfies the liability
      resulting from such Tax, Y will promptly pay to X the amount of such
      liability (including any related liability for interest, but including any
      related liability for penalties only if Y has failed to comply with or
      perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).

(e)   DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.

3.    REPRESENTATIONS

Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that: --

(a)   BASIC REPRESENTATIONS.

      (i)   STATUS. It is duly organised and validly existing under the laws of
      the jurisdiction of its organisation or incorporation and, if relevant
      under such laws, in good standing;

      (ii)  POWERS. It has the power to execute this Agreement and any other
      documentation relating to this Agreement to which it is a party, to
      deliver this Agreement and any other documentation relating to this
      Agreement that it is required by this Agreement to deliver and to perform
      its obligations under this Agreement and any obligations it has under any
      Credit Support Document to which it is a party and has taken all necessary
      action to authorise such execution, delivery and performance;

      (iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance
      do not violate or conflict with any law applicable to it, any provision of
      its constitutional documents, any order or judgment of any court or other
      agency of government applicable to it or any of its assets or any
      contractual restriction binding on or affecting it or any of its assets;

      (iv)  CONSENTS. All governmental and other consents that are required to
      have been obtained by it with respect to this Agreement or any Credit
      Support Document to which it is a party have been obtained and are in full
      force and effect and all conditions of any such consents have been
      complied with; and

      (v)   OBLIGATIONS BINDING. Its obligations under this Agreement and any
      Credit Support Document to which it is a party constitute its legal, valid
      and binding obligations, enforceable in accordance with their respective
      terms (subject to applicable bankruptcy, reorganisation, insolvency,
      moratorium or similar laws affecting creditors' rights generally and
      subject, as to enforceability, to equitable principles of general
      application (regardless of whether enforcement is sought in a proceeding
      in equity or at law)).

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(b)   ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or, to its knowledge. Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.

(c)   ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.

(d)   ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.

(e)   PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.

(f)   PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(f) is accurate and true.

4.    AGREEMENTS

Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party: --

(a)   FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (in) below, to such government or taxing
authority as the other party reasonably directs: --

      (i)   any forms, documents or certificates relating to taxation specified
      in the Schedule or any Confirmation;

      (ii)  any other documents specified in the Schedule or any Confirmation;
      and

      (iii) upon reasonable demand by such other party, any form or document
      that may be required or reasonably requested in writing in order to allow
      such other party or its Credit Support Provider to make a payment under
      this Agreement or any applicable Credit Support Document without any
      deduction or withholding for or on account of any Tax or with such
      deduction or withholding at a reduced rate (so long as the completion,
      execution or submission of such form or document would not materially
      prejudice the legal or commercial position of the party in receipt of such
      demand), with any such form or document to be accurate and completed in a
      manner reasonably satisfactory to such other party and to be executed and
      to be delivered with any reasonably required certification,

in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.

(b)   MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.

(c)   COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.

(d)   TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.

(e)   PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,

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organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.

5.    EVENTS OF DEFAULT AND TERMINATION EVENTS

(a)   EVENTS OF DEFAULT. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party: --

      (i)   FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
      any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
      required to be made by it if such failure is not remedied on or before the
      third Local Business Day after notice of such failure is given to the
      party;

      (ii)  BREACH OF AGREEMENT. Failure by the party to comply with or perform
      any agreement or obligation (other than an obligation to make any payment
      under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
      notice of a Termination Event or any agreement or obligation under Section
      4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party
      in accordance with this Agreement if such failure is not remedied on or
      before the thirtieth day after notice of such failure is given to the
      party;

      (iii) CREDIT SUPPORT DEFAULT.

            (1)   Failure by the party or any Credit Support Provider of such
            party to comply with or perform any agreement or obligation to be
            complied with or performed by it in accordance with any Credit
            Support Document if such failure is continuing after any applicable
            grace period has elapsed;

            (2)   the expiration or termination of such Credit Support Document
            or the failing or ceasing of such Credit Support Document to be in
            full force and effect for the purpose of this Agreement (in either
            case other than in accordance with its terms) prior to the
            satisfaction of all obligations of such party under each Transaction
            to which such Credit Support Document relates without the written
            consent of the other party; or

            (3)   the party or such Credit Support Provider disaffirms,
            disclaims, repudiates or rejects, in whole or in part, or challenges
            the validity of, such Credit Support Document;

      (iv)  MISREPRESENTATION. A representation (other than a representation
      under Section 3(e) or (f)) made or repeated, or deemed to have been made
      or repeated by the party or any Credit Support Provider of such party in
      this Agreement or any Credit Support Document proves to have been
      incorrect or misleading in any material respect when made or repeated or
      deemed to have been made or repeated;

      (v)   DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
      Provider of such party or any applicable Specified Entity of such party
      (1) defaults under a Specified Transaction and, after giving effect to any
      applicable notice requirement or grace period, there occurs a liquidation
      of, an acceleration of obligations under, or an early termination of, that
      Specified Transaction, (2) defaults, after giving effect to any applicable
      notice requirement or grace period, in making any payment or delivery due
      on the last payment, delivery or exchange date of, or any payment on early
      termination of, a Specified Transaction (or such default continues for at
      least three Local Business Days if there is no applicable notice
      requirement or grace period) or (3) disaffirms, disclaims, repudiates or
      rejects, in whole or in part, a Specified Transaction (or such action is
      taken by any person or entity appointed or empowered to operate it or act
      on its behalf);

      (vi)  CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
      applying to the party, the occurrence or existence of (1) a default, event
      of default or other similar condition or event (however

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      described) in respect of such party, any Credit Support Provider of such
      party or any applicable Specified Entity of such party under one or more
      agreements or instruments relating to Specified Indebtedness of any of
      them (individually or collectively) in an aggregate amount of not less
      than the applicable Threshold Amount (as specified in the Schedule) which
      has resulted in such Specified Indebtedness becoming, or becoming capable
      at such time of being declared, due and payable under such agreements or
      instruments, before it would otherwise have been due and payable or (2) a
      default by such party, such Credit Support Provider or such Specified
      Entity (individually or collectively) in making one or more payments on
      the due date thereof in an aggregate amount of not less than the
      applicable Threshold Amount under such agreements or instruments (after
      giving effect to any applicable notice requirement or grace period);

      (vii) BANKRUPTCY. The party, any Credit Support Provider of such party or
      any applicable Specified Entity of such party: --

            (1)   is dissolved (other than pursuant to a consolidation,
            amalgamation or merger); (2) becomes insolvent or is unable to pay
            its debts or fails or admits in writing its inability generally to
            pay its debts as they become due; (3) makes a general assignment,
            arrangement or composition with or for the benefit of its creditors;
            (4) institutes or has instituted against it a proceeding seeking a
            judgment of insolvency or bankruptcy or any other relief under any
            bankruptcy or insolvency law or other similar law affecting
            creditors' rights, or a petition is presented for its winding-up or
            liquidation, and,in the case of any such proceeding or petition
            instituted or presented against it, such proceeding or petition (A)
            results in a judgment of insolvency or bankruptcy or the entry of an
            order for relief or the making of an order for its winding-up or
            liquidation or (B) is not dismissed, discharged, stayed or
            restrained in each case within 30 days of the institution or
            presentation thereof; (5) has a resolution passed for its
            winding-up, official management or liquidation (other than pursuant
            to a consolidation, amalgamation or merger); (6) seeks or becomes
            subject to the appointment of an administrator, provisional
            liquidator, conservator, receiver, trustee, custodian or other
            similar official for it or for all or substantially all its assets;
            (7) has a secured party take possession of all or substantially all
            its assets or has a distress, execution, attachment, sequestration
            or other legal process levied, enforced or sued on or against all or
            substantially all its assets and such secured party maintains
            possession, or any such process is not dismissed, discharged, stayed
            or restrained, in each case within 30 days thereafter; (8) causes or
            is subject to any event with respect to it which, under the
            applicable laws of any jurisdiction, has an analogous effect to any
            of the events specified in clauses (1) to (7) (inclusive); or (9)
            takes any action in furtherance of, or indicating its consent to,
            approval of, or acquiescence in, any of the foregoing acts; or

      (viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider
      of such party consolidates or amalgamates with, or merges with or into, or
      transfers all or substantially alt its assets to, another entity and, at
      the time of such consolidation, amalgamation, merger or transfer: --

            (1)   the resulting, surviving or transferee entity fails to assume
            all the obligations of such party or such Credit Support Provider
            under this Agreement or any Credit Support Document to which it or
            its predecessor was a party by operation of law or pursuant to an
            agreement reasonably satisfactory to the other party to this
            Agreement; or

            (2)   the benefits of any Credit Support Document fail to extend
            (without the consent of the other party) to the performance by such
            resulting, surviving or transferee entity of its obligations under
            this Agreement.

(b)   TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event

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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below: --

      (i)   ILLEGALITY. Due to the adoption of, or any change in, any applicable
      law after the date on which a Transaction is entered into, or due to the
      promulgation of, or any change in, the interpretation by any court,
      tribunal or regulatory authority with competent jurisdiction of any
      applicable law after such date, it becomes unlawful (other than as a
      result of a breach by the party of Section 4(b)) for such party (which
      will be the Affected Party): --

            (1)   to perform any absolute or contingent obligation to make a
            payment or delivery or to receive a payment or delivery in respect
            of such Transaction or to comply with any other material provision
            of this Agreement relating to such Transaction; or

            (2)   to perform, or for any Credit Support Provider of such party
            to perform, any contingent or other obligation which the party (or
            such Credit Support Provider) has under any Credit Support Document
            relating to such Transaction;

      (ii)  TAX EVENT. Due to (x) any action taken by a taxing authority, or
      brought in a court of competent jurisdiction, on or after the date on
      which a Transaction is entered into (regardless of whether such action is
      taken or brought with respect to a party to this Agreement) or (y) a
      Change in Tax Law, the party (which will be the Affected Party) will, or
      there is a substantial likelihood that it will, on the next succeeding
      Scheduled Payment Date (1) be required to pay to the other party an
      additional amount in respect of an Indemnifiable Tax under Section
      2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
      6(e)) or (2) receive a payment from which an amount is required to be
      deducted or withheld for or on account of a Tax (except in respect of
      interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is
      required to be paid in respect of such Tax under Section 2(d)(i)(4) (other
      than by reason of Section 2(d)(i)(4)(A) or (B));

      (iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next
      succeeding Scheduled Payment Date will either (1) be required to pay an
      additional amount in respect of an Indemnifiable Tax under Section
      2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
      6(e)) or (2)receive a payment from which an amount has been deducted or
      withheld for or on account of any Indemnifiable Tax in respect of which
      the other party is not required to pay an additional amount (other than by
      reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
      party consolidating or amalgamating with, or merging with or into, or
      transferring all or substantially all its assets to, another entity (which
      will be the Affected Party) where such action does not constitute an event
      described in Section 5(a)(viii);

      (iv)  CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
      in the Schedule as applying to the party, such party ("X"), any Credit
      Support Provider of X or any applicable Specified Entity of X consolidates
      or amalgamates with, or merges with or into, or transfers all or
      substantially all its assets to, another entity and such action does not
      constitute an event described in Section 5(a)(viii) but the
      creditworthiness of the resulting, surviving or transferee entity is
      materially weaker than that of X, such Credit Support Provider or such
      Specified Entity, as the case may be, immediately prior to such action
      (and, in such event, X or its successor or transferee, as appropriate,
      will be the Affected Party); or

      (v)   ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event"
      is specified in the Schedule or any Confirmation as applying, the
      occurrence of such event (and, in such event, the Affected Party or
      Affected Parties shall be as specified for such Additional Termination
      Event in the Schedule or such Confirmation).

(c)   EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.

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6.    EARLY TERMINATION

(a)   RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5{a)(vii)(4) or, to the extent analogous thereto, (8).

(b)   RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.

      (i)   NOTICE. If a Termination Event occurs, an Affected Party will,
      promptly upon becoming aware of it, notify the other party, specifying the
      nature of that Termination Event and each Affected Transaction and will
      also give such other information about that Termination Event as the other
      party may reasonably require.

      (ii)  TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
      Section 5(b)(i)(I) or a Tax Event occurs and there is only one Affected
      Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
      Affected Party, the Affected Party will, as a condition to its right to
      designate an Early Termination Date under Section 6(b)(iv), use all
      reasonable efforts (which will not require such party to incur a loss,
      excluding immaterial, incidental expenses) to transfer within 20 days
      after it gives notice under Section 6(b)(i) all its rights and obligations
      under this Agreement in respect of the Affected Transactions to another of
      its Offices or Affiliates so that such Termination Event ceases to exist.

      If the Affected Party is not able to make such a transfer it will give
      notice to the other party to that effect within such 20 day period,
      whereupon the other party may effect such a transfer within 30 days after
      the notice is given under Section 6(b)(i).

      Any such transfer by a party under this Section 6(b)(ii) will be subject
      to and conditional upon the prior written consent of the other party,
      which consent will not be withheld if such other party's policies in
      effect at such time would permit it to enter into transactions with the
      transferee on the terms proposed.

      (iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)( 1) or
      a Tax Event occurs and there are two Affected Parties, each party will use
      all reasonable efforts to reach agreement within 30 days after notice
      thereof is given under Section 6(b)(i) on action to avoid that Termination
      Event.

      (iv)  RIGHT TO TERMINATE. If: --

            (1)   a transfer under Section 6(b)(ii) or an agreement under
            Section 6(b)(iii), as the case may be, has not been effected with
            respect to all Affected Transactions within 30 days after an
            Affected Party gives notice under Section 6(b)(i); or

            (2)   an Illegality under Section 5(b)(i)(2), a Credit Event Upon
            Merger or an Additional Termination Event occurs, or a Tax Event
            Upon Merger occurs and the Burdened Party is not the Affected Party,

      either party in the case of an Illegality, the Burdened Party in the case
      of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event
      or an Additional Termination Event if there is more than one Affected
      Party, or the party which is not the Affected Party in the case of a
      Credit Event Upon Merger or an Additional Termination Event if there is
      only one Affected Party may, by not more than 20 days notice to the other
      party and provided that the relevant Termination Event is then

                                       8
<PAGE>

      continuing, designate a day not earlier than the day such notice is
      effective as an Early Termination Date in respect of all Affected
      Transactions.

(c)   EFFECT OF DESIGNATION.

      (i)   If notice designating an Early Termination Date is given under
      Section 6(a) or (b), the Early Termination Date will occur on the date so
      designated, whether or not the relevant Event of Default or Termination
      Event is then continuing.

      (ii)  Upon the occurrence or effective designation of an Early Termination
      Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
      respect of the Terminated Transactions will be required to be made, but
      without prejudice to the other provisions of this Agreement. The amount,
      if any, payable in respect of an Early Termination Date shall be
      determined pursuant to Section 6(e).

(d)   CALCULATIONS.

      (i)   STATEMENT. On or as soon as reasonably practicable following the
      occurrence of an Early Termination Date, each party will make the
      calculations on its part, if any, contemplated by Section 6(e) and will
      provide to the other party a statement (1) showing, in reasonable detail,
      such calculations (including all relevant quotations and specifying any
      amount payable under Section 6(e)) and (2) giving details of the relevant
      account to which any amount payable to it is to be paid. In the absence of
      written confirmation from the source of a quotation obtained in
      determining a Market Quotation, the records of the party obtaining such
      quotation will be conclusive evidence of the existence and accuracy of
      such quotation.

      (ii)  PAYMENT DATE. An amount calculated as being due in respect of any
      Early Termination Date under Section 6(e) will be payable on the day that
      notice of the amount payable is effective (in the case of an Early
      Termination Date which is designated or occurs as a result of an Event of
      Default) and on the day which is two Local Business Days after the day on
      which notice of the amount payable is effective (in the case of an Early
      Termination Date which is designated as a result of a Termination Event).
      Such amount will be paid together with (to the extent permitted under
      applicable law) interest thereon (before as well as after judgment) in the
      Termination Currency, from (and including) the relevant Early Termination
      Date to (but excluding) the date such amount is paid, at the Applicable
      Rate. Such interest will be calculated on the basis of daily compounding
      and the actual number of days elapsed.

(e)   PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.

      (i)   EVENTS OF DEFAULT. If the Early Termination Date results from an
      Event of Default:--

            (1)   First Method and Market Quotation. If the First Method and
            Market Quotation apply, the Defaulting Party will pay to the
            Non-defaulting Party the excess, if a positive number, of (A) the
            sum of the Settlement Amount (determined by the Non-defaulting
            Party) in respect of the Terminated Transactions and the Termination
            Currency Equivalent of the Unpaid Amounts owing to the
            Non-defaulting Party over (B) the Termination Currency Equivalent of
            the Unpaid Amounts owing to the Defaulting Party.

            (2)   First Method and Loss. If the First Method and Loss apply, the
            Defaulting Party will pay to the Non-defaulting Party, if a positive
            number, the Non-defaulting Party's Loss in respect of this
            Agreement.

            (3)   Second Method and Market Quotation. If the Second Method and
            Market Quotation apply, an amount will be payable equal to (A) the
            sum of the Settlement Amount (determined by the

                                       9
<PAGE>

            Non-defaulting Party) in respect of the Terminated Transactions and
            the Termination Currency Equivalent of the Unpaid Amounts owing to
            the Non-defaulting Party less (B) the Termination Currency
            Equivalent of the Unpaid Amounts owing to the Defaulting Party. If
            that amount is a positive number, the Defaulting Party will pay it
            to the Non-defaulting Party; if it is a negative number, the
            Non-defaulting Party will pay the absolute value of that amount to
            the Defaulting Party.

            (4)   Second Method and Loss. If the Second Method and Loss apply,
            an amount will be payable equal to the Non-defaulting Party's Loss
            in respect of this Agreement. If that amount is a positive number,
            the Defaulting Party will pay it to the Non-defaulting Party; if it
            is a negative number, the Non-defaulting Party will pay the absolute
            value of that amount to the Defaulting Party.

      (ii)  TERMINATION EVENTS. If the Early Termination Date results from a
            Termination Event:--

            (1)   One Affected Party. If there is one Affected Party, the amount
            payable will be determined in accordance with Section 6(e)(i)(3), if
            Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
            except that, in either case, references to the Defaulting Party and
            to the Non-defaulting Party will be deemed to be references to the
            Affected Party and the party which is not the Affected Party,
            respectively, and, if Loss applies and fewer than all the
            Transactions are being terminated, Loss shall be calculated in
            respect of all Terminated Transactions.

            (2)   Two Affected Parties. If There are two Affected Parties:--

                  (A)   if Market Quotation applies, each party will determine a
                  Settlement Amount in respect of the Terminated Transactions,
                  and an amount will be payable equal to (I) the sum of (a)
                  one-half of the difference between the Settlement Amount of
                  the party with the higher Settlement Amount ("X") and the
                  Settlement Amount of the party with the lower Settlement
                  Amount ("Y") and (b) the Termination Currency Equivalent of
                  the Unpaid Amounts owing to X less (II) the Termination
                  Currency Equivalent of the Unpaid Amounts owing to Y; and

                  (B)   if Loss applies, each party will determine its Loss in
                  respect of this Agreement (or, if fewer than all the
                  Transactions are being terminated, in respect of all
                  Terminated Transactions) and an amount will be payable equal
                  to one-half of the difference between the Loss of the party
                  with the higher Loss ("X") and the Loss of the party with the
                  lower Loss("Y").

            If the amount payable is a positive number, Y will pay it to X; if
            it is a negative number, X will pay the absolute value of that
            amount to Y.

      (iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early
      Termination Date occurs because "Automatic Early Termination" applies in
      respect of a party, the amount determined under this Section 6(e) will be
      subject to such adjustments as are appropriate and permitted by law to
      reflect any payments or deliveries made by one party to the other under
      this Agreement (and retained by such other party) during the period from
      the relevant Early Termination Date to the date for payment determined
      under Section 6(d)(ii).

      (iv)  PRE-ESTIMATE. The parties agree that if Market Quotation applies an
      amount recoverable under this Section 6(e) is a reasonable pre-estimate of
      loss and not a penalty. Such amount is payable for the loss of bargain and
      the loss of protection against future risks and except as otherwise
      provided in this Agreement neither party will be entitled to recover any
      additional damages as a consequence of such losses.

                                       10
<PAGE>

7.    TRANSFER

Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that: --

(a)   a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, of transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and

(b)   a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).

Any purported transfer that is not in compliance with this Section will be void.

8.    CONTRACTUAL CURRENCY

(a)   PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.

(b)   JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.

(c)   SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.

(d)   EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.

                                       11
<PAGE>

9.    MISCELLANEOUS

(a)   ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.

(b)   AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.

(c)   SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.

(d)   REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.

(e)   COUNTERPARTS AND CONFIRMATIONS.

      (i)   This Agreement (and each amendment, modification and waiver in
      respect of it) may be executed and delivered in counterparts (including by
      facsimile transmission), each of which will be deemed an original.

      (ii)  The parties intend that they are legally bound by the terms of each
      Transaction from the moment they agree to those terms (whether orally or
      otherwise). A Confirmation shall be entered into as soon as practicable
      and may be executed and delivered in counterparts (including by facsimile
      transmission) or be created by an exchange of telexes or by an exchange of
      electronic messages on an electronic messaging system, which in each case
      will be sufficient for all purposes to evidence a binding supplement to
      mis Agreement. The parties will specify therein or through another
      effective means that any such counterpart, telex or electronic message
      constitutes a Confirmation.

(f)   NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.

(g)   HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.

10.   OFFICES; MULTIBRANCH PARTIES

(a)   If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.

(b)   Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.

(c)   If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.

11.   EXPENSES

A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document

                                       12
<PAGE>

to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.

12.   NOTICES

(a)   EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--

      (i)   if in writing and delivered in person or by courier, on the date it
      is delivered;

      (ii)  if sent by telex, on the date the recipient's answerback is
      received;

      (iii) if sent by facsimile transmission, on the date that transmission is
      received by a responsible employee of the recipient in legible form (it
      being agreed that the burden of proving receipt will be on the sender and
      will not be met by a transmission report generated by the sender's
      facsimile machine);

      (iv)  if sent by certified or registered mail (airmail, if overseas) or
      the equivalent (return receipt requested), on the date that mail is
      delivered or its delivery is attempted; or

      (v)   if sent by electronic messaging system, on the date that electronic
      message is received,

unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.

(b)   CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.

13.   GOVERNING LAW AND JURISDICTION

(a)   GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.

(b)   JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--

      (i)   submits to the jurisdiction of the English courts, if this Agreement
      is expressed to be governed by English law, or to the non-exclusive
      jurisdiction of the courts of the State of New York and the United States
      District Court located in the Borough of Manhattan in New York City, if
      this Agreement is expressed to be governed by the laws of the State of New
      York; and

      (ii)  waives any objection which it may have at any time to the laying of
      venue of any Proceedings brought in any such court, waives any claim that
      such Proceedings have been brought in an inconvenient forum and further
      waives the right to object, with respect to such Proceedings, that such
      court does not have any jurisdiction over such party.

Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.

(c)   SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any

                                      13
<PAGE>

reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law. .

(d)   WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.

14.   DEFINITIONS

As used in this Agreement:--

"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).

"AFFECTED PARTY" has the meaning specified in Section 5(b).

"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.

"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.

"APPLICABLE RATE" means:--

(a)   in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;

(b)   in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;

(c)   in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and

(d)   in all other cases, the Termination Rate.

"BURDENED PARTY" has the meaning specified in Section 5(b).

"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.

"CONSENT" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.

"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).

"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.

"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.

"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.

                                        14
<PAGE>

"DEFAULTING PARTY" has the meaning specified in Section 6(a).

"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).

"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.

"ILLEGALITY" has the meaning specified in Section 5(b).

"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).

"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.

"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.

"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a patty's legal fees and
out-of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.

"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have

                                       15
<PAGE>

been required after that date For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.

"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if.it were to fund the relevant amount.

"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).

"OFFICE" means a branch or office of a party, which may be such party's head or
home office.

"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.

"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.

"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.

"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.

"set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.

"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--

(a)   the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and

(b)   such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the parry making the determination) produce a
commercially reasonable result.

"SPECIFIED ENTITY" has the meaning specified in the Schedule.

                                       16
<PAGE>

"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.

"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.

"STAMP TAX" means any stamp, registration, documentation or similar tax.

"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.

"TAX EVENT" has the meaning specified in Section 5(b).

"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).

"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).

"TERMINATION CURRENCY" has the meaning specified in the Schedule.

"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.

"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.

"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.

"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market

                                       17
<PAGE>

value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.

IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.

MORGAN STANLEY CAPITAL GROUP INC.              CALPINE GENERATING COMPANY, LLC

By: /s/ Simon Green Shields                    By: /s/ Zamir Rauf
   ------------------------------                 ------------------------------
   Name: Simon Green Shields                      Name: Zamir Rauf
   Title: Vice President                          Title: Vice President
   Date: March 12 2004                            Date: 3/12/2004

                                       18
<PAGE>

                                                                  EXECUTION COPY

                                    SCHEDULE
                                     TO THE
                                MASTER AGREEMENT
                           DATED AS OF MARCH 12, 2004
                                     BETWEEN
                        MORGAN STANLEY CAPITAL GROUP INC.
                                   ("PARTY A")
                                       AND
                         CALPINE GENERATING COMPANY, LLC
                                   ("PARTY B")

PART 1. TERMINATION PROVISIONS

(a)   "SPECIFIED ENTITY" means in relation to Party A for the purpose of:-

                  Section 5(a)(v), None
                  Section 5(a)(vi), None
                  Section 5(a)(vii), None
                  Section 5(b)(iv), None

      and in relation to Party B for the purpose of:-

                  Section 5(a)(v), None
                  Section 5(a)(vi), None
                  Section 5(a)(vii), None
                  Section 5(b)(iv), None

(b)   "SPECIFIED TRANSACTION" means, in lieu of the meaning specified in Section
      14, none.

(c)   "CROSS DEFAULT" applies to neither Party A nor Party B.

(d)   "SPECIFIED INDEBTEDNESS" is not applicable to this Agreement.

(e)   "THRESHOLD AMOUNT" is not applicable to this Agreement.

(f)   "CREDIT EVENT UPON MERGER" applies to neither Party A nor Party B.

(g)   The "AUTOMATIC EARLY TERMINATION" provisions of Section 6(a) will not
      apply to Parry A and will not apply to Party B.

(h)   PAYMENTS ON EARLY TERMINATION. "LOSS" and "SECOND METHOD" will apply for
      the purpose of Section 6(e) of this Agreement.

(i)   "TERMINATION CURRENCY" means United States Dollars.

(j)   ADDITIONAL TERMINATION EVENT will not apply.

PART 2. TAX REPRESENTATIONS.

(a)   PARTY A AND PARTY B PAYER TAX REPRESENTATIONS. For the purpose of Section
      3(e), each of Party A and Party B makes the following representation:

                                       19
<PAGE>

      It is not required by any applicable law, as modified by the practice of
      any relevant governmental revenue authority, of any Relevant Jurisdiction
      to make any deduction or withholding for or on account of any Tax from any
      payment (other than interest under Section 2(e), 6(d)(ii) or 6(e)) to be
      made by it to the other party under this Agreement. In making this
      representation, it may rely on (i) the accuracy of any representation made
      by the other party pursuant to Section 3(f); (ii) the satisfaction of the
      agreement of the other party contained in Section 4(a)(i) or 4(a)(iii) and
      the accuracy and effectiveness of any document provided by the other party
      pursuant to Section 4(a)(i) or 4(a)(iii); and (iii) the satisfaction of
      the agreement of the other party contained in Section 4(d), provided that
      it shall not be a breach of this representation where reliance is placed
      on clause (ii) and the other party does not deliver a form or document
      under Section 4(a)(iii) by reason of material prejudice to its legal or
      commercial position.

(b)   PARTY A AND PARTY B PAYEE TAX REPRESENTATIONS.

      (i)   For the purpose of Section 3(f), Parry A makes the following
            representation:

            It is a U.S. corporation duly organized and incorporated under the
            laws of the State of Delaware and is an exempt recipient under
            Treasury Regulation Section 1.6049-4(c)(1)(ii).

      (ii)  For the purpose of Section 3(f), Party B makes the following
            representation:

            It is a U.S. limited liability company duly organized and
            incorporated under the laws of the State of Delaware and is an
            exempt recipient under Treasury Regulation Section
            1.6049-4(c)(1)(ii).

PART 3. AGREEMENT TO DELIVER DOCUMENTS.

For the purpose of Sections 4(a)(i) and (ii), each party agrees to deliver the
following documents, as applicable:

(a)   TAX FORMS, DOCUMENTS OR CERTIFICATES TO BE DELIVERED ARE:

<TABLE>
<CAPTION>
PARTY REQUIRED
TO DELIVER
DOCUMENT         FORM/DOCUMENT/CERTIFICATE           DATE BY WHICH TO BE DELIVERED
--------------   -------------------------           -----------------------------------------
<S>              <C>                                 <C>
Party B          An original executed United         (i)Upon the execution of this Agreement;
                 States Internal Revenue Service     (ii) promptly upon reasonable demand by
                 Form W-9 (or any successor          Party A; and (iii) promptly upon any Form
                 thereto).                           W-9 (or any successor thereto) previously
                                                     provided by Party B becoming obsolete or
                                                     incorrect.
</TABLE>

                                       20
<PAGE>

(b)   Other documents to be delivered are:-

<TABLE>
<CAPTION>
PARTY REQUIRED                                                                                         COVERED BY
TO DELIVER                                                                                             SECTION 3(d)
DOCUMENT         FORM/DOCUMENT/CERTIFICATE                       DATE BY WHICH TO BE DELIVERED         REPRESENTATION
--------------   --------------------------------------------    -----------------------------------   --------------
<S>              <C>                                             <C>                                   <C>
Party A          Either (1) a signature booklet containing       Upon execution of this                     Yes
and              secretary's certificate and resolutions         Agreement and as deemed
Party B          ("authorizing resolutions") authorizing the     necessary for any further
                 party to enter into derivatives transactions    documentation.
                 of the type contemplated by the parties or
                 (2) a secretary's certificate, authorizing
                 resolutions and incumbency certificate for
                 such party and any Credit Support
                 Provider of such party reasonably
                 satisfactory in form and substance to the
                 other party.

Party A          A copy of the annual report of such party       As soon as practicable after the           Yes
                 (in the case of Party A, in respect of Party    execution of this Agreement
                 A's Credit Support Provider) containing         and also within 120 days (or as
                 audited consolidated financial Statements       soon as practicable after
                 for each such fiscal year, certified by         becoming publicly available)
                 independent certified public accountants        after the end of each of its fiscal
                 and prepared in accordance with generally       years while there are any
                 accepted accounting principles in the           obligations outstanding under
                 country in which such party is organized.       this Agreement.

Party A          Certified copies of documents evidencing        As soon as practicable after the            Yes
and              each party's capacity to execute this           execution of this Agreement.
Party B          Agreement, each Confirmation and any
                 Credit Support Document (if applicable)
                 and to perform its obligations hereunder
                 and thereunder.

Party A          Such other documents as the other party         Upon request                                No
and              may reasonably request.
Party B
</TABLE>

PART  4. MISCELLANEOUS

(a)   ADDRESSES FOR NOTICES. For the purpose of Section 12(a):

      (i)   Address for notices or communications to Party A:-

            Morgan Stanley Capital Group Inc.
            1585 Broadway - 4th Floor
            New York, New York 10036-8293
            Attention: Commodities, Swap Group

            Telex: 6801347         Answerback:      MSCOM

            Electricity:
            Facsimile No.: 212-761-0292         Telephone No.: 212-761-5920

            Metals:
            Facsimile No.: 212-761-0295         Telephone No.: 212-761-5896

                                       21
<PAGE>

            Natural Gas:
            Facsimile No.: 212-761-0292         Telephone No.: 212-761-5877

            Oil and Petroleum Products:
            Facsimile No.: 212-761-0294         Telephone No.: 212-761-5879

            A copy of any notice sent to Party A pursuant to Section 5 or 6 must
            also be sent to:

            MORGAN STANLEY CAPITAL GROUP INC.
            Transaction Management Group
            1585 Broadway, 4th Floor
            New York, New York 10036-8293
            Attention: CHIEF LEGAL OFFICER
            Facsimile No: 212 507 4622

      (ii)  Address for notices or communications to Parry B :-

            Calpine Generating Company, LLC
            50 West San Fernando Street
            San Jose, CA 95113
            Attention: General Counsel
            Facsimile No.: (408) 794-2434       Telephone No.: (408) 792-1226

            with a copy to:

            Calpine Generating Company, LLC
            c/o Calpine Energy Services, L.P.
            717 Texas Avenue, Suite 1000
            Houston, Texas 77002
            Attention: Contract Administration
            Facsimile No.: (713) 830-8751       Telephone No.: (713) 830-8845

(b)   NOTICES. Section 12(a) is amended by adding in the third line thereof
      after the phrase "messaging system" and before the ")" the words, ";
      provided, however, any such notice or other communication may be given by
      facsimile transmission if telex is unavailable, no telex number is
      supplied to the party providing notice, or if answer back confirmation is
      not received from the party to whom the telex is sent."

(c)   OFFICES. The provisions of Section 10(a) will apply to Party A and to
      Party B.

(d)   MULTIBRANCH PARTY. For the purpose of Section 10(c):-

      Party A is not a Multibranch Party.

      Party B is not a Multibranch Party.

(e)   "CALCULATION AGENT" means Party A, unless an Event of Default has occurred
      and is continuing with respect to Party A, in which case the Calculation
      Agent means Party B.

(f)   "CREDIT SUPPORT DOCUMENT" means, with respect to Party A, the Guarantee,
      dated the date hereof, of Morgan Stanley, which is hereby incorporated by
      reference into this Agreement, and, with respect to Party B, none.

(g)   CREDIT SUPPORT PROVIDER means in relation to Party A: Morgan Stanley

                                       22
<PAGE>

      CREDIT SUPPORT PROVIDER means in relation to Party B: None.

(h)   GOVERNING LAW; JURISDICTION. This Agreement, including each Credit Support
      Document and each Confirmation, will be governed by and construed in
      accordance with the laws of the State of New York. Section 13(b) is
      amended by: (1) deleting "non-" from the second line of clause (i); and
      (2) deleting the final paragraph.

(i)   WAIVER OF JURY TRIAL. Each party waives, to the fullest extent permitted
      by applicable law, any right it may have to a trial by jury in respect of
      any Proceedings relating to this Agreement, including any Credit Support
      Document or Confirmation.

(j)   NETTING OF PAYMENTS. Clause (ii) of Section 2(c) will not apply to any
      amounts payable with respect to Transactions from the date of this
      Agreement. The Calculation Agent shall notify the parties of the amounts
      of any such netted payments (which notice may be made by telephone).
      Notwithstanding the foregoing provisions of this subparagraph and the
      netting of payments pursuant hereto, each party shall provide the other
      party with separate invoices and documentation covering each Transaction
      sufficient to permit the other party to comply with its internal
      accounting and recordkeeping procedures concerning individual
      Transactions.

(k)   "AFFILIATE". The term "Affiliate": (i) with respect to Party A, has the
      meaning specified in Section 14, but excludes Morgan Stanley Derivative
      Products Inc.; and (ii) with respect to Party B means none.

PART 5. OTHER PROVISIONS

(a)   ADDITIONAL REPRESENTATIONS. Section 3 is hereby amended by adding at the
      end thereof the following Subparagraphs:

            "(g)  COMMODITY EXCHANGE ACT. It is an "Eligible Contract
                  Participant" as defined in Section 1a.(12) of the Commodity
                  Exchange Act, as amended.

            (h)   LINE OF BUSINESS. It has entered into this Agreement
                  (including each Transaction evidenced hereby) in conjunction
                  with its line of business (including financial intermediation
                  services) or the financing of its business.

            (i)   NO AGENCY. It is entering into this Agreement, any Credit
                  Support Document to which it is a party, each Transaction and
                  any other documentation relating to this Agreement or any
                  Transaction, as principal (and not as agent or in any other
                  capacity, fiduciary or otherwise).

            (j)   COMMODITY OPTIONS. In connection with any Options (as defined
                  in the 1993 Definitions referred to below), it is a producer,
                  processor, or commercial user of, or a merchant handling the
                  Commodity (ies) underlying such Option and is entering into
                  such Option solely for purposes related to its business as
                  such."

(b)   SET-OFF. The last sentence of the first paragraph of Section 6(e) and the
      definition of "Set-off" in Section 14 of this Agreement are deleted.

(c)   CONFIRMATIONS. Party A will deliver to Party B a Confirmation relating to
      each Transaction.

                                       23
<PAGE>

(d)   RELATIONSHIP BETWEEN PARTIES. Each party will be deemed to represent to
      the other party on the date on which it enters into a Transaction that
      (absent a written agreement between the parties that expressly imposes
      affirmative obligations to the contrary for that Transaction):-

      (i)   NON-RELIANCE. It is acting for its own account, and it has made its
            own independent decisions to enter into that Transaction and as to
            whether that Transaction is appropriate or proper for it based upon
            its own judgment and upon advice from such advisers as it has deemed
            necessary. It is not relying on any communication (written or oral)
            of the other party as investment advice or as a recommendation to
            enter into that Transaction; it being understood that information
            and explanations related to the terms and conditions of a
            Transaction shall not be considered investment advice or a
            recommendation to enter into that Transaction. No communication
            (written or oral) received from the other party shall be deemed to
            be an assurance or guarantee as to the expected results of that
            Transaction.

      (ii)  ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits
            of and understanding (on its own behalf or through independent
            professional advice), and understands and accepts, the terms,
            conditions and risks of that Transaction. It is also capable of
            assuming, and assumes, the risks of that Transaction.

      (iii) STATUS OF PARTIES. The other party is not acting as a fiduciary for
            or an adviser to it in respect of that Transaction.

(e)   RECORDING. Each party (i) consents to the recording of the telephone
      conversations of the employees and officers of the parties and their
      Affiliates and/or its agents in connection with this Agreement or any
      potential Transaction and (ii) agrees to obtain any necessary consent of,
      and give notice of such recording to, such personnel of it and its
      Affiliates and/or its agents.

(f)   DEFINITIONS. This Agreement and each Transaction are subject to the 2000
      ISDA Definitions as modified and updated (the "2000 Definitions"), and the
      1993 ISDA Commodity Derivatives Definitions as modified and updated by the
      2000 Supplement to the 1993 ISDA Commodity Derivatives Definitions (the
      "1993 Definitions"), (collectively, the "Definitions"), each as published
      by the International Swaps and Derivatives Association, Inc. ("ISDA"), and
      will be governed in all respects by the Definitions, but without regard to
      any further amendments, supplements, updates or restatements made to the
      Definitions after the effective date of this Agreement unless specifically
      agreed to in writing by the parties (except that any references to "Swap
      Transactions" in the Definitions will be deemed to be references to
      "Transactions"). The Definitions are incorporated by reference in, and
      made part of, this Agreement and each relevant Confirmation as if set
      forth in full in this Agreement and such Confirmation. In the event of any
      inconsistency between the 2000 Definitions and the 1993 Definitions, the
      1993 Definitions will govern. In the event of any inconsistency between
      the provisions of this Agreement and the Definitions, this Agreement will
      prevail. In the event of any inconsistency between the provisions of any
      Confirmation and this Agreement or the Definitions, such Confirmation will
      prevail for the purpose of the relevant Transaction.

(g)   DISRUPTION FALLBACKS. The "Disruption Fallbacks" specified in the
      Confirmation shall apply.

(h)   SINGLE AGREEMENT. The phrase "(evidencing Transactions heretofore or
      hereafter entered into between Party A and Party B)" is hereby added after
      the word "Confirmations" in Section 1(c).

(i)   FORM OF AGREEMENT. The parties hereby agree that the text of the body of
      the Agreement is intended to be the printed form of 1992 ISDA Master
      Agreement (Multicurrency-Cross Border version) as published and
      copyrighted by the International Swaps and Derivatives Association, Inc.

(j)   BANKRUPTCY EVENT OF DEFAULT CARVEOUT. Section 5(a)(vii) of the Master
      Agreement is hereby revised by adding the following text to the end of
      Section 5(a)(vii) between 'foregoing acts" and the semicolon immediately
      thereafter:

                                       24
<PAGE>

            "; provided, however, that, if Party B has paid the entire Premium
            for the Option Transaction prior to the occurrence of an event
            listed in this Section 5(a)(vii) with respect to Party B, such
            occurrence shall not constitute an Event of Default with respect to
            Party B."

(k)   DISPUTE RESOLUTION. Notwithstanding anything in this Agreement to the
      contrary, all disputes arising under this Agreement including, but not
      limited to, a Confirmation of a Transaction, are subject to the provisions
      of this Part 5(k).

      (i)   ARBITRATION. All disputes between the Parties and/or their
      respective representatives involving or arising under claim, counterclaim,
      demand, cause of action, dispute, and/or controversy relating to the terms
      or a breach of this Agreement (collectively "Claims"), shall be submitted
      to binding arbitration. The arbitration shall be conducted in accordance
      with the Federal Arbitration Act and the then prevailing CPR Rules for
      Non-Administered Arbitration. The validity, construction, and
      interpretation of this agreement to arbitrate and all procedural aspects
      of the arbitration conducted pursuant hereto shall be decided by the
      arbitrator(s). Submission shall be made upon the request of either Party.
      Within twenty (20) calendar days of the receipt by the respondent of
      service of the notice of arbitration, both the claimant and the respondent
      shall each appoint one (1) arbitrator. The two (2) arbitrators so
      appointed shall then select the third arbitrator within twenty (20)
      calendar days, who shall be the chairperson of the tribunal. The
      chairperson shall be a person who has over eight (8) years of experience
      in energy-related transactions, and none of the arbitrators shall have
      been previously employed by either Party or have any direct interest in
      either Party or the subject matter of the arbitration, unless such
      conflict is expressly acknowledged and waived in writing by both Parties.
      The panel shall be bound to schedule and hear the dispute within six (6)
      months after the appointment of the chairperson, and shall render its
      decision within thirty (30) calendar days after the hearing concludes. The
      arbitrator(s) shall have no authority to award consequential, treble (or
      any other multiple of damages), exemplary, or punitive damages of any type
      or kind regardless of whether such damages may be available under any law
      or right, with the Parties hereby affirmatively waiving their rights, if
      any, to recover or claim such damages. The compensation and any costs and
      expenses of the arbitrators shall be borne equally by the Parties. Any
      arbitration proceedings, decision or award rendered hereunder and the
      validity, effect and interpretation of this arbitration provision shall be
      governed by the Federal Arbitration Act. The arbitration shall take place
      in the state, county and city of New York. The award shall be final and
      binding on the Parties and judgment upon any award may be entered in any
      court of competent jurisdiction. The Parties agree that all information
      exchanged in connection with of any proceeding as described herein shall
      be deemed confidential.

      (ii)  Either Party may petition a court of appropriate jurisdiction, as
      set forth in Section 13 of the Master Agreement, for relief relating to
      any claim of breach of this Agreement in order to prevent undue hardship
      relating to any such claimed breach pending the appointment of an
      arbitration panel as described in this Part 5(k). Notwithstanding this
      Part 5(k), the Non-Defaulting Party retains the right to exercise any
      remedies hereunder at law or in equity during the pendancy of any dispute.

                                       25
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this schedule by their
duly authorized officers as of the date specified on the first page of this
schedule.

                                               MORGAN STANLEY CAPITAL GROUP INC.

                                               By: /s/ Simon Green Shields
                                                   -----------------------------
                                                   Name: Simon Green Shields
                                                   Title: Vice President
                                                   Date: March 12 2004

                                                CALPINE GENERATING COMPANY, LLC

                                               By: /s/ Zamir Rauf
                                                   -----------------------------
                                                   Name: Zamir Rauf
                                                   Title: Vice President
                                                   Date: 3/12/2004

                                       26
<PAGE>
                                                                  Execution Copy
                        MORGAN STANLEY CAPITAL GROUP INC.
                                  1585 BROADWAY
                           4TH FLOOR ATTN: COMMODITIES
                               NEW YORK, NY 10036

DATE: March 12,2004

TO:         Calpine Generating Company, LLC ("Counterparty")
            50 West San Fernando Street
            San Jose, CA 95113

Attn:       General Counsel
Phone:      (408) 792-1226
Fax:        (408)794-2434

With a copy to:
            Calpine Generating Company, LLC
            c/o Calpine Energy Services,L.P.
            717 Texas Avenue, Suite 1000
            Houston, Texas 77002

Attn: Contract Admin.
Phone:(713) 830-8845
Fax:  (713)830-8751

FROM:       Morgan Stanley Capital Group Inc. ("MSCGI")
            1585 Broadway
            4th Floor Attn:Commodities
            New York, NY 10036

Operations Contact: Roza Kalaj
Phone:              212-761-8634
Fax:                212-761-0381

RE:   Commodity Option - Cash Settled Put

MSCGI reference number:

Dear Sir/Madam:

The purpose of this amended and restated letter confirmation ("Confirmation") is
to amend and restate the terms and conditions of the Confirmation entered into
between us on March 12, 2004 (the "Original Confirmation") confirming the
Transaction entered into between us on the Trade Date specified below (the
"Transaction"). The terms and conditions of this Confirmation amend, restate and
supercede all of the terms and conditions of the Original Confirmation.

                                      -1-
<PAGE>

                                                                  Execution Copy

      1.    This Transaction constitutes a 'Transaction" within the meaning of
            the ISDA Master Agreement defined below. This Confirmation
            constitutes a "Confirmation" within the meaning of the ISDA Master
            Agreement (and Schedule) between the parties dated as of March 12,
            2004, as amended from time to time (the ISDA Master Agreement and
            all amendments thereto collectively referred to as the "ISDA Master
            Agreement") that forms part of, is subject to and governed by such
            ISDA Master Agreement.

      2.    The Terms of the Transaction to which this Confirmation relates are
            as follows:

      Commodity:                    As per Commodity Reference Price.

      Trade Date:                   March 12,2004.

      Effective Date:               The Closing Date; provided, however, that if
                                    the Closing does not occur on or before
                                    March 29, 2004, then the Effective Date
                                    shall not occur and this Transaction will
                                    not become effective.

      Termination Date:             April 1,2007.

      Term:                         From the Effective Date to Termination Date.

      Option Style:                 Look-back.

      Option Type:                  Put.

      Option Seller:                MSCGI.

      Option Buyer:                 Counterparty.

      Premium:                      Forty-five million dollars ($45,000,000),
                                    which shall be paid by withholding (by
                                    Morgan Stanley & Co., an affiliate of MSCG)
                                    such sum from the proceeds of the Financing
                                    (as defined below).

      Premium Payment Date:         The date (the "Closing Date") of the closing
                                    (the "Closing") of Counterparty's financing
                                    to which this Transaction relates, which
                                    includes, but is not limited to, the
                                    issuance of:(a) $235,000,000 aggregate
                                    principal amount of First Priority Secured
                                    Boating Rate Notes due 2009; (b)
                                    $640,000,000 aggregate principal amount of
                                    Second Priority Secured Floating Rate Notes
                                    due 2010; (c) $680,000,000 aggregate
                                    principal amount of Third Priority Secured
                                    Floating Rate Notes due 2011;(d)
                                    $150,000,000 aggregate principal amount of
                                    11 1/2% Third Priority Secured Notes due
                                    2011; (e) $600,000,000 aggregate principal
                                    amount of First Priority Secured Term Loans
                                    due 2009; and (f) $100,000,000 aggregate
                                    principal amount of Second Priority Secured
                                    Term Loans due 2010 (together the
                                    "Financing").

                                      -2-
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                                                                 Execution Copy

      Calculation Period:           Each On-Peak Day.

      Semi-Annual Period(s):        Each approximately six (6) month period set
                                    forth below:

                                    Period 1: From March 29, 2004 to September
                                              27, 2004.

                                    Period 2: From September 28, 2004 to March
                                              28, 2005.

                                    Period 3: From March 29, 2005 to September
                                              27, 2005.

                                    Period 4: From September 28, 2005 to March
                                              28, 2006.

                                    Period 5: From March 29, 2006 to September
                                              27, 2006.

                                    Period 6: From September 28, 2006 to March
                                              28, 2007.

      Strike Price:                 $50 Million (USD).

      Payment Date(s):              The last calendar day of the calendar month
                                    in which each Semi-Annual Period ends (i.e.
                                    either March 31 or September 30), subject to
                                    adjustment in accordance with the Following
                                    Business Day Convention.

      Semi-Annual Put Payment:      On each Payment Date, MSCGI shall owe
                                    Counterparty an amount, if any, equal to the
                                    amount by which the Strike Price exceeds the
                                    Aggregate Spark Spread Amount for the
                                    immediately preceding Semi-Annual Period.

                                    "Aggregate Spark Spread Amount" means an
                                    amount, in dollars, for each Semi-Annual
                                    Period, equal to the sum of all individual
                                    Daily Plant Spark Spread Amounts for each
                                    Plant for all Calculation Periods during
                                    such Semi-Annual Period.

                                    "Daily Plant Spark Spread Amount" means an
                                    amount, in dollars, calculated for each
                                    Calculation Period, separately for each
                                    Plant, equal to:

                                    ANQ * AF * 16 * MAX (GREATER OF): [PP - (GP
                                    * AHR) - VOM] OR ZERO (-0-);

                                    where:

                                    "ANQ" means the Applicable Notional
                                    Quantity, in MW, for the applicable
                                    Semi-Annual Period, for each Plant, as set
                                    forth in Table Two below.

                                    "AF" means the Availability Factor set out
                                    in Table One; provided, however, that during
                                    each Scheduled Outage Month, each Facility
                                    will be deemed to have an AF of the
                                    percentage as indicated in Table One under
                                    the caption "Availability Factor (AF) during
                                    Scheduled Outage Months" for each day of
                                    such Scheduled Outage Month.

                                    "PP" or "Applicable Electricity Commodity
                                    Reference Price" means the price identified
                                    as such in Table One, or if applicable, the
                                    Fallback Electricity Commodity Reference
                                    Price identified in Table One.

                                      -3-
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                                                                 Execution Copy

                                    "GP" or "Applicable Gas Commodity Reference
                                    Price" means the price identified as such in
                                    Table One.

                                    "AHR" or "Applicable Heat Rate" means, for
                                    each Plant, the Applicable Heat Rate set
                                    forth in Table One below.

                                    "VOM" means the variable operations and
                                    maintenance cost for each Plant as set forth
                                    in Table One under the heading "VOM."

                                    "Scheduled Outage Month" means, as to any
                                    Plant, each of the months identified in
                                    Table One under the caption "Availability
                                    Factor (AF) during Scheduled Outage Months."

                                    "On-Peak Day" means: (i) with respect to the
                                    Los Medanos, Delta, Pastoria, and Goldendale
                                    Plants, Monday through Saturday except NERC
                                    Holidays, and; (ii) with respect to the
                                    other Plants, Monday through Friday except
                                    NERC Holidays.

                                    "NERC Holiday" means a holiday as defined by
                                    the North American Electric Reliability
                                    Council or any successor organization
                                    thereto.

                                    "Commodity Reference Price" means the
                                    Applicable Electricity Commodity Reference
                                    Price or the Applicable Gas Commodity
                                    Reference Price.

                                    "Plant" means, as applicable: Baytown Energy
                                    Center LP, Carville Energy LLC, Decatur
                                    Energy Center LLC, Delta Energy Center LLC,
                                    Los Medanos Energy Center LLC, Goldendale
                                    Energy Inc, Pastoria Energy Center LLC,
                                    Columbia Energy LLC, Freestone Electricity
                                    Generation LP, Morgan Energy Center LLC,
                                    Channel Energy Center LP, Calpine Oneta
                                    Electricity LP, Corpus Christi Cogeneration
                                    LP, as set forth in Table One below.

      Automatic Exercise:           Applicable.

      Cash Settlement:              Applicable.

      Method of Averaging:          Un-weighted.

      Rounding:                     4 decimal places.

      Market Disruption Events:     Price Source Disruption; Trading Suspension;
                                    Disappearance of Commodity Reference Price;
                                    Material Change in Formula; Material Change
                                    in Content; Tax Disruption and Trading
                                    Limitation.

      Market Disruption Fallbacks:  Fallback Reference Price; with the next
                                    applicable Disruption Fallback to be
                                    Postponement (with the Maximum Days of
                                    Disruption equal to three (3)

                                      -4-
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                                    Commodity Business Days); provided, however,
                                    that the Commodity Reference Price shall be
                                    determined by averaging: (a) the Relevant
                                    Price on the Pricing Date immediately prior
                                    to the Market Disruption Event; and (b) the
                                    Relevant Price on the first Commodity
                                    Business Day on which the Market Disruption
                                    Event ceases to exist; with the next
                                    applicable Disruption Fallback to be Dealer
                                    Fallback; and with the last applicable
                                    Disruption Fallback to be Negotiated
                                    Fallback; provided, however, that the term
                                    "fifth Business Day" in the definition of
                                    Negotiated Fallback shall be replaced with
                                    "twelfth Business Day." For the avoidance of
                                    doubt, Section 7.5(e) of the 1993 ISDA
                                    Commodity Derivatives Definitions and the
                                    2000 Supplement thereto shall not apply.

                                    "Dealer Fallback" means that, promptly upon
                                    becoming aware of the Market Disruption
                                    Event or Additional Market Disruption Event,
                                    the parties shall expeditiously and jointly
                                    agree upon three independent leading dealers
                                    in the relevant underlying commodity market
                                    selected in good faith from among dealers of
                                    the highest credit standing which satisfy
                                    all the criteria that the parties apply
                                    generally at the time of in deciding whether
                                    to offer or to make an extension of credit
                                    or to enter into a transaction comparable to
                                    the Transaction that is affected by the
                                    Market Disruption Event or Additional Market
                                    Disruption Event, or to enter into
                                    transactions similar in nature to the
                                    Transaction. Such Dealers shall be appointed
                                    to make a determination of the Relevant
                                    Price taking into consideration the latest
                                    available quotation for the relevant
                                    Commodity Reference Price and any other
                                    information that in good faith it deems
                                    relevant. The Relevant Price shall be the
                                    arithmetic mean of the three amounts
                                    determined to be the relevant price by such
                                    dealer, in which case such calculation shall
                                    be binding and conclusive absent manifest
                                    error. If the parties have not agreed upon
                                    the appointment of the dealers on or before
                                    the sixth Business Day following the first
                                    Pricing Date on which the Market Disruption
                                    Event or Additional Market Disruption Event
                                    occurred or existed, or if a determination
                                    of the Relevant Price cannot be obtained
                                    from at least three dealers, the next
                                    applicable Disruption Fallback shall apply
                                    to the Transaction.

      Calculation Agent:            MSCGI

      Business Day:                 New York Banks

3.    Definitions

      All terms in this Confirmation not defined herein shall have the meanings
      set forth in the 2000 ISDA Definitions and the 1993 ISDA Commodity
      Derivatives Definitions, as supplemented by the 2000 Supplement to the
      1993 ISDA Commodity Derivatives Definitions, in each case as published by
      the International Swaps and Derivatives Association, Inc.

                                      -5-
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4.    Settlement and Payment

      Upon the conclusion of each Semi-Annual Period, MSCGI shall calculate the
      Semi-Annual Put Payment amount, if any, as set forth above. Payment shall
      be made no later than 12:00 noon Eastern Prevailing Time on the Payment
      Date, without offset, deduction, discount or counterclaim, in USD in
      immediately available funds to the bank account designated by Counterparty
      in an invoice or other written notice. Any amount not paid when due shall
      accrue interest at the rate of one percent (1%) above the prime commercial
      rate charged by Citibank, NA, New York, compounded annually from the due
      date or the maximum rate allowed by law, if lower.

5.    Miscellaneous

      Neither party may assign its rights or its obligations hereunder without
      the prior written consent of the other party.

Please confirm that the foregoing correctly sets forth the terms and conditions
of our agreement by returning via facsimile an executed copy of this
Confirmation, or by sending a letter or telex substantially similar to this
letter, which letter or telex sets forth the material terms of the transaction
to which this confirmation relates and indicates agreement to those terms, in
either case within three (3) Business Days of your receipt of this Confirmation,
to the above Operations Contact.

Failure to respond within such period will not affect the validity or
enforceability of this Transaction, and shall be deemed to be an affirmation of
the terms and conditions contained herein, absent manifest error.

Regards,

/s/ Robert Kinney
Morgan Stanley Capital Group Inc
Robert Kinney

Vice President

ACKNOWLEDGED AND AGREED:

Calpine Generating Company, LLC

By: /s/ ZAMIR RAUF
   ----------------------
Title: ZAMIR RAUF
       Vice President

                                      -6-
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                                                                  Execution Copy
        TABLE ONE

<TABLE>
<CAPTION>
                                                        PP
                                                        /                      GP
                                                     APPLICABLE                /                    AHR        FALLBACK
                              AVAILABILITY           ELECTRICITY           APPLICABLE GAS            /         ELECTRICITY
                 AF/        FACTOR (AF) DURING       COMMODITY              COMMODITY            APPLICABLE    COMMODITY
            AVAILABILITY    SCHEDULED OUTAGE       REFERENCE PRICE        REFERENCE PRICE        HEAT RATE     REFERENCE
PLANT          FACTOR         MONTHS                ($ PER MWH)            ($ PER MMBTU)         (MMBTU/MWH)     PRICE         VOM
----------  ------------   --------------------  ----------------------  --------------------  --------------  -------------  ------
<S>         <C>            <C>                   <C>                     <C>                   <C>             <C>            <C>
Los
Medanos       98%           November - 29.40%     NP15, Dow Jones         PG&E city-gate         6.90           NP15 (ICE
                                                  Firm On-Peak            (Gas Daily) + .04                     Day Ahead     $ 0.51
                                                  Index                                                         Index)

Delta         98%           April - 29.40%        NP15, Dow Jones         PG&E city-gate         7.15           NP15 (ICE
                                                  Firm On-Peak            (Gas Daily) +.04                      Day Ahead     $ 0.27
                                                  Index                                                         Index)

Pastoria      98%           March - 31.61%        SP15, Dow Jones         SoCal Gas              6.98           SP15 (ICE
                                                  Firm On-Peak            (Gas Daily) + .05                     Day Ahead     $ 0.52
                                                  Index                                                         Index)

Goldendale    98%           April - 29.40%        Mid-Columbia,           Northwest, Can.        7.34           MIDC (ICE
                                                  Dow Jones Firm          Bdr. (Sumas)                          Day Ahead     $ 0.50
                                                  On-Peak Index           (Gas Daily) + .32                     Index)

Freestone     98%           January - 31.61%      ERCOT, North,           Houston Ship           6.95           ERCOT-North
                                                  Day-ahead On-Peak       Channel (Gas Daily)                   (ICE Day      $ 0.24
                                                  Index (Megawatt Daily)                                        Ahead
                                                                                                                Index)
</TABLE>

                                      -7-
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<TABLE>
<CAPTION>
                                                           PP
                                                           /                      GP
                                                       APPLICABLE                 /                 AHR          FALLBACK
                 AF            AVAILABILITY           ELECTRICITY           APPLICABLE GAS           /          ELECTRICITY
                  /         FACTOR (AF) DURING         COMMODITY              COMMODITY          APPLICABLE      COMMODITY
            AVAILABILITY     SCHEDULED OUTAGE       REFERENCE PRICE        REFERENCE PRICE       HEAT RATE       REFERENCE
PLANT          FACTOR             MONTHS              ($ PER MWH)           ($ PER MMBTU)       (MMBTU/MWH)        PRICE       VOM
----------  ------------   --------------------  ----------------------  --------------------  --------------  -------------  ------
<S>         <C>            <C>                   <C>                     <C>                   <C>             <C>            <C>
Corpus        98%          November - 62.07%     ERCOT, South,           Texas Eastern, STX      6.78          ERCOT, South   $ 0.73
Christi                                          Day-ahead On-Peak        (Gas Daily) + .06                    (ICE Day
                           March - 66.39%        Index (Megawatt Daily)                                        Ahead  Index)

Channel       98%          April - 29.40%        ERCOT, Houston,         Houston Ship            6.95          ERCOT-Houston  $ 1.13
                                                 Day-ahead On-Peak       Channel (Gas                          (ICE Day
                                                 Index (Megawatt Daily)  Daily) + .04                          Ahead Index)

Baytown       98%          April - 29.40%        ERCOT, Houston,         Houston Ship            7.00          ERCOT-Houston  $ 0.35
                                                 Day-ahead On-Peak       Channel (Gas                          (ICE Day
                                                 Index (Megawatt Daily)  Daily) + .04                          Ahead  Index)

Carville      98%          March - 63.23%        Entergy, into,          Henry Hub               7.08          Entergy (ICE   $ 0.39
                                                 Day-ahead On-Peak       (Gas Daily) + .08                     Day Ahead
                           October - 66.39%      Index (Megawatt Daily)                                        Index)

Morgan        98%          April - 29.40%        Southern, into,         Tennessee, La.,       Monthly-See     Cinergy (ICE   $ 0.50
                                                 Day-ahead On-Peak       500 Leg (Gas           Table Three    Day Ahead
                                                 Index (Megawatt Daily)  Daily)  +.25                          Index)
</TABLE>

                                      -8-
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                                                                  Execution Copy
<TABLE>
<CAPTION>
                                                           PP
                                                           /                      GP
                                                       APPLICABLE                 /                 AHR          FALLBACK
                 AF            AVAILABILITY           ELECTRICITY           APPLICABLE GAS           /          ELECTRICITY
                 /          FACTOR (AF) DURING         COMMODITY              COMMODITY          APPLICABLE      COMMODITY
            AVAILABILITY     SCHEDULED OUTAGE       REFERENCE PRICE        REFERENCE PRICE       HEAT RATE       REFERENCE
PLANT          FACTOR             MONTHS              ($ PER MWH)           ($ PER MMBTU)       (MMBTU/M WH)       PRICE       VOM
----------  ------------   --------------------  ----------------------  --------------------  --------------  -------------  ------
<S>         <C>            <C>                   <C>                     <C>                   <C>             <C>            <C>
Decatur        98%         March - 31.61%        Southern, into,         Tennessee, La., 500   Monthly - See   Cinergy (ICE   $0.85
                                                 Day-ahead On-Peak       Leg (Gas Daily)+ .25  Table Three     Day Ahead
                                                 Index (Megawatt Dally)                                        Index)

Columbia       98%         April - 29.40%        50% Southern, into,     Transco, zone 4         6.76          50% Cinergy    $ 1.16
                                                 Day-ahead On-Peak       (Gas Daily) + .11                     (ICE Day
                                                 Index (Megawatt Daily)                                        Ahead Index)
                                                 + 50% PJM-West Day                                            + 50% PJM-
                                                 Ahead On-Peak Index                                           West (ICE Day
                                                 (as reported  by the                                          Ahead Index)
                                                 PJM ISO)

Oneta          98%         February - 24.50%     SPP, North, Day-        Henry Hub(Gas           7.06          Entergy (ICE   $ 0.49
                                                 ahead On-Peak Index     Daily) +.30                           Day Ahead
                                                 (Megawatt Daily)                                              Index)
</TABLE>

                        APPLICABLE ELECTRICITY COMMODITY REFERENCE
            PRICE DEFINITIONS:

      "ELECTRICITY - FIRM ON-PEAK INDEX (NP15)-DOW
JONES" means that the price for a Pricing Date will be based on that day's "Dow
Jones Telerate" in the section "Workstation 3 Pages 38422" under the

                                      -9-

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                                                                  Execution Copy

heading "Dow Jones Energy Service, Dow Jones NP-15 Electricity Price Index:
[date] Firm: On Peak," price per MWh of on-peak electricity, stated in U.S.
dollars, published as of the Pricing Date.

      "ELECTRICITY - FIRM ON-PEAK INDEX (SP15) - DOW JONES" means that the price
for a Pricing Date will be based on that day's "Dow Jones Tolerate" in the
section "Workstation 3 Pages 38422" under the heading "Dow Jones Energy Service,
Dow Jones SP-15 Electricity Price Index: [date] Firm: On Peak," price per MWh of
on-peak electricity, stated in U.S. dollars, published as of the Pricing Date.

      "ELECTRICITY - FIRM ON-PEAK INDEX (MID-C) - DOW JONES" means that the
price for a Pricing Date will be based on that day's "Dow Jones Tolerate" in the
section "Workstation 3 Pages 38422" under the heading "Dow Jones Energy Service,
Dow Jones Mid-C Electricity Price Index: [date] Firm: On Peak," price per MWh of
on-peak electricity, stated in U.S. dollars, published as of the Pricing Date.

      "ELECTRICITY - FIRM ON-PEAK INDEX (ERCOT NORTH)-MEGAWATT DAILY" means that
the price for a Pricing Date will be that day's Specified Price per MWh of
on-peak electricity, stated in U.S. dollars, published under the heading
"Day-ahead markets for delivery [date] ($/MWh): Central: On-Peak: ERCOT North:
Index" in the issue of Megawatt Daily that reports prices effective on that
Pricing Date.

      "ELECTRICITY - DAILY ON-PEAK INDEX (ERCOT SOUTH) -MEGAWATT DAILY" means
that the price for a Pricing Date will be that day's Specified Price per MWh of
on-peak electricity, stated in U.S. dollars, published under the heading
"Day-ahead markets for delivery [date] ($/MWh): Central: On-Peak: ERCOT South:
Index" in the issue of Megawatt Daily that reports prices effective on that
Pricing Date.

      "ELECTRICITY - DAILY ON-PEAK INDEX (ERCOT HOUSTON) - MEGAWATT DAILY" means
that the price for a Pricing Date will be that day's Specified Price per MWh of
on-peak electricity, stated in U.S. dollars, published under the heading
"Day-ahead markets for delivery [date] ($/MWh): Central: On-Peak: ERCOT Houston:
Index" in the issue

                                      -10-
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                                                                  Execution Copy

of Megawatt Daily that reports prices effective on that Pricing Date.

      "ELECTRICITY - DAILY ON-PEAK INDEX (ENTERGY, INTO) - MEGAWATT DAILY" means
that the price will be the published price stated in U.S. dollars per Megawatt
hour of electricity under the Heading, "Day-ahead markets for delivery ($/MWh):
Central: On-Peak: Entergy, into: Index" in the issue of Megawatt Daily that
reports prices effective on that Pricing Date.

      "ELECTRICITY - DAILY ON-PEAK INDEX (SOUTHERN, INTO) - MEGAWATT DAILY"
means that the price will be the published price stated in U.S. dollars per
Megawatt hour of electricity under the Heading, "Day-ahead markets for delivery
($/MWh): East: On-Peak: Southern, into: Index" in the issue of Megawatt Daily
that reports prices effective on that Pricing Date.

      "ELECTRICITY - DAILY ON-PEAK INDEX (PJM-WEST) -PJM ISO" means that the
price will be the published price stated in U.S. dollars per Megawatt hour of
electricity published by the PJM ISO that reports prices effective on that
Pricing Date.

      "ELECTRICITY - DAILY ON-PEAK INDEX (SPP, NORTH) - MEGAWATT DAILY" means
that the price for a Pricing Date will be that day's Specified Price per MWh of
on-peak electricity, stated in U.S. dollars, published under the heading
"Day-ahead markets for delivery [date] ($/MWh): Central: On-Peak: SPP, North:
Index" in the issue of Megawatt Daily that reports prices effective on that
Pricing Date.

      APPLICABLE GAS COMMODITY REFERENCE PRICE DEFINITIONS:

      "NATURAL GAS - WEST COAST (PG&E CITY GATE) - GAS DAILY" means that the
price for a Pricing Date will be that day's Specified Price per MMBTU of natural
gas for delivery on the Delivery Date, stated in U.S. dollars, published under
the heading "Daily Price Survey ($/MMBtu): Midpoint: Citygates: PG&E Citygate,"
in the issue of Gas Daily that reports

                                                                            -11-
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                                                                  Execution Copy

prices effective on that Pricing Date.

      "NATURAL GAS - WEST COAST (SOCAL GAS) - GAS DAILY" means that the price
for a Pricing Date will be that day's Specified Price per MMBTU of natural gas
for delivery on the Delivery Date, stated in U.S. dollars, published under the
heading "Daily Price Survey ($/MMBtu): Midpoint: Others: SoCal" in the issue of
Gas Daily that reports prices effective on that Pricing Date.

      "NATURAL GAS - CANADA (NW SUMAS) - GAS DAILY" means that the price for a
Pricing Date will be that day's Specified Price per MMBTU of natural gas for
delivery on the Delivery Date, stated in U.S. dollars, published under the
heading "Daily Price Survey ($/MMBtu): Midpoint: Canadian Gas: Northwest, Can.
Bdr. (Sumas)" in the issue of Gas Daily that reports prices effective on that
Pricing Date.

      "NATURAL GAS - HOUSTON SHIP CHANNEL - GAS DAILY" means that the price for
a Pricing Date will be that day's Specified Price per MMBTU of natural gas for
delivery on the Delivery Date, stated in U.S. dollars, published under the
heading "Daily Price Survey ($/MMBtu): Midpoint: East-Houston-Katy: Houston Ship
Channel" in the issue of Gas Daily that reports prices effective on that Pricing
Date.

      "NATURAL GAS - TEXAS (EASTERN, STX) - GAS DAILY" means that the price for
a Pricing Date will be that day's Specified Price per MMBTU of natural gas for
delivery on the Delivery Date, stated in U.S. dollars, published under the
heading "Daily Price Survey ($/MMBtu): Midpoint: South-Corpus Christi: Texas
Eastern, STX" in the issue of Gas Daily that reports prices effective on that
Pricing Date.

      "NATURAL GAS - LOUISIANA (HENRY HUB) - GAS DAILY" means that the price for
a Pricing Date will be that day's Specified Price per MMBTU of natural gas for
delivery on the Delivery Date, stated in U.S. dollars, published under the
heading "Daily Price Survey ($/MMBtu): Midpoint: Louisiana-Onshore-South: Henry
Hub" in the issue of Gas Daily, that reports prices effective on that Pricing
Date.

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                                                                  Execution Copy

      "NATURAL GAS - (TENNESSEE, LA., 500 LEG) - GAS DAILY" means that the price
for a Pricing Date will be that day's Specified Price per MMBTU of natural gas
for delivery on the Delivery Date, stated in U.S. dollars, published under the
heading "Daily Price Survey ($/MMBtu): Midpoint: Louisiana-Onshore South:
Tennessee, La., 500 Leg" in the issue of Gas Daily that reports prices effective
on that Pricing Date.

      "NATURAL GAS - (TRANSCO, ZONE 4) - GAS DAILY" means that the price for a
Pricing Date will be that day's Specified Price per MMBTU of natural gas for
delivery on the Delivery Date, stated in U.S. dollars, published under the
heading "Daily Price Survey ($/MMBtu): Midpoint: Mississippi-Alabama: Transco,
zone 4" in the issue of Gas Daily that reports prices effective on that Pricing
Date.

      FALLBACK ELECTRICITY COMMODITY REFERENCE PRICE DEFINITIONS:

      "ICE DAY AHEAD ON-PEAK POWER - (NP-15)" means that the fallback reference
price for a Pricing Date will be the daily weighted average index for on-peak
power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently located at
www.theice.com under the heading "NP-15" that reports prices effective on that
Pricing Date.

      "ICE DAY AHEAD ON-PEAK POWER - (SP-15)" means that the fallback reference
price for a Pricing Date will be the daily weighted average index for on-peak
power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently located at
www.theice.com under the heading "SP-15" that reports prices effective on that
Pricing Date.

      "ICE DAY AHEAD ON-PEAK POWER - (MID-C)" means that the fallback reference
price for a Pricing Date will be the daily weighted average index for on-peak
power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently located at
www.theice.com under the heading "Mid-C" that reports prices

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                                                                  Execution Copy

effective on that Pricing Date.

      "ICE DAY AHEAD ON-PEAK POWER - (ERCOT-NORTH)" means that the fallback
reference price for a Pricing Date will be the daily weighted average index for
on-peak power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently located at
www.theice.com under the heading "ERCOT-North" that reports prices effective on
that Pricing Date.

      "ICE DAY AHEAD ON-PEAK POWER - (SOUTHERN, INTO +0.5*)" means that the
fallback price for a Pricing Date will be the daily weighted average index for
on-peak power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently located at
www.theice.com under the heading "Southern, into" +0.5* (the daily weighted
average index for on-peak power in the "10X Day Ahead Power Price Report" as
published by IntercontinentalExchange on its official web site currently located
at www.theice.com under the heading "PJM-West" that reports prices effective on
that Pricing Date).

      "ICE DAY AHEAD ON-PEAK POWER - (ERCOT-SOUTH)" means that the fallback
reference price for a Pricing Date will be the daily weighted average index for
on-peak power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently located at
www.theice.com under the heading "ERCOT-South" that reports prices effective on
that Pricing Date.

      "ICE DAY AHEAD ON-PEAK POWER - (ERCOT-HOUSTON)" means that the fallback
reference price for a Pricing Date will be the daily weighted average index for
on-peak power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently located at
www.theice.com under the heading "ERCOT-Houston" that reports prices effective
on that Pricing Date.

      ICE DAY AHEAD ON-PEAK POWER - (CINERGY)" means that the fallback reference
price for a Pricing Date will be the daily weighted average index for on-peak
power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site

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                                                                  Execution Copy

currently located at www.theice.com under the heading "Cinergy" that reports
prices effective on that Pricing Date.

      ICE DAY AHEAD ON-PEAK POWER - (ENTERGY)" means that the fallback reference
price for a Pricing Date will be the daily weighted average index for on-peak
power in the "10X Day Ahead Power Price Report" as published by
IntercontinentalExchange on its official web site currently loeated at
www.theice.com under the heading "Entergy" that reports prices effective on that
Pricing Date.

                                                                            -15-

<PAGE>

                                                                  Execution Copy

  TABLE TWO
               NOTIONAL QUANTITY (IN MWh) PER SEMI-ANNUAL PERIOD

<TABLE>
<CAPTION>
               PERIOD 1     PERIOD 2          PERIOD 3       PERIOD 4        PERIOD 5      PERIOD 6
             -----------   ------------    -----------    ------------    ------------    ---------
<S>          <C>           <C>             <C>            <C>             <C>             <C>
    CHANNEL    384           384              384             384             384            384
     DELTA     518           518              518             518             518            518
    MORGAN                                             See Table Three
  COLUMBIA     446           446              446             446             446            446
 FREESTONE     983           983              983             983             983            983
     ONETA     957           957              957             957             957            957
   BAYTOWN     499           499              499             499             499            499
    CORPUS     351           351              351             351             351            351
GOLDENDALE     228           228              228             228             228            228
  PASTORIA     244           244              730             730             730            730
  CARVILLE     438           438              438             438             438            438
   DECATUR                                            See Table Three
      LOS
   MEDANOS     190           190              190             190             190            190
</TABLE>

                                                                            -16-
<PAGE>

                                                                  Execution Copy

        TABLE THREE
       (NOTIONAL QUANTITIES AND HEAT RATES FOR MORGAN AND DECATUR)

<TABLE>
<CAPTION>
               MORGAN                       DECATEUR
               NOTIONAL        MORGAN        NOTIONAL      DECATEUR
  MONTH        QUANTITY        HEAT RATE     QUANTITY      HEAT RATE
----------   --------------   ----------   ------------   ----------
<S>          <C>              <C>          <C>            <C>
Apr-04          740            7.15           783           7.22
May-04          740            7.15           526           6.80
Jun-04          599            7.19           526           6.80
Jul-04          599            7.19           526           6.80
Aug-04          599            7.19           526           6.80
Sep-04          740            7.15           526           6.80
Oct-04          740            7.15           783           7.22
Nov-04          740            7.15           783           7.22
Dec-04          740            7.15           783           7.22
Jan-05          740            7.15           783           7.22
Feb-05          740            7.15           783           7.22
Mar-05          740            7.15           783           7.22
Apr-05          740            7.15           783           7.22
May-05          740            7.15           526           6.80
Jun-05          599            7.19           526           6.80
Jul-05          599            7.19           526           6.80
Aug-05          599            7.19           526           6.80
Sep-05          740            7.15           526           6.80
Oct-05          740            7.15           783           7.22
Nov-05          740            7.15           783           7.22
Dec-05          740            7.15           783           7.22
Jan-06          576            6.76           783           7.22
Feb-06          576            6.76           783           7.22
Mar-06          576            6.76           783           7.22
Apr-06          576            6.76           783           7.22
</TABLE>

                                                                            -17-
<PAGE>
                                                                  Execution Copy

<TABLE>
<S>            <C>              <C>          <C>            <C>
May-06          576             6.76          526            6.80
Jun-06          576             6.76          526            6.80
Jul-06          576             6.76          526            6.80
Aug-06          576             6.76          526            6.80
Sep-06          576             6.76          526            6.80
Oct-06          576             6.76          783            7.22
Nov-06          576             6.76          783            7.22
Dec-06          576             6.76          783            7.22
Jan-07          576             6.76          783            7.22
Feb-07          576             6.76          783            7.22
Mar-07          576             6.76          783            7.22
</TABLE>

                                                                            -18-<PAGE>
                                                                 EXHIBIT 10.5

[MORGAN STANLEY LOGO]                                  MORGAN STANLEY
                                                       1585 BROADWAY
                                                       NEW YORK, NY 10036-8293

March 12,2004

To:      Calpine Generating Company, LLC
         50 West San Fernando Street
         San Jose, CA 95113

Ladies and Gentlemen:

Morgan Stanley Capital Group Inc. (hereinafter "MSCG") and Calpine Generating
Company, LLC ("Counterparty") have entered into an ISDA Master Agreement
(Multicurrency-Cross Border) and the related Schedule (together, the "Master
Agreement"), dated the date hereof, providing, among other things, that the
parties may enter into one or more commodity transactions relating to the
purchase, sale, exchange or similar physically-delivered and/or
financially-settled transactions (or options thereon) with respect to crude oil,
natural gas, electricity or other energy commodity or energy related services,
or emission allowances (each, a "Transaction"), based on prices of such
commodities as the parties may agree, and the terms and conditions of which
shall be set forth in individual confirmations issued by MSCG or exchanged
between the parties (each, a "Confirmation"), including that certain
Confirmation, dated the date hereof (the "Index Hedge Confirmation") (the Master
Agreement, the Transactions, together with each Confirmation (including the
Index Hedge Confirmation), collectively hereinafter the "Agreement"). In
consideration of Counterparty entering into such Transactions, Morgan Stanley
("MS") hereby irrevocably and unconditionally guarantees to Counterparty, with
effect from the date of the Agreement, the due and punctual payment of all
amounts payable by MSCG under the Agreement when the same shall become due and
payable, whether on scheduled payment dates, upon demand, upon declaration of
termination or otherwise, in accordance with the terms of the Agreement and
giving effect to any applicable grace period. Upon failure of MSCG punctually to
pay any such amounts, and upon written demand by Counterparty to MS at its
address set forth in the signature block of this Guarantee (or to such other
address as MS may specify in writing), MS agrees to pay or cause to be paid such
amounts; provided that delay by Counterparty in giving such demand shall in no
event affect MS's obligations under this Guarantee.

MS hereby agrees that its obligations hereunder shall be unconditional and will
not be discharged except by complete payment of all amounts payable under the
Agreement and this Guarantee, irrespective of any claim as to the Agreement's
validity, regularity or enforceability or the lack of authority of MSCG to
execute or deliver the Agreement; or any change in or amendment to the
Agreement; or any waiver or consent by Counterparty with respect to any
provisions thereof; or the absence of any action to enforce the Agreement, or
the recovery of any judgment against MSCG or of any action to enforce a judgment
against MSCG under the Agreement; or any similar circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor
generally.

MS hereby waives diligence, presentment, demand on MSCG for payment or otherwise
(except as provided hereinabove), filing of claims, requirement of a prior
proceeding against MSCG and protest or notice, except as provided for in the
Agreement with respect to amounts payable by MSCG. If at any time payment under
the Agreement is rescinded or must be otherwise restored or returned by
Counterparty upon the insolvency, bankruptcy or reorganization of MSCG or MS or
otherwise, MS's obligations hereunder with respect to such payment shall
continue to be effective or be reinstated, as the case may be, upon such
restoration or return being made by Counterparty, all as though such payment had

<PAGE>

not been made. MS hereby waives all legal and equitable defenses arising out of
the liquidation, insolvency, bankruptcy or other legal disability of MSCG.

MS represents to Counterparty as of the date hereof, which representations will
be deemed to be repeated by MS on each date on which a Transaction is entered
into and on each date on which a Transaction becomes effective, that:

1. it is duly organized and validly existing under the laws of the jurisdiction
of its incorporation and has full power and legal right to execute and deliver
this Guarantee and to perform the provisions of this Guarantee on its part to be
performed;

2. its execution, delivery and performance of this Guarantee have been and
remain duly authorized by all necessary corporate action and do not contravene
any provision of its certificate of incorporation or by-laws or any law,
regulation or contractual restriction binding on it or its assets;

3. all consents, authorizations, approvals and clearances (including, without
limitation, any necessary exchange control approval) and notifications, reports
and registrations requisite for its due execution, delivery and performance of
this Guarantee have been obtained from or, as the case may be, filed with the
relevant governmental authorities having jurisdiction and remain in full force
and effect and all conditions thereof have been duly complied with and no other
action by, and no notice to or filing with, any governmental authority having
jurisdiction is required for such execution, delivery or performance; and

4. this Guarantee is its legal, valid and binding obligation enforceable against
it in accordance with its terms except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights or by general equity principles.

By accepting this Guarantee and entering into the Agreement, Counterparty agrees
that MS shall be subrogated to all rights of Counterparty against MSCG in
respect of any amounts paid by MS pursuant to this Guarantee, provided that MS
shall be entitled to enforce or to receive any payment arising out of or based
upon such right of subrogation only to the extent that it has paid all amounts
payable by MSCG under the Agreement and provided, further that, notwithstanding
any payment made by MS hereunder or any setoff or application of funds of MS by
Counterparty, until the expiration of the Agreement and payment in full of all
amounts due to Counterparty under the Agreement and this Guarantee, MS shall not
(a) exercise any right of subrogation to the rights of Counterparty against MSCG
or any right of indemnity, contribution or similar right or remedy, against MSCG
or any of its assets or property in respect of any amount paid by MS under this
Guarantee or (b) file a proof of claim in competition with Counterparty for any
amount owing to MS by MSCG on any account whatsoever in the event of the
bankruptcy, reorganization, insolvency or liquidation of MSCG. All payments that
MS is required to make under this Guarantee shall be without any setoff,
recoupment, counterclaim or condition.

The rights and remedies set forth in the Agreement and this Guarantee are in
addition to and not exclusive of all rights and remedies available to
Counterparty by law in respect of the Agreement or this Guarantee. Counterparty
shall be entitled to apply any amount received by it from MSCG or MS in respect
of MSCG's obligations under the Agreement to the discharge of those obligations
in such order as Counterparty may from time to time elect in its sole
discretion.

MS shall reimburse Counterparty on demand for all reasonable costs and expenses
(including reasonable fees and expenses of counsel) incurred in connection with
the successful enforcement of Counterparty's rights under this Guarantee.

<PAGE>

MS shall not transfer any of its rights or obligations hereunder without the
prior written consent of Counterparty, which consent shall not he unreasonably
withheld, and any purported transfer without that consent shall be void,
provided that MS may assign its rights and obligations hereunder without consent
only if MS sells or transfers MSCG, or MS merges into, or is acquired, by
another entity, so long as (i) in the event that MSCG is sold or transferred,
the assignee is an entity that has a credit rating equal to or greater than MS's
at the time of the assignment and upon such assignment MS shall be released from
its obligations under this Guarantee, or (ii) in the event that MS merges into,
or is acquired by, another entity, the surviving entity of such merger or
acquisition assumes all of MS's obligations hereunder. Counterparty shall not
transfer any of its rights or obligations hereunder without the prior written
consent of MS, which consent shall not be unreasonably withheld, except that
Counterparty may, without the consent of MS, (a) transfer its interest in this
Guarantee to any person or entity to which any interest or obligation in or
under the Agreement is transferred in a manner consistent with the terms of the
Agreement; (b) any affiliate of Counterparty or any person or entity succeeding
to all or substantially all of the assets of Counterparty, provided that the
nature of the business of the assignee shall be substantially similar to that of
Counterparty and such assignee would not have any greater right of set-off than
that of Counterparty and (c) Counterparty may at any time create a security
interest in all or any portion of its rights under this Guarantee in favor of
any party providing financing to the Counterparty. This Guarantee shall be
binding on MS and its successors and assigns and shall inure to the benefit of
Counterparty and its successors and assigns.

This Guarantee shall remain in full force and effect until the expiration or
termination of the Index Hedge Transaction. Such expiration or termination shall
not, however, affect or reduce MS's obligation hereunder for any liability of
MSCG incurred prior to such expiration or termination.

This Guarantee shall be governed by and construed in accordance with the laws of
the State of New York. All capitalized terms not otherwise defined herein shall
have the respective meanings assigned to them in the Agreement.

MORGAN STANLEY

 By:         /s/JACQUELINE T. BRODY
             ---------------------------
 Name:       JACQUELINE T. BRODY
 Title:      Assistant Treasurer
 Address:    1585 Broadway
             New York, NY 10036

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