Calpine's Acquisition of SkyGen Projects Reviewed by Fitch.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 4, 2000

Fitch has assigned a rating of `BBB-` to Calpine's (CPN) proposed $800 million offering of senior notes and a rating of `BB' to its $450 million proposed offering of HIGH TIDES. CPN's outlook is stable.

On June 27, 2000, Fitch affirmed CPN's ratings following its announced purchase of SkyGen Energy LLC (SkyGen) and its formation of a strategic alliance with Panda Energy International, Inc. At that time, we cited the fact that the SkyGen portfolio strategically complements CPN's generation portfolio, enhances the company's fleet of efficient gas- fired generating plants and solidifies CPN's stated goal of achieving a longer-term 65/35 contractual/spot sales mix on its generation facilities. Described below are the summaries of the projects.

Nearly two-thirds of the megawatts (MW) in SkyGen's portfolio of plants now in commercial operation and under construction have long-term power and stream sale agreements with solid anchor tenants and established energy marketers. Additionally, CPN's regional diversification will be further enhanced by the addition of SkyGen facilities in MAIN, SERC, SPP and NEPOOL.

With approximately 780 MW in three gas fired-combined cycle units in commercial operation, another three projects totaling 800 MW under construction and 5,200 MW in advanced stages of development, the addition of SkyGen's plants and its 34 GE 7 FA gas turbines on order will help CPN reach its aggressive goal of having 40,000 MW of plants in operations by 2004. Of the 40,000 MW goal, approximately 27,000 MW are either in commercial operation (5,200 MW), construction (6,700 MW) or advanced stages of development (15,000 MW).

In addition to the $122 million of SkyGen parent obligations to be assumed and mentioned earlier, CPN will be taking on approximately $500 million of non-recourse debt at the projects in commercial operation and under construction. Consistent with CPN's strategy of limiting its project level debt, the company is expected to retire/refinance a large proportion of these obligations, enhancing the operational flexibility of its projects within a system-wide context, limiting the degree of structural subordination to parent level obligations and enhancing CPN's unencumbered cash flows.

Project Summaries

Mobile Energy is a 240 MW dual-fired, combined cycle, cogeneration facility and an anticipated steam production capacity of 350,000 lbs/hour. The project will utilize a GE Frame 7FA combustion turbine, a Nooter/Eriksen HRSG, a GE steam turbine and a Cerrey auxiliary boiler and will be built by Gilbert Industrial Corporation (Gilbert) (under a Kiewit Construction Group, Inc. performance guarantee) on leased property owned by International Paper (IP), adjacent to the IP Mill in Mobile, Alabama. COD is slated for July 2001. The project will sell processed steam to the IP under a 20-year ESA. The project will sell electrical capacity and energy to Coral Power under an Electricity Marketing Services Agreement for resale to wholesale market customers in the Southern region of the SERC at market-based pricing. Natural gas will be delivered to the project at market prices by Coral Resources pursuant to a long-term 20-year Gas Sales Agreement and transported to the project site on the Koch and MGSC pipelines pursuant to 20-year gas transportation agreements. Mobile Energy has approximately $100 million of project level debt.

The RockGen project is currently under construction in Dane County Wisconsin and is a 450 MW dual fuel combustion turbine generating facility. The project is owned by SkyGen and operated by SkyGen Services LLC (SkyGen Services). The project is being designed and constructed by GE pursuant to an EPC contract. Project completion is targeted for July 2000. The technology to be incorporated into the project consists of three GE Frame 7FA CTGs. RockGen has approximately $153 million of project level debt.

RockGen has an eight-year Power Purchase Agreement with Alliant Utilities under which it will sell electrical capacity and energy at market prices on a dispatchable basis. RockGen also has a tolling agreement with Duke Energy Trading and Marketing LLC (DETM). The Tolling Agreement has an initial term of eight years with two six-year renewals at either party's option. DETM will act as RockGen's agent in providing energy to Alliant pursuant to Alliant's dispatch requests. Natural gas will be supplied by DETM under the Tolling Agreement and transported through a connection in the pipeline owned and operated by ANR Pipeline Company.

The Broad River project, being constructed in Cherokee County, S.C., is a 450 MW dual fuel combustion turbine electric generating facility. The project will be operated by SkyGen Services. The project is being designed and constructed by GE pursuant to an EPC contract and has recently started commercial operations. The technology consists of three GE Frame 7FA combustion turbine generators. Broad River has approximately $126 million of project level debt.

Broad River has a one-year PPA with Carolina Power and Light Co. (CP&L), and a 20-year Power Purchase Agreement under which it will sell electrical capacity and energy on a dispatchable basis. The 20-year PPA has two five-year renewal options. The Interim PPA covers the period from commercial operation of the project up to June 1, 2001, the start of the PPA. CP&L will supply fuel and fuel transportation to the project. Natural gas will be supplied through a connection in the pipeline owned and operated by Transco.

The Androscoggin Cogeneration Center is a natural gas fired, 160 MW cogeneration plant with a maximum steam production capacity of up to approximately 1,200,000 pph. The project is on the property of IP's Androscoggin mill in Jay, Maine, and was constructed under a lump sum, turnkey EPC Contract with Black & Veatch, and employs proven technology including three Westinghouse combustion turbines and three Nooter Eriksen HRSGs. Natural gas is the primary fuel for the combustion turbines with No. 2 fuel oil as a backup. Androscoggin has approximately $74 million of project level debt.

The project sells energy, capacity, and ancillary services (totaling approximately 135 MW) to the NEPOOL and to third parties. Through cogeneration, the project achieves an extremely high-energy efficiency (heat rate of approximately 5,700 Btu/kWh). As a result, the project's marginal cost to produce power is substantially below forecasted average market prices. In addition, the project will also sell electricity and steam to IP under an ESA with a term of 20 years. The average electric and steam load for IP is expected to be 21 MW and 754.8 MMBtu/hr, respectively.

The Pine Bluff project is a 220 MW natural gas-fired, combined cycle cogeneration plant, with maximum steam sales capacity of 900,000 lbs./hour. SkyGen owns two-thirds of the project with Tejas Energy LLC owning one-third. Tejas Energy and an affiliate, Coral Energy, L.P., are wholly owned by Shell Oil Co. and its subsidiaries. Under various agreements, affiliates of Tejas Energy and Coral will be responsible for managing the project's gas supply and transportation arrangements and will purchase and market most of the power output generated by the project. The project is being engineered and constructed under fixed price, date certain, turn-key EPC contract. The EPC contractor is SLZ Pine Bluff, a joint venture of Sargent & Lundy LLC and Zachry Construction Co. The expected completion date is May 2001. Pine Bluff has approximately $110 million of project level debt.

The project will sell up to 25 MW of contracted electric capacity and up to 900,000 lbs/hr of steam to an IP paper mill in Jay, Maine under a 20-year ESA. Contracted steam and electricity sales to IP represent approximately 35% of total revenues (28% and 7%, respectively). Coral Power, L.L.C., a wholly owned subsidiary of Coral, will purchase and market the project's excess power pursuant to a 20-year Electricity Marketing Services Agreement (EMSA). Coral Power will market such excess power primarily into the Entergy marketplace. Additionally, through a direct interconnection with the Entergy transmission system, the project will have significant dispatch flexibility through power production that can be transmitted over Entergy's system to the SPP and the SERC. Revenues to the project under the EMSA will generally reflect prevailing market prices or third-party contracted prices. Coral will guarantee the payment obligations of Coral Power under the EMSA.

A significant portion of the fuel used by the project is to be converted to first quality steam that will then be sold to IP. The project is expected to achieve extremely high energy efficiency with a net equivalent heat rate chargeable to power sales in the range of 5,350-5,590 Btu/kWh, which is significantly below the average heat rate of the existing supply mix in the Entergy market of approximately 9,500 Btu/kWh.

The project has arranged to purchase 100% of its gas supply from Coral Energy Resources, L.P. (CER), a wholly owned subsidiary of Coral, under a 20-year Gas Sales Agreement. CER is the primary marketer for Shell's U.S. gas reserves, which include more than 4.5 trillion cubic feet of natural gas.

De Pere Energy is a dispatchable 178.5 MW simple cycle natural gas fired electric peaking facility. The electricity is sold to Wisconsin Public Service Corp. (WPS), a wholly owned subsidiary of WPS Resources, Inc., under a 25-year PPA. WPS supplies 100% of the project's fuel requirements throughout the term of the PPA. Black & Veatch constructed the project under an EPC Contract. The equipment consists of a GE simple combustion turbine model 7FA of the 150 MW class. SkyGen Services will operate and maintain the project under a 25-year O&M agreement. De Pere has approximately $48 million of project level debt.

For additional analyses of CPN, please refer to separate press releases dated June 27, 2000 and April 13, 2000.

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