Calpine Power Income Fund Announces Default Avoided on its King City Project.

CALGARY, Alberta -- Calpine Power Income Fund (the "Fund")(TSX:CF.UN) has announced that arrangements are now in place that prevent a default related to the bankruptcy of Calpine Corporation, from occurring under the Fund's King City project financing.

The Fund in May 2004 acquired a 120-megawatt natural gas fired cogeneration facility (the "King City Facility") in King City, California and leased it to a subsidiary ("Calpine King City") of Calpine Corporation, pursuant to a lease (the "Lease"). The Fund financed the acquisition through a loan agreement under which King City LP ("KCLP"), a subsidiary of the Fund, borrowed approximately U.S. $82 million (the "Loan") from a U.S. financial institution (the "Lender").

As was disclosed in a material change report filed by the Fund on January 4, 2006 (the "Initial Report"), the filing of the voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "U.S. Filing") by Calpine Corporation could have resulted in a "Lease Event of Default" under the Lease. The occurrence of a Lease Event of Default would have been a "Lessor Loan Event of Default" under the Loan.

The Lease contemplates that the Lease Event of Default and the consequential Lessor Loan Event of Default can be avoided by KCLP by the provision to the Lender of "Acceptable Credit Assurance", which includes cash or a letter of credit (an "L/C") in the amount of U.S. $20 million. In the Initial Report, it was indicated that if required, KCLP could provide Acceptable Credit Assurance in the form of an L/C.

On January 19, 2006, KCLP, Calpine King City and the Lender reached an agreement whereby Calpine King City agreed to cause approximately U.S. $11.7 million of its Lease cash flow to be retained in a depositary account and applied as needed to make specified payments to the Lender. Calpine King City also agreed that its 2006 Lease cash flow would be added to the aforementioned depositary account until aggregate deposits total U.S. $20 million. The Lender agreed that these Calpine King City commitments would satisfy the Acceptable Credit Assurance obligation and avoid the Lease Event of Default and consequential Loan Event of Default. If Calpine King City fails to perform its obligations in connection with the provision of such Acceptable Credit Assurance, KCLP shall have a cure period to deliver Acceptable Credit Assurance as otherwise contemplated in the Lease.

Reference is also made to the material change report of the Fund filed on January 26, 2006, which also discusses this matter.

Calpine Power Income Fund is an unincorporated open-ended trust that invests in electrical power assets. The Fund indirectly owns interests in power generating facilities in British Columbia, Alberta and California. In addition, the Fund owns a participating loan interest in a power plant in Ontario and has made a loan to Calpine Canada Power Ltd. The Fund is managed by Calpine Canada Power Ltd., which is headquartered in Calgary, Alberta.

The Calpine Power Income Fund units are listed on the Toronto Stock Exchange under the symbol CF.UN. For further information on the Fund, please visit its website at www.calpinepif.com.

Calpine Power Income Fund (TSX:CF.UN)