Calpine Reports First Quarter 2008 Financial and Operating Results.

Continued Improvement in Operations Demonstrated by a 15% Increase in Commodity Margin and an 18% Increase in Adjusted EBITDA 

HOUSTON & SAN JOSE, Calif. -- Calpine Corporation (NYSE:CPN) ("Calpine" or the "Company") today reported financial and operating results for the quarter ended March 31, 2008. Calpine's Quarterly Report on Form 10-Q, including its unaudited financial statements, for the quarter ended March 31, 2008, was filed today with the Securities and Exchange Commission ("SEC") and can be found on the SEC's website at http://www.sec.gov.

First Quarter highlights include:

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Robert P. May, Calpine's Chief Executive Officer, stated, "I am very pleased to announce our first quarter results showing solid performance in our core operations. In this transition quarter, during which we emerged from bankruptcy, we showed substantial improvement in consolidated Commodity Margin and Adjusted EBITDA, as compared to the same period during 2007. I am proud of our employees who stayed focused on running the business during the press of activities associated with our emergence from bankruptcy on January 31."

"I am confident we will maintain the focus on our core business as we approach the balance of 2008. This will be an exciting year as we continue to work to strengthen the business and transition to a new CEO."

2008 First Quarter Financial Results

For the three months ended March 31, 2008, Calpine reported revenue of nearly $2.0 billion, representing an increase of 17% over the same period in the prior year. Operating revenues increased primarily as a result of an 18% increase in the Company's average realized electric price and, to a lesser extent, a 3% increase in generation for the three months ended March 31, 2008, compared to the same period in 2007. As a result, electricity and steam revenue as well as hedging and optimization revenues increased by 19% and 39%, respectively, during the three months ended March 31, 2008, compared to 2007. These increases were partially offset by higher mark-to-market losses on derivative electricity contracts that do not qualify for hedge accounting treatment, which increased by $84 million period over period.

Commodity Margin increased by $64 million, or 15%, overall and by 17% and 51% in the Company's West and Texas segments respectively, for three months ended March 31, 2008, compared to the same period in 2007, due primarily to increased generation in the West and favorable pricing in Texas. Commodity Margin was relatively unchanged in Calpine's Southeast and North segments.

Adjusted EBITDA increased by 18% for three months ended March 31, 2008, as compared to the same period in 2007. This increase is largely driven by the Commodity Margin increases discussed above which reflects a 3% increase in generation, despite a 2,243 MW decrease in average total MW in operation, when compared to the same period in 2007 following asset sales during the Company's reorganization.

For the three months ended March 31, 2008, Calpine's total MW in operation for consolidated projects decreased by 9% to 23,113 MW. Generation volume increased by 3% as the Company generated approximately 20.9 million megawatt-hours, which equated to an average capacity factor (excluding peakers) of 46.2%, and an average realized electric price of $75.07/MWh. For the same period in 2007, Calpine generated 20.3 million MWh, which equated to an average capacity factor (excluding peakers) of 41.7%, and an average realized electric price of $63.81/MWh.

Gross profit decreased by $97 million, to a loss of $29 million in the three months ended March 31, 2008, compared to the same period in the prior year. Although the Company experienced a $64 million period-to-period increase in Commodity Margin as noted above, the change in gross profit is due primarily to a $92 million unfavorable period-to-period movement in mark-to-market activity recorded in both operating revenues and in fuel and purchased energy expense.

Plant operating expense increased during the three months ended March 31, 2008, compared to the same period in 2007 primarily as a result of a $26 million increase in expense for scheduled major maintenance and parts repair costs and a $15 million increase in expense for outages caused by equipment failures. Also contributing to the increase were higher property taxes of $10 million and an increase of $7 million in plant personnel costs primarily from higher stock compensation expense arising from the grant of emergence and annual plan awards of restricted stock and stock options during the three months ended March 31, 2008.

Sales, general and other administrative expenses were higher for the three months ended March 31, 2008, compared to the same period in 2007 due to a $7 million increase in personnel costs due primarily to higher severance costs and to higher stock compensation expense arising primarily from the grant of emergence and annual plan awards of restricted stock and stock options during the three months ended March 31, 2008.

Interest expense increased for the three months ended March 31, 2008, compared to the three months ended March 31, 2007, due largely to $148 million in post-petition interest related to pre-petition obligations recorded during the three months ended March 31, 2008. Also contributing to the increase was higher interest expense related to interest rate swaps that do not qualify for hedge accounting and an increase in related party interest expense on settlement obligations related to the Company's Canadian subsidiaries recorded prior to their reconsolidation in February 2008. The increase was partially offset by lower average debt balances and lower interest rates. During the three months ended March 31, 2008, a portion of Calpine's debt was settled through payment of cash and issuance of reorganized Calpine Corporation common stock pursuant to the Plan of Reorganization. Additionally, the $300 million bridge facility, constituting part of the $7.3 billion exit credit facilities that had been closed upon the Company's emergence from bankruptcy on January 31, 2008 (the "Effective Date") was repaid with the proceeds received from the sales of the Hillabee and Fremont development project assets in February and March 2008. Effective interest rates on existing debt were lower compared to the same period in 2007 due to the refinancing in late March 2007 of the Company's original $2.0 billion debtor-in-possession credit facility and retirement of the $2.5 billion secured notes and term loans issued by its subsidiary, Calpine Generating Company, with proceeds received under the Company's $5.0 billion debtor-in-possession credit facility (the "DIP Facility"), which carried lower interest rates. Additionally, effective interest rates were lower due to retirement of the Company's second priority secured notes and term loans (the "Second Priority Debt") at emergence from bankruptcy on January 31, 2008 with cash and proceeds from the $7.3 billion exit credit facilities.

Other (income) expense, net decreased primarily due to $7 million in refinancing costs related to the refinancing of all outstanding indebtedness under the Blue Spruce Energy Center LLC term loan facility.

Reorganization items included a total pre-tax gain of approximately $199 million from the sales of the Hillabee and Freemont development project assets and a pre-tax gain of $70 million from the reconsolidation of certain of the Company's Canadian subsidiaries following the conclusion of the proceedings in Canada under the Companies' Creditors Arrangement Act (Canada) ("CCAA") described further below.

Emergence from Bankruptcy

During the three month period ended March 31, 2007, and for the period January 1, 2008, through the Effective Date, Calpine and its debtor subsidiaries conducted their business in the ordinary course as debtors-in-possession under the protection of the U.S. Bankruptcy Court for the Southern District of New York and the Court of Queen's Bench of Alberta, Judicial District of Calgary (the "Canadian Court"). Calpine emerged from bankruptcy on January 31, 2008. Calpine's Plan of Reorganization provided for the discharge of claims through the issuance of reorganized Calpine Corporation common stock, cash and cash equivalents, or a combination thereof. On or about the Effective Date, Calpine canceled all of its then outstanding common stock and the issuance of 485 million shares of reorganized Calpine Corporation common stock for distribution to holders of unsecured claims and for general contingencies pursuant to the Plan of Reorganization was authorized. In addition, Calpine issued warrants to purchase approximately 48.5 million shares of reorganized Calpine Corporation common stock to the holders of its previously outstanding common stock that had been canceled on the Effective Date. The reorganized Calpine Corporation common stock has been listed on the New York Stock Exchange and began "regular way" trading under the symbol "CPN" on February 7, 2008.

At December 20, 2005 (the "Petition Date"), Calpine carried $17.4 billion of debt with an average interest rate of 10.3%. As a result of retiring unsecured debt with reorganized Calpine Corporation common stock and proceeds of the sale of certain of assets, and the repayment or refinancing of certain project debt, Calpine reduced its pre-petition debt by approximately $7.0 billion. On the Effective Date, Calpine closed on its approximately $7.3 billion of exit credit facilities. Amounts drawn under the exit credit facilities at closing, which totaled approximately $6.4 billion, were used to repay amounts under the $5.0 billion DIP Facility and to fund cash payment obligations under the Plan of Reorganization including the repayment of a portion of the $3.7 billion of outstanding Second Priority Debt and the payment of administrative claims and other pre-petition claims, as well as to pay fees and expenses in connection with the exit credit facilities and for working capital and general corporate purposes. Upon emergence from bankruptcy, the Company carried $10.4 billion of debt with an average interest rate of 8.1%.

On February 8, 2008, (the "Canadian Effective Date"), the Canadian Court ordered and declared that the proceedings under the CCAA were terminated. The termination of the proceedings of the CCAA and Calpine's emergence under the Plan of Reorganization allowed Calpine to maintain our equity interest in the Canadian debtors and other foreign entities, whose principal net assets include debt, various working capital items and a 50% ownership interest in the Whitby Cogeneration Facility ("Whitby"), an equity method investment. As a result, Calpine regained control over our Canadian debtors which were reconsolidated into the Company's Consolidated Condensed Financial Statements as of the Canadian Effective Date.

The Company accounted for the reconsolidation under the purchase method in a manner similar to a step acquisition. The excess of the fair market value of the reconsolidated net assets over the carrying value of the Company's investment balance of $0 amounted to approximately $107 million. Calpine recorded the Canadian assets acquired and the liabilities assumed based on their estimated fair value, with the exception of Whitby. Calpine reduced the fair value of its Whitby equity investment (approximately $37 million) to $0 and recorded the $70 million balance of the excess as a gain in reorganization items on Calpine's Consolidated Condensed Statements of Operations for the three months ended March 31, 2008.

In connection with Calpine's emergence from bankruptcy, certain "plan effect" adjustments were recorded to Calpine's Consolidated Condensed Balance Sheet as of the Effective Date in order to reflect certain provisions of the Plan of Reorganization. These adjustments included the distribution of approximately $4.1 billion in cash and the authorized issuance of 485 million shares of reorganized Calpine Corporation common stock primarily for the discharge of debt classified as liabilities subject to compromise, repayment of the Second Priority Debt and for various other administrative and other post-petition claims. As a result, Calpine's equity increased by approximately $8.9 billion. In addition, the Company borrowed approximately $6.4 billion to repay the $3.9 billion outstanding under the $5.0 billion DIP Facility and pay a portion of the Second Priority Debt and the payment of administrative claims and other pre-petition claims.

Operations Update

During the first quarter of 2008, Calpine performed an increased number of scheduled outages across the gas turbine fleet. Major maintenance is performed at specific intervals throughout a power plant's service life. Since Calpine placed 29 plants in service in the 2001-2002 time frame, many have reached their 48,000 hour major inspection operating interval. This inspection takes longer than other inspections and generally leads to lower plant availability. These outages are typically scheduled during the first and second quarters during periods of lower electricity demand.

Also during the first quarter, Calpine:

-- Generated 20.9 million MWh for the quarter, 3% higher than 2007 levels, despite divestiture of certain assets;

-- Operated its gas-fired power plants with an average steam adjusted heat rate of 7,161 British thermal units per kilowatt-hour, compared to 7,111 in 2007;

-- Operated its natural gas-fired and geothermal power plants with an average availability of 85.8%, compared to 90.9% in 2007. This decrease is primarily due to more scheduled outages for major maintenance (4.3%) and more forced outages due to equipment failure (0.9%).

-- Performed 11 unplanned outages of 15 days or longer. Two of the outages were associated with transformer failures that occurred at the Broad River facility. The remaining outages were mostly related to miscellaneous gas turbine issues.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements" which is effective for fiscal years beginning after November 15, 2007, and for interim periods within those years. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. SFAS No. 157 applies when other accounting pronouncements require fair value measurements; it does not require any new fair value measurements. In February 2008, the FASB issued FSP No. FAS 157-2, "Effective Date of FASB Statement No. 157," which defers the effective date of SFAS No. 157 for non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years and interim periods beginning after November 15, 2008. Calpine has certain potential non-recurring, non-financial assets and non-financial liabilities recorded at fair value that fall within the scope of FSP No. FAS 157-2 that include asset retirement obligations initially measured at fair value and long-lived assets measured at fair value for impairment testing. Calpine expects to adopt FSP FAS 157-2 as of January 1, 2009, and is currently assessing the impact of applying SFAS No. 157 to non-financial assets and non-financial liabilities on the Company's results of operations, cash flows and financial position. Calpine has adopted SFAS No. 157 as of January 1, 2008, related to financial assets and financial liabilities.

SFAS No. 157 is to be applied prospectively as of the beginning of the year of adoption, except for limited retrospective application to selected items including financial instruments that were measured at fair value using the transaction price in accordance with the requirements of Emerging Issues Task Force ("EITF") Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." Day one gains and losses previously deferred under EITF Issue No. 02-3 should be recorded as a cumulative effect adjustment to opening retained earnings at the date of adoption. As of January 1, 2008, Calpine recorded a non-cash reduction to retained earnings of approximately $22 million relating to the unamortized deferred loss on a derivative instrument. The determination of the fair value incorporates various factors required under SFAS No. 157. These factors include not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits and first priority liens) but also the impact of nonperformance risk on liabilities. Additionally, implementation of this standard resulted in expenses of $13 million included in Calpine's net loss and $33 million included in other comprehensive income (loss). This resulted from the establishment of reserves for our credit exposure of $2 million and a gain for credit exposure on our liabilities of $17 million recorded as a reduction of the Company's derivative liabilities. Additionally, Calpine has recorded liquidity reserves to adjust the Company's pricing convention for measuring the fair value of certain derivative assets and liabilities from using a midpoint pricing convention to using either the bid price or ask price, as applicable, in determining fair value. This change resulted in a decrease of fair value of the Company's derivative assets and liabilities of $61 million.

Management Succession Update

As previously announced on February 29, 2008, Robert P. May, our Chief Executive Officer and director, has expressed his intent to leave the Company once a successor is in place. The Board of Directors has initiated its search for Mr. May's successor and is actively pursuing that effort. In order to ensure an orderly transition, on March 25, 2008, Calpine entered into the Second Amended and Restated Employment Agreement with Mr. May to retain his services through December 31, 2008.

To further ensure an orderly transition of key management personnel, as previously announced on May 2, 2008, Mr. Todd Filsinger has been appointed Interim Chief Operating Officer reporting to Mr. May. Mr. Filsinger brings a wealth of knowledge from his current position as a Managing Partner at PA Consulting Group, a member of PA's Management Committee and as the head of PA's Global Energy Practice. Mr. Filsinger will have responsibility for overseeing all aspects of Calpine's operations including Power, Commercial, Environmental Health and Safety, Engineering and Project Development.

Additionally, Mr. Chuck Clark, the Company's Chief Accounting Officer, previously announced his intention to leave the Company effective May 30, 2008. To ensure orderly transition of Mr. Clark's responsibilities, Calpine and Mr. Clark have entered into a Letter Agreement re Employment Separation, dated April 7, 2008 (executed April 11, 2008) and a Consulting Agreement, which is effective beginning May 30, 2008, for a period of 18 months. Additionally, the Company expects Mr. Steve Hodkinson will continue in his capacity as Interim Controller. Mr. Hodkinson is a Director for Alix Partners and has been serving in this function with Calpine since November 2006.

Earnings Call Meeting and Webcast

Calpine will not be hosting an investor conference call for the period ending March 31, 2008. All questions regarding these results should be directed to Andre K. Walker, Director of Finance and Investor Relations, at [phone].

About Calpine

Calpine Corporation is helping meet the needs of an economy that demands more and cleaner sources of electricity. Founded in 1984, Calpine is a major U.S. power company, currently capable of delivering nearly 24,000 megawatts of clean, cost-effective, reliable, and fuel-efficient electricity to customers and communities in 18 states in the United States. The Company owns leases and operates low-carbon, natural gas-fired, and renewable geothermal power plants. Using advanced technologies, Calpine generates electricity in a reliable and environmentally responsible manner for the customers and communities it serves. Please visit http://www.calpine.com for more information.

Forward Looking Information

In addition to historical information, this release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Words such as "believe," "intend," "expect," "anticipate," "plan," "may," "will" and similar expressions identify forward-looking statements. Such statements include, among others, those concerning expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: (i) Calpine's ability to implement its business plan; (ii) financial results that may be volatile and may not reflect historical trends; (iii) seasonal fluctuations of results and exposure to variations in weather patterns; (iv) potential volatility in earnings associated with fluctuations in prices for commodities such as natural gas and power; (v) ability to manage liquidity needs and comply with covenants related to the Exit Credit Facility and other existing financing obligations; (vi) Calpine's ability to complete the implementation of its Plan of Reorganization and the discharge of its chapter 11 cases including successfully resolving any remaining claims; (vii) disruptions in or limitations on the transportation of natural gas and transmission of electricity; (viii) the expiration or termination of power purchase agreements and the related results on revenues; (ix) risks associated with the operation of power plants including unscheduled outages; (x) factors that impact the output of Calpine's geothermal resources and generation facilities, including unusual or unexpected steam field well and pipeline maintenance and variables associated with the waste water injection projects that supply added water to the steam reservoir; (xi) risks associated with power project development and construction activities; (xii) ability to attract, retain and motivate key employees including filling certain significant positions within Calpine's management team; (xiii) ability to attract and retain customers and counterparties; (xiv) competition; (xv) risks associated with marketing and selling power from plants in the evolving energy markets; (xvi) present and possible future claims, litigation and enforcement actions; (xvii) effects of the application of laws or regulations, including changes in laws or regulations or the interpretation thereof; and (xviii) other risks identified from time-to-time in Calpine's reports and registration statements filed with the SEC, including, without limitation, the risk factors identified in its Annual Report on Form 10-K for the year ended December 31, 2007. Actual results or developments may differ materially from the expectations expressed or implied in the forward-looking statements and Calpine undertakes no obligation to update any such statements. Unless specified otherwise, all information set forth in this release is as of today's date and Calpine undertakes no duty to update this information. For additional information about Calpine's chapter 11 reorganization or general business operations, please refer to Calpine's Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and any other recent Calpine report to the Securities and Exchange Commission. These filings are available by visiting the Securities and Exchange Commission's website at http://www.sec.gov or Calpine's website at http://www.calpine.com.

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Consolidated Commodity Margin

The following table reconciles the Company's Commodity Margin to its GAAP results for the three months ended March 31, 2008 and 2007 (in millions):

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Commodity Margin by Segment

The following table shows the Company's Commodity Margin by segment for the three months ended March 31, 2008 and 2007 (in millions, except for percentages):

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Supplemental Power Data

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Adjusted EBITDA

The below table provides a reconciliation of Adjusted EBITDA to the Company's cash flow from operations and GAAP net loss (in millions):

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Cash Flow Activities

The following table summarizes our cash flow activities for the three months ended March 31, 2008 and 2007 (in millions):

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