Calpine Signs 150-MW Contract With LG&E Energy Marketing to Supply Electricity From Company's Texas Power System.

SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 26, 1998--Calpine Corporation (NYSE:CPN), one of the nation's fastest growing independent power companies, today announced its power marketing affiliate Calpine Power Services Company has signed a one-year power sales agreement with LG&E Energy Marketing, Inc. (LG&E) to provide 150 megawatts of electricity from Calpine's Texas power system beginning in January 1999. Calpine's state-of-the-art Pasadena Power Plant will provide 140 megawatts of electricity, with the additional 10 megawatts being supplied by the company's Texas City and Clear Lake facilities. With this agreement in place, Calpine has sold all of the power from its existing Pasadena facility through 2001.

"The LG&E contract demonstrates the strength of Calpine's regional systems approach to the power market," said Calpine's Vice President Diana Naylor. "Energy companies like Calpine must design flexible, low-cost energy solutions to compete in today's dynamic power market. Our 1,100-megawatt system can respond quickly and effectively to market demand--translating to cost-savings and improved service for our customers."

LG&E Group Vice President-Energy Marketing Paul Thompson stated, "This agreement is a significant step forward in LG&E's efforts to mitigate risk from its discounted operations in Texas. In a fast-growing market like Texas, reliability is critical. With marketplace competition, low prices are essential."

"Calpine offered LG&E a very competitive energy package," continued Thompson. "LG&E has focused our ongoing energy marketing activities on an asset-based strategy designed to optimize the more than 9,000 megawatts of generating capacity owned or controlled by LG&E Energy Corp."

Texas represents about 7% of the U.S. power market. Most of the state is isolated electrically from other U.S. power grids so that almost all of the power consumed in Texas must be generated in the state. The load is growing dramatically. This year, the summer peak load was 6% above 1997 levels. Increased demand, combined with an insufficient amount of additional power generation, raised market prices for 1999 capacity to levels ranging between $75-$90 per kilowatt year.

Under the terms of the LG&E contract, energy pricing will be based on a gas index. Capacity payments have been fixed for the term of the contract, beginning January 1, 1999 through December 31, 1999.

Calpine has formed an integrated regional portfolio to supply energy to the Texas market. In addition to its Pasadena Power Plant, Calpine owns and operates the 450-megawatt Texas City Power Plant and the 377-megawatt Clear Lake Power Plant. As recently announced, Calpine is expanding its Pasadena Power Plant, increasing the facility's output from 240 to 750 megawatts by June 2000.

Calpine's Texas portfolio currently sells the majority of its output under mid- and long-term contracts to Celanese Chemical, Houston Lighting & Power, Phillips Petroleum Company, Texas-New Mexico Power, Texas Utilities Electric, Union Carbide and West Texas Utilities. In addition, Calpine is currently developing a new 700-megawatt natural gas-fired facility in Edinburg to serve the South Texas market. By 2001, Calpine will provide more than 2,200 megawatts of low-cost, clean electricity to the Texas market.

About Calpine

Calpine Corporation, one of the nation's fastest growing independent power companies, is dedicated to providing customers with low-cost electricity and thermal energy. Based in San Jose, CA, Calpine currently has 5,500 net megawatts of capacity in operation, under construction or in development in Arizona, California, Florida, Maine, Massachusetts, New Jersey, New York, Rhode Island, Texas, Virginia and Washington. The company was founded in San Jose, CA in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information, please visit Calpine's website at www.calpine.com.

This news release discusses certain matters that may be considered "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the intent, belief or current expectations of Calpine Corporation ("the Company") and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results such as, but not limited to, (i) changes in government regulations and anticipated deregulation of the electric energy industry; (ii) commercial operations of new plants or expansions that may be delayed because of various development and construction risks, such as a failure to obtain financing and the necessary permits to operate or the failure of third-party contractors to perform their contractual obligations; (iii) the assurance that the Company will develop additional plants; (iv) a competitor's development of a lower-cost generating gas-fired power plant; or (v) the risks associated with marketing and selling power from power plants in the newly competitive energy market. Prospective investors are also referred to the other risks identified from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission.