Introduction and Overview

We are an independent wholesale power generation company engaged in the ownership and operation of natural gas-fired and geothermal power plants in North America. We have a significant presence in the major competitive power markets in the U.S., including California and Texas. We sell wholesale power, steam, capacity, renewable energy credits and ancillary services to our customers, including industrial companies, retail power providers, utilities, municipalities, independent electric system operators, marketers and others. We engage in the purchase of natural gas as fuel for our power plants and in related natural gas transportation and storage transactions, and in the purchase of electric transmission rights to deliver power to our customers. We also enter into natural gas and power, commodity and financial derivative transactions to economically hedge our business risks and optimize our portfolio of power plants. We seek to grow our business through selective power plant development, construction and acquisition as well as through expansion or upgrades of our existing power plants, in each case, based primarily on whether we expect to achieve an attractive return on invested capital.

We are the largest publicly traded, independent wholesale power company in the U.S. measured by power produced in the U.S. in 2008. Our portfolio, including partnership interests, consists of 76 operating power plants, with an aggregate generation capacity of approximately 24,187 MW and our net interest in two additional power plants totaling nearly 1,000 MW under construction or in advanced development. Our portfolio is comprised of two types of power generation technologies: natural gas-fired combustion turbines (primarily combined-cycle) and renewable geothermal conventional steam turbines. We generate 4,080 MW of baseload capacity from our Geysers Assets and cogeneration power plants (natural gas-fired power plants that produce and sell both power and steam), 15,057 MW of intermediate load capacity from our combined-cycle combustion turbines and 5,050 MW of peaking capacity from our simple-cycle combustion turbines and duct-fired capability.

We assess our business on a regional basis due to the impact on our financial performance of the differing characteristics of these regions, particularly with respect to competition, regulation and other factors impacting supply and demand. Our reportable segments are West (including geothermal), Texas, Southeast and North (including Canada). In these segments we have an aggregate generation capacity of 7,246 MW in the West, 7,487 MW in Texas, 6,104 MW in the Southeast and 3,350 MW in the North (including Canada). Our Geysers Assets, located in northern California and included in our West segment, produce approximately 725 MW from 15 operating power plants and represent the largest geothermal power generation portfolio in the U.S.

We remain focused on increasing our earnings and generating cash flows sufficient to maintain adequate levels of liquidity to service our debt and to fund our operations. We will continue to pursue opportunities to improve our fleet performance and reduce operating costs. In order to manage our various physical assets and contractual obligations, we will continue to execute commodity hedging agreements within the guidelines of our commodity risk policy.

During the second quarter of 2009, we completed the $1.0 billion CCFC Refinancing, pursuant to which our subsidiaries CCFC and CCFC Finance issued $1.0 billion aggregate principal amount of 8.0% Senior Secured Notes due 2016 in a private placement. The net proceeds of $939 million received from the issuance of the notes, together with CCFC cash on hand of $271 million, were used to:

• repay the $364 million outstanding CCFC Term Loans, maturing in August 2009, on May 19, 2009;

• redeem the $415 million outstanding principal amount of CCFC Old Notes, maturing in August 2011, on June 18, 2009;

• redeem the $300 million outstanding CCFCP Preferred Shares, maturing in October 2011, on or before July 1, 2009; and

• in each case, pay any interest, prepayment penalties and other amounts due through the date of such repayment or redemption.

As a result of the CCFC Refinancing transactions, we were able to extend the maturities of approximately $1.0 billon of debt by several years, at the same time converting it from a floating to a fixed interest rate and lowering our interest rate on such debt to 8.0% from a current weighted average interest rate of approximately 9.4% with respect to the CCFC Term Loans, CCFC Old Notes and CCFCP Preferred Shares.

Legislative and Regulatory Update

Ongoing state, regional and federal initiatives to implement new environmental and other governmental regulations are expected to have a significant impact on the power generation industry. We are actively participating in these debates at the federal, regional and state levels concerning potential environmental regulation. For a further discussion of the environmental and other governmental regulations that affect us, please see "- Governmental and Regulatory Matters" in Part I, Item 1. of our 2008 Form 10-K. Below is a short discussion of the recent developments as they pertain to our business.

Climate Change

On June 26, 2009, the U.S. House of Representatives passed "The American Clean Energy and Security Act of 2009," a climate change and clean energy bill. The legislation includes, among other provisions:

• An economy-wide carbon cap-and-trade program that:

i. sets reduction targets for carbon emissions from capped sources in several sectors of the economy, including the electricity sector, starting at a 3% reduction from 2005 levels by 2012, increasing to 80% by 2050,

ii. starts in 2012 for the electricity sector and establishes the point of regulation at the power plant,

iii. distributes 85% of emissions allowances for free, with 35.85% going to the electricity sector, including 1.5% to eligible generation facilities with qualifying long-term power and steam sales contracts,

iv. requires an auction of the remaining 15% of emissions allowances with the proceeds of such auctions distributed to low- and moderate-income families, and

v. delegates authority to FERC to regulate the cash market in emissions allowances and offsets and to the CFTC to regulate the associated derivatives market.

• A federal energy efficiency and renewable electricity standard which requires retail electricity suppliers to meet the needs of a specific percentage of their load from renewable energy resources and electricity savings

If this bill were to become law, we would have the obligation to obtain emissions allowances for the operation of our fossil-fuel power plants. While we expect the costs to acquire allowances to be a factor that will impact market price, there can be no assurance that market price will fully reflect these costs. With respect to our existing long-term steam and power contracts under which we would not be able to recover costs to acquire allowances from our customers, the bill allocates a pool of free allowances to generators with qualifying contracts to mitigate such costs. However, there can be no assurance there will be a sufficient number of free allowances in the pool to fully cover emissions related to generation under such contracts.

The Senate has commenced hearings on the climate change issue but has not yet introduced any legislation. Although we cannot predict the effect and ultimate content of final climate change legislation and regulations, if any, on our business, we continue to monitor and actively participate in the process where we anticipate an impact on our business.

Texas

Texas bill HB 2782, introduced and pending in the House State Affairs Committee earlier this year, could have required the divestiture of certain of our assets in ERCOT's Houston zone. This bill failed to reach final passage and no divestiture will be required. Generally, no legislation was passed that will have a material impact on our Texas operations.

The Sunset review process, implemented by the Texas Legislature in 1977, is the regular assessment of the need for a state agency to exist and to consider new and innovative changes to improve each agency's operations and activities. The Sunset process works by setting a date on which an agency will be abolished unless legislation is passed to continue its functions. The Sunset review process is scheduled to begin this summer for the PUCT, TCEQ and ERCOT. We will monitor the Sunset review process of these entities and will seek to participate in these processes where we anticipate an impact on our business.

Federal Regulation of GHG under Existing Law

As discussed in the 2008 Form 10-K, in 2007 the U.S. Supreme Court ruled in Commonwealth of Massachusetts, et al. v. U.S. Environmental Protection Agency, that the EPA has the authority to regulate GHG issues under language included in the CAA. On April 24, 2009, the EPA released its proposed finding that GHG emissions endanger the public health and welfare of current and future generations. Should the EPA finalize the finding, it may begin developing rules to regulate GHG emissions under the CAA. We are uncertain of the timing of the process for development of potential GHG emissions regulations or what form such regulations may take; accordingly, it is not clear what impact any regulations will have on us.

Stimulus Bill

The American Recovery and Reinvestment Act of 2009, also referred to as the Stimulus Bill, was signed into law on February 17, 2009. The Stimulus Bill includes approximately $787.0 billion in federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and increased domestic spending for education, healthcare and infrastructure, including the energy sector. Approximately $43.0 billion will be available for loans and investments into green energy technology and a number of other renewable energy incentives that can impact our growth and development, particularly our geothermal assets. Specifically, the Stimulus Bill:

• extends the placed-in-service deadline through 2013 for geothermal projects to qualify for "production tax credits";

• allows geothermal developers to elect to receive a 30% "investment tax credit" in lieu of production tax credits with respect to certain "qualified property" placed in service during 2009 or 2010 (or, in certain cases, after 2010), or a cash grant in lieu of investment tax credits or production tax credits with respect to such qualified property (subject to satisfying certain procedural and other requirements mandated by recently-issued Department of Treasury guidance);

• designates $6.0 billion in funds to serve as a loss reserve and source of funding for a federal loan guarantee program anticipated to backstop renewable energy project financing; and

• designates $400 million in funds for the Department of Energy's Geothermal Technologies Program.

We anticipate that our planned investment in our current geothermal power plants, including the re-powering of many of our existing power plants, along with expansion efforts that may include new geothermal plant development, could all benefit from the additional funds and incentives provided by the Stimulus Bill. Applications for grants funded by the Stimulus Bill and implemented through the Department of Energy were due July 22, 2009, and July 30, 2009, respectively, and we applied for ten individual geothermal technology grants.

Geothermal Operations

In 2009, as part of a joint private and federally funded geothermal technology research project, a company unrelated to us commenced deepening an existing geothermal well on a property neighboring our Geysers Assets and reportedly is attempting to drill into the hot, low or non-permeable base rock that underlies the existing geothermal steam reservoir at The Geysers to engineer or create a "multilayered heat extraction system" below the reservoir by injecting water under very high pressure, fracturing the rock. This process has spawned public and political concern regarding increased seismicity risk. As a consequence, in July 2009, the Department of Energy temporarily halted funding of its portion of that project pending further seismicity studies. Although our geothermal operations do not include attempts to engineer or create new reservoirs from hot,

non-permeable rock, the public concern regarding induced seismicity could delay or otherwise adversely impact our Department of Energy grant applications. In addition, it is possible that government agencies will seek to more stringently regulate the exploration, development, and operation of geothermal facilities, including our Geysers Assets, in order to mitigate induced seismicity resulting from geothermal operations.

Liquidity and Capital Resources

Our business is capital intensive. Our ability to successfully implement our strategy is dependent on the continued availability of capital on attractive terms. In addition, our ability to successfully operate our business and to meet certain near-term debt repayment obligations is dependent on maintaining sufficient liquidity.

As of June 30, 2009, we had approximately $1.5 billion in cash and cash equivalents and $534 million of restricted cash. Included in our cash and cash equivalents is $725 million borrowed on October 2, 2008 under our Exit Credit Facility revolver. Our borrowing under the Exit Credit Facility revolver was a proactive financial decision to increase our cash position and reduce the risk of nonperformance from institutions that hold a commitment in our Exit Credit Facility revolver during a period of uncertainty in the capital markets, and was invested in money market funds, which are mainly invested in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities. Our remaining availability under our Exit Credit Facility revolver as of June 30, 2009, is approximately $55 million for future letters of credit or cash borrowings. Our decision to repay or hold all or part of the cash from our $725 million draw under our Exit Credit Facility revolver, or to use all or part of that borrowing to pay down other debt with will be determined based upon our anticipated future liquidity needs and our expectations regarding future credit markets.

Volatility in the financial markets through 2008 and into 2009, including the failure or merger of certain financial institutions and continued uncertainty surrounding many others continues to constrict access to capital and credit markets in the U.S. and worldwide, including within our industry, for us and for our counterparties. We are unable to predict the length or severity of the economic downturn; but expect these conditions will persist during 2009 and possibly longer. As a result, we and the industry have experienced increased credit and liquidity risk over the past several months. Even if we are not impacted directly, we could be impacted indirectly in the event our counterparties are unable to perform under their contractual obligations with us. We actively monitor our exposure to our counterparties including their credit status.

We believe that we have adequate resources from a combination of cash and cash equivalents on hand and cash expected to be generated from future operations to continue to meet our obligations as they become due. Despite the current volatility in the financial markets and relative illiquidity, we have been able to close two significant financings during 2009 as further described below. If investor and creditor markets improve and more confidence returns, we may decide to refinance additional portions of our nearer term maturities or more costly debt. We are also seeking to amend certain terms of our Exit Credit Facility to allow us the option to buy back debt at a discount via auction and certain other amendments that permit additional flexibility to enhance the management of our capital structure.

CCFC Refinancing - On May 19, 2009, CCFC and CCFC Finance issued $1.0 billion in aggregate principal amount of CCFC New Notes in a private placement. Interest on the CCFC New Notes accrues at the rate of 8.0% per annum and is payable semi-annually in arrears on each June 1 and December 1, commencing on December 1, 2009. The CCFC New Notes which mature on June 1, 2016, are guaranteed by two of CCFC's subsidiaries. The CCFC New Notes and the related guarantees are secured, subject to certain exceptions and permitted liens, by all real and personal property of CCFC and CCFC's material subsidiaries (including the CCFC Guarantors), consisting primarily of six natural gas power plants as well as the equity interests in CCFC and the CCFC Guarantors. The net proceeds received of $939 million, together with CCFC cash on hand of $271 million, were used to:

• repay the $364 million outstanding under the CCFC Term Loans on May 19, 2009;

• redeem the $415 million outstanding principal amount of CCFC Old Notes on June 18, 2009;

• distribute $327 million to CCFC's indirect parent, CCFCP, which was used by CCFCP to redeem its $300 million CCFCP Preferred Shares on or before July 1, 2009; and

• in each case, pay any interest, prepayment penalties and other amounts due through the date of such repayment or redemption.

In connection with the CCFC Refinancing, we recorded $33 million in debt extinguishment costs for the three and six months ended June 30, 2009, from the write-off of unamortized deferred financing costs and unamortized debt discount of $7 million and prepayment penalties of $24 million related to the CCFC Old Notes, and $2 million related to the CCFCP

Preferred Shares redeemed on or before June 30, 2009. These items are recorded in debt extinguishment costs on our Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2009. We also recorded approximately $21 million in new deferred financing costs on our Consolidated Condensed Balance Sheet at June 30, 2009.

As a result of the CCFC Refinancing transactions, we were able to extend the maturities of approximately $1.0 billon of debt by several years, at the same time converting it from a floating to a fixed interest rate and lowering our interest rate on such debt to 8.0% from a current weighted average interest rate of approximately 9.4% with respect to the CCFC Term Loans, CCFC Old Notes and CCFCP Preferred Shares.

We offered early redemption prior to July 1, 2009, to each holder of the CCFCP Preferred Shares. As of June 30, 2009, $36 million of the CCFCP Preferred Shares had been redeemed. The remaining $264 million is reported as debt, current portion on our Consolidated Condensed Balance Sheet. This balance was redeemed on July 1, 2009, and we recorded an additional $15 million in debt extinguishment costs related to prepayment penalties and the write-off of unamortized deferred financing costs on July 1, 2009.

Concurrent with the CCFC Refinancing, we replaced various intercompany agreements with our CCFC subsidiaries for the related sales and purchases of power, natural gas and the operation and maintenance of our CCFC power plants, which did not materially impact our results of operations, financial condition or cash flows on a consolidated basis.

Deer Park Financing - On January 21, 2009, Deer Park, our indirect wholly owned subsidiary, closed on $156 million of senior secured credit facilities, which include a $150 million term facility and a $6 million letter of credit facility. Proceeds received were used to settle an existing commodity contract of approximately $79 million, pay financing and legal fees of approximately $8 million and fund approximately $22 million in restricted cash. The remainder was distributed to Calpine Corporation for general corporate purposes. The senior term loan facility matures on January 21, 2012, and bears interest of LIBOR plus 3.5% or base rate plus 2.5% at Deer Park's option.

Liquidity Sensitivity - Significant changes in commodity prices and Market Heat Rates can have an impact on our liquidity as we use margin deposits, cash prepayments and letters of credit as credit support (collateral) with and from our counterparties for commodity procurement and risk management activities. Utilizing our portfolio of transactions subject to collateral exposure, we estimate that, as of July 10, 2009, an increase of $1/MMBtu in natural gas prices would result in an increase of collateral required of approximately $160 million. If natural gas prices decreased by $1/MMBtu, we estimate that our collateral requirements would decrease by approximately $136 million. Changes in Market Heat Rates also affect our liquidity. For example, as demand increases, less efficient generation is dispatched, which increases the Market Heat Rate and results in increased collateral requirements. Based upon historical relationships of natural gas and Market Heat Rate movements for our portfolio of assets, we derived a statistical analysis that indicates that a change of $1/MMBtu in natural gas is comparable to a Market Heat Rate change of 170 Btu/KWh. We estimate that, as of July 10, 2009, an increase of 170 Btu/KWh in the Market Heat Rate would result in an increase in collateral required of approximately $15 million. If Market Heat Rates were to fall at a similar rate, we estimate that our collateral required would decrease by $17 million. These amounts are not necessarily indicative of the actual amounts that could be required, which may be higher or lower than the amounts estimated above.

In order to reduce the cash collateral and letters of credit that we would otherwise be required to provide to our counterparties, we have granted additional liens on the assets currently subject to liens under the Exit Credit Facility to collateralize our obligations under certain of our power and natural gas agreements that qualify as "eligible commodity hedge agreements" under the Exit Credit Facility, and certain of our interest rate swap agreements. The counterparties under such agreements will share the benefits of the collateral subject to such liens ratably with the lenders under the Exit Credit Facility. We have increased our usage of these additional liens during the second quarter of 2009 in order to help manage cash collateral that would otherwise be required. See Note 8 of the Notes to Consolidated Condensed Financial Statements for further information on our margin deposits and collateral used for commodity procurement and risk management activities.

To provide for increased liquidity in periods of rising commodity prices, we have the Commodity Collateral Revolver that increases our liquidity available to collateralize obligations to counterparties under eligible commodity hedge agreements during periods of increasing natural gas prices. The Commodity Collateral Revolver, which matures July 8, 2010, provides up to a total maximum availability of $300 million contingent on mark-to-market exposure amounts under certain reference transactions. We received an initial advance of $100 million in 2008; however, it is unlikely that any additional amounts under this facility will be available as natural gas prices are not expected to exceed stated thresholds in the near future. Through June 30, 2009, the Knock-in Facility had provided additional letter of credit availability. The Knock-in Facility

matured on June 30, 2009, and is therefore no longer a source of liquidity for us. We previously had approximately $44 million in letters of credit outstanding under the Knock-in Facility which terminated in June 2009 and were replaced with cash collateral of $30 million. See "- Letter of Credit Facilities" below.

We could potentially face downward pressure on our Commodity Margin as a result of the current economic recession. The impacts would be highly dependent on the severity and duration of the economic downturn. During pronounced recessionary periods, there can be a decrease in power demand primarily driven by decreased usage by the industrial and manufacturing sectors. This "softening" of demand typically results in more demand satisfied by baseload and intermediate units using lower variable cost fuel sources such as coal and nuclear fuel, and less demand served by higher variable cost units such as natural gas-fired peaking power plants. Additionally, a recessionary environment can result in lower natural gas pricing which may adversely impact our Commodity Margin as our cost of production advantage relative to less efficient natural gas-fired generation is diminished on an absolute basis. However, with our combined forward power sales and natural gas purchases, we believe that we have economically hedged a substantial portion of our Commodity Margin for the remainder of 2009. Additionally, we have economically hedged much of 2010 and therefore do not expect further declines in natural gas prices to result in a material detriment to our results of operations in the near term.

It is difficult to predict future developments and the amount of credit support that we may need to provide as part of our business operations should financial market and commodity price volatility persist for a significant period of time. Our ability to generate sufficient cash is dependent upon, among other things:

• improving the profitability of our operations;

• continued compliance with the covenants under our Exit Credit Facility and other existing financing obligations;

• stabilizing and increasing future contractual cash flows; and

• our significant counterparties performing under their contracts with us.

Letter of Credit Facilities - The table below represents amounts outstanding under our letter of credit facilities as of June 30, 2009 (in millions):

                                       2009
Exit Credit Facility                   $ 220
Calpine Development Holdings, Inc.       148
Various project financing facilities      98
Total                                  $ 466

Cash Management - We manage our cash in accordance with our intercompany cash management system subject to the requirements of the Exit Credit Facility and requirements under certain of our project debt and lease agreements or by regulatory agencies. Our cash and cash equivalents as well as our restricted cash balances generally exceed FDIC insured limits or are invested in money market accounts with investment banks that are not FDIC insured. We place our cash, cash equivalents and restricted cash in what we believe to be credit-worthy financial institutions and most of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities.

We do not expect to pay any cash dividends on our common stock for the foreseeable future because we are currently prohibited under the Exit Credit Facility and certain of our other debt agreements from paying cash dividends. Future cash dividends, if any, will be at the discretion of our Board of Directors and will depend upon, among other things, our future operations and earnings, capital requirements, general financial condition, contractual and financing restrictions and such other factors as our Board of Directors may deem relevant.

NOLs - We have significant NOLs that will provide future tax deductions if we generate sufficient taxable income during the carryover periods. Our federal and state income tax reporting group is comprised primarily of two groups, CCFC and its subsidiaries, which we refer to as the CCFC group and Calpine Corporation . . .