In response to the State of California's program to manage the energy crisis of 2000-2001, Calpine was the first power company to enter into long-term contracts with the State and was the first company to voluntarily renegotiate more favorable terms for the State. Now, in furtherance of the California Public Utilities Commission's and the State's policy objectives of removing the California Department of Water Resources (DWR) from its energy crisis role as the power purchaser of last resort, Calpine and PG&E have finalized contracts to replace two of these DWR contracts to ensure ratepayers continue to enjoy the benefits of Calpine's clean, reliable, cost-effective and well-located power facilities. As part of this negotiation, Calpine and PG&E have agreed to upgrade the Los Esteros Critical Energy Facility, located in Silicon Valley, to operate in combined-cycle mode at an increased capacity and higher efficiency.

"Through these agreements Calpine is very pleased to assist PG&E in serving the changing generation needs in California," said Calpine President and Chief Executive Officer Jack A. Fusco. "We welcome the opportunity to work with PG&E to supply both incremental renewable power and flexible and reliable natural gas-fired generation necessary to integrate intermittent renewable energy supplies coming on-line in furtherance of the State of California's 33 percent renewable goal."

These following agreements will be submitted to the California Public Utilities Commission by PG&E for approval:

Extension of Calpine Northern California Peaking Power Plant Contract

Calpine's 11 peaking units, providing approximately 500 megawatts (MW), are highly dispatchable, reliable and are well located in Northern California. These power plants, which came on-line in 2002 and 2003, were under a power purchase agreement with the DWR which was due to expire in mid-2011.