A GENERATIONtodayAHEAD, 2009 ANNUAL REPORT A GENERATIONtodayAHEAD, With America embarking on a journey to a future of clean power, Calpine’s power generation portfolio contains the critical pieces needed to help solve the nation’s energy policy puzzle. One of the most important policy challenges is to assure the right array of power generation resources. Most renewable resources, other than geothermal, are intermittent, presenting reliability challenges. Potential technological solutions are not assured and, in any event, may be many years off. Our geothermal plants at The Geysers are the ideal renewable resource, providing power every minute of every day. Our modern, clean and efficient natural gas plants provide the grid with the flexibility and reliability that allow for the integration of intermittent renewable power, provide American industry with highly efficient steam and power to keep jobs here, and, due to the underulitization of natural gas generation in many regions, provide an existing and immediately viable alternative to burning coal, while emitting less than half the carbon dioxide, a fraction of the sulfur dioxide and nitrous oxide, and no mercury, among other site advantages. We are generating solutions for the future, today. Geothermal Generation Calpine owns and operates the nation’s largest baseload renewable energy fleet, consisting of 15 geothermal plants known as Calpine’s Geysers. Calpine’s 121 industrial gas turbines Calpine’s fleet of 22 cogeneration plants, comprise the nation’s largest fleet converting the nation’s largest, provide industrial clean-burning natural gas into electricity. Gas-Fired Generation customers with thermal energy and power. GENERATING SOLUTIONS for our Shareholders FINANCIAL PERFORMANCE: uring 2009, amidst challenging macroeconomic conditions Dand uneven capital markets, Calpine, through a combination of conservative risk management and sound operational, commercial and financial execution, managed to improve financial performance. (Front row) Jack Fusco, CEO. (Back row, left to right) Thad Miller, CLO, Thad Hill, CCO, and Zamir Rauf, CFO. We held Commodity Margin steady, reduced expenses, increased Adjusted EBITDA by 5%, and improved Adjusted Free Cash Flow to help maintain strong liquidity, to service our debt, to meet our collateral needs and to fund operations and disciplined growth1. FINANCIAL HIGHLIGHTS: ($ MILLIONS) Adjusted Ebitda Adjusted Free Cash Flow Net Income Liquidity 1,782 609 149 2,379 1,699 2,178 495 10 2008 2009 2008 2009 2008 2009 2008 2009 National Portfolio of nearly 25,000 MW North Region: 3,417 MW 2009 Adj. EBITDA: $220M Southeast Region: 6,083 MW 2009 Adj. EBITDA: $188M West Region: 7,846 MW 2009 Adj. EBITDA: $959M In Operation - Gas-Fired (61) In Operation - Geothermal (15) Texas Region: Under Advanced Development (2) 1 Map does not include Consolidation and 7,392 MW Elimination Adjusted EBITDA of $(15)M. 2009 Adj. EBITDA: $430M 1 Commodity Margin, Adjusted EBITDA, Adjusted Free Cash Flow and Liquidity, as referenced within this document, are non-GAAP financial measures. Refer to the Investor Relations section of our website for reconciliations of these measures to the most comparable GAAP measures. 1 Calpine 2009 Annual Report DEAR FELLOW SHAREHOLDERS, hen I wrote to you a year ago, my first year at the Whelm of Calpine, I recognized that in 2009 we would be challenged as an organization and yet was confident we would rise to the occasion. I am pleased and proud to report that we have exceeded my expectations and surpassed our goals. Our share price improved 51% during the year, and our operating, commer- cial and financial performance metrics demonstrated true progress toward becoming the leading independent power producer in the nation. We were able to do so because our employees remained focused and executed on our mission. They are to be com- mended. This year will be challenging as well. We will remain focused on operating excellence, innovative but conservative commercial execution, environmental leadership and customer • We maintained our top-quartile safety performance for satisfaction, while continuing to deliver shareholder value. the seventh consecutive year with four plants having earned certification as OSHA Star VPP sites, one of the highest 2009: MEETING THE CHALLENGE safety recognitions available in the industry. My goal for Calpine is to be the premier power plant operator • Across the fleet, we had an astonishing 2.03% forced in the industry. Our ability to efficiently and reliably generate outage factor, a reduction of 38% from 2008. power, coupled with the effective implementation of our hedging strategy, enabled us to deliver exceptional results, despite a 2009 COMMERCIAL OPERATIONS national power demand decline of approximately 4%. We main- We refocused our efforts on customer origination, with an empha- tained Commodity Margin level to 2008, despite a 56% decline sis on listening to our customers’ needs and creating solutions for in average natural gas prices and similar reduction in wholesale them. As a result, we signed multiple new contracts, including: electric prices in markets in which we participate. We realized • A series of contracts with Pacific Gas & Electric for inter- over $60 million of sustainable savings in controllable expenses, mediate and peaking generation, as well as baseload renewable reflecting, among other things, the results of our realignment and geothermal generation from our Geysers to help meet their business improvement efforts over the course of the year. As a renewable portfolio standards obligations. consequence, Adjusted EBITDA and Adjusted Free Cash Flow • An innovative agreement with Los Angeles Department improved by 5% and 23%, respectively. Importantly, we are of Water and Power to integrate procured renewable wind holding ourselves accountable for maintaining these savings over generation with our quick-responding natural gas-fired the long term. We are not simply “short-term cost cutting” our generation to provide a firm power supply. way through tough economic times. • In the challenging Southeast market, we entered into agreements with the TVA and Entergy. These financial results demonstrate the culmination of many accomplishments. Here are a few: 2009 CORPORATE INITIATIVES • We made significant progress toward improving our balance 2009 POWER OPERATIONS sheet and corporate structure, refinanced approximately $3 billion • Our Otay Mesa Energy Center, an air-cooled combined-cycle of debt and improved our capital flexibility for the future by issuing gas turbine plant, commenced operations in October 2009 new bonds with favorable covenants. We also eliminated near- under a ten-year power purchase agreement with San Diego term maturities, extended our debt maturity profile and improved Gas & Electric. our liquidity, which approached $2.4 billion as of year-end. 2 Calpine 2009 Annual Report • We initiated organizational efficiency improvements that By focusing on these initiatives, I believe we will solidify a have resulted in tangible, sustainable benefits. We consolidated foundation of growth for Calpine and we will also better prepare office locations and administrative functions and additionally, ourselves for economic recovery when it does appear. Calpine is centralized our procurement processes, generating meaningful uniquely well positioned to benefit from both price and volume cost savings. Finally, we completed the implementation of expansion when electric markets rebound, as we have the ability an enterprise business system, meaningfully enhancing our to increase our plant output at the same time that power prices accounting and financial reporting. improve with minimal additional capital investment. 2010: CONTROLLING OUR DESTINY A FINAL WORD: HELPING CUSTOMERS Be assured, we will not rest on the laurels AND THE ENVIRONMENT of 2009. Instead, we have prepared We operate in an industry that is in a state of Calpine to weather what appears to be meaningful transition and within an economy an equally daunting 2010. Although that is likewise evolving. I remain convinced some signs of economy-wide stabilization that Calpine is uniquely positioned to embrace have appeared, the climb to a robust and profit from the changes afoot. In a future recovery will be long and hard fought, that calls for more sources of cleaner power, and natural gas and power prices likely Calpine stands out as a leader among its peers: will remain muted. This is why we have we operate the largest fleet of renewable baseload substantially hedged Commodity Margin generation in the country, we operate a natural-gas for 2010, effectively removing gas price fleet that is meaningfully cleaner than other fossil volatility from the portfolio. In addition, fuels and able to provide baseload, intermediate we are forging ahead to identify and and peaking supply, and finally, with renewable execute on new commercial opportuni- Otay Mesa Energy Center, San Diego, CA energy mandates in place or on the horizon, our ties, continuing our efforts to deliver customers will need natural gas-fired generation best-in-class plant performance to maximize the efficiency and to integrate renewable resources into the grid to maintain availability of our existing fleet, and building and strengthening reliability. In short, Calpine is a generation ahead, today. customer relationships to identify solutions that deliver long-term value for both our customers and our organization. I encourage you to share in our future as we continue