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<ACCESSION-NUMBER>0000916457-02-000017
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>9
<PERIOD>20020331
<FILING-DATE>20020515
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<CONFORMED-NAME>CALPINE CORP
<CIK>0000916457
<ASSIGNED-SIC>4911
<IRS-NUMBER>770212977
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
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<FILM-NUMBER>02652920
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<BUSINESS-ADDRESS>
<STREET1>50 WEST SAN FERNANDO ST
<CITY>SAN JOSE
<STATE>CA
<ZIP>95113
<PHONE>4089955115
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>50 W SAN FERNANDO
<STREET2>SUITE 500
<CITY>SAN JOSE
<STATE>CA
<ZIP>95113
</MAIL-ADDRESS>
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<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q12002.txt
<TEXT>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
           For the quarterly period ended March 31, 2002

                                       OR

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
           For the transition period from ________ to _________

                         Commission file number: 1-12079

                               CALPINE CORPORATION

                            (A Delaware Corporation)

                  I.R.S. Employer Identification No. 77-0212977

                           50 West San Fernando Street
                           San Jose, California 95113
                            Telephone: (408) 995-5115

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date:

     373,911,684 shares of Common Stock, par value $.001 per share,  outstanding
on May 13, 2002

     In the  Company's  2001 Report on Form 10-K the Company  disclosed  that it
dismissed  Arthur  Andersen LLP  effective  March 29, 2002,  as its  independent
public  accountants and appointed Deloitte and Touche LLP as its new independent
public  accountants.  Pursuant to Temporary  Note 2T to Article 3 of  Regulation
S-X,  this  Report on Form 10-Q is being filed  prior to the  completion  of the
review by Deloitte and Touche LLP that would  otherwise be required by Statement
on Auditing Standards No. 71, "Interim Financial Information."

<PAGE>

                      CALPINE CORPORATION AND SUBSIDIARIES
                               Report on Form 10-Q
                      For the Quarter Ended March 31, 2002
<TABLE>
<CAPTION>
                                                                 INDEX

                                                                                                                            PAGE NO.
PART I - FINANCIAL INFORMATION
<S>                                                                                                                              <C>

                 Item 1.      Financial Statements.
                              Consolidated Condensed Balance Sheets March 31, 2002 and December 31, 2001..................         1
                              Consolidated Condensed Statements of Operations For the Three Months Ended March 31, 2002
                              and 2001....................................................................................         3
                              Consolidated Condensed Statements of Cash Flows For the Three Months Ended March 31, 2002
                              and 2001....................................................................................         5
                              Notes to Consolidated Condensed Financial Statements March 31, 2002.........................         6
                 Item 2.      Management's Discussion and Analysis of Financial Condition and Results of Operations.......        22
                 Item 3.      Quantitative and Qualitative Disclosures About Market Risk..................................        38

PART II - OTHER INFORMATION

                 Item 1.      Legal Proceedings...........................................................................        38
                 Item 2.      Changes in Securities and Use of Proceeds...................................................        39
                 Item 6.      Exhibits and Reports on Form 8-K............................................................        40
Signatures................................................................................................................        42
</TABLE>


<PAGE>
PART I - FINANCIAL INFORMATION

     In the  Company's  2001 Report on Form 10-K the Company  disclosed  that it
dismissed  Arthur  Andersen LLP  effective  March 29, 2002,  as its  independent
public  accountants and appointed Deloitte and Touche LLP as its new independent
public  accountants.  Pursuant to Temporary  Note 2T to Article 3 of  Regulation
S-X,  this  Report on Form 10-Q is being filed  prior to the  completion  of the
review by Deloitte and Touche LLP that would  otherwise be required by Statement
on Auditing Standards No. 71, "Interim Financial Information."

Item 1.  Financial Statements.

                      CALPINE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                      March 31, 2002 and December 31, 2001
               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                                                                                          MARCH 31,           DECEMBER 31,
                                                                                            2002                 2001
                                                                                        ------------         ------------
                                     ASSETS                                              (unaudited)
<S>                                                                                     <C>                  <C>
Current assets:
   Cash and cash equivalents ...................................................        $    410,772         $  1,525,417
   Accounts receivable, net.....................................................             817,936              966,080
   Margin deposits and other prepaid expense ...................................             304,564              480,656
   Inventories .................................................................              90,627               78,862
   Current derivative assets ...................................................             549,155              763,162
   Other current assets ........................................................             133,056              193,525
                                                                                        ------------         ------------
      Total current assets .....................................................           2,306,110            4,007,702
                                                                                        ------------         ------------
Restricted cash ................................................................              91,070               95,833
Notes receivable, net of current portion .......................................             160,359              158,124
Project development costs ......................................................             185,412              179,783
Investments in power projects ..................................................             380,558              378,614
Deferred financing costs .......................................................             223,893              210,811
Property, plant and equipment, net .............................................          16,211,489           15,200,498
Goodwill and other intangible assets, net ......................................             221,786              228,673
Long-term derivative assets ....................................................             554,354              564,952
Other assets ...................................................................             308,504              304,562
                                                                                        ------------         ------------
      Total assets .............................................................        $ 20,643,535         $ 21,329,552
                                                                                        ============         ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ............................................................        $  1,260,579         $  1,283,843
   Accrued payroll and related expense .........................................              49,876               57,285
   Accrued interest payable ....................................................             194,538              160,115
   Notes payable and borrowings under lines of credit, current portion .........              14,336               23,238
   Capital lease obligation, current portion ...................................               2,279                2,206
   Zero-Coupon Convertible Debentures Due 2021 .................................             685,500              878,000
   Current derivative liabilities ..............................................             450,865              625,339
   Other current liabilities ...................................................             231,036              198,812
                                                                                        ------------         ------------
      Total current liabilities ................................................           2,889,009            3,228,838
                                                                                        ------------         ------------
Notes payable and borrowings under lines of credit, net of current portion .....              10,000               74,750
Capital lease obligation, net of current portion ...............................             206,697              207,219
Construction/project financing .................................................           3,424,097            3,393,410
Convertible Senior Notes Due 2006 ..............................................           1,200,000            1,100,000
Senior notes ...................................................................           7,039,516            7,049,038
Deferred income taxes, net .....................................................             915,092              964,346
Deferred lease incentive .......................................................              56,360               57,236
Deferred revenue ...............................................................             186,725              154,381
Long-term derivative liabilities ...............................................             497,916              822,848
Other liabilities ..............................................................              97,658               96,504
                                                                                        ------------         ------------
      Total liabilities ........................................................          16,523,070           17,148,570
                                                                                        ------------         ------------


















                                      -1-
<PAGE>
Company-obligated mandatorily redeemable convertible preferred securities
   of subsidiary trusts ........................................................           1,123,275            1,123,024
Minority interests .............................................................              39,319               47,389
                                                                                        ------------         ------------
Stockholders' equity:
   Preferred stock, $.001 par value per share; authorized 10,000,000
      shares; issued and outstanding one share in 2002 and 2001 ................                  --                   --
   Common stock, $.001 par value per share; authorized 1,000,000,000
      shares in 2002 and 2001; issued and outstanding 307,604,929
      shares in 2002 and 307,058,751 shares in 2001 ............................                 308                  307
   Additional paid-in capital ..................................................           2,043,816            2,040,836
   Retained earnings ...........................................................           1,121,733            1,196,000
   Accumulated other comprehensive loss ........................................            (207,986)            (226,574)
                                                                                        ------------         ------------
      Total stockholders' equity ...............................................           2,957,871            3,010,569
                                                                                        ------------         ------------
      Total liabilities and stockholders' equity ...............................        $ 20,643,535         $ 21,329,552
                                                                                        ============         ============

                 The accompanying notes are an integral part of
               these consolidated condensed financial statements.
</TABLE>




































































                                      -2-
<PAGE>
                      CALPINE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
               For the Three Months Ended March 31, 2002 and 2001
                    (in thousands, except per share amounts)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                               THREE MONTHS ENDED
                                                                                                    MARCH 31,
                                                                                        ---------------------------------
                                                                                            2002                 2001
                                                                                        ------------         ------------
<S>                                                                                     <C>                  <C>
Revenue:
  Electric generation and marketing revenue
     Electricity and steam revenue..............................................        $    620,179         $    595,159
     Sales of purchased power...................................................             908,301              453,602
     Electric power derivative mark-to-market gain..............................               4,166                1,306
                                                                                        ------------         ------------
  Total electric generation and marketing revenue...............................           1,532,646            1,050,067
  Oil and gas production and marketing revenue
     Oil and gas sales..........................................................              67,488              156,687
     Sales of purchased gas.....................................................             132,158              129,172
                                                                                        ------------         ------------
  Total oil and gas production and marketing revenue............................             199,646              285,859
  Income from unconsolidated investments in power projects......................               1,444                  563
  Other revenue.................................................................               4,611                3,262
                                                                                        ------------         ------------
       Total revenue............................................................           1,738,347            1,339,751
                                                                                        ------------         ------------
Cost of revenue:
  Electric generation and marketing expense
     Plant operating expense....................................................             115,157               84,460
     Royalty expense............................................................               4,155               11,009
     Purchased power expense....................................................             815,005              456,266
                                                                                        ------------         ------------
  Total electric generation and marketing expense...............................             934,317              551,735
  Oil and gas production and marketing expense
     Oil and gas production expense.............................................              26,940               34,283
     Purchased gas expense......................................................             123,694              118,628
                                                                                        ------------         ------------
  Total oil and gas production and marketing expense............................             150,634              152,911
  Fuel expense
     Cost of oil and natural gas burned by power plants.........................             326,443              264,563
     Natural gas derivative mark-to-market loss (gain)..........................               6,392               (7,549)
                                                                                        ------------         ------------
  Total fuel expense............................................................             332,835              257,014
  Depreciation, depletion and amortization expense..............................             103,873               72,013
  Operating lease expense.......................................................              36,134               28,011
  Other expense.................................................................               2,590                2,499
                                                                                        ------------         ------------
       Total cost of revenue....................................................           1,560,383            1,064,183
                                                                                        ------------         ------------
  Gross profit..................................................................             177,964              275,568
Project development expense.....................................................              11,338               15,839
Equipment cancellation cost.....................................................             168,471                   --
General and administrative expense..............................................              60,261               36,085
Merger expense..................................................................                  --                6,021
                                                                                        ------------         ------------
  Income (loss) from operations.................................................             (62,106)             217,623
Interest expense................................................................              61,311               19,925
Distributions on trust preferred securities.....................................              15,386               15,175
Interest income.................................................................             (12,176)             (19,358)
Other income, net...............................................................              (9,093)              (5,727)
                                                                                        ------------         ------------
  Income (loss) before provision (benefit) for income taxes.....................            (117,534)             207,608
Provision (benefit) for income taxes............................................             (41,137)              88,981
                                                                                        ------------         ------------
  Income (loss) before extraordinary gain and cumulative effect
   of a change in accounting principle..........................................             (76,397)             118,627
Extraordinary gain, net of tax provision of $1,362 and $-- .....................               2,130                   --
Cumulative effect of a change in accounting principle,
  net of tax provision of $-- and $669..........................................                  --                1,036
                                                                                        ------------         ------------
  Net income (loss).............................................................        $    (74,267)        $    119,663
                                                                                        ============         ============
Basic earnings (loss) per common share:
  Weighted average shares of common stock outstanding...........................             307,332              300,554
  Income (loss) before extraordinary gain and cumulative effect of
    a change in accounting principle............................................        $      (0.25)        $       0.39
  Extraordinary gain............................................................        $       0.01         $         --
  Cumulative effect of a change in accounting principle.........................        $         --         $       0.01
                                                                                        ------------         ------------
  Net income (loss).............................................................        $      (0.24)        $       0.40
                                                                                        ============         ============





                                      -3-
<PAGE>

Diluted earnings (loss) per common share:
  Weighted average shares of common stock outstanding before
   dilutive effect of certain convertible securities............................             307,332              316,832
  Income (loss) before dilutive effect of certain convertible
   securities, extraordinary gain and cumulative effect of a
   change in accounting principle...............................................        $      (0.25)        $       0.37
  Dilutive effect of certain convertible securities (1).........................        $         --         $      (0.02)
                                                                                        ------------         ------------
  Income (loss) before extraordinary gain and cumulative effect
   of a change in accounting principle..........................................        $      (0.25)        $       0.35
  Extraordinary gain............................................................        $       0.01         $         --
  Cumulative effect of a change in accounting principle.........................        $         --         $       0.01
                                                                                        ------------         ------------
  Net income (loss).............................................................        $      (0.24)        $       0.36
                                                                                        ============         ============
</TABLE>
__________

(1)  Includes  the  effect of the  assumed  conversion  of  certain  convertible
     securities in 2001.  No  convertible  securities  were included in the 2002
     amounts as the  securities  were  antidilutive.  For the three months ended
     March 31, 2001, the assumed  conversion  calculation added 44,882 shares of
     common stock and $9,355 to the net income results.


                 The accompanying notes are an integral part of
               these consolidated condensed financial statements.






























































                                      -4-
<PAGE>
                      CALPINE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
               For the Three Months Ended March 31, 2002 and 2001
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                               THREE MONTHS ENDED
                                                                                                    MARCH 31,
                                                                                        ---------------------------------
                                                                                            2002                 2001
                                                                                        ------------         ------------
<S>                                                                                     <C>                  <C>
Cash flows from operating activities:
   Net income (loss) ...........................................................        $    (74,267)        $    119,663
     Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation, depletion and amortization .................................             114,136               77,594
      Equipment cancellation cost....................... .......................             168,471                   --
      Deferred income taxes, net ...............................................             (94,247)              41,216
      Gain on sale of assets....................................................              (9,667)             (10,750)
      Minority interests........................................................                   1                3,604
      Income from unconsolidated investments in power projects..................              (1,444)                (563)
      Distributions from unconsolidated investments in power projects...........                   9                1,213
      Change in operating assets and liabilities, net
       of effects of acquisitions:
        Accounts receivable.....................................................             148,144              (10,316)
        Notes receivable........................................................              (5,202)              (7,959)
        Current derivative assets...............................................             214,007             (391,291)
        Other current assets....................................................             231,918              (29,969)
        Long-term derivative assets.............................................              10,598             (162,488)
        Other assets............................................................              (7,241)               3,176
        Accounts payable and accrued expense ...................................              24,073             (132,685)
        Current derivative liabilities..........................................            (174,474)             408,781
        Long-term derivative liabilities........................................            (324,906)             222,479
        Other liabilities.......................................................              54,125               (9,969)
        Other comprehensive income (loss) relating to derivatives ..............              71,911              (86,181)
                                                                                        ------------         ------------
         Net cash provided by operating activities .............................             345,945               35,555
                                                                                        ------------         ------------
Cash flows from investing activities:
   Purchases of property, plant and equipment ..................................          (1,289,615)            (795,561)
   Disposals of property, plant and equipment...................................               1,739               19,134
   Advances to joint ventures ..................................................             (23,121)             (32,331)
   Decrease (increase) in notes receivable .....................................              12,914              (21,588)
   Maturities of collateral securities .........................................               3,325                2,885
   Project development costs ...................................................             (23,784)             (19,210)
   Decrease (increase) in restricted cash ......................................              16,929              (51,964)
                                                                                        ------------         ------------
         Net cash used in investing activities .................................          (1,301,613)            (898,635)
                                                                                        ------------         ------------
Cash flows from financing activities:
   Repurchase of Zero-Coupon Convertible Debentures Due 2021....................            (187,727)                  --
   Repayments of notes payable and borrowings under lines of credit ............             (73,652)            (134,493)
   Borrowings from project financing ...........................................             122,885              609,354
   Repayments of project financing .............................................             (92,198)            (403,810)
   Proceeds from issuance of Convertible Senior Notes Due 2006 .................             100,000                   --
   Proceeds from issuance of senior notes ......................................                  --            1,150,000
   Financing costs..............................................................             (31,479)             (52,509)
   Other .......................................................................               3,685              (31,460)
                                                                                        ------------         ------------
         Net cash provided by (used in) financing activities ...................            (158,486)           1,137,082
                                                                                        ------------         ------------
Effect of exchange rate changes on cash and cash equivalents....................                (491)                  --
Net increase (decrease) in cash and cash equivalents ...........................          (1,114,645)             274,002
Cash and cash equivalents, beginning of period .................................           1,525,417              596,077
                                                                                        ------------         ------------
Cash and cash equivalents, end of period .......................................        $    410,772         $    870,079
                                                                                        ============         ============
Cash paid during the period for:
   Interest, net of amounts capitalized ........................................        $      6,218         $     12,599
   Income taxes ................................................................        $     12,255         $     65,745

</TABLE>

                 The accompanying notes are an integral part of
               these consolidated condensed financial statements.













                                      -5-
<PAGE>
                      CALPINE CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 March 31, 2002
                                   (unaudited)

1. Organization and Operation of the Company

     Calpine Corporation ("Calpine"),  a Delaware corporation,  and subsidiaries
(collectively, "the Company") is engaged in the generation of electricity in the
United  States,  Canada and the United  Kingdom.  The Company is involved in the
development, acquisition, ownership and operation of power generation facilities
and the sale of electricity and its by-product, thermal energy, primarily in the
form of steam.  The Company has  ownership  interests in and operates  gas-fired
power generation and cogeneration facilities,  gas fields, gathering systems and
gas  pipelines,   geothermal   steam  fields  and  geothermal  power  generation
facilities in the United States. In Canada, the Company has power facilities and
oil and gas operations. In the United Kingdom, the Company has a gas-fired power
cogeneration  facility.  Each of the generation  facilities produces and markets
electricity  for sale to  utilities  and other third party  purchasers.  Thermal
energy  produced by the gas-fired  cogeneration  facilities is primarily sold to
industrial  users.  Gas produced and not  physically  delivered to the Company's
generating plants is sold to third parties.

2. Summary of Significant Accounting Policies

     Basis  of  Interim  Presentation  --  The  accompanying  unaudited  interim
consolidated condensed financial statements of the Company have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission.  In the opinion of management,  the consolidated condensed financial
statements  include the adjustments  necessary to present fairly the information
required to be set forth  therein.  The Company's  historical  amounts have been
restated to reflect the  pooling-of-interests  transaction  completed during the
second  quarter of 2001 for the  acquisition  of Encal  Energy  Ltd.  ("Encal").
Certain  information  and  note  disclosures   normally  included  in  financial
statements prepared in accordance with generally accepted accounting  principles
in the  United  States of America  have been  condensed  or  omitted  from these
statements  pursuant  to such  rules and  regulations  and,  accordingly,  these
financial statements should be read in conjunction with the audited consolidated
financial  statements  of the  Company  for the year ended  December  31,  2001,
included in the Company's  Annual  Report on Form 10-K.  The results for interim
periods are not necessarily indicative of the results for the entire year.

     Use of Estimates in Preparation of Financial  Statements -- The preparation
of  financial  statements  in  conformity  with  generally  accepted  accounting
principles in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported  amounts of revenue and expense during the reporting
period.  Actual results could differ from those estimates.  The most significant
estimates with regard to these financial statements relate to future development
costs,  useful lives of the generation  facilities,  provision for income taxes,
fair value  calculations of derivative  instruments and depletion,  depreciation
and  impairment of natural gas and  petroleum  property and  equipment.  See the
"Critical  Accounting  Policies"  subsection in the Management's  Discussion and
Analysis of  Financial  Condition  and Results of  Operations  in the  Company's
Annual  Report on Form 10-K for the year ended  December  31, 2001 for a further
discussion of the Company's significant estimates.

     Revenue  Recognition  -- The Company is  primarily  an electric  generation
company,  operating  a portfolio  of mostly  wholly  owned  plants but also some
plants in which its  ownership  interest is 50% or less and which are  accounted
for under  the  equity  method.  In  conjunction  with its  electric  generation
business, the Company also produces, as a by-product, thermal energy for sale to
customers,  principally steam hosts at its cogeneration sites. In addition,  the
Company  acquires and produces natural gas for its own consumption and sells the
balance  and oil  produced to third  parties.  To protect and enhance the profit
potential  of  its  electric   generation  plants,  the  Company,   through  its
subsidiary,  Calpine Energy Services, L.P. ("CES"), enters into electric and gas
hedging,  balancing,  optimization,  and trading transactions in which purchased
electricity  and  gas is  resold  to  third  parties.  CES  generally  acts as a
principal,  takes title to the commodities purchased for resale, and assumes the
risks and rewards of ownership.  Therefore,  in accordance with Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" and the Emerging
Issues  Task Force  ("EITF")  Issue No.  99-19,  "Reporting  Revenue  Gross as a
Principal  Versus Net as an Agent,"  CES  recognizes  revenue on a gross  basis,
except in the case of financial swap transactions, in which case the net gain or
loss from the financial swap is recorded in income when the effects of the risks
being managed are recognized.  Managed risks typically  include  commodity price
risk associated with fuel purchases and power sales. The Company,  through Power
Systems Mfg., LLC ("PSM"),  designs and manufactures certain spare parts for gas
turbines.  The Company also generates  small amounts of revenue by  occasionally
loaning funds to power projects,  by providing operation and maintenance ("O&M")
services  to  unconsolidated  power  projects,  and  by  performing  engineering
services for data centers and other facilities  requiring highly reliable power.
Further  details of the Company's  revenue  recognition  policy for each type of
revenue transaction are provided below:




                                      -6-
<PAGE>
     Electric Generation and Marketing Revenue -- This includes  electricity and
steam sales, mark-to-market gains and losses from electric power derivatives and
sales of purchased  power.  The Company  actively manages the revenue stream for
its portfolio of electric generating facilities. The Company markets on a system
basis both power  generated  by its  plants in excess of  amounts  under  direct
contract  between the plant and a third party,  and power  purchased  from third
parties, through hedging, balancing and optimization transactions.  CES performs
a market-based  allocation of total electric  generation and marketing  revenue,
exclusive of mark-to-market  activity,  to electricity and steam sales (based on
electricity  delivered by the Company's electric generating  facilities to serve
CES contracts) and the balance is allocated to sales of purchased  power.  Sales
of purchased  power also includes  revenue from the settlement of contracts that
have been  previously  recorded  in  results of  operations  as  electric  power
derivative mark-to-market gains or losses

     Oil and Gas  Production  and Marketing  Revenue -- This  includes  sales to
third  parties  of oil,  gas and  related  products  that  are  produced  by the
Company's  Calpine Natural Gas and Calpine Canada Natural Gas  subsidiaries  and
also sales of purchased  gas arising from hedging,  balancing  and  optimization
transactions.  Sales of purchased gas also includes  revenue from the settlement
of contracts  that have been  previously  recorded in results of  operations  as
natural gas  derivative  mark-to-market  gains or losses.  Oil and gas sales for
produced products are recognized pursuant to the sales method.

     Income from  Unconsolidated  Investments  in Power  Projects -- The Company
uses the equity  method to  recognize  as revenue  its pro rata share of the net
income or loss of the unconsolidated  investment until such time, if applicable,
that the Company's investment is reduced to zero, at which time equity income is
generally recognized only upon receipt of cash distributions from the investee.

     Other Revenue -- This  includes O&M contract  revenue,  interest  income on
loans to power  projects,  PSM revenue from sales to third parties,  engineering
revenue and miscellaneous revenue.

     Purchased  Power and Purchased  Gas Expense -- The cost of power  purchased
from third parties for hedging,  balancing, and optimization  activities,  along
with costs from the subsequent settlement of contracts that have been previously
recorded in results of operations as electric  power  derivative  mark-to-market
gains or losses, is recorded as purchased power expense, a component of electric
generation and marketing expense.

     The Company records the cost of gas consumed in its power plants as cost of
oil and  natural  gas burned by power  plants,  while gas  purchased  from third
parties for hedging,  balancing, and optimization  activities,  along with costs
from the subsequent  settlement of contracts that have been previously  recorded
in results of  operations  as natural  gas  derivative  mark-to-market  gains or
losses,  is recorded  as  purchased  gas  expense,  a  component  of oil and gas
production  and  marketing  expense.

     Derivative  Instruments -- Financial  Accounting  Standards  Board ("FASB")
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities"  as amended by SFAS No.  137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective  Date of FASB  Statement No. 133 -- an Amendment of FASB Statement No.
133," SFAS No. 138,  "Accounting for Certain Derivative  Instruments and Certain
Hedging  Activities  -- an  Amendment  of FASB  Statement  No.  133" and related
guidance from the Derivatives  Implementation  Group established  accounting and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance  sheet as either an asset or liability  measured at its fair value.  The
statement  requires  that changes in the  derivative's  fair value be recognized
currently in earnings  unless specific hedge criteria are met, and requires that
a company must formally  document,  designate,  and assess the  effectiveness of
transactions that receive hedge accounting.

     SFAS No. 133 provides that the  effective  portion of the gain or loss on a
derivative   instrument  designated  and  qualifying  as  a  cash  flow  hedging
instrument  be  reported  as a component  of other  comprehensive  income and be
reclassified into earnings in the same period during which the hedged forecasted
transaction  affects  earnings.  The  remaining  gain or loss on the  derivative
instrument,  if any,  must be  recognized  currently in  earnings.  SFAS No. 133
provides that the changes in fair value of derivatives  designated as fair value
hedges  and the  corresponding  changes  in the fair  value of the  hedged  risk
attributable to a recognized asset,  liability,  or unrecognized firm commitment
be  recorded in  earnings.  If the fair value  hedge is  effective,  the amounts
recorded will offset in earnings.

     SFAS  No.  133  requires  that as of the  date  of  initial  adoption,  the
difference  between the fair value of  derivative  instruments  and the previous
carrying  amount  of  these  derivatives  be  recorded  in net  income  or other
comprehensive  income,  as appropriate,  as the cumulative effect of a change in
accounting  principle.  Upon adoption of SFAS No. 133 effective January 1, 2001,
the Company recorded  cumulative effects of a change in accounting  principle of
$1.0  million  (net of a $0.7  million  tax  provision)  to net income and $39.8
million (net of a $25.7 million tax provision) to other comprehensive income.





                                      -7-
<PAGE>
     New Accounting Pronouncements -- In June 2001, the Company adopted SFAS No.
141,  "Business  Combinations,"  which  supersedes  Accounting  Principles Board
("APB") Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for
Preacquisition  Contingencies of Purchased Enterprises." SFAS No. 141 eliminated
the  pooling-of-interests  method of accounting  for business  combinations  and
modified the  recognition  of  intangible  assets and  disclosure  requirements.
Adoption  of SFAS  No.  141 did not  have a  material  effect  on the  Company's
consolidated financial statements.

     On January 1, 2002, the Company  adopted SFAS No. 142,  "Goodwill and Other
Intangible  Assets," which supersedes APB Opinion No. 17,  "Intangible  Assets."
See Note 4 for more information.

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement  Obligations,"  which amends SFAS No. 19,  "Financial  Accounting and
Reporting by Oil and Gas Producing  Companies." SFAS No. 143 addresses financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible  long-lived  assets and the associated asset retirement costs. SFAS No.
143  requires  that  the  fair  value of a  liability  for an  asset  retirement
obligation  be  recognized in the period in which it is incurred if a reasonable
estimate  of fair value can be made.  SFAS No. 143 is  effective  for  financial
statements  issued for fiscal years  beginning  after June 15, 2002. The Company
has not  completed its analysis of the impact that SFAS No. 143 will have on its
consolidated financial statements.

     On January 1, 2002, the Company  adopted SFAS No. 144,  "Accounting for the
Impairment or Disposal of Long-Lived  Assets,"  which  supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business,  and Extraordinary,  Unusual and Infrequently Occurring
Events and  Transactions,"  for the  disposal  of a segment  of a business  (as
previously  defined  in that APB  Opinion).  SFAS No. 144  establishes  a single
accounting  model,  based on the  framework  established  in SFAS No.  121,  for
long-lived  assets to be disposed of by sale. SFAS No. 144 also resolves several
significant  implementation  issues related to SFAS No. 121, such as eliminating
the  requirement  to  allocate  goodwill to  long-lived  assets to be tested for
impairment and  establishing  criteria to define  whether a long-lived  asset is
held for sale.  Adoption  of SFAS No. 144 did not have a material  effect on the
Company's consolidated financial statements.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections."  SFAS No. 145 rescinds  SFAS No. 4,  "Reporting  Gains and Losses
from  Extinguishment  of Debt" and an amendment of that statement,  SFAS No. 64,
"Extinguishments  of Debt Made to Satisfy  Sinking-Fund  Requirements." SFAS No.
145 also  rescinds  SFAS No.  44,  "Accounting  for  Intangible  Assets of Motor
Carriers."  SFAS No. 145 also amends SFAS No. 13,  "Accounting  for  Leases," to
eliminate an inconsistency  between the required  accounting for  sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have economic effects that are similar to sale-leaseback transactions.  SFAS No.
145 also amends  other  existing  authoritative  pronouncements  to make various
technical  corrections,  clarify meanings, or describe their applicability under
changed conditions. The provisions related to the rescission of SFAS No. 4 shall
be applied in fiscal years beginning after May 15, 2002. The provisions  related
to SFAS No. 13 shall be effective for transactions occurring after May 15, 2002.
All other  provisions shall be effective for financial  statements  issued on or
after May 15,  2002,  with early  application  encouraged.  The Company does not
believe  that  SFAS No.  145 will  have a  material  effect  on its  results  of
operations.

     Reclassifications  -- Prior period  amounts in the  consolidated  condensed
financial  statements have been  reclassified  where necessary to conform to the
2002 presentation.


























                                      -8-
<PAGE>
3. Property, Plant and Equipment, Net, and Capitalized Interest

     Property,  plant  and  equipment,  net,  consisted  of  the  following  (in
thousands):
<TABLE>
<CAPTION>
                                                     MARCH 31,      DECEMBER 31,
                                                       2002            2001
                                                   ------------    ------------
<S>                                                <C>             <C>
Buildings, machinery and equipment .............   $  4,966,818    $  4,585,139
Oil and gas properties, including pipelines ....      2,327,040       2,283,344
Geothermal properties ..........................        382,134         375,156
Other ..........................................        240,997         223,675
                                                   ------------    ------------
                                                      7,916,989       7,467,314
Less: accumulated depreciation, depletion and
amortization....................................       (935,600)       (843,778)
                                                   ------------    ------------
                                                      6,981,389       6,623,536
Land ...........................................         80,680          80,506
Construction in progress .......................      9,149,420       8,496,456
                                                   ------------    ------------
Property, plant and equipment, net .............   $ 16,211,489    $ 15,200,498
                                                   ============    ============
</TABLE>

     Construction  in progress is  primarily  attributable  to  gas-fired  power
projects under  construction  including  prepayments on gas turbine  generators.
Upon  commencement  of plant  operation,  these  costs  are  transferred  to the
applicable property category,  generally buildings,  machinery and equipment. In
March 2002, the Company  announced a new turbine and  construction  program that
will slow the growth in the Company's  construction in progress. See Note 11 for
a discussion of the turbine order cancellations during the quarter.

     Capitalized  Interest  --  The  Company  capitalizes  interest  on  capital
invested  in  projects  during  the  advanced  stages  of  development  and  the
construction period in accordance with SFAS No. 34,  "Capitalization of Interest
Cost," as amended by SFAS No. 58,  "Capitalization of Interest Cost in Financial
Statements  That  Include  Investments  Accounted  for by the Equity  Method (an
Amendment of FASB  Statement No. 34)." The Company's  qualifying  assets include
construction  in progress,  certain oil and gas  properties  under  development,
construction costs related to unconsolidated investments in power projects under
construction,  and advanced stage development  costs. For the three months ended
March 31, 2002 and 2001,  the total  amount of interest  capitalized  was $163.1
million  and  $104.0  million,   including  $35.1  million  and  $34.7  million,
respectively,  of interest incurred on funds borrowed for specific  construction
projects and $128.0 million and $69.3 million, respectively of interest incurred
on general  corporate funds used for  construction.  Upon  commencement of plant
operation,  capitalized interest, as a component of the total cost of the plant,
is amortized  over the estimated  useful life of the plant.  The increase in the
amount of  interest  capitalized  during the three  months  ended March 31, 2002
reflects the  significant  increase in the  Company's  power plant  construction
program.

     In  accordance  with  SFAS  No.  34,  the  Company  determines  which  debt
instruments  best  represent  a  reasonable  measure  of the  cost of  financing
construction assets in terms of interest cost incurred that otherwise could have
been avoided.  These debt instruments and associated  interest cost are included
in the calculation of the weighted  average  interest rate used for capitalizing
interest on general  funds.  The primary debt  instruments  included in the rate
calculation are the Company's senior notes and the corporate revolvers.

4. Goodwill and Other Intangible Assets

     On January 1, 2002, the Company  adopted SFAS No. 142,  "Goodwill and Other
Intangible Assets," which requires that all intangible assets with finite useful
lives be amortized and that goodwill and intangible assets with indefinite lives
not be  amortized,  but rather  tested upon  adoption and at least  annually for
impairment.  The  Company  is  required  to  complete  the  initial  step  of  a
transitional  impairment  test within six months of adoption of SFAS No. 142 and
to complete the final step of the transitional impairment test by the end of the
fiscal year. Any impairment loss resulting from the transitional impairment test
would be recorded as a cumulative effect of a change in accounting principle for
the quarter ended March 31, 2002. Subsequent impairment losses will be reflected
in operating  income or loss in the  consolidated  statements of operations.  We
will complete a transitional  goodwill impairment test as required prior to June
30,  2002.  In  accordance  with the  standard,  the  Company  discontinued  the
amortization  of its  recorded  goodwill  as of January  1, 2002 and  identified
reporting units based on its current segment  reporting  structure and allocated
all recorded goodwill, as well as other assets and liabilities, to the reporting
units. A reconciliation of previously reported net income and earnings per share
to the amounts  adjusted for the exclusion of goodwill  amortization is provided
below (in thousands except per share amounts):






                                      -9-
<PAGE>
<TABLE>
<CAPTION>
                                                                          Three Months Ended March 31,
                                                     ----------------------------------------------------------------------
                                                                  2002                                     2001
                                                     ------------------------------          ------------------------------
                                                                      Per Share                               Per Share
                                                                  ------------------                       -----------------
                                                       Amount     Diluted     Basic            Amount      Diluted    Basic
                                                     ---------    -------    -------         ---------     -------   -------
<S>                                                  <C>          <C>        <C>             <C>           <C>       <C>
Reported income (loss) before extraordinary
gain and cumulative effect of a change
in accounting principle...........................   $(76,397)    $(0.25)    $(0.25)         $ 118,627     $  0.35   $  0.39

Add: Goodwill amortization, net of tax............         --         --         --                136          --        --

Income (loss) before extraordinary gain and
cumulative effect of a change in accounting
principle, as adjusted............................    (76,397)     (0.25)     (0.25)           118,763        0.35      0.39

Extraordinary gain and cumulative effect of a
change in accounting principle, net of tax........      2,130       0.01       0.01              1,036        0.01      0.01
                                                     --------     ------     ------          ---------     -------   -------
Net income (loss), as adjusted....................   $(74,267)    $(0.24)    $(0.24)         $ 119,799     $  0.36   $  0.40
                                                     ========     ======     ======          =========     =======   =======
</TABLE>
<TABLE>
<CAPTION>


Recorded goodwill, by segment, as of March 31, 2002 was (in thousands):

<S>                                                                      <C>
Electric Generation and Marketing ............................           $29,348
Oil and Gas Production and Marketing..........................                --
Corporate, Other and Eliminations ............................                --
                                                                         -------
   Total .....................................................           $29,348
                                                                         =======
</TABLE>


     The Company also reassessed the useful lives and the  classification of its
identifiable   intangible  assets  and  determined  that  they  continue  to  be
appropriate.  The components of the amortizable intangible assets consist of the
following (in thousands):
<TABLE>
<CAPTION>
                                           As of March 31, 2002        As of December 31, 2001
                                         ------------------------     ------------------------
                            Weighted
                             Average
                             Useful
                          Life/Contract   Carrying   Accumulated       Carrying   Accumulated
                              Life         Amount    Amortization       Amount    Amortization
                          -------------  ----------  ------------     ----------  ------------
<S>                              <C>     <C>          <C>             <C>          <C>
Patents ..................       5       $     485    $     (158)     $     485    $    (134)
Power sales agreements....      14         173,479       (93,779)       173,479      (87,823)
Fuel supply and fuel
 management contracts.....      33         127,543       (15,477)       127,543      (14,503)
Other.....................       5             381           (36)           277          (25)
                                         ---------    ----------      ---------    ---------
Total.....................               $ 301,888    $ (109,450)     $ 301,784    $(102,485)
                                         =========    ==========      =========    =========
</TABLE>

     Amortization  expense of other intangible  assets was $7.0 million and $6.9
million  in the  three  months  ended  March 31,  2002 and  2001,  respectively.
Assuming no future  impairments  of these  assets or  additions as the result of
acquisitions,  annual amortization  expense will be $25.0 million for the twelve
months ended December 31, 2002, $8.9 million in 2003, $8.4 million in 2004, $8.3
million in 2005 and $8.2 million in 2006.

5.  Investments in Power Projects

     On March 29,  2002,  the Company  sold its 11.4%  interest in the  Lockport
Power Plant in exchange  for a $27.3  million  note  receivable  from  Fortistar
Tuscarora  LLC, a wholly  owned  subsidiary  of  Fortistar  LLC,  the  project's
managing  general  partner.  The note is  scheduled  to be repaid in the  second
quarter of 2002.  This  transaction  resulted in a pre-tax  other income gain of
$9.7 million.







                                      -10-
<PAGE>
6.  Financing

     In January 2002, the Company  entered into a letter of intent with ING Bank
on the debt portion of a proposed California peaker sale/leaseback, including 11
California  peaker  facilities.  This  transaction  is expected to generate $500
million of cash that will be received  throughout  2002 as the power  facilities
enter commercial operation.

     Between January 2, 2002, and February 11, 2002, the Company  repurchased an
additional  $192.5 million of its  Zero-Coupon  Convertible  Debentures Due 2021
("Zero Coupons"), bringing total repurchases to $314.5 million, and bringing the
amount of Zero Coupons  outstanding as of March 31, 2002 to $685.5 million.  The
Zero Coupons were repurchased at a discount,  resulting in an extraordinary gain
of $2.1 million,  after the write-off of related  financing  costs and provision
for tax. See Note 14 for additional repurchases subsequent to March 31, 2002.

     On January 3, 2002,  the Company sold $100  million in aggregate  principal
amount of 4% Convertible Senior Notes Due 2006 ("Convertible  Notes"),  pursuant
to the exercise of the initial  purchaser's  remaining  $100  million  option to
purchase additional Convertible Notes. These securities will be convertible into
shares of Calpine common stock at a price of $18.07.

     In March 2002, the Company closed a new secured credit agreement  comprised
of (a) a $1.0 billion revolving credit facility expiring on May 24, 2003 and (b)
a  two-year  term loan  facility  for up to $600  million,  which as  previously
reported,  was only to be made  available  to the Company upon  satisfaction  of
certain  conditions to borrowing on or before June 8, 2002. On May 10, 2002, the
Company  borrowed $500 million of the term loan facility and, subject to certain
conditions,  may  borrow the  remaining  $100  million  in one or two  remaining
tranches on or before June 8, 2002. At the March 2002 closing,  the Company also
amended its existing $400 million  revolving credit agreement to provide,  among
other things, security for borrowings under that agreement. The security for the
revolving and term loan facilities as originally  provided included (a) a pledge
of  the  capital  stock  of  the  Company's  subsidiary  holding,   directly  or
indirectly,  (i) the interests in its natural gas  properties,  (ii) the Saltend
power  plant  located  in the  United  Kingdom  and (iii) the  Company's  equity
investment  in nine  U.S.  power  plants,  and (b) a pledge  by  certain  of the
Company's  subsidiaries of a total of 65% of the capital stock of Calpine Canada
Energy Ltd. As part of the recent  funding of the $500  million  term loan,  the
Company  expanded the security for the revolving credit and term loan facilities
under both the $1.6 billion and the $400 million  credit  agreements by pledging
to the lenders  substantially all of the Company's remaining first tier domestic
subsidiaries (excluding CES).

     On March 13, 2002, the Company  repaid the Michael  Petroleum note payable,
which had a balance of $64.8 million at repayment.

7. Derivative Instruments

     As an  independent  power  producer  primarily  focused  on  generation  of
electricity using gas-fired  turbines,  the Company's natural physical commodity
position is "short" fuel (i.e.,  natural gas  consumer)  and "long" power (i.e.,
electricity  seller).  To manage forward exposure to price  fluctuation in these
and (to a lesser extent) other  commodities,  the Company enters into derivative
commodity  instruments.  All  transactions  are  subject to the  Company's  risk
management  policy  which  prohibits   positions  that  exceed  total  portfolio
generation  and fuel  requirements.  Any  hedging,  balancing,  or  optimization
activities  that the Company  engages in are directly  related to the  Company's
asset-based  business  model of owning and operating  gas-fired  electric  power
plants and are designed to protect the Company's  "spark spread" (the difference
between the  Company's  fuel cost and the revenue it receives  for its  electric
generation).  The Company  hedges  exposures  that arise from the  ownership and
operation  of power plants and related  sales of  electricity  and  purchases of
natural gas, and the Company  utilizes  derivatives  to optimize the returns the
Company is able to achieve  from these  assets for the  Company's  shareholders.
While certain of the Company's contracts are considered energy trading contracts
as defined in EITF Issue No. 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk Management  Activities," the Company's traders have low capital
at risk and value at risk  limits for energy  trading,  and its risk  management
policy  limits,  at any given  time,  its net  sales of power to its  generation
capacity  and  limits  its  net  purchases  of  gas  to  its  fuel   consumption
requirements on a total portfolio basis.  This model is markedly  different from
that of companies that engage in significant  commodity trading  operations that
are unrelated to underlying physical assets.  Derivative  commodity  instruments
are accounted for under the requirements of SFAS No. 133.

     The Company enters into various  foreign  currency swap agreements to hedge
against changes in exchange rates on certain of its senior notes  denominated in
currencies  other than the U.S. dollar.  The foreign currency swaps  effectively
convert  floating  exchange  rates into fixed exchange rates so that the Company
can  predict  with  greater  assurance  what its U.S.  dollar  cost  will be for
purchasing  foreign currencies to satisfy the interest and principal payments on
these senior notes.







                                      -11-
<PAGE>
     The Company also enters into various interest rate swap agreements to hedge
against changes in floating  interest rates on certain of its project  financing
facilities. The interest rate swap agreements effectively convert floating rates
into fixed rates so that the Company can predict with greater assurance what its
future  interest costs will be and protect itself against  increases in floating
rates.

     In conjunction with its capital markets activities, the Company enters into
various  forward  interest  rate  agreements  to  hedge  against  interest  rate
fluctuations  that may occur after the  Company  has decided to issue  long-term
fixed rate debt but before the debt is actually  issued.  The  forward  interest
rate  agreements  effectively  prevent the interest rates on anticipated  future
long-term debt from increasing  beyond a certain level,  allowing the Company to
predict  with greater  assurance  what its future  interest  costs on fixed rate
long-term debt will be.

     The Company enters into commodity financial instruments to convert floating
or indexed  electricity and gas (and to a lesser extent oil and refined product)
prices to fixed prices in order to lessen its  vulnerability  to  reductions  in
electric  prices for the  electricity it generates,  to reductions in gas prices
for the gas it produces, and to increases in gas prices for the fuel it consumes
in its power  plants.  The Company  seeks to  "self-hedge"  its gas  consumption
exposure to an extent with its own gas production position.

     The Company also  routinely  enters into physical  commodity  contracts for
sales of its generated  electricity  and sales of its natural gas  production to
ensure favorable utilization of generation and production assets. Such contracts
often  meet  the  criteria  of SFAS No.  133 as  derivatives  but are  generally
eligible for the normal purchase and sales exception under SFAS No. 138. Some of
those that are not deemed  normal  purchases  and sales,  can be  designated  as
hedges of the underlying consumption of gas or production of electricity.

     During  2001,  the FASB issued SFAS No. 133  Implementation  Issue No. C15,
dealing with a proposed  electric  industry normal purchases and sales exception
for  capacity  sales  transactions  ("The  Eligibility  of Option  Contracts  in
Electricity for the Normal Purchases and Normal Sales  Exception").  As a result
of Issue No. C15, as revised,  most of the Company's  capacity  sales  contracts
qualify for the normal purchases and sales exception.

     The Company  also  enters into  physical  options  for  short-term  periods
(typically  one  month) to  balance  its  short-term  generating  position.  The
options,  which the  Company  may write or  purchase,  typically  provide  for a
premium component and firm price for energy when exercised.

     In 2001  the FASB  cleared  SFAS  No.  133  Implementation  Issue  No.  C16
"Applying  the Normal  Purchases  and Normal Sales  Exception to Contracts  That
Combine a  Forward  Contract  and a  Purchased  Option  Contract"  ("C16").  The
guidance in C16  applies to fuel supply  contracts  that  require  delivery of a
contractual  minimum  quantity  of fuel at a fixed price and have an option that
permits  the  holder to take  specified  additional  amounts of fuel at the same
fixed price at various times. Under C16, the volumetric  optionality provided by
such  contracts is considered a purchased  option that  disqualifies  the entire
derivative  fuel supply  contract from being  eligible to qualify for the normal
purchases  and normal  sales  exception in SFAS No. 133. The Company has adopted
the guidance  provided by C16 effective April 1, 2002, and Issue C16 is expected
to increase the volatility of the Company's reported earnings in the future.

     The changes in fair values of  derivative  instruments  designated  as cash
flow hedges are recorded in other comprehensive income ("OCI") for the effective
portion  and in  current  earnings,  using the  dollar  offset  method,  for the
ineffective  portion.  The  changes  in fair  values of  derivative  instruments
designated  as fair value  hedges are recorded in current  earnings,  as are the
changes in fair values of the hedged risk  attributable to the recognized asset,
liability or  unrecognized  firm  commitment  being hedged.  The changes in fair
values of derivative  instruments that are not designated as hedges are recorded
in current earnings.
























                                      -12-
<PAGE>
     The table below  reflects the amounts (in  thousands)  that are recorded as
assets  and  liabilities  at  March  31,  2002  for  the  Company's   derivative
instruments:

<TABLE>
<CAPTION>
                                                                            Commodity
                                           Interest Rate     Currency      Derivative       Total
                                             Derivative     Derivative     Instruments    Derivative
                                            Instruments     Instruments        Net        Instruments
                                            ------------    -----------    -----------    ------------
<S>                                          <C>            <C>            <C>            <C>
Current derivative assets ..............     $     --       $      --      $  549,155     $  549,155
Long-term derivative assets ............           --              --         554,354        554,354
                                             --------       ---------      ----------     ----------
  Total assets .........................     $     --       $      --      $1,103,509     $1,103,509
                                             ========       =========      ==========     ==========
Current derivative liabilities .........     $(10,927)      $  (1,971)     $ (437,967)    $ (450,865)
Long-term derivative liabilities .......       (6,136)        (12,690)       (479,090)      (497,916)
                                             --------       ---------      ----------     ----------
       Total liabilities ...............     $(17,063)      $ (14,661)     $ (917,057)    $ (948,781)
                                             ========       =========      ==========     ==========
Net derivative assets (liabilities).....     $(17,063)      $ (14,661)     $  186,452     $  154,728
                                             ========       =========      ==========     ==========
</TABLE>

     At any  point in time,  it is highly  unlikely  that  total net  derivative
assets and liabilities will equal  accumulated OCI, net of tax from derivatives,
for three primary reasons:

o    Tax effect of OCI -- When the values  and  subsequent  changes in values of
     derivatives  that qualify as effective  hedges are recorded  into OCI, they
     are  initially  offset by a  derivative  asset or  liability.  Once in OCI,
     however,  these values are tax effected  against a deferred tax liabiality,
     thereby creating an imbalance between net OCI and net derivative assets and
     liabilities.

o    Derivatives not designated as cash flow hedges and hedge ineffectiveness --
     Only  derivatives  that qualify as effective  cash flow hedges will have an
     offsetting amount recorded in OCI.  Derivatives not designated as cash flow
     hedges and the ineffective  portion of derivatives  designated as cash flow
     hedges will be recorded into earnings instead of OCI, creating a difference
     between  net  derivative  assets  and  liabilities  and  pre-tax  OCI  from
     derivatives.

o    Termination  of  effective  cash flow hedges prior to maturity -- Following
     the  termination  of a cash flow  hedge and  subsequent  settlement  with a
     counterparty,  the derivative  asset or liability is liquidated and removed
     from the books.  At this point,  no asset or liability  exists on the books
     for the hedge but a balance  remains  in OCI,  which is not  recognized  in
     earnings until the forecasted  transactions occur. As a result,  there will
     be a temporary difference between OCI and derivative assets and liabilities
     on the books until the remaining OCI balance is recognized in earnings.

     Below is a reconciliation  from the Company's net derivative  assets to its
accumulated other comprehensive loss, net of tax from derivative  instruments at
March 31, 2002 (in thousands):

<TABLE>
<S>                                                                   <C>
Net derivative assets .............................................   $ 154,728
Derivatives not designated as cash flow hedges and
  recognized hedge ineffectiveness ................................    (126,740)
Terminated cash flow hedges, prior to maturity ....................    (255,817)
Deferred tax asset attributable to accumulated other
  comprehensive loss on cash flow hedges ..........................      88,210
                                                                      ---------
Accumulated other comprehensive loss from
 derivative instruments, net of tax ...............................   $(139,619)
                                                                      =========
</TABLE>

     The asset and  liability  balances for the Company's  commodity  derivative
instruments  represent the net totals after  offsetting  certain  assets against
certain   liabilities  under  the  criteria  of  FASB   Interpretation  No.  39,
"Offsetting of Amounts Related to Certain  Contracts (an  Interpretation  of APB
Opinion No. 10 and FASB  Statement No. 105)" ("FIN 39").  For a given  contract,
FIN 39 will allow the offsetting of assets  against  liabilities so long as four
criteria  are met:  (1) each of the two parties  under  contract  owes the other
determinable  amounts;  (2) the party  reporting under the offset method has the
right to set off the amount it owes  against  the amount owed to it by the other
party;  (3) the party  reporting under the offset method intends to exercise its
right to set off; and; (4) the right of set-off is enforceable by law. The table
below  reflects  both  the  amounts  (in  thousands)   recorded  as  assets  and
liabilities by the Company and the amounts that would have been recorded had the
Company's commodity derivative instrument contracts not qualified for offsetting
as of March 31, 2002.



                                      -13-
<PAGE>
<TABLE>
<CAPTION>
                                                         MARCH 31, 2002
                                                  ------------------------------
                                                     GROSS              NET
                                                  -----------       ------------
<S>                                               <C>               <C>
Current derivative assets ..................      $ 1,182,400       $   549,155
Long-term derivative assets ................          957,666           554,354
                                                  -----------       -----------
  Total derivative assets ..................      $ 2,140,066       $ 1,103,509
                                                  ===========       ===========
Current derivative liabilities .............      $(1,071,212)      $  (437,967)
Long-term derivative liabilities ...........         (882,402)         (479,090)
                                                  -----------       -----------
  Total derivative liabilities .............      $(1,953,614)      $  (917,057)
                                                  ===========       ===========
  Net commodity derivative assets ..........      $   186,452       $   186,452
                                                  ===========       ===========
</TABLE>

     The table above excludes the value of interest rate and currency derivative
instruments.

     The table below reflects the impact of the Company's derivative instruments
on its pre-tax earnings,  both from cash flow hedge ineffectiveness and from the
changes in market value of  derivatives  not designated as hedges of cash flows,
for the three months ended March 31, 2002 and 2001, respectively (in thousands):

<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                       March 31,
                                               -------------------------------------------------------------------------------------
                                                                  2002                                          2001
                                               ------------------------------------------    ---------------------------------------
                                                    Hedge       Undesignated                      Hedge       Undesignated
                                               Ineffectiveness  Derivatives       Total      Ineffectiveness  Derivatives     Total
                                               ---------------  ------------     --------    ---------------  ------------   -------
<S>                     <C>                       <C>             <C>            <C>            <C>            <C>           <C>
Natural gas derivatives (1).................      $ (2,596)       $(3,796)       $(6,392)       $   526        $ 7,023       $ 7,549
Power derivatives ..........................          (222)         4,388          4,166         (1,217)         2,523         1,306
Interest rate derivatives (2) ..............          (152)            --           (152)            --             --            --
Foreign currency derivatives ...............            --             --             --             --             --            --
                                                  ---------       ---------     ---------       ---------      ---------    --------
  Total.....................................      $ (2,970)       $   592        $(2,378)       $  (691)       $ 9,546       $ 8,855
                                                  =========       =========     =========       =========      =========    ========
</TABLE>

(1)  Composed of gas contracts and crude oil costless collar arrangements

(2)  Recorded within Other Income

     For the three months ended March 31, 2002 and 2001, the Company's  realized
commodity cash flow hedge activity  contributed $50.7 million and $17.0 million,
respectively,  to pre-tax earnings based on the reclassification adjustment from
OCI to  earnings.  For the three  months  ended March 31,  2002 and 2001,  power
hedges  contributed $86.5 million and $(9.3) million,  respectively,  to pre-tax
earnings.  For the three months ended March 31, 2002 and 2001, gas and crude oil
hedges contributed $(35.8) million and $26.3 million,  respectively,  to pre-tax
earnings.

     As of March 31, 2002, the maximum length of time over which the Company was
hedging its  exposure  to the  variability  in future cash flows for  forecasted
transactions  was 6, 7, and 16 1/2 years,  for commodity,  foreign  currency and
interest rate derivative instruments,  respectively.  The company estimates that
pre-tax gains of $80.1 million would be reclassified  from  accumulated OCI into
earnings   during  the  twelve  months  ended  March  31,  2003  as  the  hedged
transactions  affect earnings assuming  constant gas and power prices,  interest
rates,  and exchange rates over time;  however,  the actual amounts that will be
reclassified will likely vary based on the probability that gas and power prices
as well as interest rates and exchange rates will, in fact,  change.  Therefore,
management  is unable to predict  what the actual  reclassification  from OCI to
earnings (positive or negative) will be for the next twelve months.
















                                      -14-
<PAGE>
     The  table  below  presents  (in  thousands)  the  pre-tax  gains  (losses)
currently held in OCI that will be recognized  annually into earnings,  assuming
constant gas and power prices, interest rates, and exchange rates over time.

<TABLE>
<CAPTION>
                                                                                                    2007
                                       2002        2003         2004        2005         2006      & After       Total
                                    ---------   ----------   ---------   ----------   ---------   ---------   ----------
<S>                                 <C>         <C>          <C>         <C>          <C>         <C>         <C>
Crude oil OCI.....................  $    (129)  $       --   $      --   $       --   $      --   $      --   $     (129)
Gas OCI...........................    (88,344)    (183,131)    (69,772)     (63,121)    (22,540)         --     (426,908)
Power OCI.........................    206,945       66,583         353        1,320       1,898        (652)     276,447
Interest rates OCI................    (14,119)     (12,118)     (8,779)      (7,612)     (6,951)    (18,937)     (68,516)
Foreign currency OCI..............     (1,971)      (1,831)     (1,700)      (1,588)     (1,500)       (133)      (8,723)
                                    ---------   ----------   ---------    ---------   ---------   ---------   ----------
  Total OCI.......................  $ 102,382   $ (130,497)  $ (79,898)   $ (71,001)  $ (29,093)  $ (19,722)  $ (227,829)
                                    =========   ==========   =========    =========   =========   =========   ==========
</TABLE>

8. Comprehensive Income (Loss)

     Comprehensive income (loss) is the total of net income (loss) and all other
non-owner  changes in equity.  Comprehensive  income (loss)  includes net income
(loss) and unrealized gains and losses from derivative  instruments that qualify
as hedges.  The Company  reports  accumulated  other  comprehensive  loss in its
consolidated balance sheet. The tables below detail the changes in the Company's
accumulated OCI balance and the components of the Company's comprehensive income
(loss) (in thousands):

<TABLE>
<CAPTION>
                                                                      Accumulated Other Comprehensive Loss
                                                                                at March 31, 2002
                                                                      -------------------------------------     Comprehensive
                                                                                     Foreign                  Loss for the Three
                                                                      Cash Flow      Currency                    Months Ended
                                                                        Hedges     Translation      Total       March 31, 2002
                                                                      ---------    -----------    ---------   ------------------
<S>                                                                   <C>            <C>          <C>             <C>
Net loss ..........................................................                                               $ (74,267)
Accumulated other comprehensive loss at beginning of period .......   $(183,377)     $ (43,197)   $(226,574)             --
   Cash flow hedges:
     Comprehensive pre-tax gain on cash flow hedges before
      reclassification adjustment during the three months
      ended March 31, 2002 ........................................     120,610           --        120,610         120,610
     Reclassification adjustment for gain included in net
      loss for the three months ended March 31, 2002 ..............     (48,699)          --        (48,699)        (48,699)
     Income tax provision for the three months ended
      March 31, 2002 ..............................................     (28,153)          --        (28,153)        (28,153)
                                                                      ---------                   ---------       ---------
                                                                         43,758           --         43,758          43,758
     Foreign currency translation loss for the three months
      ended March 31, 2002 ........................................          --        (25,170)     (25,170)        (25,170)
                                                                      ---------      ---------    ---------       ---------
Accumulated other comprehensive loss at end of period .............   $(139,619)     $ (68,367)   $(207,986)             --
                                                                      =========      =========    =========
Comprehensive loss ................................................                                               $ (55,679)
                                                                                                                  =========
</TABLE>






























                                      -15-
<PAGE>
<TABLE>
<CAPTION>
                                                                      Accumulated Other Comprehensive Loss
                                                                                at March 31, 2001
                                                                      -------------------------------------     Comprehensive
                                                                                     Foreign                 Income for the Three
                                                                      Cash Flow      Currency                    Months Ended
                                                                        Hedges     Translation      Total       March 31, 2001
                                                                      ---------    -----------    ---------   ------------------
<S>                                                                   <C>            <C>          <C>             <C>
Net income.........................................................                                               $ 119,663
Accumulated other comprehensive loss at beginning of period........   $      --      $ (23,085)   $ (23,085)             --
   Cash flow hedges:
     Comprehensive pre-tax loss on cash flow hedges before
      reclassification adjustment during the three months
      ended March 31, 2001.........................................     (69,134)            --      (69,134)        (69,134)
     Reclassification adjustment for gain included in net
      income for the three months ended March 31, 2001.............     (17,047)            --      (17,047)        (17,047)
     Income tax benefit for the three months ended
      March 31, 2001...............................................      32,611             --       32,611          32,611
                                                                      ---------                   ---------       ---------
                                                                        (53,570)            --      (53,570)        (53,570)
     Foreign currency translation gain for the three months
      ended March 31, 2001.........................................          --         14,694       14,694          14,694
                                                                      ---------      ---------    ---------       ---------
Accumulated other comprehensive loss at end of period..............   $ (53,570)     $  (8,391)   $ (61,961)             --
                                                                      =========      =========    =========
Comprehensive income ..............................................                                               $  80,787
                                                                                                                  =========
</TABLE>

9.   Customers

Enron

     During 2001, the Company, primarily through its CES subsidiary,  transacted
a  significant  volume of business with units of Enron Corp.  ("Enron"),  mainly
Enron Power Marketing,  Inc. ("EPMI") and Enron North America Corp. ("ENA"). ENA
is the parent  corporation  of EPMI.  Enron is the direct parent  corporation of
ENA. Most of these  transactions were contracts for sales and purchases of power
and gas for hedging  purposes,  some of which  extended  out as far as 2009.  On
December 2, 2001,  Enron Corp. and certain of its  subsidiaries  filed voluntary
petitions for Chapter 11 reorganization  with the U.S.  Bankruptcy Court for the
Southern  District of New York. EPMI and ENA are among the subsidiaries of Enron
that filed for reorganization on December 2, 2001.

     The Company conducted a limited amount of business with EPMI and ENA during
December  of 2001 on a  collateralized  or prepaid  basis and has  conducted  no
business  with EPMI or ENA since  December 31, 2001.  The  following  table sets
forth  information  regarding the Company's  settled  physical  transactions and
non-hedging mark-to-market gains with Enron for the three months ended March 31,
2002 and 2001,  (in thousands of dollars and thousands of MWh's,  in the case of
electricity  transactions,  and thousands of MMBtu's, in the case of oil and gas
transactions):

<TABLE>
<CAPTION>
                                                                     For the Three Months Ended   For the Three Months Ended
                                                                           March 31, 2002              March 31, 2001
                                                                     --------------------------   --------------------------
                                                                        Dollar         Volume       Dollar          Volume
                                                                      ---------        ------     ---------         ------
<S>                                                                    <C>                 <C>    <C>                <C>
Electric generation and marketing revenue (electricity and
 steam revenue and sales of purchased power) ...................       $    --             --     $  84,175          1,293
Oil and gas production and marketing revenue (sales of
 purchased gas) ................................................            --             --        53,290          4,719
Other revenue ..................................................            --             --         1,348             --
                                                                       -------                    ---------
Total power and fuel and other revenue from Enron ..............       $    --                    $ 138,813
                                                                       -------                    ---------
Electric generation and marketing expense (Purchased power
 expense) ......................................................       $    --             --     $ 110,886          1,283
Fuel expense (cost of oil and natural gas burned by power
 plants and natural gas derivative mark-to-market gain) ........            --             --        16,930          2,417
                                                                       -------                    ---------
Total CES power and fuel expenses related to Enron (1) .........       $    --                    $ 127,816
                                                                       =======                    =========
</TABLE>

__________

(1) Expenses of CES only, as other Enron expenses incurred are not material.







                                      -16-
<PAGE>
     The Company has terminated  all of its open forward  positions with ENA and
EPMI as of March 31, 2002,  and will settle with ENA and EPMI based on the value
of  the  terminated  contracts  at  the  termination  or  replacement  date,  as
applicable.  Accordingly,  all amounts  associated  with terminated ENA and EPMI
forward contracts have been included within the Company's  accounts payable.  As
of March 31,  2002,  unrealized  pre-tax  losses on  derivatives  designated  as
effective cash flow hedges  recorded in OCI associated  with  terminated ENA and
EPMI contracts were $161.6  million.  These amounts will be recognized in future
earnings as the original hedged forecasted transactions occur.

     The sales to and purchases from various Enron  subsidiaries were mostly for
hedging,  balancing  and  optimization  transactions,  and  in  most  cases  the
purchases and sales are not related and should not be netted to try to gauge the
profitability of transactions with Enron subsidiaries.

     On November  14, 2001,  CES,  ENA and EPMI  entered into a Master  Netting,
Setoff and Security Agreement (the "Netting  Agreement").  The Netting Agreement
permits CES, on the one hand,  and ENA and EPMI,  on the other hand,  to set off
amounts owed to each other under an ISDA Master  Agreement  between CES and ENA,
an Enfolio Master Firm Purchase/Sale  Agreement between CES and ENA and a Master
Energy Purchase/Sale  Agreement between CES and EPMI (in each case, after giving
effect to the netting provisions  contained in each of these agreements).  Based
on legal analysis of the Netting  Agreement,  the Company believes it has no net
collection exposure to Enron. Following are the accounts receivable and accounts
payable balances,  presented on both a gross and net basis, with ENA and EPMI at
March 31, 2002 (in millions):

<TABLE>
<CAPTION>
                                           Receivables/Payables
                                           --------------------
                                    Gross          Gross      Net Receivable
                                 Receivable       Payable       (Payable)
                                 ----------     ----------    --------------
<S>                              <C>            <C>              <C>
Enron North America ...........  $  1,125.6     $ (1,404.7)      $ (279.1)
Enron Power Marketing .........       836.7         (701.1)         135.6
                                 ----------     ----------       --------
  Total .......................  $  1,962.3     $ (2,105.8)      $ (143.5)
                                 ==========     ==========       ========
</TABLE>

     After netting the  receivables  and payables from ENA and EPMI, the Company
has an existing or future  obligation  of $143.5  million as of March 31,  2002,
which  obligation  will be offset by CES' losses,  damages,  attorneys' fees and
other expenses arising from the default by Enron.

     Although  the  Company  had no net  collection  exposure to ENA and EPMI at
March 31, 2002, the Company established a $13.1 million reserve in December 2001
related to  unrealized  mark to market gains  generated  by Enron's  insolvency,
which  caused  earnings  recognition  for  contracts  that had  previously  been
exempted from SFAS No. 133 accounting and which caused cash flow hedges to cease
to be effective and marked-to-market in earnings until termination.

     The  Company's  treasury  department  includes  a credit  group  focused on
monitoring  and managing  counterparty  risk.  The credit group monitors the net
exposure with each counterparty on a daily basis. The analysis is performed on a
mark-to-market  basis using the forward  curves  audited by the  Company's  Risk
Controls group. The net exposure is compared against a counterparty  credit risk
threshold  which is  determined  based  on the  counterparty's  credit  ratings,
evaluation of the financial  statements and bond values.  The credit  department
monitors these thresholds to determine the need for additional  collateral or an
adjustment to activity with the counterparty.

Nevada Power and Sierra Pacific Resources

     During  the first  quarter  of 2002,  two  subsidiaries  of Sierra  Pacific
Resources Corporation, Nevada Power Company ("NPC") and Sierra Pacific Resources
("SPR"),  received  credit  downgrades to  sub-investment  grades from the major
credit rating agencies. The credit downgrades resulted from short-term liquidity
problems  created when the Public  Utilities  Commission of Nevada  disallowed a
rate  adjustment  requested by NPC to cover the  increased  cost of buying power
during the 2001  energy  crisis.  NPC and SPR have  requested  that their  power
suppliers extend payment terms to help them overcome their short-term  liquidity
problems.  As of March 31,  2002,  the Company had net  collection  exposures of
approximately  $30.7 million and $21.3  million with NPC and SPR,  respectively.
The Company's  exposures include open forward power position  contracts that are
reported at fair value in the Company's  balance sheet as well as receivable and
payable balances relating to settled power deliveries.  Management is continuing
to monitor the exposure and its effect on the Company's financial condition. The
table below details the components of the Company's  exposure  position at March
31,  2002 (in  millions  of  dollars).  The  positive  net  positions  represent
realization  exposure  while the negative net positions  represent the Company's
existing or potential obligations.






                                      -17-
<PAGE>
<TABLE>
<CAPTION>
                                                   Receivables/Payables                   Fair Values
                                           --------------------------------   --------------------------------
                                                                    Net       Gross       Gross      Net Open
                                             Gross      Gross    Receivable    Fair        Fair      Positions
                                           Receivable  Payable   (Payable)    Value(+)    Value(-)     Value        Total
                                           ----------  -------   ----------   --------    --------   ---------     ------
<S>                                          <C>       <C>        <C>         <C>         <C>          <C>         <C>
Nevada Power Company ...................     $ 3.5     $ (4.6)    $ (1.1)     $  91.0     $ (59.2)     $ 31.8      $ 30.7
Sierra Pacific Resources ...............       1.0         --        1.0         20.3          --        20.3        21.3
                                             -----     ------     ------      -------     -------      ------      ------
  Total ................................     $ 4.5     $ (4.6)    $ (0.1)     $ 111.3     $ (59.2)     $ 52.1      $ 52.0
                                             =====     ======     ======      =======     =======      ======      ======
</TABLE>

     Under the terms of its contracts  with NPC and SPPC,  the Company  believes
that it has the right to offset asset and liability positions.

10.  Earnings (loss) per Share

     Basic earnings (loss) per common share were computed by dividing net income
(loss) by the  weighted  average  number of common  shares  outstanding  for the
period. The dilutive effect of the potential exercise of outstanding  options to
purchase  shares of common stock is calculated  using the treasury stock method.
The dilutive effect of the assumed conversion of certain convertible  securities
into  the  Company's  common  stock  is  based  on  the  dilutive  common  share
equivalents and the after tax distribution expense avoided upon conversion.  The
reconciliation  of basic  earnings  (loss) per common share to diluted  earnings
(loss) per share is shown in the following table (in thousands  except per share
data).

<TABLE>
<CAPTION>
                                                                                       PERIODS ENDED MARCH 31,
                                                                   -----------------------------------------------------------------
                                                                               2002                                2001
                                                                   -------------------------------   ------------------------------
                                                                     NET                               NET
                                                                    INCOME                            INCOME
                                                                    (LOSS)      SHARES       EPS      (LOSS)     SHARES      EPS
                                                                   --------     -------     ------   --------    -------   --------
<S>                                                                <C>          <C>         <C>      <C>         <C>       <C>
THREE MONTHS:
Basic earnings (loss) per common share:
Income (loss) before extraordinary gain and cumulative
  effect of a change in accounting principle ....................  $(76,397)    307,332     $(0.25)  $118,627    300,554   $   0.39
Extraordinary gain, net of tax ..................................     2,130          --       0.01         --         --         --
Cumulative effect of a change in accounting principle,
  net of tax ....................................................        --          --         --      1,036         --       0.01
                                                                   --------     -------     ------   --------    -------   --------
Net income (loss) ...............................................  $(74,267)    307,332     $(0.24)  $119,663    300,554   $   0.40
                                                                   --------     -------     ------   --------    -------   --------
Diluted earnings (loss) per common share:
Common shares issuable upon exercise of stock options
  using treasury stock method ...................................                    --                           16,278
                                                                                -------                          -------
Income (loss) before dilutive effect of certain convertible
  securities, extraordinary gain and cumulative effect
  of a change in accounting principle ...........................  $(76,397)    307,332     $(0.25)  $118,627    316,832   $   0.37
Dilutive effect of certain convertible securities ...............        --          --         --      9,355     44,882      (0.02)
                                                                   --------     -------     ------   --------    -------   --------
Income (loss) before  extraordinary  gain and cumulative
  effect of a change in accounting principle ....................   (76,397)    307,332      (0.25)   127,982    361,714       0.35
Extraordinary gain, net of tax ..................................     2,130          --       0.01         --         --         --
Cumulative effect of a change in accounting principle,
  net of tax ....................................................        --          --         --      1,036         --       0.01
                                                                   --------     -------     ------   --------    -------   --------
Net income (loss) ...............................................  $(74,267)    307,332   $  (0.24)  $129,018    361,714   $   0.36
                                                                   ========     =======   ========   ========    =======   ========
</TABLE>

     The effect of 151,353,196 and 280,849  unexercised  employee stock options,
Company-obligated  mandatorily  redeemable  convertible  preferred securities of
subsidiary  trusts,  Zero Coupons and Convertible Notes were not included in the
computation of diluted shares  outstanding  for the three months ended March 31,
2002 and 2001, because such inclusion would have been  antidilutive.  Because of
the Company's loss for the three months ended March 31, 2002,  basic shares were
used in the calculation of fully diluted loss per share, under the guidelines of
SFAS No. 128,  "Earnings per Share," as using the basic shares produced the more
dilutive effect on the loss per share.









                                      -18-
<PAGE>
11.  Commitments and Contingencies

     Capital  Expenditures  -- On March 12,  2002,  the Company  announced a new
turbine  program  that  reduces   previously   forecasted  capital  spending  by
approximately  $1.2  billion  in 2002 and $1.8  billion  in 2003.  The  revision
includes  adjusted timing of turbine delivery and related payment  schedules and
also turbine cancellation orders. As a result of the turbine order cancellations
and the cancellation of certain other equipment,  the Company recorded a pre-tax
charge of $168.5  million  in the first  quarter  of 2002,  based  primarily  on
forfeited  prepayments  to date  and an  immaterial  cash  payment  pursuant  to
contract terms.

    Litigation --

     Calpine Corporation v. Automated Credit Exchange ("ACE"). On March 5, 2002,
Calpine sued ACE in the Superior Court of the State of California for the County
of Alameda for  negligence  and breach of contract  to recover  reclaim  trading
credits,  a form of  emission  reduction  credits  that should have been held in
Calpine's  account  with  U.S.  Trust  Company  (US  Trust).  ACE is a broker in
emission reduction credits based in Pasadena,  California.  Calpine had paid ACE
for Nitrogen  oxide (NOx)  coastal  credits that were to be purchased by ACE and
held by US Trust.  The credits were to be held by US Trust  pursuant to a Credit
Holding Agreement, which provided, among other things, that US Trust was to hold
the credits until receiving  instructions from ACE to disburse the credits.  ACE
had agreed that (i) upon prior written  instruction from Calpine, to instruct US
Trust to take such actions as may be directed by Calpine to disburse the credits
held in escrow pursuant to the Credit Holding Agreement and (ii) not to take any
action,  or  otherwise  instruct  US Trust to take any  action,  concerning  the
credits held in escrow  pursuant to the Credit Holding  Agreement  without prior
written  instruction  from  Calpine.  Calpine and ACE entered  into a settlement
agreement that resolved all issues on March 29, 2002.  The  settlement  provided
for a  partial  recovery  of $7  million  and for  the  rights  to the  emission
reduction  credits to be held by ACE. The Company  expects to  recognize  the $7
million in the second quarter of 2002, after all realization  uncertainties  are
cleared. In accordance with the settlement agreement,  Calpine has dismissed its
complaint against ACE.

     Ben Johnson v. Peter Cartwright, et al. On December 17, 2001, a shareholder
filed a derivative lawsuit on behalf of Calpine against its directors and one of
its senior officers. This lawsuit is styled Johnson vs. Cartwright,  et al. (No.
CV803872),  and is pending in the California Superior Court, Santa Clara County.
Calpine is a nominal defendant in this lawsuit, which alleges claims relating to
purportedly  misleading  statements  about Calpine and stock sales by certain of
the director defendants and the officer defendant.  Calpine has filed a demurrer
asking the court to dismiss the  complaint  on the ground  that the  shareholder
plaintiff  lacks standing to pursue claims on behalf of Calpine.  The individual
defendants  have filed a demurrer  asking the court to dismiss the  complaint on
the ground that it fails to state any claims against them.

     Securities   Class  Action  Lawsuits.   Since  March  11,  2002,   fourteen
shareholder lawsuits have been filed against Calpine and certain of its officers
in the United  States  District  Court,  Northern  District of  California.  The
actions  captioned  Weisz vs. Calpine  Corp.,  et al., filed March 11, 2002, and
Labyrinth Technologies,  Inc. v. Calpine Corp., et al., filed March 28, 2002 are
purported  class  actions on behalf of purchasers of Calpine stock between March
15, 2001 and December 13, 2001.  Gustaferro  v. Calpine  Corp.,  filed April 18,
2002 is a  purported  class  action on behalf of  purchasers  of  Calpine  stock
between  February 6, 2001 and  December  13,  2001.  The eleven  other  actions,
captioned  Local 144 Nursing Home Pension Fund vs. Calpine  Corp.,  Lukowski vs.
Calpine Corp.,  Hart vs. Calpine Corp.,  Atchison vs. Calpine Corp. and Laborers
Local 1298 v. Calpine  Corp.,  Bell v. Calpine  Corp.,  Nowicki v. Calpine Corp.
Pallotta v. Calpine Corp.,  Knepell v. Calpine Corp., Staub v. Calpine Corp, and
Rose v. Calpine Corp.  were filed between March 18, 2002 and April 23, 2002. The
complaints in these eleven actions are virtually  identical--they  were filed by
three law firms, in conjunction  with other law firms as co-counsel.  All eleven
lawsuits  are  purported  class  actions on behalf of  purchasers  of  Calpine's
securities between January 5, 2001 and December 13, 2001.

     The complaints in these fourteen actions allege that,  during the purported
class periods,  certain senior executives issued false and misleading statements
about Calpine's  financial condition in violation of Sections 10(b) and 20(1) of
the Securities  Exchange Act of 1934, as well as Rule 10b-5.  These actions seek
an  unspecified  amount of damages,  in  addition  to other forms of relief.  We
expect that these actions,  as well as any related  actions that may be filed in
the future,  will be  consolidated by the court into a single  securities  class
action.  We consider the lawsuits to be without  merit,  and we intend to defend
vigorously against these allegations.

     Public  Utilities  Commission of the State of California v. Sellers of Long
Term  Contracts to the  California  Department  of Water  Resources;  California
Electricity  Oversight Board v. Sellers of Long Term Contracts to the California
Department  of Water  Resources.  In February  2002 both the  California  Public
Utilities  Commission  ("CPUC")  and the  California  Electric  Oversight  Board
("EOB")  filed  complaints  under  Section 206 of the Federal Power Act with the
Federal Energy  Regulatory  Commission  ("FERC")  (EL02-60-000  and EL02-62-000,
respectively) alleging that the prices and terms of the long-term contracts with
the California Department of Water Resources ("DWR") are unjust and unreasonable
and counter to the public  interest.  CES is a respondent and the four long-term


                                      -19-
<PAGE>
contracts  entered into between CES and DWR are subject to the  complaint  (see,
Risk Factors - California  Long-Term  Supply  Agreements).  As part of Calpine's
successful  renegotiation of its long-term power contracts with DWR announced on
April 22, 2002, the Office of the Governor, the CPUC, the EOB and the California
Attorney  General ("AG") agreed to settle this action and drop all challenges to
Calpine's  long-term  contracts  with DWR. On May 2, 2002 each of the CPUC,  the
EOB, and the AG filed a Notice of Partial Withdrawal with Prejudice of Complaint
as to Calpine Energy  Services,  L.P. with the FERC.  Pursuant to its respective
notice  each of the CPUC and the EOB  withdrew  all of their  respective  claims
against  CES  which  had  been  alleged  in the  above-for-mentioned  complaints
(EL02-60-000 and ELO2-62-000)  concerning the justness and reasonableness of the
terms  under the  long-term  contracts  with DWR. In  addition,  pursuant to its
notice,  the AG  withdrew  all claims as to CES in its  complaint  (EL02-71-000)
wherein it had  alleged  that  public  utility  sellers of energy and  ancillary
services to DWR and into markets operated by the California  Independent  System
Operator and the  California  Power  Exchange were not in compliance  with their
disclosure obligations under Section 205 of the Federal Power Act.

     The Company is involved in various other claims and legal  actions  arising
out of the normal  course of  business.  The  Company  does not expect  that the
outcome  of  these  proceedings  will  have a  material  adverse  effect  on the
Company's financial position or results of operations.

12.  Operating Segments

     The  Company's  primary  operating  segments  are electric  generation  and
marketing;  oil and gas production and marketing;  and corporate  activities and
other. Electric generation and marketing includes the development,  acquisition,
ownership and operation of power production facilities,  the sale of electricity
and steam and electricity  hedging and related activity.  Oil and gas production
and marketing  includes the  ownership  and  operation of gas fields,  gathering
systems and gas  pipelines for internal gas  consumption,  third party sales and
oil and gas  hedging  and  related  activity.  Corporate  activities  and  other
consists primarily of financing activities, general and administrative costs and
consolidating eliminations.  Certain costs related to company-wide functions are
allocated to each segment.  However, interest on corporate debt is maintained at
corporate and is not allocated to the segments.  Due to the integrated nature of
the business  segments,  estimates  and  judgments  have been made in allocating
certain revenue and expense items.  The Company  evaluates  performance of these
operating segments based upon several criteria including profits before tax.

<TABLE>
<CAPTION>
                                          ELECTRIC               OIL AND GAS
                                         GENERATION              PRODUCTION          CORPORATE, OTHER
                                        AND MARKETING           AND MARKETING        AND ELIMINATIONS               TOTAL
                                   -----------------------   -------------------   --------------------    -----------------------
                                      2002         2001        2002       2001       2002        2001         2002        2001
                                   ----------   ----------   --------   --------   --------    --------    ----------   ----------
                                                                          (in thousands)
<S>                                <C>          <C>          <C>        <C>        <C>         <C>         <C>          <C>
For the three months ended
  March 31, 2002 and 2001:
Revenue.........................   $1,534,143   $1,050,629   $236,348   $331,828   $(32,144)   $(42,706)   $1,738,347   $1,339,751
Income before taxes and
  extraordinary charge..........      (46,186)     127,791     13,064    116,535    (84,412)    (36,718)     (117,534)    207,608
Merger expense..................           --           --         --      6,021         --          --            --       6,021
Equipment cancellation cost.....      168,471           --         --         --         --          --       168,471          --
</TABLE>

<TABLE>
<CAPTION>
                                          ELECTRIC               OIL AND GAS
                                         GENERATION              PRODUCTION          CORPORATE, OTHER
                                        AND MARKETING           AND MARKETING        AND ELIMINATIONS              TOTAL
                                        -------------           -------------        ----------------           -----------
                                                                          (in thousands)
<S>                                      <C>                      <C>                   <C>                     <C>
Total assets:
March 31, 2002..................         $14,010,815              $3,714,004            $2,918,716              $20,643,535
December 31, 2001...............         $12,572,848              $3,503,075            $5,253,629              $21,329,552
</TABLE>

     For the three months ended March 31, 2002 and 2001, there were intersegment
revenues of  approximately  $36.7 million and $46.0 million,  respectively.  The
elimination of these intersegment revenues, which primarily relate to the use of
internally  procured gas for the  Company's  power  plants,  are included in the
Corporate and Other reporting segment.

13. California Power Market

     On February  25,  2002,  both the CPUC and the EOB filed  complaints  under
Section 206 of the Federal  Power Act with FERC  (EL02-60-000  and  EL02-62-000,
respectively) alleging that the prices and terms of the long-term contracts with
DWR are unjust and unreasonable and counter to the public interest.  Calpine was
a  respondent  and the four  long-term  contracts  entered  into by Calpine were
subject to the complaint.



                                      -20-
<PAGE>
     On March 6, 2002, in accordance with the state  legislation that authorized
DWR to  enter  into  the  long-term  power  contracts,  the  CPUC  issued a Rate
Agreement,  which  dedicates  a portion of the retail  rate paid by  electricity
customers  of  the  California   investor-owned  utilities  to  a  fund  to  pay
bondholders  of  bonds  to be  issued  by DWR and to a fund  to pay  electricity
suppliers such as Calpine. The proceeds from those bonds will be used in part to
fund the Electric Power Fund  established by the state  legislation  authorizing
DWR to enter into  long-term  power  contracts  with the power  suppliers  whose
recourse  in the  event  of a  default  by DWR is to the  Electric  Power  Fund.
Proceeds  from the bonds  will  also be used to repay  the  state of  California
General Fund. The bonds have not been issued,  but  representatives of the State
have indicated that the bonds should be issued in the near future.

     FERC  Investigation  into California  Wholesale  Markets -- On February 13,
2002, FERC initiated an investigation of potential  manipulation of electric and
natural  gas  prices  in the  western  United  States.  This  investigation  was
initiated as a result of  allegations  that Enron Corp.  through its  affiliates
used its market  position  to distort  electric  and  natural gas markets in the
West. The scope of the  investigation  is to consider whether as a result of any
manipulation  in the  short-term  markets for electric  energy or natural gas or
other undue  influence on the  wholesale  markets by any party since  January 1,
2000, the rates of the long-term contracts subsequently entered into in the West
are potentially  unjust and unreasonable.  In connection with its investigation,
FERC  has,  and may in the  future,  issue  data  requests  seeking  information
regarding trading practices in California and the western  electricity  markets.
FERC has stated that it may use the information  gathered in connection with the
investigation  to determine  how to proceed on any existing or future  complaint
brought under Section 206 of the Federal  Power Act  involving  long-term  power
contracts  entered  into in the West since  January 1,  2000,  or to  initiate a
Federal Power Act Section 206 or Natural Gas Act Section 5 proceeding on its own
initiative.

14. Subsequent Events

     On April 22, 2002,  the Company  announced  that it had  renegotiated  CES'
long-term  power  contracts with the DWR. The Office of the Governor,  the CPUC,
the EOB and the AG have endorsed the  renegotiated  contracts and have agreed to
drop all  pending  claims  against the  Company  and its  affiliates,  including
withdrawing  the  complaint  under Section 206 of the Federal Power Act recently
filed  by the CPUC and EOB  with  FERC and the CPUC and the EOB have  agreed  to
terminate  their  efforts to seek  refunds  from the Company and its  affiliates
through FERC refund  proceedings.  In  connection  with the  renegotiation,  the
Company  has agreed to pay $6 million  over three years to the AG to resolve any
and all possible  claims against the Company and its  affiliates  brought by the
AG.

     The  renegotiation  includes  the  shortening  of the  duration  of the two
ten-year,  baseload  energy  contracts  by two years and of the  20-year  peaker
contract  by  ten  years.   These  changes  reduce  DWR's   long-term   purchase
obligations.  In addition, CES agreed to reduce the energy price on one baseload
contract  from  $61.00 to $59.60 per  megawatt-hour,  and to convert  the energy
portion of the peaker  contract to gas index pricing from fixed energy  pricing.
CES has also agreed to deliver up to 12.2 million  megawatt-hours  of additional
energy pursuant to the baseload energy contracts in 2002 and 2003. In connection
with the  renegotiation,  CES has also  agreed  with DWR that DWR will  have the
right  to  assume  and  complete  four of our  projects  currently  planned  for
California  and in the advanced  development  stage if the Company does not meet
certain  milestones  with respect to each  project  assumed,  provided  that DWR
reimburses  the  Company  for all  construction  costs and  certain  other costs
incurred by the Company to the date DWR assumes the relevant project.

     The  negotiation  resolved the dispute with DWR  concerning  payment of the
capacity payment on the  495-megawatt  peaking contract dated February 28, 2001.
The contract  provides that through  December 31, 2002,  CES may earn a capacity
payment by committing to supply  electricity to DWR from a source other than the
peaker units designated in the contract. DWR made certain assertions challenging
CES' right to substitute  units or provide  replacement  energy and had withheld
capacity  payments in the amount of  approximately  $15.0 million since December
2001. As part of the renegotiation,  the Company has received payment in full on
these withheld capacity payments and will have the right to provide  replacement
capacity through December 31, 2002, based on the original contract terms. On May
2, 2002, each of the CPUC and the EOB filed a Notice of Partial Withdrawal with
Prejudice of Complaint as to Calpine Energy Services,  L.P. with the FERC in the
EL02-60-000 and EL02-62-000 dockets, respectively.

     In April 2002 the  Company  entered  into  letters of intent for  Wisconsin
Public  Service to  purchase  its  180-megawatt  De Pere  Energy  Center and for
Wisconsin Public Service to enter into a power purchase  agreement for up to 235
megawatts  of  capacity  and energy for 10 years from  Calpine's  Sherry  Energy
Center located near  Marshfield,  Wisconsin.  Wisconsin  Public Service will pay
Calpine $120 million for the De Pere  facility and  termination  of the existing
power  purchase  agreement.  The cost of the capacity  purchases from the Sherry
Energy  Center will be  approximately  $250  million  over the  10-year  period.
Wisconsin  Public Service will be responsible  for supplying the fuel to produce
the energy it receives from the Sherry Energy Center.





                                      -21-
<PAGE>
     On April 30, 2002, the Company  completed a public offering of common stock
of 66 million  shares and priced the offering at $11.50 per share.  The proceeds
from the offering,  after  underwriting  fees, were $734.3 million.  Calpine has
granted the underwriters an over-allotment  option for an additional 9.9 million
shares of its common stock,  which may be exercised for up to 30 days. As of the
date of this  report,  this  option had not been  exercised.  Management  cannot
predict whether the underwriters will exercise this option in whole or in part.

     On April 30, 2002, the Company  repurchased the remaining $685.5 million of
Zero Coupons at par pursuant to a scheduled put provided for by the terms of the
securities.

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

     In addition to historical information, this report contains forward-looking
statements. Such statements include those concerning Calpine Corporation's ("the
Company's")  expected  financial  performance  and its 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 involve a number of
risks and  uncertainties  that could cause actual  results to differ  materially
from  the   forward-looking   statements  such  as,  but  not  limited  to,  (i)
unseasonable weather patterns that reduce demand for power and natural gas, (ii)
systemic economic slowdowns,  which can adversely affect consumption of power by
businesses and consumers,  (iii) the timing and extent of deregulation of energy
markets  and the rules and  regulations  adopted  on a  transitional  basis with
respect  thereto,  (iv) the timing and extent of changes in commodity prices and
derivative  values for energy,  particularly  natural gas and  electricity,  (v)
commercial  operations of new plants that may be delayed or prevented 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,  (vi) cost estimates are
preliminary and actual costs may be higher than estimated,  (vii) a competitor's
development of a lower-cost  gas-fired power plant, (viii) risks associated with
marketing  and selling power from power plants in the  newly-competitive  energy
market,  or (ix) the  successful  exploitation  of an oil or gas  resource  that
ultimately  depends upon the geology of the resource,  the total amount and cost
to  develop  recoverable  reserves,  and  operational  factors  relating  to the
extraction of natural gas. All information set forth in this filing is as of May
15, 2002,  and Calpine  undertakes no duty to update this  information.  Readers
should  carefully  review the "Risk Factors" section in documents filed with the
Securities and Exchange Commission.

Selected Operating Information

     Set forth below is certain  selected  operating  information  for our power
plants and steam fields, for which results are consolidated in our statements of
operations.  Results vary for the three months ended March 31, 2002, as compared
to the same period in 2001,  primarily due to the  consolidation of acquisitions
and increased  production as a result of acquired plants and bringing new plants
under  construction on line.  Electricity  revenue is composed of fixed capacity
payments,  which are not related to production,  and variable  energy  payments,
which are related to production.  Capacity revenue includes, besides traditional
capacity  payments,  other revenues such as  reliability  must run and ancillary
service  revenues.  The  information  set forth under  thermal and other revenue
consists of host thermal sales and other revenue (revenues in thousands).

<TABLE>
<CAPTION>
                                                    Three months ended March 31,
(in thousands, except                               ----------------------------
 production and pricing data)                             2002          2001
                                                       -----------   ----------
<S>                                                    <C>           <C>
Power Plants:
Electricity and steam ("E&S") revenues:
  Energy ............................................. $   513,103   $  435,382
  Capacity ...........................................      75,391      117,727
  Thermal and other ..................................      31,685       42,050
                                                       -----------   ----------
  Subtotal ........................................... $   620,179   $  595,159
Spread on sales of purchased power (1) ...............      93,139       (1,348)
                                                       -----------   ----------
Adjusted E&S revenues ................................ $   713,318   $  593,811
Megawatt hours produced ..............................  14,714,000    7,239,000
All-in electricity price per megawatt hour generated . $     48.48   $    82.03
</TABLE>

_________

(1)  From  hedging,   balancing  and  optimization  activities  related  to  our
     generating assets. The spread on trading activities is excluded.







                                      -22-
<PAGE>
     Megawatt hours produced at the power plants  increased 103.3% for the three
months  ended March 31,  2002 as  compared to the same period in 2001.  This was
primarily  due to the  addition of power  plants  that were  either  acquired or
commenced  commercial  operation  subsequent  to March 31, 2001.  Lower  average
market prices caused the all-in electricity price per megawatt hour generated to
decrease between periods.

Results of Operations

     Set forth below is a table  summarizing  the dollar amounts and percentages
of our total  revenue  for the three  months  ended March 31, 2002 and 2001 that
represent  purchased  power and purchased gas sales and the costs we incurred to
purchase the power and gas that we resold  during these  periods (in  thousands,
except for percentage data):

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                             MARCH 31,
                                                   -----------------------------
                                                      2002              2001
                                                   ----------        -----------
<S>                                                <C>               <C>
Total revenue ..............................       $1,738,347        $1,339,751
Sales of purchased power ...................          908,301           453,602
As a percentage of total revenue ...........             52.3%             33.9%
Sale of purchased gas ......................          132,158           129,172
As a percentage of total revenue ...........              7.6%              9.6%
Total cost of revenue ("COR") ..............        1,560,383         1,064,183
Purchased power expense ....................          815,005           456,266
As a percentage of total COR ...............             52.2%             42.9%
Purchased gas expense ......................          123,694           118,628
As a percentage of total COR ...............              7.9%             11.1%
</TABLE>

     The accounting  requirements  under Staff Accounting  Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements" and EITF 99-19, "Reporting Revenue
Gross as a  Principal  versus  Net as an Agent"  require  us to show most of our
hedging  contracts  on a gross  basis (as  opposed to netting  sales and cost of
revenue).  The primary  reason for the  significant  increase in these sales and
cost of revenue in 2002 as  compared  with 2001 is the growth of our  generation
activity  in 2002 as  compared  with  2001  and the  corresponding  increase  in
hedging, balancing, optimization, and trading activities.

     Rules in effect  throughout 2002 and 2001 associated with the NEPOOL market
in New England  require that all power  generated in NEPOOL be sold  directly to
the Independent System Operator ("ISO") in that market; we then buy from the ISO
to serve our customer contracts. Generally accepted accounting principles in the
United States of America require us to account for this activity,  which applies
to three of our merchant generating facilities, as the aggregate of two distinct
sales and one purchase. This gross basis presentation increases revenues but not
gross profit.  The table below details the financial  extent of our transactions
with NEPOOL for the period  indicated.  The decrease in 2002 is primarily due to
lower prices in 2002, partially offset by increased volume.

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              ------------------
(in thousands)                                                  2002       2001
                                                              -------    -------
<S>                                                           <C>        <C>
Sales into NEPOOL ISO from power we generated ............    $50,581    $59,564
Sales into NEPOOL ISO from hedging and other activity ....     24,657     34,956
                                                              -------    -------
  Total sales into NEPOOL ................................    $75,238    $94,520

Total purchases from NEPOOL ISO ..........................    $75,834    $85,243
</TABLE>

Three  Months  Ended March 31,  2002,  Compared to Three  Months Ended March 31,
2001.

     Revenue -- Total revenue increased to $1,738.3 million for the three months
ended March 31, 2002, compared to $1,339.8 million for the same period in 2001.

Electric  generation and marketing revenue increased to $1,532.6 million in
2002  compared to $1,050.1  million in 2001.  Sales of  purchased  power grew by
$454.7  million due to increased  price  hedging,  balancing,  optimization  and
trading  activity as a result of the growth of our  subsidiary,  Calpine  Energy
Services,  LP ("CES") and our operating plant portfolio  during the three months
ended March 31, 2002. Approximately $25.0 million of the $482.5 million variance
was due to  electricity  and steam  sales,  which  increased  due to our growing
portfolio.  Generation  more than doubled but pricing  dropped almost by half to
moderate  revenue  growth.  Our  revenue for the period  ended  March 31,  2002,
includes the consolidated  results of additional  facilities that we acquired or



                                      -23-
<PAGE>
completed  construction  on subsequent  to March 31, 2001. We also  recognized a
$2.9  million  increase  in mark-to-market  gains on power  derivatives  to $4.2
million in 2002.

     Oil and gas production and marketing revenue decreased to $199.6 million in
2002  compared to $285.9  million in 2001.  The decrease is primarily  due to an
$89.2  million  decrease in oil and gas sales to third  parties  because of much
lower average pricing in 2002.

     Cost of revenue -- Cost of revenue  increased  to $1,560.4  million in 2002
compared to $1,064.2 million in 2001. Approximately $358.7 million of the $496.2
million  increase  relates to the cost of power purchased by our energy services
organization due to increased price hedging, balancing, optimization and trading
activities.  Fuel expense increased 29.5%, from $257.0 million in 2001 to $332.8
million in 2002,  due to a doubling of  megawatt  hours  generated  as offset by
significantly  lower gas prices in 2002.  Plant operating  expense  increased by
36.3% from $84.5 million to $115.2 million but, expressed per mwh of generation,
decreased from  $11.67/mwh to $7.83/mwh as economies of scale are being realized
due to the increase in the average size of our plants.  Depreciation,  depletion
and  amortization  expense  increased  by 44.3%,  from  $72.0  million to $103.9
million, due primarily to additional power facilities in consolidated operations
at March 31, 2002, as compared to the same period in 2001.

     Project  development expense -- Project development expense decreased 28.4%
as a result of a  deceleration  of our efforts in  identifying  new  development
opportunities due to overall market and liquidity issues.

     Equipment cancellation cost -- The pre-tax equipment cancellation charge of
$168.5  million in the three  months ended March 31, 2002 was as a result of the
turbine order  cancellations  and the  cancellation  of certain other  equipment
based primarily on forfeited  prepayments to date and an immaterial cash payment
pursuant to contract terms.

     General and administrative  expense -- General and  administrative  expense
increased  67.0% to $60.3  million for the three months ended March 31, 2002, as
compared  to  $36.1  million  for the same  period  in 2001.  The  increase  was
attributable  to continued  growth in personnel and  associated  overhead  costs
necessary  to support the  overall  growth in our  operations  and due to recent
acquisitions, including power facilities and natural gas operations. General and
administrative expense expressed per mwh of generation decreased to $4.10/mwh in
2002 from $4.98/mwh in 2001.

     Interest expense -- Interest expense  increased 208.0% to $61.3 million for
the three months ended March 31, 2002, from $19.9 million for the same period in
2001.   Interest  expense  increased  primarily  due  to  the  issuance  of  the
Convertible   Notes  and  additional   senior  notes  in  2001.  The  associated
incremental  interest  expense was partially  offset by interest  capitalized in
connection  with  our  growing  construction  portfolio.   Interest  capitalized
increased  from $104.0  million in the three months ended 2001 to $163.1 million
in the three months ended 2002.

     Interest income -- Interest income decreased to $12.2 million for the three
months  ended March 31, 2002,  compared to $19.4  million for the same period in
2001. This decrease is due to lower interest rates in 2002.

     Other income (expense) -- Other income (expense)  increased to $9.1 million
in 2002 from $5.7 million in 2001  primarily due to the $9.7 million gain on the
sale of our 11.4% interest in the Lockport Power Plant.

     Provision  for  income  taxes  --  The   effective   income  tax  rate  was
approximately  35.0% and 42.9% for the three  months  ended  March 31,  2002 and
2001,  respectively.  The decrease in rates was due to our expansion into Canada
and the United  Kingdom  and our cross  border  financings,  which  reduced  our
effective  blended tax rates. The 35% rate in 2002 was the same as the full year
rate for 2001.

     Extraordinary charge, net -- The $2.1 million charge in 2002 (net of tax of
$1.4 million)  represents the repurchase of $192.5 million  aggregate  principal
amount of our Zero Coupon  Convertible  Debentures  Due 2021  ("Zero  Coupons"),
which was comprised  primarily of a $4.8 million gain from the repurchase of the
Zero Coupons at a discount,  partially  offset by a loss due to the write-off of
unamortized deferred financing costs.

Selected Balance Sheet Information

     Unconsolidated  Investments in Power Projects -- Although our preference is
to own 100% of the power plants we acquire or develop, there are situations when
we take  less  than  100%  ownership.  Reasons  why we may take less than a 100%
interest  in a  power  plant  may  include,  but  are not  limited  to:  (a) our
acquisitions of other IPP's such as Cogeneration  Corporation of America in 1999
and SkyGen Energy LLC in 2000 in which minority  interest projects were included
in the  portfolio of assets owned by the  acquired  entities  (Grays Ferry Power
Plant (40% now owned by Calpine) and Androscoggin Energy Center (32.3% now owned
by Calpine)  respectively);  (b)  opportunities to co-invest with  non-regulated
subsidiaries  of regulated  electric  utilities,  which under the Public Utility
Regulatory  Policies Act of 1978, as amended are  restricted to 50% ownership of
cogeneration  qualifying  facilities -- such as our  investment in  Gordonsville



                                      -24-
<PAGE>
Power Plant (50% owned by Calpine and 50% owned by Edison Mission Energy,  which
is wholly-owned  by Edison  International  Company);  and (c)  opportunities  to
invest in merchant  power projects with partners who bring  marketing,  funding,
permitting or other resources that add value to a project. An example of this is
Acadia Energy  Center,  which is under  construction  in Louisiana (50% owned by
Calpine  and 50%  owned by Cleco  Midstream  Resources,  an  affiliate  of Cleco
Corporation).  None of our equity  investment  projects  have  nominal  carrying
values as a result of material recurring losses. Further, there is no history of
impairment in any of these investments.

     Accumulated other  comprehensive  loss -- Accumulated  other  comprehensive
loss at March 31, 2002 decreased  from $(226.6)  million at December 31, 2001 to
$(208.0) million at March 31, 2002. The change resulted from unrealized gains on
derivatives  designated  as cash flow  hedges of $43.8  million,  net of amounts
reclassified  to net loss and income  taxes,  and foreign  currency  translation
losses of $25.2 million. See Note 8 for further information.

Liquidity and Capital Resources

     General -- The latter half of 2001, and  particularly  the fourth  quarter,
saw a significant contraction in the availability of capital for participants in
the energy  sector.  This was due to a range of factors,  including  uncertainty
arising from the collapse of Enron. While we have continued to be able to access
the capital and bank credit markets, as discussed below, we recognize that terms
of  available  financing in the future may not be  attractive  to us. To protect
against this possibility,  we have scaled back our capital  expenditure  program
for 2002 and 2003 to enable us to conserve our available capital resources,  but
remain ready to access the capital markets as attractive opportunities arise.

     To date, we have obtained cash from our  operations;  borrowings  under our
credit facilities and other working capital lines; sale of debt,  equity,  trust
preferred  securities and convertible  debentures;  proceeds from sale/leaseback
transactions  and  project  financing.  We have  utilized  this cash to fund our
operations,  service debt obligations, fund acquisitions,  develop and construct
power generation facilities, finance capital expenditures,  support our hedging,
balancing  and  optimization  activities  at CES,  and meet our  other  cash and
liquidity needs. Our business is capital intensive. Our ability to capitalize on
growth  opportunities  is dependent on the availability of capital on attractive
terms.  Our  strategy  is also to  reinvest  our cash from  operations  into our
business  development  and  construction  program,   rather  than  to  pay  cash
dividends.

     Cash  Flow  Activities  -- The  following  table  summarizes  our cash flow
activities for the periods indicated:

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED MARCH 31,
                                                    ----------------------------
(in thousands)                                           2002           2001
                                                     -----------    -----------
<S>                                                  <C>            <C>
Beginning cash and cash equivalents ...............  $ 1,525,417    $   596,077
Net cash provided by (used in):
  Operating activities ............................      345,945         35,555
  Investing activities ............................   (1,301,613)      (898,635)
  Financing activities ............................     (158,486)     1,137,082
  Effect of exchange rates changes
    on cash and cash equivalents...................         (491)            --
                                                     -----------    -----------
  Net increase (decrease) in cash
    and cash equivalents ..........................   (1,114,645)       274,002
                                                     -----------    -----------
Ending cash and cash equivalents ..................  $   410,772    $   870,079
                                                     ===========    ===========
</TABLE>

     Operating activities for the three months ended March 31, 2002 provided net
cash of $345.9  million,  compared to $35.6  million for the three  months ended
March 31, 2001.  The cash provided by operating  activities for the three months
ended  March 31,  2002  consisted  primarily  of a $592.2  million  decrease  in
operating assets,  mainly in derivative activity,  accounts receivable and other
current  assets.  The decrease in accounts  receivable  was primarily due to the
collection  from  escrow of $222.3  million  for the PG&E past due  pre-petition
receivables  that were sold at a discount to a third party in December 2001. The
decrease  in other  current  assets is  primarily  due to  reducing  CES  margin
deposits and replacing them with letters of credit.  This was offset by a $421.2
million  decrease in  operating  liabilities,  primarily  related to  derivative
activity.

     Investing activities for the three months ended March 31, 2002 consumed net
cash of $1.3 billion,  primarily due to $1.3 billion for construction  costs and
capital  expenditures  including  gas  turbine  generator  costs and  associated
capitalized  interest,  $23.1  million of advances to joint  ventures  including
associated   capitalized  interest  for  investments  in  power  projects  under
construction,  $23.8 million of capitalized  project development costs including
associated  capitalized  interest.  This was partially offset by a $16.9 million
decrease in restricted cash and a $12.9 million decrease in notes receivable.


                                      -25-
<PAGE>
     Financing  activities  for the three months  ended March 31, 2002  consumed
$158.5  million of net cash  consisting of $187.7 million for repurchase of Zero
Coupons,  $73.7 million for the repayment of notes payable and borrowings  under
lines of credit,  $92.2 million for  repayments  of project  financing and $31.5
million of  additional  financing  costs.  This was  partially  offset by $100.0
million of proceeds from the issuance of the  Convertible  Senior Notes Due 2006
pursuant to exercise of the  initial  purchasers'  option and $122.9  million of
proceeds from project financing.

     We  continue to evaluate  current and  forecasted  cash flow as a basis for
financing operating  requirements and capital  expenditures.  We believe that we
will have  sufficient  liquidity  from cash  flow  from  operations,  borrowings
available  under the lines of credit,  access to the capital markets and working
capital to satisfy all obligations  under outstanding  indebtedness,  to finance
anticipated  capital  expenditures and to fund working capital  requirements for
the next twelve months.

     PG&E and Enron Bankruptcies -- As stated above, in January 2002 we received
the  cash  from  escrow   related  to  the  December   2001  sale  of  past  due
pre-bankruptcy PG&E receivables to a third party.

     As discussed  in Note 9 of the Notes to  Consolidated  Condensed  Financial
Statements,  there is considerable uncertainty surrounding the Enron bankruptcy.
Regardless of the  resolution  of the current  situation,  we believe,  based on
legal analysis, that we have no net collection exposure to Enron.

     Nevada Power and Sierra  Pacific  Resources -- During the first  quarter of
2002, two  subsidiaries of Sierra Pacific  Resources  Corporation,  Nevada Power
Company ("NPC") and Sierra Pacific Resources ("SPR"), received credit downgrades
to  sub-investment  grades from the major  credit  rating  agencies.  The credit
downgrades  resulted from short-term  liquidity problems created when the Public
Utilities  Commission of Nevada disallowed a rate adjustment requested by NPC to
cover the increased cost of buying power during the 2001 energy crisis.  NPC and
SPR have requested that their power suppliers  extend payment terms to help them
overcome their short-term  liquidity problems.  As of March 31, 2002, we had net
collection  exposures of approximately  $30.7 million and $21.3 million with NPC
and SPR,  respectively.  Our  exposures  include  open  forward  power  position
contracts that are reported at fair value in the Company's balance sheet as well
as receivable and payable balances relating to settled power deliveries.  We are
continuing to monitor our exposure and its effect on our financial condition.

     CES Margin  Deposits and Other Credit  Support -- As of March 31, 2002, CES
had $177.2  million in cash on deposit  as margin  deposits  with third  parties
related to its business  activities and letters of credit outstanding in support
of CES business  activities of $365.4 million.  As of December 31, 2001, CES had
deposited  $345.5 million in cash as margin  deposits with third parties related
to its business  activities and letters of credit  outstanding in support of CES
business  activities  of $259.4  million.  The  Company  is  evaluating  various
relationships  with potential partners to strengthen its ability to conduct risk
management  activities  and to support  the credit  requirements  of its trading
activities.  While we believe  that we have  adequate  liquidity to support CES'
operations at this time,  it is difficult to predict how these  various  factors
will  develop in 2002 and  beyond.  Therefore,  it is  difficult  to predict the
amount of credit  support  that the  Company  may need to provide as part of its
business operations.

     Working Capital Position -- At March 31, 2002, working capital,  defined as
current assets less current  liabilities,  was $(582.9)  million.  This negative
position was primarily the result of the $685.5  million of Zero Coupons,  which
were classified as a current liability until repaid in full on April 30, 2002.

     Letter of credit  facilities  -- At March 31,  2002,  we had  approximately
$776.4  million in letters of credit  outstanding  under various  credit support
facilities,  including facilities related to CES risk management activities. The
remainder related to other operational and construction activities. Of the total
letters  of  credit,   $156.0  million  was  temporary  coverage  in  excess  of
requirements  due to  transitioning  certain of the letters of credit  under the
$400 million revolver to the new $1.0 billion revolver. At December 31, 2001, we
had  $642.5  million  in letters  of credit  outstanding,  including  facilities
relating to CES risk management activities.

     Revised Capital Expenditure Program -- Following a comprehensive  review of
our power plant development  program,  we announced in January 2002 the adoption
of a revised capital expenditure  program,  which contemplates the completion of
27 power projects  (representing  15,200 MW) then under  construction.  Three of
these facilities achieved full or partial commercial  operations as of March 31,
2002.  Construction  of an additional  34  advanced-stage  development  projects
(representing 15,100 MW) will be placed on "hot standby" following completion of
advanced  development  activities  pending further review,  reducing  previously
forecasted 2002 capital spending by as much as $2 billion. Construction of these
advanced  stage  development  projects is  expected to proceed  when there is an
established market need for additional  generating resources at prices that will
allow us to meet our  established  investment  criteria,  and  when  capital  is
available  to us on  attractive  terms.  However,  our  entire  development  and
construction  program is flexible and subject to continuing  review and revision
based upon such criteria.




                                      -26-
<PAGE>
     On March  12,  2002,  we  announced  a new  turbine  program  that  reduces
previously forecasted capital spending by approximately $1.2 billion in 2002 and
$1.8 billion in 2003. The revision  includes adjusted timing of turbine delivery
and related payment schedules and also cancellation orders. As a result of these
turbine cancellations and other equipment  cancellations,  we recorded a pre-tax
charge of $168.5 million in the first quarter of 2002.

     Capital  Availability  --  Notwithstanding   recent  uncertainties  in  the
domestic  energy and capital  markets,  we have  continued to raise  substantial
capital.  In the first quarter of 2002, we closed a $1.6 billion secured working
capital  credit  facility  (see below for more  information).  We also issued in
separate  closings in December  2001 and January  2002 $1.2 billion in aggregate
principal  amount of  Convertible  Senior  Notes due  2006.  Proceeds  from this
offering  and cash from  general  working  capital were used to fully retire the
Zero Coupons that remained  outstanding at December 31, 2001. On April 30, 2002,
we completed a public  offering of common stock of 66 million  shares and priced
the offering at $11.50 per share. The proceeds after  underwriting  fees totaled
$734.3  million.  We granted the  underwriters an  over-allotment  option for an
additional 9.9 million shares of our common stock, which may be exercised for up
to 30 days. As of the date of this report,  this option had not been  exercised.
Management  cannot predict whether the underwriters will exercise this option in
whole or in part.  The  proceeds  from the  offering  are expected to be used to
repay debt and for general corporate purposes.

     In March 2002, we entered into a letter of intent with ING Bank on the debt
portion of a proposed California peaker sale/leaseback,  including 11 California
peaker facilities. This transaction is expected to generate $500 million of cash
that will be received  throughout 2002 as the power  facilities enter commercial
operation.

     New Working Capital Credit Agreement -- In March 2002, the Company closed a
new secured credit  agreement  comprised of (a) a $1.0 billion  revolving credit
facility  expiring on May 24, 2003 and (b) a two-year  term loan facility for up
to $600 million,  which as previously reported, was only to be made available to
the Company upon  satisfaction  of certain  conditions to borrowing on or before
June 8, 2002.  On May 10, 2002,  the Company  borrowed  $500 million of the term
loan facility and, subject to certain conditions,  may borrow the remaining $100
million in one or two remaining tranches on or before June 8, 2002. At the March
2002  closing,  the Company  also amended its  existing  $400 million  revolving
credit agreement to provide,  among other things,  security for borrowings under
that  agreement.  The security for the  revolving  and term loan  facilities  as
originally  provided included (a) a pledge of the capital stock of the Company's
subsidiary holding, directly or indirectly, (i) the interests in its natural gas
properties, (ii) the Saltend power plant located in the United Kingdom and (iii)
the Company's equity  investment in nine U.S. power plants,  and (b) a pledge by
certain of the Company's  subsidiaries of a total of 65% of the capital stock of
Calpine  Canada  Energy Ltd. As part of the recent  funding of the $500  million
term loan, the Company  expanded the security for the revolving  credit and term
loan  facilities  under  both  the $1.6  billion  and the  $400  million  credit
agreements  by  pledging  to the  lenders  substantially  all  of the  Company's
remaining first tier domestic subsidiaries (excluding CES).

     Credit  Considerations  -- On March 12, 2002,  Fitch  downgraded our senior
unsecured  debt to BB. On March  25,  2002,  Standard  & Poor's  downgraded  our
corporate credit rating from BB+ to BB and our investor  unsecured debt from BB+
to B+.  Many  other  issuers  in the  power  generation  sector  have  also been
downgraded  by one or more of the  ratings  agencies  during this  period.  Such
downgrades  can have a negative  impact on our liquidity by reducing  attractive
financing  opportunities  and  increasing  the amount of collateral  required by
trading counterparties.

     Off-Balance  Sheet  Commitments -- In accordance  with SFAS No. 13 and SFAS
No. 98,  "Accounting  for Leases" our operating  leases are not reflected on our
balance sheet.  We have also entered into several  sale/leaseback  transactions.
All counterparties in these transactions are third parties that are unrelated to
Calpine.  The sale/leaseback  transactions  involving Tiverton,  Rumford,  South
Point, Broad River, and RockGen utilize  special-purpose  entities formed by the
equity  investors with the sole purpose of owning a power  generation  facility.
Some  of the  Company's  operating  leases  contain  customary  restrictions  on
dividends,  additional debt and further  encumbrances similar to those typically
found in project finance instruments. Calpine has no ownership or other interest
in any of these special-purpose entities.

     In accordance  with APB Opinion No. 18 "The Equity Method of Accounting For
Investments  in Common  Stock" and FASB  Interpretation  No. 35,  "Criteria  for
Applying the Equity Method of  Accounting  for  Investments  in Common Stock (An
Interpretation  of  APB  Opinion  No.  18),"  the  debt  on  the  books  of our
unconsolidated  investments  in power  projects is not  reflected on our balance
sheet. At March 31, 2002, investee debt is approximately  $673.0 million.  Based
on our pro rata ownership share of each of the  investments,  our share would be
approximately $248.8 million.  However, all such debt is non-recourse to us. For
the Aries Power Plant  construction  debt, we and Aquila Energy,  a wholly owned
subsidiary of Aquila Inc, have provided support  arrangements until construction
is completed to cover cost overruns, if any.






                                      -27-
<PAGE>
Performance Metrics

     In understanding our business,  we believe that certain performance metrics
are particularly important. These include:

o    Average gross profit margin based on pro forma  (non-GAAP)  revenue and pro
     forma (non-GAAP) cost of revenue. A high percentage of our revenue consists
     of CES hedging,  balancing,  optimization,  and trading activity undertaken
     primarily to enhance the value of our  generating  assets (see  "Marketing,
     Hedging,  Optimization,  and Trading" subsection of the Business Section of
     our 2001 Form 10-K). CES's hedging,  balancing,  optimization,  and trading
     activity is primarily accomplished by buying and selling electric power and
     buying  and  selling   natural  gas  or  by  entering  into  gas  financial
     instruments such as exchange-traded  swaps or forward contracts.  Under SAB
     No.  101 and EITF  No.  99-19,  we must  show the  purchases  and  sales of
     electricity and gas on a gross basis in our statement of operations when we
     act as a principal,  take title to the  electricity and gas we purchase for
     resale,   and  enjoy  the  risks  and   rewards  of   ownership.   This  is
     notwithstanding  the fact  that the net gain or loss on  certain  financial
     hedging instruments,  such as exchange-traded forward contracts for natural
     gas,  is  shown  as a net  item  in our  GAAP  financials.  Because  of the
     inflating   effect  on   revenue  of  much  of  our   hedging,   balancing,
     optimization,  and trading  activity,  we believe that  revenue  levels and
     trends do not reflect our  performance  as accurately as gross profit,  and
     that it is  analytically  useful  to look at our  results  on a pro  forma,
     non-GAAP  basis with all  hedging,  balancing,  optimization,  and  trading
     activity netted. This analytical approach nets the sales of purchased power
     with purchased  power expense (with the exception of net realized sales and
     expenses on electrical  trading activity,  which is shown on a net basis in
     sales of purchased  power) and includes that net amount as an adjustment to
     electricity and steam ("E&S") revenue for our generation assets. Similarly,
     we believe that it is analytically useful to net the sales of purchased gas
     with  purchased gas expense  (with the exception of net realized  sales and
     expenses on gas trading activity, which is shown on a net basis in sales of
     purchased  gas) and include that net amount as an adjustment to cost of oil
     and natural gas burned by power plants,  a component of fuel expense.  This
     allows us to look at all  hedging,  balancing,  optimization,  and  trading
     activity   consistently  (net   presentation)  and  better  understand  our
     performance  trends.  It should be noted that in this  non-GAAP  analytical
     approach,  total gross  profit does not change from the GAAP  presentation,
     but the  gross  profit  margins  as a percent  of  revenue  do differ  from
     corresponding  GAAP amounts because the inflating effects on our revenue of
     hedging, balancing, optimization, and trading activities are removed.

o    Average  availability  and  average  capacity  factor  or  operating  rate.
     Availability  represents  the percent of total hours during the period that
     our plants were  available  to run after  taking into  account the downtime
     associated  with both  scheduled  and  unscheduled  outages.  The  capacity
     factor,  sometimes  called  operating  rate,  is calculated by dividing (a)
     total megawatt hours generated by our power plants  (excluding  peakers) by
     multiplying  (b) the weighted  average  megawatts  in operation  during the
     period by (c) the total hours in the period.  The capacity factor is thus a
     measure  of  total  actual  generation  as a  percent  of  total  potential
     generation.  If we elect not to generate  during  periods when  electricity
     pricing  is too low or gas  prices  too  high to  operate  profitably,  the
     capacity  factor will reflect that  decision as well as both  scheduled and
     unscheduled outages due to maintenance and repair requirements.

o    Average heat rate for gas-fired fleet of power plants expressed in Btu's of
     fuel consumed per kWh generated. We calculate the average heat rate for our
     gas-fired power plants (excluding peakers) by dividing (a) fuel consumed in
     Btu's by (b) kilowatt-hours generated. The resultant heat rate is a measure
     of fuel  efficiency,  so the  lower  the heat  rate,  the  better.  We also
     calculate  a  "steam-adjusted"  heat  rate,  in  which we  adjust  the fuel
     consumption in Btu's down by the equivalent  heat content in steam or other
     thermal  energy  exported to a third party,  such as to steam hosts for our
     cogeneration  facilities.  Our goal is to have the lowest average heat rate
     in the industry.

o    Average  all-in  realized  electric  price  expressed  in  dollars  per MWh
     generated.  We  calculate  the  all-in  realized  electric  price  per  MWh
     generated by dividing (a) adjusted  E&S revenue,  which  includes  capacity
     revenues,  energy  revenues,  thermal  revenues  and the spread on sales of
     purchased electricity for hedging, balancing, and optimization activity, by
     (b) total generated MWh's in the period.

o    Average  cost of natural gas  expressed in dollars per millions of Btu's of
     fuel consumed.  At Calpine,  the fuel costs for our gas-fired  power plants
     are a function  of the price we pay for fuel  purchased  and the results of
     the  fuel  hedging,   balancing,   and  optimization   activities  by  CES.
     Accordingly,  we calculate the cost of natural gas per millions of Btu's of
     fuel  consumed in our power plants by dividing (a) adjusted cost of oil and
     natural gas burned by power plants which includes the cost of fuel consumed
     by our plants (adding back cost of  intercompany  "equity" gas from Calpine
     Natural Gas, which is eliminated in consolidation), and the spread on sales
     of purchased gas for hedging,  balancing,  and optimization activity by (b)
     the heat  content in millions of Btu's of the fuel we consumed in our power
     plants for the period.


                                      -28-
<PAGE>
o    Average  spark  spread  expressed  in dollars per MWh  generated.  Our risk
     management  activities focus on managing the spark spread for our portfolio
     of power  plants,  the  spread  between  the sales  price  for  electricity
     generated  and the cost of fuel.  We  calculate  the spark  spread  per MWh
     generated by subtracting (a) adjusted cost of oil and natural gas burned by
     power plants from (b) adjusted E&S revenue and dividing the  difference  by
     (c) total generated MWh's in the period.

     The  table  below  presents,  side-by-side,  both our  GAAP  and pro  forma
non-GAAP netted revenue, costs of revenue and gross profit showing the purchases
and sales of  electricity  and gas for  hedging,  balancing,  optimization,  and
trading  activity on a net basis.  It also shows the other  performance  metrics
discussed above.

<TABLE>
<CAPTION>
                                                                                                               Non-GAAP Netted
                                                                            GAAP Presentation                   Presentation
                                                                      Three Months Ended March 31,      Three Months Ended March 31,
                                                                      ----------------------------      ----------------------------
                                                                             2002           2001            2002           2001
                                                                         -----------    -----------     -----------    -----------
                                                                                               (In thousands)
<S>                                                                      <C>            <C>             <C>            <C>
Revenue, Cost of Revenue and Gross Profit
Revenue:
  Electric generation and marketing revenue
     Electricity and steam revenue(1) ................................   $   620,179    $   595,159     $   713,318    $   593,811
     Sales of purchased power(1) .....................................       908,301        453,602             157         (1,316)
     Electric power derivative mark-to-market gain ....................        4,166          1,306           4,166          1,306
                                                                         -----------    -----------     -----------    -----------
  Total electric generation and marketing revenue ....................     1,532,646      1,050,067         717,641        593,801
  Oil and gas production and marketing revenue
     Oil and gas sales ...............................................        67,488        156,687          67,488        156,687
     Sales of purchased gas(1) .......................................       132,158        129,172           6,072          3,169
                                                                         -----------    -----------     -----------    -----------
  Total oil and gas production and marketing revenue .................       199,646        285,859          73,560        159,856
  Income from unconsolidated investments in power projects ...........         1,444            563           1,444            563
  Other revenue ......................................................         4,611          3,262           4,611          3,262
                                                                         -----------    -----------     -----------    -----------
       Total revenue .................................................     1,738,347      1,339,751         797,256        757,482
                                                                         -----------    -----------     -----------    -----------

Cost of revenue:
  Electric generation and marketing expense
     Plant operating expense .........................................       115,157         84,460         115,157         84,460
     Royalty expense .................................................         4,155         11,009           4,155         11,009
     Purchased power expense(1) ......................................       815,005        456,266              --             --
                                                                         -----------    -----------     -----------    -----------
  Total electric generation and marketing expense ....................       934,317        551,735         119,312         95,469
  Oil and gas production and marketing expense
     Oil and gas production expense ..................................        26,940         34,283          26,940         34,283
     Purchased gas expense(1) ........................................       123,694        118,628              --             --
                                                                         -----------    -----------     -----------    -----------
  Total oil and gas production and marketing expense .................       150,634        152,911          26,940         34,283
  Fuel expense
     Cost of oil and natural gas burned by power plants(1) ...........       326,443        264,563         324,051        257,188
     Natural gas derivative mark-to-market loss (gain) ...............         6,392         (7,549)          6,392         (7,549)
                                                                         -----------    -----------     -----------    -----------
  Total fuel expense .................................................       332,835        257,014         330,443        249,639
  Depreciation, depletion and amortization expense ...................       103,873         72,013         103,873         72,013
  Operating lease expense ............................................        36,134         28,011          36,134         28,011
  Other expense ......................................................         2,590          2,499           2,590          2,499
                                                                         -----------    -----------     -----------    -----------
       Total cost of revenue .........................................     1,560,383      1,064,183         619,292        481,914
                                                                         -----------    -----------     -----------    -----------
     Gross profit ....................................................   $   177,964    $   275,568     $   177,964    $   275,568
                                                                         ===========    ===========     ===========    ===========
     Gross profit margin .............................................            10%            21%             22%            36%
</TABLE>




















                                      -29-
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                Non-GAAP Netted
                                                                                                                 Presentation
                                                                                                           Three Months December 31,
                                                                                                          --------------------------
                                                                                                            2002             2001
                                                                                                          --------         --------
                                                                                                                (In thousands)
<S>                                                                                                       <C>              <C>
Other Non-GAAP Performance Metrics
Average availability and capacity factor:
  Average availability ...........................................................................              94%              92%
  Average capacity factor or operating rate based on total hours (excluding peakers) .............              71%              69%
Average heat rate for gas-fired power plants (excluding peakers) (Btu's/kWh):
  Not steam adjusted .............................................................................           8,173            8,670
  Steam adjusted .................................................................................           7,374            7,506
Average all-in realized electric price:
  Adjusted electricity and steam revenue (in thousands) ..........................................        $713,318         $593,811
  MWh generated (in thousands) ...................................................................          14,714            7,239
  Average all-in realized electric price per MWh .................................................        $  48.48         $  82.03
Average cost of natural gas:
  Cost of oil and natural gas burned by power plants (in thousands) ..............................        $324,051         $257,188
  Fuel cost elimination ..........................................................................          36,702           43,216
                                                                                                          --------         --------
  Adjusted cost of oil and natural gas burned by power plants ....................................        $360,753         $300,404
  MMBtu of fuel consumed by generating plants (in thousands) .....................................         106,524           47,992
  Average cost of natural gas per MMBtu ..........................................................        $   3.39         $   6.26
  MWh generated (in thousands) ...................................................................          14,714            7,239
  Average cost of oil and natural gas burned by power plants per MWh .............................        $  24.52         $  41.50
Average spark spread:
  Adjusted electricity and steam revenue (in thousands) ..........................................        $713,318         $593,811
  Less: Adjusted cost of oil and natural gas burned by power plants (in thousands) ...............         360,753          300,404
                                                                                                          --------         --------
  Spark spread (in thousands) ....................................................................        $352,565         $293,407
  MWh generated (in thousands) ...................................................................          14,714            7,239
  Average spark spread per MWh ...................................................................        $  23.96         $  40.53
</TABLE>

     The  non-GAAP  presentation  above  also  facilitates  a look at the  total
"trading"  activity impact on gross profit. For the three months ended March 31,
2002 and 2001, trading activity consisted of:

<TABLE>
<CAPTION>
                                                                                        Three Months Ended
                                                                                             March 31,
                                                                                      ------------------------
                                                                                       2002             2001
                                                                                      -------         --------
<S>                                                                                   <C>             <C>
ELECTRICITY            Electric generation and marketing revenue
Realized gain (loss)     Sales of purchased power ..............................      $   157         $ (1,316)
Unrealized               Electric power derivative mark-to-market gain .........        4,166            1,306
                                                                                      -------         --------
Subtotal........................................................................      $ 4,323         $    (10)

GAS                    Oil and gas production and marketing revenue
Realized gain (loss)     Sales of purchased gas ................................      $ 6,072         $  3,169
                       Fuel Expense
Unrealized               Natural gas derivative mark-to-market gain (loss)......       (6,392)           7,549
                                                                                      -------         --------
Subtotal........................................................................      $  (320)        $ 10,718
</TABLE>

<TABLE>
<CAPTION>
                                                      Three Months                 Three Months
                                                         Ended       Percent of       Ended        Percent of
                                                        March 31,      Gross         March 31,       Gross
                                                          2002         Profit          2001          Profit
                                                      ------------   ----------    ------------    ----------
<S>                                                    <C>              <C>        <C>                <C>
Total trading activity gain.......................     $  4,003         2.2%       $  10,708          3.9%
Realized gain (loss)..............................     $  6,229         3.5%       $   1,853          0.7%
Unrealized (mark-to-market) gain (loss)(2)........     $ (2,226)       (1.3)%      $   8,855          3.2%
</TABLE>

__________











                                      -30-
<PAGE>
     (1) Following is a reconciliation of GAAP to non-GAAP  presentation further
to the  narrative  set  forth  under  this  Performance  Metrics  section  ($ in
thousands):
<TABLE>
<CAPTION>
                                                                           To Net
                                                                          Hedging,
                                                                         Balancing &       To Net          Netted
                                                             GAAP       Optimization      Trading         Non-GAAP
                                                            Balance       Activity        Activity        Balance
                                                          ----------    ------------     ---------      ----------
<S>                                                       <C>            <C>             <C>            <C>
Three months ended March 31, 2002
Electricity and steam revenue..........................   $  620,179     $   93,139      $      --      $  713,318
Sales of purchased power...............................      908,301       (842,606)       (65,538)            157
Sales of purchased gas.................................      132,158       (132,158)         6,072           6,072
Purchased power expense................................      815,005       (749,467)       (65,538)             --
Purchased gas expense..................................      123,694       (123,694)            --              --
Cost of oil and natural gas burned by power plants.....      326,443         (8,464)         6,072         324,051

Three months ended March 31, 2001
Electricity and steam revenue..........................   $  595,159     $   (1,348)     $      --      $  593,811
Sales of purchased power...............................      453,602       (443,482)       (11,436)         (1,316)
Sales of purchased gas.................................      129,172       (129,172)         3,169           3,169
Purchased power expense................................      456,266       (444,830)       (11,436)             --
Purchased gas expense..................................      118,628       (118,628)            --              --
Cost of oil and natural gas burned by power plants.....      264,563        (10,544)         3,169         257,188
</TABLE>

     (2) For the three  months ended March 31, 2002,  the  mark-to-market  gains
shown above as "trading" activity include a net loss on hedge ineffectiveness of
$(2,818),  consisting of an  ineffectiveness  loss on power hedges of $(222), an
ineffectiveness  loss on crude oil costless collar  arrangements of $(5,042) and
an  ineffectiveness  gain on gas hedges of $2,446.  For the three  months  ended
March 31,  2001,  the  mark-to-market  gains shown above as  "trading"  activity
include  a net  loss  on  hedge  ineffectiveness  of  $(691),  consisting  of an
ineffectiveness  loss on power hedges of $1,217 and an  ineffectiveness  gain on
gas hedges of $526.

Outlook

     At May 15, 2002, we had 22 projects  under  construction,  representing  an
additional  13,412  megawatts of net capacity.  We have also announced  plans to
develop 34 additional power generation projects,  representing a net capacity of
15,100 megawatts.

     Our new $2 billion revolving credit and term loan facilities and April 2002
issuance  of 66  million  shares  of  common  stock  have  ameliorated  our 2002
liquidity concerns. We have made significant progress in reducing our operations
and  maintenance  costs and  general  and  administrative  expenses  per unit of
electrical  generation as we have doubled our generation of electricity from the
first  quarter of 2001 to the first  quarter of 2002.  Our  outlook  for 2002 is
stable and  profitable,  but we  recognize  that the pace of  pricing  and spark
spread  improvement  is  dependent  on the  nation's  economic  recovery  and on
weather,  particularly in the summer and winter periods.  We remain confident in
our strategy, as outlined in our 2001 Form 10-K, and optimistic about our future
performance.

Overview

Summary of Key Activities

Power Plant Development and Construction:

<TABLE>
<CAPTION>
Date                  Project                            Description
----    -------------------------------------   ----------------------------
<S>     <C>                                     <C>
1/02    Gilroy Peaking Energy Center            Commercial operation
2/02    Magic Valley Generating Station         Commercial operation
2/02    King City Energy Center (Peaker Unit)   Commercial operation
3/02    Aries Power Project                     Partial commercial operation
4/02    Island Cogeneration                     Commercial operation
4/02    Channel Energy Center                   Combined-cycle operation
</TABLE>

Finance

    Note Repayments:

<TABLE>
<CAPTION>
  Date            Amount                 Description
-------       -------------    ------------------------------
<S>           <C>              <C>
3/13/02       $64.8 million    Michael Petroleum Note Payable
4/1/02        $10.0 million    Silverado Note Payable
</TABLE>

                                      -31-
<PAGE>
    Repurchases of Zero-Coupon Convertible Debentures Due 2021:

<TABLE>
<CAPTION>
                Date                                    Amount
---------------------------------------             --------------
<S>                                                 <C>
January 2, 2002, through April 30, 2002             $878.0 million
</TABLE>

    Calpine  Corporation's  Sale of 4%  Convertible  Senior  Notes Due 2006 and
      Common Stock:

<TABLE>
<CAPTION>
 Date              Offering                Description                     Use of Proceeds
-------      -------------------   ---------------------------     -------------------------------
<S>          <C>                   <C>                             <C>
1/3/02       $100 million          Conversion price of $18.07      For general corporate purposes
                                     per common share
4/30/02      $759 million, gross   66 million shares at $11.50     For general corporate purposes,
                                     per share                       including debt repayment
</TABLE>

    Working Capital Credit Facility:

<TABLE>
<CAPTION>
 Date            Amount                      Security                           Use of Proceeds
-------      ------------      -----------------------------------     -------------------------------
<S>          <C>               <C>                                     <C>
3/12/02      $2.0 billion      Natural gas properties, Saltend         Finance capital expenditures and
                                 Power Plant, our equity                 other general corporate purposes
                                 investment in 9 U.S. power plants,
                                 65% of the capital stock of
                                 Calpine Canada Ltd., and our
                                 remaining first tier domestic
                                 subsidiaries (excluding CES)
</TABLE>

Turbine Cancellations:

<TABLE>
<CAPTION>
   Date of        Reduction in Capital
Announcement             Spending                     Earnings Effect
------------      --------------------     -------------------------------------
<S>               <C>                      <C>
3/12/02           $1.2 billion in 2002     $168.5 million pre-tax charge in 2002
                  $1.8 billion in 2003
</TABLE>

Other:

<TABLE>
<CAPTION>
 Date                        Description
-------      -------------------------------------------
<S>          <C>
1/02         Letter of intent for sale/leaseback of 11 California peaker facilities
3/12/02      Fitch, Inc. lowered the credit rating on senior unsecured debt from BB+ to BB, and it lowered the rating on
               convertible trust preferred securities from BB- to B
3/25/02      Standard & Poor's downgraded corporate credit rating from BB+ to BB, and senior unsecured debt from BB+ to B+
3/29/02      Sale of 11.4% interest in Lockport Power Plant for $27.3 million
4/2/02       Proposed sale of De Pere Energy Center for $120 million, including termination of existing power purchase agreement
4/22/02      Renegotiation of California Department of Water Resources long-term power contracts
</TABLE>


California Power Market

    California Long-Term Supply Contracts --

     On February 25,  2002,  both the  California  Public  Utilities  Commission
("CPUC") and the California  Electric  Oversight Board  ("EOB")filed  complaints
under  Section 206 of the Federal Power Act with the Federal  Energy  Regulatory
Commission ("FERC")  (EL02-60-000 and EL02-62-000,  respectively)  alleging that
the prices and terms of the long-term  contracts with the California  Department
of Water Resources ("DWR") are unjust and unreasonable and counter to the public
interest. Calpine was a respondent and the four long-term contracts entered into
by Calpine were subject to the complaint.

     On March 6, 2002, in accordance with the state  legislation that authorized
DWR to  enter  into  the  long-term  power  contracts,  the  CPUC  issued a Rate
Agreement,  which  dedicates  a portion of the retail  rate paid by  electricity
customers  of  the  California   investor-owned  utilities  to  a  fund  to  pay
bondholders  of  bonds  to be  issued  by DWR and to a fund  to pay  electricity
suppliers such as Calpine. The proceeds from those bonds will be used in part to


                                      -32-
<PAGE>
fund the Electric Power Fund  established by the state  legislation  authorizing
DWR to enter into  long-term  power  contracts  with the power  suppliers  whose
recourse  in the  event  of a  default  by DWR is to the  Electric  Power  Fund.
Proceeds  from the bonds  will  also be used to repay  the  state of  California
General Fund. The bonds have not been issued,  but  representatives of the State
have indicated that the bonds should be issued in the near future.

     On April 22, 2002,  the Company  announced  that it had  renegotiated  CES'
long-term  power  contracts with DWR. The Office of the Governor,  the CPUC, the
EOB and the California  Attorney  General ("AG") have endorsed the  renegotiated
contracts and have agreed to drop all pending claims against the Company and its
affiliates, including withdrawing the complaint under Section 206 of the Federal
Power Act recently  filed by the CPUC and EOB with FERC and the CPUC and the EOB
have agreed to terminate  their efforts to seek refunds from the Company and its
affiliates   through   FERC  refund   proceedings.   In   connection   with  the
renegotiation,  the Company has agreed to pay $6 million over three years to the
AG to resolve any and all possible claims against the Company and its affiliates
brought by the AG.

     The  renegotiation  includes  the  shortening  of the  duration  of the two
ten-year,  baseload  energy  contracts  by two years and of the  20-year  peaker
contract  by  ten  years.   These  changes  reduce  DWR's   long-term   purchase
obligations.  In addition, CES agreed to reduce the energy price on one baseload
contract  from  $61.00 to $59.60 per  megawatt-hour,  and to convert  the energy
portion of the peaker  contract to gas index pricing from fixed energy  pricing.
CES has also agreed to deliver up to 12.2 million  megawatt-hours  of additional
energy pursuant to the baseload energy contracts in 2002 and 2003. In connection
with the  renegotiation,  CES has also  agreed  with DWR that DWR will  have the
right  to  assume  and  complete  four of our  projects  currently  planned  for
California  and in the advanced  development  stage if the Company does not meet
certain  milestones  with respect to each  project  assumed,  provided  that DWR
reimburses  the  Company  for all  construction  costs and  certain  other costs
incurred by the Company to the date DWR assumes the relevant project.

     The  negotiation  resolved the dispute with DWR  concerning  payment of the
capacity payment on the  495-megawatt  peaking contract dated February 28, 2001.
The contract  provides that through  December 31, 2002,  CES may earn a capacity
payment by committing to supply  electricity to DWR from a source other than the
peaker units designated in the contract. DWR made certain assertions challenging
CES' right to substitute  units or provide  replacement  energy and had withheld

capacity  payments in the amount of  approximately  $15.0 million since December
2001. As part of the renegotiation,  the Company has received payment in full on
these withheld capacity payments and will have the right to provide  replacement
capacity through December 31, 2002 based on the original  contract terms. On May
2, 2002, each of the CPUC and the EOB filed a Notice of Partial  Withdrawal with
Prejudice of Complaint as to Calpine Energy Services,  L.P. with the FERC in the
EL02-60-000 and EL02-62-000 dockets, respectively.

     FERC  Investigation  into California  Wholesale  Markets -- On February 13,
2002, FERC initiated an investigation of potential  manipulation of electric and
natural  gas  prices  in the  western  United  States.  This  investigation  was
initiated as a result of  allegations  that Enron Corp.  through its  affiliates
used its market  position  to distort  electric  and  natural gas markets in the
West. The scope of the  investigation  is to consider whether as a result of any
manipulation  in the  short-term  markets for electric  energy or natural gas or
other undue  influence on the  wholesale  markets by any party since  January 1,
2000, the rates of the long-term contracts subsequently entered into in the West
are potentially  unjust and unreasonable.  In connection with its investigation,
FERC  has,  and may in the  future,  issue  data  requests  seeking  information
regarding trading practices in California and the western  electricity  markets.
FERC has stated that it may use the information  gathered in connection with the
investigation  to determine  how to proceed on any existing or future  complaint
brought under Section 206 of the Federal  Power Act  involving  long-term  power
contracts  entered  into in the West since  January 1,  2000,  or to  initiate a
Federal Power Act Section 206 or Natural Gas Act Section 5 proceeding on its own
initiative.

Financial Market Risks

     Energy price  fluctuations  -- As an independent  power producer  primarily
focused on generation  of  electricity  using  gas-fired  turbines,  our natural
physical  commodity  position  is "short" (we  require)  gas and "long" (we own)
power capacity. To manage forward exposure to price fluctuation in these and (to
a  lesser  extent)  other  commodities,   we  enter  into  derivative  commodity
instruments.  All transactions  are subject to our risk management  policy which
prohibits  positions that exceed production  capacity and fuel requirements on a
total portfolio basis. Any hedging,  balancing,  or optimization activities that
we engage in are directly  related to our  asset-based  business model of owning
and operating  gas-fired  electric power plants.  We hedge  exposures that arise
from  the  ownership  and  operation  of  power  plants  and  related  sales  of
electricity and purchases of natural gas, and we utilize derivatives to optimize
the returns we are able to achieve from these assets for our shareholders.  This
model is markedly  different  from that of companies  that engage in significant
commodity trading  operations that are unrelated to underlying  physical assets.
Derivative  commodity  instruments  are accounted for under the  requirements of
SFAS No. 133, as amended.



                                      -33-
<PAGE>
     The change in fair value of outstanding  commodity  derivative  instruments
from January 1, 2002 through March 31, 2002 is summarized in the table below (in
thousands):
<TABLE>
<S>                                                                                                           <C>
        Fair value of contracts outstanding at January 1, 2002                                                $ (88,123)
        (Gains) losses realized or otherwise settled during the period (1)...............................       (56,928)
        Changes in fair value attributable to changes in valuation techniques and assumptions............            --
        Other changes in fair value (2)..................................................................       331,503
                                                                                                              ---------
        Fair value of contracts outstanding at March 31, 2002 (3)........................................     $ 186,452
                                                                                                              =========
</TABLE>

__________

(1)  Realized  cash  flow  hedges  of $50.7  million  reported  in Note 7 of the
     financial  statements  and $6.2 million  realized gain on trading  activity
     reported in the performance  metrics  section of the management  discussion
     and analysis, both included in this filing.

(2)  Includes $204.0 million for the  reclassification of Enron obligations from
     derivative  assets and  liabilities to Accounts  Payable as a result of the
     termination of Calpine's contracts with Enron.

(3)  Net  assets  reported  in Note 7 of the  Notes  to  Consolidated  Financial
     Statements included in this filing.

     The fair value of outstanding derivative commodity instruments at March 31,
2002,  based on price source and the period  during which the  instruments  will
mature (i.e., be realized) are summarized in the table below (in thousands):

<TABLE>
<CAPTION>
Fair Value Source                                                  2002     2003-2004   2005-2006   After 2006    Total
-----------------                                                --------   --------    --------    ----------   --------
<S>                                                              <C>        <C>         <C>          <C>         <C>
Prices actively quoted .......................................   $  7,498   $(14,593)   $(30,746)    $     --    $(37,841)
Prices provided by other external sources ....................      1,334     44,071      16,159           --      61,564
Prices based on models and other valuation methods ...........    103,605     34,886      26,298       (2,060)    162,729
                                                                 --------   --------    --------     --------    --------
Total fair value .............................................   $112,437   $ 64,364    $ 11,711     $ (2,060)   $186,452
                                                                 ========   ========    ========     ========    ========
</TABLE>

     The Company's  traders maintain fair value price  information  derived from
various  sources in the  Company's  trading  and risk  management  systems.  The
propriety  of that  information  is  validated  by the  Company's  Risk  Control
function.  Prices  actively  quoted include  validation with prices sourced from
commodities exchanges (e.g., New York Mercantile  Exchange).  Prices provided by
other external  sources  include  quotes from  commodity  brokers and electronic
trading  platforms.  Prices  based on models  and other  valuation  methods  are
validated using quantitative methods. Validation methods have been independently
reviewed for propriety.

     The  counterparty   credit  quality  associated  with  the  fair  value  of
outstanding  derivative commodity  instruments at March 31, 2002, and the period
during which the  instruments  will mature (i.e., be realized) are summarized in
the table below (in thousands):

<TABLE>
<CAPTION>
Credit Quality (based on April 22, 2002 ratings)                   2002     2003-2004   2005-2006   After 2006    Total
------------------------------------------------                 --------   ---------   ---------   ----------   --------
<S>                                                              <C>        <C>         <C>          <C>         <C>
Investment grade..............................................   $114,854   $ 73,794    $ 18,678     $ (2,078)   $205,248
Non-investment grade..........................................     40,463    (42,852)    (17,819)          --     (20,208)
No external ratings...........................................     (1,029)     2,307         116           18       1,412
                                                                 --------   --------    --------     --------    --------
Total fair value..............................................   $154,288   $ 33,249    $    975     $ (2,060)   $186,452
                                                                 ========   ========    ========     ========    ========
</TABLE>


















                                      -34-
<PAGE>
     The fair value of  outstanding  derivative  commodity  instruments  and the
change in fair value that would be  expected  from a ten percent  adverse  price
change are shown in the table below (in thousands):

<TABLE>
<CAPTION>
                                                               CHANGE IN FAIR
                                                                 VALUE FROM
                                                                 10% ADVERSE
                                            FAIR VALUE          PRICE CHANGE
                                            ----------         --------------
<S>                                         <C>                  <C>
At March 31, 2002:
     Crude oil .......................      $  (2,132)           $  (4,746)
     Electricity .....................        286,181              (29,715)
     Natural gas .....................        (97,597)            (134,607)
                                            ---------            ---------
         Total .......................      $ 186,452            $(169,068)
                                            =========            =========
</TABLE>

     Derivative  commodity  instruments included in the table are those included
in Note 7 to the unaudited Consolidated Condensed Financial Statements. The fair
value of  derivative  commodity  instruments  included  in the table is based on
present  value  adjusted  quoted  market  prices of  comparable  contracts.  The
positive fair value of electricity derivative commodity instruments includes the
effect of decreased  power prices  versus our  derivative  forward  commitments.
Conversely,  the negative fair value of the natural gas  derivatives  reflects a
general  decline  in gas  prices  versus  our  derivative  forward  commitments.
Derivative  commodity  instruments offset physical positions exposed to the cash
market.  None of the  offsetting  physical  positions  are included in the table
above.

     Price changes were calculated by assuming an  across-the-board  ten percent
adverse price change regardless of term or historical  relationship  between the
contract price of an instrument and the underlying commodity price. In the event
of an  actual  ten  percent  change  in  prices,  the fair  value  of  Calpine's
derivative portfolio would typically change by more than ten percent for earlier
forward months and less than ten percent for later forward months because of the
higher  volatilities  in the near term and the effects of  discounting  expected
future cash flows.

     The primary factors  affecting the fair value of the Company's  derivatives
at any point in time are (1) the volume of open derivative  positions (MMBtu and
Mwh), and (2) changing commodity market prices,  principally for electricity and
natural gas. The total volume of open gas  derivative  positions  decreased  53%
from  December 31, 2001 to March 31, 2002,  while the total volume of open power
derivative  positions  decreased  12% for the same  period.  In that  prices for
electricity and natural gas are among the most volatile of all commodity prices,
there may be  material  changes in the fair value of the  Company's  derivatives
over time,  driven both by price  volatility and the increases in volume of open
derivative  transactions.  Under SFAS No. 133, the change since the last balance
sheet date in the total value of the derivatives  (both assets and  liabilities)
is reflected  either in OCI, net of tax, or in the statement of operations as an
item (gain or loss) of current  earnings.  As of March 31, 2002, the majority of
the balance in accumulated  OCI  represented  the unrealized net loss associated
with  commodity  cash flow  hedging  transactions.  As noted  above,  there is a
substantial  amount of volatility  inherent in accounting  for the fair value of
these derivatives, and the Company's results during the three months ended March
31,  2002  have  reflected  this.  See  Note  7 for  additional  information  on
derivative  activity and also the 2001 Form 10-K for a further discussion of the
Company's accounting policies related to derivative  accounting.  This treatment
depends upon whether the  derivative  is designated as a cash flow or fair value
hedge or whether the derivative is not designated in a hedge  relationship.  The
following accounting applies:

o    Changes in the value of derivatives  designated as cash flow hedges, net of
     any ineffectiveness, are recorded to OCI.

o    Changes in the value of  derivatives  designated  as fair value  hedges are
     recorded in the statement of operations with the offsetting change in value
     of the  hedge  item also  recorded  in the  statement  of  operations.  Any
     difference  between  these  two  entries  to the  statement  of  operations
     represents hedge ineffectiveness.

o    The change in value of derivatives not designated in hedge relationships is
     recorded to the statement of operations.

     In 2001  the FASB  cleared  SFAS  No.  133  Implementation  Issue  No.  C16
"Applying  the Normal  Purchases  and Normal Sales  Exception to Contracts  That
Combine a  Forward  Contract  and a  Purchased  Option  Contract"  ("C16").  The
guidance in C16  applies to fuel supply  contracts  that  require  delivery of a
contractual  minimum  quantity  of fuel at a fixed price and have an option that
permits  the  holder to take  specified  additional  amounts of fuel at the same
fixed price at various times. Under C16, the volumetric  optionality provided by
such  contracts is considered a purchased  option that  disqualifies  the entire
derivative  fuel supply  contract from being  eligible to qualify for the normal



                                      -35-
<PAGE>
purchases  and normal  sales  exception in SFAS No. 133. The Company has adopted
the guidance  provided by C16 effective April 1, 2002, and Issue C16 is expected
to increase the volatility of the Company's reported earnings in the future.

     Interest rate swaps and cross  currency  swaps -- From time to time, we use
interest rate swap and cross  currency swap  agreements to mitigate our exposure
to interest rate and currency  fluctuations  associated with certain of our debt
instruments.  We do not use interest rate swap and currency swap  agreements for
speculative  or trading  purposes.  In regards to foreign  currency  denominated
senior  notes,  the swap  notional  amounts  equal  the  amount  of the  related
principal  debt.  The following  tables  summarize the fair market values of our
existing  interest rate swap and currency  swap  agreements as of March 31, 2002
(dollars in thousands):

<TABLE>
<CAPTION>
                                   Notional Principal     Weighted Average       Weighted Average         Fair Market
Maturity Date                           Amount             Interest Rate          Interest Rate              Value
-------------                      ------------------     ----------------       ----------------         -----------
                                                               (Pay)                (Receive)
<S>                                    <C>                      <C>              <C>                       <C>
2009 ..............................    $ 14,862                 6.9%             3-month US LIBOR          $   (940)
2011 ..............................      53,126                 6.9%             3-month US LIBOR            (3,324)
2012 ..............................     118,692                 6.5%             3-month US LIBOR            (5,554)
2014 ..............................      67,929                 6.7%             3-month US LIBOR            (4,086)
2015 ..............................      22,500                 7.0%             3-month US LIBOR            (1,728)
2018 ..............................      17,500                 7.0%             3-month US LIBOR            (1,431)
                                       --------                 ---                                        --------
  Total ...........................    $294,609                 6.7%             3-month US LIBOR          $(17,063)
                                       ========                 ===                                        ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                  Frequency of
                                                                    Fixed Currency                  Currency       Fair Market
Maturity Date            Notional Principal                            Exchange                      Exchange         Value
-------------      -----------------------------------      -------------------------------       -------------    -----------
                            (Pay/Receive)                           (Pay/Receive)
<S>                <C>                                      <C>                                   <C>                <C>
2007...........    US$127,763/C$200,000                     US$5,545/C$8,750                      Semi-annually      $ (3,929)
2008...........    Pound sterling 109,550/Euro 175,000      Pound sterling 5,152/Euro 7,328       Semi-annually       (10,732)
                                                                                                                     --------
      Total....                                                                                                      $(14,661)
                                                                                                                     ========
</TABLE>

     Long-term senior notes and construction/project financing -- Because of the
significant capital  requirements within our industry,  additional  financing is
often needed to fund our growth.  We use two primary forms of debt to raise this
financing --  long-term  senior notes and  construction/project  financing.  Our
Senior  Notes  bear  fixed  interest  rates  and  are  generally  used  to  fund
acquisitions,  replace construction financing for power plants once they achieve
commercial    operations,    and   for   general   corporate    purposes.    Our
construction/project financing is funded through two separate credit agreements,
Calpine  Construction  Finance  Company  L.P. and Calpine  Construction  Finance
Company II, LLC. Borrowings under these credit agreements bear variable interest
rates,  and are used  exclusively to fund the  construction of our power plants.
































                                      -36-
<PAGE>
The following table  summarizes the fair market value of our existing  long-term
senior notes and construction/project financing as of March 31, 2002 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                        Outstanding         Weighted Average        Fair Market
Maturity Date                                             Balance             Interest Rate            Value
-------------                                           -----------         ----------------        -----------
<S>                                                     <C>                 <C>                     <C>
Long-term senior notes:
    Senior Notes Due 2005 ...........................   $  250,000               8.3%               $  205,000
    Senior Notes Due 2006 ...........................      171,750              10.5%                  152,858
    Senior Notes Due 2006 ...........................      250,000               7.6%                  200,000
    Convertible Senior Notes Due 2006 ...............    1,200,000               4.0%                  924,000
    Senior Notes Due 2007 ...........................      275,000               8.8%                  222,750
    Senior Notes Due 2007 ...........................      125,500               8.8%                  100,400
    Senior Notes Due 2008 ...........................      400,000               7.9%                  312,000
    Senior Notes Due 2008 ...........................    2,030,000               8.5%                1,745,800
    Senior Notes Due 2008 ...........................      152,446               8.4%                  121,957
    Senior Notes Due 2009 ...........................      350,000               7.8%                  269,500
    Senior Notes Due 2010 ...........................      750,000               8.6%                  585,000
    Senior Notes Due 2011 ...........................    2,000,000               8.5%                1,570,000
    Senior Notes Due 2011 ...........................      284,820               8.9%                  219,311
                                                        ----------               ---                ----------
        Total long-term senior notes.................   $8,239,516               7.8%               $6,628,576
                                                        ==========               ===                ==========
Construction/project financing:
    Calpine Construction Finance Company L.P. .......   $  981,400          1-month US LIBOR        $  981,400
    Calpine Construction Finance Company II, LLC ....    2,442,697          1-month US LIBOR         2,442,697
                                                        ----------          ----------------        ----------
        Total long-term construction/
          project financing..........................   $3,424,097          1-month US LIBOR        $3,424,097
                                                        ==========          ================        ==========
</TABLE>

     Short-term   investments --  As  of  March  31,  2002,  we  had  short-term
investments of $14.1 million.  These  short-term  investments  consist of highly
liquid  investments  with  maturities  of less than  three  months.  We have the
ability to hold these  investments  to maturity,  and as a result,  we would not
expect the value of these  investments to be affected to any significant  degree
by the effect of a sudden change in market interest rates.

New Accounting Pronouncements

     In June 2001,  we adopted  SFAS No.  141,  "Business  Combinations,"  which
supersedes  Accounting  Principles  Board  ("APB")  Opinion  No.  16,  "Business
Combinations" and SFAS No. 38, "Accounting for  Preacquisition  Contingencies of
Purchased Enterprises." SFAS No. 141 eliminated the pooling-of-interests  method
of  accounting  for  business  combinations  and  modified  the  recognition  of
intangible assets and disclosure requirements.  Adoption of SFAS No. 141 did not
have a material effect on the consolidated financial statements.

     In Management's  Discussion and Analysis of Financial Condition and Results
of Operations in our Annual Report on Form 10-K for the year ended  December 31,
2001, the subsection  entitled "SFAS No. 141" in the Impact of Recent Accounting
Pronouncements  section was inadvertently  overwritten with an outdated draft of
the SFAS  No.  142  accounting  pronouncement  paragraph.  The  paragraph  above
discussing SFAS No. 141 supersedes the discussion in the 2001 Form 10-K.

     In June 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
Assets," which supersedes APB Opinion No. 17, "Intangible  Assets." SFAS No. 142
eliminates  the current  requirement to amortize  goodwill and  indefinite-lived
intangible  assets,  extends the  allowable  useful lives of certain  intangible
assets,  and  requires  impairment  testing and  recognition  for  goodwill  and
intangible  assets.  SFAS No. 142 will apply to  goodwill  and other  intangible
assets arising from  transactions  completed both before and after its effective
date.  The  provisions of SFAS No. 142 are required to be applied  starting with
fiscal years beginning after December 15, 2001. See Note 4 for more information.

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement  Obligations,"  which amends SFAS No. 19,  "Financial  Accounting and
Reporting by Oil and Gas Producing  Companies." SFAS No. 143 addresses financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible  long-lived  assets and the associated asset retirement costs. SFAS No.
143  requires  that  the  fair  value of a  liability  for an  asset  retirement
obligation  be  recognized in the period in which it is incurred if a reasonable
estimate  of fair value can be made.  SFAS No. 143 is  effective  for  financial
statements  issued for fiscal years  beginning  after June 15, 2002. We have not
completed  our  analysis  of the  impact  that  SFAS No.  143  will  have on our
consolidated financial statements.

     On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived  Assets," which supersedes SFAS No. 121,  "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and the  accounting  and  reporting  provisions  of APB  Opinion  No.  30,
"Reporting  the Results of  Operations -- Reporting the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring


                                      -37-
<PAGE>
Events and  Transactions,"  for the  disposal  of a segment  of a business  (as
previously  defined  in that APB  Opinion).  SFAS No. 144  establishes  a single
accounting  model,  based on the  framework  established  in SFAS No.  121,  for
long-lived  assets to be disposed of by sale. SFAS No. 144 also resolves several
significant  implementation  issues related to SFAS No. 121, such as eliminating
the  requirement  to  allocate  goodwill to  long-lived  assets to be tested for
impairment and  establishing  criteria to define  whether a long-lived  asset is
held for sale.  Adoption  of SFAS No. 144 did not have a material  effect on the
consolidated financial statements.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44,  and  64,  Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment  of Debt"  and an  amendment  of that  statement,  SFAS  No.  64,
"Extinguishments  of Debt Made to Satisfy  Sinking-Fund  Requirements." SFAS No.
145 also  rescinds  SFAS No.  44,  "Accounting  for  Intangible  Assets of Motor
Carriers."  SFAS No. 145 also amends SFAS No. 13,  "Accounting  for  Leases," to
eliminate an inconsistency  between the required  accounting for  sale-leaseback
transactions and the required  accounting for certain lease  modifications  that
have economic effects that are similar to sale-leaseback transactions.  SFAS No.
145 also amends  other  existing  authoritative  pronouncements  to make various
technical  corrections,  clarify meanings, or describe their applicability under
changed conditions. The provisions related to the rescission of SFAS No. 4 shall
be applied in fiscal years beginning after May 15, 2002. The provisions  related
to SFAS No. 13 shall be effective for transactions occurring after May 15, 2002.
All other  provisions shall be effective for financial  statements  issued on or
after May 15, 2002, with early  application  encouraged.  We do not believe that
SFAS No. 145 will have a material effect on our results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

See "Financial Market Risks" in Item 2.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

     Calpine Corporation v. Automated Credit Exchange ("ACE"). On March 5, 2002,
Calpine sued ACE in the Superior Court of the State of California for the County
of Alameda for  negligence  and breach of contract  to recover  reclaim  trading
credits,  a form of  emission  reduction  credits  that should have been held in
Calpine's  account  with  U.S.  Trust  Company  (US  Trust).  ACE is a broker in
emission reduction credits based in Pasadena,  California.  Calpine had paid ACE
for Nitrogen  oxide (NOx)  coastal  credits that were to be purchased by ACE and
held by US Trust.  The credits were to be held by US Trust  pursuant to a Credit
Holding Agreement, which provided, among other things, that US Trust was to hold
the credits until receiving  instructions from ACE to disburse the credits.  ACE
had agreed that (i) upon prior written  instruction from Calpine, to instruct US
Trust to take such actions as may be directed by Calpine to disburse the credits
held in escrow pursuant to the Credit Holding Agreement and (ii) not to take any
action,  or  otherwise  instruct  US Trust to take any  action,  concerning  the
credits held in escrow  pursuant to the Credit Holding  Agreement  without prior
written  instruction  from  Calpine.  Calpine and ACE entered  into a settlement
agreement that resolved all issues on March 29, 2002.  The  settlement  provided
for a  partial  recovery  of $7  million  and for  the  rights  to the  emission
reduction  credits to be held by ACE. The Company  expects to  recognize  the $7
million in the second quarter of 2002, after all realization  uncertainties  are
cleared. In accordance with the settlement agreement,  Calpine has dismissed its
complaint against ACE.

     Ben Johnson v. Peter Cartwright, et al. On December 17, 2001, a shareholder
filed a derivative lawsuit on behalf of Calpine against its directors and one of
its senior officers. This lawsuit is styled Johnson vs. Cartwright,  et al. (No.
CV803872),  and is pending in the California Superior Court, Santa Clara County.
Calpine is a nominal defendant in this lawsuit, which alleges claims relating to
purportedly  misleading  statements  about Calpine and stock sales by certain of
the director defendants and the officer defendant.  Calpine has filed a demurrer
asking the court to dismiss the  complaint  on the ground  that the  shareholder
plaintiff  lacks standing to pursue claims on behalf of Calpine.  The individual
defendants  have filed a demurrer  asking the court to dismiss the  complaint on
the ground that it fails to state any claims against them.

     Securities   Class  Action  Lawsuits.   Since  March  11,  2002,   fourteen
shareholder lawsuits have been filed against Calpine and certain of its officers
in the United  States  District  Court,  Northern  District of  California.  The
actions  captioned  Weisz vs. Calpine  Corp.,  et al., filed March 11, 2002, and
Labyrinth Technologies,  Inc. v. Calpine Corp., et al., filed March 28, 2002 are
purported  class  actions on behalf of purchasers of Calpine stock between March
15, 2001 and December 13, 2001.  Gustaferro  v. Calpine  Corp.,  filed April 18,
2002 is a  purported  class  action on behalf of  purchasers  of  Calpine  stock
between  February 6, 2001 and  December  13,  2001.  The eleven  other  actions,
captioned  Local 144 Nursing Home Pension Fund vs. Calpine  Corp.,  Lukowski vs.
Calpine Corp.,  Hart vs. Calpine Corp.,  Atchison vs. Calpine Corp. and Laborers
Local 1298 v. Calpine  Corp.,  Bell v. Calpine  Corp.,  Nowicki v. Calpine Corp.
Pallotta v. Calpine Corp.,  Knepell v. Calpine Corp., Staub v. Calpine Corp, and
Rose v. Calpine Corp.  were filed between March 18, 2002 and April 23, 2002. The
complaints in these eleven actions are virtually  identical--they  were filed by



                                      -38-
<PAGE>
three law firms, in conjunction  with other law firms as co-counsel.  All eleven
lawsuits  are  purported  class  actions on behalf of  purchasers  of  Calpine's
securities between January 5, 2001 and December 13, 2001.

     The complaints in these fourteen actions allege that,  during the purported
class periods,  certain senior executives issued false and misleading statements
about Calpine's  financial condition in violation of Sections 10(b) and 20(1) of
the Securities  Exchange Act of 1934, as well as Rule 10b-5.  These actions seek
an  unspecified  amount of damages,  in  addition  to other forms of relief.  We
expect that these actions,  as well as any related  actions that may be filed in
the future,  will be  consolidated by the court into a single  securities  class
action.  We consider the lawsuits to be without  merit,  and we intend to defend
vigorously against these allegations.

     Public  Utilities  Commission of the State of California v. Sellers of Long
Term  Contracts to the  California  Department  of Water  Resources;  California
Electricity  Oversight Board v. Sellers of Long Term Contracts to the California
Department of Water Resources.  In February 2002 both the CPUC and the EOB filed
complaints under Section 206 of the Federal Power Act with FERC (EL02-60-000 and
EL02-62-000,  respectively)  alleging that the prices and terms of the long-term
contracts  with DWR are  unjust  and  unreasonable  and  counter  to the  public
interest.  CES is a respondent  and the four  long-term  contracts  entered into
between CES and DWR are subject to the complaint (see, Risk Factors - California
Long-Term Supply Agreements).  As part of Calpine's successful  renegotiation of
its long-term  power  contracts with DWR announced on April 22, 2002, the Office
of the Governor,  the CPUC,  the EOB and the AG agreed to settle this action and
drop all  challenges to Calpine's  long-term  contracts with DWR. On May 2, 2002
each of the CPUC, the EOB, and the AG filed a Notice of Partial  Withdrawal with
Prejudice  of  Complaint  as to Calpine  Energy  Services,  L.P.  with the FERC.
Pursuant to its  respective  notice each of the CPUC and the EOB withdrew all of
their   respective   claims   against   CES  which  had  been   alleged  in  the
above-for-mentioned  complaints  (EL02-60-000  and  ELO2-62-000)  concerning the
justness and reasonableness of the terms under the long-term contracts with DWR.
In addition, pursuant to its notice, the AG withdrew all claims as to CES in its
complaint  (EL02-71-000)  wherein it had alleged that public utility  sellers of
energy and ancillary services to DWR and into markets operated by the California
Independent  System  Operator  and the  California  Power  Exchange  were not in
compliance with their  disclosure  obligations  under Section 205 of the Federal
Power Act.

     The Company is involved in various other claims and legal  actions  arising
out of the normal  course of  business.  The  Company  does not expect  that the
outcome  of  these  proceedings  will  have a  material  adverse  effect  on the
Company's financial position or results of operations.

Item 2. Changes in Securities and Use of Proceeds.

     4% Convertible  Senior Notes due 2006. On December 26, 2001, we completed a
private placement of $1,000,000,000 aggregate principal amount of 4% Convertible
Senior Notes due 2006 (the "senior  notes due 2006").  The initial  purchaser of
the senior  notes due 2006 was  Deutsche  Bank Alex.  Brown Inc.  (the  "initial
purchaser"). The initial purchaser exercised its option to acquire an additional
$200,000,000  aggregate  principal  amount  of the  senior  notes  due  2006  by
purchasing an additional  $100,000,000  aggregate principal amount of the senior
notes due 2006 on each of December  31, 2001 and January 3, 2002.  The  offering
price of the  senior  notes  due 2006 was 100% of the  principal  amount  of the
senior notes due 2006, less an aggregate  underwriting  discount of $30,000,000.
Each sale of the senior notes due 2006 to the initial  purchaser was exempt from
registration  in reliance on Section 4(2) and  Regulation D under the Securities
Act of 1933, as amended,  as a transaction not involving a public offering.  The
senior  notes due 2006 were  re-offered  by the initial  purchaser  to qualified
institutional buyers in reliance on Rule 144A under the Securities Act.

     The senior notes due 2006 are  convertible  into shares of our common stock
at a conversion  price of $18.07 per share.  The conversion  price is subject to
adjustment in certain  circumstances.  We have reserved 66,408,411 shares of our
authorized  common stock for issuance  upon  conversion  of the senior notes due
2006.  The senior  notes due 2006 are  convertible  at any time on or before the
close of business  on the day that is two  business  days prior to the  maturity
date, December 26, 2006, unless we have previously  repurchased the senior notes
due 2006.  Holders of the senior  notes due 2006 have the right to require us to
repurchase  their senior  notes due 2006 on December 26, 2004.  We may choose to
pay the  repurchase  price in cash or shares of common  stock,  or a combination
thereof.
















                                      -39-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits

The following exhibits are filed herewith unless otherwise indicated:

                                 EXHIBIT INDEX

    EXHIBIT
     NUMBER                             DESCRIPTION

     *3.1         Amended and Restated  Certificate of  Incorporation of Calpine
                  Corporation (a)

     *3.2         Certificate of Correction of Calpine Corporation (b)

     *3.3         Certificate  of Amendment of Amended and Restated  Certificate
                  of Incorporation of Calpine Corporation (c)

     *3.4         Certificate of Designation of Series A Participating Preferred
                  Stock of Calpine Corporation (b)

     *3.5         Amended  Certificate of Designation of Series A  Participating
                  Preferred Stock of Calpine Corporation (b)

     *3.6         Amended  Certificate of Designation of Series A  Participating
                  Preferred Stock of Calpine Corporation (c)

     *3.7         Certificate of Designation of Special Voting  Preferred  Stock
                  of Calpine Corporation(d)

      3.8         Certificate  of Ownership and Merger Merging  Calpine  Natural
                  Gas GP, Inc. into Calpine Corporation.

      3.9         Certificate  of Ownership and Merger Merging  Calpine  Natural
                  Gas Company into Calpine Corporation.

     *3.10        Amended and Restated By-laws of Calpine Corporation (f)

     *4.1         Indenture  dated  as  of  August  10,  2000,  between  Calpine
                  Corporation and Wilmington Trust Company, as Trustee.(f)

     *4.2         First  Supplemental  Indenture dated as of September 28, 2000,
                  between Calpine  Corporation and Wilmington Trust Company,  as
                  Trustee.(b)

     *4.3         Amended and Restated Rights  Agreement,  dated as of September
                  19, 2001,  between  Calpine  Corporation  and EquiServe  Trust
                  Company, N.A., as Rights Agent.(g)

    *10.1         Second Amended and Restated Credit Agreement  ("Second Amended
                  and  Restated  Credit  Agreement")  dated as of May 23,  2000,
                  among the Company,  Bayerische Landesbank,  as Co-Arranger and
                  Syndication  Agent, The Bank of Nova Scotia,  as Lead Arranger
                  and Administrative Agent, and the Lenders named therein.(h)

    *10.2         First  Amendment  and Waiver to Second  Amended  and  Restated
                  Credit  Agreement,  dated  as of April  19,  2001,  among  the
                  Company, The Bank of Nova Scotia, as Administrative Agent, and
                  the Lenders named therein.(e)

    *10.3         Second   Amendment  to  Second  Amended  and  Restated  Credit
                  Agreement,  dated as of March 8, 2002, among the Company,  The
                  Bank of Nova Scotia, as Administrative  Agent, and the Lenders
                  named therein.(e)

     10.4         Third   Amendment  to  Second   Amended  and  Restated  Credit
                  Agreement,  dated as  of  May 9, 2002, among  the Company, The
                  Bank of Nova Scotia, as  Administrative Agent, and the Lenders
                  named therein.

    *10.5         Credit  Agreement,  dated  as of  March  8,  2002,  among  the
                  Company,  the Lenders named  therein,  The Bank of Nova Scotia
                  and Bayerische Landesbank Girozentrale,  as lead arrangers and
                  bookrunners, Salomon Smith Barney Inc. and Deutsche Banc Alex.
                  Brown  Inc.,  as  lead  arrangers  and  bookrunners,  Bank  of
                  America, National Association, and Credit Suisse First Boston,
                  Cayman  Islands  Branch,  as lead  arrangers  and  syndication
                  agents,  TD Securities (USA) Inc., as lead arranger,  The Bank
                  of Nova  Scotia,  as joint  administrative  agent and  funding
                  agent,  and  Citicorp  USA,  Inc.,  as  joint   administrative
                  agent.(e)

     10.6         First Amendment to Credit  Agreement, dated as of May 9, 2002,
                  among  the  Company,  The  Bank  of  Nova  Scotia,  as   Joint
                  Administrative Agent and Funding Agent, Citicorp USA, Inc., as
                  Joint Administrative Agent, and the Lenders named therein.



                                      -40-
<PAGE>
    *10.7         Assignment and Security Agreement,  dated as of March 8, 2002,
                  by the  Company  in  favor  of The  Bank  of Nova  Scotia,  as
                  administrative  agent  for each of the  Lender  Parties  named
                  therein.(e)

    *10.8         Pledge Agreement, dated as of March 8, 2002, by the Company in
                  favor of The Bank of Nova  Scotia,  as  Agent  for the  Lender
                  Parties named therein.(e)

     10.9         Amendment Number One to Pledge  Agreement,  dated as of May 9,
                  2002, among  the Company and The Bank of Nova Scotia, as Joint
                  Administrative Agent and Funding Agent.

    *10.10        Pledge  Agreement, dated  as of  March 8,  2002,  by  Quintana
                  Minerals  (USA),  Inc., JOQ Canada,  Inc. and Quintana  Canada
                  Holdings,  LLC in favor of The Bank of Nova  Scotia,  as Agent
                  for the Lender Parties named therein.(e)

     10.11        First  Amendment  Pledge  Agreement,  dated as of May 9, 2002,
                  by the  Company in favor of The Bank of Nova Scotia,  as Agent
                  for each of the Lender Parties named therein.

     10.12        First Amendment Pledge Agreement (Membership Interests), dated
                  as of May 9, 2002, by the Company in favor of The Bank of Nova
                  Scotia, as Agent for each of the Lender Parties named therein.

     10.13        Note  Pledge  Agreement,  dated of May 9, 2002, by the Company
                  in favor of The Bank of Nova Scotia,  as Agent for each of the
                  Lender Parties named therein.
________________

*      Incorporated by reference.

     (a)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form S-3 (Registration No. 333-40652), filed with the SEC
          on June 30, 2000.

     (b)  Incorporated  by reference to Calpine  Corporation's  Annual Report on
          Form 10-K for the year ended December 31, 2000,  filed with the SEC on
          March 15, 2001.

     (c)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form S-3 (Registration No. 333-66078), filed with the SEC
          on July 27, 2001.

     (d)  Incorporated by reference to Calpine Corporation's Quarterly Report on
          Form 10-Q dated March 31, 2001, filed with the SEC on May 15, 2001.

     (e)  Incorporated  by reference to Calpine  Corporation's  Annual Report on
          Form 10-K for the year ended December 31, 2001,  filed with the SEC on
          March 29, 2002.

     (f)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form S-3 (Registration No. 333-76880), filed with the SEC
          on January 17, 2002.

     (g)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form 8-A/A filed with the SEC on September 28, 2001.

     (h)  Incorporated by reference to Calpine  Corporation's  Current Report on
          Form 8-K dated July 25, 2000, filed with the SEC on August 9, 2000.

 (b) Reports on Form 8-K

     The registrant  filed the following  reports on Form 8-K during the quarter
ended March 31, 2002:

<TABLE>
<CAPTION>
DATE OF REPORT                                 DATE FILED          ITEM REPORTED
--------------                                 ----------          -------------
<S>                                         <C>                        <C>
December 24, 2001 .....................     January 16, 2002           5,7
November 14, 2001 .....................     January 17, 2002           5,7
January 31, 2002 ......................     February 8, 2002           5,7
March 12, 2002 ........................     March 13, 2002             5,7
March 13, 2002 ........................     March 13, 2002             5
March 25, 2002 ........................     March 26, 2002             4,7
</TABLE>











                                      -41-
<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

CALPINE CORPORATION

By:   /s/ Robert D. Kelly                                     Date: May 15, 2002
-------------------------------
Robert D. Kelly
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

By:   /s/ Charles B. Clark, Jr.                               Date: May 15, 2002
-------------------------------
Charles B. Clark, Jr.
Senior Vice President and
Corporate Controller
(Principal Accounting Officer)



































































                                      -42-
<PAGE>
The following exhibits are filed herewith unless otherwise indicated:

                                  EXHIBIT INDEX

    EXHIBIT
     NUMBER                             DESCRIPTION

     *3.1         Amended and Restated  Certificate of  Incorporation of Calpine
                  Corporation (a)

     *3.2         Certificate of Correction of Calpine Corporation (b)

     *3.3         Certificate  of Amendment of Amended and Restated  Certificate
                  of Incorporation of Calpine Corporation (c)

     *3.4         Certificate of Designation of Series A Participating Preferred
                  Stock of Calpine Corporation (b)

     *3.5         Amended  Certificate of Designation of Series A  Participating
                  Preferred Stock of Calpine Corporation (b)

     *3.6         Amended  Certificate of Designation of Series A  Participating
                  Preferred Stock of Calpine Corporation (c)

     *3.7         Certificate of Designation of Special Voting  Preferred  Stock
                  of Calpine Corporation(d)

      3.8         Certificate  of Ownership and Merger Merging  Calpine  Natural
                  Gas GP, Inc. into Calpine Corporation.

      3.9         Certificate  of Ownership and Merger Merging  Calpine  Natural
                  Gas Company into Calpine Corporation.

     *3.10        Amended and Restated By-laws of Calpine Corporation (f)

     *4.1         Indenture  dated  as  of  August  10,  2000,  between  Calpine
                  Corporation and Wilmington Trust Company, as Trustee.(f)

     *4.2         First  Supplemental  Indenture dated as of September 28, 2000,
                  between Calpine  Corporation and Wilmington Trust Company,  as
                  Trustee.(b)

     *4.3         Amended and Restated Rights  Agreement,  dated as of September
                  19, 2001,  between  Calpine  Corporation  and EquiServe  Trust
                  Company, N.A., as Rights Agent.(g)

    *10.1         Second Amended and Restated Credit Agreement  ("Second Amended
                  and  Restated  Credit  Agreement")  dated as of May 23,  2000,
                  among the Company,  Bayerische Landesbank,  as Co-Arranger and
                  Syndication  Agent, The Bank of Nova Scotia,  as Lead Arranger
                  and Administrative Agent, and the Lenders named therein.(h)

    *10.2         First  Amendment  and Waiver to Second  Amended  and  Restated
                  Credit  Agreement,  dated  as of April  19,  2001,  among  the
                  Company, The Bank of Nova Scotia, as Administrative Agent, and
                  the Lenders named therein.(e)

    *10.3         Second   Amendment  to  Second  Amended  and  Restated  Credit
                  Agreement,  dated as of March 8, 2002, among the Company,  The
                  Bank of Nova Scotia, as Administrative  Agent, and the Lenders
                  named therein.(e)

     10.4         Third   Amendment  to  Second   Amended  and  Restated  Credit
                  Agreement,  dated as  of  May 9, 2002, among  the Company, The
                  Bank of Nova Scotia, as  Administrative Agent, and the Lenders
                  named therein.

    *10.5         Credit  Agreement,  dated  as of  March  8,  2002,  among  the
                  Company,  the Lenders named  therein,  The Bank of Nova Scotia
                  and Bayerische Landesbank Girozentrale,  as lead arrangers and
                  bookrunners, Salomon Smith Barney Inc. and Deutsche Banc Alex.
                  Brown  Inc.,  as  lead  arrangers  and  bookrunners,  Bank  of
                  America, National Association, and Credit Suisse First Boston,
                  Cayman  Islands  Branch,  as lead  arrangers  and  syndication
                  agents,  TD Securities (USA) Inc., as lead arranger,  The Bank
                  of Nova  Scotia,  as joint  administrative  agent and  funding
                  agent,  and  Citicorp  USA,  Inc.,  as  joint   administrative
                  agent.(e)

     10.6         First Amendment to Credit  Agreement, dated as of May 9, 2002,
                  among  the  Company,  The  Bank  of  Nova  Scotia,  as   Joint
                  Administrative Agent and Funding Agent, Citicorp USA, Inc., as
                  Joint Administrative Agent, and the Lenders named therein.

    *10.7         Assignment and Security Agreement,  dated as of March 8, 2002,
                  by the  Company  in  favor  of The  Bank  of Nova  Scotia,  as
                  administrative  agent  for each of the  Lender  Parties  named
                  therein.(e)


                                      -43-
<PAGE>
    *10.8         Pledge Agreement, dated as of March 8, 2002, by the Company in
                  favor of The Bank of Nova  Scotia,  as  Agent  for the  Lender
                  Parties named therein.(e)

     10.9         Amendment Number One to Pledge  Agreement,  dated as of May 9,
                  2002, among  the Company and The Bank of Nova Scotia, as Joint
                  Administrative Agent and Funding Agent.

    *10.10        Pledge  Agreement, dated  as of  March 8,  2002,  by  Quintana
                  Minerals  (USA),  Inc., JOQ Canada,  Inc. and Quintana  Canada
                  Holdings,  LLC in favor of The Bank of Nova  Scotia,  as Agent
                  for the Lender Parties named therein.(e)

     10.11        First  Amendment  Pledge  Agreement,  dated as of May 9, 2002,
                  by the  Company in favor of The Bank of Nova Scotia,  as Agent
                  for each of the Lender Parties named therein.

     10.12        First Amendment Pledge Agreement (Membership Interests), dated
                  as of May 9, 2002, by the Company in favor of The Bank of Nova
                  Scotia, as Agent for each of the Lender Parties named therein.

     10.13        Note  Pledge  Agreement,  dated of May 9, 2002, by the Company
                  in favor of The Bank of Nova Scotia,  as Agent for each of the
                  Lender Parties named therein.
________________

*      Incorporated by reference.

     (a)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form S-3 (Registration No. 333-40652), filed with the SEC
          on June 30, 2000.

     (b)  Incorporated  by reference to Calpine  Corporation's  Annual Report on
          Form 10-K for the year ended December 31, 2000,  filed with the SEC on
          March 15, 2001.

     (c)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form S-3 (Registration No. 333-66078), filed with the SEC
          on July 27, 2001.

     (d)  Incorporated by reference to Calpine Corporation's Quarterly Report on
          Form 10-Q dated March 31, 2001, filed with the SEC on May 15, 2001.

     (e)  Incorporated  by reference to Calpine  Corporation's  Annual Report on
          Form 10-K for the year ended December 31, 2001,  filed with the SEC on
          March 29, 2002.

     (f)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form S-3 (Registration No. 333-76880), filed with the SEC
          on January 17, 2002.

     (g)  Incorporated  by  reference  to  Calpine  Corporation's   Registration
          Statement on Form 8-A/A filed with the SEC on September 28, 2001.

     (h)  Incorporated by reference to Calpine  Corporation's  Current Report on
          Form 8-K dated July 25, 2000, filed with the SEC on August 9, 2000.


































                                      -44-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(I)
<SEQUENCE>3
<FILENAME>ex3-8.txt
<TEXT>
                                                               STATE OF DELAWARE
                                                              SECRETARY OF STATE
                                                        DIVISION OF CORPORATIONS
                                                       FILED 04:01 PM 04/24/2002
                                                             020262655 - 0939652



                      CERTIFICATE OF OWNERSHIP AND MERGER
                                    MERGING
                          CALPINE NATURAL GAS GP, INC.
                             a Delaware corporation
                                      INTO
                              CALPINE CORPORATION
                             a Delaware corporation

              (Pursuant to Section 253 of the General Corporation
                         Law of the State of Delaware)

     Calpine Corporation, a corporation duly organized and existing under and by
virtue of the  General  Corporation  Law of the State of  Delaware,  does hereby
certify:

     FIRST: That Calpine Corporation (the "Company") and Calpine Natural Gas GP,
Inc.  ("Calpine GP") are  corporations  duly organized and existing under and by
virtue of the General Corporation Law of the State of Delaware.

     SECOND:  That the Company owns all of the issued and outstanding  shares of
the capital stock of Calpine GP.

     THIRD:  That the Company,  by  resolutions  of its board of directors  duly
adopted at a meeting held on the 22nd day of April, 2002,  determined to and did
merge into  itself  said  Calpine  GP, and that such  resolutions  have not been
rescinded and are in full force and effect on the date hereof, which resolutions
are in the following words, to wit:

          "WHEREAS,  Calpine  Natural  Gas  GP,  Inc.,  a  Delaware  corporation
     ("Calpine GP"), is a wholly owned subsidiary of the Company;

          WHEREAS,  the board of directors of the Company deems it advisable and
     in the best  interest of the Company to merge  Calpine GP with and into the
     Company, with the Company being the surviving corporation;

          NOW,  THEREFORE,  BE IT  RESOLVED,  that Calpine GP be merged with and
     into the Company pursuant to Section 253 of the General  Corporation Law of
     the State of Delaware,  and that the Company succeed to and possess all the
     rights and  assets of  Calpine GP and be subject to all of the  liabilities
     and obligations of Calpine GP;

          RESOLVED  FURTHER,  that each share of the capital stock of Calpine GP
     issued  and  outstanding  immediately  prior to the  effective  time of the
     merger  shall,  upon the  effective  time and by virtue of the  merger,  be
     cancelled without payment therefor;

          RESOLVED FURTHER,  that the merger shall become effective at such time
     designated in the  Certificate of Ownership and Merger filed by the Company
     with the Secretary of State of the State of Delaware to effect the merger;

          RESOLVED  FURTHER,  that the  appropriate  officers of the Company are
     hereby  authorized  and empowered to file the necessary  documents with the
     Secretary  of  State of the  State of  Delaware,  to  incur  the  necessary
     expenses  therefor  and to take,  or cause to be  taken,  all such  further
     action and to execute and deliver or cause to be executed and delivered, in
     the name of and on behalf of the Company,  all such further instruments and
     documents  as any such  officer may deem to be  necessary  or  advisable in
     order to effect the purpose and intent of the foregoing  resolutions and to
     be in the best interests of the Company (as  conclusively  evidenced by the
     taking of such action or the execution and delivery of such instruments and
     documents,  as the  case  may be,  by or under  the  direction  of any such
     officer);

          RESOLVED FURTHER, that the prior actions of the officers and directors
     of the Company in undertaking to carry out the transactions contemplated by
     the  foregoing  resolutions  be, and the same hereby are, in all  respects,
     approved, adopted, ratified and confirmed; and

          RESOLVED  FURTHER,  anything  herein  or  elsewhere  to  the  contrary
     notwithstanding,  the merger may be amended or terminated  and abandoned by
     the board of  directors  of the  Company at any time prior to the time that
     the  Certificate  of Ownership and Merger filed with the Secretary of State
     of Delaware becomes effective."

          FOURTH:  The merger shall become effective at 11:58 p.m., Eastern Time
     on April 24, 2002.

          IN WITNESS  WHEREOF,  the Company has caused  this  Certificate  to be
     signed by its duly authorized officer this 24 day of April, 2002.



                                                 CALPINE CORPORATION



                                                 By:    /s/ Peter Cartwright
                                                    ---------------------------
                                                    Peter Cartwright, President

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.(I)
<SEQUENCE>4
<FILENAME>ex3-9.txt
<TEXT>
                      CERTIFICATE OF OWNERSHIP AND MERGER
                                    MERGING
                          CALPINE NATURAL GAS COMPANY
                             a Delaware corporation
                                      INTO
                              CALPINE CORPORATION
                             a Delaware corporation

              (Pursuant to Section 253 of the General Corporation
                         Law of the State of Delaware)

     Calpine Corporation, a corporation duly organized and existing under and by
virtue of the  General  Corporation  Law of the State of  Delaware,  does hereby
certify:

     FIRST:  That Calpine  Corporation  (the  "Company") and Calpine Natural Gas
Company  ("CNGC") are  corporations  duly  organized  and existing  under and by
virtue of the General Corporation Law of the State of Delaware.

     SECOND:  That the Company owns all of the issued and outstanding  shares of
the capital stock of CNGC.

     THIRD:  That the Company,  by  resolutions  of its board of directors  duly
adopted at a meeting held on the 22nd day of April, 2002,  determined to and did
merge into itself said CNGC, and that such  resolutions  have not been rescinded
and are in full force and effect on the date hereof,  which  resolutions  are in
the following words, to wit:

          "WHEREAS,  the  merger of Calpine  Natural  Gas GP,  Inc.,  a Delaware
     corporation, with and into the Company and the receipt of 990 shares of the
     common stock of Calpine Natural Gas Company, a Delaware  corporation,  from
     Calpine Natural Gas Holdings, LLC, a Delaware limited liability company and
     wholly owned subsidiary of the Company (the "Stock Transfer"),  resulted in
     CNGC becoming a wholly owned subsidiary of the Company;

          WHEREAS,  the board of directors of the Company deems it advisable and
     in the  best  interests  of the  Company  to merge  CNGC  with and into the
     Company, with the Company being the surviving corporation;

          NOW, THEREFORE,  BE IT RESOLVED, that CNGC be merged with and into the
     Company pursuant to Section 253 of the General Corporation Law of the State
     of Delaware, and that the Company succeed to and possess all the rights and
     assets of CNGC and be subject to all of the  liabilities and obligations of
     CNGC;

          RESOLVED FURTHER,  that each share of the capital stock of CNGC issued
     and  outstanding  immediately  prior to the  effective  time of the  merger
     shall,  upon the effective  time and by virtue of the merger,  be cancelled
     without payment therefor;




                                        1                      STATE OF DELAWARE
                                                              SECRETARY OF STATE
                                                        DIVISION OF CORPORATIONS
                                                       FILED 04:02 PM 04/24/2002
                                                             020262278 - 0939652
<PAGE>
          RESOLVED FURTHER,  that the merger shall become effective at such time
     designated in the  Certificate of Ownership and Merger filed by the Company
     with the Secretary of State of the State of Delaware to effect the merger;

          RESOLVED  FURTHER,  that the  appropriate  officers of the Company are
     hereby  authorized  and empowered to file the necessary  documents with the
     Secretary  of  State of the  State of  Delaware,  to  incur  the  necessary
     expenses  therefor  and to take,  or cause to be  taken,  all such  further
     action and to execute and deliver or cause to be executed and delivered, in
     the name of and on behalf of the Company,  all such further instruments and
     documents  as any such  officer may deem to be  necessary  or  advisable in
     order to effect the purpose and intent of the foregoing  resolutions and to
     be in the best interests of the Company (as  conclusively  evidenced by the
     taking of such action or the execution and delivery of such instruments and
     documents,  as the  case  may be,  by or under  the  direction  of any such
     officer);

          RESOLVED FURTHER, that the prior actions of the officers and directors
     of the Company in undertaking to carry out the transactions contemplated by
     the  foregoing  resolutions  be, and the same hereby are, in all  respects,
     approved, adopted, ratified and confirmed; and

          RESOLVED  FURTHER,  anything  herein  or  elsewhere  to  the  contrary
     notwithstanding,  the merger may be amended or terminated  and abandoned by
     the board of  directors  of the  Company at any time prior to the time that
     the  Certificate  of Ownership and Merger filed with the Secretary of State
     of Delaware becomes effective."

          FOURTH:  The merger shall become effective at 11:59 p.m., Eastern Time
     on April 24, 2002.



          IN WITNESS  WHEREOF,  the Company has caused  this  Certificate  to be
     signed by its duly authorized officer this 24 day of April, 2002.


                                                  CALPINE CORPORATION


                                                  By:   /s/ Peter Cartwright
                                                     ---------------------------
                                                     Peter Cartwright, President








                                        2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>ex10-4.txt
<TEXT>
                               THIRD AMENDMENT TO
                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT


     THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of May 9, 2002 (herein called this "Amendment"), is entered into by and among
CALPINE CORPORATION,  a Delaware corporation (herein called the "Company"),  the
various  financial  institutions  listed  on  the  signature  page  hereof  (the
"Lenders") and THE BANK OF NOVA SCOTIA, as administrative  agent for the Lenders
(herein, in such capacity, called the "Agent").

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS,  the Company,  the Lenders and the Agent have  heretofore  entered
into a certain Second Amended and Restated Credit Agreement, dated as of May 23,
2000,  as amended by that certain First  Amendment and Waiver to Second  Amended
and  Restated  Credit  Agreement,  dated as of April 19,  2001 and that  certain
Second  Amendment to Second Amended and Restated Credit  Agreement,  dated as of
March 8, 2002 (herein called the "Credit Agreement"); and

     WHEREAS,  the  Company,  the  Lenders and the Agent now desire to amend the
Credit Agreement in certain respects, as hereinafter provided,

     WHEREAS,   the  Company  has  requested  that  the  Lenders  waive  certain
provisions  of the Loan  Documents,  and  subject  to the terms  and  provisions
hereinafter set forth, the Lenders have agreed to do so;

     NOW, THEREFORE,  in consideration of the premises and the mutual agreements
herein  contained,  the  Company,  the  Lenders  and the Agent  hereby  agree as
follows:

     SECTION 1. The Credit Agreement is hereby amended as follows:

     (a) Clause (a) of Section 8.2.2 of the Credit  Agreement is hereby  amended
by adding the following clause immediately prior to the end thereof:

     "and any Indebtedness evidenced by promissory notes pledged pursuant to the
     Note  Pledge  Agreement  (as  such  term  is  defined  in the  2002  Credit
     Agreement)."

     (b) Clause (a) of Section 8.2.3 of the Credit  Agreement is hereby  amended
by adding the following proviso immediately prior to the end thereof:

     ";  provided,  however,  that all proceeds from any  Incremental  Dedicated
     Assets  (as such term is  defined in the 2002  Credit  Agreement)  shall be
     applied as more particularly set forth in the 2002 Credit Agreement."

     SECTION 2. The  effectiveness of this Amendment is conditioned upon receipt
by the  Agent  of all  the  following  documents,  each in  form  and  substance
satisfactory to the Agent:

          (i) This Amendment duly executed by the Company,  Required Lenders and
     Calpine Gilroy; and

          (ii)  Such  other   documents  as  the  Agent  shall  have  reasonably
     requested.

     SECTION 3. This Amendment  shall be deemed to be an amendment to the Credit
Agreement,  and the Credit  Agreement,  as amended hereby,  is hereby  ratified,
approved and confirmed in each and every  respect.  All references to the Credit
Agreement  in  any  other  document,  instrument,  agreement  or  writing  shall
hereafter be deemed to refer to the Credit Agreement as amended hereby.

     SECTION 4. THIS  AMENDMENT  SHALL BE A CONTRACT  MADE UNDER AND GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. All
obligations  of the Company  and rights of the  Lenders and the Agent  expressed
herein  shall be in  addition  to and not in  limitation  of those  provided  by
applicable  law.  Whenever  possible each provision of this  Amendment  shall be
interpreted  in such manner as to be effective and valid under  applicable  law,
but if any provision of this  Amendment  shall be prohibited by or invalid under
applicable  law,  such  provision  shall be  ineffective  to the  extent of such
prohibition or invalidity,  without invalidating the remainder of such provision
or the remaining provisions of this Amendment.

     SECTION 5. This  Amendment  may be executed in any number of  counterparts,
all of which taken together shall  constitute one and the same  instrument,  and
any party hereto may execute this Amendment by signing one or more counterparts.

     SECTION 6. This  Amendment  shall be binding upon the Company,  the Lenders
and the Agent and their  respective  successors and assigns,  and shall inure to
the benefit of the  Company,  the Lenders and the Agent and the  successors  and
assigns of the Lenders and the Agent.

     SECTION 7. THE COMPANY  HEREBY  KNOWINGLY,  VOLUNTARILY  AND  INTENTIONALLY
WAIVES  ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR  PROCEEDING  TO ENFORCE OR
DEFEND  ANY RIGHTS  UNDER THIS  AMENDMENT  OR UNDER ANY  AMENDMENT,  INSTRUMENT,
DOCUMENT  OR  AGREEMENT  DELIVERED  OR WHICH MAY IN THE FUTURE BE  DELIVERED  IN
CONNECTION  HEREWITH  OR  ARISING  FROM ANY  BANKING  RELATIONSHIP  EXISTING  IN
CONNECTION  WITH THIS  AMENDMENT,  AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed by their  respective  officers  thereunto duly authorized as of the day
and year first above written.

                                         CALPINE CORPORATION


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         THE BANK OF NOVA SCOTIA, as Agent and
                                         Lender


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         BAYERISCHE LANDESBANK GIROZENTRALE


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         CIBC INC.


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         CREDIT SUISSE FIRST BOSTON, NEW YORK
                                         BRANCH


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         BAYERISCHE HYPO-UND VEREINSBANK AG


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         ING (U.S.) CAPITAL LLC


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         TORONTO DOMINION (TEXAS) INC.


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         UNION BANK OF CALIFORNIA, N.A.


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         BANK OF AMERICA, N.A.


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         CREDIT LYONNAIS NEW YORK BRANCH


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         DRESDNER BANK AG, NEW YORK AND GRAND
                                         CAYMAN BRANCHES


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         FLEET NATIONAL BANK


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         FORTIS CAPITAL CORP.


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


The undersigned has reviewed and approved
the Amendment and confirms that its obligations
under the Assignment Agreement remain in full
force and effect.

CALPINE GILROY COGEN, L.P.,
a Delaware limited partnership

By:   Calpine Gilroy 1, Inc.,
      a Delaware corporation,
      its general partner


      By:________________________________
      Title:

Address:     50 W. San Fernando St.
               San Jose, CA 95113

Attention:   Vice President - Finance

Telecopier:  408-995-0505

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>ex10-6.txt
<TEXT>
                       FIRST AMENDMENT TO CREDIT AGREEMENT


     THIS FIRST AMENDMENT TO CREDIT  AGREEMENT,  dated as of May 9, 2002 (herein
called this "Amendment"),  is entered into by and among CALPINE  CORPORATION,  a
Delaware  corporation  (herein  called the  "Company"),  the  various  financial
institutions  listed on the signature  page hereof (the  "Lenders")  THE BANK OF
NOVA SCOTIA ("Scotiabank"),  as joint administrative agent and funding agent (in
such  capacity,   the  "Agent")  and  CITICORP  USA,  INC.  ("CUSA"),  as  Joint
Administrative  Agents  (in  such  capacity,   together  with  Scotiabank,   the
"Administrative Agents").

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS,  the  Company,  the  Lenders  and the  Administrative  Agents have
heretofore  entered into a certain Credit  Agreement,  dated as of March 8, 2002
(herein called the "Credit Agreement"); and

     WHEREAS, the Company, the Lenders and the Administrative  Agents now desire
to amend the Credit Agreement in certain respects, as hereinafter provided,

     WHEREAS,  the Company  has  requested  that the Lenders  consent to certain
corporate  mergers,  and  subject to the terms and  provisions  hereinafter  set
forth, the Lenders have agreed to do so;

     NOW, THEREFORE,  in consideration of the premises and the mutual agreements
herein contained,  the Company, the Lenders and the Administrative Agents hereby
agree as follows:

     SECTION 1. The  Administrative  Agents and the  Required  Lenders do hereby
consent to the corporate reorganizations described on Schedule 1.1 hereto.

     SECTION 2. The Credit Agreement is hereby amended as follows:

     (a) The  following  definitions  contained  in  Section  1.1 of the  Credit
Agreement are hereby amended and restated in their entirety as follows:

          "Applicable  Margin"  means,  in the case of any Base Rate Loan,  LIBO
     Rate Loan or L/C Advance maintained under the Revolving Loan Commitment,  a
     rate per annum  determined by reference to the Borrower's  Credit Rating as
     follows:

<TABLE>
<CAPTION>
                                                 Revolving Loans
                                  Applicable Base                Applicable LIBO
     Borrower's Credit Rating       Rate Margin                    Rate Margin
     <S>                            <C>                            <C>
     Level 1                        1.50%                          2.50%
     Level 2                        1.75%                          2.75%
     Level 3                        2.00%                          3.00%
     Level 4                        2.25%                          3.25%
     Level 5                        2.75%                          3.75%
</TABLE>

     The  applicable  Level for the Borrower shall be determined by reference to
     the  definition  of the term  "Borrower's  Credit  Rating." The  Applicable
     Margin  for any Term B Loan  maintained  as a LIBO Rate Loan shall be 3.75%
     and the  Applicable  Margin for any Term B Loan  maintained  as a Base Rate
     Loan shall be 2.75%. Notwithstanding anything to the contrary herein, if at
     the time of the Borrowing of Term B Loans hereunder,  the Applicable Margin
     for any Term B Loan shall have been  increased or decreased  from the rates
     set forth in the preceding  sentence in accordance  with Section 11.1,  the
     Applicable Margin for Revolving Loans as set forth above shall be increased
     or decreased by a corresponding amount.

          "Asset  Sale"  means any sale,  transfer,  lease or other  disposition
     described in Section 8.2.10(c).

          "Available  Investment and Leaseback Basket" means, as of any date, an
     amount equal to 3% of the consolidated  tangible assets of the Borrower and
     its Subsidiaries as of the end of the most recent fiscal quarter.

          "CNGC" means,  prior to the CNGC  Restructuring,  Calpine  Natural Gas
     Company   LP,  a  Delaware   limited   partnership,   and  after  the  CNGC
     Restructuring, Calpine Natural Gas Company, a Delaware corporation.

          "CNGH" means,  prior to the CNGC  Restructuring,  Calpine  Natural Gas
     Holdings,  Inc., a Delaware corporation,  and after the CNGC Restructuring,
     Calpine Natural Gas Holdings,  LLC, a Delaware limited  liability  company,
     and in either case, a direct, Wholly-Owned Subsidiary of the Borrower.

          "Dedicated Assets" means, collectively, the Domestic Gas Reserves, the
     Canadian Gas Reserves,  all property  owned by Calpine  Holdings and any of
     its  Subsidiaries,  all property owned by CCEC and any of its  Subsidiaries
     (other than Calpine Canada Power Holdings Ltd. and its  Subsidiaries),  all
     property owned by the  Incremental  Pledged  Subsidiaries  and any of their
     Subsidiaries,  the final 25% of the Borrower's  indirect  equity  ownership
     interest in the holding  company which owns the Whitbey Energy Centre,  the
     Island Energy Centre and the Calgary Energy Centre, the property subject to
     the Pledge  Agreements,  the First Amendment  Pledge  Agreements,  the Note
     Pledge  Agreement,  the Deeds of Trust, the Assignment  Agreement,  and all
     other  property  and  interests  pledged  as  collateral  security  for the
     Obligations.  The  Dedicated  Assets shall be ratably  available  under the
     Pledge Agreement,  the First Amendment Pledge  Agreements,  the Note Pledge
     Agreement,  the Deeds of Trust and the  Assignment  Agreement to secure the
     Obligations under this Agreement and the Existing Credit Agreement.

          "Dedicated  Subsidiary"  means  CCEC  and  each  of its  Subsidiaries,
     Calpine Holdings (and any successor  thereto) and each of its Subsidiaries,
     CNGH and each of its  Subsidiaries,  and  each of the  Incremental  Pledged
     Subsidiaries and each of their respective Subsidiaries.

          "Loan  Document"  means  this   Agreement,   the  Notes,   the  Pledge
     Agreements,   the  First  Amendment  Pledge  Agreements,  the  Note  Pledge
     Agreement,  the Guaranty, the Deeds of Trust, the Assignment Agreement, the
     Hazardous  Materials  Indemnity,  the Fee Letter,  and each other  relevant
     agreement, document or instrument delivered in connection therewith.

          "Required  Lenders" means, at any time, Lenders owed or holding (a) if
     the Revolving Loan Commitments shall not have been terminated, at least 51%
     of the aggregate of all Term B Loans then outstanding,  all unfunded Term B
     Loan  Commitments,  all  Revolving  Loans then  outstanding,  all Letter of
     Credit   Outstandings  on  such  date,  and  all  unfunded  Revolving  Loan
     Commitments  or (b) if the  Revolving  Loan  Commitments  shall  have  been
     terminated,  at least  51% of the  aggregate  amount  of all  Loans and L/C
     Advances then outstanding.

          "Term B Loan Commitment Termination Date" means the earliest of

               (a) June 8, 2002;

               (b) the date on which the Term B Loan  Commitments  of the Term B
          Lenders are  terminated in full or reduced to zero in accordance  with
          Section 2.2; and

               (c) the date on which any Commitment Termination Event occurs.

          Upon the  occurrence  of any event  described  above,  the Term B Loan
     Commitments shall terminate automatically and without further action.

     (b)  There  shall be added to  Section  1.1 of the  Credit  Agreement,  the
following terms in appropriate alphabetical sequence:

          "CES"  means  Calpine  Energy  Services,   L.P.,  a  Delaware  limited
     partnership.

          "CNGC  Restructuring"  means the series of  transactions  described on
     Schedule  1.1  hereof,  pursuant to which the assets of CNGC will be merged
     with and into the Borrower.

          "First  Amendment  Pledge  Agreements"  means  the  pledge  agreements
     executed and delivered  pursuant to the First Amendment to Credit Agreement
     dated as of May 9, 2002,  among the parties hereto,  as such agreements may
     be amended, supplemented, restated or otherwise modified from time to time,
     which will cover all equity  interests in each of the  Incremental  Pledged
     Subsidiaries held by the Borrower.

          "Incremental  Dedicated  Assets"  all  property  owned  by  any of the
     Incremental   Pledged   Subsidiaries   and  by  each  of  their  respective
     Subsidiaries. The Incremental Dedicated Assets shall be available under the
     First  Amendment  Pledge  Agreements to secure the  Obligations  under this
     Agreement  and the Existing  Credit  Agreement,  and all Net Cash  Proceeds
     therefrom shall be applied as provided in Sections 3.1.1 and 3.1.2.

          "Incremental  Pledged  Subsidiaries"  means  each of the  Subsidiaries
     listed on Section A of Schedule III hereof.

          "Note  Pledge  Agreement"  means the  pledge  agreement  executed  and
     delivered  by the  Borrower  pursuant  to the  First  Amendment  to  Credit
     Agreement  dated  as of May 9,  2002  among  the  parties  hereto,  as such
     agreement may be amended, supplemented, restated or otherwise modified from
     time to time, which will pledge to the Agent the promissory notes described
     in Section 8.1.10.

          "Permitted   Sale"  means  any  individual  sale,   transfer,   lease,
     contribution  or  conveyance  of a portion  of the  Domestic  Gas  Reserves
     (together  with  related  tangible  personal   property)  having  a  value,
     according to the most recent,  year-end report  evaluating the Domestic Gas
     Reserves prepared by an independent  petroleum  engineer  acceptable to the
     Agent (an "Engineering Report"), of less than $5,000,000; provided however,
     that the aggregate value of all Permitted  Sale(s) in any one calendar year
     shall not exceed  five  percent  (5%) of the value,  according  to the most
     recent Engineering Report, of all proven categories of oil and gas reserves
     then  comprising  the  Domestic  Gas  Reserves.  Solely for purposes of the
     preceding  sentence,  the  value  of such  oil and gas  reserves  shall  be
     determined  using net future cash flow,  discounted  at ten percent  (10%),
     using  the  forward  strip,  NYMEX  pricing  as of  December  31,  2001 for
     Permitted  Sales for the calendar  year ending  December 31, 2002,  and the
     forward strip,  NYMEX pricing as of each  succeeding  calendar year end for
     Permitted  Sales in the immediately  succeeding  calendar year, and in each
     case other assumptions reasonably acceptable to the Agent.

     (c) Section 2.1.1 of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

          Section 2.1.1.  Term B Loan  Commitment.  On not more than three dates
     prior to the Term B Loan  Commitment  Termination  Date, each Term B Lender
     severally  will make loans in U.S.  Dollars  (relative to such Lender,  its
     "Term B Loan") to the Borrower  equal to such Lender's  Term  Percentage of
     the  aggregate  amount of the  Borrowing  of Term B Loans  requested by the
     Borrower  to be made on such  day.  The  Commitment  of each  Term B Lender
     described in this Section  2.1.1 is herein  referred to as its "Term B Loan
     Commitment".  On the Term B Commitment  Termination  Date,  the Term B Loan
     Commitment shall  terminate,  and any portion of the Term B Loan Commitment
     Amount that is not borrowed on such date shall be extinguished.  No amounts
     paid or prepaid with respect to Term B Loans may be reborrowed.

     (d) Section  2.1.2 of the Credit  Agreement is hereby  amended by inserting
the following sentence immediately following the first sentence thereof:

     "The Commitment of each Revolving Lender described in this Section 2.1.2 to
     make  Revolving  Loans  is  herein  referred  to  as  its  "Revolving  Loan
     Commitment".

     (e) Clause (a) of Section 2.2.2 of the Credit  Agreement is hereby  amended
by inserting the phrase "(other than  Incremental  Dedicated  Assets)" after the
words  "Dedicated  Assets" in the  fourth  line  thereof  and by  replacing  the
reference therein to Section 8.2.10(b) with a reference to Section 8.2.10(c).

     (f) Clause (e) of Section 3.1.1 of the Credit  Agreement is hereby  amended
and restated in its entirety to read as follows:

          "(e) shall,  upon the receipt of Net Available Cash from an Asset Sale
     of any  Incremental  Dedicated  Asset,  make a written  offer to the Term B
     Lenders to prepay the Term B Loans (and  reduce the Term B Loan  Commitment
     Amount)  by an  amount  equal to one  hundred  percent  (100%)  of such Net
     Available Cash; provided, however, that the Borrower may, at its discretion
     retain (and as a  consequence  of such  retention,  there shall be excluded
     from such mandatory  offer) up to an aggregate of  $300,000,000 of such Net
     Available  Cash from the sale of  uninstalled  turbines and  equipment  and
     provided,  further, that the Borrower may, at its discretion retain (and as
     a  consequence  of such  retention,  there  shall  be  excluded  from  such
     mandatory  offer) an additional  amount of such Net Available Cash equal to
     (w) the Net  Available  Cash  from  the  sale  of the De  Pere  project  in
     Wisconsin and of the Borrower's  minority  interest in the Lockport  energy
     project  in New York  plus (x) the Net  Available  Cash  realized  from the
     transactions  described  in Section C1 of Schedule  III (other than any Net
     Available Cash realized from any transaction  among or between the Borrower
     and any  Affiliates  thereof  or among  or  between  any of the  Borrower's
     Affiliates)  plus (y) the Available  Investment  and Lease Basket minus the
     aggregate amount of all obligations of each Incremental Subsidiary and each
     Subsidiary  thereof permitted by clause (y) of the last sentence of Section
     8.2.3 and then outstanding,  to the extent (and only to the extent) that an
     amount equal to such retained Net Available Cash is reinvested (i) in power
     projects  directly owned by the Borrower or a Dedicated  Subsidiary or (ii)
     in oil or gas  reserves  directly  owned  by the  Borrower  or a  Dedicated
     Subsidiary  within  365  days of such  asset  sale.  Such  offer  shall  be
     transmitted by facsimile and by overnight courier to each Term B Lender and
     shall be deemed  received on the Business Day following  transmittal.  Each
     Term B Lender shall have three  Business Days following its receipt of such
     offer to submit a written response to the Borrower's  prepayment offer, and
     if any Term B Lender  shall not have  responded by the close of business on
     the third  Business  Day, it shall be deemed to have  accepted  such offer.
     Payment  shall  be  made to all  Term B  Lenders  that  have  accepted  the
     prepayment  offer on the fourth Business Day following their receipt of the
     offer from the Borrower.  If any Term B Lender elects not to accept its pro
     rata share of the  proceeds  from a  particular  Asset Sale of  Incremental
     Dedicated  Assets,  such  proceeds  shall be applied to ratably  prepay the
     Revolving Loans and the loans under the Existing Credit Agreement  (without
     any  corresponding  reduction  of  the  Revolving  Commitment  Amount,  the
     Revolving Loan  Commitments or the  commitments  under the Existing  Credit
     Agreement).  Upon  the  repayment  in full  of all  Term B  Loans,  all Net
     Available  Cash from any Asset  Sale of any  Incremental  Dedicated  Assets
     shall be applied to ratably prepay the Revolving  Loans and the loans under
     the Existing Credit Agreement  (without any corresponding  reduction of the
     Revolving   Commitment  Amount,  the  Revolving  Loan  Commitments  or  the
     commitments  under the Existing Credit  Agreement).  Upon the conversion of
     any non-cash proceeds realized from any Asset Sale of Incremental Dedicated
     Assets  (whether  received by the Borrower or any  Subsidiary) to cash, the
     principal  amount  of such  cash  proceeds  and any  interest  attributable
     thereto shall be deemed to be Net Available Cash from Incremental Dedicated
     Assets and applied by the Agent as provided in this clause (e);

     (g) Clause (f) of Section 3.1.1 of the Credit  Agreement is hereby  amended
by inserting the phrase "(other than  Incremental  Dedicated  Assets)" after the
words "Dedicated  Assets" and by replacing the period at the end thereof with ";
and".

     (h)  There  shall be added to the  Credit  Agreement  a new  clause  (g) to
Section 3.1.1 reading in its entirety as follows:

          "(g)  shall,  if a debt  rating of BB- or better has not been given to
     the Loans by S&P on or before  May 30,  2002,  prepay all Term B Loans then
     outstanding on June 1, 2002."

     (i)  The  reference  in the  final  sentence  of  Section  4.5 to  "Section
8.2.10(b)(iii)"  is hereby  deleted and a reference  to "Section  8.2.10(c)"  is
substituted therefor.

     (j) Section 6.2 of the Credit  Agreement is hereby  amended and restated in
its entirety to read as follows:

          SECTION 6.2.  Term B Loan  Borrowing.  The  obligations  of the Term B
     Lenders to fund each  Borrowing of the Term B Loans shall be subject to the
     prior or concurrent  satisfaction  of each of the conditions  precedent set
     forth in this Section  6.2;  provided,  that on the Term B Loan  Commitment
     Termination Date, the Term B Loan Commitments shall expire.

     (k)  Subsection  (a) of  Section  6.3.1 of the Credit  Agreement  is hereby
amended and restated in its entirety to read as follows:

          (a) the  representations  and  warranties  set  forth in  Article  VII
     (excluding, however, those contained in Section 7.7) and in each other Loan
     Document  (excluding  the  representations  and warranties set forth in the
     Deeds of Trust except to the extent that a breach thereof would  reasonably
     be expected to cause a Material  Adverse  Effect) shall be true and correct
     in all  material  respects  with the same  effect as if then  made  (unless
     stated  to  relate   solely  to  an  early   date,   in  which   case  such
     representations and warranties shall be true and correct as of such earlier
     date);

     (l) Clause (c) of Section 8.1.1 of the Credit  Agreement is hereby  amended
by adding the  following  clause  immediately  prior to the end thereof:  "and a
certificate,  executed  by an  Authorized  Officer  of the  Borrower,  showing a
computation of the amounts described in clauses (w), (x) and (y) and subsections
(i) and (ii) of Section 3.1.1(e) and in clauses (x) and (y) of the last sentence
of Section 8.2.3 as of the end of such period."

     (m) Section 8.1.4 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:

          Section 8.1.4 Insurance.

          (a) Except as provided in Section  8.1.4(b),  the Borrower  will,  and
     will cause each of its  Subsidiaries to, maintain or cause to be maintained
     with  responsible   insurance  companies  insurance  with  respect  to  its
     properties and business (including business interruption insurance) against
     such casualties and  contingencies and of such types and in such amounts as
     is customary in the case of similar  businesses  and will,  upon request of
     the Agent,  furnish to each Lender at reasonable intervals a certificate of
     an Authorized  Officer of the Borrower  setting forth the nature and extent
     of all  insurance  maintained  by the  Borrower  and  its  Subsidiaries  in
     accordance with this Section.

          (b) With respect to the Domestic Gas Reserves,  the Borrower will, and
     will cause each of its  Subsidiaries to, maintain or cause to be maintained
     the insurance required by the Deeds of Trust.

     (n) Section  8.1.10 of the Credit  Agreement is hereby amended and restated
in its entirety to read as follows:

          SECTION  8.1.10.  Intercompany  Notes.  On or  before  the  tenth  day
     following the initial funding of Term B Loans, the Borrower shall cause all
     Indebtedness  then  owing  from  any of its  Dedicated  Subsidiaries  to be
     evidenced  by a  non-recourse  secured  promissory  note and pledged to the
     Agent,  pursuant to the Note Pledge Agreement,  as collateral  security for
     the Obligations,  and the Borrower will,  promptly upon the creation of any
     additional  Indebtedness owing from any of its Dedicated  Subsidiaries that
     has not been evidenced by a non-recourse secured note pledged to the Agent,
     cause such Indebtedness to be evidenced by a promissory note and pledged to
     the Agent,  pursuant to the Note Pledge Agreement,  as collateral  security
     for the  Obligations.  It is  understood  and  agreed  that  (i)  upon  the
     conversion to equity of all Indebtedness owing from a Dedicated  Subsidiary
     to the  Borrower  or the  repayment  of all  Indebtedness  from a Dedicated
     Subsidiary  to  the  Borrower,   the  promissory  note  of  such  Dedicated
     Subsidiary  shall be released from the Note Pledge  Agreement and cancelled
     and (ii)  subject  to the  approval  of the Agent  (not to be  unreasonably
     withheld),  the Borrower may substitute new non-recourse secured promissory
     notes for promissory notes  previously  pledged to the Agent. If all of the
     Indebtedness  owing from a Dedicated  Subsidiary  to the Borrower  shall be
     converted to equity,  not later than ten days thereafter the Borrower shall
     pledge to the Agent such equity interest and deliver to the Agent the stock
     certificate,  if any,  evidencing such interest together with duly executed
     stock powers, in blank.

     (o) Section  8.1.11 of the Credit  Agreement is hereby amended and restated
in its entirety to read as follows:

          SECTION 8.1.11 Ownership  Interests.  CNGH shall at all times directly
     or indirectly  own 100% of all equity  interests of CCEC,  which shall,  in
     turn,  directly or indirectly  own 100% of the equity  interests in Calpine
     Canada Natural Gas  Partnership  and Calpine  Saltend  Energy Centre,  PLC.
     Calpine  Canada Natural Gas  Partnership  shall at all times own all of the
     Canadian  Gas  Reserves.  The  Borrower  shall at all times own 100% of the
     equity  interests  of  CNGH.  After  the  completion  of  the  transactions
     described in Section 8.1.9,  CNGH shall at all times own 100% of the equity
     interests of Calpine Holdings. Calpine Holdings shall at all times own 100%
     of the equity interests of CCFCI.

     (p) There  shall be added to the  Credit  Agreement  a new  Section  8.1.12
reading in its entirety as follows:

          SECTION 8.1.12 Incremental  Domestic Gas Reserves.  The Borrower shall
     cause all  acquisitions  of additional  Domestic Gas Reserves  after May 1,
     2002 to be made by the Borrower or by a Dedicated Subsidiary.

     (q) Clause (a) of Section 8.2.2 of the Credit  Agreement is hereby  amended
by  adding  the  following  immediately  prior  to the  end  thereof:  "and  any
Indebtedness  evidenced by promissory notes pledged to the Agent pursuant to the
Note Pledge Agreement".

     (r) Clause (e) of Section 8.2.2 of the Credit  Agreement is hereby  amended
and restated in its entirety to read as follows:

          "(e) Indebtedness of one or more Subsidiaries of the Borrower incurred
     solely to finance the development, construction or purchase of, or repairs,
     expansions,  enhancements,  improvements or additions to, the assets of one
     or  more  Subsidiaries  so long as (i) the  principal  amount  of any  such
     Indebtedness  (x) for  development of existing gas reserves does not exceed
     an  aggregate  of  $50,000,000  for any such  existing  reserves or (y) for
     expansions,  enhancements,  improvements  or additions to an existing asset
     which  has  already  achieved  commercial  operation  does  not  exceed  an
     aggregate  of  $60,000,000  for any single  financing  or series of related
     financings for such asset  (exclusive of up to $250,000,000 of Indebtedness
     for the expansion of the energy center at Zion, Illinois) and (ii) recourse
     for any such  Indebtedness  is  limited  solely  (A) to the asset or assets
     being  financed  or  to  the  assets  of  CES,  (B)  to  such  Subsidiaries
     themselves,  where the asset or assets  being  financed  constitute  all or
     substantially  all of the  assets of such  Subsidiaries  (each,  a "Special
     Purpose  Subsidiary"),  and/or (C) to the stock or other direct or indirect
     ownership interests in such Special Purpose Subsidiaries;"

     (s) The  penultimate  sentence of Section 8.2.2 of the Credit  Agreement is
hereby  amended by adding the  following  proviso  immediately  prior to the end
thereof:

     "and  provided  further  that in no event  shall  any  Incremental  Pledged
     Subsidiary or any  Subsidiary  thereof incur any  Indebtedness  of the type
     permitted by clause (f) of this Section 8.2.2 after May 1, 2002."

     (t) The last  sentence of Section  8.2.3 of the Credit  Agreement is hereby
amended by adding the following clause immediately prior to the end thereof:

     "and in no event shall any Incremental Pledged Subsidiary or any Subsidiary
     thereof  create  any  Liens of the type  permitted  by  clause  (m) of this
     Section 8.2.3 after May 1, 2002 other than (x) Liens incurred in connection
     with  transactions  described  in Section C1 of Schedule  III and (y) Liens
     securing  obligations  to  the  extent  of  the  Available  Investment  and
     Leaseback  Basket  minus the  aggregate  amount  retained  by the  Borrower
     pursuant to clause (y) of the second proviso of the carry-over  sentence in
     Section 3.1.1(e)."

     (u)  Subsection  (c) of  Section  8.2.5 of the Credit  Agreement  is hereby
amended by adding  the  following  immediately  prior to the end  thereof:  "and
Investments  by the  Borrower  of the assets of CES in Persons  that are neither
Subsidiaries  of the Borrower nor  Investment  Joint Ventures of the Borrower in
connection  with  the  establishment  of a  trading  joint  venture  or  similar
arrangement".

     (v) Subsection  (i) of clause (b) of Section 8.2.6 of the Credit  Agreement
is hereby amended and restated in its entirety to read as follows:

          (i) make any  payment  or  prepayment  of  principal  of,  or make any
     payment of interest  on, any Senior Notes or any  Subordinated  Debt on any
     day other than the stated date for such payment or prepayment  set forth in
     the  documents  and  instruments  memorializing  any  Senior  Notes or such
     Subordinated  Debt, or which would violate the subordination  provisions of
     any such  Subordinated  Debt;  provided,  that the  Borrower  may so pay or
     prepay all or a portion of the Senior  Notes if either (A) both  before and
     after  giving  effect  thereto,  no  Default  shall  have  occurred  or  be
     continuing and there are no Loans outstanding  hereunder or (B) both before
     and after giving  effect  thereto,  no Default  shall have  occurred and be
     continuing  and the  aggregate  amount  of all such  prepayments  shall not
     exceed 50% of aggregate Net Equity  Proceeds  received by the Borrower from
     and after March 8, 2002.

     (w)  Subsection  (b) of  Section  8.2.9 of the Credit  Agreement  is hereby
amended by adding the following proviso at the end thereof:

     "provided,  further,  that if any Dedicated Subsidiary shall merge with any
     other Subsidiary,  such Dedicated Subsidiary shall be the continuing Person
     following  such  merger;  and  provided  further,  that  if  any  Dedicated
     Subsidiary shall liquidate or dissolve voluntarily into, or merge into, the
     Borrower, the assets or stock of such Dedicated Subsidiary shall be pledged
     by the  Borrower  as  collateral  security  for  the  Obligations  and  the
     obligations of the Borrower under the Existing Credit Agreement".

     (x)  Subsection  (d) of  Section  8.2.9 of the Credit  Agreement  is hereby
amended by deleting the period at the end thereof and by adding the following at
the end of such subsection:

     "provided,  however,  that if any Dedicated Subsidiary shall merge with any
     Restricted  Subsidiary that is not a Dedicated  Subsidiary,  such Dedicated
     Subsidiary shall be the continuing Person following such merger; and

     (y) Section  8.2.9 of the Credit  Agreement  is hereby  further  amended by
adding a new subsection (e) thereto as follows:

          "(e) a Subsidiary may consolidate with, or merge into or with, another
     Person to the extent otherwise permitted under Section 8.2.10."

     (z) Section  8.2.10 of the Credit  Agreement is hereby amended and restated
in its entirety to read as follows:

          SECTION 8.2.10.  Asset  Dispositions,  etc. The Borrower will not, and
     will  not  permit  any of  its  Subsidiaries  to,  sell,  transfer,  lease,
     contribute or otherwise convey, or grant options,  warrants or other rights
     with  respect  to, all or any  substantial  part of its  assets  (including
     accounts  receivable and capital stock of Subsidiaries) to any Person other
     than to the Borrower or a Restricted Subsidiary, unless

          (a) such sale, transfer,  lease,  contribution or conveyance is (i) in
     the ordinary  course of its  business,  (ii)  permitted by Section 8.2.9 or
     (iii) of CES or its Subsidiaries or any of their respective assets; or

          (b)  in  the  event  such  sale,  transfer,   lease,  contribution  or
     conveyance involves the Domestic Gas Reserves, such sale, transfer,  lease,
     contribution  or conveyance  is,  individually  and taken together with all
     prior sales,  transfers,  leases,  contributions or conveyances  within the
     same calendar year, a Permitted Sale; or

          (c) such sale,  transfer,  lease,  contribution  or  conveyance is not
     covered by clauses (a) or (b) above and (i) the Borrower or its  Subsidiary
     receives  consideration  at  the  time  of  such  sale,  transfer,   lease,
     contribution  or  conveyance  at least  equal to the fair  market  value of
     assets being sold,  transferred,  leased,  contributed or conveyed, (ii) at
     least sixty percent (60%) of the consideration  received by the Borrower or
     such  Subsidiary is in the form of cash or cash  equivalents,  (iii) in the
     case of any such sale,  transfer,  lease,  contribution  or conveyance by a
     Subsidiary that is not an Incremental Pledged  Subsidiary,  an amount equal
     to 100% of Net Available Cash therefrom is either  reinvested in Additional
     Assets of a  Dedicated  Subsidiary  within  365 days of such  Asset Sale or
     applied  by the  Borrower  as  provided  herein to prepay the Loans and the
     loans outstanding  under the Existing Credit Agreement,  so long as any Net
     Available  Cash from  Dedicated  Assets (other than  Incremental  Dedicated
     Assets) is applied by the Borrower as provided in Section 2.2.2 and (iv) in
     the case of any such sale, transfer,  lease,  contribution or conveyance by
     an Incremental Pledged Subsidiary, an amount equal to 100% of Net Available
     Cash therefrom is applied by the Borrower as provided in Section 3.1.1(e).

     (aa)  There  shall be added to the  Credit  Agreement  a new  Section  10.9
reading in its entirety as follows:

          SECTION 10.9 Collateral Matters. The Lenders irrevocably authorize the
     Agent,  at its option  and in its  discretion,  to release  any Lien on any
     property  granted to or held by the Agent under any Loan  Document (i) upon
     termination  of the  Commitments  and  payment  in full of all  Obligations
     (other than contingent  indemnification  obligations) and the expiration or
     termination  of all  Letters of Credit,  (ii) that is sold or to be sold as
     part of or in  connection  with any sale  permitted  hereunder or under any
     other  Loan  Document,  or (iii)  subject  to Section  11.1,  if  approved,
     authorized or ratified in writing by the Required Lenders.  Upon request by
     the Agent at any time,  the  Required  Lenders  will  instruct the Agent to
     release its interest in particular types or items of property,  pursuant to
     this Section 10.9.

     (bb) Clause (g) of Section 11.1 of the Credit  Agreement is hereby  amended
and restated in its entirety to read as follows:

          "(g)  release any Lien created by a Loan  Document  shall be effective
     without the consent of Lenders  having at least 75% of the aggregate of all
     Term B Loans then outstanding,  all unfunded Term B Loan  Commitments,  all
     Revolving Loans then outstanding, all Letter of Credit Outstandings on such
     date,  and all unfunded  Revolving  Loan  Commitments,  except that no such
     consent shall be required to the extent that the sale or other  disposition
     of the asset  subject to the Lien is permitted  hereunder  and the proceeds
     thereof are applied as required by this Agreement;"

     (cc) Item 7.12  ("Environmental  Matters")  of the  Disclosure  Schedule is
hereby amended by adding thereto those items set forth on Schedule 7.12 attached
hereto.

     (dd) There shall be added to the Credit Agreement a new Schedule 1.1 in the
form of Schedule 1.1 attached hereto.

     (ee) There shall be added to the Credit Agreement a new Schedule III in the
form of Schedule III attached hereto.

     SECTION  3. By their  execution  hereof,  each of the  undersigned  Lenders
hereby waives the  conditions  precedent set forth in Section  6.2.1,  6.2.4 and
6.2.5 of the Credit  Agreement with respect to the initial funding of the Term B
Loans to the extent,  but only to the extent,  that that such funding shall have
occurred on or before May 10, 2002.  If the initial  funding of the Term B Loans
shall not have  occurred by May 10,  2002,  the  waivers  granted  herein  shall
terminate at 12:00 midnight, eastern daylight time, on such date.

     SECTION 4. To induce the  Lenders  and the  Administrative  Agents to enter
into this Amendment,  the Company hereby reaffirms,  as of the date hereof,  its
representations and warranties  contained in Article VII of the Credit Agreement
(except to the extent such  representations  and warranties  relate solely to an
earlier  date) and  additionally  represents  and  warrants as follows:  (i) The
execution and delivery of this Amendment,  and the performance by the Company of
its obligations hereunder,  are within the Company's corporate powers, have been
duly   authorized  by  all  necessary   action,   have  received  all  necessary
governmental  approval  (if any  shall  be  required),  and do not and  will not
contravene or conflict with any provision of law or of the charter or by-laws of
the Company or of any agreement binding upon the Company;

          (ii) As of the date of this  Amendment,  the  Company  owns all of the
     equity  interests  in  Calpine  Holdings  and CNGH and CNGH owns all of the
     equity interests in CNGC;

          (iii) This Amendment is the legal, valid and binding obligation of the
     Company enforceable against the Company in accordance with its terms; and

          (iv) No Default has  occurred  and is  continuing  and no Default will
     result from the execution and delivery of this Amendment.

     SECTION 5. The  effectiveness of this Amendment is conditioned upon receipt
by the Administrative  Agents of all the following  documents,  each in form and
substance satisfactory to the Administrative Agents:

          (i) This  Amendment  duly  executed by the  Company  and the  Required
     Lenders;

          (ii) The First Amendment Pledge Agreements duly executed and delivered
     by the  Company  to pledge  the  shares of the  corporations  described  on
     Section A of Schedule III owned by the Company and the membership interests
     of CNGH and the other limited liability companies described on Section A of
     Schedule III owned by the Company;

          (iii)  Documentation  sufficient to satisfy the  Administrative  Agent
     that the corporate reorganization described on Schedule 1.1 is complete;

          (iv)  The  Agent  shall  have  received  confirmation  that all of the
     Domestic Gas Reserves shall have been  transferred to the Borrower and that
     the other  requirements  of Section  8.1.8 shall have been  satisfied on or
     before the date of the requested Borrowing;

          (v) The Note Pledge  Agreement duly executed by the Borrower to pledge
     the intercompany notes described in Section 8.1.10 of the Credit Agreement;

          (vi)  The  Agent  and  Term  B  Lead  Arrangers  shall  have  received
     confirmation  that the debt  rating  given to the  Loans and then in effect
     from Moody's shall be Ba3 or better;

          (vii) The Agent shall have  received  opinions,  dated the date of the
     Effective  Date and  addressed  to the  Agent  and all  Lenders,  from Lisa
     Bodensteiner,  Esq.,  general  counsel of the  Borrower,  and  Covington  &
     Burling,  special  counsel to the  Borrower,  substantially  in the form of
     Exhibits B-1 and B-2; and

          (viii) The Agent  shall have  received  such  other  documents  as the
     Administrative Agents shall have reasonably requested.

     SECTION 6. This Amendment  shall be deemed to be an amendment to the Credit
Agreement,  and the Credit  Agreement,  as amended hereby,  is hereby  ratified,
approved and confirmed in each and every  respect.  All references to the Credit
Agreement  in  any  other  document,  instrument,  agreement  or  writing  shall
hereafter be deemed to refer to the Credit Agreement as amended hereby.

     SECTION  7.  Unless  otherwise  defined  herein  or the  context  otherwise
requires,  terms used in this  Amendment,  including  its preamble and recitals,
have the meanings provided in the Credit Agreement.

     SECTION 8. THIS  AMENDMENT  SHALL BE A CONTRACT  MADE UNDER AND GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. All
obligations  of the Company  and rights of the  Lenders  and the  Administrative
Agents  expressed  herein shall be in addition to and not in limitation of those
provided by applicable law.  Whenever  possible each provision of this Amendment
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable law, but if any provision of this Amendment shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provision or the remaining provisions of this Amendment.

     SECTION 9. This  Amendment  may be executed in any number of  counterparts,
all of which taken together shall  constitute one and the same  instrument,  and
any party hereto may execute this Amendment by signing one or more counterparts.

     SECTION 10. This Amendment  shall be binding upon the Company,  the Lenders
and the Administrative  Agents and their respective  successors and assigns, and
shall inure to the benefit of the  Company,  the Lenders and the  Administrative
Agents and the  successors  and assigns of the  Lenders  and the  Administrative
Agents.

     SECTION 11. THE COMPANY HEREBY  KNOWINGLY,  VOLUNTARILY  AND  INTENTIONALLY
WAIVES  ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR  PROCEEDING  TO ENFORCE OR
DEFEND  ANY RIGHTS  UNDER THIS  AMENDMENT  OR UNDER ANY  AMENDMENT,  INSTRUMENT,
DOCUMENT  OR  AGREEMENT  DELIVERED  OR WHICH MAY IN THE FUTURE BE  DELIVERED  IN
CONNECTION  HEREWITH  OR  ARISING  FROM ANY  BANKING  RELATIONSHIP  EXISTING  IN
CONNECTION  WITH THIS  AMENDMENT,  AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.




<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed by their  respective  officers  thereunto duly authorized as of the day
and year first above written.

                                         CALPINE CORPORATION


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         THE BANK OF NOVA SCOTIA, as
                                         Administrative Agent and Lender


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         CITICORP USA, INC.,
                                         as Administrative Agent and Lender


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         BAYERISCHE LANDESBANK GIROZENTRALE


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                         BANK OF AMERICA, NATIONAL ASSOCIATION.


                                         By:____________________________________
                                         Name:__________________________________
                                         Title:_________________________________


                                        CREDIT SUISSE FIRST BOSTON, CAYMAN
                                        ISLANDS BRANCH


                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________


                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________


                                        TORONTO DOMINION (TEXAS) INC.


                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________


                                        DEUTSCHE BANK TRUST COMPANY AMERICAS


                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________


                                        ING CAPITAL LLC


                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________


                                        By:_____________________________________
                                        Name:___________________________________
                                        Title:__________________________________

<PAGE>

                                                                    SCHEDULE 1.1

                                     STEP 1

                               Calpine Corporation
                                   ("Calpine")



         1,000 Shares of                                         1,000 Shares of
           Common Stock                                            Common Stock


                  Calpine Natural                       Calpine Natural
                    Gas GP, Inc.,                      Gas Holdings, Inc.
                  ("Calpine GP")                         ("Holdings")


         1% GP Interest                                          99% LP Interest



                        Calpine Natural Gas Company, L.P.
                                    ("CNGC")



CNGC will convert from a Delaware limited partnership to a Delaware  corporation
("Conversion  #1") and will  change its name to  Calpine  Natural  Gas  Company.
Conversion #1 will be effective at 11:57 p.m.,  Eastern Time ("ET"), on the date
of the Conversion (the  "Conversion  Date").  By virtue of Conversion #1, the 1%
general  partner  interest  (the "GP  Interest")  held by Calpine GP and the 99%
limited partner  interest (the "LP Interest") held by Holdings will be converted
into 10 shares of common stock and 990 shares of common  stock in the  converted
corporation, respectively.



<PAGE>




                                     STEP 2

                                     Calpine




         1,000 Shares of                                         1,000 Shares of
           Common Stock                                            Common Stock



                  Calpine GP                            Holdings



         10 Shares of                                              990 shares of
         Common Stock                                              Common Stock



                                      CNGC



Holdings  will  convert  from  a  Delaware  corporation  to a  Delaware  limited
liability company  ("Conversion #2") and will change its name to Calpine Natural
Gas Holdings,  LLC.  Conversion  #2 will be effective at 11:57 p.m.,  ET, on the
Conversion  Date. By virtue of  Conversion  #2, the 1,000 shares of common stock
held by  Calpine  (the  "Holdings  Stock")  will be  converted  into 100% of the
limited  liability  company  interest  in the  converted  LLC  (the  "Membership
Interest").



<PAGE>




                                     STEP 3

                                     Calpine




             100%                                                   100%
         Common Stock                                        Membership Interest

                                    Merger #1

                  Calpine GP                            Holdings



         10 Shares of                                              990 shares of
         Common Stock                                              Common Stock



                                      CNGC



Calpine  GP will  merge  with and  into  Calpine  ("Merger  #1"),  with  Calpine
acquiring in Merger #1 the 10 shares of CNGC stock held by Calpine GP. Merger #1
will be effective at 11:58 p.m., ET, on the Conversion Date.



<PAGE>




                                     STEP 4

                                     Calpine




         10 Shares of                                               100%
         Common Stock                                        Membership Interest

                                      Stock
                                  Distribution

                                                        Holdings



                                                                   990 shares of
                                                                   Common Stock



                                      CNGC



To avoid having to obtain Calpine stockholder  approval for Merger #2 in Step 5,
Holdings  will  distribute  its 990 shares of CNGC stock to  Calpine.  The stock
distribution will be effective at 11:58 p.m., ET, on the Conversion Date.



<PAGE>




                                     STEP 5

                                     Calpine


                                    Merger #2


         1,000 Shares of                                            100%
           Common Stock                                      Membership Interest




                  CNGC                                  Holdings



In order to move the assets held by CNGC to Calpine by  operation  of law rather
than assignment,  CNGC will merge with and into Calpine ("Merger #2"). Merger #2
will be effective at 11:59 p.m., ET, on the Conversion Date.


<PAGE>




                                     STEP 6

                                                        Calpine




                                      100%
                                   Membership
                                    Interest




                                                        Holdings



Calpine Corporation will enter into the 2002 credit  restructuring,  under which
it will  mortgage  the assets it receives  from  Calpine  Natural Gas Company in
Merger #2.

<PAGE>

                                                                    SCHEDULE III

A.   Direct Subsidiaries to be pledged.

     1.   Calpine CCFC II Holdings, Inc.
     2.   Calpine Central, Inc.
     3.   Calpine Eastern Corporation
     4.   Calpine Dighton, Inc.
     5.   CPN Auburndale, Inc.
     6.   Calpine Auburndale, Inc.
     7.   Calpine Gordonsville, Inc.
     8.   Calpine Rumford, Inc.
     9.   Calpine Rumford I, Inc.
     10.  Calpine Tiverton, Inc.
     11.  Calpine Tiverton I, Inc.
     12.  Calpine Northeast Marketing, Inc.
     13.  Calpine Marketing, LLC
     14.  Venture Acquisition Company
     15.  Calpine Northbrook Energy Corporation of Maine, Inc.
     16.  Androscoggin Energy, Inc.
     17.  Calpine Project Holdings, Inc.
     18.  Calpine Sumas, Inc.
     19.  Northwest Cogeneration, Inc.
     20.  Calpine King City 1, Inc.
     21.  Calpine King City 2, Inc.
     22.  Calpine Gilroy 1, Inc.
     23.  Calpine Gilroy 2, Inc.
     24.  Sutter Dryers, Inc.
     25.  Anacapa Land Company LLC
     26.  Calpine Metcalf EPC, Inc.
     27.  Goldendale Energy, Inc.
     28.  CPN MEC Holdings, LLC
     29.  Bellingham Cogen, Inc.
     30.  GATX/Calpine-Agnews, Inc.
     31.  Calpine Agnews, Inc.
     32.  Calpine Pittsburgh, LLC
     33.  CPN Blue Spruce Holdings, LLC
     34.  Calpine Power Company
     35.  Calpine Vapor, Inc.
     36.  Modoc Power, Inc.
     37.  Santa Rosa Energy Company
     38.  Geysers Finance Company
     39.  Calpine Thermal Power, Inc.
     40.  Calpine Calistoga Holdings, LLC
     41.  Calpine Operations Management Company, Inc.
     42.  Calpine Fuels Corporation
     43.  CPN Pipeline Company
     44.  Calpine Sonoran Pipeline LLC
     45.  Calpine c*Power, Inc.
     46.  WRMS Engineering, Inc.
     47.  Calpine  Cogeneration  Corporation  (80%  ownership  interest)  -- see
          Section B below
     48.  Chippokes Energy Center, LLC
     49.  Palmetto Energy Center, LLC
     50.  Warnerville Energy Center, LLC
     51.  CPN Cascade, Inc.
     52.  CPN Telephone Flat, Inc.
     53.  Anderson Springs Energy Company
     54.  Calpine Sonoma, Inc.
     55.  South Point Energy Center LLC
     56.  Los Esteros Critical Energy Center, LLC
     57.  Calpine California Holdings, Inc.
     58.  Calpine Eastern Holdings, Inc.

B.   Restrictions   on  Calpine   Corporation's   Ability  to  Pledge.   Calpine
     Cogeneration   Corporation   -  pledge   of   shares   comprising   Calpine
     Corporation's  80%  ownership  interest  would require prior consent of the
     owner of the shares  comprising  the  remaining  20% interest  (NRG);  such
     consent is not to be unreasonably withheld.  Calpine shall use commercially
     reasonable  efforts to obtain  such  consent  and pledge its 80%  ownership
     interest  and shall,  in any event,  execute such pledge  documentation  by
     December 20, 2002.

C.   Subsidiaries that may be released.

     1.   To the  extent  the shares  (or other  indicia  of  ownership)  of the
          following  Subsidiaries have been pledged by the Company,  such shares
          will be released upon the  completion  of financing or  sale/leaseback
          transactions   in   connection   with  the  projects   owned  by  such
          Subsidiaries:

          CPN Acadia,  Inc.,  subsidiary  of Calpine  Central,  Inc. Zion Energy
          Center LLC, subsidiary of Calpine CCFCII Holdings,  Inc. Calpine Oneta
          Power, LP,  subsidiary of Calpine CCFCII  Holdings,  Inc. Calpine King
          City Cogen,  LLC,  subsidiary of Calpine King City 1, Inc. and Calpine
          King City 2, Inc. Calpine California Holdings,  Inc. Auburndale Peaker
          Energy Center,  LLC,  subsidiary of Calpine Eastern Corp. CPN Bethpage
          3rd Turbine, Inc., subsidiary of Calpine Eastern Corp.

          It is understood  that the shares of the foregoing  Subsidiaries  may,
          with prior written notice to the Administrative Agents, be transferred
          to another Incremental Pledged Subsidiary to facilitate the completion
          of any such financing or sale/leaseback transaction.

     2.   The shares of Calpine GP, Inc. (general partner of Calpine Natural Gas
          Company LP) will be released  upon the closing of the First  Amendment
          to the Credit Agreement.

     3.   The shares of Calpine Natural Gas Holdings,  Inc.  (limited partner of
          Calpine Natural Gas Company,  LP) will be released upon the closing of
          the First Amendment to the Credit Agreement.

     4.   On or before June 8, 2002,  the stock of Calpine CCFC  Holdings,  Inc.
          shall be transferred to Calpine Natural Gas Holdings, LLC.

<PAGE>

                                                                   SCHEDULE 7.12




     1.  Alvin,  Texas -- A  horizontal  separator  tank  ruptured in July 2001,
resulting  in a  personal  injury  claim  filed by  Alonzo  Cruz,  one of the GT
Oilfield Repair employees injured in the incident.  Named Defendants are Calpine
Natural  Gas Company  L.P.  and Dickey Cox (d/b/a Cox  Gauging  Service).  It is
alleged  that Cox was  negligent  in the  operation  of a pressure  valve at the
facility,  and that Calpine  Natural Gas Company L.P.  failed to maintain a safe
work  environment.  Both GT  Oilfield  Repair and Cox Gauging  were  independent
contractors at the site.  Calpine Natural Gas Company L.P. is being defended and
indemnified by GT Oilfield Repair,  pursuant to a contractual indemnity. At this
juncture,  there is no workers'  compensation  lien against  Calpine Natural Gas
Company L.P.

     Mortgagor  has to date  spent  $600,000  total on this  site  ($300,000  on
replacement  of damaged  equipment  and $300,000 on  environmental  containment,
removal,  and  remediation).  There is a gas well that is currently shut-in that
needs to be  redrilled  (estimated  cost  $1,000,000)  or plugged and  abandoned
(estimated  cost  $200,000).  The  property  itself is  bordered on two sides by
residential areas.

     2. ARCO plant site,  South Texas -- This property was acquired by Mortgagor
pursuant  to an  acquisition  of  Pioneer  assets.  Mortgagor  has to date spent
$180,000 to remediate the contaminated soil and pond water, with the possibility
of an additional $70,000 needed to complete the work.

     3.  Westfield,  New York -- This  involves  a 2500 sq. ft  tract,  to which
Mortgagor   holds  title.   The  estimated  cost  to  excavate  and  remove  the
contaminated soil is $25,000. Mortgagor will then attempt to sell the remediated
tract to the buyer that previously  purchased the surrounding  property from TGX
(n/k/a Mortgagor).

     4. West Drakes Bay,  Louisiana --  Mortgagor  is currently in  negotiations
with a potential buyer for this property,  which is currently not producing.  If
the  property  is not sold,  there will be  plugging  and  abandonment  costs of
approximately $200,000 for the well and platform.

     5. San Juan  Basin,  New  Mexico --  Mortgagor  acquired  some open pits in
connection with an acquisition from Robert L. Bayless Producer, LLC. This should
be resolved  completely in the near future for a minimal amount.  The bedrock in
the  area  is  close  to the  surface,  with  the  result  that  the  borderline
contamination  is well  contained.  Mortgagor  has the  full  support  of  local
environmental authorities.

     6. Rio Vista Field,  California  -- Schuler  Homes has made a claim against
Mortgagor for excavation and disposal of contaminated soil near an old open sump
pit.  Representatives  from  Mortgagor met with Amerada  Hess,  who accepted its
contractual responsibility and is currently handling the claim.

     7. Clayton  Field,  Texas -- Pursuant to a pending sale by Kinder Morgan to
Kopono Energy of an easement,  due diligence  uncovered a two feet deep plume of
old condensate on top of groundwater.  Initial sampling  revealed that the plume
did not extend to property  owned by Mortgagor.  Recent tests confirm that it is
remote that Mortgagor has any potential  responsibility  for this plume.  In the
unlikely event that Mortgagor  does bear some  liability,  it is unknown at this
time what the remediation costs would be.

     8. Rio Vista Field,  California  -- Pursuant to an  acquisition  of Vintage
Petroleum,  Inc.,  Mortgagor  sublet a field office back to Vintage.  This field
office was allegedly  surrounded by arsenic  contaminated rock. An investigation
was conducted by Entrix in March 2001.  Chevron (a former  property owner) hired
Entrix,  and  appears  to be  accepting  responsibility  for any  contamination.
Mortgagor has not been informed of the test results.

     Additionally  at this site,  there are  several  dozen  joints of pipe that
contain an asbestos  coating that are  segregated  on a pipe rack.  The asbestos
coating is in a nonfriable  state, and does not pose any  environmental  risk at
this time.  The  estimated  cost for  moving  this pipe to an  approved  offsite
landfill is $7- $10,000, which will be accomplished shortly.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>ex10-9.txt
<TEXT>
                    AMENDMENT NUMBER ONE TO PLEDGE AGREEMENT


     THIS  AMENDMENT  NUMBER  ONE TO PLEDGE  AGREEMENT,  dated as of May 9, 2002
(herein  called  this  "Amendment"),  is  entered  into  by  and  among  CALPINE
CORPORATION,  a Delaware  corporation (herein called the "Company") and THE BANK
OF NOVA  SCOTIA,  as joint  administrative  agent  and  funding  agent  (in such
capacity, the "Agent").

                              W I T N E S S E T H:
                              - - - - - - - - - -

     WHEREAS,  the Company and the Agent have heretofore  entered into a certain
Pledge Agreement, dated as of March 8, 2002 (herein called the "Agreement"); and

     WHEREAS, the Company, the Lenders and the Administrative  Agents now desire
to amend the Agreement in certain respects, as hereinafter provided,

     NOW, THEREFORE,  in consideration of the premises and the mutual agreements
herein contained, the Company and the Agent hereby agree as follows:

     SECTION 1. Attachment 1 to the Agreement is hereby replaced with Attachment
1-A hereto  which  deletes the  references  to Calpine  Natural Gas GP, Inc. and
Calpine  Natural Gas  Holdings,  Inc.  All  references  to  Attachment  1 in the
Agreement shall be deemed to refer to Attachment 1-A attached hereto.

     SECTION  2. To  induce  the  Lenders  and the  Agent  to  enter  into  this
Amendment,   the  Company  hereby  reaffirms,   as  of  the  date  hereof,   its
representations and warranties contained in Article III of the Agreement (except
to the extent such  representations  and warranties  relate solely to an earlier
date) and additionally represents and warrants as follows:

               (i)  The  execution  and  delivery  of  this  Amendment,  and the
          performance by the Company of its  obligations  hereunder,  are within
          the  Company's  corporate  powers,  have been duly  authorized  by all
          necessary action,  have received all necessary  governmental  approval
          (if any  shall be  required),  and do not and will not  contravene  or
          conflict with any provision of law or of the charter or by-laws of the
          Company or of any agreement binding upon the Company;

               (ii) As of the date of this  Amendment,  the Company  owns all of
          the equity interests in Calpine Holdings;

               (iii) This Amendment is the legal,  valid and binding  obligation
          of the Company  enforceable against the Company in accordance with its
          terms; and

               (iv) No Default has  occurred  and is  continuing  and no Default
          will result from the execution and delivery of this Amendment.

     SECTION 3. The  effectiveness of this Amendment is conditioned upon receipt
by the Administrative  Agents of all the following  documents,  each in form and
substance satisfactory to the Administrative Agents:

               (i) This  Amendment  duly  executed by the Company and the Agent;
          and

               (ii) Such other documents as the Administrative Agents shall have
          reasonably requested.

     SECTION  4.  This  Amendment  shall be  deemed  to be an  amendment  to the
Agreement,  and the Agreement,  as amended hereby, is hereby ratified,  approved
and confirmed in each and every respect.  All references to the Agreement in any
other  document,  instrument,  agreement or writing shall hereafter be deemed to
refer to the Agreement as amended hereby.

     SECTION  5.  Unless  otherwise  defined  herein  or the  context  otherwise
requires,  terms used in this  Amendment,  including  its preamble and recitals,
have the meanings provided in the Agreement.

     SECTION 6. THIS  AMENDMENT  SHALL BE A CONTRACT  MADE UNDER AND GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. All
obligations of the Company and rights of the Agent expressed  herein shall be in
addition to and not in limitation of those provided by applicable law.  Whenever
possible each provision of this Amendment shall be interpreted in such manner as
to be effective  and valid under  applicable  law, but if any  provision of this
Amendment shall be prohibited by or invalid under applicable law, such provision
shall be  ineffective to the extent of such  prohibition or invalidity,  without
invalidating the remainder of such provision or the remaining provisions of this
Amendment.

     SECTION 7. This  Amendment  may be executed in any number of  counterparts,
all of which taken together shall  constitute one and the same  instrument,  and
any party hereto may execute this Amendment by signing one or more counterparts.

     SECTION 8. This  Amendment  shall be binding upon the Company and the Agent
and their respective  successors and assigns,  and shall inure to the benefit of
the Company and the Agent and the successors and assigns of the Agent.

     SECTION 9. THE COMPANY  HEREBY  KNOWINGLY,  VOLUNTARILY  AND  INTENTIONALLY
WAIVES  ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR  PROCEEDING  TO ENFORCE OR
DEFEND  ANY RIGHTS  UNDER THIS  AMENDMENT  OR UNDER ANY  AMENDMENT,  INSTRUMENT,
DOCUMENT  OR  AGREEMENT  DELIVERED  OR WHICH MAY IN THE FUTURE BE  DELIVERED  IN
CONNECTION  HEREWITH  OR  ARISING  FROM ANY  BANKING  RELATIONSHIP  EXISTING  IN
CONNECTION  WITH THIS  AMENDMENT,  AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.




<PAGE>



     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed by their  respective  officers  thereunto duly authorized as of the day
and year first above written.

                                   CALPINE CORPORATION


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

<PAGE>


                                   THE BANK OF NOVA SCOTIA, as
                                   Administrative Agent


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

<PAGE>


                                 ATTACHMENT 1-A


                                                                    ATTACHMENT 1
                                                                              to
                                                                Pledge Agreement

<TABLE>
<CAPTION>
Pledged Shares
--------------
Pledged Share Issuer                 Common Stock
--------------------                 ------------
                                      Authorized     Outstanding     % of Shares
                                        Shares         Shares          Pledged
                                      ----------     -----------     -----------
<S>                                      <C>             <C>             <C>
Calpine CCFC Holdings, Inc. .......      1000            1000            100%
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>ex10-11.txt
<TEXT>
                        FIRST AMENDMENT PLEDGE AGREEMENT


     THIS FIRST AMENDMENT PLEDGE AGREEMENT (this "Pledge  Agreement"),  dated as
of May 9,  2002,  made by  Calpine  Corporation,  a  Delaware  corporation  (the
"Borrower"),  in favor of The Bank of Nova Scotia,  as agent  (together with any
successor(s)  thereto  in such  capacity,  the  "Agent")  for each of the Lender
Parties (as defined below).

                                               W I T N E S S E T H:

     WHEREAS,  pursuant to that certain Credit  Agreement,  dated as of March 8,
2002 (together with all amendments and other modifications, if any, from time to
time thereafter made thereto, the "2002 Credit Agreement"),  among the Borrower,
the  various  financial  institutions  as  are  or  may  become  parties  hereto
(collectively,  the "2002  Lenders"),  The Bank of Nova  Scotia  and  Bayerische
Landesbank  Girozentrale,  as Lead  Arrangers and  Bookrunners  on the Revolving
Facility,  Salomon Smith Barney Inc. and Deutsche Banc Alex. Brown Inc., as Lead
Arrangers and  Bookrunners on the Term B Facility,  The Bank of Nova Scotia,  as
Joint  Administrative  Agent and Funding  Agent,  Citicorp  USA,  Inc., as Joint
Administrative  Agent, Bank of America,  National  Association and Credit Suisse
First Boston, Cayman Islands Branch as Lead Arrangers and Syndication Agents for
the  Revolving  Facility and TD  Securities  (USA) Inc. as Lead Arranger for the
Revolving Facility,  the Lenders have extended  Commitments to make Loans and to
issue Letters of Credit to the Borrower; and

     WHEREAS,  pursuant  to that  certain  Second  Amended and  Restated  Credit
Agreement,  dated as of May 23, 2000  (together  with all  amendments  and other
modifications,  if any,  from  time to  time  made  thereto,  the  "2000  Credit
Agreement"   and  together   with  the  2002  Credit   Agreement,   the  "Credit
Agreements"),  among the Borrower,  the various financial institutions as are or
may become parties thereto  (collectively,  the "2000 Lenders" and together with
the  2002  Lenders,  the  "Lenders"),   Bayerische  Landesbank  Girozentrale  as
co-arranger  and  syndication  agent for the 2000  Lenders  and The Bank of Nova
Scotia as lead arranger and administrative agent for the 2000 Lenders; and

     WHEREAS,  as a condition  precedent  to the  effectiveness  of that certain
First  Amendment  to  Credit  Agreement,  dated as of even  date  herewith,  the
Borrower is required to execute and deliver this Pledge Agreement; and

     WHEREAS,  the  Borrower has duly  authorized  the  execution,  delivery and
performance of this Pledge Agreement; and

     WHEREAS, it is in the best interests of the Borrower to execute this Pledge
Agreement  inasmuch as the Borrower will derive  substantial direct and indirect
benefits  from the Loans made and Letters of Credit  issued from time to time to
the Borrower by the Lenders pursuant to the Credit Agreements;

     NOW THEREFORE,  for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lenders to make Loans (including
the  initial  Loans)  and to issue  Letters  of Credit  for the  account  of the
Borrower pursuant to the Credit Agreements, the Borrower agrees, for the benefit
of each Lender Party, as follows:

                                    ARTICLE I
                                   DEFINITIONS

     SECTION  1.1.   Certain  Terms.   The  following   terms  (whether  or  not
underscored)  when used in this Pledge  Agreement,  including  its  preamble and
recitals,  shall have the following  meanings  (such  definitions  to be equally
applicable to the singular and plural forms thereof):

     "Agent" is defined in the preamble.

     "Borrower" is defined in the preamble.

     "Collateral" is defined in Section 2.1.

     "Credit Agreements" is defined in the second recital.

     "Distributions" means all stock dividends, liquidating dividends, shares of
stock  resulting  from (or in  connection  with the exercise  of) stock  splits,
reclassifications,    warrants,    options,    non-cash   dividends,    mergers,
consolidations,  and all other  distributions  (whether similar or dissimilar to
the  foregoing)  on or with  respect to any  Pledged  Shares or other  shares of
capital stock constituting Collateral, but shall not include Dividends.

     "Dividends" means cash dividends and cash distributions with respect to any
Pledged Shares or other Pledged Property made in the ordinary course of business
and not a liquidating dividend.

     "Lender Party" means, as the context may require, any Lender, Issuer or the
Agent and each of its  respective  successors,  transferees  and  assigns  under
either of the Credit Agreements.

     "Lenders" is defined in the second recital.

     "Pledge Agreement" is defined in the preamble.

     "Pledged Property" means all Pledged Shares and all other pledged shares of
capital stock,  all other  securities,  all assignments of any amounts due or to
become due, all other  instruments which are now being delivered by the Borrower
to the Agent or may from time to time  hereafter be delivered by the Borrower to
the Agent for the  purpose of pledge  under this Pledge  Agreement  or any other
Loan Document, and all proceeds of any of the foregoing.

     "Pledged Share Issuer" means each Person  identified in Attachment 1 hereto
as the issuer of the Pledged Shares identified opposite the name of such Person.

     "Pledged  Shares"  means all shares of capital  stock of any Pledged  Share
Issuer  which are  delivered  by the  Borrower to the Agent as Pledged  Property
hereunder.

     "Secured Obligations" is defined in Section 2.2.

     "Securities Act" is defined in Section 6.2.

     "U.C.C." means the Uniform Commercial Code as in effect in the State of New
York.

     SECTION 1.2.  Definitions.  Unless otherwise  defined herein or the context
otherwise requires, terms used in this Pledge Agreement,  including its preamble
and recitals, have the meanings provided in the Credit Agreements.

     SECTION 1.3. U.C.C.  Definitions.  Unless  otherwise  defined herein or the
context otherwise requires,  terms for which meanings are provided in the U.C.C.
are used in this Pledge  Agreement,  including its preamble and  recitals,  with
such meanings.

                                   ARTICLE II
                                     PLEDGE

     SECTION  2.1.  Grant of Security  Interest.  The Borrower  hereby  pledges,
hypothecates, assigns, charges, mortgages, delivers, and transfers to the Agent,
for its  benefit  and the  ratable  benefit of each of the Lender  Parties,  and
hereby  grants to the Agent,  for its  benefit  and the  ratable  benefit of the
Lender Parties, a continuing security interest in, all of the following property
(the "Collateral"):

          (a) all issued and outstanding shares of capital stock of each Pledged
     Share Issuer identified in Attachment ----------- 1 hereto; -

          (b) and the  certificates  representing  the  Pledged  Shares  and all
     dividends, cash, instruments and other property from time to time received,
     receivable or otherwise distributed in respect of or in exchange for any or
     all of the Pledged Shares;

          (c) all additional shares of stock of any issuer of the Pledged Shares
     from  time  to  time  acquired  by the  Borrower  in any  manner,  and  the
     certificates representing such additional shares, and all dividends,  cash,
     instruments  and other property from time to time  received,  receivable or
     otherwise  distributed  in respect of or in exchange for any or all of such
     shares;

          (d) all other Pledged Shares issued from time to time;

          (e) all other Pledged Property,  whether now or hereafter delivered to
     the Agent in connection with this Pledge Agreement;

          (f) all  Dividends,  Distributions,  interest,  and other payments and
     rights with respect to any Pledged Property; and

          (g) all proceeds of any of the foregoing.

     SECTION 2.2.  Security for Obligations.  This Pledge Agreement  secures the
payment  and  performance  in full of all  Obligations  of the  Borrower  now or
hereafter existing under the Credit Agreements, the Notes, each Letter of Credit
and each other Loan  Document  to which the  Borrower  is or may become a party,
whether for principal,  interest,  costs, fees, expenses, or otherwise,  and all
obligations  of the  Borrower  now  or  hereafter  existing  under  this  Pledge
Agreement and each other Loan Document to which it is or may become a party (all
such obligations of the Borrower being the "Secured Obligations").

     SECTION 2.3. Delivery of Pledged Property.  All certificates or instruments
representing or evidencing any Collateral,  including all Pledged Shares,  shall
be delivered to and held by or on behalf of the Agent pursuant hereto,  shall be
in suitable  form for  transfer by  delivery,  and shall be  accompanied  by all
necessary instruments of transfer or assignment, duly executed in blank.

     SECTION 2.4. Intentionally Omitted.

     SECTION 2.5.  Continuing  Security Interest;  Transfer of Note. This Pledge
Agreement  shall create a continuing  security  interest in the  Collateral  and
subject to Section 8.1.9 of the Credit Agreement shall

          (a)  remain in full  force and  effect  until  payment  in full of all
     Secured Obligations and the termination of all Commitments,

          (b) be binding upon the Borrower and its  successors,  transferees and
     assigns, and

          (c)  inure,  together  with  the  rights  and  remedies  of the  Agent
     hereunder, to the benefit of the Agent and each other Lender Party.

Without  limiting the  foregoing  clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any right or obligation  under the Loan Documents
to any other Person or entity,  and such other Person or entity shall  thereupon
become  vested with all the rights and  benefits in respect  thereof  granted to
such  Lender  under any Loan  Document  (including  this  Pledge  Agreement)  or
otherwise,  subject,  however,  to any contrary provisions in such assignment or
transfer,  and  to the  provisions  of  Section  11.11  of  each  of the  Credit
Agreements.  Upon the  indefeasible  payment in full,  in cash,  of all  Secured
Obligations  and the  termination  of all  Commitments,  the  security  interest
granted herein shall terminate and all rights to the Collateral  shall revert to
the Borrower. Upon any such termination,  the Agent will, at the Borrower's sole
expense,  deliver to the Borrower,  without any  representations,  warranties or
recourse of any kind whatsoever,  all certificates and instruments  representing
or evidencing all Pledged Shares, together with all other Collateral held by the
Agent  hereunder,  and execute and deliver to the Borrower such documents as the
Borrower shall reasonably request to evidence such termination.

     SECTION 2.6.  Security Interest  Absolute.  All rights of the Agent and the
security  interests  granted to the Agent hereunder,  and all obligations of the
Borrower hereunder, shall be absolute and unconditional, irrespective of

          (a) any lack of  validity  or  enforceability  of either of the Credit
     Agreements, any Note or any other Loan Document,

          (b) the failure of any Lender Party or any holder of any Note

               (i) to assert  any claim or  demand  or to  enforce  any right or
          remedy  against the  Borrower,  any other  Obligor or any other Person
          under the provisions of either of the Credit Agreements, any Note, any
          other Loan Document or otherwise, or

               (ii) to exercise any right or remedy against any other  guarantor
          of, or collateral  securing,  any  Obligations  of the Borrower or any
          other Obligor,

          (c) any change in the time,  manner or place of payment  of, or in any
     other  term  of,  all or any of the  Obligations  or any  other  extension,
     compromise  or  renewal  of any  Obligation  of the  Borrower  or any other
     Obligor,

          (d)  any  reduction,  limitation,  impairment  or  termination  of any
     Obligations of the Borrower or any other Obligor for any reason,  including
     any claim of waiver,  release,  surrender,  alteration or  compromise,  and
     shall not be subject  to (and the  Borrower  hereby  waives any right to or
     claim of) any defense or setoff,  counterclaim,  recoupment or  termination
     whatsoever  by  reason  of  the  invalidity,  illegality,   nongenuineness,
     irregularity,  compromise,  unenforceability  of,  or any  other  event  or
     occurrence affecting, any Obligations of the Borrower, any other Obligor or
     otherwise,

          (e) any amendment to, rescission, waiver, or other modification of, or
     any  consent to  departure  from,  any of the terms of either of the Credit
     Agreements, any Note or any other Loan Document,

          (f) any addition,  exchange,  release,  surrender or non-perfection of
     any collateral (including the Collateral), or any amendment to or waiver or
     release of or addition to or consent to departure  from any  guaranty,  for
     any of the Obligations, or

          (g) any other circumstances which might otherwise constitute a defense
     available to, or a legal or equitable discharge of, the Borrower, any other
     Obligor, any surety or any guarantor.

     SECTION 2.7.  Subrogation,  etc. The Borrower  will not exercise any rights
which it may acquire by reason of any payment made hereunder,  whether by way of
subrogation,  reimbursement or otherwise until the prior indefeasible payment in
full, in cash, of all  Obligations of the Borrower and each other  Obligor.  Any
amount paid to the  Borrower on account of any payment made  hereunder  prior to
the payment in full of all  Obligations  of the Borrower and each other  Obligor
shall be held in trust for the benefit of the Lender  Parties and each holder of
a Note and shall  immediately be paid to the Lender Parties and each holder of a
Note and credited and applied  against the  Obligations of the Borrower and each
other Obligor, whether matured or unmatured, in accordance with the terms of the
Credit Agreements; provided, however, that if

          (a) the  Borrower  has made  payment  to the Lender  Parties  and each
     holder of a Note of all or any part of the  Obligations  of the Borrower or
     any other Obligor, and

          (b) all  Obligations  of the Borrower and each other Obligor have been
     indefeasibly  paid  in  full,  in  cash,  and  all  Commitments  have  been
     permanently terminated,  each Lender Party and each holder of a Note agrees
     that, at the Borrower's request,  the Lender Parties and the holders of the
     Notes will  execute  and  deliver  to the  Borrower  appropriate  documents
     (without  recourse and without  representation  or warranty and at the sole
     cost and  expense of  Borrower)  necessary  to  evidence  the  transfer  by
     subrogation  to the  Borrower  of an  interest  in the  Obligations  of the
     Borrower  and  each  other  Obligor  resulting  from  such  payment  by the
     Borrower.  In furtherance of the foregoing,  for so long as any Obligations
     or Commitments remain  outstanding,  the Borrower shall refrain from taking
     any action or commencing any  proceeding  against the Borrower or any other
     Obligor  (or its  successors  or  assigns,  whether  in  connection  with a
     bankruptcy  proceeding  or  otherwise) to recover any amounts in respect of
     payments made under this Pledge Agreement to any Lender Party or any holder
     of a Note.

     SECTION 2.8. Waiver of Subrogation. Until such time as the Obligations have
been  indefeasibly  paid in  full,  in  cash,  and  the  Commitments  have  been
terminated,  the Borrower  hereby  irrevocably  waives any claim or other rights
which it may now or hereafter  acquire against the Borrower or any other Obligor
that  arise from the  existence,  payment,  performance  or  enforcement  of the
Borrower's  obligations  under this Pledge Agreement or any other Loan Document,
including   any   right   of   subrogation,   reimbursement,   exoneration,   or
indemnification,  any right to  participate in any claim or remedy of the Lender
Parties  against the Borrower or any other Obligor or any  collateral  which the
Agent now has or hereafter acquires,  whether or not such claim, remedy or right
arises in equity, or under contract,  statute or common law, including the right
to take  or  receive  from  the  Borrower  or any  other  Obligor,  directly  or
indirectly, in cash or other property or by set-off or in any manner, payment or
security on account of such claim or other  rights.  If any amount shall be paid
to the Borrower in violation of the preceding sentence and the Obligations shall
not have been  indefeasibly  paid in full, in cash, and the Commitments have not
been  terminated,  such amount shall be deemed to have been paid to the Borrower
for the  benefit  of,  and held in trust  for,  the  Lender  Parties,  and shall
forthwith  be paid to the Lender  Parties to be credited  and  applied  upon the
Obligations,  whether matured or unmatured.  The Borrower  acknowledges  that it
will  receive  direct and  indirect  benefits  from the  financing  arrangements
contemplated  by the  Credit  Agreements  and that the  waiver set forth in this
Section is knowingly made in contemplation of such benefits.

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

     SECTION 3.1.  Warranties,  etc. The Borrower  represents  and warrants unto
each  Lender  Party,  as at the  date  of each  pledge  and  delivery  hereunder
(including  each pledge and  delivery of Pledged  Shares) by the Borrower to the
Agent of any Collateral, as set forth in this Article.

     SECTION  3.1.1  Ownership,  No Liens,  etc.  The  Borrower is the legal and
beneficial  owner of, and has good and  marketable  title to (and has full right
and  authority  to pledge and  assign)  such  Collateral,  free and clear of all
liens, security interests, options, or other charges or encumbrances, except any
lien or security interest granted pursuant hereto in favor of the Agent.

     SECTION 3.1.2 Valid Security  Interest.  The delivery of such Collateral to
the Agent is effective to create a valid,  perfected,  first  priority  security
interest in such  Collateral  and all  proceeds  thereof,  securing  the Secured
Obligations.  No filing or other  action will be necessary to perfect or protect
such security interest.

     SECTION  3.1.3 As to  Pledged  Shares.  In the case of any  Pledged  Shares
constituting such Collateral, all of such Pledged Shares are duly authorized and
validly issued, fully paid, and non-assessable, and constitute all of the issued
and outstanding  shares of capital stock entitled to vote in the election of the
Board of Directors of each Pledged Share Issuer.

                                   ARTICLE IV
                                    COVENANTS

     SECTION 4.1. Protect Collateral; Further Assurances, etc. The Borrower will
not  sell,  assign,  transfer,  pledge,  or  encumber  in any other  manner  the
Collateral  (except in favor of the Agent  hereunder and as otherwise  expressly
permitted by the Credit  Agreements.  The  Borrower  will warrant and defend the
right and title herein granted unto the Agent in and to the Collateral  (and all
right, title, and interest represented by the Collateral) against the claims and
demands of all Persons  whomsoever.  The Borrower  agrees that at any time,  and
from time to time,  at the expense of the  Borrower,  the Borrower will promptly
execute and deliver all further  instruments,  and take all further action, that
may be necessary or  desirable,  or that the Agent may  reasonably  request,  in
order to perfect and protect any  security  interest  granted or purported to be
granted  hereby or to enable the Agent to  exercise  and  enforce its rights and
remedies hereunder with respect to any Collateral.

     SECTION 4.2. Stock Powers, etc. The Borrower agrees that all Pledged Shares
(and all other shares of capital stock constituting Collateral) delivered by the
Borrower  pursuant to this Pledge Agreement will be accompanied by duly executed
undated  blank  stock  powers,  or  other  equivalent  instruments  of  transfer
acceptable to the Agent.  The Borrower will,  from time to time upon the request
of the Agent, promptly deliver to the Agent such stock powers, instruments,  and
similar documents, satisfactory in form and substance to the Agent, with respect
to the  Collateral as the Agent may  reasonably  request and will,  from time to
time upon the request of the Agent after the occurrence of any Event of Default,
promptly   transfer  any  Pledged   Shares  or  other  shares  of  common  stock
constituting Collateral into the name of any nominee designated by the Agent.

     SECTION 4.3. Continuous Pledge.  Subject to Section 2.4, the Borrower will,
at all times,  keep pledged to the Agent pursuant  hereto all Pledged Shares and
all other shares of capital  stock  constituting  Collateral,  all Dividends and
Distributions  with  respect  thereto,   and  all  other  Collateral  and  other
securities,  instruments,  proceeds, and rights from time to time received by or
distributable to the Borrower in respect of any Collateral.

     SECTION 4.4. Voting Rights;  Dividends,  etc. The Borrower agrees after any
Event of  Default  shall  have  occurred  and be  continuing  and the  Agent has
notified  the  Borrower of the Agent's  intention  to exercise  its voting power
under this Section 4.4

               (i) the Agent may exercise (to the exclusion of the Borrower) the
          voting power and all other incidental rights of ownership with respect
          to any Pledged  Shares or other shares of capital  stock  constituting
          Collateral  and the Borrower  hereby  grants the Agent an  irrevocable
          proxy,  exercisable  under  such  circumstances,  to vote the  Pledged
          Shares and such other Collateral; and

               (ii) promptly to deliver to the Agent such additional proxies and
          other  documents  as may be  necessary  to allow the Agent to exercise
          such voting power.

The Agent  agrees that  unless an Event of Default  shall have  occurred  and be
continuing  and the Agent  shall have given the  notice  referred  to in Section
4.4(b),  the Borrower shall have the exclusive  voting power with respect to any
shares of capital  stock  (including  any of the  Pledged  Shares)  constituting
Collateral  and the Agent  shall,  upon the  written  request  of the  Borrower,
promptly  deliver  such  proxies  and  other  documents,  if any,  as  shall  be
reasonably  requested by the Borrower  which are necessary to allow the Borrower
to  exercise  voting  power with  respect  to any such  share of  capital  stock
(including  any  of  the  Pledged  Shares)  constituting  Collateral;  provided,
however, that no vote shall be cast, or consent,  waiver, or ratification given,
or  action  taken  by the  Borrower  that  would  impair  any  Collateral  or be
inconsistent with or violate any provision of the Credit Agreements or any other
Loan Document (including this Pledge Agreement).

     SECTION 4.5.  Additional  Undertakings.  The Borrower will not, without the
prior written consent of the Agent take or omit to take any action the taking or
the  omission of which  would  result in any  impairment  or  alteration  of any
obligation of the maker of any instrument constituting Collateral.

                                    ARTICLE V
                                    THE AGENT

     SECTION  5.1.  Agent  Appointed   Attorney-in-Fact.   The  Borrower  hereby
irrevocably  appoints  the  Agent  the  Borrower's  attorney-in-fact,  with full
authority in the place and stead of the Borrower and in the name of the Borrower
or otherwise,  from time to time in the Agent's  discretion,  to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including without limitation:

          (a) after the  occurrence and  continuance of an Event of Default,  to
     ask,  demand,  collect,  sue for,  recover,  compromise,  receive  and give
     acquittance  and  receipts  for  moneys  due and to become  due under or in
     respect of any of the Collateral;

          (b) to receive,  endorse, and collect any drafts or other instruments,
     documents  and chattel  paper,  in  connection  with clause (a) above;  and

          (c) to file any claims or take any action or institute any proceedings
     which the Agent may deem  necessary or desirable for the  collection of any
     of the  Collateral  or  otherwise  to enforce  the rights of the Agent with
     respect to any of the Collateral.

The Borrower hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

     SECTION  5.2.  Agent May  Perform.  If the  Borrower  fails to perform  any
agreement  contained herein, the Agent may itself perform,  or cause performance
of,  such  agreement,  and the  reasonable  expenses  of the Agent  incurred  in
connection therewith shall be payable by the Borrower pursuant to Section 6.4.

     SECTION 5.3. Agent Has No Duty. The powers conferred on the Agent hereunder
are solely to protect  its  interest  (on behalf of the Lender  Parties)  in the
Collateral  and shall not impose  any duty on it to  exercise  any such  powers.
Except  for  reasonable  care  of any  Collateral  in  its  possession  and  the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any  Collateral  or  responsibility  for (a)  ascertaining  or taking
action with respect to calls,  conversions,  exchanges,  maturities,  tenders or
other matters relative to any Pledged Property,  whether or not the Agent has or
is deemed to have knowledge of such matters,  or (b) taking any necessary  steps
to preserve  rights against prior parties or any other rights  pertaining to any
Collateral.

     SECTION 5.4.  Reasonable Care. The Agent is required to exercise reasonable
care in the custody and preservation of any of the Collateral in its possession;
provided,  however,  the Agent shall be deemed to have exercised reasonable care
in the  custody  and  preservation  of any of the  Collateral,  if it takes such
action for that purpose as the Borrower  reasonably requests in writing at times
other  than upon the  occurrence  and  during  the  continuance  of any Event of
Default,  but failure of the Agent to comply  with any such  request at any time
shall not in itself be deemed a failure to exercise reasonable care.

                                   ARTICLE VI
                                    REMEDIES

     SECTION 6.1. Certain Remedies.  If any Event of Default shall have occurred
and be continuing:

          (a) The Agent may exercise in respect of the  Collateral,  in addition
     to other rights and remedies provided for herein or otherwise  available to
     it, all the rights and  remedies  of a secured  party on default  under the
     U.C.C.  (whether or not the U.C.C.  applies to the affected Collateral) and
     also may, without notice except as specified below,  sell the Collateral or
     any part thereof in one or more parcels at public or private  sale,  at any
     of the  Agent's  offices or  elsewhere,  for cash,  on credit or for future
     delivery,  and upon such  other  terms as the  Agent may deem  commercially
     reasonable. The Borrower agrees that, to the extent notice of sale shall be
     required  by law, at least ten days'  prior  notice to the  Borrower of the
     time and place of any public sale or the time after which any private  sale
     is to be made shall constitute reasonable notification. The Agent shall not
     be obligated to make any sale of  Collateral  regardless  of notice of sale
     having  been given.  The Agent may adjourn any public or private  sale from
     time to time by announcement at the time and place fixed therefor, and such
     sale may, without further notice, be made at the time and place to which it
     was so adjourned.

          (b) The Agent may

               (i) transfer all or any part of the  Collateral  into the name of
          the  Agent  or its  nominee,  with or  without  disclosing  that  such
          Collateral is subject to the lien and security interest hereunder,

               (ii) notify the parties  obligated  on any of the  Collateral  to
          make  payment  to  the  Agent  of any  amount  due  or to  become  due
          thereunder,

               (iii)  enforce  collection  of any of the  Collateral  by suit or
          otherwise, and surrender, release or exchange all or any part thereof,
          or compromise or extend or renew for any period (whether or not longer
          than the original  period) any  obligations of any nature of any party
          with respect thereto,

               (iv)  endorse  any  checks,  drafts,  or  other  writings  in the
          Borrower's name to allow collection of the Collateral,

               (v) take control of any proceeds of the Collateral, and

               (vi)  execute  (in the name,  place  and  stead of the  Borrower)
          endorsements,  assignments,  stock  powers  and other  instruments  of
          conveyance or transfer with respect to all or any of the Collateral.

     SECTION 6.2.  Securities Laws. If the Agent shall determine to exercise its
right to sell all or any of the Collateral pursuant to Section 6.1, the Borrower
agrees that, upon request of the Agent, the Borrower will, at its own expense:

          (a)  execute  and  deliver,  and cause each  issuer of the  Collateral
     contemplated  to be sold and the directors and officers  thereof to execute
     and deliver, all such instruments and documents, and do or cause to be done
     all such other acts and things,  as may be necessary  or, in the opinion of
     the Agent,  advisable to register such  Collateral  under the provisions of
     the Securities  Act of 1933, as from time to time amended (the  "Securities
     Act"), and to cause the registration  statement  relating thereto to become
     ---------------  effective  and to  remain  effective  for such  period  as
     prospectuses  are  required  by  law  to be  furnished,  and  to  make  all
     amendments and supplements  thereto and to the related prospectus which, in
     the opinion of the Agent,  are  necessary or  advisable,  all in conformity
     with the  requirements  of the Securities Act and the rules and regulations
     of the Securities and Exchange Commission applicable thereto;

          (b) use its best  efforts to qualify  the  Collateral  under the state
     securities  or "Blue  Sky" laws and to obtain  all  necessary  governmental
     approvals for the sale of the Collateral, as requested by the Agent;

          (c) cause each such issuer to make available to its security  holders,
     as soon as  practicable,  an  earnings  statement  that  will  satisfy  the
     provisions of Section 11(a) of the Securities Act; and

          (d) do or cause to be done all such  other  acts and  things as may be
     necessary to make such sale of the Collateral or any part thereof valid and
     binding and in compliance with applicable law.

     SECTION 6.3. Compliance with Restrictions.  The Borrower agrees that in any
sale of any of the  Collateral  whenever an Event of Default shall have occurred
and be continuing,  the Agent is hereby authorized to comply with any limitation
or restriction  in connection  with such sale as it may be advised by counsel is
necessary  in  order  to  avoid  any  violation  of  applicable  law  (including
compliance  with such  procedures  as may  restrict  the  number of  prospective
bidders and  purchasers,  require that such  prospective  bidders and purchasers
have  certain   qualifications,   and  restrict  such  prospective  bidders  and
purchasers to persons who will  represent and agree that they are purchasing for
their own  account for  investment  and not with a view to the  distribution  or
resale of such  Collateral),  or in order to obtain any required approval of the
sale or of the purchaser by any governmental  regulatory  authority or official,
and the Borrower  further agrees that such  compliance  shall not result in such
sale  being  considered  or  deemed  not to have  been  made  in a  commercially
reasonable manner, nor shall the Agent be liable nor accountable to the Borrower
for any discount  allowed by the reason of the fact that such Collateral is sold
in compliance with any such limitation or restriction.

     SECTION 6.4.  Application  of Proceeds.  All cash proceeds  received by the
Agent in respect of any sale of, collection from, or other realization upon, all
or any part of the  Collateral  may  thereafter be applied (after payment of any
amounts  payable to the Agent  pursuant to Article III of the Credit  Agreements
and Section  6.4) in whole or in part by the Agent  against,  all or any part of
the Secured Obligations in such order as the Agent shall elect.

     Any surplus of such cash or cash  proceeds  held by the Agent and remaining
after payment in full of all the Secured Obligations, and the termination of all
Commitments, shall be paid over to the Borrower or to whomsoever may be lawfully
entitled to receive such surplus.

     SECTION 6.5.  Indemnity and Expenses.  The Borrower hereby  indemnifies and
holds  harmless  the Agent from and  against  any and all  claims,  losses,  and
liabilities  arising out of or resulting from this Pledge  Agreement  (including
enforcement of this Pledge  Agreement),  except claims,  losses,  or liabilities
resulting from the Agent's gross negligence or willful misconduct.  Upon demand,
the  Borrower  will  pay to the  Agent  the  amount  of any and  all  reasonable
expenses,  including the reasonable fees and disbursements of its counsel and of
any experts and agents, which the Agent may incur in connection with:

          (a) the administration of this Pledge Agreement, the Credit Agreements
     and each other Loan Document;

          (b) the custody,  preservation,  use, or operation of, or the sale of,
     collection from, or other realization upon, any of the Collateral;

          (c) the  exercise  or  enforcement  of any of the  rights of the Agent
     hereunder; or

          (d) the  failure by the  Borrower  to  perform  or observe  any of the
     provisions hereof.

                                  ARTICLE VII
                            MISCELLANEOUS PROVISIONS

     SECTION  7.1.  Loan  Document.  This Pledge  Agreement  is a Loan  Document
executed pursuant to the Credit Agreements and shall (unless otherwise expressly
indicated herein) be construed,  administered and applied in accordance with the
terms and provisions thereof.

     SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of
this Pledge  Agreement  nor consent to any  departure by the  Borrower  herefrom
shall in any event be  effective  unless the same shall be in writing and signed
by the Agent,  and then such waiver or consent  shall be  effective  only in the
specific instance and for the specific purpose for which it is given.

     SECTION 7.3. Protection of Collateral.  The Agent may from time to time, at
its option,  perform any act which the Borrower agrees  hereunder to perform and
which the Borrower shall fail to perform after being  requested in writing so to
perform  (it  being  understood  that no such  request  need be given  after the
occurrence and during the  continuance of an Event of Default) and the Agent may
from time to time  take any  other  action  which  the  Agent  reasonably  deems
necessary  for  the  maintenance,  preservation  or  protection  of  any  of the
Collateral or of its security interest therein.

     SECTION 7.4.  Addresses for Notices.  All notices and other  communications
provided for hereunder shall be in writing (including telegraphic communication)
and, if to the Borrower, mailed or telegraphed or delivered to it at the address
set forth below its signature  hereto,  if to the Agent,  mailed or delivered to
it,  addressed  to it at the address of the Agent  specified  in the 2002 Credit
Agreement or, as to either  party,  at such other address as shall be designated
by such party in a written  notice to each other party  complying as to delivery
with the terms of this Section. All such notices and other communications shall,
when mailed or  telegraphed,  respectively,  be effective  when deposited in the
mails  or  delivered  to  the  telegraph  company,  respectively,  addressed  as
aforesaid.

     SECTION  7.5.  Section  Captions.  Section  captions  used in  this  Pledge
Agreement  are for  convenience  of  reference  only,  and shall not  affect the
construction of this Pledge Agreement.

     SECTION 7.6. Severability.  Wherever possible each provision of this Pledge
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law,  but if  any  provision  of  this  Pledge  Agreement  shall  be
prohibited by or invalid under such law, such provision  shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Pledge Agreement.

     SECTION 7.7.  Governing Law, Entire  Agreement,  etc. THIS PLEDGE AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK,  EXCEPT TO THE EXTENT THAT THE VALIDITY OR  PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK.  THIS PLEDGE  AGREEMENT AND THE OTHER LOAN  DOCUMENTS  CONSTITUTE  THE
ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF  AND  SUPERSEDE  ANY PRIOR  AGREEMENTS,  WRITTEN  OR ORAL,  WITH  RESPECT
THERETO.

     SECTION 7.8. Forum  Selection and Consent to  Jurisdiction.  ANY LITIGATION
BASED HEREON,  OR ARISING OUT OF,  UNDER,  OR IN  CONNECTION  WITH,  THIS PLEDGE
AGREEMENT,  OR ANY COURSE OF  CONDUCT,  COURSE OF DEALING,  STATEMENTS  (WHETHER
VERBAL OR WRITTEN)  OR ACTIONS OF THE LENDER  PARTIES OR THE  BORROWER  SHALL BE
BROUGHT AND MAINTAINED  EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN
THE  UNITED  STATES  DISTRICT  COURT  FOR THE  SOUTHERN  DISTRICT  OF NEW  YORK;
PROVIDED,  HOWEVER,  THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER  PROPERTY  MAY BE  BROUGHT,  AT THE AGENT'S  OPTION,  IN THE COURTS OF ANY
JURISDICTION  WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER
HEREBY  EXPRESSLY AND IRREVOCABLY  SUBMITS TO THE  JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES  DISTRICT  COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH  LITIGATION  AS SET FORTH ABOVE
AND  IRREVOCABLY  AGREES  TO BE  BOUND  BY  ANY  JUDGMENT  RENDERED  THEREBY  IN
CONNECTION WITH SUCH LITIGATION.  THE BORROWER FURTHER  IRREVOCABLY  CONSENTS TO
THE  SERVICE OF PROCESS BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER  HEREBY  EXPRESSLY
AND IRREVOCABLY  WAIVES,  TO THE FULLEST EXTENT  PERMITTED BY LAW, ANY OBJECTION
WHICH  IT MAY HAVE OR  HEREAFTER  MAY  HAVE TO THE  LAYING  OF VENUE OF ANY SUCH
LITIGATION  BROUGHT IN ANY SUCH COURT  REFERRED  TO ABOVE AND ANY CLAIM THAT ANY
SUCH  LITIGATION HAS BEEN BROUGHT IN AN  INCONVENIENT  FORUM. TO THE EXTENT THAT
THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM  JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER  THROUGH SERVICE OR NOTICE,  ATTACHMENT
PRIOR TO JUDGMENT,  ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY,  THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT.

     SECTION  7.9.  Waiver of Jury Trial.  THE LENDER  PARTIES AND THE  BORROWER
HEREBY KNOWINGLY,  VOLUNTARILY AND INTENTIONALLY  WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS PLEDGE  AGREEMENT,  OR ANY COURSE OF CONDUCT,
COURSE OF  DEALING,  STATEMENTS  (WHETHER  VERBAL OR  WRITTEN) OR ACTIONS OF THE
LENDER PARTIES OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND  SUFFICIENT  CONSIDERATION  FOR THIS PROVISION (AND EACH OTHER
PROVISION  OF EACH  OTHER  LOAN  DOCUMENT  TO WHICH IT IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL  INDUCEMENT  FOR THE LENDER  PARTIES  ENTERING  INTO THE
CREDIT AGREEMENTS AND EACH SUCH OTHER LOAN DOCUMENT.



<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly  executed and  delivered by their  respective  officers  thereunto  duly
authorized as of the day and year first above written.

                                CALPINE CORPORATION


                                By:_____________________________________________
                                Name:___________________________________________
                                Title:__________________________________________

                                Address:        50 West San Fernando Avenue
                                                San Jose, CA 95113

                                Facsimile No.:  (408) 995-0505

                                Attention:      Senior Vice President-Finance



<PAGE>



                                THE BANK OF NOVA SCOTIA


                                By:_____________________________________________
                                Name:___________________________________________
                                Title:__________________________________________

                                Address:        580 California Street
                                                Suite 2100
                                                San Francisco, CA 94111

                                Facsimile No.:  (415) 397-0791

                                Attention:      Jon Burckin

                                with a copy to:

                                                The Bank of Nova Scotia
                                                600 Peachtree Street, N.E.
                                                Suite 2700
                                                Atlanta, GA 30308

                                Attention:      Hilma Gabbidon
                                                Administrative Agent
                                                Loan Administration

                                Facsimile No.:  (404) 888-8998



<PAGE>
                                                                    ATTACHMENT 1
                                                                              to
                                                                Pledge Agreement
<TABLE>
<CAPTION>
Pledged Shares
--------------
Pledged Share Issuer                                          Common Stock
--------------------                                          ------------
                                                               Authorized        Outstanding     % of Shares
                                                                 Shares            Shares          Pledged
                                                               ----------        -----------     -----------
<S>                                                               <C>                <C>             <C>
Calpine CCFC II Holdings, Inc.                                    1000               1000            100%
Calpine Central, Inc.                                             1000               1000            100%
Calpine Eastern Corporation                                       1000               1000            100%
Calpine Dighton, Inc.                                             1000               1000            100%
CPN Auburndale, Inc.                                              1000               1000            100%
Calpine Auburndale, Inc.                                          1000               1000            100%
Calpine Gordonsville, Inc.                                        1000               1000            100%
Calpine Rumford, Inc.                                              100                100            100%
Calpine Rumford I, Inc.                                           1000               1000            100%
Calpine Tiverton, Inc.                                             100                100            100%
Calpine Tiverton I, Inc.                                           100                100            100%
Calpine Northeast Marketing, Inc.                                  100                100            100%
Venture Acquisition Company                                       1000               1000            100%
Calpine Northbrook Energy Corporation of Maine, Inc.              1000               1000            100%
Androscoggin Energy, Inc.                                         1000               1000            100%
Calpine Project Holdings, Inc.                                    1000               1000            100%
Calpine Sumas, Inc.                                               1000               1000            100%
Northwest Cogeneration, Inc.                                      1000               1000            100%
Calpine King City 1, Inc.                                         1000               1000            100%
Calpine King City 2, Inc.                                         1000               1000            100%
Calpine Gilroy 1, Inc.                                            1000               1000            100%
Calpine Gilroy 2, Inc.                                            1000               1000            100%
Sutter Dryers, Inc.                                               1000               1000            100%
Calpine Metcalf EPC, Inc.                                         1000               1000            100%
Goldendale Energy, Inc.                                            100                100            100%
Bellingham Cogen, Inc.                                            1000               1000            100%
GATX/Calpine Agnews, Inc.                                         3000               3000            100%
Calpine Agnews, Inc.                                              1000               1000            100%
Calpine Power Company                                             1000               1000            100%
Calpine Vapor, Inc.                                               1000               1000            100%
Modoc Power, Inc.                                                 1000               1000            100%
Santa Rosa Energy Company                                         1000               1000            100%
Geysers Finance Company                                        100,000            100,000            100%
Calpine Thermal Power, Inc.                                       1000               1000            100%
Calpine Operations Management Company, Inc.                       1000               1000            100%
Calpine Fuels Corporation                                         1000               1000            100%
CPN Pipeline Company                                              1000               1000            100%
Calpine Eastern Holdings, Inc.                                    1000               1000            100%
Calpine c*Power, Inc.                                             1000               1000            100%
WRMS Engineering, Inc.                                         100,000            100,000            100%
CPN Cascade, Inc.                                                 1000               1000            100%
CPN Telephone Flat, Inc.                                          1000               1000            100%
Anderson Springs Energy Company                                   1000               1000            100%
Calpine Sonoma, Inc.                                              1000               1000            100%
Calpine California Holdings, Inc.                                 1000               1000            100%
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>9
<FILENAME>ex10-12.txt
<TEXT>
                        FIRST AMENDMENT PLEDGE AGREEMENT
                             (Membership Interests)


     THIS FIRST AMENDMENT PLEDGE AGREEMENT (this "Pledge  Agreement"),  dated as
of May 9,  2002,  made by  Calpine  Corporation,  a  Delaware  corporation  (the
"Borrower"),  in favor of The Bank of Nova Scotia,  as agent  (together with any
successor(s)  thereto  in such  capacity,  the  "Agent")  for each of the Lender
Parties (as defined below).

                              W I T N E S S E T H:

     WHEREAS,  pursuant to that certain Credit  Agreement,  dated as of March 8,
2002 (together with all amendments and other modifications, if any, from time to
time thereafter made thereto, the "2002 Credit Agreement"),  among the Borrower,
the  various  financial  institutions  as  are  or  may  become  parties  hereto
(collectively,  the "2002  Lenders"),  The Bank of Nova  Scotia  and  Bayerische
Landesbank  Girozentrale,  as Lead  Arrangers and  Bookrunners  on the Revolving
Facility,  Salomon Smith Barney Inc. and Deutsche Banc Alex. Brown Inc., as Lead
Arrangers and  Bookrunners on the Term B Facility,  The Bank of Nova Scotia,  as
Joint  Administrative  Agent and Funding  Agent,  Citicorp  USA,  Inc., as Joint
Administrative  Agent, Bank of America,  National  Association and Credit Suisse
First Boston, Cayman Islands Branch as Lead Arrangers and Syndication Agents for
the  Revolving  Facility and TD  Securities  (USA) Inc. as Lead Arranger for the
Revolving Facility,  the Lenders have extended  Commitments to make Loans and to
issue Letters of Credit to the Borrower; and

     WHEREAS,  pursuant  to that  certain  Second  Amended and  Restated  Credit
Agreement,  dated as of May 23, 2000  (together  with all  amendments  and other
modifications,  if any,  from  time to  time  made  thereto,  the  "2000  Credit
Agreement"   and  together   with  the  2002  Credit   Agreement,   the  "Credit
Agreements"),  among the Borrower,  the various financial institutions as are or
may become parties thereto  (collectively,  the "2000 Lenders" and together with
the  2002  Lenders,  the  "Lenders"),   Bayerische  Landesbank  Girozentrale  as
co-arranger  and  syndication  agent for the 2000  Lenders  and The Bank of Nova
Scotia as lead arranger and administrative agent for the 2000 Lenders; and

     WHEREAS,  as a condition  precedent  to the  effectiveness  of that certain
First  Amendment  to  Credit  Agreement,  dated as of even  date  herewith,  the
Borrower is required to execute and deliver this Pledge Agreement; and

     WHEREAS,  the  Borrower has duly  authorized  the  execution,  delivery and
performance of this Pledge Agreement; and

     WHEREAS, it is in the best interests of the Borrower to execute this Pledge
Agreement  inasmuch as the Borrower will derive  substantial direct and indirect
benefits  from the Loans made and Letters of Credit  issued from time to time to
the Borrower by the Lenders pursuant to the Credit Agreements;

     NOW THEREFORE,  for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lenders to make Loans (including
the  initial  Loans)  and to issue  Letters  of Credit  for the  account  of the
Borrower pursuant to the Credit Agreements, the Borrower agrees, for the benefit
of each Lender Party, as follows:

                                   ARTICLE I
                                  DEFINITIONS

     SECTION  1.1.   Certain  Terms.   The  following   terms  (whether  or  not
underscored)  when used in this Pledge  Agreement,  including  its  preamble and
recitals,  shall have the following  meanings  (such  definitions  to be equally
applicable to the singular and plural forms thereof):

     "Agent" is defined in the preamble.

     "Borrower" is defined in the preamble.

     "Collateral" is defined in Section 2.1.

     "Credit Agreements" is defined in the second recital.

     "Distributions" means all cash distributions made in respect of the Pledged
Interests,  whether of net income, return of capital or otherwise, and all other
distributions  (whether  similar  or  dissimilar  to the  foregoing)  on or with
respect to any  Pledged  Interests  or other  rights or  interests  constituting
Collateral.

     "Lender Party" means, as the context may require, any Lender, Issuer or the
Agent and each of its  respective  successors,  transferees  and  assigns  under
either of the Credit Agreements.

     "Lenders" is defined in the second recital.

     "Pledge Agreement" is defined in the preamble.

     "Pledged Property" means all Pledged Interests, securities, all assignments
of any amounts due or to become due, all other  instruments  which are now being
delivered  by the  Borrower to the Agent or may from time to time  hereafter  be
delivered  by the  Borrower  to the Agent for the  purpose of pledge  under this
Pledge  Agreement  or any other Loan  Document,  and all  proceeds of any of the
foregoing.

     "Pledged  Interests  Issuer"  means each Person  identified in Attachment 1
hereto as the issuer of the Pledged  Interests  identified  opposite the name of
such Person.

     "Pledged Interests" means all membership interests in the Pledged Interests
Issuer,  as such interests are amended,  modified,  or supplemented from time to
time and  together  with any interest in the Pledged  Interests  Issuer taken in
extension or renewal thereof or substitution therefore.

     "Secured Obligations" is defined in Section 2.2.

     "Securities Act" is defined in Section 6.2.

     "U.C.C." means the Uniform Commercial Code as in effect in the State of New
York.

     SECTION 1.2.  Definitions.  Unless otherwise  defined herein or the context
otherwise requires, terms used in this Pledge Agreement,  including its preamble
and recitals, have the meanings provided in the Credit Agreements.

     SECTION 1.3. U.C.C.  Definitions.  Unless  otherwise  defined herein or the
context otherwise requires,  terms for which meanings are provided in the U.C.C.
are used in this Pledge  Agreement,  including its preamble and  recitals,  with
such meanings.

                                   ARTICLE II
                                     PLEDGE

     SECTION  2.1.  Grant of Security  Interest.  The Borrower  hereby  pledges,
hypothecates, assigns, charges, mortgages, delivers, and transfers to the Agent,
for its  benefit  and the  ratable  benefit of each of the Lender  Parties,  and
hereby  grants to the Agent,  for its  benefit  and the  ratable  benefit of the
Lender Parties, a continuing security interest in, all of the following property
(the "Collateral"):

          (a) all Pledged Interests identified in Attachment 1 hereto;

          (b) and the certificates  representing  the Pledged  Interests and all
     dividends, distributions, cash, instruments and other property from time to
     time  received,  receivable  or otherwise  distributed  in respect of or in
     exchange for any or all of the Pledged Interests;

          (c) all additional  membership  interests of any issuer of the Pledged
     Interests from time to time acquired by the Borrower in any manner, and the
     certificates  representing such additional  membership  interests,  and all
     dividends, distributions, cash, instruments and other property from time to
     time  received,  receivable  or otherwise  distributed  in respect of or in
     exchange for any or all of such membership interests;

          (d) all other Pledged Interests issued from time to time;

          (e) all other Pledged Property,  whether now or hereafter delivered to
     the Agent in connection with this Pledge Agreement;

          (f) all  Distributions,  interest,  and other payments and rights with
     respect to any Pledged Property; and

          (g) all proceeds of any of the foregoing.

     SECTION 2.2.  Security for Obligations.  This Pledge Agreement  secures the
payment  and  performance  in full of all  Obligations  of the  Borrower  now or
hereafter existing under the Credit Agreements, the Notes, each Letter of Credit
and each other Loan  Document  to which the  Borrower  is or may become a party,
whether for principal,  interest,  costs, fees, expenses, or otherwise,  and all
obligations  of the  Borrower  now  or  hereafter  existing  under  this  Pledge
Agreement and each other Loan Document to which it is or may become a party (all
such obligations of the Borrower being the "Secured Obligations").

     SECTION 2.3. Delivery of Pledged Property.  All certificates or instruments
representing  or evidencing any  Collateral,  including all Pledged  Interests ,
shall be  delivered  to and held by or on behalf of the Agent  pursuant  hereto,
shall be in suitable form for transfer by delivery,  and shall be accompanied by
all necessary instruments of transfer or assignment, duly executed in blank.

     SECTION 2.4. Intentionally Omitted.

     SECTION 2.5.  Continuing  Security Interest;  Transfer of Note. This Pledge
Agreement  shall create a continuing  security  interest in the  Collateral  and
subject to Section 8.1.9 of the Credit Agreement shall

          (a)  remain in full  force and  effect  until  payment  in full of all
     Secured Obligations and the termination of all Commitments,

          (b) be binding upon the Borrower and its  successors,  transferees and
     assigns, and

          (c)  inure,  together  with  the  rights  and  remedies  of the  Agent
     hereunder, to the benefit of the Agent and each other Lender Party.

Without  limiting the  foregoing  clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any right or obligation  under the Loan Documents
to any other Person or entity,  and such other Person or entity shall  thereupon
become  vested with all the rights and  benefits in respect  thereof  granted to
such  Lender  under any Loan  Document  (including  this  Pledge  Agreement)  or
otherwise,  subject,  however,  to any contrary provisions in such assignment or
transfer,  and  to the  provisions  of  Section  11.11  of  each  of the  Credit
Agreements.  Upon the  indefeasible  payment in full,  in cash,  of all  Secured
Obligations  and the  termination  of all  Commitments,  the  security  interest
granted herein shall terminate and all rights to the Collateral  shall revert to
the Borrower. Upon any such termination,  the Agent will, at the Borrower's sole
expense,  deliver to the Borrower,  without any  representations,  warranties or
recourse of any kind whatsoever,  all certificates and instruments  representing
or evidencing all Pledged Interests,  together with all other Collateral held by
the Agent  hereunder,  and execute and deliver to the Borrower such documents as
the Borrower shall reasonably request to evidence such termination.

     SECTION 2.6.  Security Interest  Absolute.  All rights of the Agent and the
security  interests  granted to the Agent hereunder,  and all obligations of the
Borrower hereunder, shall be absolute and unconditional, irrespective of

          (a) any lack of  validity  or  enforceability  of either of the Credit
     Agreements, any Note or any other Loan Document,

          (b) the failure of any Lender Party or any holder of any Note

               (i) to assert  any claim or  demand  or to  enforce  any right or
          remedy  against the  Borrower,  any other  Obligor or any other Person
          under the provisions of either of the Credit Agreements, any Note, any
          other Loan Document or otherwise, or

               (ii) to exercise any right or remedy against any other  guarantor
          of, or collateral  securing,  any  Obligations  of the Borrower or any
          other Obligor,

          (c) any change in the time,  manner or place of payment  of, or in any
     other  term  of,  all or any of the  Obligations  or any  other  extension,
     compromise  or  renewal  of any  Obligation  of the  Borrower  or any other
     Obligor,

          (d)  any  reduction,  limitation,  impairment  or  termination  of any
     Obligations of the Borrower or any other Obligor for any reason,  including
     any claim of waiver,  release,  surrender,  alteration or  compromise,  and
     shall not be subject  to (and the  Borrower  hereby  waives any right to or
     claim of) any defense or setoff,  counterclaim,  recoupment or  termination
     whatsoever  by  reason  of  the  invalidity,  illegality,   nongenuineness,
     irregularity,  compromise,  unenforceability  of,  or any  other  event  or
     occurrence affecting, any Obligations of the Borrower, any other Obligor or
     otherwise,

          (e) any amendment to, rescission, waiver, or other modification of, or
     any  consent to  departure  from,  any of the terms of either of the Credit
     Agreements, any Note or any other Loan Document,

          (f) any addition,  exchange,  release,  surrender or non-perfection of
     any collateral (including the Collateral), or any amendment to or waiver or
     release of or addition to or consent to departure  from any  guaranty,  for
     any of the Obligations, or

          (g) any other circumstances which might otherwise constitute a defense
     available to, or a legal or equitable discharge of, the Borrower, any other
     Obligor, any surety or any guarantor.

     SECTION 2.7.  Subrogation,  etc. The Borrower  will not exercise any rights
which it may acquire by reason of any payment made hereunder,  whether by way of
subrogation,  reimbursement or otherwise until the prior indefeasible payment in
full, in cash, of all  Obligations of the Borrower and each other  Obligor.  Any
amount paid to the  Borrower on account of any payment made  hereunder  prior to
the payment in full of all  Obligations  of the Borrower and each other  Obligor
shall be held in trust for the benefit of the Lender  Parties and each holder of
a Note and shall  immediately be paid to the Lender Parties and each holder of a
Note and credited and applied  against the  Obligations of the Borrower and each
other Obligor, whether matured or unmatured, in accordance with the terms of the
Credit Agreements; provided, however, that if

          (a) the  Borrower  has made  payment  to the Lender  Parties  and each
     holder of a Note of all or any part of the  Obligations  of the Borrower or
     any other Obligor, and

          (b) all  Obligations  of the Borrower and each other Obligor have been
     indefeasibly  paid  in  full,  in  cash,  and  all  Commitments  have  been
     permanently terminated,

each  Lender  Party and each  holder of a Note agrees  that,  at the  Borrower's
request,  the Lender  Parties  and the  holders of the Notes  will  execute  and
deliver to the  Borrower  appropriate  documents  (without  recourse and without
representation  or  warranty  and at the sole  cost  and  expense  of  Borrower)
necessary to evidence the transfer by subrogation to the Borrower of an interest
in the  Obligations  of the Borrower and each other Obligor  resulting from such
payment by the Borrower.  In furtherance  of the  foregoing,  for so long as any
Obligations or Commitments remain  outstanding,  the Borrower shall refrain from
taking any action or commencing any proceeding against the Borrower or any other
Obligor (or its successors or assigns,  whether in connection  with a bankruptcy
proceeding  or  otherwise)  to recover any  amounts in respect of payments  made
under this Pledge Agreement to any Lender Party or any holder of a Note.

          SECTION 2.8. Waiver of Subrogation. Until such time as the Obligations
     have been indefeasibly paid in full, in cash, and the Commitments have been
     terminated,  the  Borrower  hereby  irrevocably  waives  any claim or other
     rights  which it may now or hereafter  acquire  against the Borrower or any
     other  Obligor  that  arise from the  existence,  payment,  performance  or
     enforcement of the Borrower's  obligations  under this Pledge  Agreement or
     any other Loan Document, including any right of subrogation, reimbursement,
     exoneration,  or indemnification,  any right to participate in any claim or
     remedy of the Lender  Parties  against the Borrower or any other Obligor or
     any collateral  which the Agent now has or hereafter  acquires,  whether or
     not such  claim,  remedy or right  arises  in  equity,  or under  contract,
     statute or common  law,  including  the right to take or  receive  from the
     Borrower or any other  Obligor,  directly or  indirectly,  in cash or other
     property or by set-off or in any manner,  payment or security on account of
     such claim or other rights.  If any amount shall be paid to the Borrower in
     violation of the preceding sentence and the Obligations shall not have been
     indefeasibly  paid in full,  in  cash,  and the  Commitments  have not been
     terminated,  such amount  shall be deemed to have been paid to the Borrower
     for the benefit of, and held in trust for,  the Lender  Parties,  and shall
     forthwith be paid to the Lender Parties to be credited and applied upon the
     Obligations,  whether matured or unmatured.  The Borrower acknowledges that
     it  will  receive   direct  and  indirect   benefits   from  the  financing
     arrangements  contemplated by the Credit Agreements and that the waiver set
     forth in this Section is knowingly made in contemplation of such benefits.

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

     SECTION 3.1.  Warranties,  etc. The Borrower  represents  and warrants unto
each  Lender  Party,  as at the  date  of each  pledge  and  delivery  hereunder
(including  each pledge and  delivery of Pledged  Interests ) by the Borrower to
the Agent of any Collateral, as set forth in this Article.

     SECTION  3.1.1  Ownership,  No Liens,  etc.  The  Borrower is the legal and
beneficial  owner of, and has good and  marketable  title to (and has full right
and  authority  to pledge and  assign)  such  Collateral,  free and clear of all
liens, security interests, options, or other charges or encumbrances, except any
lien or security interest granted pursuant hereto in favor of the Agent.

     SECTION 3.1.2 Valid Security  Interest.  The delivery of such Collateral to
the Agent is effective to create a valid,  perfected,  first  priority  security
interest in such Collateral and all proceeds thereof,  securing the Obligations.
No other  filing or other  action will be  necessary  to perfect or protect such
security interest.

     SECTION  3.1.3  As to  Pledged  Interests  . In the  case  of  any  Pledged
Interests  constituting such Collateral,  all of such Pledged Interests are duly
authorized and validly issued,  fully paid, and  non-assessable,  and constitute
all of the issued and  outstanding  shares of capital stock  entitled to vote in
the election of the Board of Directors of each Pledged Interests Issuer.

     SECTION 3.1.4 Nature of Membership Interests.  No right, title and interest
of  the  Borrower  in  the  Pledged  Interests  Issuers  are  represented  by  a
certificate of interest or instrument,  except such certificates or instruments,
if any,  as have been  delivered  to the  Agent and are held in its  possession,
together with transfer  documents as required in this Pledge  Agreement (and the
Borrower  covenants  and  agrees  that  any  such  certificates  or  instruments
hereafter received by the Borrower with respect to any of the Collateral will be
held in trust for the Agent and promptly delivered to the Agent).

                                   ARTICLE IV
                                   COVENANTS

     SECTION 4.1. Protect Collateral; Further Assurances, etc. The Borrower will
not  sell,  assign,  transfer,  pledge,  or  encumber  in any other  manner  the
Collateral  (except in favor of the Agent  hereunder and as otherwise  expressly
permitted by the Credit  Agreements.  The  Borrower  will warrant and defend the
right and title herein granted unto the Agent in and to the Collateral  (and all
right, title, and interest represented by the Collateral) against the claims and
demands of all Persons  whomsoever.  The Borrower  agrees that at any time,  and
from time to time,  at the expense of the  Borrower,  the Borrower will promptly
execute and deliver all further  instruments,  and take all further action, that
may be necessary or  desirable,  or that the Agent may  reasonably  request,  in
order to perfect and protect any  security  interest  granted or purported to be
granted  hereby or to enable the Agent to  exercise  and  enforce its rights and
remedies  hereunder  with  respect  to  any  Collateral.   The  Borrower  hereby
authorizes  the Agent to file any  financing  statement  that (i)  indicates the
Collateral  and (ii)  contains  any other  information  required by Section 5 of
Article  9 of the  Uniform  Commercial  Code of the  jurisdiction  wherein  such
financing  statement or amendment is filed  regarding the  sufficiency or filing
office acceptance of any financing statement or amendment, including whether the
Borrower is an  organization,  the type of organization  and any  organizational
identification number issued to the Borrower.

     SECTION 4.2.  Certificates,  etc. The Borrower agrees that all certificates
evidencing Pledged Interests, if any, delivered by the Borrower pursuant to this
Pledge  Agreement  will be  accompanied  by duly  executed  undated  blank stock
powers, or other equivalent instruments of transfer reasonably acceptable to the
Agent.  The Borrower will, from time to time upon the reasonable  request of the
Agent, promptly deliver to the Agent such stock powers, instruments, and similar
documents,  reasonably  satisfactory  in form and  substance to the Agent,  with
respect to the  Collateral as the Agent may  reasonably  request and will,  from
time to time upon the  reasonable  request of the Agent after the  occurrence of
any Event of Default,  promptly  transfer any Pledged Interests into the name of
any nominee designated by the Agent.

     SECTION 4.3. Continuous Pledge.  Subject to Section 2.4, the Borrower will,
at all times,  keep pledged to the Agent pursuant  hereto all Pledged  Interests
and all other shares of capital stock constituting Collateral, all Distributions
with  respect  thereto,   and  all  other   Collateral  and  other   securities,
instruments, proceeds, and rights from time to time received by or distributable
to the Borrower in respect of any Collateral.

     SECTION 4.4. Voting Rights.  The Borrower agrees after any Event of Default
shall have occurred and be continuing and the Agent has notified the Borrower of
the Agent's intention to exercise its voting power under this Section 4.4

               (i) the Agent may exercise (to the exclusion of the Borrower) the
          voting power and all other incidental rights of ownership with respect
          to any Pledged Interests or other shares of capital stock constituting
          Collateral  and the Borrower  hereby  grants the Agent an  irrevocable
          proxy,  exercisable  under  such  circumstances,  to vote the  Pledged
          Interests and such other Collateral; and

               (ii) promptly to deliver to the Agent such additional proxies and
          other  documents  as may be  necessary  to allow the Agent to exercise
          such voting power.

The Agent  agrees that  unless an Event of Default  shall have  occurred  and be
continuing and the Agent shall have given the notice referred to in this Section
4.4,  the  Borrower  shall have the  exclusive  voting power with respect to any
membership  interests  including  any of the Pledged  Interests  )  constituting
Collateral  and the Agent  shall,  upon the  written  request  of the  Borrower,
promptly  deliver  such  proxies  and  other  documents,  if any,  as  shall  be
reasonably  requested by the Borrower  which are necessary to allow the Borrower
to  exercise  voting  power  with  respect  to  any  such  membership  interests
(including  any of the Pledged  Interests ) constituting  Collateral;  provided,
however, that no vote shall be cast, or consent,  waiver, or ratification given,
or  action  taken  by the  Borrower  that  would  impair  any  Collateral  or be
inconsistent with or violate any provision of the Credit Agreements or any other
Loan Document (including this Pledge Agreement).

     SECTION 4.5.  Additional  Undertakings.  The Borrower will not, without the
prior written consent of the Agent take or omit to take any action the taking or
the  omission of which  would  result in any  impairment  or  alteration  of any
obligation of the maker of any instrument constituting Collateral.

                                   ARTICLE V
                                   THE AGENT

     SECTION  5.1.  Agent  Appointed   Attorney-in-Fact.   The  Borrower  hereby
irrevocably  appoints  the  Agent  the  Borrower's  attorney-in-fact,  with full
authority in the place and stead of the Borrower and in the name of the Borrower
or otherwise,  from time to time in the Agent's  discretion,  to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including without limitation:

          (a) after the  occurrence and  continuance of an Event of Default,  to
     ask,  demand,  collect,  sue for,  recover,  compromise,  receive  and give
     acquittance  and  receipts  for  moneys  due and to become  due under or in
     respect of any of the Collateral;

          (b) to receive,  endorse, and collect any drafts or other instruments,
     documents and chattel paper, in connection with clause (a) above; and

          (c) to file any claims or take any action or institute any proceedings
     which the Agent may deem  necessary or desirable for the  collection of any
     of the  Collateral  or  otherwise  to enforce  the rights of the Agent with
     respect to any of the Collateral.

The Borrower hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

     SECTION  5.2.  Agent May  Perform.  If the  Borrower  fails to perform  any
agreement  contained herein, the Agent may itself perform,  or cause performance
of,  such  agreement,  and the  reasonable  expenses  of the Agent  incurred  in
connection therewith shall be payable by the Borrower pursuant to Section 6.4.

     SECTION 5.3. Agent Has No Duty. The powers conferred on the Agent hereunder
are solely to protect  its  interest  (on behalf of the Lender  Parties)  in the
Collateral  and shall not impose  any duty on it to  exercise  any such  powers.
Except  for  reasonable  care  of any  Collateral  in  its  possession  and  the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any  Collateral  or  responsibility  for (a)  ascertaining  or taking
action with respect to calls,  conversions,  exchanges,  maturities,  tenders or
other matters relative to any Pledged Property,  whether or not the Agent has or
is deemed to have knowledge of such matters,  or (b) taking any necessary  steps
to preserve  rights against prior parties or any other rights  pertaining to any
Collateral.

     SECTION 5.4.  Reasonable Care. The Agent is required to exercise reasonable
care in the custody and preservation of any of the Collateral in its possession;
provided,  however,  the Agent shall be deemed to have exercised reasonable care
in the  custody  and  preservation  of any of the  Collateral,  if it takes such
action for that purpose as the Borrower  reasonably requests in writing at times
other  than upon the  occurrence  and  during  the  continuance  of any Event of
Default,  but failure of the Agent to comply  with any such  request at any time
shall not in itself be deemed a failure to exercise reasonable care.

                                   ARTICLE VI
                                    REMEDIES

     SECTION 6.1. Certain Remedies.  If any Event of Default shall have occurred
and be continuing:

          (a) The Agent may exercise in respect of the  Collateral,  in addition
     to other rights and remedies provided for herein or otherwise  available to
     it, all the rights and  remedies  of a secured  party on default  under the
     U.C.C.  (whether or not the U.C.C.  applies to the affected Collateral) and
     also may, without notice except as specified below,  sell the Collateral or
     any part thereof in one or more parcels at public or private  sale,  at any
     of the  Agent's  offices or  elsewhere,  for cash,  on credit or for future
     delivery,  and upon such  other  terms as the  Agent may deem  commercially
     reasonable. The Borrower agrees that, to the extent notice of sale shall be
     required  by law, at least ten days'  prior  notice to the  Borrower of the
     time and place of any public sale or the time after which any private  sale
     is to be made shall constitute reasonable notification. The Agent shall not
     be obligated to make any sale of  Collateral  regardless  of notice of sale
     having  been given.  The Agent may adjourn any public or private  sale from
     time to time by announcement at the time and place fixed therefor, and such
     sale may, without further notice, be made at the time and place to which it
     was so adjourned.

          (b) The Agent may

               (i) transfer all or any part of the  Collateral  into the name of
          the  Agent  or its  nominee,  with or  without  disclosing  that  such
          Collateral is subject to the lien and security interest hereunder,

               (ii) notify the parties  obligated  on any of the  Collateral  to
          make  payment  to  the  Agent  of any  amount  due  or to  become  due
          thereunder,

               (iii)enforce  collection  of any of the  Collateral  by  suit  or
          otherwise, and surrender, release or exchange all or any part thereof,
          or compromise or extend or renew for any period (whether or not longer
          than the original  period) any  obligations of any nature of any party
          with respect thereto,

               (iv)  endorse  any  checks,  drafts,  or  other  writings  in the
          Borrower's name to allow collection of the Collateral,

               (v) take control of any proceeds of the Collateral, and

               (vi)  execute  (in the name,  place  and  stead of the  Borrower)
          endorsements,  assignments,  stock  powers  and other  instruments  of
          conveyance or transfer with respect to all or any of the Collateral.

     SECTION 6.2.  Securities Laws. If the Agent shall determine to exercise its
right to sell all or any of the Collateral pursuant to Section 6.1, the Borrower
agrees that, upon request of the Agent, the Borrower will, at its own expense:

          (a) execute and deliver,  and cause each Pledged  Interests  Issuer of
     the Collateral  contemplated  to be sold and the members thereof to execute
     and deliver, all such instruments and documents, and do or cause to be done
     all such other acts and things,  as may be necessary  or, in the opinion of
     the Agent,  advisable to register such  Collateral  under the provisions of
     the Securities  Act of 1933, as from time to time amended (the  "Securities
     Act"), and to cause the registration  statement  relating thereto to become
     effective  and to remain  effective  for such  period as  prospectuses  are
     required by law to be furnished, and to make all amendments and supplements
     thereto and to the related  prospectus  which, in the opinion of the Agent,
     are necessary or advisable,  all in conformity with the requirements of the
     Securities Act and the rules and regulations of the Securities and Exchange
     Commission applicable thereto;

          (b) use its best  efforts to qualify  the  Collateral  under the state
     securities  or "Blue  Sky" laws and to obtain  all  necessary  governmental
     approvals for the sale of the Collateral, as requested by the Agent;

          (c) cause each such issuer to make available to its security  holders,
     as soon as  practicable,  an  earnings  statement  that  will  satisfy  the
     provisions of Section 11(a) of the Securities Act; and

          (d) do or cause to be done all such  other  acts and  things as may be
     necessary to make such sale of the Collateral or any part thereof valid and
     binding and in compliance with applicable law.

     SECTION 6.3. Compliance with Restrictions.  The Borrower agrees that in any
sale of any of the  Collateral  whenever an Event of Default shall have occurred
and be continuing,  the Agent is hereby authorized to comply with any limitation
or restriction  in connection  with such sale as it may be advised by counsel is
necessary  in  order  to  avoid  any  violation  of  applicable  law  (including
compliance  with such  procedures  as may  restrict  the  number of  prospective
bidders and  purchasers,  require that such  prospective  bidders and purchasers
have  certain   qualifications,   and  restrict  such  prospective  bidders  and
purchasers to persons who will  represent and agree that they are purchasing for
their own  account for  investment  and not with a view to the  distribution  or
resale of such  Collateral),  or in order to obtain any required approval of the
sale or of the purchaser by any governmental  regulatory  authority or official,
and the Borrower  further agrees that such  compliance  shall not result in such
sale  being  considered  or  deemed  not to have  been  made  in a  commercially
reasonable manner, nor shall the Agent be liable nor accountable to the Borrower
for any discount  allowed by the reason of the fact that such Collateral is sold
in compliance with any such limitation or restriction.

     SECTION 6.4.  Application  of Proceeds.  All cash proceeds  received by the
Agent in respect of any sale of, collection from, or other realization upon, all
or any part of the  Collateral  may  thereafter be applied (after payment of any
amounts  payable to the Agent  pursuant to Article III of the Credit  Agreements
and Section  6.4) in whole or in part by the Agent  against,  all or any part of
the Secured Obligations in such order as the Agent shall elect.

     Any surplus of such cash or cash  proceeds  held by the Agent and remaining
after payment in full of all the Secured Obligations, and the termination of all
Commitments, shall be paid over to the Borrower or to whomsoever may be lawfully
entitled to receive such surplus.

     SECTION 6.5.  Indemnity and Expenses.  The Borrower hereby  indemnifies and
holds  harmless  the Agent from and  against  any and all  claims,  losses,  and
liabilities  arising out of or resulting from this Pledge  Agreement  (including
enforcement of this Pledge  Agreement),  except claims,  losses,  or liabilities
resulting from the Agent's gross negligence or willful misconduct.  Upon demand,
the  Borrower  will  pay to the  Agent  the  amount  of any and  all  reasonable
expenses,  including the reasonable fees and disbursements of its counsel and of
any experts and agents, which the Agent may incur in connection with:

          (a) the administration of this Pledge Agreement, the Credit Agreements
     and each other Loan Document;

          (b) the custody,  preservation,  use, or operation of, or the sale of,
     collection from, or other realization upon, any of the Collateral;

          (c) the  exercise  or  enforcement  of any of the  rights of the Agent
     hereunder; or

          (d) the  failure by the  Borrower  to  perform  or observe  any of the
     provisions hereof.

                                  ARTICLE VII
                            MISCELLANEOUS PROVISIONS

     SECTION  7.1.  Loan  Document.  This Pledge  Agreement  is a Loan  Document
executed pursuant to the Credit Agreements and shall (unless otherwise expressly
indicated herein) be construed,  administered and applied in accordance with the
terms and provisions thereof.

     SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of
this Pledge  Agreement  nor consent to any  departure by the  Borrower  herefrom
shall in any event be  effective  unless the same shall be in writing and signed
by the Agent,  and then such waiver or consent  shall be  effective  only in the
specific instance and for the specific purpose for which it is given.

     SECTION 7.3. Protection of Collateral.  The Agent may from time to time, at
its option,  perform any act which the Borrower agrees  hereunder to perform and
which the Borrower shall fail to perform after being  requested in writing so to
perform  (it  being  understood  that no such  request  need be given  after the
occurrence and during the  continuance of an Event of Default) and the Agent may
from time to time  take any  other  action  which  the  Agent  reasonably  deems
necessary  for  the  maintenance,  preservation  or  protection  of  any  of the
Collateral or of its security interest therein.

     SECTION 7.4.  Addresses for Notices.  All notices and other  communications
provided for hereunder shall be in writing (including telegraphic communication)
and, if to the Borrower, mailed or telegraphed or delivered to it at the address
set forth below its signature  hereto,  if to the Agent,  mailed or delivered to
it,  addressed  to it at the address of the Agent  specified  in the 2002 Credit
Agreement or, as to either  party,  at such other address as shall be designated
by such party in a written  notice to each other party  complying as to delivery
with the terms of this Section. All such notices and other communications shall,
when mailed or  telegraphed,  respectively,  be effective  when deposited in the
mails  or  delivered  to  the  telegraph  company,  respectively,  addressed  as
aforesaid.

     SECTION  7.5.  Section  Captions.  Section  captions  used in  this  Pledge
Agreement  are for  convenience  of  reference  only,  and shall not  affect the
construction of this Pledge Agreement.

     SECTION 7.6. Severability.  Wherever possible each provision of this Pledge
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law,  but if  any  provision  of  this  Pledge  Agreement  shall  be
prohibited by or invalid under such law, such provision  shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Pledge Agreement.

     SECTION 7.7.  Governing Law, Entire  Agreement,  etc. THIS PLEDGE AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK,  EXCEPT TO THE EXTENT THAT THE VALIDITY OR  PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK.  THIS PLEDGE  AGREEMENT AND THE OTHER LOAN  DOCUMENTS  CONSTITUTE  THE
ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF  AND  SUPERSEDE  ANY PRIOR  AGREEMENTS,  WRITTEN  OR ORAL,  WITH  RESPECT
THERETO.

     SECTION 7.8. Forum  Selection and Consent to  Jurisdiction.  ANY LITIGATION
BASED HEREON,  OR ARISING OUT OF,  UNDER,  OR IN  CONNECTION  WITH,  THIS PLEDGE
AGREEMENT,  OR ANY COURSE OF  CONDUCT,  COURSE OF DEALING,  STATEMENTS  (WHETHER
VERBAL OR WRITTEN)  OR ACTIONS OF THE LENDER  PARTIES OR THE  BORROWER  SHALL BE
BROUGHT AND MAINTAINED  EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN
THE  UNITED  STATES  DISTRICT  COURT  FOR THE  SOUTHERN  DISTRICT  OF NEW  YORK;
PROVIDED,  HOWEVER,  THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER  PROPERTY  MAY BE  BROUGHT,  AT THE AGENT'S  OPTION,  IN THE COURTS OF ANY
JURISDICTION  WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER
HEREBY  EXPRESSLY AND IRREVOCABLY  SUBMITS TO THE  JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES  DISTRICT  COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH  LITIGATION  AS SET FORTH ABOVE
AND  IRREVOCABLY  AGREES  TO BE  BOUND  BY  ANY  JUDGMENT  RENDERED  THEREBY  IN
CONNECTION WITH SUCH LITIGATION.  THE BORROWER FURTHER  IRREVOCABLY  CONSENTS TO
THE  SERVICE OF PROCESS BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER  HEREBY  EXPRESSLY
AND IRREVOCABLY  WAIVES,  TO THE FULLEST EXTENT  PERMITTED BY LAW, ANY OBJECTION
WHICH  IT MAY HAVE OR  HEREAFTER  MAY  HAVE TO THE  LAYING  OF VENUE OF ANY SUCH
LITIGATION  BROUGHT IN ANY SUCH COURT  REFERRED  TO ABOVE AND ANY CLAIM THAT ANY
SUCH  LITIGATION HAS BEEN BROUGHT IN AN  INCONVENIENT  FORUM. TO THE EXTENT THAT
THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM  JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER  THROUGH SERVICE OR NOTICE,  ATTACHMENT
PRIOR TO JUDGMENT,  ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY,  THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT.

     SECTION  7.9.  Waiver of Jury Trial.  THE LENDER  PARTIES AND THE  BORROWER
HEREBY KNOWINGLY,  VOLUNTARILY AND INTENTIONALLY  WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS PLEDGE  AGREEMENT,  OR ANY COURSE OF CONDUCT,
COURSE OF  DEALING,  STATEMENTS  (WHETHER  VERBAL OR  WRITTEN) OR ACTIONS OF THE
LENDER PARTIES OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND  SUFFICIENT  CONSIDERATION  FOR THIS PROVISION (AND EACH OTHER
PROVISION  OF EACH  OTHER  LOAN  DOCUMENT  TO WHICH IT IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL  INDUCEMENT  FOR THE LENDER  PARTIES  ENTERING  INTO THE
CREDIT AGREEMENTS AND EACH SUCH OTHER LOAN DOCUMENT.



<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly  executed and  delivered by their  respective  officers  thereunto  duly
authorized as of the day and year first above written.

                                                     CALPINE CORPORATION


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

                                   Address:        50 West San Fernando Avenue
                                                   San Jose, CA 95113

                                   Facsimile No.:  (408) 995-0505

                                   Attention:      Senior Vice President-Finance



<PAGE>



                                   THE BANK OF NOVA SCOTIA


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

                                   Address:        580 California Street
                                                   Suite 2100
                                                   San Francisco, CA 94111

                                   Facsimile No.:  (415) 397-0791

                                   Attention:      Jon Burckin

                                   with a copy to:

                                                   The Bank of Nova Scotia
                                                   600 Peachtree Street, N.E.
                                                   Suite 2700
                                                   Atlanta, GA 30308

                                   Attention:      Hilma Gabbidon
                                                   Administrative Agent
                                                   Loan Administration

                                   Facsimile No.:  (404) 888-8998



<PAGE>


                                                                    ATTACHMENT 1
                                                                              to
                                                                Pledge Agreement

Pledged Interests

Pledged Interest Issuer                     Description
-----------------------                     -----------

Calpine Natural Gas Holdings, LLC

Calpine Marketing, LLC

Anacapa Land Company LLC

CPN MEC Holdings, LLC

Calpine Pittsburgh, LLC

CPN Blue Spruce Holdings, LLC

Calpine Calistoga Holdings, LLC

Chippokes Energy Center, LLC

Palmetto Energy Center, LLC

Warnerville Energy Center, LLC

Southpoint Energy Center, LLC

Calpine Sonoran Pipeline, LLC

Los Esteros Critical Energy Center, LLC

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>10
<FILENAME>ex10-13.txt
<TEXT>
                              NOTE PLEDGE AGREEMENT



     THIS NOTE PLEDGE  AGREEMENT (this "Pledge  Agreement"),  dated as of May 9,
2002, made by Calpine Corporation,  a Delaware corporation (the "Borrower"),  in
favor  of The Bank of Nova  Scotia,  as agent  (together  with any  successor(s)
thereto  in such  capacity,  the  "Agent")  for each of the Lender  Parties  (as
defined below).


                              W I T N E S S E T H:

     WHEREAS,  pursuant to that certain Credit  Agreement,  dated as of March 8,
2002 (together with all amendments and other modifications, if any, from time to
time thereafter made thereto, the "2002 Credit Agreement"),  among the Borrower,
the  various  financial  institutions  as  are  or  may  become  parties  hereto
(collectively,  the "2002  Lenders"),  The Bank of Nova  Scotia  and  Bayerische
Landesbank  Girozentrale,  as Lead  Arrangers and  Bookrunners  on the Revolving
Facility,  Salomon Smith Barney Inc. and Deutsche Banc Alex. Brown Inc., as Lead
Arrangers and  Bookrunners on the Term B Facility,  The Bank of Nova Scotia,  as
Joint  Administrative  Agent and Funding  Agent,  Citicorp  USA,  Inc., as Joint
Administrative  Agent, Bank of America,  National  Association and Credit Suisse
First Boston, Cayman Islands Branch as Lead Arrangers and Syndication Agents for
the  Revolving  Facility and TD  Securities  (USA) Inc. as Lead Arranger for the
Revolving Facility,  the Lenders have extended  Commitments to make Loans and to
issue Letters of Credit to the Borrower; and

     WHEREAS,  pursuant  to that  certain  Second  Amended and  Restated  Credit
Agreement,  dated as of May 23, 2000  (together  with all  amendments  and other
modifications,  if any,  from  time to  time  made  thereto,  the  "2000  Credit
Agreement"   and  together   with  the  2002  Credit   Agreement,   the  "Credit
Agreements"),  among the Borrower,  the various financial institutions as are or
may become parties thereto  (collectively,  the "2000 Lenders" and together with
the  2002  Lenders,  the  "Lenders"),   Bayerische  Landesbank  Girozentrale  as
co-arranger  and  syndication  agent for the 2000  Lenders  and The Bank of Nova
Scotia as lead arranger and administrative agent for the 2000 Lenders; and

     WHEREAS,  as a condition  precedent  to the  effectiveness  of that certain
First  Amendment  to  Credit  Agreement,  dated as of even  date  herewith,  the
Borrower is required to execute and deliver this Pledge Agreement; and

     WHEREAS,  the  Borrower has duly  authorized  the  execution,  delivery and
performance of this Pledge Agreement; and

     WHEREAS, it is in the best interests of the Borrower to execute this Pledge
Agreement  inasmuch as the Borrower will derive  substantial direct and indirect
benefits  from the Loans made and Letters of Credit  issued from time to time to
the Borrower by the Lenders pursuant to the Credit Agreements;

     NOW THEREFORE,  for good and valuable consideration the receipt of which is
hereby acknowledged, and in order to induce the Lenders to make Loans (including
the  initial  Loans)  and to issue  Letters  of Credit  for the  account  of the
Borrower pursuant to the Credit Agreements, the Borrower agrees, for the benefit
of each Lender Party, as follows:

                                    ARTICLE I
                                   DEFINITIONS

     SECTION  1.1.   Certain  Terms.   The  following   terms  (whether  or  not
underscored)  when used in this Pledge  Agreement,  including  its  preamble and
recitals,  shall have the following  meanings  (such  definitions  to be equally
applicable to the singular and plural forms thereof):

     "Agent" is defined in the preamble.

     "Borrower" is defined in the preamble.

     "Collateral" is defined in Section 2.1.

     "Credit Agreements" is defined in the second recital.

     "Lender Party" means, as the context may require, any Lender, Issuer or the
Agent and each of its  respective  successors,  transferees  and  assigns  under
either of the Credit Agreements.

     "Lenders" is defined in the second recital.

     "Pledge Agreement" is defined in the preamble.

     "Pledged Note Issuer"  means each Person  identified in Attachment 1 hereto
as the issuer of the Pledged Note identified opposite the name of such Person.

     "Pledged Notes" means all promissory  notes of any Pledge Note Issuer which
are  delivered by the Borrower to the Agent as Pledged  Property  hereunder,  as
such promissory notes, in accordance with Section 4.5, are amended,  modified or
supplemented  from time to time and  together  with any  promissory  note of any
Pledged Note Issuer taken in extension or renewal.

     "Pledged Property" means all Pledged Notes and all other assignments of any
amounts  due or to  become  due,  all  other  instruments  which  are now  being
delivered  by the  Borrower to the Agent or may from time to time  hereafter  be
delivered  by the  Borrower  to the Agent for the  purpose of pledge  under this
Pledge Agreement or any other Loan Document,  and all instruments,  proceeds and
rights from time to time received by or distributable to the Borrower in respect
of any of the foregoing.

     "Secured Obligations" is defined in Section 2.2.

     "U.C.C." means the Uniform Commercial Code as in effect in the State of New
York.

     SECTION 1.2.  Definitions.  Unless otherwise  defined herein or the context
otherwise requires, terms used in this Pledge Agreement,  including its preamble
and recitals, have the meanings provided in the Credit Agreements.

     SECTION 1.3. U.C.C.  Definitions.  Unless  otherwise  defined herein or the
context otherwise requires,  terms for which meanings are provided in the U.C.C.
are used in this Pledge  Agreement,  including its preamble and  recitals,  with
such meanings.

                                   ARTICLE II
                                     PLEDGE

     SECTION  2.1.  Grant of Security  Interest.  The Borrower  hereby  pledges,
hypothecates, assigns, charges, mortgages, delivers, and transfers to the Agent,
for its  benefit  and the  ratable  benefit of each of the Lender  Parties,  and
hereby  grants to the Agent,  for its  benefit  and the  ratable  benefit of the
Lender Parties, a continuing security interest in, all of the following property
(the "Collateral"):

          (a) all  promissory  notes of each Pledge Note  Issuer  identified  in
     Attachment 1 hereto;

          (b) all other Pledged Notes issued from time to time;

          (c) all other Pledged Property,  whether now or hereafter delivered to
     the Agent in connection with this Pledge Agreement;

          (d) all  interest  and other  payments  and rights with respect to any
     Pledged Property; and

          (e) all proceeds of any of the foregoing.

     SECTION 2.2.  Security for Obligations.  This Pledge Agreement  secures the
payment  and  performance  in full of all  Obligations  of the  Borrower  now or
hereafter existing under the Credit Agreements, the Notes, each Letter of Credit
and each other Loan  Document  to which the  Borrower  is or may become a party,
whether for principal,  interest,  costs, fees, expenses, or otherwise,  and all
obligations  of the  Borrower  now  or  hereafter  existing  under  this  Pledge
Agreement and each other Loan Document to which it is or may become a party (all
such obligations of the Borrower being the "Secured Obligations").

     SECTION 2.3. Delivery of Pledged Property. All instruments  representing or
evidencing any  Collateral,  including all Pledged Notes,  shall be delivered to
and held by or on behalf of (and, in the case of Pledged Notes,  endorsed to the
order of) the Agent pursuant  hereto,  shall be in suitable form for transfer by
delivery,  and shall be accompanied by all necessary  instruments of transfer or
assignment, duly executed in blank.

     SECTION  2.4.  Payment on Pledged  Notes.  In the event that any payment of
principal  or  interest  is to be made  on any  Pledged  Note at a time  when no
Default or Event of Default has occurred and is continuing,  such payment may be
paid  directly to the  Borrower.  If an Event of Default or Default has occurred
and is continuing, then any such payment shall be paid directly to the Agent.

     SECTION 2.5.  Continuing  Security Interest;  Transfer of Note. This Pledge
Agreement  shall create a continuing  security  interest in the  Collateral  and
subject to Section 8.1.9 of the Credit Agreement shall

          (a)  remain in full  force and  effect  until  payment  in full of all
     Secured Obligations and the termination of all Commitments,

          (b) be binding upon the Borrower and its  successors,  transferees and
     assigns, and

          (c)  inure,  together  with  the  rights  and  remedies  of the  Agent
     hereunder, to the benefit of the Agent and each other Lender Party.

Without  limiting the  foregoing  clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any right or obligation  under the Loan Documents
to any other Person or entity,  and such other Person or entity shall  thereupon
become  vested with all the rights and  benefits in respect  thereof  granted to
such  Lender  under any Loan  Document  (including  this  Pledge  Agreement)  or
otherwise,  subject,  however,  to any contrary provisions in such assignment or
transfer,  and  to the  provisions  of  Section  11.11  of  each  of the  Credit
Agreements.  Upon the  indefeasible  payment in full,  in cash,  of all  Secured
Obligations  and the  termination  of all  Commitments,  the  security  interest
granted herein shall terminate and all rights to the Collateral  shall revert to
the Borrower. Upon any such termination,  the Agent will, at the Borrower's sole
expense,  deliver to the Borrower,  without any  representations,  warranties or
recourse of any kind whatsoever,  all certificates and instruments  representing
or evidencing all Pledged  Property,  together with all other Collateral held by
the Agent  hereunder,  and execute and deliver to the Borrower such documents as
the Borrower shall reasonably request to evidence such termination.

     SECTION 2.6.  Security Interest  Absolute.  All rights of the Agent and the
security  interests  granted to the Agent hereunder,  and all obligations of the
Borrower hereunder, shall be absolute and unconditional, irrespective of

          (a) any lack of  validity  or  enforceability  of either of the Credit
     Agreements, any Note or any other Loan Document,

          (b) the failure of any Lender Party or any holder of any Note

               (i) to assert  any claim or  demand  or to  enforce  any right or
          remedy  against the  Borrower,  any other  Obligor or any other Person
          under the provisions of either of the Credit Agreements, any Note, any
          other Loan Document or otherwise, or

               (ii) to exercise any right or remedy against any other  guarantor
          of, or collateral  securing,  any  Obligations  of the Borrower or any
          other Obligor,

          (c) any change in the time,  manner or place of payment  of, or in any
     other  term  of,  all or any of the  Obligations  or any  other  extension,
     compromise  or  renewal  of any  Obligation  of the  Borrower  or any other
     Obligor,

          (d)  any  reduction,  limitation,  impairment  or  termination  of any
     Obligations of the Borrower or any other Obligor for any reason,  including
     any claim of waiver,  release,  surrender,  alteration or  compromise,  and
     shall not be subject  to (and the  Borrower  hereby  waives any right to or
     claim of) any defense or setoff,  counterclaim,  recoupment or  termination
     whatsoever  by  reason  of  the  invalidity,  illegality,   nongenuineness,
     irregularity,  compromise,  unenforceability  of,  or any  other  event  or
     occurrence affecting, any Obligations of the Borrower, any other Obligor or
     otherwise,

          (e) any amendment to, rescission, waiver, or other modification of, or
     any  consent to  departure  from,  any of the terms of either of the Credit
     Agreements, any Note or any other Loan Document,

          (f) any addition,  exchange,  release,  surrender or non-perfection of
     any collateral (including the Collateral), or any amendment to or waiver or
     release of or addition to or consent to departure  from any  guaranty,  for
     any of the Obligations, or

          (g) any other circumstances which might otherwise constitute a defense
     available to, or a legal or equitable discharge of, the Borrower, any other
     Obligor, any surety or any guarantor.

     SECTION 2.7.  Subrogation,  etc. The Borrower  will not exercise any rights
which it may acquire by reason of any payment made hereunder,  whether by way of
subrogation,  reimbursement or otherwise until the prior indefeasible payment in
full, in cash, of all  Obligations of the Borrower and each other  Obligor.  Any
amount paid to the  Borrower on account of any payment made  hereunder  prior to
the payment in full of all  Obligations  of the Borrower and each other  Obligor
shall be held in trust for the benefit of the Lender  Parties and each holder of
a Note and shall  immediately be paid to the Lender Parties and each holder of a
Note and credited and applied  against the  Obligations of the Borrower and each
other Obligor, whether matured or unmatured, in accordance with the terms of the
Credit Agreements; provided, however, that if

     (a) the Borrower has made payment to the Lender  Parties and each holder of
a Note of all or any  part  of the  Obligations  of the  Borrower  or any  other
Obligor, and

     (b) all  Obligations  of the  Borrower  and each  other  Obligor  have been
indefeasibly  paid in full, in cash, and all Commitments  have been  permanently
terminated,

each  Lender  Party and each  holder of a Note agrees  that,  at the  Borrower's
request,  the Lender  Parties  and the  holders of the Notes  will  execute  and
deliver to the  Borrower  appropriate  documents  (without  recourse and without
representation  or  warranty  and at the sole  cost  and  expense  of  Borrower)
necessary to evidence the transfer by subrogation to the Borrower of an interest
in the  Obligations  of the Borrower and each other Obligor  resulting from such
payment by the Borrower.  In furtherance  of the  foregoing,  for so long as any
Obligations or Commitments remain  outstanding,  the Borrower shall refrain from
taking any action or commencing any proceeding against the Borrower or any other
Obligor (or its successors or assigns,  whether in connection  with a bankruptcy
proceeding  or  otherwise)  to recover any  amounts in respect of payments  made
under this Pledge Agreement to any Lender Party or any holder of a Note.

     SECTION 2.8. Waiver of Subrogation. Until such time as the Obligations have
been  indefeasibly  paid in  full,  in  cash,  and  the  Commitments  have  been
terminated,  the Borrower  hereby  irrevocably  waives any claim or other rights
which it may now or hereafter  acquire against the Borrower or any other Obligor
that  arise from the  existence,  payment,  performance  or  enforcement  of the
Borrower's  obligations  under this Pledge Agreement or any other Loan Document,
including   any   right   of   subrogation,   reimbursement,   exoneration,   or
indemnification,  any right to  participate in any claim or remedy of the Lender
Parties  against the Borrower or any other Obligor or any  collateral  which the
Agent now has or hereafter acquires,  whether or not such claim, remedy or right
arises in equity, or under contract,  statute or common law, including the right
to take  or  receive  from  the  Borrower  or any  other  Obligor,  directly  or
indirectly, in cash or other property or by set-off or in any manner, payment or
security on account of such claim or other  rights.  If any amount shall be paid
to the Borrower in violation of the preceding sentence and the Obligations shall
not have been  indefeasibly  paid in full, in cash, and the Commitments have not
been  terminated,  such amount shall be deemed to have been paid to the Borrower
for the  benefit  of,  and held in trust  for,  the  Lender  Parties,  and shall
forthwith  be paid to the Lender  Parties to be credited  and  applied  upon the
Obligations,  whether matured or unmatured.  The Borrower  acknowledges  that it
will  receive  direct and  indirect  benefits  from the  financing  arrangements
contemplated  by the  Credit  Agreements  and that the  waiver set forth in this
Section is knowingly made in contemplation of such benefits.

                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

     SECTION 3.1.  Warranties,  etc. The Borrower  represents  and warrants unto
each  Lender  Party,  as at the  date  of each  pledge  and  delivery  hereunder
(including  each pledge and  delivery of a Pledged  Note) by the Borrower to the
Agent of any Collateral, as set forth in this Article.

     SECTION  3.1.1  Ownership,  No Liens,  etc.  The  Borrower is the legal and
beneficial  owner of, and has good and  marketable  title to (and has full right
and  authority  to pledge and  assign)  such  Collateral,  free and clear of all
liens, security interests, options, or other charges or encumbrances, except any
lien or security interest granted pursuant hereto in favor of the Agent.

     SECTION 3.1.2 Valid Security  Interest.  The delivery of such Collateral to
the Agent is effective to create a valid,  perfected,  first  priority  security
interest in such  Collateral  and the  proceeds  thereof,  securing  the Secured
Obligations.  No other  filing or other  action will be  necessary to perfect or
protect such security interest.

     SECTION  3.1.3  As to  Pledged  Notes.  In the  case of each  Pledged  Note
constituting  such  Collateral,  all of such Pledged Notes are duly  authorized,
executed,  endorsed,  issued and delivered, and are the legal, valid and binding
obligations of the issuers thereof, and are not in default.

                                   ARTICLE IV
                                   COVENANTS

     SECTION 4.1. Protect Collateral; Further Assurances, etc. The Borrower will
not  sell,  assign,  transfer,  pledge,  or  encumber  in any other  manner  the
Collateral  (except in favor of the Agent  hereunder and as otherwise  expressly
permitted by the Credit  Agreements).  The Borrower  will warrant and defend the
right and title herein granted unto the Agent in and to the Collateral  (and all
right, title, and interest represented by the Collateral) against the claims and
demands of all Persons  whomsoever.  The Borrower  agrees that at any time,  and
from time to time,  at the expense of the  Borrower,  the Borrower will promptly
execute and deliver all further  instruments,  and take all further action, that
may be necessary or  desirable,  or that the Agent may  reasonably  request,  in
order to perfect and protect any  security  interest  granted or purported to be
granted  hereby or to enable the Agent to  exercise  and  enforce its rights and
remedies  hereunder  with  respect  to  any  Collateral.   The  Borrower  hereby
authorizes  the Agent to file any  financing  statement  that (i)  indicates the
Collateral  and (ii)  contains  any other  information  required by Section 5 of
Article  9 of the  Uniform  Commercial  Code of the  jurisdiction  wherein  such
financing  statement or amendment is filed  regarding the  sufficiency or filing
office acceptance of any financing statement or amendment, including whether the
Borrower is an  organization,  the type of organization  and any  organizational
identification number issued to the Borrower.

     SECTION 4.2. [Intentionally Omitted].

     SECTION 4.3. Continuous Pledge.  Subject to Section 2.4, the Borrower will,
at all times,  keep pledged to the Agent pursuant hereto all Pledged Notes,  all
interest, principal and other proceeds received by the Agent with respect to the
Pledged Notes and all other Collateral.

     SECTION 4.4. [Intentionally Omitted]

     SECTION 4.5. Additional  Undertakings.  Except as otherwise contemplated by
Section 8.1.10 of the Credit Agreement, the Borrower will not, without the prior
written consent of the Agent (not to be unreasonably withheld):

          (a) enter into any agreement amending,  supplementing,  or waiving any
     provision of any Pledged Note (including any underlying instrument pursuant
     to which such  Pledged  Note is issued) or  compromising  or  releasing  or
     extending the time for payment or any obligation of the maker thereof; or

          (b) take or omit to take any  action  the  taking of the  omission  of
     which would result in any impairment of alteration of any obligation of the
     maker of any Pledged Note or other instrument constituting Collateral.

                                    ARTICLE V
                                    THE AGENT

     SECTION  5.1.  Agent  Appointed   Attorney-in-Fact.   The  Borrower  hereby
irrevocably  appoints  the  Agent  the  Borrower's  attorney-in-fact,  with full
authority in the place and stead of the Borrower and in the name of the Borrower
or otherwise,  from time to time in the Agent's  discretion,  to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including without limitation:

          (a) after the  occurrence and  continuance of an Event of Default,  to
     ask,  demand,  collect,  sue for,  recover,  compromise,  receive  and give
     acquittance  and  receipts  for  moneys  due and to become  due under or in
     respect of any of the Collateral;

          (b) to receive,  endorse, and collect any drafts or other instruments,
     documents and chattel paper, in connection with clause (a) above; and

          (c) to file any claims or take any action or institute any proceedings
     which the Agent may deem  necessary or desirable for the  collection of any
     of the  Collateral  or  otherwise  to enforce  the rights of the Agent with
     respect to any of the Collateral.

The Borrower hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.

     SECTION  5.2.  Agent May  Perform.  If the  Borrower  fails to perform  any
agreement  contained herein, the Agent may itself perform,  or cause performance
of,  such  agreement,  and the  reasonable  expenses  of the Agent  incurred  in
connection therewith shall be payable by the Borrower pursuant to Section 6.4.

     SECTION 5.3. Agent Has No Duty. The powers conferred on the Agent hereunder
are solely to protect  its  interest  (on behalf of the Lender  Parties)  in the
Collateral  and shall not impose  any duty on it to  exercise  any such  powers.
Except  for  reasonable  care  of any  Collateral  in  its  possession  and  the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any  Collateral  or  responsibility  for (a)  ascertaining  or taking
action with respect to calls,  conversions,  exchanges,  maturities,  tenders or
other matters relative to any Pledged Property,  whether or not the Agent has or
is deemed to have knowledge of such matters,  or (b) taking any necessary  steps
to preserve  rights against prior parties or any other rights  pertaining to any
Collateral.

     SECTION 5.4.  Reasonable Care. The Agent is required to exercise reasonable
care in the custody and preservation of any of the Collateral in its possession;
provided,  however,  the Agent shall be deemed to have exercised reasonable care
in the  custody  and  preservation  of any of the  Collateral,  if it takes such
action for that purpose as the Borrower  reasonably requests in writing at times
other  than upon the  occurrence  and  during  the  continuance  of any Event of
Default,  but failure of the Agent to comply  with any such  request at any time
shall not in itself be deemed a failure to exercise reasonable care.

                                   ARTICLE VI
                                    REMEDIES

     SECTION 6.1. Certain Remedies.  If any Event of Default shall have occurred
and be continuing:

          (a) The Agent may exercise in respect of the  Collateral,  in addition
     to other rights and remedies provided for herein or otherwise  available to
     it, all the rights and  remedies  of a secured  party on default  under the
     U.C.C.  (whether or not the U.C.C.  applies to the affected Collateral) and
     also may, without notice except as specified below,  sell the Collateral or
     any part thereof in one or more parcels at public or private  sale,  at any
     of the  Agent's  offices or  elsewhere,  for cash,  on credit or for future
     delivery,  and upon such  other  terms as the  Agent may deem  commercially
     reasonable. The Borrower agrees that, to the extent notice of sale shall be
     required  by law, at least ten days'  prior  notice to the  Borrower of the
     time and place of any public sale or the time after which any private  sale
     is to be made shall constitute reasonable notification. The Agent shall not
     be obligated to make any sale of  Collateral  regardless  of notice of sale
     having  been given.  The Agent may adjourn any public or private  sale from
     time to time by announcement at the time and place fixed therefor, and such
     sale may, without further notice, be made at the time and place to which it
     was so adjourned.

          (b) The Agent may

               (i) transfer all or any part of the  Collateral  into the name of
          the  Agent  or its  nominee,  with or  without  disclosing  that  such
          Collateral is subject to the lien and security interest hereunder,

               (ii) notify the parties  obligated  on any of the  Collateral  to
          make  payment  to  the  Agent  of any  amount  due  or to  become  due
          thereunder,

               (iii)  enforce  collection  of any of the  Collateral  by suit or
          otherwise, and surrender, release or exchange all or any part thereof,
          or compromise or extend or renew for any period (whether or not longer
          than the original  period) any  obligations of any nature of any party
          with respect thereto,

               (iv)  endorse  any  checks,  drafts,  or  other  writings  in the
          Borrower's name to allow collection of the Collateral,

               (v) take control of any proceeds of the Collateral, and

               (vi)  execute  (in the name,  place  and  stead of the  Borrower)
          endorsements,  assignments  and other  instruments  of  conveyance  or
          transfer with respect to all or any of the Collateral.

     SECTION 6.2. [Intentionally Omitted].

     SECTION 6.3. Compliance with Restrictions.  The Borrower agrees that in any
sale of any of the  Collateral  whenever an Event of Default shall have occurred
and be continuing,  the Agent is hereby authorized to comply with any limitation
or restriction  in connection  with such sale as it may be advised by counsel is
necessary  in  order  to  avoid  any  violation  of  applicable  law  (including
compliance  with such  procedures  as may  restrict  the  number of  prospective
bidders and  purchasers,  require that such  prospective  bidders and purchasers
have  certain   qualifications,   and  restrict  such  prospective  bidders  and
purchasers to persons who will  represent and agree that they are purchasing for
their own  account for  investment  and not with a view to the  distribution  or
resale of such  Collateral),  or in order to obtain any required approval of the
sale or of the purchaser by any governmental  regulatory  authority or official,
and the Borrower  further agrees that such  compliance  shall not result in such
sale  being  considered  or  deemed  not to have  been  made  in a  commercially
reasonable manner, nor shall the Agent be liable nor accountable to the Borrower
for any discount  allowed by the reason of the fact that such Collateral is sold
in compliance with any such limitation or restriction.

     SECTION 6.4.  Application  of Proceeds.  All cash proceeds  received by the
Agent in respect of any sale of, collection from, or other realization upon, all
or any part of the  Collateral  may  thereafter be applied (after payment of any
amounts  payable to the Agent  pursuant to Article III of the Credit  Agreements
and this Section 6.4) in whole or in part by the Agent against,  all or any part
of the Secured Obligations in such order as the Agent shall elect.

     Any surplus of such cash or cash  proceeds  held by the Agent and remaining
after payment in full of all the Secured Obligations, and the termination of all
Commitments, shall be paid over to the Borrower or to whomsoever may be lawfully
entitled to receive such surplus.

     SECTION 6.5.  Indemnity and Expenses.  The Borrower hereby  indemnifies and
holds  harmless  the Agent from and  against  any and all  claims,  losses,  and
liabilities  arising out of or resulting from this Pledge  Agreement  (including
enforcement of this Pledge  Agreement),  except claims,  losses,  or liabilities
resulting from the Agent's gross negligence or willful misconduct.  Upon demand,
the  Borrower  will  pay to the  Agent  the  amount  of any and  all  reasonable
expenses,  including the reasonable fees and disbursements of its counsel and of
any experts and agents, which the Agent may incur in connection with:

          (a) the administration of this Pledge Agreement, the Credit Agreements
     and each other Loan Document;

          (b) the custody,  preservation,  use, or operation of, or the sale of,
     collection from, or other realization upon, any of the Collateral;

          (c) the  exercise  or  enforcement  of any of the  rights of the Agent
     hereunder; or

          (d) the  failure by the  Borrower  to  perform  or observe  any of the
     provisions hereof.

                                  ARTICLE VII
                            MISCELLANEOUS PROVISIONS

     SECTION  7.1.  Loan  Document.  This Pledge  Agreement  is a Loan  Document
executed pursuant to the Credit Agreements and shall (unless otherwise expressly
indicated herein) be construed,  administered and applied in accordance with the
terms and provisions thereof.

     SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision of
this Pledge  Agreement  nor consent to any  departure by the  Borrower  herefrom
shall in any event be  effective  unless the same shall be in writing and signed
by the Agent,  and then such waiver or consent  shall be  effective  only in the
specific instance and for the specific purpose for which it is given.

     SECTION 7.3. Protection of Collateral.  The Agent may from time to time, at
its option,  perform any act which the Borrower agrees  hereunder to perform and
which the Borrower shall fail to perform after being  requested in writing so to
perform  (it  being  understood  that no such  request  need be given  after the
occurrence and during the  continuance of an Event of Default) and the Agent may
from time to time  take any  other  action  which  the  Agent  reasonably  deems
necessary  for  the  maintenance,  preservation  or  protection  of  any  of the
Collateral or of its security interest therein.

     SECTION 7.4.  Addresses for Notices.  All notices and other  communications
provided for hereunder shall be in writing (including telegraphic communication)
and, if to the Borrower, mailed or telegraphed or delivered to it at the address
set forth below its signature  hereto,  if to the Agent,  mailed or delivered to
it,  addressed  to it at the address of the Agent  specified  in the 2002 Credit
Agreement or, as to either  party,  at such other address as shall be designated
by such party in a written  notice to each other party  complying as to delivery
with the terms of this Section. All such notices and other communications shall,
when mailed or  telegraphed,  respectively,  be effective  when deposited in the
mails  or  delivered  to  the  telegraph  company,  respectively,  addressed  as
aforesaid.

     SECTION  7.5.  Section  Captions.  Section  captions  used in  this  Pledge
Agreement  are for  convenience  of  reference  only,  and shall not  affect the
construction of this Pledge Agreement.

     SECTION 7.6. Severability.  Wherever possible each provision of this Pledge
Agreement shall be interpreted in such manner as to be effective and valid under
applicable  law,  but if  any  provision  of  this  Pledge  Agreement  shall  be
prohibited by or invalid under such law, such provision  shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Pledge Agreement.

     SECTION 7.7.  Governing Law, Entire  Agreement,  etc. THIS PLEDGE AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK,  EXCEPT TO THE EXTENT THAT THE VALIDITY OR  PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL  ARE GOVERNED BY THE LAWS OF A  JURISDICTION  OTHER THAN THE STATE OF
NEW YORK.  THIS PLEDGE  AGREEMENT AND THE OTHER LOAN  DOCUMENTS  CONSTITUTE  THE
ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF  AND  SUPERSEDE  ANY PRIOR  AGREEMENTS,  WRITTEN  OR ORAL,  WITH  RESPECT
THERETO.

     SECTION 7.8. Forum  Selection and Consent to  Jurisdiction.  ANY LITIGATION
BASED HEREON,  OR ARISING OUT OF,  UNDER,  OR IN  CONNECTION  WITH,  THIS PLEDGE
AGREEMENT,  OR ANY COURSE OF  CONDUCT,  COURSE OF DEALING,  STATEMENTS  (WHETHER
VERBAL OR WRITTEN)  OR ACTIONS OF THE LENDER  PARTIES OR THE  BORROWER  SHALL BE
BROUGHT AND MAINTAINED  EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN
THE  UNITED  STATES  DISTRICT  COURT  FOR THE  SOUTHERN  DISTRICT  OF NEW  YORK;
PROVIDED,  HOWEVER,  THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER  PROPERTY  MAY BE  BROUGHT,  AT THE AGENT'S  OPTION,  IN THE COURTS OF ANY
JURISDICTION  WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER
HEREBY  EXPRESSLY AND IRREVOCABLY  SUBMITS TO THE  JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK AND OF THE UNITED STATES  DISTRICT  COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH  LITIGATION  AS SET FORTH ABOVE
AND  IRREVOCABLY  AGREES  TO BE  BOUND  BY  ANY  JUDGMENT  RENDERED  THEREBY  IN
CONNECTION WITH SUCH LITIGATION.  THE BORROWER FURTHER  IRREVOCABLY  CONSENTS TO
THE  SERVICE OF PROCESS BY  REGISTERED  MAIL,  POSTAGE  PREPAID,  OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER  HEREBY  EXPRESSLY
AND IRREVOCABLY  WAIVES,  TO THE FULLEST EXTENT  PERMITTED BY LAW, ANY OBJECTION
WHICH  IT MAY HAVE OR  HEREAFTER  MAY  HAVE TO THE  LAYING  OF VENUE OF ANY SUCH
LITIGATION  BROUGHT IN ANY SUCH COURT  REFERRED  TO ABOVE AND ANY CLAIM THAT ANY
SUCH  LITIGATION HAS BEEN BROUGHT IN AN  INCONVENIENT  FORUM. TO THE EXTENT THAT
THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM  JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER  THROUGH SERVICE OR NOTICE,  ATTACHMENT
PRIOR TO JUDGMENT,  ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY,  THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT.

     SECTION  7.9.  Waiver of Jury Trial.  THE LENDER  PARTIES AND THE  BORROWER
HEREBY KNOWINGLY,  VOLUNTARILY AND INTENTIONALLY  WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS PLEDGE  AGREEMENT,  OR ANY COURSE OF CONDUCT,
COURSE OF  DEALING,  STATEMENTS  (WHETHER  VERBAL OR  WRITTEN) OR ACTIONS OF THE
LENDER PARTIES OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND  SUFFICIENT  CONSIDERATION  FOR THIS PROVISION (AND EACH OTHER
PROVISION  OF EACH  OTHER  LOAN  DOCUMENT  TO WHICH IT IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL  INDUCEMENT  FOR THE LENDER  PARTIES  ENTERING  INTO THE
CREDIT AGREEMENTS AND EACH SUCH OTHER LOAN DOCUMENT.



<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly  executed and  delivered by their  respective  officers  thereunto  duly
authorized as of the day and year first above written.

                                   CALPINE CORPORATION


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

                                   Address:        50 West San Fernando Avenue
                                                   San Jose, CA 95113

                                   Facsimile No.:  (408) 995-0505

                                   Attention:      Senior Vice President-Finance



<PAGE>



                                   THE BANK OF NOVA SCOTIA


                                   By:__________________________________________

                                   Name:________________________________________

                                   Title:_______________________________________

                                   Address:        580 California Street
                                                   Suite 2100
                                                   San Francisco, CA 94111

                                   Facsimile No.:  (415) 397-0791

                                   Attention:      Jon Burckin

                                   with a copy to:

                                                   The Bank of Nova Scotia
                                                   600 Peachtree Street, N.E.
                                                   Suite 2700
                                                   Atlanta, GA 30308

                                   Attention:      Hilma Gabbidon
                                                   Administrative Agent
                                                   Loan Administration

                                   Facsimile No.:  (404) 888-8998



<PAGE>


                                                                    ATTACHMENT 1
                                                                              to
                                                                Pledge Agreement

Pledged Notes

Pledged Note Issuer                         Description
-------------------                         -----------

All notes to be delivered by Calpine Corporation to the Agent in compliance with
Section 8.1.10 of the Credit Agreement.

</TEXT>
</DOCUMENT>
</SUBMISSION>
