<SUBMISSION>
<ACCESSION-NUMBER>0000891618-02-000153
<TYPE>8-K
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<PERIOD>20011114
<ITEMS>5
<ITEMS>7
<FILING-DATE>20020117
<FILER>
<COMPANY-DATA>
<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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<FORM-TYPE>8-K
<ACT>34
<FILE-NUMBER>001-12079
<FILM-NUMBER>2511349
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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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<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>f78461e8-k.txt
<DESCRIPTION>FORM 8-K
<TEXT>
<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                       PURSUANT TO SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934

       DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 14, 2001

                               CALPINE CORPORATION


                            (A DELAWARE CORPORATION)

                        COMMISSION FILE NUMBER: 001-12079

                  I.R.S. EMPLOYER IDENTIFICATION NO. 77-0212977

                           50 WEST SAN FERNANDO STREET

                           SAN JOSE, CALIFORNIA 95113

                            TELEPHONE: (408) 995-5115

<PAGE>

ITEM 5. OTHER EVENTS


On November 14, 2001, Calpine's subsidiary, Calpine Energy Services, LP ("CES"),
Enron North America Corp. ("ENA") and Enron Power Marketing, Inc. ("EPMI")
entered into a Master Netting, Setoff and Security Agreement ("Netting
Agreement"). This 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 and Sale Agreement
between CES and EPMI (in each case, after giving effect to the netting
provisions contained in each of these agreements).

As a result of the nationwide economic slowdown, the industry experienced lower
industrial demand during 2001 which, along with unusually mild weather, reduced
prices for power. In light of these factors, we are revising our 2001 earnings
(before deduction of non-recurring merger costs in connection with the Encal
pooling-of-interests transaction) expectations to approximately $1.95 per share
from the $2.00 to $2.05 per share guidance that we had previously provided.




ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(a) Not applicable.

(b) Not applicable.

(c) Exhibits.

99.0 Master Netting, Setoff and Security Agreement

99.1 Collateral Annex to Master Netting, Setoff, and Security Agreement

99.2 List of Existing Underlying Master Agreements
<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 hereunto duly authorized.

                              CALPINE CORPORATION



                              By:  /s/ Charles B. Clark, Jr.
                                   ------------------------------------
                                   Charles B. Clark, Jr.
                                   Senior Vice President and Controller
                                   Chief Accounting Officer




Date: January 16, 2002

<PAGE>

                                  Exhibit Index

<TABLE>
<CAPTION>
EXHIBIT NO.      DESCRIPTION
-----------      -----------
<S>              <C>
   99.0          Master Netting, Setoff and Security Agreement

   99.1          Collateral Annex to Master Netting, Setoff, and Security
                 Agreement

   99.2          List of Existing Underlying Master Agreements

</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.0
<SEQUENCE>3
<FILENAME>f78461ex99-0.txt
<DESCRIPTION>EXHIBIT 99.0
<TEXT>
<PAGE>
                                                                    EXHIBIT 99.0



                            MASTER NETTING, SETOFF,
                             AND SECURITY AGREEMENT


This Master Netting, Setoff, and Security Agreement (including the Collateral
Annex, collectively, the "Agreement") is made and entered into effective as of
November 14, 2001 among the Counterparty Party (as defined below) and the Enron
Parties (as defined below).

The Enron Parties and the Counterparty Parties have entered into the agreements
(and Transactions, schedules, annexes and confirmations thereunder) referenced
on Exhibit A hereto, as such agreements have been or may be amended, restated,
supplemented or otherwise modified (collectively, the "Existing Underlying
Master Agreements," and each individually, an "Existing Underlying Master
Agreement").

The Enron Parties and the Counterparty Parties may after the date of this
Agreement enter into master agreements or other confirmation agreements in the
nature of "forward contracts" and "swap agreements" as defined in the United
States Bankruptcy Code, 11 U.S.C. Secs. 101-1330 (such agreements, as same may
be amended, restated, supplemented, or otherwise modified from time to time, and
including all Transactions, schedules, annexes, and confirmations thereunder,
together with the Existing Underlying Master Agreements, are referred to herein,
collectively, as the "Underlying Master Agreements," and each individually, as
an "Underlying Master Agreement."

Each Enron Party desires now to provide in this Agreement for its right to
terminate, liquidate, net, setoff, and apply Collateral upon a Default by any
Counterparty Party under any one or more of the Underlying Master Agreements as
herein specified, including, without limitation, by permitting each Enron Party
to terminate, liquidate, net, setoff, and apply Collateral across all of the
Underlying Master Agreements and to treat the Underlying Master Agreements as a
single agreement for such purposes, whether or not the Obligations arising under
the Underlying Master Agreements are in connection with (a) cash settled
Transactions or physically settled Transactions or (b) securities, forward
contracts, commodities contracts, repurchase agreements, or swap agreements.
Each Counterparty Party desires now to provide in this Agreement for its right
to terminate, liquidate, net, setoff, and apply Collateral upon a Default by any
Enron Party under any one or more of the Underlying Master Agreements as herein
specified, including, without limitation, by permitting each Counterparty Party
to terminate, liquidate, net, setoff, and apply Collateral across all of the
Underlying Master Agreements and to treat the Underlying Master Agreements as a
single agreement for such purposes, whether or not the Obligations arising under
the Underlying Master Agreements are in connection with (a) cash settled
Transactions or physically settled Transactions or (b) securities, forward
contracts, commodities contracts, repurchase agreements, or swap agreements.

        NOW THEREFORE, for and in consideration of the mutual agreements herein
made and other good and valuable consideration, including, without limitation,
amendments to the Underlying Master Agreements set forth herein, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

        1. DEFINITIONS. (a) Defined terms used or incorporated by reference in
this Agreement and not otherwise defined herein have the same meanings in this
Agreement as given to them by the respective Underlying Master Agreement. In the
event of any conflict or inconsistency between a term defined herein and in any
of the Underlying Master Agreements, such term as used in this Agreement shall
govern and have the meaning ascribed to it in this Agreement.

        (b) The following terms used in this Agreement are defined as follows:



                                       1
<PAGE>

        "Affiliate" means, with respect to any person, any other person that,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such person. For this purpose,
"control" means the direct or indirect ownership of twenty percent or more of
the outstanding capital stock or other equity interest having ordinary voting
power, and "person" means any entity other than an individual.

        "Business Day" means a day on which commercial banks settle payments and
are open for general business in New York City.

        "Claims" has the meaning set forth in Section 15.

        "Code" means the United States Bankruptcy Code, 11 U.S.C. Sections 101,
et. seq., as the same may be amended from time to time.

        "Collateral" means Eligible Collateral as defined in the Collateral
Annex.

        "Collateral Administrator" means the Party designated in the Collateral
Annex to administer the Collateral for each respective Group in accordance with
the Collateral Annex.

        "Collateral Annex" means the Collateral Annex attached hereto as Annex A
and made a part of this Agreement.

        "Costs" means brokerage fees, commissions and other similar third party
transaction costs and expenses reasonably incurred by the Non-Defaulting Party
either in terminating any arrangement pursuant to which it has hedged its
obligations or entering into new arrangements that replace a terminated
Transaction and all reasonable attorneys' fees and expenses incurred by the
Non-Defaulting Party in connection with the termination of a Transaction.

        "Counterparty Affiliate" means each Counterparty Party and each of its
now and hereafter existing Affiliates.

        "Counterparty Group" means all Counterparty Parties.

        "Counterparty Guaranty" means the guaranty of Calpine Corporation to be
delivered to Enron Group pursuant to this Agreement substantially in the form
attached hereto.

        "Counterparty Party(ies)" means Calpine Energy Services, L.P.

        "Credit Rating" means with respect to an entity, on any date of
determination, the respective ratings then assigned to such entity's unsecured,
senior long-term debt or depository obligations (in each case, not supported by
third-party credit enhancement) by S&P, Moody's or other specified rating agency
or agencies as may be agreed to by the Parties.

        "Debt" has the meaning set forth in Section 101 of the Code.

        "Default" means the occurrence of a (i) default, event of default, or
other event (including the passage of time) that results in a Party having an
immediate contractual right to accelerate, terminate, liquidate, or cancel
Transactions under any Underlying Master Agreement, or (ii) representation or
warranty made or repeated by a Party hereunder being incorrect or misleading in
any material respect when made or repeated, or (iii) violation of a covenant
made hereunder including, without limitation, the Collateral requirements under
Section 5 hereof.



                                       2
<PAGE>

        "Defaulting Group" means (i) Enron Group when a Default has occurred
with respect to any Enron Party ("Defaulting Enron Party") and (ii) Counterparty
Group when a Default has occurred with respect to any Counterparty Party
("Defaulting Counterparty Party").

        "Defaulting Party" means each Enron Party when a Default has occurred
with respect to any Defaulting Enron Party, and each Counterparty Party when a
Default has occurred with respect to any Defaulting Counterparty Party.

        "Early Termination Date" has the meaning set forth in Section 2.

        "Eligible Collateral" has the meaning set forth in the Collateral Annex.

        "Enron Affiliate" means each Enron Party and each of its now and
hereafter existing Affiliates.

        "Enron Group" means all Enron Parties.

        "Enron Guaranty" means the guaranty of Enron Corp. to be delivered to
        Counterparty Party pursuant to this Agreement substantially in the form
        attached hereto.

        "Enron Parties" means Enron North America Corp. and Enron Power
Marketing, Inc.

        "Exposure" means on any date, the amount that would be payable by one
Party (First Party) to another Party (Second Party) under an Underlying Master
Agreement if pursuant thereto Second Party was entitled to and did terminate all
Transactions and accelerate First Party's payment Obligations under such
agreement as of such date on the basis of a default (within the meaning of such
Underlying Master Agreement) by First Party, whether or not such default,
termination, and acceleration actually occurs; provided, Exposure will be
calculated using mid-market estimates determined using good faith efforts.

"Exposure Threshold" means the amount set forth opposite the highest Credit
Rating (as defined in the Collateral Annex), be it S&P or Moody's, for Calpine
Corporation or Enron Corp., as the case may be

<TABLE>
<CAPTION>
               Exposure Threshold        S&P              Moody's
               ------------------        ---              -------
               <S>                       <C>              <C>
               $100,000,000              BBB- or above    Baa3 or above
               $50,000,000               BB+              Ba1
               $25,000,000               BB               Ba2
               $0                        below BB         below Ba2
</TABLE>

provided, the Exposure Threshold for a Group shall be zero upon the occurrence
and during the continuance of a Material Adverse Change, a Default, or Potential
Event of Default by or in respect of any of the entities comprising that Group.

        "Final Settlement Amount" has the meaning set forth in Section 3.

        "Gains" means, with respect to any Party, an amount equal to the present
value of the economic benefit to it, if any (exclusive of Costs), resulting from
the termination of a Transaction, determined in a commercially reasonable
manner.

        "Group" means Enron Group or Counterparty Group, as applicable.

        "Guarantor" means with respect to Enron Group, Enron Corp., and with
respect to Counterparty Group, Calpine Corporation.



                                       3
<PAGE>

        "Guaranty" means the Counterparty Guaranty or the Enron Guaranty, as the
context indicates.

        "Involuntary Bankruptcy" means the filing of a petition under the Code
for the entry of an order for relief against a Counterparty Party or an Enron
Party.

        "Letters of Credit" has the meaning set forth in the Collateral Annex.

        "Losses" means, with respect to any Party, an amount equal to the
present value of the economic loss to it, if any (exclusive of Costs), resulting
from termination of a Transaction, determined in a commercially reasonable
manner.

        "Material Adverse Change" shall have the meaning set forth in the
Collateral Annex.

        "Non-defaulting Group" means (i) Counterparty Group when a Default has
occurred with respect to a Defaulting Enron Party and (ii) Enron Group when a
Default has occurred with respect to a Defaulting Counterparty Party.

        "Non-defaulting Party" means any Enron Party when a Default has occurred
with respect to any Counterparty Party, and any Counterparty Party when a
Default has occurred with respect to any Enron Party.

        "Obligation" or "Obligations" means each and every obligation to (a) pay
any amount or (b) maintain and/or deliver Collateral that any Counterparty Party
owes to any Enron Party or any Enron Party owes to any Counterparty Party
arising pursuant to: an Underlying Master Agreement, a Transaction, this
Agreement, or a guarantee provided by or on behalf of any Counterparty Party to
any Enron Party or provided by or on behalf of any Enron Party to any
Counterparty Party in connection with an Underlying Master Agreement, this
Agreement or a Guaranty, whether or not such obligation to pay or maintain
and/or deliver Collateral or other liability or guaranty is due, fixed, matured,
unmatured, liquidated, unliquidated, or contingent.

        "Party" means any Enron Party or any Counterparty Party as the context
indicates, and "Parties" means all of the foregoing.

        "Potential Event of Default" means any event which, with the giving of
notice or the lapse of time or both, would constitute a Default.

        "Setoff" means the right of a Non-defaulting Party to setoff (including
by set-off, offset, combination of accounts, retention, or withholding across or
within each or all of the Underlying Master Agreements) any sum, amount, or
Obligation (whether physically or financially settled, fixed, liquidated,
unliquidated, matured, unmatured or contingent) owed by any Non-defaulting Party
to any Defaulting Party under the Underlying Master Agreements, this Agreement
or any other agreements, against any sum, amount, or Obligation (whether
physically or financially settled, fixed, liquidated, unliquidated, matured,
unmatured or contingent) owed by any Defaulting Party to any Non-defaulting
Party under the Underlying Master Agreements, this Agreement or any other
agreements. The foregoing is in addition to, and not in limitation of, any other
right or remedy available to the Non-defaulting Party (including, without
limitation, any right of setoff, offset, combination of accounts, deduction,
counterclaim, retention, or withholding), whether arising by agreement,
including, without limitation, this Agreement and any of the Underlying Master
Agreements and with particularity, rights therein with respect to any Enron
Affiliate or any Counterparty Affiliate, applicable law, equity, or otherwise.

        "Settlement Amount" means, in accordance with any applicable Underlying
Master Agreement(s), the net amount that is due and payable by one Party to the
other Party upon (i) such Underlying Master Agreement(s) having been
accelerated, terminated, liquidated, or cancelled (including



                                       4
<PAGE>

by way of automatic early termination), (ii) the resulting Obligations of each
Party having been determined, and (iii) those Obligations having been netted and
reduced by the exercise of rights to apply Collateral (if any) delivered under
or held in connection with such Underlying Master Agreement(s).

        "Termination Date" has the meaning set forth in Section 5(g).

        "Transaction" or "Transactions" means each and every trade, transaction,
or other open contractual commitment, between any Enron Party and any
Counterparty Party arising under the Underlying Master Agreements.

        "Underlying Master Agreements Close-Out" has the meaning set forth in
Section 2.

        2. REMEDIES UPON DEFAULT. (a) Except as provided in Section 2(c) below,
upon the occurrence and continuance for two (2) Business Days of a Default in
respect of any Defaulting Party, the Non-defaulting Group may, by delivery of
notice thereof in accordance with Section 11 below specifying the relevant
Default and declaring the Defaulting Group in default of all Underlying Master
Agreements, (i) designate a date (the "Early Termination Date"), which is no
earlier than a date which is two (2) Business Days after the date such notice is
delivered and no later than 20 days after the date such notice is delivered, as
an Early Termination Date and accelerate, cancel, terminate, liquidate, and
otherwise close-out all Transactions under the Underlying Master Agreements as
of such designated date; (ii) exercise rights of Setoff, netting, and/or
recoupment in accordance with the terms of the Underlying Master Agreements;
(iii) with respect to each Defaulting Party, withhold performance of each
Non-defaulting Party's Obligations to each Defaulting Party to pay, secure,
setoff against, net, and/or recoup such Defaulting Party's Obligations to such
Non-defaulting Party; (iv) retain, foreclose, collect, sell, or otherwise
liquidate any Collateral in any order and at any time, and apply the proceeds
thereof to satisfy each Defaulting Party's Obligation to each Non-defaulting
Party; (v) suspend delivery or receipt of any commodity under any Underlying
Master Agreement; (vi) convert any Obligation from one currency into another
currency as set forth in Section 4; and/or (vii) take any other action permitted
by law or in equity or by any Transaction necessary or appropriate to protect,
preserve, or enforce its rights or to reduce any risk of loss or delay, except
to the extent any such action is proscribed or limited herein. Any one or more
of the foregoing acts shall be referred to herein as an "Underlying Master
Agreements Close-Out."

        (b) If a Default occurs and a Non-defaulting Party elects to forebear
from causing an Underlying Master Agreements Close-Out with respect to an
Underlying Master Agreement, each Party shall retain its rights and obligations
under such Underlying Master Agreement with respect thereto until the earlier of
the date on which (i) such Default is cured or (ii) the Non-defaulting Party
elects to cause the Underlying Master Agreements Close-Out.

        (c) Notwithstanding anything herein or in any Underlying Master
Agreement to the contrary, if the Default giving rise to a Non-defaulting
Group's rights hereunder is an Involuntary Bankruptcy, any notice period or
grace period referenced in Section 2(a) shall not apply and the Non-defaulting
Group may immediately exercise the rights granted herein without prior notice to
the Defaulting Group.

        (d) In the event that a Non-defaulting Group elects to cause the
Underlying Master Agreements Close-Out, any and all notification requirements
under the Underlying Master Agreements for accelerating, terminating,
liquidating, or otherwise closing-out Transactions thereunder shall be
superseded by Section 2(a) and shall be satisfied in all respects by the notice
provided for in section 2(b) and, with particularity, any automatic termination
provided for in any Underlying Master Agreement shall be inapplicable thereto.

        3. SETTLEMENT. The Settlement Amount under each of the Underlying Master
Agreements shall be determined in accordance with the terms of such agreement.
If an Underlying Master Agreement does not provide a mechanism for calculating
the Settlement Amount thereunder, the Settlement Amount shall



                                       5
<PAGE>

equal the sum of (a) the Losses or Gains relating to each Transaction, plus (b)
Costs that the Non-Defaulting Party incurs as a result of the termination and
liquidation of each Transaction. All Settlement Amounts shall be netted against
each other and the resulting net amount may be reduced by the exercise of rights
to apply Collateral delivered under or held in connection therewith and pursuant
to all rights granted in this Agreement (as so netted and reduced, the "Final
Settlement Amount"); provided, if a Settlement Amount has been setoff in whole
or in part, such Settlement Amount, to the extent of such setoff, shall be
deemed to have been discharged and no longer due under the relevant Underlying
Master Agreement. Upon determination of the Final Settlement Amount,
Non-defaulting Group shall provide Defaulting Group with a statement showing the
calculation of the Final Settlement Amount. The Final Settlement Amount shall be
payable by the Group from which such payment is due on the third Business Day
after the statement is delivered to such Group. In the event of a dispute as to
the Final Settlement Amount payable by a Group, such Group shall, within the
time proscribed herein, pay the undisputed amount of the Final Settlement
Amount. The Parties shall in good faith seek to resolve such disputed amount of
the Final Settlement Amount without delay. If the Parties are unable to resolve
the disputed amount of the Final Settlement Amount within ten (10) days, the
matter shall be submitted to arbitration in accordance with Section 15. The
Final Settlement Amount shall bear interest at the highest rate provided for in
any of the Underlying Master Agreements; provided, such rate shall not exceed
the maximum non-usurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged, or received thereon under
any applicable law. Nothing in this Section 3 shall be construed to restrict or
preclude Non-defaulting Group from realizing on Collateral at any time after the
Final Settlement Amount has been calculated by Non-defaulting Group,
notwithstanding (and without awaiting the outcome of) any dispute as to the
Final Settlement Amount payable.

        4. CURRENCY. In order to effect the provisions of this Agreement, any
amounts subject hereto may be converted into another currency specified in any
of the Underlying Master Agreements at the rate of exchange at which the Party
so converting, acting in a reasonable manner and in good faith, would be able to
purchase the relevant amount of the currency being converted.

        5. COLLATERAL. Prior to the Termination Date during the term of this
Agreement, the provisions hereof, including the Collateral Annex, replace the
separate exposure thresholds and Collateral requirements set forth in each
Underlying Master Agreement with the Exposure Thresholds and aggregate
Collateral requirements set forth in this Agreement, including the Collateral
Annex, covering all Underlying Master Agreements. Notwithstanding anything to
the contrary contained in any Underlying Master Agreement or in any
documentation comprising or pertaining to Collateral or other credit support and
subject to Section 2(c), the determination and application of Collateral
requirements and rights shall be in accordance with the following provisions so
long as this Agreement is in force and effect.

        (a) Any Eligible Collateral provided (before, on or after the date of
this Agreement) in respect of any Obligations, by or on behalf of any
Counterparty Party to any Enron Party, shall secure the aggregate of the
Obligations of Counterparty Group to Enron Group and the administration of such
Collateral shall be governed by the Collateral Annex as of the effective date of
this Agreement. Any Collateral provided (before, on or after the date of this
Agreement) in respect of any Obligations, by or on behalf of any Enron Party to
any Counterparty Party, shall secure the aggregate of the Obligations of Enron
Group to Counterparty Group and the administration of such Collateral shall be
governed by the Collateral Annex as of the effective date of this Agreement.

        (b) In the event of the occurrence of an Early Termination Date under
any Underlying Master Agreement (and as defined therein) occasioned by an event
other than a Default, the Collateral Administrator for Enron Group and
Counterparty Group, as the case may be, shall have the right to apply Collateral
to satisfy the Obligations under the subject Underlying Master Agreement in
accordance therewith.



                                       6
<PAGE>

        (c) The Collateral Administrator designated as such by Enron Group in
the Collateral Annex agrees to act as the agent and bailee of each other Enron
Party in respect of the Collateral and shall hold any Collateral both as secured
party and as agent and bailee of each other Enron Party as a secured party. Each
Counterparty Party hereby irrevocably appoints such Collateral Administrator to
be its attorney in the name of and on behalf and as the act and deed of such
Counterparty Party or otherwise under a power coupled with an interest to
execute, sign, seal, and deliver any documents which Enron Group may require for
perfecting its security interest in the Collateral or upon the occurrence of a
Default vesting the Collateral in Enron Group or its nominees or any purchaser,
and otherwise generally to sign, seal, deliver, and otherwise perfect any such
legal or other charge or assignment and all documents, and to do all such acts
and things as may be required for the full exercise of the powers hereby
conferred, including filing any financing statements and charges, and upon the
occurrence of a Default, any sale, lease, realization, or other disposition of
the Collateral or the enforcement of any Enron Group's rights hereunder or
otherwise.

        (d) The Collateral Administrator designated as such by Counterparty
Group in the Collateral Annex agrees to act as the agent and bailee of each
other Counterparty Party in respect of the Collateral and shall hold any
Collateral both as secured party and as agent and bailee of each other
Counterparty Party as a secured party. Each Enron Party hereby irrevocably
appoints such Collateral Administrator to be its attorney in the name of and on
behalf and as the act and deed of such Enron Party or otherwise under a power
coupled with an interest to execute, sign, seal, and deliver any documents which
Counterparty Group may require for perfecting its security interest in the
Collateral or upon the occurrence of a Default vesting the Collateral in
Counterparty Group or its nominees or any purchaser, and otherwise generally to
sign, seal, deliver, and otherwise perfect any such legal or other charge or
assignment and all documents, and to do all such acts and things as may be
required for the full exercise of the powers hereby conferred, including filing
any financing statements and charges, and upon the occurrence of a Default, any
sale, lease, realization, or other disposition of the Collateral or the
enforcement of any Counterparty Group's rights hereunder or otherwise.

        (e) Notwithstanding any provisions of any of the Underlying Master
Agreements to the contrary, all non-cash Eligible Collateral issued or delivered
by or for the account of any Counterparty Party shall name the Collateral
Administrator designated by Enron Group "for itself or as Agent for [list each
Enron Party]" as a beneficiary thereof, and all non-cash Eligible Collateral
issued or delivered by or for the account of any Enron Party shall name the
Collateral Administrator designated by Counterparty Group "for itself or as
Agent for [list each Counterparty Party]" as a beneficiary thereof, and in each
case shall provide for the right of each such named beneficiary to draw thereon
upon the occurrence of a Default under this Agreement and any other drawing
condition set forth in the applicable Underlying Master Agreement. The Parties
agree and covenant to each other to forthwith and without delay cause the
amendment or reestablishment of all Letters of Credit issued pursuant to the
Underlying Master Agreements in accordance with the foregoing criteria.

        (f) Each Party to an Underlying Master Agreement agrees that the
provisions thereof are hereby amended to replace the determination of separate
Collateral requirements under each Underlying Master Agreement with the
determination of an aggregate net Collateral requirement set forth in the
Collateral Annex.

        (g) At such time as this Agreement has been terminated or is otherwise
no longer in force and effect for any reason (the "Termination Date"), the
exposure thresholds and collateral requirements set forth in the Underlying
Master Agreements shall be effective between the Parties to each such Underlying
Master Agreement as therein stated. As of and from the Termination Date, the
Collateral held by Enron Group and Counterparty Group shall continue to be
maintained and secure the Obligations of Counterparty Group and Enron Group,
respectively. Within a reasonably practicable time thereafter, but no later than
thirty (30) Business Days, the Collateral Administrator for each Group shall
provide a written notice to the other Group setting forth the distribution of
the Collateral held by it



                                       7
<PAGE>

applicable to each Underlying Master Agreement effective as of the Termination
Date, which distribution may be determined in the sole discretion of each
Collateral Administrator; provided, should a Default occur under any remaining
Underlying Master Agreement prior to such written notice, Non-defaulting Party
shall have the right to apply Collateral to satisfy the Obligations under any
such Underlying Master Agreement in accordance therewith. Each Party confirms
and ratifies the grant of security interest set forth in Paragraph 2 of the
Collateral Annex covering the Collateral, as may be distributed among the
Underlying Master Agreements in accordance herewith as of the Termination Date.

        6. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants to
the other that (a) it is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder and has taken all necessary actions to
authorize such execution, delivery, and performance, (b) the person signing this
Agreement on its behalf is duly authorized to do so on its behalf, and (c) this
Agreement constitutes its legal, valid, and binding obligation, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
reorganization, insolvency, conservatorship, receivership, moratorium, or other
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law). Each Party
represents and warrants to the other that it has not assigned, transferred,
created, or permitted to exist any lien or other encumbrance on, or otherwise
disposed of, or purported to assign, transfer, create, or permit to exist any
lien or other encumbrance on, or otherwise dispose of, any of its rights to any
amounts that may be owed to it under any of the Underlying Master Agreements to
any third party, and covenants that, so long as this Agreement is in effect, it
will not assign, transfer, create, or permit to exist any lien or other
encumbrance on, or otherwise dispose of, any of its rights to any amounts that
may be owed to it under any of the Underlying Master Agreements, to any third
party, except as may be herein permitted.

        7. INTERPRETATION AND HEADINGS. The Parties intend that this Agreement
constitutes and should be deemed to be a "master netting agreement" and that the
Parties are and should be deemed to be "master netting agreement participants"
within the meaning of and as such terms are used in the Code or any other law,
rule, regulation, statute, or order applicable to the Parties' rights herein.
The use of headings and subheadings in this Agreement, and the division of this
Agreement into sections and sub-sections, are for convenience of reference only
and shall not affect the interpretation or construction of this Agreement.

        8. GOVERNING LAW. The rights of the Parties under this Agreement shall
be in addition to, and not in limitation or exclusion of, any other rights that
they may have (whether by agreement, operation of law, or otherwise). The Enron
Parties and the Counterparty Parties hereby amend the Underlying Master
Agreements, Transactions and guarantees issued in connection with the Underlying
Master Agreements to provide that, notwithstanding anything therein to the
contrary, if a Party elects to exercise its rights hereunder, the applicable
Underlying Master Agreements and any Transactions thereunder and any guarantees
related thereto shall be governed by and construed in accordance with the laws
of the State of New York (without reference to its choice of law doctrine), but
only for the purpose of a Party exercising its rights hereunder. In addition,
this Agreement shall be governed by and construed in accordance with the laws of
the State of New York (without reference to its choice of law doctrine).

        9. JURISDICTION. To the extent any provisions in the Underlying Master
Agreements, Transactions or guarantees issued in connection with Underlying
Master Agreements regarding jurisdiction, waiver of immunity, waiver of trial by
jury, and process are inconsistent with Section 15 or would impede the ability
of a party hereto to exercise its rights under this Agreement, such provisions
shall be null and void.



                                       8
<PAGE>

        10. ASSIGNMENT AND AMENDMENT. (a) Any assignment or other transfer of an
Underlying Master Agreement and Transactions subject thereto by any Enron Party
to an Enron Affiliate or by any Counterparty Party to a Counterparty Affiliate
permitted under an Underlying Master Agreement, including, without limitation,
whether by any permitted consolidation or amalgamation with, merger with or
into, or transfer of substantially all of its assets to such entity or other
similar transaction or series of transactions, shall be made without relieving
the assigning Party from liability thereunder and subject to this Agreement, and
shall provide that such assignee or other transferee shall execute this
Agreement as a condition to the effectiveness of any such assignment or other
transfer.

        (b) If any Underlying Master Agreement permits assignment of it and
Transactions thereunder as security, then notwithstanding the provisions of such
Underlying Master Agreement, such Underlying Master Agreement and Transactions
thereunder and this Agreement, and any rights therein, may be assigned or
otherwise transferred as security only if the assignment or other transfer (i)
is made subject to this Agreement and any rights in favor of a Party under this
Agreement (whether by setoff, Underlying Master Agreements Close-Out, or
otherwise), and (ii) does not increase the obligations of, or reduce the rights
of, the nonassigning Party, all in substance and form reasonably satisfactory to
the nonassigning Party.

        (c) Other than as expressly set forth in this Section 10 and
notwithstanding any provision in any of the Underlying Master Agreements to the
contrary, the Underlying Master Agreements and Transactions thereunder shall not
be assigned (whether by way of security or otherwise) by any Enron Party or any
Counterparty Party without the prior written consent of Counterparty Party or
Enron Party, respectively.

        (d) This Agreement shall not be assigned (whether by way of security or
otherwise) by any Enron Party or any Counterparty Party without the prior
written consent of Counterparty Group or Enron Group, respectively.

        (e) Any purported assignment or other transfer that is not in compliance
herewith shall be void.

        (f) This Agreement may not be amended by any Party without the prior
written consent of each Party. Confirmations under an Underlying Master
Agreement will not serve as an amendment.

        11. NOTICES. Any and all notices, statements, demands, or other
communications under this Agreement shall be given by mail, facsimile
transmission, electronic message system, or messenger, to the individuals and at
the facsimile numbers, electronic message addresses, or other locations set
forth below.

Address for notices or communications to Enron Party:

Address:               Enron North America Corp.   Facsimile No.: (713) 646-4816
                       P.O. Box 4428               Telephone No.: (713) 853-3300
                       Houston, Texas  77210-4428
Street Address:        1400 Smith Street
(for courier delivery) Houston, Texas 77002
                       Attn: Director, Documentation Department

A copy of any notice sent to Enron Party pursuant to Section or Section must
also be sent to (i) Enron Corp., Attention: Corporate Secretary at the above
address and facsimile no. (713) 853-2534, and (ii) Enron North America Corp.,
Attention: Assistant General Counsel, Trading Group at the above address and
facsimile no. (713) 646-3491.



                                       9
<PAGE>

Address for notices or communications to Counterparty Party:

Address:         Calpine Energy Services, L.P.     Facsimile No.: (713) 830-8751
Street Address:  700 Louisiana Street, Suite 2700  Telephone No.: (713) 830-8845
(for courier     Houston, Texas  77002
delivery)        Attn: Contract Administration


Any notice or other communication in respect of this Agreement given in any
manner herein permitted to the address or number or in accordance with the
electronic messaging system details above provided will be deemed effective as
follows: (i) if in writing and delivered in person or by courier, on the date it
is delivered; (ii) if sent by facsimile transmission, on the date that
transmission is received by a responsible employee of the recipient in legible
form (it being agreed that the burden of proving receipt will be on the sender
and will not be met by a transmission report generated by the sender's facsimile
machine); (iii) if sent by certified or registered mail (airmail, if overseas)
or the equivalent (return receipt requested), on the date that mail is delivered
or its delivery is attempted; (iv) if sent by electronic messaging system, on
the date that electronic message is received; in each case unless the date of
that delivery (or attempted delivery) or that receipt, as applicable, is not a
Business Day, or that communication is delivered (or attempted) or received, as
applicable, after the close of business on a Business Day, in which case that
communication shall be deemed given and effective on the first following day
that is a Business Day. Either Party may by notice to the others change the
address, facsimile number, or electronic messaging system details at which
notices or other communications are to be given to it.

        12. CONFLICTS AND INCONSISTENCIES. In the event of any conflict or
inconsistency between this Agreement and any of the Underlying Master Agreements
concerning the matters set forth in this Agreement, the provisions of this
Agreement shall govern.

        13. CONTINUATION OF MASTER AGREEMENTS AND SEVERABILITY. (a) Except as
amended by this Agreement, the Underlying Master Agreements shall remain in full
force and effect. Subject to Section 13(b), in the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal, or
unenforceable in any respect under the law of any jurisdiction, or becomes or is
rendered unlawful by any applicable court of law or regulatory agency because of
a statutory change, the validity, legality, and enforceability of the remaining
provisions under the law of such jurisdiction, and the validity, legality, and
enforceability of such provisions and any other provisions under the law of any
other jurisdiction, shall not in any way be affected or impaired thereby, and
the Parties shall use their best efforts to reform this Agreement to give effect
to the original intention of the Parties as indicated herein.

        (b) If Section 2(a) hereof in its entirety is deemed or held to be
invalid, illegal, or unenforceable, after the Parties have used their best
efforts to reform Section 2(a) and/or this Agreement to give effect to the
original intention of the Parties as indicated herein, this Agreement shall be
deemed to be null and void in its entirety and without any further force or
effect and the provisions of the Underlying Master Agreements amended and
superseded by this Agreement shall thereupon be enforceable in accordance with
their terms.

        14. NO WAIVER. A failure or delay in exercising any right, power, or
privilege in respect of the Underlying Master Agreements or this Agreement will
not be presumed to operate as a waiver of that right, power, or privilege, and a
single or partial exercise of any right, power, or privilege will not be
presumed to preclude any subsequent or further exercise of that right, power, or
privilege, or the exercise of any other right, power, or privilege.

        15. ARBITRATION. Notwithstanding anything in any Underlying Master
Agreements, Transaction or guaranty issued in connection with an Underlying
Master Agreement to the contrary, any claim, counterclaim, demand, cause of
action, dispute, and controversy arising out of or relating to this Agreement or
the relationship established by this Agreement, any provision hereof, the
alleged breach



                                       10
<PAGE>

thereof, or in any way relating to the subject matter of this Agreement,
involving the Parties and/or their respective representatives (collectively, the
"Claims") shall be resolved by binding arbitration. Arbitration shall be
governed by the Federal Arbitration Act and conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
validity, construction, and interpretation of this agreement to arbitrate, and
all procedural aspects of the arbitration conducted pursuant hereto shall be
decided by the arbitrators. In deciding the substance of the Claims, the
arbitrators shall refer to the governing law. It is agreed that the arbitrators
shall have no authority to award treble, exemplary or punitive damages of any
type under any circumstances whether or not such damages may be available under
state or federal law, or under the Federal Arbitration Act, or under the
Commercial Arbitration Rules of the American Arbitration Association, the
Parties hereby waiving their right, if any, to recover any such damages. The
arbitration proceeding shall be conducted in Houston, Texas. Within thirty days
of the notice of initiation of the arbitration procedure, each of Enron Party
and Counterparty Party shall select one arbitrator. The two arbitrators shall
select a third arbitrator. The third arbitrator shall be a person who has over
eight years professional experience in over-the-counter derivative products and
who has not previously been employed by any Party and does not have a direct or
indirect interest in any Party or the subject matter of the arbitration. While
the third arbitrator shall be neutral, the two Party-appointed arbitrators are
not required to be neutral, and it shall not be grounds for removal of either of
the two Party-appointed arbitrators or for vacating the arbitrators' award that
either of such arbitrators has past or present minimal relationships with any
Party. To the fullest extent permitted by law, any arbitration proceeding and
the arbitrators' award shall be maintained in confidence by the Parties.

        16. AGENT FOR PURPOSES OF FUTURE AMENDMENTS TO AGREEMENT. (a) Each
Counterparty Party hereby irrevocably appoints Calpine Energy Services, L.P. to
be its agent and attorney in the name of and on behalf and as the act and deed
of such Counterparty Party to execute, sign, seal, and delivery any documents
required for purposes of making any amendments to this Agreement.

        (b) Each Enron Party hereby irrevocably appoints Enron North America
Corp. to be its agent and attorney in the name of and on behalf and as the act
and deed of such Enron Party to execute, sign, seal, and delivery any documents
required for purposes of making any amendments to this Agreement.

        17. LIMITATION OF REMEDIES, LIABILITY AND DAMAGES. NOTWITHSTANDING
ANYTHING HEREIN OR IN AN UNDERLYING MASTER AGREEMENTS, ANY TRANSACTION OR ANY
GUARANTY ISSUED IN CONNECTION WITH AN UNDERLYING MASTER AGREEMENT TO THE
CONTRARY, NO PARTY SHALL BE LIABLE HEREUNDER OR UNDER ANY UNDERLYING MASTER
AGREEMENT FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT
DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN
TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT
OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE
OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING
THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR
CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID
HEREUNDER OR UNDER ANY UNDERLYING MASTER AGREEMENT ARE LIQUIDATED, THE PARTIES
ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR
OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE DAMAGES
CALCULATED HEREUNDER OR UNDER THE UNDERLYING MASTER AGREEMENT CONSTITUTE A
REASONABLE APPROXIMATION OF THE HARM OR LOSS.

        18. TERM. This Agreement shall continue in effect from the date hereof
until terminated by agreement of the Parties; however, notwithstanding the
foregoing, any Party shall have the right to



                                       11
<PAGE>

terminate this Agreement by written notice to the other Parties upon such time
as there are fewer than two Underlying Master Agreements in effect that have
outstanding Transactions.

        19. MISCELLANEOUS. All of the Parties will use best efforts to deliver
Guaranty(s) and other agreements necessary to fulfill the purposes of this
Agreement as soon as practicable and in any event on or prior to December 31,
2001.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by facsimile or original signature and in multiple counterparts, each of which
is deemed an original and effective as one document, all as of the date first
written above.

"ENRON GROUP"

ENRON NORTH AMERICA CORP.

BY:
     ---------------------------------------
PRINTED NAME:
               -----------------------------
TITLE:
       -------------------------------------

ENRON POWER MARKETING, INC.

BY:
     ---------------------------------------
PRINTED NAME:
               -----------------------------
TITLE:
       -------------------------------------

"COUNTERPARTY GROUP"

CALPINE ENERGY SERVICES, L.P.

BY:
     ---------------------------------------
PRINTED NAME:
               -----------------------------
TITLE:
       -------------------------------------



                                       12

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>4
<FILENAME>f78461ex99-1.txt
<DESCRIPTION>EXHIBIT 99.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 99.1



                                    ANNEX A
                                COLLATERAL ANNEX
                TO MASTER NETTING, SETOFF, AND SECURITY AGREEMENT

        This Annex A Collateral Annex to Master Netting, Setoff, and Security
Agreement (this "Collateral Annex"), supplements, forms a part of, and is
subject to, the Master Netting, Setoff, and Security Agreement, dated November
14, 2001 (the "Agreement") among Enron Group and Counterparty Group. Capitalized
terms used in this Collateral Annex but not defined herein shall have the
meanings given such terms in the Agreement.

Paragraph 1.   Definitions.

        For purposes of this Collateral Annex, the following terms have the
respective definitions set forth below. References to Paragraphs are to this
Collateral Annex unless otherwise expressly stated.

        "Aggregate Exposure" means, on any Calculation Date, the aggregate
Exposures of all members of a Group determined pursuant to Paragraph 3 of this
Collateral Annex.


        "Debtor in Bankruptcy" means any entity, if such entity (i) files a
petition or otherwise commences, authorizes or acquiesces in the commencement of
a proceeding or cause of action under any bankruptcy, insolvency,
reorganization, debt restructuring, liquidation or similar law, or has any such
petition filed or commenced against it, (ii) makes an assignment or any general
arrangement for the benefit of creditors, (iii) otherwise becomes bankrupt or
insolvent (however evidenced), (iv) has a liquidator, administrator, receiver,
trustee, conservator or similar official appointed with respect to it or any
substantial portion of its property or assets, or (v) is generally unable to pay
its debts as they fall due.

        "Calculation Date" means any Business Day on which a Party chooses or is
requested by any other Party to make the determinations referred to in
Paragraphs 3, 4, 5 or 8 of this Collateral Annex.

        "Cash" means U.S. dollars held by or on behalf of a Group as Performance
Assurance hereunder.

        "Collateral Administrator" means, with respect to Enron Group, Enron
North America Corp., and with respect to Counterparty Group, Calpine Energy
Services, L.P., which Collateral Administrators may be changed from time to time
by providing written notice to the other Group.

        "Collateral Requirement" shall have the meaning attributed to it in
Paragraph 3(b).

        "Counterparty Group's Aggregate Exposure" shall have the meaning
attributed to it in Paragraph 3(a).

        "Credit Rating" means with respect to a Group, or its Guarantor, as the
case may be, or other entity, on any date of determination, the respective
ratings then assigned to Enron Corp.'s or Calpine Corporation's, as the case may
be, senior unsecured long-term debt or deposit obligations (not supported by
third party credit enhancement) by S&P, Moody's or the other specified rating
agency or agencies.

        "Credit Rating Event" shall have the meaning attributed to it in
Paragraph 6(a)(iv)(A).

        "Custodian" means the agent for a Group acting with respect to
Performance Assurance Transferred to such Group in accordance herewith.

        "Downgraded Group" shall have the meaning attributed to it in Paragraph
6(a)(iv)(A).



                                       1
<PAGE>

        "Drawing Event" means any of the events set forth in Paragraphs 6(b)(iv)
and (v).

        "Eligible Collateral" means collateral in the form of Cash or Letter of
Credit or as otherwise agreed to in writing by the Parties.

        "Enron Group's Aggregate Exposure" shall have the meaning attributed to
it in Paragraph 3(a).

        "Federal Funds Effective Rate" means the rate for that day opposite the
caption "Federal Funds (Effective)" as set forth in the weekly statistical
release designated as H.15(519), or any successor publication, published by the
Board of Governors of the Federal Reserve System.

        "Interest Amount" means with respect to an Interest Period, the
aggregate sum of the amount of interest calculated for each day in that Interest
Period on the principal amount of Cash held by Secured Group on that day,
determined by Secured Group for each such day as follows: (a) the amount of Cash
held on that day; multiplied by (b) the Interest Rate for that day, divided by
(c) 365 or 366, as the case may be in accordance with the number of days in the
year for which the Interest Amount is being determined.

        "Interest Period" means the period from (and including) the last
Business Day on which an Interest Amount was Transferred by Secured Group (or if
no Interest Amount has yet been Transferred, the Business Day on which Cash was
Transferred to such Secured Group) to (but excluding) the Business Day on which
the current Interest Amount is to be Transferred.

        "Interest Rate" means the Federal Funds Effective Rate as from time to
time in effect.

        "Letter of Credit" means an irrevocable, transferable, standby letter of
credit, issued by a major U.S. commercial bank or the U.S. branch office of a
foreign bank, in either case, with a Credit Rating of at least (a) "A-" by S&P
and "A3" by Moody's, if such entity is rated by both S&P and Moody's or (b) "A-"
by S&P or "A3" by Moody's, if such entity is rated by either S&P or Moody's but
not both, substantially in the form set forth in Schedule 1 attached hereto,
with such changes to the terms in that form as the issuing bank may require and
as may be acceptable to the beneficiary thereof.

        "Letter of Credit Default" means with respect to an outstanding Letter
of Credit, the occurrence of any of the following events: (a) the issuer of such
Letter of Credit shall fail to maintain a Credit Rating of at least (i) "A-" by
S&P or "A3" by Moody's, if such issuer is rated by both S&P and Moody's, (ii)
"A-" by S&P, if such issuer is rated only by S&P, or (iii) "A3" by Moody's, if
such issuer is rated only by Moody's; (b) the issuer of the Letter of Credit
shall fail to comply with or perform its obligations under such Letter of
Credit; (c) the issuer of such Letter of Credit shall disaffirm, disclaim,
repudiate or reject, in whole or in part, or challenge the validity of, such
Letter of Credit; (d) such Letter of Credit shall expire or terminate, or shall
fail or cease to be in full force and effect at any time during the term of the
Agreement, in any such case without replacement; or (e) the issuer of such
Letter of Credit shall become a Debtor in Bankruptcy; provided, no Letter of
Credit Default shall occur in any event with respect to a Letter of Credit after
the time such Letter of Credit is required to be canceled or returned to a Group
or the issuer thereof in accordance with the terms of this Collateral Annex.

        "Material Adverse Change" for Enron Group means the respective Credit
Ratings then assigned to Enron Corp. by S&P or Moody's agencies falls below BB
from S&P or Ba2 from Moody's or if Enron Corp. is not rated by either S&P or
Moody's and, for Counterparty Group, the respective Credit Ratings then assigned
to Calpine Corporation by S&P or Moody's agencies falls below BB from S&P and
Ba2 from Moody's or if Calpine Corporation is not rated by either S&P or
Moody's.



                                       2
<PAGE>

        "Minimum Transfer Amount" means, with respect to Enron Group, $250,000,
and with respect to Counterparty Group, $250,000.

        "Moody's means Moody's Investors Service, Inc. or its successor.

        "Net Exposure" shall have the meaning attributed to it in Paragraph
3(a).

        "Notification Time" means 10:00 a.m. New York Time on any Business Day.

        "Performance Assurance" means all Eligible Collateral and all proceeds
thereof that have been Transferred to or received by a Group hereunder and not
subsequently Transferred in return to the other Group or otherwise received by
the other Group. Any Interest Amount or portion thereof not Transferred pursuant
to Paragraph 6(a)(v) and any Cash received and held by a Group after drawing on
any Letter of Credit will constitute Performance Assurance in the form of Cash.

        "Pledging Group" shall have the meaning attributed to it in Paragraph
3(a).

        "Posted Collateral" means the value of any Eligible Collateral
previously Transferred to Secured Group.

        "Qualified Institution" means a commercial bank or trust company
organized under the laws of the United States or a political subdivision
thereof, with a Credit Rating of at least (a) "A-" by S&P and "A3" by Moody's,
if such entity is rated by both S&P and Moody's or (b) "A-" by S&P or "A3" by
Moody's, if such entity is rated by either S&P or Moody's but not both, and
having a capital and surplus of at least $1,000,000,000.

        "Reference Market-maker" means a leading dealer in the relevant market
selected by the Group determining its Exposure in good faith from among dealers
which are not Parties to this Agreement or Affiliates of a Party to this
Agreement and which satisfy all the criteria that such Group applies generally
at the time in deciding whether to offer or to make an extension of credit.

        "Rounding Amount" means, with respect to Enron Group, $100,000, and with
respect to Counterparty Group, $100,000.

        "S&P" means the Standard & Poor's Rating Group (a division of
McGraw-Hill, Inc.) or its successor.

        "Secured Group" shall have the meaning attributed to it in Paragraph
3(a).

        "Transfer" means, with respect to any Performance Assurance or Interest
Amount, and in accordance with the instructions of the Group entitled thereto:
(a) in the case of Cash, payment or delivery by wire transfer of immediately
available funds into one or more bank accounts specified by the recipient; (b)
in the case of Letters of Credit, delivery of the Letter of Credit or an
amendment thereto to the recipient; and (c) in the case of any other type of
Performance Assurance, as agreed to in writing by the Parties.

        "Valuation Percentage" means, (i) with respect to Cash, 100%, (ii) with
respect to Letters of Credit, 100% unless either (a) a Letter of Credit Default
shall apply with respect to such Letter of Credit, or (b) 10 or fewer Business
Days remain prior to the expiration of such Letter of Credit, in which case the



                                       3
<PAGE>

Valuation Percentage with respect to such Letter of Credit shall be zero (0),
and (iii) with respect to any other Eligible Collateral agreed upon by the
Parties, the percentage established by the Parties.

        "Value" means with respect to Eligible Collateral that is Cash, the
Valuation Percentage of the face amount thereof, and with respect to any Letter
of Credit, the Valuation Percentage times the stated amount then available under
the Letter of Credit to be unconditionally withdrawn.

Paragraph 2.   Grant of Security Interest.

        As security for the prompt and complete payment and performance of all
Obligations of Pledging Group, each member of Pledging Group hereby pledges,
assigns, conveys, and transfers to each member of Secured Group, and hereby
grants to Secured Group and each member thereof a present and continuing first
priority security interest in and to, and a general first lien upon and right of
Setoff against, (a) all Performance Assurance which has been or may in the
future be Transferred to, or received by, Secured Group, any member thereof
and/or its Custodian, and all dividends, interest, and other proceeds from time
to time received, receivable, or otherwise distributed in respect of, or in
exchange for, any or all of the foregoing and (b) all right, title, and interest
any member of Pledging Group has in any Obligations of any member of Secured
Group to any member of Pledging Group, together with all contract rights in
respect of such Obligations, other than any Final Settlement Amount payable by
Secured Group to Pledging Group. Each member of Pledging Group agrees to take
such action as Secured Group reasonably requests in order to perfect Secured
Group's and its members' continuing security interest in, lien on, and right of
Setoff against such Performance Assurance and grants authority to Secured
Group's Collateral Administrator to file financing statements or take such other
actions necessary to perfect the foregoing interests.

Paragraph 3.   Calculations of the Collateral Requirement.

        (a) On any Calculation Date, (i) the Exposure for each Enron Party under
each Underlying Master Agreement shall be calculated and (ii) the Exposure for
each Counterparty Party under each Underlying Master Agreement shall be
calculated. The Exposures of each Enron Party to each Counterparty Party under
each Underlying Master Agreement shall be aggregated to determine the "Enron
Group's Aggregate Exposure" to Counterparty Group. The Exposures of each
Counterparty Party to each Enron Party under each Underlying Master Agreement
shall be aggregated to determine the "Counterparty Group's Aggregate Exposure"
to Enron Group. The Group having the greater Aggregate Exposure at any time
("Secured Group") shall be deemed to have a "Net Exposure" to the other Group
("Pledging Group") equal to the difference between Secured Group's Aggregate
Exposure and Pledging Group's Aggregate Exposure.

        (b) The "Collateral Requirement" for Pledging Group means the
determination by Secured Group of (i) subject to Paragraph 3(c), Secured Group's
Net Exposure minus (ii) the sum of:

        (A) Pledging Group's Exposure Threshold; plus

        (B) Posted Collateral.

        (c) Whenever Pledging Group's Exposure Threshold is zero (0) on account
of the occurrence of a Material Adverse Change or Default with respect to
Pledging Group, then the amount in Paragraph 3(b) shall equal 125% of Secured
Group's Net Exposure.

Paragraph 4.   Delivery of Performance Assurance.



                                       4
<PAGE>

        On any Calculation Date on which (a) no Default or Potential Event of
Default has occurred and is continuing with respect to Secured Group, (b) no
Underlying Master Agreements Close-Out has occurred or been designated as a
result of a Default with respect to Secured Group, and (c) Pledging Group's
Collateral Requirement equals or exceeds its Minimum Transfer Amount, then
Secured Group may demand that Pledging Group Transfer to Secured Group, and
Pledging Group shall, after receiving such notice from Secured Group, Transfer,
or cause to be Transferred to Secured Group, Performance Assurance for the
benefit of Secured Group, in an amount and with a Value at least equal to
Pledging Group's Collateral Requirement. The amount of Performance Assurance
required to be Transferred hereunder shall be rounded up to the nearest integral
multiple of the Rounding Amount. Unless otherwise agreed in writing by the
Parties, Performance Assurance demanded of Pledging Group on or before the
Notification Time on a Business Day shall be Transferred by the close of
business on the next Business Day, and if demanded after the Notification Time
on a Business Day shall be Transferred by the close of business on the second
following Business Day. Any Letter of Credit shall be delivered to such address
as Secured Group shall specify and any such demand made by Secured Group
pursuant to this Paragraph 4 shall specify account information for the account
to which Performance Assurance in the form of Cash shall be delivered.

Paragraph 5.   Reduction and Substitution of Performance Assurance.

        (a) On any Business Day (but no more frequently than weekly with respect
to Letters of Credit and daily with respect to Cash), if Posted Collateral
exceeds Secured Group's Exposure to Pledging Group minus Pledging Group's
Exposure Threshold, Pledging Group may request a reduction in the amount of
Performance Assurance previously Transferred by Pledging Group for the benefit
of Secured Group in an amount equal to such excess; provided, however, that
Secured Group shall not be required to effect a reduction in Performance
Assurance if a Default or Potential Event of Default with respect to Pledging
Group shall have occurred and be continuing, or an Underlying Master Agreements
Close-Out shall have occurred or been designated as a result of a Default with
respect to Pledging Group. A permitted reduction in Performance Assurance may be
effected by the Transfer of Cash to Pledging Group or the reduction of the
amount of an outstanding Letter of Credit previously issued for the benefit of
Secured Group. Pledging Group shall have the right to specify the means of
effecting the reduction in Performance Assurance. In all cases, the cost and
expense of reducing Performance Assurance (including, without limitation, the
reasonable costs, expenses, and attorneys' fees of Secured Group) shall be borne
by Pledging Group. Unless otherwise agreed in writing by the Parties, if
Pledging Group's reduction demand is made on or before the Notification Time on
a Business Day, then Secured Group shall have one Business Day to effect a
permitted reduction in Performance Assurance if such reduction is to be effected
by the return of Cash to Pledging Group, and if made after the Notification Time
on a Business Day, then Secured Group shall have two Business Days to effect
such a permitted reduction by return of Cash. If a permitted reduction in
Performance Assurance is to be effected by a reduction in the amount of an
outstanding Letter of Credit previously issued for the benefit of Secured Group,
Secured Group shall not unreasonably withhold its consent to a commensurate
reduction in the amount of such Letter of Credit and shall promptly take such
action as is reasonably necessary to effectuate such reduction.

        (b) Unless (i) a Default or Potential Event of Default with respect to
Pledging Group shall have occurred and be continuing or (ii) an Underlying
Master Agreements Close-Out has occurred or been designated as a result of a
Default with respect to Pledging Group, Pledging Group may substitute
Performance Assurance for other existing Performance Assurance of equal Value
upon one Business Day's written notice, provided such notice is given on or
before the Notification Time, and upon two Business Days' written notice, if
such notice is given after the Notification Time, to Secured Group; provided, if
such substitute Performance Assurance is of a type not otherwise approved by
this Collateral Annex, then Secured Group must consent to such substitution.
Upon the Transfer to Secured Group of



                                       5
<PAGE>

the substitute Performance Assurance, Secured Group shall Transfer the relevant
replaced Performance Assurance to Pledging Group. Notwithstanding anything
herein to the contrary, no such substitution shall be permitted unless (i) the
substitute Performance Assurance is Transferred simultaneously or has been
Transferred to Secured Group prior to the release of the Performance Assurance
to be returned to Pledging Group and, in either case, the security interest in,
and general first lien upon, such substituted Performance Assurance granted
pursuant hereto in favor of Secured Group shall have been perfected as required
by applicable law and shall constitute a first priority perfected security
interest therein and general first lien thereon, and (ii) after giving effect to
such substitution, the Value of such substitute Performance Assurance shall
equal the greater of Pledging Group's Collateral Requirement or Pledging Group's
Minimum Transfer Amount. Each substitution of Performance Assurance shall
constitute a reaffirmation by Pledging Group that the substituted Performance
Assurance shall be subject to and governed by the terms and conditions of this
Collateral Annex, including, without limitation, the security interest in,
general first lien on and right of offset against, such substituted Performance
Assurance granted pursuant hereto in favor of Secured Group pursuant to
Paragraph 2.

        (c) The Transfer of any Performance Assurance by Secured Group in
accordance with this Paragraph 5 shall be deemed a release by Secured Group of
its security interest, general first lien and right of offset granted pursuant
to Paragraph 2 hereof only with respect to such returned Performance Assurance.
In connection with each Transfer of any Performance Assurance pursuant to this
Paragraph 5, Pledging Group will, upon request of Secured Group, execute a
receipt showing the Performance Assurance Transferred to it.

        (d) Any Transfer of or receipt for Performance Assurance effected by a
Custodian in accordance herewith for Secured Group shall satisfy the obligation
of Secured Group in respect thereof.

Paragraph 6.   Administration of Performance Assurance.

        (a) Cash. Performance Assurance provided in the form of Cash to Secured
Group shall be subject to the following provisions.

        (i) Enron Group and its Custodian will be entitled to hold Cash pursuant
hereto provided the following conditions applicable to it are satisfied.

        (A) Enron Group is not in Default and a Material Adverse Change has not
        occurred with respect to Enron Group.

        (B) Cash may be held only in the following jurisdictions: Any
        jurisdiction within the United States.

        (C) The Custodian is a Qualified Institution approved by Counterparty
        Group (which approval shall not be unreasonably withheld). The Custodian
        shall hold the Cash in a segregated, safekeeping or custody account
        within the Custodian with the title of such account indicating that the
        property contained therein is being held as Cash for the ownership of
        Counterparty Group, subject to the security interest of Enron Group.

        (ii) Counterparty Group and its Custodian will be entitled to hold Cash
pursuant hereto provided the following conditions applicable to it are
satisfied.

        (A) Counterparty Group is not in Default and a Material Adverse Change
        has not occurred with respect to Counterparty Group.



                                       6
<PAGE>

        (B) Cash may be held only in the following jurisdictions: Any
        jurisdiction within the United States.

        (C) The Custodian is a Qualified Institution approved by Enron Group
        (which approval shall not be unreasonably withheld). The Custodian shall
        hold the Cash in a segregated, safekeeping or custody account within the
        Custodian with the title of such account indicating that the property
        contained therein is being held as Cash for the ownership of Enron
        Group, subject to the security interest of Counterparty Group.


        (iii) If a Group is entitled to hold Cash, then it will be entitled to
hold Cash or to appoint a Custodian to hold Cash for it provided that the
conditions for holding Cash that are set forth above for such Group and its
Custodian are satisfied. If such Group is not entitled to hold Cash, then the
provisions of Paragraph 6(a)(iv)(A) shall not apply with respect to such Group
and Cash shall be held in a Qualified Institution. Upon notice by Secured Group
to Pledging Group of the appointment of a Custodian, Pledging Group's
obligations to make any Transfer will be discharged by making the Transfer to
that Custodian. The holding of Cash by a Custodian will be deemed to be the
holding of Cash by Secured Group for which the Custodian is acting. If Secured
Group or its Custodian fails to satisfy any conditions for holding Cash as set
forth above or if Secured Group is not entitled to hold Cash at any time, then
Secured Group will Transfer, or cause its Custodian to Transfer, the Cash to a
Qualified Institution, with the Group not eligible to hold Cash being considered
the Downgraded Group (as defined below). Secured Group will be liable for the
acts or omissions of its Custodian to the same extent that Secured Group would
be liable hereunder for its own acts or omissions.

        (iv) The following provisions concerning use of Cash shall apply.

        (A) Notwithstanding the provisions of applicable law, if no Default has
        occurred and is continuing with respect to Secured Group and no
        Underlying Master Agreements Close-Out has occurred or been designated
        as a result of a Default with respect to Secured Group, then Secured
        Group shall have the right to sell, pledge, rehypothecate, assign,
        invest, use, commingle or otherwise use in its business any Cash that it
        holds as Performance Assurance hereunder, free from any claim or right
        of any nature whatsoever of Pledging Group, including any equity or
        right of redemption by Pledging Group; provided, if a Group or its
        Custodian is not eligible to hold Cash pursuant to this Paragraph 6(a)
        (such Group shall be the "Downgraded Group" and the event that caused it
        or its Custodian to be ineligible to hold Cash shall be a "Credit Rating
        Event") then the provisions of Paragraph 6(a)(iv)(B) shall apply.

        (B) The provisions of Paragraph 6(a)(iv)(A) will not apply with respect
        to the Downgraded Group. The Downgraded Group shall be required to
        deliver (or cause to be delivered) not later than the close of business
        on the next Business Day following such Credit Rating Event all Cash in
        its possession or held on its behalf to a Qualified Institution approved
        by the non-Downgraded Group (which approval shall not be unreasonably
        withheld), to a segregated, safekeeping or custody account (the
        "Collateral Account") within such Qualified Institution with the title
        of the account indicating that the property contained therein is being
        held as Cash for the Downgraded Group. The Qualified Institution shall
        serve as Custodian with respect to the Cash in the Collateral Account,
        and shall hold such Cash in accordance with the terms of this Collateral
        Annex and for the security interest of the Downgraded Group and, subject
        to such security interest, for the ownership of the non-Downgraded
        Group. The Qualified Institution holding the Cash will invest and
        reinvest or procure the investment and reinvestment of the Cash in
        accordance with the written instructions of Pledging Group, subject to
        the approval of such instructions by the Downgraded Group (which
        approval shall not be unreasonably withheld),



                                       7
<PAGE>

        provided that the Qualified Institution shall not be required to so
        invest or reinvest or procure such investment or reinvestment if an
        Event of Default or Potential Event of Default with respect to Pledging
        Group shall have occurred and be continuing. The Downgraded Group shall
        have no responsibility for any losses resulting from any investment or
        reinvestment effected in accordance with Pledging Group's instructions.

        (v) So long as no Default or Potential Event of Default with respect to
Pledging Group has occurred and is continuing, and no Underlying Master
Agreements Close-Out has occurred or been designated as the result of a Default
with respect to Pledging Group, and to the extent that an obligation to Transfer
Performance Assurance would not be created or increased by the Transfer, in the
event that Secured Group is holding Cash, Secured Group will Transfer to
Pledging Group, in lieu of any interest or other amounts paid or deemed to have
been paid with respect to such Cash (all of which may be retained by Secured
Group), the Interest Amount. Pledging Group shall invoice Secured Group monthly
setting forth the calculation of the Interest Amount due, and Secured Group
shall make payment thereof by the later of the third Business Day of the first
month after the last month to which such invoice relates or the third Business
Day after the day on which such invoice is received. On or after the occurrence
of a Potential Event of Default or a Default with respect to Pledging Group or
an Underlying Master Agreements Close-Out as a result of a Default with respect
to Pledging Group, Secured Group shall retain any such Interest Amount as
additional Performance Assurance hereunder until the obligations of Pledging
Group under the Agreement have been satisfied in the case of an Underlying
Master Agreements Close-Out or for so long as such Default is continuing in the
case of a Default.

        (b) Letters of Credit. Performance Assurance provided in the form of a
Letter of Credit shall be subject to the following provisions.

        (i) Unless otherwise agreed to in writing by the Parties, each Letter of
Credit shall be maintained for the benefit of Secured Group. Pledging Group
shall (A) renew or cause the renewal of each outstanding Letter of Credit on a
timely basis as provided in the relevant Letter of Credit, (B) if the bank that
issued an outstanding Letter of Credit has indicated its intent not to renew
such Letter of Credit, provide either a substitute Letter of Credit or other
Eligible Collateral, in each case at least ten Business Days prior to the
expiration of the outstanding Letter of Credit, and (C) if a bank issuing a
Letter of Credit shall fail to honor Secured Group's properly documented request
to draw on an outstanding Letter of Credit, provide for the benefit of Secured
Group either a substitute Letter of Credit that is issued by a bank acceptable
to Secured Group or other Eligible Collateral, in each case within one Business
Day after such refusal.

        (ii) As one method of providing Performance Assurance, Pledging Group
may increase the amount of an outstanding Letter of Credit or establish one or
more additional Letters of Credit.

        (iii) Upon the occurrence of a Letter of Credit Default, Pledging Group
agrees to deliver to Secured Group either a substitute Letter of Credit or other
Eligible Collateral, in each case on or before the first Business Day after the
occurrence thereof (or the fifth Business Day after the occurrence thereof if
only clause (a) under the definition of Letter of Credit Default applies).

        (iv) Upon or at any time after the occurrence of (A) a Default with
respect to Pledging Group, (B) a failure by the Pledging Group to renew a Letter
of Credit within the time period set forth in this Agreement, or (C) if an Early
Termination Date has occurred or been designated under an Underlying Master
Agreement as a result of a Default with respect to Pledging Group, then Secured
Group may draw up to the entire, undrawn portion of any outstanding Letter of
Credit upon submission to the bank issuing such Letter of Credit of one or more
certificates specifying that such Default or Early Termination Date resulting
from such Default has occurred and is continuing. Cash proceeds received from
drawing upon



                                       8
<PAGE>

the Letter of Credit shall be deemed Performance Assurance as security for
Pledging Group's Obligations to Secured Group and Secured Group shall have the
rights and remedies set forth herein with respect to such Cash proceeds.

        (v) Upon or at any time after the occurrence of an Early Termination
Date under an Underlying Master Agreement occasioned for any reason other than a
Default and the failure of the relevant member of Pledging Group to make all
payments due and owing to the relevant member of Secured Group in accordance
with the terms of the Underlying Master Agreement, then Secured Group may draw
on any outstanding Letter of Credit in an amount equal to the amount owing to
its relevant member upon submission to the bank issuing such Letter of Credit of
one or more certificates specifying that such Early Termination Date occurred
and the amount owing.

        (vi) In all cases, notwithstanding Secured Group's receipt of Cash under
any Letter of Credit, Pledging Group shall remain liable for any failure to
Transfer sufficient Performance Assurance or for any amounts owing to Secured
Group and remaining unpaid after the application of the amounts so drawn by
Secured Group. In all cases, the costs and expenses (including, without
limitation, to the reasonable costs, expenses, and attorneys' fees of Secured
Group) of establishing, renewing, substituting, canceling, and increasing the
amount of a Letter of Credit shall be borne by Pledging Group.

        (c) Care of Performance Assurance. Beyond the exercise of reasonable
care in the custody thereof, Secured Group shall have no duty as to any
Performance Assurance in its possession or control or in the possession or
control of any Custodian or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto. Secured
Group shall be deemed to have exercised reasonable care in the custody and
preservation of the Performance Assurance in its possession, and/or in the
possession of its Custodian, if the Performance Assurance is accorded treatment
substantially equal to that which it accords its own property, and shall not be
liable or responsible for any loss or damage to any of the Performance
Assurance, or for any diminution in the value thereof, by reason of the act or
omission of any Custodian selected by Secured Group in good faith except to the
extent such loss or damage is the result of such Custodian's willful misconduct
or negligence. Unless held by a Custodian and subject to Paragraph 6(a)(iv)(A),
Secured Group shall at all times retain possession or control of any Performance
Assurance delivered to it. The holding of Performance Assurance by a Custodian
for the benefit of Secured Group shall be deemed to be the holding and
possession of such Performance Assurance by Secured Group for the purpose of
perfecting the security interest in the Performance Assurance. Except as
otherwise provided in paragraph 6(a)(iv), nothing in this Collateral Annex shall
be construed as requiring Secured Group to select a Custodian for the keeping of
Performance Assurance for its benefit.

        (d) Collateral Administrator. The Collateral Administrator for each
Group shall act on behalf of its Group in connection with the performance of all
duties and the exercise of all rights in respect of Collateral and Performance
Assurance under the Agreement. Each Counterparty Party does hereby appoint the
Collateral Administrator for Counterparty Group as its Collateral Administrator
hereunder and ratifies and confirms any and all acts of such Collateral
Administrator as its own. Each Enron Party does hereby appoint the Collateral
Administrator for Enron Group as its Collateral Administrator hereunder and
ratifies and confirms any and all acts of such Collateral Administrator as its
own. The performance of such rights and duties by the Collateral Administrator
for each Group shall satisfy the obligations of, and be deemed to effect the
rights of, each member of the relevant Group.

        (e) Default. For purposes of Section 2(a)(iii) of the Agreement insofar
as same pertains to covenants set forth in this Collateral Annex, a Default will
exist if: (i) with respect to any required Transfer of Eligible Collateral or
Interest Amount, as applicable, the failure to Transfer continues for two
Business Days after notice of failure has been given to the applicable Group;
(ii) with respect to



                                       9
<PAGE>

restrictions set forth in Paragraph 6(a)(iv), the failure to comply continues
for five Business Days after notice of failure has been given to the applicable
Group; and (iii) with respect to all covenants set forth in this Collateral
Annex other than those set forth in the foregoing clauses (i) and (ii), the
failure to comply continues for 2 Business Days after notice of failure has been
given to the applicable Group.

Paragraph 7.   Exercise of Rights Against Performance Assurance.

        (a) In the event that (i) a Default with respect to Pledging Group has
occurred and is continuing, (ii) a failure by the Pledging Group to renew a
Letter of Credit within the time period set forth in this Agreement, or (iii) an
Underlying Master Agreements Close-Out has occurred or been designated as a
result of a Default or failure to renew a Letter of Credit with respect to
Pledging Group, Secured Group may exercise any one or more of the rights and
remedies provided under the Agreement, including, without limitation, this
Collateral Annex, or as otherwise available under applicable law. Without
limiting the foregoing, if at any time (i) a Default with respect to Pledging
Group has occurred and is continuing, (ii) a failure by the Pledging Group to
renew a Letter of Credit within the time period set forth in this Agreement or
(iii) or an Underlying Master Agreements Close-Out has occurred or been
designated as a result of a Default or a failure to renew a Letter of Credit
with respect to Pledging Group, then Secured Group may, in its sole discretion,
exercise any one or more of the following rights and remedies:

        (A) all rights and remedies available to a secured party under the
        uniform commercial code of the jurisdiction in which the Performance
        Assurance is being held and any other applicable jurisdiction and other
        applicable laws with respect to the Performance Assurance held by or for
        the benefit of Secured Group;

        (B) the right to Setoff any Performance Assurance held by or for the
        benefit of Secured Group against and in satisfaction of any amount
        payable by Pledging Group in respect of any of its Obligations;

        (C) the right to draw on any outstanding Letter of Credit issued for its
        benefit; and/or

        (D) the right to liquidate any Performance Assurance held by or for the
        benefit of Secured Group through one or more public or private sales or
        other dispositions with such notice, if any, as may be required by
        applicable law, free from any claim or right of any nature whatsoever of
        Pledging Group, including any right of equity or redemption by Pledging
        Group (with Secured Group having the right to purchase any or all of the
        Performance Assurance to be sold) and to apply the proceeds from the
        liquidation of such Performance Assurance to and in satisfaction of any
        amount payable by Pledging Group in respect of any of its Obligations in
        such order as Secured Group may elect.

        (b) Pledging Group hereby irrevocably constitutes and appoints the
Collateral Administrator for Secured Group and any officer or agent thereof,
with full power of substitution, as Pledging Group's true and lawful
attorney-in-fact with full irrevocable power and authority to act in the name,
place and stead of Pledging Group, or any member thereof, or in the name of
Secured Group, or any member thereof, from time to time in such Collateral
Administrator's discretion, for the purpose of taking any and all action and
executing and delivering any and all documents or instruments which may be
necessary or desirable to accomplish the purposes of Paragraph 7(a).

        (c) For the avoidance of doubt, it is hereby acknowledged that Secured
Group shall be under no obligation to prioritize the order with respect to which
it exercises any one or more of its rights and remedies provided under the
Agreement, including, without limitation, this Collateral Annex, or as



                                       10
<PAGE>

otherwise available under applicable law. Pledging Group shall in all events
remain liable to Secured Group for any amount payable by Pledging Group in
respect of any of its Obligations remaining unpaid after any such liquidation,
application and set off.

        (d) If at any time (i) a Default with respect to Secured Group has
occurred and is continuing or (ii) an Underlying Master Agreements Close-Out has
occurred or been designated as a result of a Default with respect to Secured
Group and a Default with respect to the Pledging Group has not occurred, then:

        (A) Secured Group will be obligated immediately to Transfer all
        Performance Assurance, including any Letter of Credit, and the Interest
        Amount, if any, to Pledging Group, or in respect of any Letter of Credit
        to the issuer thereof;

        (B) Pledging Group may do any one or more of the following: (1) exercise
        any of the rights and remedies of a pledgor with respect to the
        Performance Assurance, including any such rights and remedies under law
        then in effect; (2) to the extent that the Performance Assurance or the
        Interest Amount is not Transferred to Pledging Group as required in (A)
        above, Setoff amounts payable to Secured Group against the Performance
        Assurance (other than Letters of Credit) held by Secured Group or to the
        extent its rights to Setoff are not exercised, withhold payment of any
        remaining amounts payable by Pledging Group, up to the value of any
        remaining Performance Assurance held by Secured Group, until the
        Performance Assurance is Transferred to Pledging Group; and (3) exercise
        rights and remedies available to Pledging Group under the terms of any
        Letter of Credit; and

        (C) Secured Group shall be prohibited from drawing on any Letter of
        Credit that has been posted by Pledging Group for its benefit.

Paragraph 8.   Disputed Calculations

        (a) If Pledging Group shall dispute the amount of Performance Assurance
requested by Secured Group and such dispute relates to the amount of the Net
Exposure claimed by Secured Group, then Pledging Group shall (i) notify Secured
Group of the existence and nature of the dispute not later than the Notification
Time on the first Business Day following the date that the demand for
Performance Assurance is made by Secured Group, and (ii) provide Performance
Assurance to or for the benefit of Secured Group in an amount equal to Pledging
Group's own estimate, made in good faith and in a commercially reasonable
manner, of its Collateral Requirement. If Secured Group shall dispute the amount
of Performance Assurance to be reduced by Secured Group and such dispute relates
to the amount of the Net Exposure claimed by Secured Group, then Secured Group
shall (i) notify Pledging Group of the existence and nature of the dispute not
later than the Notification Time on the first Business Day following the date
that the demand to reduce Performance Assurance is made by Pledging Group, and
(ii) effect the reduction of Performance Assurance to or for the benefit of
Pledging Group in an amount equal to Secured Group's own estimate, made in good
faith and in a commercially reasonable manner, of Pledging Group's Collateral.

        (b) In all such cases, the Parties thereafter shall promptly consult
with each other in order to reconcile the two conflicting amounts. If the
Parties have not been able to resolve their dispute on or before the first
Business Day following the date that the demand was made, then Secured Group
shall recalculate its Net Exposure by requesting quotations from two Reference
Market-makers for the purpose of recalculating the Exposure of each Transaction
in respect of which the Parties disagree (taking the arithmetic average of those
obtained to obtain the average Exposure). Secured Group shall forthwith inform
Pledging Group of the results of such recalculation in reasonable detail.
Performance Assurance



                                       11
<PAGE>

shall thereupon be provided, returned, or reduced, if necessary, on the next
Business Day in accordance with the results of such recalculation.

Paragraph 9.   Covenants; Representations and Warranties; Miscellaneous.

        (a) Pledging Group will execute and deliver to Secured Group (and to the
extent permitted by applicable law, Pledging Group hereby authorizes Secured
Group to execute and deliver, in the name of Pledging Group or otherwise) such
financing statements, assignments and other documents and do such other things
relating to the Performance Assurance and the security interest granted under
this Collateral Annex, including, without limitation, any action Secured Group
may deem necessary or appropriate to perfect or maintain perfection of its
security interest in the Performance Assurance, and Pledging Group shall pay all
costs relating to its delivery of Performance Assurance and the maintenance and
perfection of the security interest therein.

        (b) On each day on which Performance Assurance is held by Secured Group
and/or its Custodian under the Agreement, including, without limitation, this
Collateral Annex, Pledging Group hereby represents and warrants that:

        (i) Pledging Group has good title to and is the sole owner of such
Performance Assurance, and the execution, delivery and performance of the
covenants and agreements of the Agreement, including, without limitation, this
Collateral Annex, do not result in the creation or imposition of any lien or
security interest upon any of its assets or properties, including, without
limitation, the Performance Assurance, other than the security interests and
liens created under the Agreement;

        (ii) upon the Transfer of Performance Assurance by Pledging Group to
Secured Group and/or its Custodian, Secured Group shall have a valid and
perfected first priority continuing security interest therein, free of any
liens, claims or encumbrances, except those liens, security interests, claims or
encumbrances arising by operation of law that are given priority over a
perfected security interest;

        (iii) Secured Group has a valid and perfected first priority continuing
security interest in the Performance Assurance, free of any liens, claims or
encumbrances, except those liens, claims or encumbrances arising by operation of
law that are given priority over a perfected security interest; and

        (iv) it is not and will not become a party to or otherwise be bound by
any agreement, other than the Agreement, which restricts in any manner the
rights of any present or future holder of any of the Performance Assurance with
respect hereto.

        (c) The Agreement, including, without limitation, this Collateral Annex,
has been and is made solely for the benefit of the Parties and their permitted
successors and assigns, and no other person, partnership, association,
corporation or other entity shall acquire or have any right under or by virtue
hereof.

        (d) Pledging Group shall pay on request and indemnify Secured Group
against any taxes (including, without limitation, any applicable transfer taxes
and stamp, registration or other documentary taxes), assessments, or charges
that may become payable by reason of the security interests, general first lien
and right of offset granted under, or the execution, delivery, performance or
enforcement of, the Agreement, including, without limitation, this Collateral
Annex, as well as any penalties with respect thereto (including, without
limitation costs and reasonable fees and disbursements of counsel). Each member
of Pledging Group agrees to pay Secured Group for all reasonable expenses
(including without limitation, court costs and reasonable fees and disbursements
of counsel) incurred by it in connection with



                                       12
<PAGE>

the enforcement of, or suing for or collecting any amounts payable by it under,
the Agreement, including, without limitation, this Collateral Annex.

        (e) No failure or delay by either Group hereto in exercising any right,
power, privilege, or remedy hereunder shall operate as a waiver thereof.

        (f) The headings in the Collateral Annex are for convenience of
reference only, and shall not affect the meaning or construction of any
provision thereof.



                                       13
<PAGE>

                         SCHEDULE 1 TO COLLATERAL ANNEX

                   IRREVOCABLE STANDBY LETTER OF CREDIT FORMAT
                        DATE OF ISSUANCE: _______________

[Address]


        Re:  Credit No. _______________

        We hereby establish our Irrevocable Transferable Standby Letter of
Credit in your favor for the account of _______________________ (the "Account
Group"), for the aggregate amount not exceeding ______________________ United
States Dollars ($___________), available to you at sight upon demand at our
counters at (Location) on or before the expiration hereof against presentation
to us of one or more of the following statements, dated and signed by [Enron
North America Corp.] [COUNTERPARTY COLLATERAL ADMINISTRATOR]:

    1. "A Default (as defined in the Master Netting, Setoff, and Security
    Agreement dated as of ________ among ______________, as the same may be
    amended (the "Master Agreement")) has occurred and is continuing with
    respect to the Account Group or any member of the Account Group under the
    Master Agreement and no Default has occurred and is continuing with respect
    to the beneficiary of this Letter of Credit or any other member of its Group
    (as defined in the Master Agreement). Wherefore, the undersigned does hereby
    demand payment of $_________________"; or

    2. "An Underlying Master Agreements Close-Out (as defined in the Master
    Netting, Setoff, and Security Agreement dated as of ________ among
    ______________, as the same may be amended (the "Master Agreement")) has
    occurred or been designated as a result of a Default with respect to Account
    Group or any member of the Account Group under the Master Agreement and no
    Default has occurred and is continuing with respect to the beneficiary of
    this Letter of Credit or any other member of its Group (as defined in the
    Master Agreement). Wherefore, the undersigned does hereby demand payment of
    the entire undrawn amount of the Letter of Credit"; and

    3. "An Early Termination Date under an Underlying Master Agreement (as
    defined in the Master Netting, Setoff, and Security Agreement dated as of
    ________ among ______________, as the same may be amended (the "Master
    Agreement")) occasioned by reason other than a Default (as defined in the
    Master Agreement) has occurred and the Account Group or any member of the
    Account Group has failed to make all payments due and owing to beneficiary
    of this Letter of Credit or any other member of its Group (as defined in the
    Master Agreement). Wherefore, the undersigned does hereby demand payment of
    $__________________."

        The amount which may be drawn by you under this Letter of Credit shall
be automatically reduced by the amount of any drawings paid through the Issuing
Bank referencing this Letter of Credit No. ____. Partial drawings are permitted
hereunder.

        We hereby agree with you that documents drawn under and in compliance
with the terms of this Letter of Credit shall be duly honored upon presentation
as specified.

        This Letter of Credit shall be governed by the Uniform Customs and
Practice for Documentary Credits, 1993 Revision, International Chamber of
Commerce Publication No. 500 (the "UCP"), except to



                                       14
<PAGE>

the extent that the terms hereof are inconsistent with the provisions of the
UCP, including but not limited to Articles 13(b) and 17 of the UCP, in which
case the terms of this Letter of Credit shall govern.

        With respect to Article 13(b) of the UCP, the Issuing Bank shall have a
reasonable amount of time, not to exceed three (3) banking days following the
date of its receipt of documents from the beneficiary, to examine the documents
and determine whether to take up or refuse the documents and to inform the
beneficiary accordingly.

        In the event of an Act of God, riot, civil commotion, insurrection, war
or any other cause beyond our control that interrupts our business and causes
the place for presentation of this Letter of Credit to be closed for business on
the last day for presentation, the expiry date of this Letter of Credit will be
automatically extended without amendment to a date thirty (30) calendar days
after the place for presentation reopens for business.

        This Letter of Credit is transferable, and we hereby consent to such
transfer, but otherwise may not be amended, changed or modified without the
express written consent of the beneficiary, the Issuing Bank and the Account
Group.

                                [BANK SIGNATURE]



                                       15

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>5
<FILENAME>f78461ex99-2.txt
<DESCRIPTION>EXHIBIT 99.2
<TEXT>
<PAGE>
                                                                    Exhibit 99.2

                                   Exhibit A
                     Existing Underlying Master Agreements


<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------
              AGREEMENT                               PARTIES                                 DATE
------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                                    <C>
Enfolio Master Firm                      Enron North America Corp and           December 1,
Purchase/Sale Agreement                  Calpine Energy Services, L.P.          2000
------------------------------------------------------------------------------------------------------------------
Master Energy Purchase and               Enron Power Marketing, Inc. and        December 27,
Sale Agreement                           Calpine Energy Services, L.P. f/k/a    1999
                                         Calpine Power Services Company
------------------------------------------------------------------------------------------------------------------
ISDA Master Agreement                    Enron North America Corp. and          October 20, 1999
                                         Calpine Energy Services, L.P.
                                         f/k/a Calpine Power Services
                                         Company
------------------------------------------------------------------------------------------------------------------
</Table>

</TEXT>
</DOCUMENT>
</SUBMISSION>
