Variable Interest Entities and Unconsolidated Investments

We consolidate all of our VIEs where we have determined that we are the primary beneficiary. We have the following types of VIEs consolidated in our financial statements:

Subsidiaries with Project Debt — All of our subsidiaries with project debt not guaranteed by Calpine have PPAs that provide financial support and are thus considered VIEs. We retain ownership and absorb the full risk of loss and potential for reward once the project debt is paid in full. Actions by the lender to assume control of collateral can occur only under limited circumstances such as upon the occurrence of an event of default, which we have determined to be unlikely. See Note 3 for further information regarding our project debt and Note 1 for information regarding our restricted cash balances.

Subsidiaries with PPAs — Certain of our majority owned subsidiaries have PPAs that limit the risk and reward of our ownership and thus constitute a VIE.

VIEs with a Purchase Option — Riverside Energy Center and OMEC have agreements that provide third parties a fixed price option to purchase power plant assets exercisable in the years 2012 and 2019, respectively, with an aggregate capacity of 1,211 MW. Through the filing of this report, the option to purchase our Riverside Energy Center has not been exercised. These purchase options limit the risk and reward of our ownership and, thus, constitute a VIE.

Consolidation of VIEs

We consolidate our VIEs where we determine that we have both the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses or receive benefits from the VIE. We have determined that we hold the obligation to absorb losses and receive benefits in all of our VIEs where we hold the majority equity interest. Therefore, our determination of whether to consolidate is based upon which variable interest holder has the power to direct the most significant activities of the VIE (the primary beneficiary). Our analysis includes consideration of the following primary activities which we believe to have a significant impact on a power plant's financial performance: operations and maintenance, plant dispatch, and fuel strategy as well as our ability to control or influence contracting and overall plant strategy. Our approach to determining which entity holds the powers and rights is based on powers held as of the balance sheet date. Contractual terms that may change the powers held in future periods, such as a purchase or sale option, are not considered in our analysis. Based on our analysis, we believe that we hold the power and rights to direct the most significant activities of all our majority owned VIEs.

Under our consolidation policy and under U.S. GAAP we also:


•	perform an ongoing reassessment each reporting period of whether we are the primary beneficiary of our VIEs; and

•

evaluate if an entity is a VIE and whether we are the primary beneficiary whenever any changes in facts and circumstances occur such that the holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of a VIE that most significantly impact the VIE's economic performance or when there are other changes in the powers held by individual variable interest holders.

There were no changes to our determination of whether we are the primary beneficiary of our VIEs for the three months ended March 31, 2012.

Noncontrolling Interest — We own a 75% interest in Russell City Energy Company, LLC, one of our VIEs, which is also 25% owned by a third party. We are the primary beneficiary and fully consolidate this entity in our Consolidated Condensed Financial Statements. We account for the third party ownership interest as a noncontrolling interest.

VIE Disclosures

U.S. GAAP requires separate disclosure on the face of our Consolidated Condensed Balance Sheets of the significant assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE and the significant liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. In determining which assets of our VIEs meet the separate disclosure criteria, we consider this separate disclosure requirement is met where Calpine Corporation is substantially limited or prohibited from access to assets (primarily cash and cash equivalents, restricted cash and property, plant and equipment), and where our VIEs had project financing that prohibits the VIE from providing guarantees on the debt of others. In determining which liabilities of our VIEs meet the separate disclosure criteria, we consider whether this separate disclosure requirement is met where there are agreements that prohibit the debt holders of the VIEs from recourse to the general credit of Calpine Corporation and where the amounts were material to our financial statements.

The VIEs meeting the above disclosure criteria are majority owned subsidiaries of Calpine Corporation and include natural gas-fired power plants with an aggregate capacity of 11,392 MW, including 773 MW under construction, and 11,391 MW, including 584 MW under construction, at March 31, 2012 and December 31, 2011, respectively. In connection with the upgrade of our Los Esteros Critical Energy Facility, one of our VIEs, from a 188 MW simple-cycle power plant to a 309 MW combined-cycle generation power plant, our existing 188 MW simple-cycle power plant was shut down at the end of 2011 to allow for major maintenance on the combustion turbines and installation of the new heat recovery steam generators and a steam turbine generator in connection with a new PPA. For these VIEs, we may provide other operational and administrative support through various affiliate contractual arrangements among the VIEs, Calpine Corporation and its other wholly owned subsidiaries whereby we support the VIE through the reimbursement of costs and/or the purchase and sale of energy. Calpine Corporation provided support to these VIEs in the form of cash and other contributions other than amounts contractually required of nil and $72 million during the three months ended March 31, 2012 and 2011, respectively.

Unconsolidated VIEs and Investments

We have a 50% partnership interest in Greenfield LP and in Whitby. Greenfield LP and Whitby are also VIEs; however, we do not have the power to direct the most significant activities of these entities and therefore do not consolidate them. We account for these entities under the equity method of accounting and include our net equity interest in investments on our Consolidated Condensed Balance Sheets. At March 31, 2012 and December 31, 2011, our equity method investments included on our Consolidated Condensed Balance Sheets were comprised of the following (in millions):



	Ownership Interest as of March 31, 2012	March 31, 2012		December 31, 2011
Greenfield LP	50%	81		72
Whitby	50%	11		8
Total investments		$	92	$	80

Our risk of loss related to our unconsolidated VIEs is limited to our investment balance. Holders of the debt of our unconsolidated investments do not have recourse to Calpine Corporation and its other subsidiaries; therefore, the debt of our unconsolidated investments is not reflected on our Consolidated Condensed Balance Sheets. At March 31, 2012 and December 31, 2011, equity method investee debt was approximately $466 million and $462 million, respectively, and based on our pro rata share of each of the investments, our share of such debt would be approximately $233 million and $231 million at March 31, 2012 and December 31, 2011, respectively.

Our equity interest in the net income from Greenfield LP and Whitby for the three months ended March 31, 2012 and 2011 are recorded in (income) from unconsolidated investments in power plants. The following table sets forth details of our (income) from unconsolidated investments in power plants for the periods indicated (in millions):



	Three Months Ended March 31,
	2012			2011
Greenfield LP	(6		)	(5		)
Whitby	(3		)	(4		)
Total	$	(9	)	$	(9	)

Greenfield LP — Greenfield LP is a limited partnership between certain subsidiaries of ours and of Mitsui & Co., Ltd., which operates the Greenfield Energy Centre, a 1,038 MW natural gas-fired, combined-cycle power plant located in Ontario, Canada. We and Mitsui & Co., Ltd. each hold a 50% interest in Greenfield LP. Greenfield LP holds an 18-year term loan in the amount of CAD $648 million. Borrowings under the project finance facility bear interest at Canadian LIBOR plus 1.125% or Canadian prime rate plus 0.125%. Distributions from Greenfield LP were nil during both the three months ended March 31, 2012 and 2011.

Whitby — Whitby is a limited partnership between certain subsidiaries of ours and Atlantic Packaging Ltd., which operates the Whitby facility, a 50 MW natural gas-fired, simple-cycle cogeneration power plant located in Ontario, Canada. We and Atlantic Packaging Ltd. each hold a 50% partnership interest in Whitby. Distributions from Whitby were nil during both the three months ended March 31, 2012 and 2011.

Inland Empire Energy Center Put and Call Options — We hold a call option to purchase the Inland Empire Energy Center (a 775 MW natural gas-fired power plant located in California which achieved COD on May 3, 2010) from GE that may be exercised between years 7 and 14 after the start of commercial operation. GE holds a put option whereby they can require us to purchase the power plant, if certain plant performance criteria are met during year 15 after the start of commercial operation. We determined that we are not the primary beneficiary of the Inland Empire power plant, and we do not consolidate it due to, but not limited to, the fact that GE directs the most significant activities of the power plant including operations and maintenance.

Significant Subsidiary — Greenfield LP met the criteria of a significant unconsolidated subsidiary for the three months ended March 31, 2012, based upon the relationship of our net income from our investment to our consolidated net loss. The Condensed Statements of Operations for Greenfield LP for the three months ended March 31, 2012 and 2011, are set forth below (in millions):

Greenfield LP

Condensed Statements of Operations

(Unaudited)



	Three Months Ended March 31,
	2012			2011
Operating revenues	$	57		$	67
Operating expenses	40			50
Income from operations	17			17
Interest expense, net of interest income	7			7
Other (income) expense, net	(2		)	—
Net income	$	12		$	10