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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 1-12079

Calpine Corporation

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

50 West San Fernando Street

Securities registered pursuant to Section 12(g) of the Act: None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 26, 2002: $3.7 billion. Common stock outstanding as of March 26, 2002: 307,602,191 shares.

DOCUMENTS INCORPORATED BY REFERENCE.

      Portions of the documents listed below have been incorporated by reference into the indicated parts of this report, as specified in the responses to the item numbers involved.

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FORM 10-K

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PART I

      In addition to historical information, this report contains forward-looking statements. Such statements include those concerning Calpine Corporation’s (“the Company’s”) expected financial performance and its strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements such as, but not limited to, (i) unseasonable weather patterns that reduce demand for power and natural gas, (ii) systemic economic slowdowns, which can adversely affect consumption of power by businesses and consumers, (iii) the timing and extent of deregulation of energy markets and the rules and regulations adopted on a transitional basis with respect thereto, (iv) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity, (v) commercial operations of new plants that may be delayed or prevented because of various development and construction risks, such as a failure to obtain financing and the necessary permits to operate or the failure of third-party contractors to perform their contractual obligations, (vi) cost estimates are preliminary and actual costs may be higher than estimated, (vii) a competitor’s development of a lower-cost gas-fired power plant, (viii) risks associated with marketing and selling power from power plants in the newly-competitive energy market, or (ix) the successful exploitation of an oil or gas resource that ultimately depends upon the geology of the resource, the total amount and cost to develop recoverable reserves, and operational factors relating to the extraction of natural gas. All information set forth in this filing is as of March 29, 2002, and Calpine undertakes no duty to update this information. Readers should carefully review the “Risk Factors” section of this document as well as in other documents filed with the Securities and Exchange Commission, including, but not limited to, the Quarterly Reports on Form 10-Q to be filed by the Company in fiscal year 2002.

OVERVIEW

      Calpine is a leading independent power company engaged in the development, acquisition, ownership and operation of power generation facilities and the sale of electricity predominantly in the United States, but also in Canada and the United Kingdom. Calpine also is the world’s largest producer of renewable geothermal energy, and we own 1.3 trillion cubic feet equivalent of proved natural gas reserves in Canada and the United States. We have experienced significant growth in all aspects of our business over the last five years. Currently, we own interests in 64 power plants having a net capacity of 12,090 megawatts. We also have 24 gas-fired projects under construction having a net capacity of 14,142 megawatts and have 34 projects in advanced development with a net capacity of 15,100 megawatts. Construction of these advanced development projects will proceed if and when market fundamentals are sound, our return on investment criteria are expected to be met, and financing is available on attractive terms. The completion of the projects currently under construction would give us interests in 86 power plants located in 21 states, 3 Canadian provinces and the United Kingdom, having a net capacity of 26,232 megawatts. Of this total generating capacity, 97% will be attributable to gas-fired facilities and 3% will be attributable to geothermal facilities. As a result of our expansion program, our net income, fully diluted earnings per share and assets have grown significantly from 1997 to 2001, as shown in the table below, although we do not anticipate our growth to continue at these rates in view of our revised construction and advanced development activities described within this document.

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(1)	before extraordinary items
(2)	before deduction of merger expense in connection with the Encal Energy Ltd. pooling-of-interests transaction, and before extraordinary items and cumulative effect of a change in accounting principle.

      In the last few years we have built our wholly owned subsidiary Calpine Energy Services (“CES”) into an effective power and gas marketing, risk management and asset optimization organization. We continue to exploit our world class development capabilities as we add power facilities in most of the major markets where natural gas is the fuel “on the margin”, meaning that incremental demand is generally met by gas-fired plants. We are also developing the system operations management teams and information technology capabilities to enhance the economic performance of our systems of assets in our major markets and to provide load-following and other ancillary services to our customers. These operational optimization systems, combined with the marketing and risk management capabilities of CES, enable us to add value to traditional commodity products in a way that not all competitors can match.

      We have acquired gas reserves (1.3 trillion cubic feet equivalent of proved reserves on hand at December 31, 2001) and a seasoned oil and gas production and management team to give us a broader range of fuel sourcing options. Our construction organization has assembled what we believe to be the best-in-industry team of construction management professionals to ensure that our projects are built using our standard Calpine design specifications at the lowest feasible cost consistent with our exacting operational standards. We have established strategic alliances with the best equipment manufacturers in the world for gas turbine generators, steam turbine generators and heat recovery steam generators.

      With a vision of enhancing the performance of our modern portfolio of gas-fired power plants and lowering our maintenance costs, we have readied our wholly owned subsidiary Power Systems Manufacturing to design and manufacture certain combustion system and turbine blade parts.

      As we build the nation’s most modern and efficient portfolio of gas-fired generation assets and establish the low-cost position, we believe Calpine has uniquely positioned itself to compete in the deregulated marketplace of the future. The ultimate goal and sustaining principle of deregulation is to lower the price of power to consumers while not sacrificing reliability. While we expect power prices to rise and fall over time as a function of economic activity, weather patterns and supply and demand relationships, we take a long-term view of the market and have the discipline to stay the course and realize the benefits of our investments. We believe that our vertically integrated low-cost approach to power generation gives us a competitive advantage within our industry.

THE MARKET

      The electric power industry represents one of the largest industries in the United States and impacts nearly every aspect of our economy, with an estimated end-user market of over $240 billion of electricity sales in 2001. The power generation industry historically has been largely characterized by electric utility monopolies producing electricity from old, inefficient, high-cost generating facilities selling to a captive customer base. Industry trends and regulatory initiatives have transformed the existing market into a more competitive market where end-users in certain power markets may purchase electricity from a variety of suppliers, including independent power producers, power marketers, regulated public utilities and others.

      The North American Electric Reliability Council (“NERC”) estimates that in the United States, peak summer electric demand in 2001 totaled approximately 709,000 megawatts (“MW”), while summer generating capacity in 2001 totaled approximately 793,000 MW, creating a reserve margin of 84,000 MW, or 11.8% of peak summer demand. Reserve margins are generally targeted to be 15-20% to provide for load forecasting errors, scheduled and unscheduled plant outages and local area grid protection. NERC forecasts average annual growth of 1.95% from 2001 to 2010 in the United States in peak summer demand. We believe this growth rate to be conservative and that a 2.5% annual growth rate is more realistic based on actual compounded annual growth rates reported by NERC and based on other analysts. Summer generating capacity fuel sources in the United States are estimated to be comprised of coal (38.0%); nuclear (12.3%);

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      NERC similarly estimates that in Canada, peak winter electric demand in 2001 totaled approximately 87,000 MW, while winter generating capacity in 2001 totaled approximately 100,000 MW, creating a reserve margin of 13,000 MW, or 14.9% of peak winter demand. NERC forecasts average annual growth of 1.39% in Canada from 2001 to 2010 in peak winter demand. Winter generating capacity fuel sources in Canada are estimated to be comprised of coal (19.0%); nuclear (15.0%); hydro (53.1%); gas (5.7%); oil (5.4%); and other (1.8%).

      There is a significant need for additional power generating capacity throughout the United States, both to satisfy increasing demand, as well as to replace old and inefficient generating facilities. We estimate that as much as 20%, or approximately 160,000 MW, of U.S. summer generating capacity is vulnerable to environmental or economic replacement by new state-of-the-art facilities. Due to environmental and economic considerations, we believe this new capacity will be provided predominantly by gas-fired facilities. We believe that these market trends will create substantial opportunities for efficient, low-cost power producers that can produce and sell energy to customers at competitive rates.

      Our business model assumes that between 2002 and 2006 approximately 155,000 MW of new generating capacity additions will need to occur in the United States based on a 2.5% annual growth rate in peak summer demand, 20,000 MW of retirements due to environmental and economic obsolescence, and a 15.5% reserve margin at the end of 2006. We expect to provide a significant portion of the new generating capacity subject to the availability of capital on attractive terms. In the near-term we believe commodity prices will be low, but our long-term view remains optimistic.

STRATEGY

      Our corporate vision is to repower America and, in so doing, to become the nation’s largest and most profitable power producer. We will concentrate on markets in North America, primarily in the United States, and, to a lesser extent, on select Western European markets.

      Our timeline to achieve this position and our other strategic objectives is flexible. Construction of our advanced development projects will proceed if and when market fundamentals are sound, our return on investment criteria are expected to be met, and financing is available on attractive terms. Our plans to grow our asset base rely primarily on our internal development and construction program and to a lesser extent on attractive acquisitions. The key elements of our growth plan are as follows:

	•	Development of new and expansion of existing power plants. We are actively pursuing the development of new and expansion of both baseload and peaking capacity at our existing highly efficient, low-cost, gas-fired power plants that replace old and inefficient generating facilities and meet the demand for new generation. Our strategy is to develop power plants in strategic geographic locations that enable us to leverage existing power generation assets and operate the power plants as integrated electric generation systems. This allows us to achieve significant operating synergies and efficiencies in fuel procurement, power marketing, and operations and maintenance. The new plants we will bring on line will be predominantly natural gas-fired facilities, both combined-cycle base load plants and simple-cycle peakers, using state of the art, highly efficient and environmentally friendly gas turbine generator technology.
	•	Acquisition of power plants. Our strategy is to acquire power generating facilities that meet our stringent acquisition criteria and provide significant potential for revenue, cash flow and earnings growth, and that provide the opportunity to enhance the operating efficiencies of the plants. We have significantly expanded and diversified our project portfolio through numerous acquisitions of power generation facilities to date.

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	•	Enhancement of existing power projects’ performance and efficiency. We continually seek to maximize the power generation potential of our operating assets and to minimize our operating and maintenance expenses and fuel costs. This will become even more significant as our portfolio of power generation facilities expands to 86 power plants with a net capacity of 26,232 megawatts after completion of our new projects currently under construction. We focus on operating our plants as an integrated system of power generation, which enables us to minimize costs and maximize operating efficiencies. We believe that achieving and maintaining a low cost of production will be increasingly important to compete effectively in the power generation industry.

      Our strategy is to become the most profitable generator by (1) achieving the low-cost position in the industry by applying our fully integrated areas of expertise to the cost-effective development, construction, financing, fueling, and operation of the most modern and efficient power generation facilities and by achieving economies of scale in general and administrative support costs, and (2) enhancing the value of the power we generate in the marketplace (a) by operating our plants as a system, (b) by geographic deployment of marketing specialists to sell directly to load-serving entities and, to the extent allowable, to industrial customers, in each of the markets in which we participate, (c) by offering load-following and other ancillary services to our customers, and (d) by providing effective marketing, risk management and asset optimization activities through our CES organization. This approach uses our expertise in design, engineering, procurement, finance, construction management, fuel and resource acquisition, operations and power marketing, which we believe provides us with a competitive advantage. Although not a core aspect of our business, we may enter into contracts for the sale or purchase of power or gas in markets where we presently do not have generation assets to establish relationships with customers and gain market experience where we expect to have generation assets in the future. We are also evaluating various relationships with potential partners to strengthen our ability to conduct risk management activities.

      Our financing strategy is to achieve an investment grade credit and bond rating from the major rating agencies within the next few years. We intend to focus on various debt and sale-leaseback financings for our operating plants with a goal of retaining maximum system operating flexibility. The availability of capital at attractive terms will be a key requirement to enable us to meet our strategic objectives. Our risk management strategy, over time, is to hedge approximately two-thirds of our spark spread exposure in symmetry with our target debt-to-capitalization ratio. Spark spread is the margin between the value of the electricity sold and the cost of fuel to generate that electricity. Our fuel strategy is to produce from our own reserves about 25% of our fuel consumption needs as a natural hedge against gas price volatility, while providing a secure and reliable source of fuel and lowering our fuel costs over time.

COMPETITION

      The power generation industry is characterized by intense competition, and we encounter competition from utilities, industrial companies and other independent power producers in the development, acquisition and operation of power generation facilities. In recent years, there has been increasing competition in an effort to obtain power sales agreements, and this competition has contributed to a reduction in electricity prices in certain markets. In addition, many states are implementing or considering regulatory initiatives designed to increase competition in the domestic power generation industry and increase access to electric utilities’ transmission and distribution systems for independent power producers and electricity consumers. This changing environment will help create opportunities to compete for new customers and profits.

      We believe that although the domestic power industry is undergoing consolidation and that, although acquisition opportunities are available, we are likely to confront significant competition for attractive acquisition opportunities. We may also be constrained in pursuing these alternatives by our access to capital at reasonable rates. This competition has put pressure on electric utilities to lower their costs, including the cost of purchased electricity, and increasing competition in the supply of electricity in the future will increase this pressure. See “Item 1 — Business — Recent Developments — California Power Market.” Achieving and maintaining a low cost of production, including managing fuel costs, will be increasingly important to compete

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RECENT DEVELOPMENTS

      Construction Program — Following a comprehensive review of our power plant development program, we announced in January 2002 the adoption of a revised capital expenditure program, contemplating the completion during 2002 and 2003 of 27 power projects (representing 15,200 MW) currently under construction. Three of these projects have subsequently achieved full or partial commercial operations, the Magic Valley Generating Station, the Gilroy Peaking Energy Center and the Aries Power Project. Construction of an additional 34 advanced-stage development projects (representing 15,100 MW) will be placed on “hot standby” following completion of advanced development activities pending further review, reducing previously forecasted 2002 capital spending by as much as $2 billion. Construction of these advanced stage development projects is expected to proceed when there is marked need for additional generating resources at prices that will allow us to meet our established investment criteria, and when capital is available to us on attractive terms. Moreover, our entire construction program is flexible and subject to continuing review and revision based upon such criteria.

      On March 12, 2002, we announced a new turbine program that reduces previously forecasted capital spending by approximately $1.2 billion in 2002 and $1.8 billion in 2003. The revision includes adjusted timing of turbine delivery and related payment schedules and also cancellation orders. As a result of the cancellation, we will record a pre-tax charge of $161 million in the first quarter of 2002.

      Financing — On December 26, 2001, we completed an offering of $1 billion in aggregate principal amount of 4% Convertible Senior Notes Due 2006 (“Convertible Senior Notes”) issued directly by Calpine. On each of December 31, 2001, and January 3, 2002, we sold an additional $100 million in aggregate principal amount of these Convertible Senior Notes, pursuant to partial exercises of a $200 million option to purchase additional Convertible Senior Notes granted to the initial purchaser. As a result of these additional closings, the initial purchaser’s option was exercised in full and an aggregate principal amount of $1.2 billion of Convertible Senior Notes was issued by Calpine. Proceeds from these offerings will be used to retire our Zero-Coupon Convertible Debentures Due April 30, 2021, (“Zero Coupons”), either in open-market purchases, negotiated transactions or upon exercise by holders of a put option in April 2002, and for general corporate purposes.

      From December 2001 through February 2002 we repurchased $314.5 million in aggregate principal amount of our Zero Coupons in open-market purchases.

      In March 2002 we closed a new $1.6 billion secured credit facility. The $1.6 billion includes a new $1.0 billion revolving credit facility expiring on May 24, 2003, and a new two-year $600 million loan that will be available upon satisfaction of certain conditions. We also amended our existing $400 million revolving credit facility. The security for these facilities includes Calpine’s interests in its natural gas properties, the Saltend power plant in the U.K. and Calpine’s equity investment in nine U.S. power plants. The proceeds of the borrowings will be used to finance Calpine’s capital expenditures and, subject to limits in Calpine’s existing bond indentures, for other general corporate purposes. The lead banks in the new credit facility are The Bank of Nova Scotia, Citibank, Bank of America, Bayerische Landesbank Girozentrale, Credit Suisse First Boston, Deutsche Bank, The Toronto-Dominion Bank and ING Barings.

      The Enron bankruptcy has created significant financial uncertainty in the power generation sector. On December 14, 2001, Moody’s Investors Service (“Moody’s”) downgraded our long-term debt from Baa3 (its lowest investment grade rating) to Ba1 (its highest non-investment grade rating) after reviewing our near-term cash flow, liquidity sources and financial flexibility. We remain on credit watch with negative implications at Moody’s. In addition, on December 19, 2001, Fitch, Inc. (“Fitch”) downgraded our long-term debt from BBB- (its lowest investment grade rating) to BB+ (its highest non-investment grade rating). On March 12, 2002, Fitch further downgraded our senior unsecured debt to BB. On March 25, 2002, Standard & Poor’s downgraded our corporate credit rating from BB+ to BB and our senior unsecured debt from BB+

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      Enron Bankruptcy — On December 2, 2001, Enron Corp. (“Enron”), a significant customer accounting for 22% of our 2001 revenue, filed for reorganization under Chapter 11 of the United States Bankruptcy Code. As previously reported, we had entered into a master netting agreement with Enron on November 14, 2001, and had decreased our trading activity with Enron for several months prior to its bankruptcy filing. Based on legal analysis of our netting arrangements, we believe that we have no net collection exposure to Enron. See Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources for a further discussion of the Enron bankruptcy and netting agreement.

      California Long-Term Supply Contracts — On December 11, 2001, Calpine announced that it was meeting with officials from the State of California at their request to discuss whether, and if so how, the long-term contracts with DWR could be modified. No definitive modifications have been agreed to and the discussions have been ongoing.

      However, we currently have a dispute with DWR concerning payment of the capacity payment on the 495-megawatt peaking contract dated February 28, 2001. The contract provides that CES may earn a capacity payment by committing to supply electricity to DWR from a source other than the peaker units designated in the contract either through substitution of those designated units or by providing replacement energy. DWR has made certain assertions challenging CES’ right to substitute units or provide replacement energy and has withheld capacity payments in the amount of $9.5 million since December 2001. The resolution of this dispute is part of the ongoing discussions regarding modifications to the contracts.

      On February 25, 2002, both the California Public Utilities Commission (“CPUC”) and the California Electric Oversight Board filed complaints under Section 206 of the Federal Power Act with the Federal Energy Regulatory Commission (“FERC”) (EL02-60-000 and EL02-62-000, respectively) alleging that the prices and terms of the long-term contracts with the California Department of Water Resources (“DWR”) are unjust and unreasonable and counter to the public interest. Calpine is a respondent and the four long-term contracts entered into by Calpine are subject to the complaint. The FERC has noticed this proceeding and responsive filings are due from the respondents on or before March 22, 2002. Calpine believes that the complaints are without merit and intends to defend its position vigorously.

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

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

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      Securities Class Action Lawsuits. Over the past several weeks, five shareholder lawsuits have been filed against Calpine and certain of its officers in the United States District Court, Northern District of California. The action captioned Weisz vs. Calpine Corp., et al., filed March 11, 2002, is a purported class action on behalf of purchasers of Calpine stock between March 15, 2001 and December 13, 2001. The four other actions, captioned Local 144 Nursing Home Pension Fund vs. Calpine Corp., Lukowski vs. Calpine Corp., Hart vs. Calpine Corp., and Atchison vs. Calpine Corp., were filed between March 18, 2002 and March 26, 2002. The complaints in these four actions are virtually identical, and each was filed by the same law firm, in conjunction with other law firms as co-counsel. All four lawsuits are purported class actions on behalf of purchasers of Calpine’s securities between January 5, 2001 and December 13, 2001.

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

      Public Utilities Commission of the State of California v. Sellers of Long Term Contracts to the California Department of Water Resources; California Electricity Oversight Board v. Sellers of Long Term Contracts to the California Department of Water Resources. In February 2002, both the California Public Utilities Commission and the California Electric Oversight Board filed complaints under Section 206 of the Federal Power Act with the Federal Energy Regulatory Commission (FERC) (EL02-60-000 and EL02-62-000, respectively) alleging that the prices and terms of the long-term contracts with the California Department of Water Resources (DWR) are unjust and unreasonable and counter to the public interest. Calpine Energy Services, L.P. (CES) is a respondent and the four long-term contracts entered into between CES and DWR are subject to the complaint. (see, Risk Factors — California Long-Term Supply Agreements) The FERC has noticed this proceeding and responsive pleadings were due from the respondents on or before March 22, 2002. Calpine believes that the complaints are without merit and intends to defend its position vigorously.

      Litigation — On March 5, 2002, Calpine sued Automated Credit Exchange (“ACE”) in the Superior Court of the State of California for the County of Alameda, for negligence and breach of contract to recover reclaim trading credits, a form of emission reduction credits that should have been held in Calpine’s account with U.S. Trust Company (US Trust). ACE is a broker in emission reduction credits based in Pasadena, California. Calpine had paid ACE for Nitrogen oxide (NOx) coastal credits that were to be purchased by ACE and held by US Trust. The credits were to be held by US Trust pursuant to a Credit Holding Agreement, which provided, among other things, that US Trust was to hold the credits until receiving instructions from ACE to disburse the Credits. ACE had agreed that (i) upon prior written instruction from Calpine, to instruct US Trust to take such actions as may be directed by Calpine to disburse the credits held in escrow pursuant to the Credit Holding Agreement and (ii) not to take any action, or otherwise instruct US Trust to take any action, concerning the credits held in escrow pursuant to the Credit Holding Agreement without prior written instruction from Calpine.

DESCRIPTION OF FACILITIES

      At March 20, 2002, Calpine had interests in 64 power generation facilities representing 12,090 megawatts of net capacity. Of these 64 projects, 45 are gas-fired power plants with a net capacity of 11,240 megawatts, and 19 are geothermal power generation facilities with a net capacity of 850 megawatts. We also have 22 gas-fired projects and 2 project expansions currently under construction with a net capacity of 14,142 megawatts, and have 34 projects in advanced development with a net capacity of 15,100 megawatts. Construction of these advanced development projects will proceed if and when market fundamentals are sound, our return on investment criteria are expected to be met, and financing is available on attractive terms. Each of the power generation facilities currently in operation produces electricity for sale to a utility, other third-party end user,

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      The gas-fired and geothermal power generation projects in which we have an interest produce electricity and thermal energy that are sold pursuant to long-term power sales agreements or into the spot market. Revenue from a power sales agreement usually consists of two components: energy payments and capacity payments. Energy payments are based on a power plant’s net electrical output, and payment rates are typically either at fixed rates or indexed to fuel costs. Capacity payments are based on a power plant’s net electrical output and/or its available capacity. Energy payments are earned for each kilowatt-hour of energy delivered, while capacity payments, under certain circumstances, are earned whether or not any electricity is scheduled by the customer and delivered.

      Upon completion of our projects under construction, we will provide operating and maintenance services for 82 of the 86 power plants in which we have an interest. Such services include the operation of power plants, geothermal steam fields, wells and well pumps, gas fields, gathering systems and gas pipelines. We also supervise maintenance, materials purchasing and inventory control, manage cash flow, train staff and prepare operating and maintenance manuals for each power generation facility that we operate. As a facility develops an operating history, we analyze its operation and may modify or upgrade equipment or adjust operating procedures or maintenance measures to enhance the facility’s reliability or profitability. These services are sometimes performed for third parties under the terms of an operating and maintenance agreement pursuant to which we are generally reimbursed for certain costs, paid an annual operating fee and may also be paid an incentive fee based on the performance of the facility. The fees payable to us may be subordinated to any lease payments or debt service obligations of financing for the project.

      In order to provide fuel for the gas-fired power generation facilities in which we have an interest, natural gas reserves are acquired or natural gas is purchased from third parties under supply agreements. We attempt to manage a gas-fired power facility’s fuel supply so that we protect the plant’s spark spread — the margin between the value of the electricity sold and the cost of fuel to generate that electricity.

      We currently hold interests in geothermal leaseholds in Lake and Sonoma Counties in northern California (“The Geysers”) that produce steam that is supplied to geothermal power generation facilities owned by us for use in producing electricity.

      Certain power generation facilities in which we have an interest have been financed primarily with project financing that is structured to be serviced out of the cash flows derived from the sale of electricity and thermal energy produced by such facilities and provides that the obligations to pay interest and principal on the loans are secured almost solely by the capital stock or partnership interests, physical assets, contracts and/or cash flow attributable to the entities that own the facilities. The lenders under non-recourse project financing generally have no recourse for repayment against us or any of our assets or the assets of any other entity other than foreclosure on pledges of stock or partnership interests and the assets attributable to the entities that own the facilities. Increasingly, our plan has been to refinance project-specific construction financing with long-term capital market financing after construction projects enter commercial operation.

      Substantially all of the power generation facilities in which we have an interest are located on sites which we own or are leased on a long-term basis. See “Item 2. Properties.”

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      Set forth below is certain information regarding our operating power plants and plants under construction as of March 20, 2002.

Operating Power Plants

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(1)	We sold our 7.5% interest in this facility on March 12, 2001.

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Projects Under Construction

*	Expansion projects not included in total of 86 projects in which Calpine has an interest.

ACQUISITIONS OF POWER PROJECTS AND PROJECTS UNDER CONSTRUCTION

      We have extensive experience in the development and acquisition of power generation projects. We have historically focused principally on the development and acquisition of interests in gas-fired and geothermal power projects, although we may also consider projects that utilize other power generation technologies. We have significant expertise in a variety of power generation technologies and have substantial capabilities in each aspect of the development and acquisition process, including design, engineering, procurement, construction management, fuel and resource acquisition and management, power marketing, financing and operations.

Acquisitions

      We will consider the acquisition of an interest in operating projects as well as projects under development where we would assume responsibility for completing the development of the project. In the acquisition of power generation facilities, we generally seek to acquire 100% ownership of facilities that offer us attractive opportunities for earnings growth, and that permit us to assume sole responsibility for the operation and

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