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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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).     Yes þ          No o

      Aggregate market value of the common equity held by non-affiliates of the registrant as of June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter: approximately $2.6 billion. Common stock outstanding as of March 26, 2003: 381,168,410 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) the timing and extent of deregulation of energy markets and the rules and regulations adopted on a transitional basis with respect thereto, (ii) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity, (iii) commercial operations of new plants that may be delayed or prevented because of various development and construction risks, such as a failure to obtain the necessary permits to operate, failure of third-party contractors to perform their contractual obligations or failure to obtain financing on acceptable terms, (iv) unscheduled outages of operating plants, (v) unseasonable weather patterns that produce reduced demand for power, (vi) systemic economic slowdowns, which can adversely affect consumption of power by businesses and consumers, (vii) cost estimates are preliminary and actual costs may be higher than estimated, (viii) a competitor’s development of lower-cost generating gas-fired power plants, (ix) risks associated with marketing and selling power from power plants in the evolving energy market, (x) the successful exploitation of an oil or gas resource that ultimately depends upon the geology of the resource, the total amount and costs to develop recoverable reserves, and legal title, regulatory, gas administration, marketing and operational factors relating to the extraction of natural gas, (xi) the effects on the Company’s business resulting from reduced liquidity in the trading and power industry, (xii) the Company’s ability to access the capital markets on attractive terms, (xiii) sources and uses of cash are estimates based on current expectations; actual sources may be lower and actual uses may be higher than estimated, (xiv) the direct or indirect effects on the Company’s business of a lowering of its credit rating (or actions it may take in response to changing credit rating criteria), including, increased collateral requirements, refusal by the Company’s current or potential counter parties to enter into transactions with it and its inability to obtain credit or capital in desired amounts or on favorable terms, (xv) possible future claims, litigation and enforcement actions pertaining to the foregoing or (xvi) other risks as identified herein. All information set forth in this filing is as of March 31, 2003, and Calpine undertakes no duty to update this information. Readers should carefully review the “Risk Factors” section below.

      We file annual, quarterly and periodic reports, proxy statements and other information with the SEC. You may obtain and copy any document we file with the SEC at the SEC’s public reference rooms in Washington, D.C., Chicago, Illinois and New York, New York. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Our SEC filings are also accessible through the Internet at the SEC’s website at http://www.sec.gov.

      Our reports on Forms 10-K, 10-Q and 8-K are available for download, free of charge, as soon as reasonably practicable, at our website at www.calpine.com. The content of our website is not a part of this report. You may request a copy of our SEC filings, at no cost to you, by writing or telephoning us at: Calpine Corporation, 50 West San Fernando Street, San Jose, California 95113, attention: Lisa M. Bodensteiner, Assistant Secretary, telephone: (408) 995-5115. We will not send exhibits to the documents, unless the exhibits are specifically requested and you pay our fee for duplication and delivery.

OVERVIEW

      We are a leading North American power company engaged in the development, construction, 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. We focus on two efficient and clean types of power generation technologies, natural gas-fired combustion turbine and geothermal. We currently lease and operate the largest fleet of geothermal power plants in the world, and have brought on-line 15,780 megawatts (“mw”) of new,

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      Currently, we own interests in 82 power plants having a net capacity of 19,319 mw. We also have 18 gas-fired projects and 3 project expansions currently under construction having a net capacity of 10,702 mw. The completion of the new projects currently under construction would give us interests in 100 power plants located in 23 states, 3 Canadian provinces and the United Kingdom, having a net capacity of 30,021 mw. Of this total generating capacity, 97% will be attributable to gas-fired facilities and 3% will be attributable to geothermal facilities.

      Calpine Energy Services (“CES”) provides the trading and risk management services needed to schedule power sales and to make sure fuel is delivered to the power plants on time to meet delivery requirements and to optimize the value of our power and gas assets. CES is focused on managing the value of our physical power generation and gas production assets.

      Complementing CES’s activities, we have recently reorganized our sales and marketing organization to better meet the needs of our growing list of wholesale and large retail customers. We focus our sales activities on load serving entities such as local utilities, municipalities, and cooperatives, as well as on large-scale end users such as industrial and commercial companies. As a general goal, we seek to have 65% of our available capacity sold under long-term contracts or hedged by our risk management group. Currently we have approximately 60% of our available capacity sold for 2003.

      We also continue to strengthen our system operations management and information technology capabilities to enhance the economic performance of our portfolio of assets in our major markets and to provide load-following and other ancillary services to our customers. These operational optimization systems, combined with our sales, marketing and risk management capabilities, enable us to add value to traditional commodity products in a way that not all competitors can match.

      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 design specifications reflecting our exacting operational standards. We have established strategic alliances with leading equipment manufacturers for gas turbine generators, steam turbine generators and heat recovery steam generators and other key equipment. We will continue to leverage these capabilities and relationships to assure that our power plants are completed on time and are the best built and lowest cost energy facilities possible.

      With a vision of enhancing the performance of our modern portfolio of gas-fired power plants and lowering our replacement parts maintenance costs, we have fostered the development of our wholly-owned subsidiary, Power Systems Manufacturing (“PSM”), to design and manufacture high performance combustion system and turbine blade parts. PSM also provides high quality turbine replacement parts to the industry.

      We have recently established Calpine Power Services (“CPS”) to offer the unique skills that we have honed in building and operating our own power plants to third party customers. We are now selling, and have received contracts for, various engineering, procurement, construction management, plant commissioning, operations, and maintenance services through CPS.

      As we build the nation’s most modern and efficient portfolio of gas-fired generation assets and establish the low-cost position, our integrated operations and skill sets have allowed us to weather the recent downturn in the North American energy industry. We have the flexibility to adapt to fundamental market changes. Specifically, we responded to the market downturn by reducing capital expenditures, selling or monetizing various gas, power, and contractual assets, restructuring our equipment procurement obligations, and reorganizing to reflect our transition from a development focused company to an operations focused company. These efforts have allowed us to cut costs and raise capital while positioning ourselves to continue our quest to be the largest and most profitable power company in North America.

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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 nearly $250 billion of electricity sales in 2002 based on information published by the Energy Information Administration of the Department of Energy (“EIA”). Historically, the power generation industry has been largely characterized by electric utility monopolies producing electricity from old, inefficient, high-cost generating facilities selling to a captive customer base. However, industry trends and regulatory initiatives have transformed some markets into more competitive grounds where load-serving entities and end-users may purchase electricity from a variety of suppliers, including independent power producers, power marketers, regulated public utilities and others. For the past decade, the power industry has been deregulated at the wholesale level allowing generators to sell directly to the load serving entities, such as public utilities, municipalities and electric cooperatives. Although industry trends and regulatory initiatives aimed at further deregulation have slowed, the power industry continues to transform into a more competitive market.

      The North American Electric Reliability Council (“NERC”) estimates that in the United States, peak (summer) electric demand in 2002 totaled approximately 710,000 mw, while summer generating capacity in 2002 totaled approximately 830,000 mw, creating a peak summer reserve margin of 120,000 mw, or 16.9%. Historically, utility reserve margins have been targeted to be 15-20% above peak demand to provide for load forecasting errors, scheduled and unscheduled plant outages and local area grid protection. Some regions have margins well in excess of the 15-20% target range, while other regions remain short of ideal reserve margins. The estimated 120,000 mw of reserve margin in 2002 compares to an estimated 96,000 mw in 2001. The increase is due in large part to the start-up of new low-cost, clean-burning, gas-fired power plants. The United States market consists of regional electric markets not all of which are effectively interconnected, so reserve margins vary from region to region.

      Even though most new power plants are fueled by natural gas, the majority of power generated in the U.S. is still produced by coal and nuclear power plants. The EIA has estimated that approximately 50% of the electricity generated in the U.S. is fueled by coal, 20% by nuclear sources, 19% by natural gas, 7% by hydro, and 4% from fuel oil and other sources. As regulations continue to evolve, many of the current coal plants will likely be faced with installing a significant amount of costly emission control devices. This activity could cause some of the oldest and dirtiest coal plants to be retired, thereby allowing a greater proportion of power to be produced by cleaner natural gas-fired generation.

      Although we have seen power supplies increase and higher reserve margins in the last two years, there has also been an unprecedented series of events that have undermined the industry’s progress. Industry turmoil has included the financial decline of major industry players, the demise of speculative energy trading due to the exit of numerous companies from trading activities and a decrease in liquidity in the energy trading markets, the ineffective execution of deregulation in California, and a general lessening of enthusiasm for investing in energy companies. In 2002, this loss of confidence in energy companies coincided with an economic slow-down, a decline in industrial demand growth, and historically mild weather to create a significant decline in energy prices and significant tightening in credit availability.

      However, we believe that trends in market fundamentals are beginning to self-correct. Based on strength in residential and commercial demand, overall consumption of electricity was estimated to have grown at slightly above 4% in 2002, compared to the annual historical growth rate of about 2.5%. Growth in supply is diminishing with many developers canceling, or delaying, their projects as a result of current market conditions. The supply and demand balance in the natural gas industry has become strained with gas prices rising to over $6 per million btu (“mmbtu”) in the first quarter of 2003, compared to an average of $3 per mmbtu in 2002. In addition, capital market participants are slowly making progress in restructuring their portfolios, thereby stabilizing financial pressures on the industry. Overall, we expect the market to continue these trends and work through the current oversupply of power in several regions within the next few years. As the market improves, we expect to see spark spreads improve and capital markets regain their interest in helping to repower America with clean, highly efficient energy technologies.

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STRATEGY

      Our vision is to become North America’s largest and most profitable power company and ultimately become a major worldwide power company. In achieving our corporate strategic objectives, the number one priority for our company is maintaining the highest level of integrity in all of our endeavors.

      Our timeline to achieve our strategic objectives is flexible and will be guided by our view of market fundamentals. When necessary, we will slow or delay our growth activities in order to assure that our financial health is secure and our investment opportunities meet our long-term rate of return requirements.

      Due to the recent industry turmoil, our policy to adapt as needed to market dynamics has led us to develop a set of near-term strategic objectives that will guide our activities until market fundamentals improve. These include:

	•	Enhance our liquidity position
	•	Strengthen the balance sheet
	•	Complete our current construction program
	•	Shift our focus from a regional development to a national operating company
	•	Continue to lower operating costs per megawatt hour produced
	•	Improve operating performance with an increasingly efficient power plant fleet
	•	Enhance our sales and marketing program
	•	Start construction of new projects only when financing is available and attractive returns are expected.

      We plan on realizing our strategy to become the most profitable power company 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 and other 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 selling 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. In limited instances, we 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.

      Our “system approach” refers to our ability to cluster our standardized, highly efficient power generation assets within a given energy market and selling the energy from that system of power plants, rather than using “unit specific” marketing contracts. The clustering of standardized power generation assets allows for significant economies of scale to be achieved. Specifically, construction costs, supply chain activities such as inventory and warehousing costs, labor, and fuel procurement costs can all be reduced with this approach. The choice to focus on highly efficient and clean technologies reduces our fuel costs, a major expense when operating power plants. Furthermore, our lower than market heat rate (high efficiency advantage) provides us a competitive advantage in times of rising fuel prices. Finally, utilizing our system approach in a sales contract means that we can provide power to a customer from whichever plant in the system is most economical at a given period of time. In addition, the operation of plants can be coordinated when increasing or decreasing power output throughout the day to enhance overall system efficiency, thereby enhancing the heat rate advantage already enjoyed by the plants. In total, this approach lays a foundation for a sustainable competitive cost advantage in operating our plants.

      The integration of gas production, trading, and marketing activities achieves additional cost reductions while simultaneously enhancing revenues. Our fleet of natural gas burning power plants requires a large amount of gas to operate. Our fuel strategy is to produce from our own gas reserves enough fuel to provide a natural hedge against gas price volatility, while providing a secure and reliable source of fuel and lowering our

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      Recent trends confirm that both buyers and sellers of power benefit from signing long-term power contracts and avoiding the severe volatility often seen with power prices. The trend towards signing long-term contracts is creating opportunities for companies, such as ours, that own power plants and gas reserves to negotiate directly with buyers (end users and load serving entities) that need power, thereby skipping the trading middlemen, many of whom are now exiting the market.

      Our financing strategy includes an objective to achieve and maintain an investment grade credit and bond rating from the major rating agencies within the next several years. We intend to employ various approaches for extending or refinancing existing credit facilities and for financing new 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 develop and construct new plants. We have adjusted to recent market conditions by taking near-term actions focused on liquidity. We have been very successful throughout 2002 and early 2003 at selling certain less strategically important assets, monetizing several contracts, establishing a Canadian income trust to raise funds based on certain of our power generation assets, buying back our debt, and raising capital with non-recourse project financing.

COMPETITION

      We are engaged in several different types of business activities each of which has its own competitive environment. To better understand the competitive landscape we face, it is helpful to look at five different groupings of business activities.

      Development and Construction. In this activity, we face strong competition from a large number of independent power producers (“IPPs”), non-regulated subsidiaries of utilities, and increasingly from regulated utilities and large end-users of electricity. Furthermore, the regulatory and community pressures against locating a power plant at a specific site can often be substantial, causing months or years of delays. Similarly, the construction process is highly competitive as there are only a few primary suppliers of key gas turbine, steam turbine and heat recovery steam generator equipment used in a state of the art gas turbine power plant. Additionally, we have seen periods of strong competition with respect to securing the best construction personnel and contractors. Finally, the recent downturn in the market has created additional competition among developers and construction organizations in terms of maintaining control over key sites, contracts, parts, and personnel.

      Power Plant Operations. The competitive landscape faced by our power plant operations organization consists of a patchwork of highly competitive and highly regulated market environments. This patchwork has been caused by an uneven transition to deregulated markets across the various states and provinces of North America. For example, in markets where there is open competition, our merchant capacity (that which has not been sold under a long-term contract) competes directly on a real time basis with all other sources of electricity such as nuclear, coal, oil, gas-fired, and renewable units owned by others. However, there are other markets where the local incumbent utility still predominantly uses its own supply to meet its own demand before dispatching competitively provided power. Each of these markets offers a unique and challenging competitive environment.

      Asset Acquisition and Divestiture. The recent downturn in the electricity industry has prompted many companies to sell assets to improve their financial positions. In addition, the postponement of plans for construction of new power plants is also creating a competitive market for the sale of excess equipment. Although there is a strong buyers market at the moment, few assets are changing hands due to the gap between sellers’ and buyers’ price expectations.

      Gas Production and Operations. Gas production is a significant component of our operations and an area that we would like to expand when market conditions are attractive. However, this market is also highly competitive and is populated by numerous participants including majors, large independents and smaller “wild cat” type exploration companies. Recently, the competition in this sector has increased due to a fundamental

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      Power Sales and Marketing. Power sales and marketing generally includes all those activities associated with identifying customers, negotiating, and selling energy and service contracts to load-serving entities and large scale end-users. Specifically, there has been a trend for trading companies that served a “middle man” role to exit the industry for financial and business model reasons. Instead, power generators are increasingly selling long-term power directly to load serving entities (utilities, municipalities, cooperatives) and large scale end-users, thereby reducing the high levels of price volatility witnessed in the industry since 2001.

RECENT DEVELOPMENTS

      Turbine Restructuring Program — On February 11, 2003, we announced that we entered into restructured agreements with our major gas and steam turbine manufacturers. The new agreements reduce our future capital commitments by approximately $3.4 billion and provide greater flexibility to match equipment commitments with our revised construction and development program because we have the option to cancel existing orders for 87 gas turbines and 44 steam turbines. In recognition of probable market and capital limitations, we recorded a pre-tax charge of approximately $207.4 million in the quarter ended December 31, 2002, which represented all costs associated with the probable cancellation of all 87 gas turbines and 44 steam turbines. In addition to the fourth quarter charge, we recorded a pre-tax charge of $168.5 million in the first quarter of 2002 as a result of turbine order cancellations and the cancellation of certain other equipment.

      Financing — On February 13, 2003, we completed a secondary offering of 17,034,234 Warranted Units of the Calpine Power Income Fund for gross proceeds of Cdn$153.3 million (US$100.2 million) in an offering in Canada (with a concurrent Rule 144A placement in the United States). The Warranted Units were sold to a syndicate of underwriters at a price of Cdn$9.00. Each Warranted Unit consists of one Trust Unit and one-half of one Trust Unit purchase warrant. Each Warrant entitles the holder to purchase one Trust Unit at a price of Cdn$9.00 per Trust Unit at any time on or prior December 30, 2003, after which time the Warrant will be null and void. Assuming the exercise in full of the Warrants, we will not own or control any of the outstanding Trust Units. However, we will retain our 30% subordinated interest in the Canadian power generating assets and will continue to operate and manage the Calpine Power Income Fund and the Fund assets. Accordingly, the financial results of the Fund will continue to be consolidated in our financial statements.

      Restatement of Financial Statements — On March 3, 2003, we announced that we had determined, in consultation with our independent auditors Deloitte & Touche LLP, that two sale-leaseback transactions previously accounted for as operating leases would be recorded as financing transactions. The lease reclassifications were the result of a determination that the power contracts in place at the applicable power plants (Pasadena and Broad River), for which we had utilized the sale-leaseback transactions, have characteristics that prevent the use of operating lease treatment. The reclassification of the two sale-leasebacks to financing transactions required us to restate our financial statements for the years ended December 31, 2000 and 2001 and to adjust our previously announced unaudited financial results for the year ended December 31, 2002. For a description of the effect on our financial statements of the lease reclassifications, as well as new accounting standards that require retroactive application and other adjustments and reclassifications made in connection with the re-audit of our 2000 and 2001 financial statements conducted by Deloitte & Touche, see Note 2 to the Consolidated Financial Statements included elsewhere herein.

      Hawaii Structural Ironworkers Pension Fund v. Calpine, et al. On March 11, 2003, a securities class action, Hawaii Structural Ironworkers Pension Fund v. Calpine, et al., was filed against Calpine, its directors and certain investment banks in the California Superior Court, San Diego County. The underlying allegations in the Hawaii Structural Ironworkers Pension Fund action (“Hawaii action”) are substantially the same as those in earlier securities class action lawsuits. The Hawaii action is brought on behalf of a purported class of purchasers of our equity securities sold to public investors in our April 2002 equity offering. The Hawaii action

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      On March 26, 2003, the staff of the FERC issued a final report in an investigation the FERC had initiated on February 13, 2002 of potential manipulation of electric and natural gas prices in the western United States (the “Final Report”). The FERC staff recommended that FERC issue a show cause order to a number of companies, including Calpine, regarding certain power scheduling practices that may potentially be in violation of the CAISO’s or CalPX’s tariff. We believe that we did not violate these tariffs and that, to the extent that such a finding could be made, any potential liability would not be material. The Final Report also recommended that FERC modify the basis for determining potential liability in the California Refund Proceeding discussed below. See “— Risk Factors — California Power market.”

      On March 26, 2003, FERC also issued an order adopting many of the ALJ’s findings set forth in the December 12 Certification (the “March 26 Order”). See Note 28 to the Notes to Consolidated Financial Statements for a discussion of the December 12 Certification. In addition, as a result of certain findings by the FERC staff concerning the unreliability or mis-reporting of certain reported indices for gas prices in California during the refund period, FERC ordered that the basis for calculating a party’s potential refund liability be modified by substituting a gas proxy price based upon gas prices in the producing areas plus the tariff transportation rate for the California gas price indices previously adopted in the refund proceeding. At this time, we are unable to determine our potential liability under the March 26 Order. However, based upon a preliminary understanding, we believe that such liability is likely to increase from that calculated in accordance with the December 12 Certification, but we are unable to estimate the amount of such potential increase at this time.

      The final outcome of this proceeding and the impact on our business is uncertain at this time.

      See “— Summary of Key Activities” for 2002 developments.

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DESCRIPTION OF POWER GENERATION FACILITIES

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      At March 31, 2003, we had interests in 82 power generation facilities representing 19,319 megawatts of net capacity. Of these projects, 63 are gas-fired power plants with a net capacity of 18,469 megawatts, and 19 are geothermal power generation facilities with a net capacity of 850 megawatts. We also have 18 gas-fired projects and 3 project expansions currently under construction with a net capacity of 10,702 megawatts. Construction of 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, or to an intermediary such as a trading company. Thermal energy produced by the gas-fired cogeneration facilities is sold to industrial and governmental users.

      The gas-fired and geothermal power generation projects in which we have an interest produce electricity and thermal energy that are sold pursuant to short-term and 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 97 of the 100 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 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. Our plan historically 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 31, 2003.

Operating Power Plants

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Projects Under Construction (All gas-fired)