Calpine Corporation (Calpine) has reported operating revenues of $9.94 billion for the year-end 2008, compared with the operating revenues of $7.97 billion in the previous year-end. It has also reported a net income of $10 million for the year-end 2008, compared with the net income of $2.69 billion in the previous year-end.

“Our full year 2008 financial performance reflects substantial improvement compared to 2007 and exceeds our 2008 guidance, despite the severe economic and financial conditions that surfaced in late 2008,” said Jack Fusco, Calpine’s president and chief executive officer. “With 2008 successfully behind us, we now turn our attention to 2009. We are pleased to provide Adjusted EBITDA guidance for 2009 of $1.6 to $1.7 billion and, for the first time, Adjusted Free Cash Flow guidance of $400 to $500 million. We have significantly hedged our 2009 Commodity Margin, mitigating natural gas price risk and giving us solid earnings visibility for this year. It is noteworthy that our 2009 Adjusted EBITDA guidance is roughly in line with our 2008 performance, despite expectations that recessionary pressures will continue through 2009. Finally, we are pleased to report that we have significantly hedged our natural gas price risk for 2010.”

The company’s commodity margin increased by $485 million in 2008, largely as a result of strong performance in our Texas region, where commodity margin increased by 63% over 2007, and from improved performance associated with our fleet-wide hedging program. Adjusted EBITDA has increased by $254 million in 2008 compared to 2007, primarily due to the increase in commodity margin discussed above, offset largely by greater cash-realized mark-to-market losses associated with our hedging activities, and, to a lesser degree, an increase in plant operating expense (net of major maintenance expense and non-cash stock-based compensation expense) and higher sales, general and other administrative expense (net of non-cash stock-based compensation expense).

Cash flows provided by operating activities for the year ended December 31, 2008, has resulted in net inflows of $494 million compared to net inflows of $187 million for the same period in 2007. A primary reason for this improvement was that gross profit, excluding changes in depreciation and impairments, increased by $222 million in 2008 due primarily to increases in Commodity Margin, as previously discussed. The favorable margins were partly offset by higher plant operating expenses and higher sales, general and administrative expenses, as previously mentioned. Additionally, working capital employed relating to operating assets and liabilities changed by approximately $53 million during the year, after adjusting for actual cash flows from derivative activities that are included in net derivative assets and liabilities. This raise was primarily the result of a slight increase in inventory levels compared to 2007.

The company believes that a comparison of net income (loss), as reported, from 2007 to 2008 is not meaningful, as both periods include significant impacts from restructuring during bankruptcy and other one-time items. The net income or loss, excluding reorganization items, discontinued operations, other one-time items and non-cash mark-to-market gains or losses improved by $340 million in 2008 to income of $15 million, compared to a loss of $325 million in 2007. This year-over-year increase is primarily attributed to the increase in commodity margin, as previously discussed.

For the fourth quarter of 2008, operating revenues increased to $2.0 billion from $1.9 billion in the prior year period. The net loss, excluding reorganization items, discontinued operations, other one-time items and non-cash mark-to-market gains or losses was $146 million in the fourth quarter of 2008, compared to $90 million for the same period of 2007.

Plant Development And Construction

Otay Mesa Energy Center: The 596 MW combined-cycle, natural gas-fired Otay Mesa plant near San Diego is under construction and is scheduled to begin commercial operations in the fall of 2009. After Otay Mesa begins commercial operations, all 596 MW of production will be sold under a ten-year power purchase agreement with San Diego Gas & Electric.

Russell City Energy Center: The 600 MW combined-cycle, natural gas-fired Russell City plant is a joint development project to be located in Hayward, California. The company holds a 65% interest in the project, and an affiliate of General Electric Capital Corporation holds a 35% interest. In the third quarter of 2008, the power purchase agreement (PPA) between Pacific Gas & Electric Company (PG&E) and Russell City Energy Company, LLC, under which PG&E would take 100% of the generation for ten years, was amended to provide for continued development with an expected commercial operation in June 2012. The PPA is now before the CPUC for approval as amended. All permits for the projects have been issued and approved with the exception of a certain air permit now pending before the local air quality board. The completion of Russell city development project is dependent upon obtaining the necessary permits and regulatory approvals, construction contracts and construction funding under project financing facilities.

Operations Update

Commercial Operations Achievements: During 2008, the company’s commercial operations group made significant contributions to our performance, despite an increasingly difficult economic environment. In 2008, they:

Substantially hedged our 2009 projected volume at prices the company believes will allow us to deliver strong Commodity Margin and to mitigate gas price risk from the portfolio, despite ongoing volatility in the marketplace.

Increased hedges for 2010 and 2011 to provide additional financial stability, while leaving upside for market recovery.

Completed over 1,000 MW of one-year or greater origination transactions to capture value for assets in less liquid markets.

Successfully navigated challenging power market conditions subsequent to Hurricane Ike.

Power Operations Achievements: Our plants had an exceptional year with achievements in several important categories:

Safety: Delivered first quartile safety performance, achieving a fleet-wide lost time incident rate of 0.17 in 2008.

Geothermal: Provided over 6 million MWh of renewable baseload generation with a forced outage factor below 0.5%.

Natural Gas Generation: Achieved forced outage factor of 3.39% across all natural gas plants, our lowest rate in four years, or 3.08% after adjusting for hurricanes.

Organization: Streamlined organization and resolved organizational ambiguities.