Calpine Power Income Fund

Calpine Power Income Fund

January 13, 2007 11:41 ET

Calpine Power Income Fund Reaches Agreement With Fund Manager

CALGARY, ALBERTA--(CCNMatthews - Jan. 13, 2007) - The Board of Trustees of Calpine Commercial Trust, on behalf of Calpine Power Income Fund (TSX:CF.UN), today announced that it has reached a settlement agreement with Calpine Canada Power Ltd. ("CCPL"), which has a contract to manage the Fund and operate certain of its facilities. The agreement, which also involves other related parties, is subject to court approval in Canada under CCPL's Companies' Creditors Arrangement Act proceedings.

"This agreement significantly advances the interests of the Fund's unitholders," said Robert Hodgins, Chairman of the Board of Trustees. "By removing a potential source of uncertainty and simplifying the Fund's ownership structure, this agreement, if approved by the Court, will enable us to more effectively develop potential alternative transactions that may offer unitholders superior value to Harbinger Capital Partners' unsolicited offer."

As of Friday's market close, the Fund's units are trading at a 5.1% premium to Harbinger's offer to acquire all of the outstanding units of the Fund it does not currently own for $12.25 per unit. The Board of Trustees continues to unanimously recommend that unitholders reject Harbinger's offer and not tender their units.

Today's settlement agreement allows the Fund to terminate CCPL, an indirect subsidiary of Calpine Corp., of San Jose, CA., as the Fund's manager and administrator. This right will provide the Board with improved access to information and control over the management of the Fund's assets. There will be a transition period, after which the Fund will directly employ the personnel required to manage the Fund.

A second element of the agreement allows the Fund to acquire CCPL's 30% subordinated ownership interest (also known as the "B" units) in Calpine Power, L.P., a limited partnership in which the Fund has a 70% priority ownership interest. In conjunction with the transaction, the Fund and CCPL have agreed on a formula by which they will split certain claims being made by Calpine Power, L.P., including claims against the estates of Calpine Corporation and Calpine Energy Services Canada Partnership, an affiliate of CCPL. Calpine Power, L.P. owns the 300-megawatt Calgary Energy Centre in Alberta and the 240-megawatt Island Cogeneration Facility in British Columbia.

A third element of the agreement eliminates a potential impairment of a loan owed to Calpine Power, L.P. by Calpine Canada Whitby Holdings Company, which has an ownership interest in the 50-megawatt Whitby Cogeneration Facility in Ontario. The Fund in 2005 accrued an allowance of $16 million to reflect the potential impairment.

A fourth element of the agreement is the reduction of the previously-disclosed Manager's Loan from $39.3 million to $21.3 million. The Manager's Loan, which CCPL owes to the Fund, remains in default but is secured and the Trustees are confident that as a result of the Settlement Agreement and the anticipated receipt of monies from claims referred to above, the remaining amount will be repaid in full.

Further terms of the settlement agreement will not be disclosed pending court approval except to constituents in the CCAA proceeding who sign confidentiality agreements that protect confidential information of Calpine Power, L.P., the Fund and the Manager. A court hearing has been scheduled for January 17, 2007. The settlement agreement has the support of Ernst & Young Inc., Monitor for the Calpine insolvency proceedings in Canada.

About Calpine Power Income Fund

Calpine Power Income Fund is an unincorporated open-ended trust that invests in electrical power assets. The Fund indirectly owns interests in power generating facilities in British Columbia, Alberta and California. In addition, the Fund owns a participating loan interest in a power plant in Ontario and has made a loan to Calpine Canada Power Ltd. The Fund is managed by Calpine Canada Power Ltd., which is headquartered in Calgary, Alberta. The Fund has 61,742,288 Trust Units outstanding.

The Calpine Power Income Fund units are listed on the Toronto Stock Exchange under the symbol CF.UN. For further information on the Fund, please visit its website at

Forward-Looking Information Disclaimer

This news release may contain forward-looking information as defined under applicable Canadian securities laws. This information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Such forward-looking information is based on the Fund's current internal expectations, estimates, projections, assumptions and beliefs and the Fund believes the expectations reflected in such forward-looking information are reasonable. However, no assurance can be given that these expectations will prove to be correct and the forward-looking information included in this news release should not be unduly relied upon. Such forward-looking information speaks only as of the date of this (news release) and none of the Fund, the Trustees or the Manager undertakes any obligation to publicly update or revise any forward looking information contained in this news release, except as required by applicable laws.

In particular, among other forward-looking information, this news release may contain forward-looking information pertaining to the following:

- future cash flows generated by the Fund and its subsidiaries from their contracts and other assets and operations and the related amount of future cash distributions made by the Fund to unitholders of the Fund ("Unitholders");

- the value of the claims that the Fund and its subsidiaries have against Calpine Corporation and its affiliates in connection with Calpine Corporation's insolvency and reorganization proceedings and the amount that the Fund and its subsidiaries may collect under such claims or the sale of such claims;

- the future trading prices of the trust units of the Fund ("Trust Units");

- potential alternative transactions involving the Fund and/or its subsidiaries that may produce superior value to Unitholders;

- future levels of power production capacity, availability and utilization of such capacity and actual production by the Fund's indirectly owned facilities and assets; and

- the continued operation and performance by counterparties under the means the power and steam off-take agreements or tolling agreements for the Fund's indirectly-owned power generation facilities ("PPAs") and the creditworthiness of such counterparties.

The actual results and outcomes of such matters could differ materially from those anticipated in the forward-looking information contained in this news release as a result of both known and unknown risks, including the risk factors set forth below:

- volatility in market prices for electricity, power and natural gas;

- changes or fluctuations in power production capacity, availability and utilization of such capacity and actual production levels;

- changes in capital and other expenditure requirements and debt service requirements;

- breach or non-performance by the counterparties to the PPAs relating to the business of the Fund's subsidiaries;

- changes in financial markets, foreign currency exchange rates and interest rates and changes in general economic, market and business conditions in Canada, North America and worldwide;

- the timing of the resolution, and the actual outcome, of the insolvency and reorganization proceedings involving Calpine Corporation, including the amount of funds ultimately available to satisfy the claims of the Fund and its subsidiaries against Calpine Corporation;

- the inability of the Fund to negotiate and conclude an alternative transaction to the Harbinger Offer that provides superior value to Unitholders; and

- actions by governmental or regulatory authorities including changes in income tax laws (including those relating to mutual fund trusts or investment eligibility).

Additional risk factors regarding the forward-looking information set forth above, the business and affairs of the Fund and its subsidiaries and an investment in the Trust Units are contained in the Fund's annual information form dated April 19, 2006, the Fund's management's discussion and analysis for both the year ended December 31, 2005 and the fiscal quarters ended March 31, 2006, June 30, 2006 and September 30, 2006, and the material change report of the Fund dated November 14, 2006, copies of which are available through the internet on the Fund's SEDAR profile at Readers are also referred to the risk factors contained in other documents the Fund files from time to time with securities regulatory authorities, copies of which are also available through the internet on the Fund's SEDAR profile at

The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.

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