Calpine Power Income Fund
TSX : CF.UN

Calpine Power Income Fund

November 08, 2005 22:53 ET

Calpine Power Income Fund Announces Strong Financial Results for the Third Quarter of 2005 and Cash Distributions for November and December 2005

CALGARY, ALBERTA--(CCNMatthews - Nov. 8, 2005) - Calpine Power Income Fund (TSX:CF.UN) today announced its results for the nine months ending September 30, 2005. Based upon current forecast, cash distributions for the months of November and December 2005 will be $0.0818 per trust unit.



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Ex-Distribution Distribution
Record Date Date Distribution Date per Unit
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November 30, 2005 November 28, 2005 December 20, 2005 $0.0818
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December 30, 2005 December 28, 2005 January 20 , 2006 $0.0818
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The above reflects distributions expected to be paid, however,
distributions are subject to change based upon actual conditions.
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"We are pleased to announce another quarter of strong results from all of our facilities," says Toby Austin, President and Chief Executive Officer of Calpine Canada Power Ltd., manager of the Calpine Power Income Fund. "All of our facilities performed at high levels of availability, contributing to solid financial performance at expected levels.

"We have again experienced volatility in our unit price, largely due to comments made by the federal Department of Finance relating to income trusts. In addition, there has been ongoing speculation on the financial position of our sponsor and major off-taker, Calpine Corporation, which has contributed to some volatility in our unit price.

"We continue to explore operational improvements and enhancements at our existing facilities, as well as acquisition opportunities, to improve our financial results and the overall risk profile of our Fund to ensure we meet our cash distribution targets."

MANAGEMENT'S DISCUSSION AND ANALYSIS

The Calpine Power Income Fund (the "Fund") is an unincorporated open-ended trust established under the laws of Alberta. Through its 70% ownership interest in Calpine Power, L.P. (the "Partnership"), the Fund indirectly owns interests in power generating facilities in British Columbia, Alberta and an economic interest in a power plant in Ontario. In addition, the Fund owns an interest in a power generating facility in California and holds a promissory note issued by Calpine Canada Power Ltd. ("the Manager"). The power generation facilities owned by the Fund and the Partnership are all modern and environmentally preferred, natural gas fired plants, with long-term energy sales agreements. The Fund and the Partnership are managed and administered by the Manager.

The Fund's objectives are to provide, on a per Trust Unit basis, a stable and sustainable flow of Distributable Cash from the Fund. To achieve these objectives, the Manager seeks to maximize the efficiency and profitability of the facilities and acquire or develop future facilities in accordance with established acquisition and investment guidelines. The Manager believes that its affiliation with Calpine Corporation ("Calpine"), which has extensive experience in all aspects of the development, acquisition and operation of power generation facilities, will enable the Manager to successfully implement the Fund's objectives.

The following discussion and analysis as provided by Management should be read in conjunction with the accompanying unaudited consolidated financial statements and the notes thereto of the Fund and the Partnership for the three and nine months ended September 30, 2005 and 2004, which have been prepared in accordance with Canadian generally accepted accounting principles, and is based on information to November 8, 2005. The following discussion and analysis should also be read in conjunction with the audited consolidated financial statements and related management's discussion and analysis contained in the 2004 Annual Report, based on information to February 3, 2005. All dollar amounts are shown in Canadian dollars unless otherwise specified. Additional information concerning the Fund is available at www.calpinepif.com or on SEDAR at www.sedar.com.

THIRD QUARTER HIGHLIGHTS

- The Fund declared distributions of $0.2454 per Trust Unit to Unitholders during the third quarter of 2005 compared to $0.2430 per Trust Unit in the comparable period in 2004 for a total year-to-date distribution of $0.7362 per Trust Unit in 2005 compared to $0.7190 for the same period in 2004.

- For the three months ended September 30, 2005, availability was approximately 99% reflecting strong plant performance and few unplanned outages. All plants are operating at or exceeding target levels of financial results. Plant specific results are set out below:



Availability Generation (MWh)
------------------- ---------------------
Q3 2005 Q3 2004 Q3 2005 Q3 2004
--------- --------- ----------- ---------

Calgary Energy Centre 100% 93% 97,398(1) 214,795
Island Cogeneration Facility 100% 100% 518,044 495,585
Whitby Cogeneration Facility 97% 99% 74,248 84,716
King City Facility 99% 97% 201,922 248,120

(1) Revenue for the Calgary Energy Centre is based on availability of
the plant not the MWh's of generation. See discussion of Calgary
Energy Centre to follow.


At September 30, 2005 and November 8, 2005, the Fund had 61,742,288 Trust Units outstanding, all of which are widely held by public investors and trade on the Toronto Stock Exchange.



RESULTS OF OPERATIONS

Calpine Power Income Fund

Selected Third Quarter Information

Three months Three months Three months
(in 000's, except for ended ended ended
Trust Units and per Sept 30, Sept 30, Sept 30,
Trust Unit amounts) 2005 2004 2003
---------------------------------------------------------------------
Total Revenue $ 20,183 $ 21,168 $ 11,318
Net Earnings 14,723 14,721 10,165
Net Earnings Per Trust Unit 0.2385 0.2384 0.1955

Weighted Average Number of
Trust Units Outstanding 61,742,288 61,742,288 52,001,351

Total Assets 690,818 704,136 491,895
Total Long-term Liabilities 88,808 104,616 -
Distributions Declared Per
Trust Unit 0.2454 0.2430 0.2555



Nine months Nine months Nine months
(in 000's, except for ended ended ended
Trust Units and per Sept 30, Sept 30, Sept 30,
Trust Unit amounts) 2005 2004 2003
---------------------------------------------------------------------
Total Revenue $ 60,532 $ 47,992 $ 28,813
Net Earnings 45,397 33,544 26,884
Net Earnings Per Trust Unit 0.7353 0.5906 0.5169

Weighted Average Number of
Trust Units Outstanding 61,742,288 56,800,718 52,001,351

Total Assets 690,818 704,136 491,895
Total Long-term Liabilities 88,808 104,616 -
Distributions Declared Per
Trust Unit 0.7362 0.7190 0.7265


Earnings

The Fund reported net earnings of $14.7 million ($0.2385 per Trust Unit) for the three months ended September 30, 2005, consistent with net earnings of $14.7 million ($0.2384 per Trust Unit) for the same period of 2004. For the first three quarters of 2005, net earnings were $45.4 million ($0.7353 per Trust Unit), a 36% increase over net earnings of $33.5 million ($0.5906 per Trust Unit) for the same period of 2004, reflecting a full nine months of finance income in 2005 from the King City Facility acquired in May 2004 and improved equity earnings from the Partnership reflecting the benefits of the upgrade at the Island Facility in 2004.

Revenues

Total revenue for the three and nine months ended September 30, 2005 were $20.2 million and $60.5 million, respectively, compared to $21.2 million and $48.0 million for the same periods of 2004. Equity earnings from the Partnership for the third quarter of 2005 totaled $13.6 million, compared to the $13.8 million reported in the third quarter 2004. Equity earnings for the first nine months of 2005 increased to $40.4 million from $32.4 million in 2004, primarily resulting from increased power generation at the Island Facility following an upgrade completed in the second quarter of 2004. A detailed discussion of the Partnership's operating results can be found in the Calpine Power L.P. section of this MD&A.

Finance income totaled $4.6 million and $14.0 million for the three and nine months ended September 30, 2005, compared to finance income of $5.1 million and $11.7 million for the same periods of 2004. Finance income is generated by the long-term lease of the King City facility and associated land to Calpine King City and commenced upon the acquisition of the facility and land by the Fund in May 2004. The Fund recognizes finance income over the lease term on a basis that provides a constant rate of return on the net investment in the lease with lease and land rental payments due, annually, in arrears on December 31. Lease payments are payable in both US and Canadian dollars - the US dollar portion being sufficient to service principal and interest payments of the Fund's non-recourse US dollar denominated debt that was used to acquire the facility. Of the $0.5 million decline in finance income in the third quarter 2005 compared to third quarter 2004, $0.3 million is a result of foreign exchange and the remaining $0.2 million is due to principal payments on the Lease made in December 2004. Year-to-date finance income is higher in 2005 compared to 2004, primarily due to the additional four months of finance income included in the 2005 period as the King City assets were acquired May 2004. The King City Facility generated 201,922 MWh and 675,273 MWh for the three and nine months ended September 30, 2005 and operated at 99% and 89% availability for the same periods. Comparatively for the three and nine months ended September 30, 2004 the King City Facility generated 248,120 MWh and 345,600 MWh and operated at 97% and 98% availability. Power generation was lower at the King City Facility for the third quarter 2005 due to a 10 day force majeure outage during the quarter. During the outage, the sale of gas that would normally be used to operate the plant offset the electricity revenues not received during this period. While the Fund is reliant on annual lease payments from Calpine to lease the King City Facility, operational results from the Facility may influence Calpine's ability to fulfill this lease obligation.

Interest and other income of $1.9 million in the third quarter of 2005 decreased $0.4 million from the prior year quarter, reflecting the impact on interest earned of a lower outstanding loan balance to the Manager as a result of scheduled principal repayments. The loan to the Manager originated in the second quarter of 2004 in conjunction with the acquisition of the King City Facility. Accordingly, interest and other income for the nine months ended September 30, 2005 of $6.1 million has increased $2.2 million over the prior year reflecting a full nine months of interest earned.



Selected Third Quarter Information

Three Three Three Nine Nine Nine
months months months months months months
ended ended ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
(in 000's) 2005 2004 2003 2005 2004 2003
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Management and
administrative
expenses $ 523 $ 661 $ 1,153 $ 2,159 $ 1,476 $ 1,929
Amortization 311 311 - 933 898 -
Interest on
long-term debt 3,069 3,433 - 9,365 5,104 -
Interest 140 218 - 496 524 -
Initial lease
costs - - - _ 4,191 -
Future Income
Taxes 1,595 1,743 - 2,384 2,143 -


Expenses - Management and Administrative

Management and administrative expenses were $0.5 million and $2.2 million for the three and nine months ended September 30, 2005 compared to $0.7 million and $1.5 million for the same periods in 2004. Third quarter management and administrative expenses in 2005 were down $138 thousand from the same period in 2004 mainly due to non-recurring reporting costs incurred in 2004 relating to the King City acquisition. If the effect of a one-time recovery of $0.5 million in 2004 in respect of the 2003 management incentive payment to the Manager is removed, year-to-date management and administrative expenses increased by $160 thousand reflecting an increase in salary expense as the Fund employed eleven individuals since August 2004, offset by the lower reporting costs that have been incurred in 2005. The Fund incurred $43 thousand and $129 thousand for fees payable to the Manager to manage and administer the Fund for the three and nine months ended September 30, 2005, up from $41 thousand and $123 thousand for the same periods in 2004.

The Fund was entitled to receive $0.2 million in the third quarter of 2005 (Q3 2004 - $0.5 million) as a special distribution on the Class A Priority Units. The total special distribution declared for the nine months ended September 30, 2005 was $1.5 million. The special distribution is paid to the Fund from the Partnership. It is equal to 100% of the Fund's management and administrative expenses other than the King City management and administrative expense and the fees paid to the Manager to manage and administer the Fund. The special distribution is paid to the Fund before any amounts are paid on the Class B Subordinated Units. At the end of the third quarter 2005, $0.2 million was receivable by the Fund as a declared but unpaid distribution.

Expenses - Interest Expense

Interest on long term debt of $3.1 million and $9.4 million for the three and nine months ended September 30, 2005 related to interest accrued on the US dollar denominated loan incurred in conjunction with the acquisition of the King City Facility ("King City Loan"). Interest on long-term debt was $3.4 million and $5.1 million for the same periods in 2004. The King City Loan, payable annually in US dollars, matures in 2019 and bears interest at a fixed interest rate of 12.8% per annum. The US dollar lease receipts together with a portion of the funds from the King City restricted cash account will be used to service this loan and, as such, foreign exchange risk associated with satisfying future obligations under this US dollar loan is largely mitigated. Interest expense incurred in the third quarter 2005 has decreased a total of $0.3 million of which $0.2 million of the decrease is due to the impact of foreign exchange fluctuations with the remaining $0.1 million decrease is a result of principal payments made in December 2004.

Interest expense of $0.1 million and $0.5 million for the three and nine months ended September 30, 2005 relates to standby charges and interest on the outstanding balance of the Calpine Commercial Trust ("CCT") Credit Facility (the "Credit Facility"). Interest expense of $0.2 million and $0.5 million for the three and nine months ended September 30, 2004 relates solely to interest and standby charges on the Credit Facility. Utilizing $8.0 million of borrowings from the Credit Facility and $8.0 million of funds from the Levelization Reserve, the Fund loaned $16.0 million to the Partnership in 2004 for financing of the 2004 upgrade to the Island Facility. The Fund has repaid $8.0 million of the outstanding Credit Facility balance this year, $7.0 million in the first and second quarter with the balance in the third quarter. This was achieved through cash received in excess of distribution requirements. The average cost of borrowing incurred for the Credit Facility in the third quarter was 4.65% and 4.55% for the nine months ended September 30, 2005.

Amortization expenses attributable to the deferred financing costs of the Credit Facility and the King City Loan were $0.3 million and $0.9 million for the three and nine months ended September 30, 2005, unchanged from 2004.

Initial lease costs of $4.2 million relate to the King City Facility and were expensed at the inception of the lease to Calpine King City in May 2004.

The Fund recorded tax expense of $1.6 million and $2.4 million on its income from the King City Facility for the three and nine months ended September 30, 2005, representing an effective tax rate of 40.75%, unchanged from 2004. Year-to-date tax expenses increased $0.2 million from the same period primarily as a result of the acquisition of the King City Facility part way through the second quarter of 2004. No tax expense was recorded in the first quarter of 2004 as no Fund entities were subject to income tax. No cash taxes are expected to be paid this year in the US due to US tax depreciation on the King City Facility in excess of income from operations.



Calpine Power, L.P.

Selected Third Quarter Information
(in 000's, except for per Unit amounts)

Three Three Three Nine Nine Nine
months months months months months(1) months
ended ended ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2003 2005 2004 2003
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Total
Revenue $ 29,569 $ 28,811 $ 24,975 $ 87,923 $ 75,890 $ 63,848
Net Earnings 19,224 19,323 16,153 56,934 45,410 41,162
Net Earnings
Per Class A
Priority
Unit 0.2625 0.2654 0.2174 0.7773 0.6239 0.5541
Net Earnings
Per Class B
Subordinated
Unit 0.2502 0.2477 0.2174 0.7409 0.5819 0.5541

Total
Assets 660,566 664,237 644,475 660,566 664,237 644,475

Total Long-term
Liabilities 2,520 2,322 2,140 2,520 2,322 2,140
Distributions
Declared
Per Class A
Priority Unit 0.2549 0.2483 0.2889 0.7699 0.7823 0.7614
Per Class B
Subordinated
Unit 0.2394 0.3950 0.2821 0.7182 0.7346 0.7530
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(1) In 2004 the Island Facility was shut down in second quarter for
capital upgrades.


Earnings

Net earnings for the three months ended September 30, 2005 of $19.2 million were consistent with the $19.3 million of net earnings reported in the third quarter of 2004. Nine month net earnings $56.9 million in 2005 were $11.5 million higher than net earnings of the comparable period in 2004, due in part to benefits realized from the Island Facility upgrade, increased plant availability and lower operating and maintenance expenses at both the Calgary and Island facilities, offset by an increase in depreciation expense. Current quarter operating and maintenance expenses were up in 2005 mainly due to one time credits on utilities, property tax and insurance costs that are included in the third quarter of 2004. Year-to-date operating expenses are less than the nine months ended September 30, 2004 due to major maintenance expenses of contract labour and overhead that were not incurred in 2005. Operating and maintenance expense primarily includes employee expenses, repairs and maintenance, insurance and property taxes.

Revenues

Revenues for the three and nine months ended September 30, 2005 were up $0.8 million and $12.0 million from the same periods in 2004. This increase was mainly due to higher power generation at the Island Facility for the nine months ended September 30, 2005. The Island Facility operated at 98% availability for the nine months ended September 30, 2005, significantly up from the 80% availability in the nine months ended September 30, 2004. The increased power generation reflects both the increase in capacity of the plant since the upgrade as well as no planned outages occurring in 2005.

Interest earned through the participating loan (the "Whitby Loan") to a Calpine subsidiary and other cash balances remained largely unchanged from the third quarter 2004. During the three and nine months ended September 30, 2005, respectively, the Partnership received $1.1 million and $4.5 million from Calpine Canada Whitby Holdings Company ("CCWHC") that has been applied to the accrued interest receivable and principal on the Whitby Loan. The Partnership received nil and $2.0 million for the same periods in 2004. The amounts received in 2005 represented a $2.5 million distribution of the plant's 2004 earnings plus a further $2.0 million from current year operations.



Island Cogeneration Facility

Selected Third Quarter Information

Three months Three months Three months
ended ended ended
Sept 30, Sept 30, Sept 30,
2005 2004 2003
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Availability 100% 100% 95%
Electricity generated (MWh) 518,044 495,585 442,697
Steam generation (GJ) 420,342 503,084 358,671


Nine months Nine months Nine months
ended ended ended
Sept 30, Sept 30, Sept 30,
2005 2004 2003
---------------------------------------------------------------------

Availability 98% 80% 76%
Electricity generated (MWh) 1,536,924 1,123,567 1,031,745
Steam generation (GJ) 1,232,694 1,219,590 1,089,848


The Island Facility is a 240 MW natural gas-fired combined cycle cogeneration plant located at Duncan Bay, near Campbell River, on Vancouver Island, British Columbia. Power generation has increased 5% and 37% for the three and nine months ended September 30, 2005, respectively, over the same periods in 2004, due to the increased capacity and availability of the plant relating to the capital upgrade completed in the second quarter of 2004. A planned shutdown for two months occurred in the second quarter of 2004 for these capital upgrades and scheduled major maintenance.

Revenues

Electricity generation revenue was $11.0 million and $33.3 million for the three and nine months ended September 30, 2005, compared to $10.9 million and $24.2 million for the three and nine months ended September 30, 2004. The increase in year-to-date performance is due to both the increased capacity of the plant from the capital upgrades and no planned outages occurring in 2005.

Electricity revenue is net of any heat rate penalty payable to BC Hydro pursuant to the terms of the Electricity Purchase Agreement ("EPA"). A heat rate penalty is payable when the annual heat rate of the Island Facility exceeds the heat rate guaranteed in the EPA and as a result BC Hydro incurs additional costs for gas. The amount of the penalty payable is a function of natural gas prices and the amount that the actual heat rate exceeds the guaranteed heat rate stated in the EPA. Pursuant to an agreement between the Partnership and Calpine, the Island Facility is indemnified by Calpine for annual heat rate penalties incurred over specified amounts. Heat rate penalties for the three and nine months ended September 30, 2005 totaled $1.8 million and $4.8 million compared to $1.7 million and $5.0 million in the same periods of 2004.

Included in electricity generation revenue was $1.4 million and $3.8 million of settlement revenue from Alstom for the three and nine months ended September 30, 2005, compared to $1.4 million and $4.2 million for the same periods in 2004. Pursuant to a settlement agreement reached in 2002 (the "Settlement Agreement") with Alstom Canada Inc. ("Alstom") related to performance guarantees set out under the Island Facility Construction Contract, Alstom agreed to pay certain amounts totaling $50.0 million to the Partnership over a ten year period because certain performance targets for the Island Facility were not met. The increased earnings in 2005 over 2004 is a direct result of the plant shutdown in 2004 during which time no settlement revenue was earned as the plant was not operational. At September 30, 2005, the remaining amount due from Alstom under the terms of the Settlement Agreement was $30.0 million (September 30, 2004 - $34.3 million) which will be earned over approximately the next five to seven years, based on the expected operations of the plant during that period. Remaining amounts owing under the Settlement Agreement, if any, will be payable upon termination of the Maintenance Agreement, expected to be no later than April 2017. Performance of this obligation is secured by a letter of credit issued by a Canadian financial institution.

Revenue from steam sold to Catalyst Paper Corporation ("Catalyst"), formerly known as Norske Skog Canada Limited, was $3.5 million and $9.9 million for the three and nine months ended September 30, 2005 compared to $3.4 million and $8.3 million in the same periods in 2004. As a result of the strengthening Canadian dollar as well as higher natural gas prices, the steam price has increased 21% in the nine months ended September 30, 2005 over the nine months ended September 30, 2004. Price increases in the third quarter of 2005 were offset by lower steam volumes due to less steam offtake by Catalyst during the current period. Year-to-date steam volumes remain consistent with 2004.

Expenses

Operating and maintenance expense attributable to the Island Facility was $2.5 million and $7.5 million for the three and nine months ended September 30, 2005, compared to $2.0 million and $7.2 million for the same periods in 2004. The $0.5 million increase in operating and maintenance expense for the quarter is due to increased production from the facility. Certain operating and maintenance expenses are paid by the Manager and reimbursed by the Partnership, in accordance with applicable agreements. At September 30, 2005, there was $0.7 million (September 30, 2004 - $0.2 million) due to the Manager from the Partnership in respect of such agreements.

Depreciation expense attributable to the Island Facility was $3.1 million and $9.2 million for the three and nine months ended September 30, 2005, compared to $3.3 million and $8.9 million for the same periods in 2004. Capital expenditures relating to the Island capital upgrade of $16.0 million, completed in the second quarter of 2004, are being depreciated over the remaining life of the plant, resulting in the increase in year-to-date depreciation expense.

Interest expense for the three and nine months ended September 30, 2005 totaled $0.1 million and $0.5 million related to the loan from the Fund used to finance the capital upgrade at the Island Facility (the "Partnership Loan"). The loan bears interest at the Fund's cost of funds plus 10 basis points and averaged 4.76% and 4.68% for the three and nine months ended September 30, 2005. The loan increased to $16.0 million at the beginning of 2005 and has since then been reduced by $4.5 million through monthly principal repayments to September 30, 2005. Increased cash flow generated from the increased capacity as a result of the upgrade is committed to be used to service interest and principal on the loan.



Calgary Energy Centre

Selected Third Quarter Information

Three Three Three Nine Nine Nine
months months months months months months
ended ended ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2003 2005 2004 2003
---------------------------------------------------------------------

Availability 100% 93% 98% 99% 87% 98%
Electricity
generated
(MWh) 97,398 214,795 310,978 256,827 594,378 447,378


The Calgary Energy Centre is a natural gas-fired combined cycle plant located in Calgary, Alberta which commenced operations on March 31, 2003. The Calgary Energy Centre has a capacity of 300 MW, consisting of 250 MW of base capacity plus 50 MW of peaking capacity. Revenue is earned through both a fixed and variable charge payable by Calpine Energy Services Canada Partnership ("CESCP"), a wholly-owned partnership of Calpine, under the terms of a long-term Tolling Agreement, where the fixed charge component represents approximately 99% of total revenue and is a function of plant availability.

Revenues

Electricity revenues at the Calgary Energy Centre were $14.1 million and $41.8 million for the three and nine months ended September 30, 2005, compared to $13.5 million and $40.6 million for the three and nine months ended September 30, 2004. The increase in availability to 100% in the third quarter of 2005 compared to the 93% availability in the third quarter of 2004 resulted in $0.3 million of the increase in revenues this quarter. The remaining increase is from monthly plant start-up charges which are a function of dispatching the plant as well as the annual CPI adjustment over the prior year. A certain number of startups annually are included in the monthly tolling revenue paid by CESCP; any startups over this amount are an additional charge to CESCP.

For the third quarter of 2005, the tolling revenue earned continued to be above net revenue the plant would have earned had it been selling power to the merchant market. CESCP is entitled, under the contract, to dispatch the plant on and off allowing CESCP to focus on generating power when it is profitable to do so. The capacity factor of the plant, being a measure of the actual MWh's produced versus the total possible MWh's of production from the plant in a given time period, was 16% in the third quarter of 2005, due to prices in the Alberta power market being typically lower during off-peak periods then economically profitable for the Calgary Energy Centre. This lower capacity factor impacts power generation during the period, but has no financial impact on the Fund as revenue is earned from the Tolling Agreement which is based on availability of the plant. The capacity factor in the third quarter of 2004 was 33%, also due to lower dispatching of the plant typically during the off-peak periods.

Expenses

Annual operating and maintenance expense attributable to the Calgary Energy Centre was $2.1 million and $6.2 million respectively for the three and nine months ended September 30, 2005, compared to $1.6 million and $7.5 million respectively, for the same periods in 2004. The $0.5 million increase in the current quarter over the same period in 2004 is attributable to one time credits received in the third quarter 2004 on utilities, insurance costs and property taxes. Major maintenance expenses related to the planned outage in the second quarter of 2004 accounts for the year-to-date decrease in operating and maintenance expenses in 2005. There were no major maintenance outages in 2005. Certain operating and maintenance expenses are paid by the Manager and reimbursed by the Partnership, in accordance with applicable agreements. At September 30, 2005 there was $0.2 million (September 30, 2004 - $0.2 million) due to the Manager from the Partnership in respect of such agreements.

Depreciation expense attributable to the Calgary Energy Centre was $2.4 million and $7.1 million for the three and nine months ended September 30, 2005 compared to $2.2 million and $6.6 million for the same periods in 2004. The increase over the prior year is due to a reassessment of the useful life of certain spare parts in 2005 resulting in a shorter depreciable life.

LIQUIDITY AND CAPITAL RESOURCES



Calpine Power Income Fund

Selected Third Quarter Information
(in 000)
Three Three Three Nine Nine Nine
months months months months months months
ended ended ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2003 2005 2004 2003
---------------------------------------------------------------------

Cash provided
by operating
activities $ 13,991 $ 13,769 $ 13,490 $ 40,793 $ 40,142 $ 38,954
Cash provided
by (used in)
investing
activities 3,646 3,005 - 8,459 (205,611) -
Cash provided
by (used in)
financing
activities (16,152) (15,003) (13,591) (53,405) 176,430 (38,941)
Cash and cash
equivalents 4,097 4,722 23 4,097 4,722 23
Restricted
cash 5,482 5,889 - 5,482 5,889 -


At September 30, 2005, the Fund had unrestricted cash and cash equivalents of $4.1 million. The Fund generated cash from operating activities of $14.0 million and $40.8 million in the three and nine months ended September 30, 2005 compared to $13.8 million and $40.1 million for the same periods in 2004.

In accordance with the terms of the Manager Loan issued as part of the King City transaction, the Fund received payments of $2.7 million and $8.0 million of principal and $1.3 million and $4.1 million of interest in the three and nine months ended September 30, 2005 compared to $3.0 million and $5.0 million of principal and $1.6 million and $2.8 million of interest for the same periods in the prior year. The Manager Loan will be fully repaid on December 31, 2010. The Fund also received payments of $1.1 million and $5.1 million of principal and interest in the three and nine months ended September 30, 2005 from the Partnership Loan used to fund the Island capital upgrade. The Partnership is committed to use cash flow generated from the improved operations of the Island Facility to service the Partnership Loan. Based on current operational results, the Partnership Loan is expected to be fully repaid by the third quarter in 2007.

Cash used in financing activities of the Fund for the third quarter of 2005 totaled $16.2 million, comprised of distributions paid of $15.2 million and $1.0 million used to repay the Credit Facility. For the same period last year, cash used by financing activities related to $15.0 million of distributions paid. Distributions paid by the Fund in the third quarter of 2005 were up 1% from 2004 distributions due to the 1% increase in per Trust Unit distributions announced in January of this year.

At the end of the third quarter of 2005, no amounts were drawn under the Credit Facility. Under the terms of the Credit Facility, the Fund may draw up to $30 million to fund working capital requirements and $90 million to finance new acquisitions.

As part of the King City Transaction in 2004, the Fund deposited US$4.6 million of the funds received from the offering into a segregated account as required under the terms of the King City Loan. The funds were used to purchase government and high quality investments with maturities that coincide with the annual interest payments due on the King City Loan. It is expected that US$3.9 million of these restricted cash reserves will be used in December 2005 with the balance to be used in 2006.



Calpine Power L.P.

Selected Third Quarter Information
(in 000)
Three Three Three Nine Nine Nine
months months months months months months
ended ended ended ended ended ended
Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
2005 2004 2003 2005 2004 2003
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Cash provided
by operating
activities $ 14,749 $ 23,835 $ 18,614 $ 69,206 $ 60,788 $ 49,471
Cash provided
by (used in)
investing
activities 1,056 (1,677) (10,155) 867 (16,876) (37,849)
Cash provided
by (used in)
financing
activities (19,551) (18,444) (38,819) (55,955) (49,266) (91,417)
Cash and cash
equivalents 27,918 9,955 16,475 27,918 9,955 16,475
Retricted
cash - - 2,190 - - 2,190


The Partnership had cash and cash equivalents $27.9 million at September 30, 2005, up $14.2 million or 104% from the end of 2004. Included in cash and cash equivalents is an unsegregated cash reserve of $15.5 million at September 30, 2005 (September 30, 2004 - $6.6 million) that will be used to fund future maintenance costs of the Partnership. The next major maintenance for the Island Facility is expected to occur in the third quarter of 2006. Major maintenance for the Calgary Energy Centre is dependent on actual operating hours as well as optimal timing to perform the maintenance. As such, the exact timing for the next major maintenance event cannot be determined at this time although it is expected to occur in the first half of 2006.

The Partnership generated cash from operations of $14.8 million and $69.2 million for the three and nine months ended September 30, 2005, compared to $23.8 million and $60.8 million for the same periods in 2004. The decrease in cash from operations for the third quarter 2005 is mainly due to the annual payment of the heat rate penalty at the Island Facility during the third quarter of 2005 compared to payment in the second quarter of 2004. The increased cash generated for the nine months ended September 30, 2005 was primarily attributable to increased cash from operations at the Island Facility in 2005 compared to 2004 when the Island Facility's upgrade was being implemented.

The Partnership used nil and $0.2 million for capital expenditures during the three and nine months ended September 30, 2005, substantially all associated with the Island Facility. In the same periods last year capital expenditures were nil and $22.7 million. These capital expenditures, largely related to the Island capital upgrade and capital portions of the major maintenance which occurred in the second quarter of 2004.

Cash from financing activities of the Partnership for the nine months ended September 30, 2005 include $4.0 million received in January 2005 on the Partnership Loan to finance the balance of capital expenditures associated with the Island Facility upgrade net of $4.5 million in principal repaid during the period on the loan.

Future Obligations

Both the Fund and Partnership will be required to remove generation facilities at the end of their useful lives and restore the plant sites to their original condition. The estimated future asset retirement obligation remains unchanged from 2004.

The Calgary Energy Centre and the Island Facility are each required to make payments for annual plant maintenance in accordance with applicable LTSA's. Amounts paid in accordance with these agreements for the three and nine months ended September 30, 2005 were $0.3 million and $0.5 million respectively (nil and $0.3 million for the same periods in 2004 respectively) for the Calgary Energy Centre and $0.2 million and $0.6 million ($0.2 million and $0.6 million for the same periods in 2004 respectively) for the Island Facility. Future commitments relating to the LTSA's have a significant variable portion that cannot be reasonably estimated. Currently the variable portion of the Island LTSA is offset by payments made under the Settlement Agreement with Alstom. As a result, the Island Facility will not be required to make significant cash payments relating to equivalent operating hour ("EOH") charges under the Island LTSA for approximately five to seven years. Calgary's LTSA payments are due in US dollars and are payable at certain EOH hurdles.

The Fund has not entered into any off-balance sheet arrangements.

DISTRIBUTABLE CASH AND DISTRIBUTIONS

Distributable Cash is not a measure under Canadian generally accepted accounting principles and there is no standardized measure of Distributable Cash. Distributable Cash, as presented, may not be comparable to similar measures presented by other companies. Distributable cash has been presented to assist readers in determining possible future cash distributions. Distributable cash cannot be assured and may vary.



Calpine Power Income Fund


(in 000's, except
for Trust Units Three months Three months Three months
and per Trust ended Sept 30, ended Sept 30, ended Sept 30,
Unit Amounts) 2005 2004 2003
---------------------------------------------------------------------
FUNDS FROM OPERATIONS
BEFORE WORKING
CAPITAL CHANGES $ 11,042 $ 10,391 $ 12,487
Add (Deduct):
Levelization reserve (1,297) (1,965) -
Principal repayment
on loan to Calpine
Canada Power Ltd. 2,672 3,005 -
Working capital 2,735 3,572 799
----------------------------------------------

DISTRIBUTABLE CASH $ 15,152 15,003 $ 13,286
----------------------------------------------
----------------------------------------------
Weighted average
number of Trust Units
outstanding 61,742,288 61,742,288 52,001,351
----------------------------------------------
----------------------------------------------
Distributions declared
per Trust Unit $ 0.2454 $ 0.2430 $ 0.2555
----------------------------------------------
----------------------------------------------


(in 000's, except
for Trust Units Nine months Nine months Nine months
and per Trust ended Sept 30, ended Sept 30, ended Sept 30,
Unit Amounts) 2005 2004 2003
---------------------------------------------------------------------
FUNDS FROM OPERATIONS
BEFORE WORKING
CAPITAL CHANGES $ 32,393 $ 37,267 $ 37,554
Add (Deduct):
Levelization reserve (4,216) (3,883) -
Principal repayment
on loan to Calpine
Canada Power Ltd. 8,015 5,008 -
Working capital 9,263 2,922 224
-----------------------------------------------

DISTRIBUTABLE CASH $ 45,455 $ 41,314 $ 37,778
-----------------------------------------------
-----------------------------------------------
Weighted average
number of Trust Units
outstanding 61,742,288 56,800,718 52,001,351
-----------------------------------------------
-----------------------------------------------

Distributions declared
per Trust Unit $ 0.7362 $ 0.7190 $ 0.7265
-----------------------------------------------
-----------------------------------------------


The amount of Distributable Cash of the Fund to be distributed monthly to Unitholders is, as defined in the Fund Trust Indenture, based generally on the amount by which the Fund's cash on hand exceeds: (i) administration expenses of the Fund; (ii) amounts required for the business and operations including fees payable to the Manager under the Administration and Management
Agreements; and (iii) any cash reserve which the Trustees or the Manager in its discretion determines is necessary to satisfy the Fund's current and anticipated future obligations. The Fund pays monthly cash distributions to Unitholders on or about the 20th day of each month following the record date, which is the last business day of the preceding month.

The following is a summary of recent and expected monthly distribution and future key dates:



Distribution
Ex-distribution Distribution per
Date Record Date Payment Date Trust Unit
October 27, 2005 October 31, 2005 November 18, 2005 $0.0818
November 28, 2005 November 30, 2005 December 20, 2005 $0.0818
December 28, 2005 December 30, 2005 January 20, 2006 $0.0818


Distributable Cash generated by the Fund totaled $15.2 million or $0.2454 per Trust Unit for the three months ended September 30, 2005 compared to $15.0 million or $0.2430 per unit for the same period in 2004. The King City Transaction, which closed in May 2004, has contributed an additional $0.9 million per month in distributable cash since June 2004.

The Fund, through its indirect 70% ownership of the Partnership, received $0.0798 of Distributable Cash per Class A Priority Unit per month (in addition to a special distribution equal to certain management and administrative expenses incurred directly by the Fund) for the three months ended September 30, 2005, up from $0.079 per month in the same period of 2004.

Levelization Reserve

In 2004, the Fund established a Distribution Levelization Reserve ("the Levelization Reserve"), the purpose of which is to levelize, over the long-term, the distributions paid by the Fund to Unitholders in respect of the King City acquisition, so as to enable the Fund to provide a level cash stream to the Unitholders. Total undistributed cash at September 30, 2005 was $13.9 million. The CCT Trustees intend to annually increase or decrease this reserve with long-term consideration given to the expected cash from both the King City Facility and Manager Loan and future distribution requirements to Unitholders. Cash generated by the King City Transaction and other Fund investments is expected to exceed cash distributions anticipated to be paid on the Trust Units until 2014 and, as a result, the Levelization Reserve is expected to increase until that time.



Levelization Reserve
---------------------------------------------------------------------
Balance at June 30, 2005 $ 12,562
Contributions 1,242
Income reinvested 55
---------------------------------------------------------------------
Balance at September 30, 2005 $ 13,859
---------------------------------------------------------------------


As at September 30, 2005, the Levelization Reserve has been used as
follows:

---------------------------------------------------------------------
Guaranteed investment certificates $ 2,303
Loan to Calpine Power L.P. due on demand 11,556
---------------------------------------------------------------------
Balance at September 30, 2005 $ 13,859
---------------------------------------------------------------------


Working Capital

The working capital amount of $2.7 million and $9.3 million for the three and nine months ended September 30, 2005 includes accrued interest payable on the King City Loan of $3.1 million and $9.3 million respectively. Interest is payable annually and will be fully serviced by annual lease payments received on the King City lease. The lease payments will be recorded against the net investment in lease when received.



Calpine Power, L.P.

Three Three Three Nine Nine Nine
(in 000's, months months months months months months
except for ended ended ended ended ended ended
per Unit Sept 30, Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
amounts) 2005 2004 2003 2005 2004 2003
---------------------------------------------------------------------
FUNDS FROM
OPERATIONS
BEFORE WORKING
CAPITAL
CHANGES $24,646 $25,068 $21,340 $73,294 $60,893 $53,864
Add (Deduct):
Receipts with
respect to
Calgary
Energy
Tolling
Agreement - - - - - 9,548
Capital
expenditures 99 - (349) (179) (22,681) (3,006)
Maintenance
reserve
decrease
(increase) (1,429) (2,826) (495) (4,611) 2,746 (990)
Loan payable (974) - (444) 7,993 -
Working
capital (3,753) (527) 813 (12,017) 8,100 (3,044)
------------------------------------------------------
DISTRIBUTABLE
CASH $18,589 $21,715 $21,309 $56,043 $57,051 $56,372
------------------------------------------------------
------------------------------------------------------

Allocation of
Distributable
Cash
Class A
Priority
Units $13,253 $12,911 $15,022 $40,036 $40,680 $39,591
Class B
Subordinated
Units 5,336 8,804 6,287 16,007 16,371 16,781
------------------------------------------------------
$18,589 $21,715 $21,309 $56,043 $57,051 56,372
------------------------------------------------------
------------------------------------------------------
Per Unit
allocation of
Distributable
Cash
Class A
Priority
Units $0.2549 $0.2483 $0.2889 $0.7699 $0.7823 $0.7614
------------------------------------------------------
------------------------------------------------------
Class B
Subordinated
Units $0.2394 $0.3950 $0.2821 $0.7182 $0.7346 $0.7530
------------------------------------------------------
------------------------------------------------------


The amount of Distributable Cash, as defined in the Calpine Power, L.P. Partnership Agreement, is to be distributed monthly and is based generally on the amount by which the Partnership's cash on hand exceeds: (i) management and administration expenses of the Partnership; (ii) amounts required for the business and operations of the Partnership and its Facilities (including expenses payable to the Manager under the O&M Agreements); and (iii) any cash reserve which the Trustees or the Manager in its discretion has determined is necessary to satisfy the Partnership's current and anticipated obligations, including an annual reserve for the average estimated major maintenance expenditures. The Partnership distributes Distributable Cash of the Partnership in respect of each month to the partners of record on the last day of each month based on the priority rights of the partnership units. Payments are made on or about the 20th day after each record date. The target distribution per Class A Priority Unit and Class B Subordinated Unit increases annually by 1%.

The Partnership makes monthly cash distributions to both the Class A Priority Unitholders and Class B Subordinated Unitholders. The Fund, as the holder of Class A Priority Units in the Partnership, must be paid before the Manager receives distributions on its Class B Subordinated Units. In addition, the Partnership makes a special distribution to the Class A Priority Unitholders, before distributions are made on the Class B Subordinated Units, equivalent to the amount of certain general and administrative expenses of the Fund. The Class B Subordinated Units represent a 30% economic interest in the Island Facility, the Calgary Energy Centre and the Whitby Loan and their entitlement to distributions is subordinated to that of Class A Priority Unitholders until 2022.

Maintenance Reserve

The Partnership has established a maintenance reserve, the purpose of which is to substantially fund future maintenance costs. The annual increase/decrease in the maintenance reserve is deducted from/added to cash available for distribution. During the three months ended September 30, 2005, $1.8 million (Q3 2004 - $2.8 million) was contributed to the reserve and $0.4 million (Q3 2004 - nil) was withdrawn to fund maintenance costs. The funds in the reserve are invested in liquid securities with maturities coinciding with expected cash requirements. Interest income of $73 thousand (Q3 2004 - $9 thousand) was earned on the maintenance reserve during the third quarter of 2005.



Maintenance Reserve
---------------------------------------------------------------------
Balance at June 30, 2005 $ 14,106
Contributions 1,834
Withdrawals (446)
Income reinvested 73
Foreign exchange gain on US dollars (32)
---------------------------------------------------------------------
Balance at September 30, 2005 15,535
---------------------------------------------------------------------


Loan Payable

The Partnership used cash from operations of $1.0 million and $4.5 million in the three and nine months ended September 30, 2005 to make principal payments on the Partnership Loan in 2005. The loan originated in the second quarter of 2004 and no principal payments were made in the three and nine months ended September 30, 2004.

Working Capital

Cash used to fund working capital in the third quarter of 2005 is significantly higher than the prior year due to timing of the payment of the Island Heat Rate Penalty in the third quarter of 2005 which was paid in the second quarter of 2004.

The Partnership paid, on October 20, 2005, a cash distribution of $5.9 million for the period from September 1 to September 30, 2005 to the Class A Priority and Class B Subordinated Unitholders of record on September 30, 2005. The Partnership also declared a cash distribution of $5.9 million for October 2005.

TAX TREATMENT OF DISTRIBUTIONS

For Canadian tax purposes, the taxable amount of distributions to the Fund's Unitholders was 20% for 2004, up from 1.89% in 2003. The remaining amount of the distributions reduce the adjusted cost base of the Trust Units, thereby providing a tax deferral for the Unitholders. As a result, in 2004, 80% of the distributions to Unitholders were a return of capital rather than an allocation of income. The tax deferral for Canadian tax purposes, arises primarily due to the ability of the Partnership to shelter its taxable income with capital cost allowance claims on the Facilities and is offset by the taxability of annual income generated on the King City Transaction which is taxed as earned with no available deferrals. The Manager anticipates that the taxable amount of distributions in 2005 will continue to be 20%. Thereafter it is anticipated that a higher proportion of cash distributions made by the Fund will be included in the income of the Unitholders for income tax purposes. Further, Fund acquisitions could serve to extend or reduce the tax-deferred horizon. The Fund recommends that Unitholders consult their tax advisors regarding the tax implications of their investment in Trust Units.

CRITICAL ACCOUNTING ESTIMATES

Preparation of both the Fund and Partnership's financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses for the period then ended.

For the Fund, amounts recorded for finance income, depreciation and the provision for asset retirement obligations are based on estimates. With respect to the Partnership, amounts recorded for depreciation and the provision for asset retirement obligations are based on estimates. By their nature, these estimates are subject to measurement uncertainty and changes in these estimates may impact the consolidated financial statements of future periods.

OUTLOOK

The Fund's main goal continues to be to provide stable and sustainable cash distributions to its Unitholders. Management expects this will be done by its ongoing commitment to operational excellence at its facilities, by enhancing operations to increase cash from operations and by reducing the overall risk profile of our assets by making accretive acquisitions of high quality assets.

The nature of the Fund's contracts insulate the Fund from commodity price risk while allowing the Fund to focus on reducing operating and maintenance expenses, the benefits of which we expect will increase net earnings and cash flow.

Remaining capital expenditures for 2005 are expected to be approximately $0.1 million, which will be financed from cash flow from operations. The major maintenance reserve is expected to increase by a further $1.7 million in 2005.

Management expects to make cash distributions to our Unitholders of $0.0818 per month per Trust Unit for the remainder of 2005 and anticipates to end the year with a strong balance sheet and cash reserves.

BUSINESS RISKS

The Fund continues to monitor its business risks including its exposure to contract non-performance, most notably in the collection of both the monthly toll received on the Calgary Energy Centre availability and the repayment of the Manager Loan from Calpine Corporation. While Calpine's credit rating is below investment grade, the Fund received all payments due in the third quarter of 2005, and from inception of the Fund, from Calpine Corporation on time and in full.

Although the King City Steam Host has indicated that it intends to curtail its steam take from the King City Facility in the future, the Steam Host currently takes or has indicated that it intends to take a sufficient amount of thermal energy from the King City Facility to ensure the facility retains its QF status for 2005. The King City Steam Host has now successfully installed a water distillation facility which, when operated, has the ability to take a sufficient amount of thermal energy to ensure the King City Facility retains its QF status. The water distillation facility was completed in the third quarter of 2005. An order was granted in May, 2005 by FERC, pursuant to an application made earlier in the year, approving the recertification of the King City Facility for this alternate use of thermal energy.

On September 8, 2005, the Canadian Government announced its intention to study tax issues related to Flow Through Entities ("FTE") including income trusts. Changes to income tax legislation arising from this study, if any, could have an impact on unitholder distributions.

Additional information on risks may be found in the Management Discussion and Analysis in the 2004 annual report.



SUMMARY OF QUARTERLY RESULTS

Calpine Power Income Fund

(unaudited) 2005
--------------------------
(in 000's) Q3 Q2 Q1
--------------------------
Equity earnings from
Calpine Power, L.P. $ 13,649 $ 12,766 $ 14,008
Finance income.(2) 4,613 4,714 4,649
Interest and other income 1,921 2,052 2,160
--------------------------
20,183 19,532 20,817
--------------------------
Expenses
Management and administrative 523 637 999
Amortization 311 311 311
Accretion 27 28 19
Interest on long-term debt 3,069 3,171 3,125
Interest 140 160 196
Foreign exchange (205) 86 (157)
Initial lease cost - - -
Future income taxes 1,595 362 427
--------------------------
5,460 4,755 4,920
--------------------------
Net earnings $ 14,723 $ 14,777 $ 15,897
--------------------------
--------------------------
Net earnings per Trust Unit $ 0.2385 $ 0.2393 $ 0.2575
--------------------------
--------------------------


(unaudited) 2004 2003
----------------------------------- --------
(in 000's) Q4 Q3 Q2(1) Q1 Q4
----------------------------------- --------
Equity earnings from
Calpine Power, L.P. $ 13,292 $ 13,802 $ 5,378 $ 13,262 $ 12,562
Finance income.(2) 4,843 5,076 6,577 - -
Interest and other
income 2,198 2,290 1,607 - 15
----------------------------------- --------
20,333 21,168 13,562 13,262 12,577
----------------------------------- --------
Expenses
Management and
administrative 1,620 661 357 458 529
Amortization 311 311 311 276 271
Accretion 27 28 20 - -
Interest on
long-term debt 3,132 3,433 1,671 - -
Interest 237 218 170 136 134
Foreign exchange 20 53 11 - -
Initial lease cost - - 4,191 - -
Future income taxes 1,666 1,743 400 - -
----------------------------------- --------
7,013 6,447 7,131 870 934
----------------------------------- --------
Net earnings $ 13,320 $ 14,721 $ 6,431 $ 12,392 $ 11,643
----------------------------------- --------
----------------------------------- --------
Net earnings per
Trust Unit $ 0.2157 $ 0.2384 $ 0.1138 $ 0.2383 $ 0.2239
----------------------------------- --------
----------------------------------- --------

(1) Operations for the three months ended June 30, 2004 include
revenues and expenses as a result of the King City transaction,
which closed in May 2004.

(2) Finance income is earned from the lease of the King City
Facility to Calpine King City.



Calpine Power, L.P

(unaudited) 2005
--------------------------
(in 000's) Q3 Q2 Q1
--------------------------
Revenue
Electricity and thermal $ 28,554 $ 27,598 $ 28,775
Interest - Whitby 837 846 837
Interest - Other 178 171 127
--------------------------
29,569 28,615 29,739
--------------------------
Expenses
Operating and maintenance 4,638 4,733 4,336
Depreciation 5,422 5,471 5,402
Accretion 50 50 50
General and administrative 137 163 152
Interest 148 158 164
Foreign Exchange (50) (13) (22)
--------------------------
10,345 10,562 10,082
--------------------------
Net earnings $ 19,224 $ 18,053 $ 19,657
--------------------------
--------------------------
Net earnings per Unit
Class A Priority Unit $ 0.2625 $ 0.2455 $ 0.2694
Class B Subordinated Unit $ 0.2502 $ 0.2372 $ 0.2535



(unaudited) 2004 2003
----------------------------------- --------
(in 000's) Q4 Q3 Q2 Q1 Q4
----------------------------------- --------
Revenue
Electricity and
thermal $ 28,467 $ 27,827 $ 18,490 $ 26,757 $ 26,564
Interest - Whitby 846 855 846 846 855
Interest - Other 143 129 72 68 81
----------------------------------- --------
29,456 28,811 19,408 27,671 27,500
----------------------------------- --------
Expenses
Operating and
maintenance 4,836 3,573 6,417 4,777 4,597
Depreciation 5,104 5,504 4,777 5,203 5,017
Accretion 46 47 47 46 44
General and
administrative 604 82 10 3 78
Interest 107 88 47 - -
Foreign Exchange 157 194 (209) (126) 184
----------------------------------- --------
10,854 9,488 11,089 9,903 9,920
----------------------------------- --------
Net earnings $ 18,602 $ 19,323 $ 8,319 $ 17,768 $ 17,580
----------------------------------- --------
----------------------------------- --------
Net earnings per Unit
Class A Priority Unit $ 0.2556 $ 0.2654 $ 0.1034 $ 0.2550 $ 0.2415
Class B Subordinated
Unit $ 0.2383 $ 0.2477 $ 0.1320 $ 0.2022 $ 0.2254


FORWARD-LOOKING INFORMATION

Certain information in this Management's Discussion and Analysis is forward-looking and subject to risks and uncertainties. The results or events predicted in this information may differ from actual results or events. Factors which could cause actual results or events to differ materially from current expectations include, among other things, the ability of the Fund and the Partnership to successfully implement the Fund's strategic initiatives and whether such strategic initiatives will yield the expected benefits, the availability and price of energy commodities, regulatory decisions, competitive factors in the power industry, and the prevailing economic conditions in North America. The Fund and the Partnership each disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Calpine Power Income Fund trust units are listed on the Toronto Stock Exchange under the symbol CF.UN. For further information on the Fund, please visit our website at www.calpinepif.com or see contacts below.



CALPINE POWER INCOME FUND
CONSOLIDATED BALANCE SHEETS
(thousands)
As at As at
September 30, December 31,
2005 2004
---------------------------------------------------------------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 4,097 $ 8,138
Restricted cash, current
portion (Note 5) 4,387 4,490
Distributions receivable 4,404 3,890
Accounts receivable 456 566
Loan to Calpine Canada
Power Ltd., current portion
(Note 2) 9,400 9,083
Net investment in lease,
current portion (Note 3) 1,487 1,583
Loan to Calpine Power, L.P.
(Note 4) 11,549 11,993
Prepaid expenses 305 257
--------------------------------
36,087 40,000

Investment in Calpine Power,
L.P. (Note 7) 477,036 476,649
Net investment in lease,
less current portion (Note 3) 146,644 135,521
Loan to Calpine Canada Power Ltd.,
less current portion (Note 2) 25,098 32,188
Restricted cash, less current
portion (Note 5) 1,095 1,114
Land 1,870 1,870
Deferred financing costs 2,988 3,922
--------------------------------
$ 690,818 $ 691,264
--------------------------------
--------------------------------

LIABILITIES AND UNITHOLDERS'
EQUITY
Current Liabilities
Distributions payable $ 5,051 $ 5,001
Accounts payable and accrued
liabilities 9,925 1,959
Long-term debt, current
portion (Note 5) 11,700 12,035
Borrowing under Credit
Facility (Note 6) - 8,000
--------------------------------
26,676 26,995
Future income tax 5,821 3,589
Asset retirement liability 1,333 1,298
Long-term debt, less current
portion (Note 5) 81,654 83,990
--------------------------------
115,484 115,872
Unitholders' equity 575,334 575,392
--------------------------------
$ 690,818 $ 691,264
--------------------------------
--------------------------------

See accompanying notes to the consolidated financial statements


CALPINE POWER INCOME FUND
CONSOLIDATED STATEMENTS OF EARNINGS AND UNITHOLDERS' EQUITY
(thousands, except for Trust Units and per Trust Unit amounts)
(unaudited)

Three months Three months Nine months Nine Months
ended ended ended ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------

REVENUES

Equity
earnings
from Calpine
Power, L.P. $ 13,649 $ 13,802 $ 40,423 $ 32,442
Finance income
(Note 3 and
Note 9) 4,613 5,076 13,976 11,653
Interest and
other income 1,921 2,290 6,133 3,897
------------------------------------------------------
20,183 21,168 60,532 47,992
------------------------------------------------------

EXPENSES

Management and
administrative 523 661 2,159 1,476
Amortization 311 311 933 898
Accretion 27 28 74 48
Interest on
long-term debt 3,069 3,433 9,365 5,104
Interest 140 218 496 524
Foreign exchange
loss (gain) (205) 53 (276) 64
Initial lease
costs - - - 4,191
------------------------------------------------------
3,865 4,704 12,751 12,305
------------------------------------------------------

EARNINGS BEFORE
FUTURE INCOME
TAXES 16,318 16,464 47,781 35,687
------------------------------------------------------
Future income
taxes 1,595 1,743 2,384 2,143
------------------------------------------------------
NET EARNINGS 14,723 14,721 45,397 33,544

UNITHOLDERS'
EQUITY, BEGINNING
OF PERIOD 575,763 577,358 575,392 485,001

Trust Units
issued - - - 99,845

Distributions (15,152) (15,003) (45,455) (41,314)
------------------------------------------------------
UNITHOLDERS'
EQUITY, END
OF PERIOD 575,334 $ 577,076 575,334 $ 577,076
------------------------------------------------------
------------------------------------------------------
Weighted
average
number of
Trust Units
outstanding 61,742,288 61,742,288 61,742,288 56,800,718
------------------------------------------------------
------------------------------------------------------
Net earnings
per Trust
Unit $ 0.2385 $ 0.2384 $ 0.7353 $ 0.5906
------------------------------------------------------
------------------------------------------------------

See accompanying notes to the consolidated financial statements


CALPINE POWER INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
(unaudited)

Three months Three months Nine months Nine Months
ended ended ended ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 14,723 $ 14,721 $ 45,397 $ 33,544
Adjustments for
non-cash items:
Equity earnings
from Calpine
Power, L.P. (13,649) (13,802) (40,423) (32,442)
Finance income (4,613) (5,076) (13,976) (7,462)
Amortization 311 311 933 898
Amortization of
discount on
loan to Calpine
Canada Power Ltd. (388) (498) (1,242) (847)
Accretion 27 28 74 48
Foreign exchange
loss (gain) (205) 53 (276) 64
Future income
taxes 1,595 1,743 2,384 2,143
Distributions
received from
Calpine Power,
L.P. 13,241 12,911 39,522 41,321
--------------------------------------------------
Cash from
operations
before working
capital changes 11,042 10,391 32,393 37,267
Change in
non-cash working
capital (Note 8) 2,949 3,378 8,400 2,875
--------------------------------------------------
Net cash
provided by
operating
activities 13,991 13,769 40,793 40,142
--------------------------------------------------

INVESTING ACTIVITIES
Receipt of
principal on loan
to Calpine Canada
Power Ltd. 2,672 3,005 8,015 5,008
Loan to Calpine
Power, L.P.
(Note 4) - - (4,007) (7,993)
Receipt of
principal on loan
to Calpine Power,
L.P. 974 - 4,451 -
Acquisition of
King City Facility
Lease and Land - - - (154,658)
Loan to Calpine
Canada Power Ltd. - - - (47,968)
--------------------------------------------------
Net cash provided
by (used in)
investing
activities 3,646 3,005 8,459 (205,611)
--------------------------------------------------

FINANCING ACTIVITIES
Distributions
paid (15,152) (15,003) (45,405) (40,395)
Repayment on
credit facility (1,000) - (8,000) -
Borrowing under
credit facility - - - 8,000
Issue of
long-term debt - - - 111,111
Financing costs - - - (2,131)
Trust Units issued - - - 99,845
--------------------------------------------------
Net cash provided
by (used in)
financing
activities (16,152) (15,003) (53,405) 176,430
--------------------------------------------------
Foreign exchange
gain on cash held
in a foreign
currency (314) (343) (10) (387)
--------------------------------------------------

INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 1,171 1,428 (4,163) 10,574
Cash and cash
equivalents,
beginning of
period 8,408 9,183 13,742 37
--------------------------------------------------
CASH AND CASH
EQUIVALENTS,
END OF PERIOD $ 9,579 $ 10,611 $ 9,579 $ 10,611
--------------------------------------------------
--------------------------------------------------

Represented by:
Cash and cash
equivalents $ 4,097 $ 4,722 $ 4,097 $ 4,722
Restricted cash,
current portion 4,387 $ - 4,387 -
Restricted cash,
less current
portion 1,095 5,889 1,095 5,889
--------------------------------------------------
$ 9,579 $ 10,611 $ 9,579 $ 10,611
--------------------------------------------------
--------------------------------------------------

SUPPLEMENTARY
CASH FLOW
INFORMATION
Taxes paid $ - $ - $ - $ -
Interest
received $ 1,476 1,639 $ 4,890 $ 2,785
Interest paid $ 140 $ 218 $ 356 $ 524


See accompanying notes to the consolidated financial statements

CALPINE POWER INCOME FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Tabular amounts are in thousands except for Trust Units and per
Trust Unit amounts)
(unaudited)


1. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Calpine Power Income Fund ("Fund") have been prepared by Calpine Canada Power Ltd. ("the Manager") in accordance with Canadian generally accepted accounting principles. The accounting policies applied are consistent with those outlined in the Fund's annual financial statements for the year ended December 31, 2004. These consolidated financial statements for the three and nine months ended September 30, 2005 do not include all disclosures required in the annual consolidated financial statements and should be read in conjunction with the annual consolidated financial statements included in the Fund's 2004 Annual Report.

The Fund is not subject to any seasonality in its earnings except as may be derived from its investment in Calpine Power, L.P. (the "Partnership"), which earns more revenue during winter months due to increased requested output from contract counter parties.

Certain comparative figures have been reclassified to conform with the 2005 presentation.

2. LOAN TO CALPINE CANADA POWER LTD.

In 2004, the Fund loaned $48.0 million to the Manager from funds received from a public offering made in conjunction with the acquisition of the King City Facility. This loan has a face value of $53.4 million, will mature in 2010, and bears interest at a fixed rate of 13% per annum with interest and principal payable monthly under the schedule provided in the loan agreement. The discount on the face value is amortized to interest income over the term of the note. The portion of the loan maturing within the next 12 months has been classified as current. The loan is a full recourse obligation of the Manager and is secured by a pledge of the Manager's limited partnership interest in the Partnership, including the Manager's right to receive distributions under the Class B Subordinated Units of Calpine Power L.P. In addition, Calpine King City has provided the Fund with a limited recourse guarantee of the Manager's obligations under the loan and granted the Fund a security interest in the Lessee's annual cash from operations. As at September 30, 2005 the fair market value of the loan was determined to be approximately $27.6 million (December 31, 2004 - $45.8 million).



Schedule of principal receipts
and discount amortization Principal Discount Total
---------------------------------------------------------------------
2005 (remainder of the year) $ 2,671 $ (361) $ 2,310
2006 10,686 (1,180) 9,506
2007 10,686 (757) 9,929
2008 8,014 (383) 7,631
2009 2,672 (163) 2,509
2010 2,671 (58) 2,613
---------------------------------------------------------------------
As at September 30, 2005 $ 37,400 $ (2,902) $ 34,498
----------------------------------
----------------------------------


3. NET INVESTMENT IN LEASE

The Fund acquired the King City Facility in 2004, pursuant to an Acquisition Agreement with BAF Energy and leased the facility to Calpine King City for a 20 year term. The plant acquisition has been accounted for as a net investment in the lease given that the Fund's economic recovery of the investment is substantially achieved from the lease. The Fund recognizes finance income over the lease term on a basis that provides a constant rate of return on the net investment in the lease. Lease payments are denominated in both US and Canadian currency and are receivable annually on December 31. The US dollar lease receipts are expected to offset substantially all foreign exchange risk associated with satisfying future obligations under the Fund's related US dollar denominated borrowings (Note 5). The amount of the net investment in the lease maturing within the next 12 months has been classified as current.

Net Investment in Lease includes the following as at September 30, 2005:



Total minimum lease payments receivable $ 314,925
Unguaranteed residual value 173,004
Unearned finance income (339,798)
-----------
148,131
Net investment in lease, current portion (1,487)
-----------
Net investment in lease, less current portion $ 146,644
-----------
-----------

Future minimum lease payments receivable under the lease are as
follows:

2005 (remainder of the year) $ 19,495
2006 19,216
2007 19,552
2008 19,557
2009 20,948
2010 and beyond 216,157
-----------
$ 314,925
-----------
-----------


4. LOAN TO CALPINE POWER, L.P.

In January 2005, the Fund loaned an additional $4.0 million to the Partnership to complete the financing of the capital upgrade at the Island Cogeneration Facility. Interest, which averaged 4.76% and 4.68% for the three and nine months ended September 30, 2005, is charged at a rate of 10 basis points over the rate that would be charged under the Credit Facility. Although the loan is a demand loan, it is not expected to be fully repaid until after 2007. During the three and nine months ended September 30, 2005, the Partnership repaid $1.0 million and $4.5 million to the Fund in satisfaction of the loan. At September 30, 2005, the principal outstanding under the loan was $11.5 million (December 31, 2004 $12.0 million). As at September 30, 2005, the fair market value of the loan was determined to be approximately $11.5 million (December 31, 2004 - $12.2 million).

5. LONG-TERM DEBT

In connection with the acquisition of the King City Facility in 2004, the Fund entered into a loan for US$82 million from a third party lender. This loan will mature in 2019 and bears interest at a fixed rate of 12.8% per annum with principal and interest payments due annually on December 31. The portion of the loan maturing within the next 12 months has been classified as current. The loan is a full recourse obligation of King City LP ("KCLP"), a wholly-owned subsidiary of the Fund, but non-recourse to the Fund and is secured by a first preferred security interest in all assets owned by KCLP without limitation. As at September 30, 2005 the fair market value of the loan was US$88.6 million (December 31, 2004 - US$81.7 million).

Under the terms of the arrangement, the Fund was required to establish a segregated cash account in 2004 of US$4.6 million (CDN $5.6 million) with proceeds received from a public offering that was part of the acquisition of the King City Facility. This cash amount, together with interest earned thereon, will be used to partially satisfy principal and interest payments under the terms of the loan in 2005 and 2006.

6. CREDIT FACILITY

The Fund, through a wholly owned subsidiary, Calpine Commercial Trust ("CCT"), established a $120 million extendible term Credit Facility in 2003. The term Credit Facility has a three year term, comprised of a two year revolving period followed by a one year term period.

The facility can be drawn upon in Canadian or US dollars and has varying interest rates based on prevailing market-based interest rates, and the ratio of consolidated debt to adjusted consolidated earnings. Standby fees range from 45 basis points to 75 basis points, depending on the ratio of consolidated debt to adjusted consolidated earnings and are charged on the undrawn balance of the facility. Interest charged on the facility averaged 4.65% and 4.55% for the three and nine months ended September 30, 2005 (4.15% and 4.16% for the three and nine months ended September 30, 2004). Due to the short-term nature and floating interest rate on the credit facility borrowing, carrying value approximates fair value.

Security for the facility consists of a floating charge and a security interest over CCT's and the Partnership's current and after acquired real and personal property, and is subject to certain financial covenants measured quarterly. If not renewed, any outstanding balance on the credit facility must be settled by October 2006. At September 30, 2005, no amounts were drawn under the facility.

7. INVESTMENT IN CALPINE POWER, L.P.

As at September 30, 2005, the equity investment in Calpine Power, L.P. was comprised as follows:



---------------------------------------------------------------------
Investment in Calpine Power, L.P. at December 31, 2004 $ 476,649
Equity Earnings from Calpine Power, L.P. 40,423
Distributions received and receivable from Calpine
Power, L.P. (40,036)
---------------------------------------------------------------------
As at September 30, 2005 $ 477,036
---------------------------------------------------------------------
---------------------------------------------------------------------

8. CHANGE IN NON-CASH WORKING CAPITAL

Change Three months Three months Nine months Nine months
in non-cash ended ended ended ended
working September 30, September 30, September 30, September 30,
capital 2005 2004 2005 2004
---------------------------------------------------------------------
Operating
Activities
Accounts
receivable $ (7) $ (401) $ 108 $ 25

Prepaid expenses (246) (313) (48) (155)
Accounts payable 3,202 4,092 8,340 3,005
-----------------------------------------------------
$ 2,949 $ 3,378 $ 8,400 $ 2,875
-----------------------------------------------------
-----------------------------------------------------


9. RELATED PARTY TRANSACTIONS

As at September 30, 2005 and December 31, 2004 the Fund had the following balances receivable from (payable to) related parties in the normal course of business:



As at As at
September 30, December 31,
2005 2004
---------------------------------------------------------------------
Distributions receivable from the
Partnership $ 4,404 $ 3,890
Accounts receivable from the Partnership 65 306
Ground Lease due from Calpine Corporation 88 95
Loan to Manager 34,498 41,271
Net Investment in Lease due from
Calpine Corporation 148,131 137,104
Loan receivable from the Partnership 11,549 11,993
Accounts payable to Calpine Corporation (217) (55)
Accounts payable to the Partnership (184) (28)
Accounts payable to the Manager (15) (684)
---------------------------------------------------------------------
---------------------------------------------------------------------


For the three and nine months ended September 30, 2005, $146 thousand and $467 thousand ($88 thousand and $135 thousand for the three and nine months ended September 30, 2004) of interest income on this amount was recognized by the Fund on the Partnership Loan.

For the three and nine months ended September 30, 2005, the Fund recognized finance and rental income of $4.6 million and $14.1 million ($5.1 million and $7.5 million for the three and nine months ended September 30, 2004 net of initial lease costs) from the Facility and Ground Lease with Calpine King City.

Interest earned with respect to the loan to Calpine Canada Power Ltd. amounted to $1.7 million and $5.3 million for the three and nine months ended September 30, 2005 ($2.1 million and $3.6 million for the three and nine months ended September 30, 2004).



10. SEGMENTED INFORMATION

Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue
Canada $ 15,498 $ 16,039 $ 46,341 $ 36,261
United States 4,685 5,129 14,191 11,731
-------------------------------------------------------
$ 20,183 $ 21,168 $ 60,532 $ 47,992
-------------------------------------------------------
Total Assets
Canada $ 533,461 $ 540,213 533,461 540,213
United States 157,357 163,923 157,357 163,923
-------------------------------------------------------
$ 690,818 $ 704,136 $ 690,818 $ 704,136
-------------------------------------------------------
-------------------------------------------------------


Revenues are attributable to the two countries based on the location of the underlying generating and infrastructure facilities.



CALPINE POWER, L.P.
CONSOLIDATED BALANCE SHEETS
(thousands)
As at As at
September 30, 2005 December 31, 2004
---------------------------------------------------------------------
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 27,918 $ 13,715
Accounts receivable 10,293 10,819
Interest receivable (Note 2) 1,404 2,248
Inventory 2,706 2,579
Prepaid expenses 6,597 2,014
---------- ----------
48,918 31,375
Loan to Calpine Canada
Whitby Holdings Company (Note 2) 36,314 37,404
Capital assets (Note 3) 575,334 591,450
---------- ----------
$ 660,566 $ 660,229
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities
Distributions payable $ 6,182 $ 5,651
Accounts payable and
accrued liabilities 8,024 8,621
Interest payable 47 242
Loan payable (Note 4) 11,549 11,993
---------- ----------
25,802 26,507
Asset retirement liability 2,520 2,369
---------- ----------
28,322 28,876
Partners' equity (Note 5) 632,244 631,353
---------- ----------

$ 660,566 $ 660,229
---------- ----------
---------- ----------

See accompanying notes to the consolidated financial statements



CALPINE POWER, L.P.
CONSOLIDATED STATEMENTS OF EARNINGS AND PARTNERS' EQUITY
(thousands, except for per Unit amounts)
(unaudited)
Three months Three months Nine months Nine months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
---------------------------------------------------------------------

Electricity and
thermal $ 28,554 $ 27,827 $ 84,927 $ 73,074
Interest
- Whitby 837 855 2,520 2,547
- Other income 178 129 476 269
-----------------------------------------------------
29,569 28,811 87,923 75,890
-----------------------------------------------------

EXPENSES

Operating and
maintenance 4,638 3,573 13,707 14,767

Depreciation 5,422 5,504 16,295 15,484

Accretion 50 47 150 140

Interest 148 88 470 135

General and
administrative 137 82 452 95

Foreign exchange
(gain) loss (50) 194 (85) (141)
-----------------------------------------------------
10,345 9,488 30,989 30,480
-----------------------------------------------------

NET EARNINGS 19,224 19,323 56,934 45,410

PARTNERS' EQUITY,
BEGINNING OF
PERIOD 631,609 633,562 631,353 644,508

Special
distributions - - - (1,697)

Distributions (18,589) (21,715) (56,043) (57,051)
-----------------------------------------------------

PARTNERS' EQUITY,
END OF PERIOD $ 632,244 $ 631,170 $ 632,244 $ 631,170
-----------------------------------------------------
-----------------------------------------------------
WEIGHTED AVERAGE
NUMBER OF UNITS
OUTSTANDING
-----------------------------------------------------
Class A
Priority
Units 52,001,352 52,001,352 52,001,352 52,001,352
-----------------------------------------------------
-----------------------------------------------------
Class B
Priority
Units 22,286,294 22,286,294 22,286,294 22,286,294
-----------------------------------------------------
-----------------------------------------------------

Net earnings per
Unit (Note 5):
-----------------------------------------------------
Class A
Priority Unit $ 0.2625 $ 0.2654 $ 0.7773 $ 0.6239
-----------------------------------------------------
-----------------------------------------------------
Class B
Subordinated
Unit $ 0.2502 $ 0.2477 $ 0.7409 $ 0.5819
-----------------------------------------------------
-----------------------------------------------------

See accompanying notes to the consolidated financial statements


CALPINE POWER, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
(unaudited)
Three months Three months Nine months Nine months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
---------------------------------------------------------------------
OPERATING
ACTIVITIES
Net earnings $ 19,224 $ 19,323 $ 56,934 $ 45,410
Adjustments for
non-cash items:
Depreciation 5,422 5,504 16,295 15,484
Accretion 50 47 150 140
Foreign exchange
(gain) loss (50) 194 (85) (141)
-----------------------------------------------------

Cash from
operations
before working
capital changes 24,646 25,068 73,294 60,893
Change in non-cash
working capital
relating to
operating
activities
(Note 6) (9,897) (1,233) (4,088) (105)
-----------------------------------------------------

Net cash
provided by
operating
activities 14,749 23,835 69,206 60,788
-----------------------------------------------------

INVESTING ACTIVITIES
Loan to Calpine
Canada Whitby
Holdings Company 1,090 - 1,090 -
Capital
expenditures 99 - (179) (22,681)
Change in non-cash
working capital
relating to
investing
activities
(Note 6) (133) (1,677) (44) 5,805
-----------------------------------------------------

Net cash used
in investing
activities 1,056 (1,677) 867 (16,876)
-----------------------------------------------------

FINANCING ACTIVITIES
Distributions (18,577) (18,444) (55,511) (55,562)
Loan payable - - 4,007 7,993
Payment of
principal on
loan payable (974) - (4,451) -
Special
distributions
on the Class B
Subordinated
Units - - - (1,697)
-----------------------------------------------------

Net cash used
in financing
activities (19,551) (18,444) (55,955) (49,266)
-----------------------------------------------------

Foreign exchange
gain on cash
held in foreign
currency 50 (194) 85 141
-----------------------------------------------------

INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (3,696) 3,520 14,203 (5,213)
Cash and cash
equivalents,
beginning of
period 31,614 6,435 13,715 15,168
-----------------------------------------------------

Cash and cash
equivalents,
end of period $ 27,918 $ 9,955 $ 27,918 $ 9,955
-----------------------------------------------------
-----------------------------------------------------

SUPPLEMENTARY CASH
FLOW INFORMATION
Interest
received $ 1,268 $ 129 $ 4,966 $ 2,269
Interest paid $ 150 $ - $ 511 $ -

See accompanying notes to the consolidated financial statements

CALPINE POWER, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Tabular amounts are in thousands except for per Unit amounts)
(unaudited)


1. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of Calpine Power, L.P. (the "Partnership") have been prepared by Calpine Canada Power Ltd. (the "Manager") in accordance with Canadian generally accepted accounting principles. The accounting policies applied are consistent with those outlined in the Partnership's annual consolidated financial statements for the year ended December 31, 2004. These consolidated financial statements for the three and nine months ended September 30, 2005 do not include all disclosures required in the annual consolidated financial statements and should be read in conjunction with the annual financial statements included in the 2004 Calpine Power Income Fund (the "Fund") Annual Report.

The Partnership's earnings are subject to seasonality from its Island Cogeneration Facility, which earns more revenue during winter months due to increased requested output from contract counterparties.

Certain comparative figures have been reclassified to conform with the 2005 presentation.

2. WHITBY LOAN

In 2002, the Partnership obtained a note receivable (the "Whitby Loan") from Calpine Canada Whitby Holdings Company, with a 15 year term to maturity and bearing interest at a rate of 9.07% per annum. Cash received during the three and nine months ended September 30, 2005 in the amount of $1.1 million and $4.5 million (nil and $2.0 million for the three and nine months ended September 30, 2004) associated with the Whitby Loan has been applied to the accrued interest receivable balance consistent with the terms of the loan agreement. As at September 30, 2005, the fair market value of the Whitby Loan was determined to be approximately $39.1 million (December 31, 2004 - $40.3 million).



3. CAPITAL ASSETS

---------------------------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
---------------------------------------------------------------------
As at September 30, 2005
Land $ 334 $ - $ 334
Power generation plants and
equipment 632,256 57,256 575,000
---------------------------------------------------------------------
$ 632,590 $ 57,256 $ 575,334
---------------------------------------
---------------------------------------
As at December 31, 2004
Land $ 334 $ - $ 334
Power generation plants and
equipment 632,077 40,961 591,116
---------------------------------------------------------------------
$ 632,411 $ 40,961 $ 591,450
---------------------------------------
---------------------------------------


4. LOAN PAYABLE

In January 2005, an additional $4.0 million was advanced to the Partnership by the Fund to complete the financing of the capital upgrade at the Island Cogeneration Facility. Interest is charged at a rate of 10 basis points over the rate that would be incurred on the Fund's credit facility which averaged 4.76% and 4.68% for the three and nine months ended September 30, 2005 (4.25% and 4.26% for the three and nine months ended September 30, 2004). Although the loan is a demand loan, it is not expected to be fully repaid until after 2007. During the three and nine months ended September 30, 2005, the Partnership repaid $1.0 million and $4.5 million to the Fund in satisfaction of the loan (nil for the three and nine months ended September 30, 2004). At September 30, 2005, the principal outstanding under the loan was $11.5 million (December 31, 2004 $12.0 million). As at September 30, 2005, the fair market value of the loan was approximately $11.5 million (December 31, 2004 - $12.2 million).

5. PARTNERS' EQUITY

The Partnership is authorized to issue an unlimited number of Class A Priority Units and an unlimited number of Class B Subordinated Units. For the three and nine months ended September 30, 2005, the holder of Class A Priority Units, Calpine Commercial Trust ("CCT"), received the first $0.0798 of Distributable Cash per Class A Priority Unit per month (in addition to an amount equal to certain management and administrative expenses incurred directly by the Fund) on a cumulative basis in priority to any payments on the Class B Subordinated Units. For the three and nine months ended September 30, 2005, the holder of Class B Subordinated Units, the Manager, was entitled to receive up to $0.0798 of Distributable Cash per Class B Subordinated Unit per month which amounts are cumulative for a fiscal year (and if unpaid at the end of a fiscal year, this entitlement terminates for such fiscal year) following the priority payment of Distributable Cash to the holders of Class A Priority Units. Each year until 2022, the Distributable Cash entitlements increase at an annual rate of 1%. Holders of Class A Priority Units and Class B Subordinated Units are entitled to share equally, on a class basis, any Distributable Cash in excess of their prior entitlements in any calendar year.



Class A Units Class B Units Total
---------------------------------------------------------------------
As at December 31, 2004 $ 476,649 $ 154,704 $ 631,353
Net earnings 40,423 16,511 56,934
Distributions declared (40,036) (16,007) (56,043)
------------------------------------------
As at September 30, 2005 $ 477,036 $ 155,208 $ 632,244
------------------------------------------
------------------------------------------


6. CHANGE IN NON-CASH WORKING CAPITAL

Three Three Nine Nine
months months months months
ended ended ended ended
Change in non-cash September September September September
working capital 30, 2005 30, 2004 30, 2005 30, 2004
---------------------------------------------------------------------
Operating activities:
Accounts receivable $ (564) $ (1,929) $ 526 $ 5,961
Interest receivable (837) (855) 844 (547)
Inventory 3 4 (127) (41)
Prepaid expenses (2,611) 345 (4,583) 277
Accounts payable and
accrued liabilities (5,884) 1,122 (553) (5,882)
Interest payable (4) 80 (195) 127
-------------------------------------------
$ (9,897) $ (1,233) $ (4,088) $ (105)
-------------------------------------------
-------------------------------------------
Investing activities:
Accounts payable -
accrued capital $ (133) $ (1,677) $ (44) $ 5,805
-------------------------------------------
$ (133) $ (1,677) $ (44) $ 5,805
-------------------------------------------
-------------------------------------------


7. RELATED PARTY TRANSACTIONS

As at September 30, 2005 and December 31, 2004, the Partnership had the following balances receivable from (payable to) related parties in the normal course of business:



As at As at
September December
30, 2005 31, 2004
--------------------------------------------------------------------
Accounts receivable from Calpine Corporation $ 4,224 $ 3,664
Accounts receivable from the Fund 184 28
Loan and interest receivable from Calpine
Canada Whitby Holdings Company 37,718 39,652
Distributions payable to Calpine Commercial Trust (4,404) (3,890)
Distributions payable to the Manager (1,778) (1,761)
Accounts payable to Calpine Corporation (4,556) (1,613)
Accounts payable to the Fund (65) (306)
Loan payable to the Fund (11,549) (11,993)
---------------------------------------------------------------------


Interest earned with respect to the Whitby Loan was $0.8 million and $2.5 million for the three and nine months ended September 30, 2005 ($0.9 million and $2.5 million for the three and nine months ended September 30, 2004).

The Calgary Energy Centre and Calpine Energy Services Canada Partnership ("CESCP") entered into a tolling agreement whereby the Calgary Energy Centre earns revenue through monthly payments, composed of both a fixed and variable portion, received from CESCP in exchange for providing the full operating capacity of the plant. For the three and nine months ended September 30, 2005, the Partnership recognized revenues of $14.1 million and $41.8 million ($13.5 million and $40.6 million for the three and nine months ended September 30, 2004) from CESCP related to this agreement.

Contact Information

  • Calpine Power Income Fund
    Toby Austin
    President and Chief Executive Officer
    (403) 750-3300
    or
    Calpine Power Income Fund
    Geoff Krause
    Vice President and Chief Financial Officer
    (403) 750-3300
    Email: ir@calpinecanada.com
    Website: www.calpinepif.com