Calpine Power Income Fund

Calpine Power Income Fund

December 19, 2006 06:00 ET

Calpine Power Income Fund Updates Claim in Calpine Corp. Insolvency Proceedings

CALGARY, ALBERTA--(CCNMatthews - Dec. 19, 2006) - The Trustees of Calpine Power Income Fund (TSX:CF.UN) today provided new information on the Repudiation Claim against insolvent Calpine Corporation ("Calpine Corp.") of San Jose, CA and its subsidiaries including Calpine Energy Services Canada Partnership ("CESCA") of Calgary.

The Repudiation Claim mainly involves a previously disclosed repudiation by CESCA in January 2006 of a tolling agreement under which CESCA was obliged to purchase electricity for 20 years from the 300 megawatt Calgary Energy Centre. The Fund has an indirect 70% ownership interest in the Calgary Energy Centre and therefore has an indirect interest in the Repudiation Claim. Third parties have recently expressed interest in acquiring the Repudiation Claim and consideration is being given as to whether such a transaction may provide extra value to a subsidiary of the Fund.

Repudiation Claim Mitigation

Calpine Power LP. Ltd. ("CLPGP") is the general partner of the Fund's subsidiary Calpine Power, LP ("CLP"), which is the direct owner of the Calgary Energy Centre. CLPGP is currently calculating the mitigated amount of CLP's Repudiation Claim against CESCA. CLPGP is able to complete that calculation because a new long term purchase contract is about to commence for the electricity from CLP's Calgary Energy Centre. As previously disclosed, the new purchaser is Calgary-based ENMAX Energy Corporation. It agreed in October 2006 to a long term tolling agreement under which it will purchase all of the Calgary Energy Centre's electricity output for 20 years.

CLP's current claims relating to the repudiation of the tolling agreement against CESCA and Calpine Corp. are in the amount of Cdn.$769 million, before giving effect to mitigation of the claims through short-term and long-term re-tolling of Calgary Energy Centre and discounting to provide for the net present value of the claims. The mitigation and discounting are expected to reduce the claims by an amount that is currently being calculated and that is expected to be substantial.

CLPGP will amend the amount of CLP's Repudiation Claim shortly after the calculation is completed and the new tolling agreement becomes effective. Commencement of the new tolling agreement is scheduled to occur on January 1, 2007.

Realizing on the Repudiation Claim

The Repudiation Claim remains a material but non-core asset of CLP and therefore CLPGP is currently considering the best opportunities to maximize value of the Repudiation Claim to the owners of CLP. The Fund owns 70% of CLP. Calpine Canada Power Ltd., a Calpine subsidiary that is the manager and administrator of the Fund (the "Manager"), owns the remaining 30% of CLP. The directors of CLPGP are authorized and responsible for the resolution and disposition of the Repudiation Claim against CESCA and Calpine Corp., which guaranteed CESCA's obligation.

In its quarterly report for the period ending September 30, 2006, Calpine Corp. disclosed that it recorded as a reorganization item for its first quarter of 2006, a non-cash charge of US$232.5 million representing Calpine Corp.'s estimate of its exposure under its guarantee. CLPGP has not agreed with the amount of US$232.5 million disclosed by Calpine Corp. as its estimate of the mitigated and discounted claim, and Calpine Corp.'s estimated claim amount may be out of date as it was estimated prior to CLP entering into the new tolling agreement with ENMAX Energy Corporation.

Robert Hodgins, Chairman of the Board of Trustees of the Fund and a Director of CLPGP, said "We are working diligently to confirm our current best estimate of the potential value of the claims against CESCA. While work remains to be done before a final calculation can be made, we continue to believe these claims are of significant value to the Fund and that we have recourse to recover these amounts under US and Canadian insolvency proceedings. Third parties have recognized the value of these claims and have expressed interest in acquiring them. The Board of CLPGP and its advisors are evaluating a range of possible outcomes in this regard and will act in the best interests of CLP."

CLP's claim against Calpine Corp. under its guarantee of the repudiated tolling agreement is an unsecured claim made in Calpine Corp.'s proceedings under Chapter 11 of the US Bankruptcy Code (the "Chapter 11 Proceedings"). Publicly traded unsecured notes whose only recourse is an unsecured claim against Calpine Corp. have been actively traded in U.S. markets. The indicated price on December 18, 2006 of Calpine Corp.'s US$658 million 8.5% notes maturing in 2011, was approximately US 81 cents on the dollar.

In addition to CLP's unsecured claim against Calpine Corp., CLP is pursuing recovery of its repudiation claim from CESCA and its partners that have filed for voluntary reorganization under the Companies' Creditors Arrangement Act in Canada (the "CCAA Proceedings"). One of CESCA's partners, Calpine Canada Resources Company, has substantial assets, and CESCA itself has significant cash and receivables.

CLP's Repudiation Claim, once amended, may be higher or lower than Calpine Corp.'s estimated claim amount. There is no guarantee that CLP will be successful in recovering such amount or recovering an amount correlating to any price at which notes of Calpine Corp. or any other securities may have traded, or in transferring such claims at an acceptable price.

Other Outstanding Claims

The Fund and its subsidiaries have also filed several other claims against Calpine Corp. and its subsidiaries in the CCAA Proceedings and the Chapter 11 Proceedings and have been prosecuting such claims. Each of the claims, including the Repudiation Claim discussed above, is unproven and will be subject to proof proceedings in each of the CCAA and Chapter 11 Proceedings. These claims were previously disclosed by the Fund in its press release of August 2, 2006 and its Management's Discussion and Analysis prepared in connection with the Fund's fiscal quarters ending June 30, 2006 and September 30, 2006.


Pursuant to orders granted in the CCAA Proceedings, the Independent Trustees of CCT, on behalf of the Fund and CCT, and the directors of CLPGP, on behalf of CLP, are authorized and responsible for filing and prosecuting claims against the Manager, Calpine Corp. and their affiliates referred to in this press release. This press release has been prepared by the Fund (but not the Manager).

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

The Calpine Power Income Fund units are listed on the Toronto Stock Exchange under the symbol CF.UN.

Forward-Looking Information Disclaimer

This news release may contain forward-looking information as defined under applicable Canadian securities laws, including information regarding possible events, conditions or results with respect to Calpine Power Income Fund. This information is subject to a number of assumptions and risks that may cause actual results to differ materially from the forward-looking information. Some of the factors that could cause such differences include the outcome of the voluntary reorganization filings by Calpine Corporation and applicable subsidiaries, including the Companies' Creditors Arrangement Act (Canada) proceedings of Calpine Canada Power Ltd. and certain of its affiliates including Calpine Energy Services Canada Partnership, performance or non-performance by Calpine Corporation and applicable subsidiaries of contracts with Calpine Power Income Fund and its applicable subsidiaries or investees, legislative or regulatory developments, competition, general economic conditions and other assumptions and risks identified in the management discussion and analysis of Calpine Power Income Fund for the fiscal year ended December 31, 2005 and the fiscal quarters ended March 31, 2006, June 30, 2006 and September 30, 2006, and the annual information form dated April 19, 2006, each of which is available on and the Fund's website at and the assumptions and risks identified in the material change report of the Fund dated November 14, 2006 and available on

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