Calpine Corp.

Recommendation We recommend the Tiverton/Rumford 9.00% Pass Through Certificates ’18 (“Certificates”) as a Buy at 85.0 (11.12% YTW, +646 STW) and maintain a 97-price target on the project debt due to the following:

!" Secured Interest: Secured First Lien interest in almost 500 MW’s of Northeast, natural gas-fired, baseload generating capacity;

!" Greater Transparency: Our comfort in learning that the 2003 capacity factors for the Tiverton and Rumford plants (disclosed for the first time in most recent 10K), was 80% and 70%, respectively (75% weighted average capacity factor);

!" Corp. Guarantee: Calpine Corp. guaranteed leases (future payments totaled $824 mm at the beginning of 2004);

!" Credit Statistics: Although Calpine does not breakout the Tiverton/Rumford financials, we estimate the plants generate $90 mm in aggregate annual EBITDA (based on the median $10.88/MWH spark spread for 1998-today and below 2003’s $14.45/MWH average spark spread), which translates to acceptable credit statistics of 2.7x EBITDA/Cash Interest Expense and 4.0x Total Debt/EBITDA;

!" Asset Coverage: Adequate asset coverage of 1.0x in the downside case (assumes the unlikely scenario that Calpine files Bankruptcy and the leases are deemed "real property", in which case the Lease Claims would be limited to 15% of the remaining lease payments) and 2.7x in the upside case (assumes the leases are considered financing arrangements);

!" New Contracts: The Tiverton and Rumford plants were included in CPN’s recently announced five power contracts to supply 350-MW’s of electricity to five New England-based electric distribution companies for 2004 delivery – although the contracts are most likely held at Calpine Energy Services (CES) and excluded from the Certificates’ collateral package, these are the first power sales contracts for the two plants and a positive for the project debt (contracts range from three to six months);

!" Amortization: The Certificates’ amortization schedule reduces the 14-year maturity to an 8-year duration, due to an aggressive schedule in the outer years, specifically the $180 mm amortization payment due 1/15/10 (see amortization schedule on page 3);

!" Relative Yield: Attractive relative yield vs. the Single-B-Rated index (7.22% YTW, +399 STW)

Swap Ideas We recommend that investors involved in CPN at the Corp. level consider a more conservative approach to the name through the Certificates at the project level. We sense that the Company’s May 6th earnings release may include weaker than expected results due to softer year-over-year spark spreads for the Company’s uncontracted generation, in combination with an 11% reduction in 2004 contracted generation (88.0 MM MWH) vs. 2003 (98.9 MM MWH). We would consider

EnergyIndependent Power Producers

High Yield ResearchApril 27, 2004

Greg Imbruce203/708-5804

gimbruce@jefco.com

Calpine Corp. (CPN) Tiverton/Rumford 9% Pass Through Certificates ‘18

Amt. O/S Cpn. Freq. - JefcoSeniority Cpn. Mty. $MM Rating Date Price Price CY YTW STW Yrs. Nxt. Cpn. Dt. Rec.

TIVERTON/RUMFORD PWR ASSPass Thru Cert. 9.000% 7/15/18 $366.0 B3 / B NA MW+50 85.0 10.59% 11.12% 646 14.2 2 - 7/15/04 Buy

Next Call Yield to Worst

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Calpine Corp.

[Page 2 of 7]

swapping out of the 8.75% Corp. Second Lien Notes (90, 10.46% YTW, +612 STW), for example, and in the process of acquiring First Lien project debt for Corp. Second Lien debt, pick-up 66 bps in yield and 34 bps in spread-over-treasuries. Another swap idea is to sell the 8.5% Sr. Notes ’11 (72, 15.25% YTW, +1,134) and buy the Certificates. This is a more costly approach in that a holder would be relinquishing over 400 bps in yield and almost 500 bps in spread, however, a defensive approach in which we expect current Sr. Noteholders will benefit in the coming weeks. Sensitivity Analysis The below asset coverages and theoretical prices are based on varying Corp. Unsecured future recoveries. As our analysis indicates, in both the Base and High Case, the theoretical price never falls below PAR due to ample asset coverage (1.8x minimum). In fact, the theoretical price only falls below PAR in the Low Case, which assumes CPN files bankruptcy and the Lease Claims are limited to 15% of the remaining lease payments due to being deemed “true leases.” Even in this pessimistic scenario, however, asset coverage exceeds 0.9x (6-points or 7% above the Certificates’ current trading price), which would result in a 12% Total Return if the Company filed bankruptcy in 2008, for example. Additionally, the Certificates’ reduced exposure to Corp., should limit volatility - we estimate a 3-point price move in the Corp. Sr. Notes theoretically results in a 1-point price change in the Certificates. Collateral The Certificates are secured by the Tiverton (240-MW) and Rumford (251-MW) power generation plants, located in Tiverton, Rhode Island and Rumford, Maine, respectively. In addition, Calpine Corp. guaranteed the associated lease obligations. There is no Corp. guarantee, however, provided for the plants themselves, and any of Calpine's contractual rights against third parties relating to the facilities are excluded from the collateral package. Leases In the unlikely scenario that Calpine were to become a debtor in a case under the Bankruptcy Code, the bankruptcy court could hold that the leases are “true leases” of "real property" rather than financing arrangements. In that event, Bankruptcy Code Section 502(b)(6) could limit the owner lessor's claims against Calpine under the guarantees for amounts due under the leases in the same manner that it would limit the owner lessor's claims against Calpine for those amounts in the bankruptcy case. Bankruptcy Code Section 502(b)(6) limits the owner lessor's claims against the debtor for damages resulting from such rejection or other termination of either lease, whether occurring before or after the commencement of the debtor's bankruptcy case, to the greater of (a) one year's rent under the applicable lease or (b) 15% of the remaining rent due under the applicable lease (not to exceed three years' rent). The risk in purchasing the Certificates, therefore, is that if CPN files bankruptcy and the court deems the operating leases "real property," thereby limiting the substance of the Calpine guarantees.

SENSITIVITY ANALYSIS

Recovery Theory Px Asset Cov. Theory Px Asset Cov. Theory Px Asset Cov. Theory Px100% 76% 1.08x 81% 1.89x 100% 2.88x 100%95% 72% 1.06x 80% 1.89x 100% 2.77x 100%90% 68% 1.04x 79% 1.89x 100% 2.66x 100%85% 64% 1.02x 77% 1.89x 100% 2.56x 100%80% 60% 1.01x 76% 1.89x 100% 2.45x 100%75% 57% 0.99x 75% 1.89x 100% 2.34x 100%70% 53% 0.97x 74% 1.89x 100% 2.23x 100%65% 49% 0.96x 72% 1.89x 100% 2.13x 100%60% 45% 0.94x 71% 1.89x 100% 2.02x 100%55% 42% 0.92x 70% 1.89x 100% 1.91x 100%50% 38% 0.91x 68% 1.89x 100% 1.81x 100%

*Theoretical prices are based on PV20, 18-month recovery.

Low Case Base Case High CaseCorp. Unsec.

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Calpine Corp.

[Page 3 of 7]

As our analysis indicates, however, the asset coverage exceeds 1.0x (assumes a 90% future recovery for Calpine Unsecured claims) in such scenario, which implies a 79-theoretical price (PV20, 18-months). The Low Case, therefore, is just 6-points or 9% below its current trading level, which we believe would be recovered on a total return basis noting our estimate of $900 mm for CPN’s 3/31/04 liquidity ($300 fully available WorkCap Revolver + $650 mm in unrestricted cash). Amortization Schedule The Certificates begin amortizing in July 2004, with more than 49% ($180 mm) of the original amount issued, amortizing in January 2010. Scheduled principal payments are as follows:

Valuation The power generation plants securing the Certificates are quality assets due to their low heat rates, 97% baseload capacity, and location, location, location - the Northeast - where capacity factors and spark spreads remain relatively strong. We believe including the Tiverton and Rumford facilities in NPCC-Zone A (Western New York) is most appropriate, in place of the more general NEPOOL region in which Calpine lists these plants. Our asset valuation for both plants is based on a $10.88/MWh spark spread (median for 1998-Today and below 2003’s $14.45/MWH average) and the 2003 capacity factors for each plant (75% weighted average, see “Asset Value Assumptions”). Under these assumptions, we value the plants at $270 mm or $550 per kW. As the below table highlights, our 97-price target for the Certificates is based on a weighted average of probabilities assigned to each of the three Cases. The treatment of the leases differentiates each of the Cases as summarized below.

!" Base Case: The Base Case assumes that Calpine remains an ongoing operation and avoids bankruptcy in the long-term (80% probability assigned). In addition to the plants, we valued the leases at $423 mm utilizing a PV9. The total asset value, therefore, is $693 mm in the Base Case, which provides 1.9x asset coverage and a theoretical price of PAR (PV20, 18-months).

AMORTIZATION SCHEDULERepay Amort. % of Orig. EndPmt. Pmt. Amt. Issued Bal.

$366.07/15/04 $2.4 0.7% $363.67/15/06 $10.9 3.0% $352.77/15/07 $9.1 2.5% $343.61/15/08 $7.2 2.0% $336.51/15/09 $9.3 2.5% $327.11/15/10 $180.0 49.2% $147.11/15/11 $50.3 13.7% $96.81/15/12 $28.8 7.9% $68.11/15/13 $13.8 3.8% $54.31/15/14 $15.4 4.2% $38.91/15/15 $15.0 4.1% $23.91/15/16 $18.7 5.1% $5.21/15/17 $3.2 0.9% $2.0

Total $364.0 99.5% $2.0

TheoreticalPrice Probability

Low 79 16% Base 100 80% High 100 4%

Weighted Avg. 97

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Calpine Corp.

[Page 4 of 7]

!" Low Case (15% Leases): Our Low Case assumes Calpine files bankruptcy (16% overall probability assigned, which is based on 20% probability that CPN files bankruptcy in combination with an 80% probability that, in bankruptcy, the court determines the leases to be “True Leases” of “Real Property”). We expect the Lease Claims would be limited to 15% of the $824 mm in future lease payments (in place at the beginning of 2004) or $124 mm. We then apply an expected 90% Corp. Unsecured recovery to calculate the $111 mm Lease Claim recovery. In addition to the $270 mm plant value, therefore, the Total Recovery estimate is $281 mm in the Low Case, representing 1.0x asset coverage and a theoretical price of 79 (PV20, 18-months).

!" High Case (100% Leases): Our High Case assumes Calpine files bankruptcy (4% overall

probability assigned, which is based on 20% probability that CPN files bankruptcy in combination with a 20% probability that, in bankruptcy, the court determines the leases to be Financing Arrangements). As such, we expect the Lease Claim would be equal to 100% of the $824 mm in future lease payments (in place at the beginning of 2004). Although the increased Lease Claim would reduce the Calpine Corp. Unsecured recovery to 86% from the 90% used in the Low Case, the $974 mm Total Recovery in the High Case represents 2.7x asset coverage and a theoretical price of PAR (PV20, 18-months).

TIVERTON/RUMFORD VALUATIONLow Base High

BK w/ Ongoing BK w/Leases @ Operation Leases @

15% PV9 100%PLANT VALUE ($MM)

Tiverton $142 $142 $142Rumford $128 $128 $128 Plant Value $270 $270 $270

LEASE VALUE (PV9)Tiverton # -- $212 -- Rumford # -- $212 -- Lease Value -- $423 --

TOTAL ASSET VALUETiverton $142 $354 $142Rumford $128 $340 $128 Total Asset Value $270 $693 $270

MW'STiverton 240 240 240Rumford 251 251 251 Total 491 491 491

$ PER KWTiverton $592 $592 $592Rumford $510 $510 $510 Total $550 $550 $550

EQUITY VALUEAsset Value $270 $693 $270Debt Outstanding $366 $366 $366 Equity Value / (Deficiency) ($96) $327 ($96)

LEASE CLAIMFuture Lease Pmts. $824 $824 $824% of Future Lease Pmts. Applied as Claim 15% -- 100% Lease Claim $124 -- $824Calpine Corp. - Unsecured Future Recovery 90% -- 86% Lease Claim Recovery $111 -- $704

TOTAL RECOVERYAsset Value $270 $693 $270Lease Claim Recovery $111 -- $704Total Recovery $381 $693 $974

VALUATION & ASSET COVERAGEAsset Coverage Excl. Lease Corp. Guarantee 0.74x 1.89x 0.74x Lease Corp. Guarantee 0.30x -- 1.92x Total Asset Coverage 1.04x 1.89x 2.66x Theoretical Price (PV20,18-Mths) 79% 100% 100%

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Calpine Corp.

[Page 5 of 7]

Asset Value Assumptions The above asset valuation is based on a 15-year DCF analysis utilizing a 15% discount factor and the following input: Spark Spread: $10.88/MWh (Median for 1998-Today) Variable Costs: Natural Gas Price: $5.50/mmBtu Other Variable Costs: $2.00/MWh Capacity Factors Tiverton: 80% Rumford: 70% Plant Heat Rate: 7,000/kWh Annual Costs: G&A: $3.0 mm Maintenance CapEx: $2.0 mm Debt Financing: Debt % of Total Transaction: 70% Cost of Capital: 10%

Asset Description !" Tiverton (Tiverton, Rhode Island): The Tiverton facility is a 240-MW combined-cycle

(baseload) facility in Tiverton, Rhode Island. Construction began in late 1998 and started commercial production in October 2000. Outside of the recently announced short-term contracts, Tiverton has not tied its output under a long-term power sales agreement. Instead, Tiverton's facility's output is sold on a wholesale basis to load aggregators and distributors either through bilateral contracts or into the Independent System Operator (ISO) spot electric market. Natural gas for the Tiverton facility is delivered by Aquila Energy Marketing Corporation and then transported to Tiverton using the Algonquin Gas Transmission Co. pipeline. The Tiverton lessee has an Interconnection Agreement with New England Power Co. (NEP).

!" Rumford (Rumford, Maine): The Rumford facility is a 251-MW baseload facility (14-MW peaking capacity included), located in Rumford, Maine. Construction began in late 1998 and started commercial production in December 2000. Outside of the recently announced short-term contracts, Rumford sells its output on a wholesale basis to load aggregators and distributors either through bilateral contracts or into the Independent System Operator (ISO) spot electric market. Natural gas for the Rumford facility is delivered by Aquila to Dawn, Ontario and then transported to Rumford using the TransCanada Pipelines Limited and Portland Natural Gas Transmission System pipelines. The Rumford lessee has an Interconnection Agreement with Central Maine Power.

Gross CPN Net 2003 Reported Net Annual 2003 Spark Asset UnitNERC Interest Net Interest Generation Capacity Capacity Spread Value Value

Project Region Type MW Interest MW MWh MWh Factor % $/MWh $MM $/kWTIVERTONTiverton (RI) NPCC-Zone A Baseload 240 100% 240 1,689,698 2,102,400 80% $10.88 $142.1 $592Rumford (ME) NPCC-Zone A Baseload 251 100% 251 1,547,533 2,198,760 70% $10.88 $128.0 $510

491 491 3,237,231 4,301,160 75% $270.1 $550

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Calpine Corp.

[Page 6 of 7]

Cash Flow Structure North American Electric Reliability Council Region (NERC) Map

Source: North American Energy Council (NERC)

100% 100%Indirect Owner Indirect Owner

Debt Service on Rent Less DebtLessor Notes Service on Lessor Notes

Pass ThroughCert. Distributions

Calpine(Guarantor)

TivertonLessee

RumfordLessee

IndentureTrustee

Pass ThroughTrust

OwnerLessor

Pass Through Certificate Holders

OwnerParticipant

Guaranty payments assigned by owner lessor to indenture trustee

Rent assigned byowner lessor toindenture trustee

Rent assigned byowner lessor toindenture trustee

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Calpine Corp.

[Page 7 of 7]

! 2004 Jefferies & Company, Inc. All rights reserved. This material has been prepared by Jefferies & Company, Inc. ("Jefferies") a U.S.-registered broker-dealer, employing appropriate expertise, and in the belief that it is fair and not misleading. It is approved for distribution in the United Kingdom by Jefferies International Limited ("JIL") regulated by the Financial Services Authority ("FSA"). The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore except for any obligations under the rules of the FSA, we do not guarantee its accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date, and are subject to change without notice. Jefferies and JIL and their affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as agent or principal for their own account. This material is intended for use only by professional or institutional investors falling within articles 19 or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001and not the general investing public. None of the investments or investment services mentioned or described herein are available to other persons in the U.K. and in particular are not available to "private customers" as defined by the rules of the FSA or to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario)."

I, Greg Imbruce, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report.