22.01.03

22.1.2003: Meldung: Calpine Power Income Fund 2002 Results

Calpine Power Income Fund (TSX: CF.UN) today announced its results for the 125-day period from August 29, 2002 to December 31, 2002.

The Fund""s financial performance exceeded the forecasts contained in the initial public offering prospectus. Based on operating results during the 125-day period, distributable cash exceeded the base forecast amount. This strong performance results in a special distribution of $0.9 million or $0.0165 per Trust Unit. The special distribution will be paid on February 20, 2003 to unitholders of record on January 31, 2003.

"The Fund continues to focus on becoming the best performing income fund in Canada," said Rohn Crabtree, President and CEO. "We endeavor to accomplish this through augmentation and optimization of the operations of our plants, pursuing accretive acquisitions and through the management expertise and sponsorship of Calpine Corporation. All of these attributes position us to achieve our objective of providing a sustainable and growing flow of distributions to our unitholders."

MANAGEMENT""S DISCUSSION AND ANALYSIS

The following discussion and analysis as provided by management should be read in conjunction with the accompanying audited consolidated financial statements of Calpine Power Income Fund (the "Fund") and Calpine Power, L.P. (the "Partnership") and the Notes thereto. All dollar figures are in Canadian dollars unless otherwise specified.

2002 Achievements -- Successfully completed the initial public offering ("IPO") of Trust Units on August 29, 2002 raising gross proceeds of $230 million ($264.5 million including underwriters"" over-allotment option). -- Distributable Cash of $17.5 million was generated. -- Distributable Cash per Trust Unit was $0.3365. -- The Fund declared a special distribution on January 20, 2003 of $0.9 million or $0.0165 per Trust Unit to holders of record on January 31, 2003. This represents Distributable Cash in excess of base distributions from inception of the Fund to December 31, 2002. -- Construction of the Calgary Energy Facility remained on budget and on schedule to achieve a March 31, 2003 commercial operations date ("COD"). At December 31, 2002, the Calgary Energy Facility was 97% mechanically complete and was mechanically completed in January 2003. -- The Island Cogen Facility and the Whitby Cogen Facility operated above the forecasted availability at 93% and 84%, respectively. -- Standard & Poor""s Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), has assigned a stability rating of SR-2 to the Trust Units, which was reaffirmed on October 18, 2002. Issuers rated SR-2 are considered by S&P to have a very high level of cash distribution stability relative to other rated Canadian income funds.

The Fund is an unincorporated open-ended trust established under the laws of Alberta. The Fund indirectly owns interests in the Island Cogen Facility located in British Columbia and in the Calgary Energy Facility located in Alberta, which is currently under construction and has an expected COD of March 31, 2003. The Fund also indirectly owns a 50% economic interest in the Whitby Cogen Facility located in Ontario through a participating loan (the "Whitby Loan") that mirrors the cash flow from the facility. These three facilities are modern and environmentally preferred, powered by high-efficiency natural gas-fired turbines and all of the facilities have long-term energy sales agreements. The Fund and the Partnership are administered and managed by the Manager, Calpine Canada Power Ltd., an indirect wholly-owned subsidiary of Calpine Corporation ("Calpine").

The Fund""s objectives are to provide, on a per Trust Unit basis, a stable and sustainable flow of Distributable Cash of the Fund and to increase, where prudent, distributions of Distributable Cash of the Fund. The Manager aims to achieve the Fund""s objectives by maximizing the efficiency and profitability of the Island Cogen Facility and the Calgary Energy Facility and by acquiring or developing future facilities in accordance with established acquisition and investment guidelines. The Manager believes that Calpine""s extensive experience in all aspects of the development, acquisition and operation of power generation facilities will provide the Manager with a competitive advantage to enable it to successfully implement the Fund""s objectives.

At December 31, 2002, the Fund had 52,001,352 Trust Units outstanding, of which 25,551,352 (49%) are held by Calpine Canada Power Holdings Ltd. ("CPHL"), an indirect wholly-owned subsidiary of Calpine, and 26,450,000 (51%) are widely held and trade on the Toronto Stock Exchange. The Trust Units represent a 70% economic interest in the facilities. Calpine indirectly owns all of the Class B Subordinated Units of the Partnership, representing a 30% economic interest in the facilities.

Significant Transactions

On August 29, 2002, the Fund closed its IPO dated August 22, 2002, of 23,000,000 Trust Units at a price of $10.00 per Trust Unit. The Fund raised $215,034,000, net of costs associated with the offering. On the same date the Fund issued 29,001,352 Trust Units at a price of $10.00 per unit to CPHL, an indirect wholly-owned subsidiary of Calpine, in exchange for the acquisition of a 99.11% limited partnership interest in Calpine Island Cogeneration Limited Partnership ("ICLP") which owns the Island Cogen Facility. As part of the IPO, CPHL granted the Underwriters an option to purchase up to 3,450,000 Trust Units issued to CPHL for a period expiring 30 days following the date of closing of the IPO. On September 19, 2002, the Underwriters fully exercised this option for net proceeds of $32,688,750 to CPHL.

The Fund used the proceeds it raised to obtain a 70% interest in the Partnership through the acquisition of Class A Priority Units of the Partnership. The Class A Priority Units receive monthly distributions, on a cumulative basis, in priority to any distributions on the Class B Subordinated Units, up to December 31, 2022.

The Partnership currently funds monthly distributions from cash flow generated by its 100% interests in the Island Cogen Facility, the Calgary Energy Facility, and its 50% economic interest in the Whitby Cogen Facility, through the Whitby Cogen Facility Loan. The acquisition of the Partnership""s interest in the Island Cogen Facility, the Calgary Energy Facility and the Whitby Loan closed August 29, 2002, and therefore the Fund and the Partnership are reporting on the results of operations for the 125-day period ended December 31, 2002. The Fund accounts for its investment in the Partnership by the equity method, whereby the Fund records its proportionate share of the Partnership""s earnings. As a result, both the Fund and the Partnership""s operating results are discussed and compared to the forecast as presented in the IPO prospectus.

Results of Operations

The Fund reported net earnings of $9.0 million or $0.1726 per Trust Unit for the period from inception to December 31, 2002, primarily representing the Fund""s 70% share of the Partnership""s net income for that period. From the closing of the IPO to December 31, 2002, management and administrative expenses of $533 thousand includes $52 thousand of fees payable to the Manager to manage and administer the Fund, in accordance with applicable agreements, and $429 thousand with respect to the management incentive fee.

The Partnership reported cash flow from operating activities of $15.9 million and net earnings of $13.6 million for the period from inception to December 31, 2002. Revenues were $20.0 million consisting of $14.2 million from electricity generation and $3.6 million from steam generation in relation to the Island Cogen Facility, and interest of $2.2 million earned on the Whitby Cogen Facility Loan and other cash balances. Operating and maintenance expense and depreciation expense attributable to the Island Cogen Facility for the period were $3.5 million and $2.8 million, respectively.

The 225 MW Island Cogen Facility is a combined cycle cogeneration plant located at Duncan Bay, near Campbell River, on Vancouver Island, British Columbia. The Island Cogen Facility was declared COD on April 12, 2002. Revenues are earned by the Island Cogen Facility primarily through monthly payments received from BC Hydro for providing the full operating capacity of the plant. The Island Cogen Facility uses an Alstom GT24 combustion turbine and an Alstom steam turbine. Alstom Canada Inc. ("Alstom") provides maintenance services under a long term maintenance agreement. All of the electricity produced at the Island Cogen Facility is sold to BC Hydro under a 20 year electricity purchase agreement (the "Island EPA") that expires in 2022. The Island EPA functions as a tolling arrangement, under which BC Hydro delivers all the fuel required to operate the Island Cogen Facility and is, in turn, obligated to pay for all electricity generated or deemed to have been made available by the Island Cogen Facility at the delivery point, subject to a maximum of 285 MW.

Electricity is, subject to certain exceptions, deemed available under the Island EPA and must be paid for by BC Hydro even if the Island Cogen Facility is unable to generate electricity as a result of difficulties outside its reasonable control. These difficulties may include, but are not limited to, a forced outage of the BC Hydro electrical system, the failure of BC Hydro to supply the gas required to operate the facility, the interruption of gas transportation in accordance with the Island EPA or BC Hydro exercising its right to dispatch the Island Cogen Facility to part load. For the period from August 29, 2002 to December 31, 2002, the Island Cogen Facility operated at 93% availability and generated 588,734 MWh.

Electricity revenue is also recognized pursuant to the Maintenance Agreement, under which Alstom provides capital and operating expense services at no cash cost to CLP. As a result, electricity revenues of $2.5 million, operating expenses of $0.7 million and maintenance capital of $1.8 million have been recognized in the financial statements of CLP for the period ended December 31, 2002.

Steam produced at the Island Cogen Facility is sold to Norske Skog Canada Limited ("Norske Skog"), a global supplier of newsprint and magazine printing papers. Like the BC Hydro contract, the steam contract runs to 2022. Norske Skog is obligated to request, accept and pay for a minimum annual amount of steam and the Island Cogen Facility is obligated to deliver to Norske Skog the requested steam subject to annual and hourly maximum amounts. For the period from August 29 to December 31, 2002, the Island Cogen Facility produced 683,927 GJ of steam resulting in revenue totalling $3.6 million.

Liquidity and Capital Resources

A cash reserve of $111 million was established in the Partnership on August 29, 2002 to cover the remaining construction costs to complete the Calgary Energy Facility. The Calgary Energy Facility is a natural gas-fired combined cycle plant located in Calgary, Alberta. The Calgary Energy Facility has a design capacity of 250 MW plus 50 MW of peaking capacity through a Siemens Westinghouse 501 FD2 gas combustion turbine generator and a Fuji reheat condensing steam turbine generator. Construction of the Calgary Energy Facility started in 2000, is proceeding on budget, and at December 31, 2002 was 97% mechanically complete. The Calgary Energy Facility was declared mechanically complete in January, 2003. The first fire of the gas combustion turbine is expected to be performed in late January, 2003 and the facility is on schedule to commence commercial operations on March 31, 2003. Capital expenditures relating to construction for the period August 29 to December 31, 2002, were $44.6 million.

The Fund had no long-term debt or credit facility as at December 31, 2002. The Fund anticipates obtaining a credit facility for working capital requirements in 2003. Current working capital requirements are funded through cash flows from the Partnership.

Distributable Cash and Distributions

During 2002, Distributable Cash generated by the Fund totalled $17.5 million or $0.3365 per Trust Unit. This resulted in an annualized 9.83% return to investors for the period August 29 to December 31, 2002 based on the issue price of $10.00 per Trust Unit. Distributable Cash of the Fund means, in general, all amounts of cash received by the Fund for or in respect of the distribution period, and includes without limitation, amounts paid on the CCT Units and CCT Notes held by the Fund and the income, interest, dividends, returns of capital or other amounts, if any, from other permitted investments held by the Fund, less all liabilities of the Fund which may reasonably be considered to have accrued and become owing in respect of the distribution period, amounts that may be paid by the Fund in connection with any cash redemptions or repurchases of Trust Units, amounts that relate to repayment of any indebtedness of the Fund during the distribution period, expenses and amounts which the Manager or the Trustee may reasonably consider necessary to provide for payment of any liabilities which have been incurred or are required for or in connection with the operation of the Fund, and for reasonable reserves.

The Fund pays monthly cash distributions to unitholders on or about the 20th day of each month following the record date. One hundred percent of Distributable Cash of the Fund is distributed in respect of each year.

The Fund, as the holder of Class A Priority Units in the Partnership, must be paid before Calpine receives distributions on its Class B Subordinated Units. The Class B Subordinated Units represent a 30% economic interest in the Facilities and their entitlement to distributions is subordinated to that of Class A Priority Unitholders until 2022. The initial distribution level of 9.35% set the target distribution level. This target distribution increases annually by 1%, resulting in a targeted per Trust Unit distribution of $0.938 per Trust Unit for calendar year 2003. Any excess cash above the target is split equally at year end between the Partnership Class A Priority Units and Class B Subordinated Units. Any amount allocated to Class A Priority Unitholders is reduced by a management fee payable to the Manager by the Fund. The management incentive fee is equal to 20% of the excess distribution. Excess cash available to the Class A Priority Unitholders for 2002 was calculated to be $0.9 million, resulting in a special cash distribution of $0.0165 per Trust Unit of the Fund. This distribution will be paid on February 20, 2003 to holders of Trust Units of record on January 31, 2003.

Under the Calgary Energy Tolling Agreement, as pre-payment for the provision of future tolling services following the COD date of the Calgary Energy Facility, Calpine Energy Services Canada Partnership ("CESCP"), a wholly owned partnership of Calpine, pays to the Calgary Energy Centre Limited Partnership a monthly amount equivalent to the fixed charge component of the monthly tolling fee until the COD of the Calgary Energy Facility, or March 31, 2004 (or such earlier date on which Calpine Canada Power Ltd. elects to perform the Buydown Obligation (as defined in the Calgary Energy Contribution Agreement)), which ever comes first. Payments under this agreement from August 29, 2002 to December 31, 2002 totalled $13.0 million and were recorded as Distributable Cash. The Calgary Energy Tolling Agreement is a 20 year contract, similar in terms to the Island EPA and under which CESCP is required to deliver all fuel required to operate the facility and is, in turn, obligated to pay for all electricity generated or deemed to have been made available.

The Fund declared a cash distribution of $4.1 million or $0.0785 per Trust Unit for the period from December 1 to December 31, 2002. The cash distribution will be paid January 20, 2003, to unitholders of record on December 31, 2002. The Fund declared a special distribution of $0.9 million or $0.0165 per Trust Unit on January 20, 2003. This distribution will be paid on February 20, 2003 to unitholders of record on January 31, 2003.

Tax Treatment of Distributions

For Canadian tax purposes, the taxable amount of distributions to the Fund""s unitholders in 2002 was less than 2%. The remaining amount of the distributions reduced the adjusted cost base on the Trust Units, thereby resulting in a significant tax deferral for the Unitholders. The tax deferral arose primarily due to the ability of the Partnership to shelter its taxable income with capital cost allowance claims on the facilities. As such, distributions from the Partnership to the Fund were a return of capital rather than an allocation of income. Distributions in 2003 are expected to have similar characteristics to those in 2002, with taxable distributions estimated to be less than 5%. Any 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.

Cash Reserves

Several cash reserves were established in the Partnership to fund significant expenditures and limit potential business risks of the Partnership. A cash reserve of $111 million was established in a segregated account of the Partnership at August 29, 2002 to meet the remaining construction costs of the Calgary Energy Facility. This amount is used to reimburse expenditures incurred by the Manager in connection with the completion of the Calgary Energy Facility. Payments from this segregated account must be authorized by one of the independent trustees of Calpine Commercial Trust (the "Independent CCT Trustees"), after receipt of confirmation from a firm of independent engineers, appointed by the Independent CCT Trustees, that the expenditures were properly incurred by the Manager.

In the event the construction is completed for less than the amount reserved, the unused balance will be paid to the Manager as a special one-time distribution on its Class B Subordinated Units. If the construction completion costs exceed the amount reserved, the Manager will be responsible for such excess costs. Reimbursements to the Manager for capital expenditures from August 29 to December 31, 2002 were $45.2 million. A reserve of $7.0 million was also established to partially fund future maintenance costs. Additionally, a cash deposit of $17.0 million was received from CESCP as security to satisfy its payment obligations under the Calgary Energy Tolling Agreement. This deposit and any interest earned on the deposit will be returned to CESCP once the Calgary Energy Facility declares COD.

Cash Reserves - Calpine Power, L.P. As at December 31,2002 (thousands) Restricted Cash Construction Reserve $66,721 Security Deposit from Calpine for Calgary Energy Tolling Agreement 17,152 ------ $83,873



Forecast

Forecasts of the Fund and Partnership for the twelve months ending July 31, 2003 were prepared and included in the IPO prospectus. The operating and financial results of the Fund and the Partnership from inception to December 31, 2002, compare favorably to these forecasts and no significant changes have occurred. The availability of all Facilities met expectations with no unanticipated plant costs or capital expenses.

Outlook

The Fund is focused on growing distributions to Unitholders by optimizing the operations of its plants and by pursuing accretive acquisitions. Distributable Cash of the Partnership is forecasted to be $70.2 million of which $49.3 million or $0.938 per Trust Unit is forecasted to be distributed to the Class A Priority Unitholder and $20.9 million to the Class B Subordinated Units.

The Class A Priority Unitholder must be paid its base distribution entitlement before Calpine receives distributions on its Class B Subordinated Units. The subordination results in a cash coverage of 1.43 times the forecasted distributions to Class A Priority Unitholders. This feature of the Fund provides protection to the Class A Priority Unitholder""s distributions.

Business Risks

The Fund and Partnership are exposed to a variety of business risks. However, many of the risks to the unitholders of the Fund are significantly mitigated due to the priority on distributions that the Fund receives from the Partnership. Risks that materialize and result in reduced Distributable Cash of the Partnership will first reduce Partnership distributions to holders of the Class B Subordinated Units. Distributions received by the Fund will not be impacted unless the cash flow shortfall exceeds all forecasted distributions otherwise payable to holders of the Class B Subordinated Units. As well, distributions payable on the Class A Priority Units held by the Fund are cumulative until December 31, 2022, such that distributions must be paid before any distributions can be made to Calpine""s Class B Subordinated Units.

Operations Risk The major operations risks are facility performance and equipment failure risk. The revenues generated by the Facilities are largely dependent on the amount of electrical and steam energy generated, and primarily determine the Distributable Cash to the Fund""s unitholders. Such risks have been reduced by operating high-quality assets with well-designed maintenance programs that ensure such assets operate at peak efficiency.

For the Calgary Energy Facility, there is start up and commissioning risk. Construction of this Facility has been substantially completed with a scheduled COD of March 31, 2003. Costs to complete construction and commissioning have been deposited into a segregated account of the Partnership. No assurance can be given that the Calgary Energy Facility will be completed by March 31, 2003 nor can assurance be given that it will operate on a continuous basis or that it will not be prone to service interruptions due to numerous factors typically encountered by a newly constructed facility and beyond the reasonable control of the Manager.

Commodity Price Risk Through the use of long-term contracts, the Partnership has mitigated short-term exposure to various commodity price risks. Under tolling arrangements established with customers, revenues are earned through monthly payments received from the customer in exchange for providing the full operating capacity of the plant. The customer is further responsible for providing all gas required to generate that electricity. This type of arrangement effectively eliminates price risk and establishes a stable cash flow for the Fund.

Loan Default Risk The Partnership has made a loan to Calpine Canada Whitby Holdings Company ("CCWH"), which holds a 50% partnership interest in the Whitby Cogen Facility. The Partnership is exposed to default risk on this loan as any defaults on the loan may have an adverse effect on the Partnership""s distributable cash and, in turn, on the Distributable Cash of the Fund. Default risk has been minimized by including in the loan documentation restrictions on, but not limited to, how CCWH carries on business, borrows or otherwise incurs indebtedness, enters into business transactions and declares or pays dividends or other distributions to its shareholders.

Regulatory Risk The profitability of the Facilities will in part be dependent upon the continuation of a favorable regulatory climate with respect to the continuing operations and the future growth and development of the independent power industry. Should the regulatory regime in an applicable jurisdiction be modified in a manner which adversely affects the Facilities, Distributable Cash of the Fund may be adversely affected. The Facilities encompass operations which are subject to operational, environmental and safety permits, standards and regulations imposed by regulatory bodies. Although the Manager believes that the operations of the Facilities are in compliance in all material respects with such permits, standards and regulations, or are in receipt of the necessary relaxation certificates, failure to operate the Facilities in strict compliance with applicable permits, standards and regulations may require temporary or permanent cessation of operations of the Facilities and may expose owners or operators to claims and clean-up costs. Any new law or regulation could require significant additional expenditures to achieve or maintain compliance.

Insurance Coverage The Manager maintains insurance coverage for the Island Cogen Facility and the Calgary Energy Facility that it believes is sufficient to address material insurable risks and provides coverage that is similar to what would be maintained by a prudent owner/operator of similar facilities. However, there can be no assurance that such insurance will continue to be offered on an economically feasible basis, nor that all events that could give rise to a loss or liability are insurable, nor that the amounts of insurance will at all times be sufficient to cover each and every loss or claim that may occur involving the assets or operations of the Fund.

Credit Risk The Fund is exposed to credit related losses in the event of non-performance by counterparties, including CESCP. The Fund deals only with reputable counterparties and does not anticipate non-performance by the counterparties. The Fund monitors credit risk on an ongoing basis.

About Calpine Power Income Fund

Calpine Power Income Fund is an unincorporated open-ended trust that invests in electrical power assets. The Fund indirectly owns interests in two power plants in British Columbia and Alberta and has a loan interest in a power plant in Ontario. 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

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 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.

For further information on the Fund, contact: Lisa Poelle, Manager, Investor and Media Relations Phone: 403-781-6200 Email: ir@calpinecanada.com Art MacNichol, Vice President and Chief Financial Officer Phone: 403-750-3378

The audited financial statements of the Fund and the Partnership, the Management Discussion and Analysis and Notes to the financial statements can also be accessed on the Fund""s website at http://www.calpinepif.com/ and on http://www.sedar.com/.

CALPINE POWER INCOME FUND CONSOLIDATED BALANCE SHEET (thousands) As at December 31, 2002 ASSETS Current Assets Cash and Cash Equivalents $10 Distributions Receivable 5,369 ------- 5,379 Investment in Calpine Power, L.P. (Note 3) 496,567 ------- $501,946



= LIABILITIES AND UNITHOLDERS"" EQUITY Current Liabilities Accounts Payable $483 Distributions Payable 4,940 ------- 5,423 Unitholders"" Equity (Note 4) 496,523 ------- $501,946



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Approved by the Trustees of Calpine Commercial Trust on behalf of Calpine Power Income Fund

By: (Signed) "ROHN CRABTREE" By: (Signed) "ARTHUR MACNICHOL" CCT Trustee CCT Trustee See accompanying notes to the consolidated financial statements. CALPINE POWER INCOME FUND CONSOLIDATED STATEMENT OF EARNINGS AND UNITHOLDERS"" EQUITY (thousands, except for Trust Units and per Trust Unit amounts) Inception to December 31, 2002 Revenues Equity earnings from Calpine Power, L.P. (Note 2(d)) $9,497 Interest income 9 ------ 9,506 Expenses Management and administrative (Note 6) 533 ------ Net earnings 8,973 Unitholders"" equity, beginning of period -- Units issued, net of transaction fees 505,048 Distributions (17,498) ------- Unitholders"" equity, end of period $496,523



= Number of Trust Units outstanding 52,001,352





= Net earnings per Trust Unit $0.1726



Distributable Cash and Distributable Cash per Trust Unit - See Note 8 See accompanying notes to the consolidated financial statements CALPINE POWER INCOME FUND CONSOLIDATED STATEMENT OF CASH FLOWS (thousands) Inception to December 31, 2002 OPERATING ACTIVITIES Net earnings $8,973 Adjustments for non-cash items: Equity earnings from Calpine Power, L.P (9,497) Distributions received from Calpine Power, L.P 12,609 Change in non-cash working capital 483 ------ Net cash provided by operating activities 12,568 ------ INVESTING ACTIVITIES Acquisition of interest in Calpine Power, L.P (215,034) -------- Net cash used in investing activities (215,034) -------- FINANCING ACTIVATES Issuance of Trust Units, net of transaction fees (Note 4) 215,034 Distributions paid (12,558) ------- Net cash provided by financing activities 202,476 ------- Increase in Cash $10 ------ Represented by: Cash and Cash Equivalents at December 31, 2002 $10



See accompanying notes to the consolidated financial statements CALPINE POWER INCOME FUND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INCEPTION TO DECEMBER 31, 2002

(Tabular amounts are in thousands except for Trust Units and per Trust Unit

amounts) 1. BUSINESS AND STRUCTURE OF THE FUND

Calpine Power Income Fund (the "Fund") is an unincorporated open-ended trust established under the laws of Alberta pursuant to the Fund Trust Indenture dated July 16, 2002, as amended, supplemented or restated from time-to-time. The Fund owns 100% of Calpine Commercial Trust ("CCT"), a wholly-owned unincorporated open-ended trust, established under the laws of Alberta to hold directly the Fund""s interest in Class A Priority Units of Calpine Power, L.P. ("CLP"), which owns 100% of the Island Cogen Facility and the Calgary Energy Facility.

The Fund was established on July 16, 2002, and commenced operations on August 29, 2002, with the acquisition of Class A Priority Units of CLP. The acquisition of CLP has been accounted for using the equity basis of accounting and equity earnings have been included in these consolidated financial statements from August 29, 2002.

Calpine Canada Power Ltd., (the "Manager"), an indirect wholly-owned subsidiary of Calpine Corporation ("Calpine"), is responsible for overseeing the management and administration of the Fund, including the determination of the amount of distributions to unitholders of the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Fund have been prepared by the Manager in accordance with Canadian generally accepted accounting principles and include the following:

(a) Basis of Consolidation

The consolidated financial statements include the accounts of the Fund and CCT. All interfund transactions are eliminated.

(b) Use of Estimates

The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires the Manager to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

(c) Cash and Cash Equivalents

The Fund""s short-term investments that mature on a daily basis are considered to be cash equivalents and are recorded at cost, which approximates market value.

(d) Investment in CLP

The 70% limited partnership investment in CLP is accounted for using the equity basis of accounting whereby the investment cost is increased or decreased for net earnings or loss and reduced by cash distributions paid to the Fund.

The Fund reviews and evaluates the carrying value of its investment annually. More frequent reviews are conducted as conditions necessitate. In the event a decrease in the value of the investment is other than a temporary decline, the investment is written down to recognize the loss.

(e) Financial Instruments

The carrying value of the Fund""s financial instruments including current assets and current liabilities approximate fair value due to their short-term nature.

(f) Revenue Recognition Revenues are primarily derived from equity earnings as earned by CLP. (g) Income Taxes

Under the terms of the Income Tax Act (Canada), each of the Fund and CCT, as trusts, will not be subject to income taxes to the extent that its taxable income and taxable capital gains are paid or payable to its unitholders. Accordingly, no provision for current income taxes for the Fund or CCT is made. In addition, as each of the Fund and CCT is contractually committed to distribute to its unitholders all or virtually all of its taxable income and taxable capital gains that would otherwise be taxable to it, and each of the Fund and CCT intends to continue not to be subject to income taxes, each of the Fund and CCT is not subject to the recommendations of The Canadian Institute of Chartered Accountants Handbook 3465.

(h) Distributable Cash of the Fund

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 Manager in its discretion determines is necessary to satisfy the Fund""s current and anticipated obligations.

Distributable Cash, as defined above, 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 income trusts.

(i) Net Earnings and Distributable Cash per Trust Unit

Net earnings and Distributable Cash per Trust Unit are calculated by dividing net earnings and Distributable Cash, respectively, by the weighted average number of Trust Units outstanding during the period. For the purposes of the weighted average number of Trust Units calculation, Trust Units are determined to be outstanding from the date they are issued.

3. ACQUISITION OF CLP

On August 29, 2002, the Fund issued 23,000,000 Trust Units in an initial public offering (the "Initial Offering") at a price of $10.00 per unit, for net proceeds of $215,034,000 after transaction fees of $14,966,000. On the same date the Fund issued 29,001,352 Trust Units at a price of $10.00 per unit to Calpine Canada Power Holdings Ltd. ("CPHL"), an indirect wholly-owned subsidiary of Calpine, in exchange for the acquisition of a 99.11% limited partnership interest in Calpine Island Cogeneration Limited Partnership ("ICLP") which owns the Island Cogen Facility.

Net proceeds received from the Initial Offering were used to purchase 52,001,351 Class A Priority Units of CLP representing a 70% partnership interest, for aggregate consideration of $215,034,000 cash and a 99.11% partnership interest in ICLP.

At December 31, 2002 the equity investment in CLP was comprised as follows:

Acquisition cost at August 29, 2002 $505,048 Net earnings for the period 9,497 Distributions to the Fund (17,978) ------- Investment in CLP at December 31, 2002 $496,567



= 4. UNITHOLDERS"" EQUITY

The Fund Trust Indenture provides that an unlimited number of Trust Units may be authorized and issued. Each Trust Unit is transferable, carries the right to one vote and represents an equal undivided beneficial interest in any distributions from the Fund and in the net assets of the Fund in the event of termination or winding-up of the Fund. All Trust Units are of the same class with equal rights and privileges.

The Trust Units are redeemable at the holder""s option at an amount equal to the lesser of: (a) 90% of the weighted average price per Trust Unit during the period of the last 10 days during which the Trust Units were traded on the Toronto Stock Exchange; and (b) the closing market price at the date of redemption as defined in the Trust Indenture. Redemptions are subject to a maximum of $250,000 in cash redemptions in any particular month. Redemptions in excess of this amount will be paid by way of a distribution of notes issued by CCT to the Fund.

Trust Units Issued and Unitholders"" Equity Number of Units Amount Initial subscription 1 $-- Initial Public Offering, net of transaction fees (Note 3) 23,000,000 215,034 Issued for interest in ICLP 29,001,351 290,014 Net earnings 8,973 Special distribution (858) Distributions declared (16,640) ---------- ------- As at December 31, 2002 52,001,352 $496,523





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Of the total units outstanding at December 31, 2002, Calpine indirectly owned 25,551,352 Trust Units representing 49% of the total outstanding. The weighted average number of Trust Units outstanding for the period from August 29, 2002 to December 31, 2002, was 52,001,352.

Certain costs incurred in issuing Trust Units by the Fund of $14,966,000 are deductible for income tax purposes on a straight-line basis over a five- year period. Each unitholder will be required to include in computing income for tax purposes for a particular taxation year their pro rata share of the Fund""s income that was paid or payable in that year to the unitholder and that was deducted by the Fund in computing its income.

5. CASH DISTRIBUTIONS

The Fund distributes Distributable Cash of the Fund, as defined in the Fund Trust Indenture, on a monthly basis. The Fund distributes Distributable Cash of the Fund in respect of each month to the Unitholders of record on the last day of such month. Payments are made on or about the 20th day after each record date.

6. RELATED PARTY TRANSACTIONS

The Manager is a wholly-owned subsidiary of CPHL, which in turn is an indirect wholly-owned subsidiary of Calpine. The Manager holds Class B Subordinated Units representing a 30% interest in CLP. On August 29, 2002, the following interests were contributed by the Manager and CPHL to CLP in consideration for the Class B Subordinated Units: (i) a 0.89% interest in the Island Cogen Facility, comprised of a 0.88% partnership interest in ICLP, which owns the Island Cogen Facility, and all of the outstanding shares of Calpine Island Cogeneration Project Inc., the general partner of ICLP and the owner of a 0.01% partnership interest in ICLP (as amended); and (ii) a 100% interest in the Calgary Energy Facility, comprised of a 99.9999% partnership interest in Calgary Energy Centre Limited Partnership ("CECLP"), which owns the Calgary Energy Facility, and all of the outstanding shares of Calgary Energy Centre ULC ("CECGP"), the general partner of CECLP and the owner of a 0.0001% partnership interest in CECLP. At closing of the transaction on August 29, 2002, the remaining 99.11% interest in the Island Cogen Facility that was contributed to the Fund by CPHL in exchange for Trust Units, comprised of a 99.11% partnership interest in ICLP, was transferred by the Fund and CCT to CLP in consideration for the issuance of Class A Priority Units.

The Fund and the Manager have entered into a 20-year Administration Agreement expiring in 2022 and CCT and the Manager have entered into a 20-year Management Agreement expiring 2022. Pursuant to these agreements, the Manager administers the Fund and manages CCT. In consideration for services provided under the Administration Agreement with the Fund, the Manager receives a base fee of $50,000 per year subject to annual adjustment based upon the increase in the Canadian Consumer""s Price Index commencing January 1, 2003. In consideration for services provided under the Management Agreement with CCT, the Manager will receive: (i) a base fee of $100,000 per year subject to annual adjustment based upon the increase in the Canadian Consumer""s Price Index commencing January 1, 2003 and (ii) an incentive fee payable annually and equal to 20% of the amount by which the Distributable Cash of CLP, calculated on a per Trust Unit basis, exceeds a specified threshold amount, which was $0.32 per Trust Unit for the period ended December 31, 2002.

As at December 31, 2002, the Fund had the following balances receivable from (payable to) related parties in the normal course of business:

Distributions Receivable from CLP 5,369 Distributions Payable to Calpine (2,427) Accounts Payable to CLP (54) Accounts Payable to the Manager (429)

During the period ended December 31, 2002, the total amount of $480 thousand was paid to the Manager for administrative or incentive fees under the administration and management agreements.

7. ECONOMIC DEPENDENCE AND CONCENTRATION OF CREDIT RISK

For purposes of declaring distributions, the Fund is entirely dependent on Distributable Cash received from CLP. For the year ended December 31, 2002, CLP""s primary source of cash was derived from the sale of electricity by Island Cogen Facility to BC Hydro pursuant to the electricity purchase agreement and from the Calgary Energy Facility pursuant to the tolling agreement between Calpine Energy Services Canada Partnership and the Calgary Energy Facility.

Credit Risk The Fund is exposed to credit-related losses in the event of non-performance by counterparties. The Fund deals only with reputable counterparties and does not anticipate non-performance by the counterparties. The Fund monitors credit risk on an ongoing basis.

8. DISTRIBUTABLE CASH Inception to December 31, 2002 Net earnings $8,973 Add: Distributions received and receivable from Calpine Power, L.P 17,978 Working capital 44 Less: Equity earnings from Calpine Power, L.P (9,497) ------ Distributable Cash $17,498





= Number of Trust Units outstanding 52,001,352 Distributable Cash per Trust Unit $0.3365 ------ 9. SUBSEQUENT EVENTS

On January 14, 2003, the Fund announced, on behalf of CLP, that cash distributions to holders of Class A Priority Units and Class B Subordinated Units for December 2002 had been set at $0.0785 per Class A Priority Unit and $0.0785 per Class B Subordinated Unit. The cash distribution for this period will be paid on January 20, 2003 to unitholders of record on December 31, 2002.

On January 20, 2003, the Fund, on behalf of CLP, announced that a special cash distribution to holders of Class A Priority Units and Class B Subordinated Units for August 29, 2002 to December 31, 2002 had been set at $0.0165 per Class A Priority Unit and $0.0385 per Class B Subordinated Unit. The cash distribution for this period will be paid on February 20, 2003 to unitholders of record on January 31, 2003.

On January 20, 2003, the Fund and its principal unitholder, CPHL, approved the offering to the public of 17,034,234 Warranted Units, each Warranted Unit consisting of one Trust Unit to be sold by CPHL from its holding in the Fund, and one-half of one Trust Unit purchase warrant ("Purchase Warrant") to be issued by the Fund (the "Offering"). At the time of the closing of the Offering, CPHL, Calpine and the Fund will enter into an agreement under which CPHL will sell 8,517,118 Trust Units to the Fund, which will represent the number of Trust Units required to be delivered if the Purchase Warrants are fully exercised. The Fund will issue to CPHL in consideration for 8,517,118 Trust Units, a promissory note ("Fund Promissory Note"), the principal amount of which will represent the aggregate exercise price applicable to all of the Warrants and the aggregate consideration allocated to the Warrants as part of the offering price for the Warranted Units. Upon exercise of the Purchase Warrants, the Fund will be required to deliver to CPHL the proceeds of exercise, and the principal amount owing under the Fund Promissory Note will automatically be reduced by an amount equal to the proceeds delivered by the Fund to CPHL. Upon expiry of the Purchase Warrants on December 30, 2003, the Fund will be required under the Fund Promissory Note, to issue from treasury to CPHL, that number of Trust Units equal to the then outstanding principal amount owing under the Fund Promissory Note divided by the per Trust Unit exercise price under the Purchase Warrants and the Fund Promissory Note will be cancelled. Interest payable from time to time under the Fund Promissory Note is to be equal to the cash distributions that would have otherwise been received had the Trust Units represented by any unexercised Purchase Warrants been held directly by CPHL. The Fund Promissory Note and the sale agreement shall provide that the Fund Promissory Note is repayable only: (i) to the extent that the Fund receives proceeds of the offering allocated to the Purchased Warrants and the proceeds received by the Fund upon exercise of the Purchased Warrants; or (ii) in connection with the automatic conversion right referred to above.

CALPINE POWER, L.P. CONSOLIDATED BALANCE SHEET (thousands) As at December 31, 2002 ASSETS Current Assets Cash and Cash Equivalents $14,587 Restricted Cash (Note 4) 83,873 Accounts Receivable 4,750 Interest Receivable - Whitby Loan 1,112 Prepaid Expense 513 ------ 104,835 ------- Deferred Charge - Calgary Energy Tolling Agreement (Note 5) 14,789 Loan to Calpine Canada Whitby Holdings Company (Note 9) 35,790 Capital Assets (Note 6) 578,183 ------- $733,597



= LIABILITIES AND PARTNERS"" EQUITY Current Liabilities Accounts Payable - Trade $799 - Accrued Capital 23,237 - Other 5,124 Distributions Payable 7,977 Deposits Payable (Note 4) 17,152 ------ 54,289 Partners"" Equity (Note 7) 679,308 ------- $733,597



Approved by Calpine Canada Power Ltd. as General Partner of Calpine Power, L.P. By: (Signed) "ROHN CRABTREE" By: (Signed) "ARTHUR MACNICHOL" Director Director See accompanying notes to the consolidated financial statements CALPINE POWER, L.P. CONSOLIDATED STATEMENT OF EARNINGS AND PARTNERS"" EQUITY (thousands, except for per Unit amounts) Inception to December 31, 2002 Revenues Electricity and thermal $17,828 Interest - Whitby 1,112 - Other 1,082 ------ 20,022 ------ Expenses Operating and maintenance 3,532 Depreciation 2,750 General and administrative 173 ------ 6,455 ------ Net earnings 13,567 Partners"" equity, beginning of period -- Units issued 725,191 Special distribution (33,482) Distributions (25,968) ------ Partners"" equity, end of period $679,308



= Net earnings per Unit (Note 7) Class A Priority Unit $0.1826



Class B Subordinated Unit $0.1826



Distributable Cash and Distributable Cash per Unit - see Note 13 See accompanying notes to the consolidated financial statements CALPINE POWER, L.P. CONSOLIDATED STATEMENT OF CASH FLOWS (thousands) Inception to December 31, 2002 OPERATING ACTIVITIES Net earnings $13,567 Adjustments for non-cash items: Depreciation 2,750 ------ 16,317 Change in non-cash working capital (454) Net cash provided by operating activities 15,863 INVESTING ACTIVITIES Loan to Calpine Canada Whitby Holdings Company (35,790) Capital expenditures (70,774) Payment under Calgary Energy Tolling Agreement (27,762) Receipts under Calgary Energy Tolling Agreement 12,973 Change in non-cash working capital 23,237 ------- Net cash used in investing activities (98,116) ------- FINANCING ACTIVITIES Special distribution (33,482) Issuance of Partnership Units 215,034 Distributions paid (17,991) Security deposits received 50,931 Security deposits repaid (33,931) Change in non-cash working capital 152 ------- Net cash provided by financing activities 180,713 ------- Increase in Cash $98,460



Represented by: Cash and Cash Equivalents $14,587 Restricted Cash (Note 4) 83,873 ------ Balance as at December 31, 2002 $98,460



Supplementary Cash Flow Information Interest received $1,082



See accompanying notes to the consolidated financial statements CALPINE POWER, L.P. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS INCEPTION TO DECEMBER 31, 2002 (Tabular amounts are in thousands except for per Unit amounts) 1. BUSINESS AND STRUCTURE OF THE PARTNERSHIP

Calpine Power, L.P. ("CLP" or the "Partnership") is a limited partnership created under the laws of the Province of Alberta pursuant to the limited partnership agreement dated July 17, 2002, between Calpine Canada Power Ltd. (the "Manager"), as general partner, Calpine Commercial Trust ("CCT") and Calpine Canada Power Holdings Ltd. ("CPHL"), as limited partners of CLP (the "CLP Partnership Agreement").

The Partnership was established on July 17, 2002, but commenced operations on August 29, 2002, with the acquisition of the following interests in the facilities (the "Facilities Interests" or the "Facilities") which were conveyed and contributed to CLP pursuant to contribution and subscription agreements between CLP, CPHL, the Calpine Power Income Fund (the "Fund"), CCT and the Manager: (i) 100% of the Island Cogen Facility, comprised of a 99.99% partnership interest in Calpine Island Cogeneration Limited Partnership ("ICLP"), which owns the Island Cogen Facility, and all of the outstanding shares of Calpine Island Cogeneration Project Inc. ("ICPI"), the general partner of ICLP and the owner of a 0.01% partnership interest in ICLP; and (ii) 100% of the Calgary Energy Facility, comprised of a 99.9999% partnership interest in Calgary Energy Centre Limited Partnership ("CECLP"), which owns the Calgary Energy Facility, and all of the outstanding shares of Calgary Energy Centre ULC ("CECGP"), the general partner of CECLP and the owner of a 0.0001% partnership interest in CECLP.

CCT, CPHL and the Manager contributed to CLP all of the Facilities Interests. Under the terms of the operating and maintenance agreement, dated August 29, 2002, between ICLP and the Manager (the "Island O&M Agreement"), and the operating and maintenance agreement, dated August 29, 2002, between CECLP and the Manager (the "Calgary Energy O&M Agreement") (collectively, the "O&M Agreements"), the Manager operates and maintains the Island Cogen Facility and the Calgary Energy Facility for the reimbursement of its costs.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of CLP have been prepared by the Manager in accordance with Canadian generally accepted accounting principles and include the following:

(a) Basis of Consolidation

The consolidated financial statements include the accounts of CLP, ICLP, ICPI, CECGP and CECLP. All inter-company transactions are eliminated.

(b) Use of Estimates

The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires the Manager to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

(c) Cash and Cash Equivalents

CLP""s short-term investments that mature on a daily basis are considered to be cash equivalents and are recorded at cost, which approximates market value.

(d) Financial Instruments

The carrying value of CLP""s financial instruments including current assets, loans receivable, and current liabilities approximate fair value.

(e) Capital Assets

The Facilities are accounted for at cost. The cost of a power generation plant and equipment, less estimated salvage value, is depreciated on a straight-line basis over its estimated service life of, typically, thirty-five years starting on the commercial operations date ("COD").

The cost of major overhauls is capitalized and depreciated on a straight-line basis over the estimated service lives, which is usually one to six years.

CLP reviews and evaluates the fair value of capital assets annually. More frequent reviews are conducted as conditions necessitate. In the event that the fair value of the capital assets decrease below the net book value, the capital assets are written down to recognize the loss.

Estimated future removal and site restoration costs which are probable and can be reasonably determined are provided for on a straight-line basis over their estimated service lives of the assets. No amounts have been recorded to date.

(f) Income Taxes

Under the Income Tax Act (Canada), a partnership does not pay tax. Rather, the income taxes in respect of the partnership are the responsibility of the individual partners as opposed to the partnership and therefore have not been recorded in the consolidated financial statements.

(g) Revenue Recognition

Electricity revenue derived from sales pursuant to the Electricity Purchase Agreement (the "Island EPA") dated September 29, 1998, between ICLP and British Columbia Hydro and Power Authority ("BC Hydro") and the Tolling Agreement, between Calpine Energy Services Canada Partnership ("CESCP") and CECLP (the "Calgary Energy Tolling Agreement") is recorded at the time electrical energy is delivered at the rates set out in the Island EPA and, with respect to the Calgary Energy Tolling Agreement, revenue will be recorded monthly based on the fixed monthly charge set forth in the Calgary Energy Tolling Agreement when COD is declared.

Electricity revenue is recognized pursuant to the Alstom Long Term Service Agreement, under which Alstom provides capital and operating expense services at no cost to CLP.

Thermal revenue derived from sales pursuant to the Energy Services Agreement, dated September 29, 1998, between ICLP, Norske Skog Canada Limited and Norske Skog Canada Pulp Operations Limited (the "Island ESA") is recorded at the time steam is delivered (or deliverable) at the rates set out in the Island ESA.

Interest revenue is recorded as earned. (h) Distributable Cash

The amount of Distributable Cash, as defined in the CLP Partnership Agreement, is to be distributed monthly and is based generally on the amount by which CLP""s cash on hand exceeds: (i) management and administration expenses of CLP; (ii) amounts required for the business and operations of CLP and the Facilities (including expenses payable to the Manager under the O&M Agreements); and (iii) any cash reserve which the Board of Directors of the Manager in its discretion has determined is necessary to satisfy CLP""s current and anticipated obligations including an annual reserve for the average estimated major maintenance expenditures.

Distributable Cash, as defined above, 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 limited partnerships.

(i) Net Earnings and Distributable Cash per Unit

Net earnings and Distributable Cash per unit are calculated by dividing net earnings and Distributable Cash, respectively, by the weighted average number of units outstanding.

3. ACQUISITION OF THE FACILITIES INTERESTS

Following the closing of the initial public offering of the Fund effective August 29, 2002 (the "Initial Offering"), CLP issued 52,001,351 Class A Priority Units to CCT for proceeds of $215,034,000 in cash and $290,013,520 relating to the transfer to CLP of CCT""s 99.11% limited partnership interest in ICLP. CLP further issued 22,286,292 Class B Subordinated Units to the Manager, representing a 30% partnership interest in CLP. In exchange for the Class B Subordinated Units, CLP received the remaining 0.89% limited and general partnership interest in ICLP, which owns the Island Cogen Facility, and a 100% limited and general partnership interest in the Calgary Energy Centre Limited Partnership, which owns the Calgary Energy Facility and all agreements related thereto. The cash proceeds of $215,034,000 received for the Class A Priority Units were used as follows:

(i) as to $111.0 million, by holding in a segregated account the amount of $111.0 million, being the estimated cost to complete construction of the Calgary Energy Facility. Amounts are to be released to the Manager from this account to fund completion of the Calgary Energy Facility. Payments from this segregated account must be authorized by one of the Independent Trustees of CCT, who will be relying upon advice from a firm of independent engineers that the payment made was proper;

(ii) as to $7.0 million, by establishing a reserve for future maintenance costs;

(iii) as to $27.8 million, by distributing $27.8 million to CESCP as an inducement fee to enter into the Calgary Energy Tolling Agreement;

(iv) as to $35.8 million, by distributing $35.8 million to Calpine Canada Whitby Holdings Company ("CCWH") in exchange for a note receivable which entitles CLP to receive interest income at an annual rate of 9.07% for a term of 15 years; and

(v) as to $33.5 million, by distributing $33.5 million to the Manager as a special distribution on their Class B Subordinated Units. This distribution represents the remaining cash proceeds after giving effect to the above transactions.

These acquisitions have been accounted for by the purchase method of accounting as follows:

Consideration: Issuance of 52,001,351 Class A Priority Units to CCT $505,048 Issuance of 22,286,292 Class B Subordinated Units to Calpine Corporation 220,143 ------- $725,191



= Net Assets Acquired: Cash $215,034 Facilities Interests 510,157



= $725,191 4. RESTRICTED CASH AND MAINTENANCE RESERVE

Several cash reserves were established in the Partnership to fund significant expenditures and limit potential business risks of CLP. A cash reserve of $111.0 million was established in a segregated account to meet the remaining construction requirements of the Calgary Energy Facility. The amount is used to reimburse expenditures incurred by the Manager in connection with the completion of the Calgary Energy Facility. Payments from this segregated account must be authorized by one of the independent trustees of CCT, after receipt of confirmation from a firm of independent engineers that the expenditures were properly incurred. If construction completion costs exceed the amount reserved, the Manager will be responsible for such excess costs. A cash deposit of $17.0 million was received from CESCP as security to satisfy its payment obligations under the Calgary Energy Tolling Agreement. This cash deposit and any associated interest is due to CESCP when the Calgary Energy Facility declares COD.

Cash Reserves As at December 31, 2002 Restricted Cash Construction Reserve $66,721 Security Deposit from CESCP for Calgary Energy Tolling Agreement (including interest) 17,152 ------ $83,873



Maintenance Reserve $7,000





The maintenance reserve of $7.0 million has been established to partially fund future maintenance costs and to levelize such costs, as required.

5. DEFERRED CHARGE

On August 29, 2002, CECLP and CESCP entered into the Calgary Energy Tolling Agreement which governs the sale of electricity from the Calgary Energy Facility and under which a payment of $27,762,000 was made to CESCP. Under the Calgary Energy Tolling Agreement, as pre-payment for the provision of future tolling services, CESCP is required to pay to CECLP a monthly amount equal to the fixed charge component of the monthly tolling fee until the COD of the Calgary Energy Facility or March 31, 2004, which ever comes first. During the period ended December 31, 2002, payments totalling $12,973,000 were received by CECLP under this agreement.

6. CAPITAL ASSETS As at December 31, 2002 Accumulated Net Book Cost Depreciation Value Land $334 $-- $334 Construction in progress 286,248 -- 286,248 Power generation plant and equipment 294,351 2,750 291,601 ------- ------ ------- $580,933 $2,750 $578,183



=







=

Construction in progress represents the ongoing construction of the Calgary Energy Facility. As at December 31, 2002, the Calgary Energy Facility was 97% mechanically complete.

7. PARTNERS"" EQUITY

CLP is authorized to issue an unlimited number of Class A Priority Units and an unlimited number of Class B Subordinated Units. The holders of Class A Priority Units are entitled to receive the first $0.078 of Distributable Cash per Class A Priority Unit per month on a cumulative basis in priority to any payments on the Class B Subordinated Units. The holders of Class B Subordinated Units are entitled to receive up to $0.078 of Distributable Cash per Class B Subordinated Unit per month which amounts cumulate 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. Following these payments, holders of Class A Priority Units and holders of Class B Subordinated Units are entitled to share equally on a class basis, Distributable Cash in excess of their prior entitlements in any fiscal year.

Class A Units Class B Units Total Units issued $505,048 $220,143 $725,191 Net earnings 9,497 4,070 13,567 Special distribution -- (33,482) (33,482) Distributions declared (17,978) (7,990) (25,968) ------- ------ ------- As at December 31, 2002 $496,567 $182,741 $679,308



=



=



=

On August 29, 2002, CLP issued 52,001,351 Class A Priority Units to CCT representing 70% ownership and 22,286,292 Class B Subordinated Units to Calpine Corporation ("Calpine") representing 30% ownership.

For the period from inception on July 17, 2002 to December 31, 2002 excess distributable cash was calculated to be $2.1 million resulting in a special distribution of $0.025 per Class A Priority Unit and $0.039 per Class B Subordinated Unit. The Class A special distribution includes $429 thousand payable to the Fund for settlement of the Manager""s Incentive Fee.

8. CASH DISTRIBUTIONS

CLP distributes Distributable Cash of the Partnership, as defined in the CLP Partnership Agreement, on a monthly basis. CLP 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 units. Payments are made on or about the 20th day after each record date.

9. RELATED PARTY TRANSACTIONS

The Manager is a wholly-owned subsidiary of CPHL, which, in turn, is an indirect wholly-owned subsidiary of Calpine. Following the closing of the initial offering of Trust Units, the Manager holds Class B Subordinated Units representing a 30% interest in CLP. On August 29, 2002, the following interests were contributed by the Manager and CPHL to CLP in consideration for the issuance of Class B Subordinated Units: (i) a 0.89% interest in the Island Cogen Facility, comprised of a 0.88% partnership interest in ICLP, which owns the Island Cogen Facility, and all of the outstanding shares of ICPI, the general partner of ICLP and the owner of a 0.01% partnership interest in ICLP (as amended); and (ii) a 100% interest in the Calgary Energy Facility, comprised of a 99.9999% partnership interest in CECLP, which owns the Calgary Energy Facility, and all of the outstanding shares of CECGP, the general partner of CECLP and the owner of a 0.0001% partnership interest in CECLP. At closing of the transaction on August 29, 2002, the remaining 99.11% interest in the Island Cogen Facility, comprised of a 99.11% partnership interest in ICLP, was contributed by CCT to CLP in consideration for the issuance of Class A Priority Units (as amended).

CCWH is an indirect wholly-owned subsidiary of Calpine. CLP, through a term loan to CCWH of $35.8 million, is entitled to interest income at an annual interest rate of 9.07% for a term of 15 years. CCWH shall be obligated to repay principal at such time as it receives distributions from Whitby Cogeneration Limited Partnership (or its general partner, 1066917 Ontario Inc.) and in an amount equal to the amount of such distributions less the amount of any interest payments then due or coming due within the next 60 day period and less any reserve necessary to pay taxes expected to be payable on such distributions. Interest earned with respect to this loan amounted to $1,111,696 for the period from inception on July 17, 2002 to December 31, 2002.

CECLP and CESCP entered a tolling agreement whereby the Calgary Energy Facility earns revenue through fixed monthly payments received from CESCP in exchange for providing the full operating capacity of the plant. This agreement will have an initial term of 20 years and maybe renewed for two additional five-year terms, at the option of CESCP.

Under the terms of the operating and maintenance agreement, dated August 29, 2002, between ICLP and the Manager, and the operating and maintenance agreement, dated August 29, 2002, between CECLP and the Manager, the Manager operates and maintains the Island Cogen Facility and the Calgary Energy Facility for the reimbursement of its costs.

Under the CLP Partnership Agreement, the Manager is responsible for providing and performing management and administrative and other services for CLP on a cost reimbursement basis. CLP also bears the expenses, but not the fees to manage and administer CCT and the Fund.

As at December 31, 2002, CLP had the following balances receivable from (payable to) related parties in the normal course of business:

$ ------ Loan and interest receivable from CCWH 36,902 Distributions payable to CCT (5,369) Distributions payable to Calpine (2,608) Deposits payable to Calpine (17,152) Capital reimbursement due to Calpine (23,237) 10. ALSTOM SETTLEMENT AGREEMENT

On July 9, 2002, Alstom Canada, Inc. ("Alstom") pursuant to its obligation under a turnkey design, engineering, procurement and construction contract, agreed to pay buydown amounts totalling $50 million to CLP over a 10 year period because certain performance targets for the Island Cogen Facility were not met. The settlement is fully supported by a banker""s demand bond. This amount will be settled over a 10 year period through reduced future operating and maintenance charges under the Island Maintenance Agreement between ICPI and Alstom.

11. COMMITMENTS

As part of normal operations, CLP and its wholly owned subsidiaries and partnerships enter a variety of commitments under normal business terms. Such commitments include a tolling agreement with BC Hydro whereby revenues are earned by the Island Cogen Facility through fixed monthly payments received from BC Hydro in exchange for providing the full operating capacity of the plant.

Island Electricity Purchase Agreement:

The sale of electricity from the Island Cogen Facility to BC Hydro is governed by the Island EPA dated September 29, 1998 between ICLP and BC Hydro, as amended. The initial term of the Island EPA expires on April 12, 2022. The Island EPA functions as a tolling arrangement, under which BC Hydro delivers all fuel required to operate the Facility and is, in turn obligated to pay for all electricity generated or deemed to have been made available by the Island Cogen Facility at the delivery point, subject to a maximum of 285 MW.

Energy Services Agreement with Norske Skog:

Under the Island ESA dated September 29, 1998, between ICLP and Norske Skog, ICLP is obligated to provide steam from the Island Cogen Facility to Norske Skog for use in the Elk Falls Mill. Norske Skog is obligated to request, accept and pay for a minimum annual amount of steam and ICLP is obligated to deliver the requested steam subject to annual and hourly maximum amounts. The initial term of the Island ESA expires on April 12, 2022, and is renewable by Norske Skog for up to an additional ten years if one or more third parties agree to purchase all the electricity the Island Cogen Facility can produce through the renewal period and the Island site lease and the mill services agreement (the "Island MSA") are renewed.

Mill Services Agreement with Norske Skog:

Norske Skog provides ICLP with certain services pursuant to the Island MSA dated September 29, 1998. The initial term of the Island MSA expires on April 12, 2022, and is renewable by ICLP for up to an additional ten years if certain conditions are met. The Island MSA terminates automatically if the Island ESA is terminated prior to April 12, 2022, and may be terminated by ICLP if the Island EPA is terminated.

Island Maintenance Agreement:

Under a maintenance agreement ("Island Maintenance Agreement") dated November 24, 1997, between ICPI and Alstom, Alstom supplies various parts and services in connection with maintenance of certain equipment located at the Island Cogen Facility. ICPI pays a monthly fee to Alstom under this agreement of which there is a fixed and variable component. The Island Maintenance Agreement terminates upon completion of a specified inspection which is approximately 12 years of operations.

12. ECONOMIC DEPENDENCE AND CONCENTRATION OF FINANCIAL RISK

Electricity sales pursuant to the Island EPA with BC Hydro accounted for 86% of total revenue for the period ended December 31, 2002.

Approximately 69% of the period end accounts receivable balance was due from BC Hydro relating to electricity sales.

Commodity Price Risk Through the use of long-term contracts, CLP has mitigated exposure to various commodity price risks. Under tolling arrangements established with customers, revenues are earned through monthly payments received from the customer in exchange for providing the full operating capacity of the plant. The customer is further responsible for providing all gas required to generate that power. This type of arrangement effectively eliminates price risk and establishes a stable cash flow for CLP.

Interest Rate and Loan Default Risk CLP has a loan to CCWH, which holds a 50% partnership interest in the Whitby Cogen Facility. The fair value of the loan will change dependent on the fluctuation of market interest rates. Due to the fixed nature of the loan arrangement, fluctuations in cash flow are eliminated. CLP is exposed to default risk on this loan as any defaults on the loan may have an adverse effect on distributable cash of the CLP.

Credit Risk CLP is exposed to credit-related losses in the event of non-performance by counterparties. CLP deals only with reputable counterparties and does not anticipate non-performance by the counterparties. The Fund monitors credit risk on an ongoing basis.

13. DISTRIBUTABLE CASH Inception to December 31,2002 ------ Net earnings $13,567 Add: Depreciation 2,750 Receipts with respect to Calgary Energy Tolling Agreement (Note 5) 12,973 Less: Maintenance capital (1,774) Working capital (1,548) ------ Distributable Cash $25,968



Allocation of Distributable Cash (Note 7) Class A Priority Units $17,978 Class B Subordinated Units 7,990 ------ $25,968



Per Unit allocation of Distributable Cash (Note 7) Class A Priority Units $ 0.3457 ------ Class B Subordinated Units $ 0.3585 -------

EDITORS"" NOTE: All dollar figures are in Canadian dollars unless otherwise specified.

Source: Calpine Corporation
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