1294543--9/29/2006--Calpine_Corpus_Christi_Energy

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{cost, regulation, environmental}

{condition, economic, financial}

{gas, price, oil}

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The Chapter 11 cases may adversely affect our operations going forward. We will be subject to claims made after the date that we filed for Chapter 11 protection and other claims that are not discharged in the Chapter 11 cases, which could have a material adverse effect on our results of operations and financial condition. Our successful reorganization will depend on certain of Calpine s key employees, who are also officers of CalGen and its subsidiaries, and their, and our, ability to successfully implement new strategies We have recognized impairment charges of $1.2 billion for the period ending December 31, 2005 to certain of our projects and could recognize additional impairment charges in the future. Bankruptcy laws may limit our secured creditors ability to realize value from their collateral Calpine or any affiliate in Chapter 11 may reject any executory contracts with us or our subsidiaries. We and/or one or more of our subsidiaries could be substantively consolidated with Calpine or one or more of the other Debtors in connection with the Chapter 11 filings by Calpine and such other Debtors. As a result of our and Calpine s impaired credit status due to our respective Chapter 11 filings and earlier credit ratings downgrades, our operations may be restricted and our liquidity requirements increased. We are subject to additional risks and uncertainties associated with revisions to the Bankruptcy Code that took effect in October 2005. Our emergence from Chapter 11 is not assured Risks Relating to our Indebtedness and Limited Capital Resources Our future financial results may be volatile and may not reflect historical trends. To service our indebtedness and other potential liquidity requirements we will require a significant amount of cash. The DIP Facility imposes significant operating and financial restrictions on us; any failure to comply with these restrictions could have a material adverse effect on our liquidity and our operations. We have substantial liquidity needs and face significant liquidity pressure. We may not have sufficient cash to service our indebtedness and other liquidity requirements. The recourse of holders of our debt is limited to the assets and cash flow of us and the guarantors. We may not be able to generate sufficient cash flow to service our debt or meet unanticipated capital needs. We may not be able to refinance the Notes, our Term Loans and our Revolving Credit Facility when they become due. The Index Hedge provides limited protection against adverse changes in gas and electricity prices as measured by defined market indices. We may be unable to secure additional financing in the future. Holders of our secured debt have only an indirect claim on the assets of our subsidiary that owns the Goldendale facility by means of pledges of the equity interests of such subsidiary s ultimate parent entities. The liens on the collateral securing our debt may be subject to liens held by others. On an event of default, the proceeds from any realization of the collateral may not be sufficient to repay our debt. We are permitted to incur obligations to expand the facilities or to secure third party power supply agreements in certain circumstances, and we may secure such obligations with priority liens on the assets financed by or that support such obligations. Our secured creditors interest in their collateral may be adversely affected by the failure to record and/or perfect security interests in certain collateral. The lien ranking and voting provisions set forth in the collateral trust agreement and the instruments governing our secured debt may limit the rights of the holders of such debt with respect to the collateral securing their debt. Our ability to make distributions to our equity holders or similar payments is subject to limited restrictions, and excess cash may be released in the form of intercompany loans. The agreements governing our indebtedness, as well as indebtedness of our affiliates, impose restrictions on our business. A court could cancel the guarantees of the Notes, Term Loans and Revolving Credit Facility by our subsidiaries under fraudulent transfer law. The collateral may not be valuable enough to satisfy all of the obligations secured by the collateral. It may be difficult to realize the value of the collateral pledged to secure our debt. We have only obtained limited title insurance on the real property and the improvements thereon that secure our obligations. State law may limit the ability of holders of our secured debt to foreclose on real property and improvements included in their collateral. We may be unable to repurchase the Notes and repay the Term Loans upon a change of control. Holders of Notes who hold via beneficial interests in global notes may be unable to transfer or pledge such interests if physical delivery is required by applicable law. Our indebtedness, substantially all of which, contains floating rate interest provisions, could adversely affect our financial health and prevent us from fulfilling our obligations under our debt. The prices of our debt securities are volatile and, in connection with our reorganization, holders of our securities or other debt may receive no payment, or payment that is less than the face value or purchase price thereof. Risks Relating to Our Business Our performance is dependent on market prices for gas and power, which are subject to substantial fluctuation. Our ability to service our debt will depend principally on revenue to be received under our power purchase agreements with CES and other third parties. We rely on other parties to provide substantially all of the services and other support we need to operate our business; our ability to make payments of principal, premium if any, interest and special interest, if any, on our debt may be impaired by the failure of any of those parties to perform their contractual obligations or if any of those parties terminate their contractual obligations. Our business is subject to substantial regulations and permitting requirements and may be adversely affected if we are unable to comply with existing regulations or requirements or changes in applicable regulations or requirements. We face ongoing changes in the United States electric utility industry, which, among other consequences, could increase the number of our competitors. We could be exposed to significant liability for violations of hazardous substances laws should any such substances be found at our projects. Competition could adversely affect our performance. Our operations are subject to hazards customary to the power generation industry. We may not have adequate insurance to cover all of these hazards. RMR payments made to the Delta Energy Center have been challenged by certain parties as not being just and reasonable. Risks Relating to the Facilities The facilities may not operate as planned. Construction, expansion, refurbishment and operation of facilities involve significant risks that cannot always be covered by insurance or contractual protections and could have a material adverse effect on our revenues, results of operations and cash flows. Our ability to operate and maintain the facilities is dependent upon the availability of various resources from affiliates and third-party suppliers. Certain real estate matters may affect the operation of the facilities. Seismic disturbances could damage the facilities. Acts of terrorism could have a material adverse effect on our financial condition, results of operations and cash flows. We rely on Calpine and its subsidiaries to provide many of the financial and other support and services we need to operate our business; our ability to make payments on our debt may be impaired by the failure of those affiliates to provide such support and services and perform their contractual obligations. Calpine is subject to conditions that restrict its activities and may make it difficult for it and its subsidiaries to perform their obligations to us.

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1294543--9/29/2006--Calpine_Corpus_Christi_Energy_GP