December 22, 2000

Calpine to Acquire Development Rights for 500-Megawatt Project in Otay

SAN JOSE - Calpine Corporation and PG&E Corporation announced today (December 18) that they have reached agreement for Calpine to acquire the Otay Mesa Generating Project in San Diego County. Under the terms of the agreement, Calpine will build, own and operate the 500-megawatt generating facility, and PG&E Corporation's National Energy Group (NEG) will contract for up to 250 megawatts of the project's output.

The two companies said they are committed to working together to bring this project on-line as soon as possible, providing much-needed electricity supplies to Southern California. Both companies ultimately will sell power from the plant into the California market.

"The Otay Mesa Generating Project will be the first new power plant built in San Diego County in almost 30 years. As we saw last summer, when a shortage in generating capacity led to high prices for consumers, there is a clear need for new generating capacity in the region," said Thomas B. King, president and COO of the PG&E NEG West Region. "We are very proud of the progress we have made toward getting this plant licensed for construction. Now, we will work closely with Calpine and regulators to ensure that the project continues to move forward so that it can be brought on-line by the mid-2003 target completion date."

Calpine Vice President Peter Camp added, "This project will improve the supply-demand balance in San Diego's electricity market and will maintain the region's environmental quality. Otay Mesa is an important part of Calpine's plans to rapidly develop clean, economic sources of electricity for Californians."

The Otay Mesa Generating Project will be located within a 46-acre property on the eastern portion of Otay Mesa, near the base of the San Ysidro Mountains, approximately 1.5 miles from the United States/Mexico border.

Designed as a highly efficient, combined-cycle generating station, the Otay Mesa facility will be fueled with natural gas and include state-of-the-art emission control equipment and water conservation technology. In addition, in a first-of-its-kind program, the Otay Mesa Generating Project will utilize mobile emission reduction credits to offset emissions from the plant. A large portion of the mobile credits will be created through the conversion of refuse-hauling vehicles in San Diego to natural gas fuel.

Under the terms of its agreement, PG&E NEG will complete the process of licensing the plant. The project is in the final stages of review by the California Energy Commission, which is expected to decide in early 2001 whether to issue a license for construction. Once the project is licensed, ownership will be transferred to Calpine. Construction is expected to begin in the third quarter of 2001.

The Otay Mesa project is being developed as a merchant power plant. Power from the plant will be sold into the California market. As part of its agreement to sell the project to Calpine, PG&E NEG will enter into a 10-year "tolling" arrangement under which it will control up to half of the plant's output. Calpine will market the balance of the output through its energy services group.

"The Otay Mesa generating capacity will be an important component of our growing western energy portfolio," King said. "We remain committed to participating in the California market, and this tolling agreement is one method to do so."

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