10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File Number 001-11155

WESTMORELAND COAL COMPANY

(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation or organization)	23-1128670 (I.R.S. Employer Identification No.)
2 North Cascade Avenue, 2nd Floor Colorado Springs, Colorado (Address of principal executive offices)	80903 (Zip Code)

Registrant’s telephone number, including area code

719-442-2600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes o     No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of March 1, 2008: Common stock, $2.50 par value: 9,445,936 shares.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS		3
	Consolidated Balance Sheets		3
	Consolidated Statements of Operations		5
	Consolidated Statement of Shareholders’ Deficit and Comprehensive Income (Loss) Nine months ended September 30, 2007		6
	Consolidated Statements of Cash Flows		7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		8
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		36
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		47
ITEM 4	CONTROLS AND PROCEDURES		48
PART II — OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS		49
ITEM 1A	RISK FACTORS		49
ITEM 3	DEFAULTS UPON SENIOR SECURITIES		49
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		49
ITEM 5	OTHER INFORMATION		51
ITEM 6	EXHIBITS		52
SIGNATURES			53
Exhibit Index			54
Amended and Restated Lignite Supply Agreement
Rule 13a-14(a)/15d-14(a) Certifications
Certifications Pursuant to 18 U.S.C. Section 1350

2

PART I — FINANCIAL INFORMATION

ITEM 1   FINANCIAL STATEMENTS

Westmoreland Coal Company and Subsidiaries

Consolidated Balance Sheets

	September 30,		December 31,
	2007		2006
	(In thousands)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,744	$	26,738
Receivables:
Trade		61,640		56,923
Other		4,239		6,017
		65,879		62,940
Inventories		29,089		24,484
Restricted cash and bond collateral		—		3,300
Excess of trust assets over pneumoconiosis benefit obligation		—		5,566
Other current assets		5,466		4,992
Total current assets		115,178		128,020
Property, plant and equipment:
Land and mineral rights		83,043		79,442
Capitalized asset retirement cost		106,282		143,655
Plant and equipment		393,493		350,414
		582,818		573,511
Less accumulated depreciation, depletion and amortization		168,473		142,059
Net property, plant and equipment		414,345		431,452
Excess of trust assets over pneumoconiosis benefit obligation, less current portion		2,934		2,266
Advanced coal royalties		4,058		3,982
Reclamation deposits		65,813		62,486
Restricted cash and bond collateral, less current portion		72,743		66,353
Contractual third party reclamation receivables		66,569		41,938
Intangible assets, net of accumulated amortization $1.5 million and $0.5 million at September 30, 2007 and December 31, 2006, respectively		13,080		13,263
Other assets		3,083		11,622
Total Assets	$	757,803	$	761,382

3

Westmoreland Coal Company and Subsidiaries

Consolidated Balance Sheets (Continued)

	September 30,			December 31,
	2007			2006
	(In thousands)
	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Current installments of long-term debt	$	57,781		$	76,803
Revolving lines of credit		16,900			—
Accounts payable and accrued expenses:
Trade		51,319			54,603
Deferred revenue		1,358			886
Income taxes		3,414			4,180
Interest		2,172			2,907
Production taxes		29,331			23,589
Workers’ compensation		909			949
Pension and SERP obligations		114			76
Postretirement medical benefits		17,525			16,968
Asset retirement obligations		16,067			13,832
Accrued severance and other liabilities		3,850			—
Total current liabilities		200,740			194,793
Long-term debt, less current installments		192,638			216,204
Revolving lines of credit, less current portion		—			13,000
Workers’ compensation, less current portion		8,296			8,589
Postretirement medical costs, less current portion		283,228			283,098
Pension and SERP obligations, less current portion		24,142			22,815
Deferred revenue, less current portion		46,835			15,328
Asset retirement obligations, less current portion		166,289			170,230
Other liabilities		19,900			17,756
Minority interest		—			5,502
Commitments and contingent liabilities		—			—
Shareholders’ deficit:
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 160,130 shares at
September 30, 2007 and December 31, 2006		160			160
Common stock of $2.50 par value
Authorized 30,000,000 shares;
Issued and outstanding 9,264,489 shares at
September 30, 2007 and 9,014,078 shares at
December 31, 2006		23,160			22,535
Other paid-in capital		82,802			79,246
Accumulated other comprehensive loss		(131,675	)		(139,424	)
Accumulated deficit		(158,712	)		(148,450	)
Total shareholders’ deficit		(184,265	)		(185,933	)
Total Liabilities and Shareholders’ Deficit	$	757,803		$	761,382

See accompanying Notes to Consolidated Financial Statements.

4

Westmoreland Coal Company and Subsidiaries

Consolidated Statements of Operations

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	(In thousands, except per share data)
	(Unaudited)
Revenues:
Coal	$	106,670		$	106,227		$	311,508		$	292,479
Energy		23,469			23,347			66,775			23,347
Independent power projects — equity in earnings		94			84			277			7,545
		130,233			129,658			378,560			323,371
Cost and expenses:
Cost of sales — coal		88,388			84,115			255,826			230,331
Cost of sales — energy		15,346			14,694			42,724			14,694
Depreciation, depletion and amortization		9,864			8,740			28,363			20,571
Selling and administrative		10,853			11,692			35,094			31,228
Restructuring charges		1,733			—			4,012			—
Heritage health benefit expenses		7,332			7,092			16,929			23,652
Loss (gain) on sales of assets		157			40			(5,677	)		(4,906	)
		133,673			126,373			377,271			315,570
Operating income (loss)		(3,440	)		3,285			1,289			7,801
Other income (expense):
Interest expense		(5,934	)		(6,992	)		(18,754	)		(12,456	)
Interest income		2,001			1,886			6,496			4,099
Minority interest		(464	)		(342	)		(1,194	)		(1,551	)
Other income		25			26			174			285
		(4,372	)		(5,422	)		(13,278	)		(9,623	)
Loss from continuing operations before income taxes		(7,812	)		(2,137	)		(11,989	)		(1,822	)
Income tax expense (benefit) from continuing operations		(95	)		190			(3	)		710
Loss from continuing operations		(7,717	)		(2,327	)		(11,986	)		(2,532	)
Discontinued operations:
Income from discontinued operations		211			372			1,257			826
Gain on sale of discontinued operations		483			—			483			—
Income from discontinued operations before income tax		694			372			1,740			826
Income tax expense from discontinued operations		5			23			16			23
Income from discontinued operations		689			349			1,724			803
Net loss		(7,028	)		(1,978	)		(10,262	)		(1,729	)
Less preferred stock dividend requirements		340			340			1,020			1,164
Less premium on exchange of preferred stock for common stock		—			242			—			791
Net loss applicable to common shareholders	$	(7,368	)	$	(2,560	)	$	(11,282	)	$	(3,684	)
Net loss from continuing operations:
Basic	$	(0.88	)	$	(0.33	)	$	(1.43	)	$	(0.52	)
Diluted	$	(0.88	)	$	(0.33	)	$	(1.43	)	$	(0.52	)
Net income from discontinued operations:
Basic	$	0.08		$	0.04		$	0.19		$	0.09
Diluted	$	0.08		$	0.04		$	0.18		$	0.09
Net loss per share applicable to common shareholders:
Basic	$	(0.81	)	$	(0.29	)	$	(1.24	)	$	(0.42	)
Diluted	$	(0.81	)	$	(0.29	)	$	(1.24	)	$	(0.42	)
Weighted average number of common shares outstanding :
Basic		9,151			8,948			9,094			8,671
Diluted		9,332			9,222			9,348			9,056

See accompanying Notes to Consolidated Financial Statements.

5

Westmoreland Coal Company and Subsidiaries

Consolidated Statement of Shareholders’ Deficit
and Comprehensive Income (Loss)
Nine months ended September 30, 2007

	Class A
	Convertible								Accumulated
	Exchangeable					Other			Other						Total
	Preferred			Common		Paid-In			Comprehensive			Accumulated			Shareholders’
	Stock			Stock		Capital			Loss			Deficit			Equity (Deficit)
	(In thousands)
	(Unaudited)
Balance at December 31, 2005 (205,083 preferred shares and 8,413,312 common shares outstanding)	$	205		$	21,033	$	75,344		$	(11,409	)	$	(115,381	)	$	(30,208	)
Common stock issued as compensation (89,939 shares)		—			225		2,339			—			—			2,564
Common stock options exercised (174,732 shares)		—			437		561			—			—			998
Dividends declared		—			—		—			—			(387	)		(387	)
Exchange of preferred shares for common stock (336,095 shares)		(45	)		840		(4	)		—			(791	)		—
Cumulative effect of change in accounting for deferred overburden removal costs		—			—		—			—			(16,805	)		(16,805	)
Adjustment for funded status of pension and postretirement medical benefit plans upon adoption of SFAS 158		—			—		—			(129,821	)		—			(129,821	)
Cumulative effect of adjustment upon adoption of SAB 108		—			—		—			—			(2,388	)		(2,388	)
Adjustment for stock appreciation rights previously classified as a liability upon adoption of SFAS 123(R)		—			—		1,006			—			—			1,006
Net loss		—			—		—			—			(12,698	)		(12,698	)
Minimum pension liability		—			—		—			1,744			—			1,744
Settlement of interest rate swap agreement		—			—		—			62			—			62
Comprehensive loss																(10,892	)
Balance at December 31, 2006 (160,130 preferred shares and 9,014,078 common shares outstanding)	$	160		$	22,535	$	79,246		$	(139,424	)	$	(148,450	)	$	(185,933	)
Common stock issued as compensation (94,140 shares)		—			235		2,244			—			—			2,479
Common stock options exercised (156,271 shares)		—			390		405			—			—			795
Warrant issued in connection with loan extension		—			—		1,122			—			—			1,122
Warrant repriced in lieu of consent fee		—			—		(215	)		—			—			(215	)
Net loss		—			—		—			—			(10,262	)		(10,262	)
Adjustments to accumulated actuarial losses of pension and postretirement medical benefit plans		—			—		—			727			—			727
Amortization of accumulated actuarial losses and transition obligations		—			—		—			7,022			—			7,022
Comprehensive loss																(2,513	)
Balance at September 30, 2007 (160,130 preferred shares and 9,264,489 common shares outstanding)	$	160		$	23,160	$	82,802		$	(131,675	)	$	(158,712	)	$	(184,265	)

See accompanying Notes to Consolidated Financial Statements.

6

Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2007			2006
	(In thousands)
	(Unaudited)
Cash flows from operating activities:
Net loss	$	(10,262	)	$	(1,729	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred power sales revenue		21,965			7,881
Equity in earnings of independent power projects		(277	)		(7,545	)
Cash distributions from independent power projects		277			1,170
Provision for obsolete inventory		1,128			—
Depreciation, depletion and amortization		28,363			20,571
Amortization of intangible assets and liabilities, net		474			247
Restructuring charge		4,012			—
Share-based compensation		2,306			1,881
Amortization of deferred financing costs		1,123			1,066
Gain on sales of assets from continuing operations		(5,677	)		(4,906	)
Minority interest		1,194			1,551
Warrant repriced in lieu of consent fee		215			—
Gain on sales of assets from discontinued operations		(483	)		—
Changes in operating assets and liabilities:
Receivables, net		(2,882	)		(14,193	)
Inventories		(3,431	)		(3,427	)
Excess of trust assets over pneumoconiosis benefit obligation		4,898			52
Accounts payable and accrued expenses		12,764			14,822
Income tax payable		(766	)		58
Accrual for workers’ compensation		(333	)		(481	)
Accrual for postretirement medical costs		9,699			7,958
Pension and SERP obligations		1			2,689
Other assets and liabilities		1,187			(8,338	)
Cash provided by continuing operations		65,495			19,327
Cash provided (used) by discontinued operations		(65	)		340
Net cash provided by operating activities		65,430			19,667
Cash flows from investing activities:
Additions to property, plant and equipment		(20,450	)		(13,888	)
Change in restricted cash and bond collateral and reclamation deposits		(6,417	)		(7,610	)
ROVA acquisition, net of cash resulting from the ROVA consolidation of $21.9 million		—			(7,714	)
Net proceeds from sales of assets		13,310			5,092
Acquisition of Absaloka Mining operations, net		(16,905	)		—
Cash used in continuing investing activities		(30,462	)		(24,120	)
Proceeds from the sale of discontinued operation		704			—
Net cash used in investing activities		(29,758	)		(24,120	)
Cash flows from financing activities:
Borrowings of long-term debt		5,145			30,000
Repayments of long-term debt		(57,166	)		(22,541	)
Borrowings on revolving lines of credit		153,900			144,400
Repayments of revolving lines of credit		(150,000	)		(137,800	)
Exercise of stock options		795			939
Dividends paid to shareholder of subsidiary		(340	)		(600	)
Dividends paid on preferred shares		—			(387	)
Net cash provided by (used in) financing activities		(47,666	)		14,011
Net increase in cash and cash equivalents		(11,994	)		9,558
Cash and cash equivalents, beginning of period		26,738			11,216
Cash and cash equivalents, end of period	$	14,744		$	20,774
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	18,370		$	7,542
Income taxes		815			674

During the first nine months of 2007 and 2006, the Company entered into capital leases for equipment totaling approximately $10.4 million and $0.9 million, respectively.

See accompanying Notes to Consolidated Financial Statements.

7

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

These quarterly consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Amendment No. 2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “2006 Form 10-K/A”). The accounting principles followed by the Company are set forth in the Notes to the Company’s consolidated financial statements in that Annual Report. Most of the descriptions of the accounting principles and other footnote disclosures previously made have been omitted in this report so long as the interim information presented is not misleading.

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles and require use of management’s estimates. The financial information contained in this Form 10-Q is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. The results of operations for such interim periods are not necessarily indicative of results to be expected for the full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

1.   NATURE OF OPERATIONS AND LIQUIDITY

Westmoreland Coal Company (“the Company”) is an energy company. The Company’s current principal activities, all conducted within the United States, are the production and sale of coal from Montana, North Dakota and Texas; and the ownership of independent power plants. The Company’s activities are primarily conducted through wholly-owned or majority-owned subsidiaries which generally have obtained separate financing.

The major factors impacting the Company’s liquidity are: payments due on the term loan it entered into to acquire various operations and assets from Montana Power and Knife River in May 2001 (see Note 9) and subsequent borrowings at Westmoreland Mining LLC (WML) which owns the mines; payments due on the acquisition debt associated with the Company’s purchase of the 50% interest in a partnership which owns the 230 MW Roanoke Valley power plant (“ROVA”) (see Note 9); payments due on the term loan and revolving credit facility used to acquire the minority interest in Westmoreland Resources, Inc. (WRI) and to pay certain then-existing debt of WCC; cash collateral requirements for additional reclamation bonds in new mining areas; payments for the Company’s heritage health benefit costs; and ongoing reclamation costs.

Unforeseen changes in the Company’s ongoing business requirements could also impact its liquidity. The principal sources of cash flow to Westmoreland Coal Company are distributions from WRI, ROVA, and from Westmoreland Mining LLC, all of which are subject to the provisions in their respective debt agreements.

On May 2, 2007, the Company entered into a Standby Purchase Agreement with an investor that would backstop a rights offering of common stock by the Company to its shareholders and purchase additional shares of common stock. Effective as of July 3, 2007, the Standby Purchase Agreement was amended to add an additional standby purchaser. The Standby Purchase Agreement contemplated a transaction closing by November 2007.

On March 4, 2008, the Company completed the sale of $15.0 million in senior secured convertible notes to that investor. The notes mature 5 years from date of issuance, carry a 9.0% interest rate and are convertible into the Company’s common stock at the investor’s option at an initial conversion price of $10.00 per share. As part of that transaction, the Standby Purchase Agreement was terminated.

In June 2007, the Company extended the bridge loan used to acquire ROVA, and issued the lender a warrant to purchase 150,000 shares of common stock. Under the terms of the loan agreement, all cash distributions from ROVA are required to be applied to the principal and interest payments on the loan through its remaining four-year term.

8

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In February 2008, the Company completed negotiations to refinance the ROVA project with an institutional lender. The refinancing will include the bridge loan used to acquire the additional interest in the ROVA project in 2006 and all of the term loans outstanding at ROVA. The refinancing will allow ROVA to make a distribution to the Company of $5.0 million when the refinancing closes in mid-March 2008.

As of March 17, 2008, the Company believes that it has capital resources or committed financing arrangements in place to provide adequate liquidity to meet all of its currently projected cash requirements through August 2008 based on its most recent forecast. The Company is considering several alternatives for raising additional capital during 2008.

The Company has also engaged a large bank to assist the Company in refinancing its existing debt at Westmoreland Mining, with the goal of better matching debt amortization with cash flow from the mining operations. The refinancing would be designed to provide for additional availability to finance future capital requirements of the mines, and provide for an increase in the amounts allowed to be distributed to Westmoreland Coal Company. While the Company has had initial discussions with the bank and potential lenders about the refinancing, there can be no assurance that the Company will obtain the refinancing on terms acceptable to it, or at all.

Depending upon the size and terms of that potential refinancing, the Company will evaluate the need to raise additional capital.

The Company continues to believe that one of the other alternatives available to it is the sale of one or more of the Company’s assets. There can be no assurance that any sale could be completed on a timely basis or on terms acceptable to the Company.

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from the outcome of the uncertainty regarding the Company’s ability to raise additional capital, refinance its debt obligations or sell some of its assets to meet its obligations.

2.   DISCONTINUED OPERATIONS

In August 2007, the Company sold its power operation and maintenance business to North American Energy Services (NAES) for $0.8 million. Included in the sale were operation and maintenance contracts for four power plants owned by Dominion Resources (Altavista, Hopewell, Southampton and Gordonville), as well as certain fixed assets of Westmoreland Technical Services. The Company has also contracted with NAES to provide contract operation and maintenance services at the Company’s 100% owned ROVA power facility in North Carolina. The sale of the power operation and maintenance business resulted in a gain of $0.5 million during the third quarter of 2007.

The results of operations for the Company’s power operation and maintenance business and the gain on the sale are reported within discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows. The prior period Consolidated Balance Sheet has not been recast as the assets and liabilities disposed of are not significant.

3.   ABSALOKA MINING CONTRACT AND ACQUISITION OF WASHINGTON GROUP MINORITY INTEREST

On March 6, 2007, the Company’s 80% owned subsidiary WRI reached an agreement to settle all contract disputes with Washington Group International, Inc. (“WGI”), including the lawsuit WRI had filed seeking termination of the Absaloka mining contract. As a result, WRI assumed operation of the Absaloka Mine on March 30, 2007. The agreement also includes settlement of other on-going demands by WRI and disputes between its affiliate Westmoreland Coal Sales Company and WGI.

9

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

WRI purchased from WGI mining and office equipment for $7.9 million and tools, spare parts and supplies, and coal inventory for $2.3 million. As part of the transaction, WGI released the $7.0 million reclamation escrow account to WRI, and WRI released WGI from its financial obligation to complete final reclamation of the mine.

WRI also hired 131 employees previously employed by WGI and assumed their accrued benefits.

The assets purchased, liabilities assumed, termination fee paid to WGI, as well as the adjustments for the release of WGI from its reclamation obligation included in the Company’s financial statements were as follows (in thousands):

Assets:
Inventory	$	2,301
Property, plant, and equipment		7,924
Asset retirement cost		4,473
Third party reclamation receivable		(11,107	)
Total assets		3,591
Liabilities:
Accounts payable and accrued expenses		186
		3,405
Income Statement:
Termination fee included in Cost of sales — coal		813
Total cash payment	$	4,218

On September 28, 2007, WRI redeemed WGI’s 20% ownership in WRI for $13.5 million. The redemption leaves the Company as the sole shareholder in WRI. The $13.5 million price to redeem WGI’s minority interest was allocated as follows (in thousands):

Assets:
Property, plant and equipment	$	10,396
Intangible asset		1,548
Total assets		11,944
Liabilities:
Other liabilities		4,800
Minority interest		(6,356	)
Total liabilities		(1,556	)
Total cash payment	$	13,500

The allocation was based on a valuation report by our independent valuation firm.

4.   RESTRUCTURING

In 2007, the Company initiated a restructuring plan in order to reduce the overall cost structure of the Company. This decision was based on the Company’s analysis of its internal operations, future customer commitments, current and potential markets, and financial projections for profitability. During the second quarter of 2007, the Company recorded a restructuring charge of $2.3 million which included $2.2 million of

10

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

termination benefits and outplacement costs and $0.1 million of lease costs related to the consolidation of corporate office space. During the third quarter of 2007, the Company recorded a restructuring charge of $1.7 million which included $1.6 million of termination benefits and outplacement costs and $0.1 million of lease costs related to the closure of an office. The Company expects to record additional restructuring charges in the fourth quarter of 2007 of approximately $0.5 million. These charges are expected to be paid out over the next year. The restructuring liability is reflected in “Accrued severance and other liabilities” in the Consolidated Balance Sheets.

The table below represents the restructuring provision activity during the nine months ended September 30, 2007 (in thousands):

		Restructuring		Restructuring		Ending
Beginning Balance		Charges		Payments		Balance
$	—	$	4,012	$	192	$	3,820

5.   CHANGES IN ACCOUNTING PRINCIPLES

Recognition of Revenue Under Power Sales Agreements

In connection with the acquisition of the remaining 50% interest in ROVA, the Company has applied the provisions of EITF 01-08, “Determining Whether an Arrangement Contains a Lease” to two power sales agreements. A portion of the capacity payments under ROVA’s two power sales agreements are considered to be operating leases under EITF 01-08. Under both agreements, ROVA invoices and collects the capacity payments based on kilowatt hours produced if the units are dispatched or for the kilowatt hours of available capacity if the units are not fully dispatched. Under the power sales agreement for ROVA II, ROVA also collects capacity payments during periods of scheduled outages based on the kilowatt hours of dependable capacity of the unit. The capacity payments that ROVA invoices and collects are higher in the first 15 years of the power sales agreements (through 2009 for ROVA I and 2010 for ROVA II), but decrease for the remaining 10 years of the agreements due to a reduction in the rate paid per MW hour of capacity. Since the power sales agreements were entered into prior to the effective date of EITF 01-08, the Company had been grandfathered relative to the accounting method it had been utilizing. As a result of the acquisition, the Company was required to apply the accounting proscribed under EITF 01-08. Effective July 1, 2006, the Company began recognizing amounts invoiced under the power sales agreements as revenue on a pro rata basis, based on the weighted average per kilowatt hour capacity payments estimated to be received over the remaining term of the power sales agreements. Under this method of recognizing revenue, $7.6 million and $22.0 million of amounts invoiced during the three and nine months ending September 30, 2007 and $7.9 million of amounts invoiced through the three and nine months ended September 30, 2006 have been deferred from recognition until 2010 and beyond.

Adoption of SFAS No. 158

In September 2006, the FASB issued SFAS No. 158 (“SFAS 158”) “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”. This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under SFAS 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized as assets or liabilities with a corresponding adjustment to accumulated other comprehensive loss, net of tax effects, until they are amortized as a component of net periodic benefit cost. The Company adopted SFAS 158 effective December 31, 2006. Upon adoption of SFAS 158, the Company’s assets decreased by approximately $4.5 million, and liabilities for pension and other postretirement medical benefit plans increased by approximately $125.3 million, resulting in an increase in shareholders’ deficit of approximately $129.8 million. The adoption of SFAS 158 will not affect

11

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Company’s future pension and postretirement medical benefit expenses, as determined under the provisions of SFAS 106 and SFAS 87.

Share-Based Payments

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”). SFAS 123(R) requires all share-based payments to employees and directors, including grants of stock options, be recognized in the financial statements based on their fair values.

The Company adopted SFAS 123(R) on January 1, 2006 using the modified prospective method. Accordingly, compensation expense for all newly granted awards and awards modified, repurchased, or cancelled after January 1, 2006 is being recognized ratably over the vesting period based on the fair value of the awards at the date of grant.

Compensation expense for the unvested portion of stock option awards and performance units under the Company’s Performance Plan that were outstanding as of January 1, 2006 is being recognized ratably over the remaining vesting period, based on the fair value of the awards at date of grant as calculated for the pro forma disclosure under SFAS No. 123. See Note 15 “Incentive Stock Options, Stock Appreciation Rights, and Performance Units”.

There was no cumulative effect adjustment recorded in the Company’s Statement of Operations for the change in accounting related to the adoption of SFAS 123(R) since the Company accelerated the vesting of all unvested SARs at December 31, 2005 and therefore had no unamortized compensation expense for SARs at that date. Our unamortized pro forma stock compensation costs were less than $0.1 million at December 31, 2005.

Information relating to the additional expense recognized in accordance with SFAS 123(R) is shown in the following table (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007		2006
Additional expense (benefit) recognized in accordance with SFAS 123(R)	$	(179	)	$	(93	)	$	422	$	868

Accounting For Uncertainty in Income Taxes

On July 13, 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies what criteria must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN No. 48 requires companies to include additional qualitative and quantitative disclosures within their financial statements. The disclosures include potential tax benefits from positions taken for tax return purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each annual period. The disclosures also include a discussion of the nature of uncertainties, factors which could cause a change, and an estimated range of reasonably possible changes in tax uncertainties. FIN No. 48 requires a company to recognize a financial statement benefit for a position taken for tax return purposes when it is more likely than not that the position will be sustained. We adopted FIN No. 48 on January 1, 2007 and the adoption did not have an impact on our Consolidated Financial Statements.

12

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.   RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which clarifies the definition of fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 will be effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS 157, but does not believe the adoption of SFAS 157 will have a material impact on its Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). Under SFAS No. 159, entities may choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. SFAS No. 159 also establishes recognition, presentation, and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 is effective beginning January 1, 2008. The Company does not expect the adoption of this standard to have any impact on its Consolidated Financial Statements.

7.   SIGNIFICANT EVENTS

Sale of Coal Royalty Interest

On February 27, 2007, the Company sold its royalty interest in a property at Peabody Energy Corporation’s Caballo Mine in Wyoming to Natural Resource Partners L.P. for $12.7 million. The sale of the royalty interest resulted in a gain of approximately $5.6 million during the first quarter of 2007.

Reserve Dedication Fee

In the first quarter of 2007, the Company recorded $10.0 million of deferred revenue for a receivable relating to a reserve dedication fee payable by a customer upon entering into an extension of a coal supply agreement. The receivable was collected in the second quarter of 2007.

Combined Benefit Fund

During the first quarter of 2007, the Company reached a settlement with the UMWA Combined Benefit Fund (“CBF”) for the reimbursement of $5.8 million, plus interest, in past overpayments to the CBF for retiree medical benefits. The Company received $2.9 million of the reimbursement and $0.6 million in interest during the first quarter, and received the remaining $2.9 million reimbursement plus interest of less than $0.1 million during the second quarter of 2007. The Company recorded the settlement as a $5.8 million reduction in Heritage health benefit expenses and $0.6 million in interest income.

13

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.   RESTRICTED CASH AND BOND COLLATERAL

The Company’s restricted cash and bond collateral consist of the following:

	Restricted Cash and
	Bond Collateral
	September 30,		December 31,
	2007		2006
	(In thousands)
Corporate:
Worker’s compensation bonds	$	5,709	$	5,512
Postretirement health benefit bonds		1,203		4,436
Coal Segment:
Westmoreland Mining — debt reserve account		10,022		10,312
Westmoreland Mining — prepayment account		18,707		15,123
Reclamation bond collateral:
Absaloka Mine		5,383		3,702
Jewett Mine		1,103		1,057
Rosebud Mine		106		89
Beulah Mine		71		71
ROVA:
Debt protection account		28,604		28,141
Ash reserve account		600		627
Repairs and maintenance account		1,235		583
Total restricted cash and bond collateral		72,743		69,653
Less current portion		—		(3,300	)
Total restricted cash and bond collateral, less current portion	$	72,743	$	66,353

For all of its restricted cash and bond collateral accounts, the Company can select from several investment options for the funds and receives the investment returns on these investments.

Corporate

The Company is required to obtain surety bonds in connection with its self-insured workers’ compensation plan and certain health care plans. The Company’s surety bond underwriters require collateral to issue these bonds. As of September 30, 2007 and December 31, 2006, the amount held in collateral accounts was $5.7 million and $5.5 million, respectively, for the workers’ compensation plan and $1.2 million and $4.4 million, respectively, for health benefit plans. During the nine months ended September 30, 2007, approximately $3.3 million was released from the health care bond collateral accounts as a result of reduced bonding requirements under an amendment to the Coal Industry Retiree Health Benefit Act of 1992 (“Coal Act”).

Coal Segment

Pursuant to the Westmoreland Mining LLC (“WML”) term loan agreement, WML is required to maintain a debt service reserve account and a long-term prepayment account. As of September 30, 2007 and December 31, 2006, there was a total of $10.0 million and $10.3 million, respectively in the debt service reserve account. There was $18.7 million and $15.1 million in the prepayment account at September 30, 2007

14

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and December 31, 2006, respectively. The prepayment account is to be used to fund a $30.0 million payment due December 31, 2008 for the Series B Notes.

As of September 30, 2007, the Company had reclamation bond collateral in place for its Absaloka, Rosebud, Jewett and Beulah Mines. These government-required bonds secure an operator’s obligation to comply with applicable federal and state regulations relating to the performance and completion of final reclamation activities. The amounts deposited in the bond collateral account secure the bonds issued by the bonding company.

ROVA

Pursuant to the terms of its Credit Agreement, ROVA must maintain a debt protection account (“DPA”). At September 30, 2007 and December 31, 2006, the DPA was funded with $28.6 million and $28.1 million, respectively. Additional funding of the DPA of $1.1 million per year is required through 2008. The required funding level is reduced by $6.7 million in 2009 and by $3.0 million in 2010.

The Credit Agreement also requires ROVA to fund a repairs and maintenance account and an ash reserve account totaling $3.2 million from January 31, 2004 through January 31, 2010, after which date the funding requirement reduces to $2.8 million. The funds for the repairs and maintenance account are required to be deposited every six months based on a formula contained in the agreement. The ash reserve account was fully funded at September 30, 2007. As of September 30, 2007 and December 31, 2006, these accounts had combined balances of $1.8 million and $1.2 million, respectively.

15

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.   LINES OF CREDIT AND LONG-TERM DEBT

The amounts outstanding at September 30, 2007 and December 31, 2006 under the Company’s lines of credit and long-term debt consist of the following:

	Current Portion of Debt				Total Debt Outstanding
	September 30,		December 31,		September 30,		December 31,
	2007		2006		2007		2006
	(In thousands)
Corporate debt:
Revolving line of credit	$	9,400	$	—	$	9,400	$	8,500
Westmoreland Mining debt:
Revolving line of credit		7,500		—		7,500		4,500
Westmoreland Mining term debt:
Series B Notes		13,950		12,000		47,600		56,600
Series C Notes		—		—		20,375		20,375
Series D Notes		—		—		14,625		14,625
Capital lease obligations		2,260		1,212		6,526		3,176
Other term debt		118		99		913		298
Westmoreland Resources, Inc.:
Capital lease obligation		534		—		5,617		—
Term debt		4,500		—		4,500		—
ROVA debt:
ROVA acquisition bridge loan		3,348		30,000		15,624		30,000
ROVA acquisition term loan		—		5,000		—		5,000
ROVA term debt		33,071		28,492		134,639		162,933
Total debt outstanding	$	74,681	$	76,803	$	267,319	$	306,007

The ROVA current and total term debt includes debt premiums of $0.8 million and $4.3 million, respectively. The ROVA acquisition bridge loan includes a debt discount of $0.5 million recorded in long-term debt.

The maturities of all long-term debt and the revolving credit facilities outstanding at September 30, 2007 are (in thousands):

2007	$	8,552
2008		107,739
2009		50,393
2010		28,853
2011		21,899
Thereafter		46,075
	$	263,511

16

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Corporate Revolving Line of Credit

The Company has a $14.0 million revolving credit facility with First Interstate Bank which expires on June 30, 2008. Interest is payable monthly at the bank’s prime rate (7.75% per annum at September 30, 2007). The Company is required to maintain financial ratios relating to its liquidity, indebtedness, and net worth. As of September 30, 2007, the Company was in compliance with such covenants. The revolving credit facility is collateralized by the Company’s stock in WRI, which owns the Absaloka Mine, and the dragline located at WRI’s Absaloka Mine.

On October 29, 2007, this revolving credit facility was terminated and replaced with term debt and a new revolving credit facility at Westmoreland Resources, Inc. The outstanding balance of $11.2 million on the WCC line of credit facility was fully repaid to First Interstate Bank on October 29, 2007.

Westmoreland Mining LLC

WML has a $20.0 million revolving credit facility (the “Facility”) with PNC Bank, National Association (“PNC”) which expires on April 27, 2008. The interest rate is either PNC’s Base Rate plus 1%, or a Euro-Rate plus 3%, at WML’s option (8.75% per annum at September 30, 2007). In addition, a commitment fee of 1/2 of 1% of the average unused portion of the available credit is payable quarterly. The amount available under the Facility is based upon, and any outstanding amounts are secured by, eligible accounts receivable.

WML has a term loan agreement under which $47.6 million in Series B Notes, $20.4 million in Series C Notes and $14.6 million in Series D Notes are outstanding as of September 30, 2007. The Series B Notes require quarterly principal and interest payments to December 2008. The Series C and D Notes require quarterly interest payments with principal payments beginning March 31, 2009 and final payments on December 31, 2011. The Series B Notes bear interest at a fixed interest rate of 9.39% per annum; the Series C Notes bear interest at a fixed rate of 6.85% per annum; and the Series D Notes bear interest at a variable rate based upon LIBOR plus 2.90% (8.26% per annum at (September 30, 2007). All of the notes are secured by the assets of WML and the term loan agreement requires the Company to comply with certain covenants and minimum financial ratio requirements related to liquidity, indebtedness, and capital investments. As of September 30, 2007, WML was in compliance with such covenants.

The Company engages in leasing transactions for equipment utilized in operations. Certain leases at the Rosebud, Jewett and Beulah Mines qualify as capital leases and were recorded as an asset and liability at the net present value of the minimum lease payments at the inception of the leases. The present value of these lease payments at September 30, 2007 and December 31, 2006 was $6.5 million and $3.2 million, respectively, at a weighted average interest rate of 6.07% and 6.12%, respectively. The Jewett Mine also has a note payable and an installment loan outstanding at September 30, 2007 in the amount of $0.3 million and $0.6 million, respectively, with fixed interest rates of 6.0% and 6.75%, respectively.

Westmoreland Resources, Inc.

The Company entered into a lease transaction for equipment utilized in operations at the Absaloka Mine. The present value of these lease payments at September 30, 2007 was $5.6 million, at an effective interest rate of 6.85%.

On September 28, 2007, Westmoreland Resources, Inc. entered into a 30 day term loan agreement with First Interstate Bank in the amount of $4.5 million in order to fund WRI’s acquisition of WGI’s 20% minority interest in WRI. The term loan was repaid and the loan agreement expired on October 28, 2007.

On October 29, 2007, WRI executed a Business Loan Agreement (“Agreement”) with First Interstate Bank, a Montana corporation. The Agreement provides WRI with term debt of $8.5 million and a revolving

17

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

credit facility of $20.0 million. The term debt requires sixteen quarterly payments of principal and interest with the final payment due September 20, 2011. The revolving credit facilities mature October 28, 2008. Interest on both notes is payable at the prime rate (7.75% per annum at October 29, 2007). The two notes are collaterized by WRI’s inventory, chattel paper, accounts receivable, and equipment. The Agreement requires WRI to comply with certain covenants and minimum financial ratio requirements related to debt coverage, tangible net worth and capital expenditures. WCC is guarantor of the notes.

The Agreement replaces the revolving lines of credit of $14.0 million to WCC. The outstanding balance of $11.2 million on the WCC line of credit facility was fully repaid to First Interstate Bank on October 29, 2007.

ROVA

The Company funded the ROVA acquisition and debt protection account deposit in part with a $30.0 million bridge loan facility from SOF Investments, L.P. (“SOF”) and a $5.0 million term loan with First Interstate Bank. The Company also paid SOF a 1% closing fee. On May 7, 2007, the term loan was paid off prior to maturity. At September 30, 2007, the SOF bridge loan had an outstanding balance of $15.6 million (net of a $0.5 million debt discount) and bears interest at the London Interbank Offering Rate (“LIBOR”) plus 4% (9.32% per annum at September 30, 2007). The loan is secured by a pledge of the semi-annual cash distributions from ROVA which commenced in January 2007 as well as pledges of the distributions, if any, from the Company’s subsidiaries that directly or indirectly acquired the operating agreements for the third party power plants.

In June 2007, the Company exercised its option to extend the term on the SOF bridge loan to four years. In conjunction with the extension of the SOF bridge loan, the Company issued a warrant to purchase 150,000 shares of the Company’s common stock to SOF at a premium of 15% to the then current stock price, or $31.45 per share. In October 2007 (but effective as of August 20, 2007), in consideration for SOF’s consent for the sale of the Company’s power operations and maintenance businesses, the Company canceled the warrant issued in June and issued SOF a new warrant to purchase 150,000 shares of the Company’s common stock. The new warrant is exercisable through August 2010. Approximately $0.5 million of the fair value of the original warrant has been recorded as a discount to the principal amount of the bridge loan and is being accreted to interest expense over the remaining four year term of the debt. Approximately $0.2 million of the fair value of the repriced warrant was recorded as a consent fee and expensed in the third quarter of 2007.

ROVA has Credit Agreements under which $26.9 million in Bank Borrowings, $66.7 million in borrowings from an institutional lender and $36.8 million in Bond Borrowings are outstanding as of September 30, 2007.

The principal payments for the Bank Borrowings are semiannual and mature in July 2008. The interest rates are set at various margins in excess of the Banks’ base rate. The weighted average interest rate on the Bank Borrowings at September 30, 2007 was 6.86% per annum.

The borrowings from the institutional lender include Tranche A which has a fixed interest rate of 10.42% and semiannual payments scheduled to be completed in July 2014 and Tranche B which has a fixed interest rate of 8.33% and semiannual payments scheduled to be completed in July 2015.

The Bond Borrowings (one from 1991 and one from 1993) are secured by irrevocable letters of credit in the amounts of $30.1 million and $7.4 million, respectively. The weighted average interest rate for the bonds at September 30, 2007 was 4.10%. The first of the four semiannual installments due on the 1991 Bond Borrowings was paid in January 2008. The first of the three semiannual installments for the 1993 Bond Borrowings is due in July 2009.

18

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The debt agreements contain various restrictive covenants related to maintenance, insurance, liquidity, cash distributions, and commitments. At September 30, 2007, ROVA was in compliance with the various covenants.

Irrevocable letters of credit in the amounts of $4.5 million for ROVA I and $1.5 million for ROVA II were issued to ROVA’s customer by the banks on behalf of ROVA to ensure performance under their respective power sales agreements.

10.   DERIVATIVE INSTRUMENTS

As of September 30, 2007, the Company was party to two derivative instruments to manage a portion of its exposure to the price volatility of diesel fuel used in its operations. In a typical commodity swap agreement, the Company receives the difference between a fixed price per gallon of diesel fuel and a price based on an agreed upon published, third-party index if the index price is greater than the fixed price. If the index price is lower, the Company pays the difference. By entering into swap agreements, the Company effectively fixes the price it will pay in the future for the quantity of diesel fuel subject to the swap agreement.

In October 2006, the Company entered into a derivative instrument to manage a portion of its exposure to the price volatility of diesel fuel to be used in its operations in 2007. The swap contract covered 2.4 million gallons of diesel fuel at a weighted average fixed price of $2.02 per gallon to be settled monthly during 2007. At September 30, 2007, 0.6 million gallons of fuel remained outstanding under this swap contract.

In January 2007, the Company entered into an additional derivative instrument to manage an additional portion of the diesel fuel to be used in its operations in 2007. The swap contract covered 1.1 million gallons of diesel fuel at a weighted average fixed price of $1.75 per gallon to be settled monthly during 2007. At September 30, 2007, 0.3 million gallons of fuel remained outstanding under this swap contract.

The Company accounts for these derivative instruments on a mark-to-market basis through earnings. The Consolidated Financial Statements as of September 30, 2007 reflect cumulative unrealized gains on these contracts of $0.3 million. Unrealized gains recorded during the nine months ended September 30, 2007 were $0.9 million. These unrealized gains are recorded as a reduction to Cost of sales — coal and as an increase to Accounts receivable. During the nine months ended September 30, 2007, the Company settled a portion of these contracts covering approximately 2.6 million gallons of fuel which resulted in a gain of approximately $0.3 million.

Information regarding derivative instruments for the nine months ended September 30, 2007 is as follows (in thousands):

	Nine Months Ended
	September 30,
	2007
Unrealized loss on derivatives at beginning of period	$	(336	)
Change in fair value		883
Realized gain on settlements		(269	)
Unrealized gain on derivatives at September 30, 2007	$	278

11.   HERITAGE HEALTH BENEFIT EXPENSES

The caption “Heritage health benefit expenses” used in the Consolidated Statements of Operations refers to costs of benefits the Company provides to our former Eastern mining operation employees as well as other administrative costs associated with providing those benefits.

19

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of these expenses are (in thousands):

	Three Months Ended
	September 30,					Nine Months Ended September 30,
	2007			2006		2007			2006
Health care benefits	$	6,536		$	5,699	$	19,794		$	20,120
Combined benefit fund payments (credit)		919			995		(3,035	)		2,985
Workers’ compensation benefits		190			177		569			547
Black lung benefits (credit)		(313	)		221		(399	)		—
Total	$	7,332		$	7,092	$	16,929		$	23,652

During the first quarter of 2007, the Company reached a settlement with the UMWA Combined Benefit Fund (“CBF”) for the reimbursement of $5.8 million, plus interest, in past overpayments to the CBF for retiree medical benefits. The Company received $2.9 million of the reimbursement and $0.6 million in interest during the first quarter, and received the remaining $2.9 million reimbursement plus interest of less than $0.1 million during the second quarter of 2007. The Company recorded the settlement as a $5.8 million reduction in Heritage health benefit expenses and $0.6 million in Interest income.

12.   PENSION AND POSTRETIREMENT MEDICAL BENEFITS

The Company provides pension and postretirement medical benefits, the majority of which are mandated by the Coal Act, to retired employees, qualified full-time employees and their dependents.

The Company incurred costs of providing these benefits during the three and nine months ended September 30, 2007 and 2006 as follows (in thousands):

	Pension Benefits
	Three Months Ended
	September 30,						Postretirement Medical Benefits Three Months Ended September 30,
	2007			2006			2007		2006
Components of net periodic benefit cost:
Service cost	$	769		$	765		$	231	$	188
Interest cost		1,069			1,053			4,478		3,342
Expected return on plan assets		(1,026	)		(931	)		—		—
Amortization of deferred items		260			351			2,105		2,759
Total net periodic benefit cost	$	1,072		$	1,238		$	6,814	$	6,289

20

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Pension Benefits						Postretirement Medical Benefits
	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007		2006
Components of net periodic benefit cost:
Service cost	$	2,305		$	2,492		$	693	$	565
Interest cost		3,281			3,159			13,436		12,467
Expected return on plan assets		(3,078	)		(2,793	)		—		—
Amortization of deferred items		709			1,053			6,313		8,328
Total net periodic benefit cost	$	3,217		$	3,911		$	20,442	$	21,360

The Company expects to pay approximately $18.0 million for postretirement medical benefits during 2007, net of Medicare Part D reimbursements. A total of $4.1 million and $11.9 million was paid during the three and nine months ended September 30, 2007, respectively.

The Company expects to contribute approximately $4.0 million to its pension plans during 2007. A total of $1.8 million and $3.1 million was contributed in the three and nine months ended September 30, 2007, respectively.

13.   ASSET RETIREMENT OBLIGATIONS, RECLAMATION DEPOSITS AND CONTRACTUAL THIRD PARTY RECLAMATION RECEIVABLES

Asset Retirement Obligations

Changes in the Company’s asset retirement obligations for the nine months ended September 30, 2007 and 2006 are summarized below (in thousands):

	Nine Months Ended September 30,
	2007			2006
Asset retirement obligations — beginning of year	$	184,062		$	158,407
Accretion		9,607			8,105
ROVA asset retirement obligation assumed		—			414
Settlements (final reclamation performed)		(4,704	)		(11,055	)
Changes due to amount and timing of reclamation		(6,609	)		—
Asset retirement obligations — end of period	$	182,356		$	155,871

21

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The asset retirement obligation, contractual third party reclamation receivable, and reclamation deposits at September 30, 2007 for each of the Company’s mines and ROVA are summarized below (in thousands):

	Asset		Contractual Third
	Retirement		Party Reclamation		Reclamation
	Obligation		Receivable		Deposits
Rosebud	$	96,744	$	3,229	$	65,813
Jewett		64,357		63,340		—
Beulah		6,177		—		—
Savage		1,783		—		—
Absaloka		12,844		—		—
ROVA		451		—		—
Total	$	182,356	$	66,569	$	65,813

As of September 30, 2007 the Company or its subsidiaries have reclamation bonds in place for its active mines in Montana, North Dakota and Texas and for inactive mining sites in Virginia and Colorado which are now awaiting final bond release. These government-required bonds secure an operator’s obligation to comply with the applicable federal and state regulations relating to the performance and completion of final reclamation activities. The Company estimates that the cost of final reclamation for its mines when they are closed in the future will total approximately $452.5 million, with a present value of $182.4 million. As permittee, the Company or its subsidiaries are responsible for the total amount. The financial responsibility for a portion of final reclamation of the mines when they are closed has been transferred by contract to certain customers, while other customers have provided guarantees or funded escrow accounts to cover final reclamation costs.

On March 6, 2007, the Company, WRI and WGI signed a comprehensive settlement agreement pursuant to which the mining contract between WRI and WGI for the Absaloka Mine was terminated on March 30, 2007 and all claims among the parties were settled, including the dispute relating to the coal sales agency agreement and the litigation relating to WGI’s performance under the mining contract. As part of this settlement, WGI released the $7.0 million reclamation escrow account to WRI, and WRI released WGI from its financial obligation to complete final reclamation of the mine.

In September 2007, Texas Westmoreland Coal Company (“TWCC”) entered into a new lignite supply agreement with NRG Texas Power LLC (“NRG Texas”). The new agreement confirms NRG Texas’ responsibility to pay for final reclamation for the mine. As a result of this agreement, the Company increased its Contractual third party reclamation receivable at the Jewett Mine by $35.3 million to reflect the fact that effective January 1, 2008 all costs incurred by Texas Westmoreland towards fulfilling its asset retirement obligation will be reimbursed by NRG Texas. The increase in the reclamation receivable was offset by a corresponding decrease in the related capitalized asset retirement costs.

14.   STOCKHOLDERS’ EQUITY

Preferred and Common Stock

The Company has two classes of capital stock outstanding, common stock, par value $2.50 per share, and Series A Convertible Exchangeable Preferred Stock, par value $1.00 per share (“Series A Preferred Stock”). Each share of Series A Preferred Stock is represented by four Depositary Shares. The full amount of the quarterly dividend on the Series A Preferred Stock is $2.125 per preferred share or $0.53 per Depositary Share. The Company paid quarterly dividends of $0.25 per Depositary Share from October 1, 2004 through July 1, 2006. The Company suspended the payment of preferred stock dividends following the recognition of

22

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the deficit in shareholders’ equity described below. The quarterly dividends which are accumulated through and including October 1, 2007 amount to $15.5 million in the aggregate ($96.90) per preferred share or $24.23 per Depositary Share).

The Company is currently reporting a deficit in shareholders’ equity. As a result, the Company is prohibited from paying preferred stock dividends because of the statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which the Company is incorporated. Under Delaware law, the Company is permitted to pay preferred stock dividends only to the extent that shareholders’ equity exceeds the par value of the preferred stock ($160,000 at September 30, 2007).

Warrants

In June 2007, the Company exercised its option to extend the term on the SOF bridge loan to four years. In conjunction with the extension of the SOF bridge loan, the Company issued a warrant to purchase 150,000 shares of the Company’s common stock to SOF at a premium of 15% to the then current stock price, or $31.45 per share. In October 2007 (but effective as of August 20, 2007), in consideration for SOF’s consent for the sale of the Company’s power operations and maintenance businesses, the Company canceled the warrant issued in June and issued SOF a new warrant to purchase 150,000 shares of the Company’s common stock at a price of $25.00 per share. The new warrant is exercisable through August 2010. Approximately $0.5 million of the fair value of the original warrant has been recorded as a discount to the principal amount of the bridge loan and is being accreted to interest expense over the remaining four-year term of the debt. Approximately $0.2 million of the fair value of the repriced warrant was recorded as a consent fee and expensed in the third quarter of 2007.

The fair value of the warrant issued was estimated on the date of issue using the Black-Scholes pricing model with the following assumptions:

													Weighted Average
	Number of Shares												Value of Each
Warrants Issued	Included in Warrant		Dividend Yield		Volatility			Risk-Free Rate			Expected Life		Warrant
2007		150,000		None		40	%		4.19	%		3.0 years	$	4.84

Restricted Net Assets

At September 30, 2007, Westmoreland Coal Company had approximately $130.9 million of net assets at its subsidiaries that were not available to be transferred to it in the form of dividends, loans, or advances due to restrictions contained in the credit facilities of these subsidiaries. Approximately $6.0 million of net assets of the subsidiaries are unrestricted.

15.   INCENTIVE STOCK OPTIONS, STOCK APPRECIATION RIGHTS, AND PERFORMANCE UNITS

As of September 30, 2007, the Company had stock options and SARs outstanding from three stock incentive plans for employees and three stock incentive plans for directors.

The employee plans provide for the grant of incentive stock options (“ISOs”), non-qualified options under certain circumstances, SARs and restricted stock.

The non-employee director plans generally provide for the grant of stock options or SARs with a value of $60,000 when elected or appointed, and stock options or SARs with a value of $30,000 after each annual meeting. In 2006, directors were granted SARs as a form of award.

23

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WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For both types of plans, ISO’s and SARs generally vest over three years, expire ten years from the date of grant, and may not have an option or base price that is less than the market value of the stock on the date of grant. Upon vesting, the holders may exercise the SARs and receive an amount equal to the increase in the value of the common stock between the grant date and the exercise date in shares of common stock.

The maximum number of shares that could be issued or granted under the employee and director plans at September 30, 2007 is shown in the following table:

				Non-Employee
	Employee Plans			Director Plans
Maximum number of shares that can be issued or granted		1,150,000			900,000
Shares issued or granted		(1,045,381	)		(880,824	)
Number of shares available for future grant		104,619			19,176

Compensation cost arising from share-based arrangements for the three and nine months ended September 30, 2007 and 2006 is shown in the following table (in thousands):

							Nine Months Ended
	Three Months Ended September 30,						September 30,
	2007			2006			2007			2006
Amortization of the fair value of SARs and stock options over vesting period	$	643		$	—		$	595		$	398
Matching contributions to the Company’s 401(k) plan		342			248			1,884			1,013
Expense (benefit) for stock-based incentive plans		(822	)		(93	)		(173	)		470
Total share based compensation expense	$	163		$	155		$	2,306		$	1,881

SARs

Information with respect to SARs granted and outstanding for employees and directors for the nine months ended September 30, 2007 is as follows:

	Base Price		Stock Appreciation			Weighted Average
	Range		Rights			Base Price
Outstanding at December 31, 2006	$	18.04 - 29.48		560,747		$	21.66
Granted		—		—			—
Exercised		18.04 - 24.41		(39,979	)		19.69
Expired or forfeited		24.41		(65,102	)		24.41
Outstanding at September 30, 2007	$	19.37 - 29.48		455,666		$	21.44

Information about SARs outstanding as of September 30, 2007 is as follows:

Weighted

Average

Weighted

Intrinsic

Remaining

Average

Intrinsic

Weighted Average

Value

Range of Base

Number

Contractual Life

Base Price

Value

SARs

Base Price (Vested

(Vested

Price

Outstanding

(Years)

(all SARs)

(all SARs)

Vested

SARs)

SARs)

$19.37 - 29.48

455,666

7.7

$

21.44

$

863,000

398,472

$

20.97

$

863,000

24

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

No SARs were granted during the first nine months of 2007. The fair value of SARs granted is estimated on the date of grant using the Black-Scholes pricing model with the following weighted average assumptions for 2006:

Weighted

Average Value

Number of SARs

Dividend

Risk-Free

Expected

of Each SAR

SARs Granted

Granted

Yield

Volatility

Rate

Life

Granted

2006

177,567

None

52

%

5.20

%

7.0 years

$

14.18

The intrinsic value of SARs exercised during the three and nine months ended September 30, 2007 was less than $0.1 million, and $0.2 million, respectively.

The amount of unamortized compensation expense for SARs outstanding at September 30, 2007 was $0.8 million which is expected to be recognized over approximately two years.

Stock Options

Information with respect to stock options granted and outstanding for employee and director stock option plans for the nine months ended September 30, 2007 is as follows:

						Weighted
	Issue Price		Stock Option			Average
	Range		Shares			Exercise Price
Outstanding at December 31, 2006	$	2.81 - 22.86		541,616		$	11.62
Granted		23.48		100,000			23.48
Exercised		2.81 - 18.08		(156,271	)		5.10
Expired or forfeited		22.86		(3,334	)		22.86
Outstanding at September 30, 2007	$	2.81 - 23.48		482,011		$	16.12

Information about stock options outstanding as of September 30, 2007 is as follows:

			Weighted		Weighted						Weighted
			Average		Average						Average
			Remaining		Exercise		Intrinsic				Exercisable		Intrinsic
Range of Base	Number		Contractual Life		Price		Value		Options		Price (Vested		Value (Vested
Price	Outstanding		(Years)		(all Options)		(all Options)		Vested		Options)		Options)
$ 2.81- 5.00		60,045		2.1	$	2.98				60,045	$	2.98
5.01-10.00		—		—		—				—		—
10.01-15.00		87,835		4.5		12.34				87,835		12.34
15.01-23.48		334,131		6.5		19.48				245,242		18.03
$ 2.81-23.48		482,011		5.6	$	16.12	$	3,400,000		393,122	$	14.46	$	3,400,000

No options were granted during 2006. The fair value of options granted is estimated on the date of grant using the Black-Scholes pricing model with the following weighted average assumptions for the nine months ended September 30, 2007:

Weighted Average

Options

Number of

Dividend

Risk-Free

Expected

Value of Each

Granted

Options Granted

Yield

Volatility

Rate

Life

Option Granted

2007

100,000

None

51

%

4.56

%

7.0 years

$

13.55

The intrinsic value of stock options exercised during the three and nine months ended September 30, 2007 was $1.9 million and $2.5 million, respectively.

25

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The amount of unamortized compensation expense for options outstanding at September 30, 2007 was $1.2 million which is expected to be recognized over approximately three years.

Performance Units

As of September 30, 2007, the Company had performance units outstanding under its Performance Unit Plan. The value of the performance units is payable to the participants upon vesting in cash, or at the option of the Company, in shares of common stock. The value is based in part on the appreciation of the Company’s common stock and its performance relative to the average of two stock market indices. The performance units vest over a three-year period. The units granted are accounted for as a liability-based award, since the Company has historically settled the awards in cash and intends to settle the outstanding awards in cash. During the three months ended September 30, 2007 and 2006, the Company recognized $0.8 million and $0.1 million of stock compensation expense for this plan, respectively. During the first nine months of 2007, the Company recognized a stock compensation benefit of $0.2 million for this plan. During the first nine months of 2006, the Company recognized $0.5 million of stock compensation expense for this plan. The amount of unamortized compensation expense for this plan was $0.1 million at September 30, 2007.

16.   EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined on the same basis except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options, stock appreciation rights (SARs) and warrants, if dilutive, and the impact of restricted stock outstanding. The number of additional shares from options, SARs, and warrants is calculated by assuming that outstanding stock instruments were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting period. The number of additional shares from restricted stock is calculated by assuming that an amount equal to the unamortized compensation costs attributable to the restricted shares outstanding is used to acquire shares of common stock at the average market price during the reporting period.

26

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides a reconciliation of the number of shares used to calculate basic and diluted earnings per share (EPS):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands, except per share data)
Net loss applicable to common shareholders:	$	(7,368	)	$	(2,560	)	$	(11,282	)	$	(3,684	)
Number of shares of common stock outstanding:
Basic		9,151			8,948			9,094			8,671
Effect of dilutive stock options		181			274			254			359
Effect of dilutive SARs		—			—			—			26
Diluted		9,332			9,222			9,348			9,056
Net loss per share applicable to common shares outstanding:
Basic	$	(0.81	)	$	(0.29	)	$	(1.24	)	$	(0.42	)
Diluted	$	(0.81	)	$	(0.29	)	$	(1.24	)	$	(0.42	)
Number of shares excluded from calculation of diluted EPS because the exercise prices of the options, SARs and warrant were greater than the average market price of the common shares		381			200			358			18

17.   INCOME TAXES

Income tax expense (benefit) attributable to income before income taxes consists of:

						Nine Months Ended
	Three Months Ended September 30,					September 30,
	2007			2006		2007			2006
	(In thousands)
Current:
Federal	$	—		$	—	$	—		$	2
State		(95	)		190		(3	)		708
		(95	)		190		(3	)		710
Deferred:
Federal		—			—		—			—
State		—			—		—			—
Income tax expense	$	(95	)	$	190	$	(3	)	$	710

18.   BUSINESS SEGMENT INFORMATION

Segment information is presented in accordance with SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”. This standard is based on a management approach, which requires segmentation based upon a Company’s internal organization and reporting of revenue and income before income taxes based upon internal accounting methods.

27

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s operations are classified into four segments: coal, independent power, heritage and corporate. The coal segment includes the production and sale of coal from Montana, North Dakota and Texas. The independent power operations include the ownership of interests in cogeneration and other non-regulated independent power plants and related business development expenses. The heritage segment includes costs of benefits the Company provides to former employees of its previously owned Eastern U.S. coal mining operations which have been disposed of. The corporate segment represents all costs not otherwise classified and primarily consists of corporate office expenses. Assets attributed to the heritage segment consist primarily of cash, bonds and deposits restricted to pay heritage health benefits. Prior year segment information has been reclassified to conform to the new segment presentation, and has also been recast to reflect our independent power segment’s discontinued operations.

Summarized financial information by segment for the three and nine months ended September 30, 2007 and 2006 is as follows:

Three months ended September 30, 2007

				Independent
	Coal			Power			Heritage			Corporate			Total
	(In thousands)
	(Unaudited)
Revenues:
Coal	$	106,670		$	—		$	—		$	—		$	106,670
Energy		—			23,469			—			—			23,469
Equity in earnings		—			94			—			—			94
		106,670			23,563			—			—			130,233
Costs and expenses:
Cost of sales — coal		88,388			—			—			—			88,388
Cost of sales — energy		—			15,346			—			—			15,346
Depreciation, depletion and amortization		7,366			2,417			—			81			9,864
Selling and administrative		5,927			2,018			341			2,567			10,853
Restructuring charges		136			1,020			—			577			1,733
Heritage health benefit expenses		—			—			7,332			—			7,332
Loss on sales of assets		137			20			—			—			157
Operating income (loss)		4,716			2,742			(7,673	)		(3,225	)		(3,440	)
Other income (expense):
Interest expense		(2,537	)		(3,280	)		—			(117	)		(5,934	)
Interest income		1,282			575			75			69			2,001
Minority interest		(464	)		—			—			—			(464	)
Other income (loss)		(12	)		2			—			35			25
Income (loss) from continuing operations before income taxes	$	2,985		$	39		$	(7,598	)	$	(3,238	)	$	(7,812	)
Capital expenditures	$	11,028		$	568		$	—		$	—		$	11,596
Total assets	$	467,732		$	275,545		$	5,489		$	9,037		$	757,803

28

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Three months ended September 30, 2006

				Independent
	Coal			Power			Heritage			Corporate			Total
	(In thousands)
	(Unaudited)
Revenues:
Coal	$	106,227		$	—		$	—		$	—		$	106,227
Energy		—			23,347			—			—			23,347
Equity in earnings		—			84			—			—			84
		106,227			23,431			—			—			129,658
Costs and expenses:
Cost of sales — coal		84,115			—			—			—			84,115
Cost of sales — energy		—			14,694			—			—			14,694
Depreciation, depletion and amortization		6,372			2,322			—			46			8,740
Selling and administrative		6,287			2,388			345			2,672			11,692
Heritage health benefit expenses		—			—			7,092			—			7,092
Loss on sales of assets		40			—			—			—			40
Operating income (loss)		9,413			4,027			(7,437	)		(2,718	)		3,285
Other income (expense):
Interest expense		(2,680	)		(4,126	)		—			(186	)		(6,992	)
Interest income		1,051			698			47			90			1,886
Minority interest		(342	)		—			—			—			(342	)
Other income (loss)		76			(48	)		—			(2	)		26
Income (loss) from continuing operations before income taxes	$	7,518		$	551		$	(7,390	)	$	(2,816	)	$	(2,137	)
Capital expenditures	$	5,930		$	327		$	—		$	147		$	6,404
Total assets	$	302,455		$	284,274		$	9,291		$	126,566		$	722,586

29

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Nine months ended September 30, 2007

				Independent
	Coal			Power			Heritage			Corporate			Total
	(In thousands)
	(Unaudited)
Revenues:
Coal	$	311,508		$	—		$	—		$	—		$	311,508
Energy		—			66,775			—			—			66,775
Equity in earnings		—			277			—			—			277
		311,508			67,052			—			—			378,560
Costs and expenses:
Cost of sales — coal		255,826			—			—			—			255,826
Cost of sales — energy		—			42,724			—			—			42,724
Depreciation, depletion and amortization		20,857			7,256			—			250			28,363
Selling and administrative		19,268			6,351			1,171			8,304			35,094
Restructuring charges		363			1,103			—			2,546			4,012
Heritage health benefit expenses		—			—			16,929			—			16,929
Loss (gain) on sales of assets		(54	)		18			—			(5,641	)		(5,677	)
Operating income (loss)		15,248			9,600			(18,100	)		(5,459	)		1,289
Other income (expense):
Interest expense		(7,540	)		(10,675	)		—			(539	)		(18,754	)
Interest income		3,753			1,798			727			218			6,496
Minority interest		(1,194	)		—			—			—			(1,194	)
Other income		108			1			—			65			174
Income (loss) from continuing operations before income taxes	$	10,375		$	724		$	(17,373	)	$	(5,715	)	$	(11,989	)
Capital expenditures	$	19,736		$	703		$	—		$	11		$	20,450
Total assets	$	467,732		$	275,545		$	5,489		$	9,037		$	757,803

30

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Nine months ended September 30, 2006

				Independent
	Coal			Power			Heritage			Corporate			Total
	(In thousands)
	(Unaudited)
Revenues:
Coal	$	292,479		$	—		$	—		$	—		$	292,479
Energy		—			23,347			—			—			23,347
Equity in earnings		—			7,545			—			—			7,545
		292,479			30,892			—			—			323,371
Costs and expenses:
Cost of sales — coal		230,331			—			—			—			230,331
Cost of sales — energy		—			14,694			—			—			14,694
Depreciation, depletion and amortization		17,977			2,385			—			209			20,571
Selling and administrative		17,181			4,485			767			8,795			31,228
Heritage health benefit expenses		—			—			23,652			—			23,652
Loss (gain) on sales of assets		154			—			—			(5,060	)		(4,906	)
Operating income (loss)		26,836			9,328			(24,419	)		(3,944	)		7,801
Other income (expense):
Interest expense		(7,849	)		(4,126	)		—			(481	)		(12,456	)
Interest income		2,977			698			71			353			4,099
Minority interest		(1,551	)		—			—			—			(1,551	)
Other income (loss)		57			235			—			(7	)		285
Income (loss) from continuing operations before income taxes	$	20,470		$	6,135		$	(24,348	)	$	(4,079	)	$	(1,822	)
Capital expenditures	$	12,895		$	—		$	—		$	652		$	13,888
Total assets	$	302,455		$	284,274		$	9,291		$	126,566		$	722,586

19.   COMMITMENTS

Coal Reserve Lease Obligations

The Company leases certain of its coal reserves from third parties and pays royalties based on either a per ton rate or as a percentage of revenues received. Royalties charged to expense under all such lease agreements amounted to $10.2 million and $9.8 million in the three months ended September 30, 2007 and 2006, respectively, and $29.1 million and $25.8 million in the nine months ended September 30, 2007 and 2006, respectively.

In August 2005 the Energy Policy Act of 2005 was enacted. Among other provisions, it contains a tax credit for the production of coal owned by Indian tribes. The credit is $1.50 per ton beginning 2006 through 2009 and $2.00 per ton from 2010 through 2012, with both amounts escalating for inflation. The credit may be used against regular corporate income tax for all years and against alternative minimum taxes for the initial period. WRI produces coal that qualifies for this credit.

31

ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the second quarter of 2007, WRI agreed to amend its lease agreement with the Crow Tribe to share the economic benefit of the credit with the Tribe. The Company recorded $1.6 million as cost of sales in the first nine months of 2007 to reflect the anticipated amount payable to the Crow Tribe under the amendment. The final amount payable is dependent on the final outcome of the negotiations with the Crow Tribe.

Real Property and Equipment Lease Obligations

The Company has operating lease commitments expiring at various dates, primarily for real property and equipment. Rental expense under operating leases during the three months ended September 30, 2007 and 2006 totaled $1.2 million and $2.0 million, respectively, and for the nine months ended September 30, 2007 and 2006 totaled $4.2 million and $5.1 million, respectively.

Minimum future rental obligations existing under these operating leases with remaining terms of one year or more at September 30, 2007 are as follows (in thousands):

Lease Obligations
Remainder of 2007	$	1,103
2008		3,819
2009		1,653
2010		748
2011 and thereafter		459

Coal Supply Agreements

Westmoreland Partners, which owns ROVA, has two coal supply agreements with TECO Coal Corporation (“TECO”). If Westmoreland Partners continues to purchase coal under these contracts at the current volume and pricing and does not extend these coal supply agreements, then Westmoreland Partners would be obligated to pay TECO $6.8 million for the remainder of 2007 and $27.3 million in each of the years of 2008, 2009, 2010, 2011, 2012 and an aggregate of $60.1 million after 2012.

Long-Term Sales Commitments

The following table presents estimated total sales tonnage under existing long-term contracts for the next five years from the Company’s existing mining operations. The prices for all future tonnage are subject to revision and adjustments based upon market prices, certain indices and/or cost recovery:

Projected Sales Tonnage Under
Existing Long-Term Contracts
(In millions of tons)
2007	29.8
2008	30.2
2009	28.9
2010	26.3
2011	21.5

The tonnages in the table above represent estimated sales tonnage under existing, executed contracts and generally exclude pending or anticipated contract renewals or new contracts. These projections reflect customers’ scheduled major plant outages, if known.

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ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

20.   CONTINGENCIES

Royalty Claims

The U.S. Minerals Management Service (“MMS”) and the Montana Department of Revenue (“MDR”) have each asserted numerous administrative claims against Western Energy Company (“WECO”) for federal coal royalties and state taxes allegedly due and owing on payments received by WECO from customers.

There are three types of claims, transportation claims, take or pay claims, and gross inequity claims, as described below. The Company believes that WECO has meritorious defenses against all three types of the royalty and tax claims made by the MMS and the MDR. The Company plans to seek relief in Federal District Court for MMS claims and Montana State Court for MDR claims and expects favorable rulings.

Moreover, in the event of a final adverse outcome with MDR and MMS, the Company believes that certain of WECO’s customers are contractually obligated to reimburse WECO for any royalties and taxes imposed on WECO for the production of coal sold to the Colstrip customers, plus WECO’s legal expenses. Consequently, the Company has not recorded any provisions for these matters. It is possible that the customers may dispute the Company’s interpretation of the contracts. Legal expenses associated with these matters are expensed as incurred.

Transportation Claims

The MMS and MDR claim that revenues earned under the Transportation Agreement with the Colstrip 3 & 4 buyers are, in reality, payments for the production of coal, and therefore royalty and tax bearing.

The MMS claims currently are for three different audit periods: October 1991 through December 1995, January 1996 through December 2001, and January 2002 through December 2004. The claims for the first two audit periods were confirmed on appeal to the MMS, but limited to 7 years prior to 2002, due to the applicable statute of limitations. These claims (approximately $5.0 million) were appealed to the Interior Board of Land Appeal (“IBLA”). On September 12, 2007, the IBLA affirmed the earlier MMS decision with respect to these first two assessments. On December 12, 2007, WECO appealed the IBLA decision to the Federal District Court in the District of Columbia. The claims (approximately $1.6 million) for the third audit period (2002-2004) are on initial appeal to the MMS, and WECO filed its Statement of Reasons on July 5, 2007.

In 2003, MDR assessed state coal royalties for years 1997 and 1998 on the transportation charges collected by WECO. In 2006, MDR also issued additional assessments for tax years 1998-2001. WECO has appealed and MDR has elected to proceed to hearing on these objections using its internal administrative hearing process. Ultimate adjudication could be before the Montana Supreme Court. The total state tax claims through the end of 2001, including interest through 2006, is approximately $20.4 million. A hearing is scheduled before the Montana State Tax Appeal Board in September 2008.

Neither the MMS nor the DOR has made royalty or tax demands for all periods during which WECO has received payments for transportation of coal. Presumably, the royalty and tax demands for periods after the years in dispute, generally, 1995 to 2004, and future years will be determined by the outcome of the pending proceedings. However, if the MMS and MDR were to make demands for all periods through the present, including interest, the total amount claimed against WECO, including the pending claims and interest thereon through December 31, 2006, could exceed $33.0 million.

Take or Pay Claims

MMS is claiming that take or pay payments received from the Colstrip 3 & 4 customers are payments for the production of coal, notwithstanding that no coal was produced and sold. WECO filed a notice of appeal

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ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

with MMS on October 22, 2002, and the matter is still pending. The amount of the royalty demand, with interest through December 31, 2006, is approximately $3.0 million.

Gross Inequity Claims

In 2004, MMS issued a demand for a royalty payment in connection with a settlement agreement dated February 21, 1997 between WECO and its customer, Puget Sound Energy, which reduced the price of coal paid by Puget. WECO filed a notice of appeal with MMS and the matter is still pending. The amount of the royalty claim, with interest through December 31, 2006, is approximately $1.5 million. Additionally, the State of Montana has issued a claim for state coal royalties of approximately $0.8 million related to Puget Sound Energy payments.

Rensselaer Tax Assessment

During 2006 the Company recorded a provision for an assessment by the North Carolina Department of Revenue (“DOR”) relating to a gain which the Company excluded from business income in preparing its tax returns for 1998 through 2001. In March, 2007, the DOR provided the Company with a revised assessment in the amount of $4.2 million. In a settlement signed by the Company and the DOR in the second quarter of 2007, the Company agreed to pay the income tax assessment and related accrued interest and the DOR waived all penalties. As of September 30, 2007, the liability for the settlement was $4.4 million and is recorded in “Income taxes payable” on the Consolidated Balance Sheets. The Company will begin making required monthly payments of approximately $0.1 million on the income tax assessment plus accrued interest during the fourth quarter of 2007 and approximately $0.2 million beginning in the first quarter of 2008 until the settlement is fully paid.

McGreevey Litigation

In late 2002, the Company was served with a complaint in a case styled McGreevey et al. v. Montana Power Company et al. in a Montana State court. The plaintiffs are former stockholders of Montana Power who filed their first complaint on August 16, 2001. This was the Plaintiffs’ Fourth Amended Complaint; it added Westmoreland as a defendant to a suit against Montana Power Company, various officers of Montana Power Company, the Board of Directors of Montana Power Company, financial advisors and lawyers representing Montana Power Company and the purchasers of some of the businesses formerly owned by Montana Power Company and Entech, Inc., a subsidiary of Montana Power Company. The plaintiffs seek to rescind the sale by Montana Power of its generating, oil and gas, and transmission businesses, and the sale by Entech of its coal business, or to compel the purchasers to hold these businesses in trust for the shareholders. The Plaintiffs contend that they were entitled to vote to approve the sale by Entech to the Company even though they were not shareholders of Entech. Westmoreland has filed an answer, various affirmative defenses and a counterclaim against the plaintiffs. Shortly after the Company was named as a defendant, the litigation was transferred from Montana State Court to the U.S. District Court in Billings, Montana.

There has been no significant activity in the case involving Westmoreland for the past five years. Settlement discussions between the plaintiffs and other defendants appear to have been unsuccessful. We have never participated in settlement discussions with the plaintiffs because we believe that the case against the Company is totally without merit. Even if the plaintiffs could establish that shareholder consent was required for the sale of Montana Power’s coal business in 2001, there is virtually no legal support for the argument that such a sale to a buyer acting in good faith, purchasing from a wholly owned subsidiary, and relying on the seller’s representations can be rescinded. Indeed, the practical issues relating to such rescission would present a significant obstacle to such a result, particularly when the business has been operated by the buyer for six years, significant amounts of capital have been invested, reserves have been depleted, and the original

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ITEM 1

WESTMORELAND COAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

seller is in bankruptcy and has no means to complete a repurchase or operate the business following a repurchase.

The Company has considered seeking a dismissal of the claims against it but is waiting for the outcome of a matter under review in the bankruptcy proceedings in Delaware involving Touch America (formerly Montana Power Company). In those proceedings, the unsecured creditors have asserted that the claims originally filed by McGreevey in Montana — the claims against the officers and directors which, if successful, would likely result in a payment by the insurance carrier that provided D&O insurance to Montana Power Company — belong to the creditors, not the shareholders who are the plaintiffs in the McGreevey action. If the Delaware Bankruptcy Court holds that those claims are “derivative” and thus belong to the corporation, then the unsecured creditors may have a right to those claims. Although the Delaware Bankruptcy Court will not directly decide that issue with respect to the claims against the various asset purchasers, including the Company, such a decision would likely affect the analysis of the Montana District Court where our case is pending.

No reserve has been accrued by the Company for this matter.

Severance Benefits Payable to Former CEO

In May 2007, Christopher K. Seglem was terminated as Chairman, CEO and President of the Company. Mr. Seglem is entitled to payment of severance benefits under an Executive Severance Policy dated December 8, 1993. The total amount of the severance benefits payable to Mr. Seglem has not been determined because the Executive Severance Policy is subject to different interpretations in regard to certain important terms. The Company and Mr. Seglem have been attempting to resolve the differences in interpretation in the Executive Severance Policy through discussions but no assurances can be given that the differences will be resolved. If Mr. Seglem were to bring litigation against the Company to enforce what he believes are his rights under the Executive Severance Policy, the Company would be required to pay his attorney’s fees under the terms of the policy, unless a court were to determine that under the circumstances, recovery of all or a part of any such fees would be unjust. If Mr. Seglem’s interpretation of the severance policy were to be upheld by a court, he would be entitled to severance payments of approximately $3.8 million plus reimbursement of his attorney’s fees. The Company has accrued severance benefits due to Mr. Seglem in the amount of $1.8 million based on its interpretation of the severance policy which is recorded in “Accrued severance and other liabilities” in the Consolidated Balance Sheets.

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ITEM 2   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Material Changes in Financial Condition from December 31, 2006 to September 30, 2007

Forward-Looking Disclaimer

Throughout this Form 10-Q, the Company makes statements which are not historical facts or information and that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, but are not limited to, the information set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievements, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; the material weaknesses in the Company’s internal controls over financial reporting identified in our Amendment No. 2 to our 2006 Form 10-K, and the associated ineffectiveness of the Company’s disclosure controls; health care cost trends; the cost and capacity of the surety bond market; the Company’s ability to manage growth and significantly expanded operations; the ability of the Company to implement its growth and development strategy; the Company’s ability to pay the preferred stock dividends that are accumulated but unpaid; the Company’s ability to retain key senior management; the Company’s access to financing; the Company’s ability to maintain compliance with debt covenant requirements or obtain waivers from its lenders in cases of non-compliance; the Company’s ability to achieve anticipated cost savings and profitability targets; the Company’s ability to successfully identify new business opportunities; the Company’s ability to negotiate profitable coal contracts, price reopeners and extensions; the Company’s ability to predict or anticipate commodity price changes; the Company’s ability to maintain satisfactory labor relations; changes in the industry; competition; the Company’s ability to utilize its deferred income tax assets; the ability to reinvest cash, including cash that has been deposited in reclamation accounts, at an acceptable rate of return; weather conditions; the availability of transportation; price of alternative fuels; costs of coal produced by other countries; the demand for electricity; the performance of ROVA and the structure of ROVA’s contracts with its lenders and Dominion Virginia Power; the effect of regulatory and legal proceedings; environmental issues, including the cost of compliance with existing and future environmental requirements; the risk factors set forth in Amendment No. 2 to our 2006 Form 10-K; and the Company’s ability to raise additional capital, as discussed under Liquidity and Capital Resources; and the other factors discussed in Note 20 of this Form 10-Q. As a result of the foregoing and other factors, no assurance can be given as to the future results and achievement of the Company’s goals. The Company disclaims any duty to update these statements, even if subsequent events cause its views to change.

References in this document to www.westmoreland.com, any variations of the foregoing, or any other uniform resource locator, or URL, are inactive textual references only. The information on our Web site or any other Web site is not incorporated by reference into this document and should not be considered to be a part of this document.

Overview

We are an energy company. We mine coal, which is used to produce electric power, and we own power generating plants. All of our five mines supply baseloaded power plants. Several of these power plants are located adjacent to our mines, and we sell virtually all our coal under long-term contracts. Consequently, our mines enjoy relatively stable demand and pricing compared to competitors who sell more of their production on the spot market.

We now own 100% of ROVA, a 230 MW project, which supplies baseload power pursuant to long-term contracts and which is operated by a third party under a long-term contract. We also own a 4.49% interest in

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the gas-fired Ft. Lupton Project, which has a generating capacity of 290 MW and provides peaking power to the local utility.

According to the 2006 Annual Energy Outlook prepared by the U.S. Energy Information Administration, or EIA, approximately 50% of all electricity generated in the United States in 2005 was produced by coal-fired units. The EIA projects that the demand for coal used to generate electricity will increase approximately 2.6% per year from 2005 through 2030. Consequently, we believe that the demand for coal will grow, in part because coal is the lowest cost fossil-fuel used for generating baseload electric power.

Challenges

We believe that our principal challenges today include the following:

•  obtaining adequate capital for our on-going operations and our growth initiatives;

•  renegotiating sales prices to reflect higher market prices and fully recover increased commodity and production costs;

•  continuing to fund high heritage health benefit expenses which continue to be adversely affected by inflation in medical costs, longer life expectancies for retirees, and the failure of the UMWA retirement fund trustees to manage medical costs;

•  maintaining and collateralizing, where necessary, our Coal Act and reclamation bonds;

•  funding required contributions to pension plans that are underfunded;

•  complying with new environmental regulations, which have the potential to significantly reduce sales from our mines; and

•  defending against claims for potential taxes and royalties assessed by various governmental entities, some of which we believe are subject to reimbursement by our customers.

We discuss these issues, as well as the other challenges we face, elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and under “Risk Factors.”

Liquidity and Capital Resources

The major factors impacting the Company’s liquidity are: payments due on the term loan it entered into to acquire various operations and assets from Montana Power and Knife River in May 2001 (see Note 9) and subsequent borrowings at Westmoreland Mining LLC (WML) which owns the mines; payments due on the acquisition debt associated with the Company’s purchase of the 50% interest in a partnership which owns the 230 MW Roanoke Valley power plant (“ROVA”) (see Note 9); payments due on the term loan and revolving credit facility used to acquire the minority interest in Westmoreland Resources, Inc. (WRI) and to pay certain then-existing debt of WCC; cash collateral requirements for additional reclamation bonds in new mining areas; payments for the Company’s heritage health benefit costs; and ongoing reclamation costs.

Unforeseen changes in the Company’s ongoing business requirements could also impact its liquidity. The principal sources of cash flow to Westmoreland Coal Company are distributions from WRI, ROVA, and Westmoreland Mining LLC, all of which are subject to the provisions in their respective debt agreements.

On May 2, 2007, the Company entered into a Standby Purchase Agreement with an investor that would backstop a rights offering of common stock by the Company to its shareholders and purchase additional shares of common stock. Effective as of July 3, 2007, the Standby Purchase Agreement was amended to add an additional standby purchaser. The Standby Purchase Agreement contemplated a transaction closing by November 2007.

On March 4, 2008, the Company completed the sale of $15.0 million in senior secured convertible notes to that investor. The notes mature 5 years from date of issuance, carry a 9.0% interest rate and are convertible into the Company’s common stock at the investor’s option at an initial conversion price of $10.00 per share. As part of that transaction, the Standby Purchase Agreement was terminated.

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In June 2007, the Company extended the bridge loan used to acquire ROVA, and issued the lender a warrant to purchase 150,000 shares of common stock. Under the terms of the loan agreement, all cash distributions from ROVA are required to be applied to the principal and interest payments on the loan through its remaining four-year term.

In February 2008, the Company completed negotiations to refinance the ROVA project with an institutional lender. The refinancing will include the bridge loan used to acquire the additional interest in the ROVA project in 2006 and all of the term loans outstanding at ROVA. The refinancing will allow ROVA to make a distribution to the Company of $5.0 million when the refinancing closes in mid-March 2008.

As of March 17, 2008, the Company believes that it has capital resources or committed financing arrangements in place to provide adequate liquidity to meet all of its currently projected cash requirements through August 2008 based on its most recent forecast. The Company is considering several alternatives for raising additional capital during 2008.

The Company has also engaged a large bank to assist the Company in refinancing its existing debt at Westmoreland Mining, with the goal of better matching debt amortization with cash flow from the mining operations. The refinancing would be designed to provide for additional availability to finance future capital requirements of the mines, and provide for an increase in the amounts allowed to be distributed to Westmoreland Coal Company. While the Company has had initial discussions with the bank and potential lenders about the refinancing, there can be no assurance that the Company will obtain the refinancing on terms acceptable to it, or at all.

Depending upon the size and terms of that potential refinancing, the Company will evaluate the need to raise additional capital.

The Company continues to believe that one of the other alternatives available to it is the sale of one or more of the Company’s assets. There can be no assurance that any sale could be completed on a timely basis or on terms acceptable to the Company.

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from the outcome of the uncertainty regarding the Company’s ability to raise additional capital, refinance its debt obligations or sell some of its assets to meet its obligations.

NRGT Long-Term Contract

On September 28, 2007, our subsidiary Texas Westmoreland Coal Company (“TWCC”), which operates the Jewett Mine, entered into a new lignite supply agreement with NRG Texas Power LLC (“NRG Texas”). The new agreement commences on January 1, 2008, and extends through December 31, 2018. As part of the agreement, NRG Texas has the right to terminate the supply agreement on December 31st of any year prior to the 180th day of that year. NRG Texas also has the option to extend the agreement through December 31, 2028, provided the mine still has coal reserves.

Under the terms of the agreement, NRG Texas shall reimburse TWCC for all mining costs actually incurred in mining previously agreed volumes for each year. In addition, NRG Texas will pay TWCC management fees based on the volume of lignite delivered per year.

Additionally, under the terms of the agreement, NRG Texas is responsible for the payment of final reclamation at the Jewett Mine, and will pay TWCC for all costs of final reclamation plus a profit component for work performed by TWCC. As a result of this agreement on final reclamation, TWCC increased its Contractual third party reclamation receivable by $35.3 million to reflect the fact that effective January 1, 2008 all costs incurred by TWCC towards fulfilling its asset retirement obligation will be reimbursed by NRG Texas. The increase to TWCC’s Contractual third party reclamation receivable was offset by a corresponding decrease in TWCC’s capitalized asset retirement costs.

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Factors Affecting our Liquidity

Our heritage health benefit costs consist primarily of payments for postretirement medical and workers’ compensation benefits. We are also obligated for employee pension and pneumoconiosis benefits. It is important to note that retiree health benefit costs are directly affected by changes in medical service costs, prescription drug costs and mortality rates. The most recent actuarial valuations of our heritage health benefits obligations, which pertain primarily to former employees who worked in our Eastern mines and are guaranteed life-time benefits under the federal Coal Act, indicated that our heritage health benefit payments would increase annually through 2011 and then decline to zero over the next approximately sixty years as the number of eligible beneficiaries declines. In the third quarter of 2007, we paid $4.2 million for postretirement medical benefit expenses, $0.9 million for combined benefit fund premiums and $0.3 million for workers’ compensation benefits and received $0.7 million in offsetting Medicare D subsidies. In the fourth quarter of 2007, we expect to pay $4.3 million for postretirement medical benefit expenses, $0.9 million for combined benefit fund premiums, $0.2 million for worker’s compensation benefits, and receive $0.2 million in offsetting federal subsidies. Our total 2007 cash payments for these heritage health benefit costs are expected to be $19.8 million for postretirement medical benefits, $3.9 million for combined benefit fund premiums, and $1.0 million for workers’ compensation benefits. We also expect to receive $1.8 million in offsetting federal subsidies in 2007.

The Westmoreland Mining acquisitions in 2001 greatly increased revenues and operating cash flow. The financing obtained to make those acquisitions requires quarterly interest and principal payments of approximately $4.1 million. This debt financing also requires that 25% of excess cash flow, as defined, be set aside to fund the $30.0 million debt payment due in December 2008. Therefore, only 75% of Westmoreland Mining’s excess cash flow is available to the Company until this debt is paid off in 2008. Westmoreland Mining also entered into the add-on debt facility in 2004 which requires the use of approximately $0.5 million of cash each quarter for debt service. The add-on facility permitted Westmoreland Mining to undertake significant capital projects, without adversely affecting cash available to Westmoreland Coal Company. The terms of the add-on facility permitted Westmoreland Mining to distribute this $35.0 million to Westmoreland Coal Company. Westmoreland Mining’s 2006 distributions of $3.5 million represented the remainder available from the $35.0 million add-on facility.

In June 2006, we acquired the 50% interest in ROVA that we did not previously own, which increased revenues and operating cash flow. This acquisition was funded with $35.0 million in acquisition debt as described in Note 9 to our consolidated financial statements. ROVA also has project-level debt which funded the original development of the power plants. The project-level debt requires semi-annual principal payments as also described in Note 9 to the financial statements as well as ongoing interest payments. At September 30, 2007, the outstanding balance of the ROVA acquisition debt was $15.6 million (net of $0.5 million of debt discount). In June 2007, we extended the term of the acquisition debt to four years. Until that debt is paid in full, all cash distributions generated by ROVA will be applied to the acquisition debt, with the minimum semi-annual principal payment being approximately $4.3 million. The acquisition debt will also require interest payments of approximately $0.3 million per quarter for the next four quarters, which decrease thereafter.

On March 6, 2007, we entered into an agreement to acquire WGI’s contract to operate our Absaloka Mine and completed this transaction on March 30, 2007. WRI purchased from WGI mining and office equipment for $7.9 million and tools, spare parts and supplies, and coal inventory for $2.3 million. As part of the transaction, WGI released the $7.0 million reclamation escrow account to WRI, and WRI released WGI from its financial obligation to complete final reclamation of the mine. While certain equipment was included in our purchase, we made significant additional capital expenditures during the first nine months of 2007 and expect we will need to make further investments in mine development projects, mining equipment and to support bonding requirements in the future.

On September 28, 2007, Westmoreland Resources, Inc. entered into a 30 day term loan agreement with First Interstate Bank in the amount of $4.5 million in order to fund WRI’s acquisition of WGI’s 20% minority interest in WRI. The term loan was repaid and the loan agreement expired on October 28, 2007.

On October 29, 2007, Westmoreland Resources, Inc. executed a Business Loan Agreement (“Agreement”) dated October 29, 2007 with First Interstate Bank, a Montana corporation. The Agreement provides WRI with

39

term debt of $8.5 million and a revolving credit facility of $20 million. The term debt requires sixteen quarterly payments of principal and interest with the final payment due September 20, 2011. The revolving credit facilities mature October 28, 2008. Interest on both notes is payable at the prime rate published in the “Money Rate” section of the Wall Street Journal (7.75% per annum at October 29, 2007). The two notes are collaterized by WRI’s inventory, chattel paper, accounts receivable and equipment. The Agreement requires WRI to comply with certain covenants and minimum financial ratio requirements related to debt coverage, tangible net worth and capital expenditures. Westmoreland Coal Company is guarantor of the notes. The Agreement replaces the revolving lines of credit of $14.0 million to Westmoreland Coal Company. The outstanding balance of $11.2 million on the Westmoreland Coal Company line of credit facility was fully repaid to First Interstate Bank on October 29, 2007.

Our ongoing and future business needs may also affect liquidity. We do not anticipate that our revenues will diminish materially as a result of any future downturn in economic conditions because ROVA produces relatively low-cost, baseload power and most of our coal and power production are sold under long-term contracts, which help insulate us from unfavorable market developments. However, contract price reopeners, contract renegotiations, contract expirations or terminations and market competition could affect future coal revenues and our liquidity.

Cash Balances and Available Credit

Consolidated cash and cash equivalents at September 30, 2007 totaled (in thousands):

ROVA	$	10,401
Westmoreland Risk Management		2,050
Westmoreland Mining		1,392
Other		901
Total consolidated cash and cash equivalents	$	14,744

The cash at Westmoreland Mining is available to the Company through quarterly distributions, as described below. The cash at Westmoreland Risk Management, our captive insurance subsidiary, is available to the Company through dividends. Under the provisions of the ROVA acquisition bridge loan, all cash distributions from ROVA subsequent to December 31, 2006, are to be applied to the principal balance of the loan and related interest and will therefore not be available to the Company through distributions until the bridge loan has been repaid.

As of September 30, 2007, Westmoreland Coal Company had $4.6 million of its $14.0 million revolving line of credit available to borrow. On October 29, 2007, this revolving credit facility was terminated and replaced with term debt and a new revolving credit facility at WRI. As of February 29, 2008, the Company had $1.4 million of its $20.0 million revolving line of credit at WRI available to borrow.

Restricted Cash

We had restricted cash and bond collateral, which were not classified as cash or cash equivalents, of $72.7 million at September 30, 2007 compared to $69.7 million at December 31, 2006. The restricted cash at September 30, 2007 included $30.4 million in ROVA’s debt service accounts and prepayment accounts, $30.0 million in Westmoreland Mining’s debt service reserve, long-term prepayment, and reclamation escrow accounts, and $5.4 million in the Absaloka Mine’s escrow accounts. At September 30, 2007 our reclamation, workers’ compensation and postretirement medical cost obligation bonds were collateralized by interest-bearing cash deposits of $6.9 million, which we have classified as non-current assets in the consolidated balance sheet. In addition, we had accumulated reclamation deposits of $65.8 million at September 30, 2007, representing cash received from customers of the Rosebud Mine to pay for reclamation, plus interest earned on the investments.

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Westmoreland Mining Debt Facilities

The original term loan agreement, which financed our acquisition of the Rosebud, Jewett, Beulah, and Savage Mines, continues to restrict Westmoreland Mining’s ability to make distributions to Westmoreland Coal Company. Until Westmoreland Mining has fully paid the original acquisition debt, which is scheduled for December 31, 2008, Westmoreland Mining may only pay Westmoreland Coal Company a management fee and distribute to Westmoreland Coal Company 75% of Westmoreland Mining’s excess cash flow. Westmoreland Mining is depositing the remaining 25% into an account that will be applied to the $30.0 million balloon payment due December 31, 2008. In December 2005, Westmoreland Mining amended its revolving credit facility to increase the borrowing base to $20.0 million and to extend its maturity to April 2008 to better align with its operating needs. The increase includes the ability to issue letters of credit up to $10.0 million. As of September 30, 2007, a letter of credit for $1.9 million was supported by Westmoreland Mining’s revolving credit facility, Westmoreland Mining had borrowed $7.5 million under this facility, and Westmoreland Mining has the remaining $10.6 million of the credit facility’s borrowing base available.

Historical Sources and Uses of Cash

Cash provided by operating activities was $65.4 million for the first nine months of 2007 compared with $19.7 million for the first nine months of 2006. The increase in noncash charges to income, which includes depreciation, amortization, share based compensation, provision for obsolete inventory, minority interest and gains on sales of assets, in the first nine months of 2007 increased cash provided by operating activities by $11.4 million. The majority of this increase related to depreciation resulting from the consolidation of ROVA and increased capital expenditures. This increase was predominantly offset by the increase in net loss. Net loss was $10.3 million for the first nine months of 2007 compared to $1.7 million for 2006. Cash provided by operating activities in the first nine months of 2007 also reflects $22.0 million of revenue deferred under ROVA’s long-term sales agreements compared to $7.9 for the first nine months of 2006. There was only $0.3 million of cash distributions from independent power projects for the first nine months of 2007 because ROVA distributions received were consolidated after the acquisition of the remaining interest in ROVA in June 2006. Cash distributions from ROVA of $1.2 million were recorded for the first nine months of 2006. Changes in working capital increased cash provided by operating activities in the first nine months of 2007 by $21.1 million compared to a decrease in cash from changes in working capital of $0.9 million in the first nine months of 2006. The increase related primarily to $5.6 million of cash received from the black lung trust fund in 2007 and favorable changes in accounts receivable and other assets and liabilities.

Our working capital deficit was $85.6 million at September 30, 2007 compared to $66.8 million at December 31, 2006. The increase in our working capital deficit resulted primarily from a $12.0 million decrease in cash and cash equivalents, a $5.7 million increase in production taxes payable, and $5.6 million cash withdrawl from our excess of our trust assets over our black lung obligation. These working capital decreases were partially offset by other miscellaneous increases, primarily in inventory, accounts receivable, and accounts payable.

Cash used in investing activities during the first nine months of 2007 was $29.8 million compared to $24.1 million in the first nine months of 2006. The increase in cash used in investing cash activities in 2007 was driven primarily by $16.9 million paid in connection with the acquisition of WGI’s minority interest in our Absaloka Mining operations and our assumption of the mine’s operations. This increase was partially offset by the $12.7 million of proceeds from sale of our royalty interest at the Caballo Mine in Wyoming in February. Also, contributing to the increase in cash used in investing activities was the $20.5 million of additions to property, plant and equipment in the first nine months of 2007. Additions to property, plant, and equipment in the first nine months of 2006 was $13.9 million. Cash used in investing activities in 2006 was partially offset by the $5.1 million received from the sale of mineral interests in Colorado.

We used $47.7 million of cash for our financing activities in the first nine months of 2007 compared to $14.0 million provided from financing activities in the first nine months of 2006. In the first nine months of 2007 we made $57.2 million of payments on our long-term debt. In the first nine months of 2006 we received

41

$30.0 million to finance the ROVA acquisition which was offset by the repayment of $22.5 million of our long-term debt.

Severance Benefits Payable to Former CEO

In May 2007, Christopher K. Seglem was terminated as Chairman, CEO and President of the Company. Mr. Seglem is entitled to payment of severance benefits under an Executive Severance Policy dated December 8, 1993. The total amount of the severance benefits payable to Mr. Seglem has not been determined because the Executive Severance Policy is subject to different interpretations in regard to certain important terms. The Company and Mr. Seglem have been attempting to resolve the differences in interpretation in the Executive Severance Policy through discussions but no assurances can be given that the differences will be resolved. If Mr. Seglem were to bring litigation against the Company to enforce what he believes are his rights under the Executive Severance Policy, the Company would be required to pay his attorney’s fees under the terms of the policy, unless a court were to determine that under the circumstances, recovery of all or a part of any such fees would be unjust. If Mr. Seglem’s interpretation of the severance policy were to be upheld by a court, he would be entitled to severance payments of approximately $3.8 million plus reimbursement of his attorney’s fees. The Company has accrued severance benefits due to Mr. Seglem in the amount of $1.8 million based on its interpretation of the severance policy.

RESULTS OF OPERATIONS

Quarter Ended September 30, 2007 Compared to Quarter Ended September 30, 2006.

Coal Operations

The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:

	Quarter Ended September 30,
	2007		2006		Change
Revenues — thousands	$	106,670	$	106,227		—	%
Volumes — millions of equivalent coal tons		7.7		7.9		(3	)%
Cost of sales — thousands	$	88,388	$	84,115		5	%

Tons of coal sold decreased by approximately 0.2 million tons in the third quarter of 2007 from the third quarter of 2006.

Our coal revenues increased by approximately $0.4 million from the third quarter of 2006 to the third quarter of 2007. This overall increase was due to an overall 5% increase in pricing which offset our decrease in tons sold.

Our coal segment’s cost of sales in the third quarter of 2007 increased by approximately $4.3 million from the third quarter of 2006. This increase was driven by increases in operating and maintenance costs and the write-off of $1.1 million of inventory made obsolete as a result of equipment retired in connection with our Jewett Mine’s new sales agreement and related new mining equipment plan.

Our coal segment’s depreciation, depletion, and amortization expense in the third quarter of 2007 increased by approximately $1.0 million from the third quarter of 2006. This increase resulted primarily from increases in capital expenditures and capital leases for equipment at the mines.

Our coal segment’s selling and administrative expenses in the third quarter of 2007 decreased by $0.4 million from the third quarter of 2006. This decrease was primarily the result of reduced labor costs related to our restructuring plan.

Independent Power

The power segment includes the ownership of ROVA and business development expenses.

42

For the third quarter of 2007 and 2006, ROVA produced 435,000 and 457,000 MW hours, respectively, and achieved average capacity factors of 96.0% and 99.2%, respectively.

Our independent power revenues were $23.5 million in the third quarter of 2007, up slightly from $23.3 million in the third quarter of 2006.

We also recognized $94,000 in equity earnings in the third quarter of 2007, compared to $84,000 in the third quarter of 2006, from our 4.49% interest in the Ft. Lupton project.

Our independent power segment’s cost of sales in the third quarter of 2007 increased by approximately $0.7 million from the third quarter of 2006. This increase was driven by a regular scheduled maintenance downtime which increased our outside service costs in the third quarter of 2007.

Our independent power segment’s depreciation, depletion, and amortization expense in the third quarter of 2007 was $2.4 million compared to $2.3 million in the third quarter of 2006.

Our independent power segment’s selling and administrative expenses in the third quarter of 2007 decreased by $0.4 million from the third quarter of 2006. This decrease was primarily the result of reduced labor costs in our power segment, resulting from the execution of our restructuring plan.

In connection with the ROVA acquisition, we changed our method of recognizing revenue under ROVA’s long-term power sales agreements effective July 1, 2006. For the third quarter 2007, revenue billed under these agreements totaling $7.6 million was deferred to future periods. We also began consolidation of ROVA’s results of operations effective July 1, 2006. Previously the ROVA results were reported using the equity method. The equity method reported only earnings (calculated net of interest expense, interest income, depreciation, depletion and amortization).

Heritage

During the third quarter of 2007 heritage costs increased by $0.2 million from the third quarter of 2006 due primarily to increases in our heritage health benefit and workers compensation expenses.

Corporate

Our corporate segment selling and administrative expenses decreased by $0.1 million in the third quarter of 2007 compared to the third quarter of 2006. This reduction was primarily due to a decrease in professional fees and labor costs in the third quarter of 2007 compared to 2006.

Restructuring

In 2007, the Company initiated a restructuring plan in order to reduce the overall cost structure of the Company. This decision was based on our analysis of our internal operations, our future customer commitments, our current and potential markets, and our financial projections for profitability. During the third quarter of 2007, we recorded a restructuring charge of $1.7 million which included $1.6 million of termination benefits and outplacement costs and $0.1 million of lease costs related to the consolidation of corporate office space. We expect these charges to be paid out over the next year and result in approximately $2.6 million of annual salary reductions in our cost of sales and general and administrative expenses. The restructuring liability is reflected in “Accrued severance and other liabilities” in the Consolidated Balance Sheets.

Interest

Interest expense was $5.9 million for the third quarter of 2007 compared to $7.0 million in the third quarter of 2006. The decrease resulted from a reduction in ROVA’s project and acquisition debt balances. Interest income was $2.0 million in the third quarter of 2007 compared to $1.9 million in the third quarter of 2006.

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Income Tax

Current income tax benefit for the third quarter of 2007 was less than $0.1 million compared to $0.2 million of expense for the third quarter of 2006. Income tax benefit and expense in both periods relates to obligations for state income taxes in North Carolina, Texas and Minnesota.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006.

Coal Operations

The following table shows comparative coal revenues, sales volumes, cost of sales and percentage changes between the periods:

	Nine Months Ended September 30,
	2007		2006		Change
Revenues — thousands	$	311,508	$	292,479		7	%
Volumes — millions of equivalent coal tons		22.2		21.8		2	%
Cost of sales — thousands	$	255,826	$	230,331		11	%

Tons of coal sold increased by approximately 0.4 million tons in the first nine months of 2007 from the first nine months of 2006.

Our coal revenues increased by approximately $19.0 million from the first nine months of 2006 compared to the first nine months of 2007. This was due both to the increase in tonnage and a 3% overall increase in pricing.

Our coal segment’s cost of sales in the first nine months of 2007 also increased by approximately $25.5 million from the first nine months of 2006. This increase was driven by increases in our operating and maintenance costs, higher production taxes and royalties, $1.6 million of lease costs accrued as a result of the amendment to the Crow Tribe lease agreement, and the write-off of $1.1 million of inventory made obsolete as a result of equipment retired in connection with our Jewett Mine’s new sales agreement and related mining equipment plan.

Our coal segment’s depreciation, depletion, and amortization expense in the first nine months of 2007 increased by approximately $2.9 million from the first nine months of 2006. This increase resulted from increased depletion expenses from asset retirement cost assets, which increased at the end of 2006 as a result of updated engineering studies, as well as from increases in capital expenditures and new capital leases for equipment at the mines.

Our coal segment’s selling and administrative expenses in the first nine months of 2007 increased by $2.1 million from the first nine months of 2006. This increase was primarily the result of increases in legal and professional fees, information technology costs, and costs associated with the assumption of our Absaloka Mine’s operations.

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Independent Power

The power segment’s financial performance is presented in the following table (in thousands):

	Nine Months Ended
	September 30,
	2007			2006
50% share of ROVA earnings shown as equity in earnings	$	—		$	7,320
Ft. Lupton equity earnings		277			225
Total equity earnings		277			7,545
Energy revenue		66,775			23,347
Costs and expenses:
Cost of sales — energy		(42,724	)		(14,694	)
Depreciation, depletion, & amortization		(7,256	)		(2,385	)
Selling and administrative		(6,351	)		(4,485	)
Restructuring charges		(1,103	)		—
Gain on sales of assets		(18	)		—
Power segment revenue less costs & expenses		9,323			1,783
Independent power segment operating income		9,600			9,328
Other income (expense):
Interest expense		(10,675	)		(4,126	)
Interest income		1,798			698
Other income		1			235
Income from continuing operations before income taxes	$	724		$	6,135

(1) The Company recorded $22.0 million in deferred revenue in the first nine months of 2007 related to capacity payments billed at ROVA, compared to $7.9 million in the first nine months of 2006.

Power segment operating income was $9.6 million in the first nine months of 2007 compared to $9.3 million in the first nine months of 2006. This increase was primarily a result of our acquisition of the remaining 50% of ROVA. Our energy revenues and costs of sales were $66.8 million and $42.7 million, respectively, during the first nine months of 2007.

In connection with the ROVA acquisition, we changed our method of recognizing revenue under ROVA’s long-term power sales agreements effective July 1, 2006. For the first nine months of 2007, revenue billed under these agreements totaling $22.0 million was deferred to future periods. For the first nine months of 2006, revenue billed under these agreements totaling $7.9 million was also deferred to future periods. We began consolidation of ROVA’s results of operations effective July 1, 2006. Previously the ROVA results were reported using the equity method. The equity method reported only earnings (calculated net of interest expense, interest income, depreciation, depletion and amortization).

For the first nine months of 2007 and 2006, ROVA produced 1,260,000 and 1,263,000 MW hours, respectively, and achieved average capacity factors of 93.7% and 93.7%, respectively.

We also recognized $277,000 in equity earnings in the first nine months of 2007, compared to $225,000 in the first nine months of 2006, from our 4.49% interest in the Ft. Lupton project.

45

Heritage

During the first nine months of 2007 heritage costs decreased by $6.3 million from the first nine months of 2006. This decrease resulted primarily from a $5.8 million settlement reached with the Combined Benefit Fund which was recorded in the first quarter of 2007.

Our heritage costs also decreased during the first nine months of 2007 as a result of decreases in retiree health care expenses. These costs decreased as a result of an increase in the discount rate used and favorable trends in our postretirement medical benefit projections.

Corporate

Our corporate segment selling and administrative expenses decreased slightly to $8.3 million for the first nine months of 2007 from $8.8 million for the first nine months of 2006. The first nine months of 2007 includes a gain of $5.6 million on the sale of our royalty interest at the Caballo Mine in Wyoming, while the first nine months of 2006 includes a gain of $5.1 million from the sale of mineral interests in Colorado.

Restructuring

In 2007, the Company initiated a restructuring plan in order to reduce the overall cost structure of the Company. This decision was based on our analysis of our internal operations, our future customer commitments, our current and potential markets, and our financial projections for profitability. During the first nine months of 2007, we recorded a restructuring charge of $4.0 million which included $3.8 million of termination benefits and outplacement costs and $0.2 million of lease costs related to the consolidation of corporate office space. We expect these charges to be paid out over the next year and result in approximately $2.6 million of annual salary reductions in our cost of sales and general and administrative expenses. The restructuring liability is reflected in “Accrued severance and other liabilities” in the Consolidated Balance Sheets.

Interest

Interest expense was $18.8 million and $12.5 million for the first nine months of 2007 and 2006, respectively. The increase resulted from the consolidation of ROVA’s project debt as well as ROVA’s acquisition debt. Interest income increased by $2.4 million in the first nine months of 2007 as a result of $1.1 million in ROVA interest income and $0.6 million in interest income received from our settlement with the Combined Benefit Fund.

Income Tax

Current income tax expense for the first nine months of 2007 decreased by $0.7 million from the current income tax expense for the first nine months of 2006 primarily as a result of favorable changes in state tax laws. Income tax expense in both periods relates to obligations for state income taxes in North Carolina, Texas and Minnesota.

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ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk, including the effects of changes in commodity prices and interest rates as discussed below.

Commodity Price Risk

The Company produces and sells commodities — principally coal and electric power — and also purchases commodities — principally diesel fuel, steel and electricity.

The Company produces and sells coal through its subsidiaries, WRI, Westmoreland Mining LLC, and Westmoreland Coal Sales Co., and the Company produces and sells electricity and steam through its subsidiary Westmoreland Energy LLC. Nearly all of the Company’s coal production and all of its electricity and steam production are sold through long-term contracts with customers. These long-term contracts reduce the Company’s exposure to changes in commodity prices. These contracts typically contain price escalation and adjustment provisions, pursuant to which the price for our coal may be periodically revised. The price may be adjusted in accordance with changes in broad economic indicators, such as the consumer price index, commodity-specific indices, such as the PPI-light fuel oils index, and/or changes in our actual costs. Contracts may also contain periodic price reopeners or renewal provisions, which give us the opportunity to adjust the price of our coal to reflect developments in the marketplace.

In October 2006, the Company entered into a derivative instrument to manage a portion of its exposure to the price volatility of diesel fuel to be used in its operations in 2007. The swap contract covered 2.4 million gallons of diesel fuel at a weighted average fixed price of $2.02 per gallon to be settled monthly during 2007. At September 30, 2007, 0.6 million gallons of fuel remained outstanding under this swap contract.

In January 2007, the Company entered into an additional derivative instrument to manage a portion of its exposure to the price volatility of diesel fuel to be used in its operations in 2007. The swap contract covered 1.1 million gallons of diesel fuel at a weighted average fixed price of $1.75 per gallon to be settled monthly during 2007. At September 30, 2007, 0.3 million gallons of fuel remained outstanding under this swap contract.

The Company accounts for these derivative instruments on a mark-to-market basis through earnings. The Consolidated Financial Statements as of September 30, 2007 reflect cumulative unrealized gains on these contracts of $0.3 million. Unrealized gains recorded during the nine months ended September 30, 2007 were $0.9 million. These unrealized gains are recorded as a reduction to Cost of sales — coal and as an Increase to Accounts receivable. During the nine months ended September 30, 2007, the Company settled a portion of these contracts covering approximately 2.6 million gallons of fuel which resulted in a realized gain of $0.3 million.

Interest Rate Risk

The Company and its subsidiaries are subject to interest rate risk on its debt obligations. The following debt obligations shown in the table below are indexed to either the prime rate or LIBOR. Based on balances outstanding as of September 30, 2007, a change of one percentage point in the prime interest rate or LIBOR would increase or decrease interest expense on an annual basis by the amount shown below (in thousands):

	Effect of 1%
	increase or
	decrease
Company’s revolving lines of credit	$	150
WML’s Series D Notes		150
ROVA’s project debt		650
ROVA acquisition debt		150
Rosebud Mine’s capital leases	less than $	50

The carrying value and estimated fair value of the Company’s long-term debt with fixed interest rates at September 30, 2007 were $151.6 million and $157.7 million, respectively.

The Company’s heritage health benefit expenses are also impacted by interest rate changes because its workers compensation, pension, pneumoconiosis, and postretirement medical benefit obligations are recorded on a discounted basis.

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ITEM 4  CONTROLS AND PROCEDURES

As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

As part of filing our Amendment No. 2 to our 2006 Annual Report on Form 10-K and this Form 10-Q, we identified two additional material weaknesses in our internal controls over financial reporting. The first weakness relates to the Company not maintaining adequate controls to ensure the completeness and accuracy of the census data used to calculate the Company’s postretirement medical benefit liabilities. The second weakness relates to the Company not maintaining adequate controls over the accounting for the Company’s Performance Unit Plan in accordance with generally accepted accounting principles for stock based compensation plans.

Our chief executive officer and chief financial officer have concluded, based on this evaluation, that as of September 30, 2007, the end of the period covered by this report, our disclosure controls and procedures were not effective.

No change in the Company’s internal control over financial reporting (as defined in Rules as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, except for the changes that were designed to remediate the material weaknesses regarding the Company’s controls identified in the Company’s Amendment No. 2 to its Annual Report on Form 10-K for the year ended December 31, 2006.

To remediate the material weaknesses referred to above and enhance our internal control over financial reporting, the following improvements to our internal controls have been or will be implemented during 2007 and 2008:

•  The calculations for asset retirement obligations have been standardized at all of our mines and have been simplified.

•  An additional layer of financial supervision and review has been added at each of our mines.

•  Personnel in our Corporate office perform a detailed review of all asset retirement obligation calculations.

•  Additional training will be provided to those responsible for performing and reviewing asset retirement obligation calculations.

•  An additional level of review will be added over the calculation of our postretirement medical benefit liabilities and expense.

•  An additional level of review will be added over our census data used to calculate our postretirement medical benefits.

•  An additional level of review will be added over the preparation of our income tax accrual.

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PART II — OTHER INFORMATION

ITEM 1   LEGAL PROCEEDINGS

Litigation

See Note 20 “Contingencies” to our Consolidated Financial Statements, which is incorporated by reference here in.

ITEM 1A   RISK FACTORS

In addition to the trends and uncertainties described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, we are subject to the risks set forth below. Risk factors that are unchanged from those contained in our Amendment No. 2 to our 2006 Annual Report on Form 10-K have not been repeated in this Form 10-Q.

We will need to refinance our business, raise additional capital, sell assets that are important to our business, or significantly cut our costs in order to continue to operate.

We currently project that we have sufficient capital resources and committed financing arrangements to provide us with adequate liquidity through August 2008. However, based on our most recent internal calculations, we do not believe that we have capital resources or committed financing arrangements in place to provide adequate liquidity to meet cash requirements that we currently project beyond that time.

We intend to address our liquidity needs by refinancing Westmoreland Mining’s existing debt. Depending upon the size and terms of such potential refinancing we will evaluate the need to raise additional capital. If we are unable to refinance Westmoreland Mining’s debt, or raise additional capital, or if we raise less than expected, we may need to sell assets that are important to our business, or significantly cut our costs in the very near term if our business is to survive.

We may face risks related to an SEC investigation and securities litigation in connection with the restatement of our financial statements.

We are not aware that the Securities and Exchange Commission (“SEC”) has begun any formal or informal investigation in connection with the errors in accounting for our postretirement medical benefit plans, one of our stock based compensation plans and state income taxes requiring restatement of 2006 and prior years’ financial statements including 2005 and 2006 quarterly financial statements, or that any laws have been violated. However, if the SEC makes a determination that the Company has violated Federal securities laws, the Company may face sanctions, including, but not limited to, monetary penalties and injunctive relief, which could adversely affect our business. In addition, the Company or its officers and directors could be named defendants in civil proceedings arising from the restatement. We are unable to estimate what our liability in either event might be.

ITEM 3   DEFAULTS UPON SENIOR SECURITIES

See Note 14 “Stockholders’ Equity” to our Consolidated Financial Statements, which is incorporated by reference herein.

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

An Annual Meeting of Shareholders was held on August 16, 2007. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934. Six proposals were voted upon at the meeting.

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The first proposal was the election by the holders of Common Stock of three members of the Board of Directors. The tabulation of the votes cast with respect to each of the nominees for election as a Director is set forth as follows:

Name	Votes For		Votes Withheld
Keith E. Alessi		8,102,450		333,571
Thomas J. Coffey		8,031,016		405,005
Richard Klingaman		8,058,746		377,275

Messrs. Alessi, Coffey and Klingaman were elected.

There were no abstentions or broker non-votes.

The second proposal was the election by the holders of Depositary Shares of two members of the Board of Directors. Each Depositary Share represents one-quarter of a share of the Company’s Series A Convertible Exchangeable Preferred Stock (“Series A Preferred Stock”), the terms of which entitle the holders to elect two directors if six or more Preferred Stock dividends have accumulated. The tabulation of the votes cast with respect to each of the nominees for election as a Director, expressed in terms of the number of Depositary Shares, is as follows:

Name	Votes For		Votes Withheld
Robert E. Killen		593,673		20,434
William M. Stern		603,674		10,433

Messrs. Killen and Stern were elected.

There were no abstentions or broker non-votes.

The third proposal was approval of a rights offering of at least $85,000,000 to the holders of Common Stock, pursuant to which each holder will be issued one right for each share of Common Stock, which right will entitle the holder to purchase a fraction of a share of Common Stock at a subscription price of $18.00 per share.

Aggregate Common Stock and Depositary Share votes for proposal three were:

For	Against		Abstain		Broker Non-Votes
6,083,420		283,027		6,177		2,677,504

The fourth proposal was to approve the Standby Purchase Agreement dated May 2, 2007 between the Company and Tontine Capital Partners, L.P., as amended by the First Amendment to Standby Purchase Agreement dated as of July 3, 2007 among the Company, Tontine Capital Partners, L.P., and Silverhawk Capital GP, LLC, and the transactions contemplated thereby, including, subject to the limits contained in the Standby Purchase Agreement, (A) the sale of any Common Stock not subscribed for in the rights offering to Tontine and Silverhawk and (B) the possible sale of additional shares of Common Stock to Tontine and Silverhawk.

Aggregate Common Stock and Depositary Share votes for proposal four were:

For	Against		Abstain		Broker Non-Votes
6,033,479		322,737		6,408		2,677,504

The fifth proposal was to approve adoption of the 2007 Equity Incentive Plan for Employees and Non-Employee Directors,

Aggregate Common Stock and Depositary Share votes for proposal five were:

For	Against		Abstain		Broker Non-Votes
5,224,309		1,121,541		26,774		2,677,504

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The sixth proposal was to amend our Certificate of Incorporation to increase the number of shares of Common Stock that we are authorized to issue from 20,000,000 to 30,000,000 and the total number of shares of capital stock that we are authorized to issue from 25,000,000 to 35,000,000.

Aggregate Common Stock and Depositary Share votes for proposal six were:

For	Against		Abstain		Broker Non-Votes
8,620,634		422,294		7,200		0

ITEM 5   OTHER INFORMATION

The Company has accumulated but unpaid quarterly preferred dividends through and including October 1, 2007 in the amount of $15.5 million in the aggregate ($96.90 per preferred share or $24.23 per Depositary Share). The Company is prohibited from paying preferred stock dividends because there are statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which the Company is incorporated. Under Delaware law, the Company is permitted to pay preferred stock dividends only to the extent that shareholders’ equity exceeds the par value of the preferred stock (which par value was $160,000 at September 30, 2007).

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ITEM 6   EXHIBITS

(a)  Exhibits

(10.1)*	Amended and Restated Lignite Supply Agreement dated as of September 28, 2007 by and between NRG Texas Power LLC and Texas Westmoreland Coal Co.
(31)	Rule 13a-14(a)/15d-14(a) Certifications.
(32)	Certifications pursuant to 18 U.S.C. Section 1350.

* Confidential treatment has been requested as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.

52

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WESTMORELAND COAL COMPANY

/s/  David J. Blair

David J. Blair

Chief Financial Officer

(A Duly Authorized Officer)

Date: March 17, 2008

/s/  Kevin A. Paprzycki

Kevin A. Paprzycki

Controller and

Principal Accounting Officer

(A Duly Authorized Officer)

Date: March 17, 2008

53

Exhibit Index

Exhibit
Number			Description
	(10	.1)*	Amended and Restated Lignite Supply Agreement dated as of September 28, 2007 by and between NRG Texas Power LLC and Texas Westmoreland Coal Co.
	(31)		Rule 13a-14(a)/15d-14(a) Certifications.
	(32)		Certifications pursuant to 18 U.S.C. Section 1350.

* Confidential treatment has been requested as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.

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EX-10.1

Exhibit 10.1

Execution Version

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

AMENDED AND RESTATED

LIGNITE SUPPLY AGREEMENT

By and Between

NRG Texas Power LLC

and

Texas Westmoreland Coal Co.

Dated as of

September 28, 2007

TABLE OF CONTENTS

	Page
1. DEFINITIONS; CONSTRUCTION		2
1.1 Definitions		2
1.2 Construction		12
2. SALE AND PURCHASE; STANDARD OF PERFORMANCE		12
2.1 Lignite Supply		12
2.2 Standard of Performance		13
3. LSA TERM; LIGNITE SUPPLY TERM; SUPPLY SUSPENSION		14
3.1 LSA Term		14
3.2 Lignite Supply Term		14
3.3 Supply Suspension		15
4. GOVERNANCE; REPRESENTATIVES; RELATIONSHIP OF PARTIES		15
4.1 Nature of Governance		15
4.2 Representatives		16
4.3 Relationship of the Parties		16
4.4 NRG Governance Role		16
5. ANNUAL OPERATING PLAN		17
5.1 Mine Plan		17
5.2 Operations Pursuant to AOP		17
5.3 Purpose and Components of AOP		17
5.4 Review and Approval of AOP		17
5.5 Capital Investments		18
5.6 Revisions to the Approved AOP		19
5.7 Reporting on Approved AOP		19
5.8 Commodities Costs		20
5.9 Insurance		20
6. RESOLUTION OF DISPUTES		20
6.1 Negotiation of Disputes		20
6.2 Arbitration Resolution		21
6.3 Applicable Law and Arbitration Act		22
6.4 Continuation of Services		23
6.5 Injunctive Relief		23
7. PRICE AND PAYMENT		23
7.1 Price Components		23
7.2 Mine Cost		23
7.3 Management Fee		26
7.4 Adjustments		26
7.5 [Intentionally Omitted.]		30
7.6 Invoices		30

-i-

	Page
8. DELIVERY AND TITLE; SCHEDULING; STOCKPILE MANAGEMENT; NO LIENS		31
8.1 Delivery; Title		31
8.2 Scheduling		31
8.3 Mine Lignite Inventory		32
8.4 No Liens		32
9. WEIGHTS; SAMPLING AND ANALYSIS; LIGNITE QUALITY		33
9.1 Weights		33
9.2 Sampling and Analysis		33
9.3 Lignite Quality		34
10. REPORTING		34
10.1 Production Reporting		34
11. LAND AND MINERAL LEASES		36
11.1 Subleases		36
11.2 Lignite Leases		36
11.3 Houston Lignite Royalty		36
11.4 Percentage Royalty Leases		36
11.5 Surface Use Agreement		36
12. FINAL RECLAMATION		37
12.1 Final Reclamation		37
12.2 NRG Obligation to Pay and Hold Harmless		37
12.3 Cost of Final Reclamation to Include Contract Fee		37
12.4 Reclamation Bonds		38
13. FORCE MAJEURE		38
13.1 Effect; Notice; Obligation to Mitigate		38
13.2 Lignite Deliveries		39
14. WAIVERS AND REMEDIES		39
14.1 Non-Waiver		39
14.2 NO CONSEQUENTIAL DAMAGES		39
15. DELIVERY FAILURE; EVENTS OF DEFAULT		39
15.1 Delivery Failure		39
15.2 Notice of Delivery Failure		40
15.3 Remedies for Delivery Failure		40
15.4 TWCC Events of Default		41
15.5 Remedies Following a TWCC Event of Default		42
15.6 NRG Event of Default		43
15.7 Remedies Following an NRG Event of Default		43
15.8 Payment		43
15.9 Specific Performance		43
15.10 Step-In Rights		44

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	Page
15.11 Mitigation		45
15.12 Effect of Termination		45
16. REPRESENTATIONS AND WARRANTIES		45
16.1 TWCC Representations and Warranties		45
16.2 NRG Representations and Warranties		46
16.3 Reliance		47
17. INDEMNITIES		47
17.1 TWCC Indemnity		47
17.2 NRG Indemnity		47
18. ASSIGNMENT		47
19. GOVERNING LAW		47
20. NOTICES AND REPORTS		47
21. RECORDS		48
22. EXISTING EQUIPMENT AND ASSETS; OPERATIONS THROUGH DECEMBER 31, 2007		48
22.1 Existing Equipment and Assets		48
22.2 Operations through December 31, 2007		49
23. UNION PACIFIC RAIL SPUR		49
24. EMPLOYMENT; SUBCONTRACTORS		49
24.1 Nondiscrimination		49
24.2 TWCC Personnel; Subcontractors		50
24.3 Reimbursement		51
25. RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES		51
26. WARRANTY DISCLAIMER		51
27. MISCELLANEOUS PROVISIONS		51
27.1 Entire Agreement		51
27.2 Amendments or Modifications		52
27.3 Severability		52
27.4 Construction		52
27.5 No Third-Party Beneficiaries		52
27.6 Remedies Cumulative		52
27.7 Confidentiality		52
27.8 Policies and Procedures		53
27.9 Captions		53
27.10 Counterparts		53

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LIST OF EXHIBITS

Exhibit 1	Mine (§1.1)
Exhibit 2	Mine Plan (§1.1)
Exhibit 3	2008 Preliminary AOP (§5.4(b))
Exhibit 4	AOP Components (§5.3)
Exhibit 5	List of Experts (§1.1)
Exhibit 6	Surge Bin (§1.1)
Exhibit 7	Corporate Support Allowance (§7.2(c))
Exhibit 8	Form of Invoice (§7.6(a))
Exhibit 9	Post Execution Savings Actions (§1.1)
Exhibit 10	Typical Lignite Quality and Characteristics (§9.3(a))
Exhibit 11	Insurance (§5.9)
Exhibit 12	[Intentionally Omitted]
Exhibit 13	Form of Monthly Report Production Summary (§10.1(b))
Exhibit 14	Form of Monthly Costs Report (§10.1(b))
Exhibit 15	Form of Monthly and Quarterly Variance Report (§10.1(c))
Exhibit 16	Information Provided To Jewett Mine Percentage Leases Royalty Owners Regarding Calculation Of Royalties Under Percentage Leases In Connection With Royalty Proposal (§11.4)
Exhibit 17	Cost Incentive Adjustment Sample Calculations (§7.4(a)(v))
Exhibit 18	Certain Escalation Adjustments (§7.4(a))
Exhibit 19	Equipment Maintenance Schedule (§22.2)
Exhibit 20	Prior LSA Provisions (§27.1)

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AMENDED AND RESTATED

LIGNITE SUPPLY AGREEMENT

     This Amended and Restated Lignite Supply Agreement (this “LSA”) is entered into as of September 28, 2007 (the “Effective Date”), by and between NRG TEXAS POWER LLC, a Delaware limited liability company (“NRG”), and TEXAS WESTMORELAND COAL CO., a Montana corporation (“TWCC”). NRG and TWCC may hereinafter be referred to, collectively, as the “Parties” and each, individually, as a “Party.”

R E C I T A L S

     WHEREAS, NRG and TWCC previously entered into that certain Lignite Supply Agreement, dated as of August 29, 1979 (the “Original LSA”), which was modified by: (i) that certain Construction and Operation Agreement, dated December 17, 1985 (the “C&O Agreement”); (ii) that certain Amendment No. 1 to the Original LSA dated August 1, 1989 (“Amendment No. 1”); (iii) that certain Settlement Agreement and Amendment of Existing Contracts, dated August 2, 1999 (the “Settlement Agreement”); (iv) that certain Letter Agreement, dated June 18, 2002 (the “2002 Supplemental Agreement”); (v) that certain Supplemental Settlement Agreement, dated January 30, 2004 (the “2004 Supplemental Agreement”); (vi) that certain Letter Agreement dated March 11, 2005 (the “Surcharge Agreement”); (vii) that certain Letter Agreement dated July 26, 2005 (the “Capital Investment Agreement”; and (viii) that certain Letter Agreement dated September 21, 2005 (collectively with the Original LSA, C&O Agreement, Amendment No. 1, the Settlement Agreement, the 2002 Supplemental Agreement, the 2004 Supplemental Agreement, the Surcharge Agreement, and the Capital Investment Agreement, the “Prior LSA”);

     WHEREAS, the Parties desire to amend and restate the Prior LSA in its entirety as of the Effective Date (except as provided in Section 3.1);

     WHEREAS, NRG desires to secure a flexible and economically competitive supply of lignite for NRG’s Limestone Electric Generating Station (“LEGS”) to be produced in accordance with agreed mining and reclamation plans and budgets;

     WHEREAS, TWCC desires to produce and sell lignite at a reasonable cost plus management fees, subject to adjustments based upon TWCC performing the Mining Work (as hereinafter defined) specified in the agreed mining plans and budgets and delivering lignite meeting specified standards; and

     WHEREAS, NRG and TWCC desire to enter into this LSA to set forth their agreement regarding such production and sale of lignite.

     NOW, THEREFORE, in consideration of the mutual covenants, undertakings and conditions set forth below, the receipt and sufficiency of which are acknowledged by both Parties, the Parties, intending to be legally bound, hereby agree as follows:

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A G R E E M E N T

1. DEFINITIONS; CONSTRUCTION.

     1.1 Definitions. Unless otherwise required by the context in which any defined term appears, the following defined terms shall have the meanings specified in this Section 1.1:

     “Accounting Expert” shall mean the Person that may be agreed to by the Parties after the date hereof and added to Exhibit 5 upon such agreement or any other certified public accountant that (a) is familiar with coal and/or lignite mining, (b) has no past or present relationship with either Party, and (c) is mutually agreed by both Parties or is selected by the CPR in accordance with Section 6.2(a)(ii).

     “Affiliate” shall mean, with respect to any Entity (the “applicable Entity”), (a) each Entity that the applicable Entity Controls, (b) each Person that Controls the applicable Entity, and (c) each Entity that is under common Control with the applicable Entity.

     “AOP” shall mean an annual operating plan for the Mine conforming to the requirements of Section 5.3.

     “AOP Volumes” shall mean, for any Year, the volumes of lignite to be produced and delivered by TWCC in such Year in accordance with the Approved AOP applicable to such Year, as the Approved AOP may be adjusted from time to time in accordance with this LSA, and shall mean for any day, week, or Month the volumes of lignite to be produced and/or delivered for such day, week, or Month in accordance with Section 8.2, in each case stated in TBtu.

     “Approved AOP” shall mean, with respect to any Year during the Term commencing with 2009, the AOP applicable to such Year and approved in accordance with Section 5.4, and for 2008, the AOP consistent with the preliminary AOP attached hereto as Exhibit 3 and approved in accordance with Section 5.4, as each such Approved AOP may be modified from time to time in accordance with Section 5.6.

     “As Received” shall mean the quality of lignite at the Delivery Point and otherwise as defined by ASTM.

     “ASTM” shall mean the American Society for Testing and Materials.

     “Bankruptcy” shall mean, with respect to any Person, any proceeding or set circumstances in which (i) such Person shall file a voluntary petition in bankruptcy or shall be adjudicated as bankrupt or insolvent, or shall file any petition or answer or consent seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under the present or future applicable federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of such Person or of all or any substantial part of its properties

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(the term “acquiesce” as used in this definition includes the failure to file a petition or motion to vacate or discharge any order, judgment or decree within fifteen (15) days after entry of such order, judgment or decree); (ii) a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against such Person seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act, or any other present or future applicable federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, and such Person shall acquiesce and such decree shall remain unvacated and unstayed for sixty (60) consecutive days from the date of entry thereof, or a trustee, receiver, conservator or liquidator of such Person shall be appointed with the consent or acquiescence of such Person and such appointment shall remain unvacated and unstayed for sixty (60) consecutive days; (iii) such Person shall admit in writing its inability to pay its debts as they mature; (iv) such Person shall give notice to any other Person of insolvency or pending insolvency, or suspension or pending suspension of operations; or (v) such Person shall make a general assignment for the benefit of its creditors or take any other similar action for the protection or benefit of its creditors.

     “Btu” shall mean a British Thermal Unit, which is the amount of energy required to raise the temperature of one pound of pure water one degree Fahrenheit.

     “Btu Adjustment” shall have the meaning assigned to such term in Section 7.4(c).

     “Business Day” shall mean any day other than a Saturday or Sunday or a national bank holiday.

     “Capital Investment” shall mean the purchase of equipment or the making of another investment that would be capitalized as an asset under generally accepted accounting practices (or the lease of such equipment or asset in lieu of the purchase thereof).

     “Change Order” shall have the meaning assigned to such term in Section 5.6.

     “Change Order Request” shall have the meaning assigned to such term in Section 5.6.

     “Claims” shall mean any and all liabilities (including negligence, warranty, statutory, product, strict or absolute liability, liability in tort or otherwise), obligations, losses, damages, penalties, fines, sanctions, claims, Environmental Claims, actions, or suits of whatever kind or nature, investigations, judgments, Liens (including any Lien in favor of any Governmental Authority upon LEGS or the Mine for environmental liabilities and costs or violations of any Environmental Laws) and shall include all reasonable costs, expenses and disbursements in connection therewith or related thereto, of any kind or nature, including reasonable legal fees and expenses and costs of investigation.

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     “Commodities” shall mean diesel fuel, electricity, tires, and steel used by TWCC in the ordinary course of operating the Mine.

     “Control” shall mean the possession, directly or indirectly, through one or more intermediaries, of either of the following:

     (a) (i) in the case of a corporation, 50% or more of the outstanding voting securities thereof; (ii) in the case of a limited liability company, partnership, limited partnership or venture, the right to 50% or more of the distributions therefrom (including liquidating distributions); (iii) in the case of a trust or estate, including a business trust, 50% or more of the beneficial interest therein; and (iv) in the case of any other Entity, 50% or more of the economic or beneficial interest therein; or

     (b) in the case of any Entity, the power or authority, through ownership of voting securities, by contract or otherwise, to exercise a controlling influence over the management of the Entity.

     “Corporate Support Allowance” shall have the meaning assigned to such term in Section 7.2(a)(viii).

     “Cost Components” shall be the actual types of costs incurred by TWCC to operate the Mine, as further described under Section 7.2 and subject to the exclusions set forth in Section 7.2.

     “Cost Incentive Adjustment” shall have the meaning assigned to such term in Section 7.4(a)(iii).

     “CPR” shall have the meaning assigned to such term in Section 6.2.

     “Current Bonding Level” shall have the meaning assigned to such term in Section 12.4(a).

     “Daily Fee” shall have the meaning assigned in Section 7.4(c)(iii).

     “Daily Reports” shall mean the reports to be delivered to NRG in accordance with Section 10.1(a).

     “Default Termination Date” shall mean the date on which this LSA is terminated by either Party prior to scheduled expiration of the Term pursuant to Section 15.

     “Delivery Day” shall mean a calendar day in which lignite is delivered by TWCC to LEGS.

     “Delivery Failure” shall have the meaning assigned such term in Section 15.1.

     “Delivery Point” shall mean the Surge Bin.

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     “Dispute Date” shall have the meaning assigned to such term in Section 6.1.

     “Effective Date” shall have the meaning assigned to such term in the introductory paragraph.

     “Entity” shall mean a corporation, limited liability company, partnership (including a general partnership, joint venture, limited partnership, limited liability partnership or partnership association), trust (including a business trust), estate, Governmental Authority or any other entity.

     “Environmental Claims” shall mean any claim, action, cause of action, investigation conducted by a Governmental Authority or written notice by any Person or entity alleging potential liability (including potential liability for cleanup costs, Remedial Action, Releases, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) a presence or Release of any Hazardous Material or (b) circumstances forming the basis of any obligation under, or alleged violation of, any Environmental Law.

     “Environmental Laws” shall mean all applicable United States Federal, state and local laws and regulations pertaining to the environment, natural resources, health and safety, including (a) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. §9601 et seq.) (“CERCLA”), (b) Emergency Planning and Community Right to Know Act (EPCRA, SARA Title III) and the Superfund Amendments and Reauthorization Act of 1986, (c) the Solid Waste Disposal Act (42 U.S.C. §6901 et seq.), (d) the Resource Conservation and Recovery Act of 1976, (e) the Hazardous and Solid Waste Amendment Acts of 1984, (f) the Clean Air Act (42 U.S.C. §7401 et seq.), (g) the Clean Water Act (33 U.S.C. §1251 et seq.), (g) the Federal Water Pollution Control Act, (h) the Toxic Substances Control Act (15 U.S.C. §2601 et seq.), (i) the Safe Drinking Water Act, (j) the Mine Safety and Health Act of 1970 (42 U.S.C. §11001 et seq.), (k) the Oil Pollution Act of 1990, (l) the Hazardous Substances Transportation Act (49 U.S.C. §1801 et seq.), and (m) the Federal Mine Safety and Health Act of 1977 (30 U.S.C. §801 et seq.), and any similar or analogous statutes, regulations and decisional law of any Governmental Authority, as each of the foregoing may have been or are in the future amended or supplemented, in each case to the extent applicable with respect to the property and operation to which application of the term “Environmental Laws” relates.

     “Event of Default” shall mean an NRG Event of Default or a TWCC Event of Default.

     “Expert” shall mean an Accounting Expert, a Mining Expert or a Legal Expert, as the context requires.

     “Fee Adjustment Basis AOP” shall have the meaning given such term in Section 7.4(a)(i).

     “Fee Per Ton” shall have the meaning given such term in Section 7.3.

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     “Final Reclamation” shall mean the activities described in Section 12.1.

     “Force Majeure” shall mean any event that (a) renders the affected Party unable to perform its obligations under the LSA, in whole or in part, (b) is beyond the reasonable control of the affected Party, (c) is not due to the fault or negligence of the affected Party or the failure of the affected Party to carry out its obligations under this Agreement, and (d) cannot be avoided by the affected Party by the exercise of due diligence and the expenditure of a reasonable sum of money. Subject to the satisfaction of the conditions set forth in sections (a) through (d) above, Force Majeure shall include:

     (i) fires or serious accidents affecting the Mine, LEGS or the equipment or facilities of the affected Party;

     (ii) acts of God, exceptional and unpredictable meteorological conditions, declared or undeclared wars, acts of the public enemy, sabotage, terrorist acts, commercial embargoes, demonstrations, earthquakes, civil disturbances, revolts, and insurrections;

     (iii) transportation disasters, whether by waterways, rail, land, or air;

     (iv) strikes or other labor disputes (provided that said disputes are not due to the breach of the labor contracts or applicable laws by the Party claiming Force Majeure);

     (v) one of the Parties is unable, despite its best efforts, to obtain in a timely and appropriate manner any governmental authorization necessary to enable such Party to comply with its obligations under the LSA;

     (vi) any changes to laws or regulations that would require NRG to reduce or cease lignite use or significantly modify LEGS to continue to use lignite;

     (vii) any changes to laws or regulations that would require TWCC to reduce or cease lignite production; and

     (viii) breakdowns of or damage to LEGS, Mine equipment or facilities.

Force Majeure shall not include (A) economic hardship, (B) changes in market conditions, or (C) late delivery of machinery, equipment, materials or consumable goods except when such late delivery is due to Force Majeure.

     “GAAP” shall mean generally accepted accounting principles in effect in the United States from time to time.

     “Governmental Authority” shall mean a federal, state, local or foreign governmental authority; a state, province, commonwealth, territory or district thereof; a county or parish; a city, town, township, village or other municipality; a district, ward or other subdivision of any of the foregoing; any executive, legislative or other governing

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body of any of the foregoing; any agency, authority, board, department, office, commission, committee, council or other administrative body of any of the foregoing; and any court or other judicial body.

     “Group” shall mean the NRG Group or the TWCC Group, as the context requires.

     “Guaranty” shall mean each of (i) the Guaranty executed by Westmoreland Coal Company guaranteeing the obligations of TWCC under this LSA as of the date hereof, and (ii) the Guaranty to be executed by Westmoreland Mining LLC in the same form as (i) and delivered as part of the Security Document Delivery.

     “Hazardous Materials” shall mean (a) any hazardous materials, hazardous wastes, hazardous substances, toxic wastes, solid wastes, and toxic substances as those or similar terms are defined under any Environmental Laws; (b) any asbestos or any material which contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (c) polychlorinated biphenyls (“PCBs”), or PCB-containing materials or fluids; (d) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant, constituent, or solid, liquid or gaseous waste; (f) any petroleum, petroleum hydrocarbons, petroleum products, crude oil and any fractions or derivatives thereof, and any natural gas, synthetic gas and any mixtures thereof; and (g) any substance that, whether by its nature or its use, is subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Authority requires environmental investigation, monitoring or remediation.

     “Independent Contractor” shall have the meaning assigned to such term in Section 15.10.

     “Independent Lab” shall have the meaning assigned to such term in Section 9.2(a).

     “Interest Rate” shall mean the lesser of (a) the U.S. Treasury ten year annual rate (as published in The Wall Street Journal) plus 3%, with such rate determined on the first Business Day of each Quarter for calculations for that Quarter, and (b) the highest rate permitted by applicable Law.

     “Launched” shall have the meaning assigned to such term in Section 3.2(e).

     “Law” shall mean any applicable constitutional provision, statute, act, code, law (including common law), regulation, rule, ordinance, order, writ, judgment, decree, ruling, decision or other legal or regulatory determination of a Governmental Authority having valid jurisdiction.

     “Legal Expert” shall mean the Person that may be agreed to by the Parties after the date hereof and added to Exhibit 5 upon such agreement or any other lawyer that (a) is familiar with coal and/or lignite mining, (b) has no past or present relationship with

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either Party, and (c) is mutually agreed by both Parties or is selected by the CPR in accordance with Section 6.2(a)(ii).

     “LEGS” shall have the meaning assigned to such term in the Recitals.

     “LEGS Representative” shall have the meaning assigned to such term in Section 4.2.

     “Lien” shall mean any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, mechanic’s liens and other liens arising under law, and any agreement to give any security interest).

     “Lignite Supply Term” shall have the meaning assigned to such term in Section 3.2(a).

     “LSA” shall have the meaning assigned to such term in the introductory paragraph.

     “Major Dispute” shall mean any dispute that is not a Minor Dispute.

     “Management Fee” shall have the meaning assigned to such term in Section 7.3.

     “Mine” shall mean the Jewett lignite mine as permitted and/or controlled by TWCC in the areas of Leon, Limestone, and Freestone Counties in the State of Texas and included within the boundaries shown on Exhibit 1.

     “Mine Costs” shall have the meaning assigned such term in Section 7.1.

     “Mine Manager” shall have the meaning assigned to such term in Section 24.2(a).

     “Mine Plan” shall mean the mine plan attached hereto as Exhibit 2, as amended, supplemented or otherwise modified from time to time in accordance with this LSA.

     “Mine Stockpile” shall mean the lignite stored and managed at the Mine at or near the Delivery Point.

     “Minimum Criteria” shall have the meaning assigned such term in Section 5.4(b).

     “Mining Expert” shall mean the Person that may be agreed to by the Parties after the date hereof and added to Exhibit 5 upon such agreement or any other mining engineer that (a) is experienced with coal and/or lignite mining in the western United States, (b) has no past or present relationship with either Party, and (c) is mutually agreed by both Parties or is selected by the CPR in accordance with Section 6.2(a)(ii).

     “Mining Work” shall mean all work required to be carried out by TWCC in order to operate and maintain the Mine, produce and deliver lignite, and perform reclamation

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activities, in each case in accordance with the Mine Plan, each Approved AOP, and this LSA, and otherwise to perform its obligations under this LSA.

     “Minor Dispute” shall mean any dispute between the Parties under this Agreement (i) in respect of which the amount in dispute is less than $500,000 or (ii) involving the approval of or any failure to approve any AOP, any revision to an Approved AOP, or the Fee Adjustment Basis AOP (regardless of the amount in dispute).

     “MMBtu” shall mean million Btus.

     “Month” shall mean a calendar month.

     “Monthly Fee” shall have the meaning assigned such term in Section 7.4(b)(iii).

     “Mortgage and Security Agreements” shall mean (i) the Deed of Trust, Fixture Filing and Assignment of Rents to Secure Performance and (ii) the Security Agreement in each case, entered into by TWCC in favor of NRG and collectively covering all real and personal property (including coal reserves and Permits) owned or leased by TWCC.

     “Non-Performing Party” shall have the meaning assigned to such term in Section 13.1.

     “NRG” shall have the meaning assigned to such term in the introductory paragraph.

     “NRG Event of Default” has the meaning assigned to such term in Section 15.6.

     “NRG Group” shall mean (a) NRG; (b) the Affiliates of NRG; (c) any other members, shareholders, partners or other equity owners of NRG or any of its Affiliates (other than holders of publicly-traded stock of NRG or any of its Affiliates); (d) the LEGS Representative; and (e) the respective successors and assigns of the Persons described in the foregoing clause (a), (b), (c) or (d).

     “Officer” shall mean a duly authorized executive officer for either NRG or TWCC, as applicable.

     “Optional Supply Termination Date” shall have the meaning assigned to such term in Section 3.2(c).

     “Party” and “Parties” shall have the respective meanings assigned to such terms in the introductory paragraph.

     “Permits” shall mean any permit, certificate, license, franchise, authorization, approval, variance, exemption, concession, lease, instrument or order issued or granted by any Governmental Authority, or any amendment thereto.

     “Person” shall mean any natural person or any Entity.

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     “Post Execution Savings Actions” means the actions and periods for implementation set forth in Exhibit 9.

     “PRB” shall mean coal from the Powder River Basin in Wyoming.

     “Prior LSA” shall have the meaning assigned to such term in the Recitals.

     “Prudent Mining Practices” shall mean those procedures, methods, techniques, and acts that are consistent with professional standards used by the lignite mining industry for the operation and maintenance of mines similar in type to the Mine. Prudent Mining Practices are intended to result in the safe, reliable, lawful, economic, and prudent operation and maintenance of the Mine to maximize lignite production and minimize Mine Costs in a manner consistent with long-term reliable exploitation of the Mine and the rights and obligations of the Parties under this LSA. Prudent Operating Practices are not intended to be limited to optimum practice or methods to the exclusion of all others, but rather to be a spectrum of reasonable and prudent practices and methods that must take into consideration the conditions specific to the Mine.

     “Quarter” shall mean each calendar quarter, commencing on January 1, April 1, July 1 and October 1.

     “RCT” shall mean the Railroad Commission of the State of Texas.

     “Registration Statement” shall have the meaning assigned to such term in Section 3.2(e).

     “Release” shall mean the release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migrating into the environment of any Hazardous Material through or in the air, soil, surface water or ground water.

     “Remedial Action” shall mean actions required by any Governmental Authority to (i) clean up, remediate, remove or treat Hazardous Materials in the environment, (ii) prevent the Release or further Release or minimize the further Release of Hazardous Materials or (iii) investigate and determine if a remedial response is needed, to design such a response and post-remedial investigation, monitoring, operation and maintenance.

     “Reserves” shall mean all of the lignite reserves owned by or leased to TWCC or that TWCC otherwise has the right to mine for its own account within the boundaries shown on Exhibit 1, including all of the lignite reserves covered by the Subleases.

     “Scheduled Supply Termination Date” shall have the meaning assigned to such term in Section 3.2(b).

     “Security Document Delivery” shall occur if and only if (i) Westmoreland Mining LLC shall have executed and delivered to NRG a Guaranty and the Westmoreland Pledge Agreement and (ii) TWCC shall have executed, acknowledged and delivered to NRG in proper form for recording or filing, as applicable, the Mortgage and Security Agreements

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(together with all related UCC-1 financing statements) and a period of 95 days shall have elapsed from the date of their delivery to NRG.

     “Special TWCC Default Termination” means a termination of the LSA pursuant to Article 15 due to a TWCC Event of Default if (a) such TWCC Event of Default could reasonably be expected to result in material loss or liability to NRG and (b) such TWCC Event of Default arises from (i) the willful misconduct, intentional act or negligence of TWCC or (ii) a breach of a Guaranty by one or more of the guarantors thereunder. Without limiting the generality of the foregoing, for the purposes hereof, the failure of the guarantors to cause TWCC to be funded so as to be able to perform its obligations under the LSA shall be deemed an intentional breach by TWCC.

     “Standby Purchase Agreement” shall have the meaning assigned to such term in Section 3.2(d).

     “Subcontractor” shall mean any Person with whom TWCC enters into a subcontract for the carrying out any part of the Mining Work, including Persons at any level with whom any Subcontractor has further subcontracted any part of the Mining Work, and the legal or personal representatives, agents, successors, and assigns of any such Person.

     “Subleases” shall mean that certain Sublease of Coal and Lignite Leases dated January 10, 1985, recorded in Volume 593 at Page 868 in the Official Records of Leon County, Texas, recorded in Volume 716 at Page 95 in the Deed Records of Freestone County, Texas, and recorded in Volume 752 at Page 214 in the Deed Records of Limestone County, Texas; and (ii) that certain Sublease of Coal Lease dated April 23, 1996 in Volume 0983 at page 703 in the Deed Records of Freestone County, Texas.

     “Subsections G1 and G2” shall have the meaning assigned to such term in Section 27.1

     “Supply Suspension” shall have the meaning assigned such term in Section 3.3.

     “Surface Use Agreement” shall have the meaning assigned to such term in Section 11.5.

     “Surge Bin” shall mean the surge bin at LEGS described more specifically in Exhibit 6.

     “TBtu” shall mean trillion Btus.

     “Term” shall have the meaning assigned to such term in Section 3.1.

     “Ton” shall mean a unit of weight equal to 2,000 pounds avoirdupois.

     “TWCC” shall have the meaning assigned to such term in the introductory paragraph.

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     “TWCC Event of Default” shall have the meaning assigned to such term in Section 15.4.

     “TWCC Group” shall mean (a) TWCC; (b) the Affiliates of TWCC; (c) any other members, shareholders, partners or other equity owners of TWCC or any of its Affiliates (other than holders of publicly-traded stock of TWCC or any of its Affiliates); and (d) the respective successors and assigns of the Persons described in the foregoing clause (a), (b) or (c).

     “TWCC Lien” shall have the meaning assigned to such term in Section 8.4(a).

     “TWCC Personnel” means all employees of TWCC who will perform the Mining Work.

     “Westmoreland Pledge Agreement” shall mean the Pledge Agreement pursuant to which Westmoreland Mining LLC pledges 100% of all ownership interests in TWCC to NRG.

     “Year” shall mean a calendar year commencing January 1 and ending December 31.

     1.2 Construction. Unless the context of this LSA otherwise requires, (a) references to “this LSA” or any other agreement or document shall be construed as a reference to such agreement or document as amended, modified, or otherwise supplemented from time to time; (b) references to any Person shall include such Person’s successors and assigns; (c) references to “Sections” and “Exhibits” are to Sections of, and Exhibits to, this LSA, each of which is made a part of this LSA for all purposes; (d) the meanings specified are applicable to both the singular and plural; (e) wherever the words “include,” “includes,” or “including” are used in this LSA, they shall be deemed to be followed by the words “without limitation”; (f) all references to “herein,” “hereof,” “hereunder,” and similar terms shall be deemed to refer to this entire LSA; (g) references to any gender include all others if applicable in the context, and (h) the text of this LSA and the Exhibits hereto shall be construed consistently, but in the event of any irreconcilable conflicts the text of this LSA shall control over any Exhibit.

2. SALE AND PURCHASE; STANDARD OF PERFORMANCE.

     2.1 Lignite Supply.

     (a) During each Year of the Lignite Supply Term, TWCC shall sell and deliver, and NRG shall take and pay for, the AOP Volumes for such Year, upon the terms and subject to the conditions set forth in this LSA.

     (b) All lignite to be delivered by TWCC under this LSA shall be produced at the Mine.

     (c) TWCC hereby dedicates the Reserves and all lignite produced from the Reserves to the satisfaction of TWCC’s lignite delivery obligations under this LSA, and

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TWCC shall not sell any portion of such lignite to any Person other than NRG during the Term.

     (d) Without the prior written consent of NRG, which consent may not be unreasonably withheld, TWCC shall not and shall not permit any of its Affiliates to acquire or attempt to acquire any additional reserves of lignite within any of Limestone, Leon, Freestone or Robertson Counties if such acquisition could reasonably be expected to (i) either extend the Term of this LSA or increase the Mine Costs under this LSA, (ii) increase the Mine Costs for reclamation or increase NRG’s obligations relating to reclamation, or (iii) materially interfere with any efforts of NRG to acquire lignite reserves for LEGS. The preceding sentence shall not preclude TWCC or Affiliates of TWCC from acquiring an active mining operation in any of such Counties. For the avoidance of doubt, if TWCC or one of its Affiliates acquires any such additional reserves of lignite, unless NRG otherwise agrees in writing such reserves shall not become part of the Mine.

     2.2 Standard of Performance.

     (a) TWCC shall perform the Mining Work in all respects in a good and workmanlike manner and in accordance with (i) the Mine Plan, (ii) the applicable Approved AOP, (iii) all applicable Laws, and (iv) Prudent Mining Practices. TWCC shall obtain all Permits required to do business or perform the Mining Work. Consistent with the Mine Plan and its other responsibilities and limitations hereunder, TWCC shall use all reasonable efforts to maximize the gross output of lignite from the Mine, while minimizing Mine Costs.

     (b) Except as set forth herein, all vehicles, machinery and other equipment reasonable and necessary to the operation of the Mine that are owned, used, or held for use by TWCC shall be kept at the Mine and employed solely in providing Mining Work under this Agreement. If in connection with the approval of an AOP for any Year or in connection with any Change Order or Supply Suspension it is determined by the Parties that any of such vehicles, machinery, or other equipment belonging to TWCC are unnecessary to the performance of the Mining Work, TWCC shall have the right to deploy any such vehicles, machinery, or equipment owned by it to another facility owned or operated by TWCC or any Affiliate of TWCC, subject to the prior written consent and approval of NRG, such consent and approval not to be unreasonably withheld; provided, however, that it is agreed that a reasonable basis for NRG’s withholding such consent shall be that the future operating costs of such deployed vehicles, machinery, or equipment, at such time as such vehicles, machinery, or equipment is redeployed to the Mine, would be materially increased as a result of such deployment. At such time as the then-current Approved AOP reasonably requires the use of any vehicles, machinery, or equipment that have been deployed to another facility, TWCC at its cost shall return such vehicles, machinery, or equipment to the Mine in substantially the same operating condition as when it was removed, ordinary wear and tear excepted. Unless otherwise agreed by the Parties, all mining equipment purchased with NRG funds or the acquisition cost of which has been reimbursed with NRG funds shall be titled in the name of NRG, except for equipment identified on Exhibit 9.

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3. LSA TERM; LIGNITE SUPPLY TERM; SUPPLY SUSPENSION.

     3.1 LSA Term. This Agreement shall be binding and effective as of the Effective Date, but the terms of the Prior LSA as to the supply and sale of, and payment for, lignite (and as to certain operations as more particularly specified in Section 22.2) shall apply through December 31, 2007 and are hereby incorporated by reference for such purpose. The term of this LSA (the “Term”) shall commence on the Effective Date and shall continue through the earlier to occur of (a) the occurrence of a Special TWCC Default Termination unless Security Document Delivery has previously occurred; and (b) the completion and termination of all Final Reclamation activities, including final bond release by all relevant Governmental Authorities, as further described under Section 12. If a Special TWCC Default Termination occurs prior to Security Document Delivery, then NRG shall not have any financial liability or responsibility for the Final Reclamation as set forth under Section 12.1(b).

     3.2 Lignite Supply Term.

     (a) Notwithstanding the Term of the LSA as provided under Section 3.1, the “Lignite Supply Term” shall commence on January 1, 2008, and shall terminate on the earliest to occur of (i) the Scheduled Supply Termination Date, (ii) the Optional Supply Termination Date, (iii) the Default Termination Date, (iv) as provided in Section 3.2(d) or (v) as provided in Section 3.2(e).

     (b) The “Scheduled Supply Termination Date” shall be December 31, 2018; provided, however, that NRG shall have the right, exercisable by notice to TWCC on or prior to the 365^th day prior to the then-effective Scheduled Supply Termination Date, (i) to extend the Scheduled Supply Termination Date to December 31, 2023, and (ii) if it exercises such right to extend the Scheduled Supply Termination Date, to extend the Scheduled Supply Termination Date a second time to December 31, 2028, with each such date becoming the “Scheduled Supply Termination Date” upon such exercise, and further provided that exhaustion of the Reserves at the Mine has not occurred. When the exhaustion of the Reserves at the Mine shall occur, the Scheduled Supply Termination Date shall be deemed to have occurred.

     (c) NRG shall have the right, exercisable by notice to TWCC on or prior to the 180^th day prior to December 31 of any Year, to terminate the Lignite Supply Term on the last day of such Year (the “Optional Supply Termination Date”).

     (d) NRG shall have the right, exercisable by written notice to TWCC on or after January 1, 2008, to terminate the Lignite Supply Term effective as of a date at least 60 days after the date of such written notice if Westmoreland Coal Company has not entered into, on or before October 15, 2007, an amendment to the Standby Purchase Agreement dated May 2, 2007 (as subsequently amended on July 3, 2007, the “Standby Purchase Agreement”) pursuant to which Tontine Capital Partners, L.P. agrees, among other things, to extend the termination date contained in Section 12(b)(ii) of such Standby Purchase Agreement to at least May 5, 2008, on terms that are expected to provide substantially the same net proceeds to Westmoreland Coal Company as were expected to have been provided under the initial terms of the Standby Purchase Agreement.

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     (e) NRG shall have the right, exercisable by written notice to TWCC on or after March 1, 2008, to terminate the Lignite Supply Term effective as of a date at least 60 days after the date of such written notice if on or before February 29, 2008,(i) the rights offering has not been Launched which shall mean both (A) Westmoreland Coal Company’s registration statement ( the “Registration Statement”) in connection with the rights offering described in its Proxy Statement dated July 19, 2007 (as the terms of such rights offering are amended pursuant to the amendment to the Standby Purchase Agreement referenced in the preceding subparagraph) has been declared effective by the Securities and Exchange Commission and (B) the prospectus included in the Registration Statement and all other necessary offering materials have been sent to Westmoreland Coal Company’s shareholders commencing the period for consideration of the rights offering, or (ii) such rights offering has been Launched by such date but one of the following has occurred: (x) an event has occurred that could reasonably be expected to prevent Westmoreland Coal Company from successfully completing such rights offering by April 30, 2008, or (y) an event has occurred that could reasonably be expected to cause or permit the Standby Purchasers to not timely consummate the share purchase contemplated by the Standby Purchase Agreement.

     (f) In the event NRG exercises its right of termination pursuant to Section 3.2(d) or Section 3.2(e), such termination shall not be considered a Special TWCC Default Termination and NRG shall continue to be responsible for all costs of Final Reclamation pursuant to Section 12.2 hereof.

     3.3 Supply Suspension. NRG shall have the right to reduce the AOP Volumes to zero either (a) with respect to any Year, by notice to TWCC on or prior to the 180^th day prior to January 1 of any Year, and (b) otherwise pursuant to a Change Order in accordance with Section 5.6 (either such action being herein called a “Supply Suspension”), in each case for a definite or indefinite period. A Supply Suspension shall not constitute a termination of the Lignite Supply Term. During any period of Supply Suspension, (i) TWCC shall continue ongoing reclamation work and shall to the extent reasonable and in accordance with all applicable laws and regulations maintain the Mine in a condition such that it may reasonably re-commence operations and lignite deliveries within a reasonable time, and in any event not less than ninety (90) days or such longer period as NRG may specify, after a request therefor by NRG (and Supply Suspension shall not entitle TWCC to permanently shut down the Mine), and (ii) NRG shall be obligated to pay Mine Costs incurred in connection with so maintaining the Mine, including ongoing reclamation work, together with the Corporate Support Allowance then in effect. In no event shall TWCC be required to maintain the Mine in a Supply Suspension mode if such Supply Suspension is contrary to its regulatory obligations or negatively affects in any material way the permitting of any of the coal or lignite mining operations of any TWCC Affiliate.

4. GOVERNANCE; REPRESENTATIVES; RELATIONSHIP OF PARTIES.

     4.1 Nature of Governance. Subject to the terms of this LSA, the Mine Plan and Approved AOP’s, as operator of the Mine, TWCC has the discretion to operate the Mine as it determines is necessary and appropriate to ensure the safety of its workforce and to comply with all applicable Laws and leases and to fulfill all of its obligations and rights hereunder. NRG may

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monitor TWCC’s performance and shall have the right to approve or disapprove AOP’s in accordance with the terms of this LSA.

      4.2 Representatives. NRG shall name a representative (the “LEGS Representative”) to represent NRG in development of the AOP’s in coordination and cooperation with the President of TWCC or his designee. NRG and TWCC shall each name a senior corporate Officer (which may be an executive of such Party’s parent) to whom disagreements or disputes shall be directed, as further provided in Section 6.

      4.3 Relationship of the Parties. Nothing contained in this LSA shall be deemed or construed to create the relationship of principal and agent, master and servant, partnership or joint venture or of any association whatsoever except as expressly provided herein. Neither Party shall have the right to bind or obligate the other in any manner unless expressly stated herein. In fulfilling its obligations hereunder, TWCC shall be an independent contractor with respect to NRG and not the agent of NRG for any purposes other than those specifically described herein.

      4.4 NRG Governance Role. NRG shall participate with TWCC in the financial planning, financial review and cost control measures relating to Mine operations. NRG shall:

     (a) provide TWCC with the information specified in Section 5.4(a) for use by TWCC in developing the AOP’s;

     (b) have the right to approve each AOP (including all components thereof) and proposed revisions to each Approved AOP as provided in Sections 5.4 and 5.6, approve capital acquisitions and investments as provided in Section 5.5;

     (c) have the right to full access to the Mine (provided that such access does not unreasonably interfere with or impede the Mining Work and shall be carried out in accordance with applicable safety rules and regulations; and provided that any incremental cost will be borne by NRG) and the right to monitor TWCC’s operations, performance and results relative to each Approved AOP and the individual components of such Approved AOP, including the following rights:

(i)	daily inspection;
(ii)	daily interface with Mine management;
(iii)	oversight of maintenance programs;
(iv)	monitoring capital and operating expenditures;
(v)	monitoring dragline and equipment performance and availability;
(vi)	oversight of mine safety programs;
(vii)	oversight of warehouse inventory;

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       (viii)    oversight of insurance and warranty claims (to the extent not limited by attorney client privileged communications but the Parties shall cooperate to provide such information which does not result in a loss of attorney client privilege (including taking advantage of joint defense arrangements, etc.));

(ix)	monitoring of reclamation activities; and
(x)	auditing of books and records.

5. ANNUAL OPERATING PLAN.

     5.1 Mine Plan.

     (a) The Parties acknowledge that each AOP (and each of its constituent components) shall be based upon the Mine Plan, as modified from time to time, as the guiding principle for operation of the Mine.

     (b) The Mine Plan will be updated on an annual basis in connection with the approval of the AOP for each Year and may be otherwise amended, modified or supplemented only by mutual agreement of the Parties; provided, however, that in connection with any such amendment, modification, or supplement, NRG shall have the sole authority with respect to material business decisions, such as projected volumes and delivery schedules, subject only to the operational feasibility of such business decisions.

     5.2 Operations Pursuant to AOP. TWCC shall, in consultation with NRG, prepare an AOP for each Year beginning 2008, as further provided below, pursuant to this Section 5, including any Year after the Lignite Supply Term. An AOP must be approved by NRG and TWCC or through the dispute resolution procedures in Section 6 to become effective. Unless otherwise mutually agreed in writing between the Parties, no Approved AOP shall obligate TWCC to supply lignite from sources other than the Mine. TWCC shall conduct all operations, incur expenses, and direct capital expenditures pursuant to the Approved AOP for the applicable Year.

     5.3 Purpose and Components of AOP. The purposes of each AOP shall be to provide TWCC and NRG with the means to describe the Mining Work to be conducted by TWCC during the Year to which such AOP is applicable, as set forth in the Mine Plan, and to reasonably control Mine Costs to projected AOP levels. Each AOP shall consist of the components described in Exhibit 4. Each AOP will include an updated Mine Plan (which, for the avoidance of doubt, will be approved as part of the Approved AOP pursuant to the process set out in this LSA), such that the AOP for any Year will be consistent with the Mine Plan at the time of approval of such AOP.

     5.4 Review and Approval of AOP.

     (a) On or before March 15 of each Year beginning in 2008, NRG shall provide TWCC with the following information that will assist TWCC with the preparation of the AOP applicable to the following Year:

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     (i) non-binding, good faith estimates of demand for volumes of lignite by Month for the upcoming two Years, which volumes may be in any amount from zero to the reasonable capacity of the Mine (considering the prior Year’s actual production, work performed, and existing Mine equipment fleet and work force);

     (ii) the timing of any planned outages at LEGS during the upcoming two Years; and

     (iii) such other information as NRG may deem relevant or that is reasonably requested by TWCC in connection with the preparation of the AOP applicable to the upcoming Year.

      (b) On or before May 1 of each Year beginning in 2008, and in the case of the 2008 AOP, on or before October 4, 2007, TWCC shall submit to NRG for its approval a proposed AOP applicable to the following Year for the estimated volumes for such year supplied by NRG. The proposed AOP for 2008 shall be consistent with and contain AOP Volumes not less than and Mine Costs not greater than those set forth in the proposed AOP attached hereto as Exhibit 3 (except that Tons produced for 2008 shall be 70,000 Tons less than Exhibit 3 and Mine Costs will be reduced accordingly), and, notwithstanding anything to the contrary contained herein, unless agreed by NRG, the Approved AOP for 2008 shall contain AOP Volumes not less than and Mine Costs not greater than those set forth in the proposed AOP. If NRG does not approve any such AOP and the Parties are unable to agree on any aspect of such AOP on or before July 1 of the relevant Year, or in the case of the 2008 AOP, on or before October 22, 2007, any issues not resolved shall promptly be submitted to dispute resolution pursuant to Section 6. For the avoidance of doubt, the Parties intend for the Mining Expert to resolve any such dispute in a way that meets the following minimum criteria (the “Minimum Criteria”): (i) does not impose on TWCC an obligation to carry out Mining Work that could not reasonably possibly be performed by a mine operator consistent with applicable Laws and Prudent Mining Practices, without regard to the reasonableness of incurring the cost therefor (since the Mine Costs for such Mining Work are to be borne by NRG hereunder) and (ii) is consistent with a fair and reasonable opportunity for TWCC to earn the Management Fee for Tons actually delivered to NRG, subject to adjustment as provided in Section 7.4.

      (c) Notwithstanding that the AOP is based on the projected consumption of the lignite produced and delivered hereunder at LEGS, nothing in this Agreement shall restrict the use by NRG of the lignite produced and delivered hereunder to consumption at LEGS, the right of NRG to resell in its sole discretion any lignite produced and delivered to it hereunder, or the right of NRG to purchase lignite from any other source whatsoever or any other fuel for LEGS.

      5.5 Capital Investments. NRG shall have the right to approve all Capital Investments whether or not included in the Approved AOP. Prior to any such Capital Investment, TWCC shall submit the purchase order therefor to NRG for its approval, and all such approved purchase orders shall become part of the AOP. NRG shall respond to any

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submitted request for a Capital Investment within fifteen (15) Business Days after receipt of such request; failing which such request shall be deemed approved. In connection with each such Capital Investment, NRG shall have the right (a) to have TWCC make such Capital Investment, in which case NRG shall remit to TWCC the cost of such Capital Investment as part of the Mine Costs, or (b) to make such Capital Investment itself and acquire such capital asset, in which case such capital asset shall be made available to TWCC in accordance with Section 22.1.

     5.6 Revisions to the Approved AOP. NRG may at any time propose that the Approved AOP applicable to any Year be revised for any reason (specifically including a desire by NRG to increase or decrease AOP Volumes for the remainder of such Year) by submitting to TWCC a request for a change to such AOP (a “Change Order Request”). As soon as reasonably practical but in no event later than the 15^th Business Day after such Change Order Request, TWCC shall submit to NRG a proposed change to the Approved AOP (such change, a “Change Order”) that sets forth in reasonable detail the changes to the Approved AOP necessary to implement the modification requested in the Change Order Request, which changes will include changes to the Mine Costs. If TWCC believes that the Change Order Request or any part thereof would impose on TWCC an obligation to carry out Mining Work that does not meet the Minimum Criteria, TWCC shall so inform NRG. If NRG believes that the Change Order proposed by TWCC does not correctly reflect the changes to the Approved AOP necessary to implement the Change Order Request or disagrees with any such determination by TWCC that any Mining Work does not meet the Minimum Criteria, and if TWCC and NRG are unable to agree on changes to the proposed Change Order within 10 Business Days after TWCC’s receipt of same, NRG shall have the right to have the changes to the AOP required to implement the Change Order Request be determined by the Mining Expert in accordance with Section 6.2(a); provided, however, that NRG may always decide in its sole discretion whether or not to approve a proposed Change Order. For the avoidance of doubt, the Parties do not intend for the Mining Expert to resolve any such dispute in a way that imposes on TWCC an obligation to carry out Mining Work that does not meet the Minimum Criteria. Such Change Order, as modified as the Parties may agree, shall be implemented only if and when accepted by NRG, and the Approved AOP shall be modified as set forth in such Change Order from and after such acceptance. With respect to any Change Order implementing a change in the AOP Volumes, the AOP Volumes for the Approved AOP for such Year shall be adjusted to take into account the change in volumes effected by such Change Order, and the daily, weekly, and Monthly AOP Volumes shall be reduced or increased, as applicable, in accordance with such Change Order from and after its effectiveness. The Approved AOP may not be amended, modified, or supplemented otherwise than as set forth in this Section 5.6 except by the mutual agreement of the Parties.

     5.7 Reporting on Approved AOP. In addition to other reports TWCC is required to provide under this LSA, TWCC shall provide the following reports to the LEGS Representative: (a) budget variance reports that show budget-to-actual expenditures for the preceding Month and Quarter; and (b) Quarterly budget projection reports that show projected expenditures versus budgeted amounts for the following Quarter. Such reports shall keep the LEGS Representative notified of TWCC’s performance and of material anticipated departures for the Year from the Approved AOP applicable to that Year.

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     5.8 Commodities Costs. In accordance with Section 7.4, each AOP shall state the quantities of each of the Commodities that are budgeted to be purchased in connection with performing the Mining Work contemplated by such AOP. Notwithstanding any other provision of this LSA, TWCC shall act in accordance with Prudent Mining Practices in trying to minimize Commodities costs incurred by TWCC and its subcontractors.

     5.9 Insurance.

     (a) TWCC shall maintain insurance written in the kinds and minimum limits of liability specified in Exhibit 11.

     (b) TWCC shall furnish NRG with certificates of insurance acceptable to NRG evidencing the required coverages, as well as the terms and conditions specified by this LSA upon execution of this LSA. The policies required by this Section 5.9 shall contain a provision that coverages afforded under the policies shall not be canceled until thirty (30) days prior written notice has been provided to NRG. The failure by TWCC to provide NRG with Certificates of Insurance, or NRG to insist upon Certificates of insurance, shall not be deemed a waiver of any rights of NRG under this LSA or under any applicable amendment hereto. The inclusions, coverage and limits required hereby are minimum inclusions, coverage and limits, and shall not be construed as a limitation of NRG’s rights under the noted policies. TWCC is responsible for determining what additional coverage, terms or limits are required to perform this LSA, even though those requirements may be in addition to, or excess of, the minimum requirements set forth herein. If TWCC fails to maintain or pay for the insurance coverages required herein, and TWCC does not acquire such insurance within twenty (20) days after receipt of written notice of such from NRG, NRG shall have the right (but not the obligation) to secure same in the name of and for the account of TWCC, in which event, TWCC shall pay the cost thereof and shall furnish upon demand, all information that may be required to procure such insurance(s). NRG shall have the right to off-set the costs of procuring the foregoing insurance(s) against any funds due and owing to TWCC. If no funds are due and owing, then NRG shall have the right to back-charge the costs of the acquired insurance(s) to TWCC.

6. RESOLUTION OF DISPUTES.

     6.1 Negotiation of Disputes. In the event of any dispute arising out of or relating to the implementation or performance of this LSA that the Parties have been unable to settle within a period of fifteen (15) days after written notice by one Party that the dispute or disagreement has arisen (such date hereinafter referred to as the “Dispute Date”), each Party shall nominate an Officer to meet at a mutually agreed time and place, not later than twenty (20) days after the Dispute Date, to attempt to resolve such dispute or disagreement. Should a resolution of such dispute or disagreement not be obtained within five (5) Business Days after the meeting of Officers for such purpose, either Party may then by notice to the others submit the dispute to arbitration in accordance with the provisions of Section 6.2. The negotiation requirements of this Section 6.1 shall not apply to disputes regarding the approval of an AOP, which are instead covered by the procedures set forth in
Section 5.4(b).

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     6.2 Arbitration Resolution. Any claim, dispute, or controversy arising out of or relating to this LSA or the breach or termination thereof, not settled in accordance with the provisions of Section 6.1 (or Section 5.4(b) in the case of disputes regarding the approval of an AOP) shall be submitted to binding arbitration, which arbitration shall apply the Rules for Non-Administered Arbitration of the International Institute for Conflict Prevention & Resolution (“CPR”) in effect on the date hereof and, to the extent not inconsistent therewith, the procedural laws of the State of Texas, unless the Parties mutually agree otherwise.

     (a) Minor Disputes shall be resolved in the following manner:

     (i) The Party that wishes to submit a Minor Dispute that the Parties are unable to resolve pursuant to Section 6.1 (or Section 5.4(b) in the case of disputes regarding the approval of an AOP) to arbitration under this Section 6.2 shall notify the other Party of the object of the Minor Dispute.

     (ii) Within five (5) days after such notice, the Parties shall jointly notify the applicable Expert. Minor Disputes related solely to accounting issues shall be referred to an Accounting Expert. Minor Disputes related solely to legal issues shall be referred to a Legal Expert. All disputes regarding the approval of an AOP and all other Minor Disputes, including any Minor Disputes that involve accounting and/or legal issues together with other non-accounting/non-legal issues, shall be referred to a Mining Expert. If the Parties are unable to agree on the selection of the Expert or if either Party fails to join in the joint notification of the selected Expert, then the Expert shall be selected by the CPR using the criteria set forth above and/or notified by the CPR.

     (iii) Within fifteen (15) days after the notice to such Expert, each Party shall submit to the Expert a written position statement with respect to the issues in dispute. Such statements shall include a short summary of the Party’s position along with a statement of such Party’s last best offer with respect to the resolution of the issue, if any. Any applicable accounting guidelines or other materials may be included with the submission. If required by the Expert, on a day determined by the Expert on or before the 10^th day after the notice to the Expert, the Parties shall meet with the Expert at a place in Houston, Texas, determined by the Expert and shall make such presentation and/or shall answer such queries as the Expert shall determine. The Expert shall render his or her decision within 24 hours of the conclusion of such meeting or, if no such meeting is required by the Expert, on or before the 10^th day after the notice to the Expert, it being understood that the Expert shall select either the last best offer made by TWCC or the last best offer made by NRG with respect to a particular issue and that the Expert shall have no discretion to award any other relief. The Expert shall resolve each of the Submitted Issues separately and shall issue a written award (the “Award”).

     (iv) The Award issued by the Expert shall be final and binding upon the Parties without the right of appeal to the courts and judgment thereon may be entered by any court having jurisdiction thereof, unless the Expert fails to comply

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with the requirement to select a last best offer as required by Section 6.2(a)(iii) or as otherwise set forth in the Federal Arbitration Act. If the Expert fails to select a last best offer submitted by one of the Parties, then any award entered shall be invalid and the matter shall be resubmitted to arbitration.

     (v) The costs and expenses of the arbitrator(s) shall be borne by the losing Party. Any other fees and costs shall be the responsibility of the Party incurring them.

     (b) Major Disputes shall be resolved in the following manner:

     (i) The Party that wishes to appeal to an arbitration panel shall notify the other of the object of the dispute and the name of the arbitrator that it appoints.

     (ii) Within a maximum of ten (10) days after such notice, the other Party shall notify the first Party of the name of the arbitrator that it appoints. If this information is lacking at the end of the period agreed to, the interested Party shall send an application to the CPR requesting the appointment of the second arbitrator for the silent Party.

     (iii) The arbitrators so appointed shall name a third within a maximum period of fifteen (15) days as of the date of the last appointment, to chair the proceedings. If within this period no agreement is reached, this appointment should be requested to be made by the CPR.

     (iv) The aforementioned arbitration panel shall sit in Houston, Texas.

     (v) The arbitrators shall issue a written decision stating the basis for any award. The decision of the arbitrators shall be based upon the substantive laws of Texas and shall be final and binding upon the Parties without the right of appeal to the courts, except as set forth in the Federal Arbitration Act. The award rendered by the arbitration shall be final and judgment thereon may be entered by any court having jurisdiction thereof.

     (vi) The costs and expenses of the arbitration (including reasonable attorney’s fees) shall be borne by the losing Party. Any other fees and costs shall be the responsibility of the Party incurring them.

     6.3 Applicable Law and Arbitration Act. Any arbitral award hereunder shall be enforceable in any court having jurisdiction. All procedural aspects of this agreement to arbitrate, including the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues and allegations of waiver, delay, appeals, or defenses as to arbitrability, shall be governed by and construed pursuant to the United States Arbitration Act, 9 U.S.C. 1-16 (“Federal Arbitration Act”). In deciding the substance of any such claim, dispute or disagreement, the arbitrators shall have no authority to award punitive damages under any circumstances (whether it be exemplary damages, treble damages, or any other penalty or

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punitive type of damages) regardless of whether such damages may be available under Texas law, the Parties hereby waiving their right, if any, to recover punitive damages in connection with any such claims, disputes or disagreements.

     6.4 Continuation of Services. Pending final resolution of any dispute, whether or not submitted to arbitration hereunder, TWCC and NRG shall continue to fulfill their respective obligations hereunder.

     6.5 Injunctive Relief. Notwithstanding any provision of this LSA to the contrary, each Party hereby reserves the right to seek a temporary restraining order or other injunctive relief, including an order compelling specific performance as contemplated in Section 15.9 and an order compelling compliance with the step-in rights contemplated in Section 15.10, from a court of competent jurisdiction in the event of an Event of Default or a material breach by the other Party of its obligations under this LSA in order to enforce the obligations of such other Party under this LSA during the pendency of any dispute resolution proceeding.

7. PRICE AND PAYMENT.

     7.1 Price Components. NRG shall reimburse TWCC for all costs actually incurred in mining the AOP Volumes and delivering the AOP Volumes to the Delivery Point during the Lignite Supply Term pursuant to an Approved AOP or as otherwise expressly allowed under this LSA, as more specifically set forth in Section 7.2, provided that such costs are consistent with Prudent Mining Practices (the “Mine Cost”). No cost or credit in one Cost Component shall be duplicated in another Cost Component or Capital Investment. In addition, NRG shall pay to TWCC the Management Fee as set forth in Section 7.3. The Management Fee is subject to adjustment as provided in Section 7.4.

     7.2 Mine Cost.

     (a) The Mine Cost shall be equal to TWCC’s actual cash costs for operating the Mine in a manner consistent with the Approved AOP, including the following items determined and allocated in accordance with GAAP, unless specifically agreed upon otherwise by the Parties.

     (i) Costs of mine labor and supervision, including wages and salaries, overtime, shift differentials (of miners and supervisory personnel), costs of Subcontractors and contract laborers, severance costs (only to the extent that (A) such severance costs are consistent with written plans or policies of TWCC in existence as of the Effective Date, that have been provided to NRG on or prior to the Effective Date or are otherwise consistent with amendments, supplements or modifications to such plans that have been approved by NRG, in writing, after the Effective Date and (B) such severance costs are caused directly by a material decrease in AOP Volumes that is not consistent with the Mine Plan (including NRG’s exercise of its Supply Suspension rights under subsection 3.3 of this LSA), but in no event shall severance costs associated with terminating employees at or in anticipation of the end of the Lignite Supply Term be Mine Costs), payroll taxes (including social security taxes, workers’ compensation, and

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other taxes levied by local, state, and federal governmental bodies on wages and salaries) and fringe benefits (including holidays, vacations, sick leave, long-term disabilities costs, health, welfare and group insurance plans, and (subject to the provisions of Section 7.2(e)) pension benefits and post-retirement medical benefits, and other fringe benefits generally provided in the coal and lignite mining industries, in each case to the extent that such fringe benefits are consistent with written plans or policies of TWCC in existence as of the Effective Date that have been provided to NRG on or prior to the Effective Date or are otherwise consistent with amendments, supplements or modifications to such plans that have been approved by NRG, in writing, after the Effective Date); provided, however, that any unfunded pension obligations with respect to TWCC employees as of the Effective Date shall remain the obligation of TWCC and NRG shall have no liability therefor;

     (ii) Materials and supplies, including consumables expended or consumed in the mining, processing, and/or delivery of lignite and in the performance of reclamation (including Final Reclamation) activities, costs of maintenance and repair of equipment and facilities reasonable and necessary to the operation of the Mine, costs of electric power, including both consumption of electricity and costs associated with electricity infrastructure, consumed in the course of mining, processing, and/or delivery of lignite and in the performance of reclamation (including Final Reclamation) activities, costs of tools, machinery, and equipment uncapitalized that are consumed in the course of mining, processing, and/or delivery of lignite and in the performance of reclamation (including Final Reclamation) activities;

     (iii) Lease and/or rental costs (inclusive of applicable interest) for vehicles, equipment and machinery reasonable and necessary to the operation of the Mine and located at the Mine;

     (iv) Local, state, and federal taxes, including production taxes and ad valorem taxes (imposed on the real and personal property of TWCC necessary to the operation of the Mine) but excluding income taxes and franchise taxes;

     (v) Royalties, overriding royalties, advance royalties (provided that royalties are paid in advance only to the extent required by the terms of the applicable lease), rentals, damage payments payable under the terms of surface and mineral leases, subject to this LSA, and other costs or payments required to acquire and maintain necessary leases for lignite mineral rights, surface rights, rights-of-way, and water rights payable to third parties (but not to TWCC or its Affiliates or NRG or its associates);

     (vi) Administrative and general expenses, including salaries, wages and related fringe benefits for non-coal producing Mine management, supervisory, technical and clerical employees of TWCC directly supporting the Mine, including functions for general mine management, human resources, legal (including outside counsel expenses directly related to providing service to NRG

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or administration of the Mine) land management, permitting and regulatory compliance, engineering, sales and contract management and administration, and clerical support among others, whether or not located at the Mine, including costs of office supplies and travel and training costs;

     (vii) Mine overheads, including all costs for permitting, regulatory compliance, and engineering, insurance, and bonding; and

     (viii) a corporate support allowance for each Year in the amount set forth for such Year in Exhibit 7 (the “Corporate Support Allowance”), allocated in equal semi-monthly installments to each invoice issued in accordance with Section 7.6(a).

     (b) The Mine Costs shall be reimbursed semi-Monthly in accordance with Section 7.6(a). TWCC shall supply underlying documentation, satisfactory to NRG, supporting all capital expenditures, and documentation supporting other costs shall be made available for audit.

     (c) The Corporate Support Allowance referred to in Section 7.2(a)(viii) shall be the sole compensation payable for the services specified in Exhibit 7 as being covered by the Corporate Support Allowance, and no additional Mine Costs therefor shall be reimbursable under Section 7.2(a)(vi) or any other provision of this LSA.

     (d) Mine Costs shall include cash accruals incurred by TWCC, including the following:

     (i) all unrecouped pre-paid royalties for the privilege of conducting mining operations on the property of a third party which have been paid prior to the commencement of the Lignite Supply Term by TWCC shall be treated as a Mine Costs at such time as such royalty would have been payable from lignite production (i.e., had such royalties not been paid in advance) and appropriate accounting entries are made for the expensing of such prepaid amount; and

     (ii) the cost of any equipment and parts inventory purchased by TWCC existing as of the Effective Date shall be treated as Mine Costs (at an amount equal to the lower of cost or market) at such time as the equipment or part is taken from inventory and utilized in the Mining Work.

     (e) The pension benefits and post retirement medical benefits referred to in Section 7.2(a)(i) shall be fixed at (i) $1,990,000 in the aggregate for 2008 and shall be payable in equal semi-monthly installments at the time each invoice is paid pursuant to Section 7.6(a) and (ii) the total wages paid to pension eligible employees multiplied by a pension and post-retirement medical benefits factor of 8.35% in all future Years.

     (f) Notwithstanding anything herein to the contrary, the following are specifically excluded from Mine Costs and remain the liability of TWCC with no right to collect any portion thereof from NRG: (i) any liabilities or obligations of TWCC (or any

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of its Affiliates) incurred prior to the commencement of the Lignite Supply Term, except as otherwise provided herein; (ii) any noncash items, including depletion, amortization, and depreciation, except as otherwise provided herein, (iii) any interest costs not specifically approved by NRG except for interest costs related to any equipment that is currently or in the future (if approved by NRG) procured on a capital lease basis, (iv) costs for obsolete warehouse inventory purchased by TWCC prior to the Effective Date, (v) any costs for terminating or cancelling any equipment leases entered into as contemplated in Exhibit 9, (vi) any costs, including all attorneys fees and other litigation costs incurred as a result of the negligence, gross negligence or willful misconduct of TWCC; (vii) any penalty or fine imposed by any Governmental Authority for a failure of TWCC to comply with any applicable Law (unless arising out of NRG’s failure to comply with its express contractual obligations regarding funding Final Reclamation activity) unless incurred at the express direction of NRG, (viii) any amounts payable to any Affiliate of TWCC (other than the Corporate Support Allowance and those amounts specified in Exhibit 7 as being paid in addition to the Corporate Support Allowance) and not expressly approved as such in the relevant AOP, (ix) any costs related to any dispute resolution pursuant to Section 6 of this LSA or other litigation between TWCC (or any of its Affiliates) and NRG, (x) any costs related to financing activities involving TWCC (or any of its Affiliates) or pledge of the assets of TWCC (or any of its Affiliates), (xi) any costs related to negotiation of this LSA or any other agreement or document between TWCC (or any of its Affiliates) and NRG, (xii) any liabilities or obligations related to the bankruptcy or insolvency of TWCC (or any of its Affiliates) and (xiii) costs and expenses expressly excluded or beyond limits expressly provided by this Section 7.2.

     7.3 Management Fee. For each Year during the Lignite Supply Term, NRG shall pay to TWCC a fee (the “Management Fee”) equal to the product of the number of Tons of lignite delivered in such Year multiplied by either (a) [****] or (b) if the Post Execution Savings Actions are not timely implemented, then the lower amount as described in Exhibit 9, escalated annually from January 1, 2008 (such that the first adjustment is applied as early in 2009 as information is available), based on the annual increase in the U.S. Gross Domestic Product Implicit Price Deflator (“GDP-IPD”) published by the Bureau of Economic Analysis of the United States Department of Commerce, using the first published index values for each Fourth Quarter (October, November and December) with Fourth Quarter 2007 as the base index value (as so escalated from time to time, the “Fee Per Ton”), subject to the adjustments set forth in Section 7.4 hereof; provided, however, that if the AOP Volumes for any Year are reduced by one or more Change Orders to an amount less than 80% of the AOP Volumes as stated in the original Approved AOP for such year, TWCC shall be entitled to a Management Fee based on AOP Volumes equal to 80% of such originally approved AOP Volumes, but subject to adjustment in all respects as provided in this Agreement. For each semi-Monthly period during such Year, NRG shall pay TWCC in accordance with Section 7.6(a) an amount equal to the product of the number of Tons of lignite delivered in such semi-Monthly period multiplied by applicable Fee Per Ton, but subject to the adjustments set forth in Section 7.4 hereof.

     7.4 Adjustments. NRG shall pay to TWCC, or TWCC shall pay to NRG, as may be applicable, the following adjustments to the Fee Per Ton during the Lignite Supply Term.

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     (a) Cost Incentive Adjustment. Fee Adjustment Basis AOP’s shall be approved as set forth below to be the bases against which to compare actual Mine Costs for the determination of Cost Incentive Adjustments, as follows:

     (i) Fee Adjustment Basis AOP. On or before the 10^th Business Day of each Year, commencing with 2009, TWCC shall prepare and deliver to NRG a proposed adjustment to the Approved AOP applicable to the prior Year (such adjustment to the AOP being called the “Fee Adjustment Basis AOP”) which shall reflect (1) the actual unit cost for Commodities incurred by TWCC during the immediately preceding Year in accordance with Section 7.4(a)(ii); (2) changes in the Mining Work resulting from any Change Orders; (3) any Mining Work in the Approved AOP not actually performed; and (4) changes in the Mining Work as otherwise provided in this LSA. On or before the 10^th Business Day after receipt from TWCC of the proposed Fee Adjustment Basis AOP, NRG shall have the right to propose changes to the proposed Fee Adjustment Basis AOP, and if NRG does so propose such changes, the Parties shall discuss and cooperate in good faith to reach a mutual agreement on the Fee Adjustment Basis AOP. If the Parties have not agreed on the Fee Adjustment Basis AOP on or before the 10^th day after TWCC’s receipt of NRG’s proposal, either Party shall have the right to refer the determination of the Fee Adjustment Basis AOP to the Mining Expert in accordance with Section 6.2(a). The Fee Adjustment Basis AOP as ultimately agreed to by the Parties or determined by the Mining Expert shall be the Fee Adjustment Basis AOP for such Year for purposes of the Management Fee adjustments pursuant to this Section 7.4(a).

     (ii) Commodities. Adjustments shall be made in the Fee Adjustment Basis AOP’s so that Cost Incentive Adjustments shall not be affected by changes in the actual unit costs of Commodities incurred by TWCC (whether incurred through Capital Investments, operating expenses, or other costs) in comparison to Approved AOP’s. Such adjustments shall be as provided in below.

     (A) Electricity and Diesel. The unit costs projected for electricity and diesel in the Approved AOP for any Year shall be adjusted in the Fee Adjustment Basis AOP for such Year to reflect any differences in unit costs between the unit costs reflected in the Approved AOP and the actual unit costs incurred by TWCC. The AOP adjustment will be the difference between actual average unit costs incurred and the expected unit costs in the Approved AOP multiplied by the original units in the Approved AOP. No adjustments will be made for changes in unit volumes.

     (B) Tires. Each Approved AOP shall contain a total tire budget (“Tire Budget”) consisting of categories of tires, the number of tires to be procured in each category, and the projected cost per tire in each category. The costs per tire in each category in the Approved AOP for any Year shall be adjusted in each Fee Adjustment Basis AOP in such Year to reflect the actual average costs per tire in each category as

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actually incurred by TWCC. In addition, in the event that TWCC purchases up to ten percent (10%) more tires or ten percent (10%) fewer tires than the total number of tires in the Tire Budget in a given Approved AOP, the Fee Adjustment Basis AOP for such Year shall be adjusted to reflect the total cost for such overage or underage, as the case may be, of up to ten percent (10%). There shall be no adjustment(s) in the Fee Adjustment Basis AOP for tire procurement overages or underages, as the case may be, exceeding ten percent (10%) of the total number of tires in the Tire Budget in a given Approved AOP, unless such tire procurement overages or underages were first approved by NRG in a Change Order. An example of the foregoing calculation is set forth in Exhibit 18.

     (C) Steel. Each Approved AOP shall contain a steel budget (“Steel Budget”) calculated as (1) seventy percent (70%) of budgeted wear component costs, and (2) fifty percent (50%) of budgeted parts costs. The Steel Budget in the Approved AOP for any Year shall be adjusted in each Fee Adjustment Basis AOP in such Year to reflect the difference in the inflation rate assumed in the Steel Budget versus the percent change in the Steel Index, which shall be the PPI-Steel Mill Products, U.S. Bureau of Labor Statistics Series Id WPU1017 Not Seasonally Adjusted, Group: Metals and metal products, Base Date: 8200, first published index value (the “Steel Index”), as follows. The average Steel Index value for each calendar Quarter shall be compared to the Steel Index value for July of the prior Year to arrive at a percent change per Quarter. The percent changes per Quarter in the Steel Index shall be averaged and compared to the percent increase assumed in the Approved AOP. If the Steel Index average is greater than the inflation rate assumed in the Approved AOP, the Steel Budget shall be increased in the Fee Adjustment Basis AOP by the difference in the respective percentages. If the Steel Index average is less than the inflation rate assumed in the Approved AOP, the Steel Budget shall be decreased in the Fee Adjustment Basis AOP by the difference in the respective percentages. An example of the foregoing calculation is set forth in Exhibit 18.

     (iii) Annual Adjustment Amount. If the Mine Costs for any Year paid to TWCC in accordance with Section 7.2 hereof exceed 103% of the total Mine Costs budgeted in the Fee Adjustment Basis AOP for that Year, then an adjustment amount equal to one-half of such excess, but not to exceed a total adjustment amount of [***] per Ton of lignite delivered by TWCC to NRG during such Year, shall be payable by TWCC to NRG as set forth in Section 7.4(a)(iv). If the total Mine Costs budgeted in the Fee Adjustment Basis AOP exceed 103% of the Mine Costs for the applicable Year paid to TWCC in accordance with Section 7.2 hereof, then an adjustment amount equal to one-half of such excess, but not to exceed a total adjustment amount of [***] multiplied by the lesser of (A) the total number of Tons of lignite delivered by TWCC to

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NRG during such Year and (B) the total number of Tons included in the original Approved AOP applicable to such Year, without taking into account any Change Orders shall be payable by NRG to TWCC as set forth in Section 7.4(a)(iv) provided, however, such total number of Tons shall take into consideration any Change Order, if NRG has requested unreasonably low AOP Volumes and then later implemented a Change Order for the purpose of depriving TWCC of any Adjustment Amounts. The amount payable by TWCC to NRG or by NRG to TWCC in accordance with this Section 7.4(a)(iii) is referred to herein as the “Cost Incentive Adjustment”.

     (iv) Payment of Adjustment Amount. If NRG is the Party obligated to pay such Cost Incentive Adjustment, then the Cost Incentive Adjustment shall be paid together at the time the next semi-monthly invoice is paid in accordance with Section 7.6(a). If TWCC is the Party obligated to pay such Cost Incentive Adjustment, then the Cost Incentive Adjustment credited against the next semi-monthly invoice or invoices until such time as such Cost Incentive Adjustment has been fully recovered by NRG through such credits.

     (v) Sample Calculations. Attached hereto as Exhibit 17 are sample calculations relating to the Cost Incentive Adjustment.

     (b) Monthly Inventory Adjustment. The “Monthly Inventory Adjustment” is calculated as follows:

     (i) For each of the Months of December 2007 through April 2008, the Monthly Inventory Adjustment shall be calculated by reducing the Monthly Fee for each such Month by an amount equal to the product of the Monthly Fee for such Month multiplied by 0.10% for each 1.00% by which the measured actual Month-end inventory for such Month is less than the respective stated amounts: December 31, 2007, 170,000 Tons; January 31, 2008, 187,200 Tons; February 29, 2008, 204,400 Tons; March 31, 2008, 221,600 Tons; and April 30, 2008, 238,800 Tons.

     (ii) Thereafter, the Monthly Inventory Adjustment for each Month shall be calculated by reducing the Monthly Fee for such Month by an amount equal to the product of such Monthly Fee multiplied by 0.10% for each 1.00% by which the measured actual average Month-end inventory for the greater of such Month or the average of such Month and the previous two Months is less than one twenty-sixth of the AOP Volumes for the Year then in effect (or such smaller inventory target as NRG may elect in its sole discretion to approve in an Approved AOP). NRG shall receive a credit against the Management Fee in the next semi-Monthly invoice or invoices until such time as such Monthly Inventory Adjustment has been fully recovered by NRG through such credits.

     (iii) “Monthly Fee” shall mean, for any Month during the Lignite Supply Term, the product of the Fee Per Ton multiplied by the number of Tons of lignite delivered in such Month.

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     (c) Btu Adjustment. TWCC shall be subject to Premiums and Penalties, in addition to reject penalties, based upon the As Received Btu content of lignite delivered, as provided below (the “Btu Adjustment”).

     (i) Btu Adjustments shall be based on seven (7) day rolling averages weighted by delivered Volumes (“Rolling Average”), and calculated by multiplying the Daily Fee on the seventh day of the Rolling Average by 0.1% for each 1 Btu per pound by which the Rolling Average Btu content is either more than 300 Btu per pound above (“Premium”) or more than 300 Btu per pound below (“Penalty”) the target Btu of 6,500 Btu per pound, As Received, for volumes delivered on such seventh day of the Rolling Average.

     (ii) In addition to the Rolling Average Premium and Penalty Btu Adjustments above, TWCC shall be subject to a Btu reject quality penalty, which shall be calculated by multiplying [***] per Ton by the total Tons delivered on each Delivery Day in which the weighted average Btu content of the lignite so delivered is less than 6,000 Btu per pound, As Received and by multiplying an additional [***] per Ton by the total Tons delivered on each Delivery Day in which the weighted average Btu content of the lignite so delivered is less than 5,800 Btu per pound, As Received.

     (iii) “Daily Fee” shall mean, for any calendar day during the Lignite Supply Term, the product of the Fee Per Ton multiplied by the number of Tons of lignite delivered on such day; and

     (iv) The Btu Adjustment for a given Month shall be summed and if the resulting sum is a credit, NRG shall pay TWCC the resulting amount along with the next invoice. If the resulting sum is a debit, NRG shall receive a credit on the next invoice or invoices until such time as such resulting amount has been fully recovered by NRG through such credits.

     (d) Each Party hereby stipulates that the payment obligations set forth in Section 7.4(a), 7.4(b), and 7.4(c) are reasonable in light of the anticipated harm and the difficulty of estimation or calculation of actual damages. Each Party hereby waives the right to contest such payments as an unreasonable penalty.

7.5 [Intentionally Omitted.]

7.6 Invoices.

     (a) NRG Payments to TWCC. TWCC shall prepare invoices and submit such invoices to NRG on the first (1^st) business day of each Month and on the first business day after the sixteenth (16^th) calendar day of each Month (or, if earlier, ten (10) Business Days prior to the end of such Month), and, assuming timely receipt of such invoices, NRG shall use commercially reasonable efforts to make payments on or before the fifteenth (15^th) day (or, if such day is not a Business Day, the next Business Day) and the last Business Day of each Month to TWCC by wire transfer or other usual and customary

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means as TWCC may direct in writing to NRG from time-to-time. Invoices shall be in the form attached hereto as Exhibit 8. TWCC shall invoice separately for capital costs and non-capital operating expenses. For the avoidance of doubt, invoices for capital costs shall be on a full cash basis, rather than a depreciated or amortized basis. Late payments shall bear interest at a rate per annum equal to the Interest Rate. In the event that NRG disputes the amount of any invoice, NRG shall render payment for the full amount of such invoice when such payment would otherwise be due under this Section 7.6(a); provided, however, that NRG shall be entitled to withhold payment any portion of the invoiced amount other than for Mine Costs to the extent it disputes such amounts in good faith. With respect to disputed invoiced amounts or payments, NRG shall notify TWCC in writing within fourteen (14) calendar days of receipt of the disputed invoice stating the reason for such dispute, and such dispute shall be settled by the respective representatives of the Parties or as provided in Section 6.

     (b) TWCC Payments to Third Parties. TWCC shall promptly pay all valid accounts and indebtedness incurred in connection with the operations of the Mine so that no lien can be sustained against the Mine or equipment or facilities employed at the Mine; provided that TWCC shall have the right to contest any such lien by proceedings that do not prejudice title to the Mine or equipment and facilities employed at the Mine. NRG shall not be liable to reimburse TWCC for penalties or charges assessed against TWCC for late payment(s) to vendors or contractors.

8. DELIVERY AND TITLE; SCHEDULING; STOCKPILE MANAGEMENT; NO LIENS.

     8.1 Delivery; Title.

     (a) Title to and risk of loss of the lignite purchased and sold under this LSA shall pass from TWCC to NRG at the time such lignite is delivered at the Delivery Point.

     (b) TWCC hereby warrants title to all lignite delivered by TWCC during the Term pursuant to this LSA and the right to sell the same to NRG, free and clear of all liens and other encumbrances. TWCC shall indemnify and hold NRG harmless from any and all Claims of every kind resulting from or arising out of any breach of this warranty.

     8.2 Scheduling. Consistent with the Approved AOP, TWCC and NRG shall cooperate in scheduling daily, weekly, and Monthly deliveries of AOP Volumes in order to accommodate NRG’s fuel requirements and consistent with TWCC’s abilities to meet such requirements. Such AOP Volumes shall be scheduled on a TBtu basis. The Parties shall also cooperate in the same manner in notifying each other in advance of scheduled outages or downtime in order to avoid unnecessary inconvenience and delay and to facilitate efficient use of said downtime. TWCC shall maintain the capability of reasonably continuous delivery of AOP Volumes as provided under each Approved AOP, and NRG shall maintain the capability of reasonably continuous receipt of such AOP Volumes; provided, however, that the Parties acknowledge that unloading of trains delivering boiler fuel acquired from other suppliers may temporarily restrict NRG’s ability to receive lignite from the Jewett Mine, and such restriction

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shall not constitute a failure to maintain the capability of reasonably continuous receipt of AOP volumes.

     8.3 Mine Lignite Inventory. The Parties recognize the need to maintain substantial lignite inventory at the Mine.

     (a) TWCC shall conduct Mine Stockpile and pit inventory surveys once each Month during the Lignite Supply Term. The survey process shall include on the ground measurement of the profile of the lignite, engineering estimates of lignite density, and calculations of the tonnage in each location. TWCC shall report Mine Stockpile and in-pit inventories to NRG on a weekly and Monthly basis.

     (b) Throughout the Lignite Supply Term, TWCC shall use best efforts to maintain, subject to Prudent Mining Practices, a target total lignite inventory of no less than one twenty-fourth of the AOP Volumes for the Year then in effect.

     8.4 No Liens.

     (a) Creation of Liens. TWCC shall not directly or indirectly create, incur, assume, or suffer to be created by it or any subcontractor, employee, laborer, materialman, or other supplier of goods or services any Lien on the Mine, the Reserves, any mining equipment owned, used, or held for use by TWCC and/or procured with NRG funds, or any part thereof or interest therein (a “TWCC Lien”), except for liens of carriers, warehousemen, landlords, mechanics, vendors, laborers, and materialmen arising solely by operation of law incurred in the ordinary course of business for sums not yet due or being diligently contested in good faith, other than the Liens created by the Mortgage and Security Agreement, and TWCC shall pay or discharge and discharge of record any TWCC Lien or other charges that, if unpaid, might be or become a TWCC Lien, if any such TWCC Lien has been of record for more than 120 days (or earlier if it creates an imminent risk of foreclosure resulting therefrom) or is, when added to all other TWCC Liens, in excess of $1,000,000. TWCC shall immediately notify the LEGS Representative of the assertion of any TWCC Lien.

     (b) Indemnity from Liens. TWCC shall indemnify, defend, and hold harmless the NRG Group from and against TWCC Liens and, provided that TWCC is being paid on a current basis pursuant to this LSA, all other claims, demands, and causes of action in connection with any subcontractor’s provision of design, labor, materials, equipment, supplies, and/or services under this LSA.

     (c) Discharge of Liens. Upon the failure of TWCC to promptly pay, discharge, or provide security reasonably acceptable to NRG for any TWCC Lien within thirty (30) days of notice of the existence thereof from any source, NRG may, but shall not be obligated to, pay or discharge such TWCC Lien and, upon the payment or discharge thereof, shall be entitled to immediately recover from TWCC the amount thereof together with expenses incurred by it in connection with such payment or discharge or to set off all such amounts against any such sums owed by NRG to TWCC.

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9. WEIGHTS; SAMPLING AND ANALYSIS; LIGNITE QUALITY.

     9.1 Weights. The lignite delivered hereunder shall be weighed upon delivery to the Delivery Point by TWCC using equipment and procedures agreed upon by the Parties. TWCC shall conduct semi-annual (or more frequently as needed) belt scale tests and calibrate said equipment as necessary to maintain an accuracy consistent with then-current standards set forth in Handbook 44 published by the National Institute of Standards and Technology (or any successor to such handbook or such agency), and furnish copies of such calibration reports to the LEGS Representative. A Ton shall be the unit of measurement. NRG shall have the right to check the accuracy of said equipment and procedures used in weighing the lignite and calibrating said equipment, and the right to have a representative present at the calibration and weighing. If upon calibration any scale is are found to be in error by an amount greater than 0.25%, such scale shall be recalibrated for future shipments and the amount of lignite delivered during the period affected by such error or inaccuracy shall be corrected. The Parties shall agree upon the total weight of lignite delivered hereunder since the date of the last calibration and TWCC shall charge or credit NRG, as appropriate, for one half of the difference in weight of lignite measured by the scale in question, including any adjustments to prior periods. Should the Parties fail to agree within ninety (90) days of the discovery of the error upon the allowable error in calibration or the total weight of lignite delivered since the last calibration, the matter shall immediately be submitted to dispute resolution for determination pursuant to Section 6.

     9.2 Sampling and Analysis.

     (a) At least one (1) representative sample from the Delivery Point from each day’s shipment of lignite shall be taken by TWCC and delivered to an independent third party laboratory mutually agreed upon by the Parties (the “Independent Lab”) for analysis. The Independent Lab shall analyze the daily samples from the Delivery Point and shall promptly submit a copy of the report to NRG and TWCC. Sampling and analysis shall be performed in accordance with then-current ASTM standards and procedures, or such other methods as the Parties may agree upon. NRG shall have the right to have a representative present to observe the sampling, and both NRG and TWCC shall have the right to have a representative present to observe the analysis.

     (b) The Independent Lab shall divide each daily sample into no less than (4) parts. The first part shall be tested by the Independent Lab per Section 9.2(a). The second, third, and fourth parts shall be stored in suitable airtight containers in each case to be held available by the Independent Lab for a period of at least sixty (60) calendar days after the end of the Month in which such sample was taken.

     (c) One part of each sample shall be for NRG’s analysis; one part shall be available for TWCC’s analysis.

     (i) If either Party takes exception to the Independent Lab’s analysis of the first part within sixty (60) calendar days after the end of the Month in which such sample was taken, then such Party shall send a notice of exception to the other Party and both Parties shall direct the Independent Lab to analyze such Party’s portion of the applicable sample. Each Party hereto assumes the cost of

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analysis of its respective sample. The Independent Lab shall average the results of the analysis of the original sample and the analyses of the Parties’ samples. The Independent Lab shall then disregard the result farthest from the resulting average of the three samples, and shall then average the remaining two results. Such resulting average shall be provided to both Parties and shall be deemed conclusive.

     (ii) If no Party takes exception to the Independent Lab analysis within sixty (60) calendar days after the end of the Month in which such sample was taken, the Independent Lab’s analysis shall be deemed conclusive.

     9.3 Lignite Quality.

     (a) The lignite shall be of a quality consistent with the reserve computer modeling projections of the Mine Plan, as modified from time to time, and shall in any event meet the quality requirements set forth in Exhibit 10, unless the Parties otherwise agree. Such lignite shall be reasonably free of partings and extraneous materials and TWCC shall otherwise comply with the provisions of Sections 9.3(b) and 9.3(c). Unless stated otherwise, all qualities identified in this LSA shall be determined on a weighted average Delivery Day As Received basis.

     (b) Each Approved AOP shall contain TWCC’s best estimate of the ferric oxide content of the lignite to be mined in such year. TWCC shall use commercially reasonable efforts to deliver lignite during any hour of such day with ferric oxide content that does not exceed 13.00%, dry basis ash, based on the sampling and analysis program in effect on the Effective Date.

     (c) Each Approved AOP shall contain TWCC’s best estimate of the sulfur content of the lignite to be mined in such year. TWCC shall use commercially reasonable efforts to deliver lignite on each day with sulfur content that does not exceed 5.00 pounds sulfur dioxide (SO₂) per MMBtu.

10. REPORTING.

     10.1 Production Reporting. TWCC shall provide each of the following reports in an electronic format approved by NRG:

     (a) Daily Reports. TWCC shall, prior to 8:00 a.m. on each day, deliver to NRG a written report describing the Mining Work carried out by TWCC during the previous day, which report shall include the following:

     (i) the Tons delivered for the day and the estimated quality of such Tons;

     (ii) details of the operational or maintenance status of the draglines;

     (iii) details of any accidents and incidents occurring in carrying out the Mining Work whether involving lost time, injury or otherwise;

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     (iv) details of any breakdowns or failure of equipment or facilities; and

     (v) climatic conditions encountered.

     (b) Monthly Reports. TWCC shall, not later than ten (10) Business Days following each Month, deliver to NRG a written report describing the Mining Work carried out by TWCC during the previous Month, which report shall include the following:

     (i) a production summary covering period production statistics and equipment availability/performance and cumulative year to date statistics, as shown on Exhibit 13;

     (ii) monthly cost reports by mining function as shown on Exhibit 14;

     (iii) staffing report, salaried and hourly employees;

     (iv) reports required by any Governmental Authority;

     (v) a report on major maintenance activities;

     (vi) safety report;

     (vii) environmental audit report;

     (viii) report on current reclamation;

     (ix) report on production and sale of lignite tonnage for each lease;

     (x) report on lignite quality;

     (xi) report on lignite inventory; and

     (xii) any other reports requested from time to time by NRG for monitoring of the Mining Work.

     (c) Variance Reports. TWCC shall, not later than fifteen (15) Business Days following the end of each Month and each Quarter, provide the detailed budget and variance information as set forth in Exhibit 15.

     (d) Other Reports and Information. TWCC shall prepare and deliver to NRG such other written reports and information regarding the Mine, lignite reserves, the Mine Plan, and the Mining Work as NRG shall reasonably request from time to time. In addition, TWCC shall work with NRG to provide information to enable joint use of web-based tools to facilitate monitoring of mining progress.

     (e) Financial and other Reports. TWCC shall provide to NRG all reports and notices that TWCC or Westmoreland Mining LLC provides to any lender to

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Westmoreland Mining LLC, allowing redaction or omission of any and all information specific to any Westmoreland Mining LLC subsidiary other than TWCC.

11. LAND AND MINERAL LEASES.

     11.1 Subleases. NRG and TWCC agree to, and do hereby ratify and confirm the Subleases.

     11.2 Lignite Leases. NRG has subleased part of the Reserves to TWCC pursuant to the Subleases, thereby granting to TWCC the possessory interest in such leases. The Subleases provide that TWCC shall assume the obligations of the primary leases, and that TWCC shall maintain those leases in good standing. For the purposes of this LSA, primary leases are defined as those instruments executed by the owner of the lignite reserves, under the authority of which the reserves are to be mined. Such lignite shall be produced only in furtherance of the purposes of this LSA, and the Subleases shall terminate at such time as this LSA is terminated or expires. TWCC shall not cause or allow any Liens or claims to attach to the interests covered by the Subleases other than Liens or claims resulting from the actions of NRG. NRG waives any and all royalty claims on production and/or sales and any other payment from its interests in fee property, lignite leases and lignite royalties within the Mine. The parties agree that NRG can file amendments of record to the Subleases to reflect the provisions of this Section 11.2.

     11.3 Houston Lignite Royalty. TWCC shall not be obligated to pay the overriding royalty reserved in that certain Assignment of Coal and Lignite Leases, dated August 31, 1979 by and between The Dow Chemical Company (f/k/a Destec now d.b.a. Houston Lignite), as Assignor and Houston Lighting & Power Company, now NRG, as Assignee, recorded in Volume 540, Page 518, of the Official Records of Freestone County, Texas. NRG shall have the obligation to satisfy this overriding royalty.

     11.4 Percentage Royalty Leases. With respect to all leases held by TWCC wherein the royalty payable to the lessor(s) is to be calculated based on a percentage of proceeds received by TWCC, such royalties shall be calculated in accordance with the royalty calculation methodology set forth in that certain Information Provided To Jewett Mine Percentage Leases Royalty Owners Regarding Calculation Of Royalties Under Percentage Leases In Connection With Royalty Proposal attached hereto as Exhibit 16, or as established by a valid enforceable court decree. TWCC shall also include the calculation of such percentage royalties any amounts paid by NRG with respect to the Houston Lignite Royalty in accordance with Section 11.3 above. NRG shall provide TWCC on a Quarterly basis, for the purpose of calculating the percentage royalties, the cost component for the return on and return of the mining equipment and mining facilities owned by NRG at the Mine, and any amounts paid by NRG with regard to the Houston Lignite Royalty.

     11.5 Surface Use Agreement. NRG and TWCC agree that the Surface Use Agreement by and between Houston Lighting & Power Company, now NRG and Northwestern Resources Co., now TWCC, dated February 12, 1998 and recorded in Volume 987, Page 803, of the Deed Records of Freestone County (the “Surface Use Agreement”) continues to be in full force and effect unless terminated by the provisions contained therein.

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12. FINAL RECLAMATION.

     12.1 Final Reclamation.

     (a) Final Reclamation shall include any and all reclamation and remediation obligations of TWCC at the Mine as required under any Permit issued by any Governmental Authority, any state, federal or local law, regulation or rule, or otherwise. Final Reclamation of the Mine will be required at the end of its useful life, upon termination of lignite deliveries pursuant to Section 3.2, and/or in areas where all lignite deliveries have ceased prior to the end of lignite deliveries from the Mine as a whole. Final Reclamation costs are categorized as final pit restoration, facility removal, and post-mine management. Final pit costs are the costs incurred for the reduction of the final highwall, regrade of spoil/spoils, drainage reconstruction, topsoil replacement, rebuilding of public and private roads and facilities, and revegetation of the final pit areas. Facility removal costs are the costs associated with the removal and reclamation of permanent facilities such as buildings, haul roads, rail lines, power lines, ponds, crushing facilities, other infrastructure, etc. Post mine management costs are the costs incurred for erosion control, water control, monitoring, and management of reclaimed lands which includes agricultural activities required until final bond release. TWCC shall from time to time at the request of NRG and in each AOP include a reclamation plan, reclamation schedule, and estimate of Final Reclamation costs based on the Mine Plan, which plan and cost estimates shall be sufficient to substantiate accrual and liability estimates under the applicable regulations of the Securities and Exchange Commission.

     (b) NRG shall be responsible for the payment of the Final Reclamation and shall have the right to approve all costs associated therewith and the schedule of work related thereto, subject to the requirements of Law, the Permits and prudent practices. If, however, (i) this LSA shall terminate as a result of a Special TWCC Default Termination, and (ii) TWCC has not completed the Security Document Delivery prior to such termination, NRG shall be relieved of any further obligation regarding Final Reclamation and the Final Reclamation obligation shall become the responsibility of TWCC.

     12.2 NRG Obligation to Pay and Hold Harmless. Except as provided in Section 12.1(b), NRG shall be responsible for all of the costs of Final Reclamation and shall reimburse TWCC for such costs pursuant to invoices delivered in accordance with Section 7.6(a) and shall otherwise indemnify and hold TWCC harmless against any costs or claims related to Final Reclamation liabilities, in each case other than costs or claims arising through the negligent acts or omissions by TWCC in the course of performing its Final Reclamation obligations hereunder.

     12.3 Cost of Final Reclamation to Include Contract Fee. The cost of Final Reclamation paid by NRG shall include a profit component to TWCC equal to [*]% of the actual costs incurred by TWCC for work performed by TWCC (as opposed to work performed by any subcontractor to TWCC) in performing all Final Reclamation; provided, however, that no profit component shall be paid if (a) NRG has terminated the Lignite Supply Term by January 1, 2010, and (b) Security Document Delivery has not occurred prior to such termination. For the avoidance of doubt, TWCC shall comply with the requirement to minimize Mine Costs when deciding whether such work shall be performed by TWCC or a subcontractor.

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     12.4 Reclamation Bonds.

     (a) TWCC shall maintain in full force and effect and/or replace such bonds and in such amounts as it has provided to the RCT on or prior to the Effective Date, including third-party bonding in the amount of approximately $26,000,000 and self-bonding (supported by the corporate guarantee referred to in Section 12.4(b)(i)) in the amount of approximately $50,000,000 (the “Current Bonding Level”) to secure TWCC’s reclamation obligations under its mining permits for the Mine.

     (b) NRG shall (i) maintain and/or replace the corporate guarantee provided under Article G, subsection 1, of the Settlement Agreement for TWCC’s self-bonding included within the Current Bonding Level and (ii) provide to the RCT any and all additional bonds, additional bond amounts or bond collateral over and above the Current Bonding Level (the “Additional Bonds”) that are necessary to secure TWCC’s reclamation obligations under TWCC’s mining permits for the Mine, unless and until a Special TWCC Default Termination has occurred. In the event that a Special TWCC Default Termination has occurred, NRG shall have the right to withdraw any credit support for any Current Bonding Level obligation, and TWCC shall as soon as is commercially practical replace such credit support (including with additional third-party bonds) and any Additional Bonds provided by NRG. The Additional Bonds may be provided in any form permitted by the RCT regulations.

     (c) If any Special TWCC Default Termination occurs and Security Document Delivery has not occurred prior to such termination, any Additional Bond is forfeited or there is otherwise a drawing under such Additional Bond and NRG incurs any reimbursement obligation in connection therewith, then TWCC shall (i) immediately reimburse the issuer of such Additional Bond for the amount of such forfeiture or drawing and (ii) defend and indemnify NRG against any and all claims by any such issuer of such Additional Bond in connection with any such forfeiture or drawing.

13. FORCE MAJEURE.

     13.1 Effect; Notice; Obligation to Mitigate.

     (a) If either Party (a “Non-Performing Party”) is rendered unable by Force Majeure to carry out, in whole or part, its obligations (other than the obligation to make payments then due or becoming due with respect to performance prior to the event) under this LSA, such Non-Performing Party shall give notice orally to the other Party as soon as reasonably practicable, followed within five Business Days thereafter by a written notice setting forth, in reasonable detail, the cause or causes constituting such Force Majeure. The obligations of the Party affected by such Force Majeure (other than the obligation to make payments then due or becoming due with respect to performance prior to the event) shall be suspended to the extent made necessary, and for no longer than is required, by the cause or causes constituting such Force Majeure.

     (b) The Non-Performing Party shall initiate and continue commercially reasonable good faith efforts to remedy the Force Majeure with all reasonable dispatch;

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provided, however, that the settlement of strikes, lockouts or other labor disputes shall be totally within the sole discretion of the Non-Performing Party.

     (c) In the event of partial Force Majeure which reduces the ability or capacity of TWCC to mine or deliver lignite to NRG, or reduces the ability or capacity of NRG to receive or transport lignite, or reduces the ability or capacity of LEGS to utilize lignite, then to such extent the Non-Performing Party is able to continue its operations, it shall do so. However, nothing in the foregoing shall require the Party affected by such partial Force Majeure to continue its operations if to do so would, in its sole discretion, place its employees in any jeopardy or constitute a violation of Law.

     (d) In the event of a Force Majeure event at LEGS that prevents LEGS from utilizing lignite or reduces LEGS’ ability or capacity to utilize lignite, such event shall excuse NRG’s obligations to take delivery of lignite hereunder.

     13.2 Lignite Deliveries.

     (a) Deficiencies in shipments or deliveries that are due to Force Majeure shall not be made up except as the Parties mutually agree.

     (b) Notwithstanding any provision in this LSA to the contrary, during any period when Force Majeure claimed by TWCC results in a reduction of lignite deliveries under this LSA, NRG shall have the right, in its sole discretion, to purchase lignite from other sources to satisfy the operational requirements of LEGS.

14. WAIVERS AND REMEDIES.

     14.1 Non-Waiver. The failure of any Party to insist in any one or more instances upon strict performance of any of the provisions of this LSA or take advantage of any right hereunder shall not be construed as a waiver of any such provisions or their relinquishment of any such right, but the same shall continue and remain in full force and effect.

     14.2 NO CONSEQUENTIAL DAMAGES. EXCEPT TO THE EXTENT INCLUDED WITHIN THE REMEDIES SET FORTH IN SECTIONS 15.3, 15.5, OR 15.7, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST REVENUES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE; PROVIDED, HOWEVER, THAT THIS SECTION SHALL NOT LIMIT AN INDEMNIFIED PARTY’S RIGHT TO INDEMNIFICATION FOR ANY SUCH DAMAGES THAT THE INDEMNIFIED PARTY IS LEGALLY REQUIRED TO PAY TO A THIRD PARTY AS A RESULT OF A CLAIM OR PROCEEDING.

15. DELIVERY FAILURE; EVENTS OF DEFAULT.

     15.1 Delivery Failure. Any of the following events shall constitute a “Delivery Failure”:

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     (a) TWCC fails during any period of seven (7) consecutive Delivery Days to deliver lignite with total weighted average lignite quality values for heat content and sulfur equal to or greater than 6,000 Btus per pound or equal to or less than six (6) pounds SO₂ per MMBtu;

     (b) TWCC fails to deliver at least 80% of the then-current delivery schedule for any rolling 30-day period, or 90% of the then-current delivery schedule for any Quarter, or 98% of the then-current delivery schedule for any calendar year (with such figures calculated on a Btu basis); or

     (c) TWCC gives notice to NRG of any potential or actual Delivery Failure.

     15.2 Notice of Delivery Failure. Whenever a Delivery Failure occurs, TWCC will provide NRG with notification specifying the details of the cause and extent of the Delivery Failure, TWCC’s mitigation plan to mitigate and remedy the Delivery Failure, and the expected duration of the Delivery Failure.

     15.3 Remedies for Delivery Failure. In the event of a Delivery Failure NRG shall have the right to exercise all rights and remedies to it in accordance with applicable law. Without limiting the generality of the foregoing, if as a result of a Delivery Failure NRG either (a) purchases replacement fuel to cover lignite not delivered or not conforming to quality specifications or (b) curtails or reduces power deliveries from LEGS, TWCC shall be liable for payment of compensatory damages to NRG in the amount of one or more of the following:

     (i) To the extent replacement fuel is purchased (including replacement fuel consisting of inventories on hand acquired from other suppliers), the excess of the cost (including purchase price and procurement and delivery costs) of such replacement fuel on a heat content basis over the average per MMBtu cost for lignite invoiced over the preceding twelve (12) calendar months (for the avoidance of doubt, NRG shall have the right to cover any delivery shortfalls through the purchase of replacement fuels at its sole discretion, but damages are payable only when the NRG makes purchases to replace fuel that was not delivered (or outside quality ranges) in a Delivery Failure);

     (ii) To the extent power deliveries from LEGS are curtailed or reduced and such power sales are covered by purchases of power made by NRG, the excess of the cost of such purchases of power over the variable cost of generation of a like amount of power at LEGS; or

     (iii) To the extent power deliveries from LEGS are curtailed and such power sales are not covered or replaced, the amount of all damages and penalties incurred by NRG as a result of the failure to deliver such quantities of power plus the amount of profits of NRG foregone as a result of such failure to deliver such quantities of power.

Notwithstanding the foregoing, if, in accordance with prudent practices in the power industry and reasonable management of its fuel stockpile NRG can use replacement fuel on hand instead

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of curtailing or reducing power deliveries from LEGS, NRG shall use all reasonable efforts to do so.

     15.4 TWCC Events of Default. The following events shall each be a “TWCC Event of Default”:

     (a) Any failure by TWCC to pay compensatory damages following a Delivery Failure in accordance with Section 15.3 or any failure by TWCC to pay any other amounts it is required to pay within thirty (30) days of when due to NRG under this LSA, and in either case such failure is not cured by or on behalf of TWCC within fifteen (15) days of written notice from NRG to TWCC demanding such cure;

     (b) Any failure by TWCC to comply with a mitigation plan required by Section 15.2 following a Delivery Failure;

     (c) Any Delivery Failure consisting of a failure to deliver lignite with total weighted average lignite quality values for heat content and sulfur equal to or greater than 6,000 Btus per pound or equal to or less than six (6) pounds per SO₂ per MMBtu over a period of ten (10) consecutive days or a failure to deliver at least 75% of 1/12^th of the then-current AOP Volumes over any rolling 30-day period

     (d) Any failure by TWCC to comply in any material respect with the AOP and the other standards of performance set forth in Section 2.2 of this LSA, unless TWCC has cured such failure on or before the 10^th day after notice thereof by NRG;

     (e) Any material inaccuracy in any representation or warranty made by TWCC herein or in the Mortgage and Security Agreement or in any representation or warranty made by Westmoreland Coal Company or Westmoreland Mining LLC in either a Guaranty or the Westmoreland Pledge Agreement;

     (f) Any failure by TWCC to perform any of its obligations hereunder (including operating the Mine in material violation of permit requirements or applicable governmental requirements) not specifically referred to in the other provisions of Section 15.1 or this Section 15.4, any failure by Westmoreland Coal Company or Westmoreland Mining LLC to perform any of its obligations under either a Guaranty or the Westmoreland Pledge, unless in any such case such failure has been cured on or before the 20^th day after notice thereof by NRG or such cure has been initiated and is being diligently pursued; provided that such cure is effected within forty-five (45) days from the receipt of such notice by TWCC, Westmoreland Coal Company, or Westmoreland Mining LLC, as applicable (or, notwithstanding the foregoing, such shorter period of time as may be necessary to avoid the payment of penalties or the loss of any permit, authorization, license, or concession);

     (g) Failure of a Guaranty, the Mortgage and Security Agreements, or the Westmoreland Pledge Agreement to be in full force and effect after the date executed, or Westmoreland Coal Company or Westmoreland Mining LLC repudiates or denies liability under or seeks to terminate any of a Guaranty, the Mortgage and Security

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Agreements, or the Westmoreland Pledge Agreement or seeks to have any thereof found to be, or claims that any thereof is, void or of no force and effect;

     (h) Bankruptcy of TWCC, Westmoreland Mining LLC, or Westmoreland Coal Company;

     (i) TWCC, Westmoreland Mining LLC, or Westmoreland Coal Company fails to pay any indebtedness for borrowed money owed by such Person in excess of fifty thousand dollars ($50,000) in aggregate principal amount or any interest or premium thereon when due or within any applicable grace period specified in the agreement or instrument related to such indebtedness (provided that, unless the failure to pay any such amount has the effect of accelerating the maturity of such indebtedness, such failure to pay shall not be a TWCC Event of Default if TWCC, Westmoreland Mining LLC, or Westmoreland Coal Company is disputing in good faith its obligation to pay such amounts); or any other material default under any agreement or instrument relating to any such indebtedness, or any other event, occurs and continues after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate the maturity of such indebtedness; or any such indebtedness is declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof;

     (j) a final judgment or judgments shall be entered against TWCC, Westmoreland Mining LLC, or Westmoreland Coal Company in the aggregate amount of five hundred thousand dollars ($500,000) or more individually and in the aggregate (net of insurance proceeds) (other than (i) a judgment which is fully covered by insurance or discharged within thirty (30) days after its entry, or (ii) a judgment, the execution of which is effectively stayed within thirty (30) days after its entry but only for thirty (30) days after the date on which such stay is terminated or expires) or that could reasonably be expected to constitute a material adverse effect;

     (k) immediately, if the LSA (or any portion thereof) is repudiated by TWCC or shall for any reason cease to be valid, binding and enforceable;

     (l) if TWCC fails to make prompt payment of undisputed invoices due to Subcontractors or for materials or labor or otherwise repudiates or is in default with respect to any of its obligations to any Subcontractor and such failure, repudiation, or default would reasonably likely be expected to have a material adverse effect on (i) the ability of TWCC to perform its obligations under the LSA, or (ii) the Mine and such failure is not cured on or before the 20^th day after the earlier to occur of notice by NRG to TWCC of such failure or TWCC becoming aware of such failure.

     15.5 Remedies Following a TWCC Event of Default. Upon the occurrence of a TWCC Event of Default, NRG shall have the right to exercise any and all rights available to it under applicable law, including, but not limited to, the following:

     (a) Terminate the Lignite Supply Term (or the LSA as provided in Section 3.1);

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     (b) Make and pursue a claim for compensatory damages arising from such TWCC Event of Default and any termination of the LSA or Lignite Supply Term arising therefrom;

     (c) Make and pursue a claim under a Guaranty;

     (d) Exercise remedies under the Mortgage and Security Agreement and/or the Westmoreland Pledge Agreement;

     (e) The remedy of specific performance; and

     (f) Exercise step-in rights in accordance with Section 15.10.

     15.6 NRG Event of Default. The following events shall be “NRG Events of Default”:

     (a) the Bankruptcy of NRG;

     (b) the failure by NRG to pay within thirty (30) days of when due all amounts owed to TWCC and not disputed in good faith by NRG, and such failure is not cured by or on behalf of NRG within fifteen (15) days of written notice from TWCC to NRG demanding such cure;

     (c) if there is a material breach by NRG of any representation or warranty made by NRG herein; or

     (d) if there is a material failure by NRG to perform its non-payment obligations hereunder, unless NRG has cured such breach on or before 20^th day after notice thereof by TWCC or NRG has initiated and is diligently pursuing the cure of such breach and thereafter continues to diligently pursue such cure; provided that such cure is effected within forty-five (45) days from the receipt of such notice by NRG.

     15.7 Remedies Following an NRG Event of Default. Upon the occurrence of an NRG Event of Default, TWCC shall have the right to exercise any and all rights available to it under applicable law. Without limiting the generality of the foregoing, upon the occurrence of an NRG Event of Default, TWCC may terminate this LSA and collect the following amounts from NRG: including, but not limited to, the following

     (a) any amounts due and payable to TWCC under the LSA prior to the date of such termination; and

     (b) the actual cost of completing Final Reclamation.

     15.8 Payment. Damages determined under this Section 15 shall be payable within thirty (30) days after the terminating Party calculates and submits the calculations, including workpapers and documentation, to the other Party.

     15.9 Specific Performance. TWCC acknowledges and agrees that because of the unique value to NRG of and the special nature of the Mining Work TWCC is obligated to render

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to NRG hereunder, a TWCC Event of Default hereunder will cause irreparable harm to NRG that cannot be calculated and remedied solely through the payment of monetary damages, and accordingly TWCC agrees that the remedy of specific performance is an appropriate remedy for a TWCC Event of Default.

     15.10 Step-In Rights. Without limiting the generality of any other provisions for remedies for a TWCC Event of Default, TWCC hereby agrees that, upon the occurrence of a TWCC Event of Default that could reasonably be expected to result in material loss or liability to NRG, NRG shall have the right (but not the obligation) to retain a qualified contractor (“Independent Contractor”) (which could be an affiliate of NRG) to take possession of the Mine to operate the Mine at NRG’s cost and to resume or continue deliveries of lignite from the Mine to LEGS. If NRG chooses to retain an Independent Contractor, TWCC will fully cooperate in connection with retaining such Independent Contractor. The Independent Contractor would operate the Mine and perform the obligations of TWCC under this LSA for the remainder of the Term, or for such period of time as NRG believes is appropriate, provided however, that:

     (a) NRG may not seek damages from TWCC as a result of any breach by the Independent Contractor of any term of this LSA;

     (b) NRG shall continue to have the obligation to pay all current reclamation and Final Reclamation associated with the Mine (until such time, if any, as a Special TWCC Default Termination occurs);

     (c) The Independent Contractor will conduct its operations as a “contract operator” under and in compliance with TWCC’s applicable mining permits and licenses or under an alternative permitting arrangement that is consistent with Law and, if necessary, approved by the Texas Railroad Commission, and TWCC shall cooperate with NRG and the Independent Contractor to obtain any regulatory approvals required;

     (d) TWCC shall make available to the Independent Contractor for its use in performing the Mining Work the vehicles, machinery, and other mining equipment owned by TWCC and previously used in connection with performing the Mining Work;

     (e) TWCC and NRG will cooperate to ensure proper transition of the Mine and of TWCC’s vehicles, machinery, and equipment to the use of the Independent Contractor, and to that end will cooperate with TWCC’s lenders (if any), lessors (including mineral lessors), regulators, and/or any other party claiming a right in TWCC assets, or the power to direct the use or disposition of TWCC’s assets;

     (f) TWCC shall cooperate with NRG or the Independent Contractor regarding the provision of employees, and NRG and the Independent Contractor shall conduct all operations in accordance with all applicable regulatory permits and laws, including labor laws and (if applicable) collective bargaining agreements; and

     (g) NRG’s obligation to make payments of any kind under this LSA shall cease upon the retention of the Independent Contractor, except for any amounts properly

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due and owing and any claims pending as of the date of retention of the Independent Contractor, and except as otherwise provided in this Section 15.10.

     15.11 Mitigation. Each Party shall act reasonably to mitigate its damages in the event of a breach of this LSA by the other Party, including a Delivery Failure, TWCC Event of Default, and NRG Event of Default. When calculating compensatory damages, if the remedy described in Section 15.10 is exercised by NRG, the following factors shall be taken into account, (i) the reasonableness of the fee payable to the Independent Contractor, taking into consideration the fee paid to TWCC at the time of exercise of the remedy and the bids received from other contractors, (ii) the market value of any royalties payable to TWCC in connection with any reserves in the Mine owned by TWCC at the time of the Event of Default which are expected to be mined during the period covered by the exercise of the remedy described in Section 15.10, (iii) the value of any supplies owned by TWCC that are transferred to the Independent Contractor, and (iv) such other factors as may be equitable under the circumstances.

     15.12 Effect of Termination. Sections 2.2, 5.9, 6, 8.4, 12, 14, 17, 19 and 27.7 shall survive any termination of this LSA, notwithstanding that such termination may have arisen from an Event of Default; provided, however, that the obligations of NRG under Section 12.2 shall not survive a Special TWCC Default Termination, unless a Security Document Delivery has been previously completed.

16. REPRESENTATIONS AND WARRANTIES.

     16.1 TWCC Representations and Warranties. TWCC represents and warrants to NRG that:

     (a) it is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation and is qualified to conduct its business in those jurisdictions necessary to perform this LSA;

     (b) it has or reasonably expects to have all material Permits necessary for it to perform its obligations under this LSA;

     (c) the execution, delivery and performance of this LSA are within its powers, have been duly authorized by all necessary action and do not violate any of the terms or conditions in its certificate of incorporation, bylaws or other governing documents or any contract to which it is a party or by which any of its properties is bound or any law, rule, regulation, order, writ, judgment, decree or other legal or regulatory determination of any Governmental Authority applicable to it;

     (d) this LSA constitutes the legal, valid and binding obligation of TWCC, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, bankruptcy reorganization, receivership and other Laws affecting creditors’ rights generally, and with regard to equitable remedies, to the discretion of the court before which proceedings to obtain same may be pending;

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     (e) no bankruptcy, insolvency, bankruptcy reorganization, receivership or other similar arrangement proceedings are pending or being contemplated by it or, to its knowledge, threatened against it;

     (f) no suits, proceedings, judgments, rulings or orders by or before any Governmental Authority that could reasonably be expected to materially adversely affect the ability of such Party to perform this LSA are pending or, to its knowledge, threatened or contemplated;

     (g) TWCC has or, immediately prior to delivery to NRG, will have, good title to all lignite delivered to NRG, free and clear of all liens, adverse claims and encumbrances, including all royalties, taxes, black lung fees, and pension reserves; and

     (h) TWCC is in material compliance with all laws and regulations regarding the mining, transportation and sale of lignite.

     16.2 NRG Representations and Warranties. NRG represents and warrants to TWCC that:

     (a) it is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation and is qualified to conduct its business in those jurisdictions necessary to perform this LSA;

     (b) it has all material Permits necessary for it to perform its obligations under this LSA;

     (c) the execution, delivery and performance of this LSA are within its powers, have been duly authorized by all necessary action and do not violate any of the terms or conditions in its limited partnership agreement or other governing documents or any contract to which it is a party or by which any of its properties is bound or any law, rule, regulation, order, writ, judgment, decree or other legal or regulatory determination of any Governmental Authority applicable to it;

     (d) this LSA constitutes the legal, valid and binding obligation of NRG, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, bankruptcy reorganization, receivership and other Laws affecting creditors’ rights generally, and with regard to equitable remedies, to the discretion of the court before which proceedings to obtain same may be pending;

     (e) no bankruptcy, insolvency, bankruptcy reorganization, receivership or other similar arrangement proceedings are pending or being contemplated by it or, to its knowledge, threatened against it; and

     (f) no suits, proceedings, judgments, rulings or orders by or before any Governmental Authority that could reasonably be expected to materially adversely affect the ability of such Party to perform this LSA are pending or, to its knowledge, threatened or contemplated.

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     16.3 Reliance. Each of the Parties acknowledges that it has entered into this LSA and is contracting for the lignite to be supplied by TWCC and purchased by NRG in reliance upon the express representations and warranties set forth in this LSA and not upon any other representations or warranties of the other Party hereto.

17. INDEMNITIES.

     17.1 TWCC Indemnity. TWCC shall indemnify and hold harmless NRG Group from any Claim resulting from or attributable to (a) TWCC’s breach of any representation or warranty contained or failure to perform any obligation herein, or (b) TWCC’s negligence or willful acts or omissions or such acts or omissions of its employees or agents.

     17.2 NRG Indemnity. NRG shall indemnify and hold harmless TWCC Group from any Claim resulting from or attributable to (a) NRG’s breach of any representation or warranty contained herein or failure to perform an obligation, or (b) NRG’s negligence or willful acts or omissions or such acts or omissions of its employees or agents.

18. ASSIGNMENT.

     Neither Party may assign or otherwise transfer (collectively, an “Assignment”) this LSA or any of its rights or obligations hereunder, in whole or in part, without the prior written consent of the other Party, and any purported Assignment made without such prior written consent shall be void. Notwithstanding the foregoing, no such consent shall be required where the Assignment is (a) to a successor in interest of all or substantially all of the assets of such Party by way of merger, consolidation, sale of substantially all of its assets, divestiture pursuant to an order or decree of a court, or similar corporate reorganization; (b) to an affiliated corporate entity; or (c) to a purchaser of LEGS. No such Assignment shall be effective unless and until such assignee shall assume in writing all of the obligations of the assignor hereunder and under any related agreements.

19. GOVERNING LAW.

     This LSA shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas.

20. NOTICES AND REPORTS.

     Any notice or other communication required or permitted under this LSA shall be in writing and effective upon receipt if hand-delivered or sent by certified mail, postage pre-paid, return receipt requested, by commercial overnight delivery service, or by facsimile transmission (provided a conforming copy is mailed the same day and any facsimile copy sent after 5:00 p.m. central time on a Business Day, or on a day that is not a Business Day, shall not be effective until the next Business Day).

     If directed to NRG, notices and other communications shall be sent to the following:

NRG Texas Power LLC
Attn: Lignite Manager, Limestone Station

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Route 1, Box 85
Jewett, TX 75846
Fax: (903) 626-1098

     With a copy to:

NRG Texas Power LLC
Attn: General Counsel
1301 McKinney, Suite 2300
Houston, TX 77010
Fax: (713) 795-7444

     If directed to TWCC, notices and other communications shall be sent to the President of TWCC at:

Texas Westmoreland Coal Co.
4336 FM 39 South
P.O. Box 915
Jewett, Texas 75846
Attn: President/General Manager
Fax: (903) 626-5701

With a copy to:

Westmoreland Coal Company
2 North Cascade Avenue
Colorado Springs, Colorado 80903
Attn: General Counsel
Fax: (719) 448-5824

     The Parties shall further designate to each other, in writing at the earliest time practicable after the Effective Date, the names and contact information for emergency representatives in the event of non-availability of the representatives named above. Either Party may change its contact information by giving notice of such change to the other Party as above.

21. RECORDS.

     NRG shall have the right at all reasonable times to examine the records kept by TWCC concerning this LSA. NRG shall have the right to assign accounting personnel in a supervisory capacity to review the accounting policies and procedures followed by TWCC and to perform general audit functions in a commercially reasonable manner.

22. EXISTING EQUIPMENT AND ASSETS; OPERATIONS THROUGH DECEMBER 31, 2007.

     22.1 Existing Equipment and Assets. NRG agrees to make available to TWCC for use in the performance of the Mining Work the vehicles, machinery and other equipment owned by

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NRG that is currently being used at the Mine and such other items of equipment as are acquired by NRG in accordance with this LSA for use in the Mining Work. TWCC shall maintain such vehicles, machinery, and equipment in reasonable condition and in accordance with Prudent Mining Practices. When TWCC and NRG together determine that any such vehicles, machinery, or equipment is no longer needed at the Mine, TWCC shall return or make available to NRG such equipment, vehicles, or equipment. NRG shall have a reasonable right to inspect and monitor the use and maintenance of the vehicles, machinery, and equipment made available by NRG to TWCC.

     22.2 Operations through December 31, 2007. To assure that the Mine is properly maintained through the remainder of 2007, TWCC agrees to (i) operate the Mine and to maintain all vehicles, machinery, and equipment utilized at the Mine in a manner that is consistent with the Prior LSA, Prudent Mining Practices, the preliminary 2008 AOP, and the Approved AOP for 2008, and (ii) conduct and complete all reclamation obligations in accordance with the Prior LSA, Prudent Mining Practices, and all applicable Permits and Laws. Additionally, TWCC agrees that all maintenance of vehicles, machinery, and equipment utilized at the Mine, whether owned by TWCC, owned by NRG, or leased, will be conducted in accordance with the maintenance schedule attached to this LSA as Exhibit 19. NRG shall have the right to conduct an audit of the Mine and such vehicles, machinery, and equipment at any and all reasonable times to determine TWCC’s compliance with the foregoing obligations, provided that such audit does not unreasonably interfere with the operation of the Mine and is in compliance with all safety Laws and requirements.

23. UNION PACIFIC RAIL SPUR.

     TWCC agrees to cooperate with and accommodate NRG’s activities, including siting, land acquisition, permitting, design and construction activities, in connection with the siting, design, construction, operation and maintenance of a rail spur routed generally southward from LEGS to the Union Pacific Railroad mainline through lands forming a part of the Mine that are not suitable for future lignite mining by TWCC. Such cooperation and accommodation shall include taking reasonable steps to help make or secure any necessary filings with or approvals of the RCT with respect to a post-mining land use of any such impacted properties that is compatible with the existence, operation and maintenance of such rail spur. NRG agrees that it shall reimburse TWCC as Mine Costs for all direct out-of-pocket costs and expenses reasonably incurred by TWCC in providing the cooperation and accommodation required under this Section 23, provided that TWCC shall have, to the extent possible, first notified NRG of the need to incur such costs and NRG shall have approved in writing such costs prior to their incurrence, such approval not to be unreasonably withheld.

24. EMPLOYMENT; SUBCONTRACTORS.

     24.1 Nondiscrimination. NRG and TWCC warrant and represent that they are Equal Opportunity Employers, and in the performance of this LSA, they shall not engage in any conduct or practice that violates any applicable law, order or regulation prohibiting discrimination against any person by reason of his or her race, color, religion, national origin, sex or age.

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     24.2 TWCC Personnel; Subcontractors.

     (a) TWCC shall appoint an individual representative who shall have general supervisory authority over the Mine and the Mining Work (the “Mine Manager”). NRG shall be entitled to rely upon the authority of the Mine Manager to act on behalf of, and to commit, TWCC with regard to all matters under this LSA (other than modification of this LSA). Any orders, notices, or instructions given to the Mine Manager shall be deemed to have been given to TWCC. The Mine Manager shall act on behalf of TWCC as the principal interface with the LEGS Representative with respect to day-to-day operational matters.

     (b) Within ten (10) days after TWCC selects any replacement of the Mine Manager, TWCC shall notify NRG and provide the replacement Mine Manager’s qualifications to NRG. NRG shall within ten (10) days after receipt of the replacement Mine Manager’s qualifications submit in writing to TWCC any objections as to the qualifications of the replacement Mine Manager. The NRG Representative and the TWCC Representative shall meet to attempt to resolve the concerns raised by NRG. If the representatives are unable to reach agreement, then the issue of whether the replacement Mine Manager is qualified shall be resolved as a Minor Dispute pursuant to Section 6.2(a).

     (c) TWCC shall provide and make available the Mine Manager and all professional, supervisory and managerial personnel as are required to carry out the Mining Work. Such personnel shall be qualified and experienced in the duties to which they are assigned and shall be capable of carrying out the Mining Work in accordance with Prudent Mining Practices. All individuals employed by TWCC in the performance of the Mining Work shall be the employees of TWCC or its Subcontractor. TWCC shall retain sole responsibility with respect to labor matters in connection with carrying out the Mining Work. With respect to hiring of personnel and its employment policy, TWCC shall comply with all applicable labor and employment Laws and shall exercise control over labor relations in a reasonable manner consistent with the intent and purpose of this LSA.

     (d) TWCC may have any part of the Mining Work carried out by Subcontractors pursuant to written subcontracts between TWCC and such Subcontractors. TWCC shall be solely responsible for the engagement, supervision, and management of such Subcontractors. The creation of any Subcontractor relationship shall not (i) relieve TWCC of any of its obligations under this LSA, (ii) relieve TWCC of its responsibility for Mining Work carried out by any such Subcontractor, or (iii) create any relationship between NRG and any Subcontractor. Insofar as reasonably practicable, NRG shall communicate with any Subcontractor only through TWCC. In no event shall any Subcontractor be an Affiliate of TWCC, nor shall any Subcontractor make any payment or provide any other thing of value (other than the services to be provided under the subcontract or pursuant to arms-length unrelated transactions) to TWCC or any Affiliate thereof unless such amount is deducted from Mine Costs.

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     (e) No Subcontractor is intended to be, nor shall any Subcontractor be deemed to be, a third-party beneficiary of this LSA. As a condition of any subcontract and to the extent permitted by applicable Law, TWCC shall require any Subcontractor to waive any claim it might have, in law or equity or otherwise, directly or indirectly, against NRG, including any right of such Subcontractor to place a lien or similar encumbrance upon the Mine or other property of NRG. TWCC shall in all of its contracts pertaining to operations require all Subcontractors to perform their services in connection with operations of the Mine in accordance with Prudent Mining Practices.

     24.3 Reimbursement. Notwithstanding anything to the contrary in this LSA, in no event shall NRG be liable to reimburse TWCC for costs related to liability to its current or former employees or contractors for employer liability (e.g., wrongful termination, sexual harassment, failure to supervise, etc.) or failure to pay or otherwise honor contractual or statutory commitments.

25. RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES.

     NRG shall not be liable for and TWCC shall not seek reimbursement for any expenditure related to a transaction between TWCC and any affiliate of TWCC unless (a) such proposed transaction (including the material terms thereof) was disclosed to NRG in writing and (b) NRG approved such transaction in writing.

26. WARRANTY DISCLAIMER.

     TWCC MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE FITNESS OF THE LIGNITE SUPPLIED HEREUNDER FOR A PARTICULAR PURPOSE AND DISCLAIMS ALL WARRANTIES AND REPRESENTATIONS OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS LSA.

27. MISCELLANEOUS PROVISIONS

     27.1 Entire Agreement. This LSA, the Surface Use Agreement, and the Subleases constitute the entire understanding and agreement between the Parties with respect to the subject matter hereof, and, except as provided below, all prior agreements, understandings, or representations with respect to its subject matter are hereby canceled in their entirety and are of no further force and effect, except that the Prior LSA has been amended and restated in its entirety as this LSA. From and after 11:59 p.m. on December 31, 2007, the provisions of the Prior LSA shall be of no further force and effect and neither Party shall be liable under the provisions thereof, except (i) for defaults arising prior thereto, and (ii) for the provisions thereof that are amended and restated as obligations hereunder, which provisions include the provisions of Article G, Reclamation, subsections 1 and 2, of the Settlement Agreement that are restated in Exhibit 20 (“Subsections G1 and G2”). TWCC and NRG (and their respective predecessors in interest under the Prior LSA) shall continue (as part of this LSA) to have the same rights and obligations as existed under the Prior LSA with respect to Subsections G1 and G2, except as such rights and obligations of TWCC and NRG are modified as provided in Article 12 (which modifications shall benefit their respective predecessors in interest under the Prior LSA but shall

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not be construed to impose greater obligations thereon) and except that the process for the determination and payment of Final Reclamation costs shall be as provided in Section 12 and the other relevant provisions hereof (including the AOP process).

     27.2 Amendments or Modifications. No amendment, modification, or change of this LSA shall be binding upon the Parties unless and until such amendment, modification, or change is in writing and executed by the Parties.

     27.3 Severability. If any provision of this LSA shall be adjudicated to be invalid, illegal, or unenforceable, then such provision shall be considered severed from the rest of this LSA, and the remaining provisions shall continue in full force and effect as if the invalid provision had not been included.

     27.4 Construction. No understandings or agreements not expressly stated herein shall be binding on the Parties in the construction or fulfillment hereof unless such understandings or agreements are reduced to writing and signed by the respective parties. The rule of construction that ambiguous provisions shall be interpreted against the drafter shall not apply to this LSA.

     27.5 No Third-Party Beneficiaries. This LSA shall inure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. This LSA is not intended to, and shall not, create rights, remedies, or any benefits of any character whatsoever in favor of any Person other than the Parties.

     27.6 Remedies Cumulative. Except as otherwise specifically provided herein, each remedy provided for under this LSA shall be taken and construed as cumulative and in addition to every other remedy provided for herein or available at law or in equity.

     27.7 Confidentiality. Each Party shall maintain the terms of this LSA in confidence and shall not disclose any information concerning the terms, performance or administration of this LSA to any other Person; provided that (a) either Party may disclose such information: (i) to any of such Party’s Group, (ii) to any prospective member of such Party’s Group, and (iii) to any Person providing or evaluating a proposal to provide financing to the recipient Party or any direct or indirect owner of such Party and (b) NRG or TWCC may provide copies of this LSA, with pricing information redacted, to purchasers or potential purchasers of LEGS or the Mine, as the case may be, or all or any portion of the electric output from LEGS; provided in each case that the recipient Party shall provide to each Person to which disclosure is made a copy of this Section 27.7 and direct such Person to treat such information confidentially, and the recipient Party shall be liable for any breach of the terms of this Section 27.7 by such Persons to which it makes any such disclosure. The foregoing restrictions will not apply (A) to information that is or becomes generally available to the public otherwise than as a result of disclosure by the recipient Party, (B) to information that is already in, or subsequently comes into, the recipient Party’s possession, provided that the source of such information was not, to the recipient Party’s knowledge, obligated to keep such information confidential, or (C) to information that is required to be disclosed pursuant to Law or stock exchange rules and regulations or is otherwise subject to legal, judicial, regulatory or self-regulatory requests for information or documents. If either Party is required to disclose any information required by this Section 27.7 to be maintained as confidential in a judicial, administrative or governmental proceeding, such Party shall give the

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other Party at least ten (10) Business Days’ prior written notice (unless less time is permitted by the applicable proceeding) before disclosing any such information in any said proceeding and, in making such disclosure, the Party required to disclose the information shall disclose only that portion thereof required to be disclosed and shall take all commercially reasonable efforts to preserve the confidentiality thereof, including obtaining protective orders and supporting the other Party in intervention. Nothing contained herein shall obligate either Party to disclose to the other Party any information that would be prohibited from disclosure under confidentiality agreements with third parties, including licenses; and any such information shall only be disclosed to the other Party after appropriate confidentiality agreements have been entered into or appropriate consents obtained.

     27.8 Policies and Procedures. The Parties shall cooperate in good faith and use reasonable efforts to agree on, within one hundred eighty (180) days of the Effective Date, a detailed policies and procedures manual for the activities and operations contemplated by this LSA (provided that any failure to so agree shall not affect the rights or obligations of either Party hereunder, and that this LSA shall control over any contrary provisions in such policies and procedures).

     27.9 Captions. The captions to the Sections of this LSA are for convenience of reference only and shall not be taken or construed to define or limit any of the terms or provisions of this LSA.

     27.10 Counterparts. This LSA may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Delivery of the executed signature pages by facsimile transaction will constitute effective and binding execution and delivery of this LSA.

     27.11 Binding Signatures. This LSA shall not be binding on either Party hereto unless executed by both Parties hereto. NRG’s signature shall no longer be valid and binding on NRG if on or before September 28, 2007: (i) this LSA is not executed by TWCC, (ii) the Guaranty and related letter agreement are not executed by Westmoreland Coal Company and (iii) each of (i) and (ii) are not delivered to NRG by October 1, 2007.

[Remainder of Page Intentionally Left Blank. Signature Pages Begin on Next Page.]

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     IN WITNESS WHEREOF, the Parties, through their duly authorized representatives, have executed this LSA effective as of the date first written above.

TEXAS WESTMORELAND COAL CO.
By:	/s/ Joseph E. Micheletti
Name:	Joseph E. Micheletti
Title:	President

[Signature Page to Lignite Supply Agreement]

NRG TEXAS POWER LLC
By:	/s/ Thad Hill
Name:	Thad Hill
Title:	President

[Signature Page to Lignite Supply Agreement]

EXHIBIT 1

Mine

[Exhibit 1 consists of a two-page graphic depiction of the Mine.]

Exhibit 1 — Page 1

Exhibit 2

Mine Plan Insert

While this Mine Plan is specific with regard to qualities and quantities of lignite available, annual quantities of lignite to be mined and sold, the mining sequence by and in each area, the projected mining costs and the equipment and staffing resources to be employed, the Parties recognize this information is based on projections and that details herein may be subject to adjustment in an Approved AOP.

WESTMORELAND COAL COMPANY

14th Floor, 2 North Cascade Avenue, Colorado Springs, CO 80903
Phone: [719] 442-2600 • Fax: [719] 448-5894 or 5825

June 1, 2007

Thad Hill, President
NRG Texas
1301 McKinney, Suite 2300
Houston, Texas 77010

Dear Thad,

As promised, I have enclosed the life of mine projections for the Jewett Mine. This report was prepared by Mark Seglem and his staff and they can certainly provide additional detail should your people need it.

This projection was prepared on the basis of maximum efficiency and, as such, actually scales down production over the remaining life of the mine to maximize use of the draglines. It is my understanding that this approach is consistent with the recommendations of consultants who were engaged to study this matter. Also, this projection assumes that approximately five million tons of reserves are not mined as they lay beneath power towers that would have to be relocated. Given the current market for coal, this is not economically feasible, but future market conditions might change that. Finally, this mine plan pushes final reclamation out to its further point possible.

The capital requirements for the mine are also detailed. Tub work on the draglines is the major expenditure listed.

Feel free to contact me if you have any questions. Mark and his staff would probably be more helpful.

I look forward to hearing your thoughts on the long term options that we might pursue.

Sincerely,

/s/

Keith E. Alessi
Chief Executive Officer

Life of Mine Cost Projection: 2008-2018

Strictly Confidential

Report Date: May 2007

Scope:

The purpose of this report is to provide an economic review and mining details for the Life of Deposit Plan (LOD) of the Jewett Mine. This mine plan and cost forecast will be presented to NRG for review in the context of negotiating a long term “cost plus” lignite supply agreement. The mine plan and costing presented herein was compiled utilizing historical costs of equipment, maintenance, and the operational experience of the Jewett Mine coupled with best engineering practices.

Executive Summary:

Operationally this study reflects an ascending strip ratio sequence, maximizing the use of the three 8200 and the 8750 series Marion draglines. Use of mobile stripping equipment is minimized in the LOD mine plan, which leads to a step down of annual lignite sales beginning in 2012. 89.0 TBtu is scheduled for delivery for all years 2008 through 2011; deliveries reduce to 67 TBtu in years 2012 through 2014, and further reduce to 46 TBtu for years 2015 through 2018 (The option to continue mining 89 TBtu through 2015, rather than the step down delivery schedule of the LOD remains viable; however, mining costs will increase incrementally with a larger portion of stripping being completed with mobile mining equipment. Depending on the market at the time, NRG could very well have the option to incur those additional costs and purchase larger volumes of lignite). A table of projected deliveries and mining costs (without capital dollars) are included in Table 1 below.

Table 1. Production and Operating Expense Summary

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Strip Ratio

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

Tons Sold (Mton)

6.808

6.854

6.947

6.961

5.152

5.113

5.111

3.567

3.52

3.517

3.441

TBtu Sold

89.0

89.0

89.0

89.0

67.0

67.0

67.0

46.2

46.2

46.2

46.1

Cost ($MM)

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

$/Ton

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

$/mmbtu

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

Note: All values in constant 2007 dollars.

Capital Expense:

Major civil projects for this study are primarily related to Area BX development and include the construction of haulroads, construction of one major sediment control pond, relocation of highway FM 39, along with other associated drainage projects. A table of all forecasted capital expenditures is shown in Table 2 below:

Table 2. Forecasted Capital Expenditures

($ MM)

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Sediment Control

[****]

Haulroads

[****]

[****]

[****]

[****]

Relocations

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

Major Support Equipment

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

Office / Equip.

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

Land

[****]

[****]

[****]

Total Capital

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

[****]

Note: All values in constant 2007 dollars.

Table 3. Projected Depreciation Schedule for Forecasted Capital

($ MM)	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
NRG DD&A		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]

Note: Approximately [******] of non-depreciated NRG assets remain after 2020, primarily due to assumed dragline component life of 25-years.

Key Assumptions:

     The following key engineering assumptions were made for this mine plan.

Bonding

Current bond held for Permit 32F includes $50M secured by NRG (CenterPoint Energy) and $7.5M by TWCC. For Permit 47F, TWCC currently holds bonding of $17.5M and TWCC will acquire an additional $1M in bonding for Area F (Permit 47F) in 2007. Future bonding requirements are projected at [****] in 2008 and [****] in 2009. With a [***] collateralization required for bonding, restricted cash requirements are [****] and [****] in years 2008 and 2009 respectively.

Dragline Operations

DL25

• 87% availability

• 14-days of downtime per year except in 2012 when 60-days are allowed for tub replacement

• Maximum digging depth = 180 feet

• 2,480 BCY per operating hour

DL26

• 87% availability

• 14-days of downtime per year except in 2010 when 60-days are allowed for tub replacement

• Maximum digging depth = 180 feet

• 2,510 BCY per operating hour

DL27

• 87% availability

• 14-days of downtime per year except in 2011 when 60-days are allowed for tub replacement

• Maximum digging depth = 180 feet

• 2,510 BCY per operating hour

DL28

• 80% availability

• 14-days of downtime per year plus 20-days in 2008 for drum hardening

• Maximum digging depth = 165 feet

• 2,700 BCY per operating hour

Dragline Walks/Delays

• 28-days allowed for DL 25 to reopen Area B-South pit, 2009

• 45-days allowed for DL 26 to walk from Area F-North to Area BX, 2010

Mining Limits & Utility Relocations

Expanded limits within Areas BX and Area E are included. Previously planned limits for Area F-North and Area F-South are unchanged. Gas wells (3 in total) located in Area BX are removed due to depletion. Relocation of a 16” aviation fuel pipeline and 138kV power line in Area E is planned and included in the capital forecast.

Miscellaneous Assumptions

• Quality, recovery and dilution assumptions are consistent with 2007 AMP, and historical values.

• All mining sequences are scheduled with dragline positions as of May 1, 2007.

• Water rights requirements are assumed to be granted as planned from the TCEQ.

• Royalties payable to NRG are not included in this cost plus projection, and those projected royalties are listed in Table 4.

Table 4. Projected NRG Royalties

($ 1000’s)	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
NRG Royalties		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]		[****]

Dragline Sequence:

The mining sequence for each dragline is shown graphically in the mine progression maps found in Appendix B. A general description of the dragline movements are described below:

• Dragline 25 (DL 25) is shown to move to Area B-South in 2009 from its current location in Area B-North. A 28-day delay has been assumed to allow for the required walk as well as to allow DL 25 time to clean the abandoned pit in B-South. Mining continues in B-South until 2012 when DL 25 moves to Area BX to work in tandem with DL 26. This arrangement continues until 2017 when DL 25 moves back to B-South and mines until the end of 2018.

• Dragline 26 is currently located in Area F-North and continues to mine this area until 2009. From Area F-North, DL 26 walks to Area BX and mines until 2018. The walk from F-North to BX is planned to take 45-days, and is included as a capital project.

• Dragline 27 continues to mine the Area F-South until it is mined out in 2014. At the completion of mining in F-South, DL 27 walks to Area E replacing DL-28. DL27 continues mining in Area E through the term of the LOD, 2018.

• Dragline 28 continues mining in Area E through 2014, at which time DL27 takes over mining in Area E and DL-28 is retired.

Final Pit Schedule:

Reclamation of final pits generally occurs in phases, with, one or more newly created ponds, and with at least 2-years of added time to allow for water rights issues to be resolved. The following table lists the years in which final pit reclamation is forecasted.

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

C Area Phase I of II

X

D/DX Area

X

C Area Phase II of II

X

B-North Area Phase I of III

X

B-North Area Phase II of III

X

F-North Area

X

F-South Area

X

E-North Area

X

E-Mid Area

X

E-South Area

X

B-North Area Phase III of III

X

BX Area

X

B-South Area

X

Detailed Cost Report:

A detailed operating expense forecast and a detailed capital scheduled is provided in Appendix A. All costs are in constant 2007 dollars.

Mine Plan Sequence Maps:

LOD Mine Plan sequence maps are provided in Appendix B.

Appendix A: Operating Expense and Capital Forecast

Appendix B: Mine Plan Sequence Maps

Texas Westmoreland Coal Co.
2007 Life of Deposit Capital Forecast
Detail Report for Years 2008 — 2018

2007 Constant Dollars

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Total

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

SEDIMENT CONTROL

Construct Pond 36

[******]

[******]

BX1 Diversion

[******]

[******]

Total Sediment Control

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

HAUL ROADS

[******]

BX-1 Haul Road

[******]

[******]

BX-2 Haul Road

[******]

[******]

[******]

DL27 Walkway (F-South to E)

[******]

[******]

[******]

B-3 Haul Road

[******]

[******]

DL26 Walkway (B-BX)

[******]

[******]

DL26 Walkway (F-BX)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Haul Roads

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

RELOCATIONS

Magellan 16” Pipeline

[******]

[******]

FM 39 Relocation:

[******]

Construction

[******]

[******]

SWB Telephone Reloc

[******]

[******]

NAV Elec 12.5 Kv Reloc

[******]

[******]

SWB Fiber Optic Reloc

[******]

[******]

Brazos Valley 138Kv Reloc

[******]

[******]

Enbridge:

[******]

6” Pipeline (abandon)

[******]

[******]

8” Pipeline (lowering)

[******]

[******]

12” Pipeline (lowering)

[******]

[******]

20” Pipeline (lowering)

[******]

[******]

4” Pipeline (low)-North end

[******]

[******]

FM39 Surety Bond

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TXU 138kV Reloc

[******]

[******]

Substation connect to TXU 138kv

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Relocations

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 1

Texas Westmoreland Coal Co.
2007 Life of Deposit Capital Forecast
Detail Report for Years 2008 — 2018

2007 Constant Dollars

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

Total

MAJOR/SUPPORT EQUIPMENT

Engine Replacements

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Light Vehicles

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Swing Bearing 5130

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Tools & Small Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

(2) Barge Pumps-6” Diesel

[******]

[******]

[******]

[******]

[******]

DL Bucket 8200

[******]

[******]

[******]

[******]

Cable Tractor

[******]

[******]

[******]

DL Bucket-8760

[******]

[******]

Replace Boom/Weld Truck

[******]

[******]

Replace Motor Grader

[******]

[******]

[******]

[******]

Replace D-10’s (2)

[******]

[******]

[******]

Replace D-9

[******]

[******]

Replace 992/5130 Backhoe

[******]

[******]

Replace 5130 Backhoe Boom

[******]

[******]

[******]

DL Repairs (Contingency) Mechanic

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Boom Support Ropes – 8200

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Boom Support Ropes – 8750

[******]

[******]

[******]

Dragline Tub Replace – 8200

[******]

[******]

[******]

[******]

DL Production Monitor

[******]

[******]

[******]

Crusher Belt Replacement

[******]

[******]

[******]

[******]

[******]

*New Flt-785 E Dumps (4)

[******]

[******]

Total Major Equip

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

(Note: * = Capital lease equip.)

OFFICE & COMPUTER EQUIP.

Imaging Server

[******]

[******]

[******]

[******]

Data File Server

[******]

[******]

[******]

[******]

DNS/DHCP Server

[******]

[******]

[******]

[******]

Plotter Replacement

[******]

[******]

[******]

[******]

[******]

Replace Color Laser

[******]

[******]

[******]

[******]

Replace GPS Data Collector

[******]

[******]

[******]

Replace GPS Equipment

[******]

[******]

Total Office

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 2

Texas Westmoreland Coal Co.
2007 Life of Deposit Capital Forecast
Detail Report for Years 2008 — 2018

2007 Constant Dollars

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

TOTAL

Total

LANDS

Refurbish Adm., Eng., & Shop roofs

[******]

[******]

[******]

[******]

Tract Purchases/Bonus-BX

[******]

[******]

[******]

[******]

Total Lands

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Capital

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Additional Bond Collateralization

[******]

[******]

[******]

Note: Civil Projects are based on flight topography and survey is pending

LOD Cost Report Cap Detail.xls

Page 3

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Stripping

Dragline — Cost Center 514

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Dragline Stripping

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Yard

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Mobile — Cost Center 515

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Mobile Stripping

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Yard

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Stripping

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Yard

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lignite Handling

Lignite Loading — Cost Center 536

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Lignite Loading

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lignite Hauling — Cost Center 537

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Lignite Hauling

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lignite Crushing — Cost Center 539

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Lignite Crushing

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 1

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Total Lignite Handling

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Roads

Road Maintenance – Cost Centers 551 & 552

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Road Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total roads

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Dewatering

Surface Dewatering – Cost Center 571

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Surface Dewatering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Overburden Dewatering – Cost Centers 575 & 576

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Surface Dewatering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Dewatering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Maintenance

Support Equipment – Cost Center 675

Pickups/Trucks

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Cranes

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

KV Systems

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Light Plants

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Pumps & Barges

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

LOD Cost Report Cap Detail.xls/Cost Plus Cost Report

Page 2

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Total Support Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other Maintenance – Cost Centers 679 & 690

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rents

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Other Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

General/Production

Clearing – Cost Centers 596 & 597

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Clearing

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Warehouse – Cost Center 595

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Freight

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Hotshot Fees

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rent

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Purchases

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Inventory Adjustment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Restocking Fees

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Education & Training

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Warehouse

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Production Taxes

State Sales & Use Tax

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Federal Reclamation Tax

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Real Estate & Personal Property T

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Production Taxes

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Relocations – Cost Center 598

Page 3

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Relocations

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

General – Other-Cost Centers 592 & 590

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total General – Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total General Production

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TOTAL PRODUCTION

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Current Reclamation

Regarding – Cost Center 715

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Regrading

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Revegetation – Cost Center 717

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Revegetation

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Current Reclamation

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Post Mine Reclamation

Final Pit – Cost Center 431

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Final Pit

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 4

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Facility Removal – Cost Center 432

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Facility Removal

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Post Mine Management – Cost Center 439

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Post Mine Management

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Post Mine Reclamation

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Compliance

Permitting – Cost Center 748

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Permitting

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Monitoring-General – Cost Center 742

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Monitoring – Engineering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Monitoring – Haz Mat – Cost Center 743

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Monitoring – Haz Mat

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sediment Control – Pond Treatment – Cost Center 741

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Sediment Control – Pond

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sediment Control – Engineering-Cost Center 745

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Sediment Control – Engin

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sediment Control – Erosion Control Cost Center 746

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Sediment Control

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 5

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sediment Control – Hay – Cost Center 747

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Sediment Control

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other – Cost Center 749

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Compliance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TOTAL RECLAMATION

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Administrative & Engineering

Engineering – Cost Center 580

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Engineering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Safety – Cost Center 952

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Awards

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Safety

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Facilities – Cost Center 953

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Utilities

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Education & Training

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Association Dues/Fees

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Small Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Facilities

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 6

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Security – Cost Center 955

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Security

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Business/Administration – Cost Centers 951 & 959

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Communications

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment/Building

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Discounts

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Industry/Association Dues

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Education & Training

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Parent Company Allocated Overhe

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Business

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

D,D, & A

Deprec. Depl. Amort

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total D, D, & A

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Purchasing – Cost Center 954

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Education & Training

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Purchasing

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Employee Relations – Cost Center 957 plus 959160

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Personal Issue Allowance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Post Employment Benefits

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Awards

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 7

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Industry/Association Dues

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Education & Training

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Employee Relations

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Information Systems – Cost Center 956

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Telephone

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Small Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Education & Training

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Information Systems

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lands – Cost Center 956

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Industry/Association Dues

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Education & Training

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Surface Leases

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Lands

[******]

[******]

[******]

[******]

[******]

[******]

[******]

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[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Insurance

Insurance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Insurance

[******]

[******]

[******]

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[******]

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[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TOTAL ADMIN. & ENGINEERING

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Royalties & Damages

Surface Damages

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Delay Rentals

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Minimum Royalties

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Mineral Royalties

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Overriding Royalties

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Royalties & Damages

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 8

Texas Westmoreland Coal Co.
Cost Report for Life Of Deposit

Costs Billed Thru to NRG

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Non-operating Income/Deductions

Donations

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Interest Expense

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Non-operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Grand Total

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TWCC Tons

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

NRG Tons

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Tons

[******]

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[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/MMBTU

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Yards:

Dragline

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

BWE

Mobile

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Reclamation Acres

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 9

[The last two pages of Exhibit 2 consist of a two-page graphic depiction of the Mine.]

EXHIBIT 3

2008 Preliminary AOP

See attached. Note that although the attached preliminary form contains a line for D.D. &A (Depreciation, depletion and amortization), such amounts are not included in Mine Costs.

Exhibit 3 — Page 1

Exhibit 3
Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Stripping

Dragline — Cost Center 514

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

Total Dragline Stripping

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Yard

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Mobile — Cost Center 515

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rent Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Additional Equipment Costs

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Mobile Stripping

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Yard

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Stripping

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Yard

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lignite Handling

Lignite Loading — Cost Center 536

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

Rent Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Lignite Loading

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lignite Hauling — Cost Center 537

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Additional Equipment Costs

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

Total Lignite Hauling

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lignite Crushing — Cost Center 539

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 1

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

Equipment Rental

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

Total Lignite Crushing

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Lignite Handling

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Roads

Road Maintenance — Cost Center 551 & 552

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rent

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Road Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Roads

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Dewatering

Surface Dewatering — Cost center 571

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Surface Dewatering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Overburden Dewatering — Cost Centers 575 & 576

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Maintenance

[******]

Page 2

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Total Overburden Dewatering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Dewatering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Maintenance

Support Equipment — Cost Center 675

[******]

Labor (including fringe & tax)

[******]

Pickup/Trucks

[******]

Travel

[******]

Materials & Supplies/Equip Operating

[******]

Contract

[******]

Rental Equipment

[******]

Cranes

[******]

KV Systems

[******]

Reclamation Equipment

[******]

Light Plants

[******]

Pumps & Barges

[******]

Equipment Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Support Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other Maintenance — Cost Centers 679 & 690

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

[******]

Travel & Auto

[******]

Materials & Supplies

[******]

Contract

[******]

Electricity

[******]

Rents

[******]

Total Other Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Maintenance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

General Production

Clearing-Cost Centers 596 & 597

[******]

Labor (including fringe & tax)

[******]

Materials & Supplies

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Clearing

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Warehouse- Cost Center 595

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 3

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Freight

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Hotshot Fees

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rent

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Purchases

[******]

Restocking Fees

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Warehouse

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Production Taxes

State Sales & Use Tax

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Federal Reclamation Tax

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Real Estate & Personal Property Tax

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Production Taxes

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Relocations- Cost/Center 598

Materials & Supplies

[******]

Contract

[******]

Total Relocations

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

General — Other- Cost Centers 592 & 590

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total General — Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total General Production

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TOTAL PRODUCTION

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Current Reclamation

Regrading- Cost Center 715

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Regrading

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Revegetation- Cost Center 717

Page 4

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Revegetation

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Current Reclamation

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Post Mine Reclamation

Final Pit- Cost Center 431

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Equipment Operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Final Pit

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Facility Removal- Cost Center 432

Labor (including fringe & tax)

[******]

Materials & Supplies

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Facility Removal

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Post Mine Management- Cost Center 439

Labor (including fringe & tax)

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Post Mine Management

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Post Mine Reclamation

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Compliance

Permitting- Cost Center 748

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Travel & Auto

[******]

Bond & Insurance

[******]

Total Permitting

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Monitoring- General- Cost Center 742

Labor (including fringe & tax)

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 5

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Small Equipment

[******]

Electricity

[******]

Other

[******]

Total Monitoring- Engineering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Monitoring- HazMat- Cost Center 743

Labor (including fringe & tax)

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Monitoring- Haz Mat

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sed Control- Pond Treatment- CC 741

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

Total Sediment Control- Pont Treatment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sediment Control-Engineering- Cost Center 745

Labor (including fringe & tax)

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

Equipment Operating

[******]

Equipment Maintenance

[******]

Total Sediment Control- Engineering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sediment Control- Erosion Control- Cost Center 746

Labor (including fringe & tax)

[******]

Materials & Supplies

Total Sediment Control

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Sediment Control- Hay- Cost Center 747

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Sediment Control

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Acre

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other- Cost Center 749

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 6

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Gainsharing

[******]

Awards

[******]

Travel & Auto

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Industry/Association Dues

[******]

Education & Training

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Compliance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TOTAL RECLAMATION

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Administrative & Engineering

Engineering- Cost Center 580

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract Services

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Engineering

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Safety- Cost Center 952

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

[******]

Awards

[******]

Travel & Auto

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Small Equipment

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Safety

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Facilities- Cost Center 953

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Utilities

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Small Equipment

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Facilities

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 7

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Security- Cost Center 955

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Security

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Business/Administration- Cost Centers 951 & 959

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

[******]

Travel & Auto

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Electricity

[******]

Communications

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment/Building

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Parent Company Allocated Overhead

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Business

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

D.D.&A-TWCC Existing Assets Only

Deprec, Depl, Amort.

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total D, D, & A

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Purchasing- Cost Center 954

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

[******]

Travel & Auto

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Purchasing

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Employee Relations- Cost Center 957 plus 959160

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Employee Relations

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Information Systems-Cost Center 956

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

[******]

Travel & Auto

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 8

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Rental Equipment

[******]

Telephone

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Small Equipment

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Information Systems

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Lands-Cost Center 958

Labor (including fringe & tax)

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Gainsharing

[******]

Travel & Auto

[******]

Materials & Supplies

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Contract

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Industry/Association Dues

[******]

Education & Training

[******]

Surface Leases

[******]

Other

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Lands

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Insurance & Workers Compensation

Insurance

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Ins. & Workers Comp.

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TOTAL ADMIN. & ENGINEERING

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Royalties & Damages

Writeoff of nonrecoupable adv roy

[******]

Drilling Damages

[******]

Surface Damages

[******]

Delay Rentals

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Minimum Royalties

[******]

Credit for Recoup of A/R Pd by REI

[******]

Mineral Royalties

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Overriding Royalties

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Budget Adjustment

[******]

Total Royalties & Damages

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Page 9

Texas Westmoreland Coal Co.
2008 Preliminary AOP — Mine Costs

Final 8/22/07

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Total

Non-operating income/Deductions

Other Non-operating

[******]

Donations

[******]

Interest Expense

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Interest Income

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Non-operating

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Grand Total

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

$/Ton

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

TWCC Tons

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

NRG Tons

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total Tons

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

S/MMBTU

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Yards:

Dragline

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

BWE

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Mobile

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Total

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Reclamation Acres

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

MMBTU

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Avg Btu

[******]

Page 10

Texas Westmoreland Coal Co.
2008 Preliminary AOP Capital Budget

2008 Constant Dollars

Jan

Feb

March

April

May

June

July

Aug

Sept

Oct

Nov

Dec

TOTAL

SEDIMENT CONTROL

Pond 36

[******]

[******]

BX1 Diversion

[******]

[******]

[******]

[******]

[******]

[******]

HAUL ROADS

(None)

[******]

RELOCATIONS

Magellan 16” Pipeline

[******]

[******]

FM39 Relocation Construction

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

FM39 SW Bell

[******]

[******]

[******]

[******]

FM39 Navasota Electric

[******]

[******]

[******]

[******]

FM39 SW Bell Fiber Optic

[******]

[******]

[******]

[******]

FM39 Brazos 138 kV

[******]

[******]

[******]

[******]

Enbridge 6” Pipeline

[******]

[******]

Enbridge 8” Pipeline

[******]

[******]

[******]

Enbridge 12” Pipeline

[******]

[******]

[******]

[******]

Pinnacle 20” Pipeline

[******]

[******]

[******]

[******]

Enbridge 4”

[******]

[******]

FM39 Surety Bond

[******]

[******]

[******]

Page 1

Texas Westmoreland Coal Co.
2008 Preliminary AOP Capital Budget

2008 Constant Dollars

Jan

Feb

March

April

May

June

July

Aug

Sept

Oct

Nov

Dec

TOTAL

MAJOR/SUPPORT EQUIP

Engine Replacements

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Light Vehicles

[******]

[******]

Tools & Small Equipment

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

(2) Barge Pumps-6” Diesel

[******]

[******]

(2) Cable Tractors

[******]

[******]

Replace Motor Grader

[******]

[******]

DL Repairs (Contingency)

[******]

[******]

[******]

[******]

[******]

Boom Support Ropes — 8200

[******]

[******]

DL Production Monitor

[******]

[******]

SAFETY EQUIPMENT

20’ Enclosed Trailer

[******]

[******]

Safety Rescue Equipment

[******]

[******]

[******]

[******]

OFFICE & COMPUTER EQUIP.

DNS/DHCP Server

[******]

[******]

LANDS

FM 39 ROW

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Tract Purcases/Bonus

[******]

[******]

[******]

[******]

Admin Roof Restoration

[******]

[******]

Admin A/C Unit Replace

[******]

[******]

[******]

Grand Total

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

[******]

Additional Bond Collateralization

[******]

[******]

Note: Civil Projects are based on flight topography and survey is pending. Sales Tax has not been included.

Page 2

EXHIBIT 4

AOP Components

Each AOP shall include details of the lignite reserve quantities and quality, mining and reclamation plans, the maximum capacity of the Mine for the relevant Year, operations, assumptions and estimated costs required to produce and deliver AOP Volumes proposed by NRG, and to perform agreed reclamation and other work during a suspension of production or after production ceases. The AOP shall contain initial capital estimates and justification, including development and construction plans and budget quotations. Without limiting the generality of the foregoing, each AOP shall contain the components set forth in the attachment hereto titled “Exhibit – AOP and Other Information Requirements” and shall be of a scope and level of detail similar to the attachment hereto entitled “Northwestern Resources Co. 1999 Annual Mine Plan”.

Exhibit 4 — Page 1

EXHIBIT 4

AOP and OTHER INFORMATION REQUIREMENTS

In the course of developing an Annual Operating Plan (AOP), NRG requests TWCC use, maintain, and make available for review by NRG the following information, provided such information is readily available:

I. Life of Mine Plan Information Requirements

The information provided each year for the updated Life of Mine Plan should include the following items plus any other information required to substantiate Seller assumptions or any other Buyer inquiries. The Life of Mine Plan shall be based on engineered estimates of annual quantities and work effort and shall provide reasonable details of assumptions, annual production and operations statistics, and annual production and capital cost estimates as follows.

1)

The updated Life of Mine Plan should be based on an updated geological model that reflects all available geological and lignite quality data. The updated geological model should be provided including drill hole collar surveys, drill hole logs, sample quality analyses and all other information collected from drilling and sampling programs. The geological model should be provided in electronic form in a format convenient for use by Buyer.

2)

Mapping in Mincom, Vulcan, SurvCadd, Microstation, Auto Cad or some other useable electronic format including the current:

a)	most recent topographic mapping and digital terrain model and updated aerial photography, if any; mining limits and mined out areas;
b)	boundaries including subcrop, burn, oxidized, washout, and other geologic limits;
c)	property, lease and other relevant boundaries;
d)	drainage;
e)	land use and final reclamation status;
f)	current and planned mine infrastructure (i.e. access and haul roads, surface facilities, sediment ponds, soil storage areas, coal loadouts, etc.);
g)	dragline and other mining cut layouts; and other areas of mine disturbance planned during the Life of Mine Plan period.

3) Schedule of production volumes and lignite tonnages showing all major quantities and other relevant data including:

a)	Dragline virgin stripping and rehandle volumes (bcy) by machine and by dig method;
b)	Haulback and topsoil removal volumes (bcy) by fleet (wheel loader or easi-miner);
c)	Parting removal volumes (bcy) by fleet (loader or easi-miner) & % direct cast;
d)	Pre-stripping volumes (bcy) by fleet (shovel/truck or dozer);
e)	Lignite tonnage by mining area and by fleet (loader or easi-miner);
f)	Clearing and grubbing acres
g)	Land grading and shaping acres

4)	Summary of operating costs by mining function (e.g. dragline stripping, lignite hauling, current reclamation,, supervision, etc.) or cost center and also by major cost component (e.g., wages, salaries, payroll burdens, diesel fuel, parts, tires, etc.).
5)	Summary of operating costs by Seller object account (e.g. hourly labor, salaried labor, maintenance, G&A, production taxes and royalties, and etc.
6)	Mine plan layout and design parameters including:

a)	Mine plan design parameters including wall angles, spoil angle of repose, densities of lignite, overburden and parting materials, waste material swell factors, lignite swell factor, parting/dilution quality
b)	Lignite recovery assumptions including methodology for estimating delivered recovered tonnages and quality from modeled in situ reserves (i.e. minimum recoverable lignite thickness, minimum separable parting thickness, lignite roof and floor loss thickness, roof and floor dilution thickness)
c)	Pit designs including geotechnical and slope stability work, range diagrams, mining conditions and unit operations
d)	Mine plan pit widths
e)	Plan method of boxcut development (dragline, shovel/truck, other)
f)	Boxcut design parameters (pit width, low wall angle, high wall angle), boxcut range diagrams, and boxcut spoil placement location
g)	Dragline specifications and operating parameters
h)	Dragline operational range diagrams and rehandle curves
i)	Maximum dragline stripping depth
j)	Pre-stripping fleet waste allocation methodology
k)	Topsoil storage locations
l)	Metered hour to scheduled hour conversion

7) Equipment productivities including:

a)	Dragline stripping rates (bcy/hour) by mode (e.g., side-casting, extended benching, chop-cutting, spoil-side)
b)	Parting and haulback removal rates (bcy/hour)
c)	Wheel loader parting, haulback, and topsoil removal rates (bcy/hour)
d)	Hydraulic excavator pre-stripping rate (bcy/hour)
e)	Lignite loading rate (tons/hour)
f)	Wheel loader lignite and sludge loading rates (tons/hour)
g)	Dozer push stripping (bcy/hr) and land grading rates (acre/hour)

8)	Availabilities and operational efficiency by equipment fleet. Include definitions of availability, utilization and distance.
9)	Lignite haulage efficiency from each area and haul distances.
10)	Scheduled and meter hours by equipment type.
11)	Summary of hourly operating costs for major production equipment detailing the cost per meter hour of diesel fuel, parts, major components, tracks/tires/wire rope and vendor labor.

12)	Life-of-mine capital schedule showing planned mine development, equipment descriptions, additions, replacements and costs.
13)	Schedule of planned major component replacement costs by fleet and component documented with equipment and major component life reports showing accumulated frame hours for each piece of major production equipment and component lives, exchange intervals, and other relevant information.
14)	Depreciation lives (years) for the different equipment and asset classes.
15)	Life-of-mine depreciation and lease cost schedule for existing assets.
16)	Schedule and description of other fixed costs.
17)	Summary of salaried and hourly Mine labor requirements by grade/job description and equipment type showing operations and maintenance personnel separately.

II. Annual Operating Plan/Annual Mine Plan and Budget Information Requirements

The Annual Mine Plan should be a more detailed plan and budget for the first year of the Life of Mine Plan. In the Annual Mine Plan, the mining sequence, production statistics and budget operating and capital cost estimates shown in Item 1 above should be provided on a monthly basis. In addition, major capital requests should be reasonably justified each year and accompanied by full details on the budgeted item and its proposed service and life. Additional information to be included in the Annual Mine Plan is as follows.

1)	Mine operating schedule — scheduled operating days per month, shifts per day, number of paid holidays, etc.
2)	Labor

a)	Labor costing parameters including total paid hours per year, paid non-working hours, overtime hours and rates, etc.
b)	Shift schedules (12-hour shifts, 8-hour shifts, other).
c)	Description of workers included in each pay grade.
d)	Hourly wage rates by pay grade ($/hour).
e)	Shift differentials ($/hour).
f)	Site-specific labor conventions or assumptions; i.e., number of dragline crew members, maintenance requirements (i.e., mechanics/welders per dragline shift, field maintenance workforce scheduling parameters, etc.), warehouse, etc.
g)	Salary cost for salaried positions i.e., superintendent, foreman, engineer, technician, etc.
h)	Organization chart

3) Benefits

a) Variable payroll tax/fringe benefits factors (%) for hourly and salaried personnel as a percentage of total base pay (with base pay defined as total paid hours x rate per hour + shift differential).

b) Fixed payroll tax/fringe benefits factors ($/person/year) for hourly and salaried personnel.

4) Supplies

a)	Assumed delivered unit consumables prices for diesel fuel ($/gallon) including only applicable off-road taxes.
b)	Tire costs.
c)	Any other major consumables items.

5) Equipment

a)	Current equipment list detailing the manufacturer and model number for all production equipment, service vehicles, and support equipment.
b)	Rated bucket capacity (cubic yards) for draglines, hydraulic excavators, and front-end loaders.
c)	Diesel fuel consumption rates for major production equipment (gallon/hour).
d)	Typical truck payloads in bcy and tons and number of loading machine passes to fill truck.
e)	Typical truck dumping times, queuing delays, and other operating parameters.
f)	Mine haulroad speed limits (mph) and typical ramp grades.

6) Mine Overheads

a)	Property tax — basis for calculation or monthly amount
b)	Insurance — basis for calculation or monthly amount
c)	Permitting Fees — monthly cost
d)	Legal and auditing expenses — monthly cost or $/ton
e)	Outside services expenses — monthly cost or $/ton
f)	Exploration Drilling — monthly cost or $/ton
g)	Employee related expenses — monthly cost or $/ton
h)	Governmental/environmental relations — monthly cost or $/ton
i)	Publications, memberships, and dues — monthly cost or $/ton
j)	Freight and postage — monthly cost or $/ton
k)	Other expenses — monthly cost or $/ton

7)	Production taxes and royalties — for each provide basis and cost.
8)	Production Plans and Statistics

a)	Annual mine progress map for dragline mining areas and overall disturbed area.
b)	Annual rough grading, final grading, SPGM removal/stockpiling/replacement, initial and permanent vegetation, and bond release plans including maps and production statistics.
c)	Summary of current and planned equipment quantities and assignments (e.g., one D375 dozer with dragline).

9) Cost and Cash Flow Estimates

a)	Capital schedule including budgeted prices for equipment replacements and additions; infrastructure additions and other development expenses. Major capital requests should include reasonable justification by item as may be requested by Buyer.
b)	Loan and Lease Obligations list showing all equipment under lease, the lease payment, the remaining lease term and lease buyout amount.

10)	Beginning and end of year capital assets listing showing cost, life, depreciation, accumulated depreciation, remaining life, and remaining net book value.
11)	Variance analysis — a comparison of key production statistics, major equipment production rates, labor productivity, and major costs for the Annual Mine Plan with actual statistics and costs from the previous year.

NRG also request this information, all or in part along with any other information requested by NRG be included in the following three reports to be produced by TWCC:

A)	Annual Mine Plan: Five Year Mine Plan with the 1st year by the month, 2nd year by the quarter and the 3rd, 4th, and 5th years on an annual basis.
B)	Annual Capital and Operating Budgets: Five Year Budgets with the 1st year by the month, 2nd year by the quarter and the 3rd, 4th, and 5th years on an annual basis.
C)	Life of Mine Plan: On an annual basis as determined by NRG.

TWCC is to follow a similar format used in the 1999 Jewett Mine AMP and Budget Reports for Items A & B and the 2008 — 2018 LOMP for future LOMP.

Northwestern Resources Co.

1999

ANNUAL MINE
PLAN

October 1998

[LOGO]

HL&P Limestone

Jewett Mine
1999 Annual Mine Plan

TABLE OF CONTENTS

I. OVERVIEW	1-1
II. ASSUMPTIONS
2.1 Lignite Delivery Schedule	2-1
2.2 General	2-2
2.3 Lignite Recover & Quality	2-2
2.4 Equipment Operation	2-3
2.5 Equipment Hours and Availability	2-5
2.6 Planned Equipment Downtime	2-5
2.7 Geotechnical Parameters	2-6
III. GEOLOGY	3-1
IV. MINE DESIGN
4.1 Stripping	4-1
4.2 Clearing	4-3
4.3 Lignite and Overburden Quantities	4-3
V. DEVELOPMENT
5.1 Overburden Dewatering	5-1
5.2 Mine Electrical System	5-3
5.3 Civil Development Activities	5-4
5.4 Development Projects	5-5
VI. COMPLIANCE
6.1 Regrade / Reclamation Cover	6-1
6.2 Final Surface Preparation	6-1
6.3 Drainage Control	6-3
6.4 1999 Current Revegetation Schedule	6-4
6.5 Extended Responsibility Period	6-4
VII. LAND	7-1
VIII. EQUIPMENT/MANPOWER	8-1
IX.-X. EXHIBITS

i 

Jewett Mine
1999 Annual Mine Plan

LIST OF TABLES

Table 2.1 Lignite Delivery Schedule	2-1
Table 2.2 Dragline Rates	2-3
Table 2.3 Equipment Availability	2-5
Table 3.1 Production Drilling Program	3-3
Table 4.1 DL25 - Area B Quantities	4-4
Table 4.2 DL26 - Area C & BX Quantities	4-5
Table 4.3 DL27 Quantities	4-6
Table 4.4 DL28 Quantities	4-7
Table 4.5 Combined Mining Area Quantities	4-8
Table 4.6 Inventory Schedule	4-9
Table 4.7 Lignite Quality	4-10
Table 5.1 Dewatering Installation Table	5-1
Table 6.1 Acres Regraded And Reclaimed	6-2
Table 7.1 Projected Deliveries by Lease for 1999	7-3
Table 7.2 Sales Tonnage Projections	7-4
Table 8.1 Jewett Mine Staffing Plan	8-1
Table 8.2 Major Equipment Requirements	8-2
Table 8.3 Major Equipment Replacement Schedule	8-3
Table 8.4 Equipment Hours	8-4
Table 8.5 Equipment Hours — Fleet Summary	8-6

I. OVERVIEW

     The 1999 Annual Mine Plan (99 AMP) was prepared to address mining and support issues in sufficient detail, to enable preparation of the 1999 Capital and Expense Budgets for the Jewett Mine.

     There has been a significant increase in delivery requirements since the publication of the 1998 Annual Mine Plan (98 AMP). This increase is being made up in several ways.

     One of the changes is the application of the BWE in tandem with a dragline. This is expected to raise the annual BWE production from 10.5 to 14 million bcy/yr. A geotechnical evaluation of this operation currently is being performed. Blasting is also being tried, on a limited basis, to increase dragline productivity. Finally, our truck fleet will begin using larger trucks and eventually more of them.

     Reserve calculations are based on the latest geologic models, 1999 East and 1998 West. In some parts of Area C the lower seams (5 and 6) have been combined due to minimal parting thickness and acceptable quality. Mining sequences follow those contained in Plan K quite closely.

     A permit renewal / revision was approved on June 30, 1998 and the order became final on July 23, 1998. This renewal extended the permit term for another five years and allows for mining in Area DX. All stripping advances conform to the existing disturbance boundaries.

 1-1 

II. ASSUMPTIONS

2.1 DELIVERY SCHEDULE

TABLE 2.1
LIGNITE DELIVERY SCHEDULE
HL&P Delivery Schedule (Jones to Embry, April 2, 1998)

Period	Tons		BTU/Ib.		TBTUs
January		754		6508		9.81
February		668		6428		8.59
March		471		6662		6.28
April		587		6694		7.86
May		820		6694		10.98
June		800		6694		10.71
July		830		6694		11.11
August		830		6694		11.11
September		800		6694		10.71
October		820		6694		10.98
November		800		6694		10.71
December		820		6694		10.98
1998 Total		9,000		6657		119.83
January		840		6579		11.05
February		760		6579		10.00
March		590		6579		7.76
April		420		6579		5.53
May		570		6579		7.50
June		830		6579		10.92
July		860		6579		11.32
August		860		6579		11.32
September		830		6579		10.92
October		860		6579		11.32
November		830		6579		10.92
December		850		6579		11.18
1999 Total		9,100		6579		119.74
1st Qtr		2,500		6590		32.95
2nd Qtr		2,100		6590		27.68
3rd Qtr		2,500		6590		32.95
4th Qtr		2,600		6590		34.27
2000 Total		9,700		6590		127.85
1st Qtr		2,400		6563		31.50
2nd Qtr		2,400		6563		31.50
3rd Qtr		2,500		6563		32.82
4th Qtr		2,600		6563		34.13
2001 Total		9,900		6563		129.95
2002		10,000		6473		129.46
2003		9,700		6411		124.37
2004		9,800		6493		127.26
2005		10,200		6399		130.54
2006		9,900		6544		129.57
2007		9,600		6520		125.18
2008		9,900		6428		327.27

 2-1 

2.2 GENERAL

     Draglines are given highest priority, they are scheduled at 100% of available hours. The BWE is always scheduled in tandem with a dragline so the BWE is not sequenced as a separate unit. The mobile fleet size is levelized to meet capacity needed after using all DL/BWE hours.

     Working inventory capacities are assumed to be approximately 110,000 tons per dragline pit. Lignite Handling Facility & mine area stockpile capacities are assumed to be limited to 1,150,000 tons. Minimum total inventory is targeted at 700,000 tons.

     Interburden with a maximum thickness of 10 feet is assigned to mobile equipment for removal. Interburden with thickness greater than 10 feet is assigned to the draglines for removal.

2.3 EQUIPMENT OPERATION

Dragline Rates

The dragline targets were the following annualized rates:

Rate for the 8200	20,000,000 cy/yr
Rate for the 8750	28,000,000 cy/yr
Tandem rate for 8750 & BWE	42,000,000 bcy/yr	(80% for the first 6 months)
Tandem rate for 8200 & BWE	32,000,000 bcy/yr

The Table 2.2 represents the dragline rates used in the equipment scheduling process.

TABLE 2.2
1999 ANNUAL MINE PLAN
DRAGLINE RATES

BCY/YR x 1000

Mode	Marion 8200		Marion 8750
Normal		24,900		37,100
Top Pass		19,500		28,600
Chop		20,100		28,600
Spoilside		18,800		28,600
Rehandle		18,800		28,600
Key		20,100		30;400
Tandem		18,000		28,000

     Marion 8200 rates assume either hi-pro or modified hi-pro buckets ore in service on all machines. Marion 8750 rates assume a 128 cyd bucket is in use.

 2-2 

     Dragline rehandle will vary by seam structure, depth & digging mode. The volume of rehandle (cy/ft of pit) was calculated for various cases using Pitplan/Pitboss. For depths up to 150 ft., rehandle is assumed to be included in DL rates. For depths from 150 ft. to 180 ft. as much as an additional 19% rehandle is added. Dragline boxcut volumes were calculated based on profile volumes from Pitplan/Pitboss.

Dragline Operating Parameters

• Draglines 25, 26 & 27 will strip overburden to a maximum depth of 180 feet

• Dragline 28 will strip overburden to a maximum depth of 165 feet

• In tandem with the BWE, Dragline 28 will strip overburden to a maximum depth of 185 feet

• Dragline pit widths are assumed to be 100 ft. minimum; 140 ft. normal; 200 ft. maximum

Dragline Scheduling Parameters

		Oper. Delay	Mech./Elec			Dig	Mech./Elec
Machine	Dig Hrs	Hrs	Hrs	Holiday	Total	Avail.	Avail.
8200	6,080	1,520	1,136	24	8,760	80%	87%
8750	5,941	1,485	1,310	24	8,760	80%	85%

Dragline Moving Delays

1.	From Area DX to Area E     1 week
2.	From Area E to Area F      1 week
3.	From Area C to Area BX     1 week

BWE

     The BWE works in tandem with draglines for the 10 years covered in this mineplan, except for the first eight months of 2008. The BWE is assumed to produce 14 million bcy/yr except the first six months when it produces at 80%. When the BWE digs it is always in tandem with a dragline, no sequence was done for the BWE alone. The BWE move from Area DX to B causes a production delay of two weeks.

Mobile Fleet

     Mining areas with overburden depths averaging 50 feet or less were reserved in separate blocks to create mobile pits. In the event of low inventory release by the draglines, supplemental release will come from the mobile pits using the following assumptions:

• Dozers: 40% of total overburden (topsoil is removed by trucks; dozers then push burden into open pit).

• Trucks: 60% of total overburden (topsoil and remaining burden down to coal)

 2-3 

• 100 ton end dump trucks are sized with an average annual capacity of 1,200,000 bcy/yr/truck.

• 150 ton end dump trucks are sized with an average annual capacity of 1,700,000 bcy/yr/truck.

• Overburden in excess of 180 or 185 feet will be removed by mobile equipment.

2.4 LIGNITE RECOVERY & QUALITY

Lignite Recovery Parameters

Minimum Seam Thickness		1.5 ft.
Coal Loss Per Seam
Seams	1.5 - 2.0 ft.	50	%	(3 & 4 seam)
Seams		25	%	(5 & 6 seam)
Seams	2.0 - 4.0 ft.	10	%
Seams	4.0 - 7.0 ft.	7.5	%
Seams	> 7.0 ft.	5.0	%

Underground Mines: 6 seam only: 50 % of in-place modeled reserves loaded into Minestar; plus normal mining recovery losses based on seam thickness listed above to calculate ROM tonnage. Other seams: Normal recovery adjustments.

     50% of C51 seam in Areas D & DX is wasted (assumed to be poor quality)

Lignite Quality Parameters

Coal Loss Per Seam	0.5 feet
Maximum Allowable In-Seam Parting	6 inches
Moisture Adjustment		-1.5	%
Dilution Added Per Seam	3 inches

2.5 EQUIPMENT HOURS AND AVAILABILITY

     A detailed listing of the equipment operating hours used to determine the equipment requirements and replacement schedule for the 1999 Budget is shown in Tables 8.4 & 8.5. Equipment availability is shown in the following table.

 2-4 

TABLE 2.3
1999 ANNUAL MINE PLAN
EQUIPMENT AVAILABILITY

EQUIPMENT	1997 ACTUAL		1999-2008 PROJECTED
8200 Dragline		89.1		87
8750 Dragline		92.3		85
BWE		84.1		80
Cat 5130 Backhoe		88.9		87
EX1100 Backhoe		90.5		87
Cat 992C FEL		86.9		85
330M End Dump Truck		84.8		85
325M Water Track		91.3		90
CH120 Hauler		85.8		85
16G Grader		92.8		90
D9/RT Dozer		89.3		88
D10 / Komatsu Dozer		88.9		88
D11 Dozer		88.0		88
657E Scraper		85.2		83

2.6 PLANNED EQUIPMENT DOWNTIME

DL25	–	Nov. 1999 for rail/roller repairs (estimated downtime = 21 days) Dec. 1999 for Hoist drum ends (estimated downtime = 20 days)
DL26	–	Nov. 1998 for rail/roller repairs & boomfeet (estimated downtime = 21 days)
DL27	–	Mar. 1999 swing rack repairs (estimated downtime = 25 days) Nov. 2000 for rail/roller repairs (estimated downtime = 21 days) Dec. 2000 for Hoist drum ends (estimated downtime = 20 days)
DL28	–	Aug. 1999 for Point Sheaves (estimated downtime = 9 days)

2.7 GEOTECHNICAL PARAMETERS

     Figures 2.1 through 2.3 illustrate typical highwall and spoil angles and bench heights used in the 1999 Annual Mine Plan. These criteria were developed based on the several reports on highwall and slope stability prepared by Law Engineering in 1990. The areal extent of each highwall configuration may be seen in the Law Study, Phase III, Fig. 5-1. A summary of general assumptions follows.

 2-5 

Single Seam Areas

Spoil:	50’ safety bench at 40’ to 80’ height Individual slope angles of 35° with safety bench Steepened slope angle of 38° when lower slope is excavated
Highwall:	Maximum chop height of 90’ Lower slope angle 45° to max. 90’ height with 50’ wide safety bench Intermediate slope angle 50° to max. 90’ height with 50’ wide safety bench Upper slope angle 50° to maximum 90’ height

Multiple Seam Areas

Spoil:	50’ safety bench at 40’ to 80’ height Individual slope angles of 35° with safety bench Steepened slope angle of 38° when lower slope is excavated
Highwall:	Slope angle above 6 seam 55° not to exceed 90’ height 50’ wide safety bench at 4 seam level Slope angle 60° for 3-4 interburden Slope angle 55° above 3 seam not to exceed 90’ without safety bench

Impediments/Highwalls & Endwalls

Slopes 45° with 50’ safety bench at 4 seam or maximum of 90’ from pit floor

NOTE: Dragline setback: 15’ from tub to highwall crest
20’ from tub to spoilside crest

     An additional geotechnical evaluation is underway to develop criteria for future mining areas and new equipment utilization such as the BWE/dragline tandem system.

 2-6 

JEWETT ANNUAL MINE PLAN
GEOTECHNICAL PARAMETERS

FIGURE 2.1

Area B

Highwall	-	all slope angles 45º (Area I), 50º (Area II)
		50’ safety bench at max 120’ height above 6 seam
		50’ safety bench at max 180’ height above 6 seam
		maximum total overburden depth 180’ (maximum 90’ chop)
		maximum dragline operating bench height 120’
		dragline setback 15’ minimum
Spoil	-	normal slope angles 35º, modified spoilside slope angles 38º
		50’ safety bench at 65’ to 85’ height when operating spoilside
		dragline setback 30’ minimum

TYPICAL TWO PASS MINING WITH ADVANCE CHOP
SINGLE SEAM MULTIPLE SEAM

[GRAPHIC MATERIAL]

TYPICAL THREE PASS MINING WITH ADVANCE CHOP
MULTIPLE SEAM

[GRAPHIC MATERIAL]

 2-7 

JEWETT ANNUAL MINE PLAN
GEOTECHNICAL PARAMETERS

FIGURE 2.2

Area C

Highwall	-	all slope angles 45º (Area I), 50º (Area II), 55º (Area III)
		30’ safety bench at 4 seam bench level
		30’ safety bench at min 3 seam bench or 120’ height above 6 seam
		50’ safety bench at max 180’ height above 8 seam
		maximum total overburden depth 180’ (maximum 90’ chop)
		maximum dragline operating bench height 120’
		dragline setback 15’ minimum
Spoil	-	normal slope angles 35º, modified spoilside slope angles 38º
		50’ safety bench at 65’ to 80’ height when operating spoilside
		dragline setback 30’ minimum

TYPICAL THREE PASS MULTIPLE SEAM WITH CHOP

[GRAPHIC MATERIAL]

 2-8 

JEWETT ANNUAL MINE PLAN
GEOTECHNICAL PARAMETERS

FIGURE 2.3

Area D

Highwall	-	all slope angles 45º (Area I), 50º (Area II), 55º (Area III)
		All BWE slope angles 65º
		50’ safety bench at 4 seam bench level
		dragline setback 15’ minimum
Spoil	-	normal slope angles 35º, modified spoilside slope angles 38º
		50’ safety bench at 65’ to 85’ height when operating spoilside
		dragline setback 30’ minimum

TYPICAL BOTTOM PASS WITH CHOPCUT

[GRAPHIC MATERIAL]

TYPICAL 5/6 INTERBURDEN SPOILSIDE REMOVAL

[GRAPHIC MATERIAL]

 2-9 

III. GEOLOGY

PRODUCTION DRILLING PROGRAM

 3-1 

IV. MINE DESIGN

4.1 STRIPPING

DL25 (Area B)

     DL25 starts in the southwestern end of Area B and works to the northeast. Areas where depths are less than 100 feet will be mined using a simple sidecast method. Areas that contain a single lignite seam and overburden in excess of 100 feet will be mined using a two-pass method of chopcut, keyway and spoilside modes of digging. Multiple seam areas will utilize a three-pass method incorporating a top pass into the sequence. DL25 productivity is based on actual historical rates adjusted to reflect the full-time use of high-pro buckets.

     The abandoned underground mines will be mined by dragline during the 1999 — 2008 time frame. A ground control plan has been approved by MSHA. Exhibit 9.1 shows the DL25 sequence.

DL 26 (Areas C & BX)

     DL26 will remain in the northern C pits through 1999 and move to the south pits in 2000. Overburden will be mined using a three-pass method; including chopcut, top pass and spoilside modes of digging. In the far eastern portion of Area C, only the 3 and 4 seams will be mined and a chopcut/bottom pass mode of operation will be used. In early 2005, DL26 finishes Area C and moves to the north end of Area BX where it continues mining to the south. Exhibit 9.2 shows the DL26 sequence.

DL27 (Areas D & DX & E & F)

     DL27 starts the sequence working half pits in Area D with DL28. These Area D pits have been designed with changing widths, to realign them to a straight pit as soon as possible. In the third quarter of 1998, DL27 moves to the east-west pits before beginning in Area DX in mid-1999.

     DL27 begins mining the 4 and 5 seam area on the western end of the DX block, with pits that run generally north-south. It will continue on this alignment through pit 22 and then boxcut in on the southwestern corner of DX and mine down to 6 seam heading east. After Pit 14, DL27 moves to Area E.

     The move to Area E is in the second quarter of 2001. The boxcut is in the southwestern comer along the cropline and under the current alignment of SH164. Mining will proceed to the northeast until Demney is reached. The dragline then moves to the north end of Area F.

     DL27 arrives in Area F in the 2nd quarter of 2004. The pits run east-west and progress from the north end of Area F to the south. Exhibits 9.2 and 9.3 show the sequence for DL27.

DL28 (Areas D & DX & E & DX & E)

 4-1 

     DL28 continues mining to the east in Area D, following the BWE. The BWE has been leaving 20 to 40 feet of its material for DL28 to remove in a chop mode. This was done to give the dragline as much overburden as possible while still maintaining proper lignite inventories. In mid-1998 the BWE leaves its prebench working face and begins working in tandem with DL28. A typical range diagram for the tandem operation may be seen in Figure 4.1. Once the eastern edge of mining is reached in Area D, the dragline boxcuts the east-west pit to the south and mines south into Area DX. When the dragline reaches the shorter pits, in the 2nd quarter 2003, it makes the first of its three moves.

     The first move is up to the middle of Area E. The pits run northeast-southwest and the mobile fleet is scheduled to take the first 12 pits. The trucks will have prepared a boxcut for the dragline as it starts digging pit 13. DL28 digs 23 more pits to the southeast and in the 1st quarter of 2005 makes its second move.

     DL28 goes back to the southwestern end of DX and resumes mining where DL27 stopped. Mining continues to the northeast in DX until it is finished in late 2006. At that point the dragline moves back to Area E.

     This third move gets the dragline to the north pits in Area E. The dragline starts at the north end and works to the south. Once this part of Area E is exhausted the machine goes back to the pit that it left in 2005 and resumes mining to the east in Area E. Exhibit 9.2 shows the sequence for DL28.

BWE (Areas D & DX & E & DX & B & BX)

     The BWE will always be operating in tandem with a dragline. It is scheduled to produce 14 million bcy/yr. In “tandem” means that those components of the BWE system which are working will be in the same pit as the dragline. Usually, the BWE, and the spreader will be in use and possibly the beltwagon if extra reach is needed.

     The BWE works with DL28 until mid-2006 when it moves to DL25 in Area B. At the end of 2007, the BWE moves to Area BX. It is idle until the 3rd quarter, 2008 when it begins working with DL26.

4.2 CLEARING

1999 ANNUAL MINE PLAN

ESTIMATED CLEARING ACRES

Year	1999		2000		2001		2002		2003		2004		2005		2006		2007		2008
Acres		250		280		280		250		250		250		250		250		250		250

4-2

4.3 LIGNITE AND OVERBURDEN QUANTITIES

     From the sequences discussed in Section 4.1, the lignite and levelized overburden quantities were calculated and categorized by dragline as shown in Tables 4.2 through 4.5. Table 4.6 summarizes these quantities for all of the areas combined.

     A summary of tons uncovered by dragline and delivered to HL&P, along with expected inventory fluctuations is shown in Table 4.6. Lignite quality is summarized in Table 4.7.

4-3

TABLE 4.1
JEWETT MINE — 1999 ANNUAL MINE PLAN
AREA B QUANTITIES — DL25 & MOBB (1000 C.Y.)

LEVELIZED

	1000				DL		TOTAL				TRUCK		DOZER		TRUCK		DOZER				TOTAL		CONTRACT		TOTAL		TOTAL
	TONS		DL BCY		REHANDLE		DL		PRE-BENCH		IN-PIT		IN-PIT		5/6 LB		5/6 LB		SPGM		MOBILE		MOBILE		BANK		YARDS
Mar.		—		—		—		—		—		—		—		—		—		—		—				—		—
Apr.		209		1,995		—		1,995		68		—		—		—		—		129		197				2,192		2,192
May		181		1,984		—		1,984		99		—		—		—		—		84		183				2,167		2,167
Jun.		70		1,625		12		1,637		44		—		—		—		—		63		107				1,732		1,744
Jul.		49		1,684		13		1,697		38		—		—		—		—		3		41				1,725		1,738
Aug.		87		1,608		79		1,687		130		—		—		—		—		30		160				1,768		1,847
Sep.		83		1,557		76		1,633		52		—		—		—		—		14		66				1,623		1,699
Oct.		122		1,631		54		1,685		129		—		—		—		—		56		185				1,816		1,870
Nov.		96		1,517		110		1,627		51		—		—		—		—		41		92				1,609		1,719
Dec.		109		1,547		81		1,628		—		—		—		—		—		—		—				1,547		1,628
1998		1,006		15,148		425		15,573		611		—		—		—		—		420		1,031		—		16,179		16,604
Jan.		89		1,595		93		1,688		—		—		—		—		—		—		—				1,595		1,688
Feb.		98		1,448		74		1,522		42		—		—		—		—		49		91				1,539		1,613
Mar.		105		1,614		72		1,636		—		—		—		—		—		—		—				1,614		1,686
Apr.		114		1,576		54		1,630		9		—		—		—		—		50		59				1,635		1,689
May		92		1,570		113		1,683		—		—		—		—		—		6		6				1,576		1,689
Jun.		88		1,514		113		1,627		15		—		—		—		—		17		32				1,546		1,659
Jul.		136		1,613		67		1,680		1		—		—		—		—		11		12				1,625		1,692
Aug.		40		1,647		50		1,697		9		—		—		—		—		40		49				1,696		1,746
Sep.		108		1,497		126		1,623		—		—		—		—		—		—		—				1,497		1,623
Oct.		141		1,619		63		1,682		—		—		—		—		—		—		—				1,619		1,682
Nov.		50		437		63		500		7		—		—		—		—		50		57				494		557
Dec.		61		652		—		652		—		—		—		—		—		—		—				652		652
1999		1,122		16,782		888		17,670		83		—		—		—		—		223		306		—		17,088		17,976
1st Qtr.		447		5,033		—		5,033		8		—		—		—		—		107		115				5,148		5,148
2nd Qtr.		630		4,925		—		4,925		22		900		600		—		—		382		1,904				6,829		6,829
3rd Qtr.		554		4,978		—		4,978		17		550		367		—		—		228		1,162				6,140		6,140
4th Qtr.		1,005		4,784		134		4,918		150		2,008		1,339		—		—		338		3,835				8,619		8,753
2000		2,636		19,720		134		19,854		197		3,458		2,306		—		—		1,055		7,016		—		26,736		26,870
1st Qtr.		814		4,703		151		4,854		55		968		645		—		—		319		1,987				6,690		6,841
2nd Qtr.		356		4,685		244		4,929		13		—		—		—		—		120		133				4,818		5,062
3rd Qtr.		380		4,737		252		4,989		46		—		—		—		—		116		162				4,899		5,151
4th Qtr.		315		4,723		210		4,933		170		—		—		—		—		151		321				5,044		5,254
2001		1,865		18,848		857		19,705		284		968		645		—		—		706		2,603		—		21,451		22,308
2002		1,787		19,102		588		19,690		430		—		—		—		—		603		1,033				20,135		20,723
2003		1,482		19,281		395		19,676		731		—		—		—		—		597		1,328				28,609		21,044
2004		1,670		18,829		855		19,684		4,290		632		421		—		—		768		6,111				24,940		25,795
2005		1,655		18,301		1,427		19,728		493		1,469		979		—		—		835		3,776				22,077		23,504
2006		1,557		25,373		957		26,330		388		—		—		—		—		674		1,062				26,435		27,392
2007		2,224		31,981		—		31,981		424		—		—		—		—		941		1,365				33,346		33,346
2008		1,546		19,605		445		20,050		421		—		—		—		—		653		1,074				20,679		21,124
TOTAL		18,550		222,970		6,971		229,941		8,352		6,527		4,351		—		—		7,475		26,705		—		249,675		256,646

     Note: The BWE produces 14 million bcy/yr in tandem with the dragline. It works with DL25 from mid-2006 through the end of 2007.

4-4

TABLE 4.2
JEWETT MINE — 1999 ANNUAL MINE PLAN
AREA B QUANTITIES — DL25 & MOBB (1000 C.Y.)

LEVELIZED

	1000				DL		TOTAL				TRUCK		DOZER		TRUCK		DOZER				TOTAL		CONTRACT		TOTAL		TOTAL
	TONS		DL BCY		REHANDLE		DL		PRE-BENCH		IN-PIT		IN-PIT		5/6 LB		5/6 LB		SPGM		MOBILE		MOBILE		BANK		YARDS
Mar.		—		—		—		—		—		—		—		—		—		—		—				—		—
Apr.		88		1,647		—		1,647		20		—		—		—		—		9		29				1,676		1,676
May		200		1,383		238		1,621		7		—		—		14		5		—		25				1,408		1,646
Jun.		206		1,503		95		1,598		137		—		—		1		0		26		164				1,667		1,762
Jul.		203		1,453		190		1,643		—		—		—		15		5		—		20				1,473		1,663
Aug.		195		1,508		143		1,651		—		—		—		1		0		—		1				1,509		1,652
Sep.		122		1,530		89		1,619		—		—		—		15		5		—		20				1,550		1,639
Oct.		226		1,359		266		1,625		—		—		—		4		1		—		5				1,364		1,630
Nov.		32		496		—		496		—		—		—		—		—		—		—				496		496
Dec.		206		1,355		222		1,577		—		—		—		20		7		—		27				1,382		1,604
1998		1,478		12,234		1,243		13,477		164		—		—		69		23		35		291		—		12,525		13,768
Jan.		155		1,537		133		1,670		—		—		—		7		2		—		9				1,546		1,679
Feb.		220		1,158		293		1,451		—		—		—		25		8		—		33				1,191		1,484
Mar.		116		1,588		94		1,682		—		—		—		11		4		9		24				1,612		1,706
Apr.		176		1,370		215		1,585		71		—		—		10		3		51		135				1,505		1,720
May		159		1,420		225		1,645		—		—		—		18		6		—		24				1,444		1,669
Jun.		106		1,587		45		1,632		105		—		—		—		—		51		156				1,743		1,788
Jul.		189		1,412		225		1,637		105		—		—		24		8		48		185				1,597		1,822
Aug.		152		1,484		172		1,656		—		—		—		32		11		—		43				1,527		1,699
Sep.		104		1,591		43		1,634		77		—		—		4		1		49		131				1,722		1,765
Oct.		150		1,479		172		1,651		—		—		—		28		9		—		37				1,516		1,688
Nov.		139		1,472		130		1,602		—		—		—		21		7		—		28				1,500		1,630
Dec.		72		1,627		21		1,648		90		—		—		—		—		121		211				1,838		1,859
1999		1,738		17,725		1,768		19,493		448		—		—		180		60		329		1,017		—		18,742		20,210
1st Qtr.		759		4,098		151		4,249		—		—		—		13		4		—		17				4,115		4,266
2nd Qtr.		689		3,861		—		3,861		—		—		—		—		—		—		—				3,861		3,861
3rd Qtr.		654		3,903		—		3,903		—		—		—		—		—		—		—				3,903		3,903
4th Qtr.		440		3,803		113		3,916		6		—		—		1		0		1		8				3,811		3,924
2000		2,542		15,665		264		15,929		6		—		—		14		5		1		26		—		15,691		15,955
1st Qtr.		467		3,503		339		3,842		48		—		—		6		2		4		60				3,563		3,902
2nd Qtr.		506		3,611		258		3,869		83		—		—		4		1		6		94				3,705		3,963
3rd Qtr.		532		3,855		400		4,255		129		—		—		8		3		6		146				4,001		4,401
4th Qtr.		418		4,440		418		4,858		338		—		—		18		6		47		409				4,849		5,267
2001		1,923		15,409		1,415		16,824		598		—		—		36		12		63		709		—		16,118		17,533
2002		2,065		18,237		1,226		19,463		2,970		—		—		126		42		536		3,674				21,911		23,137
2003		1,768		17,186		2,269		19,455		5,082		—		—		225		75		1,296		6,678				23,864		26,133
2004		1,589		17,753		1,742		19,495		3,509		—		—		192		64		1,052		4,817				22,570		24,312
2005		1,481		18,700		860		19,560		4,250		—		—		72		24		726		5,072				23,772		24,632
2006		2,417		18,352		857		19,209		1,545		—		—		171		57		1,133		2,906				21,258		22,115
2007		2,729		18,693		597		19,290		1,235		—		—		246		82		1,269		2,832				21,525		22,122
2008		3,318		22,663		290		22,953		5,251		—		—		241		80		3,898		9,470				32,133		33,423
TOTAL		23,048		192,617		12,531		205,148		25,058		—		—		1,572		524		10,338		37,492		—		230,109		242,640

Note: The BWE produces 14 million bcy/yr in tandem with the dragline. It starts with DL26 in 3^rd quarter, 2004. DL26 moves to the south C pits in Jan. 2000 and then to Area BX in late 2005.

4-5

TABLE 4.3
JEWETT MINE — 1999 ANNUAL MINE PLAN
QUANTITIES — DL27 & MOBE & MOBF (1000 C.Y.)

LEVELIZED

	1000				DL		TOTAL				TRUCK		DOZER		TRUCK		DOZER				TOTAL		CONTRACT		TOTAL		TOTAL
	TONS		DL BCY		REHANDLE		DL		PRE-BENCH		IN-PIT		IN-PIT		5/6 LB		5/6 LB		SPGM		MOBILE		MOBILE		BANK		YARDS
Mar.		—		—		—		—		—		—		—		—		—		—		—				—		—
Apr.		203		1,830		—		1,830		—		—		—		—		—		106		106				1,936		1,936
May		260		1,810		—		1,810		—		—		—		—		—		35		35				1,845		1,845
Jun.		244		1,739		—		1,739		—		—		—		—		—		229		229				1,968		1,968
Jul.		229		1,697		—		1,697		—		—		—		—		—		443		443				2,140		2,140
Aug.		133		1,661		—		1,661		150		—		—		—		—		167		317				1,978		1,978
Sep.		125		1,634		—		1,634		152		—		—		—		—		237		389				2,023		2,023
Oct.		168		1,670		—		1,670		200		—				—		—		106		306				1,976		1,976
Nov.		226		1,598		141		1,739		—		347		231		8		3		—		589				2,187		2,328
Dec.		220		1,619		—		1,619		—		—		—		—		—		454		454				2,073		2,073
1998		1,808		15,258		141		15,399		502		347		231		8		3		1,772		2,868		—		18,126		18,267
Jan.		263		1,650		—		1,650		400		—		—		—		—		41		441				2,091		2,091
Feb.		244		1,519		—		1,519		—		—		—		—		—		416		416				1,935		1,935
Mar.		60		304		—		304		300		—		—		5		2		200		506				810		810
Apr.		225		1,597		—		1,597		200		—		—		—		—		166		366				1,963		1,963
May		125		1,831		—		1,831		100		—		—		—		—		153		253				2,084		2,084
Jun.		141		1,743		—		1,743		200		—		—		—		—		152		352				2,095		2,095
Jul.		149		1,809		—		1,809		—		—		—		—		—		140		140				1,949		1,949
Aug.		183		1,852		—		1,852		—		—		—		—		—		74		74				1,926		1,926
Sep.		162		1,752		—		1,752		—		—		—		—		—		55		55				1,807		1,807
Oct.		149		1,855		—		1,855		—		—		—		—		—		69		69				1,924		1,924
Nov.		186		1,742		—		1,742		—		—		—		—		—		71		71				1,813		1,813
Dec.		165		1,807		—		1,807		—		—		—		5		2		86		93				1,900		1,900
1999		2,052		19,461		—		19,461		1,200		—		—		10		3		1,623		2,836		—		22,297		22,297
1st Qtr.		420		4,620		201		4,821		450		—		—		206		69		4		729				5.349		5,550
2nd Qtr.		211		4,491		337		4,828		160		—		—		312		104		120		696				5,187		5,524
3rd Qtr.		350		4,578		281		4,859		827		—		—		538		179		204		1,748				6,326		6,607
4th Qtr.		139		2,352		288		2,640		150		—		—		200		67		71		487				2,839		3,127
2000		1,120		16,041		1,107		17,148		1,587		—		—		1,256		419		399		3,660		—		19,701		20,808
1st Qtr.		346		4,366		394		4,760		—		—		—		412		137		230		779				5,145		5,539
2nd Qtr.		817		5,360		106		5,466		—		—		—		—		—		234		234				5,594		5,700
3rd Qtr.		991		5,654		—		5,654		—		—		—		37		12		388		437				6,091		6,091
4th Qtr.		1,117		5,749		—		5,749		—		—		—		77		26		270		372				6,121		6,121
2001		3,271		21,129		500		21,629		—		—		—		525		175		1,122		1,822		—		22,951		23,451
2002		3,714		22,212		14		22,226		3,000		—		—		148		49		1,715		4,912				27,124		27,138
2003		3,316		21,150		100		21,250		—		4,226		2,817		—		—		1,500		8,543				29,693		29,793
2004		2,403		20,213		150		20,363		2,743		950		634		29		10		1,596		5,962				26,175		26,325
2005		3,023		20,589		473		21,062		2,250		1,584		1,056		190		63		490		5,633				26,222		26,695
2006		4,120		20,358		803		21,161		6,487		4,751		3,168		150		50		2,007		16,613				36,971		37,774
2007		3,402		19,825		1,254		21,079		9,436		2,176		1,451		108		36		1,561		14,768				34,593		35,847
2008		2,755		20,859		473		21,332		5,720		—		—		157		52		965		6,894				27,753		28,226
TOTAL		30,984		117,095		5,015		222,110		32,925		14,035		9,356		2,580		860		14,755		74,511		0		291,606		296,621

Note: DL27 moves to Area DX in April 99, the west end of Area E in April 2001 and the north end of Area F in Mid-2004.

4-6

TABLE 4.4
JEWETT MINE — 1999 ANNUAL MINE PLAN
AREA B QUANTITIES — DL28 (1000 C.Y.)

LEVELIZED

	1000				DL		TOTAL				TRUCK		DOZER		TRUCK		DOZER				TOTAL		CONTRACT		TOTAL		TOTAL
	TONS		DL BCY		REHANDLE		DL		PRE-BENCH		IN-PIT		IN-PIT		5/6 LB		5/6 LB		SPGM		MOBILE		MOBILE		BANK		YARDS
Mar.		—		—		—		—		—		—		—		—		—		—		—				—		—
Apr.		244		2,599		—		2,599		205		—		—		—		—		25		230				2,829		2,829
May		220		2,558		—		2,558		328		—		—		—		—		26		354				2,912		2,912
Jun.		234		2,489		—		2,489		—		—		—		—		—		—		—				2,489		2,489
Jul.		307		2,582		—		2,582		—		—		—		—		—		1		1				2,583		2,583
Aug.		418		2,862		—		2,862		22		—		—		—		—		—		22				2,884		2,884
Sep.		406		2,771		—		2,771		25		—		—		—		—		5		30				2,801		2,801
Oct.		378		2,862		—		2,862		—		—		—		—		—		5		5				2,867		2,867
Nov.		342		2,771		—		2,771		50		—		—		—		—		3		53				2,824		2,824
Dec.		349		2,771		—		2,771		—		—		—		—		—		26		26				2,797		2,797
1998		2,898		24,265		—		24,265		630		—		—		—		—		91		721		—		24,986		24,986
Jan.		437		3,551		—		3,551		—		—		—		—		—		155		155				3,706		3,706
Feb.		394		3,231		—		3,231		—		—		—		—		—		12		12				3,243		3,243
Mar.		425		3,577		—		3,577		—		—		—		—		—		78		78				3,655		3,655
Apr.		392		3,464		—		3,464		10		—		—		—		—		10		20				3,484		3,484
May		278		3,577		—		3,577		273		—		—		—		—		46		319				3,896		3,896
Jun.		435		3,464		—		3,464		1		—		—		—		—		36		37				3,501		3,501
Jul.		465		3,577		—		3,577		109		—		—		—		—		139		248				3,825		3,825
Aug.		319		2,538		—		2,538		258		—		—		—		—		183		441				2,979		2,979
Sep.		306		3,464		—		3,464		213		—		—		—		—		179		392				3,856		3,856
Oct.		287		3,577		—		3,577		281		—		—		—		—		218		499				4,076		4,076
Nov.		301		3,464		—		3,464		182		—		—		—		—		246		428				3,892		3,892
Dec.		227		3,464		—		3,464		79		—		—		—		—		196		275				3,739		3,739
1999		4,266		40,948		—		40,948		1,406		—		—		—		—		1,498		2,904		—		43,852		43,852
1st Qtr.		892		10,386		—		10,386		2,200		—		—		—		—		462		2,662				13,048		13,048
2nd Qtr.		898		10,499		—		10,499		588		—		—		—		—		366		954				11,453		11,453
3rd Qtr.		828		10,619		—		10,619		336		—		—		—		—		383		719				11,338		11,338
4th Qtr.		1,000		10,499		—		10,499		1,209		—		—		—		—		283		1,492				11,991		11,991
2000		3,618		42,003		—		42,003		4,333		—		—		—		—		1,494		5,827		—		47,830		47,830
1st Qtr.		755		10,386		—		10,386		1,391		—		—		—		—		17		1,408				11,794		11,794
2nd Qtr.		774		10,499		—		10,499		2,498		—		—		—		—		492		2,990				13,489		13,489
3rd Qtr.		691		10,619		—		10,619		2,088		—		—		—		—		632		2,720				13,339		13,339
4th Qtr.		664		10,499		—		10,499		1,679		—		—		—		—		701		2,380				12,879		12,879
2001		2,884		42,003		—		42,003		7,656		—		—		—		—		1,842		9,498		—		51,501		51,501
2002		2,883		42,003		—		42,003		2,503		—		—		—		—		1,769		4,272				46,275		46,275
2003		3,539		42,003		—		42,003		37		—		—		—		—		2,306		2,343				44,346		44,346
2004		4,300		42,003		—		42,003		515		—		—		146		49		1,278		1,987				43,990		43,990
2005		3,802		42,003		—		42,003		2,986		—		—		2,815		938		541		7,280				49,283		49,283
2006		1,804		30,011		776		30,787		479		—		—		—		—		915		1,394				31,405		32,181
2007		1,668		25,429		46		28,475		—		—		—		—		—		1,304		1,304				29,733		29,779
2008		2,319		28,058		634		28,692		620		—		—		13		4		762		1,399				29,457		30,091
TOTAL		33,981		403,729		1,456		405,185		21,165		—		—		2,973		991		13,800		38,929		—		442,658		444,114

Note: The BWE produces 14 million bcy/yr in tandem with the dragline. It works with DL28 to DL25 in mid-2006.
DL28 moves to Area E in 2^nd Qtr. 2003, back to DX in 1^st Qtr. 2005, and to north Area E pits in late 2006.

4-7

TABLE 4.5
JEWETT MINE — 1999 ANNUAL MINE PLAN
COMBINED MINING AREA QUANTITIES (1000 C.Y.)

LEVELIZED

	1000				DL		TOTAL				TRUCK		DOZER		TRUCK		DOZER				TOTAL		CONTRACT		TOTAL		TOTAL
	TONS		DL BCY		REHANDLE		DL		PRE-BENCH		IN-PIT		IN-PIT		5/6 LB		5/6 LB		SPGM		MOBILE		MOBILE		BANK		YARDS
Mar.		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Apr.		744		8,071		—		8,071		293		—		—		—		—		269		562		—		8,633		8,633
May		861		7,735		238		7,973		434		—		—		14		5		145		597		—		8,332		8,570
Jun.		754		7,356		107		7,463		181		—		—		1		0		318		500		—		7,856		7,963
Jul.		788		7,416		203		7,619		38		—		—		15		5		447		505		—		7,921		8,124
Aug.		833		7,639		222		7,861		302		—		—		1		0		197		500		—		8,139		8,361
Sep.		736		7,492		165		7,657		229		—		—		15		5		256		505		—		7,997		8,162
Oct.		894		7,522		320		7,842		329		—		—		4		1		167		501		—		8,023		8,343
Nov.		696		6,382		251		6,633		101		347		231		8		3		44		734		—		7,116		7,367
Dec.		884		7,292		303		7,995		—		—		—		20		7		480		507		—		7,799		8,102
1998		7,190		66,905		1,809		48,714		1,907		347		231		77		26		2,323		4,911		—		71,816		73,625
Jan.		944		8,333		226		8,559		400		—		—		7		2		196		605		—		8,938		9,164
Feb.		956		7,356		367		7,723		42		—		—		25		8		477		552		—		7,908		8,275
Mar.		706		7,083		166		7,249		300		—		—		16		5		287		608		—		7,691		7,857
Apr.		907		8,007		269		8,276		290		—		—		10		3		277		580		—		8,587		8,856
May		654		8,398		338		8,736		373		—		—		18		6		205		602		—		9,000		9,338
Jun.		770		8,308		158		8,466		321		—		—		—		—		256		577		—		8,885		9,043
Jul.		939		8,411		292		8,703		215		—		—		24		8		338		585		—		8,996		9,288
Aug.		694		7,521		222		7,743		267		—		—		32		11		297		607		—		8,128		8,350
Sep.		680		8,304		169		8,473		290		—		—		4		1		283		578		—		8,882		9,051
Oct.		727		8,530		235		8,765		281		—		—		28		9		287		605		—		9,135		9,370
Nov.		676		7,115		193		7,308		189		—		—		21		7		367		584		—		7,699		7,892
Dec.		525		7,550		21		7,571		169		—		—		5		2		403		579		—		8,129		8,150
1999		9,178		94,916		2,656		97,572		3,137		—		—		190		63		3,673		7,963		—		101,979		104,635
1st Qtr.		2,518		24,137		352		24,489		2,658		—		—		219		73		575		3,523		—		27,660		28,012
2nd Qtr.		2,428		23,776		337		24,113		770		900		600		312		104		868		3,354		—		27,330		27,667
3rd Qtr.		2,386		24,078		281		24,359		1,180		550		367		538		179		815		3,629		—		27,707		27,988
4th Qtr.		2,584		21,438		535		21,973		1,515		2,008		1,339		201		67		693		5,823		—		27,261		27,796
2000		9,916		93,429		1,505		94,934		6,123		3,458		2,306		1,270		423		2,949		16,529		—		109,958		111,463
1st Qtr.		2,382		22,958		884		23,842		1,494		968		645		418		139		570		4,234		—		27,192		28,076
2nd Qtr.		2,453		24,155		608		24,763		2,594		—		—		4		1		852		3,451		—		27,606		28,214
3rd Qtr.		2,594		24,865		652		25,517		2,263		—		—		45		15		1,142		3,465		—		28,330		28,982
4th Qtr.		2,514		25,411		628		26,039		2,187		—		—		95		32		1,169		3,432		—		28,893		29,521
2001		9,943		97,389		2,772		109,161		8,538		968		645		561		187		3,733		14,632		—		112,021		114,793
2002		10,449		101,554		1,828		103,382		8,903		—		—		274		91		4,623		13,891		—		115,445		117,273
2003		10,105		99,620		2,764		102,384		5,850		4,226		2,817		225		75		5,699		18,892		—		118,512		121,276
2004		9,962		98,798		2,747		101,545		11,057		1,582		1,055		367		122		4,694		18,877		—		117,675		120,422
2005		9,961		99,593		2,760		102,353		9,979		3,053		2,035		3,077		1,026		2,592		21,761		—		121,354		124,114
2006		9,898		94,094		3,393		97,487		8,899		4,751		3,168		321		107		4,729		21,975		—		116,069		119,462
2007		10,023		93,928		1,897		100,825		11,095		2,176		1,451		354		118		5,075		20,269		—		119,197		121,094
2008		9,938		91,185		1,842		93,027		12,012		—		—		411		137		6,278		18,837		—		110,022		111,864
TOTAL		186,563		1,036,411		25,973		1,062,384		87,500		20,561		13,708		7,125		2,378		46,368		177,637		—		1,214,048		1,240,021

4-8

TABLE 4.6
JEWETT MINE — 1999 ANNUAL MINE PLAN
INVENTORY SCHEDULE

																			TBtu		TBtu		TBtu
	UNCOVERED TONS (1000’s)												Delivered		Inventory		ROM		Uncovered		Delivered		Inventory
	DL 25		DL 26		DL 27		DL 28		Mobile		Total		Total		Total		Quality		Total		Total		Total
MAR.																358		6,673						4.78
APR.		209		88		203		244		0		744		619		483		6,351		9.45		7.86		6.37
MAY		181		200		260		220		0		861		834		510		6,585		11.34		10.98		6.73
JUNE		70		206		244		234		0		754		804		461		6,664		10.05		10.71		6.07
JULY		49		203		229		307		0		788		800		449		6,942		10.94		11.11		5.90
AUG.		87		195		133		418		0		833		818		464		6,795		11.32		11.11		6.11
SEPT.		83		122		125		406		0		736		797		403		6,719		9.89		10.71		5.29
OCT.		122		226		368		378		0		894		815		482		6,739		12.05		10.98		6.36
NOV.		96		32		119		342		107		696		806		372		6,643		9.25		10.71		4.90
DEC.		109		206		220		349		0		884		824		432		6,663		11.78		10.98		5.70
1998 Tot.		1,006		1,478		1,701		2,898		107		7,190		7,116		432		6,681		96.07		95.15		5.70
JAN.		89		155		263		437		0		944		823		553		6,711		12.67		11.05		7.32
FEB.		95		220		244		394		0		956		745		764		6,715		12.84		10.00		10.16
MAR.		105		116		60		425		0		706		576		894		6,735		9.51		7.76		11.91
APR.		114		176		225		392		0		907		410		1,391		6,742		12.23		5.53		18.61
MAY		92		159		125		278		0		654		566		1,480		6,628		8.67		7.50		19.78
JUNE		88		106		141		435		0		770		816		1,433		6,688		10.30		10.92		19.16
JULY		136		189		149		465		0		939		844		1,528		6,704		12.59		11.32		20.43
AUG.		40		152		183		319		0		694		866		1,356		6,535		9.07		11.32		18.18
SEPT.		108		104		162		306		0		680		834		1,201		6,544		8.90		10.92		16.16
OCT.		141		150		149		287		0		727		853		1,076		6,637		9.65		11.32		14.49
NOV.		50		139		186		301		0		676		818		933		6,672		9.02		10.92		12.59
DEC.		61		72		165		227		0		525		868		590		6,438		6.76		11.18		8.17
1999 Tot.		1,122		1,738		2,052		4,266		0		9,178		9,019		590		6,658		122.21		119.74		8.17
1st Qtr.		447		759		420		892		0		2,518		2,502		606		6,585		33.16		32.95		8.38
2nd Qtr.		393		689		211		898		237		2,428		2,102		932		6,586		31.98		27.68		12.68
3rd Qtr.		408		654		350		828		146		2,386		2,524		794		6,526		31.14		32.95		10.87
4th Qtr.		475		440		139		1,000		530		2,584		2,616		762		6,550		33.85		34.27		10.45
2000 Tot.		1,723		2,542		1,120		3,618		913		9,916		9,744		762		6,562		130.13		127.85		10.45
1st Qtr.		437		467		346		755		377		2,382		2,414		729		6,524		31.08		31.50		10.03
2nd Qtr.		356		506		817		774		0		2,453		2,415		768		6,523		32.00		31.50		10.53
3rd Qtr.		380		532		991		691		0		2,594		2,545		817		6,448		33.45		32.82		11.16
4th Qtr.		315		418		1,117		664		0		2,514		2,688		643		6,348		31.92		34.13		8.95
2001 Tot.		1,488		1,923		3,271		2,884		377		9,943		10,062		643		6,459		128.45		129.95		8.95
2002		1,787		2,065		3,714		2,883		0		10,449		9,971		1,120		6,492		135.66		129.46		15.15
2003		1,482		1,768		2,481		3,539		835		10,105		9,826		1,399		6,329		127.90		124.37		18.68
2004		1,396		1,589		2,103		4,300		574		9,962		10,042		1,319		6,337		126.25		127.26		17.67
2005		1,247		1,481		2,523		3,802		908		9,961		10,090		1,191		6,469		128.87		130.54		16.00
2006		1,557		2,417		2,620		1,804		1,500		9,898		10,080		1,008		6,427		127.23		129.57		13.66
2007		2,224		2,729		2,712		1,668		690		10,023		9,931		1,101		6,303		126.34		125.18		14.82
2008		1,546		3,318		2,755		2,319		0		9,938		9,944		1,094		6,399		127.19		127.27		14.74
TOTAL		16,578		23,048		27,052		33,981		5,904		106,653		105,825		1,094		6,458		1,376.30		1,366.34		14.74

4-9

TABLE 4.7
JEWETT MINE — 1999 ANNUAL MINE PLAN
LIGNITE QUALITY

	IN-PLACE										RUN OF MINE
	TONS
PERIOD	(1000)		BTU/LB		SULFUR		ASH		MOISTURE		TONS (1000)		BTU/LB		SULFUR		ASH		MOISURE		TBTU
Mar.		0		—		—		—		—		0		0
Apr.		828		6,709		1.33		15.10		32.40		744		6,351		1.24		20.33		29.86		9.45
May		942		6,878		1.22		14.10		32.40		861		6,585		1.16		18.59		30.02		11.34
June		819		6,908		1.26		14.40		31.90		754		6,664		1.20		18.46		29.67		10.05
July		844		7,173		1.20		12.10		32.60		788		6,942		1.16		15.88		30.33		10.94
Aug.		902		7,029		1.23		13.30		32.20		833		6,795		1.18		17.23		30.01		11.32
Sept.		804		6,999		1.28		13.20		32.40		736		6,719		1.22		17.53		30.11		9.89
Oct.		966		6,987		1.18		13.40		32.30		894		6,739		1.14		17.53		30.06		12.05
Nov.		760		6,968		1.24		13.40		32.10		696		6,643		1.19		18.11		29.75		9.25
Dec.		957		6,930		1.14		13.20		32.70		884		6,663		1.10		17.42		30.39		11.78
1998		7,822		6,953		1.23		13.60		32.30		7,190		6,681		1.17		17.87		30.03		96.07
Jan.		1,025		7,001		1.18		12.70		32.80		944		6,711		1.13		17.13		30.40		12.67
Feb.		1,044		6,944		1.14		13.10		32.90		956		6,715		1.10		17.14		30.51		12.84
Mar.		769		7,025		1.31		13.00		32.50		706		6,735		1.25		17.37		30.16		9.51
Apr.		985		7,013		1.18		12.50		32.90		907		6,742		1.14		16.71		30.57		12.23
May		717		6,940		1.40		13.60		32.20		654		6,628		1.33		18.14		29.84		8.67
June		838		6,996		1.37		13.30		32.20		770		6,688		1.30		18.73		29.22		10.30
July		1,015		6,952		1.27		12.90		32.80		939		6,704		1.22		17.02		30.48		12.59
Aug.		755		6,828		1.24		13.30		33.20		694		6,535		1.20		17.89		30.72		9.07
Sept.		738		6,854		1.28		13.30		33.10		680		6,544		1.23		17.94		30.62		8.90
Oct.		791		6,912		1.21		13.50		32.50		727		6,637		1.16		17.84		30.08		9.65
Nov.		739		6,961		1.22		13.00		32.50		676		6,672		1.18		17.57		30.11		9.02
Dec.		585		6,838		1.28		14.10		32.30		525		6,438		1.21		19.89		29.67		6.76
1999		10,001		6,945		1.25		13.10		32.70		9,178		6,658		1.20		17.67		30.23		122.21
1st Qtr.		2,753		6,885		1.15		13.90		32.60		2,518		6,585		1.10		18.69		30.21		33.16
2nd Qtr.		2,406		6,925		1.23		13.90		32.60		2,428		6,586		1.19		18.68		30.02		31.98
3rd Qtr.		2,469		6,888		1.25		14.10		32.60		2,386		6,526		1.19		19.88		29.88		31.14
4th Qtr.		3,232		6,736		1.23		14.00		33.20		2,584		6,550		1.19		18.94		30.60		33.85
2000		10,860		6,850		1.21		14.00		32.80		9,916		6,562		1.17		19.04		36.19		130.13
1st Qtr.		2,635		6,882		1.15		13.10		33.20		2,382		6,524		1.09		19.63		30.32		31.08
2nd Qtr.		2,686		6,806		1.05		14.10		32.80		2,453		6,523		1.00		17.64		30.58		32.00
3rd Qtr.		2,880		6,740		0.96		14.40		32.80		2,594		6,448		0.94		19.38		30.28		33.45
4th Qtr.		2,785		6,701		1.00		14.70		32.70		2,514		6,348		0.96		20.01		30.17		31.92
2001		10,986		6,780		1.04		14.10		32.90		9,943		6,459		1.00		19.17		30.34		128.45
2002		11,527		6,897		0.94		13.40		32.70		10,449		6,492		0.91		18.82		30.11		135.66
2003		11,414		6,567		0.81		15.10		33.00		10,105		6,329		0.79		20,73		30.25		127.90
2004		11,178		6,735		0.87		14.10		32.90		9,962		6,337		0.84		19.82		30.05		126.25
2005		11,239		6,814		1.00		13.80		32.50		9,961		6,469		0.95		19.05		30.03		128.87
2006		11,092		6,717		1.02		14.80		32.40		9,898		6,427		0.97		21.07		29.00		127.23
2007		11,290		6,648		1.00		15.80		31.80		10,023		6,303		0.98		21.29		29.20		126.34
2008		11,398		6,719		1.01		15.40		31.70		9,938		6,399		0.98		20.43		29.16		127.19
TOTAL		118,806		6,779		1.03		14.32		32.52		106,563		6,458		0.99		19.60		29.87		1,376.30

4-10

[GRAPHIC MATERIAL]

4-11

V. DEVELOPMENT

5.1 OVERBURDEN DEWATERING

General

     All wells to be drilled will have dewatering targets of 10 to 20 feet above 6 seam depending on material type encountered. These targets were developed from previous slope stability studies. Well spacing requirements will vary and are driven by subsurface structures, material thickness, relative quality of material and potentiometric levels. At selected sites, 4” monitoring wells will be installed to conduct mini-pump tests for determination of localized aquifer characteristics. The mini-pump test data will be used with piezometric data for well field planning activities. The dewatering depressurization wells scheduled for 1999 typically have an operational life of 12 months, but vary based on well field conditions, dewatering programs, etc. Table 5.1 lists the total number of wells to be installed

Table 5.1
1999 ANNUAL MINE PLAN
6 “ DEWATERING WELL INSTALLATION TABLE

Year	1999		2000		2001		2002		2003		2004		2005		2006		2007		2008
# of wells		450		375		425		450		400		475		475		300		350		400

Area B

     The initial overburden saturated thickness for the 1999 drilling area ranges from 30 to 100 feet. Overburden dewatering wells installed will be placed on 200 feet centers well to well and 150 feet row to row. All wells are designed to dewater the material above the 6 seam and in some cases 4/5 IB. The Area B dewatering well installation area is shown on Exhibit 9.1.

Area C

     In multiple seam areas, the designed well field will provide depressurization and ultimately, dewatering of the overburden material between the 4 seam and 5 seam. Well spacing is 300 feet well to well and 150 feet row to row. Typically, the sand unit is confined and thickness rarely exceeds 40 feet, with approximately 20 to 40 feet of excess head. The 1999 Area C dewatering well installation area is delineated on Exhibit 9.1. In the eastern portion of Area C where the 4 seam is the deepest seam to be mined, underburden wells to depressurize the material below the 6 seam are no longer necessary.

5-1

Area D Dragline

     Wells shown on the 1999 dewatering plan are spaced 300 feet well to well and 150 feet row to row. The well spacing has decreased (density has increased) due to underburden pressure and the 5/6 seam split. The dragline is progressing down dip and into an area of significant underburden pressure. The interburden between the 5 and 6 seam is becoming thinner and developing into a significant water bearing sand that will require more dewatering than in the past. The wells should be designed to dewater the material between the 4 and 5 seams and the 5 and 6 seams. The sand above the 3 seam where there is a perched layer may require dewatering. The Area D 1999 dewatering well installation area is shown on Exhibit 9.2.

Area DX

     The 1999 dewatering well installation area for mine area DX is delineated on Exhibit 9.2. The well-spacing shown is 250 from well to well and 300 feet from row to row. Underburden wells are shown only in areas of deeper cover. A pump test will be performed in Area DX before well installation to determine if the well spacing should be changed.

Underburden Depressurization

     Pit floor depressurization will be maintained by the installation of wells installed on 800 to 1000 feet centers. Specific site selection for underburden wells is based on material quality and structural conditions. Depressurization targets for underburden control are based upon clay thickness at the base of the 6 seam. The excess head within the areas to be mined ranges from 30 to 120 feet.

Piezometers

     Piezometers may be installed in all mining areas to monitor aquifer response. Generally, piezometer locations will have two to three two-inch wells per site. Piezometers are planned to facilitate future mine planning activities and groundwater modeling efforts.

5.2 MINE ELECTRICAL SYSTEM

     Three main systems make up the mine electrical requirement. The first is the 12.5 KV system for the mine facilities. High voltage (12.5 KV) is distributed underground to the three primary buildings. Pad mounted transformers reduce the voltage to 480 volts for use in the buildings and miscellaneous structures.

5-2

     The second provides power for the crushing facility and is provided by HL&P. A 35 KV overhead line parallels the HL&P conveyor belt and is used to supply power to both HL&P’s surge bin and NWR’s facility.

     The third serves the draglines, BWE and pit areas. This system consists of nineteen miles of overhead 138 KV radial line running both east and west from a central switch yard. Three miles of line serve Area B and five miles serve Area C. Two10 MVA skid mounted substations (one in Area B and one in Area C) reduce the voltage to 22.9 KV for the draglines. Secondary pad mounted transformers are required to further reduce the voltage from 22.9 KV to 480 volts to serve auxiliary loads such as dewatering wells. Power for Area D is supplied by an eleven mile overhead 138 KV radial line from the Beargrass switch yard. A 15 MVA, a 12.5 MVA and a 10 MVA skid mounted substations reduce the voltage to 22.9 KV for the BWE and two draglines. Additional feeds to dewatering wells consist of secondary pad mounted transformers required to reduce voltage to 480 KV.

     Additionally, two 12.5 KV lines (one in Area B and one in Area D) from Navasota Valley Electric Cooperative supply 480 volt power for dewatering wells and a dust control water tank pump.

5.3 CIVIL DEVELOPMENT ACTIVITIES

SH 164 Grade Separator/Road Relocation (1997/2000)

     Preliminary planning and design for this relocation began in 1996 with a contract agreement between TxDOT and NWR finalized on October 3, 1996. Due to the grade separator part of this relocation, NWR will allow twenty months for design, public comment, TxDOT approval and bidding, with construction to begin in 1999. NWR has contracted with an outside consulting firm to design the roadway and grade separator. Right-of-way maps and documents will be prepared by NWR. Construction is anticipated to begin in the third quarter of 1999 with completion prior to the end of 2000.

D-E Haulroad (2000)

     In conjunction with the construction of the SH 164 Grade Separator, we will also begin construction on the approximate 1.5 miles of haulroad and dragline walkway to Area E.

5-3

NWR Regrade Equipment / Civil Construction

     The following construction projects will be planned and budgeted to be built by the NWR regrade operation:

Relocations
(99-01) Mine Creek Permanent Channel
Reclamation Ponds
1999 B-1 Reclamation Pond	1999 D4 Reclamation Pond
2000 B-2 Reclamation Pond	2000 D-5 Reclamation Pond
2000 C-10 Reclamation Pond	2001 D-6 Reclamation Pond
2002 B-3 Reclamation Pond

5-4

5.4  DEVELOPMENT PROJECTS

     Following is a list and brief description of the development projects scheduled between 1999 - 2008:

1999 ANNUAL MINE PLAN CIVIL DEVELOPMENT PROJECTS

MINE ROADS
YEAR		PROJECT	LENGTH	UNITS	LIFE
Area B
2001	C	B-2 Haulroad	1.19	Mi.	4
2004	C	B-3 Haulroad	1.02	Mi.	7
2005	E	B-3 Extension [Ramp]	0.15	Mi.	6
2006	E	B-3 Extension [Ramp]	0.15	Mi.	5
2007	E	B-3 Extension [Ramp]	0.19	Mi.	4
2008	E	B-3 Extension [Ramp]	0.15	Mi.	3
Area BX
2005	C	BX-1 Haulroad	2.96	Mi.	8
2008	E	BX-2 Haulroad [Ramp]	0.12	Mi.	5
Area C
2003	E	C South Haulroad Extension	0.57	Mi.	3
Area D
2000	C	D-E Haulroad [Spoilside]	1.46	Mi.	LOM
Area DX
1999	E	DX Haulroad	0.41	Mi.	9
2000	E	DX-1 Extension [Ramp]	0.42	Mi.	8
2006	E	DX-2 Extension [Ramp]	0.40	Mi.	2
2007	E	DX-2 Extension [Ramp]	0.51	Mi.	2
Area B-F
2003	C	E-F Haulroad	5.40	Mi.	10
2004	E	E-F Extension	0.67	Mi.	2
Area E
2003	E	E-1 Haulroad [Ramp]	0.57	Mi.	9
2004	E	E-1 Haulroad [Ramp]	0.38	Mi.	8
2005	E	E-1 Haulroad [Ramp]	0.38	Mi.	7
2008	E	E-1 Haulroad [Ramp]	0.20	Mi.	5
2003	E	E-2 Haulroad [Ramp]	0.57	Mi.	7
2004	E	E-2 Haulroad [Ramp]	0.27	Mi.	6
2005	E	E-2 Haulroad [Ramp]	0.27	Mi.	5
2008	E	E-2 Haulroad [Ramp]	0.10	Mi.	3
Area F
2004	E	F-1 Haulroad	0.50	Mi.	2
2005	E	F-2 Haulroad	0.80	Mi.	2
2006	E	F-3 Haulroad	0.81	Mi.	2
2007	E	F-4 Haulroad	0.85	Mi.	2

5-5

SEDIMENT PONDS
YEAR		PROJECT	SIZE	UNITS	LIFE
Area C
2004	C	Sediment Pond P01-C	800	Ac-Ft	LOM
Area D
1999	E	Sediment Pond P01-D	250	Ac-Ft	LOM
1999	E	Sediment Pond P02-D	850	Ac-Ft	LOM
2001	C	Sediment Pond 026 Mod.	500	Ac-Ft	LOM
2004	C	Sediment Pond 024 Mod	950	Ac-Ft	LOM
Area E
2000	E	Sediment Pond P01-E	150	Ac-Ft	LOM
2001	E	Sediment Pond P02-E	60	Ac-Ft	LOM
2006	E	Sediment Pond P03-E	155	Ac-Ft	LOM
2002	C	Sediment Pond P04-E	600	Ac-Ft	LOM
2006	C	Sediment Pond P05-E	250	Ac-Ft	LOM
Area F
2003	C	Sediment Pond P01-F	700	Ac-Ft	LOM
2005	C	Sediment Pond P02-F(incised)	500	Ac-Ft	LOM

RECLAMATION PONDS
YEAR		PROJECT	SIZE	UNITS	LIFE
1999	E	RP-B1 Reclamation Pond	10	ac-ft	perm
2000	E	RP-B2 Reclamation Pond	10	ac-ft	perm
2002	E	RP-B3 Reclamation Pond	10	ac-ft	perm
2004	E	RP-B4 Reclamation Pond	10	ac-ft	perm
2006	E	RP-B5 Reclamation Pond	10	ac-ft	perm
2008	E	RP-B6 Reclamation Pond	10	ac-ft	perm
1999	E	RP-C9 Reclamation Pond	10	ac-ft	perm
2000	E	RP-C10 Reclamation Pond	10	ac-ft	perm
2004	E	RP-C11 Reclamation Pond	10	ac-ft	perm
2005	E	RP-C12 End Lake	100	ac-ft	perm
1999	E	RP-D4 Reclamation Pond	10	ac-ft	perm
2000	E	RP-D5 Reclamation Pond	10	ac-ft	perm
2001	E	RP-D6 Reclamation Pond	10	ac-ft	perm
2003	E	RP-D7 Reclamation Pond	10	ac-ft	perm
2005	E	RP-D8 Reclamation Pond	10	ac-ft	perm
2007	E	RP-D9 Reclamation Pond	10	ac-ft	perm
2004	E	RP-E1 Reclamation Pond	10	ac-ft	perm
2006	E	RP-E2 Reclamation Pond	10	ac-ft	perm
2008	E	RP-E3 Reclamation Pond	10	ac-ft	perm
2004	E	RP-F1 Reclamation Pond	10	ac-ft	perm
2006	E	RP-F2 Reclamation Pond	10	ac-ft	perm
2008	E	RP-F3 Reclamation Pond	10	ac-ft	perm

5-6

DIVERSIONS
YEAR		PROJECT	LENGTH	UNITS	LIFE
Area A
99/2001	E	Mine Creek Permanent Channel	5,600	ft	perm
Area B/BX
2003	E	B-2 Diversion	8,000	ft	10
2006	E	BX-1 Clean Water Diversion	9,500	ft	2
Area C
2004	E	C-3 Clean Water Diversion	7,000	ft	perm
Area D
1999	E	D02-D Permanent Diversion	2,500	ft	perm
1999	E	D03-D Diversion	3,800	ft	4
1999	E	D04-D Clean Water Diversion	7,300	ft	LOM
2000	E	D05-D Diversion	3,000	ft	1.5
2001	E	D06-D Diversion	3,000	ft	2
2006	E	D07-D Diversion Clean Water	2,000	ft	6
2006	E	D08-D Diversion	3,500	ft	LOM
Area E
2000	E	D01-E Diversion	2,500	ft	10
2001	E	D02-E Diversion	1,500	ft	10
2006	E	D03-E Diversion / Embankment	5,000	ft	LOM
Area F
2003	E	D01-F Diversion / Embankment	4,000	ft	LOM
2003	E	D02-F Diversion / Embankment	7,400	ft	LOM
2005	E	D03-F Diversion / Embankment	5,500	ft	LOM
2005	E	D04-F Diversion / Embankment	6,500	ft	LOM

FACILITIES
YEAR		PROJECT	SIZE	UNITS	LIFE
2004	C	Area F Maint Fac w/Water Tank	1	Ea.	perm

DRAGLINE WALKWAYS
YEAR		PROJECT	LENGTH	UNITS	LIFE
1999	E	D-DX Dragline Walkway - DL27	2,000	ft
2001	E	DX-E Dragline Walkway - DL27*	11,300	ft
2003	E	D-E Dragline Walkway - DL28*	13,400	ft
2004	C	E-F Dragline Walkway - DL27	22,700	ft
2005	E	C-BX Dragline Walkway - DL26*	6,800	ft
2005	E	E-DX Dragline Walkway - DL28*	6,500	ft
2007	E	DX-E Dragline Walkway - DL28*	8,800	ft
		Note: * = highway crossing
		required

5-7

POWERLINE/TELEPHONE RELOCATIONS

YEAR		PROJECT	LENGTH	UNITS	LIFE
Area BX
2005	E	SWB Relocation (FM 39)	3.70	Mi.	Perm
2005	E	Navasota Elect Relocation (FM 39)	3.70	Mi.	Perm
Area C
2002	E	TP&L 69KV Relocation	1.30	Mi.	Perm
Area D/DX
2000	C*	GTE Tele. Relocation (SH 164-1)	3.60	Mi.	Perm
2000	C*	Navasota Elec. 15KV (SH 164-1)	3.60	Mi.	Perm
2002	E	GTE Tele Reloc (Bergstrom)	0.60	Mi.	Perm
2005	C*	GTE Tele Relocation (SH 164-2)	2.50	Mi.	Perm
2005	C*	Navasota Elec. 15KV (SH 164-2)	2.50	Mi.	Perm
Area E
2003	E	TU 138 KV Relocation	1.04	Mi.	Perm
2006	E	TU 138 KV Relocation	3.70	Mi.	Perm

PUBLIC ROAD RELOCATIONS

YEAR		PROJECT	LENGTH	UNITS	LIFE
Area BX
01/03	E	FM 39 Relocation	3.60	Mi.	Perm
Area D/DX
97/00	C*	SH164 Relocation - Phase I	3.50	Mi.	LOM
1999	E	FCR 780 (Old Zion)	0.41	Mi.	Perm
2000	E	Pond 024/Private Rd	0.45	Mi.	LOM
2001	E	FCR 310 Reconstruction	1.70	Mi.	Perm
01/04	C*	SH164 Relocation - Phase II	2.50	Mi.	LOM
Area F
2006	E	Varnell Cemetery Relocation	1	Ea.	LOM
		Note: *=NWR Capital

OIL & GAS PIPELINE/GASWELL RELOCATIONS

YEAR		PROJECT	LENGTH	UNITS	LIFE
Area B
2000	E	Koch 4” Reloc (Lewis B) {100%}	5,000	ft	Perm
Area D
2001	E	Koch 4” Reloc (Laura Lee 1) {0%}	6,500	ft	Perm
Area DX
2006	E	Koch 4” Reloc (Blanton 1) {0%}	5,000	ft	Perm
2006	E	ARCO 20” Relocation {100%}	10,000	ft	Perm
2006	E	Phillips 30” Relocation {100%}	9,000	ft	Perm
Area E
2000	E	Phillips 30” (Pond P01-E) {100%}	2,000	ft	Perm
2001	E	Koch 8” Relocation {24%}	2,500	ft	Perm
2002	E	Texaco 16” Relocation {100%}	19,000	ft	Perm
2006	E	Koch 12” Relocation {0%}	10,500	ft	Perm
Area F
2004	E	Koch 8” Relocation {24%}	15,600	ft	Perm
2004	E	Koch Compressor Station {24%}	LS	ea	Perm

5-8

VI. COMPLIANCE

6.1 REGRADE/RECLAMATION COVER

     The direct haulback operation and the rough regrade operation are currently working together to place SPGM on mined acres well within the time frame allowed by RCT permit. This situation is not expected to change during the period addressed by this AMP. Occasionally, the Truck/Shovel operation may be required to accomplish other tasks besides placing SPGM cover (i.e., rock removal, pond cleanouts, haulroad construction, prebench).

     In addition, the regrade operation has been called on to work outside of normal rough regrade activities. SPGM placement normally occurs within three months of rough regrade as opposed to the permitted nine months.

     Table 6.1 shows acres and cubic yards estimated for regrade and reclamation cover by area for the period (1999-2008) addressed by this mine plan.

6.2 FINAL SURFACE PREPARATION

     During final material placement operations, each area will be reconnaissance cored. The reconnaissance coring will help to verify that an area has four feet of suitable topsoil material. Once it is determined a cored area is suitable, final surface shaping, Rome disking, Towner plowing and terrace and drop structure installation will occur as needed and as directed by the Environmental Services department. Temporary terraces or diversions and drop structures will be used extensively around boxcut areas, ramp areas and areas of long or steep slopes.

     Acres requiring final surface preparation correspond approximately to the projected acres of reclamation cover as reported in Table 6.1.

6-1

TABLE 6.1
ACRES REGRADED AND RECLAIMED
ALL AREAS COMBINED

	Regrade		Reclamation Cover		Reclamation Cover
Period	Acres		Acres		CY (x1000)
Jan.		20		20		145.2
Feb.		20		20		145.2
Mar.		20		20		145.2
Apr.		59		59		428.3
May		59		59		428.3
June		60		60		435.6
July		59		59		428.3
Aug.		59		59		428.3
Sept.		60		60		435.6
Oct.		20		20		145.2
Nov.		20		20		145.2
Dec.		20		20		145.2
1999 Total		476		476		3,455.8
1st Qtr		138		138		1,001.9
2nd Qtr		150		150		1,089.0
3rd Qtr		150		150		1,089.0
4th Qtr		137		137		994.6
2000 Total		575		575		4,174.5
1st Qtr		102		102		740.5
2nd Qtr		125		125		907.5
3rd Qtr		125		125		907.5
4th Qtr		103		103		747.8
2001 Total		455		455		3,303.3
2002		532		532		3,862.3
2003		788		788		5,720.9
2004		711		711		5,161.9
2005		743		743		5,394.2
2006		591		591		4,290.7
2007		662		662		4,806.1
2008		503		503		3,651.8

6 - 2

6.3 DRAINAGE CONTROL

AREA A/B

     The FM 1512 relocation right-of-way is approximately the divider for the drainage in Area A. Drainage to the south and east of the right-of-way flow into Pond 023. Drainage to the north and west of the right-of-way and pit water flow into Mine Creek and Pond 009. Mine Creek permanent channel is being built as the pit advances. A gap is being left in the spoils and shaped during regrade. The diversion will channel run-off into Pond 009. Water will be controlled by pit dewatering and pumped into Mine Creek diversion. A spoil ridge will protect the pit and the spoil configuration will drain water away from the pit and regrade. Drainage in the reclaimed areas is controlled by ponds. Reclamation Ponds RP-A2 and A9 flow into Pond 023. Reclamation Ponds RP-A1, A3, A4, A5, A6 and A7 flow into Pond 009. Sediment Pond 027 was constructed in 1998 to allow for emergency reserves in Area B to be mined. Sediment Pond 028 will he complete in the fall of 1998 and will contain the overland drainage as mining progresses in Area B.

Area C

     In Area C south, Lambs Creek Phase III channels pit water south into Pond 016 and Pond 018. Phase III diverts Lambs Creek through the spoil ridges parallel to the pit. The runoff from the regrade is channeled into this diversion and discharged into Pond 016 and Pond 018.

     During the next several years, inactive pits in the south half of the Area C pit will be left open as needed for more than a year. A spoil ridge will be left to control run-off into these pits.

Area D

     As mining progresses to the east and begins to impact Pond 026 and Sediment Pond P01-D will be constructed to reduce the drainage area of Pond 026. Sediment Pond P02-D will be located at the end pit of the east-west pits and will be utilized in conjunction with P01-D to significantly reduce the volume of drainage on Pond 026 and on Pond 024 as mining progresses to the south. A spoilside diversion will be built to the north of the east-west pits. This diversion will channel surface runoff to the south during the mining of the east-west pits.

6 - 3

6.4 1999 CURRENT REVEGETATION SCHEDULE

		A/B		C		D		Total
Temporary	warm season		42		42		41		125
	cool season		41		42		42		125
	Total Temporary								250
Permanent	tame		108		108		119		335
	native		83		83		134		300
	Total Permanent								635
Replant	tame		8		8		9		25
	native		8		8		9		25
	temporary		8		8		9		25
	Total Replant								75
1999 Revegetation Summary	temporary								250
	permanent								635
	Total								885

6.5 EXTENDED RESPONSIBILITY PERIOD

     ERP Block A-lb has changed in acreage since the 1994 submittal due to vegetation cover in the area which will allow for bond release consideration (Fig. 6.2). Pond 009 and it’s drainage are excluded due to the runoff from mining activities. Adequate acreage has been included with the Pond 009 area to allow for additional cleanouts and downsizing of the pond when necessary. The areas shown on Fig. 6.2 also show the acreage. The RCT requirements for the removal of all temporary structures and downsizing of ponds have pushed these projected dates as shown on Fig. 6.2.

     Since the two year requirement for establishment of trees ended in 1997, NWR has experienced extreme drought conditions during 1996 and 1998. These droughts have forced NWR to implement irrigation practices to insure against a substantial death loss in those trees which were planted. Water is very crucial to the success rate of these young trees during the first two years of development, however with the extreme conditions experienced in 1998, a third year was necessary to keep these trees alive. This practice has proven to be successful, however RCT rules does not allow for “augmentation” practices to take place during bond release phases. Irrigation is one such measure which is not approved.

     In discussions with RCT officials during the fall of 1997, NWR was informed that ERP requirements were being changed to try and enhance acreages to be submitted for bond release.

6 - 4

One major change was the removal of all temporary structures (terraces, rock drops, wooden drop structures) and downsizing of ponds. The 1994 submittal allowed up to the third year once entered into ERP to have this work complete.

     Since this new ruling, NWR initiated the removal of these structures in the Spring of 1998. A substantial amount of disturbance was created and the drought we have experienced in 1998 has delayed the regrowth of grasses necessary to control erosion in theses areas. NWR is monitoring these areas closely and if enough fall rain allow irrigation of trees to cease and repaired areas are adequately covered to control erosion, a resubmitted package will he forwarded to RCT in the fall of 1998. However, if weather conditions are not conducive for fall grass cover, then a Spring, 1999 submittal is necessary. NWR is currently looking at future mining activities which will impact the release of land back to the original land owners in areas C and D.

6 - 5

[GRAPHIC MATERIAL]

6 - 6

[GRAPHIC MATERIAL]

6 - 7

Table 8.1
Jewett Mine — 1999 Annual Mine Plan
Staffing Summary

	1998		1998
	1st Qtr		Year End		1999								Year End Estimates
	Actuals		Estimate		First		Second		Third		Fourth		2000		2001		2002
Operations Engineering		4		4		5		5		5		5		5		5		5
Environmental Services		6		6		6		6		6		6		6		6		6
Operators		206		206		206		206		206		206		206		206		206
Mechanics / Electricians		97		97		97		97		97		97		97		97		97
Warehouse		5		5		5		5		5		5		5		5		5
TOTAL HOURLY		318		318		319		319		319		319		319		319		319
Administration               (A)		2		2		2		2		2		2		2		2		2
Lands                             (C)		3		3		3		3		3		3		3		3		3
Environmental Services		16		17		17		17		17		17		17		17		17
Operations Engineering		5		5		5		5		5		5		5		5		5
Human Resources		5		6		6		6		6		6		6		6		6
Business                        (B)		22		22		22		22		22		22		22		22		22
Production/Maintenance		27		27		27		27		27		27		27		27		27
TOTAL SALARY		80		82		82		82		82		82		82		82		82
TOTAL JEWETT MINE		398		400		401		401		401		401		401		401		401

(A)	Includes VP General Manager not billable
(B)	Includes one Accountant not billable
(C)	Includes 1/2 Senior Landman not billable

8-1

Table 8.2
Northwestern Resources Co.
Jewett Mine — 1999 Annual Mine Plan
Major Equipment Requirements

																									Front End				Coal
					Dozers												Scraper		Graders				Water		Loaders				Haulers		Backhoes						End Dumps
		Draglines	BWE		D9N		D10N		D11N		D7		834B		583K		657		16G		24H		Trucks		992D		Small		150 Ton		8.5		Lg		Sm		100 Ton		150 Ton
1998	December	4		1		4		6		2		2		1		2		1		4		0		2		1		1		14		2		2		1		5		0
1999	January	4		1		4		6		2		2		1		2		1		4		0		2		1		1		14		2		2		1		5		0
	February	4		1		4		6		2		2		1		2		1		4		0		2		1		1		14		2		2		1		5		0
	March	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		5		0
	April	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	May	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	June	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	July	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	August	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	September	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	October	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	November	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	December	4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
2000	1st Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		2		2		1		3		6
	2nd Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	3rd Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	4th Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
2001	1st Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	2nd Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	3rd Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	4th Quarter	4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
2002		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
2003		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		2		8
2004-2008		4		1		4		7		2		2		1		2		1		2		2		2		1		1		14		0		4		1		0		11

8-2

Table 8.3
Jewett Mine — 1999 Annual Mine Plan
Major Equipment Replacements

End

Backhoes

Coal

Dozers

Dump

Graders

Loaders

Scrapers

Water

8.5

Large

Small

Haulers

834B

D7

D9N

D10N

D11N

85/150 Ton

16G

992C

657

Trucks

1999

January

February

March

D904

D103/104

T003/004**

G003*

April

May

June

July

August

September

October

November

December

2000

1st Quarter

D905/906

G004*

2nd Quarter

B007

D702

D907

D105/106

Add 4

L007

S503

3rd Quarter

4th Quarter

2001

1st Quarter

2nd Quarter

D701

3rd Quarter

4th Quarter

2002

2003

T005/Add

2004

B008/L501

Add

D111

Add

2005

D107

T006/T007

2006

D904/905

D108

2007

D908/104

G005/006

2008

*	Replace G003 and G004 with new 24H motorgraders.
**	Replace with 150 ton end dump trucks.

8-3

Table 8.4
1999 Annual Mine Plan — Equipment Operating Hours

	JAN		FEB		MAR		APR		MAY		JUNE		JULY		AUG		SEPT		OCT		NOV		DEC		Total
******STRIPPING****** STRIPPING DRAGLINE
DRAGLINES-8200		1,942		1,754		1,414		1,879		1,942		1,879		1,942		1,942		1,879		1,942		1,434		1,942		21,891
DRAGLINE - 8750		632		571		632		612		632		612		632		442		612		632		612		632		7,256
DOZER — D9		400		220		400		400		400		400		400		400		400		400		400		400		4,620
DOZER — D10		2,832		2,558		2,251		2,740		2,832		2,740		2,832		2,623		2,740		2,832		2,251		2,832		32,061
DOZER-834		20		20		20		20		20		20		20		20		20		20		20		20		240
DOZER-D11		500		500		500		500		500		500		500		500		500		500		500		500		6,000
STRIPPING BWE
BWE		595		538		595		576		595		576		595		595		576		595		576		595		7,008
SCRAPER		25		25		25		25		25		25		25		25		25		25		25		25		300
DOZER-D7		595		538		595		576		595		576		595		595		576		595		576		595		7,008
DOZER-D9		250		250		250		250		250		250		250		250		250		250		250		250		3,000
DOZER-D10		600		600		600		600		600		620		620		600		600		600		600		600		7,240
SMALL BACKHOE		10		10		10		10		10		10		10		10		10		10		10		10		120
STRIPPING MOBILE
SCRAPER		50		50		50		50		50		50		50		50		50		50		50		50		600
END DUMP		2,530		2,285		2,530		2,448		2,530		2,448		2,530		2,530		2,448		2,530		2,448		2,530		29,787
BACKHOE-8.5 cu. yd.		932		842		932		902		932		902		932		932		902		932		902		932		10,975
FEL		0		0		0																				0
DOZER-D9		655		591		655		634		655		634		655		655		634		655		634		655		7,712
DOZER-D10		300		300		300		300		300		300		300		300		300		300		300		300		3,600
DOZER-D11		50		50		50		50		50		50		50		50		50		50		50		50		600
DOZER-834		15		15		15		15		15		15		15		15		15		15		15		15		180
***LIGNITE LOADING*** LIGNITE LOADING
5130 BACKHOE		1,165		1,052		1,165		1,128		1,165		1,128		1,165		1,165		1,128		1,165		1,128		1,165		13,718
BACKHOE-8.5 cu. yd.		0		0		0		0		0		0		0		0		0		0		0		0		0
FEL		557		503		557		539		557		539		557		557		539		557		539		557		6,552
DOZER-D10		50		50		50		50		50		50		50		50		50		50		50		50		600
LIGNITE HAULING
HAULER		5,755		5,198		5,755		5,569		5,755		5,569		5,755		5,755		5,569		5,755		5,569		5,755		67,759
DOZER — D10		100		100		100		100		100		100		100		100		100		100		100		100		1,200
LIGNITE CRUSHING
DOZER — D9		500		500		500		500		500		500		500		500		500		500		500		500		6,000
DOZER-834		250		250		250		250		250		250		250		250		250		250		250		250		3,000
********ROADS******** ROADS
GRADER		2,196		1,984		1,647		1,594		1,647		1,594		1,647		1,647		1,063		1,647		1,594		1,647		19,908
WATER TRUCK		700		700		700		700		700		700		700		700		700		700		700		700		8,400
SCRAPER		55		55		55		55		55		55		55		55		55		55		55		55		660
DOZER-D9		120		120		120		120		120		120		120		120		120		120		120		120		1,440
***WATER CONTROL*** WATER CONTROL PIT
DOZER-D9		100		100		100		90		90		90		90		90		90		100		100		100		1,140
SMALL BACKHOE		225		225		225		225		225		225		225		225		225		225		225		225		2,700
DOZER-D7		200		200		200		200		200		200		200		200		200		200		200		200		2,400
O.B. DEWATERING
DOZER-D9		50		50		50		50		50		50		50		50		50		50		50		50		600
****RECLAMATION**** RECLAIM CURRENT
SCRAPER		50		50		50		50		50		50		50		50		50		50		50		50		600
DOZER-D11		576		520		576		558		576		558		576		576		558		576		558		576		6,784
DOZER-D10		200		200		200		200		200		200		200		200		200		200		200		200		2,400
DOZER-D9		150		150		150		150		150		150		150		150		150		150		150		150		1,800
DOZER-D7		75		75		75		75		75		75		75		75		75		75		75		75		900

8-4

Table 8.4
1999 Annual Mine Plan — Equipment Operating Hours

		1ST		2ND		3RD		4TH		2000		1ST		2ND		3RD		4TH		2001		2002		2003		2004		2005		2006		2007		2008
****STRIPPING****
STRIPPING DRAGLINE
	DRAGLINE - 8200		5,638		5,700		5,763		5,318		22,419		5,638		5,700		5,763		5,318		22,419		22,419		22,419		22,419		22,419		22,419		22,419		22,419
	DRAGLINE - 8750		1,620		1,856		1,877		1,856		7,210		1,620		1,856		1,877		1,856		7,210		7,210		7,210		7,210		7,210		7,210		7,210		7,210
	DOZER — D9		1,020		1,200		1,200		1,200		4,620		1,020		1,200		1,200		1,200		4,620		4,620		4,620		4,620		4,620		4,620		4,620		4,620
	DOZER — D10		7,640		8,312		8,195		7,914		32,061		7,640		8,312		8,195		7,914		32,061		32,061		32,061		32,061		32,061		32,061		32,061		32,061
	DOZER-834		60		60		60		60		240		60		60		60		60		240		240		240		240		240		240		240		240
	DOZER-D11		1,500		1,500		1,500		1,500		6,000		1,500		1,500		1,500		1,500		6,000		6,000		6,000		6,000		6,000		6,000		6,000		6,000
SHIPPING BWE
	BWE		1,728		1,747		1,766		1,766		7,008		1,728		1,747		1,766		1,766		7,008		7,008		7,008		7,008		7,008		7,008		7,008		7,008
	SCRAPER		75		75		75		75		300		75		75		75		75		300		300		300		300		300		300		300		300
	DOZER-D7		1,728		1,747		1,766		1,766		7,008		1,728		1,747		1,766		1,766		7,008		7,008		7,008		7,008		7,008		7,008		7,008		7,008
	DOZER-D9		750		750		750		750		3,000		750		750		750		750		3,000		3,000		3,000		3,000		3,000		3,000		3,000		3,000
	DOZER-D10		1,800		1,820		1,820		1,800		7,240		1,800		1,820		1,820		1,800		7,240		7,240		7,240		7,240		7,240		7,240		7,240		7,240
	SMALL BACKHOE		30		30		30		30		120		30		30		30		30		120		120		120		120		120		120		120		120
STRIPPING MOBILE
	SCRAPER		150		150		150		150		600		150		150		150		150		600		600		600		600		600		600		600		600
	END DUMP		7,345		7,426		7,508		7,508		29,787		7,345		7,426		7,508		7,508		29,787		29,787		29,787		29,787		29,787		29,787		29,787		29,787
	BACKHOE-8.5 cu. yd.		2,706		1,026		1,056		1,056		5,845		1,056		1,026		1,056		1,056		4,195		4,195		4,195		4,195		4,195		4,195		4,195		4,195
	BACKHOE-5130		0		1,710		1,710		1,710		5,130		1,710		1,710		1,710		1,710		6,840		6,840		6,840		6,840		6,840		6,840		6,840		6,840
	DOZER-D9		1,901		1,923		1,944		1,944		7,712		1901		1,923		1,944		1,944		7,712		7,712		7,712		7,712		7,712		7,712		7,712		7,712
	DOZER-D10		900		900		900		900		3,600		900		900		900		900		3,600		3,600		3,600		3,600		3,600		3,600		3,600		3,600
	DOZER-834		45		45		45		45		180		45		45		45		45		180		180		180		180		180		180		180		180
*LIGNITE LOADING*
LIGNITE LOADING
	5130 BACKHOE		3,383		3,420		3,458		3,458		13,718		3,383		3,420		3,458		3,458		13,718		13,718		13,718		13,718		13,718		13,718		13,718		13,718
	BACKHOE-8.5 cu. yd.		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0		0
	FEL		1,616		1,634		1,652		1,652		6,552		1,616		1,634		1,652		1,652		6,552		6,552		6,552		6,552		6,552		6,552		6,552		6,552
	DOZER-D10		150		150		150		150		600		150		150		150		150		600		600		600		600		600		600		600		600
LIGNITE HAULING
	HAULER		16,708		16,893		17,079		17,079		67,759		16,708		16,893		17,079		17,079		67,759		67,759		67,759		67,759		67,759		67,759		67,759		67,759
	DOZER — D10		300		300		300		300		1,200		300		300		300		300		1,200		1,200		1,200		1,200		1,200		1,200		1,200		1,200
LIGNITE CRUSHING
	DOZER — D9		1,500		1,500		1,500		1,500		6,000		1,500		1,500		1,500		1,500		6,000		6,000		6,000		6,000		6,000		6,000		6,000		6,000
	DOZER-834		750		750		750		750		3,000		750		750		750		750		3,000		3,000		3,000		3,000		3,000		3,000		3,000		3,000
*****ROADS*****
ROADS
	GRADER		5,827		4,835		4,357		4,889		19,908		5,827		4,835		4,357		4,889		19,908		19,908		19,908		19,908		19,908		19,908		19,908		19,908
	WATER TRUCK		2,100		2,100		2,100		2,100		8,400		2,100		2,100		2,100		2,100		8,400		8,400		8,400		8,400		8,400		8,400		8,400		8,400
	SCRAPER		165		165		165		165		660		165		165		165		165		660		660		660		660		660		660		660		660
	DOZER-D9		360		360		360		360		1,440		360		360		360		360		1,440		1,440		1,440		1,440		1,440		1,440		1,440		1,440
**WATER CONTROL**
WATER CONTROL PIT
	DOZER-D9		300		270		270		300		1,140		300		270		270		300		1,140		1,140		1,140		1,140		1,140		1,140		1,140		1,140
	SMALL BACKHOE		675		675		675		675		2,700		675		675		675		675		2,700		2,700		2,700		2,700		2,700		2,700		2,700		2,700
	DOZER-D7		600		600		600		600		2,400		600		600		600		600		2,400		2,400		2,400		2,400		2,400		2,400		2,400		2,400
O.B. DEWATERING
	DOZER-D9		150		150		150		150		600		150		150		150		150		600		600		600		600		600		600		600		600
***RECLAMATION***
RECLAIM CURRENT
	SCRAPER		150		150		150		150		600		150		150		150		150		600		600		600		600		600		600		600		600
	DOZER-D11		1,673		1,691		1,710		1,710		6,784		1,673		1,691		1,710		1,710		6,784		6,784		6,784		6,784		6,784		6,784		6,784		6,784
	DOZER-D10		600		600		600		600		2,400		600		600		600		600		2,400		2,400		2,400		2,400		2,400		2,400		2,400		2,400
	DOZER-D9		450		450		450		450		1,800		450		450		450		450		1,800		1,800		1,800		1,800		1,800		1,800		1,800		1,800
	DOZER-D7		225		225		225		225		900		225		225		225		225		900		900		900		900		900		900		900		900

8-5

TABLE 8.5
1999 ANNUAL MINE PLAN
EQUIPMENT OPERATING HOURS SUMMARY

	JAN		FEB		MAR		APR		MAY		JUN		JUL		AUG		SEP		OCT		NOV		DEC		TOTAL
DRAGLINES - 8200		1,942		1,754		1,414		1,879		1,942		1,879		1,942		1,942		1,879		1,942		1,434		1,942		21,891
DRAGLINE - 8750		632		571		632		612		632		612		632		442		612		632		612		632		7,256
BWE		595		538		595		576		595		576		595		595		576		595		576		595		7,008
SCRAPER		180		180		180		180		180		180		180		180		180		180		180		180		2,160
END DUMP		2,530		2,285		2,530		2,448		2,530		2,448		2,530		2,530		2,448		2,530		2,448		2,530		29,787
5130 BACKHOE		1,165		1,052		1,165		1,128		1,165		1,128		1,165		1,165		1,128		1,165		1,128		1,165		13,718
BACKHOE - 8.5 cu. Yd.		932		842		932		902		932		902		932		932		902		932		902		932		10.975
FEL		557		503		557		539		557		539		557		557		539		557		539		557		6,552
DOZER D11		1,076		1,020		1,076		1,058		1,076		1,058		1,076		1,076		1,058		1,076		1,058		1,076		12,784
DOZER D10		4,082		3,808		3,501		3,990		4,082		4,010		4,102		3,873		3,990		4,082		3,501		4,082		47,101
DOZER D9		2,075		1,831		2,075		2,044		2,065		2,044		2,065		2,065		2,044		2,075		2,054		2,075		24,512
DOZER D7		870		813		870		851		870		851		870		870		851		870		851		870		10,308
DOZER - 834		285		285		285		285		285		285		285		285		285		285		285		285		3,420
HAULER		5,755		5,198		5,755		5,569		5,755		5,569		5,755		5,755		5,569		5,755		5,569		5,755		67,759
GRADER		2,196		1,984		1,647		1,594		1,647		1,594		1,647		1,647		1,063		1,647		1,594		1,647		19,808
WATER TRUCK		700		700		700		700		700		700		700		700		700		700		700		700		8,400
SMALL BACKHOE		235		235		235		235		235		235		235		235		235		235		235		235		2,820

8-6

TABLE 8.5
1999 ANNUAL MINE PLAN
EQUIPMENT OPERATING HOURS SUMMARY

	1ST		2ND		3RD		4TH		2000		1ST		2ND		3RD		4TH		2001		2002		2003		2004		2005		2006		2007		2008
DRAGLINES - 8200		5,638		5,700		5,763		5,318		22,419		5,638		5,700		5,763		5,318		22,419		22,419		22,419		22,419		22,419		22,419		22,419		22,419
DRAGLINE-8750		1,620		1,856		1,877		1,856		7,210		1,620		1,856		1,877		1,856		7,210		7,210		7,210		7,210		7,210		7,210		7,210		7,210
BWE		1,728		1,747		1,766		1,766		7,008		1,728		1,747		1,766		1,766		7,008		7,008		7,008		7,008		7,008		7,008		7,008		7,008
SCRAPER		540		540		540		540		2,160		540		540		540		540		2,160		2,160		2,160		2,160		2,160		2,160		2,160		2,160
END DUMP		7,345		7,426		7,508		7,508		29,787		7,345		7,426		7,508		7,508		29,787		29,787		29,787		29,787		29,787		29,787		29,787		29,787
5130 BACKHOE		3,383		3,420		3,458		3,458		13,718		3,383		3,420		3,458		3,458		13,718		13,718		13,718		13,718		13,718		13,718		13,718		13,718
BACKHOE-8.5 cu.yd.		2,706		1,026		1,056		1,056		5,845		1,056		1,026		1,056		1,056		4,195		4,195		4,195		4,195		4,195		4,195		4,195		4,195
FEL		1,616		3,344		3,362		3,362		11,682		3,326		3,344		3,362		3,362		13,392		13,392		13,392		13,392		13,392		13,392		13,392		13,392
DOZER D11		3,173		3,191		3,210		3,210		12,784		3,173		3,191		3,210		3,210		12,784		12,784		12,784		12,784		12,784		12,784		12,784		12,784
DOZER D10		11,390		12,082		11,965		11,664		47,101		11,390		12,082		11,965		11,664		47,101		47,101		47,101		47,101		47,101		47,101		47,101		47,101
DOZER D9		5,981		4,653		4,674		4,704		18,512		4,481		4,653		4,674		4,704		18,512		18,512		18,512		18,512		18,512		18,512		18,512		18,512
DOZER D7		2,553		2,572		2,591		2,591		10,308		2,553		2,572		2,591		2,591		10,308		10,308		10,308		10,308		10,308		10,308		10,308		10,308
DOZER-834		855		855		855		855		3,420		855		855		855		855		3,420		3,420		3,420		3,420		3,420		3,420		3,420		3,420
HAULER		16,708		16,893		17,079		17,079		67,759		16,708		16,893		17,079		17,079		67,759		67,759		67.759		67,759		67,759		67.759		67,759		67,759
GRADER		5,827		4,835		4,357		4,889		19,908		5,827		4,835		4,357		4,889		19,908		19,908		19,908		19,908		19,908		19,908		19,908		19,908
WATER TRUCK		2,100		2,100		2,100		2,100		8,400		2,100		2,100		2,100		2,100		8,400		8,400		8,400		8,400		8,400		8,400		8,400		8,400
SMALL BACKHOE		705		705		705		705		2,820		705		705		705		705		2,820		2,820		2,820		2,820		2,820		2,820		2,820		2,820

8-7

Northwestern Resources Co.

Jewett Mine

Capital and Operations Budget

1999 — 2008

This document contains the Jewett Mine Capital and Operations Budget for the years 1999 through 2008 as approved by Houston Lighting & Power. Due to the confidential nature of its contents, disclosure of information contained in the budget should be restricted to employees of NWR or HL&P, and used only for purposes related to the Jewett Mine.

Presented to

Houston Lighting & Power

December, 1998

Distribution List:

HL&P Houston	HL&P Jewett	NWR Jewett
J. Mitcham	M. Berend	J. Allred	F. Walters
A. Harper	A. Jones	C. Hardy	B. Armstrong
	T. Tawney	K. Keppner	E. Abram
	T. Underwood	L. Morrison	A. Barnes
	Limestone Site File		File

C-I

Northwestern Resources Co.
Jewett Mine
1999 — 2008 Capital and Operations Budget

Table of Contents

Overview	II
Capital Budget
Overview	C - 1
Budget:
Summary	C - 3
Ten Year Spread	C - 4
1999 By Month	C - 6
2000 - 2003	C - 7
Escalation:
Method	C - 8
Applied Indices	C - 9
1999 Capital Budget Items	CI - 1
Operations Budget
Overview	O - 1
Budget:
Summary	O - 7
Lignite Supply Agreement Format	O - 9
Categorical Format	O - 10
Ten Year Spread	O - 11
1999 By Month	O - 17
2000 - 2003	O - 20
Escalation:
Method	O - 23
Applied Indices	O - 24
Assumptions
Tonnage Projections:	A - 1
Bank Cubic Yards	A - 2
Major Equipment Requirements	A - 3
Major Equipment Replacements	A - 4
Average Equipment Lives	A - 5
Major Hourly Equipment Rates	A - 6
Support Equipment Rates	A - 8
Wage Projection and Overtime Assumptions	A - 9
Payroll Loading Factors	A - 10
Staffing Summary	A - 12
Constant Dollar Budgets
Capital	CD - 1
Operations	CD - 5

I

Northwestern Resources Co.

Overview of the Jewett Mine

     This document contains the 1999 — 2008 Capital and Operations Budget for the Jewett Mine located in Leon, Limestone, and Freestone Counties, Texas. This mine supplies fuel to Houston Lighting and Power, the owner and operator of the Limestone Electric Generating Station (two 820 mw generators).

     Mine construction began late in 1983, and initial overburden stripping commenced in June 1985. Full production of approximately 8.1 million tons per year was reached in 1989 with an expected mine life of thirty years. Production in 1999 will exceed 9.0 million tons. Three 78 cubic yard capacity draglines, one 128 cubic yard capacity dragline, and one bucketwheel excavator system (BWE) are the primary pieces of overburden stripping equipment. In deep overburden areas, end-dump and truck prebenching are used to supplement dragline and BWE production capabilities.

     Reserves incorporated in the Jewett Mine Plan include over 240 million tons. Additional reserves are available in the area to increase production or operate for a longer term. Five lignite seams, varying from 2 to 15 feet thick, will be mined. The principle coal raining method utilizes large backhoes and front-end loaders to load bottom dump trucks for extraction and haulage of lignite to a central crushing facility.

     An extensive post-rnine reclamation program, including spoilpile grading and revegetation, is in place to assure the mined out lands are restored to at least their premining productivity levels. Post-mine land use will typically be for cattle grazing and wildlife habitat.

II

Northwestern Resources Co.

1999 Capital Budget Overview

     The 1999 — 2008 Capital Budget was prepared on the basis of costs to be incurred by NWR for work performed in the same period. Escalation has been applied according to the schedule on page C - - 9. No contingency has been included, except where specifically identified. Salvage value for replacement equipment is not included in the requested amount.

     The Capital Budget is assembled into three major categories for 1999:

6 Facility Modification & Addition

6 Equipment

6 Lands

C-1

Northwestern Resources Co.
1999 — 2008 Capital Budget
Major Categories

Facility Modification &Addition

6	Haulroads & Ponds:
	This item includes construction of haulroads and drainage control structures at the mine. Included as haulroad construction are those roads used primarily for coal haulage. The engineering cost for surveying, construction testing, and inspection of these activities are not included. They are considered expense for the 1999 Budget. All service roads are expensed.

Equipment

6	Major Equipment — Additions and Replacements
	The primary pieces of overburden stripping equipment are three Marion 8200 (78 cubic yard) electric walking draglines, one Marion 8750 (128 cubic yard) electric walking dragline, and a bucketwheel excavator system (BWE).
6	Mobile Equipment — Additions and Replacements
	This category includes the cost of major mobile equipment required for clearing, stripping, coal removal, coal hauling, and regrading. A listing of equipment replacements is shown on page A — 4 of the Assumptions section. The useful life of the different types of mobile equipment may be seen on page A — 5 of the Assumptions section.
6	Support Equipment — Additions Items in this category include support equipment not directly used in production.
6	Support Equipment — Replacements and Other Equipment
	In this category are the costs of maintenance and support equipment such as fuel/lube trucks, welding trucks, service trucks, forklifts, light plants, reclamation implements, in-pit and overburden dewatering equipment, and pickup trucks. Also included are the costs of shop and service tools, and safety/training equipment as well as other miscellaneous equipment.
6	Office Furniture and Equipment — Additions and Replacements This category includes various types of furniture, office and computer equipment.

Lands

6	Tract Purchases
	This category includes funds for purchases of tracts needed for the Life of Mine operations. Other leased properties will be recommended for purchase in order to provide for ancillary operations.
6	Surface Improvements
	Included here are payments to the respective landowner of the fair market value for buildings, fences, tanks, and other improvements that will be destroyed or rendered useless by the mining operations. These payments are required under the provisions of the respective coal leases.

C-2

Northwestern Resources Co.
1999 Capital Budget Summary
Escalated Dollars

	1999		2000		2001		2002		2003		2004		2005		2006		2007		2008		Total
Mine Facilities	$	—	$	788,214	$	1,467,798	$	1,616,897	$	7,203,497	$	4,664,866	$	4,160,182	$	—	$	918,212	$	—	$	20,819,666
Mine Equipment		646,000		6,554,309		569,194		326,805		919,088		5,525,787		1,567,065		2,468,026		4,833,533		130,725		23,540,532
Land		250,000		193,795		311,800		379,641		—		—		—		—		—		—		1,135,236
Total	$	896,000	$	7,536,318	$	2,348,792	$	2,323,343	$	8,122,585	$	10,190,653	$	5,727,247	$	2,468,026	$	5,751,745	$	130,725	$	45,495,434

C-3

JEWETT CAPITAL BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’S)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTAL		5 YEAR
	1999		2000		2001		2002		2003		TOTAL
* EQUIPMENT
** MAJOR EQUIP DRAGLINE		520.0		0.0		0.0		0.0		133.5		653.5
** Subtotal		520.0		0.0		0.0		0.0		133.5		653.5
** MOBILE EQUIP REPLACEMENT		0.0		5,944.0		0.0		0.0		0.0		5,944.0
** Subtotal		0.0		5,944.0		0.0		0.0		0.0		5,944.0
** SHOP & SERV SUPP EQUIP REP		0.0		507.7		463.9		218.7		674.3		1,864.6
TOOLS & EQUIP		126.0		102.8		105.2		108.1		111.2		553.3
** Subtotal		126.0		610.5		569.1		326.8		785.5		2,417.9
* Total		646.0		6,554.5		569.1		326.8		919.0		9,015.4
* FACILITIES
** ROAD & DRAIN HAULROADS		0.0		788.2		677.5		0.0		5,285.0		6,750.7
PONDS		0.0		0.0		790.3		1,616.9		1,918.4		4,325.6
** Subtotal		0.0		788.2		1,467.8		1,616.9		7,203.4		11,076.3
* Total		0.0		788.2		1,467.8		1,616.9		7,203.4		11,076.3
* LANDS
** ACQUISITION TRACT PURCHASES		200.0		193.8		311.8		379.6		0.0		1,085.2
** Subtotal		200.0		193.8		311.8		379.6		0.0		1,085.2
** SURFACE IMPROVEMENT		50.0		0.0		0.0		0.0		0.0		50.0
** Subtotal		50.0		0.0		0.0		0.0		0.0		50.0
* Total		250.0		193.8		311.8		379.6		0.0		1,135.2
Grand Total		896.0		7,536.5		2,348.7		2,323.3		8,122.4		21,226.9

C-4

JEWETT CAPITAL BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’S)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTAL		5 YEAR
	2004		2005		2006		2007		2008		TOTAL
* EQUIPMENT
** MAJOR EQUIP DRAGLINE		0.0		71.1		0.0		0.0		0.0		71.1
** Subtotal		0.0		71.1		0.0		0.0		0.0		71.1
** MOBILE EQUIP REPLACEMENT		5,264.4		817.5		2,317.6		4,443.0		0.0		12,842.5
** Subtotal		5,264.4		817.5		2,317.6		4,443.0		0.0		12,842.5
** SHOP & SERV SUPP EQUIP REP		146.7		560.0		27.8		263.7		0.0		998.2
TOOLS & EQUIP		114.7		118.5		122.6		126.8		130.7		613.3
** Subtotal		261.4		678.5		150.4		390.5		130.7		1,611.5
* Total		5,525.8		1,567.1		2,468.0		4,833.5		130.7		14,525.1
* FACILITIES
** MINE BLDGS MODIF & ADDS		780.4		0.0		0.0		0.0		0.0		780.4
** Subtotal		780.4		0.0		0.0		0.0		0.0		780.4
* ROAD & DRAIN HAULROADS		1,384.4		1,847.7		0.0		0.0		0.0		3,232.1
PONDS		2,500.1		2,312.5		0.0		918.2		0.0		5,730.8
** Subtotal		3,884.5		4,160.2		0.0		918.2		0.0		8,962.9
* Total		4,664.9		4,160.2		0.0		918.2		0.0		9,743.3
Grand Total		10,190.7		5,727.3		2,468.0		5,751.7		130.7		24,268.4

C-5

JEWETT CAPITAL BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’S)

	1999																								1999
	JAN		FEB		MARCH		APRIL		MAY		JUNE		JULY		AUG		SEPT		OCT		NOV		DEC		TOTAL
* EQUIPMENT
** MAJOR EQUIP DRAGLINE		0.0		0.0		0.0		0.0		0.0		0.0		0.0		520.0		0.0		0.0		0.0		0.0		520.0
** Subtotal		0.0		0.0		0.0		0.0		0.0		0.0		0.0		520.0		0.0		0.0		0.0		0.0		520.0
** SHOP & SERV TOOLS & EQUIP		5.0		12.4		5.0		19.0		10.0		19.6		10.0		10.0		10.0		10.0		10.0		5.0		126.0
** Subtotal		5.0		12.4		5.0		19.0		10.0		19.6		10.0		10.0		10.0		10.0		10.0		5.0		126.0
* Total		5.0		12.4		5.0		19.0		10.0		19.6		10.0		530.0		10.0		10.0		10.0		5.0		646.0
* LANDS
** ACQUISITION TRACT PURCHASE		0.0		0.0		10.0		0.0		40.0		0.0		80.0		0.0		40.0		0.0		30.0		0.0		200.0
** Subtotal		0.0		0.0		10.0		0.0		40.0		0.0		80.0		0.0		40.0		0.0		30.0		0.0		200.0
** SURFACE IMPROVEMENT		0.0		0.0		20.0		0.0		0.0		20.0		0.0		0.0		10.0		0.0		0.0		0.0		50.0
** Subtotal		0.0		0.0		20.0		0.0		0.0		20.0		0.0		0.0		10.0		0.0		0.0		0.0		50.0
* Total		0.0		0.0		30.0		0.0		40.0		20.0		80.0		0.0		50.0		0.0		30.0		0.0		250.0
Grand Total		5.0		12.4		35.0		19.0		50.0		39.6		90.0		530.0		60.0		10.0		40.0		5.0		896.0

C-6

JEWETT CAPITAL BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’S)

	2000								2000		2001								2001		2002		2003		5-YEAR
	QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		TOTAL		TOTAL		TOTAL
* EQUIPMENT
** MAJOR EQUIP DRAGLINE		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		133.5		653.5
** Subtotal		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		133.5		653.5
** MOBILE EQUIP REPLACEMENT		1226.7		4717.3		0.0		0.0		5944.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		5,944.0
** Subtotal		1226.7		4717.3		0.0		0.0		5944.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		5,944.0
** SHOP & SERV SUPP EQUIP REP		121.1		355.8		12.3		18.5		507.7		162.3		182.5		100.1		19.0		463.9		218.7		674.3		1,864.6
TOOLS & EQUIP		25.7		25.7		25.7		25.7		102.8		26.3		26.3		26.3		26.3		105.2		108.1		111.2		553.3
** Subtotal		146.8		381.5		38.0		44.2		610.5		188.6		208.8		126.4		45.3		569.1		326.8		785.5		2,417.9
* Total		1373.5		5098.8		38.0		44.2		6554.5		188.6		208.8		126.4		45.3		569.1		326.8		919.0		9,015.4
* FACILITIES
** ROAD & DRAIN HAULROADS		0.0		394.1		394.1		0.0		788.2		0.0		0.0		421.5		256.0		677.5		0.0		5285.0		6,750.7
PONDS		0.0		0.0		0.0		0.0		0.0		474.2		316.1		0.0		0.0		790.3		1616.9		1918.4		4,325.6
** Subtotal		0.0		394.1		394.1		0.0		788.2		474.2		316.1		421.5		256.0		1467.8		1616.9		7203.4		11,076.3
** Total		0.0		394.1		394.1		0.0		788.2		474.2		316.1		421.5		256.0		1467.8		1616.9		7203.4		11,076.3
* LANDS
** ACQUISITION TRACT PURCHASE		51.1		0.0		142.7		0.0		193.8		55.3		55.3		107.5		93.7		311.8		379.6		0.0		1,085.2
** Subtotal		51.1		0.0		142.7		0.0		193.8		55.3		55.3		107.5		93.7		311.8		379.6		0.0		1,085.2
** SURFACE IMPROVEMENT		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		50.0
** Subtotal		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0		50.0
* Total		51.1		0.0		142.7		0.0		193.8		55.3		55.3		107.5		93.7		311.8		379.6		0.0		1,135.2
Grand Total		1424.6		5492.9		574.8		44.2		7536.5		718.1		580.2		655.4		395.0		2348.7		2323.3		8322.4		21,226.9

C-7

Northwestern Resources Co.
1999 Capital Budget Escalation

     The escalation rates used in the Capital Budget were taken from the 1998 Houston Industries, Inc. Cost Escalation Study, dated May, 1998. HL&P provided this study to NWR. NWR then determined the appropriate indices to be used for each budget item. The following page shows the selected indices for the 1999 Capital Budget.

     Capital dollars are based on 1999 dollars; consequently, no escalation was applied for 1999. The budget is then escalated quarterly for 2000 and 2001, and annually for 2002 through 2008, to derive the escalated dollar budget. The method used gives an effective annual rate after compounding equal to the stated escalation rates.

C-8

Northwestern Resources Co.
1999 Capital Budget
Applied Indices

		RATE APPLIED
DESCRIPTION	1999 2008 INDEX	1999		2000		2001		2002		2003		2004		2005		2006		2007		2008
Mine Buildings	Warehouse Construction Costs		1.9		2.2		2.2		2.2		2.4		2.5		2.9		2.9		2.7		2.6
Lignite Handling Facility	Coal & Ash Handling Equipment		1.2		2.3		2.9		2.5		2.5		2.9		3.1		3.1		3.2		2.9
Electrical Distribution System	Total Distribution Plant		1.4		1.6		1.8		1.8		2.3		2.5		2.9		3.0		2.4		2.1
Roads & Drainage	Heavy Construction Trades		3.0		2.9		2.4		2.3		1.7		2.5		2.9		2.8		3.0		3.1
Draglines, Mobile Equipment, Shop & Service Inventory	Mining (PPI 3532)		1.7		2.6		2.7		2.6		2.9		3.1		3.3		3.5		3.4		3.1
Land	GDP Implicit Deflator		1.9		2.2		2.1		2.2		2.4		2.5		2.6		2.8		2.8		2.9

1999 costs are based on 1998 current dollars plus escalation. 1999 — 2008 are escalated from the basis by the indicated rate as taken from the HII Cost Escalation Study (May, 1998).

C-9

Northwestern Resources Co.
Jewett Mine
1999 Capital Budget

Page
			MAJOR EQUIPMENT
CI-2	99MJE001		Purchase Rails and rollers for DL25	$	520,000		520,000
			VEHICLE/SUPPORT EQUIPMENT — ADDITIONS
CI-4	99STE001		Tools & Small Equipment		126,000		126,000
			TRACT PURCHASES
CI-6	99TPS001		Tract Purchases		200,000		200,000
			SURFACE IMPROVEMENTS
CI-8	99SF1001		Surface Improvements		50,000		50,000
		Total 1999 Capital				$	896,000

CI-1

Houston Industries Power Generation
1999 Project Evaluation / Approval Form

Location:	Jewett Mine		Sponsor:	Dean Gatzemeier
Project Title:	Purchase Rails and Rollers for DL25		Phone No:	903-626-6323
Project ID:	99MJE001               Prog Elem: HFCL01	Year: 1999	Submit Date: 6/29/98

PROJECT DESCRIPTION AND SCOPE:

Purchase new rails and rollers for 8200 dragline DL25.

PROJECT JUSTIFICATION AND ALIGNMENT TO HIPG STRATEGY:

     At present, there is one set of spare rails and rollers for a Marion 8200 dragline at the Jewett Mine. In November 1998, this set will be used for DL26, and no spare set will be on site.

     DL25’s rails and rollers are 13 years old. The rails are showing signs of fatigue, and the rollers have been replaced as needed. If the rails and rollers fail on this machine, the lead-time on the parts is six months. Limestone Electric Generating Station fuel deliveries could be severely impacted. This project supports the HIPG strategy of availability improvement.

Category: Rehabilitation-in-kind
Start Date: January, 1999 New or Carried Forward:
New Completion Date: June 1999 Capital or O&M: Capital

Cost or Project:	Prior Yrs.		Budget Yr.		Year +1		Future Yrs.		Budget		Actuals		Difference
HIPG Labor	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Material		—		—		—		—		—		—		—
Contracts		—		—		—		—		—		—		—
Other		—		520,000		—		—		—		—		—
Totals	$	—	$	520,000		—		—		—		—		—

FINANCIAL DATA

Benefit/Cost Radio:	NPV Selected:	NPV Alternative 1:
Payback Period:	NPV Rejected:	NPV Alternative 2:
% Ret on Investment:	NPV Deferred:	NPV Alternative 3:

FINANCIAL SUMMARY:

CI-2

Houston Industries Power Generation
1999 Project Evaluation / Approval Form

Location:	Jewett Mine		Sponsor:	Dean Gatzemeier
Project Title:	Purchase Rails and Rollers for DL25		Phone No:	903-626-6323
Project ID:	99MJE001               Prog Elem: HFCL01	Year: 1999	Submit Date: 6/29/98

SENSITIVITY ANALYSIS:

     If the rails and rollers fail on DL25 without the Jewett Mine having spares on site, the fuel supply to the Limestone Electric Generating Station could be impacted. The lead-time on this item is six months.

PROJECT SCHEDULE AND MILESTONES:

Estimated Start Date: January, 1999 Estimated Completion Date: June, 1999

Milestones:

DEFERRAL ANALYSIS:

     Deferral is not an option.

PCA PLAN:

     The purpose of this project is to ensure that the rails and rollers on DL25 do not cause more than 21 days of downtime. By purchasing this item and having a spare set on site, when the rollers are ready for change out, the dragline will be placed back into service in 21 days or less.

PCA RESULTS:

APPROVALS:

Sponsor:	Date:
Vice President:	Date:

CI-3

Northwestern Resources Co.
1998 Operations Budget Overview

     The 1999 — 2008 Operations Budget was prepared on the basis of the cost incurred by NWR and the work being in the same period.

     Costs were calculated using primarily historical information. Equipment rates used were adjusted based on the age of the fleet. Costs were developed using tons and yards from the 1999 Annual Mine Plan.

     Escalation was then added according to the schedule on page O-24.

     No contingency has been included.

     The Operations Budget is assembled into six major categories:

6	Production
6	Environmental
6	Engineering
6	Administration
6	Lease Obligations
6	Fees

O-1

Northwestern Resources Co.
1999 Operations Budget Summary
1999 – 2003
(Escalated $,000’s)

	1999				2000				2001				2002				2003
Stripping Bank Yards				101,979				109,958				112,021				115,445				118,512
Tons Sold				9,019				9,739				10,062				9,971				10,056
Stripping – cost per yard			$	0.26			$	0.24			$	0.24			$	0.24			$	0.24
			$/Ton				$/Ton				$/Ton				$/Ton				$/Ton
Stripping	$	26,169		2.90	$	26,746		2.75	$	27,381		2.72	$	27,995		2.81	$	28,480		2.83
Lignite Handling		10,925		1.21		10,946		1.12		11,067		1.10		11,211		1.12		11,376		1.13
Roads		2,720		0.30		2,838		0.29		2,764		0.27		2,800		0.28		3,509		0.35
Water Control		3,379		0.37		2,875		0.30		3,149		0.31		3,325		0.33		3,146		0.31
Maintenance		5,034		0.56		5,109		0.52		5,189		0.52		5,269		0.53		5,360		0.53
General		6,674		0.74		7,321		0.75		7,651		0.76		8,390		0.84		10,124		1.01
Current Reclamation		2,277		0.25		2,321		0.24		2,367		0.24		2,413		0.24		2,465		0.25
Post Mine Reclamation		978		0.11		985		0.10		960		0.10		1,020		0.10		1,074		0.11
Compliance		4,805		0.53		4,534		0.47		5,049		0.50		3,667		0.37		5,954		0.59
Total		62,960		6.98		63,674		6.54		65,577		6.52		66,089		6.63		71,488		7.11
Engineering		973		0.11		909		0.09		955		0.09		920		0.09		1,039		0.10
Administration		4,229		0.47		4,421		0.45		4,503		0.45		4,556		0.46		4,635		0.46
Lease Obligations		19,460		2.16		18,121		1.86		13,668		1.36		13,967		1.40		17,870		1.78
Fees		23,356		2.59		31,343		3.22		39,778		3.95		39,751		3.99		31,459		3.13
Grand Total	$	110,977	$	12.30	$	118,468	$	12.16	$	124,481	$	12.37	$	125,282	$	12.56	$	126,491	$	12.58

O-7

Northwestern Resources Co.
1999 Operations Budget Summary
2004 – 2008
(Escalated $,000’s)

	2004				2005				2006				2007				2008
Stripping Bank Yards				117,675				121,354				116,069				119,197				110,022
Tons Sold				10,042				10,090				10,080				9,931				9,944
Stripping – cost per yard			$	0.25			$	0.25			$	0.26			$	0.26			$	0.29
			$/Ton				$/Ton				$/Ton				$/Ton				$/Ton
Stripping	$	29,053	$	2.89	$	29,740	$	2.95	$	30,261	$	3.00	$	31,166	$	3.14	$	31,547	$	3.17
Lignite Handling		11,558		1.15		11,758		1.17		11,977		1.19		12,197		1.23		12,405		1.25
Roads		3,803		0.38		3,692		0.37		3,701		0.37		3,856		0.39		3,290		0.33
Water Control		3,778		0.38		3,889		0.39		3,046		0.30		3,335		0.34		3,788		0.38
Maintenance		5,459		0.54		5,568		0.55		5,687		0.56		5,808		0.58		5,923		0.60
General		6,909		0.69		7,101		0.70		10,632		1.05		7,142		0.72		7,309		0.73
Current Reclamation		2,523		0.25		2,586		0.26		2,656		0.26		2,725		0.27		2,791		0.28
Post Mine Reclamation		1,257		0.13		1,598		0.16		1,412		0.14		1,326		0.13		1,480		0.15
Compliance		5,185		0.52		6,787		0.67		6,466		0.64		4,422		0.45		4,199		0.42
Total		69,526		6.92		72,720		7.21		75,838		7.52		71,977		7.25		72,731		7.31
Engineering		1,188		0.12		974		0.10		991		0.10		890		0.09		903		0.09
Administration		4,571		0.46		4,657		0.46		4,752		0.47		4,850		0.49		4,947		0.50
Lease Obligations		19,152		1.91		17,381		1.72		22,160		2.20		18,095		1.82		19,700		1.98
Fees		28,546		2.84		30,685		3.04		25,168		2.50		30,368		3.06		27,920		2.81
Grand Total	$	122,982	$	12.25	$	126,418	$	12.53	$	128,909	$	12.79	$	126,180	$	12.71	$	126,202	$	12.69

O-8

JEWETT MINE BUDGET BY LSA CATEGORY

NORTHWESTERN RESOURCES CO.
*** 1999 BUDGET ***
(000’s)

		JAN																								TOTAL
		1999		FEB		MARCH		APRIL		MAY		JUNE		JULY		AUG		SEPT		OCT		NOV		DEC		1999
**10.2
10.2a P	PRODUCTION		2,196,103		2,068,438		2,358,135		2,427,664		2,487,299		2,413,542		2,340,284		2,438,864		2,275,583		2,227,269		2,289,933		2,088,310		27,611,824
10.2a S	STRIPPING		2,268,998		2,057,992		2,023,417		2,203,926		2,270,798		2,212,926		2,271,298		2,130,747		2,212,826		2,268,298		2,001,918		2,245,498		28,168,642
10.2b	ROYALTIES		1,610,500		1,782,580		1,198,320		926,260		1,182,350		1,673,250		1,740,750		1,784,000		1,770,880		1,764,120		1,694,040		1,722,420		18,849,500
10.2c	OP TAX		82,300		74,500		57,600		41,000		56,600		81,600		84,400		86,600		83,400		85,300		81,800		86,800		901,900
10.2d	GENERAL		487,751		466,015		532,127		465,804		538,349		589,589		584,517		521,234		498,587		495,172		426,169		484,900		6,090,214
** Subtotal			6,645,652		6,449,525		6,169,599		6,064,654		6,535,426		6,971,307		7,021,249		6,961,445		6,841,276		6,840,159		6,493,860		6,627,928		79,622,080
**10.3
10.3a	POST MINE		34,162		36,862		72,863		110,651		123,060		125,050		121,856		118,210		99,641		51,645		44,153		39,370		977,523
10.3b	RENT & ADV		49,340		38,240		71,340		64,040		23,540		27,040		331,440		65,754		41,540		34,840		26,990		57,163		831,267
10.3c	RELOCATION		0		0		0		0		0		0		30,000		36,600		0		0		0		0		66,600
10.3d	AD VAL TAX		33,300		33,300		33,400		33,300		33,300		33,400		33,300		33,300		33,400		33,300		33,300		33,400		400,000
10.3e	COMPLIANCE		190,356		197,571		331,160		205,333		234,111		663,778		766,679		1,053,071		518,810		215,269		178,031		250,539		4,804,708
10.3f	INSURANCE		37,200		37,200		37,200		37,200		37,200		37,200		37,200		37,200		37,200		37,200		37,200		37,200		446,400
** Subtotal			344,358		343,173		545,963		450,524		451,211		886,468		1,320,475		1,344,135		730,591		372,254		319,674		417,672		7,526,498
**10.4
10.4	DED FEES		602,140		545,020		421,260		301,140		415,860		599,890		624,190		641,060		616,960		634,040		607,420		646,140		6,655,120
** Subtotal			602,140		545,020		421,260		301,140		415,860		599,890		624,190		641,060		616,960		634,040		607,420		646,140		6,655,120
**10.5
10.5	MGMT FEES		1,506,090		1,363,350		1,054,080		754,400		1,041,440		1,501,440		1,569,840		1,610,760		1,551,240		1,595,110		1,529,660		1,623,160		16,700,570
** Subtotal			1,506,090		1,363,350		1,054,080		754,400		1,041,440		1,501,440		1,569,840		1,610,760		1,551,240		1,595,110		1,529,660		1,623,160		16,700,570
**99
99	WK CAP		40,300		40,300		40,100		39,900		39,700		39,500		39,400		39,200		38,900		38,700		38,600		38,300		472,900
** Subtotal			40,300		40,300		40,100		39,900		39,700		39,500		39,400		39,200		38,900		38,700		38,600		38,300		472,900
Grand Total			9,138,540		8,741,368		8,231,002		7,610,618		8,483,637		9,998,605		10,375,154		10,596,600		9,778,967		9,480,263		8,989,214		9,353,200		110,977,168

O-9

Northwestern Resources Co.
1998 Operations Budget
Categorical Format
(000’s)

	Budget
Hourly Labor	$	13,697
Salary		3,893
Fringe & Tax		6,478
Materials & Supplies		3,753
Vehicles w/ Labor		695
Contract		11,561
Equipment Operation		12,126
Equipment Maintenance Parts		10,074
Taxes & Insurance		3,304
Royalties & Fees		42,816
Other		2,580
Total	$	110,977

O-10

JEWETT OPERATIONS BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’S)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTAL		5 YEAR
	1999		2000		2001		2002		2003		TOTAL
* PRODUCTION
** STRIPPING
DRAGLINES		15,044.4		15,436.8		15,715.0		15,993.4		16,308.9		78,498.5
BLASTING		2,843.4		2,878.3		3,081.5		3,296.3		3,327.3		15,426.8
BWE		3,742.0		3,818.0		3,881.6		3,945.3		4,017.6		19,404.5
MOBILE		4,538.8		4,612.3		4,703.4		4,760.4		4,825.6		23,440.5
** Subtotal		29,168.6		26,745.4		27,381.5		27,995.4		28,479.4		136,770.3
** LIGNITE
LOADING		2,116.2		2,023.3		2,025.5		2,051.8		2,082.2		10,299.0
HAULING		7,253.8		7,351.7		7,454.4		7,556.2		7,672.9		37,289.0
CRUSHING		1,555.2		1,570.4		1,586.8		1,602.8		1,621.2		7,936.4
** Subtotal		10,925.2		10,945.4		11,066.7		11,210.8		11,376.3		55,524.4
** ROADS
MAINT. OTHER		133.9		129.8		133.3		136.7		140.6		674.3
MAINT. ROADS		2,464.7		2,598.5		2,631.1		2,663.7		2,701.0		13,059.0
CONST. ROADS		121.3		110.3		0.0		0.0		666.9		898.5
** Subtotal		2,719.9		2,838.6		2,764.4		2,800.4		3,508.5		14,631.8
** WATER CTRL
PIT – SURFACE		599.6		606.9		614.9		622.8		631.9		3,076.1
OVERBURDEN		2,780.1		2,268.3		2,533.9		2,701.9		2,514.1		12,798.3
** Subtotal		3,379.7		2,875.2		3,148.8		3,324.7		3,146.0		15,874.4
** MAINTENANCE
SUPPORT		1,381.2		1,410.8		1,442.4		1,473.4		1,508.9		7,216.7
MAINT. OTHER		3,652.5		3,697.5		3,746.3		3,795.2		3,850.8		18,742.3
** Subtotal		5,033.7		5,108.3		5,188.7		5,268.6		5,359.7		25,959.0
** GENERAL
CLEARING		198.6		228.0		234.0		214.3		220.5		1,095.4
DRILLING		578.8		641.2		658.7		337.9		0.0		2,216.6
WAREHOUSE		1,238.0		1,264.2		1,293.7		1,324.1		1,358.3		6,478.3
PROD. TAXES		2,857.8		2,979.7		3,068.1		3,117.2		3,191.0		15,213.8
RELOCATIONS		66.6		457.8		629.0		1,611.9		3,551.6		6,316.9
SUPV. OTHER		1,734.3		1,750.3		1,768.0		1,784.3		1,802.5		8,839.4
** Subtotal		6,674.1		7,321.2		7,651.5		8,389.7		10,123.9		40,160.4
* Total		54,901.2		55,834.1		57,201.6		58,989.6		61,993.8		288,920.3

O-11

JEWETT OPERATIONS BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTAL		5 YEAR
	1999		2000		2001		2002		2003		TOTAL
* ENVIRONMENT
** CURRENT RECL
REGRADE		1,997.9		2,034.3		2,072.8		2,111.0		2,154.6		10,370.6
REVEGETATION		279.3		286.5		294.3		301.9		310.7		1,472.7
** Subtotal		2,277.2		2,320.8		2,367.1		2,412.9		2,465.3		11,843.3
** POST MINE
FACIL REMOVAL		74.6		6.3		5.2		18.5		22.0		126.6
MINE MANGEMEN		903.2		978.9		954.7		1,001.2		1,052.4		4,890.4
** Subtotal		977.8		985.2		959.9		1,019.7		1,074.4		5,017.0
** COMPLIANCE
PERMITS		334.6		388.9		387.8		96.5		69.5		1,277.3
MONITORING		532.4		538.1		555.2		575.2		593.7		2,794.6
SEDIMENT CTRL		2,420.0		2,113.9		1,960.2		1,330.1		3,727.0		11,551.2
COMPL. OTHER		1,518.0		1,493.0		2,145.8		1,664.8		1,564.0		8,385.6
** Subtotal		4,805.0		4,533.9		5,049.0		3,666.6		5,954.2		24,008.7
* Total		8,060.0		7,839.9		8,376.0		7,099.2		9,493.9		40,869.0
* ENGINEER
** ENGINEERING
OPERATIONS ENG		500.8		508.3		505.7		510.3		515.6		2,540.7
CIVIL ENGINEER		161.8		86.1		130.2		98.1		206.9		683.1
SURVEYING		310.0		314.8		318.9		311.9		316.3		1,571.9
** Subtotal		972.6		909.2		954.8		920.3		1,038.8		4,795.7
* Total		972.6		909.2		954.8		920.3		1,038.8		4,795.7
* ADMIN
** ADMIN
BUSINESS		3,379.2		3,424.6		3,485.8		3,542.4		3,606.4		17,438.4
LANDS		220.6		192.8		201.2		185.0		185.7		985.3
EMPLOYEE REL		628.6		803.4		815.9		828.3		842.5		3,918.7
** Subtotal		4,228.4		4,420.8		4,502.9		4,555.7		4,634.6		22,342.4
* Total		4,228.4		4,420.8		4,502.9		4,555.7		4,634.6		22,342.4

O-12

JEWETT OPERATIONS BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTAL		5 YEAR
	1999		2000		2001		2002		2003		TOTAL
* LEASE OBL
** LEASE OBL
DAMAGES		807.1		578.1		807.7		666.6		6.8		2,866.3
RENTALS		312.1		272.1		272.1		272.1		72.1		1,200.5
ROYALTIES		18,340.8		17,270.9		12,588.2		13,028.0		17,791.5		79,019.4
** Subtotal		19,460.0		18,121.1		13,668.0		13,966.7		17,870.4		83,086.2
* Total		19,460.0		18,121.1		13,668.0		13,966.7		17,870.4		83,086.2
* FEES
** FEES
DEDICATION		6,655.1		13,130.9		20,862.1		21,104.8		12,654.2		74,507.1
MANAGEMENT		16,700.6		18,211.9		18,816.1		18,645.8		18,804.7		91,179.1
** Subtotal		23,355.7		31,355.8		39,778.2		39,750.6		31,458.9		165,686.2
* Total		23,355.7		31,342.8		39,778.2		39,750.6		31,458.9		165,686.2
Grand Total		110,977.9		118,467.9		124,481.5		125,282.1		126,490.4		605,699.8

O-13

JEWETT OPERATIONS BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTOAL		5 YEAR
	2004		2005		2006		2007		2008		TOTAL
* PRODUCTION
** STRIPPING
DRAGLINES		16,656.1		17,037.0		17,454.4		17,874.1		18,269.7		87,291.3
BLASTING		3,402.2		3,542.7		3,464.4		3,766.1		3,579.3		17,754.7
BWE		4,097.2		4,184.5		4,280.1		4,376.3		4,446.9		21,405.0
MOBILE		4,897.4		4,976.2		5,062.5		5,149.2		5,231.0		25,316.3
** Subtotal		29,052.9		29,740.4		30,261.4		31,165.7		31,546.9		151,767.3
** LIGNITE
LOADING		2,115.7		2,152.4		2,192.6		2,230.0		2,271.1		10,964.8
HAULING		7,801.3		7,942.1		8,096.4		8,251.6		8,397.9		40,489.3
CRUSHING		1,641.5		1,663.8		1,688.2		1,712.7		1,735.8		8,442.0
** Subtotal		11,558.5		11,758.3		11,977.2		12,197.3		12,404.8		59,896.1
** ROADS
MAINT. OTHER		145.0		149.8		155.0		160.3		165.2		775.3
MAINT. ROADS		2,742.7		2,787.7		2,837.1		2,886.8		2,933.6		14,187.9
CONST. ROADS		915.3		754.4		708.8		808.9		190.7		3,378.1
** Subtotal		3,803.0		3,691.9		3,700.9		3,856.0		3,289.5		18,341.3
** WATER CTRL
PIT – SURFACE		642.0		653.0		665.1		677.2		688.6		3,325.9
OVERBURDEN		3,136.3		3,236.5		2,381.3		2,657.5		3,099.4		14,511.0
** Subtotal		3,778.3		3,889.5		3,046.4		3,334.7		3,788.0		17,836.9
** MAINTENANCE
SUPPORT		1,547.9		1,590.8		1,637.7		1,684.9		1,729.4		8,190.7
MAINT. OTHER		3,911.6		3,977.5		4,049.6		4,123.1		4,193.9		20,255.7
** Subtotal		5,459.5		5,568.3		5,687.3		5,808.0		5,923.3		28,446.4
** GENERAL
CLEARING		227.4		234.9		243.1		251.4		259.2		1,216.0
WAREHOUSE		1,394.8		1,432.7		1,474.1		1,518.2		1,564.2		7,384.0
PROD. TAXES		3,259.2		3,336.4		3,414.4		3,483.8		3,572.9		17,066.7
RELOCATIONS		205.3		254.3		3,635.8		0.0		0.0		4,095.4
SUPV. OTHER		1,821.9		1,842.3		1,864.6		1,888.2		1,912.4		9,329.4
** Subtotal		6,908.6		7,100.6		10,632.0		7,141.6		7,308.7		39,091.5
* Total		60,560.8		61,749.0		65,305.2		63,503.3		64,261.2		315,379.5

O-14

JEWETT OPERATIONS BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTOAL		5 YEAR
	2004		2005		2006		2007		2008		TOTAL
* ENVIRONMENT
** CURRENT RECL
REGRADE		2,202.6		2,255.3		2,313.1		2,371.2		2,425.9		11,568.1
REVEGETATION		320.3		330.9		342.5		354.1		365.1		1,712.9
** Subtotal		2,522.9		2,586.2		2,655.6		2,725.3		2,791.0		13,281.0
** POST MINE
FACIL REMOVAL		32.2		26.7		94.5		25.4		26.1		204.9
MINE MANGEMEN		1,225.0		1,571.1		1,317.1		1,301.0		1,453.7		6,867.9
** Subtotal		1,257.2		1,597.8		1,411.6		1,326.4		1,479.8		7,072.8
** COMPLIANCE
PERMITS		338.9		101.3		362.4		395.0		85.6		1,283.2
MONITORING		613.3		638.8		657.4		684.4		700.9		3,294.8
SEDIMENT CTRL		2,655.5		4,508.4		3,899.8		1,781.8		1,837.1		14,682.6
COMPL. OTHER		1,577.6		1,538.7		1,546.4		1,560.9		1,575.8		7,799.4
** Subtotal		5,185.3		6,787.2		6,466.0		4,422.1		4,199.4		27,060.0
* Total		8,965.4		10,971.2		10,533.2		8,483.8		8,470.2		47,413.8
* ENGINEER
** ENGINEERING
OPERATIONS ENG		521.2		527.2		533.7		540.5		547.5		2,670.1
CIVIL ENGINEER		345.6		120.6		124.8		11.8		12.2		615.0
SURVEYING		321.1		326.4		332.2		338.1		343.6		1,661.4
** Subtotal		1,187.9		974.2		990.7		890.4		903.3		4,946.5
* Total		1,187.9		974.2		990.7		890.4		903.3		4,946.5
* ADMIN
** ADMIN
BUSINESS		3,675.7		3,749.4		3,830.2		3,913.9		3,997.5		19,166.7
LANDS		186.5		187.4		188.3		189.3		190.2		941.7
EMPLOYEE REL		708.8		720.5		733.2		746.4		759.6		3,668.5
** Subtotal		4,571.0		4,657.3		4,751.7		4,849.6		4,947.3		23,776.9
* Total		4,571.0		4,657.3		4,751.7		4,849.6		4,947.3		23,776.9

O-15

JEWETT OPERATIONS BUDGET ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	TOTAL		TOTAL		TOTAL		TOTAL		TOTOAL		5 YEAR
	2004		2005		2006		2007		2008		TOTAL
* LEASE OBL
** LEASE OBL
DAMAGES		7.0		5.0		5.0		5.0		5.0		27.0
RENTALS		72.1		72.1		72.1		72.1		72.1		360.5
ROYALTIES		19,072.4		17,304.2		22,083.3		18,017.9		19,623.0		96,100.8
** Subtotal		19,151.5		17,381.3		22,160.4		18,095.0		19,700.1		96,488.3
* Total		19,151.5		17,381.3		22,160.4		18,095.0		19,700.1		96,488.3
* FEES
** FEES
DEDICATION		9,767.1		11,816.9		6,318.6		11,797.5		9,324.3		49,024.4
MANAGEMENT		18,778.5		18,868.3		18,849.6		18,571.0		18,595.3		93,662.7
** Subtotal		28,545.6		30,685.2		25,168.2		30,368.5		27,919.6		142,687.1
* Total		28,545.6		30,685.2		25,168.2		30,368.5		27,919.6		142,687.1
Grand Total		122,982.2		126,418.2		128,909.4		126,180.6		126,201.7		630,692.1

O-16

JEWETT OPERATIONS BUDGET – ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	1999																								1999
	JAN		FEB		MARCH		APRIL		MAY		JUNE		JULY		AUGUST		SEPT		OCT		NOV		DEC		TOTAL
* PRODUCTION
** STRIPPING
DRAGLINES		1,318.0		1,191.2		1,109.9		1,281.1		1,318.0		1,281.1		1,318.0		1,204.2		1,281.1		1,318.0		1,105.8		1,318.0		15,044.4
BLASTING		250.2		221.2		212.7		240.4		252.0		249.4		252.5		225.8		249.3		249.5		213.7		226.7		2,843.4
BWE		316.1		294.1		316.1		308.8		316.1		308.8		316.1		316.1		308.8		316.1		308.8		316.1		3,742.0
MOBILE		384.7		351.5		384.7		373.6		384.7		373.6		384.7		384.7		373.6		384.7		373.6		384.7		4,538.8
** Subtotal		2,269.0		2,058.0		2,023.4		2,203.9		2,270.8		2,212.9		2,271.3		2,130.8		2.,212.8		2,268.3		2,001.9		2,245.5		26,168.6
** LIGNITE
LOADING		179.4		163.6		179.4		174.2		179.4		174.2		179.4		179.4		174.2		179.4		174.2		179.4		2,116.2
HAULING		615.9		557.3		615.9		596.3		615.9		596.3		615.9		615.9		596.3		615.9		596.3		615.9		7,253.8
CRUSHING		129.6		129.6		129.6		129.6		129.6		129.6		129.6		129.6		129.6		129.6		129.6		129.6		1,555.2
** Subtotal		924.9		850.5		924.9		900.1		924.9		900.1		924.9		924.9		900.1		924.9		900.1		924.9		10,925.2
** ROADS
MAINT. OTHER		7.2		7.2		14.7		7.2		7.2		19.2		21.2		21.2		7.2		7.2		7.2		7.2		133.9
MAINT. ROADS		235.9		223.0		202.5		199.2		210.4		207.2		212.9		202.5		166.9		202.5		199.2		202.5		2,464.7
CONST. ROADS		0.0		0.0		0.0		0.0		101.3		20.0		0.0		0.0		0.0		0.0		0.0		0.0		121.3
** Subtotal		243.1		230.2		217.2		206.4		318.9		246.4		234.1		223.7		274.1		209.7		206.4		209.7		2,719.9
** WATER CTRL
PIT – SURFACE		50.0		50.0		50.0		49.1		56.1		47.1		49.1		49.1		49.1		50.0		50.0		50.0		599.6
OVERBURDEN		193.5		159.5		274.8		267.0		251.3		301.7		251.1		218.9		245.0		188.5		300.6		98.2		2,780.1
** Subtotal		243.5		209.5		324.8		316.1		307.4		348.8		300.2		298.0		294.1		238.5		350.6		148.2		3,379.7
** MAINTENANCE
SUPPORT		115.1		115.1		115.1		115.1		115.1		115.1		115.1		115.1		115.1		115.1		115.1		115.1		1,381.2
MAINT. OTHER		297.7		297.8		300.6		320.3		302.0		300.6		297.7		334.6		305.1		297.7		297.8		300.6		3,652.5
** Subtotal		412.8		412.9		415.7		435.4		417.1		415.7		412.8		449.7		420.2		412.8		412.9		415.7		5,033.7
**GENERAL
CLEARING		15.9		15.9		15.9		23.8		23.8		23.8		15.9		15.9		15.9		15.9		15.9		0.0		198.6
DRILLING		0.0		0.0		70.1		70.1		70.1		70.1		70.1		70.1		70.1		70.1		9.0		9.0		578.8
WAREHOUSE		104.6		102.7		105.3		104.7		102.1		103.3		102.3		104.2		104.1		103.0		101.0		100.7		1,238.0
PROD. TAXES		240.3		234.8		219.2		202.8		221.1		253.8		256.4		253.3		245.1		250.8		240.0		240.2		2,857.8
RELOCATIONS		0.0		0.0		0.0		0.0		0.0		0.0		30.0		36.6		0.0		0.0		0.0		0.0		66.6
SUPV. OTHER		134.5		134.5		136.0		179.0		134.5		134.5		134.5		207.7		134.6		134.5		135.5		134.5		1,734.3
** Subtotal		495.3		487.9		546.5		580.4		551.6		585.5		609.2		687.8		569.8		574.3		501.4		484.4		6,674.1
* Total		4,588.6		4,249.0		4,452.5		4,642.3		4,790.7		4,709.4		4,752.5		4,714.9		4,571.1		4,628.5		4,373.3		4,428.4		54,901.2

O-17

JEWETT OPERATIONS BUDGET – ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	1999																								1999
	JAN		FEB		MARCH		APRIL		MAY		JUNE		JULY		AUGUST		SEPT		OCT		NOV		DEC		TOTAL
* ENVIRONMENT
** CURRENT RECL
REGRADE		149.2		143.1		149.9		188.0		190.2		188.7		182.5		181.5		185.7		147.7		144.7		146.7		1,997.9
REVEGETATION		8.0		9.5		38.5		44.0		38.0		22.0		2.5		2.5		15.6		9.0		52.4		37.3		279.3
** Subtotal		157.2		152.6		188.4		232.0		228.2		210.7		185.0		184.0		201.3		156.7		197.1		184.0		2,277.2
** POST MINE
FACIL REMOVAL		0.0		0.0		0.0		10.0		0.0		4.6		30.0		30.0		0.0		0.0		0.0		0.0		74.6
MINE MANAGEMEN		34.2		36.9		72.9		100.7		123.1		120.5		91.9		88.2		99.6		51.6		44.2		39.4		903.2
** Subtotal		34.2		36.9		72.9		110.7		123.1		125.1		121.9		118.2		99.6		51.6		44.2		39.4		977.8
** COMPLIANCE
PERMITS		18.0		13.0		47.2		11.7		13.7		51.7		15.2		7.7		73.2		14.7		20.5		48.0		334.6
MONITORING		26.5		37.2		60.8		33.3		48.4		61.1		33.1		50.5		68.9		29.1		28.4		55.1		532.4
SEDIMENT CTRL		33.1		18.1		44.2		34.0		56.5		388.1		606.6		870.7		264.0		52.8		18.2		33.7		2,420.0
COMPL. OTHER		112.8		129.2		178.9		126.4		115.5		163.0		111.8		124.2		112.8		118.7		111.0		113.7		1,518.0
** Subtotal		190.4		197.5		331.1		205.4		234.1		663.9		766.7		1,053.1		518.9		215.3		178.1		250.5		4,805.0
* Total		381.8		387.0		592.4		548.1		585.4		999.7		1,073.6		1,355.3		819.8		423.6		419.4		473.9		8,060.0
* ENGINEER
** ENGINEERING
OPERATIONS ENG		36.3		48.3		46.4		42.9		36.3		53.4		41.8		49.9		36.4		36.4		36.3		36.4		500.8
CIVIL ENGINEER		17.0		17.0		7.5		7.5		20.0		25.0		28.8		20.0		7.5		7.5		2.0		2.0		161.8
SURVEYING		33.9		21.2		26.2		22.0		24.2		24.2		35.7		24.8		21.2		20.2		21.2		35.2		310.0
** Subtotal		87.2		86.5		80.1		72.4		80.5		102.6		106.3		94.7		65.1		64.1		59.5		73.6		972.6
* Total		87.2		86.5		80.1		72.4		80.5		102.6		106.3		94.7		65.1		64.1		59.5		73.6		972.6
* ADMIN
** ADMIN
BUSINESS		257.1		244.4		316.0		251.5		321.6		344.4		300.7		241.9		299.7		286.3		236.1		279.5		3,379.2
LANDS		15.1		17.1		18.8		15.3		17.2		16.1		15.1		37.0		17.0		19.7		16.4		15.8		220.6
EMPLOYEE REL		55.8		45.3		45.0		50.6		42.2		41.0		76.0		88.4		42.7		49.7		42.9		49.0		628.6
** Subtotal		328.0		306.8		379.8		317.4		381.0		401.5		391.8		367.3		359.4		355.7		295.4		344.3		4,228.4
* Total		328.0		306.8		379.8		317.4		381.0		401.5		391.8		367.3		359.4		355.7		295.4		344.3		4,228.4
* LEASE OBL
** LEASE OBL
DAMAGES		0.0		69.9		70.9		121.0		70.9		70.9		70.9		70.9		120.9		70.9		69.9		0.0		807.1

O-18

JEWETT OPERATIONS BUDGET – ESCALATED DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	1999																								1999
	JAN		FEB		MARCH		APRIL		MAY		JUNE		JULY		AUGUST		SEPT		OCT		NOV		DEC		TOTAL
RENTALS		13.8		6.2		43.5		14.2		4.8		3.2		212.6		0.8		2.0		8.1		2.9		0.0		312.1
ROYALTIES		1,630.9		1,727.6		1,136.4		839.8		1,113.0		1,610.1		1,773.6		1,741.1		1,672.5		1,700.2		1,631.8		1,763.8		18,340.8
** Subtotal		1,644.7		1,803.7		1,250.8		975.0		1,188.7		1,684.2		2,057.1		1,812.8		1,795.4		1,779.2		1,704.6		1,763.8		19,460.0
* Total		1,644.7		1,803.7		1,250.8		975.0		1,188.7		1,684.2		2,057.1		1,812.8		1,795.4		1,779.2		1,704.6		1,763.8		19.460.0
* FEES
** FEES
DEDICATION		602.1		545.0		421.3		301.1		415.9		599.9		624.2		641.1		617.0		634.0		607.4		646.1		6,655.1
MANAGEMENT		1,506.1		1,363.4		1,054.1		754.4		1,041.4		1,501.4		1,569.8		1,610.8		1,551.2		1,595.1		1,529.7		1,623.2		16,700.6
** Subtotal		2,108.2		1,908.4		1,475.4		1,055.5		1,457.3		2,101.3		2,194.0		2,251.9		2,168.2		2,229.1		2,137.1		2,269.3		23,355.7
* Total		2,108.2		1,908.4		1,475.4		1,055.5		1,457.3		2,101.3		2,194.0		2,251.9		2,168.2		2,229.1		2,137.1		2,269.3		23,355.7
Grand Total		9,138.5		8.741.4		8,231.0		7,610.7		8,483.6		9,998.7		10,575.3		10,596.9		9,779.0		9,480.2		8,889.3		9,353.3		110,977.9

O-19

JEWETT OPERATIONS BUDGET – ESCALATED
DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	2000								2000		2001								2001		2002		2003		5-YEAR
	QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		TOTAL		TOTAL		TOTAL
* PRODUCTION
** STRIPPING
DRAGLINES		3728.3		3947.3		3964.8		3796.4		15436.8		3795.5		4018.4		4036.3		3864.8		15715.0		15993.4		16308.9		78,498.5
BLASTING		743.5		732.5		741.7		660.6		2878.3		726.3		764.3		787.0		803.9		3081.5		3296.3		3327.3		15,426.8
BWE		944.2		953.6		961.1		959.1		3818.0		959.9		969.5		977.1		975.1		3881.6		3945.3		4017.6		19,404.5
MOBILE		1117.4		1157.5		1168.7		1168.7		4612.3		1165.4		1171.8		1183.1		1183.1		4703.4		4760.4		4825.6		23,440.5
** Subtotal		6533.4		6790.9		6836.3		6584.8		26745.4		6647.2		6924.0		6983.5		6826.9		27381.5		27995.4		28479.4		136,770.3
** LIGNITE
LOADING		517.5		498.4		503.7		503.7		2023.3		499.7		505.0		510.4		510.4		2025.5		2051.8		2082.2		10,299.0
HAULING		1813.2		1832.9		1852.8		1852.8		7351.7		1838.5		1858.5		1878.7		1878.7		7454.4		7556.2		7672.9		37,289.0
CRUSHING		392.6		392.6		392.6		392.6		1570.4		396.7		396.7		396.7		396.7		1586.8		1602.8		1621.2		7,936.4
** Subtotal		2723.3		2723.9		2749.1		2749.1		10945.4		2734.9		2760.2		2785.8		2785.8		11066.7		11210.8		11376.3		55,524.4
** ROADS
MAINT. OTHER		22.2		34.5		50.9		22.2		129.8		22.8		35.4		52.3		22.8		133.3		136.7		140.6		674.3
MAINT. ROADS		691.6		650.3		622.5		634.1		2598.5		699.9		658.6		630.7		641.9		2631.1		2663.7		2701.0		13,059.0
CONST. ROADS		0.0		110.3		0.0		0.0		110.3		0.0		0.0		0.0.		0.0		0.0		0.0		666.9		898.5
** Subtotal		713.8		795.1		673.4		656.3		2838.6		722.7		694.0		683.0		664.7		2764.4		2800.4		3508.5		14,631.8
** WATER CTRL
PIT – SURFACE		151.8		154.2		149.1		151.8		606.9		153.8		156.3		151.0		153.8		614.9		622.8		631.9		3,076.1
OVERBURDEN		590.3		662.9		580.9		434.2		2268.3		605.3		763.5		595.6		569.5		2533.9		2701.9		2514.1		12,798.3
** Subtotal		742.1		817.1		730.0		586.0		2875.2		759.1		919.8		746.6		723.3		3148.8		3324.7		3146.0		15,874.4
**MAINTENANCE
SUPPORT		352.7		352.7		352.7		352.7		1410.8		360.6		360.6		360.6		360.6		1442.4		1473.4		1508.9		7,216.7
MAINT. OTHER		907.3		934.2		948.7		907.3		3697.5		919.4		946.5		961.0		919.4		3746.3		3795.2		3850.8		18,742.3
** Subtotal		1260.0		1286.9		1301.4		1260.0		5108.3		1280.0		1307.1		1321.6		1280.0		5188.7		5268.6		5359.7		25,959.0
** GENERAL
CLEARING		57.0		57.0		57.0		57.0		228.0		58.5		58.5		58.5		58.5		234.0		214.3		220.5		1,095.4
DRILLING		79.4		238.2		232.0		91.6		641.2		81.6		244.7		238.3		94.1		658.7		337.9		0.0		2,216.6
WAREHOUSE		319.3		316.7		317.1		311.1		1264.2		326.8		324.0		324.5		318.4		1293.7		1324.1		1358.3		6,478.3
PROD. TAXES		742.3		719.0		764.0		754.4		2979.7		747.2		767.1		782.2		771.6		3068.1		3117.2		3191.0		15,213.8
RELOCATIONS		266.8		128.3		62.7		0.0		457.8		22.1		316.1		290.8		0.0		629.0		1611.9		3551.6		6,316.9
SUPV. OTHER		408.6		452.4		480.2		409.1		1750.3		413.5		456.3		486.3		411.9		1768.0		1784.3		1802.5		8,839.4
** Subtotal		1873.4		1911.6		1913.0		1623.2		7321.2		1649.7		2166.7		2180.6		1654.5		7651.5		8389.7		10123.9		40,160.4
* Total		13846.0		14325.5		14203.2		13459.4		55834.1		13793.5		14771.8		14701.1		13935.2		57201.6		58989.6		61993.8		288,920.3

O-20

JEWETT OPERATIONS BUDGET – ESCALATED
DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	2000								2000		2001								2001		2002		2003		5-YEAR
	QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		TOTAL		TOTAL		TOTAL
* ENVIRONMENT
** CURRENT RECL
REGRADE		450.0		577.6		560.1		446.6		2034.3		458.1		589.1		571.1		454.5		2072.8		2111.0		2154.6		10,370.6
REVEGETATION		57.5		106.7		21.1		101.2		286.5		59.0		109.6		21.7		104.0		294.3		301.9		310.7		1,472.7
** Subtotal		507.5		684.3		581.2		547.8		2320.8		517.1		698.7		592.8		558.5		2367.1		2412.9		2465.3		11,843.3
** POST MINE FACIL REMOVAL		0.0		0.0		6.3		0.0		6.3		0.0		0.0		5.2		0.0		5.2		18.5		22.0		126.6
MINE MANAGEMENT		157.6		382.9		291.3		147.1		978.9		167.2		434.3		196.9		156.3		954.7		1001.2		1052.4		4,890.4
** Subtotal		157.6		382.9		297.6		147.1		985.2		167.2		434.3		202.1		156.3		959.9		1019.7		1074.4		5,017.0
** COMPLIANCE
PERMITS		75.4		107.0		92.7		113.8		388.9		85.3		115.7		95.7		91.1		387.8		96.5		69.5		1,277.3
MONITORING		136.3		130.2		147.9		123.7		538.1		140.1		136.1		151.9		127.1		555.2		575.2		593.7		2,794.6
SEDIMENT CTRL		102.2		500.3		1398.6		112.8		2113.9		105.0		429.5		1309.9		115.8		1960.2		1330.1		3727.0		11,551.2
COMPL. OTHER		416.6		360.8		360.4		355.2		1493.0		420.8		362.9		604.6		757.5		2145.8		1664.8		1564.0		8,385.6
** Subtotal		730.5		1098.3		1999.6		705.5		4533.9		751.2		1044.2		2162.1		1091.5		5049.0		3666.5		5954.2		24,008.7
* Total		1395.6		2165.5		2878.4		1400.4		7839.9		1435.5		2177.2		2957.0		1806.3		8376.0		7099.2		9493.9		40,869.0
* ENGINEER
** ENGINEERING
OPERATIONS ENG		132.4		116.3		149.9		109.7		508.3		133.8		117.2		144.3		110.4		505.7		510.3		515.6		2,540.7
CIVIL ENGINEER		10.3		32.7		32.8		10.3		86.1		12.6		50.2		54.8		12.6		130.2		98.1		206.9		683.1
SURVEYING		78.1		78.9		79.7		78.1		314.8		79.1		79.9		80.8		79.1		318.9		311.9		316.3		1,571.9
** Subtotal		220.8		227.9		262.4		198.1		909.2		225.5		247.3		279.9		202.1		954.8		920.3		1038.8		4,795.7
** Total		220.8		227.9		262.4		198.1		909.2		225.5		247.3		279.9		202.1		954.8		920.3		1038.8		4,795.7
* ADMIN
** ADMIN
BUSINESS		829.6		921.9		854.8		818.3		3424.6		842.8		947.7		868.5		826.8		3485.8		3542.4		3606.4		17,438.4
LANDS		47.2		47.3		47.7		50.6		192.8		46.4		58.1		46.9		49.8		201.2		185.0		185.7		985.3
EMPLOYEE REL		196.0		171.3		256.8		179.3		803.4		198.9		173.4		261.9		181.7		815.9		828.3		842.5		3,918.7
** Subtotal		1072.8		1140.5		1159.3		1048.2		4420.8		1088.1		1179.2		1177.3		1058.3		4502.9		4555.7		4634.6		22,342.4
* Total		1072.8		1140.5		1159.3		1048.2		4420.8		1088.1		1179.2		1177.3		1058.3		4502.9		4555.7		4634.6		22,342.4

O-21

JEWETT OPERATIONS BUDGET – ESCALATED
DOLLARS

NORTHWESTERN RESOURCES CO.
BUDGET SUMMARY REPORT
1999 BUDGET
(000’s)

	2000								2000		2001								2001		2002		2003		5-YEAR
	QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		QTR 1		QTR 2		QTR 3		QTR 4		TOTAL		TOTAL		TOTAL		TOTAL
* LEASE OBL
** LEASE OBL
DAMAGES		83.3		205.8		205.7		83.3		578.1		140.8		263.1		263.0		140.8		807.7		666.6		6.8		2,866.3
RENTALS		73.4		72.2		65.4		61.1		272.1		73.4		72.2		65.4		61.1		272.1		272.1		72.1		1,200.5
ROYALTIES		4530.8		3739.2		4450.0		4550.9		17270.9		3113.5		3013.5		3224.7		3236.5		12588.2		13028.0		17791.5		79,019.4
** Subtotal		4687.5		4017.2		4721.1		4695.3		18121.1		3327.7		3348.8		3553.1		3438.4		13668.0		13966.7		17870.4		83,086.2
* Total		4687.5		4017.2		4721.1		4695.3		18121.1		3327.7		3348.8		3553.1		3438.4		13668.0		13966.7		17870.4		83,086.2
* FEES
** FEES
DEDICATION		3373.5		2799.9		3380.7		3576.8		13130.9		5028.8		5031.2		5302.2		5599.9		20962.1		21104.8		12654.2		74,507.1
MANAGEMENT		4678.7		3884.0		4690.0		4959.2		18211.9		4514.2		4516.1		4759.2		5026.6		18816.1		18645.8		18804.7		91,179.1
** Subtotal		8052.2		6683.9		8070.7		8536.0		31342.8		9543.0		9547.3		10061.4		10626.5		39778.2		39750.6		31458.9		165,686.2
* Total		8052.2		6683.9		8070.7		8536.0		31342.8		9543.0		9547.3		10061.4		10626.5		39778.2		39750.6		31458.9		165,686.2
Grand Total		29274.9		28560.5		31295.1		29337.4		118467.9		29413.3		31271.6		32729.8		31066.8		124481.5		125282.1		126490.4		605,699.8

O-22

Northwestern Resources Co.
1999 Operations Budget Escalation

     The escalation rates used in the Operations Budget were taken from the 1998 Houston Industries, Inc. Cost Escalation Study, dated May 1998. This study was provided by HL&P to NWR. NWR then determined the appropriate indices to be used for each budget item, and weighted them based on the percentage of dollars in each item associated with a particular index. The following page shows the selected indices for the 1999 Operations Budget.

     Budget dollars are calculated as of July 1998. The budget is then escalated quarterly for 2000 and 2001, and annually for 2002 through 2008, to derive the escalated dollar budget. The method used gives an effective annual rate after compounding equal to the stated escalation rates.

O-23

Northwestern Resources Co.
1999 Operations Budget
Applied Indices

			RATE APPLIED
DESCRIPTION	1999 INDEX	2000 – 2008 INDEX	1999		2000		2001		2002		2003		2004		2005		2006		2007		2008
Hourly Labor	NWR Wage Study	Bituminous Coal & Lignite		2.6		2.1		2.7		2.7		2.7		2.8		2.9		2.9		3.0		3.0
Salaried Labor	NWR Wage Study	Bituminous Coal & Lignite		2.6		2.1		2.7		2.7		2.7		2.8		2.9		2.9		3.0		3.0
Travel Expenses	None	Total Admin & General (Materials)		3.2		3.2		3.5		3.5		3.8		3.9		3.9		4.1		4.2		4.2
Equipment Costs	Mining PPI 3532	Mining PPI 3532		1.7		2.6		2.7		2.6		2.9		3.1		3.3		3.5		3.4		3.1
Permits, Fees, Bonds & Insurance	None (Agency Survey)	GDP Deflator		1.9		2.2		2.1		2.2		2.4		2.5		2.6		2.8		2.8		2.9
Contract Services, Tools & Supplies	Mining PPI 3532	Mining PPI 3532		1.7		2.6		2.7		2.6		2.9		3.1		3.3		3.5		3.4		3.1
Management & Dedication Fee	GDP Deflator	GDP Deflator		1.9		2.2		2.1		2.2		2.4		2.5		2.6		2.8		2.8		2.9

1999 costs are based on 1998 current dollars plus escalation. 1999 – 2008 are escalated from the basis by the indicated rate as taken from the HII Cost Escalation Study (May, 1998)

O-24

Northwestern Resources Co.
Jewett Mine
Sales Tonnage Projections
1999 Budget
(000’s)

	Sales Tons by Ownership
Period	NWR		HL&P		Other		Total
January		253		570		0		823
February		229		516		0		745
March		177		399		0		576
April		126		284		0		410
May		174		392		0		566
June		251		565		0		816
July		259		585		0		844
August		266		600		0		866
September		256		578		0		834
October		262		591		0		853
November		251		567		0		818
December		267		601		0		868
1999 Total		2,771		6,248		0		9,019
1st Quarter		1,394		1,108		0		2,502
2nd Quarter		1,157		920		0		2,077
3rd Quarter		1,397		1,111		0		2,508
4th Quarter		1,478		1,174		0		2,652
2000 Total		5,426		4,313		0		9,739
1st Quarter		2,078		336		0		2,414
2nd Quarter		2,079		336		0		2,415
3rd Quarter		2,191		354		0		2,545
4th Quarter		2,314		374		0		2,688
2001 Total		8,662		1,400		0		10,062
2002 Total		8,721		1,250		0		9,971
2003 Total		5,229		4,827		0		10,056
2004 Total		4,036		6,006		0		10,042
2005 Total		4,883		4,405		802		10,090
2006 Total		2,611		7,302		167		10,080
2007 Total		4,875		5,049		7		9,931
2008 Total		3,853		6,091		0		9,944
Grand Total		51,067		46,891		976		98,934

A-1

Northwestern Resources Co.
Jewett Mine
Bank Cubic Yards
1999 Budget
(000’s)

	Stripping Bank Cubic Yards
Period	Dragline/BWE		Mobile		Contract		Total
January		8,333		605		0		8,938
February		7,356		552		0		7,908
March		7,083		609		0		7,692
April		8,007		580		0		8,587
May		8,398		602		0		9,000
June		8,308		577		0		8,885
July		8,411		585		0		8,996
August		7,521		607		0		8,128
September		8,304		578		0		8,882
October		8,530		605		0		9,135
November		7,115		584		0		7,699
December		7,550		579		0		8,129
1999 Total		94,916		7,063		0		101,979
1st Quarter		24,137		3,523		0		27,660
2nd Quarter		23,776		3,554		0		27,330
3rd Quarter		24,078		3,629		0		27,707
4th Quarter		21,438		5,823		0		27,261
2000 Total		93,429		16,529		0		109,958
1st Quarter		22,958		4,234		0		27,192
2nd Quarter		24,155		3,451		0		27,606
3rd Quarter		24,865		3,465		0		28,330
4th Quarter		25,411		3,482		0		28,893
2001 Total		97,389		14,632		0		112,021
2002 Total		101,554		13,891		0		115,445
2003 Total		99,620		18,892		0		118,512
2004 Total		98,798		18,877		0		117,675
2005 Total		99,593		21,761		0		121,354
2006 Total		94,094		21,975		0		116,069
2007 Total		98,928		20,269		0		119,197
2008 Total		91,185		18,837		0		110,022
Grand Total		969,506		172,726		0		1,142,232

A-2

Northwestern Resources Co.
Jewett Mine
Major Equipment Requirements
1999 Budget

																										Front End												End Dumps
						Dozers												Scraper		Graders				Water		Loaders				Coal		Backhoes						100		150
		Draglines		BWE		D9N		D10N		D11N		D7		834B		583K		657		16G		24H		Tracks		992D		Small		Haulers		8.5		Lg		Sm		Ton		Ton
1998	December		4		1		4		6		2		2		1		2		1		4		0		2		1		1		14		2		2		1		5		0
1999	January		4		1		4		6		2		2		1		2		1		4		0		2		1		1		14		2		2		1		5		0
	February		4		1		4		6		2		2		1		2		1		4		0		2		1		1		14		2		2		1		5		0
	March		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		5		0
	April		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	May		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	June		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	July		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	August		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	September		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	October		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	November		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
	December		4		1		4		6		2		2		1		2		1		3		1		2		1		1		14		2		2		1		3		2
2000	1st Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		2		2		1		3		6
	2nd Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	3rd Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	4th Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
2001	1st Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	2nd Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	3rd Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
	4th Qtr		4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
2002			4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		3		6
2003			4		1		4		6		2		2		1		2		1		2		2		2		1		1		14		1		3		1		2		8
2004-2008			4		1		4		7		2		2		1		2		1		2		2		2		1		1		14		0		4		1		0		11

A-3

Northwestern Resources Co.
Jewett Mine
Major Equipment Replacements
1999 Budget

Backhoes

Coal

Dozers

End

Graders

Loaders

Scrapers

Water

8.5

Large

Small

Haulers

834B

D7

D9N

D10N

D11N

Dump

16G

992C

657

Trucks

1999

January

February

March

April

May

June

July

August

September

October

November

December

2000

1st Quarter

D905/906

G004*

2nd Quarter

B007

D702

D907

D105/106

L007

S503

3rd Quarrter

4th Quarter

2001

1st Quarter

2nd Quarter

D701

3rd Quarter

4th Quarter

2002

2003

2004

B008/LS01

Add

D111

2005

D107

2006

D904/905

D108

2007

D908/104

G005/006

2008

* Replace G003 and G004 with new 24H motorgraders.

A-4

Northwestern Resources Co.
Jewett Mine
Average Equipment Lives
1999 Budget

Equipment	Life
2 – 2 1/2 Ton Service Truck (2WD)	7 Years
2 – 2 1/2 Ton Service Truck (4WD)	7 years
Air Compressor	10 Years
Backhoe – 8.5 CY	50,000 Hours
Backhoe – Cat 5130	60,000 Hours
Backhoe – Small	35,000 Hours
Belting – BWE Overland Conveyor	4 Years
Belting – LHF Conveyor	6 Years
Cable Reeler	15 Years
Crane – Large (45 & 75 ton)	15 Years
Dozer	55,000 Hours
Dozer – D7	55,000 Hours
Dozer – Pipelayer	LOM
Dozer – Rubber Tire	40,000 Hours
End Dump	55,000 Hours
Forklift – 15 Ton	15 Years
Forklift – 4 Ton	15 Years
Front End Loader – 992C	40,000 Hours
Front End Loader – Small (2-5 Yard)	7 Years
Fuel / Lube Truck	5 Years
Fuel / Lube Truck – Bed	10 Years
Grader	80,000 Hours
Hauler	100,000 Hours
Light Plant	10 Years
Lowboy — Tractor	10 Years
Lowboy – Trailer	LOM
Pickup	100,000 Miles
Portable Welder	10 Years
Pump – Diesel	10 Years
Pump – Electric	5 Years
Pump Barge	Rebuilt @ 5 & 15 Years
Scraper	40,000 Hours
Suburban / Van	100,000 Miles
Water Truck	LOM

A-5

Northwestern Resources Co.
Jewett Mine
Major Equipment Hourly Rates
1999 Budget
(in 1999 dollars)

	Operating								Maintenance
	Fuel/		Lube/		Wear		Total						Total		Total Hourly		18 Months
Fleet	Electricity		Other		Components		Operating		Parts		Labor (#)		Maintenance		Cost		Actual
HOURLY RATES
8200 Dragline	$	93.20	$	7.39	$	44.62	$	145.21	$	58.13	$	45.43	$	103.56	$	248.77	$	243.21
8750 Dragline		162.78		16.30		120.60		299.68		68.65		86.39		155.04		454.72		493.84
Backhoe — 8.5 CY		6.00		2.50		12.00		20.50		12.50		8.00		20.50		41.00		29.83
Backhoe — Cat 5130		13.50		5.00		10.00		28.50		20.00		9.00		29.00		57.50		46.30
Backhoe — Small		6.00		1.50		10.00		17.50		25.75		12.85		38.60		56.10		73.17
BWE		40.20		6.77		22.26		69.23		157.07		48.56		205.63		274.86		389.33
Dozer — 834B		6.50		1.40		2.50		10.40		10.65		6.25		16.90		27.30		22.98
Dozer — D7H		5.00		1.00		7.95		13.95		11.50		7.45		18.95		32.90		38.22
Dozer — D9N		8.75		1.50		13.00		23.25		19.00		8.05		27.05		50.30		49.70
Dozer — D9L, D10N, 375		11.15		1.60		13.00		25.75		23.50		8.05		31.55		57.30		56.50
Dozer — D11N		13.25		1.65		20.45		35.35		24.50		8.95		33.45		68.80		57.00
Dozer — Pipelayer		6.25		1.50		10.00		17.75		16.75		20.25		37.00		54.75		52.31
End Dump		11.00		3.50		4.45		18.95		18.50		9.00		27.50		46.45		48.52
End Dump — 150 ton		20.00		4.00		3.50		27.50		5.00		5.00		10.00		37.50		—
Front End Loader-992		14.50		3.00		5.65		23.15		18.75		7.75		26.50		49.65		53.68
Front End Loader-Small		4.00		2.85		2.00		8.85		9.00		7.00		16.00		24.85		27.10
Grader — 16G		4.80		0.90		2.50		8.20		9.50		4.00		13.50		21.70		19.96
Grader — 24H		5.76		1.35		3.00		10.11		7.13		3.00		10.13		20.24		—
Hauler		9.20		3.22		12.42		24.84		29.21		11.85		41.06		65.90		78.54
Scraper		19.00		2.50		15.10		36.60		42.45		18.25		60.70		97.30		116.08
Water Truck		9.50		3.50		8.00		21.00		18.50		9.00		27.50		48.50		107.18
Water Wagon		8.50		2.50		6.25		17.25		15.00		9.50		24.50		41.75		80.21
MONTHLY RATES
8200 Bucket		n/a		n/a		2,825.00		2,825.00		42,908.00		18,800.00		61,708.00		64,533.00		88,085.90
8750 Bucket		n/a		n/a		490.00		490.00		9,000.00		5,000.00		14,000.00		14,490.00		**
Crusher		n/a		800.00		1,025.00		1,825.00		20,050.00		15,475.00		35,525.00		37,350.00		36,831.30

#	Maintenance labor rates include fringe and tax.
**	8750 buckets have only been in use since September 1997.

Note: These rates exclude any allowance for catastrophic failures or accidents.

Fuel costs per hour are based on $.52 per gallon for diesel, and $.0397 per KWH for electricity.

A-6

Northwestern Resources Co.
Jewett Mine
Major Equipment Hourly Rates
1999 Budget
(in 1999 dollars)

			2000						2001						2002						2003
Fleet	Operating		Maintenance		Total		Operating		Maintenance		Total		Operating		Maintenance		Total		Operating		Maintenance		Total
HOURLY RATES
8200 Dragline	$	145.21	$	103.56	$	248.77	$	145.21	$	103.56	$	248.77	$	145.21	$	103.56	$	248.77	$	145.21	$	103.56	$	248.77
8750 Dragline		299.68		155.04		454.72		299.68		155.04		454.72		299.68		155.04		454.72		299.68		155.04		454.72
Backhoe — 8.5 CY		20.50		20.50		41.00		20.50		20.50		41.00		20.50		20.50		41.00		20.50		20.50		41.00
Backhoe — Cat. 5130		28.50		29.00		57.50		28.50		29.00		57.50		28.50		29.00		57.50		28.50		29.00		57.50
Backhoe — Small		17.50		38.60		56.10		17.50		38.60		56.10		17.50		38.60		56.10		17.50		38.60		56.10
BWE		69.23		205.63		274.86		69.23		205.63		274.86		69.23		205.63		274.86		69.23		205.63		274.86
Dozer — 834B		10.40		16.90		27.30		10.40		16.90		27.30		10.40		16.90		27.30		10.40		16.90		27.30
Dozer — D7H		13.95		18.95		32.90		13.95		18.95		32.90		13.95		18.95		32.90		13.95		18.95		32.90
Dozer — D9N		23.25		27.05		50.30		23.25		27.05		50.30		23.25		27.05		50.30		23.25		27.05		50.30
Dozer — D9L,D10N,375		25.75		31.55		57.30		25.75		31.55		57.30		25.75		31.53		57.30		25.75		31.55		57.30
Dozer — D11N		35.35		33.45		68.80		35.35		33.45		68.80		35.35		33.45		68.80		35.35		33.45		68.80
Dozer — Pipelayer		17.75		37.00		54.75		17.75		37.00		54.75		17.75		37.00		54.75		17.75		37.00		54.75
End Dump		18.95		27.50		46.45		18.95		27.50		46.45		18.95		27.50		46.45		18.95		27.50		46.45
End Dump — 150 ton		27.50		10.00		37.50		27.50		10.00		37.50		27.50		10.00		37.50		27.50		10.00		37.50
Front End Loader 992		23.15		26.50		49.65		23.15		26.50		49.65		23.15		26.50		49.65		23.15		26.50		49.65
Front End Loader Small		8.85		16.00		24.85		8.85		16.00		24.85		8.85		16.00		24.85		8.85		16.00		24.85
Grader — 16G		8.20		13.50		21.70		8.20		13.50		21.70		8.20		13.50		21.70		8.20		13.50		21.70
Grader — 24H		10.11		10.13		20.24		10.11		10.13		20.24		10.11		10.13		20.24		10.11		10.13		20.24
Hauler		24.84		41.06		65.90		24.84		41.06		65.90		24.84		41.06		65.90		24.84		41.06		65.90
Scraper		36.60		60.70		97.30		36.60		60.70		97.30		36.60		60.70		97.30		36.60		60.70		97.30
Water Truck		21.00		27.50		48.50		21.00		27.50		48.50		21.00		27.50		48.50		21.00		27.50		48.50
Water Wagon		17.25		24.50		41.75		17.25		24.50		41.75		17.25		24.50		41.75		17.25		24.50		41.75
MONTHLY RATES
8200 Bucket		2,825		61,708		64,533		2,825		61,708		64,533		2,825		61,708		64,533		2,825		61,708		64,533
8750 bucket		490		14,000		14,490		490		14,000		14,490		490		14,000		14,490		490		14,000		14,490
Crusher		1,825		35,525		37,350		1,825		35,525		37,350		1,825		35,525		37,350		1,825		35,525		37,350

# Maintenance labor rates include fringe and tax.

Note:    These rates exclude any allowance for catastrophic failures or accidents.
Fuel costs per hour are based on $.52 per gallon for diesel, and $.0397 per KWH for electricity. (Years 2004 — 2008 will utilize the 2003 rates.)

A-7

Northwestern Resources Co.
Jewett Mine
Support Equipment Rates
1999 Budget

The following is a summary, by fleet, of support equipment utilized at the Jewett Mine. Certain fleets have been split into greater detail where quantities and costs of individual units significantly influence the overall fleet cost.

		Monthly
Number of		O & M Cost		18 Month
Units - 1999		Per Unit		Actuals
1	Cable Reeler	$	2,290	$	1,872
1	Crane – 45 ton		3,135		3,390
1	Crane – 75 ton		2,080		1,296
3	Forklifts		490		684
13	Light Plants		1,135		1,030
1	Lowboy Tractor & Trailer		12,800		12,965
48	Pickups		1,185		1,295
3	Pump Buggies		1,005		1,008
6	Pumps – Diesel 4”		815		727
11	Pumps – Diesel 6”		1,285		1,212
2	Pumps – Electric 6”		420		438
6	Pumps – Electric 8”		655		647
3	Trucks – Mech/Elec (4wd, 2 1/2 ton)		2,375		2,142
2	Trucks – Fuel / Lube		5,760		5,452
3	Trucks – Mechanic’s Boom		2,240		2,027
3	Trucks – Pumpers (2 1/2 ton)		1,475		1,307
3	Vans (Crew Change)		680		631

A-8

Northwestern Resources Co.
Jewett Mine
Wage Projection and Overtime Assumptions
1999 Budget

							Number of
	Wage Rates ($ / Hour)						Employees
Title	Step A		Step B		Step C		As of 7/1/99
Dragline Operator BWE System Operator	$	21.52	$	21.84	$	22.22		24
Dragline/BWE Oiler Operator I Mechanic I Electrician I	$	20.98	$	21.23	$	21.48		24 8 9 2
Operator II Mechanic II Electrician II	$	20.25	$	20.48	$	20.75		115 63 14
Operator III Mechanic III Electrician III Surveyor I	$	17.96	$	18.46	$	18.94		19 5 0 1
Operator IV Mechanic IV Electrician IV Surveyor II Warehouse	$	16.72	$	17.28	$	17.82		17 3 0 2 5
Surveyor III Laborer I	$	12.36	$	13.62	$	14.86		0 0
Surveyor IV Laborer II	$	9.05	$	10.56	$	11.26		0 0
			Total Employees					311

Note: Wage rates are escalated, and do not include shift differential or loading. This is the expected distribution as of July 1, 1999.

Overtime Assumptions:

The overtime rate used for budgeting in 1999 is 9.4%. The shifts cause a scheduled overtime rate of 10%, however, not all hourly personnel work the 12 hour shifts. That fact, combined with vacation and other absences, reduces the 10% rate to the 9.4% projected for 1999.

A-9

Northwestern Resources Co.
Jewett Mine
Payroll Loading Factors
(as of % of Payroll)
1999 Budget

						BUDGET
FRINGE BENEFITS						RATES
Health & Life Insurance							10.76	%
Pension							2.01	%
Payroll Savings							3.11	%
Total Fringe Benefits							15.88	%
TAXES
	1999*
	Statutory
	Rates			Limit
FICA		7.65	%	$	68,400		8.50	%
State Unemployment		0.78	%		9,000		0.16	%
Federal Unemployment		0.80	%		7,000		0.13	%
Total Payroll Taxes							8.79	%
Total Fringe & Tax							24.67	%
NON-WORKED COMPENSATION
Vacation							5.67	%
Sick Leave							1.45	%
Holidays							3.87	%
Other							0.15	%
Total Non-Worked Compensation							11.14	%
	TOTAL PAYROLL LOADING						35.81	%
OTHER BENEFITS NOT LOADED WITH PAYROLL
Workers Compensation		0.74	%
Post Retirement Benefits		2.07	%
Post Employment Benefits		0.16	%

* 1999 Statutory rates are based on 1998 and subject to change.

A-10

Northwestern Resources Co.
Jewett Mine
Payroll Loading Factors
1999 Budget

Calculation

Fringe benefits, payroll taxes, and non-worked compensation rates are calculated based on total payroll dollars. Payroll taxes are forecasted for future years based on 1998 statutory rates and on 1999 budgeted staffing and payroll.

Hospitalization is based on projected staffing and on projected premiums for 1999.

Pensions are based on staffing, payroll, and an actuarial study performed in June, 1998.

Payroll savings is based on historical costs and forecasted for the coming years using 1999 budgeted staffing levels.

Non-worked compensation is based on NWR policies and historical experience and forecasted for future periods.

Application

For accounting purposes, payroll taxes are not expensed at the effective budget rate, but at the statutory rates and limits. When non-worked compensation occurs, the charge is against the liability recognized when payroll was originally loaded. Total costs are consistent between budget and accounting methods.

Post Retirement/Post Employment benefits are calculated as a % of payroll for accrual, but billed on an incurred basis.

A-11

Northwestern Resources Co.
Jewett Mine Staffing Summary
1999 Budget

			1998		1998
			1st Qtr		Year End		1999								Year End Estimates
			Actuals		Estimate		First		Second		Third		Fourth		2000		2001		2002		2003
Operations Engineering				4		4		5		5		5		5		5		5		5		5
Environmental Services				6		6		6		6		6		6		6		6		6		6
Operators				206		201		201		201		201		201		201		201		201		201
Mechanics / Electricians				97		95		94		94		94		94		94		94		94		94
Warehouse				5		5		5		5		5		5		5		5		5		5
TOTAL HOURLY				318		311		311		311		311		311		311		311		311		311
Administration	(A	)		2		2		2		2		2		2		2		2		2		2
Lands	(C	)		3		3		3		3		3		3		3		3		3		3
Environmental Services				16		17		17		17		17		17		17		17		17		17
Operations Engineering				5		5		5		5		5		5		5		5		5		5
Human Resources				5		6		6		6		6		6		6		6		6		6
Business	(B	)		22		22		22		22		22		22		22		22		22		22
Production/Maintenance				27		27		27		27		27		27		27		27		27		27
TOTAL SALARY				80		82		82		82		82		82		82		82		82		82
TOTAL JEWETT MINE				398		393		393		393		393		393		393		393		393		393

(A)	Includes VP General Manager not billable
(B)	Includes one Accountant not billable
(C)	Includes 1/2 Senior Landman not billable

A-12

TEXAS WESTMORELAND COAL CO.
JEWETT MINE
P.O. Box 915
Jewett, TX 75846

NRG Texas Power LLC	INVOICE NO: 2
P.O. Box
Princeton, NJ	INVOICE DATE:	February 1, 2008
Attn:

INVOICE, LSA Article 7.5

Period:     January 16 to 31, 2008

New LSA Art.		Item	Tons		Amount			$ per Ton
	7.2	Cost of Production		274,318.00	$	3,959,086.50		$	14.432
	7.3	Management Fee, per ton	$	[***]	$	[***]		$	[***]
	7.4a	Cost Incentive Adjustment			$	—		$	—
	7.4b	Inventory Adjustment			$	(1,249.65	)	$	(0.005	)
	7.4c	Heating Value Adjustment			$	(7,217.05	)	$	(0.026	)
		Total, Cost			$	[***]		$	[***]

               Credits

Please wire funds on or before February 16, 2008 as follows:

     BANK INFORMATION

A-13

Cost Incentive Adjustment (Annual)
LSA Section 7.4(a)(ii)
Bonus/Penalty Calculation
8-17-07 draft

	LSA Section
Item	Reference	Amount			Units
Calculation Input
Volume Delivered, Actual	7.4(a)(v)		6,550,000		tons
Mine Cost, Actual	7.2		[***]		$s
Volume Delivered, Approved Original Annual Operation Plan (AOP)	5.4		6,500,000		tons
Mine Cost, Approved Revised AOP	5.4 or 5.6		[***]		$s
Work Scope Adjustments, Net	7.4(a)(ii)		[***]		$s
Commodity Adjustments, Net	7.4(a)(iii)		[***]		$s
Fee Adjusted Basis (FAB) AOP	7.4(a)(ii)		[***]		$s
Penalty Calculation
Mine Cost as % of FAB AOP Cost	7.4(a)(v)		92.9	%	%
Penalty Threshold, Actual Mine Cost as % of FAB AOP	7.4(a)(v)		103.0	%	%
Penalty Applies?	7.4(a)(v)	no
Penalty Threshold	7.4(a)(v)	[***]			$s
Mine Cost Applicable to Penalty	7.4(a)(v)	[***]			$s
Delivered Volume	7.4(a)(v)	na			Tons
Mine Cost Applicable to Penalty per Delivered Ton	7.4(a)(v)	[***]			$s/Ton
One-Half of Applicable Mine Cost per Delivered Ton	7.4(a)(v)	[***]			$s/Ton
Penalty Limit per Delivered Ton	7.4(a)(v)	[***]			$s/Ton
Applicable Penalty per Delivered Ton	7.4(a)(v)	[***]			$s/Ton
Penalty	7.4(a)(v)		[***]		$s
Bonus Calculation
FAB AOP Cost as % of Mine Cost	7.4(a)(v)		107.6	%	%
Bonus Threshold, FAB AOP as % of Actual Mine Cost	7.4(a)(v)		103.0	%	%
Bonus Applies?	7.4(a)(v)	yes
Bonus Threshold	7.4(a)(v)		[***]		$s
Mine Cost Applicable to Bonus	7.4(a)(v)		[***]		$s
Applicable Volume	7.4(a)(v)(A)&(B)		6,500,00		0 Tons
Mine Cost Applicable to Bonus per Applicable Ton	7.4(a)(v)		[***]		$s/Ton
One-Half of Applicable Mine Cost per Applicable Ton	7.4(a)(v)		[***]		$s/Ton
Bonus Limit Per Applicable Ton	7.4(a)(v)		[***]		$s/Ton
Applicable Bonus per Applicable Ton	7.4(a)(v)		[***]		$s/Ton
Bonus	7.4(a)(v)		[***]		$s
Total, Bonus or Penalty
Bonus or (Penalty)	7.4(a)(vi)(4)		[***]		$s

EXHIBIT 5

List of Experts

A.      Accounting Expert

TBD

B.      Legal Expert

TBD

C.      Mining Expert

TBD

Exhibit 5 — Page 1

EXHIBIT 6

Surge Bin

[Exhibit 6 consists of a graphic depiction of the Surge Bin.]

Exhibit 6 — Page 1

EXHIBIT 7

Corporate Support Allowance

     Section 7.2(c) of the LSA provides for Mine Costs to include a Corporate Support Allowance as specified in this Exhibit 7. The Corporate Support Allowance amounts provided herein are the result of negotiations between the Parties and are not subject to audit or other justification.

     Corporate Support Allowance amounts shall be as provided in the table below. All figures shown in this table are expressed in 2008 constant dollars and shall be adjusted by the percent change in the GDP-IPD index from a Fourth Quarter 2007 base value as compared to the Fourth Quarter index value for the Year prior to the Year in which payment is made; provided, however, in no event shall the percentage change be less than zero. “GDP-IPD” shall mean the Gross Domestic Product Implicit Price Deflator index as first published as the advance number by the U.S. Department of Commerce, Bureau of Economic Analysis (base period of 2000 = 100). The percent change in GDP-IPD shall be rounded to the nearest third decimal point. The resulting inflation-adjusted amount shall be paid over twenty-four (24) equal installments during the Year and invoiced as provided under Section 7.6(a).

2008	Constant Dollars
2008		[***********]
2009		[***********]
2010		[***********]
2011		[***********]
2012		[***********]
2013		[***********]
2014		[***********]
2015		[*********]
2016		[*********]
2017		[*********]
2018		[*********]

     For example, where the following GDP-IPD index figures are hypothetical only:

Fourth Quarter 2007 First Published Index Value = 121
Fourth Quarter 2011 First Published Index Value = 140
2012 Corporate Support Allowance in Constant 2008 Dollars = [***********]

Exhibit 7 — Page 1

Therefore, to calculate the 2012 adjusted Corporate Support Allowance amount:

( 140 / 121 ) = 1.157 * [**********] = [**********]
[**********] / 24 invoices per Year = [**********] per invoice

                               ***************

Notwithstanding the fact that the Corporate Support Allowance amounts above are not subject to audit or justification, the Corporate Support Allowance is intended to reflect the following areas and types of support provided to TWCC by its parent(s):

(i) general corporate management; (ii) corporate capital and financial management; (iii) human resources policy and management including management costs related to TWCC’s 401K plans; (iv) sales and marketing; (v) corporate insurance; (vi) corporate auditing and Sarbanes-Oxley compliance, including periodic audits of TWCC, including as may be required by the applicable regulatory bodies; (vii) investor relations; (viii) corporate legal activities; (ix) corporate governance; (x) corporate development; (xi) corporate accounting; (xii) corporate government relations; (xiii) corporate-wide operations policy management; (xiv) corporate engineering; (xv) corporate IT systems and support; server and WAN maintenance and support, software maintenance, licensing or training (xvi) corporate records management; and (xvii) corporate travel and lodging.

The following items, whether incurred and paid directly by TWCC or satisfied by TWCC as a parent company charge, are agreed to be in addition to the Corporate Support Allowance and therefore considered Mine Costs under the relevant provisions of Section 7.2 of the LSA, so long as such costs are directly related to the business and operations of TWCC and approved by NRG in an annual AOP.

1.	IT contract costs for SurvCad, AutoCad, Caterpillar Troubleshooting Software, Anti-virus, Spyware, and all software licensing; and, maintenance needs exclusive to TWCC.
2.	IT training at TWCC for IT staff and for software set forth in 1. above.

Exhibit 7 — Page 2

EXHIBIT 8

Form of Invoice

See attached.

Exhibit 8 - Page 1

Exhibit 8

TEXAS WESTMORELAND COAL CO.
JEWETT MINE
P. O. Box 915
Jewett, TX 75846

NRG Texas Power LLC	INVOICE NO:
P. O. Box
Princeton, NJ	INVOICE DATE:	June 16, 2008
Attn:

INVOICE, LSA Section 7.6

Period: June 1 to 15, 2008

Agmnt Section	Item	Tons		Amount			$ per Ton
7.2	Cost of Production		280,000.00	$	4,000,000.00		$	14.286
7.3	Management Fee, per ton			$	[***]		$	[***]
7.4 a	Cost Incentive Adjustment			$	—		$	—
7.4.b	Inventory Adjustment *			$	(48,000.00	)	$	(0.171	)
7.4 c	Heating Value Adjustment **			$	(30,427.71	)	$	(0.109	)
	Total, Cost			$	[***]		$	[***]

*	Based on May’s fees and applicable ending inventory, pursuant to Section 7.4(b).
**	Based on fees and lignite heating values for deliveries made in the last half of the May, pursuant to Section 7.4(c).

Please wire funds on or before June 30, 2008 as follows:

BANK INFORMATION

7.4 Adjustments

7.4b Monthly Inventory Adjustment

	Prior Month
Annual Quantity (AOP tons)		6,650,000
Inventory Target (1/26th of Annual Quantity)		255,769
Actual Month-end Inventory (tons)		0
Inventory Shortfall (tons)		(255,769	)
Incremental Fee Adjustment Factor, 0.1% per 1.0%		0.001	%
Month-End Fee Adjustment Factor		(0.10000	)
Deliveries (tons)		400,000
Base Fee per Ton	$	[***]
Fee Per Ton Adjustment for Inventory	$	[***]
Fee Adjustment for Inventory	$	[***]

7.4 Adjustments
7.4 c Daily Heating Value Adjustment

May

																	Seven-
	Average				6000 Btu			5800 Btu			5800 &			5800 &			Day		Btus						Base					Rolling
	Daily				Fee per			Fee per			6000 Fee			6000 Btu			Weighted		Above or			Base Fee			Fee		Fee			Average,			Total, Base
Day of	Heat		Tons		Ton			Ton			per Ton			Fee			Average		(Below)			Adjustment,			per		Adjustment			Fee			Fee
Month	Content		Delivered		Adjustment			Adjustment			Adjustment			Adjustment			Btu		Deadband			%			Ton		per Ton			Adjustment			Adjustment
1		6500		18,000	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
2		6600		17,500	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
3		6700		16,800	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
4		6800		18,500	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
5		6900		17,500	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
6		7000		18,000	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
7		7100		17,500	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
8		7200		16,800	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
9		7100		18,500	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
10		7000		17,500	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
11		6900		18,000	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
12		6800		18,000	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
13		7100		18,000	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
14		6800		18,000	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
15		6700		18,000	na *			na *			na *			na *			na *		na *			na *			na *		na *			na *			na *
16		6500		17,000		—			—			—			—			6845		45			4.50			1.2000		0.0540			917.59			917.59
17		6400		17,000		—			—			—			—			6762		—			—			1.2000		0.0000			—			—
18		6300		17,000		—			—			—			—			6678		—			—			1.2000		0.0000			—			—
19		6200		17,000		—			—			—			—			6593		—			—			1.2000		0.0000			—			—
20		6100		17,000		—			—			—			—			6449		—			—			1.2000		0.0000			—			—
21		6000		17,000		—			—			—			—			6318		—			—			1.2000		0.0000			—			—
22		5700		17,550		(0.20	)		(0.20	)		(0.40	)		(7,020.00	)		6169		(31	)		(3.07	)		1.2000		(0.0369	)		(647.39	)		(7,667.39	)
23		5900		17,200		(0.20	)		—			(0.20	)		(3,440.00	)		6084		(116	)		(11.64	)		1.2000		(0.1396	)		(2,401.82	)		(5,841.82	)
24		6000		17,500		—			—			—			—			6027		(173	)		(17.33	)		1.2000		(0.2079	)		(3,638.54	)		(3,638.54	)
25		6100		17,230		—			—			—			—			5999		(201	)		(20.13	)		1.2000		(0.2416	)		(4,163.00	)		(4,163.00	)
26		6200		17,000		—			—			—			—			5999		(201	)		(20.13	)		1.2000		(0.2416	)		(4,107.43	)		(4,107.43	)
27		6300		17,000		—			—			—			—			6027		(173	)		(17.31	)		1.2000		(0.2077	)		(3,531.73	)		(3,531.73	)
28		6400		17,000		—			—			—			—			6083		(117	)		(11.67	)		1.2000		(0.1400	)		(2,380.34	)		(2,380.34	)
29		6500		17,320		—			—			—			—			6199		(1	)		(0.07	)		1.2000		(0.0009	)		(15.04	)		(15.04	)
30		6600		17,000		—			—			—			—			6299		—			—			1.2000		0.0000			—			—
31		6700		17,518		—			—			—			—			6401		—			—			1.2000					—			—
Total				540,918										$	(10,480.00	)														$	(19,967.71	)	$	(30,427.71	)

* The heating value adjustment, if any, for the first half of May was addressed in the prior (June 1) invoice for lignite delivered in the last half of May.

EXHIBIT 9

Post Execution Savings Actions

Section 7.3 provides that the Management Fee shall be (a) [****] per Ton escalated annually, or (b) a lower amount escalated annually, as provided in this Exhibit 9. Specifically, in the negotiation of the Management Fee, NRG agreed to increase its offer of [****] per Ton by an additional [****] per Ton based upon certain Mine Cost savings presented by TWCC. The Parties acknowledge that certain of these cost savings can be demonstrated to NRG by TWCC through Post-Execution Savings Actions, while other savings are derived from cost projection assumptions (“Projection Assumptions”) that NRG agrees to accept without further recourse upon execution of this LSA, notwithstanding the adjustments provided under Section 7.4.

The Mine Cost savings categories are provided below along with their respective portions of the total [****] per Ton. The initial Management Fee shall be [****] per Ton. TWCC shall demonstrate to NRG that TWCC, no later than March 31, 2008, has taken the actions necessary to implement the Post-Execution Savings Actions. If TWCC fails to make such demonstration by the stated time, the base Management Fee shall be decreased thereafter until such time that the demonstration is made, notwithstanding the adjustments provided under Section 7.4, by the corresponding value of each category. For example, if TWCC fails to demonstrate to NRG that Equipment Recapitalization action has been taken by March 31, 2008, the Management Fee shall decrease by [****] per Ton to [****].

Post-Execution Savings Actions:	%		$/Ton
1.   Equipment Recapitalization		[***]		[****]
2.   Retirement NRG Equipment		[***]		[****]
3.   Organization Restructure		[***]		[****]
4.   Capital Project Outside Services (Contractors) Reduced		[***]		[****]
Total Post-Execution Savings Actions [*******] per Ton:		[***]		[****]
Projection Assumptions:
5.   Inventory Management and Best Available Technology		[***]		[****]
6.   Bond Release		[***]		[****]
7.   Workers Compensation and Insurance Premium Reduction		[***]		[****]
Total Projection Assumptions [*******] per Ton:		[***]		[****]
TOTAL MINE COST SAVINGS		[***]		[****]

Exhibit 9 — Page 1

The following describes each Mine Cost savings category, along with the actions required by TWCC to demonstrate implementation to NRG.

Post-Execution Savings Actions:

1.	Equipment Recapitalization: TWCC shall lease or otherwise provide (16) sixteen mining units, including: (7) D-10T dozers; (3) D-9T dozers; (2) two D-6LGP dozers; and (4) 100-Ton end dumps, or the equivalents thereof. The equipment leased or otherwise provided will be of a condition consistent with the equipment that was included and assumed in development of the preliminary 2008 AOP.
	Demonstration Action: Provide copies of executed lease documents to NRG, and provide written notice to NRG that the units are deployed at the Jewett Mine.
2.	Retirement of NRG Equipment: Cost savings on an net present value basis, shall be recognized for sale of 18 retired NRG mining units, replaced by units detailed in paragraph 1 “Equipment Recapitalization” as mentioned above.
	Demonstration Action: Provide copies of executed lease documents for equipment under 1. above to NRG and schedule for equipment retirement, and provide written notice to NRG that the NRG equipment has been retired.
3.	Organization Restructure: TWCC salaried staff shall be reorganized on or before January 1, 2008, such that TWCC salaried staffing level shall equal (72) seventy-two. This staffing level does not include Westmoreland Mining LLC employees, of which a portion of their time is allocated to TWCC.
	Demonstration Action: Eliminate 6 salaried staffing positions and have salaried staffing organization chart detailing seventy-two (72) positions as of January 1, 2008.
4.	Capital Project Outside Services: TWCC shall perform work activities previously scheduled for contractors, resulting in savings as shown in 2008 AOP.
	Demonstration Action: 2008 Preliminary AOP to identify work activities to be performed by TWCC as previously scheduled to be performed by contractors. Provide letter, duly executed by the President of TWCC, stating that TWCC will not hire contractors to perform the work identified.

Savings Assumptions (No Demonstration Actions Required):

5.	Inventory Management and Best Available Technology (“BAT”): TWCC shall use Prudent Mining Practices and reasonable commercial efforts to maintain lignite inventory per Sections 7.4(b) and 8.3 (b) and shall use best available technologies such as SurvCadd, dozer GPS guidance systems, and dragline line production monitors, to improve certain mining costs by [***].
6.	Bond Release: TWCC shall make reasonable commercial efforts to obtain bond release as projected in the 2008 Preliminary AOP, and in subsequent AOP’s.

Exhibit 9 — Page 2

7. Workers Compensation and Insurance. Cost savings related to actual rates experienced and projected savings beginning in 2008. The savings are related to a lower premium modifier, relative to worker compensation and insurance claims.

Exhibit 9 — Page 3

EXHIBIT 10
Typical Lignite Quality and Characteristics

A. Proximate Analysis (Gross, As-received Basis):

Parameter	Units	Ranges		Typical
Heat Content	Btu/lb.		5600 - 7200		6500
Total Sulfur	% by weight		0.4 - 2.2		1.1
Ash	% by weight		12.0 - 25.0		16.5
Total Moisture	% by weight		28.0 - 36.0		31.7
Volatile Matter	% by weight		22.0 - 32.0		26.8
Fixed Carbon	% by weight		20.0 - 30.0		25.0

B. Ultimate Analysis (Gross, As-received Basis):

Parameter	Units	Ranges		Typical
Total Moisture	% by weight		28.0 - 36.0		31.7
Carbon	% by weight		33.0 - 42.0		38.2
Hydrogen	% by weight		1.5 - 3.2		2.6
Nitrogen	% by weight		0.4 - 1.0		0.6
Sulfur	% by weight		0.4 - 2.2		1.1
Ash	% by weight		12.0 - 25.0		16.5
Chlorine	% by weight		0.01 - 0.04		0.02
Oxygen (by diff.)	% by weight		5.0 - 13.0		9.5

Exhibit 10 — Page 1

C. Reporting Basis: Mineral Analysis of Ash (% by weight)

Parameter	Ranges		Typical
Silica (SiO2)		40.0 - 65.0		52.0
Alumina (Al2O3)		12.0 - 20.0		16.0
Titania (TiO2)		0.6 - 1.8		1.1
Ferric Oxide (Fe2O3)		5.0 - 18.0		7.8
Calcium (CaO)		7.0 - 20.0		9.5
Magnesium (MgO)		1.0 - 4.0		2.0
Sodium (Na2O)		0 - 1.0		0.3
Potassium (K2O)		0 - 1.5		1.0
Phosphorous (P2O5)		0 - 1.0		0.3
Magnesia (Mn3O4)		0 - 1.0		0.2
Sulfate (SO3)		5.0 - 18.0		8.2
Undetermined		0 - 4.0		1.6

	Range		Typical
D. Hardgrove Grindability Index		50 - 75		65
E. Size Analysis: 6” X 0”

Parameter	Minimum		Maximum
1. Coal Size Range (mm)		0		254
2. Coal Less than 1/4 inch (wt.%)		10		30

F. Ash Fusion Temperatures — Reducing Atmosphere (Degrees, Fahrenheit):

Parameter	Ranges		Typical
Initial Deformation		1970 - 2550		2133
Softening		2030 - 2600		2195
Hemispherical		2060 - 2650		2247

G. Ash Fusion Temperatures — Oxidizing Atmosphere (Degrees, Fahrenheit):

Parameter	Ranges		Typical
Initial Deformation		2080 - 2600		2230
Softening		2150 - 2650		2300
Hemispherical		2180 - 2700		2350

Exhibit 10 — Page 2

EXHIBIT 11

Insurance Requirements

(a) TWCC shall maintain insurance written in the kinds and minimum limits of liability specified below:

1.	Workers’ Compensation (WC) -	Statutory, including temporary and leased workers.
	Employer’s Liability (EL) -	$1,000,000
2.	Commercial General Liability (GL) -	$1,000,000 per occurrence for Bodily Injury, Property Damage, Personal Injury, including death; $2,000,000 Aggregate
Inclusions: Contractual Liability (to include hold harmless coverage specified elsewhere in this Agreement); Broad Form Property; Independent Contractors; Premises & Operations, Products & Completed Operations, No exclusion for X.C. & U.
3.	Automobile Liability (AL) -	$1,000,000 Combined Single Limit, including coverage for owned, non-owned and hired vehicles.
Inclusions: Either GL or AL Policy must provide liability coverage that extends coverage for mobile equipment.
4.	Excess Liability (Umbrella) -	$25,000,000 coverage that will respond excess of the underlying EL, GL, and AL policies on a following form basis.

(b) NRG, its parent company, subsidiaries and affiliates, as well as each of their respective officers, directors, managers, members and employees shall be included as Additional Insured’s on TWCC’s GL, AL, and Umbrella policies for injury or damage arising out of, resulting from, or in connection with TWCC’s performance of this Agreement and/or the terms and conditions of this LSA. The Additional Insured status noted in this Section shall be specifically endorsed to TWCC’s Policies, and with respect to the General Liability Policy shall be as broad as that provided by the ISO CG 20 10 11 85 endorsement form. The insurance provided by TWCC shall be primary, without right of contribution, with respect to any similar insurance maintained by NRG. Waiver of Subrogation shall be provided pursuant to this written contract for all

Exhibit 11 — Page 1

Insureds and Additional Insureds with respect to each of the coverages noted in subsection (a) of this Section.

(c) Provided NRG annually provides TWCC with a schedule of all NRG Property in the care, custody and control of TWCC, including the replacement value of all such property, TWCC shall maintain All Risk Property insurance at the replacement cost listed on the schedule to cover all risks of direct physical loss or damage to such NRG’s Property. Said coverage to include, but not be limited to Flood, Windstorm, Earth Movement, Boiler & Machinery Breakdown, Extra Expense, Time Element, Mobile Equipment, Debris Removal, Off-site Storage, Transit, subject to the terms and conditions and the form exclusions contained in the policy. The policy shall have no exclusions related to explosion, collapse, subsidence or underground/subsurface perils or any other perils that are standard to mining operations. NRG shall be included on TWCC’s All Risk Property insurance policy as a Loss Payee, as its interest may appear. TWCC shall be responsible for any deductibles. Deductibles shall not exceed $1,000,000 per occurrence.

Exhibit 11 — Page 2

EXHIBIT 12

[Intentionally Omitted]

Exhibit 12 — Page 1

EXHIBIT 13

Form of Monthly Report Production Summary

See attached.

Exhibit 13 — Page 1

Exhibit 13

JEWETT
SUMMARY
July, 2007

Safety
Lost Time Incidents	0
Days Since Last LTA	1,019
Hours Since Last LTA	2,146,042

	MONTH												YEAR TO DATE
COAL	Actual			Budget			Variance			%			Actual			Budget			Variance			%
Tons Sold		523,802			560,383			-36,581			-6.5	%		3,901,040			3,906,601			-5,570			-0.1	%
Tons Uncovered		482,420			469,000			13,420			2.9	%		3,802,697			4,146,000			-343,303			-8.3	%
BOM Inventory
Pit		78,100			387,201			-309,101			-79.8	%		78,100			387,201			-309,101			-79.8	%
Stockpile		20,445			165,943			-145,498			-87.7	%		20,445			165,943			-145,498			-87.7	%
Total		98,545			553,144			-454,599			-82.2	%		98,545			553,144			-454,599			-82.2	%
EOM Inventory
Pit		43,000			323,233			-280,233			-86.7	%		43,000			323,233			-280,233			-86.7	%
Stockpile		14,163			138,528			-124,365			-89.8	%		14,163			138,528			-124,365			-89.8	%
Total		57,163			461,761			-404,598			-87.6	%		57,163			461,761			-404,598			-87.6	%
Tons Produced		517,520			469,000			48,520			10.3	%		3,894,758			4,146,000			-251.242			-6.1	%
Insitu Tons Mined		623,587			505,000			118,587			23.5	%		4,288,553			4,472,000			-183,447			-4.1	%
Recovery		83.0	%		92.9	%		-9.9	%		-10.6	%		90.8	%		92.7	%		-1.9	%		-2.0	%
Quality/BTU		6.619			6,658			39			0.6	%		6,600			6,636			36			0.5	%
OVERBURDEN/INTERBURDEN
Overburden (BCY)		3,342,800			3,768,639			-425,839			-11.3	%		26,319,907			25,978,389			341,518			1.3	%
Interburden (BCY)		1,351,700			1,603,361			-251,661			-15.7	%		10,674,293			12,614,704			-1,940,411			-15.4	%
Total Bank Cubic Yards		4,694,500			5,372,000			-677,500			-12.6	%		36,994,200			38,593,093			-1,598,893			-4.1	%
Rehandled Overburden (CY)		1,429,650			0			1,429,650		#DIV/0!				8,822,244			7,938,769			883,475			11.1	%
Total Moved (CY)		6,124,150			5,372,000			752,150			14.0	%		45,816,444			46,531,862			-715,418			-1.5	%
Virgin Ratio		9.7			11.5			-1.7			-15.0	%		9.7			9.3			0.4			4.5	%
Effective Ratio		12.7			11.5			1.2			10.8	%		12.0			11.2			0.8			7.4	%
RECLAMATION
Acres Disturbed		46.0			24.0			22.0			91.7	%		323.30			236.0			87.0			36.9	%
Acres Graded		0.0			50.0			-50.0			-100.0	%		117.1			350.0			-232.9			-66.5	%
Acres Topsoil/SPGM		19.5			34.2			-14.7			-43.0	%		237.2			313.4			-76.2			-24.3	%
TS/SPGM Stripped Cu. Yds.
To Stockpile		0			0			0		#DIV/0!				0			0			0		#DIV/0!
Direct Place		141,570			248,292			-106,722			-43.0	%		1,722,072			2,275,284			-553,212			-24.3	%
TS/SPGM From Stockpile		0			0			0		#DIV/0!				0			0			0		#DIV/0!
TOTAL		141,570			248,292			-106,722			-43.0	%		1,722,072			2,275,284			-553,212			-24.3	%

JEWETT
COAL PRODUCTION
July, 2007

	MONTH												YEAR TO DATE
	Actual			Budget			Variance			%			Actual			Budget			Variance			%
AREA B
Tons Sold		93,363			156,525			-63,162			-40.4	%		845,737			892,715			-48,978			-5.3	%
Tons Uncovered		94.246			131,000			-36,754			-28.1	%		837,308			923,000			-85,692			-9.3	%
BOM Pit Inventory		0			108,152			-108,152			-100.0	%		0			108,152			-108,152			-100.0	%
EOM Pit Inventory		4,500			90,285			-85,785			-95.0	%		4,500			90,285			-85,785			-95.0	%
Tons Produced		89.746			131,000			-41,254			-31.5	%		839,825			923,000			-83,175			-9.0	%
Insitu Tons Mined		103,209			138,000			-34,791			-25.2	%		905,335			971,000			-65,665			-6.8	%
Recovery		87.0	%		94.9	%		-8.0	%		-8.4	%		92.8	%		95.1	%		-2.3	%		-2.4	%
AREA F NORTH
Tons Sold		128,636			144,576			-15,940			-11.0	%		886,240			860,842			25,393			3.0	%
Tons Uncovered		100.844			121,000			-20,156			-16.7	%		812,631			895,000			-82,469			-9.2	%
BOM Pit Inventory		31,100			99,896			-68,796			-68.9	%		31,100			99,896			-68,796			-68.9	%
EOM Pit Inventory		2,000			83,393			-81,393			-97.6	%		2,000			83,393			-81,393			-97.6	%
Tons Produced		129,944			121,000			8,944			7.4	%		558,274			895,000			-26,726			-3.0	%
Insitu Tons Mined		158,261			132,000			26,261			19.9	%		1,038,425			977,000			61,425			6.3	%
Recovery		82.1	%		91.7	%		-9.6	%		-10.4	%		83.6	%		91.6	%		-8.0	%		-8.7	%
AREA F SOUTH
Tons Sold		166,164			259,282			-93,118			-35.9	%		1,231,751			1,703,768			-472.017			-27.7	%
Tons Uncovered		152,419			217,000			-64,581			-29.8	%		1,266,232			1,782,000			-515,768			-28.9	%
BOM Pit Inventory		37,800			179,153			-141,353			-78.9	%		37,800			179,153			-141,353			-78.9	%
EOM Pit Inventory		30,100			149,555			-119,455			-79.9	%		30,100			149,555			-119,455			-79.9	%
Tons Produced		160,119			217,000			-56,881			-26.2	%		1,235,090			1,782,000			-546,091			-30.6	%
Insitu Tons Mined		196,283			235,000			-38,717			-16.5	%		1,334,455			1,930,000			-595,545			-30.9	%
Recovery		81.6	%		92.3	%		-10.8	%		-11.7	%		92.6	%		92.3	%		0.3	%		0.3	%
AREA E
Tons Sold		135,639			0			135,639		#DIV/0!				934,324			449,285			485,039			108.0	%
Tons Uncovered		134,911			0			134,911		#DIV/0!				886,626			546,000			340,626			62.4	%
BOM Pit Inventory		9,200			0			9,200		#DIV/0!				9,200			0			9,200		#DIV/0!
EOM Pit Inventory		6,400			0			6,400		#DIV/0!				6,400			0			6,400		#DIV/0!
Tons Produced		137,711			0			137,711		#DIV/0!				926,852			546,000			380,852			69.8	%
Insitu Tons Mined		165,834			0			165,834		#DIV/0!				1,010,338			594,000			416,338			70.1	%
Recovery		83.0	%	#DIV/0!			#DIV/0!			#DIV/0!				91.7	%		91.9	%		-0.2	%		-0.2	%
TOTAL
Tons Sold		523,802			560,383			-36,581			-6.5	%		3,901,040			3,906,610			-5,570			-0.1	%
Tons Uncovered		482,420			469,000			13,420			2.9	%		3,802,697			4,146,000			-343,303			-8.3	%
BOM Pit Inventory		78,100			387,201			-309,101			-79.8	%		78,100			387,201			-309,101			-79.8	%
EOM Pit Inventory		43,000			323,233			-280,233			-86.7	%		43,000			323,233			-280,233			-86.7	%
BOM Stock Inventory		20.445			165,943			-145,498			-87.7	%		20,445			165,943			-145,498			-87.7	%
EOM Stock Inventory		14,163			138,528			-124,365			-89.8	%		14,163			138,528			-124,365			-89.8	%
Tons Produced		517,520			469,000			48,520			10.3	%		3,894,758			4,146,000			-251,242			-6.1	%
Insitu Tons Mined		623,587			505,000			118,587			23.5	%		4,288,553			4,472,000			-183,447			-4.1	%
Recovery		83.0	%		92.9	%		-9.9	%		-10.6	%		90.8	%		92.7	%		-1.9	%		-2.0	%

JEWETT
OVERBURDEN
July, 2007

	MONTH									YEAR TO DATE
	Actual		Budget		Variance		%			Actual		Budget		Variance		%
AREA B
DL 25 8200
Overburden (BCY)		814,000		1,605,000		-791,000		-49.3	%		10,208,400		10,975,000		-766.600		-7.0	%
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		814,000		1,605,000		-791,000		-49.3	%		10,208,400		10,978,000		-766,600		-7.0	%
Rehandled Overburden (CY)		470,950		0		470,950	#DIV/0!				2,566,645		1,79B,140		768,505		42.7	%
Total Overburden Moved (CY)		1,284,950		1,605,000		-320,050		-19.9	%		12,775,045		12,773,140		1,905		0.0	%
EXCAVATOR/TRUCKS
Overburden (BCY)		0		258,000		-258,000		-100.0	%		1,058,300		1,614.000		-555,700		-34.4	%
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		0		258,000		-258,000		-100.0	%		1,058,300		1,614,000		-555,700		-34.4	%
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Overburden Moved (CY)		0		258,000		-258,000		-100.0	%		1,058,300		1,614,000		-555,700		-34.4	%
TRACTORS
Overburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		0		0		0	#DIV/0l				0		0		0	#DIV/0!
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Overburden Moved (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
TOTAL AREA B
Overburden (BCY)		814,000		1,863,000		-1,049,000		-56.3	%		11,266,700		12,589,000		-1,322,300		-10.5	%
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		814,000		1,863,000		-1,049,000		-56.3	%		11,266,700		12,589,000		-1,322,300		-10.5	%
Rehandled Overburden (CY)		470,950		0		470,950	#DIV/0!				2,566,645		1,798,140		768,505		42.7	%
TOTAL		1,284,950		1,863,000		-578,050		-31.0	%		13,833,345		14,387,140		-553,795		-3.8	%
AREA F NORTH
DL 26 8200
Overburden (BCY)		533.600		828,240		-294,640		-35,6	%		3,765,559		5,664,060		-1,898,501		-33.5	%
Interburden (BCY)		361,500		795,760		-434,260		-54.6	%		3,478,341		5,441,940		-1,963,599		-36.1	%
Total Bank Cubic Yards		895,100		1,624,000		-728,900		-44.9	%		7,243,900		11,106,000		-3,862,100		-34.8	%
Rehandled Overburden (CY)		155,000		0		155,000	#DIV/0!				2,689,150		3,955,500		-1,266,350		-32.0	%
Total Overburden Moved (CY) 8200		1,050,100		1,624,000		-573,900		-35.3	%		9,933,050		15,061,500		-5.128,450		-34.1	%
EXCAVATOR/TRUCKS
Overburden (BCY)		0		77,755		-77,755		-100.0	%		547,800		218,939		328,861		150.2	%
Interburden (BCY)		44,400		24,245		20,155		83.1	%		44,400		171,524		-127,124		-74.1	%
Total Bank Cubic Yards		44,400		102,000		-57,600		-56.5	%		592,200		390,463		201,737		51.7	%
Rehandled Overburden (CY)		0		.0		0	#DIV/0!				0		0		0	#DIV/0l
Total Overburden Moved (CY)		44,400		102,000		-57,600		-56.5	%		592,200		390,463		201,737		51.7	%
TRACTORS
Overburden (BCY)		0		0		0	#DIV/0!				205,200		0		205,200	#DIV/0!
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		0		0		0	#DIV/0!				205,200		0		205.200	#DIV/0!
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0l
Total Overburden Moved (CY)		0		0		0	#DIV/0!				205,200		0		205,200	#DIV/0!
TOTAL AREA F NORTH
Overburden (BCY)		0		0		0	#DIV/0!				4,518,559		5,882,999		-1,364,440		-23.2	%
Interburden (BCY)		0		0		0	#DIV/0!				3,522,741		5,613,464		-2,090,723		-37.2	%
Total Bank Cubic Yards		0		0		0	#DIV/0!				8,041,300		11,496,463		-3,455,163		-30.1	%
Rehandled Overburden (CY)		155,000		0		155,000	#DIV/0!				2,689,150		3,955.500		-1,266,350		-32.0	%
TOTAL		155,000		0		155,000	#DIV/0!				10,730,450		15,451,963		-4,721,513		-30.6	%

JEWETT
OVERBURDEN
July, 2007

	MONTH									YEAR TO DATE
	Actual		Budget		Variance		%			Actual		Budget		Variance		%
AREA F SOUTH
DL 25 8200
Overburden (BCY)		1,027,200		876,960		150,240		17.1	%		4,663,168		5,184,774		-521,606		-10.1	%
Interburden (BCY)		359,600		747,040		-387,440		-51,9	%		3,283,332		4,416,660		-1,133,328		-25.7	%
Total Bank Cubic Yards		1,386,800		1,624,000		-237,200		-14,6	%		7,946,500		9,601,434		-1,654,934		-17.2	%
Rehandled Overburden (CY)		346,700		0		346,700	#DIV/0!				2,098,375		1,601,609		496,766		31.0	%
Total Overburden Moved		1,733,500		1,624,000		109,500		6.7	%		10,044,875		11,203,043		-1,158,168		-10.3	%
(CY) 8200
EXCAVATOR/TRUCKS
Overburden (BCY)		173,100		122,684		50,416		41.1	%		1,179,000		369,696		810,204		219.2	%
Interburden (BCY)		32,500		36,316		-3,816		-10.5	%		32,500		206,500		-174,000		-84.3	%
Total Bank Cubic Yards		205,600		159,000		46,600		29.3	%		1,212,400		576,196		636,204		110.4	%
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Overburden Moved (CY)		205,600		159,000		46,600		29.3	%		1,212,400		576,196		636,204		110.4	%
TRACTORS
Overburden (BCY)		125,000		0		125,000	#DIV/0!				566,900		0		566,900	#DIV/0!
Interburden {BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		125,000		0		125,000	#DIV/0!				566,900		0		566,900	#DIV/0!
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Overburden Moved (CY)		125,000		0		125,000	#DIV/0!				566,900		0		566,900	#DIV/0!
TOTAL AREA F SOUTH
Overburden (BCY)		1,325,300		999,644		325,656		32.6	%		6,409,988		5,554,470		855,498		15.4	%
Interburden (BCY)		392,100		783,356		-391,256		-49.9	%		3,315,832		4,623,160		-1,307,328		-28.3	%
Total Bank Cubic Yards		1,717,400		1,783,000		-65,600		-3.7	%		9,725,800		10,177,630		-451,830		-4.4	%
Rehandled Overburden (CY)		346,700		0		346,700	#DIV/0!				2,098,375		1,601,609		496,766		31.0	%
TOTAL		2,064,100		1,783,000		281,100		15.8	%		11,824,175		11,779,239		44,936		0.4	%
AREA E
DL 28 8750
Overburden (BCY)		559,000		0		559,000	#DIV/0!				3,195,180		1,833,920		1,361,260		74.2	%
Interburden (BCY)		527,200		0		527,200	#DIV/0!				3,793,520		2,334,080		1,464,440		62.7	%
Total Bank Cubic Yards		1,086,200		0		1,086,200	#DIV/0!				6,993,700		4,168,000		2,825,700		67.8	%
Rehandled Overburden (CY)		457,000				457,000	#DIV/0!				1,468,074		583,520		884,554		151.6	%
Total Overburden Moved (CY)		1,543,200		0		1,543,200	#DIV/0!				8,461,774		4,751,520		3,710,254		78.1	%
EXCAVATOR/TRUCKS
Overburden (BCY)		110,900		0		110,900	#DIV/0!				574-,00		0 0		574,000	#DIV/0!
Interburden (BCY)		26,500		0		26,500	#DIV/0!				37,200		44,000		-6,800		-15.5	%
Total Bank Cubic Yards		137,400		0		137,400	#DIV/0!				611,200		44,000		567,200		1289.1	%
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Overburden Moved (CY)		137,400		0		137,400	#DIV/0!				611,200		44,000		567,200		1289.1	%
BWE/TRUCKS
Overburden (BCY)		0		0		0	#DIV/0!				355,500		118,000		237,500		201.3	%
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		0		0		0	#DIV/0!				355,500		118,000		237,500		201.3	%
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Overburden Moved (CY)		0		0		0	#DIV/0!				355,500		118,000		237,500		201.3	%
TRACTORS
Overburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Overburden Moved (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
TOTAL AREA E
Overburden (BCY)		669,900		0		669,900	#DIV/0!				4,124,680		1,951,920		2,172,760		111.3	%
Interburden (BCY)		553,700		0		553,700	#DIV/0!				3,835,720		2,378,060		1,457.640		61.3	%
Total Bank Cubic Yards		1,223,600		0		1,223,600	#DIV/0!				7,960,400		4,330,000		3,630,400		83.8	%
Rehandled Overburden (CY)		457,000		0		457,000	#DIV/0!				1,468,074		583,520		884,554		151.6	%
TOTAL		1,680,600		0		1,680,600	#DIV/0!				9,426,474		4,913,520		4,514,954		91.9	%

JEWETT
OVERBURDEN
July, 2007

	MONTH									YEAR TO DATE
	Actual		Budget		Variance		%			Actual		Budget		Variance		%
TOTAL DRAGLINES
Overburden (BCY)		2,933,800		3,310,200		-376,400		-11.4	%		21,832,307		23,657,754		-1,825,447		-7.7	%
Interburden (BCY)		1,248,300		1,542,800		-294,500		-19.1	%		10,560,193		12,192,680		-1,632,487		-13.4	%
Total Bank Cubic Yards		4,182,100		4,853,000		-670,900		-13.8	%		32,392,500		35,850,434		-3,457,934		-9.6	%
Rehandled Overburden (CY)		1,429,650		0		1,429,650	#DIV/0!				8,822,244		7,938,769		883,475		11.1	%
TOTAL		5,611,750		4,853,000		758,750		15,6	%		41,214,744		43,789,203		-2,574,459		-5.9	%
TOTAL
EXCAVATOR/TRUCKS
Overburden (BCY)		284,000		458,438		-174,439		-38.1	%		3,360,000		2,202,635		1,157,365		52.5	%
Interburden (BCY)		103,400		60,561		42,839		70.7	%		114,100		422,024		-307,924		-73.0	%
Total Bank Cubic Yards		387,400		519,000		-131,600		-25.4	%		3,474,100		2,624,659		849,441		32.4	%
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
TOTAL		387,400		519,000		-131,600		-25.4	%		3,474,100		2,624,659		849,441		32.4	%
BWE/TRUCKS
Overburden (BCY)		0		0		0	#DIV/0!				355,500		118,000		237,500		201.3	%
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		0		0		0	#DIV/0!				355,500		118,000		237,500		201.3	%
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
TOTAL		0		0		0	#DIV/0!				355,500		118,000		237,500		201.3	%
TOTAL TRACTORS
Overburden (BCY)		125,000		0		125,000	#DIV/0!				772,100		0		772,100	#DIV/0!
Interburden (BCY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
Total Bank Cubic Yards		125,000		0		125,000	#DIV/0!				772,100		0		772,100	#DIV/0!
Rehandled Overburden (CY)		0		0		0	#DIV/0!				0		0		0	#DIV/0!
TOTAL		125,000		0		125,000	#DIV/0!				772,100		0		772,100	#DIV/0!
TOTAL
Overburden (BCY)		3,342,800		3,768,639		-425,839		-11.3	%		26,319,907		25,978,389		341,518		1.3	%
Interburden (BCY)		1,351,700		1,603,361		-251,661		-15.7	%		10,674,293		12,614,704		-1,940,411		-15.4	%
Total Bank Cubic Yards		4,694,500		5,372,000		-677,500		-12,6	%		36,994,200		38,593,093		-1,598,893		-4.1	%
Rehandled Overburden (CY)		1,429,650		0		1,429,650	#DIV/0!				8,822,244		7,936,769		883,475		11.1	%
TOTAL		6,124,150		5,372,000		752,150		14.0	%		45,816,444		45,531,862		-715,418		-1.5	%
Virgin Ratio		9.7		11.5		-1.7		-15.0	%		9.7		9.3		0.4		4.5	%
Effective Ratio		12.7		11.5		1.2		10.8	%		12.0		11.2		0.8		7.4	%

JEWETT
PRODUCTIVITY
July, 2007
PRODUCTIVITY

	MONTH										YEAR TO DATE
	Actual		Budget		Variance			%			Actual		Budget		Variance			%
Man-hours
Craft		49,306.0		50,930.0		-1,624.0			-3.2	%		347,632		348,295		-663.0			(0.002	)
Contractor		18,374.0		—		18,374.0		#DIV/0!				143,341		—		143,341.0		#DIV/0!
Salaried		12,062.0		12,729.0		-667.0			-5.2	%		87,062		87,047		15.0			0.000
Total		79742.0		63659.0		16083.0			25.3	%		576,035		435,342		142693.0			0.328
Tons Sold/Craft M-hour		7.74		11.00		-3.26			-29.7	%		7.95		11.22		-3.27			(0.292	)
Tons Produced/Craft M-Hour		7.13		9.21		-2.08			-22.6	%		7.75		11.90		-4.16			(0.349	)
OVERBURDEN/INTERBURDEN
DL 25 8200
BCY/OP HR		1,293		2,538		(1,245.1	)		-49.1	%		2,326		2,574		(248.1	)		(0.096	)
CY/OP HR Include Rehandle		2,041		2,538		(497.1	)		-19.6	%		2,911		2,995.8		(85.0	)		(0.028	)
DL 26 8200
BCY/OP HR		1,401		2,568		(1,167.0	)		-45.4	%		2,330		2,605		(274.8	)		(0.106	)
CY/OP HR Include Rehandle		1,644		2,568		(924.4	)		-36.0	%		2,636		3,532.6		(896.8	)		(0.254	)
DL 27 8200
BCY/OP HR		2,022		2,595		(573.2	)		-22.1	%		1,836		2,255		(419.4	)		(0.186	)
CY/OP HR Include Rehandle		2,527		2,595		(67.8	)		-2.6	%		2,321		2,631.7		(310.8	)		(0.118	)
DL 28 8750
BCY/OP HR		1,762	#DIV/0!		#DIV/0!			#DIV/0!				2,126		2,729		(602.7	)		(0.221	)
CY/OP HR Include Rehandle		2,503	#DIV/0!		#DIV/0!			#DIV/0!				2,573		3,111.2		(538.4	)		(0.173	)
Excavator OB-IB
BCY/OP HR		489.1		702.2		(213.1	)		-30.3	%		278.3		356.2		(77.9	)		(0.219	)
CY/OP HR include Rehandle		489.1		702.2		(213.1	)		-30.3	%		278.3		356.2		(77.9	)		(0.219	)
BWE OB-IB
BCY/OP HR	#DIV/0!		#DIV/0!		#DIV/0!			#DIV/0!				669.4		106.5		562.9			5.285
CY/OP HR Include Rehandle	#DIV/0!		#DIV/0!		#DIV/0!			#DIV/0!				669.4		106.5		562.9			5.285
Tractors
		93.3	#DIV/0!		#DIV/0!			#DIV/0!			#DIV/0!		#DIV/0!		#DIV/0!			#DIV/0!
		93.3	#DIV/0!		#DIV/0!			#DIV/0!			#DIV/0!		#DIV/0!		#DIV/0!			#DIV/0!
COAL
Excavator
Tons Loaded/OP HR		353		357		(3.6	)		-1.0	%		2,659		414		2,244.2			5,416

EXHIBIT 14

Form of Monthly Costs Report

See attached.

Exhibit 14 — Page 1

Exhibit 14

Texas Westmoreland Coal Co.
Budget Variance Report Detail
For the Month of
March 2007

Current Month												Year To Date
Actual			Budget			Variance					Description	Actual			Budget			Variance
											TONS
											Lignite:
	187.7			288.1			(100.4	)	-34.8	%	TWCC Tons		864.4			1,062.4			(198.0	)	-18.6	%
	349.8			268.0			81.8		30.5	%	NRG Tons		839.9			605.0			228.9		37.8	%
	537.5			556.1			(18.6	)	-3.3	%	Total Tons — Lignite		1,698.4			1,667.4			31.0		1.9	%
											Stripping BCY
	3,817.6			4,858.0			(1,035.4	)	-21.3	%	8200 Dragline		11,383.9			13,872.0			(2,488.1	)	-17.9	%
	835.5			396.0			439.5		111.0	%	8750 Dragline		2,797.9			1,8829.0			968.9		53.0	%
	761.5			626.0			135.5		21.6	%	Mobile		2,114.0			2,168.0			(54.0	)	-2.5	%
	5,414.6			5,875.0			(460.4	)	-7.8	%	Total Bank Cubic Yards		16,295.8			17,869.0			(1,573.2	)	-8.8	%
											Overburden Stripping:
$	44.2		$	33.9			10.3		30.3	%	Clearing	$	141.7		$	101.7			40.0		39.4	%
	0.0			0.0			0.0		0.0		Relocations		0.0			23.0			(23.0	)	-100.0	%
	0.0			0.0			0.0		0.0		Dozer-Overburden		0.6			0.0			0.6		100.0	%
	0.0			0.0			0.0		0.0		Scraper Overburden		0.0			0.0			0.0		0.0	%
	1,263.2			555.9			707.2		127.2	%	Truck/Loader-O.B.		2,485.2			2,316.6			168.7		7.3	%
	1,263.2			555.9			707.2		127.2	%	Total Mobile-Overburden		2,485.8			2,316.6			169.3		7.3	%
	1,259.9			1,010.6			249.3		24.7	%	Draglines		3,304.9			3,119.6			185.3		5.9	%
	10.1			0.0			10.1		100.0	%	BWE		161.4			191.9			(30.5	)	-15.9	%
	0.0			0.0			0.0		0.0		Contractor		0.0			0.0			0.0		0.0	%
	118.4			113.1			5.2		4.6	%	Pit/Surface Dewater		367.5			329.0			38.4		11.7	%
	71.2			130.3			(59.1	)	-45.4	%	OB Dewatering		335.4			384.1			(48.7	)	-12.7	%
	189.6			243.5			(53.9	)	-22.1	%	Total OB Water Control		702.9			713.1			(10.2	)	-1.4	%
	(151.3	)		0.0			(151.3	)	100.0	%	Deferred Stripping Adj		(114.1	)		0.0			(114.1	)	100.0	%
	2,615.6			1,843.9			771.8		41.9	%	Total Overburden		6,682.7			6,465.9			216.8		3.4	%
											Interburden Stripping
	30.1			54.9			(24.8	)	-45.1	%	Dozers		137.0			220.8			(83.8	)	-38.0	%
	1.1			0.0			1.1		100.0	%	Scaper		1.4			0.0			1.4		100.0	%
	0.1			75.5			(75.4	)	-99.9	%	Truck/Loader		3.6			303.6			(300.0	)	-98.8	%
	31.4			130.4			(99.0	)	-75.9	%	Total Mobile-Interburden		142.0			524.4			(382.4	)	-72.9	%
	602.1			519.4			82.8		15.9	%	Draglines		2,187.8			1,603.7			584.1		36.4	%
	0.0			0.0			0.0		0.0		Water Control		0.0			0.0			0.0		0.0	%
	633.5			649.8			(16.3	)	-2.5	%	Total Interburden		2,329.8			2,128.1			201.7		9.5	%
	3,249.2			2,493.6			755.5		30.3	%	Total Stripping Costs		9,012.5			8,594.1			418.5		4.9	%
											Coal Production
	12.8			0.0			12.8		100.0	%	Testing & Analysis		13.4			0.0			13.4		100.0	%
	1.1			0.0			1.1		100.0	%	Coal Cleaning		8.9			0.0			8.9		100.0	%
	234.5			253.7			(19.2	)	-7.6	%	Loading Lignite		764.2			760.7			3.5		0.5	%
	889.7			751.4			138.3		18.4	%	Hauling Lignite		2,664.4			2,255.2			408.2		18.1	%
	158.9			221.2			(62.3	)	-28.2	%	Crushing & Handling		417.8			560.4			(142.6	)	-25.4	%
	(52.9	)		0.0			(52.9	)	100.0	%	Coal Stockpile: Def. Adj		(41.2	)		0.0			(41.2	)	100.0	%
	1,244.1			1,226.3			17.8		1.5	%	Total Coal Production		3,827.5			3,577.2			250.3		7.0	%
	585.4			435.0			150.4		34.6	%	Roads:		1,478.2			1,303.4			174.8		13.4	%
	257.5			172.6			84.9		49.2	%	Production Supv.:		751.5			517.7			233.8		45.2	%
											Engineering:
	141.7			150.6			(8.9	)	-5.9	%	Mine Planning		395.9			455.6			(57.7	)	-13.1	%
	79.6			142.1			(62.5	)	-44.0	%	Civil & Environ. Eng.		349.9			453.1			(103.2	)	-22.8	%
	221.4			292.8			(71.4	)	-24.4	%	Total Engineering		745.8			908.7			(162.9	)	-17.9	%
											Current Reclamation:
	0.0			0.0			0.0		0.0	%	Engineering		0.5			0.0			0.5		100.0	%
	207.0			340.1			(133.1	)	-39.1	%	Regrade		503.0			1,080.0			(577.0	)	-53.4	%
	0.0			(152.9	)		152.9		-100.0	%	Recl. Arrearage Cr.		0.0			(458.7	)		458.7		-100.0	%
	13.4			0.0			13.4		100.0	%	Topsoiling		16.3			0.0			16.3		100.0	%
	22.0			95.4			(73.4	)	-76.9	%	Revegetation		49.1			302.1			(253.0	)	-83.7	%
	4.4			24.2			(19.8	)	-81.6	%	Pond Treatment		31.5			76.3			(44.7	)	-58.7	%
	41.6			29.3			12.3		42.1	%	Civil-Desilt Ponds/Div		43.2			68.3			(25.1	)	-36.8	%
	58.9			66.5			(7.6	)	-11.4	%	Sediment Control		59.8			121.0			(61.2	)	-50.6	%
	105.0			120.0			(15.0	)	-12.5	%	Total Erosion Control		134.4			265.5			(131.1	)	-49.4	%

Page 1 of 2

Texas Westmoreland Coal Co.
Budget Variance Report Detail
For the Month of
March 2007

Current Month											Year To Date
Actual			Budget		Variance					Description	Actual			Budget					Variance
	23.4			17.1		6.3		36.7	%	Resource Monitoring		88.0				48.4		39.6		81.7	%
	10.6			0.0		10.6		100.0	%	Well Monitoring		19.5				0.0		19.5		100.0	%
	9.2			40.1		(30.9	)	-77.1	%	HazMat Monitoring		10.8				100.2		(89.4	)	-89.2	%
	43.2			57.3		(14.1	)	-24.6	%	Total Compl. Monitoring		118.4				148.7		(30.3	)	-20.4	%
	11.0			35.4		(24.4	)	-68.9	%	Permint/Bonding		0.4				75.2		(74.8	)	-99.4	%
	401.6			495.2		(93.6	)	-18.9	%	Total Current Recl.		822.2				1,412.8		(590.7	)	-41.8	%
	231.3			172.0		59.3		34.5	%	Post Mine Accretion		693.8				515.9		177.8		34.5	%
										DD&A
	69.5			147.0		(77.5	)	-52.7	%	Amortization		219.8				462.8		(243.0	)	-52.5	%
	41.7			34.8		6.9		19.7	%	Depletion		181.7				175.4		5.3		3.0	%
	388.7			298.4		90.3		30.3	%	ARO Depletion		1,272.8				1,003.9		268.9		26.8	%
	166.6			83.6		83.0		99.4	%	Depreciation		521.2				269.4		251.8		93.5	%
	666.5			563.8		102.8		18.2	%	Total DD&A		2,195.5				1,912.4		283.1		14.8	%
										Safety Administration
	27.6			21.2		6.4		30.4	%	Safety Administration		73.8				90.5		(16.7	)	-18.5	%
	1.9			27.9		(26.0	)	-93.3	%	Training/Inspection		79.3				71.2		8.1		11.4	%
	101.6			98.1		3.5		3.5	%	Safety Awards		105.3				108.8		(3.5	)	-3.2	%
	131.1			147.1		(16.1	)	-10.9	%	Total Safety Admin.		258.4				270.6		(12.1	)	-4.5	%
	20.3			19.0		1.3		6.9	%	Purchasing		45.4				57.0		(11.5	)	-20.2	%
	46.9			94.2		(47.3	)	-50.2	%	Warehousing		264.6				277.1		(12.5	)	-4.5	%
										Facilities:
	75.6			100.8		(25.2	)	-25.0	%	Buildings		241.9				298.6		(56.7	)	-19.0	%
	14.0			17.1		(3.1	)	-18.3	%	Security		41.9				55.1		(13.2	)	-24.0	%
	89.6			117.9		(28.4	)	-24.0	%	Total Facilities		283.8				353.6		(69.9	)	-19.8	%
										Lands:
	33.0			28.5		4.5		15.7	%	Land Department		86.6				88.2		(1.5	)	-1.8	%
	0.6			0.6		(0.0	)	-0.1	%	Lease Rentals/Mineral		2.1				2.1		(0.0	)	0.0	%
	0.0			0.0		0.0		0.0	%	Lease Rentals/Surface		6.7				10.0		(3.3	)	-32.6	%
	110.7			110.7		(0.0	)	0.0	%	Adv. Roy-Non Recoup.		314.4				314.4		0.0		0.0	%
	0.0			0.0		0.0		0.0	%	Right Of Way Costs		0.5				0.5		0.0		0.0	%
	0.1			0.0		0.1		100.0	%	Filing Fees		0.1				0.0		0.1		100.0	%
	144.4			139.9		4.5		3.3	%	Total Lands		420.4				415.1		(4.7	)	-1.1	%
										Royalty/Prod Tax Costs:
	53.7			44.2		9.5		21.6	%	Federal Reclamation		169.8				148.7		21.1		14.2	%
	171.5			200.0		(28.5	)	-14.3	%	Sales Tax		295.8				600.0		(304.2	)	-50.7	%
	225.2			244.2		(19.0	)	-7.8	%	Total Production Taxes		465.6				748.7		(283.1	)	-37.8	%
	105.3			143.9		(38.6	)	-26.8	%	Production Royalty		386.7				417.0		(30.3	)	-7.3	%
	(66.5	)		0.0		(66.5	)	100.0	%	Recoupment Cr.		(66.5	)			0.0		(66.5	)	100.0	%
	108.2			55.1		53.1		96.4	%	Overriding Royalty		340.8				286.5		54.3		19.0	%
	147.0			199.0		(51.9	)	-26.1	%	Total Royalties		661.0				703.5		(42.5	)	-6.0	%
	27.5			37.5		(10.0	)	-26.6	%	Property Taxes		110.0				112.5		(2.5	)	-2.2	%
$	399.8		$	480.7		(80.9	)	-16.8	%	Total Royalty/Prod Tax	$	1,236.7			$	1,564.7		(328.0	)	-21.0	%
	20.8			42.5		(21.7	)	-51.1	%	Human Resources:		114.0				128.2		(14.2	)	-11.1	%
	31.2			140.0		(108.7	)	-77.7	%	Information Technology		158.6				299.1		(140.5	)	-47.0	%
	178.3			192.3		(13.9	)	-7.2	%	Business:		550.1				559.2		(9.2	)	-1.6	%
	397.2			360.3		36.9		10.2	%	Executive:		495.0				498.8		(3.7	)	-0.8	%
	673.8			593.6		80.2		13.5	%	Equipment Costs:		1,902.1				1,780.9		121.2		6.8	%
$	8,990.3		$	8,178.6	$	811.7		9.9	%	Grand Total	$	25,246.0			$	24,946.5	$	299.5		1.2	%
										UNIT COSTS
$	16.73		$	14.71	$	2.02		13.7	%	Cost per Ton — Lignite	$	14.86			$	14.96		($0.10	)	-0.6	%
$	1.28		$	1.10	$	0.17		15.8	%	Cost per MMBTU — Lignite	$	1.12			$	1.12	$	0.00		0.3	%
$	0.60		$	0.42	$	0.18		41.4	%	Stripping Cost per BCY	$	0.55			$	0.48	$	0.07		15.0	%
$	0.40		$	0.29	$	0.11		37.3	%	Dragline Stripping $/BCY	$	0.39			$	0.30	$	0.09		28.7	%
$	1.71		$	1.10	$	0.62		56.3	%	Mobile Stripping $/BCY	$	1.32			$	1.40		($0.08	)	-5.7	%

Page 2 of 2

Texas Westmoreland Coal Co.
Jewett Mine
Performance Summary
March 2007

	Month									Year To Date
	Actual			0+12 Fcst			Budget			Actual			0+12 Fcst			Budget
QUANTITIES:
Sales Tons		537.5			556.1			556.1			1698.4			1667.4			1667.4
8200 Dragline Bcy		3,817.6			4,853.0			4,853.0			11,383.9			13,872.0			13,872.0
8750 Dragline Stripping		835.5			396.0			396.0			2,797.9			1,829.0			1,829.0
Mobile Stripping		761.5			626.0			626.0			2,114.0			2,168.0			2,168.0
Total Bcy		5,414.6			5,875.0			5,875.0			16,295.8			17,869.0			17,869.0
UNIT COSTS:
Overburden Stripping:							$/Bcy
Clearing	$	0.008		$	0.006		$	0.006		$	0.009		$	0.006		$	0.006
Relocations
Dozer-Overburden	$	0.000		$	0.000		$	0.000		$	0.000		$	0.000		$	0.000
Scraper-Overburden	$	0.000		$	0.000		$	0.000		$	0.000		$	0.000		$	0.000
Truck/Loader-O.B.	$	1.659		$	0.888		$	0.888		$	1.176		$	1.069		$	1.069
Total Mobile-Overburden	$	1.659		$	0.888		$	0.888		$	1.176		$	1.069		$	1.069
Draglines	$	0.271		$	0.193		$	0.193		$	0.233		$	0.199		$	0.199
Pit/Surface Dewater	$	0.022		$	0.019		$	0.019		$	0.023		$	0.018		$	0.018
OB Dewatering	$	0.013		$	0.022		$	0.022		$	0.021		$	0.021		$	0.021
Total OB Water Control	$	0.035		$	0.041		$	0.041		$	0.043		$	0.040		$	0.040
Deferred Stripping Adj	$	(0.028	)	$	0.000		$	0.000		$	(0.007	)	$	0.000		$	0.000
Total Overburden	$	0.483		$	0.314		$	0.314		$	0.410		$	0.362		$	0.362
Interburden Stripping:
Dozers	$	0.040		$	0.088		$	0.088		$	0.065		$	0.102		$	0.102
Scraper	$	0.001		$	0.000		$	0.000		$	0.001		$	0.000		$	0.000
Truck/Loader	$	0.000		$	0.121		$	0.121		$	0.002		$	0.140		$	0.140
Total Mobile-Interburden	$	0.041		$	0.208		$	0.208		$	0.067		$	0.242		$	0.242
Draglines	$	0.129		$	0.099		$	0.099		$	0.154		$	0.102		$	0.102
Water Control	$	0.000		$	0.000		$	0.000		$	0.000		$	0.000		$	0.000
Total Interbuden	$	0.117		$	0.111		$	0.111		$	0.143		$	0.119		$	0.119
Total Stripping Costs	$	0.600		$	0.424		$	0.424		$	0.553		$	0.481		$	0.481
							$/Ton
Coal Production:
Testing & Analysis	$	0.024		$	0.000		$	0.000		$	0.008		$	0.000		$	0.000
Coal Cleaning	$	0.002		$	0.000		$	0.000		$	0.005		$	0.000		$	0.000
Loading Lignite	$	0.436		$	0.456		$	0.456		$	0.450		$	0.456		$	0.456
Hauling Lignite	$	1.655		$	1.351		$	1.351		$	1.569		$	1.353		$	1.353
Crushing & Handling	$	0.296		$	0.398		$	0.398		$	0.246		$	0.336		$	0.336
Coal Stockpile: Def. Adj.	$	(0.098	)	$	0.000		$	0.000		$	(0.024	)	$	0.000		$	0.000
Total Coal Production	$	2.315		$	2.205		$	2.205		$	2.254		$	2.145		$	2.145
Roads:	$	1.089		$	0.782		$	0.782		$	0.870		$	0.782		$	0.782
Production Supervision:	$	0.479		$	0.310		$	0.310		$	0.442		$	0.310		$	0.310
Engineering:
Mine Planning	$	0.264		$	0.271		$	0.271		$	0.233		$	0.273		$	0.273
Civil & Environmental Eng.	$	0.148		$	0.256		$	0.256		$	0.206		$	0.272		$	0.272
Total Engineering	$	0.412		$	0.526		$	0.526		$	0.439		$	0.545		$	0.545
Current Reclamation:
Engineering	$	0.000		$	0.000		$	0.000		$	0.000		$	0.000		$	0.000
Regrade	$	0.385		$	0.612		$	0.612		$	0.296		$	0.648		$	0.648
Reclamation Arrearage Cr.	$	0.000		$	(0.275	)	$	(0.275	)	$	0.000		$	(0.275	)	$	(0.275	)
Topsoiling	$	0.025		$	0.000		$	0.000		$	0.010		$	0.000		$	0.000
Revegetation	$	0.041		$	0.172		$	0.172		$	0.029		$	0.181		$	0.181

Page 1 of 2

Texas Westmoreland Coal Co.
Jewett Mine
Performance Summary
March 2007

	Month							Year To Date
	Actual			0+12 Fcst		Budget		Actual			0+12 Fcst		Budget
Erosion Control	$	0.195		$	0.216	$	0.216	$	0.079		$	0.159	$	0.159
Compl. Monitoring	$	0.080		$	0.103	$	0.103	$	0.070		$	0.089	$	0.089
Permint/Bonding	$	0.020		$	0.064	$	0.064	$	0.000		$	0.045	$	0.045
Total Current Recl.	$	0.747		$	0.891	$	0.891	$	0.484		$	0.847	$	0.847
Post Mine Accretion:	$	0.430		$	0.309	$	0.309	$	0.408		$	0.309	$	0.309
DD&A:
Amortization	$	0.129		$	0.264	$	0.264	$	0.129		$	0.278	$	0.278
Depletion	$	0.078		$	0.063	$	0.063	$	0.107		$	0.106	$	0.106
ARO Depletion	$	0.723		$	0.537	$	0.537	$	0.749		$	0.602	$	0.602
Depreciation	$	0.310		$	0.150	$	0.150	$	0.307		$	0.162	$	0.162
Total DD&A	$	1.240		$	1.014	$	1.014	$	1.293		$	1.147	$	1.147
Safety Administration:
Safety Administration	$	0.051		$	0.038	$	0.038	$	0.043		$	0.054	$	0.054
Training/Inspection	$	0.003		$	0.050	$	0.050	$	0.047		$	0.043	$	0.043
Safety Awards	$	0.189		$	0.176	$	0.176	$	0.062		$	0.065	$	0.065
Total Safety Admin.	$	0.244		$	0.265	$	0.265	$	0.152		$	0.162	$	0.162
Purchasing:	$	0.038		$	0.034	$	0.034	$	0.027		$	0.034	$	0.034
Warehousing:	$	0.087		$	0.169	$	0.169	$	0.156		$	0.166	$	0.166
Facilities:
Building	$	0.141		$	0.181	$	0.181	$	0.142		$	0.179	$	0.179
Security	$	0.026		$	0.031	$	0.031	$	0.025		$	0.033	$	0.033
Total Facilities	$	0.167		$	0.212	$	0.212	$	0.167		$	0.212	$	0.212
Lands:
Land Department	$	0.061		$	0.051	$	0.051	$	0.051		$	0.053	$	0.053
Lease Rentals/Mineral	$	0.001		$	0.001	$	0.001	$	0.001		$	0.001	$	0.001
Lease Rentals/Surface	$	0.000		$	0.000	$	0.000	$	0.004		$	0.006	$	0.006
Adv. Roy-Non Recoup.	$	0.206		$	0.199	$	0.199	$	0.185		$	0.189	$	0.189
Right Of Way Costs	$	0.000		$	0.000	$	0.000	$	0.000		$	0.000	$	0.000
Filing Fees	$	0.000		$	0.000	$	0.000	$	0.000		$	0.000	$	0.000
Total Lands	$	0.269		$	0.252	$	0.252	$	0.242		$	0.249	$	0.249
Royalty/Prod Tax Costs:
Federal Reclamation	$	0.100		$	0.079	$	0.079	$	0.100		$	0.089	$	0.089
Sales Taxes	$	0.319		$	0.360	$	0.360	$	0.174		$	0.360	$	0.360
Total Production Taxes	$	0.419		$	0.439	$	0.439	$	0.274		$	0.449	$	0.449
Production Royalty	$	0.196		$	0.259	$	0.259	$	0.228		$	0.250	$	0.250
Recoupment Cr.	$	(0.124	)	$	0.000	$	0.000	$	(0.039	)	$	0.000	$	0.000
Overriding Royalty	$	0.201		$	0.099	$	0.099	$	0.201		$	0.172	$	0.172
Total Royalties	$	0.274		$	0.358	$	0.358	$	0.389		$	0.422	$	0.422
Property Taxes	$	0.051		$	0.067	$	0.067	$	0.065		$	0.067	$	0.067
Total Roy/Prod Tax Costs	$	0.744		$	0.864	$	0.864	$	0.728		$	0.938	$	0.938
Human Resources:	$	0.039		$	0.076	$	0.076	$	0.067		$	0.077	$	0.077
Information Technology:	$	0.058		$	0.252	$	0.252	$	0.093		$	0.179	$	0.179
Business:	$	0.332		$	0.346	$	0.346	$	0.324		$	0.335	$	0.335
Executive:	$	0.739		$	0.648	$	0.648	$	0.291		$	0.299	$	0.299
Equipment Costs:	$	1.254		$	1.068	$	1.068	$	1.120		$	1.068	$	1.068
Total Cost/Ton	$	16.728		$	14.708	$	14.708	$	14.865		$	14.961	$	14.961

Page 2 of 2

EXHIBIT 15

Form of Monthly and Quarterly Variance Report

See attached.

Exhibit 15 — Page 1

Westmoreland Coal Company	Page – 1
Cost By Sub by Cat Code
As of 31

Exhibit 15

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
25100 Clearing
Contract Labor		44,168.38		33,885.00		10,283.38		.30		141,721.88		101,681.00		40,040.88		.39
Total Clearing		44,168.38		33,885.00		10,283.38		.30		141,721.88		101,681.00		40,040.88		.39
25200 Relocations
Contract Labor												23,000.00		23,000.00-		1.00-
Total Relocations												23,000.00		23,000.00-		1.00-
25300 Mobile
Total Mobile
25310 Dozers
Hourly Labor (Fringe & Tax)										608.41				608.41
Total Dozers										608.41				608.41
25320 Scrapers
Total Scrapers
25330 TK/Leader
Hourly Labor (Fringe & Tax)		262,709.07		148,069.00		114,640.07		.77		466,538.25		603,779.00		137,240.75-		.23-
Contract Labor		211,548.61		24,762.00		186,786.61		7.54		273,950.56		100,970.00		172,980.56		1.71
Equipment w/Maint Labor, F&T		788,892.81		383,092.00		405,800.81		1.06		1,597,136.96		1,530,889.00		66,247.96		.04
Equipment Rental/Lease										147,611.38		80,947.00		66,664.38		.82
Total TK/Leader		1,263,150.49		55,923.00		707,227.49		1.27		2,485,237.15		2,316,585.00		168,652.15		.07
25400 Draglines
Hourly Labor (Fringe & Tax)		226,262.20		172,948.00		53,314.20		.31		634,446.24		529,680.00		104,755.24		.20
Contract Labor		1,404.38		10,890.00		9,485.62-		.87-		1,715.62		12,622.00		10,906.38-		.86-
Equipment w/Maint Labor, F&T		1,032,238.62		824,362.00		207,876.62		.25		2,664,943.68		2,570,87_.00		94,136.68		.04
Equipment Rental/Lease										3,784.56				3,784.56
Materials and Supplies				2,360.00		2,360.00-		1.00-				6,490.00		6,490.00-		1.00-
Total Draglines		1,259,905.20		1,010,560.00		249,345.20		.25		3,304,890.10		3,119,599.00		185,291.10		.06
25500 Bucketwheel- OB
Hourly Labor (Fringe & Tax)		1,006.72				1,006.72				53,206.33		57,880.00		4,673.67-		.08-
Contract Labor										26.70				26.70
Equipment w/Maint Labor, F&T		8,904.35				8,904.35				107,979.68		134,053.00		26,073.32-		.19-
Materials and Supplies		209.08				209.08				209.08				209.08
Total Bucketwheel- OB		10,120.15				10,120.15				161,421.79		191,933.00		30,511.21-		.16-
25600 Contractor- OB
Total Contractor- OB

Westmoreland Coal Company	Page – 2
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
25700 Drainage / water control OB
Total Drainage / water control OB
25710 Pit/Surface
Hourly Labor (Fringe & Tax)		85,052.43		79,261.00		5,791.43		.07		234,836.88		230,112.00		4,724.88		.02
Contract Labor		8,576.82		9,807.00		1,230.18-		.13-		25,559.19		28,472.00		2,912.81-		.10-
Equipment w/Maint Labor, F&T		23,482.28		18,680.00		4,802.28		.26		93,343.82		54,232.00		39,111.82		.72
Safety Supplies										7.74				7.74
Materials and Supplies		1,246.47		5,400.00		4,153.53-		.77-		13,708.14		16,200.00		2,491.86-		.15-
Total Pit/Surface		118,358.00		113,148.00		5,210.00		.05		367,455.77		329,016.00		38,439.77		.12
25720 Overburden
Hourly Labor (Fringe & Tax)		15,913.62		13,836.00		2,077.62		.15		42,474.46		41,508.00		966.46		.02
Contact labor		27,406.96		78,000.00		50,593.04-		.65-		173,281.06		233,750.00		50,468.94-		.26-
Equipment w/Maint Labor, F&T		3,112.02				3,112.02				6,603.89				6,603.89
Materials and supplies		17,622.46		30,500.00		12,877.54-		.42-		83,143.14		84,850.00		1,706.86-		.02-
Electricity		7,155.16		8,000.00		8.44.84-		.11-		29,924.14		24,000.00		5,924.14		.25
Total Overburden		71,210.22		130,336.00		59,125.78-		.45-		335,426.69		384,108.00		48,681.31-		.13-
25800 OB Drill & BI
Total OB Drill&BI
30110 Dozers- IB
Hourly Labor (Fringe & Tax)		8,479.73		14,624.00		6,144.27-		.42-		31,134.92		59,632.00		28,497.08-		.48-
Contract Labor		3,795.15		2,446.00		1,349.15		.55		10,359.42		9,973.00		386.42		.04
Equipment w/Maint Labor, F&T		17,874.41		37,836.00		19,961.59-		.53-		89,947.08		151,199.00		61,251.92-		.41-
Equipment Rental/Lease										5,542.11				5,542.11
Total Dozers- IB		30,149.29		54,905.00		24,756.71-		.45-		136,983.53		220,804.00		83,820.47-		.38-
30128 Scrapers- IB
Equipment w/Maint Labor, F&T		1,125.90				1,125.90				1,405.87				1,405.87
Total Scrapers- IB		1,125.90				1,125.90				1,405.87				1,405.87
30130 Track/Loader- IB
Hourly Labor (Fringe & Tax)		456.30		20,108.00		19,651.70-		.98-		1,695.32		81,996.00		80,300.68-		.98-
Contract Labor		107.27		3,363.00		3,255.73-		.97-		107.27		13,712.00		13,604.73-		.99-
Equipment w/Maint Labor, F&T		467.96-		52,025.00		52,492.96-		1.01-		1,767.06		207,899.00		206,131.94-		.99-
Equipment Rental/Lease										55.20				55.20
Total Truck / Loader- IB		95.61		75,496.00		75,400.39-		1.00-		3,624.85		303,607.00		299,982.15-		.99-

Westmoreland Coal Company	Page – 3
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
30209 Draglines- IB
Hourly Labor (Fringe & Tax)		95,038.55		89,094.00		5,944.55		.07		334,051.27		272,866.00		61,185.27		.22
Contract Labor				5,610.00		5,610.00-		1.00-		316.13		6,503.00		6,186.87-		.95-
Equipment w/Maint Labor, F&T		307,106.91		424,672.00		82,434.91		.19		1,853,449.45		1,324,355.00		529,094.45		.40
Total Draglines- IB		602,145.46		519,376.00		82,769.46		.16		2,187,816.85		1,603,724.00		584,092.85		.36
30409 Draglines
Total Draglines
35100 Test&Analy
Hourly Labor (Fringe & Tax)		585.28				585.28				841.34				841.34
Contract Labor		12,105.08				12,105.08				12,426.98				12,426.98
Materials and Supplies		115.20				115.20				115.20				115.20
Total Test&Analy		12,805.56				12,805.56				13,383.52				13,383.52
35200 Coal Cleaning
Hourly Labor (Fringe & Tax)										3,076.44				3,076.44
Equipment w/Maint Labor, F&T		1,093.94				1,093.94				5,838.25				5,838.25
Total Coal Cleaning		1,093.94				1,093.94				8,914.69				8,914.69
35400 Loading
Hourly Labor (Fringe & Tax)		70,742.50		67,237.00		3,505.50		.05		215,316.82		201,896.00		13,420.82		.07
Contract Labor		1,797.22		4,099.00		2,301.78-		.56-		4,278.72		12,309.00		8,030.28-		.65-
Equipment w/Maint Labor, F&T		161,914.50		182,351.00		20,436.50-		.11-		544,574.40		546,448.00		1,873.60-		0.00
Total Loading		234,454.22		253,637.00		19,232.78-		.08-		764,169.94		760,653.00		3,516.94		0.00
35500 Haulage
Hourly Labor (Fringe & Tax)		68,527.53		169,171.00		100,643,47-		.59-		203,039.80		508,037.00		304,997.20-		.50-
Contract Labor		161,528.45		32,471.00		129,057.45		3.97		355,275.69		97,501.00		257,774.69		2.64
Equipment w/Maint Labor, F&T		659,640.82		549,715.00		109,925.82		.20		2,104,098.00		1,650,632.00		453,466.00		.27
Equipment Rental/Lease										1,963.49				1,963.49
Total Haulage		889,696.80		751,357.00		138,339.80		.18		2,664,376.98		2,256,170.00		408,206.98		.18
35600 Crush & Hand
Hourly Labor (Fringe & Tax)		77,334.65		74,172.00		3,162.65		.04		220,911.33		218,273.00		2,638.33		.01
Contract Labor		1,210.74		51,125.00		49,914.26-		.98-		7,610.38		54,373.00		46,762.62-		.86-
Equipment w/Maint Labor, F&T		80,395.62		94,441.00		14,045.38-		.15-		189,173.89		283,254.00		94,080.11-		.33-
Equipment Rental/Lease										105.50				105.50
Materials and Supplies				1,495.00		1,495.00-		1.00-				4,485.00		4,485.00-		1.00-

Westmoreland Coal Company	Page – 4
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
Total Crush & Hand		158,941.01		221,233.00		62,291.99-		.28-		417,801.10		560,385.00		142,583.90-		.25-
40000 Roads
Hourly Labor (Fringe & Tax)		173,544.68		146,664.00		26,880.68		.18		449,223.51		440,389.00		8,834.51		.02
Contract Labor		18,932.52		27,651.00		8,718.48-		.32-		120,359.18		81,384.00		38,975.18		.48
Equipment w/Maint Labor, F&T		375,700.17		240,671.00		135,029.17		.56		835,609.36		722,665.00		112,944.36		.16
Equipment Rental/Lease		5,050.00-				5,050.00-				11,163.02				11,163.02
Materials and Supplies		17,464.29		18,105.00		640.71-		.04-		48,735.39		53,115.00		4,379.61-		.08-
Electricity		4,821.53		1,950.00		2,871.53		1.47		13,323.58		5,850.00		7,473.58		1.28
Freight										175.04-				175.04-
Total Roads		585,413.19		435,041.00		150,372.19		.35		1,478,239.00		1,303,403.00		174,836.00		.13
45000 Prod Superv
Hourly Labor (Fringe & Tax)		122,258.29		28,611.00		93,647.29		3.27		228,770.44		85,833.00		142,937.44		1.67
Supervisor Labor (Fringe & Tax)		115,423.27		127,860.00		12,436.73-		.10-		361,290.66		383,580.00		22,289.34-		.06-
Contract Labor		1,955.78		7,500.00		5,544.22-		.74-		61,347.55		22,500.00		38,847.55		1.73
Equipment w/Maint Labor, F&T		7,314.90				7,314.90				71,447.30				71,447.30
Equipment Rental/Lease				1,500.00		1,500.00-		1.00-				4,500.00		4,500.00-		1.00-
Safety Supplies		3,347.62				3,347.62				8,902.74				8,902.74
Materials and Supplies		5,047.34		4,900.00		147.34		.03		14,285.61		14,700.00		414.39-		.03-
Electricity		1,916.06		1,520.00		796.06		.71		4,560.59		3,360.00		1,200.59		.36
Other		239.47		1,066.00		826.53-		.78-		892.54		3,198.00		2,305.46-		.72-
Total Prod Superv		257,502.73		172,557.00		84,945.73		.49		751,497.43		517,671.00		233,826.43		.45
50100 Mine Plan
Hourly Labor (Fringe & Tax)		20,700.59		23,423.00		2,722.41-		.12-		54,216.58		70,269.00		16,052.42-		.23-
Supervisor Labor (Fringe & Tax)		90,168.93		94,404.00		4,235.07-		.04-		263,758.32		283,212.00		19,453.68-		.07-
Contract Labor		28,320.08		29,258.00		937.92-		.03-		70,587.73		96,974.00		26,386.27-		.27-
Materials and Supplies		357.57		1,460.00		1,102.43-		.76-		2,436.40		3,060.00		623.60-		.20-
Other		2,195.04		2,100.00		95.04		.05		4,948.92		2,100.00		2,848.92		1.36
Total Mine Plan		141,742.21		150,645.00		8,902.79-		.06-		395,947.95		455,615.00		59,667.05-		.13-
50200 Civil Engineering
Supervisor Labor (Fringe & Tax)		4,271.13		68,673.00		64,400.87-		.94-		154,722.22		206,016.00		51,293.78-		.25-
Contract Labor		27,697.89		12,629.00		15,068.89		1.19		42,603.02		59,611.00		17,007.98-		.29-
Materials and Supplies		741.70		615.00		126.70		.21		759.32		6,845.00		6,085.68-		.89-
Legal		2,321.94		5,500.00		3,178.06-		.58-		17,101.74		16,500.00		601.74		.04
Other		44,575.73		54,700.00		10,124.27-		.19-		134,679.13		164,100.00		29,420.87-		.18-

Westmoreland Coal Company	Page – 5
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
Total Civil Engineering		79,608.39		142,116.00		62,507.61-		.44-		349,865.43		453,072.00		103,206.57-		.23-
53100 Engineering
Contract Labor										475.00				475.00
Total Engineering										475.00				475.00
53200 Regrading
Hourly Labor (Fringe & Tax)		41,931.24		45,338.00		3,406.76-		.05-		91,863.33		131,626.00		39,762.67-		.30-
Contract Labor		43,281.20		85,722.00		42,440.80-		.50-		102,777.29		302,272.00		199,494.71-		.66-
Equipment w/Maint Labor, F&T		121,790.84		100,277.00		21,513.84		.21		244,866.34		291,127.00		46,260.66-		.16-
Equipment Rental/Lease				48,151.00		48,151.00-		1.00-		63,383.50		139,793.00		76,409.50-		.55-
Safety Supplies										80.07				80.07
Materials and Supplies				60,588.00		60,588.00-		1.00-		27.24		215,220.00		215,192.76-		1.00-
Total Regrading		207,003.28		340,076.00		133,072.72-		.39-		502,997.77		1,080,038.00		577,040.23-		.53-
55210 Topsoiling
Hourly Labor (Fringe & Tax)		5,419.32				5,419.32				6,963.77				6,963.77
Contract Labor										316.13				316.13
Equipment w/Maint Labor, F&T		7,992.38				7,992.38				9,068.09				9,068.09
Total Topsoiling		13,411.70				13,411.70				16,347.99				16,347.99
55300 Revegetation
Contract Labor		15,480.99		71,535.00		56,054.01-		.78-		38,324.48		226,575.00		188,250.52-		.83-
Materials and Supplies		6,504.98		23,845.00		17,340.02-		.73-		10,769.14		75,525.00		64,755.86-		.86-
Total Revegetation		21,985.97		95,380.00		73,394.03-		.77-		49,093.62		302,100.30		253,006.38-		.84-
55400 Erosion control
Total Erosion control
55410 Ero ctrl- Pond Treat
Hourly Labor (Fringe & Tax)										153.02				153.02
Contract Labor		4,401.90		2,800.00		1,601.90		.57		8,607.99		8,400.00		207.99		.02
Materials and Supplies				21,384.00		21,384.00-		1.00-		22,758.95		67,860.00		45,101.05-		.66-
Total Ero ctrl- Pond Treat		4,401.90		24,184.00		19,782.10-		.82-		31,519.96		76,260.00		44,740.04-		.59-
55420 Civil- Desilt Ponds
Contract Labor		41,629.74		23,820.00		17,809.74		.75		43,151.73		51,820.00		8,668.27-		.17-
Materials and Supplies				3,480.00		3,480.00-		1.00-				10,440.00		10,440.00-		1.00-
Electricity				2,000.00		2,000.00-		1.00-				6,000.00		6,000.00-		1.00-
Total Civil- Desilt Ponds		41,629.74		29,300.00		12,329.74		.42		43,151.73		68,260.00		25,108.27-		.37-

Westmoreland Coal Company	Page – 6
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
55430 Sediment Control- Base Recl
Contract Labor		58,932.86		29,000.00		29,932.86		1.03		59,531.24		83,500.00		23,968.76-		.29-
Materials and Supplies				37,500.00		37,500.00-		1.00-		227.55		37,500.00		37,272.45-		.99-
Total Sediment Control- Base Recl		58,932.86		66,500.00		7,567.14-		.11-		59,758.79		121,000.00		61,241.21-		.51-
55501 Resource Monitoring- Base Recl
Hourly Labor (Fringe & Tax)		444.44				444.44				1,041.89				1,041.89
Contract Labor		21,267.57		16,049.00		5,218.57		.33		74,630.15		47,147.00		27,503.15		.58
Materials and Supplies		1,722.83		1,100.00		622.83		.57		11,326.31		1,300.00		10,026.31		7.71
Electricity										1,006.13				1,006.13
Total Resource Monitoring- Base Recl		23,434.84		17,149.00		6,285.84		.37		88,024.48		48,447.00		39,577.48		.82
55502 Well Monitoring- Base Recl
Contract labor		10,576.57				10,576.57				19,543.57				19,543.57
Total Well Monitoring- Base Recl		10,576.57				10,576.57				19,543.57				19,543.57
55503 HazMat Monitoring- Base Recl
Hourly Labor (Fringe & Tax)		294.70				294.70				294.70				294.70
Contract Labor		7,335.18		39,013.00		31,677.82-		.81-		2,911.08		91,947.00		89,035.92-		.97-
Materials and Supplies				1,100.00		1,100.00-		1.00-		2,653.87		8,300.00		5,646.13-		.68-
Legal		1,557.83				1,557.83				4,903.47				4,903.47
Other										50.00				50.00
Total HazMat Monitoring- Base Recl		9,187.71		40,113.00		30,925.29-		.77-		10,813.12		100,247.00		89,433.88-		.89-
55310 Permit/Bonding
Contract Labor		4,557.79		20,925.00		16,367.21-		.78-		7,361.46-		48,725.00		56,086.46-		1.15-
Materials and Supplies				750.00		750.00-		1.00-				2,250.00		2,250.00-		1.00-
Legal		2,750.40		3,750.00		999.60-		.27-		2,750.40		12,250.00		9,499.60-		.78-
Other		3,700.00		10,000.00		6,300.00		.63-		5,040.00		12,000.00		6,960.00-		.58-
Total Permit/Bonding		11,008.19		35,425.00		24,416.81		.69-		428.94		475,225.00		74,796.06-		.99-
55610 Final Pit
Hourly Labor (Fringe & Tax)		15,487.39		123,959.00		108,481.61-		.88-		118,796.75		257,657.00		138,860.25-		.54-
Supervisor Labor (Fringe & Tax)		39,945.62				39,945.62				39,945.62				39,945.62
Contract Labor		89,756.54		47,236.00		42,520.54		.90		188,304.01		100,640.00		87,664.01		.87
Equipment w/Maint Labor, F&T		8,892.74		291,911.00		283,018.26-		.97-		354,039.57		597,417.00		243,377.43-		.41-

Westmoreland Coal Company	Page – 7
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
Equipment Rental/Lease				44,693.00		44,693.00-		1.00-		31,294.51		123,829.00		92,534.49-		.75-
Materials and Supplies		42.66		8,835.00		8,792.34-		1.00-		42.66		27,863.00		27,820.34-		1.00-
Total Final Pit		154,124.95		516,644.00		362,519.05-		.70-		732,423.12		1,107,406.00		374,982.88-		.34-
55620 Facil Remov
Total Facil Remov
55630 Res Monit
Contract Labor		4,098.94				4,098.94				10,148.44				10,148.44
Materials and Supplies		6,485.14-				4,685.14-				42,500.00-				42,500.00-
Total Res Monit		2,386.20-				2,386.20-				32,351.56-				32,351.56-
55640 Engineering
Supervisor Labor (Fringe & Tax)		62,473.85				62,473.85				62,473.85				62,473.85
Contract Labor										20,497.96				20,497.96
Total Engineering		62,473.85				62,473.85				82,953.81				82,953.81
55650 Regrading
Hourly Labor (Fringe & Tax)		1,330.64				1,330.64				3,388.59				3,388.59
Contract Labor		47,920.67				47,920.67				207,339.17				207,339.17
Materials and Supplies		10,008.61				10,008.61				44,274.35				44,274.35
Total Regrading		59,259.92				59,259.92				255,002.11				255,002.11
55660 Revegetation
Contract Labor		48,978.88		162,388.00		113,409.12-		.70-		112,191.30		342,116.00		229,924.20-		.67-
Materials and Supplies		30,355.07		158,120.00		127,764.93-		.81-		31,816.48		188,905.00		157,688.52-		.83-
Other										500.00				500.00
Total Revegetation		79,333.95		320,508.00		241,174.05-		.75-		144,508.28		531,021.00		386,512.72-		.73-
55670 Permit Bonding
Contract Labor		815.00				815.00				11,049.86				11,049.86
Total Permit/Bonding		815.00				815.00				11,049.86				11,049.86
55700 Accretion
Total Accretion
56100 Final Pit
Total Final Pit
56300 D, D, & A
Amortization		69,546.16		147,006.00		77,459.84-		.53-		219,768.17		462,767.00		242,998.83-		.53-
Depletion		41,671.07		34,800.00		6,871.07		.20		181,734.41		176,400.00		5,334.41		.03

Westmoreland Coal Company	Page – 8
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
ARO Depletion		388,724.45		298,394.00		90,330.45		.30		1,272,753.24		1,003,873.00		268,880.24		.27
Total D, D, & A		499,941.68		480,200.00		19,741.68		.04		1,674,255.82		1,643,040.00		31,215.82		.02
60058 Safety Admin
Supervisor Labor (Fringe & Tax)		19,920.51		17,088.00		2,832.51		.17		56,580.81		51,264.00		5,316.81		.10
Contract Labor		1,734.62		1,825.00		90.38-		.05-		2,635.28		10,075.00		7,439.72-		.74-
Safety Supplies		2,910.75		1,950.00		960.75		.49		5,368.74		17,800.00		12,431.26-		.70-
Materials and Supplies		196.49		100.00		96.49		.96		3,807.99		7,850.00		4,042.01-		.51-
Other		2,852.95		212.00		2,640.95		12.46		5,419.94		3,556.00		1,863.94		.52
Total Safety Admin		27,615.32		21,175.00		6,440.32		.30		73,812.76		90,545.00		16,732.24-		.18-
69100 Training/Insp
Hourly Labor (Fringe & Tax)		19,839.79		72,556.00		2,716.21-		.12-		62,994.14		65,504.00		2,909.86-		.04-
Contract Labor		19,325.27-				19,325.27-				14,346.06				14,346.06
Materials and Supplies										631.05				631.05
Other		1,350.00		5,295.00		3,945.90-		.75-		1,350.00		5,295.00		3,945.00-		.75-
Total Training/Insp		1,864.52		27,851.00		25,986.48-		.93-		79,321.25		71,199.00		8,122.25		.11
60200 Awards
Other		101,589.56		98,110.00		3,479.56		.04		105,313.24		108,830.00		3,516.76-		.03-
Total Awards		101,589.56		98,110.00		3,479.56		.04		105,313.24		108,830.00		3,516.76-		.03-
65100 Purchasing
Supervisor Labor (Fringe & Tax)		23,970.24		20,102.00		3,868.24		.19		65,898.61		60,306.00		5,592.61		.09
Contract Labor				1,500.00		1,500.00-		1.00-				4,500.00		4,500.00-		1.00-
Materials and Supplies				300.00		300.00-		1.00-		205.92		1,100.00		894.03-		.81-
Discounts		3,667.39-		3,000.00-		667.39-		.22		13,266.99-		9,000.00-		4,286.99-		.48
Price Adjustments		179.80-				179.80-				7,621.34-				7,621.34-
Other		140.65		50.00		90.65		1.81		241.01		50.00		191.01		3.82
Total Purchasing		20,263.70		18,952.00		1,311.70		.07		45,437.21		56,956.00		11,518.79-		.20-
65200 Warehousing
Hourly Labor (Fringe & Tax)		49,540.15		47,151.00		2,389.15		.05		146,063.91		141,453.00		4,610.91		.03
Supervisor Labor (Fringe & Tax)		12,104.52		12,608.00		503.48-		.04-		37,588.55		37,824.00		235.45-		.01-
Equipment Rental/Lease		125.00		125.00						383.44		375.00		8.44		.02
Materials and Supplies				275.00		275.00-		1.00-		7.90		1,425.00		1,417.10-		.99-
Freight		24,177.81		25,000.00		822.19-		.03-		76,535.34		75,004.00		1,535.34		.02
Hot Shot Fees		2,791.63		5,000.00		2,208.37-		.44-		12,938.38		15,000.00		2,061.62-		.14-
Restocking Fees		633.56		1,000.00		366.44-		.37-		2,631.15		3,000.00		368.85-		.12-

Westmoreland Coal Company	Page – 9
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget			%			YTD		YTD		Budget			%
Description	Actuals		Budgets		Variance			Variance			Actuals		Budgets		Variance			Variance
Inventory Adjustments		37,956.22-		3,000.00		40,956.22-			13.65	-		8,727.50-		3,000.00		11,727.50-			3.91-
Price Adjustments		427.00				427.00						427.00				427.00
Other		4,940.80-				4,940.80-						3,251.61-				3,251.61-
Total Warehousing		46,902.65		94,159.00		47,256.35-			.50	-		264,596.56		277,077.00		12,480.44-			.05-
66100 Buildings
Hourly Labor (Fringe & Tax)		6,506.03		10,829.00		4,322.97-			.40	-		17,600.36		32,481.00		14,886.64-			.46-
Supervisor Labor (Fringe & Tax)		9,482.60		7,996.00		1,486.60			.19			26,107.49		23,981.00		2,119.49			.09
Contract Labor		12,225.32		21,000.00		8,774.68-			.42	-		46,171.79		68,000.00		21,828.21-			.32-
Equipment w/Maint Labor F&T		5.01-				5.01-						79.35				79.35
Safety Supplies		20.18				20.18						26.99				26.99
Materials and Supplies		3,019.12		6,275.00		3,255.88	-		.52	-		20,696.10		21,275.00		578.90	-		.03	-
Electricity		44,372.87		54,743.00		10,370.13-			.19	-		131,214.76		151,979.00		20,764.24-			.14-
Other														850.00		850.00-			1.00-
Total Buildings		75,621.11		100,843.00		25,221.89-			.25	-		241,896.84		298,579.00		56,682.16-			.19-
66200 Security
Contract Labor		12,988.83		15,989.00		3,000.17-			.19	-		38,966.49		43,967.00		5,000.51-			.11-
Materials and Supplies												166.73		7,800.00		7,633.27-			.98-
Other		968.39		1,100.00		131.61-			.12	-		2,723.41		3,340.00		576.59-			.17-
Total Security		13,957.22		17,039.00		3,131.78-			.18	-		41,856.63		55,067.00		13,210.37-			.24-
69100 Lands Department
Supervisor Labor (Fringe & Tax)		30,518.56		26,198.00		4,320.56			.16			82,011.80		78,594.10		3,417.80			.04
Materials and Supplies		235.00		100.00		135.00			1.35			267.00		2,500.00		2,233.00-			.89-
Legal		1,939.73		2,000.00		60.27-			.03	-		3,017.22		6,000.00		2,982.78-			.50-
Other		341.78		250.00		91.78			.37			1,309.52		1,060.00		249.52			.24
Total Lands Department		33,035.07		28,548.00		4,487.07			.16			86,605.54		88,154.00		1,548.46-			.02-
69200 Lease rentals / Mineral
Other		593.56		594.00		.44-			0.00			2,094.36		2,095.00		.64-			0.00
Total Lease rentals / Mineral		593.56		594.00		.44-			0.00			2,094.36		2,095.00		.64-			0.00
69300 Lease rentals / Surface
Other												6,717.74		9,974.00		3,256.26-			.33-
Total Lease rentals / Surface												6,717.74		9,974.00		3,256.26-			.33-
69500 Adv Royalties non recoup
Other		110,717.79		110,718.00		.21-			0.00			314,413.20		314,413.00		.20			0.00

Westmoreland Coal Company	Page – 10
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
Total Adv. Royalties non recoup		110,717.79		110,718.00		.21-		0.00		314,413.20		314,413.00		.20		0.00
69600 Right of Way Cost
Other										500.00		500.00
Total Right of Way Cost										500.00		500.00
69800 Filing fees
Other		60.00				60.00				99.00				99.00
Total Filing Fees		60.00				60.00				99.00				99.00
70120 Federal Reclamation
Other		53,745.10		44,200.00		9,545.10		.22		169,836.30		148,700.00		21,136.30		.14
Total Federal Reclamation		53,745.10		44,200.00		9,545.10		.22		169,836.30		148,700.00		21,136.30		.14
70160 Sales Taxes
Other		171,474.94		200,000.00		28,525.06-		.14-		295,809.71		600,000.00		304,190.29-		.51-
Total Sales Taxes		171,474.94		200,000.00		28,525.06-		.14-		295,609.71		600,000.00		304,190.29-		.51-
70230 Royalties Private
Other		105,328.05		143,901.00		38,572.95-		.27-		386,707.18		417,041.00		30,333.82-		.07-
Total Royalties Private		105,328.05		143,901.00		38,572.95-		.27-		386,707.18		417,041.00		30,333.82-		.07-
70231 Royalties Private
Other		66,469.40-				66,469.40-				66,469.40-				66,469.40-
Total Royalties Private		66,469.40-				66,469.40-				66,469.40-				66,469.00-
70240 Overriding Royalties
Other		108,181.70		55,080.00		53,101.70		.96		340,788.80		286,480.00		54,308.80		.19
Total Overriding Royalties		108,181.70		55,080.00		55,101.70		.96		340,788.80		286,480.00		54,308.80		.19
70300 Property Taxes
Other		27,532.84		37,500.00		9,967.16-		.27-		109,998.64		112,500.00		2,501.36-		.02-
Total Property Taxes		27,532.84		37,500.00		9,967.16-		.27-		109,998.64		112,500.00		2,501.36-		.02-

Westmoreland Coal Company	Page – 11
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
120110 HR
01   Hourly Labor (Fringe & Tax)				1,347.00		1,347.00-		1.00-		175.00		4,041.00		3,866.00-		.96-
04   Supervisor Labor (Fringe & Tax)		26,754.23		24,245.00		2,509.23		.10		78,395.08		72,735.00		5,660.08		.08
24   Materials and Supplies				450.00		450.00-		1.00-		463.45		1,350.00		880.55-		.66-
54   Legal		14,565.06-		6,000.00		20,565.06-		3.43-		20,412.47		18,000.00		2,412.47		.13
55   Outside Services		4,130.00		6,130.00		2,000.00-		.33-		7,524.94		18,390.00		10,865.06-		.59-
80   Other		4,484.42		4,351.00		133.42		.03		7,016.30		13,713.00		6,696.70-		.49-
		20,803.59		42,523.00		21,719.41-		.51-		113,987.24		128,229.00		14,241.76-		.11-
120115 IT
04   Supervisor Labor (Fringe & Tax)		24,847.99		21,283.00		3,564.99		.17		64,727.62		63,849.00		878.62		.01
16   Equipment Rental/Lease
24   Materials and Supplies		627.49		9,858.00		9,230.51-		.94-		46,034.73		61,626.00		15,391.27-		.25-
55   Outside Services		904.89		102,313.00		101,408.11-		.99-		25,770.00		160,727.00		134,957.00-		.84-
56   Communications		4,239.39		3,180.00		1,559.39		.49		15,663.97		9,541.00		6,123.97		.64
80Other		89.95		3,320.00		3,230.05-		.97-		6,384.86		3,320.00		3,064.86		.92
		31,209.71		139,954.00		107,744.29-		.78-		158,581.18		299,061.00		140,480.82-		.47-
120120 Business (acctg)
01   Hourly Labor (Fringe & Tax)
04   Supervisor Labor (Fringe & Tax)		65,900.38		69,187.00		3,286.62-		.05-		209,648.79		307,561.00		2,087.79		.01
16   Equipment Rental/Lease		8,384.93		8,999.00		614.07-		.07-		9,332.67		10,317.00		984.33-		.10-
24   Materials and Supplies		6,822.71		5,000.00		1,822.71		.36		19,693.42		15,000.00		4,693.42		.31
48   Discounts
54   Legal
55   Outside Services		6,775.29		6,746.00		29.29		0.00		31,617.34		18,383.00		13,229.34		.72
56   Communications		1,249.05		300.00		949.05		3.16		3,433.70		3,100.00		333.70		.11
60   Insurance		93,037.22		92,890.00		147.22		0.00		279,111.66		278,670.00		441.66		0.00
64   Internal Expense		5,091.49		5,098.00		6.51-		0.00		15,274.47		15,294.00		19.53-		0.00
68   Interest Income		4,409.06-				4,409.06-				14,446.80-				14,446.80-
72   Other Inc/Deductions		8,994.30-				8,994.30-				15,603.81-				15,603.81-
80   Other		4,479.69		4,050.00		429.69		.11		11,995.98		10,900.00		1,095.98		.10
88   Depreciation		166,603.08		83,555.00		83,048.08		.99		521,237.08		269,399.00		251,838.08		.93
		344,940.48		275,825.00		69,115.48		.25		1,071,294.50		828,629.00		242,655.50		.29
120150 Executive
01   Hourly Labor (Fringe & Tax)

Westmoreland Coal Company	Page – 12
Cost By Sub by Cat Code
As of 31

	Current		Current
	Months		Months		Budget		%		YTD		YTD		Budget		%
Description	Actuals		Budgets		Variance		Variance		Actuals		Budgets		Variance		Variance
04   Supervisor Labor (Fringe & Tax)		92,721.10		48,257.00		44,464.10		.92		164,637.74		144,771.00		19,366.74		.14
24   Materials and Supplies				350.00		350.00-		1.00-				1,050.00		1,050.00-		1.00-
54   Legal		15,576.36		1,000.00		14,576.36		14.38		17,576.36		8,000.00		9,576.36		1.20
55   Outside Services				2,500.00		2,500.00-		1.00-		55.10		7,500.00		7,444.90-		.99-
76   Donations		550.00		2,020.00		1,470.00-		.73-		1,763.50		5,560.00		3,796.50-		.68-
80   Other		3,709.14		6,193.00		2,483.85-		.40-		26,293.97		31,875.00		5,581.03-		.18-
99   Parent Co Overhead		284,684.66		300,040.00		15,315.34-		.05-		284,684.66		300,000.00		15,315.34-		.05-
		397,241.26		360,320.00		36,921.26		.10		495,011.33		498,756.00		3,744.67-		.01-
120195 Equip Cost (Maint)
04   Supervisor Labor (Fringe & Tax)		121,325.86		137,746.00		16,420.14-		.12-		408,693.59		413,238.00		4,544.41-		.01-
12   Equipment w/Maint Labor, F&T		552,315.43		455,879.00		96,436.43		.21		1,493,216.59		1,367,637.00		125,579.59		.09
80   Other
		673,641.29		593,625.00		80,016.29		.13		1,901,910.18		1,780,875.00		121,035.18		.07
Grand Totals		9,316,672.72		1,996,712.00		319,960.72		.04		25,900,905.33		26,527,731.00		626,825.67-		.02-

Texas Westmoreland Coal Co.
Capital Status Report

For the Month of March, 2007

Work		Project					Actuals					Authorized			2007			Amount
Order		Number		Status		Description	Current Month		Year to Date			Amount			Budget			Anticipated
TCN Capital Projects:
	25336		07-01		ü	Enbridge 8” Pipeline	$	32,400	$	32,400		$	50,000			85,000			50,000
	25339		07-02		ü	Magellan 16” Pipeline	$	0	$	3,500			50,000			50,000			50,000
	25340		07-03		ü	Boom Support Ropes – 8200	$	60,435	$	63,075			78,000			78,000			78,000
	25341		07-04		ü	BWE Capital Repairs	$	0	$	0			300,000			300,000			300,000
	25342		07-05		ü	Cable Tractor	$	0	$	53,858			58,000			58,000			58,000
	25343		07-06		ü	DL Bucket-8200	$	0	$	0			643,000			643,000			643,000
	25344		07-07		ü	DL Bucket-8750	$	0	$	0			750,000			750,000			750,000
	25345		07-08		ü	Dozer GPS Guidance (2)	$	0	$	0		$	115,000			115,000			115,000
	25346		07-09		ü	Dragline Prod. Monitor-DL27	$	1,197	$	1,197		$	150,000			150,000			150,000
	25347		07-10		ü	Dragline Capital Repairs	$	162,856	$	241,636			1,344,000			1,344,000			1,344,000
	25348		07-11		ü	Engine Replacements	$	301,542	$	545,656			2,148,228			2,148,228			2,148,228
	25349		07-12		ü	Light Vehicles	$	77,153	$	77,153			356,000			356,000			356,000
	25350		07-13		ü	Purchase Used Water Truck		-$16,771	$	148,809			240,000			240,000			240,000
	25351		07-14		ü	Replace Boom/Serice Truck	$	17,957	$	17,957			200,000			200,000			200,000
	25352		07-15		ü	Swing Beaing 5130	$	0	$	0			125,000			125,000			125,000
	25353		07-16		ü	Tools & Small Equipment	$	0	$	1,969			51,750			51,750			51,750
	25354		07-17		ü	SurvCADD	$	0	$	0			58,000			58,000			58,000
	25355		07-18		ü	Replace Plotter	$	0	$	0			9,000			9,00			9,000
						Subtotal – Budgeted	$	636,769	$	1,187,209		$	6,725,978		$	6,760,978		$	6,725,978
Non-Budget / Carryover Projects:
	19375		06-02		ü	Sediment Pond 035	$	40,590	$	977,601			745,220			745,220			745,220
	19376		06-03		ü	D04-F diversion/Access Rd	$	6,980		($187,238	)		(219,745	)		(219,745	)		(219,745	)
	19377		06-04		ü	D02 Buff Diversion	$	0		($506	)		16,930			16,930			16,930
	19379		06-06		ü	F-4 Haul Road	$	128,598	$	218,709			395,200			395,200			395,200
	19381		06-11		ü	FM39 ROW Docs	$	0	$	0			97,170			97,170			97,170
	19382		06-12		ü	FM Reloc Design	$	23,545	$	89,015			152,240			152,240			152,240
	19390		06-19		ü	DL Repairs	$	66,000	$	66,000			206,000			206,000			206,000
	34435		07-19		ü	Purchase Used Forklift	$	23,500	$	23,500			23,500			0			23,500
						Subtotal Non-Budget	$	289,212	$	1,187,081		$	1,416,515		$	1,393,015		$	1,416,515
						TGN TOTAL	$	925,982	$	2,374,290		$	8,142,493		$	8,153,993		$	8,142,493

Status Codes:

y	AAFE Written
ü	AFE Approved
%	Project Complete

TWCC Variance Analysis
For the Year-To-Date and Month Ending
March 31, 2007

Actual vs. Budget:

Current Month: March 2007

Sales Tons - 537K actual tons vs. 556K budget tons, 19K or 0% under budget.
March actual quality was 6,549 vs. budget of 6,669 with deliveries totaling 7.04 TBtu vs. 7.417 TBtu budget. The customer requested additional tons be delivered earlier in the quarter. NRG’s outage schedule for March was changed from the 1^st and 3^rd weeks to the 1^st and 2^nd weeks of January. Total sales were to remain as planned for the 1^st quarter. Rainfall for the month was 5.4 inches greater than the historical average.

Sales Revenues - $8.5M vs. $8.9M Budget, $.4M under budget or 5%.
$-368.9K was due to decreased Btu’s delivered,
$-89.5 K was due to decreased Special Management Fee, resulting from reduced BTU’s.
$55.4K was due to increased Surcharge, resulting from a higher than budget index.

Production revenue for 2007 is $.98/MMBtu rather than $1.00 as previously used. The $.02/MMBtu reduction will continue until the reduction yields $1.82M for production royalties on NRG leases. The special management fee (SMF) is $.115/MMBtu or $.01 greater than last year. Both of these assumptions were used in the budget.

Cost of Sales: was $838K greater than budget or 14%.

Diesel fuel costs were $148K below budget, with average monthly pricing of $1.86/gallon vs. budget of $2.20. Electricity costs for the month were on budget. As planned the BWE system did not operate this month.

Dragline stripping was $332K over budget or 22%. All (4) machines operated during the month. The three 8200 draglines exceeded planned hours by 56-hours while the 8750 machines, which was budgeted to operate part of the month, actually operated 270 hours more than plan.

There were no major dragline outages during the month for any of the 8200 draglines. DL28 was down 21 hours to change out a bucket.

Mobile Stripping was $608K over budget or 89%. Equipment in this category operated 3,718 more hours than plan or 71%. The mobile fleet was scheduled to perform post mine reclamation activities but changes to production planning required the system to stay in operations.

Deferred expense was $204K less than budget. $151.3K in the stripping category and $53K decrease in lignite handling due to an increase in stockpile tons. Total inventory increased from 105K to 182K tons, while stockpile inventory increased from 33K to 59K tons. The budget anticipated a constant level in the stockpile.

Lignite Handling was $70K over budget or 6%. Hauling costs account for $138K of the overage and is due primarily to 324 additional hauler hours. Equipment O&M costs were 20% greater than budget. Tire costs continue to be an issue. Lignite crushing was $49K less than budget or 22%. The crusher was down 22 hours to install new scale idlers.

Road Maintenance was $150K greater than budget or 35%. Increased equipment costs ($135K) were the bulk of the increase. A total of 1,494 additional hours were used during the month. 521 additional grader hours and 322 additional end dump hours make up the bulk of the overage.

Current Reclamation was $193K under budget or 44%, The mobile fleet was busy during the month performing stripping and a small amount of capital related activities. This delayed regrade activity will be forecasted into future months. Revegetation costs were under budget $73K due to cold and rainy weather. These funds will also be utilized later in the year.

DD&A - $666.5K vs. $563.8K Budget, $103K over budget or 18%. Depletion costs were $97K over budget primarily due to increase in the ARO rate related to increased liability/asset at the beginning of the year. Depreciation and amortization was $6K over budget due to changes in capital costs and timing.

SG&A - $636K vs. $734K Budget, $98K under budget or 2%. Informational services account for $109K of this variance. Outside services totaling $101K related to Minescape and PeopleSoft soft maintenance agreements were not billed as planned.

Income Tax - $-185K vs. $264K Budget, $449K under budget or 170% due to decreased pretax net income of -$1.2M.

Year-To-Date: March 2007

Safety - At the end of March, the mine completed another quarter without a lost time accident. A total of approximately 1,865,000 hours has been accumulated to date. On June 2^nd the mine will break their previous no lost time accident record of 951 days.

Sales Tons - 1,698K actual tons vs. 1,667K budget tons, 30K or 2% over budget.
Year to date quality was 6,607 vs. budget of 6,672 with deliveries totaling 22.44 TBtu vs. 22.25 TBtu budget. The customer requested additional tons be delivered earlier in the quarter. NRG’s outage scheduled for March was changed from the 1^st and 3^rd weeks to the 1^st and 2^nd weeks of January. Total sales were to remain as planned for the quarter. Rainfall for the year was 5.8 inches greater than the historical average.

Sales Revenues - $26.8M vs. $26.9M Budget, $81K under budget or .3%. $+190.3K was due to increased Btu’s delivered,
$-43.9 K was due to decreased Special Management Fee, resulting from reduced sales in December of last year. The special management fee (SMF) is only recognizable as revenue when the cash is received from our customer. A portion of the reduced SMF is due to less carryover from December 2006 than plan.
$227.8K was due to decreased Surcharge, resulting from a lower than budget index. Shortly after the budget was prepared the index began a steady decline.

Production revenue for 2007 is $.98/MMBtu rather than $1.00 as previously used for 2006. The $.02/MMBtu reduction will continue until the decrease yields $1.82M for production royalties on NRG leases. It is currently estimated that this reduced rate will continue throughout the year. The special management fee (SMF) is $.115/MMBtu or $.01 greater than last year. Both of these assumptions were used in the budget.

Cost of Sales: was $334K greater than budget or 1.7%.
Diesel fuel costs were $454K below budget, with average year-to-date pricing of $1.81/gallon vs. budget of $2.20. Electricity costs for the year were $37K over budget. The BWE system continues to be utilized only when necessary and has accumulated only 531 hours and is $31K or 16% over budget. Utilization of the BWE system will be curtailed for the remainder of the year.

Dragline stripping was $769K over budget or 16%. The 8200 draglines operated 210 hours less than plan. DL27 experienced a 2 week unplanned outage to change out pendant lines that failed earlier than anticipated. The 8750 operated 760 more hours than plan. These additional hours were utilized to increase lignite inventories. Actual inventory at the end of the quarter was 182K tons while the budget called for an inventory of 574K. 1,000 additional dozer hours were used than budget. These dozers are primarily used in aid of the dragline and in the construction of pit ramps. The increased equipment hours added $474K to the costs.

The 8750 suffered an unanticipated wire rope failure which increased maintenance costs an additional $109K.

Mobile Stripping was $213K under budget or 8%. Equipment in this category operated 1,285 fewer hours than plan or 6%. The mobile fleet was scheduled to perform post mine reclamation activities but changes to production planning required the system to stay in operations. A box-cut in F-South was opened a month and a half later than planned due to permitting delays. The F-4 haulroad construction was delayed into 2007 due to a change in scope concerning final approval to changes to the Pond 35 embankment. The mobile fleet utilized 6,700 hours assisting with reimbursable capital construction activities during the quarter.

Deferred Lignite expense was $155.3K less than budget. This is a decrease of $114.1 in the stripping category and $41.2K in lignite handling due to increased stockpile tons. Total inventory increased from 155.5K to 182K tons, while stockpile inventory increased from 39.5K to 59.4K tons. The budget anticipated a constant level in the stockpile.

Lignite Handling was $291K over budget or 8%. Hauling costs account for $408K of the overage and is due primarily to 1,215 additional hauler hours. The bulk of these hours was due to a 1.5 mile longer haul from area F-North due to the permitting delay mentioned above. Equipment O&M costs were 27% greater than budget or $453K. Tire costs continue to be an issue. Lignite crushing was $129K less than budget or 23%. A total of 621 additional equipment hours has been experienced above budget. Some of these hours are attributable to the additional stockpile activity.

Road Maintenance was $175K greater than budget or 13%. Additional equipment costs of $113K were the bulk of the increase. 3,075 additional equipment hours were used during the quarter. 1000 of those hours were end dumps and dozers made up an additional 1,315 hours. Not included in the above hours were 1,005 fewer water truck hours.

Maintenance Support was $121.3 greater than budget or 7%. Support equipment costs are $676K greater than budget or 83% while the maintenance other category is $555.5 less than budget or 58%. The maintenance support category is made up all the equipment that supports the production machines. These categories include pumps, cranes, fuel trucks, light plants, electrical systems to name a few. Activity in this cost group is extremely difficult to interpret. Plans are being discussed to categorize costs in such a manner that the review will be simplified.

Current Reclamation was $813K under budget or 59%. The regrade activity was $577.0K under budget or 53%. The catch-up activity performed last year has allowed us to utilize the equipment in other production areas for a short duration. Dozers that were assigned to this task have been temporarily reassigned. This delayed regrade activity wiil be forecasted into future months. Revegetation costs were under budget $253K due to weather. These funds will also be utilized later in the year.

DD&A - $2,195K vs. $1,912K Budget, $283K over budget or 15%. Depletion costs were $274K over budget primarily due to increase in the ARO rate related to increased liability/asset at the beginning of the year. Depreciation and amortization was $9K over budget due to changes in capital costs and timing.

SG&A - $1,325K vs. $1,480K Budget, $156K under budget or 11%. Informational services accounts for $140K of this variance. Outside services totaling $101K related to Minescape mine planning and PeopleSoft software maintenance agreements were not billed as planned. The PeopleSoft costs are being accumulated at corporate and will be passed down at a later date.

Income Tax - $577K vs. $718K Budget, $141K under budget or 20% due to decreased pretax net income of -$370K.

Exhibit 16

NORTHWESTERN RESOURCES CO.
Jewett, Texas
(903) 626-5485

INFORMATION PROVIDED TO JEWETT MINE
PERCENTAGE LEASES ROYALTY OWNERS REGARDING
CALCULATION OF ROYALTIES UNDER PERCENTAGE LEASES
IN CONNECTION WITH ROYALTY PROPOSAL

August 3, 1992

August 3, 1992

INFORMATION PROVIDED TO JEWETT MINE
PERCENTAGE LEASES ROYALTY OWNERS REGARDING
CALCULATION OF ROYALTIES UNDER PERCENTAGE LEASES
IN CONNECTION WITH ROYALTY PROPOSAL

1.	Some of the lignite or coal leases included in the Jewett Mine provide for payment of royalties based upon a percentage of the price for which Northwestern Resources Co. (“NWR”) sells at the mine the lignite produced from those leases. For ease of reference those leases are generally referred to as “Percentage Leases.” The wording of the particular royalty provisions in the leases varies to some extent.
2.	At the Jewett Mine (“Mine”) NWR mines the lignite and sells it to Utility Fuels, Inc. (“UFI”) pursuant to the terms of a Lignite Supply Agreement dated August 29, 1979. That agreement provides for, among other things, the price paid NWR by UFI at the Mine. The price for the lignite sold by NWR to UFI is based upon costs to produce and deliver the lignite incurred by NWR plus certain fees. UFI takes delivery of the lignite at the Mine, transports the lignite by conveyor approximately one mile to the Limestone Generating Plant (“Power Plant”) owned by Houston Lighting & Power Company (“HL&P”), further crushes the lignite, stockpiles the lignite as necessary, maintains and operates the transportation and handling equipment and delivers and sells the lignite at the Power Plant to HL&P pursuant to the terms of a Lignite Supply Agreement dated October 8, 1985. HL&P burns the lignite in the Power Plant to generate electricity for sale to HL&P’s customers. The sales delivery point between NWR and UFI is near the boundary of the Mine. The sales delivery point between UFI and HL&P is at the Power Plant.
3.	UFI and HL&P are wholly owned subsidiaries of Houston Industries Incorporated (“HII”). NWR is owned by the Montana Power Company, and is not affiliated with UFI, HL&P or HII.
4.	UFI owns the transportation and handling equipment referred to in paragraph 2 hereinabove. NWR is not involved in those transportation and handling activities, and NWR does not include in its sales price to UFI any amounts relating to such equipment or UFI’s operation and maintenance of the equipment. The price UFI charges HL&P for the lignite at the Power Plant is based upon UFI’s costs to obtain, transport and handle the lignite plus certain fees. UFI includes in its costs the expenses incurred in the operation and maintenance of the transportation and handling equipment, an annual amount that over time will return to UFI the cost of the transportation and handling equipment, and a return on the investment of UFI in the handling equipment.
5.	NWR uses mining equipment and facilities in conducting the mining operations at the Mine. Most of that mining equipment and facilities are owned by UFI, not by NWR. UFI made the investment in the equipment and facilities. In determining its lignite price to HL&P, UFI also includes in its costs, an annual amount that over time will return to UFI the cost of the mining equipment and facilities, and a return on the investment of

August 3, 1992

	UFI in the mining equipment and facilities. The price NWR charges UFI at the Mine for the lignite is based upon NWR’s costs to produce and deliver the lignite to UFI plus certain fees. NWR does not include in its cost of producing and delivering the lignite to UFI any amount for return of or return on the investment made by UFI in the mining equipment and facilities. NWR leases the mining equipment and facilities from UFI and pays UFI a rental of $1 per year.
6.	NWR does include in its cost of producing and delivering lignite to UFI the royalties and overriding royalties paid by NWR to the lignite lessors and to others.
7.	The methodology employed by NWR in the past for the calculation of royalties owed to royalty owners under Percentage Leases is described in Exhibit “A” hereof. This methodology is sometimes referred to hereinafter as the “Current Methodology.” NWR believes that the Current Methodology is a correct method to calculate royalties owed under Percentage Leases, and that continued use of such methodology in the future would be appropriate. Under the Current Methodology, the prices upon which royalties are paid do not include amounts based upon the following:

(i)	the return of and the return on UFI’s investment in the mining equipment and facilities used by NWR at the Mine;
(ii)	the royalties and overriding royalties paid by NWR to the lessors and to others;
(iii)	the return of and the return on UFI’s investment in the transportation and handling facilities used to move the lignite from the Mine to the Power Plant, and to handle the lignite;
(iv)	the operation and maintenance expenses associated with the transportation and handling equipment referred to in “(iii)” above.

     You are cautioned that the amounts used in Exhibit “A” are illustrative only and that the actual amounts may vary substantially depending upon a number of factors.

8.

Despite NWR’s belief that the Current Methodology is wholly appropriate and fulfills the royalty payment obligations under the Percentage Leases, certain royalty owners have in the past filed lawsuits challenging the production royalty payments made by NWR under Percentage Leases. NWR and UFI were named as Defendants in all of the lawsuits and HL&P and HII were also named as Defendants in three of the lawsuits. While NWR and the other Defendants have disagreed with all such challenges, the Defendants settled each of the cases in order to avoid further litigation.

9.

Only one of the lawsuits referred to in paragraph 8 above was tried. That was the case styled International Screening Products Corp. v. Houston Industries, Incorporated, Houston Lighting & Power Company, Utility Fuels, Inc., and Northwestern Resources Co., and that case was tried to a jury in the District Court of Brazoria County, Texas, 149th Judicial District, in Angleton, Texas during the period May 26, 1992 through June 4, 1992. On June 5, 1992 the jury returned a verdict in favor of the Plaintiff and against NWR on several issues. The jury’s verdict was favorable to the. remaining Defendants –

August 3, 1992

	UFI, HL&P and HII. Subsequent to that trial, NWR and the other Defendants settled the International Screening case, and an agreed judgment was entered by the Court. That judgment vacated and set aside the jury verdict. In settling this case all of the Defendants denied liability, and all of the parties settled, thereby avoiding further litigation.
10.	Since the trial of the International Screening case, NWR has received inquiries from some of the Jewett Mine Percentage Lease royalty owners. NWR recognizes that some royalty owners under Percentage Leases who have not actually challenged NWR’s royalty payments or royalty payment methodology might do so. Desiring to avoid further litigation over such royalty payments, if a reasonable basis can be achieved, NWR is willing to take action to avoid any such disputes by entering into appropriate agreements with certain Percentage Lease royalty owners. The types of these agreements are discussed hereinafter in paragraph 12. For ease of reference hereinafter, these agreements are sometimes collectively referred to as the “Royalty Proposal.”
11.	The Percentage Lease royalty owners to whom this Royalty Proposal will be made available will include the following:

(i)	certain royalty owners whose Percentage Leases have already been mined;
(ii)	royalty owners whose Percentage Leases are currently being mined; and
(iii)	royalty owners whose Percentage Leases have not yet been mined.

With respect to royalty owners identified in (i) and (ii), the Royalty Proposal provides that with respect to royalty payments for production which has already occurred, additional payments would be made only with respect to production for which royalty was due and payable on or after August 1, 1988. Royalty owners who have already settled with NWR would not be eligible for any payments pursuant to the Royalty Proposal.

12. The basic elements of the Royalty Proposal (discussed in detail hereinafter) are as follows:

(i)	for past production NWR will pay to the royalty owners additional sums of money for royalties as specified hereinafter (that is, in addition to the amounts already received by the royalty owners);
(ii)	for future production (both as to leases on which some production has already occurred and as to leases on which no production has yet occurred) NWR will enter into amendments of the Percentage Leases specifying the methodology to be employed in calculating royalties on production, if any, which occurs in the future; and
(iii)	the royalty owners would be required to execute releases and other documentation acceptable to NWR, UFI, HL&P and HII, protecting them from any further claims by the royalty owners who accept the Royalty Proposal.

August 3, 1992

This Royalty Proposal can be accepted only by royalty owners who execute the agreements and documents required by NWR.

13. On Exhibit “B” hereof (which is included for illustration purposes only) NWR has set forth the methodology which NWR would utilize for calculating royalties under Percentage Leases (hereinafter the “Revised Methodology”) with respect to production which has already occurred and with respect to production which occurs in the future. For production which has already occurred, NWR will pay interest at the rate of 6% per annum (simple) calculated as appropriate from the dates on which royalty payments were due under each Percentage Lease.

     In calculating royalties pursuant to the Revised Methodology NWR will perform the accounting to determine the price for lignite from each lease according to generally accepted accounting principles to generate the data included in the Revised Methodology. The application of generally accepted accounting principles involves certain discretionary decisions that may affect the amount of royalties to be paid. This data and all related calculations will be available for review by the Percentage Lease royalty owner according to the audit provisions of the lease agreements.

     In Section II of Exhibit “B” a comparison is made between the elements included in the royalty calculation based upon the Current Methodology and those included based upon the Revised Methodology. Under the Revised Methodology the royalty owner receives additional amounts based upon the following:

(i)	the return of and the return on UFI’s investment in the mining equipment;
(ii)	the royalties and overriding royalties paid by NWR to the lessors and to others; and
(iii)	for additional amounts attributable to production which has already occurred, 6% per annum (simple) interest, calculated as appropriate from the dates on which royalty payments were due under the Percentage Leases.

14. NWR calls to the particular attention of royalty owners the following facts regarding the Revised Methodology which NWR is offering as part of the Royalty Proposal:

(i)

royalties paid pursuant to the Revised Methodology are calculated differently in some respects than the royalty underpayment determined by the jury in the International Screening case — that is to say, the per ton royalty which can be derived from the royalty underpayment determined by the jury exceeds the per ton royalty provided for in the Revised Methodology (if that methodology were applied to the production involved in the case);

(ii)

while the Revised Methodology assumes, for settlement purposes, that certain amounts are added to the price for royalty calculation purposes to reflect UFI’s return of and return on its investment in the mining equipment and facilities, this assumption does not alter the fact that NWR’s price charged to UFI does not and will not actually include payments to NWR attributable to such return on and

August 3, 1992

	return of UFI’s investment in mining equipment and facilities, and NWR will not receive any such payments;
(iii)	no monies will be paid based upon claims for fraud or claims of any nature other than for additional royalties based upon proper application of the royalty provisions of the leases and interest as herein provided;
(iv)	with respect to lease amendments affecting future production, royalties will be paid in accordance with the amendments, if any; to the extent and when there is production; if no production occurs from the lease, no production royalties will be paid; and
(v)	The obligations of NWR to use the revised methodology to calculate percentage royalties will be subject to the Lignite Supply Agreement remaining in effect upon substantially the same terms and NWR or its successor or assignee continuing as operator of the Mine.

15.	NWR is making the Royalty Proposal to certain other Jewett Mine royalty owners. Royalty owners whose lignite has already been produced and who do not agree to the Royalty Proposal will not receive any additional monies from NWR. Royalty owners whose production occurs in the future and who do not agree to the Royalty Proposal will not receive any additional monies from NWR and they will be paid in the future (if, to the extent and when production occurs) based upon the Current Methodology.
16.	In several places this Royalty Proposal contains discussion of estimates of costs, prices, amounts and timing of production and/or amounts of royalty payments. Such estimates are included for illustration purposes only and no royalty owner should assume that the actual results will be the same as those reflected in the estimates. For example, any references to estimated amounts of future production of lignite are not intended to represent and do not represent, assurances by NWR that any production or any particular amount of production will actually occur in the future from particular leases. By further way of example, NWR is not able at this time to predict with accuracy the costs of production it will experience in mining operations in future months and years and which will be included in the price used to calculate production royalties. The purpose of this paragraph 16 is to emphasize to each royalty owner that estimates used in this Royalty Proposal are to be used for illustration purposes only and are not to be viewed by royalty owners as representations, assurances or guarantees.
17.	The offer reflected in this Royalty Proposal shall remain open for acceptance by royalty owners to whom the offer is made for a period of thirty (30) days after the date on which each royalty owner receives the offer. The offer shall not remain open beyond this thirty (30) day period for any royalty owners unless NWR agrees in writing with particular royalty owners to extend the time during which the offer can be accepted. NWR reserves the right to extend the time during which this offer can be accepted by some royalty owners, while not extending the time to others.

August 3, 1992

18. For each Percentage Lease NWR will provide to the royalty owner upon request the following information:

(i)	historical data on payments, if any, already made under the lease for advance and/or production royalties;
(ii)	NWR’s current estimate of the tons of production from the lease if the lease is produced in the future;
(iii)	a lease specific comparison of the results of applying the Current Methodology and the Revised Methodology to the particular lease situation (understanding that for future royalties only estimates are available);
(iv)	the Lignite Supply Agreement between NWR and UFI, dated August 29, 1979;
(v)	the Lignite Supply Agreement between UFI and HL&P, dated October 8, 1985;
(vi)	the Construction and Operation Agreement between NWR and UFI, dated December 17,1985 (effective July 1,1983); and
(vii)	other appropriate information requested by the royalty owners in connection with their consideration of this Royalty Proposal.

19. NWR is prepared to meet with the Percentage Leases royalty owners and/or their representatives, as appropriate, on an expedited basis.

Exhibit “A”

August 3, 1992

Northwestern Resources Co.

			Current
			Methodology
			$/ton
Tons sold -example lease (000’s) 100
Cost of lignite sold
	- 10.2a	Production	$	6,198
	- 10.2c	Production taxes	$	0.100
	- 10.2d	Genera!	$	0.938
	- 10.3a	Post mine reclamation	$	0.290
	- 10.3b	Rentals, advance royalties	$	0.086
	- 10.3c	Relocations	$	0.139
	- 10.3d	Ad valorem taxes	$	0.076
	- 10.3e	Compliance	$	0.471
	- 10.3f	insurance	$	0.061
	- 10.4	Dedication fee	$	1.703
	- 10.5	Management fee	$	1.561
		subtotal (A) (C)	$	11.623
	- 10.2b	royalties (B)	$	0.697
		Total	$	12.320
		Estimated royalty due ($000’s)	$	70

Notes:

(A)	For illustration purposes cost shown are based on 1991 data.
(B)	For illustration purposes royalties are calculated at 6%.
(C)	Costs are categorized per the Lignite Supply Agreement between NWR and UFI.

Exhibit “B”
Schedule 1
August 3, 1992

Northwestern Resources Co.

			Revised
			Methodology
			$/ton
Tons sold — example lease (000’s) 100
Cost of lignite sold
	- 10.2a	Production	$	6.198
	- 10.2c	Production taxes	$	0.100
	- 10.2d	General	$	0.938
	- 10.3a	Post mine reclamation	$	0.290
	- 10.3b	Rentals, advance royalties	$	0.086
	- 10.3c	Relocations	$	0.139
	- 10.3d	Ad valorem taxes	$	0.076
	- 10.3e	Compliance	$	0.471
	- 10.3f	Insurance	$	0.061
	- 10.4	Dedication fee	$	1.703
	- 10.5	Management fee	$	1.561
subtotal (A) (C)			$	11.623
Return of investment (D)			$	1.890
Return of investment (D)			$	3.060
subtotal			$	16.573
- 10.2b royalties (B)			$	0.994
royalty on a royalty (B)			$	0.060
subtotal			$	1.054
New grand total			$	17.627
Estimated royalty due ($000’s)			$	105

Notes:

(A)	For illustration purposes cost shown are based on 1991 data.
(B)	For illustration purposes royalties are calculated at 6%.
(C)	Costs are categorized perthe Lignite Supply Agreement between NWR and UFI.
(D)	Costs are categorized perthe Lignite Supply Agreement between UFI and HL&P.

Exhibit “B”
Schedule 2
August 3, 1992

Northwestern Resources Co.

			Current	Revised
			Methodology	Methodology
Tons sold			yes	yes
Cost of lignite sold
	- 10.2a	Production	yes	yes
	- 10.2c	Production taxes	yes	yes
	- 10.2d	General	yes	yes
	- 10.3a	Post mine reclamation	yes	yes
	- 10.3b	Rentals, advance royalties	yes	yes
	- 10.3c	Relocations	yes	yes
	- 10.3d	Ad valorem taxes	yes	yes
	- 10.3e	Compliance	yes	yes
	- 10.3f	Insurance	yes	yes
	- 10.4	Dedication fee	yes	yes
	- 10.5	Management fee	yes	yes
subtotal (A)			yes	yes
Mining Equipment & Facilities:
Return of investment (B)			no	yes
Return on investment (B)			no	yes
Subtotal
	- 10.2b	Royalty	yes	yes
		Royalty on a royalty	no	yes
Subtotal
New grand total

(A)	Costs are categorized per the Lignite Supply Agreement between NWR and UFI.
(B)	Costs are categorized per the Lignite Supply Agreement between UFI and HL&P.

EXHIBIT 17

Cost Incentive Adjustment Sample Calculations

See attached.

Exhibit 17 — Page 1

Exhibit 17
Cost Incentive Adjustment (Annual)
LSA Section 7.4(a)
Bonus/Penalty Calculation

	LSA Section
Item	Reference			Amount			Units		notes
Calculation Input
Volume Delivered, Actual	7.4(a)(iii)				8,850,000		tons		actual tons delivered
Mine Cost, Actual		7.2			[******]		$s		see agreement section 7.2 for the scope of included costs
Volume Delivered, Approved Original		5.4			6,650,000		tons		tons approved for delivery in the original aop
Annual Operation Plan (AOP)
Mine Cost, Approved Revised AOP	5.4 or 5.6				[******]		$s		this is the approved revised AOP
Charge to NRG Owned Inventory					[******]		$s		parts inventory re-stock added to approved AOP
Work Scope Adjustments, Net		7.4(a	)(i)		[******]		$s		work scope adjustments are calculated on a separate worksheet
Commodity Adjustments Net		7.4(a	)(ii)		[******]		$s		commodity adjustments are calculated on a separate worksheet
Fee Adjustment Basis (FAB) AOP		7.4(a	)(i)		[******]		$s		add the net work scope adjustment $s to the approved aop cost
Penalty Calculation
Mine cost as % of FAB AOP Cost	7.4(a)(iii)				102.0	%		%	the actual mine cost divided by the fab aop
Penalty Threshold, Actual Mine Cost as of % of FAB AOP	7.4(a)(iii)				103.0	%		%	the 103% threshold referenced in the agreement
Penalty Applies?	7.4(a)(iii)			no					is the saline cost more than 103% of the fab aop?
Penalty Threshold	7.4(a)(iii)				[******]		$s		multiply the fab aop $s by the 103% threshold referenced above
Mine Costs Applicable to Penalty	7.4(a)(iii)				[******]		$s		the actual cost less the penalty threshold
Delivered Volume	7.4(a)(iii)			na			Tons		the actual volume delivered
Mine Cost applicable to Penalty per Delivered Ton	7.4(a)(iii)				[******]		$s/Ton		use mine cost applicable to penalty divied by the actual volume delivered
One-half of Applicable Mine Cost	7.4(a)(iii)				[******]		$s/Ton		one-half of the line above
per Delivered Ton
Penalty Limit per Delivered Ton	7.4(a)(iii)				[******]		$s/Ton		this is fixed at [****] per ton per the agreement
Applicable Penalty per Delivered Ton	7.4(a)(iii)				[******]		$s/Ton		the lesser of the one-half share of the penalty limit
Penalty	7.4(a)(iii)				[******]		$s		the penalty amount, if any
Bonus Calculation
FAB AOP Cost as % of Mine Cost	7.4(a)(iii)				98.0	%		%	the fab aop divided by the actual inline cost

	LSA Section
Item	Reference	Amount			Units		notes
Bonus Threshold, FAB AOP as % of Actual Mine Cost	7.4(a)(iii)		103.0	%		%	the 103% threshold referenced in the agreement
Bonus Applies?	7.4(a)(iii)	no					is the fab aop more than 103% of mine cost?
Bonus Threshold	7.4(a)(iii)		[******]		$s		divide the fab aop $s by the 103% threshold referenced above
Mine Cost Applicable to Bonus	7.4(a)(iii)		[******]		$s		the bonus threshold less the actual cost
Applicable Volume	7.4(a)(iii)(A)&(B)	na			Tons		less of actual volume delivered or approved AOP volume
Mine Cost Applicable to Bonus per Applicable Ton	7.4(a)(iii)		[******]		$s/Ton		the mine cost applicable to bonus divided by the applicable volume
One-half of Applicable Mine Cost per Applicable Ton	7.4(a)(iii)		[******]		$s/Ton		one-half of the line above
Bonus Limit per Applicable Ton	7.4(a)(iii)		[******]		$s/Ton		this is fixed at [****] per ton per the agreement
Applicable Bonus per Applicable Ton	7.4(a)(iii)		[******]		$s/Ton		the lesser of the one-half share or the bonus limit
Bonus	7.4(a)(iii)		[******]		$s		the bonus amount, if any
Total, Bonus or Penalty
Bonus or (Penalty)	7.4(a)(iii)	[******] Indicates input			$s

Cost Incentive Adjustment (Annual)
LSA Section 7.4(a)
Mining Work Scope Adjustments

Approved AOP, per Section 5.4, 5.5 and/or 5.6

Actual

Excess or

Function or Item

Measurement Units

Units

Cost

Cost per Unit

Units

Project Cost

(Shortfall)

Adjustment

($s)

($s per Unit)

($s)

Overburden Stripping

BCY

83,600,000

[******]

[******]

82,000,000

[******]

[******]

Sub Accounts:

Clearing

Relocations

Overburden

Dewatering

Pit/Surface

Dewatering

Dragline Stripping

Mobile Stripping

Coal Production

Tons

6,856,000

[******]

[******]

6,656,000

Sub Accounts:

Test and Analysis

Coal Cleaning

Loading

Hauling

Crushing

Maintenance

Equipment Hours

380,000

[******]

[******]

370,000

[******]

Sub Accounts:

Road Maintenance

Support Equipment

Maintenance

General

Maintenance

Reclamation

Acres

500

[******]

[******]

450

[******]

[******]

Sub Accounts:

Regrading

Approved AOP, per Section 5.4, 5.5 and/or 5.6

Actual

Excess or

Function or Item

Measurement Units

Units

Cost

Cost per Unit

Units

Project Cost

(Shortfall)

Adjustment

($s)

($s per Unit)

($s)

Revegetation

Erosion Control —

Current

Final Pit

Facility Removal

Erosion Control -

Post Mine Mgmt.

Compliance

(Permitting, Monitoring, Hazmat Monitoring, Sediment Control, Pond Treatment, Hay Production)

Warehouse Inventory

$

[******]

[******]

[******]

[******]

[******]

(Change to NRG Owned Inventory)

Capital Projects

Pond 36

% Completion

100

[******]

[******]

60

[******]

[******]

[******]

Construction

Light Vehicles

# Purchased

15

[******]

[******]

14

[******]

[******]

[******]

Dragline Bucket

% Completion

100

[******]

[******]

100

[******]

[******]

[******]

Motor Grader

% Completion

100

[******]

[******]

90

[******]

[******]

[******]

Replacement

Administration

% Completion

100

[******]

[******]

0

[******]

[******]

[******]

Building Roof

Mining Work Scope

[******]

Adjustments

Indicates input

Cost Incentive Adjustment (Annual)
LSA Section 7.4(a)
Commodity Adjustments

Approved AOP, per Section 5.4, 5.5, and/or 5.6

Actual

Commodity Adjustment

Commodity

Units

Measurement Units

Cost

Cost per Unit

Index

Units

Cost

Cost per Unit

Index

Units

Cost per Unit

Adjustment

($s)

($s per Unit)

($s)

($s per Unit)

($s per Unit)

($s)

Electricity

80,000,000

kWh

[******]

[******]

79,000,000

[******]

[******]

80,000,000

[******]

[******]

Diesel

6,000,000

gallons

[******]

[******]

6,400,000

[******]

[******]

6,000,000

[******]

[******]

Tires

See Exhibit # 18 Example 2,7.4 (a(iii)(B)

[******]

Steel

See Exhibit # 18,7.4 (a)(iii)(C)

[******]

Total

[******]

indicates input

Exhibit 18

Certain Escalation Adjustments

Section 7.3 Management Fee Inflation Adjustment

Section 7.3 of the LSA provides for the Management Fee to be escalated annually by the percent change in the GDP-IPD as provided in this Exhibit 18.

“GDP-IPD” shall mean the Gross Domestic Product-Implicit Price Deflator index as first published as the advance number by the U.S. Department of Commerce, Bureau of Economic Analysis (base period of 2000= 100). The Management Fee shall be escalated annually by the percent change in the GDP-IPD index from a Fourth Quarter 2007 first published index value as compared to the Fourth Quarter index value for the Year prior to the Year to be adjusted. The percent change in GDP-IPD shall be rounded to the nearest third decimal point. The resulting escalated Management Fee shall be rounded to the nearest second decimal point. No percent adjustment shall be less than zero.

For example, where the following GDP-IPD index figures are hypothetical only:

Fourth Quarter 2007 First Published Index Value =121
Fourth Quarter 2011 First Published Index Value = 140
Base 2008 Management Fee = [****] per Ton

Therefore, to calculate the escalated Management Fee effective on January 1, 2012:

(140 /121 ) = 1.157 * [****] = [****] per Ton

Section 7.4(a)(iii)(B) Tire Budget Adjustment

Section 7.4(a)(iii)(B) of the LSA provides for a Tire Budget to be adjusted for actual costs for the purpose of calculating Cost Incentive Adjustments, with an example calculation provided for guidance in this Exhibit 18.

All resulting dollar amounts shall be rounded to the nearest second decimal point.

Example 1. Calculation of Tire Budget Adjustment
All figures and category designations below are hypothetical

Assume 2009 AOP Tire Budget as Follows
Category 1 — 50 units of R49 X 27.00 tires at budgeted cost of [******] per tire	= [******]
Category 2 — 20 units of R51 X 33.00 tires at budgeted cost of [******] per tire	= [******]
Category 3 — 20 units of R49 X 24.00 tires at budgeted cost of [******] per tire	= [******]
Total 90 units of tires budgeted at average cost of [******] per tire	= [******]
Actual 2009 AOP Tire Costs as Follows
Category 1 — 50 units of R49 X 27.00 tires at actual cost of [******] per tire	= [******]
Category 2 — 20 units of R51 X 33.00 tires at actual cost of [******] per tire	= [******]
Category 3 — 20 units of R49 X 24.00 tires at actual cost of [******] per tire	= [******]
Total 90 units of tires budgeted at average cost of [******] per tire	= [******]
No variance in units of tires purchased versus 2009 AOP Tire Budget.
Therefore, adjusted 2009 AOP Tire Budget = [******]

Example 2. Calculation of Tire Budget Adjustment
All figures and category designations below are hypothetical

Assume 2009 AOP Tire Budget as Follows
Category 1 — 50 units of R49 X 27.00 tires at budgeted cost of [******] per tire	= [******]
Category 2 — 20 units of R51 X 33.00 tires at budgeted cost of [******] per tire	= [******]
Category 3 — 20 units of R49 X 24.00 tires at budgeted cost of [******] per tire	= [******]
Total 90 units of tires budgeted at average cost of [******] per tire	= [******]
Actual 2009 AOP Tire Costs as Follows
Category 1 — 60 units of R49 X 27.00 tires at actual cost of [******] per tire	= [******]
Category 2 — 30 units of R51 X 33.00 tires at actual cost of [******] per tire	= [******]
Category 3 — 20 units of R49 X 24.00 tires at actual cost of [******] per tire	= [******]
Total 110 units of tires budgeted at average cost of [******] per tire	= [******]

Example 2. Calculation of Tire Budget Adjustment (Continued)

Allowed variance from Tire Budget units = +/-10% (without Change Order or other agreement) 90 units in Tire Budget * 1.100% = 99 units allowed

99 units * [******] average per tire = [******]
Therefore, adjusted 2009 AOP Tire Budget = [******]

Section 7.4(a)(iii)(C) Steel Budget Adjustment

Section 7.4(a)(iii)(C) of the LSA provides for a Steel Budget to be adjusted for inflation for the purpose of calculating Cost Incentive Adjustments, with an example calculation provided for guidance in this Exhibit 18.

The percent change in the indices and assumed inflation rates shall be rounded to the nearest third decimal point and the resulting dollar amounts shall be rounded to the nearest second decimal point.

Example Calculation of Steel Budget Adjustment
All figures below are hypothetical

1. 2009 AOP Steel Budget

(A) Budgeted Wear Component Costs	= [******] * 70%	= [******]
(B) Budgeted Parts Costs	= [******] * 50%	= [******]
(C) 2009 AOP Steel Budget	= (A) + (B)	= [******]

2. 2009 AOP Inflation Rate Used to Adjust Steel from 2008 Dollars = 3.000%.
Expected 2009 Average Steel Index implied by 2009 AOP = 103.

3. Steel Index Value as of July 2008 = 100 (2009 AOP Base Steel Index Value)

4. Actual Quarterly Steel Index Values for 2009

First Quarter Index Value	= 101
Second Quarter Index Value	= 103
Third Quarter Index Value	= 106
Fourth Quarter Index Value	= 107
Average 2009 Change in Steel Index Value	= 104.25

5. Calculation of Percentage Adjustment Ratio to 2009 Steel Budget

(D) Average 2009 Steel Index Value	= 104.25
(E) 2009 AOP Steel Index	= 103.00
(F) Adjustment Ratio for 2009 AOP ((D) / (E))	= 1.012

6. Calculate Adjustment to 2009 Steel Budget

(G) 2009 AOP Steel Budget (C)	= [******]
(H) Adjusted Ratio (F)	= 1.012
(I) 2009 Adjusted Steel Budget = (G) * (H)	= [******]

EXHIBIT 19

Equipment Maintenance Schedule

See attached.

Exhibit 19 — Page 1

Exhibit 19
2007 Equipment Component Replacement Forecast

Section 22 Existing Equipment and Assets

Section 22 of the LSA provides that TWCC agrees that all maintenance of Mine equipment, whether such equipment is owned or leased by TWCC, owned by NRG, will be conducted in accordance with the forecasted maintenance schedule attached to this LSA as Exhibit 19. Along with forecasted component replacements for the period of September 1 through December 31, 2007 as listed herein, TWCC will continue performing preventative maintenance consistent with Prudent Mining Practices on all equipment, whether such equipment is owned by TWCC, owned by NRG, or leased.

Forecasted Equipment Component Replacement
September 1, 2007- December 31, 2007

EQUIPMENT #	MODEL	COMPONENT
BH0011	CAT5130B	STRN L/H
		STRN R/H
BH0007	HITACHI EX 1100	FDRV L/H
		FDRV R/H
		STRN L/H
BH0008	HITACHI EX 1100	STRN L/H STRN R/H
BH0012	CAT 5110	FDRV R/H
DZ0814	CAT 834B	FDRV L/F
		FDRV L/R
		FDRV R/F
		FDRV R/R
MG0005	CAT16G	DIFF
		FDRV R/H
MG0008	CAT 16H	FDRV L/H
MG0009	CAT 16H	DIFF
HL0001	EUCLID CH120	DIFF
HL0002	EUCLID CH120	DIFF
		FDRV L/H
		TRNS

Forecasted Equipment Component Replacement
September 1, 2007- December 31, 2007

(continued)

EQUIPMENT #	MODEL	COMPONENT
HL0003	EUCLID CH120	FDRV R/H
HL0004	EUCLID CH120	FDRV R/H
HL0005	EUCLID CH120	TRNS
HL0007	EUCLID CH120	FDRV L/H
HL0008	EUCLID CH120	FDRV L/H
		HTCH
		TRNS
HL0010	EUCLID CH120	FDRV R/H
HL0015	RIMPULL CW180	HTCH
HL0016	RIMPULL CW180	HTCH
HL0017	RIMPULL CW180	DIFF
		HTCH
SC0503	CAT 657E	DIFF-R
		FDRV L/F
		FDRV L/R
		FDRV R/F
		FDRV R/R
LD0007	CAT 992D	FDRV L/F
		FDRV L/R
		FDRV R/F
		FDRV L/F
ED0011	CAT 785C	DIFF
ED0013	CAT 785C	DIFF
ED0015	CAT 777D	TCNV

Forecasted Equipment Component Replacement
September 1, 2007- December 31, 2007

EQUIPMENT #	MODEL	COMPONENT
ED0016	CAT 777D	DIFF
ED0017	CAT 777D	DIFF
		TCNV
WW003	CAT631E	FDRV L/H
		FDRV R/H

Component Legend

DIFF	= Differential	L/F	= Left Front
FDRV	= Final Drive	L/R	= Left Rear
HTCH	= Hitch	R/F	= Right Front
STRN	= Steering Clutch	R/R	= Right Rear
TCNV	= Torque Converter	L/H	= Left Hand
TRNS	= Transmission	R/H	= Right Hand

EXHIBIT 20

Reclamation

The following provisions of the Settlement Agreement are restated herein and defined terms used herein shall have the meanings set forth in the Settlement Agreement:

“G. RECLAMATION

     1. REI currently posts a corporate guarantee of NWR’s reclamation bond filed with the Railroad Commission of Texas (“RCT”) to secure NWR’s obligation to complete Final Reclamation of the Jewett Mine. As long as the cost to REI does not change and the conditions imposed by the RCT as a condition of self-bonding do not change materially, REI will continue to provide such corporate guaranty in compliance with the rules of the RCT for all renewals and amendments of the surface mining permit until NWR has been fully released from all reclamation obligations related to the Jewett Mine. Currently, REI incurs no direct cost in providing the corporate guarantee. (REI has some internal cost in processing and recording the guaranty). In the future, if REI incurs additional costs directly as a result of providing the corporate guarantee, NWR will pay those costs.

     2. Final reclamation of the Jewett Mine at the end of its useful life is considered a sunk cost and these expenditures will be accounted for separately during the Post-Transition Period. The Parties shall agree on final reclamation costs and REI will be responsible for the cost of all final reclamation. NWR shall pay all current reclamation costs (contemporaneous reclamation activities required under Section 816.383 of the Texas Surface Coal Mining regulations (or any successor provisions)) during the Post-Transition Period, including all reclamation costs associated with closing any mine area depleted prior to the end of the Jewett Mine’s useful life. NWR shall use good mining practices during the Post-Transition Period to insure that only a reasonable and appropriate amount of reclamation remains at the end of the useful life of the Jewett Mine and shall bear the cost of its failure to comply with this provision.”

Exhibit 20 — Page 1

EX-31

Exhibit 31

CERTIFICATION

I, Keith E. Alessi, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Westmoreland Coal Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Keith E. Alessi

Name:     Keith E. Alessi

Title:  Chief Executive

Officer and President

Date: March 17, 2008

CERTIFICATION

I, David J. Blair, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Westmoreland Coal Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  David J. Blair

Name:     David J. Blair

Title:  Chief Financial

Officer

Date: March 17, 2008

EX-32

Exhibit 32

STATEMENT PURSUANT TO 18 U.S.C. § 1350

Pursuant to 18 U.S.C. § 1350, each of the undersigned certifies that, to his knowledge, this Quarterly Report on Form 10-Q for the period ended September 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Westmoreland Coal Company.

/s/  Keith E. Alessi

Name:     Keith E. Alessi

Title:  Chief Executive Officer

and President

Dated: March 17, 2008

/s/  David J. Blair

Name:     David J. Blair

Title:  Chief Financial Officer

Dated: March 17, 2008

This certification accompanies the Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that Westmoreland Coal Company specifically incorporates it by reference.