-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQ+dfTodmHsadLQ0YVmYnrkBiZ8rfCg31ezFSdr5P/4+yelnDGXOnZM4aNa8KVMJ Dej21aCC81F2VwV2EUF0wQ== 0000916641-02-000037.txt : 20020413 0000916641-02-000037.hdr.sgml : 20020413 ACCESSION NUMBER: 0000916641-02-000037 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 42 FILED AS OF DATE: 20020110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELWOOD ENERGY LLC CENTRAL INDEX KEY: 0001163267 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541899492 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-76526 FILM NUMBER: 2506493 BUSINESS ADDRESS: STREET 1: C/O DOMINION ENERGY INC STREET 2: 120 TREDEGAR ST CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 804 819 2000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEOPLES ENERGY CORP CENTRAL INDEX KEY: 0000077385 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 362642766 STATE OF INCORPORATION: IL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-76526-01 FILM NUMBER: 2506494 BUSINESS ADDRESS: STREET 1: 24TH FLOOR STREET 2: 130 EAST RANDOLPH DRIVE CITY: CHICAGO STATE: IL ZIP: 60601-6207 BUSINESS PHONE: 312-240-4000 MAIL ADDRESS: STREET 1: 130 EAST RANDOLPH DRIVE CITY: CHICAGO STATE: IL ZIP: 60601 FORMER COMPANY: FORMER CONFORMED NAME: PEOPLES GAS CO/ DATE OF NAME CHANGE: 19600201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINION RESOURCES INC /VA/ CENTRAL INDEX KEY: 0000715957 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 541229715 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-76526-02 FILM NUMBER: 2506495 BUSINESS ADDRESS: STREET 1: 120 TREDEGAR STREET STREET 2: P O BOX 26532 CITY: RICHMOND STATE: VA ZIP: 23219 BUSINESS PHONE: 8048192000 MAIL ADDRESS: STREET 1: P O BOX 26532 STREET 2: 120 TREDEGAR STREET CITY: RICHMOND STATE: VA ZIP: 23219 S-4 1 ds4.txt FORM S-4 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- Form S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ELWOOD ENERGY LLC DOMINION RESOURCES, INC. PEOPLES ENERGY CORPORATION (Exact name of each registrant as specified in its charter) DELAWARE VIRGINIA ILLINOIS (State or other jurisdiction or incorporation or organization of each registrant) 4911 4911 4924 (Primary Standard Industrial Classification Code Number of each registrant) 54-1899492 54-1229715 36-2642766 (IRS Employer Identification No. of each registrant) 120 Tredegar Street 120 Tredegar Street 130 East Randolph Drive Richmond, Virginia 23219 Richmond, Virginia 23219 Chicago, Illinois 60601 Telephone 804-819-2000 Telephone 804-819-2000 Telephone 312-240-4347 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) D. Michael Jones Matthew G. Austin McGuireWoods LLP 901 East Cary Street Richmond, Virginia 23219 804-775-1000 (Name and address, including zip code and telephone number, including area code, of agents for service) with copies to: Robert L. Burrus, Jr. James F. Stutts Peter H. Kaufman McGuireWoods LLP Vice President and Assistant General Counsel One James Center General Counsel and Secretary 901 East Cary Street Dominion Resources, Inc. Peoples Energy Corporation Richmond, Virginia 23219 120 Tredegar Street 130 East Randolph Drive 804-775-1000 Richmond, Virginia 23219 Chicago, Illinois 60601 804-819-2000 312-240-4000 If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. |_| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed class of Amount maximum maximum Amount of securities to to be offering price aggregate registration be registered registered per unit offering price(1), (2) fee - ------------- ---------- -------- ---------------------- --- 8.159% Senior $396,400,140 100% $396,400,140 $94,739.64 Secured Notes Due 2026 Debt Service Reserve Guaranties (3) Total $396,400,140 $396,400,140 $94,739.64
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act. (2) The maximum aggregate offering price has been estimated based on the maximum stated principal amount of securities (taking into account principal payments due before the exchange offer will be consummated) to be received by Elwood Energy LLC in exchange for the securities to be issued in the exchange offer described herein. (3) No separate consideration will be received for the debt service reserve guaranties issued by Dominion Resources, Inc. and Peoples Energy Corporation. The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PROSPECTUS Elwood Energy LLC Exchange Offer 8.159% Senior Secured Bonds due 2026 ------------ Exchange Offer We are offering to exchange new bonds registered with the SEC for existing bonds we previously issued in an offering exempt from the SEC's registration requirements. The terms and conditions of the exchange offer are summarized below and more fully described in the prospectus. We will not receive any proceeds from this exchange offer, and we will pay all expenses associated with registering the new bonds. Expiration Date 5:00 p.m. (New York City time) on , 2002. Withdrawal Rights Any time before 5:00 p.m. (New York City time) on the expiration date. New Bonds The new bonds will have the same financial terms as the existing bonds. Interest on the new bonds will be payable on January 5 and July 5. The new bonds will not contain transfer restrictions. We do not plan to list the new bonds on any securities exchange. U.S. Federal Income We believe the exchange of existing bonds for new bonds Tax Considerations will not be a taxable event for U.S. federal income tax purposes, but you should read "Federal Income Tax Considerations" for more information. Use of Prospectus by Each broker-dealer that receives new bonds for its own Broker-Dealers account in this exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new bonds. The letter of transmittal to be used in connection with the exchange offer states that the broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933 by so acknowledging and delivering a prospectus. This prospectus, as amended and supplemented from time to time, may be used by a broker-dealer for resales of new bonds received in exchange for existing bonds if the existing bonds were acquired by the broker-dealer as a result of market- making or other trading activities. We have agreed that we will make this prospectus available to any broker- dealer for use in connection with any such resale for 90 days after the expiration date. For more information, see "Plan of Distribution". Investing in the bonds involves risk. See "Risk Factors" beginning on page . We are relying on the position of the SEC staff in certain interpretive letters to third parties to remove transfer restrictions on the new bonds. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is , 2002. ---------------- TABLE OF CONTENTS
Page ---- Prospectus Summary.................. 1 Risk Factors........................ 24 Cautionary Statements Regarding Forward-Looking Information........ 31 The Exchange Offer.................. 32 Proceeds............................ 41 Capitalization...................... 41 Selected Historical Financial Data.. 42 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 43 Our Business and Regulatory Environment........................ 45 Ownership and Management............ 54 Certain Relationships and Related Transactions....................... 56 Description of the Principal Project Documents.......................... 57
Page ---- Description of the New Bonds....... 95 Description of the Principal Financing Documents............... 101 Federal Income Tax Considerations.. 117 Plan of Distribution............... 121 Legal Matters...................... 122 Experts ........................... 122 Independent Engineer............... 122 Independent Power Market and Fuel Consultant........................ 122 Where You Can Find More Information....................... 123 Elwood Energy LLC Financial Statements........................ F-1 Annex A--Definitions Annex B--Independent Engineer's Report Annex C-1--Power Market Report Annex C-2--Fuel Consultant's Report
---------------- The bonds offered by this prospectus are obligations of Elwood Energy LLC and are not guaranteed by anyone else. We are required by the financing documents governing the bonds to maintain a debt service reserve account. Instead of depositing cash to meet this requirement, we may furnish a letter of credit or guaranty. For a more detailed discussion of this requirement, see "Description of the Principal Financing Documents--Deposit and Disbursement Agreement" beginning on page in the prospectus. We have initially elected to provide several guaranties of Dominion Resources, Inc. and Peoples Energy Corporation to meet this requirement. This prospectus incorporates by reference documents containing important business and financial information concerning Dominion Resources and Peoples Energy. You may obtain this information without charge from Dominion Resources or Peoples Energy by written or oral request as described under "Where You Can Find More Information" on page . To obtain timely delivery of this information, you should make your request by , 2002. PROSPECTUS SUMMARY In this prospectus, the words "Company", "we", "our", "ours" and "us" refer only to Elwood Energy LLC and not to any of our parent or sister companies or anyone else. The following summary contains basic information about us and the exchange offer. It does not contain all of the information that is important to you. For a more complete understanding of our business and financial status and the bonds that we are offering, you should read carefully this entire prospectus and the other documents that we will refer you to. THE EXCHANGE OFFER On October 23, 2001, we completed an offering of $402,000,000 of 8.159% Senior Secured Bonds due 2026. That offering was exempt from the SEC's registration requirements. In connection with that offering, we entered into a registration rights agreement with the initial purchasers that obligated us to use our reasonable best efforts to complete this exchange offer within 270 days. Terms of the Exchange. Following the initial scheduled principal payment date on January 5, 2002, $396,400,140 of the existing bonds remain outstanding. We are offering to exchange equal principal amounts of 8.159% Senior Secured Bonds due 2026 that have been registered under the Securities Act for all currently outstanding bonds. The form and terms of the new bonds will be identical to those of the existing bonds, except that the new bonds have been registered under the Securities Act and will not bear legends restricting their transfer. The new bonds will be issued under the same indenture and will be secured by the same assets. The new bonds will be issued in a minimum amount of $100,000 and in multiples of $100.00 in excess of $100,000, and may be exchanged for existing bonds only in those amounts. Interest on the Bonds. The new bonds will bear interest from January 5, 2002, the most recent date to which interest has been paid on the existing bonds. If your existing bonds are accepted for exchange, then you will receive interest on the new bonds and not on the existing bonds. Resale of the New Bonds. Based on SEC staff interpretations in no-action letters to third parties, we believe that the new bonds may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act so long as: . you are acquiring the new bonds in the ordinary course of your business; . you are not participating, do not intend to participate and have no agreement or understanding with any person to participate, in a distribution of the new bonds; . you are not a broker or dealer who purchased existing bonds for resale under Rule 144A or any other available exemption under the Securities Act; and . you are not our "affiliate" (as defined in Rule 405 under the Securities Act). If our belief is inaccurate and you transfer any new bond without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration under the Securities Act, you may incur liability under the Securities Act. We do not assume or indemnify you against that liability. Each broker-dealer that receives new bonds for its own account in this exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new bonds. The letter of transmittal to be used in connection with the exchange offer states that the broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act by so acknowledging and delivering a prospectus. This prospectus, as amended and supplemented from time to time, may be used by a broker-dealer for resales 1 of new bonds received in exchange for existing bonds if the existing bonds were acquired by the broker-dealer as a result of market-making or other trading activities. We have agreed that we will make this prospectus available to any broker-dealer for use in connection with any such resale for 90 days after the expiration date. For more information, see "Plan of Distribution". Accepting the Exchange Offer. If you wish to exchange an existing bond, you must properly tender it in accordance with the terms described in this prospectus. We will exchange all existing bonds that are validly tendered, and not validly withdrawn, before the expiration date, subject to the conditions described under "The Exchange Offer--Conditions to the Exchange Offer". We will issue new bonds on, or promptly after, the expiration date. Expiration Date. The expiration date of the exchange offer will be 5:00 p.m. (New York City time) on , 2002. Withdrawal Rights. You may withdraw your tender of existing bonds at any time before the expiration date. Conditions. The exchange offer is not contingent on any minimum amount of existing bonds being tendered for exchange. We may terminate the exchange offer or amend its terms if we determine at any time that the exchange offer may violate any applicable law, regulation or interpretation of the SEC staff or if the registration statement of which this prospectus is a part is subject to any SEC stop order. Procedures for Tendering Bonds. If you wish to tender your bonds, you must forward to the exchange agent before the expiration date . a properly completed and duly executed letter of transmittal, with any required signature guarantees, including all documents required by the letter of transmittal; or . if the existing notes are tendered in accordance with the book entry procedures described in this prospectus, an agent's message instead of a letter of transmittal together with . your existing bonds; or . a timely book entry confirmation of transfer of the existing notes into the exchange agent's account at the Depositary Trust Company; or . the documentation required by the guaranteed delivery procedures described in this prospectus. Note to Beneficial Owners. If you are a beneficial owner of existing bonds that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian, you must contact the record holder promptly if you wish to participate in this exchange offer. Guaranteed Delivery Procedures. If you wish to tender existing bonds and . they are not immediately available; or . time will not permit delivery of the existing bonds and all required documentation to the exchange agent before the expiration date; or . you cannot complete the procedures for book entry transfer on a timely basis you may nevertheless validly tender the existing bonds if you comply with all the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for Tendering Existing Notes". 2 U.S. Federal Income Tax Consequences. We believe the exchange of existing bonds for new bonds will not be a taxable event for U.S. federal income tax purposes. For additional information and a discussion of other U.S. federal income tax consequences of exchanging, acquiring, owning and disposing of the new bonds, see "Federal Income Tax Considerations". Proceeds. We will not receive any proceeds from the issue of the new bonds in the exchange offer. We will pay all costs of registering the new bonds and all fees and expenses of our counsel, accountants and the exchange agent in connection with the exchange offer. Exchange Agent. The exchange agent is Bank One Trust Company, National Association. Its address is 1 Bank One Plaza, Mail Code IL 1-0134, Chicago, Illinois 60670-0134, Attention: Exchange Floor, Global Corporate Trust Services. THE COMPANY Elwood Energy LLC. We are a Delaware limited liability company formed in 1998 for the purpose of developing, constructing, owning and operating a natural gas-fired, electric generation peaking facility in Elwood, Illinois, about 50 miles southwest of Chicago. We are indirectly owned in equal shares by Dominion Energy, Inc. ("DEI") and Peoples Energy Resources Corp. ("PERC"). DEI is the principal independent power subsidiary of Dominion Resources, Inc., a fully integrated gas and electric holding company with nearly 4 million customers, a 22,000 megawatt portfolio of electric power generation, 7,600 miles of gas transmission pipeline and an over 950 billion cubic foot natural gas storage network. PERC is a wholly-owned subsidiary of Peoples Energy Corporation, a diversified energy holding company which, through its subsidiaries, engages principally in natural gas utility operations and other energy businesses. Peoples Energy Corporation has assets of approximately $3.1 billion and serves approximately one million retail customers through a 6,000- mile distribution system in the City of Chicago and 54 other communities in northeastern Illinois. Our Facility. Our facility is a 1,409 megawatt electric generation peaking facility, consisting of nine natural gas-fired, simple-cycle units of approximately 156.5 megawatts each. Natural gas-fired units use natural gas as a fuel; simple-cycle units use natural gas-fired turbines to generate electricity on a stand-alone basis. Units 1-4 were completed in 1999 and have been in operation since then. Construction on Units 5-9 began in July 2000, and they reached commercial operation between May and July 2001. All nine units were built by General Electric Company under fixed price, turnkey contracts and use GE-7FA combustion turbines. See "Our Business and Regulatory Environment-- Description of Facility." 3 Ownership Structure. The following chart details our ownership structure: [OWNERSHIP STRUCTURE CHART] Project Participants. The following table identifies some of the principal customers and suppliers of, and participants in, our Facility: [PROJECT PARTICIPANTS CHART] Aquila/UtiliCorp............ Aquila Energy Marketing Corporation ("AEMC") and UtiliCorp United, Inc. ("UtiliCorp"), which together are responsible for the purchase of energy and capacity of Units 5-8. Cinergy..................... Cinergy Marketing & Trading LLC, with which we have an agreement for fuel supply and management for our facility. 4 ComEd....................... Commonwealth Edison Company, which supplies interconnection services for electric transmission for our facility. DEI......................... Dominion Energy, Inc., one of our indirect owners. DELSCO...................... Dominion Elwood Services Company, Inc., a wholly- owned subsidiary of DEI that provides operation and maintenance services for us. Dominion Elwood, Inc. ...... A wholly-owned subsidiary of DEI and the holder of a 50% membership interest in us. Elwood II Holdings.......... Elwood II Holdings, LLC, our wholly-owned subsidiary, which is a party to two turbine procurement agreements with GE and an equipment sales agreement with us covering the turbines for Units 5-6. Elwood III Holdings......... Elwood III Holdings, LLC, our wholly-owned subsidiary, which is a party to two turbine procurement agreements with GE and two equipment sales agreements with us covering the turbines for Units 7-9. Engage...................... Engage Energy America LLC, successor to the original purchaser of energy and capacity of Units 1-2. Engage has sold the energy and capacity to Exelon and has appointed Exelon as its agent to dispatch the units. Exelon...................... Exelon Generation Company, LLC, which is responsible for the purchase of energy and capacity of Units 1-4 and 9. GE.......................... General Electric Company, the engineering, procurement and construction contractor for our Facility. Moody's..................... Moody's Investors Service, Inc. Nicor....................... Northern Illinois Gas Company d/b/a Nicor Gas Company, which supplies gas transportation and balancing services for our Facility. PERC........................ Peoples Energy Resources Corp., one of our indirect owners. PGL......................... The Peoples Gas Light and Coke Company, an affiliate of PERC, which owns the 24-inch pipeline through which natural gas is physically delivered to us. Pace........................ Pace Global Energy Services, LLC, the independent power market and fuel consultant, which has prepared the reports included as Annex C-1 and Annex C-2 to this prospectus. Peoples Elwood, LLC......... A wholly-owned subsidiary of PERC and the holder of a 50% membership interest in us. S&P......................... Standard & Poor's Ratings Group Stone & Webster............. Stone & Webster Consultants, Inc., the independent engineer, which has prepared the report included as Annex B to this prospectus. 5 Selected Consolidated Financial Data The following summary historical financial data was derived from the audited historical consolidated financial statements of the Company.
Years Ended September 30, ----------------------------------- 2001 2000 1999 1998 -------- -------- -------- ------- Statement of Operations Data: Operating Revenues....................... $ 96,467 $ 56,849 $ 25,593 $ -- Income before cumulative effect of a change in accounting principle.......... 49,214 30,356 17,028 -- Balance Sheet Data: Total assets............................. 581,398 350,913 220,953 28,409 Long-term obligations.................... 14,437 130,126 -- -- Other Data: Ratio of earnings to fixed charges (1)... 4.1x 11.9x -- --
Intercompany transactions have been eliminated. - -------- (1) In computing the ratio of earnings to fixed charges, "earnings" are determined by adding total fixed charges (including interest capitalized) and amortization of interest capitalized to income before cumulative effect of a change in accounting principle. "Fixed charges" consist of interest charges and interest capitalized. Since the bonds were not issued until October 2001, historical ratio computations do not include debt service obligations associated with them. Power Sales. We have entered into four long-term power sales agreements with three purchasers as shown in the table on the following page. The power sales agreements provide for payment to us of (1) a monthly fixed fee "capacity charge" based on the tested capacity of the units, as adjusted for the performance reliability of our facility to meet dispatch; and (2) an energy payment composed of a fuel charge based on a published index price of gas and our facility's heat rate, plus certain variable operating and maintenance expenses. The overall effect of these contracts is to index energy pricing to the market price of natural gas, thereby mitigating our natural gas price risk. 6
Units Units 1-2 Units 1-4 & 9 Units 5-6 Units 7-8 - ----------------------------------------------------------------------------------------------------------- Summer Capacity 313 MW (sold 783 MW (includes 313 MW 313 MW by Engage to 313 MW purchased Exelon) from Engage through 2004) - ----------------------------------------------------------------------------------------------------------- Term Through Units 1-2: 1/1/05 Through 08/31/16 Through 08/31/17 12/31/04 through 12/31/12 (During Units 3-4: Through remaining 12/31/12 term, Engage Unit 9: Through PSA is trued 12/31/12 up to the economics of Exelon PSA) - ----------------------------------------------------------------------------------------------------------- Extension Term None None 09/01/16-08/31/21 09/01/17-08/31/22 (at (at Aquila/UtiliCorp's Aquila/Utilicorp's option) option) - ----------------------------------------------------------------------------------------------------------- Rating/Security Parent Exelon (Baa1/A-) UtiliCorp UtiliCorp (Baa3/BBB) Guarantee by (Baa3/BBB) is co- is co-obligor. If Westcoast obligor. If UtiliCorp's rating Energy, Inc UtiliCorp's rating falls below (NR/A-) for falls below investment grade, a $67 million investment grade, six month capacity (tied to a six month charge LC is capacity capacity charge LC required. More of a payment is required. More downgrade requires a obligations; of a downgrade 12 month LC. declines over requires a 12 time) month LC. - ----------------------------------------------------------------------------------------------------------- Key Terms Dispatch limit (per 1,500 hours 1,500 hours per 2,500 hours per 2,500 hours per year unit): per year year (Unit 9 @ year 1,400 for 2001) Guaranteed availability: 95% Summer 97% Summer 97% Summer 97% Summer Minimum load: 60% 60% 60% 60% Contracted heat rate: N/A 10,900 Btu/kWh 10,787 Btu/kWh 10,787 Btu/kWh Dispatch Notice: One hour/Jun- One hour/Jun-Sep One hour & 25 One hour & 25 Sep 0600-2200, 0600-2200, Mon-Fri minutes/Jun-Aug minutes/Jun-Aug Mon-Fri Three Four hours/All 0600-2200, Mon-Sat 0600-2200, Mon-Sat hours/All other periods Three hours/Sep Three hours/Sep Day other periods Day ahead/All ahead/All other other - ----------------------------------------------------------------------------------------------------------- Capacity Charge $5.00/kW-m Jan-May: $2.72/kW-m Through Dec 2001: Through Dec 2001: (in kW per month) Jun: $6.53/kW-m 7.90/kW-m $7.39/kW-m Jan 2002- Jul-Aug: $9.79/kW-m Jan 2002-Aug 2016: Aug 2017: $5.11/kW-m Sep: $4.35/kW-m $5.11/kW-m Sep 2017-Aug 2022: Oct-Dec $2.72/kW-m Sep 2016-Aug 2021: $4.90/kW-m $4.90/kW-m - ----------------------------------------------------------------------------------------------------------- Energy Charge $30-$35 per Fuel Charge + Fuel Charge + Fuel Charge + MWh $1.50/MWh $1.00/MWh $1.00/MWh (escalated) (before Exelon (escalated) (escalated) true-up) - ----------------------------------------------------------------------------------------------------------- Fuel Charge Base Fuel Charge: N/A Fuel Index Value + Fuel Index Value + Fuel Index Value + 32(cents)/MMBtu 10(cents)/MMBtu 10(cents)/MMBtu Changes to day-ahead N/A Fuel Index Value + Fuel Index Value + Fuel Index Value + schedule (Summer/Peak): 32(cents)/MM Btu 15(cents)/MMBtu 15(cents)/MMBtu Changes to day-ahead N/A Base Fuel Charge + Base Fuel Charge + Base Fuel Charge + schedule 32(cents)/MM Btu + Quoted applicable Quoted applicable (Non-Summer/Non-Peak): applicable volumetric volumetric balancing volumetric balancing cost cost balancing cost - ----------------------------------------------------------------------------------------------------------- Start-up Charge: $2,500 $3,250 (escalated) $2,500 (escalated) $2,500 (escalated) - -----------------------------------------------------------------------------------------------------------
Fuel Index Value = Gas Daily, Daily Price Survey, Midpoint for Chicago-LDCs, large end users 7 Our agreement with Engage covers Units 1-2 through December 31, 2004; our agreement with Exelon covers Units 3, 4 and 9 through December 31, 2012 and Units 1-2 from January 1, 2005 through December 31, 2012; and our two agreements with Aquila/UtiliCorp cover Units 5-6 and 7-8 for terms expiring on August 31, 2016 and August 31, 2017, respectively. Aquila/UtiliCorp may extend the term of each of its contracts by an additional five years at its option. In connection with its analysis of the Mid-America Interconnected Network ("MAIN") electric power market, Pace has concluded that based on the payment structure of the Aquila/UtiliCorp power sales agreements, our facility's forecast dispatch profile, forecast market-clearing prices and the energy and capacity revenues and volatility values for Aquila/UtiliCorp from reselling the output and capacity of Units 5-8, it is likely that Aquila/UtiliCorp will have economic incentives to exercise these extension options. See "Annex C-1-- Executive Summary--Power Sales Agreements--Extension of Aquila Power Sales Agreements." When our agreements with Exelon and Aquila/UtiliCorp expire, we plan to enter into new long-term power sales agreements (by extending or renewing contracts with our existing customers or entering into new third party contracts). If we cannot enter into long-term power sales agreements, we will sell the capacity and energy from our facility on a "merchant" basis. Merchant marketing may involve the sale of the capacity and energy of the facility on a shorter-term "spot" basis and/or the use of hedging products to manage volatility. Engage has sold the energy and capacity of Units 1 and 2 during the remaining term of its contract with us to Exelon and has appointed Exelon as its agent to dispatch the units. We have entered into a "true up" arrangement with Exelon that puts both of us in essentially the same economic position as would exist if Units 1 and 2 were currently part of the Exelon contract. The "true up" calculates the differences between various pricing and operational parameters of our agreement with Engage and those in our agreement with Exelon. The difference will appear as an increase or a decrease to the monthly payment calculation under the Exelon agreement such that the ultimate cost of Exelon's purchase of energy and capacity from Engage for Units 1 and 2 is effectively the same as if Exelon purchased the capacity and energy of Units 1 and 2 directly from us under its agreement with us. We continue to bill, and receive payments from, Engage, in accordance with the terms of our agreement with Engage. So long as all parties perform their obligations, we are in essentially the same position we would be if the Exelon power sales agreement already covered all five units. Exelon and Aquila/UtiliCorp have exclusive rights to dispatch the units to which their respective contracts apply, but they must provide advance notice approximately one hour before start-up in the summer peak period hours and four hours before start-up in all other periods. Once dispatched, the units must generally run for no less than four hours. For a more complete description of our power sales agreements, see "Description of the Principal Project Documents--Power Sales Agreements." Exelon is the largest competitive electric generation company in the United States, as measured by owned and controlled megawatts. Exelon owns generation assets in the Mid-Atlantic and Midwest regions with net capacity of 19,159 MW, including 13,949 MW of nuclear capacity. Exelon also controls another 16,013 MW of capacity in the Midwest, Southeast and South Central regions through long- term power purchase agreements. Exelon has a 49.9% interest in Sithe Energies which owns and operates generation facilities and currently has 9,879 MW of capacity in operation, under construction or in advanced development. In addition, Exelon owns a 50% interest in AmerGen Energy Company, LLC, which owns three nuclear stations with a total generation capacity of 2,378 MW. The Exelon Power Team division is a major wholesale marketer of energy that uses Exelon's generation portfolio, transmission rights and expertise to provide generation to wholesale customers under long and short-term contracts. ComEd and Exelon are both units of Chicago-based Exelon Corporation, one of the nation's largest electric utilities. ComEd provides electric service to more than 3.4 million customers across Northern Illinois, covering 70 percent of the state's population. 8 Exelon's long term unsecured debt is rated "Baa1" by Moody's Investors Service, Inc. ("Moody's") and "A-" by Standard & Poor's Ratings Group ("S&P"). Engage Energy US, LP was originally formed in 1997 as a joint venture of the Coastal Corporation of Houston, Texas and Westcoast Energy Inc. of Vancouver, Canada. Engage Energy US, LP offered a range of energy services, including natural gas marketing and trading, electricity trading and sales, energy management services, structured storage and transportation related services. The joint venture was terminated on September 25, 2000. Following the termination, Westcoast Energy Inc. retained the right to use the Engage Energy name and certain natural gas and electric power endeavors. Westcoast Energy Inc. has substituted Engage Energy America LLC as the contract party in the power sales agreement with us. Westcoast Energy's long-term unsecured debt is rated "A-" by S&P and is unrated by Moody's. AEMC is a subsidiary of Aquila, Inc. which is based in Kansas City. UtiliCorp is the majority owner of Aquila, Inc. Aquila, Inc. is a leading wholesale energy merchant with a geographically diverse asset base and transportation network that includes electric power generation plants; natural gas gathering, transportation, processing and storage assets; and a coal blending and storage facility. UtiliCorp is a gas and electric utility serving over four million customers. UtiliCorp's long term unsecured debt is rated "Baa3" by Moody's and "BBB" by S&P. Fuel Supply. We have contracted for the purchase of firm gas supplies, as needed and generally only when our facility consumes gas, at a daily spot gas price under a fuel supply and management agreement with Cinergy. Pricing under this agreement references a published daily spot price, plus a nominal premium, which corresponds to the rate we charge for energy sold under our power sales agreements with Exelon and Aquila/UtiliCorp. Cinergy uses our retail gas agreement with Nicor to acquire gas supplies from the interstate pipelines described below, Nicor storage, Nicor supply or other sources at the Chicago hub to deliver supplies to Nicor and PGL for our facility's account. Under the Nicor contract, Cinergy may procure interstate supplies from Northern Border Pipeline Company ("NBPL"), Alliance Pipeline Company ("APL") or Natural Gas Pipeline Company of America ("NGPL"). These interstate pipelines allow Cinergy to acquire supplies from an array of supply regions, including Western Canada, the U.S. Rocky Mountains, the Mid-Continent region, and Gulf Coast sources, at the Chicago hub. The Cinergy contract terminates on April 30, 2002. The Cinergy service was bid and awarded in February 2001 at a time when natural gas supply prices were abnormally high. Natural gas prices have since declined and we have completed our first summer of operations as an expanded facility. We therefore believe we have the opportunity to enter into a contract on more favorable terms for a multi-year period with Cinergy or another national energy marketing company. For a more detailed description of our agreement with Cinergy, see "Description of the Principal Project Documents--Fuel Agreements." We believe we will have an ample supply of natural gas for our Facility. As our independent fuel consultant, Pace, has noted, we currently have the flexibility to acquire abundant gas supplies from numerous sources. A number of high pressure, high deliverability gas pipelines interconnect near Chicago and are linked to gas reserves in upstream basins. Pace expects that the gas resources from these basins will continue to be available through the term of the bonds. In addition, the development of liquid trading points throughout the United States and Canada and the Midwest's favorable location on the natural gas transportation grid should facilitate access to diverse sources and flexibility in meeting specific supply requirements. See "Annex C-2 --Risks and Risk Mitigation--Adequacy of Supply." Cinergy Corp., Cinergy's parent company, is a leading diversified energy company with year 2000 revenues of $8.4 billion. Cinergy Corp. has physical and financial gas trading capabilities of 35 billion cubic feet per day, and its regulated operations serve 500,000 gas customers. Cinergy's long term unsecured debt is rated "Baa2" by Moody's and "BBB+" by S&P. 9 Gas Pipeline Interconnections and Fuel Transportation Services. PGL is the owner and operator of the pipeline delivering gas to the Facility, but Nicor holds the utility franchise for gas delivery services in the region where our facility is located. We have entered into a long-term transportation and storage balancing service agreement with Nicor for firm (non-interruptible) hourly delivery of fuel supplies to meet the firm power dispatch obligations at the Facility. Because Nicor only owns meters at our facility, Nicor renders this service with the support of PGL, through a companion agreement that contains substantially the same terms and conditions as our agreement with Nicor. See "Description of the Principal Project Documents--Fuel Agreements-- Nicor Transportation & Balancing Agreement." Nicor's year 2000 revenues were $2.3 billion. It provides natural gas service to more than 5.7 million people through a 29,000 mile distribution system. Nicor's long term unsecured debt is rated "A1" by Moody's and "AA" by S&P. Electric Interconnection. Interconnection to the electric power grid is provided by ComEd via a switchyard that we have constructed. See "Description of the Principal Project Documents--Interconnection Agreements." Transmission service beyond the interconnection point is currently the responsibility of our customers. Water Supply. The water supply for the Facility comes from wells on adjacent property owned by PERC. Our simple-cycle units require limited amounts of water in connection with their operations. PERC also provides other facility support and services to our Facility. See "Description of the Principal Project Documents--Common Facilities Agreement." Operations and Maintenance. We have no employees of our own. Operations and maintenance support is furnished by DELSCO under an operation and maintenance agreement which provides for the payment of an annual fee of $650,000, indexed to inflation, plus reimbursement for out-of-pocket costs. See "Description of the Principal Project Documents--Operations and Maintenance Agreement." Regulation. We have been certified as an exempt wholesale generator by the Federal Energy Regulatory Commission and are subject to its jurisdiction as to wholesale electric rates and other matters. We engage solely in wholesale sales of electricity to our power customers and are currently authorized to sell to such customers at market-based rates. Because of the nature of our business, we are subject to extensive environmental regulation. We are in material compliance with all applicable federal, state and local environmental laws and regulations. See "Our Business and Regulatory Environment--Competition and Energy Regulation and --Environmental Regulation." Risk Factors. We operate only a single facility in a heavily regulated environment that is currently subject to intense public scrutiny because of the volatile electric power market that prevailed in California during the past year. We are dependent on a limited number of customers and suppliers of fuel and services for the successful operation of our business. Investing in the bonds therefore involves operating, market, regulatory, financial and bankruptcy risks that are more fully described under "Risk Factors." 10 The New Bonds Securities Offered...... $396,400,140 principal amount of 8.159% Senior Secured Exchange Bonds due 2026. Issuer.................. Elwood Energy LLC Maturity Date........... July 5, 2026. Interest Payment Dates.. January 5 and July 5 Scheduled Principal We will be required to pay principal of the bonds every Payments................ six months on each January 5 and July 5, as follows:
Percentage of Principal Payment Date Amount Payable* ------------ --------------- Jan 5, 2002.......................... 1.393% Jul 5, 2002.......................... 0.632 Jan 5, 2003.......................... 2.903 Jul 5, 2003.......................... 0.530 Jan 5, 2004.......................... 2.998 Jul 5, 2004.......................... 0.669 Jan 5, 2005.......................... 3.194 Jul 5, 2005.......................... 0.978 Jan 5, 2006.......................... 3.478 Jul 5, 2006.......................... 1.100 Jan 5, 2007.......................... 3.460 Jul 5, 2007.......................... 1.179 Jan 5, 2008.......................... 3.644 Jul 5, 2008.......................... 1.361 Jan 5, 2009.......................... 3.801 Jul 5, 2009.......................... 1.542 Jan 5, 2010.......................... 4.007 Jul 5, 2010.......................... 1.639 Jan 5, 2011.......................... 4.139 Jul 5, 2011.......................... 1.833 Jan 5, 2012.......................... 4.443 Jul 5, 2012.......................... 2.313 Jan 5, 2013.......................... 5.061 Jul 5, 2013.......................... 0.093 Jan 5, 2014.......................... 1.949 Jul 5, 2014.......................... 0.014 Jan 5, 2015.......................... 1.852 Jul 5, 2015.......................... 0.018 Jan 5, 2016.......................... 2.057 Jul 5, 2016.......................... 0.013 Jan 5, 2017.......................... 1.421 Jul 5, 2017.......................... 0.064 Jan 5, 2018.......................... 3.212 Jul 5, 2018.......................... 0.081 Jan 5, 2019.......................... 3.592
11
Percentage of Principal Payment Date Amount Payable ------------ -------------- Jul 5, 2019........................... 0.042% Jan 5, 2020........................... 3.846 Jul 5, 2020........................... 0.265 Jan 5, 2021........................... 4.879 Jul 5, 2021........................... 0.130 Jan 5, 2022........................... 6.410 Jul 5, 2022........................... 0.401 Jan 5, 2023........................... 4.991 Jul 5, 2023........................... 0.161 Jan 5, 2024........................... 2.366 Jul 5, 2024........................... 0.192 Jan 5, 2025........................... 2.991 Jul 5, 2025........................... 0.291 Jan 5, 2026........................... 1.943 Jul 5, 2026........................... 0.429
* Percentages are based on the initial aggregate principal amount of the existing bonds ($402,000,000). New bonds will be issued in the same nominal amounts and any payments of principal on the existing bonds before the exchange offer is completed will be credited against the new bonds. Initial Average Life........ Approximately 12.0 years. Preliminary Ratings......... It is expected that the bonds will be rated "Baa3" by Moody's and "BBB-" by S&P. Denomination................ We will issue the bonds in minimum denominations of $100,000 or any integral multiple of $100.00 in excess of that amount. Ranking of the Bonds........ The bonds will be senior secured obligations and will rank equally in right of payment with all of our other existing and future senior secured obligations. The new bonds and any existing bonds that remain outstanding will be a single series. Non-Recourse Obligations.... The obligations to pay principal of, premium, if any, and interest on the bonds will be solely our obligations. Neither our members, nor any of our affiliates, employees, officers, or directors or any other person or entity will guarantee the bonds or have any other obligation to make payments on the bonds. Collateral.................. The bonds will be secured by: . a first priority mortgage on our interest (which includes a leasehold interest) in our facility site, all fixtures thereon and all related easements, rights-of-way, servitudes, licenses and similar real property rights; . a first priority security interest in all of our personal property, including, all of our equipment, inventory and other goods used in connection with our facility, all of our rights under the project documents to which we are a party, all accounts established by us under the deposit and disbursement agreement (other than the distribution account) and all funds on deposit therein, and all assignable governmental approvals obtained in connection with our facility; 12 . a pledge of all of the membership interests held in us by our members; and . a pledge of all of the membership interests we hold in Elwood II Holdings and Elwood III Holdings, our wholly-owned subsidiaries, and a first priority security interest in payments made by us to Elwood II Holdings and Elwood III Holdings under the equipment sales agreements. Redemption at the Option of the Issuer................. We may redeem any or all of the bonds at a redemption price equal to: . 100% of the principal amount of the bonds being redeemed, plus . accrued and unpaid interest on the bonds being redeemed, plus . a make-whole premium which is based on the rates of U.S. treasury securities having an interpolated maturity equal to the remaining average life of the bonds plus 50 basis points. Mandatory Redemption Without Make-Whole Premium.................... If our facility is damaged or destroyed or taken by eminent domain, or if there is a defect in our title to the facility site, and . we receive more than $5,000,000 of insurance or other proceeds because of the damage, destruction, taking or defect and we decide not to, or cannot, restore the facility or fix the title defect to make the facility operate on a commercially feasible basis, then we must use the proceeds we receive in excess of $5,000,000 to redeem bonds and prepay our other senior secured obligations; or . we receive insurance or other proceeds because of the damage, destruction, taking or defect and more than $5,000,000 of the proceeds are left over after we have restored the facility or fixed the title defect to make the facility operate on a commercially feasible basis, then we must use the remaining proceeds in excess of $5,000,000 to redeem bonds and prepay our other senior secured obligations. If we receive more than $10,000,000 of proceeds from involuntary buy-outs of our power sales agreements, then we must use the proceeds in excess of $10,000,000 to redeem bonds and prepay our other senior secured obligations unless both Moody's and S&P confirm that the buy-out will not result in a downgrade of their then current ratings of the bonds. If we receive more than $5,000,000 of proceeds in connection with a disposition of assets permitted by the terms of the indenture, then we must use the proceeds in excess of $5,000,000 to redeem bonds and to prepay our other senior secured obligations. If we are required to redeem bonds with any of the proceeds described above, then the redemption price will be 100% of the principal amount of the bonds being redeemed plus accrued and unpaid interest on the bonds being redeemed. 13 Mandatory Redemption With Make-Whole Premium......... If we receive more than $10,000,000 of proceeds from voluntary buy-outs of our power sales agreements, then we must use the proceeds in excess of $10,000,000 to redeem bonds and prepay our other senior secured obligations, unless both Moody's and S&P confirm that the buy-out will not result in a downgrade of their initial rating of the bonds. If we are required to redeem bonds with the proceeds of voluntary power sales agreement buy-outs, then the redemption price will be 100% of the principal amount of the bonds being redeemed, plus accrued and unpaid interest on the bonds being redeemed, plus a make-whole premium which is based on the rates of U.S. treasury securities having an interpolated maturity equal to the remaining average life of the bonds plus 50 basis points. Redemption at the Option of the Bondholders............ If funds remain on deposit in the distribution suspense account for at least 12 months in a row, and . we decide to have the holders of the bonds vote on whether we should use those funds to redeem bonds, and . holders of at least 66 2/3% of the outstanding bonds vote to require us to use those funds to redeem bonds, then we will have to use the funds which have remained on deposit in the distribution suspense account for at least 12 months in a row to redeem bonds and our other senior secured obligations. If we are required to redeem bonds with those funds, then the redemption price will be 100% of the principal amount of the bonds being redeemed plus accrued and unpaid interest on the bonds being redeemed. Change of Control........... If DEI (or Dominion Resources, Inc. or any successor entity that is a majority-owned subsidiary of Dominion Resources, Inc.) and PERC (or Peoples Energy Corporation or any successor entity that is a majority-owned subsidiary of Peoples Energy Corporation), collectively, cease to own, directly or indirectly, at least 50.1% of the membership interests in us, then we will be required, at the request of any holder of the bonds, to purchase bonds held by such holder at a purchase price equal to 101% of the aggregate principal amount of the bonds being redeemed plus accrued and unpaid interest unless this change of ownership resulted from a transfer to a "qualified transferee" or at least 66 2/3% of the holders of the outstanding bonds approve the change in ownership. A "qualified transferee" is any person that acquires membership interests in us after the date of this offering so long as: . such person has, or is controlled by a person that has, significant experience in the business of owning and operating facilities similar to our facility and an investment grade rating from both S&P and Moody's; 14 . the acquisition does not result in a default or event of default under the indenture; . the acquisition could not reasonably be expected to result in a material adverse effect on us, our business or our ability to perform under the transaction documents; . the collateral agent receives a pledge of and lien on the acquired membership interests; and . each of S&P and Moody's confirms the then current ratings on the bonds. Operating Flow of Funds..... We will deposit all of our revenues into the revenue account and the administrative agent will disburse these revenues each month (except as indicated below) in the following order of priority: . First, to the O&M account to pay operating and maintenance expenses (including the repayment of any working capital facility used to pay operating and maintenance expenses) expected to be incurred in the next month; . Second, on the last day of each quarter beginning March 31, 2006 and ending on the date final payment is due with respect to certain sales tax obligations (which is anticipated to occur in 2011), an amount equal to the sales tax reserve requirement; . Third, to the debt service payment account in an amount equal to 1/6 of all senior debt service (other than principal on debt service reserve letter of credit loans, but including principal on debt service reserve letter of credit bonds) that will be due on the next semi-annual bond payment date together with the appropriate portion of senior debt service payable more frequently than on a semi-annual basis; . Fourth, to the DSR letter of credit loan principal account, in an amount (together with amounts already on deposit therein) equal to the appropriate portion of principal of debt service reserve letter of credit loans calculated based on the amortization schedule for such loans; . Fifth, to the debt service reserve account, in an amount that, together with all amounts then on deposit therein, is equal to the senior debt service that will be due on the next semi-annual bond payment date (or, in certain circumstances beginning in 2013 an amount equal to the aggregate senior debt service that will be due on the next two bond payment dates); . Sixth, to the major maintenance reserve account in an amount equal to 1/6 of the difference between the scheduled balance in the account as of the next bond payment date (determined in annual consultation with the independent engineer) and amounts already on deposit therein or credited thereto as of the preceding bond payment date; 15 . Seventh, beginning in December 2012 and ending in December 2023, to the PSA contingency reserve account, in an amount that equals the then current PSA contingency reserve requirement; and . Eighth, to the distribution suspense account. If the distribution conditions set forth in the indenture are satisfied on any scheduled bond payment date, funds in the distribution suspense account may be transferred to the distribution account for distribution to us (See "Description of the Principal Financing Documents--Indenture-- Certain Covenants--Distributions"). 12-Month Debt Service Reserve Requirement........ Beginning in 2013, we will be required to fund the debt service reserve account with an amount equal to the senior debt service that will be due on the next two scheduled bond payment dates unless: . we are party to power sales agreements meeting requirements specified in the indenture covering, in the aggregate, 75% or more of our facility's capacity for the consecutive period of four quarters following any date of determination; and either: . we have provided a guaranty from an entity that is rated at least "BBB" by S&P and "Baa2" by Moody's that will guarantee the difference between the amount of the debt service reserve calculated for two bond payment dates and the amount of the debt service reserve calculated for one bond payment date; or . each of S&P and Moody's confirms that the failure to provide such a guaranty will not result in a downgrade of the then current rating of the bonds. Reserve Account Letters of Credit and Guaranties...... We will be permitted to fund the sales tax reserve account, the major maintenance reserve account, the PSA contingency reserve account and the debt service reserve account, with separate acceptable letters of credit issued by a bank or other financial institution rated at least "A" by S&P and at least "A2" by Moody's. We will not be the account party on any sales tax reserve letter of credit, any major maintenance letter of credit or any PSA contingency letter of credit, but will be permitted to be the account party on any debt service reserve letter of credit. However, we will not be permitted to be the account party on any debt service reserve letter of credit unless, at the time of issuance, each of S&P and Moody's confirms that there will be no downgrade in the then current ratings on the bonds as a result of indebtedness incurred in respect of the DSR letter of credit or the underlying letter of credit agreement. Each drawing under a debt service reserve letter of credit will be converted into a loan (which we refer to as a debt service reserve letter of credit loan) that will mature in not less than five years after such drawing. Any such loan that is outstanding five years after the bonds are initially issued may be converted into a bond (which we refer to as a debt service reserve letter of credit bond). 16 We will also be permitted to satisfy our sales tax, major maintenance, PSA contingency and debt service reserve requirements through the issuance of one or more guaranties by entities whose long- term senior unsecured debt is rated at least "BBB" by S&P and "Baa2" by Moody's. We initially plan to provide several guaranties issued by Dominion Resources, Inc. and Peoples Energy Corporation instead of depositing cash to maintain the debt service reserve requirement. Covenants................... We will agree to, among other things: . maintain our existence, . obtain and comply with applicable governmental approvals, . comply with applicable laws, . maintain insurance for our facility, . provide financial statements, default notices and other notices to the trustee, . prepare a major maintenance plan, . maintain our status as an exempt wholesale generator, and . pay our taxes. We will agree not to, among other things: . create any lien on our properties other than permitted liens (see "Description of the Principal Financing Documents--Indenture-- Certain Covenants--Limitation on Liens"), . incur any indebtedness other than as permitted under the indenture (see "Description of the Principal Financing Documents--Indenture--Certain Covenants-- Limitations on Indebtedness"), . make any distributions other than as permitted under the indenture, . engage in any business other than the development, financing, construction, operation and expansion of our facility, . make any investment other than permitted investments, or . enter into certain non-arm's length transactions with our affiliates. These affirmative and negative covenants are subject to a number of important qualifications and exceptions. Book-Entry Form............. The bonds will be issued in book-entry form only through the Depository Trust Company. See "Description of the Bonds--Book-Entry, Delivery and Form." The new bonds and any existing bonds that remain outstanding will be represented by separate global bonds of the same series. Trustee and Collateral Agent...................... Bank One Trust Company, National Association. 17 Independent Engineer........ The independent engineer will be responsible for: . consulting with us on the annual adjustment to amounts required to be on deposit in or credited to the major maintenance reserve account; . confirming that our entry into an agreement for the purchase of replacement power will not result in a material adverse effect; . confirming projected debt service coverage ratios; . commenting on our proposed annual operating budget; . certifying that our modification of a major project document which would change the pricing or volume provisions of, or reduce the duration of, such document, will not result in a material adverse effect; . certifying that our entry into any shared facilities agreement in relation to new generation facilities on land adjacent to our facility site will not result in a material adverse effect on the operation or technical integrity of our facility; . reviewing replacement project documents that we enter into; and . determining, upon our receipt of insurance or condemnation proceeds, whether: (1) it is commercially feasible to repair, restore or replace our facility to permit its operation on a commercially feasible basis; or (2) repairs, restoration or replacement of our facility undertaken by us permit our facility to operate on a commercially feasible basis. Risk Factors................ You should carefully consider all of the information set forth in the prospectus and, in particular, you should evaluate the specific factors set forth under "Risk Factors" in making investment decisions concerning the bonds. 18 The Independent Engineer's Report Stone & Webster has prepared an Independent Technical Review (the "Independent Engineer's Report") of our facility (referred to in its and Pace's reports as the "Project"), which is attached as Annex B to this prospectus. Stone & Webster is a leading consulting engineering firm, which devotes a substantial portion of its resources to providing services related to the technical, environmental and economic aspects of electric power projects. The Independent Engineer's Report includes, among other things, a condition assessment, asset life evaluation, performance assessment, review of the significant project contracts, operation and maintenance review and a review of the site environmental assessment performed by Woodward-Clyde International- Americas. In addition, pro forma financial projections were prepared to examine cash flows available to support debt service coverage for the Project during the period the bonds are scheduled to remain outstanding. During the performance of its work, Stone & Webster relied on certain assumptions regarding material contingencies and other matters that are not within the control of the Company, Stone & Webster or any other person. These assumptions are inherently subject to significant uncertainties, and actual results will differ, perhaps materially, from those projected. Set forth below are the principal opinions that have been reached regarding the review of the Project. For a complete understanding of the assumptions upon which these opinions are based, the Independent Engineer's Report should be read in its entirety. On the basis of Stone & Webster's review and the assumptions set forth in the Independent Engineer's Report, Stone & Webster provides the following opinions: . The Project was found to be well maintained and in good condition. The Project has been designed, constructed, operated, and maintained according to good utility industry practice. The Project should function beyond the period of the debt term, provided equipment is operated and maintained in accordance with good utility industry practice. The Company has proven experience operating and maintaining power plants. . The Project participants have extensive corporate experience in the development, design, procurement, construction, testing, and operation of power plants and in procuring and transporting natural gas. . Stone & Webster reviewed the technical assumptions that were used as inputs to Pace's dispatch simulation model. The key input data in Pace's model such as claimed capacity, scheduled and forced outage rates, and heat rate are reasonable and are consistent with comparable units. . The anticipated performance of the Project, given the condition and capability of the units, is accurately reflected in the financial projections. . The Project is technically capable of performing at the capacity factors projected by Pace. . The operation and maintenance expenses forecasted for the Project are consistent with the staffing and operating plan and recent historical expenses for the Project. The operation and maintenance expenses appear reasonable and adequate to meet the Project's operation, maintenance and performance objectives. . The Project staffing is reasonable for a peaking facility. . The overhaul schedules developed for the Project are prudent and consistent with current and forecasted operations. The overhaul expenses forecasted in the financial model are consistent with the overhaul schedules and should be adequate to support the continued operation of the Project through 2026. . The on-going repair/replacement expenses forecast for the Project are reasonable and consistent with the design of the assets and the projected capacity factors. . The Project is in compliance with current permit requirements. Phase I environmental site assessments, prepared by others, were provided for the Project and reviewed. 19 . The technical assumptions assumed in the financial projections are reasonable and are consistent with the agreements. The financial model fairly presents, in Stone & Webster's judgment, projected revenues and projected expenses under the Base Case assumptions. Therefore, the financial projections are a reasonable forecast of the financial results under the Base Case assumptions. . The projected revenues are more than adequate to pay the annual operating and maintenance expenses (including provisions for major maintenance), other operating expenses, and debt service based on Stone & Webster's studies and analyses and the assumptions set forth in the Independent Engineer's Report. Contributions to major maintenance reserves and debt service reserves are excluded from the calculation of the cash flow available for debt service. The debt service requirements for each year are the payments to be made on July 5 of that year and January 5 the following year. The Base Case resulting minimum debt service coverage ratio ("DSCR") is 1.51x, occurring in 2005 and 2006. The Base Case resulting average DSCR is 3.60x. The following table summarizes the Base Case and sensitivities: Base Case and Sensitivity Summary
Minimum DSCR Average DSCR ------------ ------------ Base Case 1.51x 3.60x Increased O&M Cost 1.49x 3.56x Decreased Inflation Rate 1.51x 3.36x High Gas Price Case 1.50x 3.58x Overbuild Case 1.51x 3.55x No Aquila Contract Extension 1.51x 3.83x No Volatility Revenue 1.51x 2.97x
The Independent Power Market and Fuel Consultant's Reports Pace, the independent power market and fuel consultant, has prepared two reports. These reports provide (i) an assessment of the Project's power sales agreements and the power market in which the Project operates (the "Power Market Consultant's Report"), and (ii) an evaluation of the fuel supply, transportation, storage/balancing and management arrangements for the Project (the "Fuel Consultant's Report"), respectively. You should read the complete copies of these reports, which are attached as Annex C-1 and Annex C-2, respectively, to this prospectus. Pace is not affiliated with us or any of our affiliates. Subject to the information contained, and assumptions made, in its report, Pace has expressed the following conclusions and key findings in the Power Market Consultant's Report: . The MAIN power market is emerging as a highly competitive market for wholesale power. The market's competitiveness is evidenced by the region's large volume of wholesale power transactions and the existence of the "Into-ComEd" electricity-trading hub upon which a standardized forward contract has been established. Overall, given the MAIN market's sizable demand growth, Pace's market price forecast, and the Project's competitive market position, the Project is expected to be highly competitive and valuable throughout the term of the bonds. . Pace anticipates that given the rapid pace of wholesale energy market development, a commercially operating and deregulated environment for retail customers' capacity and energy requirements will be implemented on a near- to mid-term basis for MAIN. Retail access began in Illinois for industrial consumers in October 1999, with full access scheduled to commence by May 2002 per the enactment of the "Electric Service Customer Choice and Rate Relief Act of 1997." The development of an all-in capacity and energy market will allow for sales to the retail marketplace and should provide additional flexibility and enhanced marketability for the Project's capacity and energy. 20 . The market for power in MAIN is characterized by: (a) Sustained energy demand growth expected to continue at a steady annual average pace of 1.47% over the forecasting horizon in the MAIN power market. This regional demand increase translates into approximately 1,100 MW of annual average demand. (b) Summer peak demand in the MAIN power market is forecast to increase from 50,066 MW in 2000 to 73,131 MW by 2026. This regional peak demand increase translates into the need for the addition of approximately 700 MW of peaking capacity per year to the MAIN power market through 2026. (c) A well-developed electric transmission system capable of transferring high volumes of electricity throughout the MAIN power market and covering over 4 states and approximately 6% of the U.S. power demand. (d) An installed capacity base (MW) dominated by base-load coal-fired, nuclear and hydro capacity representing 73% of installed generation capacity in 2001 and 67% in 2009. (e) Base-load coal-fired, nuclear and hydro capacity representing approximately 94% of electrical generation (MWh) by fuel type in 2001 and 69% in 2025. (f) Gas fired combined-cycle and combustion turbine capacity representing the near universal choice for capacity additions, driving gas-fired generation from a 6.2% share of generation in 2001 to 31.1% in 2025. . The most significant factors affecting the electricity pricing in the MAIN power market include fuel costs; the efficiency and replacement rate of existing generating assets and capital costs of replacing existing generating assets; the cost and efficiency of incremental capacity additions which are undertaken to meet future energy requirements and maintain system reliability; and increases in annual peak demand and energy requirements. . Pace's Base Case average market price forecasts for the Northern Illinois sub-region of MAIN range between a maximum value of $37.60/MWh in 2001 and a minimum value of $28.53/MWh in 2009 and average $30.42/MWh (measured in 1998 real dollars) over the life of the bonds. Pace expects that, while a high level of competitive capacity additions and declining gas prices will lower electricity prices between 2001 and 2009, prices will remain relatively stable over the remainder of the forecast period as sufficient capacity is constructed to meet demand and efficiency improvements offset a modest natural gas real price increase. . The Project represents a relatively low cost, competitive, and much needed resource for the growing MAIN market equaling only a small fraction of the capacity required in the MAIN power market. The Project is expected to be dispatched at an average annual capacity factor of 11.93%/1/ and realize average gross margins, including volatility values, of $82.93/kW-year (measured in 1998 real dollars). Gross margins range from a maximum of $104.30/kW-yr in 2001 to a minimum of $76.82/kW-yr in 2009 over the life of the bonds. . During the term of the Exelon power sales agreement which covers the dispatch of Units 1-4 and 9 until December 31, 2012, the Exelon units are expected to be dispatched at an average annual capacity factor of 3.39% and realize average gross margins including volatility values of $78.63/kW-year (measured in 1998 real dollars). Gross margins range from a maximum of $97.86/kW-yr in 2001 to a minimum of $71.93 kW-yr in 2009. . During the term of the Aquila/UtiliCorp power sales agreements, which cover the dispatch of Units 5-8 until August 31, 2022, the Aquila/UtiliCorp units are expected to be dispatched at an average capacity factor of 17.15% and realize average gross margins including volatility values of $87.22/kW-year (measured in 1998 real dollars). Gross margins range from a maximum of $112.43/kW-yr in 2001 to a minimum of $81.10/kW-yr in 2004. - -------------------- 1 Results include the periods covered by the Exelon and Aquila/UtiliCorp power sales agreements in addition to the merchant period, which commences in 2022 after the expiry of the second extended Aquila/UtiliCorp power sales agreement. 21 . Pace conducted a detailed evaluation of the potential volatility value of the Project. Given Pace's assumptions of market reserve margins, liquidity, and trading volatility, volatility value (net of insurance costs) adds $20.33/kW-yr or $28.6 million per year to Base Case revenues over the life of the bonds. Volatility value ranges from a maximum of $27.26/kW-yr or $38.4 million in 2001 to a minimum of $16.91/kW-yr or $23.8 million in 2004. Pace's Base Case revenue forecast contained in this report includes these volatility values. . Pace has determined that based upon the payment structure of the Aquila/UtiliCorp power sales agreements, the Project's forecast dispatch profile, forecast market-clearing prices and the energy and capacity revenues and volatility values that Aquila/UtiliCorp is forecast to earn by marketing the output and capacity of the Aquila/UtiliCorp units, a compelling economic incentive is likely to exist which would cause Aquila/UtiliCorp to exercise its option to extend the term of the Aquila/UtiliCorp power sales agreements for an additional 5-year period. . Pace's assumptions provide a conservative forecast of the Project's dispatch and resulting economics. Therefore, while the dispatch and revenues of peaking capacity can be highly volatile from year to year, Pace has removed much of the low side volatility through Pace's modeling assumptions. These considerations provide a high level of probability that Pace's Base Case forecast is likely to be more of a downside case when compared with actual Project results. For a more complete discussion of the methodology employed by Pace and the assumptions underlying the foregoing conclusions, see "Annex C-1--The Power Market Consultant's Report" and "Annex C-2--The Fuel Consultant's Report." Subject to the information contained, and assumptions made, in its report, Pace has expressed the following conclusions in the Fuel Consultant's Report: . The robust spot market at the Chicago hub will provide the Project with highly reliable gas supply at market-sensitive prices. . Pace expects that natural gas supply and transportation market liquidity will continue to grow in the Midwest United States with the introduction of new pipeline capacity, the geographic availability of aquifer storage capacity, the integration of new pipeline interconnections, and the development of new interstate and utility retail service offerings, thus enabling the Company to procure reliable supply on the spot market at the Chicago hub for the Project. Trading activity at the Chicago hub approximates 2 billion cubic feet per day, or about ten times the threshold Pace uses to define a liquid trading point. . The Company will purchase all of the Project's gas supplies on a delivered basis from Cinergy, a nationally recognized natural gas and electricity marketer, under a one-year, executed fuel supply and management agreement at a published Chicago daily spot price, plus a nominal premium. . The Company intends to negotiate a new multi-year fuel supply and management agreement for the Project with Cinergy or another national energy marketing company. A number of reputable and creditworthy natural gas suppliers and marketers operate in the Midwest United States natural gas markets that will be financially motivated to provide fuel management and gas supply services at competitive prices to the Company for the Project upon the expiration of the current fuel supply and management agreement. . Based on its experience in competitive power markets and regional natural gas markets, Cinergy is highly qualified to provide adequate fuel management and gas procurement expertise to match the Project's gas and power dispatch requirements. Moreover, Cinergy's compensation and required communications protocols identified in the executed fuel supply and management agreement are appropriate and consistent with industry norms. 22 . Potential gas commodity price risk to the Company for the Project is fully mitigated by the energy payment terms contained in the executed power sales agreements and the Cinergy fuel supply and management agreement. The overall effect of these contracts is to index energy pricing to the market price of the natural gas commodity obtained by the Company for the Project. . The Company has entered into a long-term transportation and storage balancing service agreement for the Project with Nicor for firm (non- interruptible) hourly delivery of fuel supplies to meet the firm power dispatch obligations at the Facility. Initial terms under the gas transportation and balancing agreement with Nicor range from 41 months (Units 1-4) to 5 years (Units 5-9), but the Nicor transportation and balancing agreement can be extended for up to 5 years by giving 180 days written notice prior to expiration of the respective initial terms. The Nicor transportation and balancing agreement provides the Company access to purchase, rights to transport, and rights to store Chicago hub spot supplies for the Project. . Access to the Chicago hub via the Nicor transportation and balancing agreement is facilitated through the PGL system through a companion agreement that contains substantially the same terms and conditions as the Nicor transportation and balancing agreement. . The Project benefits from existing access to APL and NBPL receipts through PGL as well as the potential to establish direct connections with high-pressure interstate pipelines in close proximity to the Company such as Vector Pipeline, L.P. and ANR Pipeline Co. 23 RISK FACTORS An investment in the bonds involves a significant degree of risk, including the risks described below. You should carefully consider the risks described below and the other information contained in this prospectus in making investment decisions concerning the Bonds. Operating and Business Risks The operation of our facility involves many risks, including operating risks and the risk of events and competitive forces that are beyond our control. The operation of power generation facilities like ours involves many risks, including: . performance below expected levels of output or efficiency; . interruption in fuel supply or inadequate quality of supplied fuel; . power shutdown due to the breakdown or failure of our equipment or processes or shortages of replacement equipment or spare parts; . disruptions in our ability to deliver electricity, whether because of breakdowns or failures in electric grid transmission facilities and equipment or otherwise; . inability to operate within limits established by governmental permits or current or future environmental regulations; . labor disputes; and . operator error or catastrophic events such as fires, earthquakes, lightning, explosions, floods or other similar occurrences that could result in personal injury, loss of life, environmental damage or severe damage to or destruction of our facility and suspension of its operations or disruption of the markets that it serves. We have two years' operating history with Units 1-4 and began commercial operations with Units 5-9 in the middle of 2001. If we do not operate our units efficiently and as required under our power sales agreements, we would experience reduced revenues (both with regard to the sale of energy and because in certain circumstances we may receive reduced capacity payments under our power sales agreements) and increased operating costs. This, in turn, could impair our ability to pay amounts due on the bonds. In addition, we are dependent primarily on internally generated cash flows for future capital expenditures, since our members are not required to contribute any more capital to us and our ability to issue additional indebtedness is limited. If we do not operate efficiently, or if for some other reason we are not able to generate sufficient funds, we may not be able to obtain sufficient capital for improvements to keep our facility competitive and to comply with environmental laws and regulations. The insurance coverage that we have obtained may be inadequate to cover potential liabilities and losses. Although we maintain insurance consistent with industry standards to protect against operating and other risks, not all risks are insured or insurable. We cannot be sure that adequate insurance coverage for potential losses and liabilities will be available in the future on commercially reasonable terms or at commercially reasonable rates. In particular, the difficulty of obtaining adequate insurance at reasonable cost for certain risks may increase following the attacks on the World Trade Center and the Pentagon on September 11, 2001. If we experience a total or partial loss of our operating units, the proceeds of the applicable insurance policies may not be adequate to cover replacement costs or our lost revenues or increased expenses or to satisfy our obligations with respect to the bonds. 24 Changes in technology may significantly impact our business by making our power plant less competitive. Current state-of-the-art combustion technologies produce electric energy more efficiently and with less cost than older technologies. While we believe our facility is currently competitive, improvements in technology that we cannot match because of capital constraints, technology licensing barriers or otherwise may render it less competitive over time. In addition, a basic premise of our business is that generating power at central power plants achieves economies of scale and produces electricity at a low price. There are other technologies, including fuel cells, microturbines and photovoltaic (solar) cells, that can produce electricity, and research and development activities in such alternate technologies are ongoing. It is possible that advances will reduce the costs of alternative methods of electric generation to levels that are equal to or below the combustion technology we use. We depend on a number of other entities to operate and maintain our facility and on a relatively small number of power purchasers to provide all of our revenues. We are highly dependent on other entities to operate our facility and produce revenues, including the following: . various entities for the supply of goods and services necessary for us to generate capacity and electric energy; . Cinergy and Nicor for the supply and transportation of natural gas; . DELSCO for operation and maintenance; . ComEd for our ability to deliver the electricity we generate to our power purchasers; and . Exelon, Aquila/UtiliCorp and Engage, during the term of our power sales agreements with them, to buy electric generating capacity and energy from us and to provide revenues. If any of these entities breach their obligations to us, or terminate their agreements with us, and if we cannot make adequate alternate arrangements, our revenues could decrease materially, or our costs increase, and we could be unable to make payments on the bonds or our other debt when due. Market Risks Our fuel agreements will expire before the maturity of the bonds. After these agreements expire, we will have to find other sources of fuel supply that match up with our power sales agreements. Our fuel supply and management agreement with Cinergy is currently set to expire on April 30, 2002, and our gas transportation and balancing agreement with Nicor is set to expire in September 2004 for Units 1-4 and March 2006 for Units 5-9 (although we may extend the Nicor agreement through March 2011). Although Pace has concluded in its report that, based on the assumptions stated therein, market-priced natural gas and interstate transportation will be available in sufficient quantities to support our requirements throughout the term of the bonds, we cannot be sure this will be the case. See Annex C-2 for a fuller discussion of this issue. In addition, the pricing under our fuel supply arrangements and our power sales agreements are designed to work together so that we are effectively "tolling" natural gas, thereby mitigating our natural gas price risk. Our principal risk should therefore be adequacy of supply, but the liquidity of the natural gas market at our location should work to mitigate this risk. As long as the index we are using for both our fuel supply and power sales arrangements (published price in Gas Daily, Daily Price Survey, Midpoint for Chicago-LDCs, large end users (the "Gas Daily Average Price")) remains an effective market measure and our current supply and power sales arrangements remain in effect, we should have limited natural gas price risk. If there is a major market fluctuation so that the existing market index is no longer reliable, or if our power sales agreements were 25 to terminate and we could not find buyers on similar terms, we could become subject to natural gas price risk in ways that could adversely affect our ability to pay our obligations under the bonds. Our power sales agreements will expire before maturity of the bonds. Our power sales agreement with Exelon expires in December 2012 (as to Units 1-4 and 9) and our power sales agreements with Aquila/Utilicorp expire in August 2016 (as to Units 5-6) and August 2017 (as to Units 7-8). While Pace has concluded that there should be economic incentives for Aquila/UtiliCorp to exercise its five-year extension options provided in the agreements covering Units 5-8 (see "Annex C-1--Executive Summary--Power Sales Agreements--Extension of Aquila Power Sales Agreements"), we cannot be sure that all, or any, of these power sales agreements will be extended or renewed beyond these dates. We plan, from time to time before the scheduled expiration dates, to review the feasibility of extending or renewing our existing agreements or of entering into other long-term power sales agreements with other customers covering some or all of our capacity. If we cannot do so, either in whole or in part, we would expect to operate on a "merchant" basis, selling our capacity and energy on a shorter-term "spot" basis and/or using hedging products to manage volatility. While Pace has concluded that, in general based on the assumptions set forth in its power market assessment included in Annex C-1, we should be able to continue to generate revenues on a "merchant" basis, and we believe that the revenues projected by Pace would be sufficient to pay our obligations under the bonds, the effect of such factors as competition, technology change and economic conditions in the regional market we serve creates an inherent degree of uncertainty. We therefore cannot assure you that the revenues generated from future power sales agreements or merchant sales will be sufficient to allow us to pay our obligations under the bonds. Our status as an exempt wholesale generator ("EWG") under federal law prohibits us from making retail sales of electricity in the United States, although we may sell electricity to any power marketer, including one of our affiliates, which may in turn make retail electricity sales. We currently anticipate that electric capacity and energy we generate will be sold to our existing purchasers in the wholesale market during the terms of the contracts with them, and that we would continue thereafter to make sales into the wholesale market. Nevertheless, if we wanted to participate directly in the retail electric market, we would not be able to do so unless there were a change in federal law. See "Our Business and Regulatory Environment--Energy Regulation." We will need access to the electric transmission grid after our current power sales agreements expire. Although we have entered into agreements with ComEd to interconnect our facility to its transmission systems, we do not have any agreements in place for the transmission of electricity beyond that point. As long as our current power sales agreements stay in place, the purchasers must obtain transmission service for the power purchased by them. If we need to find substitute purchasers at some point, we may have to obtain this service ourselves. The current regulatory framework does not allow transmission providers to deny access to electric generators on a discriminatory basis. We cannot be sure, however, that either under the current regulatory framework or under a different future regulatory structure, transmission service will always be available to us or that the price of available transmission service would enable us to compete effectively. If we were unable to obtain electric transmission service at competitive rates when needed, it could adversely affect our ability to pay our obligations under the bonds. Regulatory Risks Our business is subject to substantial regulation and permitting requirements and may be adversely affected by changes in regulations or in the requirements. There are many federal, state and local laws that relate to power generation and that are designed to protect human health and the environment. These laws impose numerous requirements on the construction, ownership and operation of our generating units and the related infrastructure. For example, we must obtain and comply with permits for air emissions, wastewater discharges, and other regulated activities. Each permit 26 contains its own set of requirements. We also must implement management practices for handling hazardous materials, preventing spills, planning for emergencies, ensuring worker safety, and addressing other operational issues. If we do not comply with these requirements, we could be prevented from operating some or all of the units, and we could be subject to civil or criminal liability and the imposition of liens or fines. Moreover, modifications to the units to comply with these requirements as they change over time could be required and could be expensive. In addition, the structure of federal and state energy regulation is currently, and likely will continue to be, subject to changes and restructuring proposals. It is difficult to predict what form these changes may take and what the impact may be on our operations. In particular, the volatile electric power market in California has brought heightened political attention to the area, which may result in additional regulatory controls on pricing (including price caps or other forms of price control) or operations of independent electric power producers. Furthermore, although we believe that we have obtained all material energy-related approvals currently required for our operations, we may require additional regulatory approvals in the future due to a change in existing laws and regulations, a change in our power purchasers or for other reasons. Our power purchasers and our suppliers are also subject to extensive regulation. Their operations could be adversely affected by the application of existing or future regulations to them, which could in turn make it difficult for them to fulfill their obligations to us. Laws and regulations affecting us may change in ways that could cause us to be unable to make payments on the bonds when due. For example, changes in laws or regulations (or in judicial or administrative interpretations of them) could impose more stringent or comprehensive requirements on the operation and maintenance of our facility, or could expose us to liability for actions taken in compliance with laws previously in effect or for actions taken or conditions caused by unrelated third parties. We may not be able to obtain or maintain from time to time all required regulatory approvals and permits. If there is a delay in obtaining any required regulatory approvals or permits, or if we fail to obtain and comply with any required regulatory approvals or permits, the operation of our facility or the sale of electricity to third parties could be prevented or become subject to additional costs. In addition, we could be responsible for the costs of remediating contamination from existing or future off-site sources that are subsequently identified as affecting, or having been affected by, our site. Any payment by us of such remediation costs could cause us to be unable to make payments on the bonds when due. Financing Risks If we default on the bonds, your recourse will be limited to the assets and cash flows of our facility. We are the sole issuer of the bonds and will be responsible for making payments on the bonds. No one else (including our members, affiliates, directors, officers or the people who own or work for them or us) will be responsible for making payments on the bonds or will in any way guarantee the payment of the bonds. Our ability to make payments on the bonds will be entirely dependent on our ability to operate our facility at levels which will provide sufficient revenues, after payment of our operations and maintenance costs, to make payments on the bonds and our other obligations when due. The bonds will be secured only by our assets and a lien on the membership interests in our company. We cannot assure you that, if we default on the bonds and you foreclose on and sell our assets, you will receive sufficient proceeds to pay all amounts that we owe you on the bonds. In addition, you may not be able to effectively foreclose upon some of our assets, such as permits, without the consent of a third party, such as a governmental authority. We cannot be sure that if you try to foreclose on our assets, you will get all of the third party approvals that you need to do so effectively. Furthermore, if you exercise your right to foreclose on the collateral, transferring required government approvals to a purchaser or a new operator of our facility may require additional government approvals or proceedings, with consequent delays. 27 We may incur additional debt that could adversely affect you. Under the terms of the bonds, we may incur additional indebtedness to pay for letter of credit reimbursement obligations, certain capital improvements and modifications (more fully described as "required modifications" and "optional modifications" under "Description of the Bonds--Limitations on Indebtedness"), for working capital, and for other purposes. Some permitted indebtedness may rank equally in payment with the bonds and could result in lower debt service coverage ratios and cash available to pay amounts due on the bonds. We cannot be sure that the revenues of our facility would be sufficient to cover such increases in debt service payments. In addition, some types of additional indebtedness may share in the collateral that secures the bonds. This may reduce the benefits of the collateral to you and your ability to control actions taken with respect to the collateral. We are relying on projections of the future performance of our facility, and these projections may not prove to be accurate. The independent engineer's report contains projections of our operating results based on assumptions and forecasts of our ability to generate revenue and of our expected costs. The independent engineer's report contains numerous qualifications and assumptions with regard to the information presented and the circumstances under which the analyses were performed. You should review the independent engineer's report, as well as these qualifications and assumptions, carefully. We have reviewed and accepted these projections on the basis of present knowledge and assumptions that we believe to be reasonable. The financing has been structured on the basis of these assumptions and projections, which relate to our expected revenues and expenses over the term of the bonds. For purposes of preparing the projections for the independent engineer's report, we made assumptions with respect to material contingencies and other matters that are not within our control. Accordingly, we cannot accurately predict the outcome of the events on which the projections were developed. These assumptions and the other assumptions used in the projections are inherently subject to significant uncertainties, and actual results may differ, perhaps materially, from those projected. Accordingly, the projections are not necessarily an indication of our future performance. Therefore, we assume no responsibility for their accuracy or for the accuracy of the independent engineer's report or the projections therein. No representation is made or intended, nor should any be inferred, with respect to the likely existence of any particular future set of facts or circumstances. Investors are cautioned not to place undue reliance on the projections. You should also note that our independent accountants have neither examined nor compiled the projections included in this prospectus and do not express any opinion or any other form of assurance about the projections. If actual results are less favorable than those shown in the projections or if the assumptions used in formulating the projections prove to be incorrect, our ability to pay amounts due on the bonds may be adversely affected. We do not intend to ask the independent engineer to provide any revised or updated projections or analysis of the differences between the projections and actual operating results. There is no existing market for the bonds, and we cannot assure you that an active market will develop. Following completion of the exchange offer, the new bonds will be freely tradeable by most holders. See "The Exchange Offer--Resales of the New Bonds." We do not intend to apply for listing of the bonds on any securities exchange or on the Nasdaq National Market. There can be no assurance as to the liquidity of any market that may develop for the bonds, the ability of bondholders to sell their bonds, or the price at which bondholders will be able to sell their bonds. Future trading prices of the bonds will depend on many factors including, among other things, prevailing interest rates, our operating results and credit ratings, and the market for similar securities. The initial purchasers have informed us that they intend to make a market in the bonds after the completion of this offering. However, the initial purchasers are not required to make a market in the bonds, and 28 they may cease market-making activities at any time without notice. In addition, any market-making activity will be subject to the limits of the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We cannot be sure that an active market for the bonds will develop. Even if a market for the bonds does develop, there is necessarily uncertainty about the price at which you might be able to sell your bonds. If a market for the bonds does not develop, you may be unable to sell your bonds for an extended period of time, if at all. Consequently, you may not be able to liquidate your investment readily, and lenders may not readily accept the bonds as collateral for loans. Under current Exchange Act rules, we may only be required to file reports under the Exchange Act for one year after the registration statement of which this prospectus is a part was declared effective if we have fewer than 300 recordholders of the bonds. If we are not otherwise required to file Exchange Act reports after that time, any filing of reports with the SEC would be at our discretion. Although we would still be obligated to provide holders of the bonds with equivalent information, a decision not to file those reports would result in a lack of publicly available information and may affect the liquidity and marketability of the bonds. Credit ratings assigned to the bonds do not necessarily mean they are a suitable investment for you and may change over time. Moody's and S&P have assigned ratings to the new bonds of Baa3 and BBB-, respectively. A rating is not a recommendation to purchase, hold or sell the bonds, because a rating does not address market price or suitability for a particular investor. There can be no assurance that a rating will remain in effect for any given period of time. If, in its judgment, circumstances so warrant, a rating agency may lower or withdraw a rating entirely. In addition, because we are dependent on the creditworthiness of a limited number of customers and suppliers, changes in their credit outlook could adversely affect our credit rating. Bankruptcy Risks Federal and state statutes allow courts, under specific circumstances, to void our obligations under the bonds. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, our obligations under the bonds and/or the security documents could be voided or subordinated to all of our other debts if, among other things, at the time we issue the bonds, we: 1) received less than reasonably equivalent value or fair consideration for the issuance of the bonds; and 2) were insolvent or rendered insolvent as a result of issuing the bonds; or 3) were engaged in a business or transaction for which our remaining assets constituted unreasonably small capital; or 4) intended to incur, or believed that we would incur, debts beyond our ability to pay such debts as they mature. In addition, any payment that we made on the bonds could be voided and required to be returned to us or to a fund for the benefit of our creditors. The measures for insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, we would be considered insolvent if: 1) the sum of our debts, including contingent liabilities, were greater than the fair saleable value of all of our assets; or 2) the present fair saleable value of our assets were less than the amount that would be required to pay our probable liability on our existing debts, including contingent liabilities, as they become absolute and mature; or 29 3) we could not pay our debts as they became due. We do not believe that we will have received less than reasonably equivalent value or fair consideration for issuing the bonds. Also, we believe that, after giving effect to the issuance of the bonds, we will not be insolvent, we will not have unreasonably small capital for the business in which we are engaged, and we will not have incurred debts beyond our ability to pay those debts as they mature. However, we cannot be sure that a court would apply this standard or agree with our conclusions. If we or the counterparties to our contracts are the subject of bankruptcy proceedings, your ability to foreclose on the collateral securing the bonds, as well as your receipt of payments on the bonds, could be significantly impaired. If we seek the protection of the bankruptcy laws, or if one of our creditors begins a bankruptcy proceeding against us, your rights to foreclose upon our assets are likely to be significantly impaired. In addition, we cannot predict how long payments on the bonds could be delayed following the commencement of a bankruptcy case involving us. Finally, because part of the collateral securing the bonds consists of our contracts, if we or any counterparty to any one of those contracts were the subject of bankruptcy proceedings, then we, the counterparty or a trustee appointed in our or the counterparty's bankruptcy case could choose to reject the contract. If that occurred, you could not specifically enforce the rejected contract. 30 CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION This prospectus includes forward-looking statements. Statements that address activities, events or developments that may or will occur in the future, including such matters as projections, future capital expenditures, business strategy, competitive advantages and disadvantages, goals and market or industry developments, are forward-looking statements. We have based these forward-looking statements on our current expectations, and our and the independent consultants' and advisors' projections, about future events based upon our knowledge of facts as of the date of this prospectus and our and our independent consultants' assumptions about future events. These forward-looking statements are only expressions of intent, belief or expectations, and they are subject to various risks and uncertainties that may be outside our control, including, among other things: . governmental, statutory, regulatory or administrative changes or initiatives affecting us, our power plant or our contracts, including state or federal rate regulations and legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; . operating risks, including equipment failure, environmental compliance issues, availability of our power plant, dispatch levels for our power plant, heat rate and output, electric transmission access and the amounts and timing of revenues and expenses; . market or business conditions and fluctuations in demand for energy or capacity in the markets in which we operate; . the enforceability of the long-term power sales agreements for our power plant; . the ongoing creditworthiness of our power purchasers; . the cost and availability of fuel and gas transmission service for our power plant; . our ability to find replacement sources for fuel and purchasers of our power as our existing fuel supply and power sales agreements expire; . political, legal and economic conditions in the United States, including changes in commodity prices and interest rates and financial market conditions; . weather and other natural phenomena; and . competition from other power plants, including new plants that may be developed in the future. In some cases, words like "anticipate," "estimate," "project," "plan," "expect" and similar expressions can help identify forward-looking statements in this prospectus. For additional factors that could affect the validity of our forward-looking statements, you should read "Risk Factors" on page 24. In light of these and other risks, uncertainties and assumptions, actual events or results may be very different from those expressed or implied in the forward-looking statements in this prospectus, or may not occur. We cannot and do not guarantee future results, events, levels of activity, performance or achievements. We do not undertake to publicly update or revise any forward-looking statement after the date of this prospectus, whether as a result of new information, future events or otherwise. 31 THE EXCHANGE OFFER Purpose and Terms of the Exchange Offer The existing bonds were originally sold on October 23, 2001 in an offering that was exempt from the registration requirements of the Securities Act. As of the date of this prospectus, $396,400,140 in principal amount of existing bonds are outstanding. In connection with the sale of the existing bonds, we entered into a registration rights agreement in which we agreed to file with the SEC a registration statement covering the exchange of existing bonds for new bonds and to use our reasonable best efforts to cause the registration statement to become effective within 270 days. We also agreed to pay additional interest at a rate of 0.50% per annum on the existing bonds if the exchange offer were not completed within the specified period for so long as that failure continued. The additional interest would be payable on the existing bonds on the regular interest payment date. We are offering, upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, to exchange all the outstanding existing bonds for new bonds that have been registered under the Securities Act. We will accept for exchange existing bonds that you properly tender before the expiration date and do not withdraw in accordance with the procedures described below. You may tender your existing bonds in whole or in part in minimum amounts of $100,000 and multiples of $100.00 in excess of $100,000 (in each case, based on original issue amount). The exchange offer is not conditioned upon the tender for exchange of any minimum aggregate principal amount of existing bonds. We reserve the right in our sole discretion to purchase or make offers for any existing bonds that remain outstanding after the expiration date or, as detailed under the caption "--Conditions to the Exchange Offer," to terminate the exchange offer and, to the extent permitted by applicable law, purchase existing bonds in the open market, in privately negotiated transactions or otherwise. The terms of any of these purchases or offers could differ from the terms of the exchange offer. There will be no fixed record date for determining the registered holders of the existing bonds entitled to participate in the exchange offer. Only a registered holder of the existing bonds (or the holder's legal representative or attorney-in-fact) may participate in the exchange offer. Holders of existing bonds do not have any appraisal or dissenters' rights in connection with the exchange offer. Existing bonds that are not tendered in, or are tendered but not accepted in connection with, the exchange offer will remain outstanding. We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement and the applicable requirements of the Securities Act, the Exchange Act and SEC rules and regulations. If we do not accept any existing bonds that you tender for exchange because of an invalid tender, the occurrence of other events set forth in this prospectus or otherwise, we will return the unaccepted existing bonds to you, without expense, after the expiration date. If you tender existing bonds in connection with the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of existing bonds. We will pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offer. See "--Fees and Expenses." Each broker-dealer that receives new bonds for its own account in exchange for existing bonds, if such existing bonds were acquired by the broker-dealer as a result of market making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the new bonds. See "Plan of Distribution." 32 We make no recommendation to you as to whether you should tender or refrain from tendering all or any portion of your existing bonds into the exchange offer. In addition, no one has been authorized to make this recommendation. You must make your own decision whether to tender into the exchange offer and, if so, the aggregate amount of existing bonds to tender after reading this prospectus and the letter of transmittal and consulting with your advisors, if any, based on your financial position and requirements. Expiration Date, Extension and Amendments The term "expiration date" means 5:00 p.m., New York City time, on , 2002 unless we extend the exchange offer, in which case the term "expiration date" will mean the latest date and time to which we extend the exchange offer. We expressly reserve the right, at any time or from time to time, so long as applicable law allows, to (1) delay our acceptance of existing bonds for exchange; (2) terminate or amend the exchange offer if, in the opinion of our counsel, completing the exchange offer would violate any applicable law, rule or regulation or any SEC staff interpretation; or (3) extend the expiration date and retain all existing bonds tendered into the exchange offer, subject, however, to your right to withdraw your tendered existing bonds as described under "--Withdrawal Rights." If the exchange offer is amended in a manner that we think constitutes a material change, or if we waive any material condition of the exchange offer, we will promptly disclose the amendment by means of a prospectus supplement that will be distributed to the registered holders of the existing bonds, and we will extend the exchange offer to the extent required by Rule 14e-1 under the Exchange Act. We will promptly follow any delay in acceptance, termination, extension or amendment by oral or written notice of the event to the exchange agent followed promptly by oral or written notice to the registered holders. Should we choose to delay, extend, amend or terminate the exchange offer, we will have no obligation to publish, advertise or otherwise communicate this announcement to the public, other than by making a timely release to an appropriate news agency. Procedures for Tendering the Existing Bonds Upon the terms and conditions of the exchange offer, we will exchange, and we will issue to the exchange agent, new bonds for existing bonds that have been validly tendered, and not validly withdrawn, promptly after the expiration date. The tender by a holder of any existing bonds and our acceptance of that holder's existing bonds will constitute a binding agreement between us and that holder subject to the terms and conditions set forth in this prospectus and the accompanying letter of transmittal. Valid Tender We will deliver new bonds in exchange for existing bonds that have been validly tendered and accepted for exchange under the exchange offer. Except as set forth below, you will have validly tendered your existing bonds under the exchange offer if the exchange agent receives, before the expiration date, at the address listed under the caption "--Exchange Agent": (1) a properly completed and duly executed letter of transmittal, with any required signature guarantees, including all documents required by the letter of transmittal; or 33 (2) if the existing bonds are tendered in accordance with the book entry procedures set forth below, an agent's message (described below) instead of a letter of transmittal. In addition, on or before the expiration date: (1) the exchange agent must receive the existing bonds along with the letter of transmittal; or (2) the exchange agent must receive a timely book-entry confirmation (described below) of a book-entry transfer of the tendered existing bonds into the exchange agent's account at The Depository Trust Company, along with a letter of transmittal or an agent's message in lieu of the letter of transmittal; or (3) the holder must comply with the guaranteed delivery procedures described below. Accordingly, we may not make delivery of new bonds to all tendering holders at the same time, because the time of delivery will depend upon when the exchange agent receives the existing bonds, book entry confirmations with respect to existing bonds and the other required documents. The term "book-entry confirmation" means a timely confirmation of a book- entry transfer of existing bonds into the exchange agent's account at The Depository Trust Company. The term "agent's message" means a message, transmitted by The Depository Trust Company to and received by the exchange agent and forming a part of a book-entry confirmation, which states that The Depository Trust Company has received an express acknowledgement from the tendering participant stating that the participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against the participant. If you tender less than all of your existing bonds, you should fill in the amount of existing bonds you are tendering in the appropriate box on the letter of transmittal or, in the case of a book entry transfer, so indicate in an agent's message if you have not delivered a letter of transmittal. The entire amount of existing bonds delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated. If any letter of transmittal, endorsement, bond power, power of attorney or any other document required by the letter of transmittal is signed by a trustee, executor, administrator, guardian, attorney in fact, officer of a corporation or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and, unless waived by us, you must submit evidence satisfactory to us, in our sole discretion, of that person's authority to so act. If you are a beneficial owner of existing bonds that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian, we urge you to contact this entity promptly if you wish to participate in the exchange offer. The method of delivery of the existing bonds, the letter of transmittal and all other required documents is at your option and at your sole risk, and delivery will be deemed made only when actually received by the exchange agent. Instead of delivery by mail, we recommend that you use an overnight or hand delivery service. In all cases, you should allow sufficient time to assure timely delivery and you should obtain proper insurance. Do not send any letter of transmittal or existing bonds to the Company. You may request your broker, dealer, commercial bank, trust company or nominee to effect these transactions for you. Book-Entry Transfer Holders who are participants in The Depository Trust Company tendering by book-entry transfer must execute the exchange through the Automated Tender Offer Program of The Depository Trust Company on or before the expiration date. The Depository Trust Company will verify this acceptance and execute a book- entry transfer of the tendered existing bonds into the exchange agent's account at The Depository Trust Company. The Depository Trust Company will then send to the exchange agent a book-entry confirmation including an 34 agent's message confirming that The Depository Trust Company has received an express acknowledgement from the holder that the holder has received and agrees to be bound by the letter of transmittal and that the exchange agent and we may enforce the letter of transmittal against such holder. The book-entry confirmation must be received by the exchange agent in order for the exchange to be effective. The exchange agent will make a request to establish an account with respect to the existing bonds at The Depository Trust Company for purposes of the exchange offer within two business days after the date of this prospectus unless the exchange agent already has established an account with The Depository Trust Company suitable for the exchange offer. Any financial institution that is a participant in The Depository Trust Company's book-entry transfer facility system may make a book-entry delivery of the existing bonds by causing The Depository Trust Company to transfer these existing bonds into the exchange agent's account at The Depository Trust Company in accordance with The Depository Trust Company's procedures for transfers. If the tender is not made through the Automated Tender Offer Program, you must deliver the existing bonds and the applicable letter of transmittal, or a facsimile of the letter of transmittal, properly completed and duly executed, with any required signature guarantees, or an agent's message in lieu of a letter of transmittal, and any other required documents to the exchange agent at its address listed under the caption "--Exchange Agent" before the expiration date, or you must comply with the guaranteed delivery procedures set forth below in order for the tender to be effective. Delivery of documents to The Depository Trust Company does not constitute delivery to the exchange agent and book-entry transfer to The Depository Trust Company in accordance with its procedures does not constitute delivery of the book-entry confirmation to the exchange agent. Signature Guarantees Signature guarantees on a letter of transmittal or a notice of withdrawal, as the case may be, are only required if: (1) existing bonds are registered in a name other than that of the person submitting a letter of transmittal or a notice of withdrawal; or (2) a registered holder completes the section entitled "Special Issuance Instructions" or "Special Delivery Instructions" in the letter of transmittal. See "Instructions" in the letter of transmittal. In the case of (1) or (2) above, you must duly endorse the existing bonds or they must be accompanied by a properly executed bond power, with the endorsement or signature on the bond power and on the letter of transmittal or the notice of withdrawal, as the case may be, guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution" that is a member of a medallion guarantee program, unless these existing bonds are surrendered on behalf of that eligible guarantor institution. An "eligible guarantor institution" includes the following: . a bank; . a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; . a credit union; . a national securities exchange, registered securities association or clearing agency; or . a savings association. Guaranteed Delivery If you desire to tender existing bonds into the exchange offer and: (1) the existing bonds are not immediately available; 35 (2) time will not permit delivery of the existing bonds and all required documents to the exchange agent on or before the expiration date; or (3) the procedures for book entry transfer cannot be completed on a timely basis; you may nevertheless tender the existing bonds, if you comply with all of the following guaranteed delivery procedures: (1) tender is made by or through an eligible guarantor institution; (2) before the expiration date, the exchange agent receives from the eligible guarantor institution a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form accompanying the letter of transmittal. This eligible guarantor institution may deliver the Notice of Guaranteed Delivery by hand or by facsimile or deliver it by mail to the exchange agent; and (3) within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery, the exchange agent must receive: . the existing bonds, or book entry confirmation, representing all tendered existing bonds, in proper form for transfer; . a properly completed and duly executed letter of transmittal or facsimile of the letter of transmittal or, in the case of a book entry transfer, an agent's message in lieu of the letter of transmittal, with any required signature guarantees; and . any other documents required by the letter of transmittal. Determination of Validity . We have the right, in our sole discretion, to determine all questions as to the form of documents, validity, eligibility, including time of receipt, and acceptance for exchange of any tendered existing bonds. Our determination will be final and binding on all parties. . We reserve the absolute right, in our sole and absolute discretion, to reject any and all tenders of existing bonds that we determine are not in proper form. . We reserve the absolute right, in our sole and absolute discretion, to refuse to accept for exchange a tender of existing bonds if our counsel advises us that the tender is unlawful. . We also reserve the absolute right, so long as applicable law allows, to waive any of the conditions of the exchange offer or any defect or irregularity in any tender of existing bonds of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. . Our interpretation of the terms and conditions of the exchange offer, including the letter of transmittal and the instructions relating to it, will be final and binding on all parties. . We will not consider the tender of existing bonds to have been validly made until all defects or irregularities with respect to the tender have been cured or waived. . We, our affiliates, the exchange agent, and any other person will not be under any duty to give any notification of any defects or irregularities in tenders and will not incur any liability for failure to give this notification, nor do we have any duty to provide notice of acceptance of the tender of existing bonds. Acceptance for Exchange for the New Bonds For each existing bond accepted for exchange, the holder of the existing bond will receive a new bond having a principal amount equal to that of the surrendered existing bond. The new bonds will bear interest from 36 the most recent date to which interest has been paid on the existing bonds. Accordingly, registered holders of new bonds on the relevant record date for the first interest payment date following the completion of the exchange offer will receive interest accruing from the most recent date to which interest has been paid. Existing bonds accepted for exchange will cease to accrue interest from and after the date of completion of the exchange offer. Upon satisfaction or waiver of all of the conditions of the exchange offer, we will accept, promptly after the expiration date, all existing bonds properly tendered and will issue the new bonds promptly after acceptance of the existing bonds. See "--Conditions to the Exchange Offer." Subject to the terms and conditions of the exchange offer, we will be deemed to have accepted for exchange, and exchanged, existing bonds validly tendered and not withdrawn as, if and when we give oral or written notice to the exchange agent, with any oral notice promptly confirmed in writing by us, of our acceptance of these existing bonds for exchange in the exchange offer. The exchange agent will act as our agent for the purpose of receiving tenders of existing bonds, letters of transmittal and related documents, and as agent for tendering holders for the purpose of receiving existing bonds, letters of transmittal and related documents and transmitting new bonds to holders who validly tendered existing bonds. The exchange agent will make the exchange promptly after the expiration date. If for any reason whatsoever: . the acceptance for exchange or the exchange of any existing bonds tendered in the exchange offer is delayed, whether before or after our acceptance for exchange of existing bonds; . we extend the exchange offer; or . we are unable to accept for exchange or exchange existing bonds tendered in the exchange offer; then, without prejudice to our rights set forth in this prospectus, the exchange agent may, nevertheless, on our behalf and subject to Rule 14e-1(c) under the Exchange Act, retain tendered existing bonds and these existing bonds may not be withdrawn unless tendering holders are entitled to withdrawal rights as described under "--Withdrawal Rights." Interest For each existing bond that we accept for exchange, the existing bond holder will receive a new bond having a principal amount and final distribution date equal to that of the surrendered existing bond. Interest on the new bonds will accrue from January 5, 2002, the last interest payment date on which interest was paid on the existing bonds tendered for exchange. The next interest payment date will be July 5, 2002. Resales of the New Bonds Based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the new bonds may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act provided that: . you acquire any new bond in the ordinary course of your business; . you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in the distribution of the new bonds; . you are not a broker-dealer who purchased existing bonds directly from us for resale under Rule 144A or any other available exemption under the Securities Act; and . you are not an "affiliate" (as defined in Rule 405 under the Securities Act) of our company. If our belief is inaccurate and you transfer any new bond without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your bonds from these requirements, you may incur liability under the Securities Act. We do not assume any liability or indemnify you against any liability under the Securities Act. 37 Each broker-dealer that is issued new bonds for its own account in exchange for existing bonds must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the new bonds. A broker-dealer that acquired existing bonds for its own account as a result of market making or other trading activities may use this prospectus for an offer to resell, resale or other retransfer of the new bonds. Withdrawal Rights Except as otherwise provided in this prospectus, you may withdraw your tender of existing bonds at any time before the expiration date. In order for a withdrawal to be effective, you must deliver a written, telegraphic or facsimile transmission of a notice of withdrawal to the exchange agent at any of its addresses listed under the caption "--Exchange Agent" before the expiration date. Each notice of withdrawal must specify: (1) the name of the person who tendered the existing bonds to be withdrawn; (2) the aggregate principal amount of existing bonds to be withdrawn; and (3) if existing bonds have been tendered, the name of the registered holder of the existing bonds as set forth on the existing bonds, if different from that of the person who tendered these existing bonds. If you have delivered, or otherwise identified to the exchange agent, existing bonds, the notice of withdrawal must specify the serial numbers on the particular bonds to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an eligible guarantor institution, except in the case of existing bonds tendered for the account of an eligible guarantor institution. If you have tendered existing bonds in accordance with the procedures for book entry transfer listed in "--Procedures for Tendering the Existing Bonds-- Book Entry Transfer," the notice of withdrawal must specify the name and number of the account at The Depository Trust Company to be credited with the withdrawal of existing bonds and must otherwise comply with the procedures of The Depository Trust Company. You may not rescind a withdrawal of your tender of existing bonds. We will not consider existing bonds properly withdrawn to be validly tendered for purposes of the exchange offer. However, you may retender existing bonds at any subsequent time before the expiration date by following any of the procedures described above in "--Procedures for Tendering the Existing Bonds." We, in our sole discretion, will determine all questions as to the validity, form and eligibility, including time of receipt, of any withdrawal notices. Our determination will be final and binding on all parties. Neither we, our affiliates, the exchange agent and any other person have any duty to give any notification of any defects or irregularities in any notice of withdrawal and will not incur any liability for failure to give any such notification. We will return to the holder any existing bonds that have been tendered but which are withdrawn promptly after the withdrawal. Conditions to the Exchange Offer Notwithstanding any other provisions of the exchange offer or any extension of the exchange offer, we will not be required to accept for exchange, or to exchange, any existing bonds. We may terminate the exchange offer, whether or not we have previously accepted any existing bonds for exchange, or we may waive any conditions to or amend the exchange offer, if we determine in our sole and absolute discretion that the exchange offer would violate applicable law or regulation or any applicable interpretation of the staff of the SEC. 38 Exchange Agent We have appointed Bank One Trust Company, National Association as exchange agent for the exchange offer. You should direct all deliveries of the letters of transmittal and any other required documents, questions, requests for assistance and requests for additional copies of this prospectus or of the letters of transmittal to the exchange agent as follows: By Facsimile: By Registered or By Hand/Overnight (312) 407-8853 Certified Mail: Delivery: Bank One Trust Company, Bank One Trust Company, N.A. N.A. 1 Bank One Plaza One North State Street Mail Suite IL1-0134 9th Floor Chicago, Illinois 60670- Chicago, Illinois 60602 0134 Attention: Exchanges Attention: Exchange Floor Global Corporate Trust Services Confirm by telephone: (800) 524-9472 For additional information, you may call (800) 524-9472. Delivery to other than the above addresses or facsimile number will not constitute a valid delivery. Fees and Expenses We will bear the expenses of soliciting tenders of the existing bonds. We will make the initial solicitation by mail; however, we may decide to make additional solicitations personally or by telephone or other means through our officers, agents, directors or employees. We have not retained any dealer-manager or similar agent in connection with the exchange offer and we will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We have agreed to pay the exchange agent and trustee reasonable and customary fees for its services and will reimburse it for its reasonable out of pocket expenses in connection with the exchange offer. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out of pocket expenses they incur in forwarding copies of this prospectus and related documents to the beneficial owners of existing bonds, and in handling or tendering bonds for their customers. Transfer Taxes Holders who tender their existing bonds will not be obligated to pay any transfer taxes in connection with the exchange, except that if: . you want us to deliver new bonds to any person other than the registered holder of the existing bonds tendered; . you want us to issue the new bonds in the name of any person other than the registered holder of the existing bonds tendered; or . a transfer tax is imposed for any reason other than the exchange of existing bonds in connection with the exchange offer; then you will be liable for the amount of any transfer tax, whether imposed on the registered holder or any other person. If you do not submit satisfactory evidence of payment of such transfer tax or exemption from such transfer tax with the letter of transmittal, the amount of this transfer tax will be billed directly to the tendering holder. 39 Consequences of Exchanging or Failing to Exchange Existing Bonds Holders of existing bonds who do not exchange their existing bonds for new bonds in the exchange offer will continue to be subject to the provisions of the indenture regarding transfer and exchange of the existing bonds and the restrictions on transfer of the existing bonds set forth on the legend on the existing bonds. In general, the existing bonds may not be offered or sold, unless registered under the Securities Act, except under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Based on interpretations by the staff of the SEC, as detailed in no-action letters issued to third parties, we believe that new bonds issued in the exchange offer in exchange for existing bonds may be offered for resale, resold or otherwise transferred by you (unless you are an "affiliate" of our company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the new bonds are acquired in the ordinary course of your business, you have no arrangement or understanding with any person to participate in the distribution of these new bonds and you are not a broker- dealer who purchased existing bonds directly from us for resale under Rule 144A or any other available exemption under the Securities Act. However, we do not intend to request the SEC to consider, and the SEC has not considered, the exchange offer in the context of a no-action letter and we cannot guarantee that the staff of the SEC would make a similar determination with respect to the exchange offer. Each holder must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of new bonds and has no arrangement or understanding to participate in a distribution of new bonds. If any holder is an affiliate of our company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the new bonds to be acquired under the exchange offer, the holder: . cannot rely on the applicable interpretations of the staff of the SEC; and . must comply with the registration and prospectus delivery requirements of the Securities Act. Each broker-dealer that receives new bonds for its own account in exchange for existing bonds, if its existing bonds were acquired as a result of market making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the new bonds. See "Plan of Distribution." In addition, to comply with state securities laws, the new bonds may not be offered or sold in any state unless they have been registered or qualified for sale in the state or an exemption from registration or qualification is available and is complied with. The offer and sale of the new bonds to "qualified institutional buyers" (as defined under Rule 144A of the Securities Act) is generally exempt from registration or qualification under the state securities laws. We currently do not intend to register or qualify the sale of the new bonds in any state where an exemption from registration or qualification is required and not available. 40 PROCEEDS We will not receive any cash proceeds from the issuance of the new bonds. We used the net proceeds of the existing bonds together with available cash, for the following purposes: . working capital; . financing, legal, and consulting fees and expenses associated with the transaction; . required funding of the major maintenance reserve account; . payments for residual construction costs, principally payments under our contracts with GE; and . repayment in full of indebtedness outstanding under existing intercompany loans provided by our owners and partial reimbursement of our owners for advances or capital contributions to us that we had used to pay the costs of developing, constructing and financing our facility. CAPITALIZATION The following table sets forth our capitalization as of September 30, 2001, and as adjusted to give effect to the issuance of the existing bonds and related transactions:
Actual As Adjusted ----------- ------------- (amounts in thousands) Cash and equivalents (including restricted cash)........................................... $ 74 $ 16,855 =========== =========== Intercompany debt................................ $ 275,843 $ -0- Senior Secured Bonds............................. -0- 402,000 ----------- ----------- Total debt..................................... $ 275,843 $ 402,000 Members' capital................................. 229,528 132,462 ----------- ----------- Total capitalization........................... $ 505,371 $ 534,462
41 SELECTED HISTORICAL FINANCIAL DATA Until August 2001, Elwood Energy LLC owned only Units 1-4, and Units 5-9 were held in separate companies. On August 3, 2001, completion of the merger of the other companies into Elwood Energy LLC occurred so that Elwood Energy LLC, together with its subsidiaries, now owns the entire facility. The merger has been accounted for on the historical cost basis and the financial information for all periods presented has been combined.
Year Ended September 30, -------------------------- 2001 2000 1999 -------- -------- ------- (In thousands) Selected Income Statement Data: Operating Revenues Electric sales.................................... $ 88,270 $ 56,849 $25,593 Gain on settlement of derivative.................. 8,197 -------- -------- ------- Total operating revenues........................ 96,467 56,849 25,593 -------- -------- ------- Operating Expenses Fuel.............................................. 23,779 16,045 4,439 Operations........................................ 3,750 2,470 1,248 General and administrative........................ 882 371 504 Other taxes....................................... 201 288 61 Depreciation...................................... 15,837 8,233 3,085 -------- -------- ------- Total operating expenses........................ 44,207 27,407 9,337 -------- -------- ------- Operating income.................................. 52,018 29,442 16,256 -------- -------- ------- Interest expense.................................. (3,937) -- -- Interest income................................... 1,132 913 51 Other income...................................... 1 1 721 Cumulative effect of change in accounting principle........................................ 158 -- -- -------- -------- ------- Net income........................................ $ 49,372 $ 30,356 $17,028 ======== ======== =======
As of September 30, ------------------- 2001 2000 --------- --------- (In thousands) Selected Balance Sheet Data: Cash and cash equivalents................................ $ 74 $ 8,533 Note receivable from affiliate........................... 32,406 17,704 Property, plant & equipment, net......................... 514,289 313,625 Total assets............................................. 581,398 350,913 Notes payable to affiliates.............................. 275,843 130,126 Total liabilities........................................ 351,870 138,857 Total members' capital................................... 229,528 212,056
42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with our audited financial statements contained in this registration statement, as well as "Selected Historical Financial Data". General The Company owns a 1,409 megawatt electric generation peaking facility, consisting of nine natural gas-fired, simple-cycle units of approximately 156.5 megawatts each. Units 1-4, totaling 626 megawatts, were completed and achieved commercial operation in July 1999. Construction on Units 5-9, totaling 783 megawatts, began in July 2000 and the units reached commercial operation between May and July 2001. Our revenues are primarily derived from, and costs are incurred in connection with, the generation and sale of electricity under long-term power sales agreements. In August 2001, Elwood Energy LLC merged with Elwood Energy II, LLC and Elwood Energy III, LLC, with Elwood Energy LLC as the surviving entity. All of the entities that participated in the merger were owned 50% by Dominion Elwood, Inc. and affiliates and 50% by Peoples Elwood LLC and affiliates. The merger has been accounted for on the historical cost basis and the results of operations for all periods presented have been combined. Results of Operations 2001. In fiscal year 2001 we earned net income of $49,372,000 on electric sales of $88,270,000 and total revenues of $96,467,000. As in 2000, electric sales revenues consisted of payments under the Engage and Exelon power sales agreements. In addition, Units 5-9 achieved commercial operation in May/June of 2001, so revenues included approximately three months of payments under the Aquila power sales agreements. Electric sales revenues consisted of capacity, energy and start-up payments of $69,135,000, $18,269,000 and $866,000, respectively. Net income was higher than in fiscal 2000 primarily due to the addition of Units 5-9 and a gain from closing all open hedge positions in February 2001. These open positions were closed in conjunction with the execution of an amended power sales agreement with Exelon as of March 1, 2001 that mitigated our natural gas risk. The increase in net income was partially offset by higher depreciation, operating expenses and interest expense. Revenues were higher due to the $8 million gain recognized as a result of closing our open hedge positions and increased energy sales due to the additional units being available. Increased capacity revenues, resulting from Units 5-9 achieving commercial operation, were partially offset by the higher capacity rates in effect for Units 1-4 during portions of the 2000 period. Increased fuel costs for the period prior to the execution of the amended Exelon agreement generally offset the increased electric revenues. Depreciation expense increased due to Units 5-9 achieving commercial operation. Other operating expenses increased primarily due to additional start-up, training and unit check out costs attributable to the new units. Interest expense increased due to the financing of Units 5-9 through the issuance of intercompany debt. 2000. Fiscal year 2000 was our first full year of operation of Units 1-4. We earned net income of $30,356,000 on electric sales of $56,849,000, which was consistent with expectations. As in 1999, electric sales revenues consisted of capacity, energy and start-up payments of $42,051,000, $14,047,000 and $751,000, respectively, under the Engage and Exelon power sales agreements. Capacity payments reflected the scheduled reduction in capacity rates mentioned above. Fuel costs in 2000 reflected higher natural gas commodity prices. We entered into commodity natural gas hedges as a means to control fluctuations in natural gas prices. A $4 million gain on the hedges was recognized as a reduction to fuel expense. 43 Interest income of $913,000 reflects our credit agreement with DEI under which the Company loaned excess funds to DEI at competitive interest rates pending distribution to members. 1999. Because Units 1-4 achieved commercial operation in July 1999, the Company had approximately 2 1/2 months of commercial operation in the fiscal year ending September 30, 1999. The Company earned net income of $17,028,000 on electric sales of $25,593,000. Electric sales revenues consisted of capacity, energy and start-up payments of $18,721,000, $6,544,000 and $328,000, respectively, under the Engage and Exelon power sales agreements. Capacity revenues and net income were relatively high due to two factors. The first was the higher capacity rates in effect under our power sales agreements during the first partial contract year ending December 31, 1999. We received capacity payments of $9.00/kW-month and $10.85/kW-month from Engage and Exelon, respectively, during that year, after which the capacity payments reduced to $5.00kW-month for the remaining term of both agreements. The second was our recording of capacity revenues based on estimated operating hours of the plant, in accordance with Emerging Issues Task Force (EITF) Issue 91-6, Revenue Recognition of Long-Term Power Sales Contracts. This accounting treatment allocated a large portion of annual capacity revenue to the summer months when the highest level of generation activity occurred. Operations and general and administrative expenses were relatively high during that year due to the need to have operating staff in place for approximately eight months to provide for start-up, training, contractor support and unit check out. All funding for the Company was provided by advances and capital contributions from its members and from cash flow from operations after commencement of commercial operations in July 1999. There was thus no interest expense in fiscal 1999. Liquidity and Capital Resources Internal Sources of Liquidity. Cash flows from operating activities provided $90 million, $32 million and $24 million during the years ended September 30, 2001, 2000 and 1999, respectively. Short-term cash requirements not met by the timing or amount of cash flows from operations were generally satisfied with proceeds from short-term borrowings from DEI and PERC. Long-term cash needs were met through additional capital contributions and borrowings from members. Plant Financing. Units 1-4, constructed during years 1999 and 2000, were financed primarily using member contributed capital of $175,000,000. In connection with the construction of Units 5-9 during years 2000 and 2001, the Company borrowed funds under separate notes payable from both DEI and PERC. The total amounts borrowed from DEI and PERC were $135,950,000 and $138,893,000, respectively. Interest on related party advances and notes payable was calculated using DEI's internal borrowing rate. These notes were repaid using bond proceeds. Future Liquidity. The Company's generating facilities have been constructed within the last four years; no major plant additions relating to the existing units are planned. The Company does not have any existing revolving line of credit with DEI, PERC or a commercial bank, although the bond documents permit the Company to incur indebtedness to finance working capital. The Company's ability to incur other indebtedness will be limited as described under "Description of the Bonds--Indenture--Limitations on Indebtedness." In addition, the Company's members are not required to make any additional capital contributions to fund operations or capital expenditures. The Company will therefore be primarily dependent upon cash flows from operations to cover operating expenses, maintenance and routine capital expenditures, and debt service on the bonds. 44 OUR BUSINESS AND REGULATORY ENVIRONMENT Elwood Energy LLC is a Delaware limited liability company formed in 1998 to develop, finance, construct, own and operate a natural gas-fired, electric generation peaking facility (the "Facility") in Elwood, Illinois, about 50 miles southwest of Chicago. Construction began on Units 1-4 in 1998, and these units entered commercial operation in July 1999. Construction began on Units 5- 9 in July 2000, and they entered commercial operation between May and July 2001. Indirect Owners. We are indirectly owned by DEI and PERC. DEI is a wholly-owned subsidiary of Dominion Resources, Inc. ("Dominion Resources"), a fully integrated gas and electric holding company with nearly 4 million customers, a 22,000 megawatt portfolio of electric power generation, 7,600 miles of gas transmission pipeline and an over 950 billion cubic foot natural gas storage network. DEI is Dominion Resources' principal independent power subsidiary and is also the parent corporation of a number of subsidiaries engaged in oil and gas exploration and production. DEI currently has assets of approximately $4.4 billion and operates generation facilities in Connecticut, West Virginia, and Illinois. Dominion Resources also owns Virginia Electric and Power Company ("Virginia Power"), an electric utility with generation facilities in Virginia, West Virginia and North Carolina and a 30,000 square mile service territory in Virginia and northeastern North Carolina. PERC is a wholly-owned subsidiary of Peoples Energy Corporation, a diversified energy holding company which, through its subsidiaries, engages principally in natural gas utility operations and other energy businesses. Peoples Energy Corporation's business operations are grouped in the following segments: gas distribution; power generation; midstream services; retail energy services; and oil and gas production. Peoples Energy Corporation's regulated subsidiaries purchase, store, distribute, sell and transport natural gas to approximately one million retail customers through a 6,000-mile distribution system serving the City of Chicago and 54 communities in northeastern Illinois. Peoples Energy Corporation has assets of approximately $3.1 billion. PERC was formed by Peoples Energy Corporation to engage in various unregulated wholesale energy-related businesses, including midstream services and power generation. PERC is engaged in the development, construction, operation and ownership of natural gas-fired electric generation facilities for the sale of electricity to electric utilities and marketers. PERC is actively pursuing power generation opportunities both regionally and throughout the country in addition to the further expansion of its existing facilities. Description of Facility. With the completion of Units 5-9, our Facility is a 1,409 megawatt electric generation peaking facility, consisting of nine natural gas-fired, simple-cycle units of approximately 156.5 megawatts each. Natural gas-fired units use natural gas as fuel; simple-cycle units use natural gas- fired turbines to generate electricity on a stand-alone basis. The Facility was constructed in two phases. The first phase began in 1998 and consisted of the installation of four GE-7FA combustion turbines, with GE as our engineering, procurement and construction contractor ("Phase I"). Phase I achieved commercial operation in July 1999. Based on the success of Phase I and continued demand for peaking power in the region, we broke ground on construction of the second phase of the Facility in July 2000 ("Phase II"). Phase II, which included an additional five GE-7FA combustion turbines, achieved commercial operation between May and July of 2001. All nine units can be operated from a common control room located in our general services building, or locally at the unit electrical control enclosures. Our Facility contains the following major equipment and systems: . General Electric GE-7FA gas combustion turbines with dry low NOx combustion technology; . General Electric 7FH2 hydrogen cooled electric generators; . Speedtronic(TM) Mark V turbine control systems; . fuel gas, compressed gas, exhaust, turning gear and starting, and compressor wash water systems; 45 . air quality control and monitoring systems; and . various auxiliary plant systems and associated equipment and buildings, including water systems, fire protection systems, and administration, training and maintenance buildings. The Facility is located on two adjoining parcels of land. The first, on which Units 1-4 are located, is an 21.5 acre parcel north of Noel Road and west of Patterson Road held by us under a ground lease with PERC. See "Description of the Principal Project Documents--Ground Lease." Units 5-9 are located on approximately 49.5 acres of land north of Noel Road and east of Patterson Road held by us in fee. Power Generation Equipment and Cycle. We purchased all nine GE-7FA gas combustion turbines from GE. All units generate power at 18 KV, which is stepped up with transformers to a nominal 345 KV for delivery to the interconnection point at the TSS-900 switching station. The TSS-900 switching station is located on approximately 8.5 acres of land at the corner of Noel Road and Patterson Road. This substation was constructed and commissioned by us and then conveyed to ComEd in accordance with Federal Energy Regulatory Commission ("FERC") regulations. Synchronizing of the units is performed via a low side generator breaker. The ComEd 345 KV system is divided into two systems for increased reliability, which are known as the "Red" system and the "Blue" system. Our units are connected to two distinct interconnection points in the TSS-900 switching station. Units 1-4 are connected to a ring bus configuration designated for the Red system, and Units 5-9 are connected to a ring bus designated for the Blue system. The Red and Blue systems operate on separate 345 KV lines. As a further enhancement to system reliability, the Red system can be cross-connected to the Blue system at TSS-900 to allow any of our generators to connect to either system should a single system be down for maintenance. Gas is supplied to our units through separate gas measurement and pressure reduction stations operated by Nicor. Units 1-4 have separate metering from Units 5-9. Phase II is further divided into a system that supplies gas to Units 5-8 and a system that supplies gas to Unit 9. The gas is passed through scrubbers, filters, and preheaters before arriving at the operating unit. Stone & Webster discusses the major technical components of our Facility in its report, which is included in Annex B to this prospectus. We encourage you to read the Stone & Webster report in its entirety. Completion of Construction of our Facility. Construction of our Facility was completed in two phases: Units 1-4 achieved commercial operation in July 1999 and Units 5-9 all reached commercial operation by July 3, 2001. Construction was performed by GE on a fixed price, turnkey basis under five separate engineering, procurement and construction contracts covering the various units. We believe the warranty periods from GE are typical of those in projects similar to ours. For a more detailed discussion, see "Description of the Principal Project Documents--EPC Contracts." Power Sales. We have entered into four long-term power sale agreements with three purchasers. The power sales agreements provide for payment to us of (1) a monthly fixed fee "capacity charge" based on the tested capacity of the units, as adjusted for the performance reliability of the Facility to meet dispatch; and (2) an energy payment composed of a fuel charge based on a published index price of gas and the Facility's heat rate, plus certain variable operating and maintenance expenses. The overall effect of these contracts is to index energy pricing to the market price of natural gas, thereby mitigating our natural gas price risk. We have an agreement with Engage that covers Units 1-2 through December 31, 2004; an agreement with Exelon that covers Units 3, 4 and 9 through December 31, 2012 and Units 1-2 from January 1, 2005 through December 31, 2012; and two agreements with Aquila/UtiliCorp that cover Units 5-6 and 7-8, respectively, for terms expiring on August 31, 2016 and August 31, 2017. Aquila/UtiliCorp may extend the term of each of its contracts by an additional five years at its option. In connection with its analysis of the MAIN electric power market, Pace has concluded that based on the payment structure of the Aquila/UtiliCorp power sales agreements, our Facility's forecast dispatch profile, forecast market- clearing prices and the energy and capacity revenues and 46 volatility values for Aquila/UtiliCorp from reselling the output and capacity of Units 5-8, it is likely that Aquila/UtiliCorp will have economic incentives to exercise these extension options. See "Annex C-1--Executive Summary--Power Sales Agreements--Extension of Aquila Power Sales Agreements." Engage has sold the energy and capacity of Units 1 and 2 during the remaining term of its contract with us to Exelon and has appointed Exelon as its agent to dispatch the units. We have entered into a "true up" arrangement with Exelon that puts both of us in essentially the same economic position as would exist if Units 1 and 2 were currently part of the Exelon contract. The "true up" calculates the differences between various pricing and operational parameters of the Engage agreement and those in the Exelon agreement with us. The difference will appear as an increase or a decrease to the monthly payment calculation under the Exelon agreement such that the ultimate cost of Exelon's purchase of energy and capacity from Engage for Units 1 and 2 is effectively the same as if Exelon purchased the capacity and energy of Units 1 and 2 directly from us under the Exelon agreement. We continue to bill, and receive payments from, Engage, in accordance with the terms of our agreement with Engage. So long as all parties perform their obligations, we are in essentially the same position we would be if the Exelon power sales agreement already covered all five units. Exelon and Aquila/UtiliCorp have exclusive rights to dispatch the units to which their respective contracts apply, but they must provide advance notice approximately one hour before start-up in the summer peak period hours and four hours before start-up in all other periods. Once dispatched, the units must generally run for no less than four hours. We describe the power sales agreements discussed above in greater detail under the caption "Description of the Principal Project Documents--Power Sales Agreements." We encourage you to read that section in its entirety. Fuel Supply. We have contracted for the purchase of firm gas supplies, as needed and generally only when the Facility consumes gas, at a daily spot gas price under a fuel supply and management agreement with Cinergy. Because our Facility is designed as a peaking facility, it is expected to operate on short notice and will experience significant hourly, daily and seasonal variations in fuel requirements. If we run all nine turbines for a full 16-hour period, we will require approximately 240,000 MMBtu/day to 285,000 MMBtu/day, depending on the season, to satisfy our full fuel requirement. Because our run times are unknown, purchasing fuel in advance would create a risk of having to sell the purchased fuel at market prices if our units are not dispatched. Accordingly, we purchase our fuel requirements on an as-needed basis under the fuel supply and management agreement with Cinergy. This agreement provides for the firm delivery of gas supplies as needed, and is priced at a daily spot price, plus a nominal premium, which corresponds to the rate we charge for energy sold under our contracts with Exelon and Aquila/UtiliCorp. The Cinergy contract terminates on April 30, 2002. The Cinergy service was bid and awarded in February 2001 at a time when natural gas supply prices were abnormally high. Natural gas prices have since declined and we have completed our first summer of operations as an expanded facility. We therefore believe we have the opportunity to enter into a contract on more favorable terms for a multi-year period with Cinergy or another national energy marketing company. For a more detailed description of our agreement with Cinergy, see "Description of the Principal Project Documents--Fuel Agreements." We believe we will have an ample supply of natural gas for our Facility. As our independent fuel consultant, Pace, has noted, we currently have the flexibility to acquire abundant gas supplies from numerous sources. A number of high pressure, high deliverability gas pipelines interconnect near Chicago and are linked to gas reserves in upstream basins. Pace expects that the gas resources from these basins will continue to be available through the term of the bonds. In addition, the development of liquid trading points throughout the United States and Canada and the Midwest's favorable location on the natural gas transportation grid should facilitate access to diverse sources and flexibility in meeting specific supply requirements. See "Annex C-2--Risks and Risk Mitigation--Adequacy of Supply." 47 Gas Pipeline Interconnections and Fuel Transportation Services. We have entered into a long-term transportation and storage balancing service with Nicor for firm (non-interruptible) hourly delivery of fuel supplies to meet the firm power dispatch obligations at the Facility. PGL is the owner and operator of the pipeline delivering gas to the Facility but Nicor holds the utility franchise to gas utility services in the region where the Facility is located. Because Nicor only owns meters at the Facility, Nicor renders this service with the support of PGL, through a companion agreement that contains substantially the same terms and conditions as our agreement with Nicor. Gas transportation and balancing is provided on a firm, short-notice basis to meet the hourly dispatches of our power sales customers. Nicor furnishes transportation and balancing service to facilitate the delivery of supplies in a "just in time" manner. Transportation service under the Nicor agreement allows for the purchase and receipt of gas from interstate supplies delivered to Nicor in Chicago by NBPL (Western Canadian supplies), APL (Western Canadian supplies), and NGPL (MidContinent, Gulf Coast, U. S. Rocky Mountain and Canadian supplies). The Nicor firm transportation service also allows us to receive gas from our own inventories that were previously delivered and stored. Our site is also connected indirectly to PGL's Mahomet line, offering a source of back-up supplies if Nicor suffers a supply disruption. In addition to our firm transportation service options, the local market has substantial storage capacity. Both local distribution companies, Nicor and PGL, own and operate large local storage fields near our Facility and also contract for significant capacity from interstate pipelines and from other sources. Much of this contract storage is also located near our site in a geological region that supports aquifer storage of gas. The abundance of local storage and the convergence of numerous interstate pipelines form an array of supply options, are the foundation for the local market's ability to maintain liquidity, and should provide a constant market for natural gas spot supplies. We describe our agreement with Nicor in greater detail under "Description of the Principal Project Documents--Fuel Agreements." We encourage you to read that section in its entirety. Electric Interconnection. Interconnection to the electric power grid is provided by ComEd via a switchyard that we have constructed. Transmission service beyond the interconnection point is currently the responsibility of our customers. Our interconnection agreements with ComEd run until they are terminated in accordance with their terms or we or our permitted assigns no longer operate the Facility. See "Description of the Principal Project Documents--Interconnection Agreements." Water Supply. The water supply for the Facility, including service water and water for fire protection, comes from wells on adjacent property owned by PERC. PERC also provides other support and services to our Facility under a Common Facilities Agreement. These services include disposal of storm water discharge and blowdown water from Units 1-4 of our Facility. See "Description of the Principal Project Documents--Common Facilities Agreement." Operation and Maintenance. DELSCO, a wholly-owned subsidiary of DEI, provides operation and maintenance services for us under an operations and maintenance agreement covering all nine units. DELSCO is responsible for, among other things, hiring and supervising properly trained personnel, maintaining facility standards and safety, performing routine maintenance, developing annual budgets and maintaining facility performance levels. We pay DELSCO a fixed annual fee of $650,000, which is adjusted annually for inflation, and we reimburse DELSCO for labor costs, spare and replacement parts, materials, tools and equipment, chemicals and lubricants, instrumentation, equipment overhauls, insurance costs and facility-related office expenses. For a more detailed discussion, see "Description of the Principal Project Documents--Operation and Maintenance Agreement." DELSCO has an employee incentive plan tied to our meeting our performance requirements under our power sales agreements. In addition, DEI, of which DELSCO is a subsidiary, and its affiliates have approximately 47 combustion turbines similar to ours in operation or on order, which provides both a base of experience for the management of our operations and an opportunity for synergies in obtaining maintenance and spare parts. 48 Employees. We do not have any employees. DELSCO employs a total of 16 employees to work at our Facility. No DELSCO employees who work at our Facility are union employees. Because we do not have any employees, we are dependent upon a number of third parties, including DELSCO, for the provision of substantially all the services that we require. See "Risk Factors--Operating Risks." Insurance. We currently maintain and intend to continue to maintain a comprehensive insurance program underwritten by recognized insurance companies licensed to do business in Illinois. This insurance program includes general liability, automobile liability, workers' compensation, employer's liability, all-risk property, business interruption, environmental impairment liability, cargo liability and aircraft liability insurance. We believe that the limits and deductibles for these insurance coverages are comparable to those carried by electric generating facilities of similar size. Legal Proceedings. We are not currently a party to any material pending or threatened legal proceedings. Competition and Energy Regulation The Energy Policy Act of 1992 laid the groundwork for a competitive wholesale market for electricity. Among other things, the Energy Policy Act expanded the FERC's authority to order electric utilities to transmit, or "wheel," third-party electricity over their transmission lines. In addition, in 1996 the FERC issued Order 888 which requires all electric utilities to file tariffs providing non-discriminatory, open access wholesale wheeling service on their transmission systems. This allows qualifying facilities, power marketers and exempt whole generators ("EWGs"), a new category of generating entity created by the Energy Policy Act, to compete more effectively in the wholesale market. At this time we cannot predict how changing industry conditions may affect our future operations. However, because we have long-term contracts for the sale of our capacity and output to Engage, Exelon and Aquila/UtiliCorp, we do not expect competitive forces to have a significant effect on our business during the terms of these contracts, unless they affect the ability of these purchasers to perform their obligations under the contracts. After the termination of these power sales agreements, we may be subject to market competition for the sale of all or part of our electric generating capacity and electrical output. When our agreements with Exelon and Aquila/UtiliCorp expire, we plan to enter into new long-term power sales agreements (by extending or renewing contracts with our existing customers or entering into new third party contracts). If we cannot enter into long-term power sales agreements, we will sell the capacity and energy from our Facility on a "merchant" basis. Merchant marketing may involve the sale of the capacity and energy of the Facility on a shorter-term "spot" basis and/or the use of hedging products to manage volatility. While we cannot predict future market developments with any certainty, Pace, our independent power market and fuel consultant, has concluded that MAIN is emerging as a highly competitive market for wholesale power and that given the MAIN market's expected demand growth, Pace's market price forecast and our Facility's competitive market position, our Facility is expected to be competitive during the term of the bonds. See Annex C-1 to this prospectus. We were initially certified by the FERC as an EWG on March 5, 1999. We intend to continue to operate as an EWG. An EWG must be engaged exclusively in the business of owning or operating an eligible facility and selling electricity at wholesale. An eligible facility is a generating facility used solely to produce electricity exclusively for sale at wholesale. An EWG is exempt from the Public Utility Holding Company Act of 1935, and no company becomes a holding company under the Public Utility Holding Company Act because it holds membership interests in us. There is no restriction on the proportion of equity interest in an EWG that may be held by electric utilities and electric utility holding companies. If at any time there is a "material change" in facts that might affect our continued eligibility for EWG status, we must within 60 days (1) file with the FERC a written explanation of why the material change does not affect our status, (2) file a new application for EWG status, or (3) notify the FERC that we no longer wish to maintain EWG status. 49 We are a public utility under the Federal Power Act and subject to the jurisdiction of the FERC with respect to our wholesale electric rates and other matters. We have applied to the FERC for, and received authority to, make wholesale sales of electricity to our wholesale customers at market-based rates. The FERC's order, as is customary with market-based rate schedules, reserved the right to revoke our market-based rate authority if it is subsequently determined that we or our affiliates possess excessive market power. Proposals have been introduced in Congress to repeal the Public Utility Holding Company Act. The FERC and the SEC have publicly indicated support for such repeal. If the repeal of the Public Utility Holding Company Act occurs, either separately or as part of legislation designed to encourage the broader introduction of wholesale and retail competition, the competitive advantage that independent electric power generators currently enjoy over certain regulated utility companies or other potential competitors may be eliminated or sharply curtailed. Deregulation may not only continue to fuel the current trend toward consolidation among domestic utilities, but may further encourage the trend toward disaggregation of vertically-integrated utilities into separate generation, transmission and distribution businesses. As an EWG, we are permitted to sell capacity and electricity in the wholesale markets, but not in the retail markets. Accordingly, under current law, after termination of the Engage, Exelon and Aquila/UtiliCorp power sales agreements, we may sell our capacity and electrical output in the wholesale markets or to power marketers (who could be our affiliates) who can in turn make retail sales. Under the Illinois Public Utilities Act, the Illinois Commerce Commission ("ICC") regulates "public utilities" operating in Illinois. A "public utility" is anyone that "controls, operates or manages, within [Illinois], directly or indirectly, for public use, any plant, equipment or property used or to be used in or in connection with the production, storage, transmission, sale, delivery or furnishing of electricity." There is not a specific exemption from the Public Utilities Act for entities such as the Company selling electricity at wholesale within Illinois. We have, however, received an opinion of counsel that we will not be deemed to be a public utility under existing Illinois law as a result of our operation of our Facility and sales of power as contemplated under the power sales agreements. The opinion is based on Illinois court decisions involving gas utilities that hold that an entity does not become a public utility unless it holds itself out to the public generally as a supplier of utility service. Because we will not serve the public generally, counsel has concluded that we will not be subject to regulation as an Illinois public utility. If we were deemed to be an Illinois public utility, the ICC could retroactively apply certain provisions of the Illinois Public Utilities Act to us, including requirements for approval from the ICC for operation of our Facility. If these requirements were applied to us, we might be required to discontinue operations until we received the necessary approvals. In addition, although our rates would remain subject to FERC regulation, we might become subject to other Illinois non rate-related laws and regulations. At present, Illinois is in a process of transition to full retail access. Retail open access for some industrial and other commercial customers began in October 1999. Open access was extended to all non-residential customers by January 2001, and all consumers are to be phased in by May 2002. In Michigan, Detroit Edison and Consumers Energy, which serve 90% of Michigan's electricity customers, have voluntarily begun the implementation of retail choice in their service areas, with retail access to all consumers scheduled to be fully implemented by January 2002. No timetable for transition to retail competition exists at present in Missouri and Wisconsin. For a fuller discussion of the state regulatory and competitive environment in the MAIN region, see "Annex C- 1--Regulatory Status." Environmental Regulation We are in material compliance with all applicable federal, state and local environmental regulatory requirements. We have obtained all of the material permits required for the construction and commencement of operation of our Facility. A summary of the material permits currently issued for our Facility and those anticipated as necessary in the future is included in the Independent Engineer's Report. See "Annex B--Permits, Approvals and Certifications" to this prospectus. 50 Sulfur Dioxide. The Clean Air Act provides for SO\\2\\ emission reductions to be achieved through a total national cap on SO\\2\\ emissions from affected utility units and an allocation of SO\\2\\ "allowances" equal to that total national cap (each allowance authorizes the holder to emit one ton of SO\\2\\). Units that need to cover SO\\2\\ emissions above their allowance allocations can buy allowances from sources with excess allowances through a national trading program established by the U.S. Environmental Protection Agency ("U.S. EPA"). Since our Facility is comprised of new units, it will not receive any allocation of SO\\2\\ allowances. Because we use natural gas for fuel, however, the SO\\2\\ emissions from all our Units is small compared with SO\\2\\ emissions from electric utility units using other types of fossil fuels such as coal or oil. We intend to comply with the SO\\2\\ allowance requirement by purchasing additional allowances from other sources or from allowance brokers. The financial projections in the Independent Engineer's Report assume that we will have minimal requirements for purchased allowances because of low emissions and do not take into account any costs for such allowances. See "Annex B--Operating Expenses--Emission Compliance Costs." There is some risk that the price for allowances will be considerably higher or that they will become difficult to obtain at any price. Because of the relatively small quantity of allowances we need, however, we do not expect a material impact on our operations even if this occurs. Nitrogen Oxides. On September 24, 1998, the U.S. EPA issued a final rule to address regional transport of ground-level ozone in the Eastern United States through reductions in nitrogen oxides ("NO\\x\\") in 22 states, including Illinois, and the District of Columbia ("the NO\\x\\ SIP Call"). The NO\\x\\ SIP Call establishes an Ozone Season from May through September, sets forth an annual NO\\x\\ emissions "budget" or cap in the form of tons of NO\\x\\ emissions allowed for each affected jurisdiction, and requires each affected jurisdiction to submit to the U.S. EPA a revised State Implementation Plan that demonstrates how the jurisdiction will reduce NO\\x\\ emissions enough to meet its budget. Illinois has promulgated initial NO\\x\\ regulations to implement the SIP Call in Illinois, and the program is expected to take effect starting on May 1, 2004. Like many states, Illinois issued regulations that would achieve the required NO\\x\\ emission reductions through a cap and trade program. The program would allocate a certain number of NO\\x\\ emission allowances to existing and new sources and require sources that need more NO\\x\\ emission allowances to either reduce NO\\x\\ emissions or purchase available NO\\x\\ emission allowances from others. Elements of the NO\\x\\ SIP Call are currently under review by state and federal regulatory officials as a result of a court remand of part of the final U.S. EPA NO\\x\\ SIP Call regulations. Changes to the NO\\x\\ SIP Call, including the size of the NO\\x\\ budgets allocated to particular states and the regulation's compliance date, may be necessary once that review is complete. Any changes to the U.S. EPA's NO\\x\\ SIP Call regulations may in turn require changes to the Illinois regulations. We cannot be sure how U.S. EPA or Illinois may ultimately resolve the remaining NO\\x\\ SIP Call issues. The regulations Illinois has promulgated set forth formulas for allocation of NO\\x\\ emission "allowances" to NO\\x\\ emission sources within the state, with each allowance representing an authorization for a source to emit one ton of NO\\x\\ during the Ozone Season. The allowances can be bought and sold through a trading program that is expected to eventually include all of the 23 jurisdictions covered by the NO\\x\\ SIP Call. Under the Illinois regulations, all of our units will be considered "new" sources, and will be obligated to obtain NO\\x\\ allowances from a limited pool set aside for "new" sources constructed after 1994. While we cannot predict the exact disposition of the NO\\x\\ allowances that will be made available, we expect that the number of allowances available for allocation to new sources will not be sufficient to cover all of the allowance requests. We therefore will likely receive some lesser pro rata share of the amount of allowances necessary to cover all of our expected NO\\x\\ emissions. If necessary, we intend to comply with the NO\\x\\ SIP Call requirements limiting NO\\x\\ emissions by purchasing additional allowances or by relying upon our power purchasers to supply us with the necessary allowances. There is no existing NO\\x\\ allowance market and we cannot be sure that an active trading market will develop to offer NO\\x\\ allowances for sale at reasonable prices. Under our power sales agreement with Exelon, Exelon is required to provide us with allowances to the extent they are not otherwise allocated to us. We do not have similar arrangements with our other power purchasers. Public Policy Relating to NO\\x\\ and SO\\2\\ Emissions. The United States Congress has considered in the past "multi-pollutant" legislation that would require electric utilities to comply with more stringent pollution 51 control standards for NO\\x\\ and SO\\2\\. Similar legislation was introduced in Congress in 2001, and further proposals are expected under the Bush Administration's National Energy Policy. Many of the legislative proposals under consideration would rely upon flexible cap and trade programs for compliance. Such legislation could apply to our units and could require additional reductions in NO\\x\\ and SO\\2\\ emissions. We cannot predict whether such legislation will pass this year or in the future, what it might require or whether it would apply to our units. The extent of investment we may need to make in additional pollution control technologies, operational changes and/or pollution allowance or emission credit purchases required to comply with any new legislative requirements would be directly related to the level of emission reductions required and the mechanisms provided for compliance and to the operation of our facilities. Illinois Governor Ryan recently signed "multipollutant" legislation that establishes a rulemaking process that could lead to emission reduction requirements for NO\\x\\, SO\\2\\ and mercury from electric utilities. The legislation allows, but does not require, the Illinois Environmental Protection Agency ("IEPA") to adopt "as appropriate" regulations for the reduction of NO\\x\\, SO\\2\\ and mercury after consideration of a number of factors, including energy supply impacts and developments in federal multipollutant law. The IEPA is also to establish a voluntary program for reducing electric utility greenhouse gas emissions. Specifically, the IEPA is to issue findings on the "potential need" for reducing electric utility emissions of NO\\x\\, SO\\2\\ and mercury in light of various factors, and deliver that report to the Illinois House and Senate Environment and Energy Committees no earlier than September 30, 2003 and no later than September 30, 2004. Any time after ninety days of submission of that report, the IEPA "may" submit proposed regulations to implement its findings for approval by the Illinois Pollution Control Board. The Board must take action on the proposed regulations, if any, within one year. The extent of investment we may need to make in additional pollution control technologies, operational changes and/or pollution allowance or emission credit purchases required to comply with any new state regulatory requirements will be directly related to the level of emission reductions required and the mechanisms provided for compliance and to the operation of our Facility. Particulate Matter. A new ambient air quality standard was adopted by U.S. EPA in July 1997 to address emissions of fine particulate matter ("PM 2.5"). It was widely understood at that time that attainment of the fine particulate matter standard might require NO\\x\\ and SO\\2\\ emission reductions from many emission sources, perhaps on a multi-state regional scale. Under the implementation schedule announced by the U.S. EPA when the new standard was adopted, non-attainment areas were not to have been designated until 2002 and control measures to meet the standard were not to have been identified until 2005, with implementation of control measures by sources to follow sometime after that. However, in a May 14, 1999 decision, a federal appellate court remanded the new fine particulate standard to U.S. EPA for further justification. U.S. EPA obtained Supreme Court review of that decision, and the Court generally upheld the agency's authority to promulgate the new standard. However, U.S. EPA must determine how to proceed with implementing the new standards, and will likely have to address additional court challenges to the specifics of the standard and its implementation. As a result, the impact, if any, of future revisions to the fine particulate matter standard on our Facility is uncertain at this time. Hazardous Air Pollutants. U.S. EPA recently issued an interpretive rule declaring that the agency will proceed with development of standards to regulate emissions of hazardous air pollutants from stationary combustion turbines like the ones at our Facility under Title III of the Clean Air Act. EPA's interpretive rule indicated that a proposed rule governing hazardous air pollutant emission reduction standards for gas turbines was expected to be issued by late 2000, and a final rule to be issued in 2002. U.S. EPA has yet to issue a proposed rule. Because we do not know when U.S. EPA will issue its rule or what U.S. EPA may require of existing gas turbines like ours, if anything, we are not able to evaluate the impacts of potential hazardous air pollutant regulations on our turbines. Greenhouse Gases. Since the adoption of the United Nations Framework on Climate Change in 1992, there has been a worldwide effort to reduce greenhouse gas ("GHG") emissions to 1990 levels or below. In December 1997, the United States participated in the Kyoto, Japan negotiations, where the basis of a Climate Change treaty was formulated. Under the treaty, known as the Kyoto Protocol, the United States would be 52 obligated to meet an overall GHG emissions reduction target of 7% below 1990 GHG emissions by 2008-2012. Gas-fired combustion turbines like ours are a source of GHG emissions, although emissions from gas-fired combustion turbines tend to be significantly lower than emissions from oil or coal-fired electric generation facilities. The Kyoto Protocol does not come into effect until the United States Senate ratifies it. To date, the Senate has not done so. In 1997, the Senate passed a resolution indicating that it would not ratify a GHG emissions reduction treaty that did not involve commitments from developing nations to limit GHG emissions or a treaty that would damage the U.S. economy. Recently, the Bush Administration has announced that the United States will not abide by the Kyoto Protocol. However, Congress has considered in the past, and is currently considering, "multi-pollutant" legislation that could require electric generating facilities, including gas-fired turbines like ours, to reduce or offset their GHG emissions. Illinois has also considered in the past, and is currently considering, legislation that could result in GHG emission control requirements for electric generation facilities. Because we do not know whether the United States will adopt the Kyoto Protocol or whether Congress or Illinois will otherwise pass legislation that would mandate regulation of GHG emissions from electric generation facilities, or what the particular requirements for gas-fired electric generation facilities might be, we are not able to evaluate the impact of potential GHG emission reduction obligations on our Facility. Environmental Site Assessment. Woodward-Clyde International-Americas prepared an environmental investigation report, dated August 3, 1998, for PGL (which owned the property at the time) with respect to a portion of the property on which our Facility is located. Our Facility is located in an industrial area and is adjacent to a spray irrigation area that is used to dispose of treated storm water. It has been used in the past for agricultural purposes. The report noted that arsenic, benzene and Dieldrin were detected in site soils. The concentrations did not exceed Tier I remediation objectives for direct contact for construction workers and thus were not believed to pose a health and safety concern for construction activities. For a fuller assessment, see "Annex B--Site Assessment--Environmental Site Assessment." 53 OWNERSHIP AND MANAGEMENT Our owners. We are a limited liability company, and ownership rights in us are represented by membership interests. 50% of our membership interests are owned by Dominion Elwood, Inc., a subsidiary of DEI, and 50% by Peoples Elwood, LLC, a subsidiary of PERC. Membership interests may be transferred to affiliates without restriction; otherwise, except for certain specified transactions, members may not transfer their ownership interests to a third party (either directly or through a change in control of a member) without first offering to sell their interest to the other member. Our management. Our Management Committee, which consists of one representative from DEI and one representative from PERC, oversees the overall management of our project. The General Manager has overall responsibility for our daily operations and is selected by and reports directly to the Management Committee. The General Manager's authority is limited to entering into contracts or commitments of $100,000 or less. Any commitments greater than $100,000 must receive Management Committee consent. The Commercial Manager is responsible for managing the commercial aspects of the business under the direction of the General Manager. We have delegated some management functions to DELSCO under the O&M Agreement. See "Description of the Principal Project Documents--Operation and Maintenance Agreement." The following individuals are, respectively, members of our Management Committee and senior executives of our Company:
Name Age Company Position ---- --- ---------------- Edward J. Rivas............... 57 Management Committee William E. Morrow............. 45 Management Committee Tony Belcher.................. 51 General Manager Robert F. Harrington.......... 44 Commercial Manager Gary L. Edwards............... 52 Risk Manager Lee Katz...................... 38 Principal Financial and Accounting Officer
Edward J. Rivas. Mr. Rivas is Senior Vice President, Fossil & Hydro Operations for Dominion Energy. He is responsible for overseeing the operation of over 14,000 MW of Dominion Energy's assets. He has 24 years of power generation experience with a concentration in operations and engineering. He holds a Bachelor of Science degree in Mechanical Engineering from Central New England College. William E. Morrow. Mr. Morrow is President of PERC and Executive Vice President of Peoples Energy Corporation and its utilities, PGL and North Shore Gas Company. His diversified energy responsibilities include all corporate electric generation, wholesale gas marketing, and gas peaking services. His utility responsibilities include gas supply acquisition, transmission and storage operations, gas control and hub services. Since joining the corporation in 1979, Mr. Morrow has had experience in distribution and service departments, engineering, gas control, synthetic natural gas plant and corporate headquarters. He holds a Bachelor of Science degree in Mechanical Engineering from Bradley University and a Master's degree in Business Administration from the University of Chicago. He is a registered Professional Engineer in the State of Illinois. Tony Belcher. Mr. Belcher, Director of Operations for the Unregulated Operations of Dominion Energy, is responsible for management of Dominion Energy's unregulated assets. Mr. Belcher has over 29 years of experience in the power generation business with emphasis on operation, maintenance and asset management. He holds a Bachelor of Science degree in Electrical Engineering from Virginia Tech and a Masters degree in Business Administration from Virginia Commonwealth University. He is a registered Professional Engineer in the Commonwealth of Virginia. Robert F. Harrington. Mr. Harrington, our Commercial Manager, is responsible for directing the marketing of power, the procurement of fuel supply and other administrative duties at our Facility. 54 Mr. Harrington is Managing Director--PERC Power and manages the activities of the Chicago office of PERC in other power developments, including the Calumet site now under development with Exelon. Mr. Harrington has more than 20 years of experience in gas and power, including roles in marketing, energy trading, regulatory and finance. He holds a Bachelor of Science degree from Western Illinois University and is a certified public accountant registered with the State of Illinois. Gary L. Edwards. Mr. Edwards, the Director--Risk Management of Dominion Energy Services Company, is responsible for risk management and the administration of contracts for our company. Mr. Edwards began his career with Virginia Power in 1970. Since joining the company in 1970, he has had responsibilities for sales and marketing of electric heating and development of both gas and electric rates in the jurisdictions of Virginia, North Carolina, and West Virginia. Before his current assignment, Mr. Edwards was responsible for the development of solicitations and the associated contract negotiations for the procurement of capacity to meet company native load. He has negotiated in excess of fifty power purchase agreements with capacity payment requirements over the contract life in excess of $40 billion. He received a Bachelor of Science degree in Mathematics from Milligan College, Johnson City, Tennessee. Lee Katz. Mr. Katz is Controller of Dominion Energy, which provides financial and accounting services for Elwood under his supervision. Mr. Katz has been with Dominion for five years. Before that, he was employed by public accounting and consulting firms. He has a Bachelor's degree in Accounting from the University of South Carolina and a Master's degree in Business Administration from Virginia Commonwealth University and is a certified public accountant. Compensation. All of our managers and officers are full-time employees of either Dominion or Peoples. They are paid salaries by Dominion or Peoples and participate in the various employee benefit plans of those companies. They are not paid directly by us for their services. 55 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS DELSCO, which provides operation, maintenance and management services to us under an operation and maintenance agreement, is a wholly-owned subsidiary of DEI. Under the O&M Agreement, we pay DELSCO an aggregate annual fee of $650,000, subject to adjustment for inflation, and we reimburse DELSCO for costs incurred in connection with its services as described under "Description of the Principal Project Documents--Operation and Maintenance Agreement-- Compensation." Under the Common Facilities Agreement, we are provided with certain services and with our water supply by PERC. We pay PERC approximately $100,000 annually for these services as described under "Description of the Principal Project Documents--Common Facilities Agreement." The fees for services and the reimbursable expenses payable under the O&M Agreement and the Common Facilities Agreement are designated as O&M Costs and thus will be paid before the payment of principal and interest on the bonds. See "Description of the Principal Financing Documents--Deposit and Disbursement Agreement--Deposit and Disbursement of Funds." PERC is the lessor under the ground lease covering the land on which Units 1-4 are located. The basic rent under the ground lease is $283,380 for the entire term, and has been fully paid. We remain responsible for taxes, assessments, water rates and other impositions on the property. Within 45 days after the issuance to us of an operating permit by the Illinois Environmental Protection Agency under Title V of the Clean Air Act, PERC will sell, and we will purchase, the property subject to the ground lease. The purchase price will have been satisfied by payment of the basic rent under the ground lease. Although Nicor is the contractual provider of natural gas transportation and balancing services to our Facility, physical transportation of gas is provided through PGL's 24-inch pipeline. Nicor also has a companion agreement with PGL for transportation and balancing services, which contains substantially the same terms and conditions as our agreement with Nicor. 56 DESCRIPTION OF THE PRINCIPAL PROJECT DOCUMENTS The following is a summary of selected provisions of agreements with third parties related to our operations and should not be considered a full statement of the terms and provisions of those agreements. Copies of the power sale agreements, the fuel agreements, the operation and maintenance agreement, the common facilities agreement and the ground lease are included as exhibits to the registration statement of which this prospectus is a part. All references to time in these summaries are to Central Time. POWER SALES AGREEMENTS Exelon Power Sales Agreement We are party to a second amended and restated power sales agreement (the "Exelon PSA"), under which Exelon purchases capacity and electricity generated by Units 3, 4 and 9 (and Units 1 and 2 after expiration of the Engage power sales agreement), with a price "true up" for capacity and energy from Units 1 and 2 during the term of the Engage agreement. Term. The Exelon PSA runs until December 31, 2012, unless terminated earlier in accordance with its terms. Capacity Payments. The capacity payments we receive from Exelon average $4.35 per kW of net dependable capacity per month over a calendar year. "Net dependable capacity" under the Exelon PSA is the level of MW per unit based upon demonstrated output (net of station service and auxiliaries) achieved during capacity testing of the unit, as adjusted to conditions of 85 degrees Fahrenheit and 60% relative humidity at 610 feet above sea level. The capacity payments are based on a fixed monthly capacity price schedule as follows (in $/kW month):
$/kW of Net Dependable Month Capacity ----- ----------- January-May................................................. $2.71875 June........................................................ $6.525 July-August................................................. $9.7875 September................................................... $4.35 October-December............................................ $2.71875 Average..................................................... $4.35
Capacity payments may be reduced due to certain force majeure events that restrict the output of the Facility and for the reasons discussed under "-- Performance Adjustments" below. Energy Charge. The energy charge for electric energy sold to Exelon under the Exelon PSA is designed to pass through our variable cost of generation to Exelon. The energy charge per MWh consists of two components: (i) a variable operation and maintenance charge of $1.50/MWh which escalates annually with inflation and (ii) a fuel charge which is composed of a fixed rate per MMBtu ($0.32/MMBtu) and a variable rate that floats with an index price. The index price is the Gas Daily Average Price and is either day of burn or next day, principally depending upon notice times. The contract heat rate for energy payments is 10,900 Btu/kWh if the unit is dispatched at 100% of net dependable capacity and 12,900 Btu/kWh if the unit is dispatched at 60% of net dependable capacity. The energy charges for load amounts between 60% and 100% are pro-rated between these two heat rates. Start-Up Charge. Except for Units 1 and 2 during the term of the Engage agreement, for each start-up of a unit in which the applicable unit achieves the dispatched generation level for a minimum of four hours (which do not need to be consecutive) during the dispatch period, Exelon must pay us a sum of $3,250, subject to an annual inflation escalator. 57 Dispatch Cancellation Charges. Exelon may cancel start-up of a unit anytime before the initiation of the start-up sequence and ignition of a unit. However, if cancellation occurs less than one hour before start-up during summer on-peak hours, a dispatch cancellation charge of $3,250 (adjusted annually for inflation) applies. During non-summer on peak and summer off peak hours, a fuel adjustment charge is added to dispatch cancellation charges, together with a $1,000 charge if the cancellation is more than two and less than four hours before start-up or a $4,000 charge if the cancellation is less than two hours before start-up. Performance Adjustments. The Exelon PSA provides for availability and reliability bonuses and penalties designed to encourage optimal plant performance. These availability bonuses and penalties vary by time and season. During the summer months, they are highest during "Super Peak" hours (11 a.m. to 7 p.m. Monday through Friday), lower in "Partial Peak" hours (6 a.m. to 11 a.m. and 7 p.m. to 10 p.m. Monday through Friday) and lower still in "Off-Peak" hours (all other hours). "Summer" is defined as June through September in the Exelon PSA. During the non-Summer months, availability bonuses and penalties only apply during "On-Peak" hours (6 a.m. to 10 p.m.). "Equivalent Availability" (or "EA") is calculated using the equation: [1- (FOH + EFDH)/PH], where FOH is equal to Forced Outage Hours (i.e. the number of hours that the units experienced a forced outage in the month), EFDH is equal to Equivalent Forced Derated Hours (i.e. the equivalent number of hours that the units experienced a forced derating during the month, taking into account the size of the derating), and PH is Period Hours (i.e. the total number of Summer Super Peak, Summer Partial Peak, Summer Off-Peak and non-Summer On-Peak hours, as applicable, in the month). Forced outages and forced deratings do not count in the above calculation to the extent substitute energy was provided. The target Equivalent Availability is 97% in the Summer months and 93% the rest of the year. If the Equivalent Availability is greater than target, we receive a bonus; if less, we must pay a penalty. EA calculations are performed monthly for the Summer months for Super Peak, Partial Peak and Off-Peak hours, and a single calculation is performed for the On-Peak hours for the remainder of the year. Penalties can never require us to lose more than the capacity payment actually paid during the applicable year and are only assessed when a unit is dispatched. The following tables show the bonus or penalty per a 1% change in EA for 1MW of capacity. Super Peak Summer Bonus and Penalty
EA Condition June July Aug Sep ------------ ------- -------- -------- ------- (greater than or =)97% $ 71.43 $ 107.14 $ 107.14 $ 47.62 (less than) 97%, (greater than or =)70% -74.95 -113.75 -113.75 -47.44 (less than) 70%, (greater than or =)44% -80.79 -121.19 -121.19 -53.86 Partial Peak Summer Bonus and Penalty EA Condition June July Aug Sep ------------ ------- -------- -------- ------- (greater than or =)97% $ 23.81 $ 35.71 $ 35.71 $ 15.87 (less than) 97%, (greater than or =)70% -24.98 -37.91 -37.91 -15.81 (less than) 70%, (greater than or =)44% -26.93 -40.39 -40.39 -17.95
Off Peak Summer Bonus and Penalty
EA Condition June July Aug Sep ------------ ------- ------- ------- ------- (greater than or =)97% $ 0 $ 0 $ 0 $ 0 (less than) 97%, (greater than or =)70% -14.27 -21.67 -21.67 -9.03 (less than) 70%, (greater than or =)44% -15.39 -23.08 -23.08 -10.25
58 Non Summer On-Peak Bonus and Penalty
Non-Summer EA Condition Period ------------ ---------- (greater than or =)93% $ 47.62 (less than) 93%, (greater than or =)86% -95.24 (less than) 86%, (greater than or =)80% -2,811.11 (less than) 80%, (greater than or =)44% -117.13
In addition, we are paid a reliability bonus for unit performance during the Summer months. This bonus is calculated using the unit availability for the four highest peak power price days during each of the Summer months. The average of all five units' reliability is then measured against an 80% reliability threshold. The bonus is paid according to the formula: (monthly reliability bonus in $ per 1%) X (facility reliability - 80%) X 100 X 5 units. The following are the monthly reliability bonuses for each unit for each percent above the 80% target reliability threshold by month: June $1,250 per 1% July $5,000 per 1% August $5,000 per 1% September $1,250 per 1%
Unit 1 and Unit 2 True Up. Exelon has purchased the rights to the off-take from Units 1 and 2 from Engage through the term of the Engage agreement. The Exelon PSA contains a pricing true-up to provide Exelon with the same financial and operational parameters for Units 1 and 2 that exist in the Exelon PSA with regards to Units 3, 4 and 9. The "true up" calculates the differences between various pricing and operational parameters of the Engage agreement and those outlined in the Exelon PSA. The difference will appear as an increase or a decrease to the monthly payment calculation under the Exelon PSA such that the ultimate cost of Exelon's purchase of energy and capacity from Engage for Units 1 and 2 is effectively the same as if Exelon purchased the capacity and energy of Units 1 and 2 directly from us under the Exelon PSA. Billing. As soon as practicable after the end of each calendar month, we must provide Exelon with a statement setting forth the amounts due for such month. Billings for electric energy are based on revenue meter information. The amount due to us as shown on the monthly statement must be paid by Exelon within 15 business days after the statement is received by Exelon. Any amount not paid by Exelon when due bears interest at the "Prime Rate" plus 2.5% until the payment is made. Dispatch of the Units. Subject to the restrictions described below, Exelon may dispatch the delivery of electric energy from each of the committed units at a rate up to the net dependable capacity of the units. We have the sole discretion as to which units are operated to meet Exelon's dispatch order or to meet the dispatch order with delivery of substitute electric energy produced by other units at our Facility. By 8:30 a.m. each day, Exelon must provide estimates of its requirements for electric energy and start-ups for each hour of the following day. Changes to this schedule made after this time are subject to cancellation penalties previously discussed in the "Dispatch Cancellation Charges" section. By noon of each day, we must notify Exelon of the estimated level of power output from the committed units available for the following three days. We may subsequently alter these estimates as necessary. We must cause any dispatched units to be started within one hour of receipt of a dispatch order from Exelon during the Summer on-peak period. However, for a dispatch request for four units simultaneously, we have one hour and fifteen minutes and for all five units simultaneously, we have one hour and twenty-five minutes to start up the units. For all other hours (i.e. Summer non-peak and non-Summer hours), we have four hours after receipt of the dispatch notification to start up the units. Once a unit is started, we must ramp to a base load of 60% of net dependable capacity within twenty minutes. 59 Dispatch Restrictions. Exelon's dispatch rights are subject to several restrictions set forth in the Exelon PSA. First, Exelon-dispatched run time is limited to 1,500 hours per year for each of the units (except for Unit 9, which is limited to 1,400 dispatched hours in the first contract year), regardless of load. We must make reasonable efforts to allocate Exelon's dispatch equally across the designated units over the course of a contract year. Second, Exelon may only dispatch load from 60% to 100% of the net dependable capacity of each unit. Third, under the terms of our agreement, we are not required to operate the units more than 60 unit hours (number of units operating times the total number of hours operating) per day during non-Summer months and 80 unit hours per day during Summer months. Fourth, units must be run for a minimum of 4 hours, and there must be a 2-hour downtime period before a unit may be started again. Finally, Exelon may not dispatch a unit during any planned outage or maintenance outage, during a force majeure event or during times when our Facility is acting at the direction of the interconnected utility. Dispatch is at the direction of Exelon. Our rights to run a unit other than to comply with Exelon dispatch are limited to test and maintenance related items or under instruction from the interconnected utility. Substitute Energy. We have the right to arrange for the purchase and delivery of substitute energy to fulfill our dispatch orders, at no additional cost to Exelon. The transportation of the substitute energy must be firm and the point of delivery location must be agreeable to both parties. The provision of substitute energy counts as operating hours for the performance adjustment calculation and is also included in any determination of the equivalent availability and reliability bonuses. However, we are not obligated to provide substitute electric energy to Exelon at any time. Exelon is only required to buy substitute energy from outside the Facility if certain communications procedures under the Exelon PSA are followed. Standard of Operation. Under the Exelon PSA, we are required to use reasonable efforts to operate the units in accordance with (i) the practices, methods, acts, guidelines, standards and criteria of MAIN, North American Electric Reliability Council ("NERC"), and the independent system operator, regional transmission organization or control area, (ii) the requirements of the Interconnection Agreements with ComEd (see "Interconnection Agreements" below), and (iii) all applicable requirements of law. We must obtain all certifications, permits, licenses and approvals necessary to operate and maintain each unit and to perform our obligations under the Exelon PSA. Fuel and Emissions. We must use any emission allowances, credits or authorizations we receive for the units for the reduction of emissions of air pollutants to support generation under the Exelon PSA. If the number of allowances necessary to meet Exelon's dispatch orders exceeds the amount of NO\\x\\ and/or SO\\2\\ allocated to us for the units, Exelon must provide us with the required allowances at no cost to us. If Exelon fails to provide us with any necessary NO\\x\\ and/or SO\\2\\ allowances as required by the Exelon PSA, Exelon indemnifies us from any losses, claims, fines, costs and expenses resulting from such failure. A separate provision applies to any taxes, fees, assessments or charges (other than those associated with the NO\\x\\ and/or SO\\2\\ allowances described above) that are assessed by any governmental entity against emissions of air pollutants or the consumption of fossil fuels for electric generation under any state, regional or federal program that applies to the units, or if obligations are imposed upon the units under any state, regional or national program for the reduction in the emissions of air pollutants of any kind. Under that provision, we and Exelon will use reasonable efforts to implement a mutually acceptable compliance plan that minimizes our costs of compliance. Exelon will pay for all compliance costs, up to an annual aggregate cost of $562,000 (in 2001 dollars). If compliance costs exceed that amount, we may absorb such costs or ask that Exelon pay such costs. If we ask Exelon to pay the additional costs, Exelon will have the option to (i) pay such costs, (ii) terminate the Exelon PSA without any further liability or (iii) reopen the pricing under the Exelon PSA subject to the agreement's dispute resolution provisions. Outages. No later than September 30th of each year, we must propose a schedule of planned outages to Exelon for the following calendar year. Exelon may request any reasonable modifications to the proposed outage schedule. No planned outage may be scheduled to cover any portion of May or the Summer period. If 60 we need to schedule an unplanned maintenance outage, we must notify Exelon and plan the outage to mutually accommodate our reasonable requirements and the service obligations of Exelon. Penalties for outages only accrue when we fail to supply energy dispatched by Exelon. If there is an unplanned event that affects the ability of the units to be available, we must promptly notify Exelon and indicate the amount of capacity that will not be available because of the event and the expected return date of the lost capacity. In addition, we are permitted to shut down each unit for a compressor wash at a mutually agreeable time approximately once per month. The lesser of five hours or actual compressor wash time per shut down per unit will not count as a forced outage or maintenance outage for calculation of Equivalent Availability. Title and Risk of Loss. We must deliver the electric energy sold to Exelon at the delivery point (i.e. the metering station in the Switchyard (as defined below) for energy produced at our Facility). Title to the electric energy will pass from us to Exelon upon delivery at the delivery point. Exelon is responsible for any transmission costs beyond the delivery point. Taxes. Each party is responsible for its own income taxes. We are responsible for the payment of all present or future federal, state, municipal or other lawful taxes applicable by reason of the operation of our Facility or assessable on our property or operations. Exelon must pay for all sales, use, excise and similar taxes imposed on the sale or use of or payments for the electric energy, ancillary services and capacity sold and delivered under the Exelon PSA arising at or after the point of delivery. Force Majeure. If either party is rendered unable by a force majeure event to carry out some or all of its obligations under the Exelon PSA (other than obligations to pay money) despite all reasonable efforts of the affected party to prevent or mitigate its effects, then, during the continuance of the force majeure event, the obligation of the affected party to perform the obligations is suspended. These force majeure events include: explosion and fire, flood, earthquake, storm, acts of God, strike or labor dispute, war, action or failure to act by governmental entities or officials, failure to obtain governmental permits or approvals despite timely application and our due diligence, changes in law affecting the operation of the units, or lack of fuel caused by a force majeure event experienced by our fuel supplier or transporter. Events specifically identified as non-force majeure events in the Exelon PSA are: . a planned outage; . a maintenance outage; . the loss of Exelon's markets; . Exelon's inability to economically use or resell the electrical energy or capacity purchased under the Exelon PSA; . our economic hardship (which includes our ability to sell the capacity or electrical energy at a price greater than the price in the Exelon PSA or to reduce costs by not operating the units as dispatched by Exelon); or . causes or events affecting the performance of third-party suppliers of goods or services, including natural gas suppliers and providers of natural gas transportation service, except to the extent caused by an event that fits the definition of a force majeure event under the Exelon PSA. Exelon is required to continue making the capacity payments if a force majeure event occurs as a result of flood, earthquake, storm, or other natural calamity or act of God, or war, insurrection or riot. During any force majeure event resulting from other circumstances, Exelon is relieved of its monthly capacity payment obligation (prorated daily) solely to the extent the unit is available at a level less than the net dependable capacity as a result of the force majeure event. We are generally relieved of Equivalent Availability adjustment penalties and delay damages during force majeure periods. 61 Our Events of Default. The occurrence and continuation of any of the following events at any time during the term of the Exelon PSA, except to the extent caused by Exelon, constitute an event of default by us: . our failure to pay any sum due under the Exelon PSA that is not remedied within 15 days after receipt of notification from Exelon; . our failure to have qualified operators available either on-site or on call for operation of the Facility for a period of seven consecutive days; . our bankruptcy; or . our failure to perform or comply with any material obligation of the Exelon PSA which adversely affects Exelon, but only if such failure is not cured within 60 days after notice from Exelon or a longer period if the failure cannot be cured in 60 days and we are diligently proceeding to cure the default. Exelon Events of Default. The occurrence and continuation of any of the following events at any time during the term of the Exelon PSA, except to the extent caused by us, constitute an event of default by Exelon: . failure to pay any sum due under the Exelon PSA that is not remedied within 15 days after receipt of notification from us; . the bankruptcy of Exelon; or . Exelon's failure to perform or comply with any material obligation of the Exelon PSA which adversely affects us, but only if such failure is not cured within 60 days after notice from us or a longer period if the failure cannot be cured in 60 days and Exelon is diligently proceeding to cure the default. If Exelon defaults under the Exelon PSA and such default is continuing, we may sell electric energy represented by the net dependable capacity on a daily basis to third parties during the continuance of Exelon's default. Termination Rights. Each party may terminate the Exelon PSA upon 30 days written notice after an event of default by the other party. Exelon may also terminate the Exelon PSA with regard to any committed unit (other than Unit 9) upon 30 days notice if an outage that is not excused by a force majeure event at such unit substantially prevents us from performing under the Exelon PSA for 120 days; provided, however, that if we have taken significant steps toward remediating the circumstances that led to the outage and we certify in writing that the outage will end within 365 days of commencement (and the outage in fact ends within the 365 days), then Exelon may not terminate the Exelon PSA. To the extent we provide substitute energy and capacity in accordance with the terms of the Exelon PSA, the 120 or 365 day periods in the foregoing sentence will be extended on a day to day basis. In addition, Exelon may terminate the Exelon PSA if we request that Exelon pay for the annual costs of an air emissions compliance plan developed by the parties in excess of the amounts described under "--Fuel and Emissions." Indemnification. Each party must indemnify the other party and its officers, directors, agents and employees from and against all losses caused by the gross negligence or willful misconduct of the indemnifying party that arise out of or are connected with the performance of the Exelon PSA. Likewise, each party must indemnify the other party from all claims and damages arising out of the indemnifying party's ownership, possession or control of electric energy up to or from the delivery point, as the case may be. Limitation of Liability. In no event will either party or its affiliates (or such party's or such affiliate's directors, officers, employees and agents) be liable to the other party for any special, incidental, exemplary, indirect, punitive or consequential damages or damages in the nature of lost profits. A party's liability under the Exelon PSA is limited to direct actual damages and all other damages at law or in equity are waived. Exclusive Remedies. Except as provided below, Exelon's sole remedies and our sole liabilities for our failure to meet the Equivalent Availability targeted under the agreement and for failure to deliver electric energy as dispatched by Exelon is the adjustment to the capacity payments based upon the Equivalent 62 Availability adjustment, subject to certain limitations on our liability in the Exelon PSA. If our failure to comply with a dispatch order from Exelon is not caused by a forced outage, forced derating, force majeure event or our negligence or error, Exelon may recover from us the cost of cover for replacement energy obtained by Exelon and seek specific performance by us of the Exelon PSA. Assignment. Except as specifically provided in the Exelon PSA, neither party may assign its rights under the Exelon PSA without the prior written consent of the other party. Either party may assign the Exelon PSA to an affiliate without consent, but the assigning party is not released from its obligations under the agreement. A transfer of a majority of the outstanding voting interests of a party (or a parent of a party) to a non-affiliate is deemed to be an assignment of the Exelon PSA. Exelon has also consented to the assignment of a security interest in the Exelon PSA to our lenders, including the holders of the bonds. Governing Law. The Exelon PSA is governed by the laws of the State of Illinois without regard to its conflicts of laws provisions. Engage Power Sales Agreement We are party to an amended and restated power sales agreement (the "Engage PSA") under which Engage agreed to purchase capacity and electricity generated from Units 1 and 2. We receive a fixed per kW monthly capacity charge and a per MWh energy charge for actual production. Engage has sold the energy and capacity of Units 1 and 2 during the remaining term of its contract with us to Exelon and has appointed Exelon as its agent to dispatch the units. We have entered into a "true up" arrangement with Exelon that puts both of us in essentially the same economic position as would exist if Units 1 and 2 were currently part of the Exelon PSA. The "true up" calculates the differences between various pricing and operational parameters of the Engage PSA and those in the Exelon PSA. The difference will appear as an increase or a decrease to the monthly payment calculation under the Exelon PSA such that the ultimate cost of Exelon's purchase of energy and capacity from Engage for Units 1 and 2 is effectively the same as if Exelon purchased the capacity and energy of Units 1 and 2 directly from us under the Exelon PSA. We continue to bill, and receive payments from, Engage, in accordance with the terms of our agreement with Engage. So long as all parties perform their obligations, we are in essentially the same position we would be if the Exelon PSA already covered all five units. Term. The Engage PSA runs until December 31, 2004. Capacity Payments. The capacity charge under the Engage PSA is $5.00 per kW month for the remainder of the term. Energy Payments. The energy charge for electricity sold to Engage under the Engage PSA depends on the percentage of available capacity of the applicable unit dispatched by Engage. It is not priced off an index, as is the case with the power sales agreements with Exelon and Aquila/UtiliCorp. Accordingly, if the Exelon PSA terminated while the Engage PSA were still in effect, and the "true-up" were no longer applicable, we would be exposed to natural gas price risk under the Engage PSA. The charges for energy at various dispatch levels under the Engage PSA are as follows:
Dispatch Level Variable Energy Charge -------------- ---------------------- 60% $35.00 per MWh 70% $33.50 per MWh 80% $32.00 per MWh 90% $31.00 per MWh 100% $30.00 per MWh
For dispatch levels between the above percentages, the energy charges are prorated to the proportionate level between the points in the table. The calculation of the dispatch level is done on an hourly basis. 63 Start Up Charge. For each start up of a unit from zero generation under a dispatch order from Engage (other than after a forced outage or force majeure event), Engage must pay us $2,500. No start up charge is payable if the unit fails to reach at least 90% of the dispatch level requested by Engage. Performance Adjustments. The Engage PSA contains an annual adjustment to Engage's capacity payments based on the performance of Units 1 and 2 during the year. The target Forced Outage Adjustment Factor ("FOAF"), which is the percentage of on-peak summer hours in which a unit experiences a forced outage or an equivalent forced derating, for Units 1 and 2 is 5%. We receive a bonus of 1% of the aggregate capacity payments received from Engage during the prior year for every 1% that the units are under the target FOAF, and must pay Engage (as a credit against future capacity payments) 1% of the aggregate capacity payments paid by Engage during the prior year in penalties for every 1% that the units are over the target FOAF. For purposes of calculating the FOAF, periods of curtailment, reduction or interruption by ComEd (or its successor) under the interconnection agreements will not count as forced outages or deratings if the units are otherwise available during such periods. Our Events of Default. The following are our events of default, which could lead to the termination of the Engage PSA or the exercise of other remedies by Engage: . our failure to pay any sum due that is not remedied within 15 days after notice from Engage; . our bankruptcy or the bankruptcy of any of our guarantors; . our failure to furnish the guaranties of DEI and Peoples Energy Corporation, as required under the Engage PSA; and . our failure to perform or comply with any material provision of the Engage PSA, but only if such failure is not cured within 60 days after notice from Engage or a longer period if the failure cannot be cured in 60 days and we are diligently proceeding to cure the default. Engage's Events of Default. Engage's events of default include: . Engage's failure to pay any sum due that is not remedied within 15 days after notice from us; . the bankruptcy of Engage or any guarantor of Engage; . Engage's failure to post security as required under the Engage PSA; and . Engage's failure to perform or comply with any material provision of the Engage PSA, but only if such failure is not cured within 60 days after notice from us or a longer period if the failure cannot be cured in 60 days and Engage is diligently proceeding to cure the default. Termination Rights. We may terminate the Engage PSA with 30 days notice after the occurrence and continuation of an event of default by Engage. Upon any such termination, and a concurrent termination of Exelon's agreement with Engage, the Exelon PSA would cover Units 1-2. Engage may terminate the Engage PSA with 30 days notice after the occurrence and continuation of an event of default by us. Engage may also terminate the Engage PSA with regard to Unit 1 or 2 with 30 days notice if a forced outage or force majeure event at such unit will last more than 120 days; provided, that if we have taken significant steps toward remediating the circumstances that led to the forced outage or force majeure event and we certify in writing that the outage will end within 240 days of commencement (and the outage in fact ends within the 240 days), then Engage may not terminate the Engage PSA. Indemnification. Each party must indemnify the other party and its officers, directors, agents and employees from and against all claims, demands, actions, losses, liabilities, expenses (including reasonable legal fees and expenses), suits and proceedings for personal injury, death or property damage caused by the 64 gross negligence or willful misconduct of the indemnifying party that arise out of or are connected with the performance of the Engage PSA. Likewise, each party must indemnify the other party from all claims and damages arising out of the indemnifying party's ownership, possession or control of electric energy up to or from the delivery point, as the case may be. Guaranties. As required by the Engage PSA, Engage has posted a parent guaranty by Westcoast Energy Inc. in our favor to ensure timely payment by Engage of its financial obligations under the Engage PSA. The maximum amount payable under the guaranty was $66,621,667 as of June 25, 2001, and it is reduced by the amount of capacity payments under the Engage PSA from time to time. As required by the Engage PSA, both DEI and Peoples Energy have posted parent guaranties to support the performance of our obligations under the Engage PSA. These guaranties are several, not joint and several, and are each limited to $12,500,000. Assignment. Except as specifically provided in the Engage PSA, neither Engage nor we may assign our rights under the Engage PSA without the prior written consent of the other party, which consent can not be unreasonably withheld. Either party may assign the Engage PSA to an affiliate without consent, but the assigning party is not released from its obligations under the agreement. A transfer of a majority of the outstanding voting interests of a party (or a parent of a party) to a non-affiliate is deemed to be an assignment of the Engage PSA. Engage has consented to the assignment of a security interest in the Engage PSA to our lenders. Governing Law. The Engage PSA is governed by the laws of the State of Illinois without regard to its conflicts of laws provisions. Aquila Power Sales Agreements We are party to two power sales agreements with AEMC and UtiliCorp, the parent company of AEMC, under which Aquila/UtiliCorp will purchase capacity and electricity generated from Units 5 and 6 (the "Aquila PSA I") and Units 7 and 8 (the "Aquila PSA II," and together with the Aquila PSA I, the "Aquila PSAs"). Term. The Aquila PSAs will continue until August 31, 2016, in the case of the Aquila PSA I, and August 31, 2017, in the case of the Aquila PSA II (the "Initial Terms"), unless otherwise extended or terminated in accordance with their terms. Aquila/UtiliCorp has the unilateral right to extend the Initial Terms for an additional five-year period (the "Extension Terms") provided that Aquila/UtiliCorp notifies us in writing by September 1, 2014, in the case of the Aquila PSA I, and September 1, 2015, in the case of the Aquila PSA II. In connection with its analysis of the MAIN electric power market, Pace has concluded that based on the payment structure of the Aquila/UtiliCorp power sales agreements, our Facility's forecast dispatch profile, forecast market- clearing prices and the energy and capacity revenues and volatility values for Aquila/UtiliCorp from reselling the output and capacity of Units 5-8, it is likely that Aquila/UtiliCorp will have economic incentives to exercise these extension options. See "Annex C-1--Executive Summary--Power Sales Agreements-- Extension of Aquila Power Sales Agreements." Aquila/UtiliCorp's Dispatch Rights. Aquila/UtiliCorp may dispatch the delivery of electric energy and replacement power (if applicable) up to the total net dependable capacity of the units. "Net dependable capacity" is defined in the Aquila PSAs as the aggregate net generating capacity measured in kWs of the applicable units of the Facility, based upon demonstrated output (net of station service and auxiliaries for the Aquila/UtiliCorp units) achieved during capacity testing of the Facility, as adjusted by degradation curves and to ambient atmospheric temperature of 95 degrees Fahrenheit, 60% relative humidity, adjusted for elevation above mean sea level. We may, in our sole discretion (but subject to prudent utility practices), operate any combination of Units 5 and 6 or Units 7 and 8, as applicable, to meet Aquila/UtiliCorp's dispatch requirements. Aquila/UtiliCorp has the sole right to dispatch the units with the exceptions that we may dispatch the units without Aquila/UtiliCorp authorization for testing, in the event of an Aquila/UtiliCorp default and at the 65 direction of ComEd or its successors and assigns under the Interconnection Agreements. We are not required to dispatch the units when performing a scheduled maintenance outage or compressor wash, or when a force majeure condition exists (see below "--Force Majeure"). We are also required to increase, curtail, or interrupt power generation during emergency conditions at the direction of the interconnected utility. Aquila/UtiliCorp is limited to dispatching 2,500 hours per unit per year. Dispatch levels must be between 60% and 100% of the capacity of the turbine. In addition, Aquila/UtiliCorp may dispatch "Incremental Energy" (i.e. capacity in excess of 100% of net dependable capacity) if and to the extent that it is available in an amount of up to 250 hours per contract year under each of the Aquila PSAs. The Aquila PSAs establish communications protocols between the parties regarding dispatch of the units. Aquila/UtiliCorp will provide to us by 9:00 a.m. each day an hourly dispatch for the following day. This dispatch is binding during non-Summer periods except for September on-peak hours. Aquila/UtiliCorp may request changes to the binding dispatch schedule, and we will quote a fuel surcharge for the change, at which point Aquila/UtiliCorp may decide to make the dispatch change or stay with the original dispatch order. We must provide to Aquila/UtiliCorp by noon each day an estimate of the capacity (taking into account the effect of any expected deratings) that will be available for the following three days. During September on-peak hours, Aquila/UtiliCorp can modify the day ahead schedule up until five hours before dispatch of the unit and thereafter is subject to a cancellation fee and the payment of gas balancing costs. For purposes of the Aquila PSAs, "Summer" is defined as June through August. During on-peak hours in Summer, Aquila/UtiliCorp may dispatch Units 5 and 6 or Units 7 and 8, as applicable, with as little as 1 hour and 25 minutes notice (1 hour and 35 minutes notice if also dispatching units under the other Aquila PSA), again subject to payment of a cancellation fee and the payment of gas balancing costs. Failure to Provide Replacement Power and Substitute Power. If there is a failure to deliver energy to Aquila/UtiliCorp under either a substitute power arrangement or a replacement power arrangement by the entity that is the source of that substitute or replacement power, then for the period of such failure, we must pay Aquila/UtiliCorp the greater of (i) the cost of cover damages that we actually receive from the provider of the power under those arrangements or (ii) the amount of any Availability Adjustment (as defined below) due as a result of such failure. Capacity Charge. Aquila/UtiliCorp pays us a fixed monthly capacity payment, which is calculated according to the following formula: (Capacity Rate X Net Dependable Capacity) - Availability Adjustment. The Capacity Rate for 2001 was $7.90 per kW per month for Units 5 and 6 and $7.39 per kW per month for Units 7 and 8, and is $5.11 per kW per month for the remainder of the Initial Term and $4.90 per kW per month for the Extension Term. The net dependable capacity of the units is determined through mutually agreed upon industry standard tests of turbine equipment, and is currently 306,358 kW for Units 5 and 6 combined and 304,959 kW for Units 7 and 8 combined. The "Availability Adjustment" is discussed extensively in the "Performance Adjustments" section below. Energy Charge. The energy charge for electricity (other than Incremental Energy) sold to Aquila/UtiliCorp under each Aquila PSA is calculated on a per MWh basis, based on the following formula: Variable O&M Rate + (Fuel Charge X Actual Heat Rate/1000) The "Variable O&M Rate" is equal to $1.00 per MWh and is escalated annually using the GDP Implicit Price Deflator. If Aquila/UtiliCorp does not alter its day ahead dispatch schedule, the "Fuel Charge" is equal to the Gas Daily Average Price + $0.10 per MMBtu. If Aquila/UtiliCorp makes a change to the day ahead 66 dispatch schedule for Summer On-Peak hours or for September On-Peak hours, the Fuel Charge is equal to the Gas Daily Average Price + $0.15 per MMBtu. If a change is made to the day ahead dispatch schedule for non-Summer and Summer Off-Peak hours, a surcharge is applied to cover the costs of gas purchase adjustments. The unit's "Actual Heat Rate" is determined based on the actual performance of the Facility during the relevant period and is calculated by dividing the aggregate gas energy consumption in Btus for Units 5-8 (excluding gas consumed to generate test energy, gas consumed to generate Incremental Energy to the extent used to offset what would otherwise be a forced derating and gas consumed during failed starts) by the electric energy output in kWh produced during the same period by Units 5-8. We have guaranteed a heat rate of 10,787 Btu/kWh at base load as a composite average for Units 5-8 and with allowance for GE degradation (the "Guaranteed Heat Rate"). If the results of periodic heat rate testing indicate that Units 5-8 fail to meet the Guaranteed Heat Rate as a composite average, an adjustment is provided to Aquila/UtiliCorp by the ratio of the Guaranteed Heat Rate to the tested heat rate in calculating the monthly energy charge. We are allowed to accrue heat rate credits when the tested heat rate surpasses a threshold heat rate of 10,759 Btu/KWh for use to offset occurrences when the heat rate exceeds the Guaranteed Heat Rate. The energy charge for Incremental Energy under each Aquila PSA is the sum of $100 per MWh of Incremental Energy delivered to Aquila/UtiliCorp plus (i) with respect to the first 100 hours per unit of Incremental Energy dispatched by Aquila/UtiliCorp in any year, twenty percent of the gross margin resulting from the transaction and (ii) with respect to the next 150 hours per unit of Incremental Energy dispatched by Aquila/UtiliCorp in any year, 35% of the gross margin resulting from the transaction. Start Up Charge. Aquila/UtiliCorp pays a start-up charge of $2,500 per start. The start-up charge is adjusted annually for inflation. We must pay for any gas consumed during any start-up that does not result in the units generating at least 60% of net dependable capacity. Performance Adjustments. Each Aquila PSA provides for penalties and bonuses depending on the availability of the applicable units. The basis from which this determination is made is the Equivalent Availability factor ("EA"), calculated as follows: (1 - (FOH + EFDH)/PH), where FOH is equal to Forced Outage Hours (i.e. the number of hours that the units experienced a forced outage in the month), EFDH is equal to Equivalent Forced Derated Hours (i.e. the equivalent number of hours that the units experienced a forced derating during the month, taking into account the size of the derating), and PH is Period Hours (i.e. the total number of Summer Super Peak, Summer Partial Peak and non-Summer On Peak hours, as applicable, in the month). The penalty provisions related to availability are in the form of the Availability Adjustment, which is deducted from the monthly capacity payment. Availability Adjustments are capped annually, but it is possible in certain months to have a higher Availability Adjustment than capacity payment, amounting to a payment that we make to Aquila/UtiliCorp via an offset against future payments. There are three availability periods specified in the contract, namely Summer Super Peak, Summer Partial Peak, and Non-Summer Peak. "Super Peak" hours are 11 a.m. to 7 p.m., Monday through Saturday. "Partial Peak" hours are 6 a.m. to 11 a.m. and 7 p.m. to 10 p.m., Monday through Saturday. "Non-Summer Peak" hours are defined as 6 a.m. to 10 p.m., Monday through Friday, during non- Summer periods. The following are the seasonal Availability Adjustment calculations: Summer Super Peak Availability Adjustment Annual Capacity Payments X Monthly Adjustment Factor X 0.75 X (0.97 - EA) Summer Partial Peak Availability Adjustment Annual Capacity Payments X Monthly Adjustment Factor X 0.25 X (0.97 - EA) 67 Non-Summer Peak Availability Adjustment Annual Capacity Payments X 0.18 X (0.97 - EA) The "Monthly Adjustment Factors" used in the above equations are 18% for June, and 32% for July and August. If the EA during Super Peak Hours in any month is less than or equal to 80%, then for purposes of calculating the Availability Adjustment during the Partial Peak hours in the same month, the EA during Partial Peak hours is deemed to be equal to the EA during Super Peak hours for the month. Availability Adjustments are capped at $24,000,000 for the first contract year under Aquila PSA I and $21,215,800 under Aquila PSA II, $12,000,000 for the final contract year, and $18,000,000 for all other contract years. We are entitled to a capacity bonus for the units. All bonus payments are conditioned on Summer Super Peak availability being higher than 80%. We receive a bonus for unit availability which exceeds 97%, which is the guaranteed availability of the units in the Aquila PSAs. Calculation of the capacity bonus is as follows: Summer Super Peak Capacity Bonus $250,000 X 0.75 X (EA during Super Peak Hours - 0.97)/0.03 plus Summer Partial Peak Capacity Bonus $250,000 X 0.25 X (EA during Partial Peak hours - 0.97)/0.03 The maximum capacity bonus we can receive annually is $250,000 under each Aquila PSA. The capacity bonus is divided by 12 and paid over the 12-month term beginning with September of each year. Buyer Remedies For Seller Failure to Deliver. Aquila/UtiliCorp's sole remedy for our failure to meet our guaranteed on-peak availabilities, to deliver electric energy, replacement power, or substitute power as dispatched by Aquila/UtiliCorp, or failure to comply with any performance related provisions including, standards of operation, minimization of outages and timeliness of information related to outages, is the Availability Adjustment and is subject to the limit on our liability for such adjustment. Forced Outages; Replacement and Substitute Power. Each of the Aquila PSAs outlines the requirements of the parties relating to unscheduled outages of the units. First, we must notify Aquila/UtiliCorp within 15 minutes after discovering that a unit is (i) unable to deliver all or part of the electric energy required during a dispatch schedule or (ii) unavailable for future dispatch. Aquila/UtiliCorp must respond within 15 minutes of receipt of our notice indicating the amount it will charge us to release us from our applicable energy supply obligations for the remainder of the day (the "Outage Book Out Charge"). We must then either pay Aquila/UtiliCorp the Outage Book Out Charge or provide replacement power to Aquila/UtiliCorp. In paying the Outage Book Out Charge, we are released from any further obligation or liability (including any availability adjustment) associated with the applicable dispatch order and the outage notice. We must further notify Aquila/UtiliCorp, within two hours after the start of the forced outage, of (a) the cause of the forced outage (if known), (b) the proposed corrective action, and (c) our best estimate of the expected duration of the forced outage. In this notice we may also elect to either provide replacement power on our own behalf from other units at our Facility (if available) or request Aquila/UtiliCorp to procure substitute power in accordance with the applicable Aquila PSA. If we provide substitute or replacement power to Aquila in accordance with the applicable Aquila PSA, these periods are not counted as forced outages in the Equivalent Availability calculation. If we fail to timely notify Aquila/UtiliCorp of our election or fail to supply substitute or replacement power, the incident will be included as a forced outage for purposes of the calculation of the availability adjustment. 68 If we determine that an incident is expected to extend beyond 11:00 p.m. of the third business day after the day in which the forced outage or derating began, then we may make, as soon as practicable, an election to either provide replacement power on our own behalf from other units at our Facility (if available) or request Aquila/UtiliCorp to procure substitute power in accordance with the applicable Aquila/UtiliCorp PSA for the remainder of the incident. Standard of Operation. We must manage, control, operate and maintain the units in a manner consistent with prudent utility practice, in accordance with (i) the practices, methods, acts, guidelines, standards and criteria of MAIN, NERC, and the independent system operator, regional transmission organization or control area, (ii) the requirements of the interconnection agreement with ComEd, (iii) all applicable requirements of law and (iv) permits taking into account Aquila/UtiliCorp's dispatch rights under the Aquila PSAs. We must obtain all certifications, licenses and approvals necessary to operate and maintain each unit and to perform our obligations under the Aquila PSAs. We must also obtain and maintain fuel supply and transportation arrangements in a manner consistent with prudent utility practice, taking into account Aquila/UtiliCorp's dispatch rights under the Aquila PSAs. We must obtain and maintain appropriate insurance coverages typical for plants similar to our Facility, in accordance with prudent utility practice. Scheduled Maintenance. On March 31st and September 30th of each year, we must propose a schedule of planned outages to Aquila/UtiliCorp for the twelve months following such date. Aquila/UtiliCorp may request any reasonable modifications to the proposed outage schedule. No maintenance outage may be scheduled to cover the period from May 15 to September 15. Performance Tests. We must conduct a test to determine the units' net dependable capacity and net heat rate on or about June 1 of every year at a mutually agreeable time. All tests must be performed in accordance with prudent utility practice. Aquila/UtiliCorp has the right, at its expense, to request that we perform a performance test if Aquila/UtiliCorp believes, based on the operation of our Facility over a 30-day period, that the net dependable capacity of the units is more than 2% below the then current level of net dependable capacity or that the net heat rate exceeds the guaranteed heat rate. We also have a right to reestablish net dependable capacity and net heat rate under a capacity test. Taxes. Each party is responsible for its own income taxes. We are responsible for the payment of all present or future federal, state, municipal or other lawful taxes applicable by reason of the operation of our Facility or assessable on our property or operations. Aquila/UtiliCorp must pay for all sales, use, excise and similar taxes imposed on the sale or use of or payments for the electric energy, ancillary services and capacity sold and delivered under the Aquila PSAs arising at or after the point of delivery. Title and Risk of Loss. We must deliver the electric energy sold to Aquila/UtiliCorp at the delivery point (i.e. the metering station in the Switchyard for energy produced at our Facility). Title to the electric energy will pass from us to Aquila/UtiliCorp upon delivery at the delivery point. Aquila/UtiliCorp is responsible for any transmission costs beyond the delivery point. Guaranties. DEI and PERC are each obligated to provide a payment guaranty under each Aquila PSA commensurate with its membership interest. Under each guaranty, the guarantor irrevocably, absolutely and unconditionally guarantees the timely payment of all our financial obligations that become due and payable to Aquila/UtiliCorp under the applicable Aquila PSA. Each guaranty provides for payment, as a result of an unfulfilled financial obligation by us, to be made within 10 business days after the guarantor receives written notice. The guarantee of each of DEI and PERC is limited to 50% of the obligations and in no event may the maximum aggregate liability for either exceed $10,000,000 plus amounts for collecting or enforcing the guaranty. Under each Aquila PSA, Aquila/UtiliCorp must issue a letter of credit equal to 6 months capacity payments if UtiliCorp's Moody's and S&P rating falls one rating category below investment grade (i.e. Baa3 for Moody's and BBB- for S&P) and equal to 12 months of capacity payments if its rating falls two or more rating categories below investment grade. 69 Force Majeure. If a force majeure event renders either party unable to carry out some or all of its obligations under either Aquila PSA (other than obligations to pay money) despite all reasonable efforts of the affected party to prevent or mitigate its effects, then, during the continuance of the force majeure event, the obligation of the affected party to perform its obligations is suspended. Under the Aquila PSAs, a force majeure event is an event, condition or circumstance beyond the reasonable control of and without the fault or negligence of the affected party, including explosion and fire, lightning, flood, earthquake, storm, acts of God, strike or labor dispute (other than a labor dispute or strike by our employees or the employees of our contractors and subcontractors), war, sabotage, failure to obtain governmental approvals as a result of a change in law, changes in law materially adversely affecting the operation of our Facility, lack of fuel caused by a force majeure event (as defined in the Aquila PSAs) experienced by our fuel supplier or transporter or curtailment of firm gas transportation service to our Facility by governmental order, the failure of performance of any third party with which we have a contract as a result of a force majeure event (as defined in the Aquila PSAs), mechanical equipment breakdown caused by certain force majeure events, or interruption of acceptance by ComEd of delivery of electric energy from our Facility into the ComEd system. Changes in market conditions do not constitute force majeure events under the Aquila PSAs. If a force majeure event affects Units 5 and 6 or Units 7 and 8, as applicable, and the other units at our Facility, we are required to equitably allocate the burdens of the effects of the force majeure event over all of the affected units. Aquila/UtiliCorp is required to pay us 50% of its capacity payments for the first 15 days of a force majeure event. An extended force majeure event (i.e. one not overcome within five months) that cannot be overcome in some other manner can give the other party grounds for cancellation of the applicable Aquila PSA. Any periods of forced outage or forced derating caused by force majeure events are not included as forced outage hours or forced derating hours for purposes of calculating the availability adjustment. Our Events of Default. The following are our events of default (unless cured within the applicable cure period), which could lead to the termination of the applicable Aquila PSA or the exercise of other remedies by Aquila/UtiliCorp: . we fail to make payments when due, or our guarantors fail to pay for substitute power or an Outage Book Out Charge (if we previously failed to make such payments) and by the procedure specified in the Aquila PSA, unless the failure is cured within seven days after receipt of written notice of such failure from Aquila/UtiliCorp; . one of our guaranties ceases to remain in full force and effect in accordance with its terms, one of our guarantors fails to make a payment upon a proper drawing against the guarantee by Aquila/UtiliCorp, or we fail to deliver a letter of credit as required by the Aquila PSA upon a "downgrade event" (which occurs when a guarantor's debt rating falls below investment grade or if one of our guarantors that is not rated has a value below $600,000,000 in owner's equity, or a ratio of total liabilities to total assets for DEI that exceeds 72%) with respect to one of our guarantors, unless cured within 21 days after receipt of written notice from Aquila/UtiliCorp; . our dissolution or liquidation, unless cured within 60 days after receipt of written notice from Aquila/UtiliCorp; . our bankruptcy; . our assignment of the Aquila PSA or any other of our rights under the Aquila PSA or the sale and transfer of any interest in us, in each case not in compliance with the provisions of the Aquila PSA, unless cured within 60 days after receipt of written notice from Aquila/UtiliCorp; . we sell electric energy or capacity that is committed to Aquila/UtiliCorp to a third party other than as permitted in the Aquila PSA, unless cured within 60 days after receipt of written notice from Aquila/UtiliCorp; . any false representation made by us under the certain provisions in the Aquila PSA, unless cured within 60 days after receipt of written notice from Aquila/UtiliCorp; or 70 . our Facility experiences chronic poor availability (i.e. generally less than 80% availability for three years or 70% availability for two years) under the provisions of the Aquila PSA. Aquila/UtiliCorp Events of Default. Aquila/UtiliCorp events of default under each Aquila PSA include: . Aquila/UtiliCorp fails to pay any sum due from it under the Aquila PSA, unless cured within seven days after receipt of our written notice; . the bankruptcy of Aquila/UtiliCorp, unless cured within 60 days after receipt of our written notice; . the dissolution or liquidation of Aquila/UtiliCorp (except in connection with a change in control of AEMC in accordance with the Aquila PSA), unless cured within 60 days after receipt of our written notice; . Aquila/UtiliCorp's failure to post or maintain security at levels specified in the Aquila PSA in connection with a downgrade event with regard to Aquila/UtiliCorp, unless cured within 60 days after receipt of our written notice; . Aquila/UtiliCorp's assignment of the Aquila PSA or any of its rights under the Aquila PSA or the sale or transfer of any interest in Aquila/UtiliCorp not in compliance with the Aquila PSA, unless cured within 60 days after receipt of our written notice; or . Any false representation made by Aquila/UtiliCorp under certain provisions in the Aquila PSA, unless cured within 60 days after receipt of our written notice. Termination Rights. Aquila/UtiliCorp may terminate either Aquila PSA with 30 days written notice if we default and the default is continuing. Aquila/UtiliCorp may also terminate the applicable Aquila/UtiliCorp PSA if the units have chronically poor availability (i.e. generally less than 80% availability for three years or 70% availability for two years). Aquila/UtiliCorp may also terminate if we experience an extended force majeure event. We may sell energy and capacity to third parties if Aquila/UtiliCorp defaults in its payment obligations during the continuance of such default. We may cancel the applicable Aquila PSA with 30 days written notice if Aquila/UtiliCorp defaults and the default is not cured. We may also terminate if Aquila/UtiliCorp experiences an extended force majeure event. Appointment of AEMC as UtiliCorp's Agent. UtiliCorp appointed AEMC as its agent with full power to act on UtiliCorp's behalf with respect to the Aquila PSAs as AEMC deems appropriate, including with respect to any notices, claims, consents, elections, waivers, agreements or instruments. However, AEMC may not agree to amend either Aquila PSA on behalf of UtiliCorp. Indemnification. Each party must indemnify the other party, and its officers, directors, agents and employees from and against all claims, demands, actions, liabilities, expenses and losses (including reasonable legal fees and expenses) for personal injury, death or property damage caused by the negligence or willful misconduct of the indemnifying party that arise out of or are connected with the performance of the Aquila PSAs, except to the extent caused by the gross negligence or willful misconduct of, or breach of the applicable Aquila PSA by, the party seeking indemnification. Likewise, each party must indemnify the other party from all claims and damages arising out of the indemnifying party's ownership, possession or control of electric energy up to or from the delivery point, as applicable. In no event will either party be liable to the other party for any special, incidental, exemplary, indirect, punitive or consequential damages, including loss of profits. Assignment. Except as provided below, neither party may assign its rights under either Aquila PSA without the prior written consent of the other party. Either party may assign the Aquila PSAs to an affiliate without consent, but the assigning party is not released from its obligations under the agreement. A transfer of a majority of the outstanding voting interests of a party (or a parent of a party) to a non-affiliate is deemed to 71 be an assignment of the Aquila PSAs. Aquila/UtiliCorp has consented to the assignment of a security interest in the Aquila PSAs to our lenders. If there is a change in ownership or control of AEMC and the successor entity has a credit rating equal to or higher than UtiliCorp, we must consent to the assignment of the Aquila PSAs to such successor entity and release UtiliCorp from its obligations under the Aquila PSAs arising from and after the change in control. Governing Law. The Aquila PSAs are governed by the laws of the State of Illinois without regard to its conflicts of laws provisions. FUEL AGREEMENTS Cinergy Fuel Management Agreement We are party to a fuel supply and management agreement (the "FSMA"), which establishes the terms and conditions under which Cinergy will serve as our fuel manager by taking on the exclusive rights and obligations to procure, schedule and deliver to Nicor and/or PGL volumes of gas sufficient to meet our gas requirements, including the management and administration of the Nicor Transportation and Balancing Agreement (the "Nicor T&B Agreement"). The FSMA provides Cinergy with agency authority to purchase and arrange for deliveries of gas sufficient to serve our production requirements. Term. The term of the FSMA runs from May 1, 2001 through April 30, 2002, unless terminated earlier in accordance with its terms or extended by agreement of the parties. Duties of Cinergy. Cinergy will supply and arrange for delivery to us (through the Nicor or PGL system) at its own expense on a firm basis our full gas requirements up to the applicable Firm Maximum Daily Quantity and Maximum Hourly Quantity (as set forth in the table below) and on a reasonable efforts basis for any excess beyond those quantities, subject to the limitations of the Nicor T&B Agreement (see below). Unless Cinergy fails to provide the amount of gas required to be delivered under the FSMA and such default is likely to prevent us from meeting our obligations to provide power to our power customers, Cinergy is our sole supplier of gas during the term of the FSMA. In discharging its responsibilities under the FSMA, Cinergy must manage fuel supply volumes within the defined parameters in the Nicor T&B Agreement and is responsible for all charges assessed by Nicor associated with its failure to manage fuel supply volumes. Cinergy must supply gas from the following sources: (i) the NBPL, APL or NGPL interstate pipelines, (ii) inventory storage under the Nicor T&B Agreement or (iii) purchased from Nicor as "Requested Authorized Use" or "Unauthorized Use Volumes" under the Nicor T&B Agreement. In addition, all gas delivered by Cinergy under the FSMA must be merchantable natural gas, free of liens and encumbrances of any kind, and must comply with the fuel specifications in the FERC approved tariff of the interstate pipeline on which the gas is being transported. Maximum Daily Quantity Summer 362,400 MMBtu (241,600 firm and 120,800 non-firm) Maximum Daily Quantity Non-Summer 426,600 MMBtu (lesser of 213,300, or 88,875 plus Cinergy's nominated volumes, is firm; remainder is non-firm but Cinergy must use reasonable efforts to sell and deliver non-firm quantities) Maximum Hourly Quantity Summer 15,100 MMBtu per hour Maximum Hourly Quantity Non-Summer 17,775 MMBtu per hour
"Summer" is defined as June through September in the FSMA. Facility Consumption Charges. For any day that is not a Special Day (as defined below under "--Special Days"), we pay Cinergy for fuel supplies at the Gas Daily Average Price plus four cents per MMBtu. 72 Fuel Management Fee. As compensation for its performance of its duties as Fuel Manager for our Facility, we pay Cinergy $65,000 per month for each of the Summer months and $10,000 per month for each of the non-Summer months. Special Days. Fuel quantities and prices on "Special Days" (i.e. days for which Cinergy's ability to use transportation and storage capacity has been curtailed) are negotiated by the parties. Any volumes delivered by Cinergy but not consumed by us on a Special Day are injected into storage under the Nicor T&B Agreement. Up to 20,000 MMBtu per day of these "Deferred Special Day Volumes" will be withdrawn and delivered to the Facility as the "first gas through the meter" on the immediately succeeding non-Special Days at no additional cost to us, until the balance of the Deferred Special Day Volumes are reduced to zero. Summary of Reimbursable Charges. Although we remain responsible for paying all charges under the Nicor T&B Agreement, unless we fail to meet certain conditions set forth in the FSMA, we receive reimbursement from Cinergy for the following charges under the Nicor T&B Agreement: forecast variance charges (up to 241,600 MMBtu and 67,400 MMBtu, for summer and non-summer months respectively); delivery variance charges (except to the extent attributable to volumes consumed by our Facility in excess of the Firm Maximum Daily Quantity); excess storage or storage inventory overrun charges (limited to those assessed because the highest daily quantity in storage exceeds 951,500 MMBtus); and charges for requested authorized use and unauthorized use. Forecast Variance Charges. Under the FSMA, we must pay Cinergy an "Elwood Forecast Variance" charge on the difference each day between our projected gas consumption (the "Elwood Forecast Burn") and the actual amount of gas consumed by our Facility during the day. The Elwood Forecast Variance charges under the FSMA are related to the Nicor T&B Agreement. Under the Nicor T&B Agreement, Nicor levies a Forecast Variance charge on us for the difference each day between the Forecast Burn it receives from Cinergy and the actual amount of gas consumed by us during the day. The following tables show the Forecast Variance charges (which here are translated from units in therms, as presented in the Nicor T&B Agreement, to MMBtu for ease of comparison to the FSMA provisions). The applicable Forecast Variance charges differ for Summer and non-Summer months. Summer Months Nicor T&B Agreement Forecast Variance Charges per day 20,000 MMBtu (less than) Forecast Variance (less than or =) 120,800 MMBtu $0.05/MMBtu 120,800 MMBtu (less than) Forecast Variance (less than or =) 181,200 MMBtu $0.10/MMBtu 181,200 MMBtu (less than) Forecast Variance (less than or =) 241,600 MMBtu $0.48/MMBtu 241,600 MMBtu (less than) Forecast Variance Negotiable
Under the FSMA, we must pay Cinergy $0.05/MMBtu/d for the Elwood Forecast Variance for each day, up to 241,600 MMBtu/d during the Summer months. Cinergy, in turn, reimburses us for the Forecast Variance charges under the Nicor T&B Agreement, unless we have failed to meet certain conditions set forth in the FSMA, up to the charges for a Forecast Variance that exceeds 241,600 MMBtu/d. We are obligated to pay the Nicor Forecast Variance charges attributable to volumes exceeding 241,600 MMBtu/d. Non-Summer Months Nicor T&B Agreement Forecast Variance Charges per day 20,000 MMBtu (less than) Forecast Variance (less than or =) 47,400 MMBtu $0.05/MMBtu 47,400 MMBtu (less than) Forecast Variance (less than or =) 88,875 MMBtu $0.55/MMBtu 88,875 MMBtu (less than) Forecast Variance (less than or =) 118,000 MMBtu $0.55/MMBtu (non-firm) 118,000 MMBtu (non-firm) (less than) Forecast Variance Negotiable
73 Under the FSMA, we pay Cinergy $0.05/MMBtu/d for the Elwood Forecast Variance for each day up to 67,400 MMBtu/d during the non-Summer period. Cinergy in turn reimburses us for the Forecast Variance charges set forth in the Nicor T&B Agreement up to the charges for a Forecast Variance that exceeds 67,400 MMBtu/d. We are obligated to pay Forecast Variance charges attributable to volumes exceeding 67,400 MMBtu/d. Under the FSMA, we communicate our Elwood Forecast Burn for the next day to Cinergy at 6:45 a.m. each day. Using its judgment, and certain other information provided by us, Cinergy develops its own Forecast Burn for the day and communicates it to Nicor by 7:00 a.m. The FSMA contains a communications protocol governing these and other communications. Sale of Power by Cinergy. Cinergy may offer to sell power to us from time to time so that we may forego running our units and taking gas under the FSMA. We have no obligation to accept Cinergy's offer, and our acceptance is subject to the consent of our power customers. If we accept the offer, all obligations under the FSMA relating to gas are suspended during the power sales period. Failure to Deliver. Failure to provide firm supply and delivery will result in Cinergy paying our reasonable incremental cost of cover, including gas cost and any associated services. This is our sole remedy for Cinergy's failure to provide firm supply and delivery of gas. Our Responsibilities Under the FSMA. We are required by the FSMA to perform the following activities: . operate and maintain the on-site equipment for receiving and handling gas; . use reasonable efforts to provide Cinergy with notice regarding startups or shutdowns of the units and our estimated gas requirements in accordance with the FSMA; . make available to Cinergy a Loaned Gas Balance for its use of 725,000 MMBtu, to be returned on termination of the Agreement; . maintain the Nicor T&B Agreement in full force and effect and not agree to any changes to the Nicor T&B Agreement that alter the rights or obligations of Cinergy without Cinergy's express consent; and . operate the units in accordance with the standards of the FSMA. Metering. For the purpose of measuring quantities of gas delivered to us, gas will be metered and measured by Nicor at its meters located at the delivery point under the Nicor T&B Agreement. Guaranties. The FSMA requires that Cinergy Corp. execute a guaranty of Cinergy's financial obligations for our benefit. The Cinergy Corp. guaranty is limited to a cap amount of $13 million. The FSMA also requires us to deliver the parent guaranties of DEI and Peoples Energy Corporation. Each of the guaranties is capped at $6.5 million. Agency of Cinergy. Under the FSMA, we appoint Cinergy to act as agent on our behalf for the purposes of (i) taking actions at our direction, (ii) making payments of all charges in accordance with the FSMA and (iii) acting on our behalf and for our benefit in managing and administering the Nicor T&B Agreement. Cinergy may not, without our permission, (w) enter into any agreements on our behalf unless consistent with its purposes as agent; (x) enter into any physical or financial hedging or speculative transactions on our behalf; (y) agree to any amendment of, or waive any right under, the Nicor T&B Agreement or our other agreements; or (z) enter into any agreement in violation of applicable law, the FSMA or the Nicor T&B Agreement. Cinergy must pay, from its own funds, all expenses it incurs in the course of performing its duties and obligations under the FSMA. If the FSMA is terminated with or without cause, Cinergy's agency immediately ceases and Cinergy will no longer be entitled to act on our behalf under the Nicor T&B Agreement or any other agreement. 74 Cinergy Events of Default. Cinergy's events of default include: . a default in the performance of any of its covenants or obligations under the FSMA (other than a payment default or a default in the obligation to supply and deliver gas) that is not cured within 5 days of our written notice; . a default under the guaranty of Cinergy Corp.; . the liquidation, dissolution, receivership, insolvency or bankruptcy of Cinergy or Cinergy Corp.; . Cinergy's failure to make any payment when due or cure such failure in the lesser of 10 days or such time period as would result in loss of gas supply or delivery to us if not cured within such period; and . any representation or warranty made by Cinergy or Cinergy Corp. (in Cinergy Corp.'s guaranty) should prove to be materially untrue or be breached as of May 1, 2001. Except as provided below, if Cinergy defaults under the FSMA, we may do any or all of the following: (i) cure the default and seek reimbursement of any costs we incur in effecting the cure, or offset such costs against any amounts payable by us in the future under the FSMA; (ii) terminate the FSMA; and/or (iii) exercise all other rights and remedies available to us at law or in equity. However, if Cinergy defaults in the performance of any of its obligations to deliver the Firm Maximum Daily Quantity on any non-Special Day or the quantity of gas agreed upon by the parties for a Special Day, and the default is reasonably likely to prevent us from meeting our power supply obligations, then we have the right, as our sole remedy for the default, to procure replacement gas for our Facility on commercially reasonable terms. Cinergy must reimburse us for any reasonable incremental costs incurred in purchasing the replacement gas and related services, plus interest. Our Events of Default. Our events of default include: . a default in the performance of any of our obligations under the FSMA that is not cured within 5 days after receiving written notice from Cinergy; . a default under either of the guaranties of DEI or Peoples Energy Corporation; . the liquidation, dissolution, receivership, insolvency or bankruptcy of us or either of our guarantors; and . any representation or warranty made by our guarantors or us should prove to be materially untrue or be breached as of May 1, 2001. If we default under the FSMA, Cinergy may, upon seven days notice to us, do any or all of the following: (i) terminate the FSMA; (ii) terminate the agency granted to Cinergy under the FSMA; and (iii) exercise all other rights or remedies available at law or in equity, including, without limitation, recovering from us any future management fees due under the FSMA. If Cinergy terminates the FSMA in the event of our default, then Cinergy must use its reasonable efforts to minimize the costs associated with unwinding gas purchase agreements; provided, however, Cinergy may not, without our consent, unwind or terminate any gas purchase agreements entered into as our agent under the FSMA with respect to which we have financial exposure. We must reimburse Cinergy for all costs incurred by Cinergy to unwind any and all agreements entered into by Cinergy as our agent under the FSMA. Force Majeure. Except for payment obligations due under the FSMA, neither party is liable for its failure to perform any obligation under the FSMA, nor may it be deemed in breach of the FSMA, to the extent the failure to perform is due to a force majeure event, provided that: (i) the non-performing party gives notice of the event, (ii) the suspension of performance is limited in scope and duration as required by the force majeure event, (iii) the non-performing party uses its reasonable efforts to remedy its inability to perform, (iv) the non- performing party notifies the other party when it is able to resume performance and (v) the force majeure event was not caused by or connected with any negligent or intentional acts, errors or omissions, or failure to comply with any law or regulation by the non-performing party. 75 For purposes of the FSMA, the definition of force majeure events differs for the parties. For us, a force majeure event is any delay in the performance of our obligations under the FSMA due solely to circumstances beyond our reasonable control and that could not have been prevented by our due diligence, including: acts of God, weather-related events affecting an entire geographic region, strikes or other labor difficulties, war, riots, requirements, acts or omissions of governmental authorities, changes in law after the date of the FSMA preventing performance, inability despite due diligence to obtain or renew required licenses, accident, earthquake, sabotage or fire. For Cinergy, a force majeure event is limited to declarations of force majeure by Nicor under the Nicor T&B Agreement, by any of NBPL, APL, NGPL or any pipeline upstream of these pipelines under its tariff or transportation agreement, or by PGL under the its transportation and balancing agreement with Nicor, or a default by Nicor under the Nicor T&B Agreement not due to Cinergy's failure to fulfill its responsibilities under the FSMA, and then only to the extent that the force majeure events directly impact Cinergy's ability to execute its responsibilities under the FSMA and are beyond Cinergy's control. If a declaration of force majeure by any of NBPL, APL or NGPL is based on an outage of its pipeline system upstream of its interconnection facilities with PGL or Nicor or if a declaration of force majeure by Nicor is based on an outage of its pipeline system used to provide service to us, then Cinergy must use reasonable efforts to provide gas during the outage and we must pay pre- approved costs relating to Cinergy's performance during the outage condition. If, despite Cinergy's reasonable efforts during the outage condition, Cinergy is unable to provide firm gas supply due to the outage condition, then the event qualifies as a force majeure event for Cinergy. Under the FSMA, the following are not considered force majeure events: (i) changes in market conditions that affect the cost of gas or any alternate supplies of gas, or (ii) gas supply or transportation interruptions, except to the extent that gas is unavailable generally on the NBPL, APL, NGPL, Nicor Gas or Peoples Gas systems at any price. If a force majeure event delays a party's performance under the FSMA for greater than 30 days (or if the force majeure event cannot be overcome within 30 days with reasonable diligence, a reasonably longer period granted by the non-delayed party not to exceed 3 months), the non-delayed party may terminate the FSMA without further obligation. Termination upon Cinergy's Deficient Performance. If Cinergy's performance under the FSMA results in written notice from Nicor that service may or will be suspended under the Nicor T&B Agreement, we may immediately suspend or terminate the FSMA if Cinergy does not cure the conditions that caused such notice to issue in time to prevent any suspension or termination. Termination upon Enforcement Action. If the FERC or any other federal or state agency or authority asserts or determines that any of the terms of the FSMA or the conduct of the parties under the FSMA is in violation of the Natural Gas Act, any other federal or state law or the terms of any applicable FERC gas tariff, then either party may terminate the FSMA upon the earlier to occur of the date required by applicable law or 30 days after notice given to the other party. In the event of termination, all costs associated with unwinding or terminating the gas purchase, transportation or storage agreements relating to our Facility are shared equally by the parties. Indemnification. Cinergy must indemnify us, and our members, officers, directors, employees and agents, for third party claims, penalties, expenses and liabilities (including reasonable attorneys' fees and expenses) arising from: (i) claims associated with title to gas or liens on title to gas, (ii) balancing, storage or transportation costs, charges, penalties or fees resulting from sales of gas from Cinergy to persons other than us, (iii) governmental fines and penalties on account of Cinergy's actions, (iv) Cinergy's failure to comply with the provisions of the FSMA governing Cinergy's agency, (v) Cinergy's purchases of gas or entry into other agreements, on its own behalf or as our agent, (vi) taxes for which Cinergy is responsible and (vii) injury and property damage to third parties caused by the negligence or willful misconduct of Cinergy that arise out of Cinergy's performance of the FSMA (except to the extent attributable to our gross negligence or willful misconduct, or our breach of the FSMA). 76 We must indemnify Cinergy, its members, officers, directors, employees and agents for third-party claims, penalties, expenses and liabilities (including reasonable attorneys' fees and expenses) arising from: (i) claims associated with the consumption of gas by us, including any environmental claims, (ii) governmental fines and penalties on account of our actions, (iii) our failure to comply with the provisions of the FSMA regarding Cinergy's agency, (iv) our purchases of gas entered into on our own behalf, (v) taxes for which we are responsible, and (vi) injury or property damage to third parties caused by our negligence or willful misconduct that arise out of our performance of the FSMA (except to the extent attributable to the gross negligence or willful misconduct of, or breach of the FSMA by, Cinergy). The indemnification provisions of the FSMA survive the expiration of the term or the termination of the FSMA. Under the FSMA, neither party is liable for consequential, punitive, exemplary or special damages. Assignment. Except as provided below, neither party may assign its rights under the FSMA without the prior written consent of the other party, which consent cannot be unreasonably withheld. As long as we have not defaulted under the FSMA, we may assign the FSMA without Cinergy's consent to (i) any affiliate of DEI or PERC, or (ii) to any party succeeding in ownership to the units, provided that the proposed assignee is creditworthy. As long as Cinergy has not defaulted under the FSMA, Cinergy may assign the FSMA without our consent to a creditworthy affiliate that is at least as well qualified to fulfill Cinergy's obligations under the FSMA as Cinergy. Cinergy has also consented to the assignment of the FSMA or a security interest in the FSMA to our lenders, provided the assignment does not adversely affect Cinergy's rights under the FSMA. Governing Law. The FSMA is governed by the laws of the State of Texas, without regard to principles of conflicts of laws. The parties irrevocably submit to the jurisdiction of the state and federal courts sitting in Houston, Texas. Nicor Transportation & Balancing Agreement The Nicor T&B Agreement establishes the terms and conditions under which Nicor will provide firm gas transportation services and no-notice balancing services that allow us to receive delivery of gas supplies at hourly rates and on short notice, to meet the peaking requirements of our generation units. The Nicor T&B Agreement is designed to ensure that we have the right to receive interstate gas supplies delivered from APL, NBPL and NGPL. While Nicor is the local distribution company and the contractual provider of services to our Facility, the physical transportation of gas is provided by PGL's 24-inch pipeline, which is connected to the interstate pipelines of APL and NBPL. Nicor and PGL physically manage gas storage balancing needed to accommodate changes in the scheduled gas supplies and generator loads. Term. The term of the Nicor T&B Agreement, including any extensions, is bifurcated to reflect the fact that our Facility was constructed in several phases. The first phase of the Nicor T&B Agreement ("Phase I Term") relates to Units 1 - 4 and covers a 41-month period commencing on May 1, 2001 and ending September 30, 2004. The second phase of the Nicor T&B Agreement ("Phase II Term") relates to generating Units 5 - 9 and covers a five-year period commencing on May 1, 2001 and ending March 31, 2006. The Nicor T&B Agreement provides for three elective extensions of the Phase I and Phase II Terms as follows:
Commencement Expiration Notice Extension Term Date Date Units Requirement - --------- ------- ------------- -------------- ----- ----------- Phase I Primary Term Extension 18 mos. Oct. 1, 2004 March 31, 2006 1 - 4 180 days Phase II Term Extension 5 yrs. April 1, 2006 March 31, 2011 5 - 9 180 days Phase I and Phase II Term Extension 5 yrs. April 1, 2006 March 31, 2011 1 - 9 180 days
Volume Terms. Under the Nicor T&B Agreement, we have the right to firm transportation service of gas supply within our minimum and maximum daily nomination allowances. Our maximum daily contract quantity of gas is 241,600 MMBtu/day in the Summer months (i.e. June through September) and 284,400 MMBtu/day in the non-Summer months (i.e. October through May). In addition, Nicor is not obligated to deliver gas to us 77 at an hourly rate in excess of 15,100 MMBtu/hour in the Summer months and 17,775 MMBtu/day in the non-Summer months. If we request gas at an hourly or daily rate greater than the above-mentioned limits, Nicor will use reasonable efforts to deliver gas at our requested rate. Subject to certain exceptions in the Nicor T&B Agreement, if Nicor's operational conditions require Nicor to restrict our purchases from interstate pipelines, we receive a $0.48 per MMBtu credit for the quantity affected. The Nicor T&B Agreement explicitly recognizes the hourly needs of a peaking facility and gives us the flexibility to take gas as needed, limited only to the hourly, daily and seasonal limits of the contract. We have firm storage rights to inject or withdraw on a no-notice basis up to 181,200 MMBtu per day during the Summer months and up to 88,875 MMBtu per day during the Non-Summer months. Additionally, we can exceed these limits, but are subjected to additional volumetric charges for volumes in excess of the limits (see "-- Excess Storage Charges" below). At no time can the amount of gas in our balancing account exceed 725,000 MMBtu (approximately 3-4 days of the Facility's maximum daily usage). The storage account is intended to absorb over or underages in delivery caused by the no-notice, hourly and intraday needs of the Facility and is not intended to be a gas supply reserve. The following is a summary of our contractual volume limitations under the Nicor T&B Agreement:
Contractual Volumes ------------------- Max. Balancing Service Account Balance: 725,000 MMBtu Max. Firm Balancing Quantity Summer: 181,200 MMBtu Max. Firm Balancing Quantity Non-Summer: 88,875 MMBtu Max. Daily Contract Quantity Summer: 241,600 MMBtu/day Max. Daily Contract Quantity Non-Summer: 284,400 MMBtu/day Max. Hourly Quantity Summer: 15,100 MMBtu/hour Max. Hourly Quantity Non-Summer: 17,775 MMBtu/hour
The Nicor T&B Agreement contains a communications protocol setting forth the notification process relating to gas supply. We must notify Nicor of the projected next day consumption ("Forecast Burn") at 7 a.m. on the business day before the day for which the projection is given. Nicor must then provide to us by 8 a.m. the minimum and maximum quantities of gas that we may nominate. Finally, we must provide to Nicor by 9 a.m. amounts of pipeline gas to be nominated the following day; however, through May 31, 2002 (unless extended by mutual agreement), on non-Critical Days during non-Summer months, we may submit a "revised forecast burn" to Nicor by 9:15 a.m. for changes attributable to an increased electrical dispatch by Aquila under the Aquila PSAs. The order of delivery for gas used is Requested Authorized Use (as defined below) gas, customer owned gas nominated from pipeline, balancing services gas, and Unauthorized Use (as defined below) gas. Critical Days. Nicor's service is firm, but the no-notice balancing service available from storage may be curtailed during extreme weather conditions. When Nicor's load for its gas heating requirements is expected to exceed sixty heating degree days (an average daily temperature of five degrees Fahrenheit or less), Nicor may limit deliveries to us to firm transportation service and the gas received for our account from NBPL, APL and NGPL on such days. During days when Nicor is projected to exceed 65 heating degree days or during a declared "Critical Day" weather emergency under its tariff, deliveries to us may be further restricted by Nicor in any hour to the transportation gas received in the corresponding hour from NBPL, APL and NGPL, as applicable, for our account. On Critical Days, our power customers must designate in advance if the units may be called upon. Gas supplies will then be purchased to meet the designated needs of the power customers and will be delivered via firm transportation service to the plant. Reservation and Volumetric Charges. We must pay Nicor a Reservation Charge for each Summer month of $0.45 per MMBtu for the 241,600 MMBtu per day of Maximum Daily Contract Quantity reserved for the Facility. We must also pay Nicor a Volumetric Charge at a rate of $0.037 per MMBtu for gas delivered during the Summer months and $0.092 per MMBtu for non-Summer month delivery. A Balancing and Storage Service Reservation Charge is assessed for each Summer month at a rate of $3.35 per MMBtu for the 181,200 MMBtu per day of Summer Maximum Firm Balancing Quantity. 78 Forecast Variance Charges. A discussion of Forecast Variance charges under the Nicor T&B Agreement is contained in the discussion of the Cinergy FSMA. Delivery Variance Charges. Nicor charges us to the extent daily consumption by our Facility is greater than the maximum or less than the minimum quantity nominated for delivery on NBPL, APL or NGPL, in total, for that day. This variance is called the "Delivery Variance," and the charge is limited to Delivery Variances that exceed 5,000 MMBtu on any day that is not a Critical Day or a day on which pipeline deliveries have been curtailed. This charge is waived for the first six billable Delivery Variance events unless the cumulative volume of such events exceeds 60,000 MMBtu in a contract year. If the 60,000 MMBtu threshold is exceeded, all prior and subsequent Delivery Variances are assessed. On Critical Days and days on which pipeline deliveries have been curtailed, the charge applies without limitation. Excess Storage Charges. We must pay a Storage Inventory Overrun Charge to Nicor at the rate of $0.50 per MMBtu for each occurrence where the highest daily quantity in storage is in excess of 725,000 MMBtu but less than 951,500 MMBtu. An Excess Storage Charge is applied monthly at a rate of $1.00 per MMBtu for each occurrence where the highest daily quantity in storage exceeds 951,500 MMBtu. The Excess Storage Charge is also assessed daily when balancing and storage service on any Summer month day is greater than 241,600 MMBtu per day and less than 302,000 MMBtu per day and on any non-Summer month day when balancing and storage service exceeds 118,000 MMBtu per day but is less than 147,500 MMBtu per day. Upstream Transportation Charges. We must pay Upstream Transportation Charges, which are in effect passed on to PGL through the Transportation and Balancing Service Agreement between Nicor and PGL. The Upstream Transportation Charges consist of two components: (i) a reservation charge for each Summer month at a rate of $0.737 per MMBtu of Maximum Daily Contract Quantity (241,600 MMBtu per day) and (ii) a volumetric charge for each month at a rate of $0.044 per MMBtu on all gas delivered by Nicor to the Facility. Requested Authorized Use and Unauthorized Use Charges. Nicor and we may agree to negotiate authorized overrun levels of daily balancing and storage service for injection or withdrawal of gas and/or Forecast Variance Charges; or for purchase of Nicor-owned gas. An agreement before use of these services constitutes "Requested Authorized Use." Requested Authorized Use of Nicor's gas supplies when approved is charged at the higher of Nicor's cost of gas or market price plus $0.20 per MMBtu. Use of Nicor's gas supplies without requested authorization and approval is considered "Unauthorized Use" and is charged at the Requested Authorized Use charge plus $60.00 per MMBtu. Minimum Annual Charges. While the actual amount to be paid each year will vary depending on the volumes transported and stored, the Nicor T&B Agreement states that the minimum annual bill which we will pay to Nicor is $4.35 million, excluding any Storage Inventory Overrun, Excess Storage, Delivery Variance, Requested Authorized Use and Unauthorized Use charges, buy-out amounts, incremental global point agreement/operational balance agreement charges and applicable taxes. Phase I and Phase II contract term extensions result in a pro-rata increase in monthly and annual minimum payments. Rebate of Charges. We receive a 25% rebate of charges billed to us (excluding any Storage Inventory Overrun, Excess Storage, Delivery Variance, Requested Authorized Use and Unauthorized Use charges, buy-out amounts, incremental global point agreement/operational balance agreement charges and applicable taxes) which exceed $5.75 million in any contract year and a 50% rebate of charges billed to us (subject to the same exclusions) which exceed $6.75 million in any contract year. Delivery Terms. Gas supplies that we nominate for delivery to us or into storage must be transported on the NBPL, NGPL or APL interstate pipelines. Limitation of Liability. Neither party will be liable to the other for consequential, punitive, exemplary, and other special damages. 79 Nicor Non-Performance. Nicor may not suspend its performance for any reason other than our nonpayment of invoices. We agreed not to bypass Nicor's local distribution system while the Nicor T&B Agreement is effective, but reserved the right, in the event of Nicor's non-performance and at our option, either to obtain and receive gas from other suppliers or receive from Nicor the market value of any gas not delivered. In addition, if Nicor suspends performance for any reason other than force majeure, Nicor will hold us harmless from any damages from Nicor's failure to perform under the Nicor T&B Agreement. Force Majeure. If any obligation of either party under the Nicor T&B Agreement, except for the payment of money when due, cannot be performed due to an act of God, strike, labor dispute, fire, war, civil disturbances, explosion, breakage or accident to machinery or pipelines, quarantine, epidemic, severe storms, act or interference of governmental authorities including failure to grant a permit, or by any similar cause reasonably beyond the control of the non-performing party: (i) the non-performing party must use reasonable efforts to remove the cause of the interference, (ii) during the continuance of the interference, the obligation of the non-performing party is suspended to the extent that the interference prohibits such performance, and (iii) any directly corresponding obligation of the other party is also suspended. Scheduled equipment outages and normal maintenance are not considered force majeure events under the Nicor T&B Agreement. If we incur an unauthorized overrun of our contract quantities due to a non- economic force majeure event, we must reimburse Nicor for an amount equal to the higher of (i) the actual interstate pipeline penalties incurred by Nicor that were directly related to our unauthorized overrun of contract quantities or (ii) a volumetric charge of $0.48 per MMBtu during the Summer months or $0.55 per MMBtu during the non-Summer months multiplied by the quantity of the unauthorized overrun. Buy-Out of Nicor. If less costly supply options become available, we may, upon one years' notice, buy out Nicor and terminate the Nicor T&B Agreement on September 30th of 2002, 2003 or 2004 by paying Nicor a lump sum "Buy-Out Amount." The Buy-Out Amount is $4,112,000 for 2002, $2,789,000 for 2003 and $1,420,000 for 2004, subject to change depending on the unamortized fixed cost of other global point and operational balancing agreements in place at the time of termination. In the event of a buy-out, we may purchase from Nicor on-site meters and related equipment located or to be located at the inlet phalanges of our Facility. Assignment. Except as provided below, neither party may assign, pledge or otherwise transfer its rights under the Nicor T&B Agreement without the prior written consent of the other party, which consent cannot be unreasonably withheld. Nicor may assign the Nicor T&B Agreement without our consent to any successor to or transferee of the direct or indirect ownership or operation of all or part of the pipeline system to which our Facility is connected that can fully perform Nicor's obligations under the Nicor T&B Agreement, provided that the proposed assignee is creditworthy. Upon any such assignment, Nicor will be released from its obligations under the Nicor T&B Agreement. As long as we have not materially defaulted under the Nicor T&B Agreement, we may assign the Nicor T&B Agreement without Nicor's consent to any party succeeding in ownership to the units, provided that the proposed assignee is creditworthy. Upon any such assignment, we will be released from our obligations under the Nicor T&B Agreement. Nicor has also consented to the assignment of the Nicor T&B Agreement or a security interest in the Nicor T&B Agreement to our lenders, provided the assignment does not adversely affect Nicor's rights under the Nicor T&B Agreement. Governing Law. The Nicor T&B Agreement is governed by the laws of the State of Illinois without regard to principles of conflicts of laws. EPC CONTRACTS Construction of our Facility was performed by GE under five separate engineering, design, procurement and construction contracts ("EPC Contracts") covering the various units. 80 Warranties. The warranty remedy period under the EPC Contracts for Units 5- 9 and the GE supplied materials and equipment associated with each unit lasts until the earlier to occur of (i) 150 starts of a unit (ii) 1,250 fired hours after Provisional Acceptance (described below) of a unit or (iii) 24 months after Provisional Acceptance of a unit. The comparable warranty periods for Units 1-4 have expired. Under the EPC Contracts for Units 5-9, GE warrants that: . work and equipment supplied by GE under the EPC Contracts ("Work") will be performed to high professional standards; . Work will conform to the requirements of the EPC Contracts and applicable permits, will be new and will be free from defects in materials and workmanship and will be designed and fit for generating, transmitting and delivering electricity to the Switchyard when operated in accordance with GE's specific operating instructions and, in the absence thereof, in accordance with prudent utility practice; . engineering work will have been performed in accordance with sound engineering practice, prudent utility practice and applicable laws and permits; . control systems will be year 2000 compatible; and . title to all services and GE supplied materials and equipment will be free and clear of all liens. GE's warranty does not include (i) normal wear and tear of equipment and materials, (ii) defects that arise as a result of improper operation and/or maintenance, or (iii) our modifications of GE supplied materials and equipment unless made under GE specifications and with GE's approval. Warranty Work. With respect to Units 5-9, GE must repair, replace or reperform Work that fails to conform to its warranties at its own expense. Warranty work is warranted for one year after its performance but in no event beyond three years after Provisional Acceptance. GE must commence warranty work within 24 hours for an emergency condition (i.e., when continued operation of our Facility at rated output would result in severe mechanical or electrical damage to the units; danger to personnel; damage to property; and/or a material loss or potential material loss of our net revenues resulting from curtailed operation, excess fuel consumption, or inability to operate that can be remedied within 48 hours). For non-emergencies, GE must commence work within ten days of notice from us. If GE fails to comply with its warranty obligations, we may have the necessary work performed by others at GE's expense. Provisional Acceptance. Under Units 5-9, Provisional Acceptance under the EPC Contracts occurs after the following: . The unit has had 5 consecutive successful starts under various initial conditions; . Changes in load occur at a rate that is within operating and maintenance characteristics; . The unit's overspeed protection circuits have been proven on two occasions by a tripping of the unit; . The unit will be able to accept a load rejection at or near full load without resulting in an overspeed trip; . The unit performs within specifications at minimum (60%) load; . The unit's emissions are no greater than 105% of the emission guarantee; . The fire protection system has demonstrated proper performance; . The unit's output is capable of at least 95% of the guaranteed output; and . The unit's heat rate is no greater than 5% above the guaranteed heat rate. Final Acceptance. Under Units 5-9, Final acceptance of the Work is conditioned upon the following: . Work is 100% complete and a certificate to such effect has been provided by GE; 81 . Units meet 100% of the air emission and noise level guarantees; . Performance guarantees have been met as demonstrated by performance testing, and/or all liquidated damages associated with failure to meet performance tests have been paid by GE; . GE has delivered a final lien waiver; and . No GE event of default exists. Final acceptance for Units 1-4 occurred in 1999. Provisional acceptance of Units 5, 6 and 9 occurred in May 2001 and of Units 7 and 8 in June and July 2001. Assignment. Under the EPC Contracts for Units 1-4, we may, without GE's consent, assign any or all of our right, title or interest under the contracts to a lender as security in connection with obtaining or arranging financing for the work under the contract, and any such right, title or interest may in turn be assigned by the lender in connection with the exercise of remedies under such financing. At our or a lender's request, GE has agreed to execute and deliver from time to time consents to assignment that are typical in project finance transactions. Except as permitted above, neither party may assign any of its right, title or interest under the contract without the prior written consent of the other party. Under the EPC Contracts for Units 5-6, 7-8, and 9, each party, without consent, may assign all or a portion of its rights and obligations under the contract to an affiliate, and such affiliate may assign the contract back to the assigning party without consent provided that, in either case, the assigning party provides a guarantee of the assignee's performance satisfactory to the non-assigning party. We may, without GE's consent, assign all or part of our rights and obligations under the contract to a lender for the purpose of financing or refinancing the purchase or operation of the units. GE has agreed to enter consents to assignment with such lender that acknowledge the creation of a security interest in our rights and that acknowledge that upon a breach of the contract or any loan document or our insolvency, the lender will have a reasonable cure period to cure the breach and, upon the payment of all outstanding amounts due and payable to GE, be entitled to all of the rights and be subject to all of the obligations under the contract. GE agrees to provide, at our expense, information reasonably requested by a lender in connection with a financing and to cooperate with us to satisfy the requirements of our financing documents. Except as provided above, neither party may assign any of its rights, titles, or interests under the contract without the prior written consent of the other party. Under an assignment of warranties agreement among GE, ComEd and us, we irrevocably assigned to ComEd the warranties applicable to the Switchyard. Turbine Procurement Agreements. Our wholly-owned subsidiaries, Elwood II Holdings and Elwood III Holdings have each entered into two Combustion Turbine Power Plant and Balance of Plant Equipment Procurement Agreements (the "Turbine Procurement Agreements") with GE covering, respectively, Unit 5, Unit 6, Units 7 and 8, and Unit 9. The warranties provided under these agreements are substantially similar to those provided by GE under the EPC Contracts. EQUIPMENT SALE AGREEMENTS We are party to an equipment sales agreement with Elwood II Holdings for Units 5 and 6 and two equipment sale agreements with Elwood III Holdings for Units 7-9 (collectively, the Equipment Sales Agreements), under which we purchased Units 5-9 and related equipment from Elwood II Holdings and Elwood III Holdings for use at our Facility. Both Elwood II Holdings and Elwood III Holdings are wholly-owned subsidiaries of ours. Under the Equipment Sales Agreements, we pay for the units and related equipment in monthly installments through June 2011. We pay interest on the unpaid principal at an annual rate of 7.75%. At the completion of the payment period, we will pay a balloon payment equal to 50% of the cost of each of the turbines and related equipment. Ownership and title in the units and related equipment remain with Elwood II Holdings and Elwood III Holdings, as applicable, until we make the final balloon payment. Elwood 82 II Holdings and Elwood III Holdings have assigned to us all warranties, rights to liquidated damages and other rights to services that they obtained from GE for the units and related equipment. Neither Elwood II Holdings nor Elwood III Holdings may incur any indebtedness other than currently existing intercompany indebtedness owed to us or engage in any other business. Any funds paid to them under the equipment sales agreements will be repaid or distributed to us, net of sales tax obligations owed by them. 83 INTERCONNECTION AGREEMENTS We have entered into three Interconnection Agreements (each, an "IA") with ComEd that provide for the construction, ownership, operation and maintenance of the facilities (the "Interconnection Facilities") necessary to interconnect Units 1-4, 5-6, and 7-9 of our Facility to the ComEd transmission system (the "ComEd System"). Term. The term of each IA continues until our cancellation, abandonment or termination of the development, construction or operation of our Facility or our Interconnection Facilities. Interconnection Facilities. We built a 345 kV switchyard ("Switchyard") and installed transformers, breakers, and auxiliary transformers. The Switchyard was conveyed to ComEd after its completion. ComEd has agreed not to allow third parties to use the Switchyard if such use would adversely affect ComEd's ability to accept the net electric output of our Facility. At our expense, ComEd is responsible for the construction, operation and maintenance of the transmission line connecting the Switchyard to the ComEd System and the related support structures (the "ComEd Interconnection Facilities"). Interconnection and Transmission. ComEd interconnects our Facility with the ComEd System at the interconnection point. Transmission service beyond the interconnection point is arranged separately by us or our customers. (Under our existing power sales agreements, all such arrangements are the responsibility of our customers.) Interconnection Costs. We are responsible for the cost of operation and maintenance of our Interconnection Facilities (i.e., those on our side of the interconnection point). We reimburse ComEd on a monthly basis for all Interconnection Costs incurred by ComEd, which include direct or indirect costs reasonably incurred for the design, engineering, construction, testing, ownership, operation and maintenance of the ComEd Interconnection Facilities. Facility Control and Dispatch. At all times that our Facility is generating energy, we must have operators on duty either on-site or at a remote operation location. If one of our units is synchronized to the ComEd System during an emergency, ComEd may require us to raise or lower the generating level of the unit during the emergency. ComEd's right to dispatch our units during an emergency is subject to the design limits of the units and applicable laws and regulations, including air permits. During an emergency, ComEd may not unduly discriminate between the dispatch of our units and the dispatch of other generating facilities interconnected to the ComEd System including those owned by ComEd or its affiliates. ComEd compensates us for the redispatch of our units during an emergency under our emergency dispatch tariffs filed with FERC, or if none, according to rates agreed to by us and ComEd. If we have a customer for the electricity resulting from an increase in the generating level of a unit during an emergency, ComEd has no right to such electricity. Voltage Schedule. We must operate the units, within their capabilities, according to the voltage schedule provided by ComEd. The voltage schedule provides for high and low ComEd system load periods that specify maximum and minimum voltage levels as measured on the high side of our transformer. Except during an emergency, we do not have to adjust our MW output levels to provide voltage support to the ComEd system. Disconnection of the Facility. ComEd has the right to disconnect our Facility if, in its sole judgment, (i) operating equipment interferes or could interfere with ComEd's service to its other customers or with the operation of ComEd's system; (ii) the energy we deliver to the interconnection point fails to meet the requirements of the IA; (iii) our control and protective equipment causes or contributes to a hazardous condition or an emergency; (iv) disconnection is necessary to verify the proper operation of the protective equipment; (v) continued parallel operation is hazardous to, or could have an adverse effect on, us, the ComEd System or the general public; (vi) disconnection is necessary to provide ComEd personnel clearance for dead or 84 live line maintenance; or (vii) an emergency has occurred. ComEd has agreed to use commercially reasonable efforts to schedule inspection and maintenance related disconnections to avoid disrupting our operation. Defaults and Remedies. Any of the following constitutes an event of default under an IA: (i) failure to make a payment which continues for 15 days after receipt of written notice; (ii) material failure to comply with or perform any covenant or obligation under the IA or the failure of a representation or warranty in the IA to be true and correct in all material respects which is not cured within 30 days of written notice; (iii) appointment by a court of a receiver, liquidator or trustee of a party or its property or the entry of a decree adjudging a party to be bankrupt which is not cured within 60 days; or (iv) the filing of a voluntary petition in bankruptcy by a party. If the non- defaulting party reasonably determines with respect to (ii) that the breach cannot be cured in 30 days and the defaulting has diligently begun to cure the breach, the cure period may be extended for a mutually agreeable period not to exceed 60 days. If with respect to (ii), ComEd has exercised its right to disconnect our Facility due to our breach and our breach may adversely affect the ComEd System, ComEd's Interconnection Facilities or ComEd's ability to maintain service to its customers, no such additional cure period will be applicable. If an event of default occurs and continues beyond the applicable cure period, the non-defaulting party may terminate the IA, or if the non-defaulting party is ComEd, ComEd may disconnect our Facility from the ComEd System. In addition to the rights and remedies under the IA, the non-defaulting party may exercise any right or remedy it may have at law or in equity. Limitation on Damages and Indemnification. A party's liability for damages under the IA is limited to direct actual damages. Neither party has any liability to the other for any special, indirect, punitive, exemplary or consequential damages, including lost profits. We have agreed to indemnify ComEd for losses resulting from our (i) breach of any of our representations or warranties or failure to perform any of our obligations under the IA; and (ii) our or our contractors' negligence or willful misconduct as to the design, installation, construction, ownership, operation, repair, relocation, replacement, removal or maintenance of, or the failure of, our Facility, our Interconnection Facilities, or the Switchyard before its conveyance to ComEd. With regard to Units 5-9, we have also agreed to indemnify ComEd for losses resulting from liens filed on ComEd's property by our contractors relating to work performed on our behalf on ComEd's property under the IA. ComEd has agreed to indemnify us for losses resulting from (i) ComEd's breach of any of its representations or warranties or failure to perform any of its obligations under the IA; and (ii) bodily injury to or death of, or damage to property of, persons resulting from the negligence or willful misconduct of ComEd as to the design, installation, construction, ownership, operation, repair, relocation, replacement, removal or maintenance of, or the failure of, any of ComEd's Interconnection Facilities. With regard to Units 5-9, ComEd has also agreed to indemnify us for losses resulting from liens filed on our property relating to work performed on ComEd's behalf on our property under the IA. Each party has agreed to indemnify the other for environmental liabilities resulting from the violation of environmental laws or the use, release or cleanup of hazardous materials on its property that affects the other party or its property or causes personal injury. Force Majeure. Force majeure under the IAs means any unforeseeable cause (including, but not limited to, acts of God, strikes, storms, floods, fire, lightning and civil disturbances) beyond the reasonable control of and without the fault or negligence of the party claiming force majeure. If a force majeure event occurs, the parties are excused from performing their obligations (except for obligations to make payments) under the relevant IA if the non-performing party gives the other party written notice of the event in seven days of its occurrence, the suspension of performance is not greater than required by the force majeure event, the non-performing party uses all reasonable efforts to remedy its inability to perform, and the non-performing party notifies the other party when it is able to resume performance. 85 Dispute Resolution. The parties have agreed to resolve disputes arising under the IAs according to a three-step process, which begins with executive level discussions, proceeds to mediation and finally to binding arbitration. Either party, however, may petition the FERC to resolve any arbitrable dispute over which the FERC has jurisdiction. Assignments. ComEd may assign or transfer the IAs or any of its rights or obligations under the IAs without our consent to (i) an independent system operator or (ii) any successor to or transferee of the direct or indirect ownership or operation of all or part of the ComEd System to which our Facility is connected. ComEd will provide us with copies of initial FERC or Illinois filings seeking approval of the sale or transfer of its system. So long as we are not in default, we may assign or transfer the IAs without ComEd's consent to any assignee succeeding to the ownership of our Facility which has a credit rating for its unsecured senior debt of not less than "BBB" by S&P and at least "Baa2" by Moody's. ComEd has consented to our collateral assignment of the IA or the grant of liens and security interests in our Facility and our rights under the IAs to lenders for the purpose of financing or refinancing our Facility. Except for the assignments discussed above, neither party may assign, pledge or otherwise transfer the IAs or any right or obligation under the IAs without first obtaining the written consent the other party, which shall not be unreasonably withheld. ELECTRIC SERVICES CONTRACTS We are party to two electric services contracts with ComEd (the "Electric Services Contracts") establishing the terms and conditions under which ComEd will provide start-up and auxiliary power to our Facility and the terms and conditions under which we will purchase that power. Under the Electric Services Contracts, ComEd will supply all start up power and auxiliary power required by our Facility for power, lighting, ventilation, air conditioning, heating and miscellaneous purposes other than self-generated energy that we use for the same purposes. The terms of the Electric Services Contracts run through April 30, 2002 and September 30, 2002, respectively. Our strategy has been to enter into these agreements on an annual basis until we have more complete experience with the requirements of our units in operation. We expect to enter into new agreements with ComEd when the current agreements expire. COMMON FACILITIES AGREEMENT We are party to a common facilities agreement with PERC, as assignee of PGL (the "Facilities Agreement"), governing the shared use by PERC and us of certain facilities on property owned by PERC and the sharing of costs and expenses with respect to such shared use. Term. The term of the Facilities Agreement continues until December 31, 2028. Summary of Basic Services. Subject to the terms and conditions of the Facilities Agreement, PERC will use best efforts to provide the following services to our Facility: . supply potable and non-potable service water (i.e. untreated well water) to our service water systems meeting the quality, quantity and other specifications in the Facilities Agreement; . supply water meeting the quality, quantity and other specifications in the Facilities Agreement for the operation of our fire protection system; . accept and dispose of storm water collected in our storm water discharge system for Units 1-4 that meets the specifications set forth in the Facilities Agreement; 86 . accept and dispose of blowdown water from Units 1-4 (i.e. water discharged from our units' inlet air coolers) that meets the specifications set forth in the Facilities Agreement and obtain and maintain all permits necessary for the disposal of our blowdown water; PERC may terminate any of the foregoing services on twelve months' notice in the case of service water supply and 18 months notice in all other cases. In addition, if our discharges of storm water or blowdown water do not conform to the specifications of the Facilities Agreement, PERC may discontinue service until it is reasonably satisfied that the non- conforming discharge has ceased. . grant easements to us for the construction, use and maintenance of water lines and a retention pond if the water supply or disposal services described above are terminated; . manage and dispose of all solid, special and hazardous waste and used oil generated at our Facility in compliance with all laws (at our sole cost and expense); . comply with all applicable notification requirements of the Emergency Planning and Community Right-to-Know Act if the quantity of extremely hazardous substances or chemicals on PERC's land and our Facility site exceeds the threshold reporting requirement; . permit us to operate our Facility under an existing operating permit issued under Title V of the Clean Air Act until the underlying land is transferred under the Ground Lease; provided, however, that we comply with the air permit requirements at our sole cost and expense; . provide janitorial services to our Facility on an as-needed basis (at an hourly charge); . provide security services to our Facility (PERC may discontinue janitorial and security services on 45 days' notice); . maintain and monitor our underground fuel gas piping; and . manage our response to requests to locate certain of our underground structures within the Patterson Road utility easements. In addition to the costs for services indicated above, we are responsible for paying all sales, use or other transfer taxes related to these services. The fees for the services are adjusted annually for inflation. If, for any reason, PERC is required to expand its existing facilities to provide the services to us, we must cooperate with PERC to develop a revised cost-sharing plan or elect not to have such services provided by PERC. At current service levels, we expect to make payments of approximately $100,000 annually under the Facilities Agreement to PERC, plus any incremental charges for janitorial and snow removal services. Defaults; Termination. If PERC defaults in providing its services under the Facilities Agreement, we may, in addition to other remedies, assume operation and control of the facilities and equipment of PERC (excluding any facilities and equipment used exclusively in the purchase, storage, distribution, sale and transportation of natural gas) necessary for the continuation of the services that PERC was supposed to provide under the Facilities Agreement. We may deduct any expenses we incur during the exercise of our step-in rights from payments due to PERC under the Facilities Agreement. PERC has the right to terminate the Facilities Agreement if we fail to make payments or fail to perform material obligations and do not cure our breach within specified periods after notice is given. So long as the bonds are outstanding, PERC may not exercise its termination rights without providing notice and an opportunity to cure to the Trustee on behalf of the bondholders. We may terminate the Facilities Agreement or any specific services on 90 days' notice. Force Majeure. Each party is excused from performance under the Facilities Agreement (except for payment obligations) to the extent that its failure of, or delay in, performance is due to a force majeure event. 87 For purposes of the Facilities Agreement, force majeure events include any cause beyond the reasonable control of, and not due to the fault or negligence of, the affected party, and which could not have been avoided by due diligence and use of reasonable efforts, including, but not limited to, drought, flood, earthquake, storm, fire, lightning, epidemic, war, riot, civil disturbance, sabotage, explosions, public utility outages, subsurface aquifer depletion, failure of equipment or of suppliers, contractors or shippers to furnish labor, equipment, goods or services and strikes or labor disputes. Indemnification. Unless due to the intentional misconduct or gross negligence of PERC, we must indemnify PERC, its directors, officers, employees and agents from any and all liabilities arising from (i) any personal injury or property damage related to our use of PERC's land or its facility (i.e. the McDowell Energy Center) or the operation of our Facility, (ii) our possession, operation, use or misuse of our Facility, (iii) the imposition or enforcement of any liens on PERC's property resulting from our performance under the Facilities Agreement, (iv) the discharge of hazardous substances by us or our employees, agents, contractors and subtenants, or the disposal, release, threatened release, discharge or generation of hazardous substances on PERC's property (including our Facility site) by us or our related parties, or (v) our failure to comply with any environmental laws, permits or licenses relating to our Facility. Under the Facilities Agreement, PERC must indemnify us, our directors, officers, employees and agents from any claims arising from (i) any pre- existing hazardous substances on PERC's land (including our Facility site), (ii) any violation by PERC or its employees and agents of any environmental laws, licenses or permits unless caused by us or our representatives, (iii) the discharge of hazardous substances in or from the McDowell Energy Center by PERC or its representatives, or the disposal, release, threatened release, discharge or generation of hazardous materials at the McDowell Energy Center by PERC or its representatives, or (iv) the imposition or enforcement of any liens on our Facility or on PERC's property near our Facility resulting from its performance under the Facilities Agreement. In no event will either party be liable to the other for lost revenues, lost profits, or punitive, incidental or consequential damages of any nature. OPERATION AND MAINTENANCE AGREEMENT We have entered into an Operation and Maintenance Agreement (the "O&M Agreement") with DELSCO that provides for the operation, maintenance and management of our Facility. Term. The agreement will remain in effect as long as the bonds are outstanding, subject to earlier termination in accordance with its terms. Scope of Services. The scope of the services DELSCO will provide includes: . operating and maintaining our Facility and hiring and supplying all labor and professional, supervisory and managerial personnel to perform the services; . operating our Facility according to the administrative procedures manual prepared by DELSCO, which includes procedures for organization and reporting; correspondence and review; procurement and contracting; and accounting, bookkeeping and record-keeping; . maintaining operating logs, records and reports documenting the operation and maintenance of the Facility; . developing the annual budget and operating plan, which must set forth anticipated operations, repairs and capital improvement, routine maintenance and overhaul schedules, procurement, staffing, personnel and labor activities, administrative activities and other work to be undertaken by DELSCO; . monitoring and recording all operating data and information regarding performance of the Facility that we have to report to any government agency or other person under any applicable laws and that we reasonably request; 88 . furnishing monthly progress and reimbursable costs reports and annual reports detailing the activities of the Facility; . obtaining from sellers of equipment, materials or services (other than services provided by DELSCO to us) warranties against defects in materials and workmanship; . providing notice of any event of default under third party agreements; any litigation concerning the Facility; any refusal to grant, renew or extend any license, permit, warranty, approval authorization or consent relating to our Facility; and any dispute with any governmental authority concerning our Facility; and . communicating certain events to us according to the established communication protocols. If an unplanned outage of the Facility occurs or DELSCO believes one will occur, and DELSCO has tried unsuccessfully to contact us regarding the outage, DELSCO may take action to prevent or mitigate the outage to minimize the costs. DELSCO will continue to attempt to notify us and may expend no more than $500,000 for remedial action. Limitation on Authority. DELSCO may not do any of the following without our prior written approval or approval in the annual budget: . sell, lease, pledge, mortgage, convey, or make any license, exchange or other transfer or disposition of any of our property or assets; . enter a contract on our behalf or in our name or that binds us or prohibits or restricts DELSCO's right to assign the contract to us at any time; . make any expenditures, which would be a reimbursable cost for us, not in conformity with the annual budget, except for certain emergency actions described above under "--Scope of Services"; . take any action that materially varies from the annual operating plan, annual budget or any material agreements relating to the Facility; . settle, compromise or assign any claim, suit, debt, demand or judgement against or due by us or DELSCO, the cost of which, in the case of DELSCO, would be a reimbursable cost under the O&M Agreement, or submit any such claim, dispute or controversy to arbitration or judicial process; . create, incur or assume any lien upon the Facility; . engage in any other transaction not expressly authorized by the O&M Agreement or that violates applicable federal, state or local laws; or . enter any agreements to do any of the above. Compensation. We pay DELSCO a fee of $650,000 annually under the O&M Agreement. The annual fee is adjusted each year to reflect changes in the GDP Implicit Price Deflator. We also reimburse DELSCO for, among other things, labor costs; spare and replacement parts; materials, tools and equipment; major equipment overhauls; taxes (excluding income); and insurance costs for activities performed on our behalf and for performance of the contracted services by DELSCO's employees. Budgeting and Reports. At least ninety days before the end of each calendar year, DELSCO must prepare and submit a proposed annual budget for the following year, which includes a separate operating budget and capital budget and sets forth anticipated operations, repairs and capital improvements, routine maintenance and overhaul schedules, procurement, staffing, personnel and labor activities, administrative activities and other work to be performed by DELSCO, together with an itemized estimate of reimbursable costs to be incurred in the performance of these activities. The proposed budget must be accompanied by a proposed annual operating plan setting forth the underlying assumptions and implementation plans in 89 connection with the proposed annual budget. After reviewing the proposed annual budget from DELSCO, DELSCO and we will meet to discuss and agree on a final annual budget and plan. DELSCO must promptly notify us of any significant deviations or discrepancies from the projections contained in the annual budget or operating plan. In addition to the annual budget and operating plan, the parties undertake a similar process to develop a five-year budget for the operation and maintenance of the Facility. The five-year budget is used only for planning and comparison purposes and does not constrain DELSCO in its actions or expenditures. DELSCO must also provide us with the following reports or notices: . monthly progress reports covering all of the Facility activities for such month relating to the operation and maintenance of the Facility (including information regarding amount of electric energy generated, hours of operation, fuel consumed, heat rate, availability, outages, accidents and emergencies), capital improvements, labor relations and other significant matters; . monthly statements setting forth all reimbursable costs paid or incurred in such month by DELSCO and stating whether or not the Facility operations have conformed to the applicable annual budget and operating plan during such month and if not, the extent and reasons for such deviation and any remedial action therefor; . annual reports of the Facility activities in detail comparable to the monthly progress reports, together with a comparison of such activities with the goals set forth in the annual budget and operating plan; . notices of any event of default under the project agreements; any litigation claims (threatened or filed); any refusal or threatened refusal to grant, renew or extend any license, permit, warranty, approval, authorization or consent relating to the Facility or DELSCO's services; and any dispute with a governmental authority relating to the Facility or DELSCO's services; and . notices of any other material information concerning new or significant aspects of the Facility's activities. Obligations of the Company. We have agreed to provide DELSCO with all vendor manuals, spare parts lists, data books and drawings relating to the Facility which are provided to us under any project agreement or by any contractor. In addition, we are responsible for (i) the cost of all major equipment teardowns and overhauls and all capital improvements to the Facility; provided, however, that if such equipment teardowns, overhauls and capital improvements have been incorporated in the applicable annual budget, then DELSCO must schedule, coordinate, contract and oversee the performance of such activities, and (ii) reviewing and approving each annual budget and annual facility operating plan. Default and Termination. We may terminate the O&M Agreement: . immediately upon DELSCO's bankruptcy or the occurrence of a force majeure event (see "--Force Majeure" below) which is not cured within 120 days of its initial occurrence; . with ten days notice if (i) DELSCO violates any laws applicable to the services or the Facility, and the violation may have a material adverse effect on the operation or maintenance of the Facility and is not cured in 30 days (or up to 90 days if not curable within 30 days) or (ii) DELSCO commits a material breach of its performance of the services which is not cured in 30 days (or up to 90 days if not curable within 30 days); . with two months notice upon the occurrence of (i) a sale or transfer of our rights in the Facility or a sale or transfer of all or substantially all of our assets or membership interests in our company, (ii) DELSCO's reimbursable costs exceeding 110% of the annual budget for any two consecutive contract years, provided, however, that such overruns are the fault of, or due to the negligent operation of the Facility by, DELSCO, (iii) our determination that, for any reason, we no longer intend to continue to 90 operate the Facility, or (iv) our determination, at any time after the renewal date, that we desire to terminate the O&M Agreement; and . upon 90 days notice to DELSCO for any reason at any time. Depending on which of the above termination methods we exercise, we may be required to (i) compensate DELSCO for all reimbursable costs incurred up to and including the termination date, (ii) pay DELSCO all unpaid annual operating fees up to and including the termination date, and/or (iii) pay a termination payment for DELSCO's demobilization and cancellation costs, including relocation and severance costs of DELSCO's employees. DELSCO may terminate the O&M Agreement if we become bankrupt or if we fail to perform in a timely manner any material obligation we are required to perform, and our failure is not cured in 30 days. Indemnification. We and DELSCO each agree to indemnify the other against all losses arising out of our respective negligence, fraud or willful misconduct in connection with the O&M Agreement and our obligations under the O&M Agreement. We must indemnify DELSCO against environmental claims relating to the existence, use, storage and removal of hazardous materials at the units and/or adjacent areas that arise before the provisional acceptance date, except to the extent such claims arise from DELSCO's grossly negligent or intentional acts. DELSCO must indemnify us against environmental claims which arise after the provisional acceptance date and are due to the grossly negligent or intentional acts of DELSCO. Force Majeure. Under the O&M Agreement, a "force majeure event" is an event, condition or circumstance beyond the reasonable control of, and not due to the fault or negligence of, the party affected, which prevents the performance by such affected party of its obligations under the O&M Agreement, including, as to DELSCO, a shortage of fuel of appropriate quality or quantity, and as to either party, explosion or fire, flood, earthquake, acts of God, strike or labor dispute, war, actions or failures to act by governmental entities, failures to obtain governmental permits or approvals (despite timely application therefor and due diligence) and changes in laws, rules, regulations, orders or ordinances affecting operation of the Facility not pending on the effective date of the O&M Agreement. In order for a force majeure event to occur and continue, (i) the affected party must give the other party written notice of the event as soon as is reasonably practicable, (ii) the suspension of performance may be of no greater scope and of no longer duration than is reasonably required for such event, (iii) no obligations arising before such event may be excused as a result of such event, and (iv) the affected party must use all reasonable efforts to prevent, overcome and/or mitigate the effects of such event. Limitation of Liability. We and DELSCO each agree not to assert any claims against the other for consequential, incidental, indirect or special damages arising from the performance or non-performance of the other party or any third party engaged by such other party under the O&M Agreement. DELSCO's aggregate liability to us in any year is limited to its annual operating fee under the O&M Agreement plus certain indemnification responsibilities under the O&M Agreement. Dispute Resolution. Disputes which arise under the O&M Agreement will be referred to the responsible senior management of each party for resolution. If referral does not resolve the dispute, the parties will submit the dispute to binding arbitration. Assignment. In general, neither we nor DELSCO may assign our rights or obligations under the O&M Agreement without the prior written consent of the other party, except that we may assign the O&M Agreement without consent to our successor, to a person acquiring all or substantially all of the units, to a wholly-owned subsidiary of ours or to a lender or any purchaser of the Facility upon the exercise of remedies by a lender. DELSCO may assign the O&M Agreement to any of its affiliates. Governing Law. The O&M Agreement is governed by and construed in accordance with the laws of the State of Illinois, without regard to its conflicts of law rules. 91 Administrative Services Agreements. DELSCO has also contracted to provide administrative services to our subsidiaries Elwood II Holdings and Elwood III Holdings for an additional fee of $1,000 each per year. ANNEXATION AGREEMENTS We have entered into three Annexation Agreements with the Village of Elwood, Illinois (the "Village") that provide for the annexation by the Village of our property and adjoining property owned by our affiliates. PGL, which then owned the property, entered into an Annexation Agreement with the Village for the property covered by the Ground Lease under similar terms as those below for an I-3 Heavy Industrial District. Rezoning. The Village adopted amendments to its zoning ordinance which created an I-3 Heavy Industrial District covering the land on which our Facility is located. Applicable Municipal Ordinances. All Village ordinances, regulations and codes will apply to our property and its development for 20 years. Any amendments, repeals or additional regulations which relate to our zoning classifications will not be applied to the development or use of our property except on the mutual consent of the parties. Any ordinances under consideration respecting storm water drainage and retention, stream and wetland protection, soil erosion and sediment control, flood way, flood plain and flood fringe regulation will apply only in the following manner: (i) the proposed ordinances will not apply to the use of a simple cycle power plant; (ii) any proposed stormwater management ordinances will not contain any features which are inconsistent with the Village's acknowledgement that no part of our property is located in or near the ordinary high water mark of a stream, lake, pond or wetland; and (iii) any proposed ordinances must be no more restrictive than those recommended by the Northeastern Illinois Planning Commission, and must not restrict the construction, operation, maintenance or expansion of our property in a manner more restrictive than other property zoned I-3 in the Village. Roadway and Easement Dedications and Improvements. We dedicated by quit claim to the Village portions of the right of way for Brandon Road and Patterson Road and a 20 foot wide non-exclusive underground utility easement. If the existing condition of Patterson Road, Noel Road or Brandon Road is damaged by our construction activity, we will repair the roads, at our expense and with notice from the Village, to the condition which existed before our construction activity. If the Village decides to upgrade the existing condition of Noel Road and Brandon Road, it may do so only on the following conditions: (i) an upgrade may consist of re-surfacing or reconstruction, but may not include construction or installation of sidewalks, street lighting or utilities, any work respecting Patterson Road, which will remain a gravel road, and any maintenance or repair costs; (ii) before any upgrade, the Village will convene a meeting with us to discuss the upgrade; (iii) we will contribute $500,000 towards the cost of the upgrade, in ten equal installments, beginning on December 1, 2003; each installment will be placed in a special fund, and costs incurred by the Village for the upgrade will be paid directly from the fund to Village contractors; if the Village has not disbursed all amounts from the fund on or before December 1, 2013 for the upgrade, the Village must, on or before December 31, 2013, disburse all remaining amounts in the fund to us; (iv) our obligation will not exceed $500,000; and (v) the Village will not permit our property to be subject to any special assessment taxation for any purpose. Annexation and Other Fees. The Village agrees that it will not increase or establish any annexation fees, building permit fees, occupancy permit fees, subdivision fees, tax on or connection fees, zoning, variance or special use permit fees or other fees or charges required to be paid in connection with the annexation, zoning and development of our property other than the fees existing as of the date of the Agreement unless we consent by written waiver. Fees and charges may be increased for inflation. 92 Stop Orders. The Village will not issue stop orders on buildings or other developments unless in writing setting forth the section of the Village ordinance violated, and we may correct the violation. POINT OF SALE SALES-TAX SHARING AGREEMENTS Elwood II Holdings and Elwood III Holdings (together, "Holdings") have each entered into a Point of Sale Sales-Tax Sharing Agreement (each, a "Sharing Agreement" and together, the "Sharing Agreements") with the Village. Sales Tax Returns and Monthly Distribution Disbursements. The Sharing Agreements acknowledge that expansion of Holdings' activities in the Village will generate new revenue for the Village, and the Village will enjoy an increase in the amount of monthly distributions it receives from the State of Illinois' Local Government Tax Fund and Home Rule Retailer's Occupation Tax Fund. As an incentive for Holdings to expand its activities in the Village, the Village has agreed to share the benefits realized by the Village as a result of Holdings' sales and other activities in the Village. The portion of the monthly distributions from the Home Rule Retailer's Occupation Tax Fund (the "Monthly Distributions") that are attributable to Holdings' sales in the Village will be shared by the Village and Holdings as follows: (i) on a monthly basis, beginning September 1, 2001, Holdings will furnish the Village with copies of its sales and use tax returns filed with the state and a disbursement request; (ii) on March 31, June 30, September 30 and December 31, within 15 days after the Village's receipt of the last of its three previous Monthly Distributions, the Village will disburse to Holdings an amount equal to that shown on the disbursement request; and (iii) the portion of the Monthly Distribution that is disbursed to Holdings is 100% of the amount of the Monthly Distribution received by the Village from the Home Rule Retailer's Occupation Tax Fund. Notification of Proposed New Tax. If the Village is considering imposing a tax on the operations or activities of Holdings or an affiliate of Holdings (including us), the Village will not take any action without providing Holdings with at least 45 days prior written notice. Restriction on Other Agreements. Holdings will not enter any agreement like the Sharing Agreement with any other Illinois local government unit during the term of the Sharing Agreements. Term. The term of each Sharing Agreement extends for 20 years. The rights, responsibilities and obligations of the parties under each Sharing Agreement will be terminated if Holdings' occupation tax ceases to apply to sales made by Holdings. Dispute Resolution. All disputes arising under the Sharing Agreements will be resolved by binding arbitration. In lieu of or in addition to arbitration, the parties have the right to bring an action under the Sharing Agreements for injunctive relief, specific performance or similar equitable relief. Assignment. Holdings may assign the Sharing Agreements only with the consent of the Village, which will not be unreasonably withheld. GROUND LEASE The 21.5 acre parcel in the Village of Elwood north of Noel Road and west of Patterson Road on which Units 1-4 are located is held by us under a Ground Lease entered into as of September 30, 1998 with PGL as lessor, and subsequently assigned by PGL to PERC. The property is subject to drainage, utility and pipeline easements and makes use of common utility facilities, shared roadways and access and a common waste treatment facility with adjacent PERC facilities, but is otherwise free of encumbrances, except that PERC has retained the right to use a 3,000 square foot metal storage building located on the property. Term. The term of the Ground Lease is 99 years. 93 Rent. Basic rent under the Ground Lease consisted of a single, lump-sum payment of $283,380, which has been fully paid. In addition, we must pay all taxes, assessments, water rates and other impositions on the property or upon PERC's interest under the Ground Lease. Use; Other Obligations. During the term of the Ground Lease, we may only use the property for a gas or liquid fuel electric power generation facility. We must keep the property in a good state of repair; comply with laws and regulations applicable to the property and any buildings we construct on it; maintain insurance including the lessor as a named insured; and not permit any condition to exist that would interfere with the lessor's use of adjacent properties. Subject to these limitations, we are entitled to construct, maintain and remove buildings and facilities on the property as we deem necessary. Defaults. Defaults under the Ground Lease include our failure to pay rent; breach of other covenants and failure to cure the breach within specified periods; our bankruptcy; or abandonment of the property. Upon any such default, the lessor may elect to declare the Ground Lease term ended and require us to vacate the premises, subject to the cure rights described under "Assignments and Mortgages." Assignments and Mortgages. We may not assign the Ground Lease without the lessor's consent, but such consent may not be unreasonably withheld. We may, however, mortgage our leasehold interest to an Institutional Mortgagee (a term which would include the Trustee), and any assignment upon or in lieu of foreclosure of such a mortgage would not require the lessor's consent. If we enter into a leasehold mortgage and provide notice of it to the lessor, we cannot surrender or modify the Ground Lease without the Institutional Mortgagee's consent. In addition, if the lessor wishes to terminate the Ground Lease because of a default by us, it must give notice and an opportunity to cure the default to the Institutional Mortgagee. Alternatively, at the request of the Institutional Mortgagee, and upon payment of any amounts due to the lessor and cure of any non-monetary defaults that can be cured by such party, the lessor will enter into a new lease with the Institutional Mortgagee or its nominee. Indemnities. We have agreed to indemnify the lessor in connection with any claims asserted against it (unless such claims were due to the intentional misconduct or gross negligence of the lessor's employees or agents) arising from our use of the property; accidents on the property; or any breach of the Ground Lease by us. In addition, we have agreed to indemnify the lessor against any claims caused by discharges of hazardous materials on or from the property or breach of any environmental laws by us or our agents or employees. The lessor has agreed to indemnify us against any claims arising from hazardous materials existing on or discharged from the property on or before the commencement of the Ground Lease; any discharges of hazardous materials from the lessor's retained properties; and any breach of environmental laws by the lessor or its agents and employees with respect to the lessor's retained properties. Purchase of Property. Within 45 days after the issuance to us of an operating permit by the Illinois Environmental Protection Agency under Title V of the Clean Air Act, the lessor will sell, and we will purchase, the property subject to the Ground Lease. Subject to adjustments and prorations, the purchase price will have been satisfied by the payment of basic rent under the Ground Lease. We will acquire insurable fee simple title to the property, subject only to the taxes, easements and conditions described above. An application for the operating permit has been filed, but given the existing backlog of similar applications under regulatory review, there is likely to be a considerable delay before it is issued. Easement Agreements. We have been granted a non-exclusive easement in certain common utility facilities on the property covered by the Ground Lease and, upon our request, the lessor must grant us easements for the purpose of constructing, using and maintaining an underground gas main and an underground pipeline for the discharge of water. 94 DESCRIPTION OF THE NEW BONDS General We will issue the new bonds under the indenture between us and Bank One Trust Company, National Association, as trustee. The new bonds and any existing bonds that remain outstanding will be a single series. The following description is a summary of the material provisions of the bonds and the indenture. It does not restate the bonds and the indenture in their entirety. Certain of the provisions of the indenture are also described under the caption "Description of the Principal Financing Documents--Indenture." Certain terms that are given special meanings in the indenture and the other financing documents are used as defined in Annex A to this prospectus. Principal, Maturity and Interest The series including the new bonds is limited in aggregate principal amount to $402,000,000 (of which $5,599,860 in principal has already been repaid) and will mature on July 5, 2026. The new bonds will bear interest at an annual rate of 8.159% from January 5, 2002, the most recent interest payment date on the existing bonds. We will pay interest on the bonds semiannually in arrears on each January 5 and July 5 to the holders of record on the fifteenth day preceding the applicable bond payment date. Interest on the bonds will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. The interest rate on the bonds may be increased under the circumstances described under the caption "--Registration Rights." The principal of the bonds is payable in semiannual installments on each January 5 and July 5 to the registered holder of the bonds on the immediately preceding regular record date, so that the initial weighted average life of the bonds is approximately 12.0 years. Scheduled principal payments on the bonds are as follows (rounded to the third decimal place): Amortization Schedule
Percentage of Initial Scheduled Payment Dates Balance of Bonds* ----------------------- --------------------- January 5, 2002....................................... 1.393% July 5, 2002.......................................... 0.632 Jan 5, 2003........................................... 2.903 July 5, 2003.......................................... 0.530 Jan 5, 2004........................................... 2.998 July 5, 2004.......................................... 0.669 Jan 5, 2005........................................... 3.194 July 5, 2005.......................................... 0.978 Jan 5, 2006........................................... 3.478 July 5, 2006.......................................... 1.100 Jan 5, 2007........................................... 3.460 July 5, 2007.......................................... 1.179 Jan 5, 2008........................................... 3.644 July 5, 2008.......................................... 1.361 Jan 5, 2009........................................... 3.801 July 5, 2009.......................................... 1.542 Jan 5, 2010........................................... 4.007 July 5, 2010.......................................... 1.639 Jan 5, 2011........................................... 4.139 July 5, 2011.......................................... 1.833
95
Percentage of Initial Scheduled Payment Dates Balance of Bonds ----------------------- --------------------- Jan 5, 2012........................................... 4.443% July 5, 2012.......................................... 2.313 Jan 5, 2013........................................... 5.061 July 5, 2013.......................................... 0.093 Jan 5, 2014........................................... 1.949 July 5, 2014.......................................... 0.014 Jan 5, 2015........................................... 1.852 July 5, 2015.......................................... 0.018 Jan 5, 2016........................................... 2.057 July 5, 2016.......................................... 0.013 Jan 5, 2017........................................... 1.421 July 5, 2017.......................................... 0.064 Jan 5, 2018........................................... 3.212 July 5, 2018.......................................... 0.081 Jan 5, 2019........................................... 3.592 July 5, 2019.......................................... 0.042 Jan 5, 2020........................................... 3.846 July 5, 2020.......................................... 0.265 Jan 5, 2021........................................... 4.879 July 5, 2021.......................................... 0.130 Jan 5, 2022........................................... 6.410 July 5, 2022.......................................... 0.401 Jan 5, 2023........................................... 4.991 July 5, 2023.......................................... 0.161 Jan 5, 2024........................................... 2.366 July 5, 2024.......................................... 0.192 Jan 5, 2025........................................... 2.991 July 5, 2025.......................................... 0.291 Jan 5, 2026........................................... 1.943 July 5, 2026.......................................... 0.429
* Percentages are based on the initial aggregate principal amount to the existing bonds ($402,000,000). New bonds will be issued in the same nominal amounts and any payments of principal on the existing bonds before the exchange offer is completed will be credited against the new bonds. Issuance of Additional Bonds We may issue additional bonds under the indenture, which we refer to as the additional bonds, in accordance with the conditions described therein. Any additional bonds will rank equivalent in right of payment to the bonds and will vote on all matters with the bonds. For purposes of this "Description of the Bonds," references to the bonds include any existing bonds that remain outstanding, as they have identical terms to the new bonds, but does not include additional bonds unless otherwise indicated. No offering of any additional bonds is being or will in any manner be deemed to be made by this prospectus. For a description of the conditions under which we may issue additional bonds, see "Description of the Principal Financing Documents-- Indenture--Certain Covenants--Limitation on Indebtedness of the Partnership." Nature of Recourse and Security The obligations to pay principal of, premium, if any, and interest on the bonds will be solely our obligations. Neither our members, nor any of our affiliates, employees, officers, or directors or any other person or entity will guarantee the bonds or have any other obligation to make payments on the bonds. Holders will 96 have no claims against or recourse to, whether by operation of law or otherwise, those entities or persons or their respective affiliates except as specifically provided in (and then only to the extent so provided in) the transaction documents to which our affiliates our parties. The bonds will be secured by: . a first priority mortgage on our interest (which includes a leasehold interest) in the Facility site, all fixtures thereon and all related easements, rights-of-way, servitudes, licenses and similar real property rights, provided that the mortgage will contain a covenant of non- disturbance with respect to Shared Facilities; . a first priority security interest in all of our personal property, including, without limitation, all our equipment, inventory and other goods used in connection with the Facility, all of our rights under the project documents to which we are a party, all accounts established by us under the Deposit and Disbursement Agreement (other than the distribution account) and all funds on deposit therein, and all assignable governmental approvals obtained in connection with the Facility; . a pledge of all of the membership interests held in us by our members; and . a pledge of all of the membership interests we hold in Elwood II Holdings and Elwood III Holdings, our wholly-owned subsidiaries and a first priority security interest in payments made by us to Elwood II Holdings and Elwood III Holdings under the equipment sales agreements. Any additional bonds issued will share equally and ratably in the collateral with the bonds. Certain other Indebtedness may also share equally and ratably in the collateral with the bonds. See "Description of the Principal Financing Documents--Indenture--Limitation on Liens." Ranking The bonds: . will be our Senior Secured Obligations; . will rank equivalent in right of payment to all of our other Senior Secured Obligations; and . will rank senior in right of payment to all our existing and future subordinated debt. Optional Redemption The bonds and additional bonds will be redeemable, at our option, at any time in whole or from time to time in part, on not less than 30 nor more than 60 days' prior notice to the holders of the bonds or additional bonds, on any date before maturity, which we refer to as a redemption date, at a redemption price equal to: . 100% of the outstanding principal amount of the bonds being redeemed; plus . accrued and unpaid interest on the bonds being redeemed to the redemption date; plus . a Make-Whole Premium. In no event will the redemption price ever be less than 100% of the principal amount of the bonds being redeemed plus accrued and unpaid interest thereon to the redemption date. Mandatory Redemption Without Make-Whole Premium The bonds will be subject to mandatory redemption without a Make-Whole Premium, and we will be required to prepay our other Senior Secured Obligations, in the following circumstances: Loss Events If: . a Loss Event occurs, . we receive more than $5,000,000 of proceeds because of the Loss Event, and 97 . either: . we decide not to rebuild, repair or restore the Facility after the Loss Event, or . the Facility cannot be rebuilt, repaired or restored to operate on a Commercially Feasible Basis and the independent engineer confirms this fact, then we will have to use the proceeds that we receive in connection with that Loss Event in excess of $5,000,000 to redeem bonds and prepay the other Senior Secured Obligations. The redemption price for the bonds being redeemed will be equal to 100% of the principal amount of the bonds being redeemed plus accrued interest. If: . a Loss Event occurs, . we receive proceeds because of the Loss Event, . we decide to rebuild, repair or restore the Facility and the independent engineer confirms that it can be rebuilt, repaired or restored to operate on a Commercially Feasible Basis and the independent engineer confirms this fact, . more than $5,000,000 of proceeds from the Loss Event are left over after we finish rebuilding, repairing or restoring the Facility, then, after giving effect to the cost of such rebuilding, repairing or restoring the Facility, we will have to use the remaining proceeds that we receive because of the Loss Event in excess of $5,000,000 to redeem bonds and prepay the other Senior Secured Obligations. The redemption price for the bonds being redeemed will be equal to 100% of the principal amount of the bonds being redeemed plus accrued interest. Involuntary Buy-Outs of Power Sales Agreements If we receive more than $10,000,000 of proceeds from Involuntary Buy-Outs, we will have to use those proceeds in excess of $10,000,000 to redeem bonds and prepay the other Senior Secured Obligations, unless we receive a confirmation of the then current ratings of the bonds from both S&P and Moody's. The redemption price for the bonds being redeemed will be equal to 100% of the principal amount of the bonds being redeemed plus accrued interest. Permitted Asset Sales If we receive more than $5,000,000 of proceeds from a disposition of assets permitted under the indenture (as set forth under the caption "Description of the Principal Financing Documents--Indenture--Certain Covenants--Fundamental Changes and Disposition of Assets"), we will have to use those proceeds in excess of $5,000,000 to redeem bonds and prepay the other Senior Secured Obligations. The redemption price for the bonds being redeemed will be equal to 100% of the principal amount of the bonds being redeemed plus accrued interest. Mandatory Redemption with Make-Whole Premium If we receive more than $10,000,000 of proceeds from Voluntary Buy-Outs, we will have to use these proceeds in excess of $10,000,000 to redeem bonds and prepay the other Senior Secured Obligations, unless Moody's and S&P confirm that the buy-out will not result in a downgrade of their initial rating of the bonds. The redemption price for the bonds being redeemed will be equal to 100% of the principal amount of the bonds being redeemed plus accrued interest plus a Make-Whole Premium. 98 Redemption at the Option of the Bondholders Change of Control If a Change of Control occurs, any bondholder can request that we redeem all or a portion of the bonds held by that bondholder. In response to any such request, we will be required to redeem all bonds which are subject to the request at a redemption price equal to 101% of the principal amount of the bonds being redeemed plus accrued interest. If Monies Remain on Deposit in the Distribution Suspense Account If: . funds remain on deposit in the distribution suspense account for at least 12 months in a row, . we decide to have the bondholders vote on whether we should use these funds to redeem bonds, and . bondholders holding at least 66 2/3% of the principal amount of the outstanding bonds vote to have us use these funds to redeem bonds, then we will have to use the funds which have remained on deposit in the distribution suspense account for at least 12 months in a row to redeem bonds. The redemption price for the bonds being redeemed will be equal to 100% of the principal amount of the bonds being redeemed plus accrued interest. Terms of Redemption If the bonds are redeemed under any of the foregoing provisions, the proceeds used to redeem the bonds will be applied pro rata to the bonds and other Senior Secured Obligations which require redemption or repayment. We will mail a notice of redemption to each holder of bonds or additional bonds being redeemed at such holder's address of record. Interest will cease to accrue on the bonds or additional bonds on and after the redemption date. Book-Entry, Delivery and Form Upon issuance, the new bonds will be represented by one or more fully registered global certificates. Each global certificate will be deposited with Depositary Trust Corporation ("DTC") or its custodian and will be registered in the name of DTC or a nominee of DTC. DTC will thus be the only registered holder of the new bonds. Any existing bonds that remain outstanding will be represented by a separate global certificate. DTC has advised us as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "Clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered under the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions, such as transfers and pledges, among participants in deposited securities through electronic book-entry charges to accounts of its participants, thereby eliminating the need for physical movement of securities certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Certain of such participants (or other representatives), together with other entities, own DTC. The rules applicable to DTC and its participants are on file with the SEC. Purchases of bonds under the DTC system must be made by or through participants, which will receive a credit for the bonds on DTC's records. The ownership interest of each actual purchaser of each bond is in turn to be recorded on the participants' and indirect participants' records. Beneficial owners will not receive written confirmation from DTC of their purchase, but beneficial owners are expected to receive written confirmations 99 providing details of the transactions, as well as periodic statements of their holdings, from the participant or indirect participant through which the beneficial owner entered into the transaction. Transfers of ownership interests in the bonds are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in bonds, except in the event that use of the book-entry system for the bonds is discontinued. The deposit of bonds with a custodian for DTC and their registration in the name of Cede effects no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the bonds; DTC's records reflect only the identity of the participants to whose accounts such bonds are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers. Principal and interest payments on the bonds will be made to DTC by wire transfer of immediately available funds. DTC's practice is to credit participants' accounts on the payable date in accordance with the respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "Street name," and will be the responsibility of such participant and not of DTC or us, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC, and disbursement of such payments to the beneficial owners will be the responsibility of participants and indirect participants. Neither we nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global bonds or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. DTC may discontinue providing its services as securities depositary with respect to the bonds at any time by giving reasonable notice to us. Bonds represented by a global bond will be exchangeable for bonds issued in certificated form with the same terms in authorized denominations only if: . DTC notifies us that it is unwilling or unable to continue as depositary or if DTC ceases to be a clearing agency registered under applicable law and a successor depositary is not appointed by us within 90 days; . We determine not to require all of the bonds to be represented by a global bond and notify the trustee of our decision; or . there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default with respect to the bonds. If the bonds are issued in certificated form to a holder other than DTC, payments of principal and interest will be made by check mailed to such holder at such holder's registered address or, upon written application by a holder of $1,000,000 or more in aggregate principal amount of bonds to the trustee in accordance with the terms of the indenture, by wire transfer of immediately available funds to an account maintained by such holder with a bank or other financial institution. Transfer and Exchange A bondholder may transfer or exchange bonds in accordance with the Indenture. The security registrar and the trustee may require a bondholder, among other things, to furnish appropriate endorsements and transfer documents and we may require a bondholder to pay any taxes and fees required by law or permitted by the indenture. We are not required to transfer or exchange any bond for a period of 15 days before a selection of bonds be redeemed. The registered holder of a bond will be treated as the owner of it for all purposes. 100 DESCRIPTION OF THE PRINCIPAL FINANCING DOCUMENTS We refer to the documents described below, along with the security documents and certain ancillary documents, as the financing documents. Certain terms that are given special meanings in the indenture and the other financing documents are used as defined in Annex A to this prospectus. Indenture General We will issue the new bonds under an indenture between us and Bank One Trust Company, National Association, as trustee. Certain Covenants We will be subject to the following covenants, among others, set forth in the indenture: Limitations on Indebtedness We will not, nor will we permit any of our subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, other than the following Indebtedness (which we refer to as permitted indebtedness): . existing intercompany Indebtedness between us and our subsidiaries; . the Senior Secured Obligations (other than Indebtedness referred to below and incurred in respect of required modifications and/or optional modifications); . purchase money debt or capital lease obligations up to $5,000,000 incurred to finance readily replaceable personal property; . trade accounts payable (other than for borrowed money) which arise in the ordinary course of business and which are payable within 90 days; . guarantees of permitted indebtedness; . Indebtedness which is fully subordinated in right of payment to the Senior Secured Obligations and which is not secured by the collateral; . working capital loans up to $20,000,000, as escalated in accordance with the consumer price index; . surety bonds, performance bonds or similar arrangements with third-party sureties or indemnitors or similar persons (which we refer to collectively as bonding arrangements) in connection with a good faith contest or as otherwise permitted by the indenture or any other transaction document; . reimbursement obligations under any debt service reserve letter of credit; . indemnities and similar obligations arising under the transaction documents; . Indebtedness incurred in respect of non-speculative hedging agreements; and . Indebtedness incurred for modifications and improvements to the Facility that are reasonably necessary to maintain our status as an "exempt wholesale generator" or for the Facility to maintain its status as an "eligible facility" or that are reasonably necessary, or that we believe (with the concurrence of the independent engineer) are appropriate for the Facility, to remain in substantial compliance with applicable laws and governmental approvals (including enacted or anticipated changes in applicable laws or the interpretation thereof), which we refer to collectively as required modifications, as long as each of the following conditions is satisfied: (1) no default or event of default has occurred and is continuing, or will result from the incurrence of the Indebtedness; 101 (2) each of S&P and Moody's confirms that the incurrence of the Indebtedness will not result in a downgrade of their then current ratings for the bonds, or (x) the Debt Service Coverage Ratio for the two quarter period preceding the date such Indebtedness is incurred, which we refer to as the incurrence date, and (y) the Projected Debt Service Coverage Ratio for the four quarter period succeeding the incurrence date (after taking into account the incurrence of the Indebtedness) are each greater than or equal to: (a) 1.5 to 1.0; or (b) 1.4 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, at least 25% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date; or (c) 1.3 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, at least 50% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date; or (d) 1.2 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, at least 75% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date; or (e) 1.1 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, 100% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date; and . Indebtedness incurred for modifications and improvements (other than required modifications) to the Facility that cost less than $25,000,000 in the aggregate, which we refer to as optional modifications, as long as each of the following conditions is satisfied: (1) no default or event of default has occurred and is continuing, or will result from the incurrence of the Indebtedness; (2) the Debt Service Coverage Ratio for the two quarter period preceding the incurrence date and the Projected Debt Service Coverage Ratio for the four quarter period succeeding the incurrence date (after taking into account the incurrence of the Indebtedness) are each greater than or equal to: (a) 1.7 to 1.0; or (b) 1.6 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, at least 25% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date; or (c) 1.45 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, at least 50% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date; or (d) 1.3 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, at least 75% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date; or (e) 1.2 to 1.0, if as of the incurrence date, we are party to Permitted PPAs covering, in the aggregate, 100% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the incurrence date. As a condition to incurring Indebtedness for required modifications or optional modifications, we must deliver to the trustee and the collateral agent an officer's certificate certifying as to the matters described in the applicable clauses (1) and (2) above (including the relevant Permitted PPAs). We will determine the satisfaction 102 of the conditions in each clause (2) based on projections prepared by us in good faith based upon assumptions consistent in all material respects with the relevant contracts and agreements, the transaction documents, historical operations and our good faith projections of future revenues and projections of our operating and maintenance expenses in light of existing or reasonably expected regulatory and market environments in the markets in which the Facility is or will be operated and upon the assumption that there will be no early redemption or prepayment of Indebtedness or that any Indebtedness which matures within the projected periods will be refinanced on reasonable terms. Limitation on Liens We will not, nor will we permit any of our subsidiaries to, create, suffer to exist or permit any lien upon any of our properties, other than the following liens, which we refer to as permitted liens: . liens specifically created or required to be created by the indenture or any other financing document; . liens securing Senior Secured Obligations; . liens for bonding arrangements permitted by the indenture consisting of liens on cash collateral and related investments held as cash cover for the bonding arrangements in an aggregate amount, at any time outstanding, not exceeding $5,000,000 plus monies used from amounts otherwise available to our members as a distribution permitted in accordance with the terms described below under the caption "-- Distributions"; . liens for taxes which are either not yet due or are due but payable without penalty or are the subject of a good faith contest by us; . any exceptions to title existing on the date of the offering of the existing bonds and set forth on the title policies issued in connection with the offering of the existing bonds; . defects, easements, rights of way, restrictions, irregularities, encumbrances and clouds on title and statutory liens that do not materially impair the property affected and that do not individually or in the aggregate materially impair the value of the security interests granted under the security documents; . deposits or pledges to secure statutory obligations or appeals, releases of attachments, stays of execution or injunctions, performances of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or for purposes of like general nature in the ordinary course of business; . liens for worker's compensation, unemployment insurance or other social security or pension or similar obligations; . legal or equitable encumbrances deemed to exist because of the existence of any litigation or other legal proceeding if they are the subject of a good faith contest by us (excluding any attachment prior to judgment, judgment lien or attachment in aid of execution on a judgment); . mechanics', workmen's, materialmen's, suppliers', construction or other similar liens arising in the ordinary course of business or incident to the construction, operation, repair, restoration or improvement of any property for obligations which are not yet due or which are removed or bonded within 60 days after filing (but in any event before enforcement), or which are the subject of a good faith contest by us; . liens on assets acquired with the proceeds of permitted purchase money or capital lease obligations; . liens substantially similar to certain of the liens described above so long as any such lien, if foreclosed upon, would not reasonably be expected to result in a Material Adverse Effect; and . liens arising under Shared Facilities Agreements. 103 Distributions We will not make a distribution (including by transfer of assets or assumption or incurrence of any debt or liability) to our members unless the distribution is made on a scheduled bond payment date and each of the following conditions are satisfied on the date of the distribution, which we refer to as the distribution date: . all required transfers and payments described under the caption "-- Deposit and Disbursement Agreement--Deposit and Disbursement of Funds" have been completed and all accounts established under the deposit and disbursement agreement are funded to their required levels; . no default or event of default has occurred and is continuing or will result from the distribution; . the Debt Service Coverage Ratio for the four quarter period preceding the distribution date and the Projected Debt Service Coverage Ratio for each of the two four quarter periods succeeding the distribution date (after taking into account the making of the proposed distribution) are each greater than or equal to: (1) 1.7 to 1.0; or (2) 1.6 to 1.0, if as of the distribution date, we are party to Permitted PPAs covering, in the aggregate, at least 25% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the distribution date; or (3) 1.45 to 1.0, if as of the distribution date, we are party to Permitted PPAs covering, in the aggregate, at least 50% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the distribution date; or (4) 1.3 to 1.0, if as of the distribution date, we are party to Permitted PPAs covering, in the aggregate, at least 75% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the distribution date; or (5) 1.2 to 1.0, if as of the distribution date, we are party to Permitted PPAs covering, in the aggregate, 100% of the capacity of the Facility for the consecutive period of eight full quarters, taken as a whole, following the distribution date; and . We deliver to the trustee and the collateral agent an officer's certificate certifying as to the matters described in each of the conditions set forth above (including the relevant Permitted PPAs). We will determine the satisfaction of the conditions set forth in the immediately preceding bullet point based on projections prepared by us in good faith based upon assumptions consistent in all material respects with the relevant contracts and agreements, the transaction documents, historical operations and our good faith projections of future revenues and projections of our operating and maintenance expenses in light of existing or reasonably expected regulatory and market environments in the markets in which the Facility is or will be operated and upon the assumption that there will be no early redemption or prepayment of Indebtedness or that any Indebtedness which matures within the projected periods will be refinanced on reasonable terms. For any calculations under the financing documents with respect to periods following a bond payment date or a distribution date, the beginning point of the calculation will be the first day of the month in which the bond payment date or distribution date occurs. Amendments to Material Project Documents We will not: . terminate, amend, waive or modify any of the material project documents (other than the power sales agreements) to which we are a party, . exercise any rights we may have to consent to any assignment of any of the material project documents (other than the power sales agreements) by the other parties thereto, or 104 . exercise any option under any of the material project documents (other than the power sales agreements) to which we are a party unless such termination, amendment, waiver, modification, assignment or exercise: . would not reasonably be expected to result in a Material Adverse Effect, as certified in certain instances by the independent engineer; or . is reasonably necessary in order to maintain a power sales agreement in full force and effect, as certified by the independent engineer; or . is necessary in order for us to be in compliance with applicable law or to be able to obtain or maintain, or comply with the terms and conditions of, any governmental approval necessary for us to conduct our business as currently conducted or as proposed to be conducted or to permit the Facility to maintain its certification as an "eligible facility" or for us to maintain our certification as an "exempt wholesale generator"; or . is the result of: (1) a change in tariffs or similar publicly promulgated rates approved by any governmental authority which are incorporated by reference into a project document, or (2) implementation of provisions requiring adjustments to price or volume under, and in accordance with, the terms of a material project document, if we exercise good faith and commercially reasonable efforts to negotiate price changes under such provisions for adjustments to price which do not result in a Material Adverse Effect. Amendments to Power Sales Agreements We will not: . terminate, amend, waive any material obligations under, or modify any of the power sales agreements, . exercise any rights we may have to consent to any assignment of any of the power sales agreements by the other party thereto, or . exercise certain options listed on a schedule to the indenture under any of the power sales agreements, unless such termination, amendment, waiver, modification, assignment or exercise would not reasonably be expected to result in a Material Adverse Effect, as certified by us in an officer's certificate delivered to the trustee and the collateral agent and concurred with in writing by the independent engineer. Prohibition on Fundamental Changes and Disposition of Assets We will not: . enter into any transaction of merger or consolidation (except that our subsidiaries may merge into us), change our form of organization or our business, or liquidate or dissolve (or suffer any liquidation or dissolution) unless contemporaneously reconstituted with no adverse effect on the Secured Parties; . purchase or otherwise acquire all or substantially all of the assets of any other person except as contemplated by the transaction documents; . except as contemplated by the transaction documents, sell, lease (as lessor) or transfer (as transferor) any property or assets material to the operation of the Facility except in the ordinary course of our business to the extent that: (1) such property is worn out or is no longer useful or necessary for the operation of the Facility, or (2) such property is replaced with property of equivalent use and value, or 105 (3) such sale, lease or transfer is required to comply with any applicable law or to obtain, maintain or comply with the terms and conditions of any governmental approval necessary for us to conduct our business under the project documents; provided, however, we have the right under the indenture to share our property and the use thereof in accordance with, and to the extent reasonably necessary to effect, the Shared Facilities Agreements. Replacement Power We will not elect to use replacement power to satisfy the requirements under our power sales agreements unless: . we are constrained from generating and delivering power; . we certify to the trustee and the collateral agent that our use of replacement power would not reasonably be expected to result in a Material Adverse Effect; and . we enter into an agreement, which we refer to as an acceptable replacement power arrangement, satisfying the following conditions: (1) the agreement has a delivery period not exceeding 45 days; or (2) the execution and performance of the agreement would not reasonably be expected to result in a Material Adverse Effect (as confirmed by the independent engineer); or (3) the agreement has a delivery period not exceeding 90 days and the agreement's counterparty (or the credit support provider for such counterparty) is rated at least "BBB-" by S&P or at least "Baa3" by Moody's, provided that this credit rating standard will not apply if such counterparty has dedicated existing generating assets and capacity for the provision of the replacement power and such generating assets have a proven track record for satisfying the obligation to provide all of the replacement power. Additional Documents We will not enter into any material agreements, contracts or other arrangements or commitments other than the following: . the transaction documents and agreements or other arrangements contemplated by the transaction documents; . agreements, contracts or other arrangements entered into by us with respect to the disposition of assets that we are entitled to sell, transfer, assign, lease or sublease under the indenture; . agreements, contracts or other arrangements entered into by us in the ordinary course of business and that are included in our annual operating budget; . agreements, contracts or other arrangements entered into in substitution for existing agreements, contracts or other arrangements on substantially similar terms and conditions; . the Shared Facilities Agreements, Permitted PPAs, and replacement power arrangements; . agreements for sale of excess fuel or firm transportation (to the extent not required for the operation of the Facility or the performance of our obligations under the power sales agreements), the performance of which could not reasonably be expected to result in a Material Adverse Effect; and . contracts for emergency repairs or to avoid or minimize unplanned outages. Transactions with Affiliates. We will not enter into any transaction or agreement with any affiliate other than agreements identified in the indenture, Shared Facilities Agreements, and transactions and agreements in the ordinary course of business 106 on fair and reasonable terms no less favorable to us than we would obtain in an arm's-length transaction with a person that is not our affiliate. Before entering into any transaction with an affiliate, we will deliver to the trustee and the collateral agent an officer's certificate stating that the requirements of this paragraph are met. New Generation Facilities. Our affiliates are considering the development of new generation facilities on land they control adjacent to portions of the Facility site. If the new generation facilities are developed, the owners of the new generation facilities may need to enter into certain agreements with us with respect to certain shared facilities and the use of such facilities for the benefit of the new generation facilities. Such shared facilities may include roads, easements, fuel and utility lines and pipes, transmission lines and interconnects, water disposal and treatment systems, control systems, and other property or rights that we own or lease, and some of the shared facilities may be facilities that we use in the operation of the Facility. We will not enter in any Shared Facility Agreement unless the execution, delivery and performance of such Shared Facility Agreement: . will not result in a downgrade of the then current rating on the bonds by either of S&P and Moody's, . could not reasonably be expected to result in a Material Adverse Effect (as certified by us) and . will not have a material adverse effect on the operation or technical integrity of the Facility, including, without limitation, as to availability and anticipated financial performance (all as certified by the independent engineer). Additional Covenants We will also be required to: . maintain our existence and title to properties; . obtain, maintain and comply with all necessary governmental approvals; . comply with applicable laws and the terms of each project document; . maintain insurance for the Facility; . keep the bonds equivalent in right of payment and ability to share in the collateral with our other senior debt; . deliver financial statements, notices of default, notices of power sales agreement buy-outs and other documents to the trustee, the collateral agent and the rating agencies; . operate and maintain the Facility in compliance with prudent utility practices, applicable laws, governmental approvals and the project documents; . deliver annual operating budgets to the trustee, the collateral agent and the independent engineer; . prepare a major maintenance plan; . submit an annual report covering the status of the insurance for the Facility; . provide the independent engineer, the trustee and the collateral agent reasonable inspection rights and the right to witness the performance tests; . maintain our status as an "exempt wholesale generator" and the Facility's status as an "eligible facility"; . pay our taxes; . diligently pursue all rights we may have to compensation in respect of certain events of loss or governmental taking; and 107 . cause any project document we enter into after the date of this offering to become subject to the lien of the collateral agent. In addition, we will be restricted from engaging in the following activities: . conducting any business other than the construction, ownership, operation, maintenance, administration and financing of the Facility; . making investments other than Permitted Investments; . establishing subsidiaries or allowing our existing subsidiaries to engage in activities other than those that they are engaged in on the date of the offering; and . establishing employee benefit plans which result in the imposition of material liabilities on us. If at any time after completion of the exchange offer, we are no longer required to, and do not, file periodic reports and other information under the Exchange Act, we are obligated to provide equivalent information to the bondholders, unless we receive the consent of holders of a majority in principal amount of the bonds relieving us of this obligation. The affirmative and negative covenants described above are subject to a number of important qualifications and exceptions which are set forth in full in the indenture. Events of Default and Remedies Each of the following events is an event of default under the indenture (an "event of default"): . we fail to pay or cause to be paid any principal of, premium, if any, or interest on any bond when the same becomes due and payable, whether by scheduled maturity or required redemption or by acceleration or otherwise, and such failure continues uncured for five or more days; or . any representation or warranty made by us in any financing document, or in any certificate furnished to the Secured Parties or the independent consultants in accordance with the terms of the financing documents, proves to have been false or misleading in any respect as of the time made, and the fact, event or circumstance that gave rise to the misrepresentation has resulted in or is reasonably expected to result in a Material Adverse Effect and such misrepresentation or such Material Adverse Effect continues uncured for 30 or more days from the date we obtain knowledge thereof; provided that if we commence efforts to cure (or to cause to be cured) the misrepresentation by curing (or causing to be cured) the factual situation resulting in the misrepresentation or such Material Adverse Effect within this 30-day period, we may continue to effect (or cause) such cure (and such misrepresentation will not be deemed an event of default) for an additional 90 days so long as we certify to the trustee and the collateral agent that such misrepresentation or such Material Adverse Effect is reasonably capable of being cured within such period and that we are diligently pursuing (or causing) such cure; or . we fail to perform or observe our covenant in the indenture to maintain adequate insurance for the Facility; provided, however, that we will have five business days to correct or cause to be corrected this failure before an event of default occurs; or . we fail to perform or observe in any material respect any covenant or agreement contained in the indenture related to maintenance of existence, use of proceeds, amendments to power sales agreements, the incurrence of Indebtedness, liens, distributions, the nature of our business, fundamental changes, sales of assets, investments or additional documents, and this failure continues uncured for 30 or more days after we have knowledge of such failure; or . we fail to perform or observe in any material respect any of the covenants contained in any other provision of the indenture (other than those referred to above) or any other financing document and such failure continues uncured for 30 or more days after we have knowledge of such failure; provided that if we commence efforts to cure such default within such 30-day period, we may continue to effect such 108 cure of the default (and such default will not be deemed an event of default) for an additional 180 days so long as we provide an officer's certificate to the trustee and the collateral agent stating that such default is reasonably capable of being cured within such period and we are diligently pursuing the cure; provided further, in the case of a default arising from our failure to comply with permits or laws, or to maintain permits, and within such 180 day period we enter into a consent decree or other arrangement under which the applicable governmental authorities agree to stay or delay enforcement against such non-compliance, then such cure period shall be further extended for the period of such stay or delay; or . certain events of bankruptcy or insolvency occur; . any lien granted in the security documents ceases to be a perfected lien in favor of the collateral agent on any material portion, taken individually or in the aggregate, of the collateral described therein (other than with respect to property or assets which the terms of the financing documents permit us to convey or transfer) with the priority purported to be created by the security documents; or . with respect to any material transaction document: (1) a term of such transaction document ceases to be a valid and binding obligation of the parties thereto or is declared unenforceable by a governmental authority, or (2) such transaction document is terminated (before its normal expiration), or (3) a party to a project document denies its liability thereunder or defaults on its obligations thereunder (and any grace or cure period with respect to such failure has expired); and in each such case, the event described above could reasonably be expected to result in a Material Adverse Effect; provided that none of the events described in clauses (1), (2) or (3) will be an event of default if within 180 days from the occurrence of any such event, we have cured or caused the relevant party to cure the circumstances described in the appropriate clause and caused the relevant party to resume performance in accordance with the relevant project document, or entered into a replacement project document in substitution of the relevant project document which is reasonably satisfactory to the independent engineer; or . we fail to make any payment in respect of any Indebtedness, including permitted indebtedness, having an outstanding principal amount of more than $15,000,000 (other than any amount owing with respect to any bond) when due (subject to any applicable grace period), and a default and acceleration is declared with respect to such Indebtedness; or . a final and non-appealable judgment or judgments for the payment of money in excess of $15,000,000 is rendered against us, and the same remains unpaid or unstayed for a period of 90 or more consecutive days after such payment is due and payable; or . an Event of Abandonment occurs. In the case of an event of default arising from certain events of bankruptcy or insolvency, all outstanding bonds will become immediately due and payable without further action or notice. In the case of an event of default arising from a failure to pay principal of, premium, if any, or interest on the bonds, holders of at least 33 1/3% in principal amount of the then outstanding bonds may declare the bonds to be immediately due and payable. In the case of any other event of default, holders of at least a majority in principal amount of the then outstanding bonds may declare the bonds to be immediately due and payable. The holders of not less than a majority in aggregate principal amount of the bonds outstanding may on behalf of the holders of all bonds waive any past default or event of default and its consequences, except that: (1) only the holders of all bonds affected may waive a default or an event of default in the payment of the principal of and interest on, or other amounts due under, any outstanding bond; and 109 (2) except as provided in clause (1), only the holders of all outstanding bonds affected may waive a default or an event of default in respect of a covenant or provision that under the indenture cannot be modified or amended without the consent of the holder of each outstanding bond affected. Defeasance We may, at any time, terminate all of our obligations under the indenture, the bonds and the other financing documents, and may terminate the liens of the security documents on the collateral (a "Legal Defeasance"). In addition, we may terminate, at any time, our obligations under any of the covenants under the indenture, the bonds and the other financing documents, and may terminate the liens of the security documents on the collateral, other than our covenants to maintain our existence and to make payments on the bonds out of the trusts described below (a "Covenant Defeasance"). Each of the Legal Defeasance or the Covenant Defeasance may be exercised only if: . we have irrevocably deposited or caused to be deposited in trust with the trustee cash, non-callable United States government obligations or a combination thereof in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent accountants, to pay the principal of and interest on the bonds when due; . we have delivered to the trustee an opinion of counsel to the effect that as of the date of such opinion, (1) the trust funds will not be subject to the rights of holders of Indebtedness other than the bonds; (2) subject to certain assumptions and exceptions, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar law affecting creditors' rights generally; and (3) the holders of the bonds shall have a perfected security interest under applicable law in the obligations so deposited; . no default or event of default has occurred and is continuing on the date of, or will result from, such deposit (other than from the incurrence of Indebtedness the proceeds of which will be used to defease); . such Legal Defeasance or Covenant Defeasance does not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which we are a party or by which we are bound; . in the case of a Legal Defeasance, we have delivered to the trustee an opinion of counsel confirming that (a) we have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; . in the case of a Covenant Defeasance, we have delivered to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the bonds will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; and . we have delivered to the trustee an officer's certificate and opinion of counsel, each stating that all conditions precedent which relate to either the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with. Deposit and Disbursement Agreement General We have entered into the Deposit and Disbursement Agreement with the collateral agent, the administrative agent and the intercreditor agent. We may cause the holders of any Indebtedness (along with any 110 agent acting on their behalf) for optional modifications and/or required modifications to become a party to the deposit and disbursement agreement. The deposit and disbursement agreement sets forth, among other things, the terms upon which our operating revenues and other amounts received by or on behalf of us are disbursed to pay operation and maintenance costs, debt service and other amounts due from us. Deposit and Disbursement of Funds We will deposit all of our operating revenues into the revenue account and the administrative agent will disburse these revenues on the last day of each calendar month (except as indicated below) in the following order of priority: . First, to the O&M account in an amount sufficient to pay all O&M Costs (including, without duplication, the repayment of any draws in respect of such costs under a permitted working capital facility) due and payable on the disbursement date or reasonably expected to be due and payable within the next month; . Second, on the final day of any quarter beginning in the year 2006 until such time that we have made the final payment with respect to certain sales tax obligations, to the sales tax reserve account, in an amount equal to the Sales Tax Reserve Requirement; . Third, to the debt service payment account in an amount equal to 1/6 of all principal, interest and other amounts which will be due and payable on the outstanding bonds and any other Senior Secured Obligations (other than principal on debt service reserve letter of credit loans, but including, without limitation, principal on debt service reserve letter of credit bonds) on the next succeeding scheduled bond payment date together with the appropriate portion of any Senior Secured Obligations which are due and payable more frequently than on a semi-annual basis; . Fourth, to the debt service reserve letter of credit loan principal account, in an amount (together with the amounts then on deposit therein) equal to the appropriate portion of principal of debt service reserve letter of credit loans calculated based on the amortization schedule for such loans; . Fifth, to the debt service reserve account in an amount which, together with all amounts on deposit therein or credited thereto, is equal to the then current debt service reserve requirement. See "--Debt Service Reserve Account"; . Sixth, to the major maintenance reserve account in an amount that is equal to 1/6 of the difference between (i) the scheduled major maintenance reserve required balance (as may be adjusted annually in consultation with the independent engineer) as of the next bond payment date and (ii) amounts already on deposit in or credited to the major maintenance reserve account as of the immediately preceding bond payment date; . Seventh, beginning in December 2012 and ending in December 2023, to the PSA contingency reserve account in an amount that equals the then current PSA Contingency Reserve Requirement; and . Eighth, to the distribution suspense account in an amount equal to all monies left over in the revenue account after application of priority First through priority Seventh. If the distribution conditions set forth in the indenture are satisfied on any scheduled bond payment date, funds in the distribution suspense account may be transferred to the distribution account for distribution to us. O&M Account Amounts on deposit in the O&M account will be available to us to pay O&M Costs which are due and payable at the time of withdrawal, or are reasonably expected to be due and payable within the next 30 days, other than the major maintenance expenditures funded through the major maintenance reserve account. The administrative agent will disburse amounts from the O&M account upon delivery by us of an officer's 111 certificate specifying the amount to be disbursed and the name of, and wire transfer or other payment instructions for, each person to whom such amounts should be paid. Funds may be disbursed from the O&M account more often than monthly if necessary to pay O&M Costs which are due and payable on the date of disbursement. Sales Tax Reserve Account Beginning on March 31, 2006 and on the last day of each quarter thereafter until such time that the final payment with respect to certain sales tax obligations is due and payable, we will be required to transfer the Sales Tax Reserve Requirement to the sales tax reserve account. We refer to the date on which final payment is due under the sales tax sharing agreements as the final sales tax payment date. We will not be entitled to withdraw any amounts from the sales tax reserve account until the final sales tax payment date, at which time amounts on deposit therein will be withdrawn to pay all amounts due under the sales tax sharing agreements. Any amounts remaining on deposit in the sales tax reserve account after the final payment has been made or after we have received an opinion of counsel that no further payments will be due in respect thereof due to a change in law or otherwise will be transferred in accordance with the operating flow of funds described above under the caption "--Deposit and Disbursement of Funds." Debt Service Payment Account Amounts on deposit in the debt service payment account will be used to pay the principal of, premium (if any), interest, fees, indemnities and other amounts due or becoming due in respect of the bonds and the other Senior Secured Obligations (other than principal on debt service reserve letter of credit loans, but including, without limitation, principal on debt service reserve letter of credit bonds) on any date when such principal, premium, interest or other amounts are due. Debt Service Reserve Letter of Credit Loan Principal Account Amounts on deposit in the debt service reserve letter of credit loan principal account will be used to pay the principal due or becoming due with respect to any debt service reserve letter of credit loans on the date when such principal is due. Debt Service Reserve Account On any monthly funding date occurring: (1) after January 1, 2013 on which: . we are party to Permitted PPAs covering, in the aggregate, 75% or more of the Facility's capacity for the consecutive period of four full quarters following such date; and either: . we have provided a guaranty from an entity that is rated at least "BBB" by S&P and "Baa2" by Moody's that will guarantee the difference between the amount of the 12-month debt service reserve requirement and the amount of the 6-month debt service reserve requirement; or . each of S&P and Moody's confirms that the failure to provide such a guaranty will not result in a downgrade of the then current rating of the bonds; or (2) on or before December 31, 2012, we will be required to maintain an amount on deposit in or credited to the debt service reserve account from time to time equal to the principal and interest payments due, in the aggregate, in respect of the Senior Secured Obligations on the next succeeding scheduled bond payment date. We refer to this amount as the 6-month debt service reserve requirement. 112 On any other monthly funding date, we will be required to maintain an amount on deposit in or credited to the debt service reserve account equal to the principal and interest payments due, in the aggregate, in respect of the Senior Secured Obligations on the next two succeeding scheduled bond payment dates. Amounts on deposit in or credited to the debt service reserve account will be used to pay the principal of and interest on the Senior Secured Obligations and any other amounts payable to the Secured Parties under the financing documents at any time when amounts on deposit in or credited to the debt service payment account are insufficient to make such payments. Major Maintenance Reserve Account The major maintenance reserve required balance for each 6-month period during the term of the bonds will be set forth on a schedule to the deposit and disbursement agreement, which schedule is subject to annual adjustment in consultation with the independent engineer. The major maintenance reserve required balance was $3,800,000 as of January 5, 2002. At any time that the major maintenance reserve required balance is adjusted, we are required to deliver a certificate countersigned by the independent engineer to the trustee and the collateral agent certifying that the adjusted amount is reasonably expected to be sufficient to fund scheduled major maintenance of the Facility on a timely basis. Amounts on deposit in or credited to the major maintenance reserve account will be used to pay the costs of major maintenance activities associated with the Facility. PSA Contingency Reserve Account Beginning in December 2012 and ending in December 2023, we will be required to maintain an amount on deposit in or credited to the PSA contingency reserve account in an amount equal to the then current PSA Contingency Reserve Requirement. If, on any monthly funding date immediately preceding a bond payment date, amounts on deposit in the debt service payment account and the debt service reserve account, together with any amounts transferred into such accounts from the revenue account, are insufficient to pay amounts due on the Senior Secured Obligations on the bond payment date, funds will be transferred from the PSA contingency reserve account to make up the shortfall. Subject to the requirements set forth below, if on any monthly funding date immediately preceding any bond payment date, the monies on deposit in or credited to the PSA contingency reserve account exceed the then current PSA Contingency Reserve Requirement, an amount equal to this excess, which we refer to as the PSA reserve excess, will be transferred to the distribution suspense account. Before a transfer to the distribution suspense account may be made, however, transfers will be made from the PSA contingency reserve account, first, to the debt service reserve account and, second, to the major maintenance reserve account to the extent either account is less than fully funded after transfers to it from the revenue account on such date. In addition, on any such date, which we refer to as a PSA funding reduction date, that the PSA Contingency Reserve Amount is reduced from the Maximum PSA Contingency Amount to $0 because we have satisfied the test set forth in clause (i)(b) of the definition of PSA Contingency Reserve Amount (which is set forth in Annex A), then we will be required to maintain the following amounts (at the relevant times) on deposit in the PSA contingency reserve account (notwithstanding the reduction in the PSA Contingency Reserve Amount): . from the PSA funding reduction date until the first anniversary of the PSA funding reduction date, 50% of the amount on deposit in or credited to the PSA contingency reserve account immediately before the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency Amount to $0; . from the first anniversary of the PSA funding reduction date until the second anniversary of the PSA funding reduction date, 25% of the amount on deposit in or credited to the PSA contingency reserve account immediately before the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency Amount to $0; 113 . from the second anniversary of the PSA funding reduction date until the third anniversary of the PSA funding reduction date, 12.5% of the amount on deposit in or credited to the PSA contingency reserve account immediately before the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency amount to $0; and . from the third anniversary of the PSA funding reduction date until the fourth anniversary of the PSA funding reduction date, 6.25% of the amount on deposit in or credited to the PSA contingency reserve account immediately before the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency Amount to $0; unless, on any such funding date, we have satisfied the tests set forth in clauses (i)(a), (ii), (iii) or (iv) of the definition of PSA Contingency Reserve Amount (set forth in Annex A), in which case, the applicable remaining amount of the PSA reserve excess will be transferred to the distribution suspense account. Reserve Account Letters of Credit and Guaranties Instead of depositing some or all cash to maintain the sales tax reserve requirement, the debt service reserve requirement, the PSA Contingency Reserve Requirement and/or the major maintenance reserve requirement, we may: . provide or cause to be provided one or more irrevocable direct pay letters of credit issued by a bank or other financial institution rated at least "A" by S&P and at least "A2" by Moody's and naming the collateral agent as beneficiary; provided that, with respect to the sales tax reserve, major maintenance reserve and PSA contingency reserve letters of credit, we will not be permitted to be named as the account party; or . provide one or more several guaranties issued by entities that are each rated at least "BBB" by S&P and "Baa2" by Moody's. If we replace existing cash reserves with a letter of credit or guaranty, we may withdraw the funds in the applicable account. In order for us to be the account party on a DSR letter of credit, at the time the debt service reserve letter of credit is issued, each of S&P and Moody's must confirm that there will be no downgrade in the then current ratings on the bonds as a result of indebtedness incurred in respect of the debt service reserve letter of credit or the underlying letter of credit agreement. We initially plan to provide several guaranties issued by Dominion Resources, Inc. and Peoples Energy Corporation instead of depositing cash to maintain the debt service reserve requirement. Dominion Resources, Inc. is rated BBB+ by S&P and Baa1 by Moody's. Peoples Energy Corporation is rated A+ by S&P and A2 by Moody's. For additional information concerning Dominion Resources, Inc. and Peoples Energy Corporation, see "Where You Can Find Information." Distribution Suspense Account The distribution suspense account will be funded with amounts remaining in the revenue account after all other required disbursements have been made as described above under "--Deposit and Disbursement of Funds." On any scheduled bond payment date on which each of the conditions set forth under the caption "Indenture--Certain Covenants--Distributions" are satisfied, the amounts on deposit in the distribution suspense account will be transferred to the distribution account for distribution to or as directed by us. Permitted Investments Funds in the accounts will be invested and reinvested in Permitted Investments at our written direction (which may be in the form of a standing instruction). However, if an event of default exists or we have not 114 timely furnished such a written direction or confirmed a standing instruction to the administrative agent, the administrative agent will invest such amounts only in certain Permitted Investments with a maturity of one year or less. Any written direction from us with respect to the investment or reinvestment of amounts held in any account must direct investment or reinvestment only in Permitted Investments that mature in such amounts and have maturity dates or are subject to redemption at the option of the holder thereof on or before maturity as needed for the purposes of such accounts. No Permitted Investments will mature more than one year after the date acquired. Any income or gain realized from such investments will be deposited into the Revenue Account. Debt Service Reserve Letter of Credit Agreement Each drawing under any debt service reserve letter of credit in which we are the account party will be converted into a loan that will mature not less than five years after the drawing giving rise to the loan, which we refer to as a debt service reserve letter of credit loan. Any such loan that is outstanding five years after the Closing Date may be converted into a substitute loan (which we call a debt service reserve letter of credit bond) that will amortize, will mature on the maturity date of the bonds, will bear interest at a rate to be negotiated between the issuer of the debt service reserve letter of credit and us, and will rank equally in right of payment with the bonds. Both the debt service reserve letter of credit loans and the debt service reserve letter of credit bonds will share equally and ratably in the collateral with the bonds. Collateral Agency Agreement We have entered into a collateral agency agreement with the trustee, the collateral agent and the administrative agent. We may cause the holders of any Indebtedness (along with any agent acting on their behalf) to become parties to the collateral agency agreement for optional modifications and required modifications. Under the collateral agency agreement, the Secured Parties (or their representatives party thereto) have appointed the collateral agent to hold and administer the collateral and to enter into and exercise remedies under the security documents on behalf of the Secured Parties. The collateral agent will apply the proceeds of any collection, sale or other realization of all or any part of the collateral under the security documents as follows: . first, to the payment of all reasonable costs and expenses relating to the sale of the collateral and the collection of amounts owing under the collateral agency agreement or relating to the protection of the liens of the security documents, and all liabilities covered by the indemnity provisions of the financing documents; . second, to the payment of accrued and unpaid interest on interest that became overdue on the Senior Secured Obligations, ratably, in an amount necessary to make the Secured Parties current on interest on overdue interest to the same proportionate extent as the other Secured Parties are then current on interest on overdue interest due; . third, to the payment of accrued and unpaid interest on principal of the Senior Secured Obligations that became overdue, ratably, in an amount necessary to make the Secured Parties current on interest on overdue principal due to the same proportionate extent as the other Secured Parties are then current on interest on overdue principal due; . fourth, to the payment of any accrued but unpaid commitment fees or other fees; . fifth, to the payment of the remaining Senior Secured Obligations outstanding; and . finally, to us, or our successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. 115 Intercreditor Agreement Each of the Secured Parties (or a representative for them) will enter into the intercreditor agreement upon the incurrence of the Indebtedness held by such Secured Party. Under the intercreditor agreement: . the affirmative vote of persons holding at least 33 1/3% of the Senior Secured Obligations will be required to exercise remedies upon the occurrence of a event of default relating to payment; . the affirmative vote of persons holding greater than 50% of the Senior Secured Obligations will be required to exercise remedies upon the occurrence of any other event of default; . the affirmative vote of persons holding greater than 50% of the Senior Secured Obligations will be required to amend documents and grant consents and approvals (other than with respect to certain fundamental decisions); and . the affirmative vote of persons holding 100% of the Senior Secured Obligations will be required to amend documents and grant consents and approvals with respect to certain fundamental decisions, including without limitation amendments, consents and approvals resulting in the release of collateral. 116 FEDERAL INCOME TAX CONSIDERATIONS This discussion of certain United States federal income tax considerations applies to you if you are the beneficial owner of bonds and if you acquire the bonds (or existing bonds which are exchanged for new bonds) for cash and hold the bonds as a "capital asset," generally, for investment, under Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This discussion does not, however, address any federal estate, gift or alternative minimum taxes or state, local or foreign tax laws. In addition, it does not address all of the rules which may affect the United States tax treatment of your investment in the bonds. For example, special rules not discussed here may apply to you if you are: . a partnership; . a broker-dealer, a dealer in securities or currencies, or a financial institution; . an S corporation; . an insurance company; . a regulated investment company; . a tax-exempt organization; . subject to the alternative minimum tax provisions of the Code; . holding the bonds in a tax-deferred or tax-advantaged account, as part of a hedge or conversion transaction for tax purposes, a straddle or other risk reduction or constructive sale transaction; . a shareholder in, or partner or beneficiary of, an entity that is holding the bonds; . not using the U.S. dollar as your functional currency; or . a nonresident alien or foreign corporation subject to United States federal income tax on a net-basis with respect to income or gain derived from a bond because such income or gain is effectively connected with the conduct of a United States trade or business. This discussion only describes certain federal income tax consequences that may apply to you based on current United States federal tax law, including the Code, Treasury regulations and administrative and judicial interpretations thereof, any of which may change, possibly retroactively, and which may be subject to differing interpretations. This summary may not cover your particular circumstances because it does not consider foreign, state or local tax laws, may not address certain federal tax considerations relevant to your particular circumstances or status, and does not describe future changes in federal tax laws. Please consult your own tax advisor with respect to the tax consequences of purchasing, owing and disposing of the bonds in light of your own particular circumstances rather than relying on this general description. United States Holders If you are a "United States Holder," as defined below, this section applies to you. Otherwise, the next section, "Non-United States Holders," applies to you. Definition of United States Holder. You are a "United States Holder" if you hold the bonds and you are: . a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the "substantial presence" test under Section 7701(b) of the Code; . a corporation (or other entity treated as a corporation for United States federal income tax purposes) that is created or organized in the United States or under the laws of the United States or of any political subdivision of the United States; 117 . an estate, the income of which is subject to United States federal income tax regardless of its source; or . a trust, if a United States court can exercise primary supervision over the administration of the trust and one or more United States persons can control all substantial decisions of the trust, or if the trust was in existence on August 20, 1996 and has elected to continue to be treated as a United States person. Exchange of Existing Bonds The exchange of existing bonds for new bonds in the exchange offer should not be a taxable disposition of the existing bonds, and there should be no federal income tax consequences to holders upon the exchange. Any holder should have the same tax basis and holding period in the new bonds that the holder had in existing bonds immediately before the exchange. Taxation of Stated Interest. You must generally pay federal income tax on the interest on the bonds: . when it accrues, if you use the accrual method of accounting for United States federal income tax purposes; or . when you receive it, if you use the cash method of accounting for United States federal income tax purposes. Sale or Other Taxable Disposition of the Bonds. You must recognize taxable gain or loss on the sale, exchange (other than the exchange of existing bonds for new bonds in the exchange offer), redemption, retirement or other taxable disposition of a bond. The amount of your gain or loss equals the difference between the amount you receive for the bond (in cash or other property, valued at fair market value), less the amount attributable to accrued interest on the bond, minus your adjusted tax basis in the bond. Your initial tax basis in a bond equals the price you paid for the bond. Your gain or loss will generally be a long-term capital gain or loss if you have held the bond for more than one year. Otherwise, it will be a short-term capital gain or loss. Payments attributable to accrued interest which you have not yet included in income will be taxed as ordinary interest income. Mandatory Redemption Payments. For purposes of determining whether a bond is a contingent payment debt instrument, remote or incidental contingencies are ignored. Although it is possible that the Internal Revenue Service could assert that mandatory redemption payments above par value of the bonds are "contingent payments," we believe that the likelihood of any such mandatory redemption is remote and, accordingly, do not intend to treat the bonds as contingent payment debt instruments. You should, therefore, include any such payment as ordinary income if it is accrued or paid, in accordance with your own method of accounting. If, however, such payments are considered "contingent payments" for United States federal income tax purposes, the bonds would be treated as contingent payment debt instruments and certain adverse United States federal income tax consequences could result. Backup Withholding and Information Reporting. You may be subject to a backup withholding tax and to information reporting when you receive interest payments on the bonds or proceeds upon the sale or other taxable disposition of a bond. Certain holders (including, among others, corporations and certain tax-exempt organizations) are generally not subject to backup withholding. In addition, the backup withholding tax will not apply to you if you provide your taxpayer identification number ("TIN") in the prescribed manner unless: . the IRS notifies us or our agent that the TIN you provided is incorrect; . you fail to report interest and dividend payments that you receive on your tax return and the IRS notifies us or our agent that withholding is required; or . you fail to certify under penalties of perjury that you are not subject to backup withholding. If the backup withholding tax does apply to you, you may use the amounts withheld as a refund or credit against your United States federal income tax liability as long as you provide certain information to the IRS. 118 Non-United States Holders Definition of Non-United States Holder. A "Non-United States Holder" is any person other than a United States Holder. Please note that if you are subject to United States federal income tax on a net basis on income or gain with respect to a bond because such income or gain is effectively connected with the conduct of a United States trade or business, this disclosure does not cover the United States federal tax rules that apply to you. Portfolio Interest Exemption. You will generally not have to pay United States federal income tax on interest paid on the bonds because of the "portfolio interest exemption" if either: . you represent that you are not a United States person for United States federal income tax purposes and you provide your name and address to us or our paying agent on a properly executed IRS Form W-8 BEN (or a suitable substitute form) signed under penalties of perjury; or . a securities clearing organization, bank, or other financial institution that holds customers' securities in the ordinary course of its business holds the bond on your behalf, certifies to us or our agent under penalties of perjury that it has received IRS Form W-8 BEN (or a suitable substitute) from you or from another qualifying financial institution intermediary, and provides a copy to us or our agent. However, you will not qualify for the portfolio interest exemption described above if: . you own, actually or constructively, 10% or more of the total combined voting power of all classes of our capital stock; . you are a controlled foreign corporation with respect to which we are a "related person" within the meaning of section 864(d)(4) of the Code; . you are a bank receiving interest described in section 881(c)(3)(A) of the Code; or . you do not meet the certification requirements under Code section 871(h) or 881(c) and related Treasury regulations. Withholding Tax if the Interest is not Portfolio Interest. If you do not claim, or do not qualify for, the benefit of the portfolio interest exemption, you may be subject to a 30% withholding tax on interest payments made on the bonds. However, you may be able to claim the benefit of a reduced withholding tax rate under an applicable income tax treaty. The required information for claiming treaty benefits is generally submitted, under current regulations, on IRS Form W-8 BEN. Sale or Other Disposition of the Bonds. You will generally not be subject to United States federal income tax or withholding tax on gain recognized on a sale, exchange, redemption, retirement, or other disposition of a bond. You may, however, be subject to tax on such gain if: . you are an individual who was present in the United States for 183 days or more in the taxable year of the disposition, in which case you may have to pay a United States federal income tax of 30% (or a reduced treaty rate) on such gain; or . you are an individual who is a former citizen or resident of the United States, your loss of citizenship or residency occurred within the last ten years (and, if you are a former resident, on or after February 6, 1995), and it had as one of its principal purposes the avoidance of United States tax, in which case you may be taxed on the net gain derived from the sale under the graduated United States federal income tax rates that are applicable to United States citizens and resident aliens, and you may be subject to withholding under certain circumstances. You generally will not be subject to withholding tax on payments of principal of the bonds. 119 Backup Withholding and Information Reporting. We may report annually to the Internal Revenue Service and to you the amount of interest paid to, and the tax withheld, if any, with respect to you. In addition, if a bond is held by a Non- United States Holder through a United States, or United States related, broker or financial institution, backup withholding may apply if the Non-United States Holder fails to provide evidence of Non-United States status. Non-United States Holders should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situations and the availability of, and procedure for obtaining, an exemption, if available. 120 PLAN OF DISTRIBUTION Based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the new bonds may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act provided that: . you acquire any new bond in the ordinary course of your business; . you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in the distribution of the new bonds; . you are not a broker-dealer who purchased existing bonds directly from us for resale under Rule 144A or any other available exemption under the Securities Act; and . you are not an "affiliate" (as defined in Rule 405 under the Securities Act) of our company. If our belief is inaccurate and you transfer any new bond without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your bonds from these requirements, you may incur liability under the Securities Act. We do not assume any liability or indemnify you against any liability under the Securities Act. Each broker-dealer that is issued new bonds for its own account in exchange for existing bonds must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the new bonds. A broker-dealer that acquired existing bonds for its own account as a result of market making or other trading activities may use this prospectus for an offer to resell, resale or other retransfer of the new bonds. We will not receive any proceeds from any sale of new bonds by broker- dealers. New bonds received by broker-dealers for their own account in this exchange offer may be sold from time to time in one or more transactions in the over the counter market, in negotiated transactions, through the writing of options on the new bonds or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new bonds. Any broker dealer that resells new bonds that were received by it for its own account in this exchange offer and any broker or dealer that participates in a distribution of such new bonds may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of new bonds and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the expiration date we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker dealer that requests such documents in the Letter of Transmittal. We have agreed to pay all expenses incident to this exchange offer (including the expenses of one counsel for the holders of the bonds) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the bonds (including any broker dealers) against certain liabilities, including liabilities under the Securities Act. 121 LEGAL MATTERS Certain legal matters with respect to the bonds offered hereby will be passed upon by McGuireWoods LLP, our counsel. EXPERTS The financial statements included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to a change in the method of accounting for derivatives and hedging transactions), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The financial statements and the related financial statement schedules incorporated in this prospectus by reference from Dominion Resources' Annual Report on Form 10-K for the year ended December 31, 2000 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are incorporated herein by reference (which express an unqualified opinion and include an explanatory paragraph relating to changes in accounting principle for the method of accounting used to develop the market-related value of pension plan assets, and for the method of accounting for oil and gas exploration and production activities to the full cost method), and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The financial statements of Peoples Energy Corporation incorporated in this prospectus by reference from Peoples Energy Corporation's Annual Report on Form 10-K as of and for the year ended September 30, 2001 have been audited by Arthur Andersen LLP, independent auditors, as stated in their report, which is incorporated herein by reference. INDEPENDENT ENGINEER Stone & Webster prepared the independent engineer's report included as Annex B to this prospectus. We include that report in this prospectus in reliance upon Stone & Webster's conclusions and their experience in the review of the design, development, construction and operation of electric generation facilities. You should read the Stone & Webster report in its entirety for information with respect to the Facility and the related subjects discussed therein. INDEPENDENT POWER MARKET AND FUEL CONSULTANT Pace Global Energy Services, LLC prepared the independent power market and fuel consultant's reports included as Annex C-1 and Annex C-2 to this prospectus. We include these reports in this prospectus in reliance upon Pace's conclusions and their experience in analyzing power markets and fuel supply and transportation arrangements for independent power projects. You should read the Pace reports in their entirety for information with respect to the MAIN power market and the availability of fuel supply and transportation arrangements to serve our Facility. 122 WHERE YOU CAN FIND MORE INFORMATION We are not currently subject to the periodic reporting and other information requirements of the Exchange Act. Upon completion of the exchange offer, we will become subject to those requirements. We have filed with the SEC a registration statement under the Securities Act registering the new bonds. This prospectus does not include all the information contained in the registration statement. For additional information about us, agreements to which we are a party and the new bonds, you may refer to the registration statement. Statements contained in this prospectus as to the contents of any contract or other document are necessarily not complete; in each instance, if the contract or other document is filed as an exhibit to the registration statement, reference is made to the copy so filed, and each statement in this prospectus is qualified by that reference. A copy of the registration statement, including exhibits and schedules, is available through the SEC's public reference rooms or may be accessed through its web site described below. Dominion Resources, Inc. and Peoples Energy Corporation file annual, quarterly and special reports and other information with the SEC. Their SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document they file at the SEC's public reference rooms in Washington, D.C., New York, and Chicago. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also read and copy these documents at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. We incorporate by reference the documents listed below and any future filings made with the SEC by Dominion Resources, Inc. and Peoples Energy Corporation under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until such time as the offering of securities covered by this prospectus has been completed: Dominion Resources, Inc. . Annual Report on Form 10-K for the year ended December 31, 2000. . Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001. . Current Reports on Form 8-K dated January 12, 2001, January 24, 2001, May 25, 2001, September 10, 2001, and November 14, 2001. Peoples Energy Corporation . Annual Report on Form 10-K, as amended, for the year ended September 30, 2001. . Current Reports on Form 8-K dated October 30, 2001 and November 15, 2001. You may request a copy of these filings, at no cost, by writing or calling Dominion Resources, Inc. or Peoples Energy Corporation, respectively, at the following addresses: Corporate Secretary Peoples Energy Corporation Dominion Resources, Inc. Attention: Shareholder Services 120 Tredegar Street 130 East Randolph Drive Richmond, Virginia 23219 Chicago, Illinois 60601 Telephone (804) 819-2000 Telephone (800) 228-6888
123 ELWOOD ENERGY LLC Financial Statements as of September 30, 2001 and 2000 and for the years ended September 30, 2001, 2000 and 1999 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Management Committee of Elwood Energy LLC Elwood, Illinois We have audited the accompanying consolidated balance sheets of Elwood Energy LLC and subsidiaries (the "Company") as of September 30, 2001 and 2000, and the related consolidated statements of operations, members' capital, and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 4 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivatives and hedging transactions. DELOITTE & TOUCHE LLP Richmond, VA November 30, 2001 F-1 ELWOOD ENERGY LLC (A Limited Liability Company) CONSOLIDATED BALANCE SHEETS
September 30, -------------------- 2001 2000 --------- --------- (In thousands) ASSETS Current assets: Cash and cash equivalents............................... $ 74 $ 8,553 Accounts receivable..................................... 33,841 9,039 Receivables from affiliated companies................... -- 106 Notes receivable from affiliate......................... 32,406 17,704 Prepaid assets.......................................... -- 60 Inventory--spare parts & other.......................... 244 244 Inventory--fuel......................................... -- 313 Other................................................... -- 1,269 --------- --------- Total current assets.................................. 66,565 37,288 Property, plant & equipment: Land.................................................... 3,791 3,765 Plant and equipment..................................... 537,475 187,701 Construction in progress................................ 178 133,477 Accumulated depreciation................................ (27,155) (11,318) --------- --------- Net property, plant & equipment....................... 514,289 313,625 Other assets.............................................. 544 -- --------- --------- Total assets.............................................. $ 581,398 $ 350,913 ========= ========= LIABILITIES AND MEMBERS' CAPITAL Current liabilities: Accounts payable........................................ $ 2,609 $ 4,374 Payables to affiliatated companies...................... 17,425 2,720 Notes payable to affliliates--current................... 275,843 -- Accrued expenses........................................ 21,886 1,637 Commodity contract liability............................ 18,900 -- Deferred sales tax liability--current................... 770 -- --------- --------- Total current liabilities............................. 337,433 8,731 Deferred sales tax liability--long term................... 14,437 -- Notes payable to affiliates--long-term.................... -- 130,126 Members' capital: Members' capital........................................ 248,428 212,056 Accumulated other comprehensive income.................. (18,900) -- --------- --------- Total members' capital................................ 229,528 212,056 --------- --------- Total liabilities and members' capital.................... $581,398 $350,913 ========= =========
The accompanying notes are an integral part of the financial statements. F-2 ELWOOD ENERGY LLC (A Limited Liability Company) CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, ------------------------- 2001 2000 1999 -------- ------- ------- (In thousands) Operating revenues: Electric sales...................................... $ 88,270 $56,849 $25,593 Gain on settlement of derivative.................... 8,197 -- -- -------- ------- ------- Total operating revenues............................ 96,467 56,849 25,593 Operating expenses: Fuel................................................ 23,779 16,045 4,439 Operations.......................................... 3,750 2,470 1,248 Depreciation........................................ 15,837 8,233 3,085 General and administrative.......................... 882 371 504 Other taxes......................................... 201 288 61 -------- ------- ------- Total operating expenses............................ 44,449 27,407 9,337 -------- ------- ------- Operating income ................................... 52,018 29,442 16,256 -------- ------- ------- Other income: Interest income..................................... 1,132 913 51 Interest expense.................................... (3,937) -- -- Other income/(expenses)............................. 1 1 721 -------- ------- ------- Total other income.................................. (2,804) 914 772 -------- ------- ------- Income before cumulative effect of a change in accounting principle............................... $ 49,214 $30,356 $17,028 -------- ------- ------- Cumulative effect of a change in accounting principle.......................................... 158 -- -- -------- ------- ------- Net income.......................................... $ 49,372 $30,356 $17,028 -------- ------- ------- Other comprehensive income: Unrealized loss on interest rate swap............... (18,900) -- -- -------- ------- ------- Comprehensive income................................ $ 30,472 $30,356 $17,028 -------- ------- -------
The accompanying notes are an integral part of the financial statements. F-3 ELWOOD ENERGY LLC (A Limited Liability Company) CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
Dominion Peoples Elwood, Elwood Total Inc. LLC -------- -------- -------- (In thousands) Balance--October 1, 1998.......................... $ 28,347 $ 13,059 $ 15,288 Capital contributions............................. 146,325 74,277 72,048 Net income........................................ 17,028 8,514 8,514 -------- -------- -------- Balance--September 30, 1999....................... $191,700 $ 95,850 $ 95,850 -------- -------- -------- Capital contributions............................. -- -- -- Dividends......................................... (10,000) (5,000) (5,000) Net income........................................ 30,356 15,178 15,178 -------- -------- -------- Balance--September 30, 2000....................... $212,056 $106,028 $106,028 -------- -------- -------- Capital contributions............................. 20,000 8,000 12,000 Dividends......................................... (33,000) (16,500) (16,500) Comprehensive Income: Net income........................................ 49,372 24,723 24,649 Unrealized loss on interest rate swap............. (18,900) (9,450) (9,450) -------- -------- -------- Balance--September 30, 2001....................... $229,528 $112,801 $116,727 -------- -------- --------
The accompanying notes are an integral part of the financial statements. F-4 ELWOOD ENERGY LLC (A Limited Liability Company) CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Cash flows from operating activities: Net income................................ $ 49,372 $ 30,356 $ 17,028 Adjustments to reconcile net income to cash: Depreciation............................ 15,837 8,233 3,085 Changes in current assets and liabilities: Accounts receivable..................... (24,802) 14,753 (23,898) Receivables from affiliated companies... 106 -- -- Prepaid assets.......................... 60 60 (120) Inventory--spare parts & other.......... -- (72) (172) Inventory--fuel......................... 313 615 (928) Other current assets.................... 1,269 (1,269) -- Other assets............................ (544) -- -- Accounts payable........................ (1,765) 2,240 3,290 Payables to affilitated companies....... 14,705 2,720 -- Construction payable.................... -- (25,008) 25,008 Accrued expenses........................ 20,249 (474) 893 Deferred sales tax liability............ 15,207 -- -- ---------- ---------- ---------- Net cash flows from operating activities.. $ 90,007 $ 32,154 $ 24,186 ---------- ---------- ---------- Cash flows (used in) from financing activities: Capital contributions................... 20,000 -- 146,325 Dividends paid.......................... (33,000) (10,000) -- Cash borrowed on notes payable.......... 145,717 130,126 -- ---------- ---------- ---------- Net cash flows (used in) from financing activities............................... $ 132,717 $ 120,126 $ 146,325 ---------- ---------- ---------- Cash flows used in investing activities: Capital expenditures.................... (216,500) (133,745) (173,032) Proceeds from sale of fixed assets...... -- -- 7,923 Cash (loaned)/repaid on notes receivable............................. (14,702) (17,704) 2,300 ---------- ---------- ---------- Net cash flows used in investing activi- ties..................................... $ (231,203) $ (151,449) $ (162,809) ---------- ---------- ---------- Net (decrease) increase in cash........... (8,479) 831 7,702 Cash and cash equivalents at beginning of year..................................... $ 8,553 7,722 20 ---------- ---------- ---------- Cash and cash equivalents at end of year.. $ 74 $ 8,553 $ 7,722 ---------- ---------- ----------
The accompanying notes are an integral part of the financial statements. F-5 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations Elwood Energy LLC (the "Company"), a Delaware limited liability company, was organized on May 13, 1998. Its Members are Dominion Elwood, Inc., a wholly owned subsidiary of Dominion Energy Inc. ("DEI"), and Peoples Elwood LLC, an indirect, wholly-owned subsidiary of Peoples Energy Resource Corp. ("PERC"). Pursuant to an Operating Agreement dated July 23, 1998, Dominion Elwood and Peoples Elwood became sole members of the Company. Each Member owns a 50% interest in the profits, losses and distributions made by the Company. In August 2001, the Company merged with Elwood Energy II, LLC and Elwood Energy III, LLC, with the Company as the surviving entity. Until August 2001, the Company owned only Units 1-4; however, as a result of the merger, Units 5-9 were added. See Note 6 to the Consolidated Financial Statements. During the year ended September 30, 2001, Peoples Elwood LLC contributed $4 million more than Dominion Elwood, Inc. for the purchase of the Unit 9 plant assets. Therefore, at September 30, 2001, there were unequal capital contributions between the two Members. It was agreed that preferential treatment would be given to the $4 million excess contribution, such that upon any dissolution, Peoples Elwood LLC would receive the entire remaining book value (if any) of the plant assets or the first $4 million from any proceeds upon a sale of Unit 9. In November of 2001, Dominion Elwood, Inc. increased its capital contributions by $4 million (related to the settlement of GE turbine purchases) thereby equaling the Members' contributions. Thereafter, capital distributions, income and dividends will be distributed 50% to each member. The permitted purposes of the Company are: (i) to own and develop 1,409 MW of simple cycle electric power generating peaking facilities and thereafter up to 2,500 MW of additional combined cycle and simple cycle electric power generating facilities located near Elwood, Illinois; (ii) to purchase and sell fuel, electricity and capacity, and to operate and manage the facility and (iii) to engage in any other activities permitted by law. The Company is managed by a Management Committee which has the full, exclusive and complete authority to manage, direct and control the business and affairs of the Company. The Management Committee consists of two managers, one appointed by each Member. Unanimous approval of the managers is required for the Management Committee to act and each manager has the number of votes equal to its Member's percentage interest. If the Members reach a material deadlock, and the senior executives of DEI and PERC are not able to resolve the dispute, then either party can offer to sell its interest in the Company to the other Member at a stated price in accordance with the provisions of the Operating Agreement. The Company was granted exempt wholesale generator ("EWG") status by the Federal Energy Regulatory Commission ("FERC") pursuant to the Public Utility Holding Company Act of 1935 ("PUHCA") on March 5, 1999. The Company is therefore not considered to be an electric utility for purposes of PUHCA and accordingly ownership of an interest in an EWG does not subject the owners to regulation as a utility holding company. The Federal Power Act ("FPA") gives FERC exclusive rate-making jurisdiction over virtually all wholesale sales of electricity and the transmission of electricity in interstate commerce. Pursuant to the FPA, all public utilities subject to the FERC's jurisdiction are required to file rate schedules with the FERC prior to commencement of wholesale sales of electricity. Because it will be making wholesale sales of electricity to Exelon Generation Compay, LLC ("Exelon"), Engage America LLC ("Engage"), Aquila Energy Marketing Corporation ("Aquila") and ultimately to others, the Company is a public utility for purposes of the FPA. On February 3, 1999, the Company filed a proposed market-based rate schedule with the FERC. On April 5, 1999, FERC issued an order accepting the Company's proposed rate schedule, thereby authorizing the F-6 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Company to make wholesale sales of electricity at negotiated rates to any party other than Virginia Power, the electric utility affiliate of DEI. The Company was allowed to begin making sales under the rate schedule as of April 5, 1999, the effective date of FERC's order. The Company is primarily a peaking facility, providing more energy when demand is highest, generally in the summer months. The Company has contracted to sell 100% of the generation capacity and electric energy output to Exelon, Engage and Aquila under power sales agreements with each of them. The Company's primary fuel is natural gas. Its fuel requirements are served through three types of contracted services (i) Gas Transportation and Balancing Services Agreement with NICOR; (ii) physical fuel supply with various market participants and (iii) the Fuel Management Services Agreement with Cinergy Marketing & Trading, LLC. As of September 30, 2001 there are no purchase commitments outstanding for commodity purchases of natural gas. 2. Summary of Significant Accounting Policies Cash Cash consists of amounts on deposit net of outstanding checks and deposits in transit. Cash equivalents include broker margin accounts. Inventory Spare parts and fuel inventory are valued at the lower of cost or market, with cost based on the average valuation method. Property, Plant & Equipment Property, plant and equipment is recorded at cost. The costs of major additions and improvements are capitalized. Replacements, maintenance and repairs which do not improve or extend the life of the respective assets are expensed in the period incurred. Depreciation on the facility is computed using the straight-line method. Estimated service lives of principal items of property and equipment range from 5 to 30 years. Whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, an evaluation for impairment is performed. Such evaluations may consider various analyses, including undiscounted future cash flows attributable to the assets. Capitalized Interest Interest is capitalized in connection with the construction of major units. The capitalized interest is recorded as part of the asset and is depreciated over the assets' estimated useful life. Interest costs of $8,987,000 and $2,559,000 were capitalized for the years ended September 30, 2001 and 2000, respectively. Income Taxes Income or loss of the Company for income tax purposes is includable in the tax returns of the Members. Accordingly, no provision for income taxes has been made in the accompanying financial statements. Revenue Recognition Generation revenue is recognized when electricity is delivered. The Company records capacity revenues based on estimated operating hours of the plant, in accordance with Emerging Issues Task Force (EITF) Issue No. 91-6, Revenue Recognition of Long-Term Power Sales Contracts. F-7 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Derivatives Under Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, derivatives are recognized on the Consolidated Balance Sheets at fair value, unless a scope exception is available under the standard. Commodity contracts representing unrealized gain positions are reported as commodity contract assets; commodity contracts representing unrealized losses are reported as commodity contract liabilities. In addition, purchased options and options sold are reported as commodity contract assets and commodity contract liabilities, respectively, at estimated market value until exercise or expiration. Cash flows from derivative instruments are presented in net cash flow from operating activities. On the date swaps or option contracts are entered into, the Company either designates the derivative as held for trading (trading instruments); as a hedge of a forecasted transaction or future cash flows (cash flow hedges); as a hedge of a recognized asset, liability, or firm commitment (fair value hedge); as a normal purchase or sale contract; or leaves the derivative undesignated for contracts not afforded special hedge accounting. For all derivatives designated as hedges, the Company formally documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for the use of the hedging instrument. The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the hedge relationship between the derivative and the hedged item is highly effective in offsetting changes in cash flows. Any change in fair value of the derivative resulting from ineffectiveness, as defined by SFAS No. 133, is recognized currently in earnings. Further, for derivatives that have ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. For cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a variable-priced asset, liability, commitment, or forecasted transaction, changes in the fair value of the derivative are reported in accumulated other comprehensive income (AOCI). The gains and losses on the derivatives that are reported in AOCI are reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The ineffective portion of the change in fair value of derivatives and the change in fair value of derivatives not designated as hedges for accounting purposes are recognized in current-period earnings. For options designated as cash flow hedges, changes in time value are excluded from the measurement of hedge effectiveness and are, therefore, recorded in earnings. Gains and losses on derivatives designated as hedges, when recognized, are included in the operating revenue and income, expenses and interest and related charges in the Consolidated Statements of Income. Specific line item classification is determined based on the nature of the risk underlying individual hedge strategies. F-8 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Prior to the adoption of SFAS No. 133, on October 1, 2000, gains and losses from the Company's natural gas options, collars and swaps were recognized in the financial statements as an addition or a reduction to the cost of fuel expense. Gains of $4 million and $0 were recognized as a reduction to fuel expense for the years ended September 30, 2000 and 1999, respectively. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) Nos. 141, Business Combinations, and 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, thus eliminating the use of the "pooling" method of accounting. Under SFAS No. 142, goodwill is no longer subject to amortization; instead it will be subject to new impairment testing criteria. Other intangible assets will continue to be amortized over their estimated useful lives, although those with indefinite lives are not to be amortized but will be tested at least annually for impairment. The new standards also provide new guidance regarding the identification and recognition of intangible assets, other than goodwill, acquired as part of a business combination. The Company will adopt these standards effective January 1, 2002. At September 30, 2001, the Company had no material goodwill or other intangible assets, obtained in business combinations, on its books. In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which provides accounting requirements for the recognition and measurement of liabilities for obligations associated with the retirement of tangible long-lived assets. Under the standard, these liabilities will be recognized at fair value as incurred and capitalized as part of the cost of the related tangible long-lived assets. Accretion of the liabilities due to the passage of time will be expensed. The Company will adopt this standard effective January 1, 2003. The Company has not performed a complete assessment of possible retirement obligations associated with long-lived assets and has not yet determined the impact of adopting this new standard. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which provides guidance that will eliminate inconsistencies in accounting for the impairment or disposal of long-lived assets under existing accounting pronouncements. The Company will apply the provisions of this standard prospectively beginning January 1, 2002 and does not expect the adoption to have a material impact on its results of operations or financial condition. Reclassification Certain amounts in the 2000 and 1999 Consolidated Financial Statements have been reclassified to conform to the 2001 presentation. 3. Related Parties During 2001, 2000 and 1999 the Company incurred costs of $1,501,000, $1,040,000 and $422,000, respectively, under the Operation and Maintenance Agreement with Dominion Elwood Services Company, Inc. At September 30, 2001 and 2000, $1,362,000 and $406,000, respectively, was included in payables to affiliated companies related to these costs. Dominion Elwood Services Company is a wholly owned subsidiary of DEI. During 2001, 2000 and 1999 the Company incurred costs of $572,000, $235,000 and $237,000, respectively, for general management services from DEI under the provisions of Article IV of the Operating Agreement between Peoples Elwood and Dominion Elwood. At September 30, 2001 and 2000, $677,000 and $162,000, respectively, was included in payables to affiliated companies related to these costs. F-9 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) During 2001, 2000 and 1999 the Company incurred costs of $435,000, $203,000 and $384,000, respectively, for reimbursement of legal and other expenses provided through PERC. At September 30, 2001 and 2000, $26,000 and $10,000, respectively, was included in payables to affiliated companies related to these costs. The Company made advances to DEI during 2001 and 2000. At September 30, 2001 and 2000 advances were $14,702,000 and $17,704,000, respectively. The related accrued interest receivables at September 30, 2001 and 2000 were $97,000 and $105,000, respectively. In connection with the construction of Units 5-9, the Company has borrowed funds under separate notes payable from both DEI and PERC. The total amounts payable to DEI at September 30, 2001 and 2000 were $135,950,000 and $63,284,000, respectively. The total amounts payable to PERC at September 30, 2001 and 2000 were $139,893,000 and $63,284,000, respectively. The related accrued interest payables to DEI at September 30, 2001 and 2000 were $7,759,000 and $1,281,000, respectively. The related accrued interest payables to PERC at September 30, 2001 and 2000 were $7,723,000 and $1,277,000, respectively. Interest on related party advances and notes payable is calculated using DEI's internal borrowing rate. As of September 30, 2001 and 2000, the average interest rate was 5.4% and 6.9%, respectively. The Company entered into an Easement Agreement to construct, maintain and operate an electric transmission line on property maintained by The Peoples Gas Light and Coke Company for a one-time fee of $43,000. 4. Derivatives and Hedge Accounting Adoption of SFAS No. 133 The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, on October 1, 2000. In accordance with the transition provisions of SFAS 133, the Company recorded a cumulative effect adjustment of $158,600 as a reduction in earnings. The cumulative effect adjustment reducing accumulated other comprehensive income (AOCI) and Member's Capital was $2,450,000. The Company reclassified this entire AOCI amount to earnings during the year ended September 30, 2001 due to derivatives designated as cash flow hedges that were sold. Derivatives and Hedge Accounting Results The Company did not recognize any decreases to earnings for hedge ineffectiveness during the year ended September 30, 2001. The Company recognized $673,000 as fuel expenses related to the time value of natural gas option contracts purchased. Approximately $18.9 million of net losses in AOCI at September 30, 2001 is expected to be reclassified to earnings over the life of the bonds discussed in Note 7. The actual amounts that will be reclassified to earnings over the life of the bonds will vary from this amount as a result of changes in market conditions. The effect of the amounts being reclassified from AOCI to earnings will generally be offset by the recognition of the hedged transactions (e.g., anticipated sales) in earnings, thereby achieving the realization of prices contemplated by the underlying risk management strategies. As of September 30, 2001, the Company is hedging its exposure to the variability in future cash flows for forecasted transactions over 25 years. F-10 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Currently, there are ongoing discussions surrounding the implementation and interpretation of SFAS No. 133 by the Financial Accounting Standards Board's (FASB) Derivative Implementation Group. In June 2001, the FASB approved Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Option- Type Contracts and Forwards Contracts in Electricity." Under the guidance of Issue C15, buyers and sellers of electricity are not required to mark-to-market contracts meeting certain criteria. Option-type contracts include capacity contracts that allow the Company's customers to meet volatile demand by providing the option to purchase electricity as needed. The FASB concluded if such contracts meet the criteria outlined in Issue C15, they could qualify as a normal purchase or sale under SFAS No. 133. This new SFAS No. 133 implementation guidance became effective July 1, 2001. In response to this guidance, the Company reevaluated certain of its long-term power sale agreements. Based on this reevaluation, the Company determined that such agreements qualify for the normal purchases and normal sales exception based on the criteria set forth in the recently issued guidance. As such, these agreements continue to be exempt from fair value accounting otherwise required by SFAS No. 133. On October 10, 2001, the FASB made certain editorial changes to the qualifying criteria outlined in Issue C15. The revised guidance becomes effective January 1, 2002. The Company is currently in the process of evaluating the significance of these editorial changes to determine whether certain of its long-term power sale agreements will continue to qualify for the normal purchases and normal sales exception at the effective date of the revised guidance. Future interpretations of SFAS No. 133 by the FASB or other standard-setting bodies could result in fair value accounting being required for certain contracts that are not currently being subjected to such requirements. Accordingly, such future interpretations may impact the Company's ultimate application of the standard. However, if future changes in the application of SFAS No. 133 should result in additional contracts becoming subject to fair value accounting under SFAS No. 133, the Company would pursue hedging strategies to mitigate any potential future volatility in reported earnings. 5. Financial Instruments Fair Values The fair value amounts of the Company's financial instruments have been determined using available market information and valuation methodologies deemed appropriate in the opinion of management. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation assumptions may have a material effect on the estimated fair value amounts. Cash and Notes Receivable The carrying amount of these items is a reasonable estimate of their fair value. Derivatives and Price Risk Management Activities The Company uses derivatives to manage the commodity and financial market risks of its business operations. The Company managed the commodity price risk associated with the purchase of natural gas by utilizing derivative commodity instruments including commodity natural gas options, collars and swaps. Effective with the amendment of the Exelon and Engage power sales agreements in 2001 to effectively change to tolling agreements, fuel price risk has been eliminated. The Company does continue to manage its interest rate risk exposure by entering into interest rate swap transactions. F-11 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company has designated all current derivatives as cash flow hedges. The Company's hedge strategies represent cash flow hedges of the variable price risk associated with purchases of natural gas and of variable interest rates on long-term debt using derivative instruments discussed in the preceding paragraph. Interest Rate Swap In August 2001, the Company entered into an interest rate swap as a hedge against interest rate fluctations. A loss of $18.9 million was recorded in AOCI for the year ended September 30, 2001. Options Contracts At September 30, 2000, the Company utilized call options contracts covering 2,440,000 mmBTUs of gas maturing in 2001 and a collar covering 1,220,000 mmBTUs of gas expiring in 2002. The Company's net unrealized gain related to its use of options contracts was approximately $1.8 million at September 30, 2000. These options were sold in 2001 and a gain of $8 million was recognized in earnings. OTC Swap Agreements In addition to options contracts, the Company entered into OTC price swap agreements to manage its exposure to commodity price risk for the anticipated future purchases of gas. At September 30, 2000, the Company had swap agreements maturing in 2003 and 2004. Net notional quantities at September 30, 2000 related to those swap agreements in which the Company agreed to pay a fixed price in exchange for a variable price totaled 3,680,000 mmBTUs. The Company's unrealized gain related to swap agreements was approximately $0.7 million at September 30, 2000. Market and Credit Risk Price risk management activities expose the Company to market risk. Market risk represents the potential loss that can be caused by the change in market value of a particular commitment. Price risk management activities also expose the Company to credit risk. Credit risk represents the potential loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. The Company maintains credit policies with respect to its counterparties that management believes minimize overall credit risk. Such policies include the evaluation of a prospective counterparty's financial condition. The Company also monitors the financial condition of existing counterparties on an ongoing basis. Considering the system of internal controls in place, the Company believes it is unlikely that a material adverse effect on its financial position, results of operations or cash flows would occur as a result of counterparty nonperformance. F-12 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. Common Control Merger On August 3, 2001, Elwood Energy LLC merged with Elwood Energy II, LLC and Elwood Energy III, LLC, with Elwood Energy LLC as the surviving entity. All of the entities that participated in the merger were owned 50% by Dominion Elwood, Inc. and affiliates and 50% by Peoples Elwood, LLC and affiliates. The merger has been accounted for on the historical cost basis and the financial statements for all periods presented have been combined. The separate condensed financial statements of Elwood Energy LLC, Elwood Energy II, LLC and Elwood Energy III, LLC were as follows for each year ended:
September 30, September 30, September 30, 2001 2000 1999 ------------- ------------------------------ ------------------------------ Elwood Elwood Elwood II Elwood III Elwood Elwood II Elwood III ------------- -------- --------- ---------- -------- --------- ---------- Operating revenues...... $ 96,467 $ 56,849 $ -- $ -- $ 25,593 $-- $ -- Operating expenses...... (44,449) (27,262) -- (145) (9,337) -- -- Other income............ (2,804) 914 -- -- 772 -- -- Cumulative effect of accounting change...... 158 -- -- -- -- 1 -- -------- -------- ------- ------- -------- ---- ----- Net income (loss)....... $ 49,372 $ 30,501 $ -- $ (145) $ 17,028 $ 1 $ -- ======== ======== ======= ======= ======== ==== ===== Current assets.......... $ 66,565 $ 35,959 $ 505 $ 824 $ 32,840 $-- $ -- Property, plant & equipment.............. 514,289 180,861 51,630 81,134 188,113 -- -- Other assets............ 544 -- -- -- -- -- -- -------- -------- ------- ------- -------- ---- ----- Total assets........... $581,398 $216,820 $52,135 $81,958 $220,953 $-- $ -- ======== ======== ======= ======= ======== ==== ===== Liabilities............. $351,870 $ 4,619 $52,234 $82,004 $ 29,253 $-- $ -- Members' capital........ 229,528 212,201 -- (145) 191,700 -- -- -------- -------- ------- ------- -------- ---- ----- Total liabilities and members' capital...... $581,398 $216,820 $52,234 $81,859 $220,953 $-- $ -- ======== ======== ======= ======= ======== ==== =====
7. Subsequent Events On October 23, 2001, the Company issued $402,000,000 of 8.159% Senior Secured Bonds due 2026. The proceeds of the bonds were used to repay notes due to affiliates and for working capital. F-13 ELWOOD ENERGY LLC (A Limited Liability Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Quarterly Financial Data (unaudited) The following amounts reflect all adjustments, consisting of only normal recurring accruals, necessary in the opinion of the Company's management for a fair statement of the results for the interim periods.
2001 2000 ------- ------ (thousands) Operating Revenues First Quarter.............................................. 5,821 3,731 Second Quarter............................................. 16,731 13,372 Third Quarter.............................................. 9,371 13,151 Fourth Quarter............................................. 64,544 26,595 ------- ------ Year....................................................... 96,467 56,849 ======= ====== Operating Income First Quarter.............................................. 2,729 3,346 Second Quarter............................................. 15,106 9,591 Third Quarter.............................................. 6,924 7,799 Fourth Quarter............................................. 27,259 8,706 ------- ------ Year....................................................... 52,018 29,442 ======= ====== Income before cumulative effect of a change in accounting principle First Quarter.............................................. 1,853 3,301 Second Quarter............................................. 13,219 7,790 Third Quarter.............................................. 5,474 5,888 Fourth Quarter............................................. 28,668 13,377 ------- ------ Year....................................................... 49,214 30,356 ======= ====== Net income First Quarter.............................................. 2,084 3,301 Second Quarter............................................. 13,146 7,790 Third Quarter.............................................. 5,474 5,888 Fourth Quarter............................................. 28,668 13,377 ------- ------ Year....................................................... 49,372 30,356 ======= ====== Other Comprehensive Income First Quarter.............................................. 4,780 -- Second Quarter............................................. (4,780) -- Third Quarter.............................................. -- -- Fourth Quarter............................................. (18,900) -- ------- ------ Year....................................................... (18,900) -- ======= ======
F-14 Annex A ANNEX A--DEFINITIONS "Buy-Out" means the exercise by a counterparty to a power sales agreement of a right to pay us to terminate the power sales agreement or to reduce capacity and energy to be sold under the power sales agreement. "Cash Available for Debt Service" means, for any period, all operating revenues (excluding any receipts derived from the sale of any property (other than energy, capacity, ancillary services, fuel or fuel transportation rights) pertaining to the Facility) received, or to be received, during such period, minus (i) all O&M Costs paid, or to be paid, during such period and (ii) all deposits, if any, made, or to be made, into the sales tax reserve account and the major maintenance reserve account during such period (other than deposits into the major maintenance reserve account out of Bond proceeds). "Casualty Event" means an event that causes all or a portion of the Facility to be damaged, destroyed or rendered unfit for normal use for any reason whatsoever, other than an Expropriation Event or a Title Event. "Change of Control" means DEI (or Dominion Resources or any successor entity to DEI which is a majority owned subsidiary of Dominion Resources) and PERC (or Peoples Energy Corporation or any successor entity to PERC which is a majority owned subsidiary of Peoples Energy Corporation), collectively, shall cease to own, directly or indirectly, at least 50.1% of the membership interests in us; provided that such failure to own shall not be deemed a "Change of Control" if (x) such failure to own resulted from a transfer to a Qualified Transferee or (y) such events are approved by holders holding at least 66 2/3% in aggregate principal amount of the outstanding Bonds. "Closing Date" means the date on which the Bonds are issued and delivered. "Commercially Feasible Basis" means that, following a Loss Event: o the proceeds received in respect of that Loss Event, together with any other amounts that we are irrevocably committed, or irrevocably commit, to contribute to restoring all or a portion, as the case may be, of the Facility, will be sufficient to permit the restoration of the Facility; o the sum of (a) the proceeds of the business interruption insurance which we have received, (b) the moneys available in the O&M account, (c) any amounts that we are irrevocably committed, or irrevocably commit, to contribute (without duplication of the amounts referred to in the previous bullet point) and (d) our anticipated operating revenues during the estimated period of restoration will be sufficient to pay all Debt Service and O&M Costs (taking into account the limitation on the use of such funds set forth in the Deposit and Disbursement Agreement) during the estimated period of restoration; and o we reasonably believe that the Facility can be operated in accordance with the provisions of the project documents that are then in effect or that are expected to be in effect after the completion of the restoration. "Contracted Cash Available for Debt Service" means, for any period, the aggregate of all payments to be received by us under Permitted PPAs for such period, plus interest income attributable to units subject to such Permitted PPAs for such period, minus (i) all O&M Costs attributable to units subject to such Permitted PPAs for such period and (ii) all deposits, if any, into the sales tax reserve account for such period. "Contracted Coverage Ratio" means, for any period, the ratio of (i) the aggregate of all Contracted Cash Available for Debt Service for such period to (ii) the aggregate of all Debt Service for such period, in each case calculated on a projected basis and confirmed by the independent engineer. "Debt Service" means, for any period, without duplication, (i) the aggregate of all fees payable to the Secured Parties in respect of Indebtedness permitted under the indenture during such period, plus (ii) the aggregate of all principal, premium (if any) and interest payable with respect to outstanding Indebtedness that is A-1 permitted under the indenture (other than subordinated indebtedness and intercompany indebtedness existing on the closing date between us and our subsidiaries) for such period, plus (iii) the aggregate amount of overdue principal, premium (if any) and interest payments owed with respect to outstanding Indebtedness that is permitted under the indenture (other than subordinated indebtedness) from previous periods, all as determined on a cash basis in accordance with GAAP. "Debt Service Coverage Ratio" means, for any period, the ratio of (i) the aggregate of all Cash Available for Debt Service for such period to (ii) the aggregate of all Debt Service for such period. "Discounted Present Value" of any Bond subject to redemption shall be equal to the present value of all principal and interest payments scheduled to become due in respect of such Bond after the date of such redemption (excluding accrued interest to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months), at a discount rate equal to the sum of (x) the yield to maturity on the United States treasury securities having an interpolated maturity equal to the remaining average life of such Bond and trading in the secondary market at the price closest to par and (y) 50 basis points. However, if there is no United States treasury security having an interpolated maturity equal to the remaining average life of such Bond, such discount rate shall be calculated using a yield to maturity interpolated or extrapolated on a straight-line basis (rounding to the nearest month, if necessary) from the yields to maturity for two United States treasury securities having average lives most closely corresponding to the remaining average life of such Bond and trading in the secondary market at the price closest to par. "Expropriation Event" means any compulsory transfer or taking or transfer under threat of compulsory transfer or taking of a material part of the collateral by any governmental authority or entity acting under power of eminent domain unless such transfer or taking is being contested in good faith. "Loss Event" means a Casualty Event, an Expropriation Event or a Title Event. "Indebtedness" of any person at any date means, without duplication, (i) all obligations of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such person under leases which are or should be, in accordance with GAAP, recorded as capital leases in respect of which such person is liable to the extent of the capitalized amount thereof determined in accordance with GAAP, (v) all obligations of such person under interest rate or currency protection agreements or other hedging instruments, (vi) all obligations of such person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities (or property), (vii) all deferred obligations of such person to reimburse any bank or other person in respect of amounts paid or advanced under a letter of credit or other instrument, (viii) all Indebtedness of others secured by a lien on any asset of such person, whether or not such Indebtedness is assumed by such person, and (ix) all Indebtedness of others guaranteed directly or indirectly by such person or as to which such person has an obligation substantially the economic equivalent of a guarantee or other arrangement to assure a creditor against loss. "Involuntary Buy-Out" means any Buy-Out of a power sales agreement that is not voluntarily sought by us, but into which we are legally or practically required to enter by force of law or regulation, or by an actual or threatened Expropriation Event, or by an actual or threatened bankruptcy proceeding or other action adverse to the material rights and benefits granted to us under such power sales agreement on the part of, or an actual or threatened termination of such power sales agreement by, the purchaser of electricity under such power sales agreement. "Make-Whole Premium" means an amount equal to the Discounted Present Value calculated on the third business day before the redemption date for any Bond subject to redemption less the unpaid principal amount of that Bond; provided, that the Make-Whole Premium shall not be less than zero. A-2 "Material Adverse Effect" means: o a material adverse change in the status of our business, operations, property or financial condition; or o any event or occurrence of whatever nature which materially adversely affects (a) our ability to perform our obligations under any financing document or any material project document or (b) the perfection, validity or priority of the Secured Parties' security interests in the collateral. "Maximum PSA Contingency Amount" means, at any time, an amount equal to the difference between (a) the aggregate principal amount of the Bonds then Outstanding and (b) the Maximum PSA Yearly Factor. "Maximum PSA Yearly Factor" means, as applicable, (i) through 2017, $45,000,000, (ii) in 2018, $40,000,000, (iii) in 2019, $40,000,000, (iv) in 2020, $42,000,000, (v) in 2021, $32,500,000, (vi) in 2022, $17,000,000 and (vii) in 2023, $15,000,000. "New Generation Facility" means a new electric generation facility to be constructed and/or owned by one or more of our affiliates, by affiliates of our members (but not by us), or by a third party, on all or part of the parcels of land adjacent to our Facility site. "O&M Costs" means, for any period, the sum, computed without duplication, of the following: all cash expenses incurred by us during such period for maintenance, administration and operation of the Facility, including payments made by us in respect of fuel or fuel transportation, taxes (other than those based on our income), insurance and consumables, payments under any leases or pursuant to the O&M Agreement, the equipment sales agreements, the Common Facilities Agreement and the Administrative Services Agreements, legal fees and expenses paid by us in connection with the management, maintenance or operation of the Facility, fees paid in connection with obtaining, transferring or amending any governmental approvals, and reasonable general and administrative expenses. However, O&M Costs shall not include: o any non-cash charges, including depreciation or obsolescence charges or reserves therefor, or amortization or other bookkeeping entries of a similar nature; o Debt Service and all other interest and principal payable on Indebtedness permitted under the indenture; o expenditures for major maintenance of the Facility to the extent paid with funds on deposit in or credited to the account of the major maintenance reserve account; o payments into any of the accounts established under the Deposit and Disbursement Agreement; o the cost of restorations of the Facility; o distributions of any kind to us or our affiliates or payments on, or amounts due in respect of, subordinated indebtedness; o capital expenditures (whether or not such expenditures are for major maintenance of the Facility) other than those included in and approved as part of our annual operating budget and not funded with Indebtedness permitted under the indenture; and o taxes paid with funds on deposit in the sales tax reserve account. "Permitted Investments" means: o securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having a maturity not exceeding 90 days from the date of issuance; o time deposits and certificates of deposit having a maturity not exceeding 90 days of any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000; A-3 o commercial paper issued by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 and commercial paper of any domestic corporation rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's and, in each case, having a maturity not exceeding 90 days from the date of acquisition; o fully secured repurchase obligations with a term not exceeding seven days for underlying securities of the types described in the first bullet point above entered into with any bank meeting the qualifications established in the second bullet point above; o high-grade corporate bonds rated at least "AA" or the equivalent thereof by S&P or at least "Aa2" or the equivalent thereof by Moody's; and o money market funds having a rating in the highest investment category granted thereby by S&P or Moody's at the time of acquisition, including any fund for which the trustee or an affiliate of the trustee serves as an investment advisor, administrator, shareholder, servicing agent, custodian or subcustodian, notwithstanding that (a) the trustee or an affiliate of the trustee charges and collects fees and expenses from such funds for services rendered (provided that such charges, fees and expenses are on terms consistent with terms negotiated at arm's-length) and (b) the trustee charges and collects fees and expenses for services rendered pursuant to the indenture. "Permitted PPA" means: (i) an arms-length, executed, valid and binding agreement that is then in full force and effect and not in default in any material respect and which is not terminable without cause between us and either: (A) a purchaser (including any of our affiliates) whose (or if the purchaser's obligations are unconditionally guaranteed, whose guarantor's) long-term senior unsecured debt is rated no less than "Baa3" by Moody's and "BBB-" by S&P; or (B) an affiliate of ours, so long as such affiliate has executed a valid and binding agreement with a third party purchaser whose (or if the purchaser's obligations are unconditionally guaranteed, whose guarantor's) long-term senior unsecured debt is rated no less than "Baa3" by Moody's and "BBB-" by S&P with substantially the same terms (other than any pricing spread) as such affiliate's agreement with us; in each case, for the sale of electric energy or capacity (in the case of both energy and capacity, on a take or pay, take and pay, or take, if tendered basis) at prices established at a formula, index or other price risk management methodology not based on spot market prices (unless such agreement is structured such that it (or it together with a financial hedge arrangement of the type described in clause (ii) below) creates an arrangement that is the functional equivalent of a tolling arrangement or other contractual arrangement not dependent on spot market prices) by us to such third party or such affiliate, as applicable; or (ii) financial hedge agreements relating to energy or capacity pricing that are: (A) fully supported by our available energy or capacity; and (B) with counterparties having long-term senior unsecured debt that is rated no less than "Baa2" by Moody's and "BBB" by S&P; However, notwithstanding anything to the contrary contained in this definition, each of our power sales agreement in existence on the Closing Date will be deemed a Permitted PPA. "Projected Debt Service Coverage Ratio" means, for any period, the ratio of (i) the aggregate of all Cash Available for Debt Service for such period to (ii) the aggregate of all Debt Service for such period, in each case calculated by us on a projected basis and confirmed in writing by the independent engineer. "PSA Contingency Reserve Amount" means: (i) $0, if, on the funding date immediately preceding the applicable bond payment date, either (a) the average Contracted Coverage Ratio for the consecutive period of the lesser of (x) sixteen full fiscal A-4 quarters following such scheduled bond payment date and (y) the number of full fiscal quarters from such scheduled bond payment date until the first scheduled bond payment date in 2024, in either case taken as a whole, is equal to or greater than 1.40 to 1.0 or (b) the PSA Coverage Ratio for the six fiscal quarter period immediately preceding such scheduled bond payment date, taken as a whole, is greater than or equal to the PSA Historical Ratio and the Projected PSA Coverage Ratio for the consecutive period of the lesser of (x) sixteen full fiscal quarters following such scheduled bond payment date and (y) the number of full fiscal quarters from such scheduled bond payment date until the first scheduled bond payment date in 2024, in either case taken as a whole, is greater than or equal to the PSA Projected Ratio; or (ii) if the requirement set forth in clause (i) above has not been satisfied, 25% of the Maximum PSA Contingency Amount, if, on the funding date immediately preceding the applicable bond payment date, the average Contracted Coverage Ratio for the consecutive period of the lesser of (x) sixteen full fiscal quarters following such scheduled bond payment date and (y) the number of full fiscal quarters from such scheduled bond payment date until the first scheduled bond payment date in 2024, in either case taken as a whole, is equal to or greater than 1.25 to 1.0; or (iii) if the requirements set forth in clauses (i) or (ii) above have not been satisfied, 33 1/3 % of the Maximum PSA Contingency Amount, if, on the funding date immediately preceding the applicable bond payment date, the average Contracted Coverage Ratio for the consecutive period of the lesser of (x) sixteen full fiscal quarters following such scheduled bond payment date and (y) the number of full fiscal quarters from such scheduled bond payment date until the first scheduled bond payment date in 2024, in either case taken as a whole, is equal to or greater than 1.1 to 1.0; or (iv) if the requirements set forth in clauses (i), (ii) or (iii) above have not been satisfied, the Maximum PSA Contingency Amount. "PSA Contingency Reserve Requirement" means, for any date of determination, an amount equal to (i) the PSA Contingency Reserve Amount, as determined on the scheduled bond payment date immediately preceding such date of determination (or on such date of determination, if such date is a scheduled bond payment date), less (ii) monies already on deposit in the PSA contingency reserve account and/or the aggregate amounts of any applicable letters of credit or guarantees. "PSA Coverage Ratio" means, for any period, the ratio of (i) the aggregate of all Cash Available for Debt Service for such period plus all deposits, if any, made to the major maintenance reserve account for such period, to (ii) the aggregate of all Debt Service for such period. "PSA Historical Ratio" means, for any date of determination, (x) (i) 4.0 minus (ii) 2.6 times the percentage of the Facility's capacity that is covered by Permitted PPAs for the six-quarter period, taken as a whole, immediately preceding such date of determination, to (y) 1.0. "PSA Projected Ratio" shall mean, for any date of determination, (x) (i) 4.0 minus (ii) 2.6 times the percentage of the Facility's capacity that is covered by Permitted PPAs for the sixteen-quarter (or less, if applicable) period, taken as a whole, immediately following such date of determination to (y) 1.0. "Projected PSA Coverage Ratio" means, for any period, the ratio of (i) the aggregate of all Cash Available for Debt Service for such period plus all deposits, if any, made or to be made to the major maintenance reserve account for such period, to (ii) the aggregate of all Debt Service for such period, in each case calculated by us on a projected basis and confirmed by the independent engineer. "Qualified Transferee" means any person that acquires after the Closing Date, directly or indirectly, ownership of membership interests in us so long as: o the acquiring person has, or is controlled by a person that has, (a) significant experience in the business of owning and operating facilities similar to the Facility and (b) a senior unsecured credit rating of at least "BBB-" from S&P and "Baa3" by Moody's; A-5 o after giving effect to the acquisition, no default or event of default has occurred and is continuing under the indenture; o the acquisition could not reasonably be expected to result in a Material Adverse Effect; o to the extent relevant to the acquisition, the collateral agent receives a pledge of and lien on our membership interests in accordance with the security documents and we have furnished to the trustee and the collateral agent such documents, certificates and opinions of counsel as the trustee and the collateral agent shall reasonably require; and o each of S&P and Moody's confirms that the acquisition will not result in a downgrade of the then current ratings on the Bonds. "Sales Tax Reserve Requirement" means (i)(x) $350,000 times (y) the number of quarters the requirement to make deposits into the sales tax reserve account has been in effect, less (ii) monies already on deposit in the sales tax reserve account and/or the aggregate amounts of any applicable letters of credit or guarantees. "Secured Parties" means the trustee, the holders of the Bonds, the collateral agent, the administrative agent, the securities intermediary under the indenture, any bank or agent providing working capital loans to us, any provider of a DSR letter of credit (including any bank or agent party to an underlying debt service letter of credit agreement), any holder of Indebtedness permitted under the indenture in respect of required modifications or optional modifications (including any agent party to an agreement in respect of such indebtedness), in each case to the extent such party (or an agent on its behalf) is, or pursuant to the intercreditor agreement becomes, a party to the intercreditor agreement. "Senior Secured Obligations" means, collectively, without duplication: (i) all of our Indebtedness, financial liabilities and obligations, of whatsoever nature and howsoever evidenced (including, but not limited to, principal, interest, fees, reimbursement obligations, penalties, indemnities and legal and other expenses, whether due after acceleration or otherwise) to the Secured Parties in their capacity as such under the applicable financing document or any other agreement, document or instrument evidencing, securing or relating to such Indebtedness, financial liabilities or obligations, in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such agreements; (ii) any and all sums advanced by the collateral agent in order to preserve the collateral or preserve its security interest in the collateral; and (iii) in the event of any proceeding for the collection or enforcement of the obligations described in clauses (i) and (ii) above, after an event of default under the indenture has occurred and is continuing and unwaived, the expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the collateral, or of any exercise by the collateral agent of its rights under the security documents, together with reasonable attorneys' fees and court costs. "Shared Facilities" means roads, easements, fuel and utility lines and pipes, transmission lines and interconnects, water disposal and treatment systems, control systems, permits and other property or rights which (or, in the case of easements and roads, the underlying property of which) are owned or leased by us and as to which we have granted a license or right of use for the benefit of a New Generation Facility. "Shared Facilities Agreement" means an agreement between us and the owner or lessee of a New Generation Facility relating to the use of any Shared Facilities. "Title Event" means the existence of any defect of title or lien or encumbrance on the real property subject to the mortgage granted by us in favor of the collateral agent (other than liens permitted under the indenture and in effect on the Closing Date) that entitles the collateral agent to make a claim under the title policies. "Voluntary Buy-Out" means any Buy-Out of a power sales agreement that is not an Involuntary Buy-Out. Annex B Independent Engineer's Report INDEPENDENT TECHNICAL REVIEW ELWOOD ENERGY POWER PROJECT For ELWOOD ENERGY LLC And CREDIT SUISSE FIRST BOSTON J.O. 12832 Copyright 2001 Stone & Webster Consultants, Inc Denver, Colorado October 12, 2001 TABLE OF CONTENTS
Section # Page # - --------- ------ SECTION 1.0 ........................................................................ 1 EXECUTIVE SUMMARY .................................................................. 1 1.1 INTRODUCTION 1.2 SCOPE OF SERVICES ...................................................... 1 1.3 TECHNICAL DESCRIPTION OF ASSETS ........................................ 2 1.4 PROJECT DESIGN AND CONDITION OF ASSETS ................................. 3 1.5 PERFORMANCE ............................................................ 4 1.6 POWER SALES AGREEMENTS ................................................. 4 1.7 FUEL SUPPLY AND MANAGEMENT ............................................. 5 1.8 GAS TRANSPORTATION AND BALANCING ....................................... 6 1.9 OPERATION AND MAINTENANCE .............................................. 6 1.10 ENVIRONMENTAL AND SITE ASSESSMENT ...................................... 6 1.11 REMAINING LIFE ......................................................... 7 1.12 FINANCIAL PROJECTIONS .................................................. 7 1.13 CONCLUSIONS ............................................................ 8 SECTION 2.0 ........................................................................ 10 PROJECT DESIGN .................................................................... 10 2.1 ELECTRIC POWER GENERATION EQUIPMENT .................................... 10 2.2 AUXILIARY PLANT SYSTEMS ................................................ 13 2.3 STATION ELECTRICAL SYSTEMS ............................................. 15 2.4 CIVIL, STRUCTURAL AND ARCHITECTURAL .................................... 17 SECTION 3.0 ........................................................................ 18 CONTRACTS AND AGREEMENTS .......................................................... 18 3.1 ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC) AGREEMENTS ............................................................. 18 3.2 ENGINEERING, DESIGN, PROCUREMENT, CONSTRUCTION AND INSTALLATION SERVICES (EPC) AGREEMENTS ................................. 18 3.3 PROCUREMENT AGREEMENTS - UNITS 5 AND 6 (Amended and Restated) .......... 21 3.4 PROCUREMENT AGREEMENTS - UNITS 7 AND 8 (Amended and Restated) .......... 22 3.5 PROCUREMENT AGREEMENT - UNIT 9 (Amended and Restated) .................. 23 3.6 ENGAGE P0WER SALES AGREEMENT ........................................... 23 3.7 EXELON POWER SALES AGREEMENT ........................................... 25 3.8 AQUILA POWER SALES AGREEMENTS .......................................... 30 3.9 CINERGY FUEL SUPPLY AND MANAGEMENT AGREEMENT 3.10 GAS TRANSPORTATION AND BALANCING AGREEMENT ............................. 35 3.11 INTERCONNECTION AGREEMENT .............................................. 38 3.12 OPERATION AND MAINTENANCE AGREEMENTS ................................... 39 3.13 ADMINISTRATIVE SERVICES AGREEMENTS ..................................... 39 3.14 COMMON FACILITIES AGREEMENT ............................................ 40
- -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-ii 10/12/01 3.15 SPARE PARTS AGREEMENT .................................................. 40 SECTION 4.0 ........................................................................ 41 PERFORMANCE GUARANTEES, COMPLETION TESTING, OPERATION AND PROJECT SCHEDULE .................................................................. 41 4.1 PERFORMANCE GUARANTEES ................................................. 41 4.2 COMPLETION TESTING ..................................................... 42 4.3 OPERATION .............................................................. 45 4.4 PROJECT SCHEDULE ....................................................... 46 SECTION 5.0 ........................................................................ 47 PROJECT SITE ...................................................................... 47 5.1 GENERAL SITE LOCATION, ACCESS AND CONDITIONS ........................... 47 5.2 SITE ASSESSMENT ........................................................ 47 SECTION 6.0 ........................................................................ 50 PERMITS, APPROVALS AND CERTIFICATIONS .............................................. 50 6.1 FEDERAL PERMITS ........................................................ 51 6.2 STATE PERMITS .......................................................... 51 6.3 LOCAL PERMITS .......................................................... 53 SECTION 7.0 ........................................................................ 54 PROJECT PARTICIPANTS .............................................................. 54 7.1 ELWOOD ENERGY LLC ...................................................... 54 7.2 PEOPLES ENERGY RESOURCES CORP .......................................... 54 7.3 DOMINION ENERGY, INC ................................................... 54 7.4 AQUILA ENERGY MARKETING CORPORATION .................................... 54 7.5 EXELON GENERATION ...................................................... 55 7.6 ENGAGE ENERGY US, LP ................................................... 55 7.7 NORTHERN ILLINOIS GAS COMPANY (NICOR GAS COMPANY) ...................... 56 7.8 CINERGY CORP ........................................................... 56 7.9 DOMINION EL WOOD SERVICES COMPANY, INC ................................. 56 SECTION 8.0 ........................................................................ 57 PROJECT FINANCIAL ASSESSMENT ...................................................... 57 8.1 OVERVIEW ............................................................... 57 8.2 PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS ............................... 57 8.3 OPERATING ASSUMPTIONS .................................................. 58 8.4 REVENUES ............................................................... 60 8.5 OPERATING EXPENSES ..................................................... 63 8.6 FINANCING ASSUMPTIONS .................................................. 66 8.7 PROJECTIONS ............................................................ 66 8.8 SENSITIVITY ANALYSES ................................................... 66
- -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-iii 10/12/01 LIST OF ATTACHMENTS 1. Documents Received 2. Vicinity Map 3. Site Plans 4. Financial Projections - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-iv 10/12/01 "LEGAL NOTICE" This document was prepared by Stone & Webster Consultants, Inc. (Stone & Webster) solely for the benefit of Credit Suisse First Boston (CSFB). Neither Stone & Webster, nor its parent corporation or its or their affiliates, nor CSFB, nor any person acting in their behalf (a) makes any warranty, expressed or implied, with respect to the use of any information or methods disclosed in this document; or (b) assumes any liability with respect to the use of any information or methods disclosed in this document. Any recipient of this document, by acceptance or use of this document, releases Stone & Webster, its parent corporation and its and their affiliates, and CSFB from any liability for direct, indirect, consequential or special loss or damage whether arising in contract, warranty, express or implied, tort or otherwise, and irrespective of fault, negligence, and strict liability. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-v 10/12/01 SECTION 1.0 EXECUTIVE SUMMARY 1.1 INTRODUCTION Stone & Webster Consultants, Inc. (Stone & Webster) has performed an independent technical review (the Report) and assessment of the Elwood Energy Project (the Project). The Project is a 1,409 MW natural gas fired, simple cycle, electric generating station, located near the Village of Elwood, Illinois, approximately 50 miles southwest of Chicago. This report provides a review and assessment of the Project's design and engineering, contracts and agreements, test results, operation, permits and environmental considerations, organization, and economic projections. The Project has been designed for peaking operation. The station configuration utilizes nine combustion turbines driving nine electric generators all manufactured by the General Electric Company (GE). Initially, the Project was developed in 1998 with Unit 1 entering commercial service on July 19, 1999. The next phase of development started in 2000 with the five newer GE combustion turbine generators entering commercial service in 2001. All of the power generation equipment and the equipment selected for the auxiliary facilities employ designs and technologies commonly used in simple cycle electric generating stations. Natural gas is used to fuel the combustion turbines. Water for the Project is provided from deep wells on the adjoining property owned by Peoples Gas Light and Coke Company. The Project has been developed and is owned by Elwood Energy, LLC (the Owner). Elwood Energy, LLC is itself owned by subsidiaries of Peoples Energy Resources Corp. (50% ownership) and Dominion Energy, Inc. (50% ownership). The Owner entered into five EPC Agreements with the General Electric Company for the development of the nine electric generating units. All of the units have entered commercial service and all of the obligations under the EPC Agreements have been met with the exception of some minor punchlist items, which are currently being completed with final acceptance expected around September 2001. Power sales agreements for the full capacity of the plant have been executed and are in full force and effect for periods between 12 and 16 years. All of these agreements have energy pricing indexed to the market price of natural gas, thereby providing the economic equivalent of a tolling arrangement and mitigating the fuel price risk. 1.2 SCOPE OF SERVICES Stone & Webster was retained to prepare this Report to support the debt capital markets financing for Elwood Energy LLC. As part of this review, Stone & Webster performed a condition assessment, asset life evaluation, performance, operation and maintenance (O&M) review, and a review of the site environmental assessment done by Woodward-Clyde International-Americas. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 1 10/12/01 EXECUTIVE SUMMARY ================================================================================ The Report includes Stone & Webster's independent technical assessment of the Project, based on, among other things, the review of the available technical data, historic performance and cost data, and visits to each facility. The Report presents our findings and conclusions regarding the following: o Contractual Requirements and Interfaces o Design and engineering o Geotechnical assessment o Environmental assessment o Major equipment selection and design integration o Construction schedule o Operating unit performance o Performance testing o Permit status o Project participants o Analysis of the Financial Projections In addition, Stone & Webster reviewed power sales agreements, and received technical input from Pace Global Energy Services LLC (Pace), who developed the market forecasts. The market forecasts prepared by Pace cover the period 2001 through 2026. The data used from the market forecasts includes unit specific data on energy generation, energy revenues, fuel expenses, fuel consumption, capacity and energy revenues. Pace also opined on the extension of the Aquila PSA. The data provided by Pace was adjusted to include inflation. As part of the Review, Stone & Webster developed a financial model, which combined the market forecasts prepared by Pace with the contracted revenue and fuel supply forecasts, O&M expenses, and capital expenditure forecasts. The pro forma Financial Projections prepared using the financial model show cash flows available to support repayment of interest and principle of the debt from 2001 through 2026 and debt service coverage ratios (DSCRs) for a base case and several sensitivity cases from 2001 through 2026. Stone & Webster conducted this analysis and prepared the Report utilizing reasonable care and skill in applying methods consistent with normal industry practice. In the preparation of this report and in formulating the expressed opinions, Stone & Webster has made certain assumptions with respect to conditions, which may exist, or events, which may occur in the future. The specific information reviewed by Stone & Webster is listed in Attachment 1. Assessment of legal issues is outside of Stone & Webster's scope of work as Independent Technical Consultant. 1.3 TECHNICAL DESCRIPTION OF ASSETS The Project is being developed on a portion of a 195-acre site located in the Village of Elwood, in Will County, Illinois, which is located approximately 50 miles southwest of Chicago. The site terrain is generally flat and is located in a rural area. A vicinity map is provided in Attachment 2 and two development drawings are included in Attachment 3. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-2 10/12/01 EXECUTIVE SUMMARY ================================================================================ The key technical aspects of the Project are summarized in the following table. The information shown in the table includes the in-service date of the units, the summer rating of the unit, and the turbine model. ---------------------------------------------------------------- Commercial Rated Operation Turbine Capacity Unit Date Model (kW) ---------------------------------------------------------------- 1 July 19, 1999 GE7231 155,260 2 July 18, 1999 GE7231 155,260 3 July 23, 1999 GE7231 155,260 ---------------------------------------------------------------- 4 July 19, 1999 GE7231 155,260 5 May 10, 2001 GE7241 155,842 6 May 31, 2001 GE7241 155,842 7 June 29, 2001 GE7241 155,842 8 July 3, 2001 GE7241 155,842 9 May 6, 2001 GE7241 155,842 ---------------------------------------------------------------- 1.4 PROJECT DESIGN AND CONDITION OF ASSETS Stone & Webster performed a site inspection at the Project, and reviewed relevant inspection and design reports to assess the condition of the equipment. Stone & Webster has reviewed the design criteria for the major mechanical and electrical systems and the civil/structural design requirements of the Project. The design configuration of the Project is typical of modern natural gas fired, simple cycle power generating stations. Appropriate equipment redundancy has been included in the design to achieve a high level of operating reliability. If the Project is operated in accordance with accepted electric utility practices, it should be able to safely and reliably perform as represented in the Financial Projections. Units 1 through 4 were constructed under two separate EPC Agreements, and Units 5 through 9 were constructed under three separate EPC Agreements. Units 1 through 4 entered into commercial operation in 1999 and all terms of the EPC Agreements have been satisfied. Units 5 through 9 entered into commercial operation in 2001 and are complete except for minor "punchlist" items and some outstanding change orders in the amount of approximately $3 million, which are currently being negotiated. GE has submitted a claim for additional payment in connection with the construction of Units 5-9, asserting differing site conditions that required unanticipated cut and fill work, severe weather that constituted force majeure for purposes of determining whether required performance should be delayed, and damage to a gas turbine during ocean shipment that required procuring a replacement generator and rescheduling work activities. GE's total claim is approximately $17 million above the amount budgeted for payment under the EPC Contracts. Dominion Energy, Inc. and Peoples Energy Resources Corp. have agreed to advance the Project any amount that is paid to GE in excess of the EPC budget, in the form of subordinated debt. The EPC Agreements included reasonable and customary terms - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-3 10/12/01 EXECUTIVE SUMMARY ================================================================================ and conditions including provisions for, among other things, bonuses, liquidated damages, warranties, and performance testing. 1.5 PERFORMANCE Performance guarantees and the procedures for conducting the performance tests and criteria are provided in each EPC Agreement. All nine units have successfully passed the Operational Capability Tests. Units 1, 2, and 5 through 9 have met or exceeded capacity and heat rate performance guarantees. Units 3 and 4 were accepted as being within the contractual test tolerances. Acoustic Associates, Ltd. prepared reports to present the results of the near field sound level tests on Units 1 through 4, 5, and 9. The reports indicate that the sound level measurements met the near field noise guarantee as required in the EPC Agreement. Data for far field testing was taken and evaluated for compliance with Illinois State Regulations. A preliminary analysis from Acoustic Associates, Ltd. showed compliance. There are no schedule issues with Units 1 through 4 since they have been operating for approximately two years. Units 5 through 9 have also been completed in advance of their scheduled completion dates Stone & Webster has reviewed the historical availability, forced outage, and heat rate data for each of the units. This data was found to be consistent with industry norms. Stone & Webster has reviewed the Projected availability, forced outage, and heat rate data used by Pace and conclude that they are reasonable. The projected maintenance and capital expenditures budgets allow for adequate repairs and equipment replacement to maintain the Projected level of reliability. 1.6 POWER SALES AGREEMENTS The Owner has entered into long-term power sale agreements covering the sale of all capacity and electric energy output of the facility. An agreement with Exelon Generation Company, LLC covering Units 3, 4 and 9 through December 31, 2012 and Units 1 and 2 from January 1, 2005 through December 31, 2012; two agreements with Aquila Energy Marketing Corporation covering Units 5 and 6 and 7-8 for terms expiring on August 31, 2016 and August 31, 2017 (and further subject to a five year extension by Aquila), respectively; and an agreement with Engage Energy US, L.P. covering Units 1 and 2 through December 31, 2004. The terms of the Engage contract are rendered moot by a monthly adjustment under the Exelon contract. Under separate contract, Exelon re-purchased from Engage the rights to dispatch Units 1 and 2 through December 31, 2004. Exelon and the Owner subsequently agreed to adjust the pricing of dispatches under the Engage contract to equal that contained in the Exelon agreement. The power sales agreements require Exelon and Aquila to pay 1) a monthly fixed fee "capacity charge" based on the tested capacity of the units, as adjusted for the performance reliability of the facility (see below); and 2) an energy payment composed of a fuel charge based on the published index price of gas and the facility's heat rate, plus certain variable O&M expenses. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-4 10/12/01 EXECUTIVE SUMMARY ================================================================================ This structure is the economic equivalent of a tolling arrangement whereby fuel and variable costs are collected via the energy charge when dispatched. Capacity payments under the Exelon and Aquila agreements contain incentives to promote operation of the units in the most reliable manner. Increases to capacity payments as bonuses and decreases in the capacity payments as penalties are defined in Section 3.7 of this Report. Reductions to capacity payments are limited to instances where Owner fails to meet the dispatch of Exelon and Aquila, after options for use of replacement power, and cannot be more than the capacity. The Owner should be able to earn equivalent availability and monthly reliability bonuses for performance and satisfy the operational standards set forth in this Agreement. Pace has determined that based on upon the payment structure of the Aquila PSA's, the Project's forecast dispatch profile, forecast market-clearing prices, and the market-based revenues that Aquila is forecast to earn by marketing the output and capacity of Units 5 through 8, there is a sufficient economic incentive that would cause Aquila to exercise its option to extend the term of the Aquila PSA's for an additional five year period. Upon expiration of the Exelon PSA and Aquila PSA Extension, the Owner will enter into new term agreements. If new term agreements are not signed, the Owners will sell the capacity and energy from the Project on a "merchant" basis. 1.7 FUEL SUPPLY AND MANAGEMENT The Owner has entered into a supply agreement with Cinergy Marketing and Trading LLC to procure, schedule and deliver to Northern Illinois Gas Company (Nicor) and or Peoples Gas, on a firm (non-interruptible basis) to meet the Project's fuel requirements on firm power sales. A separate agreement between the Owner and Nicor (described below and in Section 4.2.5) provides gas transportation and balancing for the gas arranged by Cinergy under this Agreement. Cinergy, as agent of Elwood under the Elwood-Nicor contract, may procure interstate gas supplies from NBPL, APL and Natural Gas Pipeline Company of America (NGPL) to support the Project's needs. The quantity of fuel to be supplied and delivered pursuant to these Agreements should be sufficient to support the operation of the units at the anticipated dispatch levels. Fuel costs paid by the Owner to Cinergy are indexed to the published price of daily gas supplies. Similarly, the fuel component of the energy charge revenues in the Aquila and Exelon power sales agreements are indexed to the price of daily gas supplies, mitigating price risk and creating the economic equivalent of a tolling arrangement. With respect to the forecast variance charges and storage inventory overrun charges to be paid by the Owner under these Agreements, the amount to be paid is largely dependent upon the Owner's ability to anticipate Unit dispatch. The amounts to be paid, if any, are also dependent upon Cinergy's ability to manage fuel supply and transportation on behalf of the Owner. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-5 10/12/01 EXECUTIVE SUMMARY ================================================================================ 1.8 GAS TRANSPORTATION AND BALANCING The Owner has entered into a long-term transportation and storage balancing service with Northern Illinois Gas Company (Nicor) for firm (non-interruptible) hourly delivery of fuel supplies in quantities sufficient to meet the firm dispatch obligations of Exelon and Aquila. Peoples Gas is the owner and operator of the gas pipeline delivering to the facility but Nicor holds the utility franchise to gas utility services in this region. Nicor was consequently selected as the contract provider of gas transportation and balancing services but owns only meters and meter runs at the facility. Nicor contracts with Peoples for service to support transportation and balancing services to the facility on substantially the same terms and conditions as the Owner's contract with Nicor. The Owner may purchase Nicor's meter facilities and bypass Nicor via lump-sum buyout provisions if more competitive services are available directly from the interstate pipelines. The Peoples pipeline is interconnected with high pressure interstate gas supplies received from Northern Border Pipeline Company (NBPL) approximately 2.8 miles from the facility and from the Alliance Pipeline Company (APL) at an interconnect located just a few hundred feet of the facility. Nicor and Peoples have entered into contracts with NBPL to provide hourly balancing services to support the facility. The Peoples pipeline is also connected to their Mahomet Pipeline, which receives and delivers gas to Peoples' underground cavern storage facilities at Manlove Field, in the event of a pipeline curtailment. 1.9 OPERATION AND MAINTENANCE Stone & Webster reviewed staffing, O&M, and major maintenance expense information provided by the Owners. The O&M Agreements for the units provide for payment of an annual fee and further provide for reimbursement of certain costs as more specifically defined in the Agreement. The terms and conditions of these Agreements were similar to other cost plus O&M arrangements we have reviewed for other projects. The O&M Agreements do not include incentives for operation of the units at certain levels. However, given the relationship of the parties involved in ownership of the Project and the parties to the O&M Agreements and the performance incentives provided through the Power Sales Agreements, it is reasonable to believe that the operator has appropriate incentives to meet or exceed the operational standards set forth in the Power Sales Agreements. 1.10 ENVIRONMENTAL AND SITE ASSESSMENT The Project site is located in Will County, Illinois. The site is accessible by county roads and interstates. Rail transportation is available and during construction, arrangements were made for unloading equipment on the siding in Millsdale, Illinois, near the Elwood Site. The same arrangements should be available for heavy equipment transportation during the commercial operations period if necessary. The EPC Agreements for Units 1 through 9 require the Contractor to be responsible to determine subsurface conditions at the site. The EPC Agreements also specify civil codes and standards, which Stone & Webster considers appropriate. Given the structure of the EPC Agreement - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-6 10/12/01 EXECUTIVE SUMMARY ================================================================================ requirements, Stone & Webster believes that the foundations for Units 1 through 9 and other structures are acceptable. The objectives of the report were to establish an environmental baseline for soil and ground water and to determine the potential for adverse health impacts for workers. Stone & Webster reviewed the Phase I Environmental Site Assessments prepared by Woodward-Clyde International-Americas. The Report, among other things, concludes that the concentrations of certain constituents do not exceed Tier 1 remediation objectives and thus do not pose a health and safety concern for future operations activities. An application for the CAAPP operating permit will be submitted to the Illinois EPA within 180 days following initial startup of Units 5 through 9 in order to allow for equipment shakedown and emissions testing. The submittal of a complete permit application will satisfy the CAAPP permit requirements and will ensure that Units 5 through 9 operate in compliance with those requirements. The low NO(x) emissions for the units should result in relatively low emission allowance costs. Based on the allowance price forecast, NO(x) allowance costs are projected to cost the Project $4.9 million over the term of the Projections. The legal and regulatory requirements have been identified for the Project. Certain Illinois EPA permits are pending, but they are considered routine and no problems are anticipated in obtaining them. The Project is not under any enforcement issues regarding permitting or compliance with Federal, State or local regulatory agencies. 1.11 REMAINING LIFE The remaining life of the Assets was evaluated for 25 years. The performance, O&M budget, and capital expense estimates have been prepared to 2026. The remaining life estimates are based on the Owners continuing to operate under the Projected estimated budget for the period 2001 through 2026. With proper O&M and adequate funding of the required capital and overhaul expenses, all the units should be capable of operating for the evaluated Asset life. 1.12 FINANCIAL PROJECTIONS Stone & Webster has prepared Financial Projections for the Project from October 2001 through June 2026. The cash available for debt service is compared to the Owner's annual debt service obligation to determine the DSCR for each year for the term of the Financial Projections. The Financial Projections include a base case and two downside alternatives taken from the Pace forecasts. In addition, Stone & Webster performed sensitivity analyses using the pro forma financial model by increasing the O&M expenditures, decreasing the inflation rate, assuming that the Aquila contract is not extended, and excluding the volatility revenue. Stone & Webster combined the forecasts developed by Pace, the O&M expense forecasts and contract energy sale projections provided by the Owners, and the debt service schedule provided - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-7 10/12/01 EXECUTIVE SUMMARY ================================================================================ by CSFB to develop the Financial Projections. The Financial Projections are based on market energy and capacity price forecasts, and facility specific energy generation forecasts developed by Pace. The fuel expenses are based on natural gas fuel projections by Pace. The forecasts prepared by Pace extend through December 2026. Stone & Webster has reviewed the assumptions and the data necessary to support the Projections of cash flow available for the debt service payments, Stone & Webster has verified that the underlying model assumptions are consistent with the Pace projected generation and pricing. Stone & Webster did not review the financing assumptions, including the debt service payment, which was provided by CSFB. These Financial Projections represent Stone & Webster's best judgment of the Projected performance of the Project. 1.13 CONCLUSIONS Set forth below are the principal opinions, which have been reached regarding the review of the Project. For a complete understanding of the assumptions upon which these opinions are based, the Report should be read in its entirety. On the basis of our review and the assumptions set forth in the Report, Stone & Webster provides the following opinions: 1. The Project was found to be well maintained and in good condition. The Project has been designed, constructed, operated, and maintained according to good utility industry practice. The Project should function beyond the period of the debt term, provided equipment is operated and maintained in accordance with good utility industry practice. The Owner has proven experience operating and maintaining power plants. 2. The Project participants have extensive corporate experience in the development, design, procurement, construction, testing, and operation of power plants and in procuring and transporting natural gas. 3. Stone & Webster reviewed the technical assumptions that were used as inputs to Pace's dispatch simulation model. The key input data, in Pace's model such as claimed capacity, scheduled and forced outage rates, and heat rate are reasonable and are consistent with comparable units. 4. The anticipated performance of the Project, given the condition and capability of the units, is accurately reflected in the Financial Projections. 5. The Project is technically capable of performing at the capacity factors projected by Pace. 6. The O&M expenses forecasted by the Project are consistent with the staffing and operating plan and recent historical expenses for the Project. The O&M expenses appear reasonable and adequate to meet the Project's operation, maintenance and performance objectives. 7. The Project staffing is reasonable for a peaking facility. 8. The overhaul schedules developed by the Project are prudent and consistent with current and forecasted operations. The overhaul expenses forecasted in the Financial Model are consistent with the overhaul schedules and should be adequate to support the continued operation of the Project through 2026. 9. The on-going repair/replacement expenses forecast for the Project forecast are reasonable and consistent with the design of the assets and the projected capacity factors. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-8 10/12/01 EXECUTIVE SUMMARY ================================================================================ 10. The Project is in compliance with current permit requirements. Phase I Environmental Site Assessments (ESAs), prepared by others, were provided for the Project and reviewed. 11. The technical assumptions assumed in the Financial Projections are reasonable and are consistent with the agreements. The financial model fairly presents, in our judgment, projected revenues and projected expenses under the Base Case Assumptions. Therefore, the Financial Projections are a reasonable forecast of the financial results under the Base Case Assumptions. 12. The Projected revenues are more than adequate to pay the annual operating and maintenance expenses (including provisions for major maintenance), other operating expenses, and debt service based on our studies and analyses and the assumptions set forth in this Report. Contributions to major maintenance reserves and debt service reserves are excluded from cash flow available for debt service. The debt service requirements for each year are the payments to be made on July 5 of that year and January 5 the following year. The Base Case resulting minimum DSCR is 1.5lx and occurs in 2005 and 2006. The Base Case resulting average DSCR is 3.60x. The following table summarizes the Base Case and sensitivities: ================================================================================ Base Case and Sensitivity Summary ================================================================================ Minimum DSCR Average DSCR - -------------------------------------------------------------------------------- Base Case 1.51x 3.60x - -------------------------------------------------------------------------------- Increased O&M Cost 1.49x 3.56x - -------------------------------------------------------------------------------- Decreased Inflation Rate 1.5lx 3.36x - -------------------------------------------------------------------------------- High Gas Price Case 1.50x 3.58x - -------------------------------------------------------------------------------- Overbuild Case 1.5lx 3.55x - -------------------------------------------------------------------------------- No Aquila Contract Extension 1.5lx 3.83x - -------------------------------------------------------------------------------- No Volatility Revenue 1.5lx 2.97x ================================================================================ - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-9 10/12/01 SECTION 2.0 PROJECT DESIGN Stone & Webster has reviewed the design criteria for the major mechanical and electrical systems and the civil/structural design requirements of the Project. The following discussion of Project design features is based on details provided in the technical specifications established in the EPC Contracts except where otherwise noted. The design configuration of the Project is typical of modern natural gas fired, simple cycle power generating stations. Appropriate equipment redundancy has been included in the design to achieve a high level of operating reliability. If the Project is operated in accordance with accepted electric utility practices, it should be able to safely and reliably perform as presented in the Financial Projections. 2.1 ELECTRIC POWER GENERATION EQUIPMENT The Project features power generation equipment manufactured by the General Electric Company (GE). All of the combustion turbines are the 7FA type, however Units 1 through 4 use the model PG7231 turbine and Units 5 through 9 use the model PG7241 turbine. The primary difference between these two models is that the newer PG7241 is designed to operate at a higher combustor temperature, which improves the overall turbine performance. All of the combustion turbines are designed to operate on natural gas as the sole fuel. The 7FA turbines utilize dry low nitrogen oxide (NO(x)) combustion technology with inlet air cooling. The NO(x) emission level is controlled by algorithms implemented by the GE SPEEDTRONIC turbine control system provided with each turbine. The control system regulates the distribution of the gas fuel to each of the natural gas nozzles and to the total premix combustor arrangement. Inlet Air System Each combustion turbine is equipped with an inlet air system to condition the inlet combustion air to ensure the quality and cleanliness. The inlet air system includes high efficiency, self-cleaning, media filters, evaporative coolers, silencing features, a plenum and ductwork and a support structure with walkways, ladders, and platforms. The evaporative coolers are used during warm weather operation to cool the inlet air, which improves the combustion turbine performance. Fuel System The natural gas fuel system includes fuel nozzles in each combustion chamber, a fuel gas "Y" strainer, stainless steel fuel piping, flexible fuel nozzle pigtails, fuel gas stop/speed ratio and control valves, and instrumentation to monitor fuel pressure, gas control valve discharge pressure, and gas stop/ratio valve discharge pressure. The fuel system pressure is designed to - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 10 10/12/01 PROJECT DESIGN ================================================================================ be maintained between 380 and 450 psig, depending upon turbine load conditions, and is sized for the full load gas flow required by the combustion turbine. Exhaust System The hot exhaust gases are discharged axially from the combustion turbine. The exhaust system for each combustion turbine includes a diffuser, expansion joint, ducting, silencer and stack. Lubrication and Hydraulic System The lubrication and hydraulic control oil system for each turbine generator package is incorporated into a common system located in the auxiliary compartment. The lubrication and hydraulic oil systems consist of one 100 percent capacity AC motor-driven main lube oil pump, one 100 percent capacity AC motor-driven auxiliary lube oil pump, one 100 percent capacity AC main hydraulic oil pump, one 100 percent capacity AC motor-driven auxiliary hydraulic oil pump, one DC motor-driven emergency lube oil pump, one bearing lift oil pump, and one AC/DC emergency seal oil pump. Dual oil coolers, dual lube oil filters and dual hydraulic oil filters are also provided. Turning Gear and Starting System Each combustion turbine is provided with an AC motor driven turning gear for rotor cooldown and indexing. A single 12 pulse water-cooled static starting system is shared by the two CTGs within each two CTG group (1 and 2, 3 and 4, 5 and 6, 7 and 8). Unit 9 is furnished with a dedicated LCI starting system with provisions for interface to a tenth CTG. The LCI static starting system provides variable frequency power directly to the generator terminals, using the generator as a motor to accelerate the turbine to a self-sustaining condition. Since the Facility does not have "black start capability, backfeed of power from the grid is required to operate the static starting system and start the CTGs. Compressor Water Wash System A compressor water wash system is shared by the two CTGs within each two CTG group (1 and 2, 3 and 4, 5 and 6, 7 and 8). Unit 9 is furnished with a dedicated water wash system with provisions for interface to a tenth CTG. The system is used to remove fouling deposits, which can accummilate on the compressor blade surfaces. Deposits such as dirt, oil mist, industrial or other atmospheric contaminants from the surrounding site environment, will reduce air flow, lower the compressor efficiency and lower the compressor pressure ratio, which will reduce thermal efficiency and output of the combustion turbine. Compressor cleaning removes these deposits to restore performance and slow the progress of internal corrosion, thereby increasing blade wheel life. The water wash system includes provisions for both on-line and off-line cleaning. The on-line cleaning system utilizes water injection sprays to clean the blades while the compressor is - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-11 10/12/01 PROJECT DESIGN ================================================================================ running. The off-line cleaning system injects a cleaning solution into the air compressor, while it is being turned at cranking speed. The advantage of on-line cleaning is that washing can be accomplished without having to shut down the combustion turbine. On-line washing, however, is not as effective as off-line washing, therefore, the on-line washing is utilized to supplement off-line washing. Combustion Turbine Control System Each combustion turbine is controlled by a GE Mark V SPEEDTRONIC microprocessor-based control system. This control system is, structured around triple redundant controllers, processors and sensors, and has been proven to be extremely reliable. Mark V features include fuel flow control, automatic and manual synchronizing, droop control, load limiting, vibration monitoring, overspeed protection, power factor/VAR control, and speed control (governor), and voltage control. Fire Protection System The design for the combustion turbine and accessory compartments includes fire detection and C02 fire suppression systems. A system of hazardous atmosphere detectors is used to automatically initiate the release of C02. The fire protection system is capable of establishing a non-combustible atmosphere in less than one minute in accordance with the National Fire Protection Association Standards. Generator Each combustion turbine drives a General Electric 7FH2 hydrogen cooled electric generator rated at 195.3 MVA, 166 MW, 18 kV, 0.85 power factor (lagging), 60 Hz and 3,600 rpm. The generator windings are manufactured using class F insulation with a class B temperature rise. The generator supporting equipment includes a digital static excitation system, surge protection, electrical protection module, a power system stabilizer and a grounding transformer with secondary resistor and motor-operated disconnect switch. Electrical protection for the generator and generator step-up transformer is provided by a combination of integrated and discrete relays located on the generator control panel. Temperature monitoring is provided for stator windings, hydrogen cooling gas path, bearings, and lube oil system. Generator bearing lube oil and bearing lift oil systems are supplied from the combustion turbine lubrication system. A recirculating hydrogen gas cooling system is provided for each generator. The cold gas is circulated into and around the stator core using generator fans. After the gas has passed through the generator, it is cooled by five gas-to-water heat exchangers and is then returned to the rotor fans and recirculated. With a single cooler out of service, the generator design capacity is reduced to about 80 percent of its rating, based on a class F temperature rise. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-12 10/12/01 PROJECT DESIGN ================================================================================ A hydrogen control system maintains the hydrogen purity in the generator casing at approximately 98 percent. Carbon dioxide is used to purge the generator casing of air before admitting hydrogen and to purge hydrogen before admitting air. The generator is equipped with a seal oil system, to minimize leakage of hydrogen gas past the generator bearing seals. Enclosures The packaged electric and electronic control compartment (PEECC) is a completely enclosed, self contained electronic and electrical control compartment designed for outdoor installation. Heating, air conditioning, compartment lighting, power outlets, temperature alarms, and smoke detectors are included for protection of personnel and equipment in the compartment. Turbine and generator control panels located inside the PEECC allow local monitoring and control of the CTGs. The PEECC also houses the combustion turbine motor control centers and 125Vdc system including battery and charger. Enclosures are also supplied for the combustion turbine, the turbine accessory compartment, and the generator compartment. The enclosures provide weather protection, thermal insulation, acoustical attenuation and fire containment. The enclosures allow access to equipment for routine inspections and maintenance. These enclosures are ventilated, heated, lighted and fire protected. Motor Control Centers, Batteries and Chargers Each combustion turbine generator is supplied with two motor control centers for distribution of 480 Vac power to auxiliary equipment. A 125 Vdc system consisting of a lead acid battery and redundant battery chargers provides each turbine generator a source of stored energy for operation of control systems, electrical protection systems, and lubrication pumps during emergency conditions when AC power is not available. Stone & Webster is of the opinion that the GE combustion turbines, electrical generators and auxiliary equipment provided are capable of supporting the safe and reliable operation of this Project if installed, operated and maintained according to the manufacturer's recommendations. 2.2 AUXILIARY PLANT SYSTEMS The auxiliary plant systems operate to support plant operation and the primary power production equipment. The following is a summary of these necessary systems. Facility Fuel Gas System Natural gas arrives at the Facility fuel gas pressure regulating stations through a 24" diameter supply pipeline at a pressure varying from 500 psig to 700 psig. There are plans to increase the supply pressure in the future to 1,050 psig. At present, the supply pipeline receives natural gas - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-13 10/12/01 PROJECT DESIGN ================================================================================ from the Alliance pipeline and the Northern Border pipeline. There are three pressure regulating stations at the site supplying Units 1 through 4, Units 5 through 8 and Unit 9, respectively. In addition to the pressure regulators, the fuel gas system includes fuel gas scrubbers, fuel gas heaters, fuel meters and all associated piping, valves and controls. Service Water/Potable Water System The service water supply for the Station originates from wells on the adjacent property owned by Peoples Energy Corporation. These wells were initially established to meet the requirements of the synthetic gas plant originally operating adjacent to the Unit 1 through 4 site. Presently, the service water facility consists of two 700 gpm well pumps, one 932,700 gallon storage tank, three 740 gpm service water pumps and two 165 gpm service water pumps. The two smaller pumps were recently added to reduce the operating frequency of the larger pumps when demand for water is reduced. A separate potable water supply system receives water from the wells. The potable water supply system consists of a supply tank, a chlorinator and two potable water supply pumps. Demineralized Water System The station service water system provides water to the demineralized water system, which provides water for washing the CTG air compressor blades. A trailer-mounted demineralizer is brought to the site and used to provide the demineralized water. Station Fire Protection System The Station fire water system uses water stored (750,000-800,000 gallons) in the lower part of the service water storage tank. This water is provided to the fire water pumps, where it is pumped through the Station fire water system. The pumps include a 2,500 gpm electric motor-driven fire pump, a 2,500 gpm diesel-driven fire pump and a 50 gpm jockey fire pump. The water system is pressurized to 125 psig. The fire water pumps supply water to a fire water loop distribution system protecting Units 1 through 4 and to a second fire water loop system protecting Units 5 through 9. Each fire water distribution system is arranged in a loop configuration with hydrants and hose cabinets. The main step-up transformers are provided with water from the distribution headers and each is protected with a deluge sprinkler system. Compressed Air System The Station compressed air system is comprised of a utility air system for general station compressed air requirements and an instrument air system, which produces clean and dried compressed air for use by plant instrumentation and controls. The compressed air system includes redundant air compressors, receivers and air dryers. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-14 10/12/01 PROJECT DESIGN ================================================================================ Hydrogen and Carbon Dioxide Gas Systems The hydrogen system consists of both standard pressurized hydrogen storage bottles and a Station bulk hydrogen storage system. The hydrogen storage system is used to maintain the hydrogen pressure of all nine electrical generators. The carbon dioxide system is available for use in purging the electrical generators of hydrogen before they are opened for inspection or maintenance. Each electrical generator is equipped with a manifold and standard pressurized carbon dioxide storage bottle. 2.3 STATION ELECTRICAL SYSTEMS Station Switchyard and Utility Interconnection The ComEd Elwood Energy Center 345 kV switchyard is arranged in a double ring bus configuration. One ring bus is identified as the red bus, and the other as the blue bus. The Electrical Interconnection between the Project and the ComEd grid will be made at the interface between the Project section of the switchyard and the ComEd section of the switchyard. Five of the nine units for the Elwood Project are connected to a common collector bus in the Project section of the switchyard via overhead transmission lines. Three 345 kV breakers, provide protection and isolation for the units and overhead lines prior to connection to the collector bus. One breaker is provided for each of the two pairs of CTG units, and the third breaker is provided for Unit 9. The Projects collector bus is in turn connected via a single line to the ComEd blue ring bus in the ComEd section of the switchyard (Point of Interconnection). The other four units are each connected to a second collector bus located in the Project section of the switchyard via overhead transmission lines. The second collector bus is in turn connected via a single line (Point of Interconnection) to the ComEd red ring bus. Metering is provided at the 345 kV level on the ComEd side of the interconnection between the collector bus and the red ring bus and revenue metering is provided on each individual unit. The 18 kV generator breakers provide protection and isolation for the units and overhead lines. The collector bus is designed to accommodate the future addition of a tiebreaker, additional generators, and a second connection to ComEd's blue ring bus. Generation System The electrical generation system consists of the generator, the generator step up transformer, excitation system, and interconnecting isolated phase bus duct. (The technical description of the generator is provided above as part of the combustion turbine generator description.) Each generator energizes a 18-362 kV, 115/154/192 MVA, OA/FA/FA, 65(degree)C. three-phase, 60 HZ, grounded wye-delta, step-up transformer with a +/-2-2.5 percent no load tap changer. Each transformer is sized to deliver the maximum MVA output of each combustion turbine generator. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-15 10/12/01 PROJECT DESIGN ================================================================================ A 24 kV, 8,000 amp SF6 generator circuit breaker is provided for each electrical generator. The 24 kV generator breakers includes gang operated disconnect switches, current transformers, potential transformers, lightning arrestors and surge capacitors. Each electrical generator is connected to the associated step-up transformer through an isolated phase bus duct, which is sized to accommodate the generator output under all loading conditions. The referenced generator breaker and isolated phase bus duct sizing criteria, accessories, standards, and fabrication requirements are in accordance with good utility practice. Auxiliary Electrical Distribution System The station auxiliary loads are supplied from a unit auxiliary transformer (UAT) connected to the 18 kV generator isolated phase bus duct between the generator breaker and the generator step-up transformer. Each auxiliary transformer is rated 12 MVA, 18 kV-4.16 kV, delta-wye grounded with +/-2-2.5% high voltage taps. Each transformer is sized to serve the load requirements of the two units within each two unit group (1 and 2, 3 and 4, 5 and 6, 7 and 8, and 9 and future). Medium and Low Voltage Electrical Distribution Systems Each of the two UATs within each group of two CTGs energizes one end of a double ended 4.16 kV switchgear bus. The double ended switchgear bus is furnished with a tie breaker, allowing either CTG to provide auxiliary power to both CTGs in the group. The LCI static starting system, generator excitation system, and 480 V secondary unit substations are fed from the 4.16 kV switchgear. The secondary unit substations are also designed in a double ended with tie breaker configuration. Each 4.16 kV switchgear bus energizes one end of the substation. The secondary unit substations in turn provide power to the MCCs and other low voltage loads. Emergency Power, DC, and UPS Systems A connection is provided to each 4.16 kV switchgear from a 34.5/4 kV power feed which is independent of the TSS-900 switching station. Should power be lost from the normal 345 KV feed through the GSUs, the system will automatically be aligned to the emergency power system to allow a normal shutdown of the unit. Each combustion turbine generator is designed with a DC System capable of providing stored energy to safely shut the unit down while providing emergency lighting, and power for critical control and protection systems. The overall Facility is furnished with a 3 kVA, 120 Vac UPS system capable of providing regulated uninterruptible power to critical AC loads. The UPS system includes the inverter, battery, redundant chargers, static transfer switch, and bypass. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-16 10/12/01 PROJECT DESIGN ================================================================================ Miscellaneous Electrical Systems and Equipment Requirements for station grounding systems, electrical protection, lightning protection, lighting, freeze protection, and communications systems are specified and included in the design. A lighting system with fixtures, poles, convenience receptacles, welding receptacles and switches is included in the design. A grounding system consisting of a network of bare copper conductor and ground rods, in accordance with NEC requirements, is provided to ensure equipment and personnel safety. Lightning protection for buildings and structures in accordance with NFPA requirements is included in the Facility design. Lightning arrestors are required by the design for the generator step-up transformers. Freeze protection is provided for enclosures, piping, instrumentation, and other devices subject to freezing. The communications system for normal and emergency operations are required by OSHA. The Elwood communication system design includes hand held radios, desktop telephones in offices and other occupied areas, and CCTV/security for gate access. Instrumentation and Controls In addition to local control of the CTGs from the PEECC, the CTGs communicate with supervisory interface servers located in the existing Facility central control room via an Ethernet connection. Dual redundant GE PLCs are provided to perform control and monitoring of BOP systems and equipment including the fuel pressure reduction station, fuel heaters, air compressor, and CEMS. The CEMS system is be provided with NO(x) and O2 analyzers. The system includes a PLC for control, data acquisition, data storage, automatic calibration, and report generation. 2.4 CIVIL, STRUCTURAL AND ARCHITECTURAL The EPC Contractor provided all materials, labor, equipment, and services necessary to develop the site and construct the power facilities. This included all foundations, buildings, structures, geotechnical investigations, surveys, clearing and grubbing, excavation, filling and backfilling, paving, surfacing, utilities, culverts, finished grading, landscaping and fencing. The Contractor designed and constructed the Project in conformance with prudent utility industry practice and with all applicable national, state and local engineering, environmental, construction, safety, and electrical generation codes and standards. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page-17 10/12/01 SECTION 3.0 CONTRACTS AND AGREEMENTS 3.1 ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC) AGREEMENTS Units 1 through 4 Two separate EPC Agreements were prepared to develop the site and construct the first four units. The first EPC Agreement was executed on July 23, 1998 between the General Electric Company (Contractor) and Elwood Energy LLC (Owner). Under the terms of this Agreement, the Contractor developed the site and installed Units 1 and 2 for a lump sum price of $91,281,000. The second EPC Agreement was executed on September 25, 1998 between the General Electric Company (Contractor) and Elwood Energy LLC (Owner). This Agreement and a subsequent Amendment, dated April 26, 1999, covered the installation of Units 3 and 4 for a lump sum price of $87,966,635. The four units all achieved commercial operation in 1999. All terms of the EPC Agreements have been satisfied and there are presently no disputed conditions. 3.2 ENGINEERING, DESIGN, PROCUREMENT, CONSTRUCTION AND INSTALLATION SERVICES (EPC) AGREEMENTS Units 5 through 9 Three separate EPC Agreements were prepared to develop Units 5 through 9. For these units, an equipment purchase contract was executed first for the power producing equipment, an EPC Agreement was then prepared for the installation of the equipment purchased and for installation of balance-of-plant equipment, and then the initial equipment purchase contract was amended to include the balance of plant equipment. Units 5 and 6 For Units 5 and 6, an EPC Agreement was executed on July 31, 2000 between the General Electric Company and Elwood Energy II, LLC for the installation, start-up and testing of the two units. The Agreement established a fixed Contract Price of $23,473,950 for performance of the work. The Contract Price was to be paid in accordance with a Milestone Schedule (Exhibit B of the EPC Agreement) established on the basis of scheduled dates and specific activities over a 25 month period. No retainage was specified. All of the scheduled dates and durations of the EPC Agreement were based on the Provisional Acceptance Date. The Required Provisional Acceptance Dates for Unit 5 and Unit 6 of June 1, 2001 and June 15, 2001, respectively, have been achieved. The Agreement includes provisions for Contractor schedule bonuses and liquidated damage payments from the Contractor for exceeding or missing the Provisional Acceptance Dates and the Guaranteed Performance Conditions. For each Unit, schedule bonuses will be paid for - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 18 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ achieving Provisional Acceptance earlier than scheduled in accordance with Exhibit N of the EPC Agreement. The bonus period is from May 1 through June 15 and can result in a maximum cumulative bonus of $880,000 for both units. There are provisions, however, for reducing the bonus if the Demand Reliability Rate is determined to be less than 92%. The performance related liquidated damage provisions require the Contractor to pay the Owner $500/kW if the net Unit output falls below 155,842 kW for each Unit, provided, however, that a deficiency in output of no more than 1,500 kW on a particular Unit max be offset to the degree that the output of the other Unit exceeds the guaranteed output without the imposition of liquidated damages. In addition, the Contractor is required to pay the Owner $12,133 per Btu/kWh if the net heat rate exceeds 9,696 Btu/kWh for each Unit, provided, however, that a deficiency in the net Unit heat rate of a particular Unit of no more than 100 Btu/kWh (net) max be offset to the degree thermal performance of the other Unit exceeds the guaranteed heat rate without the imposition of liquidated damages. The total liability of the Contractor for failure to meet the Unit output and heat rate guarantees is limited to $14,547,840. The liability cap for all liquidated damages under the Agreement is limited to $24,246,400. Exhibit K of the EPC Agreement specifies all of the tests required to achieve Provisional Acceptance. These tests include the testing required to determine if the guarantee conditions for electrical output, heat rate and emissions have been achieved and in addition require testing of the fire protection system. It also requires that the combustion turbine generator successfully pass five types of operational capability tests. Exhibit D of the EPC Agreement establishes the specific procedures for conducting the electrical output and heat rate tests for each Unit. A warranty period has been established for each Unit based on the earliest of 150 starts after Provisional Acceptance or 1,250 fired hours after Provisional Acceptance or 24 months after Provisional Acceptance. Unit 5 successfully achieved Provisional Acceptance on May 9, 2001 and was declared Commercial to Aquila on May 10, 2001. Unit 6 successfully achieved Provisional Acceptance on May 31, 2001 and was declared Commercial to Aquila on the same day. Units 7 and 8 For Units 7 and 8, an EPC Agreement was executed on July 31, 2000 between the General Electric Company (Contractor) and Elwood Energy III, LLC (Owner) for the installation, start-up and testing of the two units. The Agreement established a fixed Contract Price of $29,983,750 for performance of the work. The Contract Price was to be paid in accordance with a Milestone Schedule (Exhibit B of the EPC Agreement) established on the basis of scheduled dates and specific activities over a 22 month period. No retainage was specified: however the last payment is contingent upon Final Acceptance. All of the scheduled dates and durations of the EPC Agreement were based on the Required Provisional Acceptance Date. The Required Provisional Acceptance Dates of July 1, 2001 for Unit 7, and August 1, 2001 for Unit 8 have been met. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 19 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ The Agreement includes provisions for Contractor schedule bonuses and liquidated damage payments from the Contractor for exceeding or missing the Provisional Acceptance Dates and the Guaranteed Performance Conditions. For each Unit, schedule bonuses will be paid for achieving Provisional Acceptance earlier than scheduled in accordance with Exhibit N of the EPC Agreement. The bonus period is from June 1 through July 15 and can result in a maximum cumulative bonus of $6,580,000 for both units. There are provisions, however, for reducing the bonus if the Demand Reliability Rate is determined to be less than 92%. The performance related liquidated damage provisions require the Contractor to pay the Owner $500/kW if the net Unit output falls below 155,842 kW for each Unit, provided, however, that a deficiency in output of no more than 1,500 kW on a particular Unit may be offset to the degree that the output of the other Unit exceeds the guaranteed output without the imposition of liquidated damages. In addition, the Contractor is required to pay the Owner $12,133 per Btu/kWh if the net heat rate exceeds 9,696 Btu/kWh for each Unit, provided, however, that a deficiency in the net Unit heat rate of a particular Unit of no more than 100 Btu/kWh (net) may be offset to the degree thermal performance of the other Unit exceeds the guaranteed heat rate without the imposition of liquidated damages. The total liability of the Contractor for failure to meet the Unit output and heat rate guarantees is limited to $16,610,378. The liability cap for all liquidated damages under the Agreement is limited to $27,683,963. Exhibit K of the EPC Agreement specifies all of the tests required to achieve Provisional Acceptance. These tests include the testing required to determine if the guarantee conditions for electrical output, heat rate and emissions have been achieved and in addition require testing of the fire protection system. It also requires that the combustion turbine generator successfully pass five types of operational capability tests. Exhibit D of the EPC Agreement establishes the specific procedures for conducting the electrical output and heat rate tests for each Unit. A warranty period has been established for each Unit based on the earliest of 1 50 starts after Provisional Acceptance or 1,250 fired hours after Provisional Acceptance or 24 months after Provisional Acceptance. Unit 7 achieved Provisional Acceptance on June 16, 2001 and was declared Commercial to Aquila on June 29, 2001. Unit 8 achieved Provisional Acceptance on June 16, 2001 and was declared Commercial on July 3, 2001. Unit 9 The EPC Agreement for Unit 9 was executed on September 20, 2000 between the General Electric Company (Contractor) and Elwood Energy III, LLC (Owner) for the installation, start-up and testing of this Unit. The Agreement established a fixed Contract Price of $13,562,600 for performance of the work. The Contract Price was to be paid in accordance with a Milestone Schedule (Exhibit B of the EPC Agreement) established on the basis of scheduled dates and specific activities over a 14 month period. No retainage was specified; however the last payment is contingent upon Final Acceptance. For this Unit, the Required Provisional Acceptance Date is May 31, 2001. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 20 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ The Agreement includes provisions for Contractor schedule bonuses and liquidated damage payments from the Contractor for exceeding or missing the Provisional Acceptance Date and the Guaranteed Performance Conditions. For this Unit, a schedule bonus will be paid for achieving Provisional Acceptance earlier than scheduled in accordance with the table included in Section 12.6 of the Agreement. The bonus period is from May 1 through May 30 and can result in a maximum bonus amount of $200,000. The performance related liquidated damage provisions require the Contractor to pay the Owner $500/kW if the net Unit output falls below 155,842 kW for each Unit. In addition, the Contractor is required pay the Owner $12,133 per Btu/kWh if the net heat rate exceeds 9,696 Btu/kWh for each Unit. The total liability of the Contractor for failure to meet the Unit output and heat rate guarantees is limited to $7,567,427. The liability cap for all liquidated damages under the Agreement is limited to $12,612,379. Exhibit K of the EPC Agreement specifies all of the tests required to achieve Provisional Acceptance. These tests include the testing required to determine if the guarantee conditions for electrical output, heat rate and emissions have been achieved and in addition, require testing of the fire protection system. It also requires that the combustion turbine generator successfully pass five types of operational capability tests. Exhibit D of the EPC Agreement establishes the specific procedures for conducting the electrical output and heat rate tests for the Unit. A warranty period has been established for Unit 9 based on the earliest of 150 starts after Provisional Acceptance or 1,250 fired hours after Provisional Acceptance or 24 months after Provisional Acceptance. Unit 9 successfully achieved Provisional Acceptance and Commercial Operation on May 7, 2001. 3.3 PROCUREMENT AGREEMENTS- UNITS 5 AND 6 (Amended and Restated) Separate Unit 5 and Unit 6 combustion turbine and balance of plant equipment procurement agreements were executed for this project. This equipment has been delivered to the Elwood energy site and the two units have entered commercial service. Pertinent details of the procurement are summarized below. Unit 5 This Amended and Restated Unit 5 Combustion Turbine Power Plant and Balance Of Plant Equipment Procurement Agreement was executed on October 6, 2000 between Elwood II Holdings, LLC (Owner) and the General Electric Company (Supplier). This Agreement supersedes a previous Turbine Agreement dated February 10, 2000 between Elwood Energy II, LLC, and the Supplier. The Turbine Agreement was assigned to the Owner on October 6, 2000. For a Contract Price of $36,755,900 the Supplier has agreed to sell and deliver to the Owner one General Electric (GE) PG724 I FA Combustion Turbine Generator Power Plant (defined as Unit 5) and additional equipment (Balance of Plant). A Unit Payment Schedule and a Balance of - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 21 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Plant Equipment Payment Schedule are included as Exhibits 2 and 3 of the Procurement Agreement, respectively to specify the payment conditions. Shipment was scheduled to occur on or before December 31, 2000. The Agreement delineates the same guarantee conditions, acceptance testing procedures and requirements, liquidated damage conditions for performance and warranty conditions as were defined in the EPC Agreement for Unit 5. The combustion turbine power plant and balance of plant equipment for Unit 5 has been installed and this Unit has entered commercial service. Unit 6 This Amended and Restated Unit 6 Combustion Turbine Power Plant and Balance Of Plant Equipment Procurement Agreement was executed on October 6, 2000 between Elwood II Holdings, LLC (Owner) and the General Electric Company (Supplier). This Agreement supersedes a previous Turbine Agreement dated February 10, 2000 between Elwood Energy II, LLC and the Supplier. The Turbine Agreement was assigned to the Owner on October 6, 2000. For a Contract Price of $36,755,900, the Supplier has agreed to sell and deliver to the Owner one General Electric (GE) PG7241FA Combustion Turbine Generator Power Plant (defined as Unit 6) and additional equipment (Balance of Plant). A Unit Payment Schedule and a Balance of Plant Equipment Payment Schedule are included as Exhibits 2 and 3 of the Procurement Agreement, respectively, to specify the payment conditions. Shipment was scheduled to occur on or before January 31, 2001. The Agreement delineates the same guarantee conditions, acceptance testing procedures and requirements, liquidated damage conditions for performance and warranty conditions as were defined in the EPC Agreement for Unit 6. The combustion turbine power plant and balance of plant equipment for Unit 6 has been installed and this Unit has entered commercial service 3.4 PROCUREMENT AGREEMENT - UNITS 7 AND 8 (Amended and Restated) Units 7 and 8 This Amended and Restated Unit 7 and 8 Combustion Turbine Power Plant and Balance Of Plant Equipment Procurement Agreement was executed on October 6, 2000 between Elwood III Holdings, LLC (Owner) and the General Electric Company (Supplier). This Agreement supersedes a previous Turbine Agreement dated February 10, 2000 between Elwood Energy III, LLC, and the Supplier. The Turbine Agreement was assigned to the Owner on October 6, 2000. For a Contract Price of $80,752,100, the Supplier has agreed to sell and deliver to the Owner one General Electric (GE) PG7241FA Combustion Turbine Generator Power Plant (defined as Unit 7), one General Electric (GE) PG7241FA Combustion Turbine Generator Power Plant (defined - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 22 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ as Unit 8) and additional equipment (Balance of Plant). A Unit Payment Schedule and a Balance of Plant Equipment Payment Schedule are included as Exhibits 2 and 3 of the Procurement Agreement, respectively to specify the payment conditions. Shipment was scheduled to occur on or before December 31, 2000. The Agreement delineates the same guarantee conditions, acceptance testing procedures and requirements, liquidated damage conditions for performance and warranty conditions as were defined in the EPC Agreement for Units 7 and 8. The combustion turbine power plants and balance of plant equipment for Units 7 and 8 have been delivered to the Elwood Energy Project site and these units have entered commercial service. 3.5 PROCUREMENT AGREEMENT - UNIT 9 (Amended and Restated) Unit 9 This Amended and Restated Unit 9 Combustion Turbine Power Plant and Balance Of Plant Equipment Procurement Agreement was executed on September 20, 2000 between Elwood III Holdings, LLC (Owner) and the General Electric Company (Supplier). This Agreement supersedes a previous Turbine Agreement dated December 31, 1999 between Enron North America Corp. and the Supplier. The Turbine Agreement was assigned to the Owner on September 20, 2000. For a Contract Price of $36,886,914, the Supplier has agreed to sell and deliver to the Owner one General Electric (GE) PG7241FA Combustion Turbine Generator Power Plant (defined as Unit 9) and additional equipment (Balance of Plant). A Unit Payment Schedule and a Balance of Plant Equipment Payment Schedule are included as Exhibits 2 and 3 of the Procurement Agreement, respectively to specify the payment conditions. Shipment was scheduled to occur on or before November 27, 2000. The Agreement delineates the same guarantee conditions, acceptance testing procedures and requirements, liquidated damage conditions for performance and warranty conditions as were defined in the EPC Agreement for Unit 9. The combustion turbine power plant and balance of plant equipment for Unit 9 has been delivered to the Elwood Energy Project site and this Unit has entered commercial service. 3.6 ENGAGE POWER SALES AGREEMENT The Owner and Engage Energy US, LP (Engage) are parties to a Power Sales Agreement (Agreement) dated as of April 5, 1999 and amended November 10, 1999. The Agreement specifies requirements and contract payments associated with the sale and purchase of capacity and energy from Elwood Units 1 and 2 (Committed Units). The term of the Agreement is from April 5, 1999 through December 31, 2004. The Owner receives from Engage a fixed monthly - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 23 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ capacity payment for the exclusive rights to the generating capacity and electric energy from the Committed Units(1). The capacity charge is $9.00 per kW each month for the first contract year and $5.00 per kW month for the remainder of the term. In addition, the Owner receives a variable energy charge payment ranging from $35.00/MWh at 60% dispatch level to $30.00/MWh at lOO% dispatch level(2). A start up charge of $2,500 per event is assessed by the Owner. For any contract year in which Engage's annual gross revenues from the sales of electric energy, capacity and ancillary services from the Committed Units exceed Engage's total costs the Owner receives 16.25% of the excess. Also, if the Owner, at its discretion decides to operate the Committed Units in excess of their Net Dependable Capacity, the excess capacity and energy max be sold to a third party, but, it must first be offered to Engage at the Owner's incremental variable production cost. Profits from Engage's resale of the capacity and energy are shared 85% to Engage and 15% to the Owner. The Target Forced Outage Adjustment Factor (FOAF) is five percent for the on-peak hours of the summer period. Though there is no target FOAF during any other time period, the Owner is required to use commercially reasonable efforts to achieve a high level of availability for the Committed Units during the Non-Summer months. A Capacity Adjustment Factor provides a bonus payment to the Owner of one percent (or fraction thereof) of the annual capacity payments for each one percent the Committed Units are below the target FOAF. A corresponding penalty is assessed for a FOAF above the target FOAF. Periods of curtailment, reduction, or interruptions caused by Commonwealth Edison or its successors and assigns do not count as forced outages or deratings for FOAF calculations if the Committed Units are otherwise available during these periods. If the Committed Units experience an unplanned outage lasting three consecutive days or longer, the Owner has the right to offer substitute capacity and energy to Engage from another generating source for the lesser of $30/MWh or the actual cost of the capacity and energy. Substitute energy is considered as available for the Committed Units for purposes of the FOAF calculation. Engage may dispatch the delivery of electric energy from each Committed Unit at a rate from 60% to 100% of Net Dependable Capacity. Maximum running time is 1,500 hours per year for each Committed Unit or 3,000 hours per year cumulative for both Committed Units. Each hour that a Committed Unit is operating counts towards the 1,500-hours/year limitation, regardless of load. Normal ramp up time from start up to base load of 60% of Net Dependable Capacity is 20 minutes and from base load to lOO% of Net Dependable Capacity is 10 minutes. The Committed - ---------- 1 Engage subsequent resold the output of these units to Commonwealth Edison, the predecessor of Exelon Generation Company, LLC ("Exelon"). Exelon now controls dispatch of the Engage units and agreed with Elwood in March, 2001 to have the pricing terms of the Exelon PSA apply to the dispatch by Exelon of the Engage units. This is accomplished by means of a monthly adjustment, which effectively supersedes the Engage PSA terms. 2 Fixed price dispatch costs are effectively eliminated under the Exelon Agreement. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 24 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Units have a feature that allows loading to take place at twice this normal rate, but reduces equipment life. If Engage requests this fast load ramp option, an additional $500 per start up is charged by the Owner. Not less than 48 hours before the beginning of each week, Engage is to notify the Owner of its estimated hour-by-hour requirements for electric energy, start ups and ancillary services for that week and provisionally, during the following week. Also, Engage is to provide the Owner with a provisional estimate of hourly requirements for the following day. The Owner is to notify Engage by noon each day of the estimated capacity of each Committed Unit that will be available each hour of the day commencing 36 hours later and provisionally for the day immediately thereafter. None of these estimates by Engage or the Owner is binding. During the Summer On-Peak Period, the Owner is required to start a Committed Unit within one-hour of notification by Engage. During all other periods, a three-hour notice is required. A four-hour minimum run-time per start and two-hour minimum off time between start-ups is required. At all times other than Summer On-Peak Periods, the Owner has the right to refuse start up of the Committed Units if it determines that operation is not commercially reasonable. The Owner must then propose a rate at which it is willing to operate the Committed Units, which Engage can then accept or reject. Engage is not allowed to dispatch a Committed Unit during any planned outage, maintenance outage, forced outage, Force Majeure event, or during periods when the Committed Units are restricted due to the interconnected utility. Upon the occurrence and during the continuance of an Event of Default by the Owner or Engage, the non-defaulting party may at its discretion terminate the Agreement upon thirty days written notice. Engage may terminate the Agreement for a Committed Unit upon a thirty day written notice to the Owner if a forced outage or Force Majeure event lasts more than 120 days provided the Owner does not demonstrate that it has taken significant steps to remediate the cause of the event and that it will end within 240 days of its commencement. Going forward, the units should be able to meet or exceed the operational standards including the target forced outage rate. It is reasonable to anticipate that the Owner may be paid bonuses for achieving forced outage rates less than five percent. Also, the true-up provision eliminates fuel price risk. 3.7 EXELON POWER SALES AGREEMENT The Owner and Exelon Generation Company, LLC (Exelon) as assignee of Commonwealth Edison Company entered into a Second Amended and Restated Power Sales Agreement (Exelon PSA) dated as of March 1, 2001. The Agreement specifies requirements and contract payments associated with the sale and purchase of capacity and energy from Elwood Units 1 through 4, and 9 (Committed Units). The term of the Agreement is from March 1, 2001 through December 31, 2012 for Units 3, 4 and 9 and from the expiration date of the Engage PSA (December 31, 2004) through December 31, 2012 for Units 1 and 2. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 25 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Units 1 and 2 are effectively in Exelon's control due to Engage's resale of energy and capacity of Units 1 and 2 to Exelon. Prior to the Engage PSA expiration date, Units 1 and 2 are committed in the sense that they are subject to a monthly true-up for capacity and energy pricing. After expiration of the Engage PSA, Units 1 and 2 are directly subject to the Exelon PSA. From March 1, 2001 until the expiration of the Engage Agreement, a pricing true-up is in effect which provides Exelon with the same financial and operational arrangements for Units 1 and 2 that exist for Units 3, 4 and 9 under this Agreement. The true-up compares pricing and operational parameters between the Engage and Exelon agreements and provides for a credit or debit to the monthly payment calculation. The true-up does not apply to, nor does it affect, the Reliability Bonus or the 2001 Special Bonus applicable to this Agreement. Capacity payments are paid monthly as fixed reservation fees and average $4.35 per kW of net dependable capacity as follows: o Jan - May $2.71875 o Jun $6.525 o Jul - Aug $9.7875 o Sep $4.35 o Oct - Dec $2.71875 Exelon is required to pay an energy charge consisting of two components, a Variable O&M Charge, and a Fuel Charge. The Variable O&M Charge is $1.50/MWh and is adjusted for inflation by the GDP-IPD as published by the U.S. Department of Commerce. The Fuel Charge is composed of the sum of the gas price and an adder of $0.32/MMBtu. Gas prices are indexed to the published price in Gas Daily, Daily Price Survey, Midpoint for Chicago-LDCs, large end users, flow days. The heat rate used for energy payments is 10,900 Btu/kWh at 100% load and 12,900 Btu/kWh at 60% load. Heat rate is prorated to the proportionate level between these load points. A charge of $3,250 (adjusted for inflation by the GDP-IPD) per event is charged for each successful start up and for start-ups cancelled with less than one-hour notice during Summer On-Peak Hours. Cancellations with at least one hour notice during Summer On-Peak Hours are not assessed a charge. During Summer Non-Peak Hours and Non-Summer On-Peak Hours, if cancellation is made more than four hours prior to start-up, no Cancellation Charge is assessed but a Fuel Adjustment Charge must be paid by Exelon. Notification from 2 to 4 hours prior to start-up results in a $1,000 Cancellation Charge and Fuel Adjustment Charge. Cancellations with less than two hours notice are subject to a $4,000 Cancellation Charge and Fuel Adjustment Charge. Fuel Adjustment Charges are applied to changes in energy requirements. If Exelon increases the amount of energy required pursuant to the day-ahead schedule for Summer On-Peak Hours, the Intra-Day Gas Cost (higher of the day of burn or next day after burn) applies to the incremental energy. The Next Day Gas Cost applies to the original energy request amount. If Exelon decreases the amount of energy pursuant to the day-ahead schedule, all energy is based on the Next Day Gas Cost. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 26 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Increases by Exelon to Non-Summer On-Peak Hours and Summer Non Peak Hours are adjusted using the Next Day Gas Cost applied to the original amount of energy delivered according to the day ahead schedule and a Fuel Adjustment Charge applied to the incremental energy. The Fuel Adjustment Charge consists of the Balancing Gas Cost (the two days later than the day of burn price) plus a volumetric balancing cost applied as follows: Amount of Increase Volumetric Balancing Cost - ------------------ ------------------------- o 28 unit hours or less $.125 per MMBtu/MWh o 28 to 43 unit hours $.625 per MMBtu/MWh o Over 43 unit hours Owner's volumetric cost of balancing charges per MMBtu Decreases to Non-Summer On-Peak Hours and Summer Non-Peak Hours by Exelon are subject to the Next Day Gas Cost for all energy delivered. In addition, a Fuel Change Fee consisting of the net of the Next Day Gas Cost and the Balancing Gas Cost (which could be positive or negative) plus a volumetric balancing cost are included. The volumetric balancing costs are assessed as follows: Amount of Decrease Volumetric Balancing Cost - ------------------ -------------------------- o 28 unit hours or less $.125 per MMBtu/MWh o 28 to 43 unit hours $.625 per MMBtu/MWh o Over 43 unit hours Owner's volumetric cost of balancing charges per MMBtu A bonus and penalty plan has been structured to promote operation of the Committed Units in the most optimal manner. Summer Months (Jun-Sep) bonuses are awarded to the Company monthly for Equivalent Availability (EA) across all five Committed Units for Summer Super Peak Hours (1100 to 1900 hours. Mon-Fri) and Summer Partial Peak Hours (0600 to 1100 hours and 1900 to 2200 hours, Mon-Fri) using a target 97% EA. Summer Month penalties are assessed to the Company monthly for Summer Super Peak Hours. Summer Partial Peak Hours, and Summer Non-Peak Hours (2200 to 0600 hours, Mon-Fri) also using a 97% EA. Equivalent Availability is calculated using the formula: {1 - ((FOH + EFDH)/PH)}, where FOH equals Forced Outage Hours, EFDH equals Equivalent Forced Derated Hours, and PH means Period Hours. A Forced Outage or Forced Derating event is only included in the calculation of the EA if Owner fails to meet Exelon's Dispatch and fails to deliver Substitute Energy. Substitute Energy is credited as unit availability and does not affect the FOH or EFDH. The EA Summer Months Bonus is calculated on a percentage basis per MW of Net Dependable Capacity. Summer Month Bonus - -------------------------------------------------------------------------------- Month Super-Peak Partial-Peak Off-Peak - -------------------------------------------------------------------------------- June $71.43 $23.81 $0 - -------------------------------------------------------------------------------- July $107.14 $35.71 $0 - -------------------------------------------------------------------------------- August $107.14 $35.71 $0 - -------------------------------------------------------------------------------- September $47.62 $15.87 $0 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 27 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Penalties associated with being below the EA target for the Summer Months are divided into two groups. The first deals with EA's below 97% and above or equal to 70% while the second covers EA percentages below 70% and above or equal to 44%. Below 44% EA, no further penalties apply. At no time can the EA penalty for a Summer Month exceed that month's capacity payment. Summer Month Penalty (EA < 97%, => 70%) - -------------------------------------------------------------------------------- Month Super-Peak Partial-Peak Off-Peak - -------------------------------------------------------------------------------- June $74.95 $24.98 $14.27 - -------------------------------------------------------------------------------- July $113.75 $37.91 $21.67 - -------------------------------------------------------------------------------- August $113.75 $37.91 $21.67 - -------------------------------------------------------------------------------- September $47.44 $15.81 $9.03 - -------------------------------------------------------------------------------- Summer Month Penalty (EA < 70%, => 44%) - -------------------------------------------------------------------------------- Month Super-Peak Partial-Peak Off-Peak - -------------------------------------------------------------------------------- June $80.79 $26.93 $15.39 - -------------------------------------------------------------------------------- July $121.19 $40.39 $23.08 - -------------------------------------------------------------------------------- August $121.19 $40.39 $23.08 - -------------------------------------------------------------------------------- September $53.86 $17.95 $10.25 - -------------------------------------------------------------------------------- Non-Summer Months performance is also subject to a bonus/penalty program with a target EA of 93%. A bonus of $47.62 per MW for each percent or fraction thereof above 93% EA for the Non-Summer period is awarded to the Owner. Penalties associated with being below the target EA of 93% are divided into three groups. o > 93% =>86% $95.24 o < 86% =>80% $2,811.11 o < 80% =>44% $117.13 Below 44% EA, no further penalties apply. In addition, at no time can the aggregate penalties associated with the Non-Summer Months EA penalty exceed the Capacity Payments for such Non-Summer Months. In addition to the Equivalent Availability bonuses, during the Summer Months a Reliability Bonus is also available to the Owner. The threshold reliability level to receive a bonus is 8O% and the Monthly Reliability Bonus amounts for each unit for each percent above this target vary by month. o June $1,250 per 1% o July $5,000 per l% o August $5,000 per 1% o September $1,250 per 1% - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 28 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Reliability is calculated for each of the five Committed Units for each Summer Month. Average reliability for the five units is then determined for each month and this becomes the Bonus Reliability achieved. This Bonus Reliability is compared to the 80% threshold. The reliability bonus period consists of the period from hour ending 0700 to hour ending 2200 on the four highest priced On-Peak Days of each month (as defined by Power Markets Week or other mutually agreed upon daily index into ComEd) for a total of 64 hours each in June, July, August and September. The Bonus Reliability calculation in percent is therefore expressed: {1-((FOH + EFDH)/64)}, where FOH = Forced Outage Hours and EFDH= Equivalent Forced Derated Hours. The total reliability bonus amount received monthly by the Owner is determined as follows: (Monthly Reliability Bonus in $ per %) x (Bonus Reliability - 80%) x 100x5 Units It is reasonable to believe that the Owner should be able to earn equivalent availability and monthly reliability bonuses. The Units should be able to satisfy the operational standards set forth in this Agreement. Exelon may dispatch the delivery of electric energy from the Committed Units at a rate from 60% to 100% of Net Dependable Capacity. Exelon specifies the number of committed Units to be operated and the operating level for each Committed Unit, but the Owner has the sole discretion to decide which units are operated to meet the dispatch requirements or whether to use substitute electric energy from Elwood. Substitute energy from a source outside Elwood is subject to mutual agreement between the Owner and Exelon. Exelon may request the Owner to operate a Committed Unit at a level above its Net Dependable Capacity, however, the Owner is not under obligation to generate or sell the excess capacity. Maximum running time is 1,500 hours per year for each Committed Unit or 7,500 hours for all five Committed Units. Each hour that a Committed Unit is operating, regardless of output, counts towards the 1,500-hours/year Limitation. Also, there is a Limit of 60 units-hours/day (number of units operating x number of hours operating) during the Non-Summer Months and 80 units-hours/day during the Summer Months. If Exelon requires units-hours greater than the stated Limits, the Owner is to provide a reasonable operating cost to extend the Schedule. Normal ramp up time from startup to base load of 60% of Net Dependable Capacity is 20 minutes. The ramp up or ramp down rate is approximately 8.3% of net dependable Capacity per minute. Power requirements for start up of all five units are 750 kWh per unit, with a maximum demand of 7.5 MW per unit for a three-minute duration (15 MW demand when starting two units simultaneously). Not later than 0830 each day, Exelon is to provide the Owner with an estimate of its requirements on an hour by hour basis for electric energy and start ups for the following day. To the degree that actual usage does not reflect these estimates, penalties will be assessed as previously discussed. The Owner is to inform Exelon by noon each day of the estimated capacity including deratings that will be available for the following three days. These estimates are not binding and the Owner can alter its estimates. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 29 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ During Summer On-Peak Hours, the Owner is required to start up to three committed units simultaneously within one hour after being notified by Exelon. For a dispatch request of four units simultaneously, a minimum of one hour and 15 minutes is required and for five units, a minimum of one hour and 25 minutes is required. During all other periods, a four-hour notification is required. A four-hour minimum run time per start and two hour minimum off time between start ups is required. Exelon is not allowed to dispatch a Committed Unit during any planned outage, maintenance outage, Force Majeure event, or during periods when the Committed Units are restricted due to the interconnected utility. Exelon has exclusive rights to receive and purchase all electricity generated by each Committed Unit. Except for testing purposes and response to emergency conditions at the interconnected utility, the Owner is only allowed to operate a Committed Unit in response to a dispatch request from Exelon. All emission allowances allocated to the Owner by any state or federal governmental agencies including NO(x), SO(2), mercury, carbon, or other greenhouse gases are to be used to support generation under this Agreement. Any additional allowances for NO(x) or SO(2) compliance necessary to meet Exelon's dispatch requirements are to be provided by Exelon. If any new air emissions programs are implemented, the Owner and Exelon are to develop and implement a mutually acceptable compliance plan. Exelon is to pay for all costs to comply with the plan up to an annual cost of $562,000. Upon the occurrence and during the continuance of an Event of Default by the Owner or Exelon, the non-defaulting party may at its discretion terminate the Agreement upon thirty days written notice. Exelon may terminate the Agreement for a Committed Unit upon a thirty days written notice to the Company if a forced outage, planned outage or maintenance outage not excused by Force Majeure lasts more than 120 days, provided the Owner does not demonstrate that it has taken significant steps to remediate the cause of the event and that it will end within 365 days of its commencement. If the Owner provides substitute energy and capacity, the 120 day and 365 day periods are to be extended on a day to day basis. 3.8 AQUILA POWER SALES AGREEMENTS The Owner and Aquila Energy Marketing Corporation entered into two Amended and Restated Power Sales Agreements (Agreements) dated as of June 30, 2000. The Agreements specify requirements and tariff payments associated with the sale and purchase of capacity and energy from Elwood Units 5 and 6 (Elwood II) and Units 7 and 8. The term of the Agreement for Units 5 and 6 is from June 30, 2001 through August 31, 2016. The term of the Agreement for Units 7 and 8 is from June 30, 2001 through August 31, 2017. Both Agreements contain the same terms and conditions and are extendable for an additional five year or mutually agreeable time period. Aquila pays a fixed monthly reservation fee in the form of a capacity payment for the exclusive rights to the capacity and energy from all of the units. Monthly capacity payments to the Owner are $7.90 per kW for Units 5 and 6 and $7.39 per kW for Units 7 and 8 for 2001 and $5.11 per kW for the remainder of the Agreement. The capacity rate for an Agreement extension is $4.90 per kW. Capacity charges are based on the Net Dependable Capacity but may be adjusted for performance as an Availability Adjustment, which is based on Equivalent Availability (EA). The Availability Adjustment reduces capacity payments if any of the units do not achieve the - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 30 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Guaranteed Summer Super Peak Availability (97%). Guaranteed Summer Partial Peak Availability (97%), or Guaranteed Non-Summer On Peak Availability (97%). Forced Outage or Forced Derating event is only included in the calculation of the EA if Owner fails to meet Aquila's dispatch and fails to deliver Replacement Energy or pay for Aquila to acquire Substitute Energy. The Availability Adjustment for the Summer Months (June - August) consists of the sum of the Availability Adjustment for Super Peak Hours and the greater of zero and the Availability Adjustment for Partial Peak Hours: o Super Peak Hours Availability Adjustment Factor = Annual Capacity Payments x Monthly Adjustment Factor x .75 x (.97 - EA). o Partial Peak Hours Availability Adjustment Factor = Annual Capacity Payments x Monthly Adjustment Factor x .25 x (.97 - EA). The Monthly Adjustment Factor applied in the above calculations is l8% for June and 32% for July and August. If the EA during Super Peak in any month is less than or equal to 80%, then the EA during Partial Peak Hours is used as the EA for Super Peak Hours. The Availability Adjustment for the Non-Summer Period is equal to the Availability Adjustment for Non-Summer On Peak Hours. o Non-Summer On Peak Availability Adjustment Factor = Annual Capacity Payments x .l8 x (.97 - EA). The annual Availability Adjustment is not to exceed $24,000,000 in the first Agreement year, $l2,000,000 in the last Agreement year, and $l8,000,000 per year in all other Agreement years. A Capacity Bonus is available to the Owner during the Summer Months if the Average Summer Super Peak Availability exceeds the Guaranteed Summer Super Peak Availability (97%) and the Average Summer Partial Peak Availability exceeds the Guaranteed Partial Peak Availability. Also, Summer Super Peak Availability during each Summer Month must be greater than 80%. The Capacity Bonus is divided by l2 and paid over a l2-month term beginning with September of each Agreement year. After the first Agreement year, maximum Capacity Bonus is $l25,000 per Unit. Capacity Bonus = {$l25,000 x .75 x (.97-EA)/.03} + {$l25,000 x .25 x (.97-EA)/.03} Going forward, it is reasonable to believe that the Owner will be able to earn an availability bonus. The units should be able to satisfy the operational standards set forth in this Agreement. Aquila pays a monthly $/MWh Energy Charge consisting of the sum of the Variable O&M cost and the product of the Fuel Charge and Heat Rate. o Energy Charge = Variable O&M + ( Fuel Charge x Heat Rate/l000) - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 3l 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Variable O&M is $l.00/MWh and is adjusted annually using the GDP-Implicit Price Deflator. The Fuel Charge is based on the index published in Gas Daily - Midpoint, Chicago-lDC's, large End Users plus an adder. If Aquila does not alter its Day Ahead Schedule, the Fuel Charge is equal to the index plus $.l0/MMBtu. If Aquila makes a change to the Day Ahead Schedule for Summer On Peak Hours or for September On Peak Hours, a charge of $.l5/MMBtu is added to the fuel index. If a change is made to the Day Ahead Schedule for Non-Summer and Summer Off Peak Hours, a surcharge is applied to cover the costs of gas purchase adjustments. The energy charge is tied to a fuel index, which prevents fuel price risk. The heat rate is determined monthly based upon the measured volume of fuel and energy for Aquila Units 5 through 8. The Owner has guaranteed Aquila that this heat rate will not exceed l0,787 mmBtu/Mw at base load and with allowance for GE degradation ("Guaranteed Heat Rate") and is verified by periodic testing. If the results of periodic heat rate testing indicate the Units 5 through 8 fail to meet the Guaranteed Heat Rate as a composite average, an adjustment is provided to Aquila by the ratio of the Guaranteed Heat Rate/ tested Net Heat Rate in calculating the monthly Energy Charge. The Company is allowed to accrue heat rate credits when the tested heat rate surpasses a Threshold Heat Rate (l0,759 Btu/KWh) for use to offset occurrences when the heat rate exceeds the Guaranteed Heat Rate (l0,787 Btu/KWh). A start up charge of $2,500 per event adjusted annually by GPD-IPD is paid to the Owner. Aquila may dispatch the delivery of electric energy at a rate from 60% to l00% of Net Dependable Capacity (but no less than 90 MW. The Owner has sole discretion to decide which units are operated to meet dispatch requirements or whether to use substitute electric energy. Incremental energy may be made available through Limited over-firing of the units up to five MW per unit over Net Dependable Capacity. Aquila may dispatch the incremental energy up to 250 hours per year when the Owner is not using it to offset a forced derating. The Owner is not required to comply with dispatch orders during maintenance outages, compressor washes, or Force Majeure events. Maximum permitted running time per unit is 2,500 hours per year, except for the first contract year, which allows 90% of maximum running time and the final contract year, which permits 92% of maximum running time. To the extent that the permitted running time is less than 2,500 hours per year, the Owner is to deliver replacement power to meet Agreement requirements. Minimum time required to start up one unit is 22 minutes. Under simultaneous dispatch, two or three units are to be started within 37 minutes, and four units within 52 minutes. The ramp rate for each unit from synchronization to minimum load is l2.5 MW/minute with a minimum time period of seven minutes. Ramp rate from minimum load to maximum load is l3 MW/minute with a minimum time requirement of 4.6 minutes. Ramp down rate from all load levels is ll.5 MW /minute. Not later than 0900 each day, Aquila is to provide the Owner its dispatch Schedule for each hour of the following day. During Summer On Peak Hours, Aquila may alter its Day Ahead Dispatch Schedule, but must notify the Company a minimum of one hour and 25 minutes prior to requested dispatch time for up to two units. If more than two units are to be dispatched, a minimum notification period of one hour and 35 minutes is required. During September, the - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 32 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Day Ahead Schedule may be changed until five hours prior to Scheduled dispatch. During Non-Summer Periods and Summer Off Peak Hours, changes to the Day Ahead Schedule by Aquila are subject to a surcharge by the Owner. The Owner is to inform Aquila by noon each day of the estimated capacity including deratings that will be available for the following three days. The Owner estimates are not binding and may be changed. A four hour minimum run time per start and two hour minimum off-time between start ups is required, however, Aquila is allowed to dispatch each unit for a minimum run time of two hours up to ten times each year. Using the difference between the sum of each unit's revenue meter and the interconnected utility revenue meter, the facility parasitic load is determined. This non-billable generation is then prorated among the operating units. Upon the occurrence and during the continuance of an Event of Default by the Owner or Aquila, the non-defaulting party may at its discretion terminate the Agreement upon thirty days written notice or in the case of bankruptcy, five days notice. If Aquila defaults, the Owner has the right to sell capacity and energy to third parties. If the units have chronically poor availability of less than 80% for three summers or 70% for two summers, Aquila may terminate the Agreement. 3.9 CINERGY FUEl SUPPlY AND MANAGEMENT AGREEMENT The Owner and Cinergy Marketing and Trading LLC entered into a Fuel Supply and Management Agreement (Agreement) dated as of May l, 200l. The Agreement specifies requirements for Cinergy as Fuel Manager to procure, Schedule and deliver to Northern Illinois Gas Company (Nicor) and or Peoples Gas, volumes of natural gas sufficient to meet the Owner's requirements. The term of the Agreement is from May l, 200l to April 30, 2002. A separate agreement between the Owner and Nicor (described in Section 4.2.5) provides gas transportation and balancing for the gas supplied by Cinergy under this Agreement. Cinergy is responsible for management and administration of the Nicor Transportation and Balancing Agreement (Nicor Agreement). Any changes to the Nicor Agreement by the Owner must be approved by Cinergy. Cinergy is to be the sole supplier of gas to the Owner during the term of this Agreement. Gas must be supplied from the following sources: l. Northern Border Pipeline Company (NBPl), Alliance Pipeline Company (APl), or Natural Gas Pipeline Company of America (NGPl) interstate pipelines. 2. Inventory in storage under the Nicor Agreement. 3. Purchase from Nicor as Requested Authorized Use or Unauthorized Use Volumes under the Nicor Agreement. The Maximum Daily Quantity (MDQ) of gas that Cinergy is obligated to sell and deliver to the Owner during the Summer Months is 362,400 MMBtu/d; of which 24l,600 MMBtu/d is firm and l20,800 MMBtu/d is non-firm. Firm MDQ during Non-Summer Months is the lesser of - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 33 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ 2l3,300 MMBtu/d or 88,875 MMBtu/d plus Cinergy's nominated volumes plus any Requested Authorized Use Volumes. The non-firm MDQ during the Non-Summer Months is Cinergy's obligation to provide quantities up to 426,600 MMBtu/d. At the request of the Owner, Cinergy is obligated to make reasonable efforts to supply gas in excess of the firm MDQ, but not to exceed the MDQ. The Nicor Agreement provides firm transportation of 24l,600 MMBtu/d during the Summer Months and 284,400 MMBtu/d during the Non-Summer Months. These quantities provide sufficient gas for l6 hours/d of operation for all nine units. The Maximum Hourly Quantity of gas that Cinergy is to supply to the Owner during the Summer Months is l5,l00 MMBtu/hour and during Non-Summer Months is l7,775 MMBtu/hour. These quantities meet maximum demand requirements for all units. Gas is metered and measured by Nicor Gas at its meters located at the Delivery Point. The Owner is to make available to Cinergy, a gas balance storage amount of 725,000 MMBtu. This storage provides a source of fuel to allow operation of the facility if gas is not available from other sources and to accommodate daily fluctuations between forecasted and actual burn. The total storage inventory allows all nine units at the facility to operate for approximately 50 hours. Storage inventory used by Cinergy is to be replenished and returned to the Owner upon expiration of this Agreement. The Nicor Agreement allows the Owner (and Cinergy as its agent) to inject or withdraw from storage up to l8l,200 MMBtu/d during the Summer Months and up to 88,875 MMBtu/d during the Non-Summer Months on a firm (non-interruptible) basis. These quantities allow all units to operate for l2 hours during the Summer Months and hours during the Non-Summer Months. Gas for injection or withdrawal from storage that exceed the firm amounts are interruptible and subject to additional fees as discussed in the Nicor Agreement description. Cinergy receives $65,000 per month for each of the Summer Months and $l0,000 per month for each Non-Summer Month as compensation under the Agreement. Also, for any Non-Special Day, Cinergy receives the Gas Daily Average Price plus $.04/MMBtu for gas supplied. For Special Days, the Company pays Cinergy at a negotiated price for all gas ordered. A Special Day is defined as a day on which: l. Nicor declares a Critical Day under the Nicor Agreement. 2. Nicor forecasts an effective degree day greater than or equal to 60 effective degree days. 3. Storage withdrawal or transportation service has been curtailed by Nicor 4. Nicor has declared a force majeure. In addition, the Owner is required to pay Cinergy $0.05/MMBtu/d for the Forecast Variance (difference between the forecast burn and actual consumption) up to 24l,600 MMBtu/d for each day during the Summer Months and up to a 67,400 MMBtu/d variance during the Non-Summer Months. Although the Owner is responsible for paying all charges to Nicor under the Nicor Agreement, certain charges under that agreement are reimbursable to the Owner by Cinergy. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 34 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ l. Forecast variance Charges attributable to the portion of the variance up to 24l,600 MMBtu/d in the Summer Months and 67,400 MMBtu/d in the Non-Summer Months. 2. Delivery Variance Charges except to the extent attributable to volumes in excess of the firm MDQ. 3. Storage Inventory Overrun Charges or Excess Storage Charges assessed for daily storage quantity above 95l,500 MMBtu. 4. Charges for Requested Authorized Use and Unauthorized Use. These charges are collectively referred to as the Fuel manager's T and B Charges and may be applied by the Owner as a credit to Cinergy's invoices. Cinergy may offer to sell power to the Owner from time to time so that the Company can forgo running the facility and receiving gas. The Owner has no obligation to accept these offers and acceptance is subject to the consent of the Owner's customers. The Owner has the right to suspend or terminate this Agreement if Cinergy's performance results in written notice from Nicor Gas that service will be terminated under the Nicor Agreement and Cinergy does not correct the conditions that led to the cancellation notice. The quantity of fuel to be supplied and delivered pursuant to this Agreement should be sufficient to support the operation of the units at the anticipated dispatch levels. With respect to the forecast variance charges and storage inventory overrun charges to be paid by the Owner under this Agreement, the amount to be paid is largely dependent upon the Owner's ability to anticipate Unit dispatch. The amounts to be paid, if any, are also dependent upon Cinergy's ability to manage fuel supply and transportation on behalf of the Owner. 3.l0 GAS TRANSPORTATION AND BAlANCING AGREEMENT The Company and Northern Illinois Gas Company (Nicor) entered into a Gas Transportation and Balancing Agreement (Agreement) dated as of May l, 200l. The Agreement specifies requirements and fees for delivery and storage of interstate gas supplies by Nicor. The term of the Agreement is divided into two phases. Phase I, which applies to Units l through 4 is from May l, 200l through September 30, 2004. Phase II, which applies to Units 5 through 9 is from May l, 200l through March 3l, 2006. Three options for extension of the Agreement are available. Phase I Primary Term Extension provides for an l8 month extension for Units l through 4 ending March 3l, 2006. Phase II Term Extension extends the term for Units 5 through 9 for five years from April l, 2006 through March 3l, 20ll. Phase I and Phase II Term Extension extends the term for all nine units from April l, 2006 through March 3l, 20ll. Extensions of the Agreement provide for an increase in initial demand charges of 30 percent. While Nicor is responsible for transportation and balancing gas requirements for the facility, actual transportation is through Peoples Gas light and Coke Company's (PGl) 24" main pipeline. The PGl pipeline interconnects with Northern Border Pipeline Company (NBPl) and Alliance Pipeline Company (APl) lines. The PGl pipeline is also connected to PGl's Mahomet Pipeline, which receives and delivers gas to PGl's underground cavern storage facilities at Manlove Field in downstate Illinois. Nicor has contracted with Peoples for service to support - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 35 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ transportation and balancing services to Elwood on substantially the same terms and conditions of the Elwood-Nicor contract. Although this Agreement is between the Owner and Nicor, under the Fuel Supply and Management Agreement between the Owner and Cinergy, Cinergy is responsible for day-to-day management of this Agreement. This Agreement uses units expressed as therms while the Cinergy Fuel Management Agreement uses units expressed as MMBtu. Since the two agreements are so closely related, they are easier to understand by using the same units for both. For ease of comparison, the units used in the description of this Agreement have been converted from therms to MMBtu using the conversion factor of one MMBtu equal to ten therms. The Owner has the right to firm transportation service within the Minimum-Maximum Daily Nomination (MMDN) available, not to exceed the Maximum Daily Contract Quantity (MDCQ). Nicor determines MMDN by providing to Cinergy the daily maximum and minimum amount of gas Cinergy may nominate in response to Cinergy's requested Day Ahead requirements. MDCQ is the maximum daily amount of gas that Nicor is required to transport to the Owner. MDCQ during the summer months is 24l,600 MMBtu/d and in Non-Summer months is 284,400 Btu/d. Maximum Hourly Quantity (MHQ) is Limited to l5,l00 MMBtu/hour in Summer Months and l7,775 MMBtu/hour in the Non-Summer Months. Nicor provides gas storage up to a Maximum Balancing Service Account Balance (MBAB) of 725,000 MMBtu. Balances exceeding this Limit are subject to charges as described below. During the Summer Months, the Maximum Firm Balancing Quantity Summer (MFBQS) is Limited to l8l,200 MMBtu/d and quantities in excess of this amount are interruptible. During the Non-Summer Months, a Maximum Firm Balancing Quantity Non-Summer (MFBQnS) of 88,750 MMBtu is allowed and gas exceeding this amount is interruptible. During Non-Summer Months when forecasted Effective Degree Days are 60 or above and days declared as Critical Days (operational problems) by Nicor or PGl, withdrawal from storage may be further curtailed and deliveries may be Limited to daily or hourly firm city-gate volumes. There are a number of charges applicable to the transportation and balancing services provided under the Agreement. A Reservation Charge of $0.45/MMBtu for (24l,600 MMBtu/d) of MDCQ is paid to Nicor for each Summer Month. Nicor also receives payment of a Volumetric Charge at the rate of $0.037/MMBtu for gas delivered during the Summer Months and $0.092/MMBtu for Non-Summer Month delivery. A Balancing and Storage Service Reservation Charge is assessed for each Summer Month at the rate of $3.35/MMBtu of MFBQS (l8l,200 MMBtu/d). A Delivery Variance Charge is assessed to the Owner at the rate of $0.50/MMBtu each day that the Delivery Variance is greater than or equal to 5,000 MMBtu/d on non-Critical days and non-Operational Flow Order days. Delivery variance is the quantity of gas delivered to Nicor that is greater than the maximum or less than the minimum quantity defined by Nicor for MMDN. This charge is waived if the first six Delivery Variances are less than 60,000 MMBtu in a Contract Year. If the 60,000 MMBtu threshold is exceeded, all prior and subsequent Delivery Variances are assessed. On Critical Days and Operational Flow Order Days, the Delivery Variance applies to all quantities of gas different from the MMDN. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 36 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ The Forecast Variance is the difference between Cinergy's projected Day Ahead burn forecast as reported to Nicor and the amount of gas actually delivered. A Forecast Variance Charge is applied to any Forecast Variance, which exceeds the greater of 20,000 MMBtu/d or a quantity equal to plus or minus 20 percent of Cinergy's daily Forecast Burn. Charges are assessed daily according to the following: Summer Months 20,000 MMBtu < variance <= l20,800 MMBtu $0.05/MMBtu l20,800 MMBtu < variance <= l8l,200 MMBtu $0.l0/MMBtu l8l,200 MMBtu < variance <= 24l,600 MMBtu $0.48/MMBtu 24l,600 MMBtu < variance (non-firm) negotiable Non-Summer Months 20,000 MMBtu < variance <= 47,400 MMBtu $0.05/MMBtu 47,400 MMBtu < variance <= 88,875 MMBtu $0.55/MMBtu 88,875 MMBtu < variance <= ll8,000 MMBtu (non-firm) $0.55/MMBtu ll8,000 MMBtu < variance (non-firm) negotiable A Storage Inventory Overrun Charge is paid to Nicor at the rate of $0.50/MMBtu for each occurrence where the highest daily quantity in storage is in excess of 725,000 MMBtu but less than 95l,500 MMBtu. An Excess Storage Charge is applied monthly at the rate of $l.00/MMBtu for each occurrence where the highest daily quantity in storage exceeds 95l,500 MMBtu. The Excess Storage Charge is also assessed daily when balancing and storage service on any Summer Month day is greater than 24l,600 MMBtu/d and less than 302,000 MMBtu/d and on any Non-Summer Month Day when balancing and storage service exceeds ll8,000 MMBtu/d but is less than l47,500 MMBtu/d. The Owner pays Upstream Transportation Charges, which are in effect passed on to PGl through the Transportation and Balancing Service Agreement between Nicor and PGl. The Upstream Transportation Charges consist of two components. A Reservation Charge is payable to Nicor for each Summer Month at the rate of $0.737/MMBtu of MDCQ (24l,600 MMBtu/d). Also, a Volumetric Charge is included for each month at the rate of $0.044/MMBtu on all gas delivered by Nicor. The Owner and Nicor may agree to negotiate authorized overrun levels of daily balancing and storage service for injection or withdrawal of gas and/or Forecast Variance Charges; or for purchase of Nicor owned gas. An agreement prior to use for these services constitutes Requested Authorized Use. Requested Authorized Use of Nicor's gas supplies when approved is charged at the higher of Nicor's gas cost or market price plus $0.20/MMBtu. Use of Nicor's gas supplies without requested authorization and approval is considered Unauthorized Use and is charged at the Requested Authorized Use Charge plus $60.00/MMBtu. The minimum monthly bill for each Summer Month is the sum of the Reservation Charge, the Balancing, and Storage Reservation Charge, and the Reservation Charge component of the Upstream Transportation Charge and totals $4.35 million. Phase I and II contract extensions result in a pro-rata increase in monthly and annual minimum payments. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 37 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ Nicor is obligated to rebate 25 percent of annual charges billed to the Owner, which exceed $5.75 million and 50 percent of annual charges, which exceed $6.75 million. Applicable charges exclude Storage Inventory Overrun, Excess Storage, Delivery Variance, Requested Authorized Use, Unauthorized Use, Buy-Out-Amounts, incremental GPA/OPA charges and taxes. The Owner may terminate the Agreement beginning September 30, 2002 and at the end of each successive Summer Month period upon giving one year prior written notice to Nicor and paying the following lump sum amounts: Anniversary Buy-Out-Amount - ----------- -------------- September 30, 2002 $4,112,000 September 30, 2003 $2,789,000 September 30, 2004 $1,420,000 The Agreement is transferable by either the Owner or Nicor without consent of the other party. The quantity of fuel to be supplied and delivered pursuant to this Agreement should be sufficient to support the operation of the units at the anticipated dispatch levels. With respect to the forecast variance charges and storage inventory overrun charges to be paid by the Owner under this Agreement, the amount to be paid is largely dependent upon the Owner's ability to anticipate Unit dispatch. The amounts to be paid, if any, are also dependent upon Cinergy's ability to manage fuel supply and transportation on behalf of the Owner. 3.11 INTERCONNECTION AGREEMENT Three separate Interconnection Agreements (Agreements) were entered into between the Company and Commonwealth Edison company (ComEd) for the interconnection of the Elwood Facility to ComEd's 345 kv transmission system. Separate Agreements were used to reflect the different completion dates of the generating units. The first Agreement was dated as of April 23, 1999 and provides interconnection for Units 1 through 4. The other two Agreements were dated as of January 4, 2001 and provide interconnection for Units 5 and 6, and Units 7 -9 respectively. Terms of the Agreements continue until cancellation. As provided for in the Agreements, after construction of the switchyard facilities by the Company, ownership of the equipment and property including easements have been conveyed to ComEd by the Company in accordance with FERC regulations. The interconnection point is at the TSS-900 switchyard located on the northeast corner of Patterson and Noel Road. In order to increase reliability, the 345 kv interconnection is divided into two systems at the switchyard. Units 1 through 4 are connected to a bus designated as the "Red" system and Units 5 through 9 are connected to a bus labeled the "Blue" system. Each system operates on separate 345 kv lines. To further enhance reliability, the systems are can be cross connected to allow any of the units to connect to either system. The Interconnection Agreements appear to have been properly executed and the switchyard is currently operating successfully. Proper operation and maintenance of the facilities should ensure reliable power delivery. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 38 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ 3.12 OPERATION AND MAINTENANCE AGREEMENTS The Project is operated by Dominion Elwood Services Company, Inc. (Operator) under the terms of three Operation and Maintenance Agreements. The Agreements are reasonable for three to five-year periods, if such is mutually agreeable. The Operator provides all of the services , goods, and materials necessary to operate and maintain the Project in a clean, safe, efficient and environmentally acceptable manner in compliance with all applicable agreements, licenses, permits and regulations and in accordance with Prudent Utility Practice. The costs of all major maintenance of the combustion turbines and electrical generators are the responsibility of the Owner. The scope of services includes development of the following programs, standards and procedures: Administrative Program, Communications Program, Facility Management Standards, Operating Procedures, Maintenance Program, Materials Management Program, Diagnostic Testing Program. Problem Assessment Program and Safety Program. The Operator is also responsible for preparing an Annual Facility Operating Plan, Annual Budget, and a Five Year Budget. As compensation to the Operator, the Owner pays an annual operating fee of $650,000 and in addition, reimburses the Operator for all Reimbursable Costs. Reimbursable Costs are defined in Appendix B to the Agreements, but are essentially all of the costs of operating and maintaining the Project, such as labor, parts, materials, insurance, etc. For the second year of the Agreement and all subsequent years, the annual operating fee is adjusted using the Gross Domestic Product Implicit Price Deflator Index published each quarter by the U.S. Department of Commerce. The terms and conditions of these Agreements are similar to other cost plus O&M arrangements we have reviewed for other projects. This O&M Agreements do not include incentives for operation of the units at certain levels. However, given the relationship of the parties involved in the O&M Agreements and the Power Sales Agreements, it is reasonable to believe that the operator has appropriate incentives to meet or exceed the operational standards set forth in the Power Sales Agreements. 3.13 ADMINISTRATIVE SERVICES AGREEMENTS An Administrative Services Agreement was executed on December 27, 2000 between Dominion Elwood Services Company, Inc. (Dominion), and Elwood II Holdings, LLC (Holdings II). A second Administrative Services Agreement was also executed on December 27, 2000 between Dominion Elwood Services Company, Inc. and Elwood III Holdings, LLC (Holdings III). These two agreements establish Dominion as the Administrative Agent to manage, operate, direct, and exercise control over the administrative affairs of the Elwood operating assets. An annual fee of $1,000 is payable to Dominion as compensation under each Agreement for its services. Any direct expenses incurred by Dominion will be reimbursed within 30 days after receipt of invoices. The term of the Agreements commence on the execution date and continue until terminated by written notice from either party to the other. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 39 10/12/01 CONTRACTS AND AGREEMENTS ================================================================================ 3.14 COMMON FACILITIES AGREEMENT The Common Facilities Agreement was established on April 16, 1999 between Peoples Gas light and Coke Company (Peoples) and Elwood Energy LLC (Elwood). An Amendment No. 1 was executed on March 30, 2000 between Peoples Energy Resources Corporation (PERC) and Elwood Energy LLC. Together these two documents provide the conditions for Elwood to utilize existing facilities owned by Peoples to provide services for Units 1 through 4. A future amendment will be required to establish these same services for Units 5 through 9. The following are the Facilities to be utilized and the services to be provided under the terms of this Agreement. o Service Water o Janitorial Services o Fire Protection Water o Security Services o Storm Water Discharge o Snow Plowing Services o Blowdown Water Discharge o Landscaping o Office space, restrooms, showers, locker rooms, o EPCRA Reporting warehousing and machine shop access o Easements o Air Monitoring and Reporting o Generation and Disposal of Waste The term of the Agreement extends until December 31, 2028. A Payment SCHEDULE is included in the Appendices to compensate Peoples and PERC for these services and facilities. There are provisions established for adjusting the fees in accordance with the GDPIPD index. The conditions set forth in the Agreement and amendments are reasonable and the Company should be able to benefit from the use of the existing facilities for a fair fee. 3.l5 SPARE PARTS AGREEMENT At present, there is no spare parts agreement or long term service agreement for the Elwood Energy Project. However, Dominion will have a fleet of 47 of the GE 7F units by 2005. This should provide leverage for reducing O&M expenses, provide for economies in managing parts inventory, and facilitate the acquisition of parts in a timely manner. It is the intention of DELSCO that these benefits will be available to the partnership. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 40 10/12/01 SECTION 4.0 PERFORMANCE GUARANTEES, COMPLETION TESTING, OPERATION AND PROJECT SCHEDULE 4.1 PERFORMANCE GUARANTEES The Performance Guarantees are established in the Exhibit C included with each EPC Agreement. The procedures for conducting the performance tests and the acceptance criteria are included in the Thermal Performance Test Procedure document included as Exhibit D to the EPC Agreement. Guarantees have been established for net power output, net heat rate, nitrogen oxides (NO(x)) emissions, carbon monoxide (CO) emissions and noise guarantees. The following Table 5-1 is a summary of the Performance Guarantees as they pertain to the individual combustion gas turbines. Table 4-1 Performance Guarantees - -------------------------------------------------------------------------------- Units 1 - 4 Units 5 - 9 - -------------------------------------------------------------------------------- Net Output With Evaporative Cooler kW 155,260 155,842 - -------------------------------------------------------------------------------- Net Heat Rate (HHV) With Evaporative Btu/kWh 10,734 10,753 Cooler [1] - -------------------------------------------------------------------------------- NO(x) at 15% O(2) ppmvd 15 9 Units 1 through 4 Load Range From 60%-100% Units 5 through 9 Load Range From 50%-100% - -------------------------------------------------------------------------------- CO (load Range From 50%-100%) ppmvd NA 9 - -------------------------------------------------------------------------------- Near Field Sound Pressure Level dBA <= 85 <= 85 When measured 1 meter in the horizontal plane and at an elevation of 1.5 meters from machine baseline with the equipment operating at base load - -------------------------------------------------------------------------------- Far Field Sound Pressure Level dBA <= 66 <= 67 The Sound Pressure Level for Units 1 through 4, when measured no closer than 4000 feet from the site boundary with equipment operating at base load. The Sound Pressure Level for Units 5 through 9, when measured at a distance of 400 feet from the nearest equipment and operating at base load. There is no far field guarantee for Unit 9. - -------------------------------------------------------------------------------- 1. The guaranteed heat rates are on an LHV basis and were multiplied by 1.109 to arrive at the HHV heat rates presented herein. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 41 10/12/01 PERFORMANCE GUARANTEES, COMPLETION TESTING, OPERATION AND PROJECT SCHEDULE ================================================================================ The Performance Guarantees summarized in Table 4-1 above are established at the Design Basis Conditions which are defined as: - -------------------------------------------------------------------------------- Elevation 610 ft. - -------------------------------------------------------------------------------- Ambient Temperature 85(degree)F - -------------------------------------------------------------------------------- Ambient Relative Humidity 60% - -------------------------------------------------------------------------------- Inlet System Pressure Drop With Evaporative Cooler 4.0 in. H(2)O - -------------------------------------------------------------------------------- Exhaust System Pressure 5.5 in. H(2)O - -------------------------------------------------------------------------------- Natural Gas Fuel Heating Value (LHV) @ 80(degree)F (20540 Btu/lb for Units 1 through 4) 20539 Btu/lb - -------------------------------------------------------------------------------- Combustion System Type Dry low NO(x) - -------------------------------------------------------------------------------- 4.2 COMPLETION TESTING In order to obtain Provisional Acceptance, the EPC Agreements require the Contractor to successfully complete the Operational Capability Tests as described in Exhibit K of the EPC Agreements. The Operational Capability Tests include all of the tests required to substantiate the performance guarantees, except the noise level guarantees, and they include some additional tests to prove operational readiness capability. Units 1 through 4 passed all of the Operational Capability Tests. Commercial operation was declared for all four of these units in l999. Units 5- 9 have achieved Provisional Acceptance and have been declared Commercial Operating Units. The following discussions examine the results of the completion testing conducted to date. CTG Performance Testing Performance testing has been completed on all of the units and Stone & Webster has reviewed the test reports. The results of the tests are summarized in Table 4-2. Table 4-2 Performance Test Results - -------------------------------------------------------------------------------- Capacity, kW Capacity Margin Heat Rate, Btu/kWh Heat Rate HHV [1] Margin - -------------------------------------------------------------------------------- Unit 1 154,676 -0.38% 10,732 +0.02% - -------------------------------------------------------------------------------- Unit 2 155,510 +0.16% 10,636 +0.91% - -------------------------------------------------------------------------------- Unit 3 152,539 -1.75% 10,788 -0.51% - -------------------------------------------------------------------------------- Unit 4 152,200 -1.97% 10,747 -0.13% - -------------------------------------------------------------------------------- Unit 5 159,454 +2.32% 10,539 +2.03% - -------------------------------------------------------------------------------- Unit 6 158,034 +1.41% 10,591 +1.53% - -------------------------------------------------------------------------------- Unit 7 158,396 +1.64% 10,555 +1.84% - -------------------------------------------------------------------------------- Unit 8 157,624 +1.14% 10,612 +1.31% - -------------------------------------------------------------------------------- Unit 9 159,901 +2.60% 10,369 +3.70% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 42 10/12/01 PERFORMANCE GUARANTEES, COMPLETION TESTING, OPERATION AND PROJECT SCHEDULE ================================================================================ l. The performance test heat rates were reported on an lHV basis and were multiplied by l.l09 to arrive at the HHV heat rates presented herein. The testing results indicated that all of the units met their performance guarantees. On the average, the units met the guarantees for output and heat rate by margins of 0.6 and l.2 percent, respectively. The EPC Agreements allowed uncertainty test tolerances of 2.09 and l.94 percent for output and heat rate, respectively. Since all of the negative margins were within the test tolerances, all units met their contractual guarantees. Units 5 through 9 demonstrated higher capacity and lower heat rates because they are a newer model of the GE 7FA gas turbine than the Units I through 4. Emissions guarantee testing has been completed on all of the units, except for Units 6, 7 and 8. Due to the duplicity of equipment, a petition was submitted to the EPA and approved, requesting permission to use Unit 5's emission test as a surrogate for Unit 6 and Unit 9's test results as a surrogate for Units 7 and 8. Stone & Webster reviewed the results of the emissions testing for Units l through 4 conducted in l999 by Cubix Corporation. Stone & Webster also reviewed the results of the emission testing for Units 5 and 9 conducted in 200l by Cubix Corporation. The results for each Unit are summarized in the following Tables 5-3 through 5 through 8. The guarantee values and the EPA Limits have also been provided. All units achieved their respective emissions guarantees. Note that Units l through 4 were not required to meet a carbon monoxide emission guarantee; only Units 5 through 9 were required to meet this guarantee. Table 4-3 Unit l Emissions - -------------------------------------------------------------------------------- Parameter 90 ll5 l35 l50 MW Guarantee EPA Load Load Load Base Limit Limit MW MW MW Load - -------------------------------------------------------------------------------- NO(x) (ppmvd @ l5% O(2)) 7.52 6.32 7.95 l0.68 l5 l5 NO(x) (lb/MMBtu) 0.027 0.023 0.0294 0.039 0.06l NO(x) (lb/hr) 32.33 3l.49 4.34 63.68 l08.0 NO(x) (tons/yr.) 24.25 23.62 33.25 47.76 72.7 - -------------------------------------------------------------------------------- Table 4-4 Unit 2 Emissions - -------------------------------------------------------------------------------- Parameter 90 ll5 l35 l50 MW Guarantee EPA Load Load Load Base Limit Limit MW MW MW Load - -------------------------------------------------------------------------------- NO(x) (ppmvd @ l5% O(2)) 5.27 5.02 6.62 8.94 l5 l5 NO(x) (lb/MMBtu) 0.0l9 0.0l8 0.024 0.033 0.06l NO(x) (lb/hr) 22.59 24.29 36.06 5l.52 l08.0 NO(x) (tons/yr.) l6.94 l8.22 27.05 38.64 72.7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 43 10/12/01 PERFORMANCE GUARANTEES, COMPLETION TESTING, OPERATION AND PROJECT SCHEDULE ================================================================================ Table 4-5 Unit 3 Emissions - -------------------------------------------------------------------------------- Parameter 90 ll5 l35 l50 MW Guarantee EPA Load Load Load Base Limit Limit MW MW MW Load - -------------------------------------------------------------------------------- NO(x) (ppmvd @ l5% O(2)) 9.26 6.4l 7.64 l2.l6 l5 l5 NO(x) (lb/MMBtu) 0.034 0.023 0.03 0.044 0.06l NO(x) (lb/hr) 39.82 3l.l3 4l.77 70.60 l08.0 NO(x) (tons/yr.) 29.86 23.34 3l.33 52.95 72.7 - -------------------------------------------------------------------------------- Table 4-6 Unit 4 Emissions - -------------------------------------------------------------------------------- Parameter 90 ll5 l35 l50 MW Guarantee EPA Load Load Load Base Limit Limit MW MW MW Load - -------------------------------------------------------------------------------- NO(x) (ppmvd @ l5% O(2)) 6.73 5.29 6.26 8.87 l5 l5 NO(x) (lb/MMBtu) 0.025 0.0l9 0.023 0.032 0.06l NO(x) (lb/hr) 29.l4 25.24 33.75 5l.33 l08.0 NO(x) (tons/yr.) 2l.86 l8.93 25.3l 38.50 72.7 - -------------------------------------------------------------------------------- Table 4-7 Unit 5 Emissions ----------------------------------------------------------------- Parameter 90 MW 150 MW Guarantee EPA Load Base Limit Limit Load ----------------------------------------------------------------- NO(x) (ppmvd @ 15% O(2)) 6.29 6.99 9 0 NO(x) (lb/MMBtu) 0.023 0.026 0.061 NO(x) (lb/hr) 25.11 39.89 108.0 ----------------------------------------------------------------- CO (ppm) 0 0.1 9 -- ----------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 44 10/12/01 PERFORMANCE GUARANTEES, COMPLETION TESTING, OPERATION AND PROJECT SCHEDULE ================================================================================ Table 4-8 Unit 9 Emissions ----------------------------------------------------------------- Parameter 90 MW 150 MW Guarantee EPA Load Base Limit Limit Load ----------------------------------------------------------------- NO(x) (ppmvd @ 15% O(2)) 4.91 7.54 9 0 NO(x) (lb/MMBtu) 0.018 0.027 0.061 NO(x) (lb/hr) 19.79 43.00 108.0 ----------------------------------------------------------------- CO (ppm) 0.3 0.1 9 -- ----------------------------------------------------------------- Noise Testing Units 1 through 4 Acoustic Associates, Ltd. Prepared a report on November 29, 1999 to present the results of a near field sound level test on Units 1 through 4. The test procedure was based on the "GE Gas Turbine Noise Assessment Protocol". Average sound level across 57 locations for each unit was 75-76 dBA. which is in compliance with the 85-dBA guarantee. Units 5 through 9 Units 5 and 9 were tested by Acoustics Associates, Ltd. On June 12, 2001 and results reported on July 2, 2001. The average sound levels across 57 locations for each unit were 80 dBA and 77 dBA, meeting the guarantee point of 85 dBA. These units are representative of Units 6, 7 and 8, which will be tested for near field compliance in the near future. Far field sound measurements were collected by Acoustics Associates for Units 5 and 9 and the preliminary results indicate compliance with the State of Illinois Noise Regulations. Units 5 and 9 represent the two different types of noise abatement used on the units. Test results of these two units can be considered representative of the other units. 4.3 OPERATION Stone & Webster reviewed the Year 1999 (July through December) and 2000 operating data for Units 1 through 4. The following Tables 5-12 and 5-13 summarize the operating data. The Project reports the forced outage adjustment factor (FOAF) separately for the summer and non-summer periods. The Year 1999 operating data indicates that the FOAF are higher relative to the Year 2000. Operation of the units in 1999 was limited; therefore, any outage would consume a relatively significant number of hours resulting in a higher FOAF. Also, it is common that in the initial commercial operations period that there are an increased number of outages. This is common in combustion turbine power plants. The Year 1999 operating data reflects these - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 45 10/12/01 PERFORMANCE GUARANTEES, COMPLETION TESTING, OPERATION AND PROJECT SCHEDULE ================================================================================ points. As the number of operating hours increased on the units, the forced outages and the duration of the forced outages decreased, which are the trends that we would expect. Table 4-9 Units 1 Through 4 Year 1999 Operating Data ----------------------------------------------------------------- Starts Fired Hours MW Hrs FOAF (%) (Summer Period) ----------------------------------------------------------------- Unit 1 57 438 50,254 2.42 ----------------------------------------------------------------- Unit 2 52 433 51,514 8.64 ----------------------------------------------------------------- Unit 3 57 411 54,362 5.23 ----------------------------------------------------------------- Unit 4 62 485 59,416 8.60 ----------------------------------------------------------------- Table 4-10 Units I Through 4 Year 2000 Operating Data ----------------------------------------------------------------- Starts Fired Hours MW Hrs FOAF (Summer Period) ----------------------------------------------------------------- Unit 1 81 575 83,760 1.01 ----------------------------------------------------------------- Unit 2 77 595 89,299 0.03 ----------------------------------------------------------------- Unit 3 115 794 119,986 0.00 ----------------------------------------------------------------- Unit 4 107 840 124,357 0.12 ----------------------------------------------------------------- 4.4 PROJECT SCHEDULE There are no schedule issues with Units 1 through 4, since they have been complete for approximately two years. Units 5 through 9 have also all been completed in advance of the scheduled completion dates. As a result, there are no Schedule issues to examine. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 46 10/12/01 SECTION 5.0 PROJECT SITE 5.1 GENERAL SITE LOCATION, ACCESS AND CONDITIONS The Project site is located near the Village of Elwood in Will County, Illinois, approximately 50 miles southwest of Chicago. The 195 acre site was initially developed in 1998 when the first four combustion turbines were constructed. The initial development consisted of Units 1 through 4, which entered commercial service in 1999 and the next phase of development for Units 5 through 9 will be completed in the summer of 2001. Elevation of the site is approximately 610 feet above mean sea level. Interstate Highway No. 55 passes close to the site and good county roads link the interstate highway to the site. The nearest airport is in Joliet, a few miles to the north. Rail transportation is available for the site and arrangements have been made for unloading of equipment on a siding near the Elwood Site in Millsdale, Illinois. Natural gas may be procured from three separate suppliers and can be transported to the site by three existing pipelines. 5.2 SITE ASSESSMENT Geotechnical and Foundation Conditions The EPC Agreements for Units 1 through 9 require the Contractor to be responsible to determine subsurface conditions at the site using a program of field investigations, laboratory testing, and engineering analysis which defines critical geotechnical characteristics of the site. The Contractor was responsible for defining the parameters used in the design and proportioning of the foundation systems and providing appropriate foundations for the proposed power facilities. The EPC Agreements for Units 1 through 9 also specify the same civil codes and standards, which are considered appropriate. All structures are to be designed and constructed in accordance with BOCA 1996, Building Officials and Code Administrators International, which specifies foundation design requirements for static and dynamic load conditions. Foundations are also required to be designed to satisfy any load or performance requirements designated by equipment suppliers. The foundations for Units 1 through 9, other structures, and support facilities are considered to be designed and constructed per the requirements of the EPC Agreements and are, therefore, acceptable. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 47 10/12/01 PROJECT SITE ================================================================================ Environmental Site Assessment The Woodward-Clyde International-Americas (Woodward-Clyde) office in Chicago prepared an Environmental Investigation Report, dated August 3, 1998, for the Peoples Gas light and Coke Company. The power plant area is located in an industrial area and adjacent to a spray irrigation area that is used to dispose of treated storm water. The site also was used in the past for agriculture and may also include pesticides/herbicides from farming activities. On this basis, soil and groundwater sampling and laboratory testing was conducted to determine whether site contamination exists which might affect site development. The objectives of the Woodward-Clyde Report were to establish an environmental baseline for soil and ground water; and also to determine the potential for adverse health impacts for workers. The Conclusions presented in this report indicate that: l. Arsenic was present, and exceeded the Tier 1 remediation objective for ingestion but did not exceed the Tier 1 remediation objective for direct worker contact. The detected levels are within typical background ranges for metropolitan areas in Illinois and, therefore, are not a concern. 2. Benzene was detected in a subsurface soil sample slightly above the lowest Tier 1 remediation objective for migration to groundwater pathway, but was below the Tier 1 remediation objective for direct worker contact. The benzene is not expected to be of concern since it was detected at a relatively low concentration level and was not detected in a nearby groundwater monitoring well. 3. Dieldrin was detected in a subsurface soil sample slightly above the lowest Tier 1 remediation objective for the migration to groundwater, but is below the Tier 1 remediation objective for direct worker contact. Dieldrin is not expected to be of concern since it was detected at a relatively low concentration and at a shallow depth. 4. No environmental concerns related to possible releases from the adjacent spray irrigation or groundwater in the vicinity of the spray irrigation field were identified. 5. No environmental concerns related to possible releases from the adjacent Praxair-Linde property were identified. The report concludes that even though arsenic, benzene, and Dieldrin were detected in site soils, the concentrations of these constituents do not exceed Tier I remediation objectives for direct contact for construction workers and thus do not posed a health and safety concern for future construction activities. Ambient Noise The EPC Agreements establish the noise guarantee requirements, which must be met by the Contractor. The requirements consist of a near field noise guarantee and a far field noise guarantee. The near field noise guarantee is typical of guarantee requirements used in the utility industry for operating equipment and requires that the sound pressure level not exceed 85 dBA, when measured 1 meter in the horizontal plane and at an elevation of 1.5 meters from machine baseline with the equipment operating at base load. Units 1 through 4, 5 and 9 have been tested - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 48 10/12/01 PROJECT SITE ================================================================================ for near field noise and are in compliance with the guarantee requirements. Units 6 through 8 are expected to be tested in the near future and due to their similarity to Unit 5, should meet the guarantees. The far field noise guarantee is specified differently for the first four units than for the last five units. Units 1 through 4 have a limit of 66 dBA, when measured no closer than 4000 feet from the site boundary. Units 5 through 8 have a limit of 67 dBA, when measured at a distance of 400 feet from the nearest equipment and operating at base load. Unit 9 does not have a far field guarantee, although the unit was tested by the owner after installation. The State of Illinois has established Noise Regulations, which impose daytime, and nighttime sound level limits on properties adjoining noise generating facilities.(3) Units 5 and 9 have been tested for far field noise and preliminary results indicate compliance with the Illinois Noise Regulations. These units are representative of the other units at the Facility and their compliance can be considered as acceptable for all units. - ---------- 3 Illinois State Environmental Regulations-Title 35, Subtitle H: Noise - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 49 10/12/01 SECTION 6.0 PERMITS, APPROVALS, AND CERTIFICATIONS The legal and regulatory requirements have been identified for the Project. Since the combustion gas turbines and the auxiliary equipment have been constructed and all of the machines have entered commercial service, the permits, approvals and certifications have been obtained. The following Table 7-1 is a summary of the permits, approvals and certifications that have been obtained. Table 6-1 Status of Permits, Approvals, and Certifications
============================================================================================================ Date of Issuing Agency Type of Approval Permit Status Approval ============================================================================================================ Federal ============================================================================================================ Federal Energy Certification of Exempt Wholesale Generator Complete for Regulatory Status -- With Market Based Rates. Needed to Units 1-4 3/5/99 Commission (FERC) make sales of electricity at wholesale from Units 5 and 6 2/1/01 the facility. Units 7 2/5/01 through 9 ============================================================================================================ State of Illinois ============================================================================================================ Illinois PSD -- Air Permit to Construct Complete Environmental required for a major new source of emissions Units 1-4 12/21/98 Protection Agency Units 5 and 6 10/17/00 (IEPA) Units 7 10/17/00 through 9 Air Quality -- Title V Operating Complete Permit (PSD) for pollutant emitting Unit 1-4 12/27/99 facility (Units 5 through 9 after operation) Acid Rain Permit Phase II Complete 01/01/2000 Units 1-14 NPDES Permit for industrial facilities Complete for discharge NPDES for Units 1-9 Units 1-4 11/19/98 under Peoples Gas Units 5 05/17/01 through 9 ============================================================================================================
- -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 50 10/12/01 PERMITS, APROVALS, AND CERTIFICATIONS ================================================================================ 6.1 FEDERAL PERMITS Federal Energy Regulators Commission (FERC) The Energy Policy Act of 1992 provides for creation and certification of Exempt Wholesale Generators (EWGs), which are entities authorized for and engaged exclusively in the generation and sale of electric energy at wholesale. EWGs are exempt from provisions of the Public Utility Holding Company Act (PUHCA) of 1935 and may apply to FERC for an order requiring access to transmission lines. The Certification of Exempt Wholesale Generator Status was approved for Units 1 through 4 on March 5, 1999, Units 5 and 6 on February 1, 2001, and Units 7 through 9 on February 5, 2001. The Approval of Rates for wholesale sales of electricity under the Federal Power Act was also approved for Units 1 through 4 on February 31, 1999. Federal Aviation Administration (FAA) The FAA requires notification of construction of any structure in excess of 200 feet above ground level. No transmission lines, stacks or cranes are anticipated being higher than 199 feet. Notification of construction to the FAA is not required. 6.2 STATE PERMITS Illinois Environmental Protection Agency (IEPA) Pursuant to the Clean Air Act of 1970 and its amendments, IEPA has adopted the Federal standards for criteria pollutants and the promulgated standards for additional pollutants. The US Environmental Protection Agency (EPA) has delegated the responsibility for administering the Acid Rain and Prevention of Secondary Determination (PSD) programs to the IEPA. The nine simple cycle units must meet requirements of the EPA's Acid Rain Program since they are larger than 25 MW. The Elwood peaking generation facility must also undergo PSD permitting in accordance with 4OCFR52.21. The Clean Air Permit Program (CAAPP) for Units 1 through 4 received a completeness determination from the IEPA on December 27, 1999, which allows Units 1 through 4 to operate in compliance with CAAPP (Title V) permit requirements. An application for the CAAPP operating permit is to be submitted to Illinois EPA within 180 days following initial startup of Units 5 through 9 in order to allow for equipment shakedown and emissions testing. The submittal of a complete permit application will satisfy the CAAPP permit requirements. The Construction Permit PSD for the Units 5 and 6 and 7 through 9 were each approved on January 27, 2000. The IEPA has determined that the Elwood Energy Project will comply with applicable state and federal emission standards and will utilize Best Available Control Technology (BACT) for emissions of NO(x), CO, SO(2), VOM, and PM. The Elwood Energy Project must demonstrate compliance with specified emissions limits as listed in Table 6-2. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 51 10/12/01 PERMITS, APROVALS, AND CERTIFICATIONS ================================================================================ Table 6-2 Annual Project Emissions (tons/yr.) -------------------------------------------------------- Pollutant Limit (Total) -------------------------------------------------------- NO(x) Units 1-4 292.64 Units 5 and 6 217.9 Units 7 through 9 326.9 CO Units 1-4 146.74 Units 5 and 6 60.1 Units 7 through 9 90.2 PM/PM(10) Units 1-4 54.36 Units 5 and 6 57.7 Units 7 through 9 86.6 VOM Units 1-4 4.03 Units 5 and 6 7.57 Units 7 through 9 11.35 SO(2) Units 1-4 3.32 Units 5 and 6 3.58 Units 7 through 9 5.4 -------------------------------------------------------- 1. Includes fuel gas heaters. 2. The annual limits are based on Units 1 through 4 operating no more than 1,500 hours per calendar year and Units 5 through 9 operating no more than 3,200 hours per calendar year. 3. Combustion turbines (CT) will be dry low NO(x) combustors and fuel gas heaters will be low NO(x) burners. The CT units include the latest BACT. During the proposed simple cycle operation, the units will comply and emissions are anticipated to meet all IEPA and EPA emission requirements. On November 19, 1998, the IEPA issued a NO NPDES Permit Modification Required for Units 1 through 4, using existing site Permit No. IL0046779, under the name of Peoples Gas pursuant to sections 2.3 and 2.4 of the Common Facilities Agreement with the Owner. On May 17, 2001, The IEPA issued a Final Permit No. IL 0074811, under the Owner's name which covers Units 5 through 9. It is anticipated that all of the requirements for the NPDES permits can be satisfied for operation of the Elwood Energy Project. The EPC Contractor is responsible for obtaining the NPDES stormwater construction permit from the IEPA, for the Owner, for construction of Units 5 through 9. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 52 10/12/01 PERMITS, APROVALS, AND CERTIFICATIONS ================================================================================ Other IEPA permits required for operation of Units 5 through 9 presently under construction will be applied for at the appropriate time. These permits are considered routine and no problems are anticipated in obtaining the remainder of the permits required to operate these units. 6.3 LOCAL PERMITS No local permits, critical to start up or operation, are required for Units 1 through 9. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 53 10/12/01 SECTION 7.0 PROJECT PARTICIPANTS 7.1 ELWOOD ENERGY LLC Elwood Energy LLC is a Delaware limited liability company formed in 1998 to develop, construct, own and operate the Elwood Energy electric generating facility. Elwood Energy LLC is owned indirectly by Peoples Energy Resources Corp. and Dominion Energy, Inc. 7.2 PEOPLES ENERGY RESOURCES CORP Peoples Energy Resources Corp. (PERC) is an Illinois corporation formed on January 26, 1996 as a wholly-owned subsidiary of Peoples Energy Corporation to engage in various unregulated business enterprises, including midstream fuel services and electric power generation. The midstream fuel services operation is structured to complement Peoples Energy Corporation's natural gas business. The electric power generation business segment is operated by PERC Power, LLC, which is a Delaware Limited Liability Company formed on June 29, 1999, as a wholly owned subsidiary of PERC. Since its inception, PERC Power LLC has engaged in the development, construction, operation, and ownership of electric generation facilities for electricity sales to electric utilities and power marketers. 7.3 DOMINION ENERGY, INC. Dominion Energy, Inc. is a wholly owned subsidiary of Dominion Resources, Inc. (Dominion). Dominion is a fully integrated gas and electric energy holding company headquartered in Richmond, Virginia. As of December 31, 2000, DRI had approximately $29.3 billion in assets. Dominion Energy has $4.4 billion in assets and operates generation facilities in West Virginia, Connecticut and Illinois. 7.4 AQUILA ENERGY MARKETING CORPORATION Aquila Energy Marketing Corporation is a subsidiary of Aquila, Inc. (Aquila). Based in Kansas City, Aquila, partially owned by Utilicorp United, is one of the top wholesalers of electricity and natural gas in North America, owns and controls a diverse portfolio of merchant assets including power plants, gas storage, pipeline, and processing facilities, and other merchant infrastructure facilities. For the 12 months ended March 31, 2001, total revenues from Aquila's businesses were $33.2 billion. In 2000, Aquila was ranked as one of the nation's largest wholesalers of natural gas and power. Aquila's asset portfolio includes electric generation, natural gas storage, natural gas transportation, gathering pipelines and processing assets, coal terminals and handling facilities, and long-haul fiber. During 1999, Aquila marketed approximately 10.4 Bcf/d of natural gas, 236.5 thousand MWh's of power and 16.9 million tons of coal and related products - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 54 10/12/01 PROJECT PARTICIPANTS ================================================================================ worldwide. Aquila has approximately 4,500 MW of electric power generation capacity owned, controlled or under development. Aquila is 80 percent owned by UtiliCorp United, a multinational energy company based in Kansas City with more than 4 million customers. Utilicorp operates in the United States, Canada, New Zealand and Australia. At March 31, 2001, UtiliCorp had 12-month revenues of $36.3 billion and total assets of $13.3 billion. 7.5 EXELON GENERATION Exelon Generation is the largest competitive electric generation company in the United States, as measured by owned and controlled megawatts. Exelon Generation owns generation assets in the Mid-Atlantic and Midwest regions with net capacity of 19,159 MW, including 13,949 MW of nuclear capacity. Exelon Generation also controls another 16,013 MW of capacity in the Midwest, Southeast and South Central regions through long-term power purchase agreements. Exelon Generation also has a 49.9% interest in Sithe Energies which owns and operates generation facilities and currently has 9,879 MW of capacity in operation, under construction or in advanced development. Exelon Generation also owns a 50% interest in AmerGen Energy Company, LLC, which owns three nuclear stations with a total generation capacity of 2,378 MW. The Exelon Power Team division is a major wholesale marketer of energy, that uses Exelon's generation portfolio, transmission rights and expertise to provide generation to wholesale customers under long and short-term contracts. ComEd Energy Delivery is a unit of Chicago-based Exelon Corporation, one of the nation's largest electric utilities. ComEd Energy Delivery provides service to more than 3.4 million customers across Northern Illinois, or 70 percent of the state's population. 7.6 ENGAGE ENERGY US, LP Engage Energy was originally formed in 1997 as a joint venture of the Coastal Corporation of Houston, Texas and Westcoast Energy Inc. of Vancouver, Canada. Engage Energy offered a range of energy services, including natural gas marketing and trading, electricity trading and sales, energy management services, structured storage and transportation related services. The joint venture was terminated on September 25, 2000. Following the termination, Westcoast Energy Inc. retained the right to use the Engage Energy US name and certain natural gas and electric power endeavors. Westcoast Energy Inc. has substituted Engage Energy America LLC as the contract party in the Power Sales Agreement with Elwood Energy LLC. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 55 10/12/01 PROJECT PARTICIPANTS ================================================================================ 7.7 NORTHERN ILLINOIS GAS COMPANY (NICOR GAS COMPANY) Nicor Gas Company, a regulated natural gas distribution utility and a subsidiary of NICOR, Inc. (Nicor), provides service to a territory that encompasses most of the northern third of Illinois, excluding the city of Chicago. Nicor's revenues for the year ended December 31, 2000 were $2.3 billion. In addition to providing natural gas service to more than 5.7 million people living and working in 641 communities, Nicor Gas Company transports and stores natural gas for nearly 129,000 commercial, industrial and residential customers who purchase their own gas supplies. In 2000, residential customers accounted for 43 percent of natural gas deliveries, while commercial and industrial customers accounted for 25 percent and 32 percent, respectively. The company has approximately 2,200 employees and a 29,000-mile distribution system, which is connected to seven interstate pipelines, each originating in a major gas producing area in North America. 7.8 CINERGY CORP. Based in Cincinnati, Ohio, Cinergy Corp. is one of the nation's leading diversified energy companies. Cinergy's net revenues were $8.4 billion for the year ended December 31, 2000 and had assets of $12 billion. Cinergy has a focused strategy intent on growing its energy merchant business. Cinergy owns, operates or has under development over 21,000 megawatts of generation. Cinergy has the eighth-largest electricity trading organization in the U.S. as well as physical and financial gas trading capabilities of 35 billion cubic feet per day. Cinergy has approximately 52,000 miles of electric and gas transmission lines in the U.S. and abroad. Cinergy owns regulated operations in Ohio, Indiana and Kentucky that server 1.5 million electric customers and about 500,000 gas customers. 7.9 DOMINION ELWOOD SERVICES COMPANY, INC Dominion Elwood Services Company, Inc. is the wholly owned subsidiary of Dominion Energy Inc., which was formed to provide operation and maintenance services to Elwood Energy LLC. Operation and maintenance expertise is acquired through the Dominion Energy organization. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 56 10/12/01 SECTION 8.0 PROJECT FINANCIAL ASSESSMENT 8.1 OVERVIEW The Financial Projections (Projections) consist of pro forma cash flows for Elwood Energy LLC (Project) from October 2001 through June 2026. Stone & Webster has reviewed the assumptions, data, and the calculations necessary to support the cash flow projections of the cash flow available for debt service. Stone & Webster has verified that the underlying model assumptions are consistent with the expected performance and the commercial terms of the Project Agreements. Stone & Webster has compared the Projections to the Project Agreements, data provided to Stone & Webster, and power industry public information. Stone & Webster has not reviewed the tax and insurance assumptions, which were provided by the Owner and financing assumptions, which were provided by CSFB. Lastly, Stone & Webster performed several sensitivities to determine the impact of certain variables on the DSCRs. The Projections for the sensitivity cases are included in Attachment 4 of this Report. The Projections are calculated in nominal dollars based on an assumed inflation rate of 3.0% per annum. 8.2 PRINCIPAL CONSIDERATIONS AND ASSUMPTIONS In preparing this Report and the conclusions contained herein, Stone & Webster has made certain assumptions with respect to the conditions, which may exist, or events, which may occur in the future. While Stone & Webster believes these assumptions to be reasonable for the purpose of this Report, they are dependent on future events, and actual conditions may differ from those assumed. In addition, Stone & Webster has used and relied on information provided to us by sources that we believe to be reliable. Stone & Webster believes that the use of this information and assumptions is reasonable for the purposes of this Report. However, some assumptions may vary significantly due to unanticipated events and circumstances. To the extent that actual future conditions may differ from those assumed in this Report, or provided to us by others, the actual results will vary from those forecast. This Report summarizes our work up to the date of the Report and changes in conditions occurring or that became known after such date could affect the Projections. The principal considerations and assumptions related to the Projections are listed below: 1. The electricity market forecasts for energy and capacity prices, Project dispatch, fuel prices, etc., were prepared by Pace using a market simulation model. Stone & Webster reviewed the technical inputs to the Pace model and found them to be reasonable. Stone & Webster did not independently verify the methodology used by Pace nor verify the accuracy of the forecasts. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 57 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ 2. Stone & Webster has made no determination as to the validity and enforceability of any contract, agreement, rule, or regulation as applicable to the Project and its operations. For the purposes of this Report, Stone & Webster has assumed that all contracts, agreements, rules, or regulations will be valid and fully enforceable in accordance with the terms and that all parties will comply with the provisions of their respective agreements. 3. Stone & Webster has reviewed the O&M expenses for the Project. We have assumed that the Project will operate and be maintained in accordance with the manufacturers' recommendations, O&M agreements, O&M and capital budgets, standard industry practice, and in a safe and environmentally responsible manner. 4. It is assumed that the fuel will be available in sufficient quantities and at the prices forecasted by Pace for the period covered in the Projections. 5. Fuel transportation, management, and balancing services will be provided by Northern Illinois Gas Company (NICOR) and Cinergy under their respective agreements and similar successor agreements. Stone & Webster assumes that the fuel management will not result in any significant costs for variances, etc. under those agreements. 6. Stone & Webster has assumed that all licenses, permits, and approvals required to operate the Project which have not been obtained will be obtained in a timely basis and any changes that may be required to any permits will not materially affect the design, operation, cost, or maintenance of the Project. 7. Stone & Webster has assumed that the Project will be able to purchase emission allowances, to the extent any are required, on an as needed basis to comply with the emission limits. We have assumed that emission offsets will be available for purchase at the prices forecasted in the Projections. Stone & Webster has not evaluated the feasibility or cost of Elwood implementing alternate strategies for complying with its emission limits. 8. Stone & Webster has not evaluated the non-operating expenses projected by the Project including property and sales taxes, insurance, and general and administrative expenses. 8.3 OPERATING ASSUMPTIONS Stone & Webster evaluated the operating assumptions associated with the Project. The Projections are based on a 1,409 MW net peaking capacity operating at an average capacity factor of approximately eleven percent over the 26 year horizon. In 2001, Elwood is assumed to have a summer heat rate of approximately 10,600 Btu/kWh. The average heat rate for the entire forecast period is 11,170 Btu/kWh HHV, which reflects degradation and partial load operation. This is conservative compared to Pace, which, consistent with its forecast methodology, assumes Elwood and all competing peaking units will operate at 10,600 Btu/kWh during the summer with no degradation. Stone & Webster believes that the operating assumptions underlying the Projections are reasonable and achievable. Power Plant Availability Power Plant availability is a function of many variables, including design and construction quality, operation and maintenance practices and fuel quality. The Projections and the - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 58 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ underlying Pace market study are based on a forced outage rate of 2.5 percent and two weeks for maintenance, which allows ample time for maintenance and an allowance for forced outages. The Pace analysis assumed the same availability for the competing peaking units in its model. Capacity Factor The Project capacity factor is based on Pace's economic dispatch of the Project within the context of its MAIN market study. Stone & Webster did not independently verify the methodology that Pace used to develop the capacity factor nor verify the accuracy of the forecast. Pace projected for the Projections that the Project will have an average capacity factor of approximately eleven percent. Capacity The Projections are based on the net Project capacity operating at site conditions, with monthly adjustments for ambient conditions and degradation. The capacity forecasts in the Projections are based on each unit's performance test results, excluding the test tolerances. Those test results were adjusted to representative ambient conditions for each month, which approximate the conditions when the unit would probably operate during that month. Gas turbine evaporative inlet air coolers were assumed to operate above 55(degree)F, which increases a unit's capacity. Degradation was applied to each unit's capacity based on its operating hours, in accordance with General Electric's degradation curves for these gas turbines. Those curves reach a maximum degradation of 5.3 percent at the end of a maintenance cycle. Because the maintenance cycle is dictated by the number of starts for these units, the degradation is not expected to reach such high levels of degradation. The average degradation rate for this scenario is 3.6 percent. The Aquila PSA capacity payment includes a correction for degradation that is to be based on GE's degradation curve. Therefore, that payment would be constant if the CTs degrade in accordance with GE's curve. These levels of degradation are based on good operation and maintenance practices, including compressor washes. Stone & Webster considers the assumed degradation to be within the range of expected degradation for such power generation facilities based on the planned maintenance SCHEDULE. Heat Rate Unit heat rates were determined based on the performance test results, with monthly adjustments for ambient conditions and degradation. Degradation was calculated based on cumulative operating hours, logarithmically approaching a maximum value of 2.5 percent after 48,000 operating hours. The average degradation rate for this scenario is 1.8 percent. The Aquila PSAs specify a guaranteed heat rate of 10,787 Btu/kWh against which the actual, full-load heat rate is evaluated for purposes of determining penalties against the Project. The - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 59 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ Project will earn credits for heat rates below the threshold heat rate of 10,759 Btu/kWh. The evaluation includes an allowance for degradation according to GE's degradation curve. The Exelon PSA specifies guaranteed heat rates of 10,900 and 12,900 Btu/kWh at 100 and 60 percent loads, respectively. Heat rates at intermediate loads are to be interpolated. The forecast heat rates in the Projections are significantly better than the guaranteed heat rates in the PSAs, so adjustments for deficient heat rates are not expected. 8.4 REVENUES The Projections assume that the Project will operate under four PSAs initially and as a merchant facility thereafter. Those PSAs are described in Section 4 of this report. The PSA with Engage is transacted through the Exelon PSA, so it is included here as part of the Exelon PSA. The Aquila PSAs are assumed to be extended for five years. The three primary PSAs are summarized below: ---------------------------------------------------------------------------- Aquila Aquila II Exelon ---------------------------------------------------------------------------- Units 5 & 6 7 & 8 1, 2, 3, 4, & 9 ---------------------------------------------------------------------------- Termination Date [1] 8/22 8/23 12/12 ---------------------------------------------------------------------------- Dispatch Range, % 60 to 100 60 to 100 60 to 100 ---------------------------------------------------------------------------- Capacity Payment, $/kW-yr. 61 [3] 61 [3] 52 ---------------------------------------------------------------------------- Startup Payment, $/start [2] $2,500 $2,500 $3,250 ---------------------------------------------------------------------------- Basis for Availability Bonus/Penalty 97% 97% 97% ---------------------------------------------------------------------------- Guaranteed Heat Rate, HHV Btu/kWh [4] 10,787 10,787 10,900 ---------------------------------------------------------------------------- Operating Limit, hr/yr. 2,500 2,500 1,500 ---------------------------------------------------------------------------- Variable O&M Payment, $/MWh [2] 1.00 1.00 1.50 ---------------------------------------------------------------------------- Fuel Adder, $/mmBtu 0.10 0.10 0.32 ---------------------------------------------------------------------------- 1. It is assumed that the five year extension of the Aquila PSAs is exercised. 2. Escalating at GDP/IPD 3. For the extension terms the capacity payment is $59. 4. Heat rate at full load The revenues forecasted in the Projections are based on Pace's forecast of sales under each PSA until they expire, followed by sales to the market. Due to the economics in 2016 and 2017, Pace assumes that the Aquila PSAs will be extended per the agreement terms. The PSA revenues include evaluation of PSA heat rate guarantees and associated costs. The PSA revenues for the first full calendar year (Year 2002) are $132.8 million and are summarized below, in 2002 $000: - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 60 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ ----------------------------------------------------------- Aquila Exelon (includes Engage) ----------------------------------------------------------- Capacity $39,063 $42,319 ----------------------------------------------------------- Energy $43,837 $7,661 ----------------------------------------------------------- Startup $875 $380 ----------------------------------------------------------- Other $0 ($1,381) ----------------------------------------------------------- Total $83,775 $48,979 ----------------------------------------------------------- Aquila Revenues The Aquila units are forecast to be dispatched approximately 18 percent of the time over the term of the PSAs, resulting in average revenues of $82 million per year in nominal dollars. During the startup performance tests, the average HHV heat rate for the Aquila units was 10,571 Btu/kWh, which is two percent better than the PSA guaranteed heat rate of 10,787 Btu/kWh. The PSA allows an adjustment to the heat rate to account for degradation, based on GE's degradation curve. Therefore, we do not expect there to be any heat rate costs to the Project under the Aquila PSA. Startup revenues of $2,500 per start (escalating) are to be paid by Aquila and are included in the Projections. Based on the Pace forecast of starts, the Project will receive an average startup revenue from Aquila of approximately $1.2 million per year in nominal dollars. Pace has determined that based upon the payment structure of the Aquila PSA's, the Project's forecast dispatch profile, forecast market-clearing prices, and the market-based revenues that Aquila is forecast to earn by marketing the output and capacity of Units 5 through 8, there is sufficient economic incentive to cause Aquila to exercise its option to extend the term of the Aquila PSAs for an additional five year period. Exelon Revenues The Exelon units are forecast to be dispatched five percent of the time over the PSA term, resulting in average revenues of $44 million per year in nominal dollars. The operating heat rate is forecast to be better than the PSA heat rate, so there are no costs to the Project associated with heat rate in the Projections. Merchant Sales After the termination of each PSA, the affected units are projected to sell into the market through 2026. Pace has forecast the underlying dispatch levels and merchant market prices for those - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 61 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ sales, which are reflected in the Projections. The merchant revenues for the units initially under the Aquila PSAs are projected to average $123 million per year in nominal dollars after the PSA extension expires and $138 million per year for the units initially under the Exelon PSA. Pace has projected the additional merchant revenue based on the market price fluctuations around the average market price called volatility revenue. This revenue is included in the base case. The nominal volatility revenue ranges from $20.9 million for the first merchant year (2013) to $63.4 million in 2025. The forecast dispatch levels and starts are illustrated in Figures 8-1 and 8-2. The dispatch level determines the revenues and the startups determine the major maintenance schedule. Figure 8-1 Pace Forecast of Unit Dispatch Levels [GRAPH DISPLAYING FORECASTED DISPATCH LEVELS THROUGH 2025 FOR UNITS 1-4 + 9 AND UNITS 5-8] Figure 8-2 Pace Forecast of Unit Startups [GRAPH DISPLAYING FORECASTED NUMBER OF STARTUPS ANNUALLY FOR UNITS 1-4 + 9 AND UNITS 5-8 THROUGH 2025] - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 62 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ 8.5 OPERATING EXPENSES The Projections include expenses for fuel, major maintenance, routine O&M, and overhead. The O&M will be provided under the O&M Agreement with Dominion Elwood Services Company, as described in Section 3 of this report. The fuel and major maintenance costs are discussed later in this section, while the other expenses are summarized in Table 8-3. Maintenance schedule and Budget The Projections include a major maintenance schedule that is consistent with General Electric's recommendations for combustor inspections, hot gas path inspections, and major overhauls. Stone & Webster believes that the Project's planned maintenance schedule and budget are reasonable and adequate. The recommended maintenance schedule for each unit is dictated by the number and types of starts and trips that the unit experiences. Each maintenance cycle includes combustor inspections every 400 starts, hot-gas-path inspections every 900 starts, and a major inspection every 2,400 starts. The startup forecast shows that during the horizon of the Projections, there will be 40 combustor inspections, 17 hot-gas-path inspections, and no major overhauls. The Sponsors have determined the budget based on GE's estimated costs for those inspections. The average cost for one maintenance cycle is expected to be approximately $30 million. The budget includes a reasonable discount below GE's parts price list in anticipation of Dominion negotiating a parts supply agreement for its fleet of GE units. The major maintenance reserve fund for Units 1 through 4 and 9 begins with an initial funding of $2 million. The maintenance reserve fund is increased according to the following schedule: Table 8-1 Units 1 through 4 and 9 Maintenance Reserve Fund --------------------------------------------------------------- Initial Reserve Fund $2 million --------------------------------------------------------------- October 2001 to December 2012 $166,000 monthly --------------------------------------------------------------- January 2013 to December 2016 $833,000 monthly --------------------------------------------------------------- January 2017 to December 2020 $500,000 monthly --------------------------------------------------------------- January 2021 to December 2025 $1,166,000 monthly --------------------------------------------------------------- January 2026 to December 2026 $333,000 monthly --------------------------------------------------------------- The major maintenance reserve fund for Units 5 through 8 does not begin with an initial funding. The maintenance reserve fund will be funded according to the following schedule: - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 63 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ Table 8-2 Units 5 through 8 Maintenance Reserve Fund ----------------------------------------------------------------- October 2001 to December 2012 $433,000 monthly ----------------------------------------------------------------- January 2013 to December 2023 $666,000 monthly ----------------------------------------------------------------- January 2024 to December 2026 $166,000 monthly ----------------------------------------------------------------- Operations and Maintenance Budget The Projections include detailed expenses for the operation and maintenance of the Project, which Stone & Webster has reviewed and found to be reasonable. For 2002 the fixed and variable non-fuel O&M expenses total $7.4 million and are detailed in Table 8-3. The forecast O&M expenses are escalated at 3.0 percent per year. Table 8-3 Estimated Routine Maintenance & Overhead Expenses ($ in 000) ---------------------------------------------------- Labor $1,505 ---------------------------------------------------- Fixed O&M 1,487 ---------------------------------------------------- Standby & Startup 1,152 ---------------------------------------------------- Property Taxes 540 ---------------------------------------------------- Insurance 377 ---------------------------------------------------- Fixed DELSCO Fee 706 ---------------------------------------------------- Environmental 174 ---------------------------------------------------- Management Salary & Exp. 360 ---------------------------------------------------- General & Administrative 312 ---------------------------------------------------- Elwood Holdings Sales Tax Payment 766 ---------------------------------------------------- Total $7,379 ---------------------------------------------------- Stone & Webster reviewed the O&M assumptions utilized in the Projections. The information reviewed included assumptions and forecasts for unit performance, staffing functions and levels, and annual O&M budget summary. Stone & Webster considers these Project assumptions to be reasonable and comparable to other large power facilities. The Project's planned functional positions and staffing levels were reviewed and are considered satisfactory to operate and maintain the Project safely in accordance with the operational and regulatory requirements. The staffing levels compare favorably with and are typical of those found in similarly configured plants that Stone & Webster has reviewed. Emission Compliance Costs Beginning in 2004, facilities in Illinois will be subject to the states implementation plan of the EPA's "NO(x) SIP Call" requirements, which requires power plants to qualify for and/or purchase allowances to emit NO(x). - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 64 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ The state of Illinois has issued some of the regulations in this regard, specifically those relating to the one-hour standard. Stone & Webster reviewed information from the state and made reasonable assumptions to determine the impact on the Project. This interpretation is summarized below: Years Requirements - ----- ------------ Prior to 2004 No requirements 2004 - 2006 Purchase allowances for the NO(x) emitted that exceeds requested eligible allocations. 2007 - 2008 Purchase allowances for the NO(x) emitted above 80% of the quantity that would be emitted at the permitted rate, subject to a floor of 0.055 lb/mmBtu. 2009 - 2010 Purchase allowances for the NO(x) emitted above 50% of the quantity that would be emitted at the permitted rate, subject to a floor of 0.055 lb/mmBtu. 2011 on Assumed to be the same as the 2009 to 2010 period. Purchase allowances for the NO(x) emitted above the maximum quantity emitted in the prior four to six year period The NO(x) permit limits for Units 1, 2, 3, and 4 are 15 ppm, while the other units are permitted at 9 ppm. Stone & Webster has assumed that each will operate at those levels. The units are monitored by continuous emission monitoring systems (CEMS). This translates into emission rates of 0.040 and 0.025 lb/mmBtu for the two groups of units. These values are very good compared to most MAIN units and result in relatively low emissions costs. The plant is forecast to sell allowances in two of the years. The Projections assume that the Project will need approximately 796 tons of NO(x) allowances over the term of the Projections at the assumed current market value of $3,400 per ton, escalating at three percent per year. NO(x) allowance costs are projected to cost the Project $4.9 million in nominal dollars over the term of the Projections. The units are expected to emit minimal amounts of SO(x), therefore SO(x) emissions costs were not included in the Projections. Fuel Expense During the PSAs, the fuel is essentially a pass-through, aside from any heat rate penalties, which are not expected. After each PSA terminates the Project will be responsible for providing the fuel for those units to operate as merchant units. The Projections assume that the fuel will be purchased at the price stipulated in the Pace report. Other fuel-related expenses are to be paid under the agreements with Cinergy and NICOR, as described in Section 3 of this report. It was assumed in the Projections that those agreements are - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 65 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ succeeded by similar agreements. Therefore the terms and pricing in those agreements are assumed to be in effect through 2026. 8.6 FINANCING ASSUMPTIONS CSFB provided the financing assumptions for the $402 million senior secured notes. The notes have a final maturity of 25 years with an average life of 12 years. The interest rate is 8.159%. The combined annual debt service (principal plus interest) ranges from a low of $1,797,000 in 2026 to a high of $46,509,000 in 2005. The debt service requirements for each year are the payments to be made on July 5 of that year and January 5 the following year. 8.7 PROJECTIONS The Projections are shown in Attachment 4 of this Report. On the basis of our review of the Project, the Project Agreements and the assumptions set forth in this Report, the projected revenues are more than adequate to pay the annual O&M expenses (including provisions for major maintenance), other operating expenses, and debt service. Contributions to major maintenance reserves and debt service reserves are excluded from cash flow available for debt service. The Base Case resulting minimum DSCR is 1.51x and occurs in 2001. The Base Case resulting average DSCR is 3.60x. 8.8 SENSITIVITY ANALYSES Due to uncertainties necessarily inherent in relying on assumptions and forecasts, it should be anticipated that actual operating results may differ, perhaps materially, from those assumed and described herein. In order to demonstrate the impact of certain circumstances on the Projections, certain sensitivity analyses have been developed by Stone & Webster. It should be noted that other examples could have been considered, and those presented are not intended to reflect the full extent of possible impacts on the Project. Stone & Webster performed sensitivity analyses using the pro forma Projections by varying Project specific key input parameters including lower inflation rates and O&M costs. Project Sensitivities Operation and Maintenance Cost Sensitivity -- The O&M costs were increased by ten percent relative to the Base Case. The resulting minimum and average DSCRs for the period 2001 to 2026 is 1.49x and 3.56x, respectively. Lower Inflation Rates - The inflation rates in the Base Case are decreased by 0.5% each year. The resulting minimum and average DSCRs for the period 2001 to 2026 is 1.51x and 3.36x, respectively. - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 66 10/12/01 PROJECT FINANCIAL ASSESSMENT ================================================================================ Pace Sensitivities In addition, sensitivity of the Project results was assessed for the two sensitivity cases, a High Gas Price Case and an Overbuild Case. The High Gas Price and the Overbuild Case scenarios were taken from the Pace forecasts. Stone & Webster applied the results from the two Pace sensitivities to the Projections. High Gas Price - Pace increased natural gas prices by 15% above the Base Case levels in 2001 and increased up to 69% over the Base Case levels in 2026. The resulting minimum and average DSCR for the period 2001 to 2026 is 1.50x and 3.58x, respectively. Overbuild -- Pace's overbuild scenario assumes that an extra 2,739 MW (summer capacity) of gas-fired combined cycle capacity is in operation in 2005. The impact of this overbuild is concentrated during the period 2005-2012 and the market gradually returns to an equilibrium point by 2013. The resulting minimum and average DSCR for the period 2001 to 2026 is 1.51x and 3.55x, respectively. No Aquila Extension -- Pace assumed that there is not sufficient economic incentive to cause Aquila to exercise its option to extend the term of the Aquila PSAs for an additional five-year period. Pace determined the Project's forecast dispatch profile, forecast market-clearing prices, and the market-based revenues that Aquila is forecast to earn by marketing the output and capacity of Units 5 through 8. The resulting minimum and average DSCR for the period 2001 to 2026 is 1.51x and 3.83x, respectively No Volatility Revenue -- This sensitivity does not include the volatility revenue during the merchant period projected by Pace. The resulting minimum and average DSCR for the period 2001 to 2026 is 1.51x and 2.97x, respectively Summary The following Table 8-4 summarizes the Base Case and Sensitivities: Table 8-4 Base Case and Sensitivity Summary - -------------------------------------------------------------------------------- Min DSCR Avg DSCR - -------------------------------------------------------------------------------- Base Case 1.51x 3.60x - -------------------------------------------------------------------------------- Increased O&M Cost 1.49x 3.56x - -------------------------------------------------------------------------------- Decreased Inflation Rate 1.51x 3.36x - -------------------------------------------------------------------------------- High Gas Price Case 1.50x 3.58x - -------------------------------------------------------------------------------- Overbuild Case 1.51x 3.55x - -------------------------------------------------------------------------------- No Aquila Contract Extension 1.51x 3.83x - -------------------------------------------------------------------------------- No Volatility Revenue 1.51x 2.97x - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants Page 67 10/12/01 ATTACHMENT 1 DOCUMENTS RECEIVED J.O. 12784 DOCUMENTS RECEIVED ELWOOD ENERGY Most of the Documentation is from People's Energy, if not it is noted - -------------------------------------------------------------------------------- DATE RECEIVED RECEIVED FROM DOCUMENT - -------------------------------------------------------------------------------- 05/16/01 People's Information Memorandum May 2001 Energy - -------------------------------------------------------------------------------- 05/24/01 Power Sales Agreement (PSA) 3/24/99 - -------------------- 05/24/01 Waiver to PSA 08/12/99 - -------------------- 05/24/01 Amendment #1 to PSA 11/10/99 - -------------------- 06/02/01 Second Amended and Restated Power Sales Agreement 3/1/01 - -------------------------------------------------------------------------------- 05/24/01 Power Sales Agreement (PSA) (Elwood II) 6/30/00 - -------------------- 05/24/01 Waiver to PSA 03/20/01 - -------------------------------------------------------------------------------- 05/24/01 Power Sales Agreement to PSA (Elwood III) 06/30/00 - -------------------- 05/24/01 Amendment to PSA Waiver 12/07/00 - -------------------- 05/24/01 Waiver to PSA 03/20/01 - -------------------------------------------------------------------------------- 05/24/01 Test Power purchase Agreement (Elwood II) 04/1/01 - -------------------------------------------------------------------------------- 05/24/01 Test Power purchase Agreement (Elwood III) 04/1/01 - -------------------------------------------------------------------------------- 05/24/01 Interconnection Agreement 600 MW 04/23/99 - -------------------------------------------------------------------------------- 05/24/01 Interconnection Agreement -- 300MW 01/4/01 - -------------------------------------------------------------------------------- 05/24/01 Interconnection Agreement -- 450 MW 01/4/01 - -------------------------------------------------------------------------------- 05/24/01 Procedure Agreement -- Unit 5 Combustion Turbine & BOP Equipment (Amended and Restated) 10/6/00 - -------------------------------------------------------------------------------- 05/24/01 Procurement Agreement -- Unit 6 Combustion Turbine & BOP Equipment (Amended and Restated) 10/6/00 - -------------------------------------------------------------------------------- 05/24/01 Procurement Agreement -- Unit 7&8 Combustion Turbine & BOP Equipment (Amended and Restated) 10/6/00 - -------------------------------------------------------------------------------- 06/01/01 Procurement Agreement -- Unit 9 Combustion Turbine & BOP Equipment (Amendment and Restated) 09/20/00 - -------------------------------------------------------------------------------- 05/24/01 EPC Agreement -- Units 1 &2 07/23/98 - -------------------------------------------------------------------------------- 05/24/01 EPC Agreement Units 3&4 09/25/98 - -------------------- 05/24/01 Amendment to EPC Agreement 04/26/99 - -------------------------------------------------------------------------------- 05/24/01 EPC Agreement Units 5&6 (Elwood II) 07/31/00 - -------------------------------------------------------------------------------- 05/24/01 EPC Agreement Unit 7&8 (Elwood III) 07/31/01 - -------------------------------------------------------------------------------- 06/06/01 EPC Agreement-- Unit 9 (Elwood III) 9/20/00 - -------------------------------------------------------------------------------- 05/24/01 Gas Transportation and Balancing Agreement 05/1/99 - -------------------------------------------------------------------------------- 05/24/01 Transportation & Balancing Service Agreement (T&BSA) 12/5/00 - -------------------- 05/24/01 Amendment #1 to T&BSA 09/30/99 - -------------------------------------------------------------------------------- 06/01/01 Transportation & Balancing Service Agreement (T&BSA) 5/1/01 - -------------------------------------------------------------------------------- 05/24/01 Fuel Supply and Management Agreement 06/1/99 - -------------------------------------------------------------------------------- 06/01/01 Fuel Supply & Management Agreement 5/1/01 - -------------------------------------------------------------------------------- 05/24/01 Operation and Maintenance (O&M) Agreement 06/18/99 - -------------------------------------------------------------------------------- 05/30/01 Operation & Maintenance (O&M) Agreement Units 5&6 05/23/01 - -------------------------------------------------------------------------------- 05/30/01 Operation & Maintenance (O&M) Agreement Units 7-9 05/23/01 - -------------------------------------------------------------------------------- 06/21/01 Common Faci1ities Agreement #1 06/10/2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 05/24/01 Clean Air Act Permit Program (CAAPP) Permit and Title I Permit - -------------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- DATE RECEIVED RECEIVED FROM DOCUMENT - -------------------------------------------------------------------------------- 11/29/99 - -------------------------------------------------------------------------------- 06/14/01 CAAPP Application Completeness Determination & Source Fee Determination - -------------------------------------------------------------------------------- 06/22/01 CAAPP Application Completeness Determination & Source Fee Determination-Revised - -------------------------------------------------------------------------------- 05/24/01 Environmental Investigation Report 08/03/98 - -------------------------------------------------------------------------------- 05/24/01 Soil Boring Logs and Core Analysis 1998 - -------------------------------------------------------------------------------- 06/12/01 Self-Certification Filing for Fuel Use Act. (1/25/99) - -------------------------------------------------------------------------------- 06/12/01 FERC Exempt Generator Filing Response (03/05/99) - -------------------------------------------------------------------------------- 06/12/01 FERC Rate schedule (03/31/99) - -------------------------------------------------------------------------------- 06/19/01 FERC Exempt Generator Determinations (Feb. 01) Units 5-9 - -------------------------------------------------------------------------------- 07/25/01 McGuire IEPA acid Rain-Phase II Permit-Elwood Facility Woods - -------------------------------------------------------------------------------- 07/25/01 McGuire IEPA acid Rain-Phase II Permit-Elwood II Facility Woods - -------------------------------------------------------------------------------- 07/25/01 McGuire IEPA acid Rain-Phase II Permit-Elwood III Facility Woods - -------------------------------------------------------------------------------- 06/14/01 NPDES Permit Modification Determination 1l/19/98 - -------------------------------------------------------------------------------- 05/24/01 Construction Permit -- PSD-Revised 10/17/00 - -------------------------------------------------------------------------------- 05/24/01 Construction Permit -- PSD Approval -- NSP Source (Elwood II) 10/17/00 - -------------------------------------------------------------------------------- 05/24/01 Construction Permit -- PSD Approval -- NSP Source (Elwood III) 10/17/00 - -------------------------------------------------------------------------------- 05/24/01 Administrative Services Agreement (Elwood II) 12/27/00 - -------------------------------------------------------------------------------- 05/24/01 Administrative Services Agreement (Elwood III) 12/27/00 - -------------------------------------------------------------------------------- 05/25/01 Pro Forma - -------------------------------------------------------------------------------- 05/25/01 Noise Assessment -- Unit 1-4 11/29/99 - -------------------------------------------------------------------------------- 05/29/01 Performance Test Data -- Units 1-4 - -------------------------------------------------------------------------------- 06/21/01 Performance Test Report -- Units 1-4 11/07/99 - -------------------------------------------------------------------------------- 05/29/01 Performance Test Data -- Units 5, 6, & 9 - -------------------------------------------------------------------------------- 06/02/0l Thermal Performance Test Report -- Unit 5 5/11/01 - -------------------------------------------------------------------------------- 06/12/01 Unit #9 Performance Test Report (04/28/0l) - -------------------------------------------------------------------------------- 06/12/01 Units 5, 6, & 9 Performance Test Summary - -------------------------------------------------------------------------------- 06/14/01 Thermal Performance Test Report Unit 6 6/12/01 - -------------------------------------------------------------------------------- 06/20/01 Preliminary Performance Test Results -- Units 7 & 8 - -------------------------------------------------------------------------------- 06/29/01 Thermal performance Test Report-Unit 7 06/25/01 - -------------------------------------------------------------------------------- 06/29/01 Thermal performance Test Report-Unit 8 06/25/01 - -------------------------------------------------------------------------------- 06/04/01 Operating Reports 1999-2000 (Units 1-4) - -------------------------------------------------------------------------------- 05/30/01 Electrical One Line Diagram Units 1&2 - -------------------------------------------------------------------------------- 05/30/01 Electrical One Line Diagram Units 3&4 - -------------------------------------------------------------------------------- 05/30/01 Electrical One Line Diagram Units 5&6 - -------------------------------------------------------------------------------- 05/30/01 Electrical One Line Diagram Units 7&8 - -------------------------------------------------------------------------------- 05/30/01 Electrical One Line Diagram Unit 9 - -------------------------------------------------------------------------------- 06/06/01 Certificate of Commercial Operation -- Unit 1 (7/19/99) - -------------------------------------------------------------------------------- 06/06/01 Certificate of Commercial Operation -- Unit 2 (7/18/99) - -------------------------------------------------------------------------------- 06/06/01 Certificate of Commercial Operation -- Unit 4 (7/19/99) - -------------------------------------------------------------------------------- 06/12/01 Elwood Fuel Supply Diagram - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- DATE RECEIVED RECEIVED FROM DOCUMENT - -------------------------------------------------------------------------------- 06/12/01 Elwood Gas Line Location Dwg SG-D-826 - -------------------------------------------------------------------------------- 06/12/01 Bank Due Diligence Meetings Agenda & Exhibits 06/12/01 - -------------------------------------------------------------------------------- 06/12/01 McGuire Woods Memo Dated 06/8/01 Regarding Combining Elwood Entities - -------------------------------------------------------------------------------- 06/12/01 GE Electrical/Controls Description (Units 7&8) - -------------------------------------------------------------------------------- 06/12/01 GE Compressed Gas Systems Description & P&IDS - -------------------------------------------------------------------------------- 06/12/01 Electrical One-Line Diagrams - -------------------------------------------------------------------------------- 06/12/01 Facility Water System Description and P&ID - -------------------------------------------------------------------------------- 06/12/01 Units 5-9 Milestone Payment schedule - -------------------------------------------------------------------------------- 06/14/01 Site Drawing Units 1-4 - -------------------------------------------------------------------------------- 06/14/01 Site Drawing Units 5-9 - -------------------------------------------------------------------------------- 06/12/01 Spare Parts Inventory - -------------------------------------------------------------------------------- 06/22/01 Emissions Test Report -- Units 1-4 - -------------------------------------------------------------------------------- 07/11/01 Alternative Fuel Use Self-Certification-Elwood II - -------------------------------------------------------------------------------- 07/11/01 Alternative Fuel Use Self-Certification-Elwood III - -------------------------------------------------------------------------------- 07/03/01 Acoustic Assocs-Noise Assessment Report (Preliminary 07/02/01) - -------------------------------------------------------------------------------- 06/27/01 Emissions Test Report-Units 5 & 9 (Preliminary June 2001) - -------------------------------------------------------------------------------- 07/05/01 Request for Approval of Alternate Emissions Testing Procedures-Elwood II 06/27/01 - -------------------------------------------------------------------------------- 07/06/01 People's Acoustic Associates-Determination of Property Line Sound Energy Levels-Units 5, 6, 7, 8,& 9 Running - -------------------------------------------------------------------------------- 07/23/01 Pace Pace-Power Market Assessment 07/20/01 - -------------------------------------------------------------------------------- 3 ATTACHMENT 2 VICINITY MAP - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants 12784/COO315 ROUTE MAP to ELWOOD, IL [MAP OF ROUTES TO THE ELWOOD FACILITY] ATTACHMENT 3 SITE PLANS - -------------------------------------------------------------------------------- [LOGO] Stone & Webster Consultants 12784/COO315 UNITS 1 [SITE PLAN DRAWING (FOUR UNITS)] UNITS 5 - 9 [SITE PLAN DRAWING (OTHER FIVE UNITS)] ATTACHMENT 4 Elwood Annual Cash Flow Statement Base Case
Project Year 1 2 3 4 5 6 Year 2001 2002 2003 2004 2005 2006 Percent of Year 33% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- Contract Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Volatility Revenues -- -- -- -- -- -- Total Operating Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Operating Expenses ($,000) Fuel Costs 11,788 55,573 46,285 41,246 52,369 55,039 Fixed O&M Expenses Units 1-4 & 9 771 3,368 3,465 3,557 3,651 3,997 Units 5-8 875 4,010 4,133 4,231 4,332 5,207 Variable O&M 3 17 15 15 22 22 Emission Costs -- -- -- 373 344 359 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 20 260 548 836 1,108 1,212 Interest Income on Cash Balances 440 804 780 803 818 846 Cash Flow Available For Debt Service ($,000) 19,659 70,850 69,266 68,947 70,385 68,728 Debt Service ($,000)(1) Debt 5,600 14,210 14,180 15,530 17,910 18,330 Interest 6,742 32,239 31,096 29,916 28,599 27,117 Total Debt Service 12,342 46,449 45,276 45,446 46,509 45,447 Debt Service Coverage Ratio 1.59x 1.53x 1.53x 1.52x 1.51x 1.51x ----------------------------------------------------------- Average Debt Service Coverage Ratio 3.60x Minimun Debt Service Coverage Ratio 1.51x ----------------------------------------------------------- Cash F1ow After Debt Service ($,000) 7,317 24,401 23,990 23,500 23,876 23,281 Major Maintenance ($,000) Units 1-4 & 9 500 2,000 2,000 2,000 2,000 2,000 Units 5-8 1,300 5,200 5,200 5,200 5,200 5,200 Cash Flow After Debt Service and Major Maintenance ($,000) 5,517 17,201 16,790 16,300 16,676 16,081
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 1 Elwood Annual Cash Flow Statement Base Case
Project Year 7 8 9 10 11 12 13 Year 2007 2008 2009 2010 2011 2012 2013 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- 108,582 Contract Revenues 128,030 132,586 136,205 131,894 119,840 130,562 83,238 Volatility Revenues -- -- -- -- -- -- 20,990 Total Operating Revenues 128,030 132,586 136,205 131,894 119,840 130,562 212,810 Operating Expenses ($,000) Fuel Costs 52,139 56,779 59,741 55,839 45,179 53,549 83,180 Fixed O&M Expenses Units 1-4 & 9 3,890 4,324 4,430 4,538 4,323 4,204 4,326 Units 5-8 5,699 5,809 5,922 6,039 5,146 4,547 4,674 Variable O&M 23 26 26 24 20 24 36 Emission Costs (48) (50) 155 170 157 149 153 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,319 1,595 1,785 1,214 1,045 1,102 990 Interest Income on Cash Balances 826 874 896 834 787 846 412 Cash Flow Available For Debt Service ($,000) 68,471 68,168 68,612 67,332 66,847 70,036 121,843 Debt Service ($,000)(1) Debt 19,390 20,750 22,310 23,230 25,230 29,644 8,211 Interest 25,609 23,997 22,274 20,438 18,511 16,373 14,319 Total Debt Service 44,999 44,747 44,584 43,668 43,741 46,017 22,530 Debt Service Coverage Ratio 1.52x 1.52x 1.54x 1.54x 1.53x 1.52x 5.41x Cash Flow After Debt Service ($,000) 23,473 23,421 24,028 23,664 23,106 24,019 99,313 Major Maintenance ($,000) Units 1-4 & 9 2,000 2,000 2,000 2,000 2,000 2,000 10,000 Units 5-8 5,200 5,200 5,200 5,200 5,200 5,200 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 16,273 16,221 16,828 16,464 15,906 16,819 81,313
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 2 Elwood Annual Cash Flow Statement Base Case
Project Year 14 15 16 17 18 19 20 Year 2014 2015 2016 2017 2018 2019 2020 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 113,358 122,341 116,920 130,178 132,960 138,696 139,409 Contract Revenues 82,541 83,790 78,607 87,522 86,869 97,233 84,806 Volatility Revenues 22,294 26,003 23,914 27,015 29,478 28,975 29,036 Total Operating Revenues 218,192 232,133 219,442 244,714 249,307 264,904 253,251 Operating Expenses ($,000) Fuel Costs 88,036 96,637 85,712 103,201 107,631 120,980 105,785 Fixed O&M Expenses Units 1-4 & 9 4,455 4,581 4,711 4,817 4,984 5,126 5,272 Units 5-8 4,806 4,941 5,080 5,223 5,382 5,535 5,692 Variable O&M 37 42 36 44 44 50 43 Emission Costs 214 217 215 243 230 247 252 Capita1 Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,267 1,479 1,575 1,762 2,142 1,261 301 Interest Income on Cash Balances 423 412 399 389 399 399 399 Cash Flow Available For Debt Service ($,000) 122,336 127,606 125,662 133,337 133,578 134,625 136,907 Debt Service ($,000)(1) Debt 7,500 8,341 5,765 13,170 14,765 15,628 20,677 Interest 13,662 13,049 12,370 11,891 10,814 9,615 8,304 Total Debt Service 21,162 21,390 18,135 25,061 25,579 25,243 28,981 Debt Service Coverage Ratio 5.78x 5.97x 6.93x 5.32x 5.22x 5.33x 4.72x Cash Flow After Debt Service ($,000) 101,174 106,216 107,527 108,276 107,999 109,382 107,926 Major Maintenance ($,000) Units 1-4 & 9 10,000 10,000 10,000 6,000 6,000 6,000 6,000 Units 5-8 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Cash F1ow After Debt Service and Major Maintenance ($,000) 83,174 88,216 89,527 94,276 93,999 95,382 93,926
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 3 Elwood Annual Cash Flow Statement Base Case
Project Year 21 22 23 24 25 26 Year 2021 2022 2023 2024 2025 2026 Percent of Year 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 150,402 219,489 272,674 292,626 296,962 91,698 Contract Revenues 76,695 29,522 -- -- -- -- Vo1atility Revenues 33,225 46,371 58,312 63,179 63,396 28,038 Total Operating Revenues 260,322 295,382 330,986 355,806 360,357 119,736 Operating Expenses ($,000) Fuel Costs 111,120 110,884 109,719 111,566 118,504 59,955 Fixed O&M Expenses Units 1-4 & 9 5,431 5,593 5,761 5,934 6,112 3,054 Units 5-8 5,862 6,038 6,219 6,406 6,598 3,352 Variable O&M 45 44 43 44 46 23 Emission Costs 304 276 270 249 230 62 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 1,744 1,935 2,748 2,874 2,161 605 Interest Income on Cash Balances 399 399 399 399 399 233 Cash Flow Available For Debt Service ($,000) 139,703 174,879 212,120 234,879 231,426 54,128 Debt Service ($,000)(1) Debt 26,290 21,673 10,158 12,797 8,985 1,726 Interest 6,639 4,449 2,720 1,887 826 70 Total Debt Service 32,929 26,122 12,878 14,684 9,811 1,797 Debt Service Coverage Ratio 4.24x 6.69x 16.47x 16.00x 23.59x 30.12x Cash Flow After Debt Service ($,000) 106,774 148,757 199,242 220,195 221,616 52,331 Major Maintenance ($,000) Units 1-4 & 9 14,000 14,000 14,000 14,000 14,000 2,000 Units 5-8 8,000 8,000 8,000 2,000 2,000 1,000 Cash Flow After Debt Service and Major Maintenance ($,000) 84,774 126,757 177,242 204,195 205,616 49,331
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 4 Elwood Annual Cash Flow Statement Increased O&M Sensitivity
Project Year 1 2 3 4 5 6 Year 2001 2002 2003 2004 2005 2006 Percent of Year 33% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- Contract Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Vo1ati1ity Revenues -- -- -- -- -- -- Tota1 Operating Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Operating Expenses ($,000) Fuel Costs 11,788 55,573 46,285 41,246 52,369 55,039 Fixed O&M Expenses Units 1-4 & 9 848 3,705 3,812 3,912 4,016 4,397 Units 5-8 962 4,412 4,547 4,654 4,765 5,727 Variab1e O&M 3 19 17 17 24 25 Emission Costs -- -- -- 373 344 359 Capita1 Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 20 260 548 836 1,108 1,212 Interest Income on Cash Balances 440 804 780 803 818 846 Cash F1ow Available For Debt Service ($,000) 19,494 70,110 68,504 68,166 69,584 67,805 Debt Service ($,000)(1) Debt 5,600 14,210 14,180 15,530 17,910 18,330 Interest 6,742 32,239 31,096 29,916 28,599 27,117 Total Debt Service 12,342 46,449 45,276 45,446 46,509 45,447 Debt Service Coverage Ratio 1.58x 1.51x 1.51x 1.50x 1.50x 1.49x ---------------------------------------------- Average Debt Service Coverage Ratio 3.56x Minimun Debt Service Coverage Ratio 1.49x ---------------------------------------------- Cash Flow After Debt Service ($,000) 7,152 23,662 23,228 22,720 23,076 22,358 Major Maintenance ($,000) Units 1-4 & 9 550 2,200 2,200 2,200 2,200 2,200 Units 5-8 1,430 5,720 5,720 5,720 5,720 5,720 Cash Flow After Debt Service and Major Maintenance ($,000) 5,172 15,742 15,308 14,800 15,156 14,438
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 5 Elwood Annual Cash Flow Statement Increased O&M Sensitivity
Project Year 7 8 9 10 11 12 13 Year 2007 2008 2009 2010 2011 2012 2013 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- 108,582 Contract Revenues 128,030 132,586 136,205 131,894 119,840 130,562 83,238 Vo1atility Revenues -- -- -- -- -- -- 20,990 Total Operating Revenues 128,030 132,586 136,205 131,894 119,840 130,562 212,810 Operating Expenses ($,000) Fuel Costs 52,139 56,779 59,741 55,839 45,179 53,549 83,180 Fixed O&M Expenses Units 1-4 & 9 4,279 4,756 4,873 4,992 4,755 4,625 4,758 Units 5-8 6,269 6,390 6,514 6,642 5,661 5,002 5,142 Variable O&M 26 28 28 26 22 27 39 Emission Costs (48) (50) 155 170 157 149 153 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,319 1,595 1,785 1,214 1,045 1,102 990 Interest Income on Cash Balances 826 874 896 834 787 846 412 Cash Flow Available For Debt Service ($,000) 67,510 67,152 67,574 66,272 65,898 69,159 120,939 Debt Service ($,000)(1) Debt 19,390 20,750 22,310 23,230 25,230 29,644 8,211 Interest 25,609 23,997 22,274 20,438 18,511 16,373 14,319 Tota1 Debt Service 44,999 44,747 44,584 43,668 43,741 46,017 22,530 Debt Service Coverage Ratio 1.50x 1.50x 1.52x 1.52x 1.51x 1.50x 5.37x Cash Flow After Debt Service ($,000) 22,511 22,406 22,990 22,604 22,157 23,141 98,409 Major Maintenance ($,000) Units 1-4 & 9 2,200 2,200 2,200 2,200 2,200 2,200 11,000 Units 5-8 5,720 5,720 5,720 5,720 5,720 5,720 8,800 Cash Flow After Debt Service and Major Maintenance ($,000) 14,591 14,486 15,070 14,684 14,237 15,221 78,609
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 6 Elwood Annual Cash Flow Statement Increased O&M Sensitivity
Project Year 14 15 16 17 18 19 20 Year 2014 2015 2016 2017 2018 2019 2020 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 113,358 122,341 116,920 130,178 132,960 138,696 139,409 Contract Revenues 82,541 83,790 78,607 87,522 86,869 97,233 84,806 Volatility Revenues 22,294 26,003 23,914 27,015 29,478 28,975 29,036 Total Operating Revenues 218,192 232,133 219,442 244,714 249,307 264,904 253,251 Operating Expenses ($,000) Fuel Costs 88,036 96,637 85,712 103,201 107,631 120,980 105,785 Fixed O&M Expenses Units 1-4 & 9 4,900 5,039 5,182 5,299 5,482 5,638 5,800 Units 5-8 5,286 5,435 5,588 5,746 5,920 6,088 6,261 Variable O&M 41 46 40 48 48 55 47 Emission Costs 214 217 215 243 230 247 252 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,267 1,479 1,575 1,762 2,142 1,261 301 Interest Income on Cash Balances 423 412 399 389 399 399 399 Cash Flow Available For Debt Service ($,000) 121,406 126,650 124,679 132,328 132,537 133,554 135,806 Debt Service ($,000)(1) Debt 7,500 8,341 5,765 13,170 14,765 15,628 20,677 Interest 13,662 13,049 12,370 11,891 10,814 9,615 8,304 Total Debt Service 21,162 21,390 18,135 25,061 25,579 25,243 28,981 Debt Service Coverage Ratio 5.74x 5.92x 6.88x 5.28x 5.18x 5.29x 4.69x Cash Flow After Debt Service ($,000) 100,244 105,259 106,544 107,267 106,958 108,311 106,825 Major Maintenance ($,000) Units 1-4 & 9 11,000 11,000 11,000 6,600 6,600 6,600 6,600 Units 5-8 8,800 8,800 8,800 8,800 8,800 8,800 8,800 Cash Flow After Debt Service and Major Maintenance ($,000) 80,444 85,459 86,744 91,867 91,558 92,911 91,425
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 7 Elwood Annual Cash Flow Statement Increased O&M Sensitivity
Project Year 21 22 23 24 25 26 Year 2021 2022 2023 2024 2025 2026 Percent of Year 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 150,402 219,489 272,674 292,626 296,962 91,698 Contract Revenues 76,695 29,522 -- -- -- -- Volatility Revenues 33,225 46,371 58,312 63,179 63,396 28,038 Total Operating Revenues 260,322 295,382 330,986 355,806 360,357 119,736 Operating Expenses ($,000) Fuel Costs 111,120 110,884 109,719 111,566 118,504 59,955 Fixed O&M Expenses Units 1-4 & 9 5,974 6,153 6,337 6,528 6,723 3,360 Units 5-8 6,449 6,642 6,841 7,047 7,258 3,688 Variable O&M 49 48 47 48 51 26 Emission Costs 304 276 270 249 230 62 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 1,744 1,935 2,748 2,874 2,161 605 Interest Income on Cash Balances 399 399 399 399 399 233 Cash Flow Available For Debt Service ($,000) 138,570 173,711 210,918 233,640 230,151 53,485 Debt Service ($,000)(1) Debt 26,290 21,673 10,158 12,797 8,985 1,726 Interest 6,639 4,449 2,720 1,887 826 70 Total Debt Service 32,929 26,122 12,878 14,684 9,811 1,797 Debt Service Coverage Ratio 4.21x 6.65x 16.38x 15.91x 23.46x 29.77x Cash Flow After Debt Service ($,000) 105,641 147,589 198,040 218,957 220,340 51,688 Major Maintenance ($,000) Units 1-4 & 9 15,400 15,400 15,400 15,400 15,400 2,200 Units 5-8 8,800 8,800 8,800 2,200 2,200 1,100 Cash Flow After Debt Service and Major Maintenance ($,000) 81,441 123,389 173,840 201,357 202,740 48,388
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 8 Elwood Annual Cash Flow Statement Lower Inflation Sensitivity
Project Year 1 2 3 4 5 6 Year 2001 2002 2003 2004 2005 2006 Percent of Year 33% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- Contract Revenues 32,480 131,782 120,850 115,673 127,577 129,391 Volatility Revenues -- -- -- -- -- -- Total Operating Revenues 32,480 131,782 120,850 115,673 127,577 129,391 Operating Expenses ($,000) Fuel Costs 11,634 54,615 45,322 40,223 50,831 53,215 Fixed O&M Expenses Units 1-4 & 9 771 3,368 3,452 3,527 3,605 3,934 Units 5-8 875 4,010 4,119 4,200 4,283 5,139 Variable O&M 3 17 15 15 21 22 Emission Costs -- -- -- 373 344 359 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 20 260 548 836 1,108 1,216 Interest Income on Cash Balances 438 802 777 799 814 840 Cash Flow Available For Debt Service ($,000) 19,656 70,834 69,268 68,970 70,415 68,777 Debt Service ($,000)(1) Debt 5,600 14,210 14,180 15,530 17,910 18,330 Interest 6,742 32,239 31,096 29,916 28,599 27,117 Total Debt Service 12,342 46,449 45,276 45,446 46,509 45,447 Debt Service Coverage Ratio 1.59x 1.52x 1.53x 1.52x 1.51x 1.51x ----------------------------------------------- Average Debt Service Coverage Ratio 3.36x Minimun Debt Service Coverage Ratio 1.51x ----------------------------------------------- Cash Flow After Debt Service ($,000) 7,314 24,385 23,992 23,524 23,906 23,330 Major Maintenance ($,000) Units 1-4 & 9 500 2,000 2,000 2,000 2,000 2,000 Units 5-8 1,300 5,200 5,200 5,200 5,200 5,200 Cash Flow After Debt Service and Major Maintenance ($,000) 5,514 17,185 16,792 16,324 16,706 16,130
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 9 Elwood Annual Cash Flow Statement Lower Inflation Sensitivity
Project Year 7 8 9 10 11 12 13 Year 2007 2008 2009 2010 2011 2012 2013 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- 100,939 Contract Revenues 126,008 130,137 133,339 128,985 117,370 127,239 80,305 Volatility Revenues -- -- -- -- -- -- 19,513 Total Operating Revenues 126,008 130,137 133,339 128,985 117,370 127,239 200,756 Operating Expenses ($,000) Fuel Costs 50,209 54,436 57,020 53,077 42,800 50,342 77,850 Fixed O&M Expenses Units 1-4 & 9 3,816 4,224 4,309 4,397 4,159 4,017 4,114 Units 5-8 5,612 5,702 5,793 5,887 4,971 4,347 4,448 Variable O&M 23 25 25 23 19 23 34 Emission Costs (48) (50) 155 170 157 149 153 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,330 1,608 1,804 1,269 1,119 1,177 1,060 Interest Income on Cash Balances 820 865 886 826 781 837 405 Cash Flow Available For Debt Service ($,000) 68,547 68,275 68,726 67,526 67,164 70,375 115,622 Debt Service ($,000)(1) Debt 19,390 20,750 22,310 23,230 25,230 29,644 8,211 Interest 25,609 23,997 22,274 20,438 18,511 16,373 14,319 Total Debt Service 44,999 44,747 44,584 43,668 43,741 46,017 22,530 Debt Service Coverage Ratio 1.52x 1.53x 1.54x 1.55x 1.54x 1.53x 5.13x Cash Flow After Debt Service ($,000) 23,548 23,528 24,142 23,858 23,423 24,358 93,092 Major Maintenance ($,000) Units 1-4 & 9 2,000 2,000 2,000 2,000 2,000 2,000 10,000 Units 5-8 5,200 5,200 5,200 5,200 5,200 5,200 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 16,348 16,328 16,942 16,658 16,223 17,158 75,092
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 10 Elwood Annual Cash Flow Statement Lower Inflation Sensitivity
Project Year 14 15 16 17 18 19 20 Year 2014 2015 2016 2017 2018 2019 2020 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 104,867 112,627 107,115 118,682 120,629 125,223 125,256 Contract Revenues 79,304 80,254 75,276 83,190 82,389 91,553 80,085 Volatility Revenues 20,624 23,938 21,909 24,629 26,745 26,160 26,088 Total Operating Revenues 204,795 216,820 204,299 226,500 229,763 242,936 231,429 Operating Expenses ($,000) Fuel Costs 82,007 89,568 79,114 94,693 98,540 110,166 95,934 Fixed O&M Expenses Units 1-4 & 9 4,215 4,315 4,417 4,495 4,628 4,738 4,850 Units 5-8 4,551 4,658 4,767 4,878 5,001 5,119 5,239 Variable O&M 35 39 33 40 41 46 39 Emission Costs 214 217 215 243 230 247 252 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,347 1,575 1,695 1,886 2,282 1,365 396 Interest Income on Cash Balances 415 404 392 382 392 392 392 Cash Flow Available For Debt Service ($,000) 115,533 120,002 117,840 124,418 123,997 124,376 125,901 Debt Service ($,000)(1) Debt 7,500 8,341 5,765 13,170 14,765 15,628 20,677 Interest 13,662 13,049 12,370 11,891 10,814 9,615 8,304 Total Debt Service 21,162 21,390 18,135 25,061 25,579 25,243 28,981 Debt Service Coverage Ratio 5.46x 5.61x 6.50x 4.96x 4.85x 4.93x 4.34x Cash Flow After Debt Service ($,000) 94,371 98,612 99,706 99,357 98,418 99,132 96,921 Major Maintenance ($,000) Units 1-4 & 9 10,000 10,000 10,000 6,000 6,000 6,000 6,000 Units 5-8 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 76,371 80,612 81,706 85,357 84,418 85,132 82,921
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 11 Elwood Annual Cash Flow Statement Lower Inflation Sensitivity
Project Year 21 22 23 24 25 26 Year 2021 2022 2023 2024 2025 2026 Percent of Year 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 134,477 195,295 241,440 257,850 260,399 80,018 Contract Revenues 71,972 27,663 -- -- -- -- Volatility Revenues 29,707 41,260 51,633 55,671 55,590 24,466 Total Operating Revenues 236,156 264,218 293,073 313,520 315,990 104,484 Operating Expenses ($,000) Fuel Costs 100,289 99,649 98,175 99,353 105,032 52,791 Fixed O&M Expenses Units 1-4 & 9 4,972 5,096 5,223 5,354 5,488 2,729 Units 5-8 5,370 5,505 5,642 5,783 5,928 2,997 Variable O&M 40 40 39 39 41 21 Emission Costs 304 276 270 249 230 62 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 2,205 2,463 3,283 3,477 2,909 1,057 Interest Income on Cash Balances 392 392 392 392 392 228 Cash Flow Available For Debt Service ($,000) 127,777 156,507 187,398 206,610 202,572 47,168 Debt Service ($,000)(1) Debt 26,290 21,673 10,158 12,797 8,985 1,726 Interest 6,639 4,449 2,720 1,887 826 70 Total Debt Service 32,929 26,122 12,878 14,684 9,811 1,797 Debt Service Coverage Ratio 3.88x 5.99x 14.55x 14.07x 20.65x 26.25x Cash Flow After Debt Service ($,000) 94,848 130,385 174,519 191,927 192,761 45,372 Major Maintenance ($,000) Units 1-4 & 9 14,000 14,000 14,000 14,000 14,000 2,000 Units 5-8 8,000 8,000 8,000 2,000 2,000 1,000 Cash Flow After Debt Service and Major Maintenance ($,000) 72,848 108,385 152,519 175,927 176,761 42,372
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 12 Elwood Annual Cash Flow Statement High Gas Sensitivity
Project Year 1 2 3 4 5 6 Year 2001 2002 2003 2004 2005 2006 Percent of Year 33% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- Contract Revenues 33,578 147,433 136,068 127,538 140,279 144,114 Volatility Revenues -- -- -- -- -- -- Total Operating Revenues 33,578 147,433 136,068 127,538 140,279 144,114 Operating Expenses ($,000) Fuel Costs 12,770 70,221 60,413 52,169 63,895 68,346 Fixed O&M Expenses Units 1-4 & 9 771 3,368 3,465 3,557 3,651 3,997 Units 5-8 875 4,010 4,133 4,231 4,332 5,207 Variable O&M 3 17 14 14 18 19 Emission Costs -- -- -- 356 307 317 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 20 260 548 836 1,108 1,223 Interest Income on Cash Balances 456 838 823 839 837 868 Cash Flow Available For Debt Service ($,000) 19,635 70,916 69,412 68,887 70,022 68,319 Debt Service ($,000)(1) Debt 5,600 14,210 14,180 15,530 17,910 18,330 Interest 6,742 32,239 31,096 29,916 28,599 27,117 Total Debt Service 12,342 46,449 45,276 45,446 46,509 45,447 Debt Service Coverage Ratio 1.59x 1.53x 1.53x 1.52x 1.51x 1.50x ----------------------------------------------- Average Debt Service Coverage Ratio 3.58x Minimun Debt Service Coverage Ratio 1.50x ----------------------------------------------- Cash Flow After Debt Service ($,000) 7,293 24,467 24,136 23,440 23,513 22,872 Major Maintenance ($,000) Units 1-4 & 9 500 2,000 2,000 2,000 2,000 2,000 Units 5-8 1,300 5,200 5,200 5,200 5,200 5,200 Cash Flow After Debt Service and Major Maintenance ($,000) 5,493 17,267 16,936 16,240 16,313 15,672
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 13 Elwood Annual Cash Flow Statement High Gas Sensitivity
Project Year 7 8 9 10 11 12 13 Year 2007 2008 2009 2010 2011 2012 2013 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- 120,848 Contract Revenues 139,881 145,730 155,151 148,876 135,093 149,109 97,300 Volatility Revenues -- -- -- -- -- -- 20,990 Total Operating Revenues 139,881 145,730 155,151 148,876 135,093 149,109 239,138 Operating Expenses ($,000) Fuel Costs 64,371 70,341 78,908 73,061 60,489 72,204 110,753 Fixed O&M Expenses Units 1-4 & 9 3,890 4,324 4,430 4,538 4,323 4,204 4,326 Units 5-8 5,699 5,809 5,922 6,039 5,146 4,547 4,674 Variable O&M 20 21 22 21 18 22 31 Emission Costs (42) (43) 117 133 138 125 136 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,447 1,664 1,938 2,194 2,233 1,471 929 Interest Income on Cash Balances 848 934 978 860 844 906 434 Cash Flow Available For Debt Service ($,000) 68,239 67,876 68,668 68,139 68,056 70,385 120,580 Debt Service ($,000)(1) Debt 19,390 20,750 22,310 23,230 25,230 29,644 8,211 Interest 25,609 23,997 22,274 20,438 18,511 16,373 14,319 Total Debt Service 44,999 44,747 44,584 43,668 43,741 46,017 22,530 Debt Service Coverage Ratio 1.52x 1.52x 1.54x 1.56x 1.56x 1.53x 5.35x Cash Flow After Debt Service ($,000) 23,241 23,129 24,084 24,471 24,316 24,368 98,050 Major Maintenance ($,000) Units 1-4 & 9 2,000 2,000 2,000 2,000 2,000 2,000 10,000 Units 5-8 5,200 5,200 5,200 5,200 5,200 5,200 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 16,041 15,929 16,884 17,271 17,116 17,168 80,050
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 14 Elwood Annual Cash Flow Statement High Gas Sensitivity
Project Year 14 15 16 17 18 19 20 Year 2014 2015 2016 2017 2018 2019 2020 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 129,770 141,112 134,302 152,240 154,624 166,715 165,930 Contract Revenues 102,943 102,753 96,354 113,374 111,714 127,822 112,874 Volatility Revenues 22,294 26,003 23,914 27,015 29,478 28,975 29,036 Total Operating Revenues 255,007 269,867 254,570 292,628 295,817 323,512 307,839 Operating Expenses ($,000) Fuel Costs 125,144 135,161 121,123 151,994 155,070 181,230 161,110 Fixed O&M Expenses Units 1-4 & 9 4,455 4,581 4,711 4,817 4,984 5,126 5,272 Units 5-8 4,806 4,941 5,080 5,223 5,382 5,535 5,692 Variable O&M 35 38 33 41 41 48 42 Emission Costs 192 176 197 219 198 222 228 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,372 1,757 1,807 1,755 2,078 1,274 360 Interest Income on Cash Balances 477 470 465 425 465 465 465 Cash Flow Available For Debt Service ($,000) 122,224 127,198 125,698 132,513 132,684 133,090 136,320 Debt Service ($,000)(1) Debt 7,500 8,341 5,765 13,170 14,765 15,628 20,677 Interest 13,662 13,049 12,370 11,891 10,814 9,615 8,304 Total Debt Service 21,162 21,390 18,135 25,061 25,579 25,243 28,981 Debt Service Coverage Ratio 5.78x 5.95x 6.93x 5.29x 5.19x 5.27x 4.70x Cash Flow After Debt Service ($,000) 101,062 105,807 107,563 107,452 107,105 107,847 107,340 Major Maintenance ($,000) Units 1-4 & 9 10,000 10,000 10,000 6,000 6,000 6,000 6,000 Units 5-8 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 83,062 87,807 89,563 93,452 93,105 93,847 93,340
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 15 Elwood Annual Cash Flow Statement High Gas Sensitivity
Project Year 21 22 23 24 25 26 Year 2021 2022 2023 2024 2025 2026 Percent of Year 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 180,454 266,192 326,219 352,063 359,098 123,342 Contract Revenues 102,735 38,481 -- -- -- -- Volatility Revenues 33,225 46,371 58,312 63,179 63,396 28,038 Total Operating Revenues 316,414 351,044 384,531 415,242 422,493 151,380 Operating Expenses ($,000) Fuel Costs 170,028 169,025 164,569 176,188 183,354 92,538 Fixed O&M Expenses Units 1-4 & 9 5,431 5,593 5,761 5,934 6,112 3,054 Units 5-8 5,862 6,038 6,219 6,406 6,598 3,352 Variable O&M 44 43 41 44 45 22 Emission Costs 272 254 272 239 210 59 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 3,638 4,315 3,355 3,369 3,152 730 Interest Income on Cash Balances 465 465 465 465 465 285 Cash Flow Available For Debt Service ($,000) 138,881 174,869 211,488 230,265 229,790 53,370 Debt Service ($,000)(1) Debt 26,290 21,673 10,158 12,797 8,985 1,726 Interest 6,639 4,449 2,720 1,887 826 70 Total Debt Service 32,929 26,122 12,878 14,684 9,811 1,797 Debt Service Coverage Ratio 4.22x 6.69x 16.42x 15.68x 23.42x 29.70x Cash Flow After Debt Service ($,000) 105,952 148,747 198,610 215,582 219,980 51,573 Major Maintenance ($,000) Units 1-4 & 9 14,000 14,000 14,000 14,000 14,000 2,000 Units 5-8 8,000 8,000 8,000 2,000 2,000 1,000 Cash Flow After Debt Service and Major Maintenance ($,000) 83,952 126,747 176,610 199,582 203,980 48,573
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 16 Elwood Annual Cash Flow Statement Overbuild Sensitivity Project Year 1 2 3 4 5 6 Year 2001 2002 2003 2004 2005 2006 Percent of Year 33% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- Contract Revenues 32,635 132,754 121,836 116,730 128,442 130,784 Volatility Revenues -- -- -- -- -- -- Total Operating Revenues 32,635 132,754 121,836 116,730 128,442 130,784 Operating Expenses ($,000) Fuel Costs 11,788 55,573 46,285 41,246 51,706 54,486 Fixed O&M Expenses Units 1-4 & 9 771 3,368 3,465 3,557 3,651 3,997 Units 5-8 875 4,010 4,133 4,231 4,332 5,207 Variable O&M 3 17 15 15 10 14 Emission Costs -- -- -- 373 344 359 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 20 260 548 836 1,108 1,223 Interest Income on Cash Balances 440 804 780 803 814 842 Cash Flow Available For Debt Service ($,000) 19,659 70,850 69,266 68,947 70,322 68,786 Debt Service ($,000)(1) Debt 5,600 14,210 14,180 15,530 17,910 18,330 Interest 6,742 32,239 31,096 29,916 28,599 27,117 Total Debt Service 12,342 46,449 45,276 45,446 46,509 45,447 Debt Service Coverage Ratio 1.59x 1.53x 1.53x 1.52x 1.51x 1.51x ----------------------------------------------- Average Debt Service Coverage Ratio 3.55x Minimun Debt Service Coverage Ratio 1.51x ----------------------------------------------- Cash Flow After Debt Service ($,000) 7,317 24,401 23,990 23,500 23,813 23,339 Major Maintenance ($,000) Units 1-4 & 9 500 2,000 2,000 2,000 2,000 2,000 Units 5-8 1,300 5,200 5,200 5,200 5,200 5,200 Cash Flow After Debt Service and Major Maintenance ($,000) 5,517 17,201 16,790 16,300 16,613 16,139
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 17 Elwood Annual Cash Flow Statement Overbuild Sensitivity
Project Year 7 8 9 10 11 12 13 Year 2007 2008 2009 2010 2011 2012 2013 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- 108,696 Contract Revenues 127,625 132,259 135,737 131,964 119,877 130,585 83,255 Volatility Revenues -- -- -- -- -- -- 20,990 Total Operating Revenues 127,625 132,259 135,737 131,964 119,877 130,585 212,941 Operating Expenses ($,000) Fuel Costs 51,704 56,323 59,271 55,690 45,124 53,680 83,068 Fixed O&M Expenses Units 1-4 & 9 3,890 4,324 4,430 4,538 4,323 4,204 4,326 Units 5-8 5,699 5,809 5,922 6,039 5,146 4,547 4,674 Variable O&M 16 17 19 23 18 21 36 Emission Costs (29) (33) 124 127 140 155 145 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,459 1,796 2,009 2,280 2,346 1,458 921 Interest Income on Cash Balances 824 873 892 843 799 847 411 Cash Flow Available For Debt Service ($,000) 68,627 68,489 68,872 68,671 68,272 70,283 122,024 Debt Service ($,000)(1) Debt 19,390 20,750 22,310 23,230 25,230 29,644 8,211 Interest 25,609 23,997 22,274 20,438 18,511 16,373 14,319 Total Debt Service 44,999 44,747 44,584 43,668 43,741 46,017 22,530 Debt Service Coverage Ratio 1.53x 1.53x 1.54x 1.57x 1.56x 1.53x 5.42x Cash Flow After Debt Service ($,000) 23,628 23,742 24,287 25,003 24,531 24,265 99,494 Major Maintenance ($,000) Units 1-4 & 9 2,000 2,000 2,000 2,000 2,000 2,000 10,000 Units 5-8 5,200 5,200 5,200 5,200 5,200 5,200 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 16,428 16,542 17,087 17,803 17,331 17,065 81,494
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 18 Elwood Annual Cash Flow Statement Overbuild Sensitivity
Project Year 14 15 16 17 18 19 20 Year 2014 2015 2016 2017 2018 2019 2020 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 113,484 122,499 117,136 130,429 133,221 138,984 139,706 Contract Revenues 82,596 83,842 77,564 80,325 72,652 77,715 73,543 Volatility Revenues 22,294 26,003 23,914 27,015 29,478 28,975 29,036 Total Operating Revenues 218,373 232,344 218,615 237,769 235,352 245,675 242,285 Operating Expenses ($,000) Fuel Costs 88,056 96,714 84,760 98,477 107,781 121,162 105,959 Fixed O&M Expenses Units 1-4 & 9 4,455 4,581 4,711 4,817 4,984 5,126 5,272 Units 5-8 4,806 4,941 5,080 5,223 5,382 5,535 5,692 Variable O&M 37 42 36 44 44 50 43 Emission Costs 183 217 215 243 230 248 252 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,365 1,801 1,963 1,786 2,062 1,261 343 Interest Income on Cash Balances 424 414 399 386 399 399 399 Cash Flow Available For Debt Service ($,000) 122,626 128,064 126,175 131,137 119,392 115,214 125,808 Debt Service ($,000)(1) Debt 7,500 8,341 5,765 13,170 14,765 15,628 20,677 Interest 13,662 13,049 12,370 11,891 10,814 9,615 8,304 Total Debt Service 21,162 21,390 18,135 25,061 25,579 25,243 28,981 Debt Service Coverage Ratio 5.79x 5.99x 6.96x 5.23x 4.67x 4.56x 4.34x Cash Flow After Debt Service ($,000) 101,464 106,674 108,040 106,076 93,814 89,971 96,827 Major Maintenance ($,000) Units 1-4 & 9 10,000 10,000 10,000 6,000 6,000 6,000 6,000 Units 5-8 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 83,464 88,674 90,040 92,076 79,814 75,971 82,827
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 19 Elwood Annual Cash Flow Statement Overbuild Sensitivity
Project Year 21 22 23 24 25 26 Year 2021 2022 2023 2024 2025 2026 Percent of Year 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 150,750 220,042 273,420 293,416 297,787 91,960 Contract Revenues 72,194 32,916 -- -- -- -- Volatility Revenues 33,225 46,371 58,312 63,179 63,396 28,038 Total Operating Revenues 256,170 299,329 331,732 356,595 361,182 119,998 Operating Expenses ($,000) Fuel Costs 111,324 111,095 109,941 111,698 118,756 60,094 Fixed O&M Expenses Units 1-4 & 9 5,431 5,593 5,761 5,934 6,112 3,054 Units 5-8 5,862 6,038 6,219 6,406 6,598 3,352 Variable O&M 45 44 43 44 46 24 Emission Costs 305 277 271 250 230 62 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 3,762 4,256 3,255 3,292 3,230 1,206 Interest Income on Cash Balances 399 399 399 399 399 234 Cash Flow Available For Debt Service ($,000) 137,364 180,937 213,150 235,954 233,068 54,852 Debt Service ($,000)(1) Debt 26,290 21,673 10,158 12,797 8,985 1,726 Interest 6,639 4,449 2,720 1,887 826 70 Total Debt Service 32,929 26,122 12,878 14,684 9,811 1,797 Debt Service Coverage Ratio 4.17x 6.93x 16.55x 16.07x 23.76x 30.53x Cash Flow After Debt Service ($,000) 104,436 154,814 200,272 221,271 223,258 53,056 Major Maintenance ($,000) Units 1-4 & 9 14,000 14,000 14,000 14,000 14,000 2,000 Units 5-8 8,000 8,000 8,000 2,000 2,000 1,000 Cash Flow After Debt Service and Major Maintenance ($,000) 82,436 132,814 178,272 205,271 207,258 50,056
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 20 Elwood Annual Cash Flow Statement No Aquila Contract Extension Sensitivity
Project Year 1 2 3 4 5 6 Year 2001 2002 2003 2004 2005 2006 Percent of Year 33% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- Contract Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Volatility Revenues -- -- -- -- -- -- Total Operating Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Operating Expenses ($,000) Fuel Costs 11,788 55,573 46,285 41,246 52,369 55,039 Fixed O&M Expenses Units 1-4 & 9 771 3,368 3,465 3,557 3,651 3,997 Units 5-8 875 4,010 4,133 4,231 4,332 5,207 Variable O&M 3 17 15 15 22 22 Emission Costs -- -- -- 373 344 359 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 20 260 548 836 1,108 1,212 Interest Income on Cash Balances 440 804 780 803 818 846 Cash Flow Available For Debt Service ($,000) 19,659 70,850 69,266 68,947 70,385 68,728 Debt Service ($,000)(1) Debt 5,600 14,210 14,180 15,530 17,910 18,330 Interest 6,742 32,239 31,096 29,916 28,599 27,117 Total Debt Service 12,342 46,449 45,276 45,446 46,509 45,447 Debt Service Coverage Ratio 1.59x 1.53x 1.53x 1.52x 1.51x 1.51x ----------------------------------------------- Average Debt Service Coverage Ratio 3.83x Minimun Debt Service Coverage Ratio 1.51x ----------------------------------------------- Cash Flow After Debt Service ($,000) 7,317 24,401 23,990 23,500 23,876 23,281 Major Maintenance ($,000) Units 1-4 & 9 500 2,000 2,000 2,000 2,000 2,000 Units 5-8 1,300 5,200 5,200 5,200 5,200 5,200 Cash Flow After Debt Service and Major Maintenance ($,000) 5,517 17,201 16,790 16,300 16,676 16,081
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 21 Elwood Annual Cash Flow Statement No Aquila Contract Extension Sensitivity
Project Year 7 8 9 10 11 12 13 Year 2007 2008 2009 2010 2011 2012 2013 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- 108,582 Contract Revenues 128,030 132,586 136,205 131,894 119,840 130,562 83,238 Volatility Revenues -- -- -- -- -- -- 20,990 Total Operating Revenues 128,030 132,586 136,205 131,894 119,840 130,562 212,810 Operating Expenses ($,000) Fuel Costs 52,139 56,779 59,741 55,839 45,179 53,549 83,180 Fixed O&M Expenses Units 1-4 & 9 3,890 4,324 4,430 4,538 4,323 4,204 4,326 Units 5-8 5,699 5,809 5,922 6,039 5,146 4,547 4,674 Variable O&M 23 26 26 24 20 24 36 Emission Costs (48) (50) 155 170 157 149 153 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,319 1,595 1,785 1,214 1,045 1,102 990 Interest Income on Cash Balances 826 874 896 834 787 846 412 Cash Flow Available For Debt Service ($,000) 68,471 68,168 68,612 67,332 66,847 70,036 121,843 Debt Service ($,000)(1) Debt 19,390 20,750 22,310 23,230 25,230 29,644 8,211 Interest 25,609 23,997 22,274 20,438 18,511 16,373 14,319 Total Debt Service 44,999 44,747 44,584 43,668 43,741 46,017 22,530 Debt Service Coverage Ratio 1.52x 1.52x 1.54x 1.54x 1.53x 1.52x 5.41x Cash Flow After Debt Service ($,000) 23,473 23,421 24,028 23,664 23,106 24,019 99,313 Major Maintenance ($,000) Units 1-4 & 9 2,000 2,000 2,000 2,000 2,000 2,000 10,000 Units 5-8 5,200 5,200 5,200 5,200 5,200 5,200 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 16,273 16,221 16,828 16,464 15,906 16,819 81,313
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 22 Elwood Annual Cash Flow Statement No Aquila Contract Extension Sensitivity
Project Year 14 15 16 17 18 19 20 Year 2014 2015 2016 2017 2018 2019 2020 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 113,358 122,341 127,816 195,091 226,057 237,143 240,221 Contract Revenues 82,541 83,790 69,957 30,157 -- -- -- Volatility Revenues 22,294 26,003 25,562 39,542 42,690 43,937 43,040 Total Operating Revenues 218,192 232,133 223,335 264,790 268,747 281,080 283,261 Operating Expenses ($,000) Fuel Costs 88,036 96,637 85,446 100,063 99,335 107,877 99,326 Fixed O&M Expenses Units 1-4 & 9 4,455 4,581 4,711 4,817 4,984 5,126 5,272 Units 5-8 4,806 4,941 5,080 5,223 5,382 5,535 5,692 Variable O&M 37 42 36 41 40 43 40 Emission Costs 214 217 215 243 227 212 182 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,267 1,479 1,575 1,762 2,142 1,261 301 Interest Income on Cash Balances 423 412 399 386 399 399 399 Cash Flow Available For Debt Service ($,000) 122,336 127,606 129,821 156,550 161,319 163,947 173,448 Debt Service ($,000)(1) Debt 7,500 8,341 5,765 13,170 14,765 15,628 20,677 Interest 13,662 13,049 12,370 11,891 10,814 9,615 8,304 Total Debt Service 21,162 21,390 18,135 25,061 25,579 25,243 28,981 Debt Service Coverage Ratio 5.78x 5.97x 7.16x 6.25x 6.31x 6.49x 5.98x Cash Flow After Debt Service ($,000) 101,174 106,216 111,686 131,489 135,741 138,704 144,467 Major Maintenance ($,000) Units 1-4 & 9 10,000 10,000 10,000 6,000 6,000 6,000 6,000 Units 5-8 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 83,174 88,216 93,686 117,489 121,741 124,704 130,467
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 23 Elwood Annual Cash Flow Statement No Aquila Contract Extension Sensitivity
Project Year 21 22 23 24 25 26 Year 2021 2022 2023 2024 2025 2026 Percent of Year 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 234,780 250,997 272,674 292,626 296,962 91,698 Contract Revenues -- -- -- -- -- -- Volatility Revenues 60,220 56,997 58,312 63,179 63,396 28,038 Total Operating Revenues 295,000 307,994 330,986 355,806 360,357 119,736 Operating Expenses ($,000) Fuel Costs 100,403 105,043 109,723 111,570 118,507 59,956 Fixed O&M Expenses Units 1-4 & 9 5,431 5,593 5,761 5,934 6,112 3,054 Units 5-8 5,862 6,038 6,219 6,406 6,598 3,352 Variable O&M 40 41 43 44 46 23 Emission Costs 205 199 198 204 230 62 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 1,744 1,935 2,748 2,874 2,161 605 Interest Income on Cash Balances 399 399 399 399 399 233 Cash Flow Available For Debt Service ($,000) 185,202 193,412 212,188 234,920 231,424 54,127 Debt Service ($,000)(1) Debt 26,290 21,673 10,158 12,797 8,985 1,726 Interest 6,639 4,449 2,720 1,887 826 70 Total Debt Service 32,929 26,122 12,878 14,684 9,811 1,797 Debt Service Coverage Ratio 5.62x 7.40x 16.48x 16.00x 23.59x 30.12x Cash Flow After Debt Service ($,000) 152,274 167,290 199,310 220,237 221,613 52,330 Major Maintenance ($,000) Units 1-4 & 9 14,000 14,000 14,000 14,000 14,000 2,000 Units 5-8 8,000 8,000 8,000 2,000 2,000 1,000 Cash Flow After Debt Service and Major Maintenance ($,000) 130,274 145,290 177,310 204,237 205,613 49,330
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 24 Elwood Annual Cash Flow Statement No Volatility Revenue Sensitivity
Project Year 1 2 3 4 5 6 Year 2001 2002 2003 2004 2005 2006 Percent of Year 33% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- Contract Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Volatility Revenues -- -- -- -- -- -- Total Operating Revenues 32,635 132,754 121,836 116,730 129,175 131,295 Operating Expenses ($,000) Fuel Costs 11,788 55,573 46,285 41,246 52,369 55,039 Fixed O&M Expenses Units 1-4 & 9 771 3,368 3,465 3,557 3,651 3,997 Units 5-8 875 4,010 4,133 4,231 4,332 5,207 Variable O&M 3 17 15 15 22 22 Emission Costs -- -- -- 373 344 359 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 20 260 548 836 1,108 1,212 Interest Income on Cash Balances 440 804 780 803 818 846 Cash Flow Available For Debt Service ($,000) 19,659 70,850 69,266 68,947 70,385 68,728 Debt Service ($,000)(1) Debt 5,600 14,210 14,180 15,530 17,910 18,330 Interest 6,742 32,239 31,096 29,916 28,599 27,117 Total Debt Service 12,342 46,449 45,276 45,446 46,509 45,447 Debt Service Coverage Ratio 1.59x 1.53x 1.53x 1.52x 1.51x 1.51x ----------------------------------------------- Average Debt Service Coverage Ratio 2.97x Minimun Debt Service Coverage Ratio 1.51x ----------------------------------------------- Cash Flow After Debt Service ($,000) 7,317 24,401 23,990 23,500 23,876 23,281 Major Maintenance ($,000) Units 1-4 & 9 500 2,000 2,000 2,000 2,000 2,000 Units 5-8 1,300 5,200 5,200 5,200 5,200 5,200 Cash Flow After Debt Service and Major Maintenance ($,000) 5,517 17,201 16,790 16,300 16,676 16,081
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 25 Elwood Annual Cash Flow Statement No Volatility Revenue Sensitivity
Project Year 7 8 9 10 11 12 13 Year 2007 2008 2009 2010 2011 2012 2013 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues -- -- -- -- -- -- 108,582 Contract Revenues 128,030 132,586 136,205 131,894 119,840 130,562 83,238 Volatility Revenues -- -- -- -- -- -- -- Total Operating Revenues 128,030 132,586 136,205 131,894 119,840 130,562 191,820 Operating Expenses ($,000) Fuel Costs 52,139 56,779 59,741 55,839 45,179 53,549 83,180 Fixed O&M Expenses Units 1-4 & 9 3,890 4,324 4,430 4,538 4,323 4,204 4,326 Units 5-8 5,699 5,809 5,922 6,039 5,146 4,547 4,674 Variable O&M 23 26 26 24 20 24 36 Emission Costs (48) (50) 155 170 157 149 153 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,319 1,595 1,785 1,214 1,045 1,102 990 Interest Income on Cash Balances 826 874 896 834 787 846 412 Cash Flow Available For Debt Service ($,000) 68,471 68,168 68,612 67,332 66,847 70,036 100,853 Debt Service ($,000)(1) Debt 19,390 20,750 22,310 23,230 25,230 29,644 8,211 Interest 25,609 23,997 22,274 20,438 18,511 16,373 14,319 Total Debt Service 44,999 44,747 44,584 43,668 43,741 46,017 22,530 Debt Service Coverage Ratio 1.52x 1.52x 1.54x 1.54x 1.53x 1.52x 4.48x Cash Flow After Debt Service ($,000) 23,473 23,421 24,028 23,664 23,106 24,019 78,323 Major Maintenance ($,000) Units 1-4 & 9 2,000 2,000 2,000 2,000 2,000 2,000 10,000 Units 5-8 5,200 5,200 5,200 5,200 5,200 5,200 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 16,273 16,221 16,828 16,464 15,906 16,819 60,323
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 26 Elwood Annual Cash Flow Statement No Volatility Revenue Sensitivity
Project Year 14 15 16 17 18 19 20 Year 2014 2015 2016 2017 2018 2019 2020 Percent of Year 100% 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 113,358 122,341 116,920 130,178 132,960 138,696 139,409 Contract Revenues 82,541 83,790 78,607 87,522 86,869 97,233 84,806 Volatility Revenues -- -- -- -- -- -- -- Total Operating Revenues 195,899 206,130 195,528 217,700 219,829 235,929 224,215 Operating Expenses ($,000) Fuel Costs 88,036 96,637 85,712 103,201 107,631 120,980 105,785 Fixed O&M Expenses Units 1-4 & 9 4,455 4,581 4,711 4,817 4,984 5,126 5,272 Units 5-8 4,806 4,941 5,080 5,223 5,382 5,535 5,692 Variable O&M 37 42 36 44 44 50 43 Emission Costs 214 217 215 243 230 247 252 Capital Expenditures ($,000) -- -- -- -- -- -- -- Interest Income on Reserve Balances 1,267 1,479 1,575 1,762 2,142 1,261 301 Interest Income on Cash Balances 423 412 399 389 399 399 399 Cash Flow Available For Debt Service ($,000) 100,042 101,603 101,747 106,322 104,099 105,651 107,871 Debt Service ($,000)(1) Debt 7,500 8,341 5,765 13,170 14,765 15,628 20,677 Interest 13,662 13,049 12,370 11,891 10,814 9,615 8,304 Total Debt Service 21,162 21,390 18,135 25,061 25,579 25,243 28,981 Debt Service Coverage Ratio 4.73x 4.75x 5.61x 4.24x 4.07x 4.19x 3.72x Cash Flow After Debt Service ($,000) 78,880 80,213 83,613 81,261 78,521 80,407 78,890 Major Maintenance ($,000) Units 1-4 & 9 10,000 10,000 10,000 6,000 6,000 6,000 6,000 Units 5-8 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Cash Flow After Debt Service and Major Maintenance ($,000) 60,880 62,213 65,613 67,261 64,521 66,407 64,890
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 27 Elwood Annual Cash Flow Statement No Volatility Revenue Sensitivity
Project Year 21 22 23 24 25 26 Year 2021 2022 2023 2024 2025 2026 Percent of Year 100% 100% 100% 100% 100% 100% Revenues ($,000) Market Revenues 150,402 219,489 272,674 292,626 296,962 91,698 Contract Revenues 76,695 29,522 -- -- -- -- Volatility Revenues -- -- -- -- -- -- Total Operating Revenues 227,097 249,011 272,674 292,626 296,962 91,698 Operating Expenses ($,000) Fuel Costs 111,120 110,884 109,719 111,566 118,504 59,955 Fixed O&M Expenses Units 1-4 & 9 5,431 5,593 5,761 5,934 6,112 3,054 Units 5-8 5,862 6,038 6,219 6,406 6,598 3,352 Variable O&M 45 44 43 44 46 23 Emission Costs 304 276 270 249 230 62 Capital Expenditures ($,000) -- -- -- -- -- -- Interest Income on Reserve Balances 1,744 1,935 2,748 2,874 2,161 605 Interest Income on Cash Balances 399 399 399 399 399 233 Cash Flow Available For Debt Service ($,000) 106,479 128,508 153,808 171,699 168,031 26,090 Debt Service ($,000)(1) Debt 26,290 21,673 10,158 12,797 8,985 1,726 Interest 6,639 4,449 2,720 1,887 826 70 Total Debt Service 32,929 26,122 12,878 14,684 9,811 1,797 Debt Service Coverage Ratio 3.23x 4.92x 11.94x 11.69x 17.13x 14.52x Cash Flow After Debt Service ($,000) 73,550 102,386 140,930 157,016 158,220 24,293 Major Maintenance ($,000) Units 1-4 & 9 14,000 14,000 14,000 14,000 14,000 2,000 Units 5-8 8,000 8,000 8,000 2,000 2,000 1,000 Cash Flow After Debt Service and Major Maintenance ($,000) 51,550 80,386 118,930 141,016 142,220 21,293
1 The debt service amounts shown above are the sum of the two semiannual payments relating to the calendar year cash flow. The actual bond payment will be made on July 5 of that year and January 5 of the following year. 28 Annex C-1 Power Market Report [LOGO] PACE | Global Energy Services 4401 Fair Lakes Court, Suite 400 Fairfax, Virginia 22033-3848 USA Phone: 703-818-9100 Fax: 703-818-9108 Power Market Assessment MID-AMERICA INTERCONNECTED NETWORK (MAIN) Prepared for: Elwood Energy LLC September 06, 2001 ================================================================================ This Report was produced by Pace Global Energy Services, LLC ("Pace") and is meant to be read as a whole and in conjunction with this disclaimer. Any use of this Report other than as a whole and in conjunction with this disclaimer is forbidden. Any use of this Report outside of its stated purpose without the prior written consent of Pace is forbidden. Except for its stated purpose, this Report may not be copied or distributed in whole or in part without Pace's prior written consent. This Report and the information and statements herein are based in whole or in part on information obtained from various sources as of September 06, 2001. While Pace believes such information to be accurate, it makes no assurances, endorsements or warranties, express or implied, as to the validity, accuracy or completeness of any such information, any conclusions based thereon, or any methods disclosed in this Report. Pace assumes no responsibility for the results of any actions taken on the basis of this Report. By a party using, acting or relying on this Report, such party consents and agrees that Pace, its employees, directors, officers, contractors, advisors, members, affiliates, successors and agents shall have no liability with respect to such use, actions or reliance. This Report does contain some forward-looking opinions. Certain unanticipated factors could cause actual results to differ from the opinions contained herein. Forward-looking opinions are based on historical and/or current information that relate to future operations, strategies, financial results or other developments. Some of the unanticipated factors, among others, that could cause the actual results to differ include regulatory developments, technological changes, competitive conditions, new products, general economic conditions, changes in tax laws, adequacy of reserves, credit and other risks associated with Elwood Energy LLC and/or other third parties, significant changes in interest rates and fluctuations in foreign currency exchange rates. Further, certain statements, findings and conclusions in this Report are based on Pace's interpretations of various contracts. Interpretations of these contracts by legal counsel or a jurisdictional body could differ. ================================================================================ 20 years of setting the pace in energy - ---------------------------------------------------------------------------- Website: paceglobal.com [LOGO] PACE | Global Energy Services ================================================================================ TABLE OF CONTENTS ================================================================================ Executive Summary .............................................................1 Transaction Summary .......................................................1 Power Sales Agreements ..................................................2 Extension of Aquila Power Sales Agreements ..............................3 Merchant and Contract Periods ...........................................3 Results and Conclusions ...................................................4 Project Results .........................................................8 Project Volatility Value ................................................9 Assumptions ..............................................................13 Load Growth ............................................................13 Expansion Units and Existing Unit Capacity .............................13 Outline of report ........................................................15 Market Clearing Price Forecast Approach ......................................17 Approach .................................................................17 Equilibrium Pricing of Expansion Capacity ................................19 MAIN Market Pricing Forecast Results .........................................23 CEMAS Simulated Market Pricing Rates .....................................23 MAIN System Market Pricing - Base Case .............................23 Announced and Forecasted System Capacity Additions .................24 Project Results - Base Case ........................................27 Volatility Analysis Approach and Results .....................................31 Summary Results ..........................................................31 Volatility Value Analysis Methodology And Valuation ......................33 Gas Market ...............................................................34 Commodity Price Correlation ..............................................35 Power Market And Valuation Results .......................................35 Insurance ................................................................38 Other Volatility Value Measures ..........................................38 Market Area Definition and Transmission ......................................39 Regulatory Status ........................................................43 Midwest ISO ............................................................47 Midwest RTO ............................................................47 Power Marketing and Trading Activity .....................................47 Electricity Demand In MAIN ...................................................52 Load Forecasting Methodology .............................................52 Energy Demand Forecast Results ...........................................54 Hourly Load Forecasting ..................................................61 MAIN Power Generation Resources ..............................................62 Demand Profile ...........................................................62 Generation Profile .......................................................64 Generating Unit Cost Profile ...........................................65 Generating Unit Fuel Mix ...............................................66 MAIN Nuclear Unit Assessment ...........................................67 Expansion Unit Characterization and Costs ................................68 Elwood Project Characterization and Costs ................................70 - -------------------------------------------------------------------------------- Proprietary & Confidential i [LOGO] PACE | Global Energy Services Fuel Pricing .................................................................71 Natural Gas ..............................................................72 Commodity Prices .......................................................72 Regional Basis .........................................................73 Fuel Oil .................................................................75 Commodity Prices .......................................................75 Location Basis .........................................................77 Refined Product Crack Spreads ..........................................78 Delivered Oil Price Forecasts ..........................................79 Coal .....................................................................79 MAIN Coal Consumption Profile ..........................................80 Coal Price Escalation Rates ............................................82 Coal Supply, Demand, and Transportation Trends .........................82 Delivered Coal Price Forecast ..........................................84 Uranium ..................................................................85 Appendix A - Sensitivities ...................................................86 High Gas Case ............................................................86 Overbuild Case ...........................................................92 Aquila PSA Extension Case ................................................97 - -------------------------------------------------------------------------------- Proprietary & Confidential ii [LOGO] PACE | Global Energy Services ================================================================================ EXHIBITS ================================================================================ EXHIBIT 1: MAIN-NI ANNUAL SYSTEM AVERAGE MARKET PRICE (1998 $/MWH) ...........7 EXHIBIT 2: PROJECT ANNUAL OPERATIONAL SUMMARY - (1998 $) .....................9 EXHIBIT 3: PROJECT ANNUAL VOLATILITY VALUE (1998 $) .........................11 EXHIBIT 4: PROJECT MONTHLY VOLATILITY VALUE - NET OF INSURANCE (1998 $) .....12 EXHIBIT 5: KEY ASSUMPTIONS - BASE CASE ......................................15 EXHIBIT 6: PACE CEMAS METHODOLOGY ...........................................18 EXHIBIT 7: EQUILIBRIUM MARKET PRICES BASED ON EXPANSION UNIT COSTS - 2003 ...20 EXHIBIT 8: MAIN SYSTEM SUPPLY CURVE .........................................21 EXHIBIT 9: MAIN-NI ANNUAL PRICE SUMMARY - BASE CASE (1998 $/MWH) ............24 EXHIBIT 10: BASE CASE ANNOUNCED CAPACITY ADDITIONS (MW) ......................25 EXHIBIT 11: EXPANSION CAPACITY ADDITIONS BY YEAR - BASE CASE .................26 EXHIBIT 12: PROJECT ANNUAL OPERATIONAL SUMMARY (1998 $) ......................28 EXHIBIT 13: EXELON PSA ANNUAL OPERATIONAL SUMMARY (1998 $) ...................29 EXHIBIT 14: AQUILA PSAs ANNUAL OPERATIONAL SUMMARY (1998 $) ..................30 EXHIBIT 15: PROJECT ANNUAL VOLATILITY VALUE (1998 $) .........................32 EXHIBIT 16: PROJECT MONTHLY VOLATILITY VALUE - NET OF INSURANCE (1998 $) .....33 EXHIBIT 17: LONG-TERM MONTHLY HENRY HUB IMPLIED VOLATILITY FORECAST ..........35 EXHIBIT 18: REGIONAL POWER TRADING MARKETS ...................................36 EXHIBIT 19: COM ED 2001 TERM POWER MARKET IMPLIED VOLATILITY FORECAST ........36 EXHIBIT 20: FORECAST OF KEY VOLATILITY DRIVERS ...............................37 EXHIBIT 21: MAIN SUB-REGIONS AND MAJOR UTILITY COMPANIES .....................39 EXHIBIT 22: OTHER FIRST TIER SUB-REGIONS AND MAJOR UTILITY COMPANIES .........40 EXHIBIT 23: MAIN REGIONAL MAP WITH MAJOR IOUs ................................40 EXHIBIT 24: OVERVIEW OF SYSTEM COINCIDENT PEAKS ..............................41 EXHIBIT 25: ASSUMED INTRA-REGIONAL TRANSMISSION CONSTRAINTS ..................42 EXHIBIT 26: INTER-REGIONAL TRANSACTIONS LIMITS ...............................43 EXHIBIT 27: POWER MARKETERS VOLUMES TRADED IN MAIN FROM 1997 TO 1999 .........49 EXHIBIT 28: MAIN NET WHOLESALE PURCHASES/(SALES) - MWH .......................49 EXHIBIT 29: DAILY AVERAGE PEAK PRICING IN MAIN ...............................50 EXHIBIT 30: MAIN PEAK SUMMER POWER PRICING DATA (1997-2001) ..................51 EXHIBIT 31: PACE LOAD FORECASTING METHODOLOGY ................................53 EXHIBIT 32: PACE AGGREGATED ENERGY DEMAND FORECAST (MAIN) ....................55 EXHIBIT 33: PACE MAIN ENERGY DEMAND FORECAST .................................56 EXHIBIT 34: PACE'S SUB-REGIONAL ENERGY AND FORECAST FOR MAIN - GWH ...........57 EXHIBIT 35: ANNUAL ENERGY AND PEAK DEMAND FORECASTS FOR INTERCONNECTED SUB-REGIONS ......................................................58 EXHIBIT 36: PACE'S SUB-REGIONAL PEAK DEMAND FORECAST FOR MAIN - MW ...........59 EXHIBIT 37: PACE'S ENERGY DEMAND AND PEAK FORECASTS - MAIN & INTERCONNECTED SUB-REGIONS .......................................60 EXHIBIT 38: MAJOR UTILITIES 1999 DEMAND ......................................62 EXHIBIT 39: MAIN DEMAND AND ENERGY REQUIREMENTS FORECAST .....................63 EXHIBIT 40: MAIN DEMAND AND ENERGY RESERVE MARGIN FORECAST - SUMMER ..........64 EXHIBIT 41: MAIN DEMAND AND ENERGY RESERVE MARGIN FORECAST - WINTER ..........64 EXHIBIT 42: MAIN MARKET GENERATION SUMMER CAPACITY - MW ......................65 EXHIBIT 43: MAIN EMBEDDED COST SUMMARY .......................................66 EXHIBIT 44: MAIN GENERATION MIX BY FUEL TYPE .................................67 EXHIBIT 45: MAIN NUCLEAR UNITS ...............................................68 EXHIBIT 46: EXPANSION UNIT CHARACTERISTICS ...................................69 EXHIBIT 47: REGIONAL COST ADJUSTMENTS ........................................69 EXHIBIT 48: ELWOOD PROJECT SPECIFICATIONS ....................................70 - -------------------------------------------------------------------------------- Proprietary & Confidential iii [LOGO] PACE | Global Energy Services EXHIBIT 49: MONTHLY FUEL PRICE ADJUSTMENT FACTORS ............................71 EXHIBIT 50: PACE GAS PRICE MAIN SUB-REGIONS ..................................73 EXHIBIT 51: MAIN NATURAL GAS PRICE FORECASTS (1998 $/MMBTU) ..................75 EXHIBIT 52: WTI CRUDE OIL PRICE FORECAST (1998 $/MMBTU) ......................77 EXHIBIT 53: PACE OIL PRICE SUB-REGIONS FOR MAIN ..............................78 EXHIBIT 54: MAIN FUEL OIL LOCATION BASIS (1998 $/MMBTU) ......................78 EXHIBIT 55: CRUDE OIL TO REFINED PRODUCT CRACK SPREADS (1998 $/MMBTU) ........79 EXHIBIT 56: FUEL OIL PRICE FORECAST BY MAIN SUB-REGION (1998 $/MMBTU) ........79 EXHIBIT 57: HISTORICAL DELIVERED COAL PRICES FOR MAIN BY SULFUR CONTENT (1998 $/MMBTU) ...................................................80 EXHIBIT 58: MAIN COAL CONSUMPTION BY SULFUR GRADE ............................81 EXHIBIT 59: MAIN COAL CONSUMPTION BY SOURCE REGION, 1999 .....................82 EXHIBIT 60: PACE DELIVERED REAL COAL PRICE ESCALATION RATES ..................82 EXHIBIT 61: PROJECTED COAL PRODUCTION GROWTH BY REGION .......................84 EXHIBIT 62: COMPARISON OF BASE CASE AND HIGH GAS CASE HENRY HUB PRICES - (1998 $/MMBTU) ...................................................87 EXHIBIT 63: MAIN - NI ANNUAL SYSTEM AVERAGE MARKET PRICE - HIGH GAS CASE (1998 $/MWH) .....................................................88 EXHIBIT 64: DIFFERENCE - BASE CASE & HIGH GAS CASE MARKET PRICES (1998 $/MWH) .....................................................89 EXHIBIT 65: PROJECT ANNUAL OPERATIONAL SUMMARY - HIGH NATURAL GAS CASE (1998 $) .........................................................90 EXHIBIT 66: DIFFERENCE - BASE CASE & HIGH NATURAL GAS CASE PROJECT RESULTS (1998 $) .................................................91 EXHIBIT 67: MAIN-NI ANNUAL PRICE SUMMARY - OVERBUILD CASE (1998 $/MWH) .......93 EXHIBIT 68: DIFFERENCE - BASE CASE & OVERBUILD CASE MARKET PRICES (1998 $/MWH) .....................................................94 EXHIBIT 69: PROJECT ANNUAL OPERATIONAL SUMMARY - OVERBUILD CASE (1998 $) .....95 EXHIBIT 70: DIFFERENCE - BASE CASE & OVERBUILD CASE PROJECT RESULTS (1998 $) .........................................................96 EXHIBIT 71: MAIN-NI ANNUAL PRICE SUMMARY - AQUILA PSA EXTENSION CASE (1998 $/MWH) .....................................................98 EXHIBIT 72: DIFFERENCE - BASE CASE & AQUILA EXTENSION CASE MARKET PRICES (1998 $/MWH) .....................................................99 EXHIBIT 73: PROJECT ANNUAL OPERATIONAL SUMMARY - AQUILA PSA EXTENSION CASE (1998 $) ...................................................100 EXHIBIT 74: DIFFERENCE - BASE CASE & AQUILA PSA EXTENSION CASE PROJECT RESULTS (1998 $) ................................................101 - -------------------------------------------------------------------------------- Proprietary & Confidential iv [LOGO] PACE | Global Energy Services ================================================================================ EXECUTIVE SUMMARY ================================================================================ Pace Global Energy Services, LLC ("Pace") has prepared an independent assessment of the Mid-America Interconnected Network ("MAIN") and the economic competitiveness of a 1,409 MW(1) combustion turbine power plant ("Project") owned by Elwood Energy LLC ("Elwood"). The Project, located in the town of Elwood, Illinois, 50 miles from Chicago, will operate in the Northern Illinois ("NI") or Commonwealth Edison ("Com Ed") sub-region of MAIN. The market study provides an assessment of the long-term power market opportunities in support of the financing of the Project, including a forecast of all-in capacity and energy prices for the region during the period 2001 to 2026 (the "Study Period").(2) This report includes Pace's Base Case (the most likely outcome given the assumptions set and simulation methodology used to develop the forecast) forecast of market-clearing prices and facility dispatch profile for the Project, a forecast of volatility values available to the Project, a description of the key assumptions and methodology underlying the development of the forecast, and an assessment of the MAIN power market. In addition, Pace prepared three sensitivity cases against the Base Case results, a High Gas Price Case, an Overbuild Case and an Aquila PSA Extension Case included as Appendix A to this report. Pace has provided a forecast of the volatility values available to the Project and these values are included in Pace's Base Case revenue forecast. Pace, however did not evaluate other values potentially derived from the Project including ancillary service sales and bilateral transactions, as these potential revenue sources are not fully defined in the market. To perform the market price forecast analysis Pace utilized its Capacity & Energy Market Analysis System ("CEMAS") simulation model. CEMAS is an integrated resource-planning tool designed to simulate the deregulated power generation market and to project market-clearing prices for both capacity and energy under a defined set of assumptions. TRANSACTION SUMMARY Elwood is an equal partnership between Peoples Energy Resources Corp. and Dominion Energy, Inc. The 1,409 MW Project consists of nine operating gas-fired peaking combustion turbine units, which entered commercial operations in stages between 1999 and 2001. Elwood has executed four long-term Power Sales Agreements ("PSA") covering the entire 1,409 MW output of the Project. Each PSA, which is briefly summarized below, grants the PSA counter- - ---------- 1 Summer Capacity. The nominal capacity of the Project is defined as 1,350 MW. 2 This Report and the information and statements herein are based in whole or in part on information obtained from various sources as of September 06, 2001. - -------------------------------------------------------------------------------- Proprietary & Confidential 1 [LOGO] PACE | Global Energy Services party the exclusive right to control the generating capacity and electrical energy, and thus the dispatch of the units covered by the relevant PSA. During the term of each PSA, Pace has assumed that each unit will be dispatched in accordance with the PSA covering such unit (see Exhibit 48 for assumptions concerning each PSA). As each PSA expires, Pace has assumed that the units formerly covered by the expired PSA will be dispatched on a merchant basis through the end of the Study Period. Power Sales Agreements Elwood has executed the following PSAs: Engage Power Sales Agreement The 313 MW capacity of Units 1-2 are contracted to Engage Energy US L.P. until December 31, 2004, (the "Engage PSA"). Engage has subsequently resold the output of these units to Commonwealth Edison Corporation ("ComEd"), the predecessor of Exelon Generation Company, LLC ("Exelon"). Exelon now controls dispatch of the Engage units and agreed with Elwood in March 2001 to have the pricing terms of the Exelon PSA apply to the dispatch by Exelon of the Engage units. This is accomplished by means of a monthly adjustment, which effectively supersedes the Engage PSA terms. Exelon Power Sales Agreement Elwood has entered into a PSA with Exelon Generation Company, LLC ("Exelon") and ComEd for 783 MW of capacity, covering the output of Units 1-4 and 9 ("Exelon Units"), (the "Exelon PSA"). The term of the Exelon PSA runs from March 01, 2001 to December 31, 2012. Exelon is the contractual assignee of its electric utility affiliate ComEd. Aquila Power Sales Agreement 1 Elwood has entered into a PSA with Aquila Energy Marketing Corporation ("AEMC") and UtiliCorp United Inc. ("UtiliCorp" and collectively with AMEC, "Aquila") for 313 MW of capacity, covering the output of Units 5-6 ("Aquila 1 Units"), (the "Aquila PSA 1"). The initial term of the Aquila PSA 1 runs from June 01, 2001 to August 31, 2016. (3) Aquila Power Sales Agreement 2 Elwood has entered into a PSA with Aquila for 313 MW of capacity, covering the output of Units 7-8 ("Aquila 2 Units"), (the "Aquila PSA 2"). The initial term of the Aquila PSA 2 runs from July 01, 2001 to August 31, 2017.(4) - ---------- 3 The initial term of the Aquila PSA 1 ends on August 31, 2016. Pace has assumed that Aquila will extend this PSA to August 31, 2021. 4 The initial term of the Aquila PSA 1 ends on August 31, 2017. Pace has assumed that Aquila will extend this PSA to August 31, 2022. - -------------------------------------------------------------------------------- Proprietary & Confidential 2 [LOGO] PACE | Global Energy Services Extension of Aquila Power Sales Agreements Aquila has the unilateral right to extend the initial term of both the Aquila PSA 1 and 2 (together the "Aquila PSAs") covering Units 5-8 ("Aquila Units") for an additional five-year period provided that Aquila makes it's election to extend the agreements prior to September 1, 2014 for the Aquila PSA 1 and September 1, 2015 for the Aquila PSA 2. Pace has determined that based upon the payment structure of the Aquila PSAs, the Project's forecast dispatch profile, forecast market-clearing prices, and the market-based revenues and volatility values that Aquila is forecast to earn by marketing the output and capacity of the Aquila Units, a compelling economic incentive is likely to exist which would cause Aquila to exercise its option to extend the term of the Aquila PSAs for an additional 5-year period. As a consequence, Pace has included the extension of the Aquila PSAs for a five-year period beyond the initial term of the Aquila PSAs in the Base Case forecast. Pace has therefore modeled the termination date of the Aquila PSA 1 as August 31, 2021 and August 31, 2022 for the Aquila PSA 2. Merchant and Contract Periods Definition Pace has divided the Study Period into two distinct periods. The "Contract Period" refers to the period during which a unit is dispatched in accordance with the terms of either the Exelon PSA or the Aquila PSAs and covers the period from the beginning of the Study Period in 2001 to the expiry of the extended Aquila PSA 2 on August 31, 2022. The "Merchant Period" refers to the period in which the Project is operated by Elwood as a fully merchant facility and covers the period from 2022 (after the termination of the Aquila PSA 2) to the end of the Study Period in 2026. While we have defined discrete Contract and Merchant Periods, transition periods exist where Elwood operates certain units on a merchant basis, while other units remain subject to dispatch under a PSA. Two such transition periods are present during the Study Period. The first transition period occurs upon the expiry of the Exelon PSA on December 31, 2012. Units 1-4 and 9 (formerly Exelon Units) are operated on a merchant basis by Elwood from January 1, 2013, while Units 5-6 and 7-8 (Aquila 1 Units and Aquila 2 Units, respectively) remain subject to dispatch by Aquila. The second transition period occurs upon the expiry of the extended Aquila PSA 1 on August 31, 2021. Units 1-4 and 9, and Units 5-6 (formerly Aquila 1 Units) are operated on a merchant basis by Elwood from September 1, 2021 while Units 7-8 (Aquila 2 Units) remain subject to dispatch by Aquila until the expiry of the extended Aquila PSA 2 on August 31, 2022. - -------------------------------------------------------------------------------- Proprietary & Confidential 3 [LOGO] PACE | Global Energy Services Characterization of Project Results during Merchant and Contract Periods During the Contract Period, the Project's dispatch, operating profile, energy and capacity revenues and volatility values reflect dispatch of the Project according to the terms of the Exelon and Aquila PSAs. In the Merchant Period, the Project's dispatch, operating profile, energy and capacity revenues and volatility values reflect the operation of the Project as a merchant facility, with Elwood controlling the Project's dispatch, The distinction between the Contract Period and the Merchant period is important in evaluating the Project's energy and capacity revenue and volatility value forecast presented in Exhibit 12 - Project Annual Operational Summary (1998 $) and Appendix A - Sensitivities. During the Contract Period, the forecast refers to the revenues that Exelon and/or Aquila are forecast to receive from marketing the energy and capacity of the Exelon and Aquila Units, while the revenues that Elwood receives during the Contract Period are determined by the payment structure outlined in the Exelon and Aquila PSAs. However, during the Merchant Period, when Elwood operates the Project as a merchant facility, the forecast refers to the revenues to be received by Elwood from marketing the energy and capacity of the Project for its own account. During the two transition periods that exist over the course of the Study Period, the forecast represents a mix of forecast energy and capacity revenues and volatility values to be received by Exelon, Aquila and Elwood, as the various units of the Project transition from operating under dispatch instructions from either Exelon and Aquila to operations on a merchant basis by Elwood. RESULTS AND CONCLUSIONS The following represents conclusions and key findings of Pace's MAIN power market assessment and market clearing price forecast. They are: 1. The MAIN power market is emerging as a highly competitive market for wholesale power. The market's competitiveness is evidenced by the region's large volume of wholesale power transactions and the existence of the "Into-ComEd" electricity-trading hub upon which a standardized forward contract has been established. Overall, given the MAIN market's sizable demand growth, Pace's market-clearing price forecast, and the Project's competitive market position, the Project is expected to be highly competitive and valuable throughout the Study Period. 2. Pace anticipates that given the rapid pace of wholesale energy market development, a commercially operating and deregulated environment for retail customers' capacity and energy requirements will be implemented on a near- to mid-term basis for MAIN. Retail access began in Illinois for industrial consumers in October 1999 with full access scheduled to commence by May 2002 pursuant to the enactment of the "Electric Service - -------------------------------------------------------------------------------- Proprietary & Confidential 4 [LOGO] PACE | Global Energy Services Customer Choice and Rate Relief Act of 1997". The development of an all-in capacity and energy market will allow for sales to the retail marketplace and should provide additional flexibility and enhanced marketability for the Project's capacity and energy. 3. The market for power in MAIN is characterized by: (a) Sustained energy demand growth expected to continue at a steady annual average pace of 1.47% over the Study Period in the MAIN power market. This regional demand increase translates into approximately 1,100 MW of annual average demand. (b) Summer peak demand in the MAIN power market is forecast to increase from 50,066 MW in 2000 to 73,131 MW by 2026. This regional peak demand increase translates into the need for the addition of approximately 700 MW of peaking capacity per year to the MAIN power market through 2026. (c) A well-developed electrical transmission system capable of transferring high volumes of electricity throughout the MAIN power market and covering over 4 states and approximately 6% of the U.S. power demand. (d) An installed capacity base (MW) dominated by base-load coal-fired, nuclear and hydro capacity representing 73% of installed generation capacity in 2001 and 67% in 2009. (e) Base-load coal-fired, nuclear and hydro capacity representing approximately 94% of electrical generation (MWh) by fuel type in 2001 and 69% in 2025. (f) Gas-fired combined cycle and combustion turbine capacity representing the near universal choice for capacity additions, driving gas-fired generation from a 6.2% share of generation in 2001 to 31.1% in 2025. 4. The most significant factors affecting the electricity pricing in the MAIN power market include fuel costs; the efficiency and replacement rate of existing generating assets and capital costs of replacing existing generating assets; the cost and efficiency of incremental capacity additions which are undertaken to meet future energy requirements and maintain system reliability; and increases in annual peak demand and energy requirements. 5. Pace's Base Case average market-clearing price forecast for the Northern Illinois subregion of MAIN ranges between a maximum value of $37.60/MWh in 2001 and a minimum value of $28.53/MWh in 2009 and averages $30.42/MWh (measured in 1998 real dollars) over the Study Period. Pace expects that while a high level of competitive capacity additions and declining gas prices will lower electricity prices between 2001 and 2009, prices will remain relatively stable over the remainder of the Study Period as sufficient capacity is constructed to meet demand and efficiency improvements offset a modest natural gas real price increase. - -------------------------------------------------------------------------------- Proprietary & Confidential 5 [LOGO] PACE | Global Energy Services 6. The Project represents a relatively low cost, competitive, and much needed resource for the growing MAIN market equaling only a small fraction of the capacity required in the MAIN power market. The Project is expected to be dispatched at an average annual capacity factor of 11.93%(5) and realize average gross margins, including volatility values, of $82.93/kW-year (measured in 1998 real dollars). Gross margins range from a maximum of $104.30/kW-year in 2001 to a minimum of $76.82/kW-year in 2009 over the Study Period. 7. During the term of the Exelon PSA which covers the dispatch of Units 1-4 and 9, until December 31, 2012, the Exelon Units are expected to be dispatched at an average annual capacity factor of 3.39% and realize average gross margins, including volatility values of $78.63/kW-year (measured in 1998 real dollars). Gross margins range from a maximum of $97.86/kW-year in 2001 to a minimum of $71.93/kW-year in 2009. 8. During the term of the Aquila PSAs which cover the dispatch of Units 5-8, until August 31, 2022, the Aquila Units are expected to be dispatched at an average annual capacity factor of 17.15% and realize average gross margins, including volatility values of $87.22/kW-year (measured in 1998 real dollars). Gross margins range from a maximum of $112.43/kW-year in 2001 to a minimum of $81.10/kW-year in 2004. 9. Pace conducted a detailed evaluation of the potential volatility value of the Project. Given Pace's assumptions of market reserve margins, liquidity, and trading volatility, volatility value (net of insurance costs) adds on average $20.33/kW-year or $28.6 million per year to Base Case energy and capacity revenues over the Study Period. Volatility value ranges from a maximum of $27.26/kW-year or $38.4 million in 2001 to a minimum of $16.91/kW-year or $23.8 million in 2004. Pace's Base Case revenue forecast contained in this report includes these volatility values. 10. Pace has determined that based upon the payment structure of the Aquila PSAs, the Project's forecast dispatch profile, forecast market-clearing prices, the energy and capacity revenues, and volatility values that Aquila is forecast to earn by marketing the output and capacity of the Aquila Units, a compelling economic incentive is likely to exist which would cause Aquila to exercise its option to extend the term of the Aquila PSAs for an additional 5-year period. 11. Pace's assumptions provide a conservative forecast of the Project's dispatch and resulting economics. Therefore, while the dispatch and revenues of peaking capacity can be highly - ---------- 5 Results include the periods covered by the Exelon and Aquila PSA's in addition to the merchant period, which commences in 2022 after the expiry of the extended Aquila PSA 2. - -------------------------------------------------------------------------------- Proprietary & Confidential 6 [LOGO] PACE | Global Energy Services volatile from year to year, Pace has removed much of the low side volatility through our modeling assumptions. These considerations provide a high level of probability that the Pace's Base Case forecast is likely to be more of a downside case when compared with actual Project results. As shown in Exhibit 1, average market-clearing prices are expected to range between $37.60/MWh and $28.53/MWh over the Study Period. The following causes this pricing pattern: o Short-term high natural gas prices in the early years of the Study Period result in market-clearing prices reaching $37.60/MWh in 2001. o A high level of competitive capacity additions and declining gas prices between 2001 and 2009 lowers average annual market-clearing prices from $37.60/MWh in 2001 to $28.53/MWh in 2009. o Throughout the remainder of the Study Period, rising demand growth increases the amount of time during which natural gas is the marginal price setter, particularly during off-peak periods. This factor together with the increase in natural gas prices in real terms results in average market prices gradually increasing over time. Exhibit 1: MAIN-NI Annual System Average Market Price (1998 $/MWh) ================================================================================ ----------------------------------------------- Year Off-Peak On-Peak Average $/MWh $/MWh $/MWh ----------------------------------------------- 2001 26.98 49.28 37.60 ----------------------------------------------- 2002 24.33 45.40 34.37 ----------------------------------------------- 2003 22.34 40.87 31.16 ----------------------------------------------- 2004 20.96 39.44 29.76 ----------------------------------------------- 2005 20.94 39.06 29.57 ----------------------------------------------- 2006 20.18 39.12 29.20 ----------------------------------------------- 2007 20.13 38.15 28.71 ----------------------------------------------- 2008 20.71 37.90 28.89 ----------------------------------------------- 2009 20.30 37.59 28.53 ----------------------------------------------- 2010 21.04 38.16 29.19 ----------------------------------------------- 2011 20.71 39.73 29.76 ----------------------------------------------- 2012 21.29 38.69 29.58 ----------------------------------------------- 2013 21.48 38.51 29.59 ----------------------------------------------- 2014 21.67 38.36 29.62 ----------------------------------------------- 2015 21.81 38.93 29.96 ----------------------------------------------- 2016 21.48 38.66 29.66 ----------------------------------------------- 2017 21.97 39.09 30.13 ----------------------------------------------- 2018 21.91 39.14 30.11 ----------------------------------------------- 2019 22.45 39.10 30.38 ----------------------------------------------- 2020 22.28 39.23 30.35 ----------------------------------------------- 2021 22.08 38.74 30.01 ----------------------------------------------- 2022 22.56 38.84 30.31 ----------------------------------------------- 2023 22.60 39.16 30.49 ----------------------------------------------- 2024 22.91 40.16 31.13 ----------------------------------------------- 2025 23.13 39.80 31.07 ----------------------------------------------- 2026 23.67 40.53 31.70 ----------------------------------------------- Avg. 22.00 39.68 30.42 ----------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 7 [LOGO] PACE | Global Energy Services Project Results To provide projections of Project dispatch, operating profile, energy and capacity revenues and volatility values, Pace explicitly modeled the Project as a resource in the MAIN region. Specifically, the Project's heat rate efficiency, delivered fuel costs, and variable operating costs were modeled to simulate the facility operation and forecast facility dispatch and Project revenues. Pace's findings are shown in Exhibit 2. During the Contract Period, the Project's revenue forecast refers to the revenues that Exelon and/or Aquila are forecast to receive from marketing the energy and capacity of the Exelon and Aquila Units, while the revenues that Elwood receives during the Contract Period are determined by the payment structure outlined in the Exelon and Aquila PSAs. However, during the Merchant Period, where Elwood operates the Project as a merchant facility, the revenue forecast refers to the revenues to be received by Elwood from marketing the energy and capacity of the Project for its own account. Exhibit 2 provides a summary of the Project's operational results, including revenues both with and without the volatility values available to the Project. The gross margins presented in Exhibit 2 reflect both energy and capacity revenues and volatility values. The following occurs during the Study Period: o The average capacity factor for the Project is 11.93% per year. o Generation for the Project is forecast to average 1,472 GWh per year. o Project energy and capacity revenues average $95.12/MWh or $134.3 million per year. o Project volatility values average $20.33/kW-year or $28.6 million per year. o Total Project revenues average $163.0 million per year. o Gross margins, including volatility values, average $82.93/kW-year. o Gross margins, including volatility values, range from a maximum of $104.30/kW-year in 2001 to a minimum of $76.82/kW-year in 2009. - -------------------------------------------------------------------------------- Proprietary & Confidential 8 [LOGO] PACE | Global Energy Services Exhibit 2: Project Annual Operational Summary - (1998 $) ================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------ Energy Energy Volatility Total Gross Gross Variable and and Value Revenue Margin Margin Fuel O&M Capacity Capacity Net of with with with Capacity Generation Capacity Costs Costs Revenue(7) Revenue Insurance(8) Volatility Volatility Volatility Year MW(6) GWh Factor $1000 $1000 $1000 $/MWh $1000 $1000 $1000 $/kW-yr - ------------------------------------------------------------------------------------------------------------------------------------ 2001 1,409 998 8.08% 54,280 1,051 163,889 164.29 38,395 202,284 146,953 104.30 - ------------------------------------------------------------------------------------------------------------------------------------ 2002 1,409 1,128 9.14% 47,074 1,178 149,044 132.11 33,573 182,617 134,365 95.36 - ------------------------------------------------------------------------------------------------------------------------------------ 2003 1,409 958 7.76% 34,249 1,002 124,283 129.79 27,016 151,299 116,048 82.36 - ------------------------------------------------------------------------------------------------------------------------------------ 2004 1,409 937 7.59% 30,717 994 116,752 124.62 23,821 140,573 108,862 77.26 - ------------------------------------------------------------------------------------------------------------------------------------ 2005 1,409 1,299 10.53% 40,005 1,372 126,574 97.44 26,794 153,368 111,991 79.48 - ------------------------------------------------------------------------------------------------------------------------------------ 2006 1,409 1,320 10.69% 38,444 1,403 125,353 95.00 28,480 153,833 113,986 80.90 - ------------------------------------------------------------------------------------------------------------------------------------ 2007 1,409 1,336 10.83% 37,480 1,401 121,027 90.56 26,324 147,351 108,470 76.98 - ------------------------------------------------------------------------------------------------------------------------------------ 2008 1,409 1,415 11.47% 39,111 1,492 124,951 88.28 25,885 150,836 110,233 78.23 - ------------------------------------------------------------------------------------------------------------------------------------ 2009 1,409 1,380 11.18% 38,039 1,458 121,222 87.85 26,512 147,734 108,237 76.82 - ------------------------------------------------------------------------------------------------------------------------------------ 2010 1,409 1,239 10.04% 34,089 1,317 121,381 97.99 25,830 147,211 111,805 79.35 - ------------------------------------------------------------------------------------------------------------------------------------ 2011 1,409 1,026 8.31% 28,433 1,088 123,981 120.86 26,332 150,313 120,792 85.73 - ------------------------------------------------------------------------------------------------------------------------------------ 2012 1,409 1,199 9.72% 33,192 1,281 122,973 102.58 26,723 149,696 115,223 81.78 - ------------------------------------------------------------------------------------------------------------------------------------ 2013 1,409 1,722 13.96% 46,716 3,646 137,201 79.65 27,040 164,241 113,879 80.82 - ------------------------------------------------------------------------------------------------------------------------------------ 2014 1,409 1,736 14.07% 47,452 3,729 137,848 79.41 28,325 166,173 114,992 81.61 - ------------------------------------------------------------------------------------------------------------------------------------ 2015 1,409 1,886 15.29% 51,575 4,177 142,151 75.36 30,302 172,453 116,701 82.83 - ------------------------------------------------------------------------------------------------------------------------------------ 2016 1,409 1,582 12.82% 43,299 3,498 131,597 83.17 26,911 158,508 111,711 79.28 - ------------------------------------------------------------------------------------------------------------------------------------ 2017 1,409 1,866 15.13% 51,564 4,115 143,260 76.76 29,695 172,955 117,276 83.23 - ------------------------------------------------------------------------------------------------------------------------------------ 2018 1,409 1,827 14.81% 50,683 4,059 141,442 77.40 30,951 172,393 117,651 83.50 - ------------------------------------------------------------------------------------------------------------------------------------ 2019 1,409 2,018 16.36% 56,171 4,307 147,416 73.05 31,661 179,077 118,599 84.17 - ------------------------------------------------------------------------------------------------------------------------------------ 2020 1,409 1,688 13.68% 46,981 3,776 138,848 82.26 28,579 167,427 116,670 82.80 - ------------------------------------------------------------------------------------------------------------------------------------ 2021 1,409 1,700 13.78% 47,779 3,912 136,959 80.56 30,513 167,472 115,781 82.17 - ------------------------------------------------------------------------------------------------------------------------------------ 2022 1,409 1,629 13.20% 45,637 4,795 135,749 83.33 28,039 163,788 113,356 80.45 - ------------------------------------------------------------------------------------------------------------------------------------ 2023 1,409 1,549 12.55% 43,112 5,420 134,406 86.79 27,850 162,256 113,724 80.71 - ------------------------------------------------------------------------------------------------------------------------------------ 2024 1,409 1,524 12.35% 42,648 5,335 140,078 91.90 29,296 169,374 121,391 86.15 - ------------------------------------------------------------------------------------------------------------------------------------ 2025 1,409 1,564 12.67% 44,300 5,472 138,129 88.34 28,540 166,669 116,897 82.96 - ------------------------------------------------------------------------------------------------------------------------------------ 2026 1,409 1,740 14.10% 49,451 6,090 145,896 83.85 31,099 176,995 121,454 86.20 - ------------------------------------------------------------------------------------------------------------------------------------ Avg. 1,409 1,472 11.93% 43,172 2,976 134,323 95.12 28,634 162,958 116,809 82.93 - ------------------------------------------------------------------------------------------------------------------------------------
================================================================================ Project Volatility Value The volatility valuation for the Project is a projection of incremental revenues that can be achieved by the Project beyond the CEMAS-forecasted spot market revenues included in the Base Case results. This value measures the potential value of the variation of the projected spark spread as a result of fluctuations in underlying power and fuel prices during the hours Pace has forecast that the Project will be dispatched. To forecast such volatility revenue, Pace conducted a detailed evaluation of the potential volatility of the Project. The results of this valuation are presented annually and monthly in Exhibit 3 and Exhibit 4 respectively. Exelon and Aquila own the exclusive right to dispatch and receive the output of the Project during the Contract Period and will therefore have the right to leverage the volatility value of the - ---------- 6 Summer Capacity. 7 Reflects energy and capacity revenues to Exelon and Aquila during the Contract Period and to Elwood during the Merchant Period. 8 Reflects net volatility revenues to Exelon and Aquila during the Contract Period and to Elwood during the Merchant Period. - -------------------------------------------------------------------------------- Proprietary & Confidential 9 [LOGO] PACE | Global Energy Services Project during this period. During the Merchant Period, the Elwood will be able to leverage the Project's volatility value or will have it available for sale to others. As illustrated in Exhibit 3, Pace concludes that given Pace's assumptions concerning market reserve margins, liquidity, and trading volatility, volatility value (net of insurance costs) adds on average approximately $20.33/kW-year or $28.6 million per year to Base Case revenues over the Study Period. Volatility value ranges from a maximum of $27.26/kW-year or $38.4 million in 2001 to a minimum of $16.91/kW-year or $23.8 million in 2004. The high projected volatility values in 2001 are driven by the high natural gas prices. As natural gas and thus power prices decrease from 2002 to 2004, so do the levels of projected spark spread and derived volatility values. After projected natural gas prices stabilize in the 2008-2009 timeframe, decreasing regional reserve margins and the resulting increase in implied volatility forecasts become the major value drivers. Thereafter, the projected Project volatility value is relatively steady in a range of $18/kW-year to $22/kW-year through the end of the valuation horizon. During the term of the Exelon and Aquila PSAs, Exelon is forecast to extract net volatility values which average $15.85/kW-year or $12.4 million per year, while Aquila is forecast to earn net volatility values which average $23.92/kW-year or $14.7 million per year. During the Merchant Period, Elwood is forecast to earn net volatility values which average $20.73/kW-year or $ 29.2 million per year. The forecast monthly Project net volatility values outlined in Exhibit 4 illustrate that, five out of the top seven monthly volatility values occur during the June to October period, with the months of January and March accounting for the next highest values. Volatility values are forecast to be the highest in the month of July. This value is four times higher than the next highest monthly volatility value, which occurs in the month of January. - -------------------------------------------------------------------------------- Proprietary & Confidential 10 [LOGO] PACE | Global Energy Services Exhibit 3: Project Annual Volatility Value (1998 $) ================================================================================ ------------------------------------------------------------------- Volatility Volatility Volatility Insurance Value Value Value Estimate Net of Insurance Net of Insurance Year $/kW-yr $/kW-yr $/kW-yr $1000 ------------------------------------------------------------------- 2001 29.49 2.23 27.26 38,395 ------------------------------------------------------------------- 2002 25.79 1.96 23.84 33,573 ------------------------------------------------------------------- 2003 20.78 1.60 19.18 27,016 ------------------------------------------------------------------- 2004 18.36 1.45 16.91 23,821 ------------------------------------------------------------------- 2005 20.50 1.48 19.02 26,794 ------------------------------------------------------------------- 2006 21.77 1.55 20.22 28,480 ------------------------------------------------------------------- 2007 20.17 1.48 18.69 26,324 ------------------------------------------------------------------- 2008 19.85 1.47 18.38 25,885 ------------------------------------------------------------------- 2009 20.31 1.49 18.82 26,512 ------------------------------------------------------------------- 2010 19.84 1.50 18.34 25,830 ------------------------------------------------------------------- 2011 20.29 1.60 18.70 26,332 ------------------------------------------------------------------- 2012 20.53 1.55 18.97 26,723 ------------------------------------------------------------------- 2013 20.75 1.55 19.20 27,040 ------------------------------------------------------------------- 2014 21.70 1.59 20.11 28,325 ------------------------------------------------------------------- 2015 23.18 1.66 21.51 30,302 ------------------------------------------------------------------- 2016 20.68 1.57 19.11 26,911 ------------------------------------------------------------------- 2017 22.74 1.66 21.08 29,695 ------------------------------------------------------------------- 2018 23.67 1.69 21.97 30,951 ------------------------------------------------------------------- 2019 24.20 1.72 22.48 31,661 ------------------------------------------------------------------- 2020 21.95 1.66 20.29 28,579 ------------------------------------------------------------------- 2021 23.36 1.69 21.66 30,513 ------------------------------------------------------------------- 2022 21.53 1.63 19.91 28,039 ------------------------------------------------------------------- 2023 21.39 1.62 19.77 27,850 ------------------------------------------------------------------- 2024 22.52 1.72 20.80 29,296 ------------------------------------------------------------------- 2025 21.83 1.57 20.26 28,540 ------------------------------------------------------------------- 2026 23.85 1.77 22.08 31,099 ------------------------------------------------------------------- Avg. 21.96 1.63 20.33 28,634 ------------------------------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 11 [LOGO] PACE | Global Energy Services Exhibit 4: Project Monthly Volatility Value - Net of Insurance (1998 $) ================================================================================
- -------------------------------------------------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Year $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 - -------------------------------------------------------------------------------------------------------------------------- 2001 1,685 1,054 3,389 957 1,528 3,241 14,506 4,907 1,689 4,747 691 -- 38,395 - -------------------------------------------------------------------------------------------------------------------------- 2002 1,836 1,473 506 785 623 2,105 17,134 1,352 2,603 2,353 1,754 1,049 33,573 - -------------------------------------------------------------------------------------------------------------------------- 2003 814 905 1,627 1,908 759 962 11,009 1,316 4,949 2,594 -- 172 27,016 - -------------------------------------------------------------------------------------------------------------------------- 2004 555 367 722 86 1,769 2,782 13,295 628 1,438 1,784 46 348 23,821 - -------------------------------------------------------------------------------------------------------------------------- 2005 1,283 244 2,148 582 1,402 2,423 11,211 1,980 3,555 904 251 812 26,794 - -------------------------------------------------------------------------------------------------------------------------- 2006 1,190 1,611 1,048 779 1,733 1,952 8,841 4,868 1,992 2,427 1,645 394 28,480 - -------------------------------------------------------------------------------------------------------------------------- 2007 938 1,004 1,887 260 852 2,085 8,854 3,272 3,166 1,684 441 1,882 26,324 - -------------------------------------------------------------------------------------------------------------------------- 2008 873 1,093 1,151 1,018 497 2,515 10,590 2,278 1,189 1,313 851 2,518 25,885 - -------------------------------------------------------------------------------------------------------------------------- 2009 1,455 1,490 1,854 594 659 1,626 10,335 1,518 2,713 1,761 763 1,745 26,512 - -------------------------------------------------------------------------------------------------------------------------- 2010 831 1,442 1,738 191 349 1,470 11,479 1,197 3,443 1,765 1,139 787 25,830 - -------------------------------------------------------------------------------------------------------------------------- 2011 292 1,541 2,555 -- 350 715 12,967 2,731 153 1,458 1,136 2,435 26,332 - -------------------------------------------------------------------------------------------------------------------------- 2012 1,090 992 606 2,936 273 1,066 9,751 3,080 2,817 1,374 931 1,808 26,723 - -------------------------------------------------------------------------------------------------------------------------- 2013 3,910 1,430 1,598 255 -- 1,743 8,461 1,272 3,085 3,244 253 1,788 27,040 - -------------------------------------------------------------------------------------------------------------------------- 2014 4,866 332 1,569 1,519 42 1,907 8,997 1,784 2,676 1,651 1,151 1,832 28,325 - -------------------------------------------------------------------------------------------------------------------------- 2015 2,948 3,060 4,313 338 18 1,851 8,894 775 2,478 2,337 1,487 1,805 30,302 - -------------------------------------------------------------------------------------------------------------------------- 2016 3,073 2,271 1,790 348 50 1,534 10,399 2,355 1,094 2,454 435 1,109 26,911 - -------------------------------------------------------------------------------------------------------------------------- 2017 3,903 2,565 3,311 123 886 1,734 7,348 3,094 1,825 2,610 452 1,844 29,695 - -------------------------------------------------------------------------------------------------------------------------- 2018 5,158 2,111 2,869 -- 74 2,210 6,531 1,573 1,882 5,211 1,841 1,491 30,951 - -------------------------------------------------------------------------------------------------------------------------- 2019 3,164 1,334 3,262 635 1,465 1,831 6,997 1,518 3,827 3,857 1,057 2,714 31,661 - -------------------------------------------------------------------------------------------------------------------------- 2020 3,131 2,688 2,478 222 285 2,286 10,639 1,290 2,614 1,822 710 413 28,579 - -------------------------------------------------------------------------------------------------------------------------- 2021 3,506 2,122 3,104 1,872 420 2,159 8,680 1,021 2,109 2,853 1,347 1,320 30,513 - -------------------------------------------------------------------------------------------------------------------------- 2022 3,136 1,175 2,603 1,081 91 2,392 9,454 1,766 850 2,607 939 1,946 28,039 - -------------------------------------------------------------------------------------------------------------------------- 2023 4,052 3,057 2,126 -- 122 1,906 7,037 2,543 1,845 2,767 582 1,814 27,850 - -------------------------------------------------------------------------------------------------------------------------- 2024 3,121 1,024 2,294 28 621 2,029 10,854 1,107 2,550 3,876 142 1,652 29,296 - -------------------------------------------------------------------------------------------------------------------------- 2025 4,103 739 2,800 200 249 1,978 9,425 1,018 2,452 1,304 491 3,780 28,540 - -------------------------------------------------------------------------------------------------------------------------- 2026 4,605 3,470 1,255 848 316 1,761 7,957 1,319 2,685 3,492 1,010 2,381 31,099 - -------------------------------------------------------------------------------------------------------------------------- Avg. 2,520 1,561 2,100 764 617 1,933 10,063 1,983 2,372 2,471 862 1,594 28,634 - --------------------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 12 [LOGO] PACE | Global Energy Services ASSUMPTIONS Key assumptions underlying the Base Case span the areas of load growth, fuel pricing, expansion unit cost and performance, transmission transfer capability and pricing, market area definition and the financing structure of existing and expansion units. The Base Case assumptions were developed by Pace to bracket the most probable and conservative need for new capacity and market pricing available to the Project. Exhibit 5 summarizes the major assumption variables underlying Pace's Base Case forecast. Qualitatively, Pace's assumptions are conservative in a number of areas as summarized below: Load Growth Market area demand is a key determinant to market pricing and new capacity development requirements. In determining peak demand and total energy demand that the Project could serve, Pace endeavored to provide conservative forecasts of total energy demand, as well as system peak demand assuming the following: o Incremental demand from short power markets such as ECAR has been largely excluded from Pace's valuation. Consequently, incremental market demand attributable to the ECAR market that could add incremental dispatch or cause higher market prices was not incorporated in the analysis. o Demand-side management is included in Pace's peak demand forecast to levelize system load factor. Pace assumed that demand-side management programs would effectively reduce peak demand growth in the future thereby lowering market prices during peak periods. o The combination of Pace's overall load forecasting methodology, plus our exclusion of incremental market demand and demand-side management, provides a conservative demand forecast. In this way, Pace's market prices, dispatch forecasts and expansion requirements will have the highest probability to occur under most scenarios over the next twenty-five years considering variations in weather, load shape, and economic growth. Expansion Units and Existing Unit Capacity Just as demand is a major determinant of market pricing and expansion requirements, available market supply assumptions and pricing will determine market pricing fundamentals and addition timing. Again, to create a highly probable Base Case forecast of Project dispatch, the following was assumed: o Expansion unit capital costs are at a discount over the Study Period compared to achievable new build costs today; the analysis assumed no real price increases over time. Therefore, market prices, which will be driven by expansion unit costs, have an - -------------------------------------------------------------------------------- Proprietary & Confidential 13 [LOGO] PACE | Global Energy Services embedded assumption that new units will have a lower cost to build than units currently being constructed. This assumption is made despite current trends in plant costs and site availability, which have been forcing new plant costs higher over time. This assumption has the impact of lowering market prices by 10%. Pace uses this conservative assumption to take into account the possibility of technology or productivity improvements. o No retirements of existing capacity (other than nuclear units at license expiration) were simulated despite economics or emissions costs. While Pace expects some level of existing unit retirements over the next twenty years, it is highly subjective to determine the exact units or the timing of these retirements. Additionally, not all units will achieve better performance or improve as rapidly as Pace assumed. Again, by assuming no retirements and immediate unit performance improvement, Pace creates a highly probable Base Case scenario of the Project's dispatch and revenues over the long-term. o Existing unit availability and resultant capacity factors are assumed higher than historical values. o No quick start capability credit was given to the Project, which removes its real competitive advantage relative to other units in the system (i.e., peaking capacity can start very quickly in response to load changes while other capacity may take 4-6 hours for start procedures). In most real world situations, peaking capacity will have a dispatch preference. Therefore, dispatch is purely on economics and will be lower than what could be expected under actual operating conditions. o Pace's methodology assumes a near perfect equilibrium condition for market pricing and expansion unit additions. Therefore, the maximum level of new base load and peaking units are installed in the system at all times throughout the Study Period. This approach creates a lower level of revenues for the Project, as well as minimizes the dispatch given the "perfect" amount and mix of capacity in the market. o Pace's assumption for new unit heat rates and the Project's heat rate, as provided by Stone & Webster, place the Project at a slight competitive disadvantage, assuming a precise dispatch queue based on these heat rates, and result in a lower level of dispatch relative to new peaking units. Realistically, new units will only be slightly more efficient than the Project and market conditions will not be as precise as a model result of dispatch. Consequently, actual market based dispatch will most likely exceed projections by 5-7% on average given Pace's Base Case assumptions. Taken together, these assumptions provide a conservative forecast of the Project's dispatch and resulting economics. Therefore, while the dispatch and revenues of peaking capacity can be highly volatile from year to year, Pace has removed most of the low side volatility through our modeling assumptions. These considerations provide a high level of probability that Pace's Base Case forecast is likely to be more of a downside case when compared with actual Project results. - -------------------------------------------------------------------------------- Proprietary & Confidential 14 [LOGO] PACE | Global Energy Services Exhibit 5: Key Assumptions - Base Case ================================================================================
- -------------------------------------------------------------------------------------- Base Case - -------------------------------------------------------------------------------------- Long Run Equilibrium Reserve Margin 13-15% - -------------------------------------------------------------------------------------- Load Growth - -------------------------------------------------------------------------------------- Average Energy Demand 1.47% per year - -------------------------------------------------------------------------------------- Expansion Unit Costs (MAIN-NI)* - -------------------------------------------------------------------------------------- CT - Installed Costs $410/kW - -------------------------------------------------------------------------------------- CC F Class - Installed Costs $606/kW - -------------------------------------------------------------------------------------- CC G Class - Installed Costs $619/kW - -------------------------------------------------------------------------------------- CT - Efficiency Winter: 10,400 Btu/kWh (2001-2026) Summer: 10,600 Btu/kWh (2001-2026) - -------------------------------------------------------------------------------------- CC F Class - Efficiency 7,050 Btu/kWh (2001) - -------------------------------------------------------------------------------------- CC G Class - Efficiency 6,850 Btu/kWh (2005) - -------------------------------------------------------------------------------------- Existing Unit Costs - -------------------------------------------------------------------------------------- Fixed Capital Costs Current Book Value - -------------------------------------------------------------------------------------- Fixed & Variable O&M Current Derived Cost / 0% real escalation - -------------------------------------------------------------------------------------- Base load Capacity No retirement of existing coal units. Retirement of existing nuclear units on their license expiration. - -------------------------------------------------------------------------------------- Annual Fuel Cost Escalation Rates (Real) - -------------------------------------------------------------------------------------- Natural Gas 0.5% - after 2009 - -------------------------------------------------------------------------------------- Fuel Oil (No. 6 and No. 2) 0.0% - after 2005 - -------------------------------------------------------------------------------------- Coal (varies annually) Low Sulfur 0.80% Medium Sulfur -0.21% High Sulfur -1.43% PRB Sub-bituminous 0.75% - -------------------------------------------------------------------------------------- Uranium 0.0% - -------------------------------------------------------------------------------------- Macroeconomic - -------------------------------------------------------------------------------------- Standard Interest Rate 8.5% - -------------------------------------------------------------------------------------- Standard Return on Equity (after-tax) 15% - --------------------------------------------------------------------------------------
* Due to regional variations in land values, labor costs, property taxes and other potential cost adders, regional cost adjustments are applied. ================================================================================ Pace believes that the assumptions presented above are conservative estimates of the future range of variables that yield a highly probable Base Case market price estimate. OUTLINE OF REPORT The remainder of this report is organized into the following seven sections: o Market Clearing Price Forecast Approach provides a detailed description of Pace's approach to forecasting electricity prices in a competitive market. o MAIN Market Pricing Forecast Results provides detailed market clearing price results. o Volatility Analysis Approach and Results provides a forecast of additional revenues intrinsic to the Project. o Market Area Definition and Transmission provides support for the selection of the market area and the transmission transfer capability. o Electricity Demand In MAIN provides demand growth expectations for the market area. - -------------------------------------------------------------------------------- Proprietary & Confidential 15 [LOGO] PACE | Global Energy Services o MAIN Power Generation Resources reviews existing generation resources and details expansion unit assumptions. o Fuel Pricing provides fuel pricing and escalation expectations. o Appendix A - Sensitivities provides details of the High Gas Case, Overbuild Case and Aquila PSA Extension Case Sensitivities. - -------------------------------------------------------------------------------- Proprietary & Confidential 16 [LOGO] PACE | Global Energy Services ================================================================================ MARKET CLEARING PRICE FORECAST APPROACH ================================================================================ Pace's market clearing price forecast methodology consists of multiple, interrelated analytical processes. Pace employed utility grade computer simulation models to evaluate the existing supply and demand relationships in the region, match future utility operations to forecasts of demand, and predict the electricity prices resulting from industry deregulation. This section provides necessary background material underlying: o Pace's CEMAS simulation model; o Pace's basis for determining the market price equilibrium in a competitive power market; and o The MAIN power market fundamentals. APPROACH Pace conducted a detailed analysis of the MAIN market clearing prices. This analysis provides in-depth insight into the fundamentals of MAIN and the emerging competitive market. The analysis was based on Pace's competitive market vision of a "one-price" market for both capacity and energy. A description of Pace's approach to this analysis is described below. Pace's approach incorporates five market analysis tools that provide the capability to project market-clearing prices for both capacity and energy. As we illustrate in Exhibit 6, Pace's CEMAS simulation model consists of five modules. These modules are: 1. Revenue Requirement Module: This module compares fixed and variable costs for all generating units with all-in revenues generated from a given bidding strategy. It then reports information regarding over or under-recovery (stranded costs) to the Bidding Analysis Module. 2. Unit Fuel Pricing Module: This module calculates fuel prices for each unit and transfers the data to the Revenue Requirement Module. These fuel-pricing calculations take into account escalation schedules, transportation costs, fuel quality, and fuel procurement and contractual constraints. 3. Bidding Analysis Module: Based on the fixed and variable costs of generating units and over and under-recovery data generated by the Revenue Requirement Module, this module determines the peak period prices that will provide an equilibrium dispatch and pricing solution and transfers this information to the Market Clearing Price Module. - -------------------------------------------------------------------------------- Proprietary & Confidential 17 [LOGO] PACE | Global Energy Services 4. Hourly Load Module: The Hourly Load Module aggregates actual utility hourly loads as reported to the Federal Energy Regulatory Commission ("FERC") to create an integrated system hourly load profile. This module uses forecasts of peak and energy demand to develop the base system load profile over the Study Period. The results of the Hourly Load Module are drawn upon by the Market Clearing Price Module to simulate daily system demand. 5. Market Clearing Price Module: This module performs a detailed operations and dispatch simulation based on resource-specific variable costs and the hourly load data generated by the Hourly Load Module. For each hour in the Study Period, the module dispatches generating units according to their variable costs and availability. Peak period prices generated by the Bidding Analysis Module are integrated into the price forecast to determine market prices under equilibrium conditions. The Market Clearing Price Module uses a utility grade dispatch model to model the hourly system constraints of a regional power pool, optimizing least cost generation choices to match demand fluctuations. Exhibit 6: Pace CEMAS Methodology ================================================================================ - -------------------------------------------------------------------------------- Planned Debt & Existing Unit Income Historical Additions Equity Characteristics Growth Load Escalation | | | Statistics Files Factors ------------------------ | | | | ---------------------- V | ------------------ | Revenue - Requirement Module | ------------------ | | | ------------------ | V Unit Fuel Pricing | -------- ------ Module | Bidding Hourly ------------------ - ----->Analysis Load Module Module | -------- ------ | | | ------------------ ------------------------ | | | Historical Fuel Escalation --------------- Pricing Factors Market Clearing Maintenance Price Module [-- Schedules and --------------- Units Available for Dispatch - -------------------------------------------------------------------------------- ================================================================================ CEMAS was designed based on Pace's market experience, which shows that clearing prices of competitive generation markets are a function of the underlying generation cost structure, supply availability and demand fluctuations, the bidding strategies that participants adopt and the incremental cost of expansion units. Pace has sought with CEMAS to integrate these components into a system capable of accurately projecting market clearing prices in a competitive market. - -------------------------------------------------------------------------------- Proprietary & Confidential 18 [LOGO] PACE | Global Energy Services EQUILIBRIUM PRICING OF EXPANSION CAPACITY While at any time, given the actual supply/demand balance in the market, generators can adopt various bidding strategies to increase their market revenues, Exhibit 7 presents Pace's basis for determining the market price equilibrium in a competitive market. Specifically, the cost of new capacity will ultimately set a market price cap under pricing equilibrium. For example, if market prices are above the cost of new capacity additions, market entrants will build new capacity until they drive the market price down to minimum return levels. Conversely, if market prices are below the cost of expansion units, no new generators will be built until market prices rise to support their construction. Given the foregoing, Exhibit 7 provides a theoretical market pricing formula consisting of new combined cycle ("CC") and combustion-turbine ("CT") units. Exhibit 7 provides a comparison of the all-in cost (i.e. fixed and variable costs) of expansion units operating at various capacity factors for 2003. For example, at a 20% capacity factor, the all-in cost of CC and CT units would be $77.55/MWh and $71.05/MWh, respectively. Further, if a unit were needed to supply power 20% of the time, a CT would be selected due to its lower all-in costs. However, if a unit were expected to run 50% of the time as base load capacity, a CC unit would be more economical. With these assumptions, Exhibit 7 shows that, except at dispatch of 4% or lower, all generators can bid to their variable cost and still achieve their minimum revenue requirement. Further, the Exhibit also shows that between 30%-35% load factor a break-even point exists where CC capacity becomes the more economic capacity. Average Market Price, determined by the average of all incremental prices, provides the theoretical price cap. Specifically, where current pricing levels rise above our theoretical curve, new capacity installations are signaled until the market price comes to rest back at the equilibrium point. For example, if the market price is $43.00/MWh for an average of 70% of the year, a new CC can be built and dispatched at that level for only $40.18/MWh. Therefore, a developer would seek to exploit this profit opportunity by entering the market and building new capacity. - -------------------------------------------------------------------------------- Proprietary & Confidential 19 [LOGO] PACE | Global Energy Services Exhibit 7: Equilibrium Market Prices Based on Expansion Unit Costs - 2003 ================================================================================ - -------------------------------------------------------------------------------- Dispatch Incremental Avg. Market Factor/System CC All-In $/MWh CT All-In $/MWh Market Price Price $/MWh Load Factor % $/MWh - -------------------------------------------------------------------------------- 5 234.52 169.82 38.13 169.82 - -------------------------------------------------------------------------------- 10 129.87 103.98 38.13 103.98 - -------------------------------------------------------------------------------- 15 94.99 82.03 38.13 82.03 - -------------------------------------------------------------------------------- 20 77.55 71.05 38.13 71.05 - -------------------------------------------------------------------------------- 25 67.09 64.47 38.13 64.47 - -------------------------------------------------------------------------------- 30 60.11 60.08 38.13 60.08 - -------------------------------------------------------------------------------- 35 55.13 56.94 25.22 55.13 - -------------------------------------------------------------------------------- 40 51.39 54.59 25.23 51.39 - -------------------------------------------------------------------------------- 45 48.48 52.76 25.23 48.48 - -------------------------------------------------------------------------------- 50 46.16 51.30 25.23 46.16 - -------------------------------------------------------------------------------- 55 44.25 50.10 25.23 44.25 - -------------------------------------------------------------------------------- 60 42.67 49.11 25.23 42.67 - -------------------------------------------------------------------------------- 65 41.33 48.26 25.23 41.33 - -------------------------------------------------------------------------------- 70 40.18 47.54 25.23 40.18 - -------------------------------------------------------------------------------- 75 39.18 46.91 25.23 39.18 - -------------------------------------------------------------------------------- 80 38.31 46.36 25.23 38.31 - -------------------------------------------------------------------------------- 85 37.54 45.88 25.23 37.54 - -------------------------------------------------------------------------------- 90 36.85 45.45 25.23 36.85 - -------------------------------------------------------------------------------- 95 36.24 45.06 25.23 36.24 - -------------------------------------------------------------------------------- 100 35.69 44.72 25.23 35.69 - -------------------------------------------------------------------------------- Pricing Assumptions ----------------------------------------------------------- Unit Type CC CT ----------------------------------------------------------- Heat Rate Btu/kWh(9) 7,050 10,400 ----------------------------------------------------------- Variable O&M $/MWh 1.75 3.50 ----------------------------------------------------------- Fuel Cost for Year $/MMBtu 3.33 3.33 ----------------------------------------------------------- Fixed Cost ($) 24,293,000 9,805,433 ----------------------------------------------------------- Capacity MW 265 170 ----------------------------------------------------------- Variable Cost $/MWh 25.23 38.13 ----------------------------------------------------------- Fixed Cost @100% Load Factor $/MWh 10.46 6.58 ----------------------------------------------------------- ================================================================================ Based on the results of this analysis, prices defined by the costs of building and operating new CT, CC, and coal generators place a theoretical cap on power prices. Consequently, Pace's analysis model is based on the assumption of bidding strategies and capacity additions to achieve a market pricing level to within 5% from this equilibrium point. The Market Clearing Price Module, given these input bid prices for each unit, matches supply resources to demand to derive revenue results through dispatch optimization. These revenue results are fed back into the Revenue Requirement Module. Fixed cost recovery analysis is performed at this stage with the results being transferred back into the Bidding Analysis Module for further iterations if the market price does not come within 5% of expansion capacity recovery targets. Exhibit 8 presents the system supply curve for the MAIN market(10) for 2005 and 2023. These periods where chosen to provide an illustration of the Project during the Contract and Merchant Periods, respectively. These supply curves have not been adjusted to account for the availability - ---------- 9 Winter heat rate. 10 Includes interconnected sub-regions of IOWA and OECAR. - -------------------------------------------------------------------------------- Proprietary & Confidential 20 [LOGO] PACE | Global Energy Services of regional capacity. Realistically, the available generating capacity supply changes constantly with plants down for planned maintenance on an on-going basis. Further, supply curves are based on the variable costs of production only, and do not include fixed costs or any implicit capacity payment. During higher demand peak periods, prices include an implicit capacity payment that enables necessary incremental capacity to recover its fixed costs. Exhibit 8: MAIN System Supply Curve ================================================================================ 2005 - Contract Period(11) [GRAPH DISPLAYING THE FORECASTED SYSTEM SUPPLY CURVE FOR THE MAIN MARKET FOR 2005.] - ---------- 11 Includes interconnected sub-regions of IOWA and OECAR. - -------------------------------------------------------------------------------- Proprietary & Confidential 21 [LOGO] PACE | Global Energy Services 2023 - Merchant Period(12) GRAPH DISPLAYING THE FORECASTED SYSTEM SUPPLY CURVE FOR THE MAIN MARKET FOR 2023. ================================================================================ - ---------- 12 Includes interconnected sub-regions of IOWA and OECAR. - -------------------------------------------------------------------------------- Proprietary & Confidential 22 [LOGO] PACE | Global Energy Services ================================================================================ MAIN MARKET PRICING FORECAST RESULTS ================================================================================ Pace developed a long-term market price forecast for the MAIN region for the Study Period. Pace's analysis utilized our proprietary CEMAS forecasting system. As detailed in the previous sections, CEMAS was developed to provide the capability to project market-clearing prices for both capacity and energy in a competitive market. This section presents Pace's market price forecast results for the MAIN electric system and the Project. CEMAS SIMULATED MARKET PRICING RATES Pace's Base Case market price forecast is founded on our expected assumptions for a competitive market. These assumptions are detailed in subsequent sections regarding fuel pricing, demand, expansion capacity and existing unit costs. The Base Case represents system equilibrium given a competitive market structure. Specifically, given the cost structure of generating units, demand, fuel pricing, and other key factors, the CEMAS model simulated the MAIN system and optimized unit dispatch and bidding to identify the equilibrium market pricing and price distribution. MAIN System Market Pricing - Base Case Exhibit 9 presents the peak, off-peak and average competitive market-clearing prices in the Northern Illinois sub-region of MAIN for the Study Period. The price results for the Base Case range from a maximum average price of $37.60/MWh in 2001 and a minimum average price of $28.53/MWh in 2009. The price forecast for MAIN-NI over the Study Period can be summarized as follows: o Short-term high natural gas prices in the early years of the Study Period result in market clearing prices reaching $37.60/MWh in 2001. o A high level of competitive capacity additions and declining gas prices between 2001 and 2009 lowers average annual prices from $37.60/MWh in 2001 to $28.53/MWh in 2009. o Throughout the remainder of the Study Period, rising demand growth increases the amount of time during which natural gas is the marginal price setter, particularly during off-peak periods. This factor together with the increase in natural gas prices in real terms, results in average market prices gradually increasing over time. - -------------------------------------------------------------------------------- Proprietary & Confidential 23 [LOGO] PACE | Global Energy Services Exhibit 9: MAIN-NI Annual Price Summary - Base Case (1998 $/MWh) ================================================================================ ------------------------------------- Year Off-Peak On-Peak Average $/MWh $/MWh(13) $/MWh ------------------------------------- 2001 26.98 49.28 37.60 ------------------------------------- 2002 24.33 45.40 34.37 ------------------------------------- 2003 22.34 40.87 31.16 ------------------------------------- 2004 20.96 39.44 29.76 ------------------------------------- 2005 20.94 39.06 29.57 ------------------------------------- 2006 20.18 39.12 29.20 ------------------------------------- 2007 20.13 38.15 28.71 ------------------------------------- 2008 20.71 37.90 28.89 ------------------------------------- 2009 20.30 37.59 28.53 ------------------------------------- 2010 21.04 38.16 29.19 ------------------------------------- 2011 20.71 39.73 29.76 ------------------------------------- 2012 21.29 38.69 29.58 ------------------------------------- 2013 21.48 38.51 29.59 ------------------------------------- 2014 21.67 38.36 29.62 ------------------------------------- 2015 21.81 38.93 29.96 ------------------------------------- 2016 21.48 38.66 29.66 ------------------------------------- 2017 21.97 39.09 30.13 ------------------------------------- 2018 21.91 39.14 30.11 ------------------------------------- 2019 22.45 39.10 30.38 ------------------------------------- 2020 22.28 39.23 30.35 ------------------------------------- 2021 22.08 38.74 30.01 ------------------------------------- 2022 22.56 38.84 30.31 ------------------------------------- 2023 22.60 39.16 30.49 ------------------------------------- 2024 22.91 40.16 31.13 ------------------------------------- 2025 23.13 39.80 31.07 ------------------------------------- 2026 23.67 40.53 31.70 ------------------------------------- Avg. 22.00 39.68 30.42 ------------------------------------- ================================================================================ Announced and Forecasted System Capacity Additions As merchant plant developers become the typical source of new capacity in the U.S. power market, and utilities divest their generating assets, an integrated planning process for capacity additions will no longer take place. Currently, and more so in the future, the marketplace will be relied upon to value and provide needed capacity. Consistent with the market approach to capacity additions, Pace conducted its forecast of market prices under a scenario that considers publicly announced project development activities in addition to theoretical capacity additions in response to market conditions. Exhibit 10 lists the announced merchant plant development projects in the MAIN power market that Pace included in the Base Case Forecast. Pace believes that as much as 14,097 MW of announced capacity has strong potential of reaching commercial operation in this short time period. - ---------- 13 Peak Period defined as a 16-hour period for each weekday. - -------------------------------------------------------------------------------- Proprietary & Confidential 24 [LOGO] PACE | Global Energy Services Exhibit 10: Base Case Announced Capacity Additions (MW) ================================================================================
- ------------------------------------------------------------------------------------------------------- UNIT IN CAPACITY COMPANY PROJECT NAME LOCATION TYPE SERVICE MW - ------------------------------------------------------------------------------------------------------- Duke Energy St Francis - - Assoc Electric Coop Duke St. Francis SMAIN GAS CT 1999 520 - ------------------------------------------------------------------------------------------------------- Elwood Energy LLC Elwood NI GAS CT 1999 600* - ------------------------------------------------------------------------------------------------------- Wepco Fonddulac Wind WUM Wind Turbine 1999 1 - ------------------------------------------------------------------------------------------------------- Wepco Kewaunee Wind WUM Wind Turbine 1999 9 - ------------------------------------------------------------------------------------------------------- Ameren Corp. Joppa SMAIN GAS CT 2000 232 - ------------------------------------------------------------------------------------------------------- Ameren Corp. Meramec SMAIN GAS CT 2000 48 - ------------------------------------------------------------------------------------------------------- Calpine/ SkyGen DePere Phase I WUM GAS CT 2000 179 - ------------------------------------------------------------------------------------------------------- CILCO (AES) Lincoln SMAIN GAS CT 2000 13 - ------------------------------------------------------------------------------------------------------- Cogen Corp. of America Morris NI GAS CT 2000 60 - ------------------------------------------------------------------------------------------------------- Dynegy Rocky Road NI GAS CT 2000 250 - ------------------------------------------------------------------------------------------------------- Enron Lincoln Energy Center NI GAS CT 2000 668 - ------------------------------------------------------------------------------------------------------- Illinois Power Tilton Energy Center SMAIN GAS CT 2000 176 - ------------------------------------------------------------------------------------------------------- Illinova Power Marketing Havana Restart SMAIN ST 2000 238 - ------------------------------------------------------------------------------------------------------- Indeck Operations, Inc. Rockford NI GAS CT 2000 300 - ------------------------------------------------------------------------------------------------------- Madison Gas and Electric MGE WUM Wind Turbine 2000 11 - ------------------------------------------------------------------------------------------------------- Reliant Shelby SMAIN GAS CT 2000 340 - ------------------------------------------------------------------------------------------------------- Southern Energy Neenah Power Plant WUM GAS CT 2000 300 - ------------------------------------------------------------------------------------------------------- Southwestern Electric Coop. St. Elmo SMAIN GAS CT 2000 45 - ------------------------------------------------------------------------------------------------------- Soyland Power Alsey SMAIN GAS CT 2000 113 - ------------------------------------------------------------------------------------------------------- Trigen- St. Louis Entergy Corp. St. Louis Cogen SMAIN GAS CT 2000 15 - ------------------------------------------------------------------------------------------------------- Trigen-Cinergy Solutions Equistar SMAIN GAS CT 2000 6 - ------------------------------------------------------------------------------------------------------- Wepco Germantown Expansion WUM GAS CT 2000 135 - ------------------------------------------------------------------------------------------------------- WI Public Service W. Marionette WUM GAS CT 2000 83 - ------------------------------------------------------------------------------------------------------- Ameren Corp. Pinckneyville SMAIN GAS CT 2001 520 - ------------------------------------------------------------------------------------------------------- Ameren Corp. Gibson SMAIN GAS CT 2001 206 - ------------------------------------------------------------------------------------------------------- Ameren Energy Generating Co. Grand Tower SMAIN GAS CC 2001 500 - ------------------------------------------------------------------------------------------------------- Calpine/ SkyGen RockGen Energy Center WUM GAS CT 2001 450 - ------------------------------------------------------------------------------------------------------- CILCO (AES) Medina Valley SMAIN GAS CC 2001 45 - ------------------------------------------------------------------------------------------------------- Constellation Power University Park LLC NI GAS CT 2001 300 - ------------------------------------------------------------------------------------------------------- Duke Energy Lee, LLC Lee Generating Station NI GAS CT 2001 640 - ------------------------------------------------------------------------------------------------------- Elwood Energy LLC Elwood NI GAS CT 2001 750* - ------------------------------------------------------------------------------------------------------- FPL Energy Iowa County Wisconsin Wind Farm WUM Wind Turbine 2001 26 - ------------------------------------------------------------------------------------------------------- LS Power Kendall NI GAS CC 2001 1,100 - ------------------------------------------------------------------------------------------------------- MidAmerican Cordova NI GAS CC 2001 537 - ------------------------------------------------------------------------------------------------------- NRG Energy Audrain SMAIN GAS CT 2001 720 - ------------------------------------------------------------------------------------------------------- Reliant Energy Power Generation Inc. Reliant Energy Aurora LP NI GAS CT 2001 270 - ------------------------------------------------------------------------------------------------------- University of Missouri University of Missouri-Columbia SMAIN GAS CT 2001 26 - ------------------------------------------------------------------------------------------------------- Ameren Corp. Patoka/ Kinmundy Power Plant SMAIN GAS CT 2002 332 - ------------------------------------------------------------------------------------------------------- Dynegy Rocky Road Expansion NI GAS CT 2002 100 - ------------------------------------------------------------------------------------------------------- Holland Energy LLC Holland Energy SMAIN GAS CC 2002 680 - ------------------------------------------------------------------------------------------------------- Wisvest Calumet Energy Project NI GAS CT 2002 315 - ------------------------------------------------------------------------------------------------------- NRG Energy, Inc. Nelson NI GAS CC 2003 1,188 - ------------------------------------------------------------------------------------------------------- PG&E Corp. BadgerGen WUM GAS CC 2003 1,050 - ------------------------------------------------------------------------------------------------------- TOTAL 14,097 - -------------------------------------------------------------------------------------------------------
================================================================================ After 2003, Pace expects that further merchant projects will be announced and built as needed to meet demand. Market price expectations and developer growth strategies will drive these new project additions. Pace's methodology for determining these competitive market expansions is detailed in the MAIN Power Generation Resources Section. However, Exhibit 11 summarizes - ---------- * Nominal Capacity. - -------------------------------------------------------------------------------- Proprietary & Confidential 25 [LOGO] PACE | Global Energy Services the annual additions resulting from both current announced merchant projects and expansion plants, supported by the expected market prices over time. As shown in Exhibit 11, Pace expects that over the next twenty-five years the MAIN market will require and support the construction of approximately 43,000 MW of new capacity in order to maintain a long run equilibrium reserve margin of 13-15%. Pace did not assume the retirement of existing system capacity except for nuclear units, which are retired on their license expiration. To the extent existing units are retired over the Study Period, market prices will increase and/or additional capacity will be constructed to replace retired capacity. Exhibit 11: Expansion Capacity Additions by Year- Base Case ================================================================================ CHART SHOWING THE ESTIMATED CAPACITY ADDITIONS IN THE MAIN MARKET OVER THE NEXT 25 YEARS.
- ----------------------------------------------------------------------------------------------------------------------------- 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 - ----------------------------------------------------------------------------------------------------------------------------- ELWOOD 1,409 1,409 1,409 1,409 1,409 1,409 1,409 1,409 1,409 1,409 1,409 1,409 1,409 - ----------------------------------------------------------------------------------------------------------------------------- Announced Coal & Wind 337 337 337 337 337 337 337 337 337 337 337 337 337 - ----------------------------------------------------------------------------------------------------------------------------- Announced CC 3,388 5,492 5,492 5,492 5,492 5,492 5,492 5,492 5,492 5,492 5,492 5,492 5,492 - ----------------------------------------------------------------------------------------------------------------------------- Announced CT 8,300 8,300 8,300 8,300 8,300 8,300 8,300 8,300 8,300 8,300 8,300 8,300 8,300 - ----------------------------------------------------------------------------------------------------------------------------- Expansion CC 0 0 249 1,743 3,984 5,976 7,719 8,466 10,458 12,450 13,944 15,936 17,181 - ----------------------------------------------------------------------------------------------------------------------------- Expansion CT 800 800 1,920 3,200 3,200 3,680 4,960 6,080 7,200 7,680 8,800 9,440 10,080 - ----------------------------------------------------------------------------------------------------------------------------- Total 14,234 16,338 17,707 20,481 22,722 25,194 28,217 30,084 33,196 35,668 38,282 40,914 42,799 - -----------------------------------------------------------------------------------------------------------------------------
* Includes interconnected sub-regions of IOWA and OECAR. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 26 [LOGO] PACE | Global Energy Services Project Results - Base Case To provide Pace's forecast of Project dispatch, operating profile, energy and capacity revenues, and volatility values, Pace explicitly modeled the Project as a resource in the MAIN market. Specifically, the Project's heat rate efficiency, delivered fuel costs, and variable operating costs were modeled to allow the simulation to dispatch the facility when system marginal costs were equal to or higher than Project variable costs. The Project specifications, as modeled, are provided in the MAIN Power Generation Resources Section of this report. Exhibit 12 illustrates the operational results for the Project(14) while Exhibit 13, and Exhibit 14 outline the results for the Exelon PSA and the combined results for the Aquila PSAs. The summary results for the Project cover both the Contract Period and the Merchant Periods. During the Contract Period, the results reflect the dispatch of the Exelon and Aquila Units in accordance with the terms of the relevant PSA. During the Merchant Period, the Project is assumed be dispatched as a fully merchant facility (see Exhibit 48 for assumptions concerning each PSA and the modeling assumptions for the Contract Period and the Merchant Period). During the Contract Period, the Project's revenue forecast refers to the revenues that Exelon and/or Aquila are forecast to receive from marketing the energy and capacity of the Exelon and Aquila Units, while the revenues that Elwood receives during the Contract Period are determined by the payment structure outlined in the Exelon and Aquila PSAs. However, during the Merchant Period, when Elwood operates the Project as a merchant facility, the revenue forecast refers to the revenues to be received by Elwood from marketing the energy and capacity of the Project on its own account. The average annual capacity factor for the Project is 11.93% per year with gross margins, including volatility values that range from a maximum of $104.30/kW-year in 2001 to a minimum of $76.82/kW-year in 2009. The average generation for the Project is forecast to be 1,472 GWh per year, with average total revenues of $173.9 million per year. Energy and capacity revenues average $95.12/MWh per year or $134.3 million per year and gross margins, including volatility values average $82.93/KW-year. Exhibit 13 illustrates the results for the Exelon PSA, which covers the dispatch of Units 1-4 & 9 and terminates on December 31, 2012. The Exelon Units are expected to be dispatched at an average capacity factor of 3.39% per year with gross margins, including volatility values that range from a maximum of $97.86/kW-year in 2001 to a minimum of $71.93/kW-year in 2009. The average generation for the Exelon Units is forecast to be 233 GWh per year, with average total revenues of $69.7 million per year. Energy and capacity revenues average $256.20/MWh per year or $57.3 million per year and gross margins, including volatility values average $78.63/kW-year. - ---------- 14 Project and Unit capacities refer to Summer Capacity. - -------------------------------------------------------------------------------- Proprietary & Confidential 27 [LOGO] PACE | Global Energy Services Exhibit 14 illustrates the results for the Aquila PSAs. The Aquila PSA 1, which covers the dispatch of Units 5-6, terminates on August 31, 2021, while the Aquila PSA 2, which covers the dispatch of Units 7-8, terminates one-year later on August 31, 2022. In 2022, the summary results presented in Exhibit 14 exclude Units 5-6, which are assumed to be operating on a merchant basis, but includes Units 7-8 as these units remain under dispatch by Aquila. Exhibit 14 illustrates an average annual capacity factor of 17.15% per year, with gross margins, including volatility values, that range from a maximum of $112.43/kW-year in 2001 to a minimum of $81.10/kW-year in 2004. Generation averages 921 GWh per year, with average total revenues of $81.9 million per year. Energy and capacity revenues average $74.07/MWh per year or $67.3 million per year and gross margins, including volatility values average $87.22/kW-year. Exhibit 12: Project Annual Operational Summary (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- Energy Energy Volatility Total Gross Gross Variable and and Value Revenue Margin Margin Fuel O&M Capacity Capacity Net of with with with Capacity Generation Capacity Costs Costs Revenue(16) Revenue Insurance(17) Volatility Volatility Volatility Year MW(15) GWh Factor $1000 $1000 $1000 $/MWh $1000 $1000 $1000 $/kW-yr - ---------------------------------------------------------------------------------------------------------------------------------- 2001 1,409 998 8.08% 54,280 1,051 163,889 164.29 38,395 202,284 146,953 104.30 - ---------------------------------------------------------------------------------------------------------------------------------- 2002 1,409 1,128 9.14% 47,074 1,178 149,044 132.11 33,573 182,617 134,365 95.36 - ---------------------------------------------------------------------------------------------------------------------------------- 2003 1,409 958 7.76% 34,249 1,002 124,283 129.79 27,016 151,299 116,048 82.36 - ---------------------------------------------------------------------------------------------------------------------------------- 2004 1,409 937 7.59% 30,717 994 116,752 124.62 23,821 140,573 108,862 77.26 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 1,409 1,299 10.53% 40,005 1,372 126,574 97.44 26,794 153,368 111,991 79.48 - ---------------------------------------------------------------------------------------------------------------------------------- 2006 1,409 1,320 10.69% 38,444 1,403 125,353 95.00 28,480 153,833 113,986 80.90 - ---------------------------------------------------------------------------------------------------------------------------------- 2007 1,409 1,336 10.83% 37,480 1,401 121,027 90.56 26,324 147,351 108,470 76.98 - ---------------------------------------------------------------------------------------------------------------------------------- 2008 1,409 1,415 11.47% 39,111 1,492 124,951 88.28 25,885 150,836 110,233 78.23 - ---------------------------------------------------------------------------------------------------------------------------------- 2009 1,409 1,380 11.18% 38,039 1,458 121,222 87.85 26,512 147,734 108,237 76.82 - ---------------------------------------------------------------------------------------------------------------------------------- 2010 1,409 1,239 10.04% 34,089 1,317 121,381 97.99 25,830 147,211 111,805 79.35 - ---------------------------------------------------------------------------------------------------------------------------------- 2011 1,409 1,026 8.31% 28,433 1,088 123,981 120.86 26,332 150,313 120,792 85.73 - ---------------------------------------------------------------------------------------------------------------------------------- 2012 1,409 1,199 9.72% 33,192 1,281 122,973 102.58 26,723 149,696 115,223 81.78 - ---------------------------------------------------------------------------------------------------------------------------------- 2013 1,409 1,722 13.96% 46,716 3,646 137,201 79.65 27,040 164,241 113,879 80.82 - ---------------------------------------------------------------------------------------------------------------------------------- 2014 1,409 1,736 14.07% 47,452 3,729 137,848 79.41 28,325 166,173 114,992 81.61 - ---------------------------------------------------------------------------------------------------------------------------------- 2015 1,409 1,886 15.29% 51,575 4,177 142,151 75.36 30,302 172,453 116,701 82.83 - ---------------------------------------------------------------------------------------------------------------------------------- 2016 1,409 1,582 12.82% 43,299 3,498 131,597 83.17 26,911 158,508 111,711 79.28 - ---------------------------------------------------------------------------------------------------------------------------------- 2017 1,409 1,866 15.13% 51,564 4,115 143,260 76.76 29,695 172,955 117,276 83.23 - ---------------------------------------------------------------------------------------------------------------------------------- 2018 1,409 1,827 14.81% 50,683 4,059 141,442 77.40 30,951 172,393 117,651 83.50 - ---------------------------------------------------------------------------------------------------------------------------------- 2019 1,409 2,018 16.36% 56,171 4,307 147,416 73.05 31,661 179,077 118,599 84.17 - ---------------------------------------------------------------------------------------------------------------------------------- 2020 1,409 1,688 13.68% 46,981 3,776 138,848 82.26 28,579 167,427 116,670 82.80 - ---------------------------------------------------------------------------------------------------------------------------------- 2021 1,409 1,700 13.78% 47,779 3,912 136,959 80.56 30,513 167,472 115,781 82.17 - ---------------------------------------------------------------------------------------------------------------------------------- 2022 1,409 1,629 13.20% 45,637 4,795 135,749 83.33 28,039 163,788 113,356 80.45 - ---------------------------------------------------------------------------------------------------------------------------------- 2023 1,409 1,549 12.55% 43,112 5,420 134,406 86.79 27,850 162,256 113,724 80.71 - ---------------------------------------------------------------------------------------------------------------------------------- 2024 1,409 1,524 12.35% 42,648 5,335 140,078 91.90 29,296 169,374 121,391 86.15 - ---------------------------------------------------------------------------------------------------------------------------------- 2025 1,409 1,564 12.67% 44,300 5,472 138,129 88.34 28,540 166,669 116,897 82.96 - ---------------------------------------------------------------------------------------------------------------------------------- 2026 1,409 1,740 14.10% 49,451 6,090 145,896 83.85 31,099 176,995 121,454 86.20 - ---------------------------------------------------------------------------------------------------------------------------------- Avg. 1,409 1,472 11.93% 43,172 2,976 134,323 95.12 28,634 162,958 116,809 82.93 - ----------------------------------------------------------------------------------------------------------------------------------
================================================================================ - ---------- 15 Summer Capacity. 16 Reflects energy and capacity revenues to Exelon and Aquila during the Contract Period and to Elwood during the Merchant Period. 17 Reflects net volatility revenues to Exelon and Aquila during the Contract Period and to Elwood during the Merchant Period. - -------------------------------------------------------------------------------- Proprietary & Confidential 28 [LOGO] PACE | Global Energy Services Exhibit 13: Exelon PSA Annual Operational Summary (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- Energy Energy Volatility Total Gross Gross Variable and and Value Revenue Margin Margin Fuel O&M Capacity Capacity Net of with with with Capacity Generation Capacity Costs Costs Revenue(19) Revenue Insurance(20) Volatility Volatility Volatility Year MW(18) GWh Factor $1000 $1000 $1000 $/MWh $1000 $1000 $1000 $/kW-yr - ---------------------------------------------------------------------------------------------------------------------------------- 2001 783 189 2.76% 10,568 259 70,919 375.18 16,480 87,399 76,572 97.86 - ---------------------------------------------------------------------------------------------------------------------------------- 2002 783 185 2.70% 8,074 253 63,751 344.70 14,564 78,315 69,988 89.44 - ---------------------------------------------------------------------------------------------------------------------------------- 2003 783 163 2.38% 6,158 223 55,495 340.25 12,122 67,618 61,236 78.26 - ---------------------------------------------------------------------------------------------------------------------------------- 2004 783 195 2.85% 6,822 268 53,975 276.33 11,210 65,185 58,096 74.24 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 783 254 3.71% 8,324 348 55,474 218.32 11,809 67,283 58,611 74.90 - ---------------------------------------------------------------------------------------------------------------------------------- 2006 783 282 4.11% 8,834 386 56,364 199.89 12,422 68,785 59,565 76.12 - ---------------------------------------------------------------------------------------------------------------------------------- 2007 783 233 3.40% 7,003 319 52,545 225.45 11,427 63,972 56,649 72.39 - ---------------------------------------------------------------------------------------------------------------------------------- 2008 783 268 3.91% 8,051 368 54,689 203.80 11,238 65,928 57,509 73.49 - ---------------------------------------------------------------------------------------------------------------------------------- 2009 783 272 3.97% 8,092 373 53,444 196.48 11,302 64,746 56,282 71.93 - ---------------------------------------------------------------------------------------------------------------------------------- 2010 783 264 3.86% 7,857 362 55,359 209.40 11,443 66,801 58,583 74.87 - ---------------------------------------------------------------------------------------------------------------------------------- 2011 783 213 3.11% 6,341 292 58,600 275.14 12,507 71,107 64,474 82.39 - ---------------------------------------------------------------------------------------------------------------------------------- 2012 783 272 3.96% 8,052 372 56,902 209.44 12,267 69,169 60,745 77.63 - ---------------------------------------------------------------------------------------------------------------------------------- Avg. 783 233 3.39% 7,848 319 57,293 256.20 12,399 69,692 61,526 78.63 - ----------------------------------------------------------------------------------------------------------------------------------
* The results outlined above refer to Units 1-4 and 9. The Exelon PSA terminates on December 31, 2012. ================================================================================ - ---------- 18 Summer Capacity. 19 Reflects energy and capacity revenues to Exelon during the Contract Period and to Elwood during the Merchant Period. 20 Reflects net volatility revenues to Exelon during the Contract Period and to Elwood during the Merchant Period. - -------------------------------------------------------------------------------- Proprietary & Confidential 29 [LOGO] PACE | Global Energy Services Exhibit 14: Aquila PSAs Annual Operational Summary (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- Energy Energy Volatility Total Gross Gross Variable and and Value Revenue Margin Margin Fuel O&M Capacity Capacity Net of with with with Capacity Generation Capacity Costs Costs Revenue(22) Revenue Insurance(23) Volatility Volatility Volatility Year MW(21) GWh Factor $1000 $1000 $1000 $/MWh $1000 $1000 $1000 $/kW-yr - ---------------------------------------------------------------------------------------------------------------------------------- 2001 626 809 14.74% 43,713 792 92,970 114.99 21,915 114,885 70,380 112.43 - ---------------------------------------------------------------------------------------------------------------------------------- 2002 626 943 17.20% 39,000 924 85,292 90.42 19,010 104,302 64,377 102.84 - ---------------------------------------------------------------------------------------------------------------------------------- 2003 626 794 14.49% 28,091 779 68,787 86.58 14,894 83,681 54,811 87.56 - ---------------------------------------------------------------------------------------------------------------------------------- 2004 626 742 13.52% 23,895 727 62,777 84.66 12,610 75,387 50,766 81.10 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 626 1,045 19.05% 31,681 1,024 71,099 68.05 14,985 86,085 53,380 85.27 - ---------------------------------------------------------------------------------------------------------------------------------- 2006 626 1,038 18.92% 29,610 1,017 68,990 66.49 16,058 85,048 54,421 86.93 - ---------------------------------------------------------------------------------------------------------------------------------- 2007 626 1,103 20.12% 30,477 1,081 68,482 62.07 14,897 83,380 51,821 82.78 - ---------------------------------------------------------------------------------------------------------------------------------- 2008 626 1,147 20.92% 31,060 1,124 70,262 61.26 14,647 84,909 52,724 84.22 - ---------------------------------------------------------------------------------------------------------------------------------- 2009 626 1,108 20.20% 29,947 1,086 67,778 61.18 15,210 82,988 51,956 83.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2010 626 974 17.77% 26,233 955 66,023 67.76 14,388 80,410 53,223 85.02 - ---------------------------------------------------------------------------------------------------------------------------------- 2011 626 813 14.82% 22,091 797 65,381 80.44 13,825 79,206 56,318 89.97 - ---------------------------------------------------------------------------------------------------------------------------------- 2012 626 927 16.91% 25,140 909 66,071 71.27 14,456 80,527 54,479 87.03 - ---------------------------------------------------------------------------------------------------------------------------------- 2013 626 945 17.24% 26,040 927 66,093 69.91 13,567 79,660 52,693 84.17 - ---------------------------------------------------------------------------------------------------------------------------------- 2014 626 931 16.98% 25,840 913 65,757 70.61 14,432 80,190 53,437 85.36 - ---------------------------------------------------------------------------------------------------------------------------------- 2015 626 962 17.55% 26,696 943 66,593 69.21 14,570 81,164 53,524 85.50 - ---------------------------------------------------------------------------------------------------------------------------------- 2016 626 809 14.76% 22,451 793 61,386 75.84 12,864 74,251 51,006 81.48 - ---------------------------------------------------------------------------------------------------------------------------------- 2017 626 959 17.49% 26,853 940 67,351 70.21 14,289 81,639 53,846 86.02 - ---------------------------------------------------------------------------------------------------------------------------------- 2018 626 927 16.91% 26,025 909 66,158 71.35 14,630 80,788 53,854 86.03 - ---------------------------------------------------------------------------------------------------------------------------------- 2019 626 1,094 19.94% 30,797 1,072 71,072 64.99 16,086 87,158 55,289 88.32 - ---------------------------------------------------------------------------------------------------------------------------------- 2020 626 846 15.43% 23,798 829 64,330 76.05 13,426 77,755 53,128 84.87 - ---------------------------------------------------------------------------------------------------------------------------------- 2021 626 895 16.33% 25,454 1,095 64,993 72.59 14,785 79,778 53,230 85.03 - ---------------------------------------------------------------------------------------------------------------------------------- 2022 313 439 16.03% 12,441 631 32,364 73.65 6,972 39,336 26,263 83.91 - ---------------------------------------------------------------------------------------------------------------------------------- Avg. 612 921 17.15% 27,606 921 67,273 74.07 14,660 81,933 53,406 87.22 - ----------------------------------------------------------------------------------------------------------------------------------
* The results outlined above refer to Units 5-8. Results in 2022 refer only to Units 7-8. ================================================================================ - ---------- 21 Summer Capacity. 22 Reflects energy and capacity revenues to Aquila during the Contract Period and to Elwood during the Merchant Period. 23 Reflects net volatility revenues to Aquila during the Contract Period and to Elwood during the Merchant Period. - -------------------------------------------------------------------------------- Proprietary & Confidential 30 [LOGO] PACE | Global Energy Services ================================================================================ VOLATILITY ANALYSIS APPROACH AND RESULTS ================================================================================ Pace has performed a valuation of the Project's projected volatility value for the Study Period. This valuation has been customized to reflect sales of power into the MAIN power market. Volatility valuation measures the potential value of variation of the projected spark spread as a result of fluctuations in the underlying power and fuel prices. The methodology relies on the deterministic forecast of power prices relative to fuel costs (the projected spark spread), but assumes commodity price behaviors around those projected mean values that reflect the market-priced volatility value of price movement among power and fuel prices at the assets' forecasted heat rate. Intrinsic value refers to the spark spread projection, and extrinsic value refers to the incremental value from price fluctuations. A power plant has embedded this option value by nature of its operation flexibility and underlying price variations. By structuring and managing the asset's commodity positions in both the physical and financial markets, the merchant plant can lock in option value consistent with its desired risk exposure. The financial markets include options, futures and forwards trading for the underlying commodities. Since forward contracting involves a firm financial obligation, an operational commitment of the power asset is required as a hedge against adverse price movements. For example, if the project sold a spark spread call option in the forward market, the asset will be required to convert the fuel to power should the power option be exercised. Therefore, the analysis has incorporated a proxy for the cost of financially insuring the power plant against mechanical outages on a portfolio basis. SUMMARY RESULTS The Project's annual and monthly volatility values, expressed in 1998 dollars, consistent with the operating assumptions presented in Pace's CEMAS power market assessment, are illustrated in Exhibit 15 and Exhibit 16 respectively. Exelon and Aquila own the exclusive rights to dispatch and receive the output of the Project during the Contract Period, and will also be able to leverage the value of the asset in the forward market to extract option or volatility value. Exelon and Aquila are active power market traders and will likely attempt to extract this value. During the Merchant Period after the expiration of the Exelon and Aquila PSAs, Elwood will have the ability to extract this market value as well. Given Pace's assumptions concerning reserve margins, liquidity, and trading volatility, volatility value (net of insurance costs) adds on average approximately $20.33/kW-year or $28.6 million per year to Base Case energy and capacity revenues over the Study Period. Volatility value ranges from a maximum of $27.26/kW-year or $38.4 million in 2001 to a minimum of $16.91/kW-year or $23.8 million in 2004. - -------------------------------------------------------------------------------- Proprietary & Confidential 31 [LOGO] PACE | Global Energy Services The high projected volatility values in 2001 are driven by the high natural gas prices. As natural gas and thus power prices decrease from 2002 to 2004, so do the levels of projected spark spread and derived volatility values. After projected natural gas prices stabilize in the 2008-2009 timeframe, decreasing regional reserve margins and the resulting increase in implied volatility forecasts become the major value drivers. Thereafter, the projected Project volatility value is relatively steady in a range of $18/kW-year to $22/kW-year through the end of the Study Period. During the term of the Exelon and Aquila PSAs, Exelon is forecast to extract net volatility values which average $15.85/kW-year or $12.4 million per year, while Aquila is forecast to earn net volatility values which average $23.92/kW-year or $14.7 million per year. During the Merchant Period, Elwood is forecast to earn net volatility values which average $20.73/kW-year or $ 29.2 million per year. Exhibit 15: Project Annual Volatility Value (1998 $) ================================================================================ ------------------------------------------------------- Volatility Volatility Value Value Volatility Insurance Net of Net of Value Estimate Insurance Insurance Year $/kW-yr $/kW-yr $/kW-yr $000 ------------------------------------------------------- 2001 29.49 2.23 27.26 38,395 ------------------------------------------------------- 2002 25.79 1.96 23.84 33,573 ------------------------------------------------------- 2003 20.78 1.60 19.18 27,016 ------------------------------------------------------- 2004 18.36 1.45 16.91 23,821 ------------------------------------------------------- 2005 20.50 1.48 19.02 26,794 ------------------------------------------------------- 2006 21.77 1.55 20.22 28,480 ------------------------------------------------------- 2007 20.17 1.48 18.69 26,324 ------------------------------------------------------- 2008 19.85 1.47 18.38 25,885 ------------------------------------------------------- 2009 20.31 1.49 18.82 26,512 ------------------------------------------------------- 2010 19.84 1.50 18.34 25,830 ------------------------------------------------------- 2011 20.29 1.60 18.70 26,332 ------------------------------------------------------- 2012 20.53 1.55 18.97 26,723 ------------------------------------------------------- 2013 20.75 1.55 19.20 27,040 ------------------------------------------------------- 2014 21.70 1.59 20.11 28,325 ------------------------------------------------------- 2015 23.18 1.66 21.51 30,302 ------------------------------------------------------- 2016 20.68 1.57 19.11 26,911 ------------------------------------------------------- 2017 22.74 1.66 21.08 29,695 ------------------------------------------------------- 2018 23.67 1.69 21.97 30,951 ------------------------------------------------------- 2019 24.20 1.72 22.48 31,661 ------------------------------------------------------- 2020 21.95 1.66 20.29 28,579 ------------------------------------------------------- 2021 23.36 1.69 21.66 30,513 ------------------------------------------------------- 2022 21.53 1.63 19.91 28,039 ------------------------------------------------------- 2023 21.39 1.62 19.77 27,850 ------------------------------------------------------- 2024 22.52 1.72 20.80 29,296 ------------------------------------------------------- 2025 21.83 1.57 20.26 28,540 ------------------------------------------------------- 2026 23.85 1.77 22.08 31,099 ------------------------------------------------------- Avg. 21.96 1.63 20.33 28,634 ------------------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 32 [LOGO] PACE | Global Energy Services The forecast monthly Project net volatility values outlined in Exhibit 16 illustrate that five out of the top seven average monthly volatility values occur during the June to October period, with the months of January and March accounting for the next highest values. Volatility values are forecast to be the highest in the month of July. This value is four times higher than the next highest monthly volatility value, which occurs in the month of January. Exhibit 16: Project Monthly Volatility Value - Net of Insurance (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Year $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 $1000 - ---------------------------------------------------------------------------------------------------------------------------- 2001 1,685 1,054 3,389 957 1,528 3,241 14,506 4,907 1,689 4,747 691 -- 38,395 - ---------------------------------------------------------------------------------------------------------------------------- 2002 1,836 1,473 506 785 623 2,105 17,134 1,352 2,603 2,353 1,754 1,049 33,573 - ---------------------------------------------------------------------------------------------------------------------------- 2003 814 905 1,627 1,908 759 962 11,009 1,316 4,949 2,594 -- 172 27,016 - ---------------------------------------------------------------------------------------------------------------------------- 2004 555 367 722 86 1,769 2,782 13,295 628 1,438 1,784 46 348 23,821 - ---------------------------------------------------------------------------------------------------------------------------- 2005 1,283 244 2,148 582 1,402 2,423 11,211 1,980 3,555 904 251 812 26,794 - ---------------------------------------------------------------------------------------------------------------------------- 2006 1,190 1,611 1,048 779 1,733 1,952 8,841 4,868 1,992 2,427 1,645 394 28,480 - ---------------------------------------------------------------------------------------------------------------------------- 2007 938 1,004 1,887 260 852 2,085 8,854 3,272 3,166 1,684 441 1,882 26,324 - ---------------------------------------------------------------------------------------------------------------------------- 2008 873 1,093 1,151 1,018 497 2,515 10,590 2,278 1,189 1,313 851 2,518 25,885 - ---------------------------------------------------------------------------------------------------------------------------- 2009 1,455 1,490 1,854 594 659 1,626 10,335 1,518 2,713 1,761 763 1,745 26,512 - ---------------------------------------------------------------------------------------------------------------------------- 2010 831 1,442 1,738 191 349 1,470 11,479 1,197 3,443 1,765 1,139 787 25,830 - ---------------------------------------------------------------------------------------------------------------------------- 2011 292 1,541 2,555 -- 350 715 12,967 2,731 153 1,458 1,136 2,435 26,332 - ---------------------------------------------------------------------------------------------------------------------------- 2012 1,090 992 606 2,936 273 1,066 9,751 3,080 2,817 1,374 931 1,808 26,723 - ---------------------------------------------------------------------------------------------------------------------------- 2013 3,910 1,430 1,598 255 -- 1,743 8,461 1,272 3,085 3,244 253 1,788 27,040 - ---------------------------------------------------------------------------------------------------------------------------- 2014 4,866 332 1,569 1,519 42 1,907 8,997 1,784 2,676 1,651 1,151 1,832 28,325 - ---------------------------------------------------------------------------------------------------------------------------- 2015 2,948 3,060 4,313 338 18 1,851 8,894 775 2,478 2,337 1,487 1,805 30,302 - ---------------------------------------------------------------------------------------------------------------------------- 2016 3,073 2,271 1,790 348 50 1,534 10,399 2,355 1,094 2,454 435 1,109 26,911 - ---------------------------------------------------------------------------------------------------------------------------- 2017 3,903 2,565 3,311 123 886 1,734 7,348 3,094 1,825 2,610 452 1,844 29,695 - ---------------------------------------------------------------------------------------------------------------------------- 2018 5,158 2,111 2,869 -- 74 2,210 6,531 1,573 1,882 5,211 1,841 1,491 30,951 - ---------------------------------------------------------------------------------------------------------------------------- 2019 3,164 1,334 3,262 635 1,465 1,831 6,997 1,518 3,827 3,857 1,057 2,714 31,661 - ---------------------------------------------------------------------------------------------------------------------------- 2020 3,131 2,688 2,478 222 285 2,286 10,639 1,290 2,614 1,822 710 413 28,579 - ---------------------------------------------------------------------------------------------------------------------------- 2021 3,506 2,122 3,104 1,872 420 2,159 8,680 1,021 2,109 2,853 1,347 1,320 30,513 - ---------------------------------------------------------------------------------------------------------------------------- 2022 3,136 1,175 2,603 1,081 91 2,392 9,454 1,766 850 2,607 939 1,946 28,039 - ---------------------------------------------------------------------------------------------------------------------------- 2023 4,052 3,057 2,126 -- 122 1,906 7,037 2,543 1,845 2,767 582 1,814 27,850 - ---------------------------------------------------------------------------------------------------------------------------- 2024 3,121 1,024 2,294 28 621 2,029 10,854 1,107 2,550 3,876 142 1,652 29,296 - ---------------------------------------------------------------------------------------------------------------------------- 2025 4,103 739 2,800 200 249 1,978 9,425 1,018 2,452 1,304 491 3,780 28,540 - ---------------------------------------------------------------------------------------------------------------------------- 2026 4,605 3,470 1,255 848 316 1,761 7,957 1,319 2,685 3,492 1,010 2,381 31,099 - ---------------------------------------------------------------------------------------------------------------------------- Avg. 2,520 1,561 2,100 764 617 1,933 10,063 1,983 2,372 2,471 862 1,594 28,634 - ----------------------------------------------------------------------------------------------------------------------------
================================================================================ VOLATILITY VALUE ANALYSIS METHODOLOGY AND VALUATION Volatility value is associated with the conversion of an MMBtu to an MWh at an underlying asset's operating efficiency, given the regional power and fuel price fluctuations. Pace performed the quantitative volatility valuation for Northern Illinois or ComEd sub-region of the MAIN power market by forecasting the premium ascribable to the generating option on an annual basis, tailored to the generation facilities' dispatch economics. Central to the volatility valuation is the development of a regional implied volatility analysis of options transactions for both the power and gas forwards contracts. This analysis forms the foundation for assessing historic, current and potentially ascribed market value associated with power and fuel price uncertainty. - -------------------------------------------------------------------------------- Proprietary & Confidential 33 [LOGO] PACE | Global Energy Services Other factors fundamental to valuing an assets' ability to extract volatility premiums include the following: o Variable costs of each facility (heat rate, variable O&M, and fuel costs); o Period and duration of plant dispatch; o Anticipated fuel and power price levels over the term of the analysis; o Forecasted regional supply and demand balances that may affect future market volatility for each commodity, including new capacity additions, retirements, and reserve margin; and o The regional historical and forecasted correlation between power and fuel. The project-specific variables, as stated above, form the inputs to a spread option pricing model that calculates the extrinsic value obtained by selling fully hedged call options on the asset's underlying "at-the-money" spark spread. This is accomplished by calculating the value of at-the-money spark spread call options(24) for each facility when its forecasted peak-hour(25) operating economics are producing positive variable margins. In addition, periods with negative variable margins may be valued as "out-of-the-money" call options on the spark spread, with the underlying generating economics of the facility serving as the strike price for the option valuation. GAS MARKET For the analysis, we have utilized the Henry Hub contract for the gas leg of the spark spread volatility valuation, as this is the most liquid gas forward trading point with a robust options transaction history. Although basis price movements could serve to increase the region's observed volatility, there may also be counter-balancing price movements that could dampen the region's volatility. Furthermore, it is typical for a project to structure its gas procurement contract with an index to Henry Hub, adjusting for a relatively stable basis differential. Therefore, we believe that the Henry Hub contract is an appropriate measure of the gas market's implied volatility for this analysis. The Henry Hub natural gas contract typically exhibits lower levels of implied volatility than power markets, averaging around 50% on an annual basis over the past 2-3 years, with month-to-month variations as exhibited in Exhibit 17 below. Pace's initial (year 2001) volatility values ascribed to natural gas, as shown in Exhibit 20, reduce the annual average to 39% in 2001 and beyond, reflecting what we believe is a relatively conservative, but more reliable, long-term average for natural gas price volatility during the Study Period. While the gas volatility values Exhibit 20 have been sculpted down on a projected basis to an average of 39%, the relative monthly seasonal factors are maintained consistent with those reflected in Exhibit 17. - ---------- 24 The spread between gas prices and power prices on a facility-specific per MWh equivalent basis. 25 To remain consistent with the vast majority of currently traded options, each unit is forecasted to receive volatility premiums during peak periods only. - -------------------------------------------------------------------------------- Proprietary & Confidential 34 [LOGO] PACE | Global Energy Services Exhibit 17: Long-term Monthly Henry Hub Implied Volatility Forecast ================================================================================ - -------------------------------------------------------------------------------- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec - -------------------------------------------------------------------------------- 67% 70% 60% 46% 38% 39% 39% 40% 39% 46% 55% 56% - -------------------------------------------------------------------------------- ================================================================================ We believe that the implied volatility level for natural gas presented in Exhibit 17 is indicative of the long-term market implied volatility level for natural gas, but acknowledge that short-term volatility may vary substantially from that level. COMMODITY PRICE CORRELATION The correlation coefficient between the two underlying commodities is another critical input to the spread option value. All other things equal, lower correlation coefficients will produce higher volatility premiums. Regional short-term power and gas price correlation coefficients tend to average approximately 30% over terms of one year or longer, but with potentially substantial month-to-month variation. As gas-fired generation becomes a larger percentage of a region's total gas demand, we would expect the long-term correlation to increase accordingly. In this analysis, we have forecasted an average realized price correlation coefficient of 30% in MAIN, realizing that short-term imbalances are likely to continue, making this price relationship somewhat variable month-to-month. We have observed that a typical options' volatility premium increases by about 7% when the correlation coefficient changes from 30% to 0%. POWER MARKET AND VALUATION RESULTS In order to forecast the regional power market implied volatility, we define power markets by trading hubs, pricing points, and available financial instruments. For this analysis, we mainly used the ComEd pricing history and observed volatility, while referencing the adjacent pricing points as provided in Exhibit 18. - -------------------------------------------------------------------------------- Proprietary & Confidential 35 [LOGO] PACE | Global Energy Services Exhibit 18: Regional Power Trading Markets ================================================================================ Financial Markets Development --------------------------------------------------- Options Futures Forwards Spot --------------------------------------------------- MAP OF REGIONS REFERRED Cinergy Liquid Liquid Liquid Liquid TO IN CHART. --------------------------------------------------- ComEd Fair Liquid --------------------------------------------------- Ameren Fair Fair --------------------------------------------------- MAIN North Fair --------------------------------------------------- MAIN South Fair --------------------------------------------------- ================================================================================ The regions shown in Exhibit 18 are physically well interconnected, and are financially highly integrated. The major indicator for integration of the regional trading markets is the correlation coefficient between the spot market power prices. The correlation coefficients range from as high as 99% between ComEd and Cinergy, to 96% between Ameren and Cinergy, and ComEd, and approximately 80% for the remainder of the cross correlation. The three-tiered structure of price correlation is explained by the different liquidity levels for different pricing points, and to perhaps a lesser extent by the variance in sub-regional supply demand balance and physical flow constraints. Because of the high correlation level between Cinergy and ComEd, we relied largely on the use of both a smoothed measurement (20-day average) on observed spot market volatility and implied volatility as reflected in the Cinergy options quotes with minor adjustments reflecting information from other financial products to estimate anticipated implied volatility levels at Com Ed. We also assume the portfolio to be fully hedged by selling into the term (3 months or less) and seasonal (4-12 month) forwards or corresponding options markets, and correspondingly those two term structures are reflected in the volatility term structure and value calculations. The resultant 2001 Com Ed monthly term market implied volatility forecast is detailed in Exhibit 19 below. Exhibit 19: Com Ed 2001 Term Power Market Implied Volatility Forecast ================================================================================ --------------------------------------------------------------------------- Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec --------------------------------------------------------------------------- 101% 101% 67% 54% 76% 123% 105% 123% 102% 65% 63% 73% --------------------------------------------------------------------------- ================================================================================ Exhibit 19 above shows a 2001 average annual power implied volatility estimate based on un-weighted values, averaging 88%. The implied volatility values used in the option valuation analysis reflects our projected volume-weighted volatilities, which increase the average to 117% - -------------------------------------------------------------------------------- Proprietary & Confidential 36 [LOGO] PACE | Global Energy Services for 2001. This implied volatility level is reduced by 5% per annum over the first five years of the Study Period, reflecting a liquidity factor discount that is expected to reduce average implied volatility levels by over 25% as the market's mature, bid-ask spreads narrow and liquidity increases. Offsetting this projected decline in the volatility curve is a projected 10% increase over the valuation horizon attributable to a projected declining reserve margin.(26) Pace utilizes a 50% correlation coefficient to relate percentage annual declines in reserve margin to increases in projected volatility. Thus, if reserve margin is projected to decline by 10% from its base year level (e.g., 20% to 18%), the impact on volatility is projected to be a 5% increase. Key volatility value drivers, including commodity prices, market implied volatilities, and variable O&M are illustrated in Exhibit 20. Throughout the valuation horizon, the portfolio will mostly operate in summer peak months, realizing relatively high power prices and price volatilities, but relatively low natural gas prices and price volatilities. Exhibit 20: Forecast of Key Volatility Drivers ================================================================================ --------------------------------------------------------------------- Average Realized Average Power Realized Average Average Market Fuel Market Realized Realized Variable Implied Implied Power Price Fuel Price O&M Year Volatility Volatility $/MWh $/MMBtu $/MWh --------------------------------------------------------------------- 2001 117% 39% 529.28 5.14 1.20 --------------------------------------------------------------------- 2002 112% 39% 424.30 3.98 1.20 --------------------------------------------------------------------- 2003 105% 39% 425.36 3.42 1.20 --------------------------------------------------------------------- 2004 102% 39% 414.28 3.14 1.20 --------------------------------------------------------------------- 2005 98% 39% 272.94 2.95 1.20 --------------------------------------------------------------------- 2006 100% 39% 234.65 2.80 1.20 --------------------------------------------------------------------- 2007 101% 39% 273.88 2.70 1.20 --------------------------------------------------------------------- 2008 100% 39% 297.27 2.67 1.20 --------------------------------------------------------------------- 2009 102% 39% 277.83 2.66 1.20 --------------------------------------------------------------------- 2010 102% 39% 300.71 2.65 1.20 --------------------------------------------------------------------- 2011 101% 39% 336.87 2.67 1.20 --------------------------------------------------------------------- 2012 102% 39% 263.21 2.66 1.20 --------------------------------------------------------------------- 2013 102% 39% 184.19 2.57 2.38 --------------------------------------------------------------------- 2014 102% 39% 170.89 2.60 2.38 --------------------------------------------------------------------- 2015 104% 39% 144.00 2.60 2.38 --------------------------------------------------------------------- 2016 104% 39% 179.94 2.60 2.38 --------------------------------------------------------------------- 2017 103% 39% 153.24 2.63 2.94 --------------------------------------------------------------------- 2018 102% 39% 136.74 2.64 3.50 --------------------------------------------------------------------- 2019 103% 39% 140.61 2.65 3.50 --------------------------------------------------------------------- 2020 104% 39% 168.36 2.65 3.50 --------------------------------------------------------------------- 2021 104% 39% 144.08 2.67 3.50 --------------------------------------------------------------------- 2022 104% 39% 170.38 2.67 3.50 --------------------------------------------------------------------- 2023 103% 39% 172.45 2.65 3.50 --------------------------------------------------------------------- 2024 104% 39% 180.69 2.67 3.50 --------------------------------------------------------------------- 2025 104% 39% 181.51 2.70 3.50 --------------------------------------------------------------------- 2026 105% 39% 160.11 2.71 3.50 --------------------------------------------------------------------- ================================================================================ - ---------- 26 Reserve Margin = (Total Capacity - Peak Demand) / Peak Demand. - -------------------------------------------------------------------------------- Proprietary & Confidential 37 [LOGO] PACE | Global Energy Services INSURANCE When an option is sold that utilizes the physical asset as a natural hedge, the asset owner is well advised to protect the plant against unexpected outage risk. Therefore, we have incorporated into this analysis the cost of insuring the plant against outages, and have priced this product at 1/15th that of a daily power call option, reflecting the incremental insurance premium associated with portfolio, versus stand-alone generation assets. This insurance cost has been deducted from the option sales revenues, to provide net of insurance option values in all volatility valuations. OTHER VOLATILITY VALUE MEASURES Daily call options offer increased exercise opportunities to the owner, and provide greater upside value by virtue of daily market price spikes relative to traditional options on futures / forwards contracts. For these reasons, daily options command a relatively high premium, typically in the range of two to three times as high as equivalently struck monthly options. An analysis of the potential value attainable though sales of daily power call options(27) can also be conducted for the asset. This type of option sale, however lucrative compared to a spark spread option, presents more risk to the asset, as the fuel position is not fully hedged. The major fuel risk associated with these assets is in an instance when (1) a daily call is sold, (2) the options holder does not call upon the plant to dispatch, and (3) the plant is uneconomical given market power prices. In this instance, the plant will have gas supply obligations that must be resold, potentially at a loss.(28) Other volatility value extraction measures include spark spread or single commodity trading of positions in efforts to outperform market forecasts. This activity, however profitable it may be in the short-term, is extremely risky in nature and less likely to be sustained over time. - ---------- 27 A daily power call for peak hours only, exercisable once per weekday for the following day's capacity output. 28 A daily put option on gas or a swing supply purchase contract could insure this risk at a cost. - -------------------------------------------------------------------------------- Proprietary & Confidential 38 [LOGO] PACE | Global Energy Services ================================================================================ MARKET AREA DEFINITION AND TRANSMISSION ================================================================================ Pace will model the MAIN region in its entirety, as well as those operating systems within one transmission wheel of the Commonwealth Edison ("ComEd") sub-region including portions of the Mid-Continent Area Power Pool ("MAPP") and East Central Area Reliability Council ("ECAR"). The ComEd service area is the dominant demand center in this region encompassing all of Chicago and the surrounding area and supplying 41% of peak demand in the region. Pace will model the region as five distinct, yet interconnected utility sub-regions, three within MAIN, one in MAPP, and one in ECAR.(29) The MAIN system encompasses portions of Wisconsin, Michigan, Missouri and the majority of Illinois. Based on an analysis of wholesale power price characteristics and existing transmission transfer capabilities, Pace assumes three major intra-regional market areas of MAIN: Wisconsin Upper Michigan System ("WUM"), Northern Illinois ("NI"), (also referred to as ComEd), and South MAIN ("SMAIN")(30) while capturing the existing transfer capability between the subregions. Exhibit 21 lists the primary utility companies in MAIN and their respective subregional locations. Exhibit 21: MAIN Sub-Regions and Major Utility Companies ================================================================================
- ------------------------------------------------------------------------------------------------- NI (ComEd) WUM SMAIN - ------------------------------------------------------------------------------------------------- Commonwealth Edison Co. Wisconsin Public Service Co. Ameren Wisconsin Power & Light Central Illinois Light Co. Wisconsin Electric Power Co. Electric Energy, Inc. Madison Gas & Electric Co. Geneseo Municipal Utilities Upper Peninsula Power Co. Illinois Municipal Electric Agency Menasha Electric & Water Utilities Illinois Power Co. Manitowoc Public Utilities Rochelle Municipal Utilities Kaukauna Electric & Water Dept. Southern Illinois Power Coop Oconto Electric Coop Soyland Power Coop, Inc. Wisconsin River Power Co. Springfield Water, Light & Power Central Electric Power Coop Columbia Water & Light Dept. NE Missouri Electric Power Coop - -------------------------------------------------------------------------------------------------
================================================================================ Pace will also explicitly model the two sub-regions that are directly interconnected with ComEd. These two sub-regions and their major operating systems are outlined in Exhibit 22. - ---------- 29 Collectively, Pace will refer to the five as the "First Tier" sub-regions. 30 The East Missouri ("EMO") and South Central Illinois ("SCI") sub-regions have been combined to create SMAIN due to increased coordination and dependence following the merger between Union Electric and Central Illinois Public Service. Accordingly, Pace will simulate the three sub-regions of NI, WUM, and SMAIN. - -------------------------------------------------------------------------------- Proprietary & Confidential 39 [LOGO] PACE | Global Energy Services Exhibit 22: Other First Tier Sub-Regions and Major Utility Companies ================================================================================ --------------------------------------------------------- IOWA OECAR --------------------------------------------------------- Alliant West Indiana-Michigan Power Co. --------------------------------------------------------- Mid-American Energy Northern Indiana Public Service --------------------------------------------------------- Muscatine Power & Water Indiana-Michigan Power Co. --------------------------------------------------------- Exhibit 23 illustrates the MAIN region and its major investor-owned utility ("IOU") service areas as well as those portions of MAPP and ECAR that are directly interconnected with ComEd. Exhibit 23: MAIN Regional Map with Major IOUs ================================================================================ MAP ILLUSTRATING THE MAIN REGION AND ITS MAJOR INVESTOR-OWNED UTILITY SERVICE AREAS. ================================================================================ Exhibit 24 provides an overview of system coincident peaks, net energy for load, and total installed capacity by Pace's modeled subdivision of the MAIN power market. - -------------------------------------------------------------------------------- Proprietary & Confidential 40 [LOGO] PACE | Global Energy Services Exhibit 24: Overview of System Coincident Peaks ================================================================================ - -------------------------------------------------------------------------------- 2001 2001 2001 2001 Summer Winter Estimated Installed Peak Peak Net Energy Summer Demand Demand for Load Capacity Sub-region (MW) (MW) (GWh) (MW) - -------------------------------------------------------------------------------- WUM 12,699 10,129 63,291 11,009 - -------------------------------------------------------------------------------- NI 18,737 14,946 93,386 24,496 - -------------------------------------------------------------------------------- SMAIN 19,619 15,649 97,783 21,235 - -------------------------------------------------------------------------------- OECAR 6,074 5,492 35,565 8,292 - -------------------------------------------------------------------------------- IOWA 7,941 6,161 41,481 9,007 - -------------------------------------------------------------------------------- TOTAL 65,070 52,377 331,506 74,039 - -------------------------------------------------------------------------------- ================================================================================ Exhibit 25 provides a schematic topology of the intra-regional transfer capability for the simulated region. The nature of both the inter-and intra-regional transactions are described below: o Intra-regional Transmission Transfer Capability. As depicted in Exhibit 25, the arrows represent total transfer capability between the sub-regions. The transfer capability is based on information from utility reports of interconnection ratings and historical inter-utility transfers (various operational and power quality constraints may prevent the utilities from using certain connections simultaneously). However, in some instances, the transfer capability was adjusted from these reports in order to maintain the calibration of Pace's dispatch model to historical inter-utility transfers. o Inter-regional Transaction Modeling Assumptions. The inter-regional transfers with utilities that are more than one wheel away from the MAIN power market are modeled on a net transaction basis (i.e., net purchases or sales). These assumptions, detailed in Exhibit 26, were developed based on review of historical wholesale transactions as reported to FERC for the years 1988 to 1998. - -------------------------------------------------------------------------------- Proprietary & Confidential 41 [LOGO] PACE | Global Energy Services Exhibit 25: Assumed Intra-regional Transmission Constraints ================================================================================ SCHEMATIC DRAWING OF THE TOTAL TRANSFER CAPABILITY BETWEEN SUB-REGIONS. * Sales to PJM from NI are wheeled through ECAR. * Due to the addition of Lockport-Lombard 345 kV double circuit in-service on June 5, 2000, the export capability from NI to WUM has increased by 1,700 MW. The transfer capability from WUM to NI was unaffected by the Lockport-Lombard transmission lines. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 42 [LOGO] PACE | Global Energy Services Exhibit 26: Inter-regional Transactions Limits ================================================================================ ---------------------------------------------- From To Summer MW Winter MW ---------------------------------------------- NI WUM 3,000 3,100 ---------------------------------------------- NI SMAIN 3,000 3,500 ---------------------------------------------- NI IOWA 1,200 2,100 ---------------------------------------------- NI OECAR 500 500 ---------------------------------------------- SMAIN NI 1,500 3,300 ---------------------------------------------- WUM NI 1,600 1,700 ---------------------------------------------- IOWA NI 1,600 1,700 ---------------------------------------------- OECAR NI 500 500 ---------------------------------------------- ================================================================================ REGULATORY STATUS Illinois Illinois' current regulatory status is excellent for the development and operation of merchant power generation. Specifically: o Retail market deregulation began for the state's non-residential customers in October 1999 with full retail access phased in for all customers by May 2002. The supplier may be the current electric utility, another Illinois electric utility, or an alternative retail electric supplier certified by the Illinois Commerce Commission. o The state's largest utility, ComEd, has divested its fossil generation, paving the way for a liquid and truly competitive wholesale generation market. o Other state utilities are far along in the process to full divestment via internal restructuring or acquisition by third parties. Illinois is one of the leaders in deregulation after California and Pennsylvania. In December 1997, the state legislature passed "The Electric Service Customer Choice and Rate Relief Act of 1997". This act set out a phase-in schedule for retail open access with some industrial and commercial customers beginning in October 1999, all other non-residential customers by January 2001, and all consumers phased in by May 2002. Up until final implementation in 2002 for residential customers, a number of rules determine which customers are eligible for participation in deregulation. Further, the bill required a 15% rate cut beginning August 1998 for ComEd and Illinois Power customers saving customers over $200 million. Additional rate cuts, designed to levelize the residential rates between utilities, have also been mandated. Very few customers have switched suppliers in central Illinois, but about 40 percent of eligible customers have shopped elsewhere in Chicago. Due to a disparity in profit margins and the fact that Central Illinois Light Company ("CILCO") has the lowest rates in the state, there has been little interest outside of the Chicago Metro region. Both the state legislature and the Illinois Commerce Commission, which has regulatory authority over electrical utilities, have set guidelines to protect customers and promote competition once the electricity sector is deregulated. In July of 1999, legislation SB24 was enacted by the state - -------------------------------------------------------------------------------- Proprietary & Confidential 43 [LOGO] PACE | Global Energy Services legislature to amend the restructuring law. The rate cap for utilities was increased by 2%, cogeneration was promoted and Commonwealth Edison was required to allocate $250 million to a special environmental initiatives and energy efficiency fund. The Illinois Commerce Commission approved an "Hourly Energy Pricing" program for non-residential customers and has also issued a ruling that prohibits the exploitation of the name, reputation or logo of utilities in advertising or marketing. Activity by the utilities is also strengthening competition. Voluntary divestiture is occurring at a rapid pace. ComEd, in the nations' largest generation asset sale, recently sold 9,772 MW of non-nuclear facilities to Edison Mission Energy for $4.8 billion. In May 2000, Ameren transferred its Illinois generating assets to an unregulated subsidiary, AmerenEnergy Generation Company, which initially held 5,400 MW of generating capacity. Illinois Power completed the sale of its 950 MW Clinton Nuclear Power Station to AmerGen Energy Company in December 1999. Pace strongly believes that the independence resulting from the separation of generation from the still regulated transmission and distribution activities will promote wholesale competition and facilitate customer choice. Mergers and acquisitions have also occurred recently, indicating the increased competition and opportunity in the area. Ameren was created in 1997 when Illinois-based CIPSCO and Missouri-based Union Electric merged. While Ameren is intent on its core utility business, it has also expanded into energy marketing and energy information services. In October 1999, AES acquired CILCO, forming AES CILCO. In recent years, AES CILCO has built a number of natural gas-fired generating facilities in Illinois in anticipation that CILCO will continue to enroll additional customers in a deregulated Illinois market. AES has also acquired New Energy Ventures, a power marketer and client services firm. In October 2000, Unicom Corporation, the parent company of ComEd, and PECO Energy Company completed their merger to create Exelon Corporation, one of the nation's largest electric utilities, with more than $12 billion in annual revenues. Exelon Corporation is headquartered in Chicago and distributes electricity and gas to approximately five million customers in Illinois and Pennsylvania. MidAmerican has merged with independent power producer CalEnergy. Dynegy, who is among the top five energy marketers, recently purchased Illinova, including its utility subsidiary Illinois Power. These companies are looking for opportunities in the deregulated market and have been active in promoting deregulation. CILCO instituted a customer choice program for commercial and industrial customers in October 1999 with residential customers becoming eligible to choose their electric supplier from May 2002. Michigan Detroit Edison and Consumers Energy, which serve 90% of Michigan's electricity consumers, have voluntarily started the implementation of retail choice within their respective service territories. Detroit Edison and Consumers Energy's voluntary retail access plan will be implemented in three phases. Currently in the second phase, all consumers with a load of 150 MW and greater are allowed to select their supplier. The third phase, providing retail access to all consumers will be fully implemented by January 2002. - -------------------------------------------------------------------------------- Proprietary & Confidential 44 [LOGO] PACE | Global Energy Services In 1999, Michigan's electricity utilities engaged in significant merger and acquisition activities. In January 1999, Great Lakes Electricity Co-op merged with Top O'Michigan Electric Co-op. In June 1999, New Centuries Energies merged with Northern States Power. In May 2001 Detroit Edison completed its merger with MCN Energy. During the 2000 session, the Michigan Public Service Commission (the "Michigan PSC") issued a series of orders to implement the restructuring legislation, which was signed into law on June 3 2000. In the orders, the Michigan PSC directed Consumers Energy and Detroit Edison to file revised tariffs to implement retail access programs; investor-owned utilities, other than Detroit Edison and Consumers Energy, and cooperatives that have any customers with a peak load of 1 MW or more, to file restructuring plans to implement retail access. The Michigan PSC also required its own staff to consult with utility owners, and other stakeholders to develop standards for the interconnection of merchant plants. The Michigan PSC also required utilities to file reports when they learn of any reductions in federal funding for low-income and energy assistance programs, and electric generating facilities must file reports on compliance with all applicable federal Environmental Protection Agency (the "EPA") regulations governing mercury emissions. The Michigan PSC also issued an order that established the framework for alternative electric suppliers to participate in retail electric markets under the restructuring law. In January of 2001, the Michigan PSC issued a final order authorizing Detroit Edison to securitize $1.77 billion in costs by issuing bonds. The refinancing will allow Detroit Edison to implement a 5% reduction in rates. Missouri Missouri's current `on-hold' regulatory status may not provide interesting opportunities for the development and operation of new power generation in the near future. In particular, Missouri's significantly inexpensive electricity deters legislators and other key industry participants from pursuing restructuring activities. In addition, the Missouri Public Service Commission (the "Missouri PSC") is not enthusiastic about the implications of restructuring citing other states' examples where electricity rates increased after the implementation of deregulation and restructuring plans. Missouri is not actively pursuing any power sector restructuring plans. Legislation has been introduced every year in the Missouri General Assembly since 1997. However, none of the bills gathered enough support to reach the Governor's desk. Since the introduction of those bills, the Missouri PSC has been examining many of the important issues that are part of the debate over whether and how Missouri's electric industry should be restructured to introduce competition. In 1998, the task force established by the Missouri PSC issued its report identifying the key issues in the restructuring debate. As a result, of the diverse makeup of the task force, it did not provide a road map for implementing restructuring, but rather it offered options and recommendations to help shape future restructuring discussions. - -------------------------------------------------------------------------------- Proprietary & Confidential 45 [LOGO] PACE | Global Energy Services Low electricity rates coupled with increasing concerns of market participants over rising energy costs in the Western states are among the key factors in the slow progress of regulatory movement in Missouri. On the mergers and acquisitions front, the Missouri PSC and the Kansas Corporation Commission approved the proposed merger between Western Resources and Kansas City Power & Light ("KCP&L") in November 1999. However, in January 2000, KCP&L called off the merger citing the sharp drop in the value of the merged entity. KCP&L might be still viewed as a candidate for merger with potential interested parties looming, including Utilicorp and Ameren. Wisconsin The future of regulatory activities in Wisconsin became uncertain particularly after the Wisconsin Public Service Corp. ("WPS") announced it withdrew its corporate restructuring plan filed with the Wisconsin Public Service Commission. WPS cited customer identification with the electric shortages and high prices that plague California. Whether WPS will revise its proposal and refile it is unknown at this time. WPS's plan, filed in December 2000, included the transfer of approximately 1,200 MW of wholly owned non-nuclear capacity into an unregulated generating company. The initiative was an attempt to jump-start competition in Wisconsin while allowing WPS to retain its generating units and continue to be a market player in the state. Over the past fewer summers, Wisconsin has become close to not having adequate supply, for which large users, including industrials and large commercial customers revealed a serious concern, especially if power reliability becomes the responsibility of out-of-state power suppliers. In response to concerns relating to the reliability of service in Wisconsin, WPS was directed to ensure that necessary infrastructure improvements are made. Therefore, the implementation of retail competition has been put on hold. No timetable has been established as to if or when that issue will be addressed. Two bills passed by the Wisconsin legislature in the last two years address some other restructuring issues. Wisconsin Act 204 (enacted in May 1998) requires Wisconsin transmission owning utilities to join an ISO by June 30, 2000. The act also streamlined the review and approval process and established time limits on the review of merchant power plants proposed by Independent Power Producers ("IPPs"). Wisconsin Act 9, which became law in October 1999, provides for fewer restrictions on non-utility investments by electric utilities, for those utilities that divest their transmission assets to a state transmission company by January 1, 2001. Several of the state's largest utilities are among those transmission-owning utilities that will divest their transmission assets to the American - -------------------------------------------------------------------------------- Proprietary & Confidential 46 [LOGO] PACE | Global Energy Services Transmission Company LLC ("ATCLLC") that will become effective January 1, 2002. ATCLLC will, in turn, join the Midwest ISO. Midwest ISO Most of the utilities in the region have supported emerging market structures to support deregulation and retail competition. As the Midwest ISO received regulatory approval in 1998, much of its operating infrastructure has been assembled. This ISO is the largest independent transmission system operator in the nation and is comprised of 14 electric utility companies covering more than 240,000 miles in 14 Midwestern states. The ISO will manage the flow of electricity in the Midwest region it serves and is committed to facilitating the smooth flow of electricity from provider to user. The ISO began initial operations in June 2001 and is scheduled to be fully operational by December 15, 2001. Midwest RTO On December 20, 1999, FERC issued its Order No. 2000. Order 2000 requires all public utilities that own, operate or control interstate electric transmission to file by October 15, 2000, a proposal for a Regional Transmission Organization ("RTO"), or, alternatively, a description of any efforts made by the utility to participate in an RTO, the reasons for not participating and any obstacles to participation, and any plans for further work toward participation. The RTOs are scheduled to be operational by December 15, 2001. Commonwealth Edison, CILCO, Ameren (the holding company of CIPSCO), and Illinois Power have announced their intent to join either the Midwest ISO or the Alliance RTO. Each RTO is designed to increase system coordination and improve reliability through efficient scheduling of transactions as well as transmission and generation unit maintenance. The RTO will provide a framework for low cost energy to flow throughout the combined transmission network, making it easier for both wholesale and retail transactions to take place over a broader market area. This increased access will allow more participants to compete effectively in the once monopoly controlled markets. The Midwest ISO and the Alliance RTO are implementing the Inter-RTO Cooperation ("IRCA") to enhance their system reliability further. POWER MARKETING AND TRADING ACTIVITY As reported by power marketers to FERC in 1997, and outlined in Exhibit 27, there were over 40,000 GWh of electricity traded in the Midwest, equating to 4,300 MW on average during peak hours. Between 1995 and 1998, trading in the Midwest experienced significant growth. However, in 1999 reported Midwest power trading decreased slightly from 1998 levels. Pace believes that the reduced power trading volumes in the Midwest in 1999 do not represent decreased wholesale market activity in the region, but represents decreased power marketers reporting. Due to confidentiality concerns, and to a lesser extent due to a newly imposed fee on reported transactions by FERC, power marketers minimize the reporting of their transactional - -------------------------------------------------------------------------------- Proprietary & Confidential 47 [LOGO] PACE | Global Energy Services volumes, while between 1995-1998, power marketers were motivated to project themselves as major participants in the region, and consequently they maximized the reported volume of transactions. The MAIN electricity market is an actively traded market for wholesale power transactions. Significant long-term capacity transfers take place between and within the NERC sub-regions of MAIN. On a daily non-firm basis, economy energy markets are active with lower cost utilities selling excess power supplies at or near their marginal cost of production to utilities with higher incremental costs. Exhibit 28 summarizes the historical net wholesale purchases and sales for each of the four sub-regions. Several competing electronic marketplaces for power focused on the MAIN power market have been established: o Enporion - whose initial members include Allegheny Energy, Inc., XCEL Energy (Northern States Power, Southwestern Public Service, and Public Service of Colorado), Allete (formerly Minnesota Power), and PPL Corp. o Pantellos - whose initial members include American Electric Power, Carolina Power & Light, Cinergy Corp., Consolidated Edison, Dominion Resources, DTE Energy, Duke Energy, Edison International, El Paso Energy, Entergy, FirstEnergy Corp., FPL Group, GPU, Ontario Power Generation, PG&E Corporation, Public Service Enterprise Group, Reliant Energy, Sempra Energy, Southern Company, TXU, and Commonwealth Edison. o eSpeed - whose equity owners include Dominion Resources, TXU, Willams, Dynegy, Koch Energy Trading, Coral Energy, and Cantor Fitzgerald. o Several electronic exchanges operated by a single power marketer including Enron Online and Dynegydirect. o UtilityFrontier - an exchange for members of the American Public Power Association. Finally, in a partnership with Commonwealth Edison, Automated Power Exchange Inc. ("APX") opened the APX Illinois Market, an internet-based exchange for commercial and wholesale electricity buyers and sellers in the Midwest. Each of these power exchanges will allow wholesale and retail trading through a computer system that will facilitate informed management of power supply and increase market liquidity. The establishment of the APX and other power exchanges will facilitate trading in the MAIN market by standardizing bids, providing instant price discovery, and efficient bid matching. Currently, there is also a NYMEX futures contract with the delivery point defined as Into Cinergy. However, the over-the-counter market products are more actively traded. The liquidity in MAIN is evident in the many quoted spot market prices referenced in trade publications, such as Dow Jones, Bloomberg PowerLines, Power Markets Week, and MegaWatt Daily. Pricing points for these indices include, Northern MAIN, Southern MAIN, Into ComEd, Ameren, CILCO/IP and the ComEd Border. - -------------------------------------------------------------------------------- Proprietary & Confidential 48 [LOGO] PACE | Global Energy Services Exhibit 27: Power Marketers Volumes Traded in MAIN from 1997 to 1999 ================================================================================ BAR GRAPH DISPLAYING POWER MARKETERS VOLUMES TRADED IN MAIN FROM 1997 TO 1999 Exhibit 28: MAIN Net Wholesale Purchases/(Sales) - MWh ================================================================================
- ---------------------------------------------------------------------------------- Sub-region 1990 1991 1992 1993 1994 - ---------------------------------------------------------------------------------- EMO (808,156) (1,033,412) 1,736,376 3,612,303 3,327,947 - ---------------------------------------------------------------------------------- NI (5,619,593) (699,115) (1,867,162) (12,566,153) (6,436,010) - ---------------------------------------------------------------------------------- SCI (121,408) (1,748,945) 2,215,128 816,256 3,510,408 - ---------------------------------------------------------------------------------- WUM (156,198) (537,587) 2,751,018 2,949,393 3,760,953 - ---------------------------------------------------------------------------------- Grand Total (6,705,355) (4,019,059) 4,835,360 (5,188,201) 4,163,298 - ---------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Sub-region 1995 1996 1997 1998 1999 - --------------------------------------------------------------------------------- EMO 5,019,241 5,144,526 3,939,301 1,118,919 1,152,666 - --------------------------------------------------------------------------------- NI (8,679,938) (5,783,388) 1,280,226 5,960,847 (8,076,177) - --------------------------------------------------------------------------------- SCI 977,291 (2,770,420) 2,706,498 (1,136,103) (1,017,578) - --------------------------------------------------------------------------------- WUM 4,733,352 1,426,727 7,505,488 5,557,470 4,745,127 - --------------------------------------------------------------------------------- Grand Total 2,049,946 (1,982,555) 15,431,513 11,501,133 (3,195,962) - ---------------------------------------------------------------------------------
Source : RDI PowerDat. ================================================================================ Exhibit 29 illustrates the daily average peak power price in MAIN through April 2001. MAIN pricing was relatively stable until the summers of 1998 and 1999, which experienced price spikes resulting from the summer capacity shortages and higher than average weather conditions, in addition to confusion and speculation in the markets. After reaching average daily peak prices of over $2,500/MWh and $1,500/MWh in 1998 and 1999, respectively, summer peak hour prices came down to their 1997 levels, which were less than $40/MWh. However, due to overall high gas prices in the region, 2001 average daily prices have so far been above 2000 annual average daily peak prices by nearly 20%. Pace views such high average annual prices as unsustainable in the long term as new generation is added to restore supply/demand equilibrium and gas prices - -------------------------------------------------------------------------------- Proprietary & Confidential 49 [LOGO] PACE | Global Energy Services are expected to revert to their historical averages. Still, price spikes may continue to occur based on unit operations and outages, weather conditions, and high demands. Exhibit 29: Daily Average Peak Pricing in MAIN ================================================================================ GRAPH SHOWING DAILY AVERAGE PEAK PRICING IN MAIN (IN $/MWh) FROM JANUARY 2, 1997 TO APRIL 2, 2001. - -------------------------------------------------------------------------------- Proprietary & Confidential 50 [LOGO] PACE | Global Energy Services Exhibit 30 provides the historical annual average prices and average summer peak prices for 1997-2001.(31) After nearly tripling in 1998 from 1997, average peak summer prices reverted to their more stable levels below $40/MWh. However, average annual peak prices in 2000 are close to summer peak prices, while the first quarter winter prices are significantly higher than 1997 annual prices due to high gas prices. As shown in Exhibit 30, there were a record number of 29 days in 2001 where average peak prices were above $50/MWh. Exhibit 30: MAIN Peak Summer Power Pricing Data (1997-2001) ================================================================================
- ------------------------------------------------------------------------------------------ Year Avg. Peak Average # Of Days # Of Days # Of Days Avg. Peak without Summer Price Annual Price >$50/MWh >$100/MWh >$150/MWh days >$100/MWh - ------------------------------------------------------------------------------------------ 1997 33.64 25.87 10 3 1 24.37 - ------------------------------------------------------------------------------------------ 1998 104.23 50.17 23 11 9 27.90 - ------------------------------------------------------------------------------------------ 1999 51.01 46.11 23 12 9 27.10 - ------------------------------------------------------------------------------------------ 2000 38.87 37.72 24 2 1 36.35 - ------------------------------------------------------------------------------------------ 2001 N/A 44.41 29 0 0 44.41 - ------------------------------------------------------------------------------------------
Source : Power Market Week ================================================================================ - ---------- 31 Includes data through April 2001. - -------------------------------------------------------------------------------- Proprietary & Confidential 51 [LOGO] PACE | Global Energy Services ================================================================================ ELECTRICITY DEMAND IN MAIN ================================================================================ Electricity prices in a given market are highly dependent on electricity demand. To ensure the accuracy of this important variable, Pace developed an independent demand forecast for each of the three sub-regions in MAIN. This section presents the following: o Existing demand profile; o Published demand forecasts of regional utilities; o Pace's forecast of future peak and energy demand; and o Key input assumptions underlying the market study. LOAD FORECASTING METHODOLOGY Pace's independent demand forecast was developed according to the methodology illustrated in Exhibit 31. This methodology has two primary components. The first is the use of econometric models to forecast annual peak demand and energy levels based on changes in population, employment, income, and other factors. The second component of the methodology is the translation of historical hourly demand levels and forecasted peak demands to create predicted hourly load for each forecast year. Typically, the most accurate means of projecting future demand is not realized solely by analyzing past trends in peak and energy demand, but by analyzing the underlying factors, which drive the consumption of electricity. This approach is often referred to as a "bottom-up" analytical approach. As shown in Exhibit 31, the foundation of Pace's load forecasting methodology is a bottom-up analytical approach. - -------------------------------------------------------------------------------- Proprietary & Confidential 52 [LOGO] PACE | Global Energy Services Exhibit 31: Pace Load Forecasting Methodology ================================================================================ - ---------- --------- POPULATION CONSUMERS | - ---------- --------- | Component 1 | | |Peak Demand and ------------------------------------------- |Energy Forecasts | | V | ------------ | Service Area | Population | ------------ | | | - ----------- | -------------- | Employment ------------]|[------------- Income | - ----------- | -------------- | | | - ----------- | -------------- | Seasonal ------------]|[------------- Historical | Factors | Growth Factors | - ----------- | -------------- | V | ------------------- | Multi-Variable | Regression Analysis | ------------------- | | | V | ---------------- | Peak and | Energy Forecasts | ---------------- | ........................|......................................V V ----------- ------------- | Component 2 Hourly Load Historical | Hourly Load Forecast [--------Hourly Demand | Forecast ----------- Levels | ------------- V ================================================================================ Pace generated its demand forecast based on the historical relationships between regional demand and multiple historic economic indicators (examples: population, employment, and income) between 1989-1998. To generate this demand forecast, Pace: o Established the historical relationship between net energy for load, population, employment, and disposable income in MAIN. Pace's regression analysis indicated a strong correlation between electricity demand and these economic indicators. Specifically, Pace's regression analysis produced adjusted R(2), or "fit", in MAIN of 0.981, 0.911, and 0.987 for WUM, SMAIN-MO, and NI/SMAIN-IL, respectively. o Forecast a base demand case based on the historical trends of population, employment, and income. o Calculated seasonal energy and summer/winter peaks according to historical usage patterns and load factors. Other issues considered with respect to Pace's independent forecast include: o Normal weather conditions are assumed with no factors included to simulate extreme weather conditions. - -------------------------------------------------------------------------------- Proprietary & Confidential 53 [LOGO] PACE | Global Energy Services o The forecast incorporated all demand and energy reductions from utility dispatchable and non-dispatchable DSM programs as published in utility demand forecasts. Pace believes that this is a conservative assumption in that many DSM programs are extremely aggressive in future years and will most likely fall short of their stated goals. ENERGY DEMAND FORECAST RESULTS Pace developed an independent demand forecast for each of the three sub-regions in MAIN (i.e., NI, SMAIN, and WUM) based on current and projected economic conditions. Pace also utilized available forecasts for the inter-connected sub-regions of IOWA and OECAR. Exhibit 32 illustrates graphically Pace's backcast and forecast of the aggregated sub-regions in MAIN compared to the utilities' historical energy demand. The tabular results are shown in Exhibit 33. The summary of the demand forecast results are outlined below: o Pace expects that regional electricity demand growth will slow from historical long-term trends. Historically (1989-1999), MAIN demand has grown at an average annual rate of 2.26% per year. Pace forecasts that demand will grow in MAIN at an average annual growth rate of 1.47% during the Study Period. o In the near-term (2000-2009), Pace forecasts a higher energy growth rate than the currently filed utility forecasts for MAIN. Pace expects a 1.93% average annual growth rate over the period, versus a utility forecast of 1.50%. o Pace expects that during the Study Period, electricity demand will grow at different levels among the sub-regions. SMAIN is expected to have the lowest annual rate of growth at 1.19% while WUM is expected to have the highest annual rate of growth at 1.76%. NI is expected to have 1.55% annual rate of growth. o Forecasts for the interconnected sub-regions of IOWA and OECAR reflect annual average growth rates of 1.89% and 2.14%, respectively, over the Study Period. - -------------------------------------------------------------------------------- Proprietary & Confidential 54 [LOGO] PACE | Global Energy Services Exhibit 32: Pace Aggregated Energy Demand Forecast (MAIN) ================================================================================ GRAPH OF PACE'S BACKCAST AND FORECAST OF THE AGGREGATED SUB-REGIONS IN MAIN COMPARED TO THE UTILITIES' HISTORICAL ENERGY DEMAND. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 55 [LOGO] PACE | Global Energy Services Exhibit 33: Pace MAIN Energy Demand Forecast ================================================================================ - -------------------------------------------------------------------------------- MAIN MAIN MAIN Utilities' Pace Pace Energy Forecastst Energy BackCast Energy Forecast (GWh) (GWh) (GWh) - -------------------------------------------------------------------------------- Historic Data - -------------------------------------------------------------------------------- 1989 194,535 201,350 1990 197,326 199,492 1991 205,880 202,353 1992 200,250 204,467 1993 208,340 208,575 1994 213,803 211,775 1995 224,380 226,527 1996 234,300 230,120 1997 236,143 234,872 1998 244,073 244,651 1999 243,278 244,701 - -------------------------------------------------------------------------------- Forecast - -------------------------------------------------------------------------------- 2000 248,310 249,532 2001 253,096 254,460 2002 257,057 259,489 2003 261,223 264,619 2004 265,485 269,853 2005 267,645 275,193 2006 271,150 279,824 2007 274,563 284,535 2008 279,284 289,326 2009 284,000 294,201 2010 299,159 2011 303,610 2012 308,128 2013 312,715 2014 317,373 2015 322,101 2016 326,261 2017 330,476 2018 334,747 2019 339,074 2020 343,459 2021 346,876 2022 350,328 2023 353,815 2024 357,338 2025 360,896 2026 364,491 - -------------------------------------------------------------------------------- Growth Rate 1989 - 1999 2.26% 1.97% - -------------------------------------------------------------------------------- Growth Rate 2000 - 2009 1.50% 1.85% - -------------------------------------------------------------------------------- Growth Rate 2000 - 2026 1.47% - -------------------------------------------------------------------------------- ================================================================================ Pace expects that the MAIN region will have a continued strong annual demand growth averaging over 1.93% over the next 10 years. This is a conservative estimate in comparison with historical MAIN demand, specifically, from 1989 to 1999 MAIN demand increased at a rate of 2.26% per year. The MAIN energy forecast reflects an aggregation of Pace's independent view of sub-regional forecasts for SMAIN, NI, and WUM. As shown in Exhibit 34, SMAIN is expected to grow at an annual average rate of 1.19% from 96,234 GWh in 2000 to 130,928 GWh in 2026, NI is expected to have slightly higher average annual growth rate of 1.55% to reach 136,288 GWh in - -------------------------------------------------------------------------------- Proprietary & Confidential 56 [LOGO] PACE | Global Energy Services 2026, and WUM is expected to increase from year 2000 loads of 61,822 GWh to 97,275 GWh in 2026. This results in an average annual growth rate of 1.76% making it the highest average annual growth rate of the MAIN sub-regions. Exhibit 34: Pace's Sub-Regional Energy and Forecast for MAIN - GWh ================================================================================
- -------------------------------------------------------------------------------------------------------------- PACE'S ENERGY FORECAST UTILITIES' (GWh) ENERGY - -------------------------------------------------------------------------------------------------------------- NI SMAIN WUM Total Forecast - -------------------------------------------------------------------------------------------------------------- 2000 91,475 96,234 61,822 249,532 248,310 2001 93,386 97,783 63,291 254,460 253,096 2002 95,338 99,357 64,794 259,489 257,057 2003 97,330 100,956 66,333 264,619 261,223 2004 99,363 102,581 67,908 269,853 265,485 2005 101,440 104,233 69,521 275,193 267,645 2006 103,240 105,658 70,925 279,824 271,150 2007 105,073 107,104 72,358 284,535 274,563 2008 106,938 108,569 73,819 289,326 279,284 2009 108,837 110,054 75,310 294,201 284,000 2010 110,769 111,560 76,831 299,159 2011 112,503 112,906 78,200 303,610 2012 114,265 114,269 79,594 308,128 2013 116,054 115,648 81,013 312,715 2014 117,871 117,044 82,457 317,373 2015 119,717 118,457 83,927 322,101 2016 121,341 119,696 85,224 326,261 2017 122,988 120,948 86,541 330,476 2018 124,656 122,213 87,878 334,747 2019 126,347 123,491 89,236 339,074 2020 128,061 124,783 90,615 343,459 2021 129,397 125,787 91,692 346,876 2022 130,747 126,799 92,782 350,328 2023 132,111 127,819 93,886 353,815 2024 133,489 128,847 95,002 357,338 2025 134,881 129,884 96,132 360,896 2026 136,288 130,928 97,275 364,491 - -------------------------------------------------------------------------------------------------------------- Growth Rate 1989-1999 2.10% 2.17% 2.65% 2.26% 2.55% - -------------------------------------------------------------------------------------------------------------- Growth Rate 2000-2009 1.95% 1.50% 2.22% 1.85% 1.50% - -------------------------------------------------------------------------------------------------------------- Growth Rate 2000-2026 1.55% 1.19% 1.76% 1.47% - --------------------------------------------------------------------------------------------------------------
================================================================================ To simplify analysis for non-MAIN demand regions, Pace utilized available forecasts to depict demand for the sub-regions of IOWA and OECAR given their direct interconnect with the NI sub-region of MAIN. Specifically, annual demand forecasts for IOWA, consisting of the MidAmerican, Alliant West, and Muscatine Power & Water control areas, were extracted from the Mid-Continent Area Power Pool ("MAPP") 1999 MAPP Load and Capability Report. An annual energy forecast for OECAR was compiled by aggregating the Northern Indiana Public Service Company ("NIPS") forecast (as reported in the FERC Form 714) with Pace's independent forecast of demand in the service territory of the Indiana Michigan Power Company. Resulting forecasts are displayed in Exhibit 35. - -------------------------------------------------------------------------------- Proprietary & Confidential 57 [LOGO] PACE | Global Energy Services Exhibit 35: Annual Energy and Peak Demand Forecasts for Interconnected Sub-Regions ================================================================================
- ------------------------------------------------------------------------------------------ IOWA OECAR -------------------------------------------------------------------- Summer Winter Summer Winter Net Peak Peak Net Peak Peak Energy Demand Demand Energy Demand Demand Year (GWh) (MW) (MW) (GWh) (MW) (MW) - ------------------------------------------------------------------------------------------ 2000 40,851 7,821 6,035 34,753 5,935 5,338 2001 41,481 7,941 6,161 35,565 6,074 5,492 2002 42,398 8,117 6,298 36,343 6,207 5,612 2003 43,261 8,282 6,426 37,115 6,339 5,732 2004 44,145 8,451 6,521 37,902 6,473 5,821 2005 45,031 8,621 6,689 38,694 6,608 5,976 2006 45,896 8,787 6,817 39,518 6,749 6,103 2007 46,769 8,954 6,947 40,369 6,895 6,234 2008 47,608 9,114 7,033 41,241 7,043 6,334 2009 48,500 9,285 7,204 42,115 7,193 6,504 2010 49,409 9,459 7,339 43,011 7,346 6,642 2011 50,335 9,637 7,477 43,927 7,502 6,784 2012 51,279 9,817 7,575 44,865 7,662 6,891 2013 52,240 10,001 7,760 45,825 7,826 7,077 2014 53,219 10,189 7,905 46,807 7,994 7,229 2015 54,216 10,380 8,053 47,813 8,166 7,384 2016 55,233 10,574 8,159 48,843 8,342 7,502 2017 56,268 10,772 8,358 49,897 8,522 7,706 2018 57,322 10,974 8,514 50,977 8,706 7,872 2019 58,397 11,180 8,674 52,082 8,895 8,043 2020 59,491 11,389 8,788 53,214 9,088 8,173 2021 60,585 11,598 8,902 54,346 9,281 8,303 2022 61,679 11,807 9,016 55,478 9,474 8,433 2023 62,773 12,016 9,130 56,610 9,667 8,563 2024 63,955 12,241 9,295 57,823 9,873 8,740 2025 65,160 12,471 9,463 59,061 10,084 8,920 2026 66,388 12,705 9,634 60,327 10,299 9,104 - ------------------------------------------------------------------------------------------ Growth Rate 2000-2009 1.73% 1.73% 1.79% 1.94% 1.94% 2.00% - ------------------------------------------------------------------------------------------ Growth Rate 2000-2026 1.87% 1.87% 1.87% 2.13% 2.13% 2.13% - ------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 58 [LOGO] PACE | Global Energy Services Pace also developed the summer and winter peak demand for each sub-region based on historical sub-regional load factors. As shown in Exhibit 36, summer peak demand in the MAIN power market is forecast to increase from 50,066 MW in 2000 to 73,131 MW by 2026, an average annual growth rate of 1.47%. In the NI sub-region where the Project is located, summer peak demand is forecast to increase at an annual average rate of 1.55% between 2000 and 2026. Exhibit 36: Pace's Sub-Regional Peak Demand Forecast for MAIN - MW ================================================================================
- ------------------------------------------------------------------------------------------------------------------------ Pace NI SMAIN WUM Non-Coincident Peak - ------------------------------------------------------------------------------------------------------------------------ Year Summer Winter Summer Winter Summer Winter Summer Winter - ------------------------------------------------------------------------------------------------------------------------ 2000 18,353 14,640 19,308 15,402 12,404 9,894 50,066 39,935 2001 18,737 14,946 19,619 15,649 12,699 10,129 51,055 40,724 2002 19,128 15,258 19,935 15,901 13,000 10,370 52,063 41,529 2003 19,528 15,577 20,256 16,157 13,309 10,616 53,093 42,350 2004 19,936 15,902 20,582 16,417 13,625 10,868 54,143 43,188 2005 20,353 16,235 20,913 16,682 13,949 11,126 55,214 44,042 2006 20,714 16,523 21,199 16,910 14,230 11,351 56,143 44,783 2007 21,082 16,816 21,489 17,141 14,518 11,580 57,089 45,537 2008 21,456 17,115 21,783 17,376 14,811 11,814 58,050 46,304 2009 21,837 17,418 22,081 17,613 15,110 12,053 59,028 47,084 2010 22,224 17,728 22,383 17,854 15,415 12,296 60,023 47,878 2011 22,573 18,005 22,653 18,070 15,690 12,515 60,916 48,590 2012 22,926 18,287 22,927 18,288 15,970 12,738 61,822 49,313 2013 23,285 18,574 23,203 18,509 16,254 12,965 62,743 50,047 2014 23,650 18,864 23,484 18,732 16,544 13,197 63,677 50,793 2015 24,020 19,160 23,767 18,958 16,839 13,432 64,626 51,550 2016 24,346 19,420 24,016 19,156 17,099 13,639 65,460 52,215 2017 24,676 19,683 24,267 19,357 17,363 13,850 66,306 52,890 2018 25,011 19,950 24,521 19,559 17,632 14,064 67,163 53,573 2019 25,350 20,221 24,777 19,764 17,904 14,281 68,031 54,266 2020 25,694 20,495 25,036 19,970 18,181 14,502 68,911 54,968 2021 25,962 20,709 25,238 20,131 18,397 14,675 69,597 55,515 2022 26,233 20,925 25,441 20,293 18,616 14,849 70,289 56,067 2023 26,507 21,143 25,645 20,456 18,837 15,026 70,989 56,625 2024 26,783 21,364 25,852 20,621 19,061 15,204 71,696 57,189 2025 27,062 21,587 26,060 20,787 19,288 15,385 72,410 57,758 2026 27,345 21,812 26,269 20,954 19,517 15,568 73,131 58,334 - ------------------------------------------------------------------------------------------------------------------------ Growth Rate 2000-2009 1.95% 1.95% 1.50% 1.50% 2.22% 2.22% 1.85% 1.85% - ------------------------------------------------------------------------------------------------------------------------ Growth Rate 2000-2026 1.55% 1.55% 1.19% 1.19% 1.76% 1.76% 1.47% 1.47% - ------------------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 59 [LOGO] PACE | Global Energy Services Exhibit 37 provides a summary of Pace's forecast of energy and peak demand for the MAIN power market and the interconnected sub-regions of IOWA and OECAR. Between 2000 and 2026, energy demand is forecast to increase at an annual average rate of 1.60 % in the MAIN power market and the interconnected sub-regions of IOWA and OECAR, while summer peak demand and winter peak demand are forecast to increase by 32,251 MW and 26,037 MW respectively during the same period. Exhibit 37: Pace's Energy Demand and Peak Forecasts - MAIN & Interconnected Sub-Regions ================================================================================ - -------------------------------------------------------------- Summer Winter Peak Peak Energy Demand Demand Year (GWh) (MW) (MW) - -------------------------------------------------------------- 2000 325,136 63,822 51,308 2001 331,506 65,070 52,377 2002 338,230 66,387 53,439 2003 344,995 67,714 54,508 2004 351,901 69,067 55,530 2005 358,918 70,443 56,707 2006 365,238 71,679 57,703 2007 371,674 72,938 58,718 2008 378,175 74,207 59,671 2009 384,816 75,506 60,792 2010 391,578 76,828 61,859 2011 397,872 78,055 62,851 2012 404,272 79,301 63,779 2013 410,779 80,570 64,884 2014 417,399 81,860 65,927 2015 424,131 83,172 66,987 2016 430,336 84,376 67,876 2017 436,640 85,600 68,954 2018 443,046 86,843 69,959 2019 449,552 88,106 70,983 2020 456,165 89,388 71,929 2021 461,807 90,478 72,812 2022 467,485 91,572 73,700 2023 473,198 92,675 74,593 2024 478,990 93,793 75,499 2025 484,860 94,925 76,416 2026 490,811 96,073 77,346 - -------------------------------------------------------------- Growth Rate 2000-2009 1.89% 1.89% 1.90% - -------------------------------------------------------------- Growth Rate 2000-2026 1.60% 1.59% 1.59% - -------------------------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 60 [LOGO] PACE | Global Energy Services HOURLY LOAD FORECASTING The forecast of overall energy growth is not the only element needed to accurately characterize future energy demand. The characterization and replication of daily, weekly, and seasonal load variations significantly impact the usage, type, and cost of resources required by a utility system. The last step in Pace's load forecasting methodology is the projection of hourly demand values. Pace's methodology applies annual growth factors derived from our peak demand and energy forecasts to the actual 8,760 hours of demand occurring in a utility system. In this way, our market modeling system contains the highest level of detail to reflect not only the cost to serve certain levels of demand but also how hourly changes impact the use of different types of generation units. Specifically, hourly system needs and constraints are particularly critical when analyzing hourly distributions of market clearing prices. Pace uses an Hourly Load Module tool to translate annual peak and energy demand growth factors into future hourly demand for a given Study Period. The translation process is a two-step process: o Step 1: The first step involves aggregating actual utility hourly loads as reported to the FERC. This aggregation creates an integrated hourly system load profile for the MAIN market area. o Step 2: The second step involves applying annual growth factors and seasonal peak demand forecasts to the base system hourly load file (created in step 1) to create an hourly demand file for each year in the Study Period. Pace assumed that the system load shape that exists currently would be maintained throughout the Study Period. However, system load factor does change slightly as the result of applying annual peak and energy growth factors. As the relationship of peak demand and energy change, so will the system load factor and shape. - -------------------------------------------------------------------------------- Proprietary & Confidential 61 [LOGO] PACE | Global Energy Services ================================================================================ MAIN POWER GENERATION RESOURCES ================================================================================ The MAIN market is dominated by base-load coal-fired plants and large nuclear stations, which comprised approximately 71%(32) of the installed capacity in the region in 2001. For the most part, these generation resources operate at high capacity factors, have low capital costs (with the exception of various nuclear power stations), and are fueled by low priced fuels. Pace reviewed and assessed the existing and expected power generation resource mix for the MAIN region. This section presents the following: o Profiles of existing generation resources; o Determination of the fixed capital and operational costs of these resources; and o Outlines the assumptions underlying the type and cost of new capacity additions. DEMAND PROFILE In 1999, total energy demand in MAIN was 243,278 GWh, approximately 6% of total U.S. demand. Exhibit 38 lists the major utilities in the Midwest and their respective 1999 estimated summer and winter peak demand and annual retail sales. Exhibit 38: Major Utilities 1999 Demand ================================================================================ - -------------------------------------------------------------------------------- Peak Load Peak Load Retail Summer Winter Sales Company Name MW MW MWh - -------------------------------------------------------------------------------- Commonwealth Edison Co. 21,243 19,424 83,500,597 - -------------------------------------------------------------------------------- Ameren 10,021 8,559 33,565,723 - -------------------------------------------------------------------------------- Wisconsin Electric Power Co. 5,974 5,497 26,877,397 - -------------------------------------------------------------------------------- Illinois Power Co. 3,694 3,398 18,215,452 - -------------------------------------------------------------------------------- Wisconsin Power & Light Co. 2,397 2,181 9,504,473 - -------------------------------------------------------------------------------- Wisconsin Public Service Corp. 1,751 1,611 9,971,356 - -------------------------------------------------------------------------------- Central Illinois Light Co. 1,235 1,142 6,073,448 - -------------------------------------------------------------------------------- Electrical Energy, Inc. 1,731 1,592 7,013,929 - -------------------------------------------------------------------------------- Madison Gas & Electric Co. 1,731 1,558 2,916,533 - -------------------------------------------------------------------------------- Wisconsin Public Power Inc. 602 560 1,014,298 - -------------------------------------------------------------------------------- Central Electric Power Coop. 571 525 962,068 - -------------------------------------------------------------------------------- Soyland Power Coop, Inc. 494 454 832,332 - -------------------------------------------------------------------------------- Springfield Water, Light & Power 395 367 1,684,179 - -------------------------------------------------------------------------------- Total 51,839 46,868 202,131,785 - -------------------------------------------------------------------------------- Source: EIA-411 ================================================================================ - -------- 32 Summer Capacity. - -------------------------------------------------------------------------------- Proprietary & Confidential 62 [LOGO] PACE | Global Energy Services As shown in Exhibit 39, Pace developed an independent forecast of seasonal peak demand and net energy for load for purposes of the market simulation. Exhibit 39 indicates that Pace expects both summer peak demand and net energy for load to increase at an average rate of 1.88% per year over the next 9 years. Specifically, summer peak demand is projected to grow from 65,070 MW in 2001 to 75,506 MW by the year 2009. Net energy for load is expected to escalate from a base of 330,142 GWh in 2001 to 374,615 GWh by the year 2009. Exhibit 39: MAIN Demand and Energy Requirements Forecast ================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------ 2001 2002 2003 2004 2005 2006 2007 2008 2009 - ------------------------------------------------------------------------------------------------------------------------------------ Peak Demand Summer (MW) 65,070 66,387 67,714 69,067 70,443 71,679 72,938 74,207 75,506 - ------------------------------------------------------------------------------------------------------------------------------------ Peak Demand Winter (MW) 52,377 53,439 54,508 55,530 56,707 57,703 58,718 59,671 60,792 - ------------------------------------------------------------------------------------------------------------------------------------ Net Energy for Load (GWh) 331,506 338,230 344,995 351,901 358,918 365,238 371,674 378,175 384,816 - ------------------------------------------------------------------------------------------------------------------------------------ System Load Factor 58.16% 58.16% 58.16% 58.16% 58.16% 58.17% 58.17% 58.18% 58.18% - ------------------------------------------------------------------------------------------------------------------------------------ Summer Change (MW) 1,318 1,326 1,353 1,376 1,236 1,258 1,269 1,299 Winter Change (MW) 1,062 1,069 1,022 1,178 996 1,015 953 1,121 Energy Change (GWh) 6,723 6,765 6,906 7,017 6,320 6,436 6,502 6,640 Summer Change % 2.03% 2.00% 2.00% 1.99% 1.75% 1.76% 1.74% 1.75% Winter Change % 2.03% 2.00% 1.87% 2.12% 1.76% 1.76% 1.62% 1.88% Energy Change % 2.03% 2.00% 2.00% 1.99% 1.76% 1.76% 1.75% 1.76% - ------------------------------------------------------------------------------------------------------------------------------------ Avg. Summer Peak Growth (2001-2009) 1.88% Avg. Winter Peak Growth (2001-2009) 1.88% Avg. Energy Growth (2001-2009) 1.88% - ------------------------------------------------------------------------------------------------------------------------------------
* Includes interconnected sub-regions of IOWA and OECAR. ================================================================================ Also shown in Exhibit 39, the MAIN market had a load factor of over 58.16% in 2001. The load factor is expected to stay stable through 2009. Exhibit 40 illustrates that Pace is anticipating an overall system reserve margin during the summer months of 24.72% of peak demand in 2001. (Winter reserve margin projections are shown in Exhibit 41). Despite the addition of new merchant projects, reserve margins are expected to decline as demand absorbs excess supplies to reach 15.77% in 2009. - -------------------------------------------------------------------------------- Proprietary & Confidential 63 [LOGO] PACE | Global Energy Services Exhibit 40: MAIN Demand and Energy Reserve Margin Forecast - Summer ================================================================================
- ----------------------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 2006 2007 2008 2009 - ----------------------------------------------------------------------------------------------------------------- Net Peak Demand (MW) 65,070 66,387 67,714 69,067 70,443 71,679 72,938 74,207 75,506 - ----------------------------------------------------------------------------------------------------------------- Total Owned Capacity 74,966 75,995 78,099 78,099 78,099 79,466 80,355 82,239 82,827 Inoperable Capacity 0 0 0 0 0 0 0 0 0 Net Operable Capacity 74,966 75,995 78,099 78,099 78,099 79,466 80,355 82,239 82,827 Interruptible Demand 5,690 5,690 5,690 5,690 5,690 5,690 5,690 5,690 5,690 Net Capacity Purchases 500 500 300 300 300 -1100 -1100 -1100 -1100 Planned Capacity Reserve 81,156 82,185 84,089 84,089 84,089 84,056 84,945 86,829 87,417 - ----------------------------------------------------------------------------------------------------------------- Reserve Margin (MW) 16,086 15,797 16,375 15,022 13,645 12,377 12,007 12,622 11,911 Reserve Margin (%) 24.72% 23.80% 24.18% 21.75% 19.37% 17.27% 16.46% 17.01% 15.77% - -----------------------------------------------------------------------------------------------------------------
* Includes interconnected sub-regions of IOWA and OECAR. ================================================================================ Exhibit 41: MAIN Demand and Energy Reserve Margin Forecast - Winter ================================================================================
- ----------------------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 2006 2007 2008 2009 - ----------------------------------------------------------------------------------------------------------------- Net Peak Demand (MW) 52,377 53,439 54,508 55,530 56,707 57,703 58,718 59,671 60,792 - ----------------------------------------------------------------------------------------------------------------- Total Owned Capacity 77,702 78,797 81,035 81,035 81,035 82,490 83,435 85,440 86,065 Inoperable Capacity 0 0 0 0 0 0 0 0 0 Net Operable Capacity 77,702 78,797 81,035 81,035 81,035 82,490 83,435 85,440 86,065 Interruptible Demand 2,331 2,331 2,331 2,331 2,331 2,331 2,331 2,331 2,331 Net Capacity Purchases 500 500 300 300 300 -1100 -1100 -1100 -1100 Planned Capacity Reserve 80,533 81,628 83,666 83,666 83,666 83,721 84,666 86,671 87,296 - ----------------------------------------------------------------------------------------------------------------- Reserve Margin (MW) 28,156 28,189 29,158 28,137 26,959 26,018 25,948 27,000 26,504 Reserve Margin (%) 53.76% 52.75% 53.49% 50.67% 47.54% 45.09% 44.19% 45.25% 43.60% - -----------------------------------------------------------------------------------------------------------------
* Includes interconnected sub-regions of IOWA and OECAR ================================================================================ GENERATION PROFILE Pace's forecast of projected capacity additions required to meet generation requirements between 2001 and 2009 for the three MAIN sub-regions, and the two interconnected sub-regions of IOWA and OECAR is outlined in Exhibit 42. The MAIN market is dominated by base-load capacity, with coal-fired, nuclear and hydro capacity, representing 73% of installed generation capacity in 2001. Combustion turbine plants and combined cycle plants with 19% and 4% respectively, account for the majority of the remaining installed capacity. By 2009, Pace forecasts that coal-fired, nuclear and hydro capacity will decline to 67% of installed capacity, combustion turbine capacity will increase to 21% of installed capacity, and combined cycle capacity will more than double is share of installed capacity to 9%. - -------------------------------------------------------------------------------- Proprietary & Confidential 64 [LOGO] PACE | Global Energy Services Exhibit 42: MAIN Market Generation Summer Capacity - MW ================================================================================
- -------------------------------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 2006 2007 2008 2009 - -------------------------------------------------------------------------------------------------------------------------- Coal 37,849 37,849 37,849 37,849 37,849 37,849 37,849 37,849 37,849 Nuclear 15,810 15,810 15,810 15,810 15,810 15,810 15,810 15,810 15,810 Wind 53 53 53 53 53 53 53 53 53 Hydro 1,061 1,061 1,061 1,061 1,061 1,061 1,061 1,061 1,061 ST-Gas 2,725 2,725 2,725 2,725 2,725 2,725 2,725 2,725 2,725 ST-Oil 334 334 334 334 334 334 334 334 334 New CT 8,709 9,099 9,099 9,099 9,099 10,218 10,857 11,496 11,336 New CC 2,749 3,388 5,491 5,491 5,491 5,741 5,990 7,235 7,982 Old CT 5,677 5,677 5,677 5,677 5,677 5,677 5,677 5,677 5,677 Net Purchase 500 500 300 300 300 -1,100 -1,100 -1,100 -1,100 - -------------------------------------------------------------------------------------------------------------------------- Total Capacity 75,466 76,495 78,399 78,399 78,399 78,366 79,255 81,139 81,727 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 2006 2007 2008 2009 - -------------------------------------------------------------------------------------------------------------------------- Coal 50.15% 49.48% 48.28% 48.28% 48.28% 48.30% 47.76% 46.65% 46.31% Nuclear 20.95% 20.67% 20.17% 20.17% 20.17% 20.17% 19.95% 19.49% 19.34% Wind 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07% 0.06% Hydro 1.41% 1.39% 1.35% 1.35% 1.35% 1.35% 1.34% 1.31% 1.30% ST-Gas 3.61% 3.56% 3.48% 3.48% 3.48% 3.48% 3.44% 3.36% 3.33% ST-Oil 0.44% 0.44% 0.43% 0.43% 0.43% 0.43% 0.42% 0.41% 0.41% New CT 11.54% 11.89% 11.61% 11.61% 11.61% 13.04% 13.70% 14.17% 13.87% New CC 3.64% 4.43% 7.00% 7.00% 7.00% 7.33% 7.56% 8.92% 9.77% Old CT 7.52% 7.42% 7.24% 7.24% 7.24% 7.24% 7.16% 7.00% 6.95% Net Purchase 0.66% 0.65% 0.38% 0.38% 0.38% -1.40% -1.39% -1.36% -1.35% - -------------------------------------------------------------------------------------------------------------------------- Total Capacity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - --------------------------------------------------------------------------------------------------------------------------
* Includes interconnected sub-regions of IOWA and OECAR ================================================================================ Generating Unit Cost Profile Pace reviewed the cost profile of the existing installed capacity base for the MAIN market region. This analysis is particularly important for assessing the need and competitiveness of resource additions in a given market area. Specifically, knowledge of the cost magnitude and competitiveness of existing capacity is essential to assess who the competitors will be in the market and what cost advantages a power plant must have over existing facilities. Exhibit 43 summarizes regional fixed and variable generation costs up through 1999. As shown, in 1996 WUM was the low cost sub-region at approximately $38.02/MWh followed by SMAIN at $44.66/MWh and NI at $61.88/MWh. In 1999, the average cost of generating power in SMAIN fell to $30.71/MWh, while WUM increased slightly to $40.02/MWh and NI fell to $57.12/MWh, which was near its 1996 average after climbing to $71.32/MWh in 1998. After 1997, SMAIN fell below WUM as the lowest cost region due to the write-down of the Clinton nuclear plant by Illinois Power. This write-down is reflected in the decrease in total fixed costs of nuclear capacity of over $11/MWh and depicting an imprecise picture of SMAIN generation fixed costs for 1997. However, given the sale of the Clinton nuclear plant to AmerGen, Pace will maintain the facility in the generation mix. For the entire region, total system costs averaged $44.47/MWh in 1999 with nearly two-thirds of this cost attributable to fixed costs, or $29.52/MWh. - -------------------------------------------------------------------------------- Proprietary & Confidential 65 [LOGO] PACE | Global Energy Services Exhibit 43: MAIN Embedded Cost Summary ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Sub-Region Data 1996 1997 1998 1999 $/MWh $/MWh $/MWh $/MWh ================================================================================================================================== NI Sum of Fuel Total $ 961,808,077 936,063,824 820,637,678 1,152,075,715 11.57 11.41 10.27 12.22 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Variable O&M Total $ 197,255,375 219,996,543 241,293,621 222,344,078 2.37 2.68 3.02 2.36 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Fixed O&M Total $ 789,032,278 879,997,926 965,779,231 889,380,525 9.49 10.73 12.09 9.43 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Fixed Total $ 2,962,418,187 3,038,364,139 3,669,238,827 3,118,544,666 35.63 37.03 45.93 33.08 - ---------------------------------------------------------------------------------------------------------------------------------- Total Variable 1,160,951,766 1,158,349,416 1,062,942,841 1,376,190,154 13.96 14.12 13.31 14.63 - ---------------------------------------------------------------------------------------------------------------------------------- Total Fixed 3,751,450,465 3,918,362,065 4,635,018,058 4,007,925,191 45.12 47.76 58.02 42.52 - ---------------------------------------------------------------------------------------------------------------------------------- Total Costs 4,912,402,231 5,076,711,481 5,697,960,899 5,384,115,345 59.08 61.88 71.32 57.12 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Total Gen 83,151,972 82,045,735 79,889,337 94,265,530 ================================================================================================================================== WUM Sum of Fuel Total $ 552,081,257 582,631,817 543,955,077 525,926,527 12.83 12.96 12.24 11.48 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Variable O&M Total $ 55,631,545 173,131,022 192,019,226 176,641,860 1.29 3.85 4.32 3.86 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Fixed O&M Total $ 226,280,266 254,913,651 271,691,668 278,672,751 5.26 5.67 6.11 6.08 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Fixed Total $ 802,525,593 822,834,626 832,330,669 852,124,350 18.64 18.31 18.72 18.64 - ---------------------------------------------------------------------------------------------------------------------------------- Total Variable 607,712,802 755,762,839 735,974,303 702,568,387 14.12 16.81 16.56 15.34 - ---------------------------------------------------------------------------------------------------------------------------------- Total Fixed 1,028,805,859 1,077,748,277 1,104,022,337 1,130,797,101 23.92 23.96 24.84 24.69 - ---------------------------------------------------------------------------------------------------------------------------------- Total Costs 1,636,518,661 1,833,511,116 1,839,996,640 1,833,365,488 38.02 40.77 41.39 40.02 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Total Gen 43,042,529 44,972,276 44,453,161 45,808,182 ================================================================================================================================== SMAIN Sum of Fuel Total $ 1,042,462,420 1,055,588,534 978,076,639 992,441,151 14.54 14.26 13.71 13.81 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Variable O&M Total $ 95,575,437 84,646,956 91,945,197 95,371,614 1.33 1.14 1.29 1.33 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Fixed O&M Total $ 382,636,889 338,935,302 368,015,974 381,935,884 5.34 4.58 5.16 5.31 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Fixed Total $ 1,681,964,041 959,876,784 955,929,404 736,454,876 23.46 12.97 13.39 10.25 - ---------------------------------------------------------------------------------------------------------------------------------- Total Variable 1,138,037,857 1,140,235,490 1,070,021,836 1,087,812,765 15.87 15.41 14.99 15.14 - ---------------------------------------------------------------------------------------------------------------------------------- Total Fixed 2,064,600,930 1,298,812,086 1,323,945,378 1,118,390,760 28.79 17.55 18.55 15.56 - ---------------------------------------------------------------------------------------------------------------------------------- Total Costs 3,202,638,787 2,439,047,576 2,393,967,214 2,206,203,525 44.66 32.96 33.54 30.71 - ---------------------------------------------------------------------------------------------------------------------------------- Sum of Total Gen 71,704,301 74,001,500 71,366,113 71,860,818 ================================================================================================================================== Total Sum of Fuel Total $ 2,556,351,754 2,574,284,175 2,342,669,394 2,670,443,393 12.92 12.81 11.97 12.60 - ---------------------------------------------------------------------------------------------------------------------------------- Total Sum of Variable O&M Total $ 348,462,357 477,774,521 525,258,044 494,357,552 1.76 2.38 2.68 2.33 - ---------------------------------------------------------------------------------------------------------------------------------- Total Sum of Fixed O&M Total $ 1,397,949,433 1,473,846,879 1,605,486,873 1,549,989,160 7.06 7.33 8.20 7.31 - ---------------------------------------------------------------------------------------------------------------------------------- Total Sum of Fixed Total $ 5,446,907,820 4,821,075,549 5,457,498,899 4,707,123,891 27.52 23.98 27.89 22.21 - ---------------------------------------------------------------------------------------------------------------------------------- Total Variable 2,906,702,425 3,054,347,745 2,868,938,980 3,166,571,306 14.69 15.19 14.66 14.94 - ---------------------------------------------------------------------------------------------------------------------------------- Total Fixed 6,844,857,253 6,294,922,428 7,062,985,772 6,257,113,051 34.59 31.31 36.09 29.52 - ---------------------------------------------------------------------------------------------------------------------------------- Total Costs 9,751,559,678 9,349,270,173 9,931,924,752 9,423,684,357 49.28 46.51 50.75 44.47 - ---------------------------------------------------------------------------------------------------------------------------------- Total Sum of Total Gen 197,898,802 201,019,511 195,708,611 211,934,530 - ----------------------------------------------------------------------------------------------------------------------------------
Source: RDI PowerDat. ================================================================================ Generating Unit Fuel Mix Exhibit 44 represents Pace's forecast of the mix of fuels used for electrical generation in the MAIN market (including the interconnected sub-regions of IOWA and OECAR) through 2025. The following are our observations: o In 2001, base-load generation dominates the MAIN market with 93.76% of generation, with coal-fired generation accounting for 64.06%, nuclear 28.36%, hydro 1.21%, and - -------------------------------------------------------------------------------- Proprietary & Confidential 66 [LOGO] PACE | Global Energy Services wind 0.13%. By 2025, base-load generation is forecast to account for a 68.86% share of generation. o In 2001, gas-fired generation accounts for only 6.21% of generation in the MAIN market. This value is forecast to increase steadily, reaching 31.12% by 2025, as gas-fired combined cycle and combustion turbine plants have become the near universal choice for announced capacity additions in the MAIN market. Exhibit 44: MAIN Generation Mix by Fuel Type ================================================================================
- ---------------------------------------------------------------------------------- FUEL 2001 2005 2010 2015 2020 2025 - ---------------------------------------------------------------------------------- COAL 64.06% 60.71% 57.01% 54.08% 51.22% 48.50% GAS 6.21% 11.78% 17.80% 22.70% 27.07% 31.12% NUCLEAR 28.36% 26.29% 24.09% 22.21% 20.75% 19.49% OIL 0.02% 0.02% 0.03% 0.02% 0.04% 0.02% WATER 1.21% 1.08% 0.96% 0.89% 0.83% 0.78% WIND 0.13% 0.12% 0.11% 0.10% 0.10% 0.09% - ---------------------------------------------------------------------------------- Grand Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - ----------------------------------------------------------------------------------
* Includes interconnected sub-regions of IOWA and OECAR ================================================================================ MAIN Nuclear Unit Assessment Accounting for approximately 50% of installed capacity in the Midwest in 2001, nuclear capacity has a dominant presence in the Midwest power market. However, the nuclear industry has been subject to significant changes in recent years and there is still much uncertainty regarding future operations of a number of nuclear units in the Midwest as well as throughout the U.S. Pace reviewed unit operations, down time, historic plant performance, and recent market trends to assess nuclear capacity in the Midwest and establish assumptions regarding capacity retirement. Exhibit 45 provides a list of existing nuclear capacity located in the Midwest, the current Nuclear Regulatory Commission ("NRC") license expiration date, and a brief summary of changes in operating status. As shown in Exhibit 45, the Zion nuclear plant was retired in 1998 and therefore was not included in Pace's forecast. - -------------------------------------------------------------------------------- Proprietary & Confidential 67 [LOGO] PACE | Global Energy Services Exhibit 45: MAIN Nuclear Units ================================================================================
============================================================================================================ Unit Capacity License Plant Name Utility (MW) Expiration - ------------------------------------------------------------------------------------------------------------ Quad Cities Unit 1 Commonwealth Edison Co. Iowa/Illinois Gas & Electric 810 Dec 2012 - ------------------------------------------------------------------------------------------------------------ Quad Cities Unit 2 Commonwealth Edison Co. Iowa/Illinois Gas & Electric 810 Dec 2012 - ------------------------------------------------------------------------------------------------------------ La Salle Unit 1 Commonwealth Edison Co. 1,036 May 2022 - ------------------------------------------------------------------------------------------------------------ La Salle Unit 2 Commonwealth Edison Co. 1,036 Dec 2023 - ------------------------------------------------------------------------------------------------------------ Zion Commonwealth Edison Co. 1,040 Retired in 1998 - ------------------------------------------------------------------------------------------------------------ Clinton Illinois Power Co. 944 Sep 2026 - ------------------------------------------------------------------------------------------------------------ Callaway (MO) Ameren 1,174 Oct 2024 - ------------------------------------------------------------------------------------------------------------ Point Beach 1 Wisconsin Electric Power Co. 524 Oct 2010 - ------------------------------------------------------------------------------------------------------------ Point Beach 2 Wisconsin Electric Power Co. 524 Oct 2013 - ------------------------------------------------------------------------------------------------------------ Wisconsin Public Service Corp. Madison Gas & Kewaunee Electric Co. Wisconsin Power & Light Co. 498 Dec 2013 - ------------------------------------------------------------------------------------------------------------ Dresden 2 Commonwealth Edison Co. 794 Jan 2010 - ------------------------------------------------------------------------------------------------------------ Dresden 3 Commonwealth Edison Co. 794 Jan 2011 - ------------------------------------------------------------------------------------------------------------ Byron 1 Commonwealth Edison Co. 1,175 Oct 2022 - ------------------------------------------------------------------------------------------------------------ Byron 2 Commonwealth Edison Co. 1,175 Nov 2026 - ------------------------------------------------------------------------------------------------------------ Braidwood 1 Commonwealth Edison Co. 1,175 Oct 2026 - ------------------------------------------------------------------------------------------------------------ Braidwood 2 Commonwealth Edison Co. 1,175 Dec 2027 - ------------------------------------------------------------------------------------------------------------
Source: RDI PowerDat. ================================================================================ Though three of the plants (Clinton, LaSalle, and Quad Cities) were included on the NRC's 1998 Watch List, Pace expects that all three will operate at least through their license term. Commonwealth Edison restarted La Salle Unit 2 in the spring of 1999, has improved the performance of all its nuclear plants, and implemented changes in management in a marked effort to become a top nuclear operator. For these reasons as well as to maintain a level of conservativeness, Pace will not assume the retirement of any nuclear units prior to license expiration. EXPANSION UNIT CHARACTERIZATION AND COSTS In evaluating potential generation technologies for meeting future demand requirements in the MAIN region, Pace assessed each technology's maturity level, operating history, and duty cycle. Based on Pace's review of available generation technologies and consultation with equipment manufacturers, three generic types of technologies were designated as potential candidates for meeting future demand requirements for purposes of this analysis: o Pulverized-Coal--to meet base load requirements. o Combined Cycle--to meet intermediate through base load requirements. o Combustion Turbine--to meet peak load requirements. The characteristics of these standard units are detailed in Exhibit 46. These expansion unit costs drive the expansion-planning module to determine the necessary capacity additions to meet projected demand and provide reserves. The expansion-planning module determines the optimum mix of combustion turbine and combined cycle capacity to meet projected demand. - -------------------------------------------------------------------------------- Proprietary & Confidential 68 [LOGO] PACE | Global Energy Services Exhibit 46: Expansion Unit Characteristics ================================================================================ ================================================================================ Item Unit CT CC CC Coal ================================================================================ Model or Technology F G ================================================================================ Assumptions ================================================================================ Available Year Year 2005 ================================================================================ Capacity MW 170 530 530 500 ================================================================================ Cost $/kW 355 525 536 1,150 ================================================================================ Variable O&M $/MWh 3.50 1.75 1.75 2.50 ================================================================================ Fixed O&M $/kW-yr 8.00 14.00 18.20 29.00 ================================================================================ Heat Rate (Winter) Btu/kWh 10,400 7,050 6,850 9,600 ================================================================================ Heat Rate (Summer) Btu/kWh 10,600 7,262 7,056 9,888 ================================================================================ Percent Equity % 50 40 40 40 ================================================================================ Interest % 8.5 8.5 8.5 8.5 ================================================================================ After Tax Return on Equity % 15 15 15 15 ================================================================================ Debt Term Years 15 15 15 15 ================================================================================ Forced Outage % 2.5 2.5 2.5 2.5 ================================================================================ Annual Maintenance Weeks 2.0 3.0 3.5 4.5 ================================================================================ ================================================================================ Pace increases these standard unit costs to account for regional variations in land values, labor costs, property taxes, and other potential cost adders. Pace's assumption of the regional costs and their associated adders for the MAIN sub-regions are shown in Exhibit 47. These expansion unit profiles drive the expansion-planning module to determine the optimum mix of combustion turbine and combined cycle capacity to meet projected demand and provide reserves. Exhibit 47: Regional Cost Adjustments ================================================================================
============================================================================================================================ Resulting Fixed O&M Resulting Installed Cost ($/kW-yr.) ($/kW) Multiple of --------------------------------------------------------------------------------------- Area Model Zone Standard CT CC CC Coal CT CC CC Coal Cost --------------------------------------------------------------------------------------- Assumption F G F G - --------------------------------------------------------------------------------------------------------------------------- MAIN NI 1.155 9.24 16.17 21.02 33.50 410 606 619 1,328 - --------------------------------------------------------------------------------------------------------------------------- MAIN SMAIN 1.110 8.88 15.54 20.20 32.19 394 583 595 1,277 - --------------------------------------------------------------------------------------------------------------------------- MAIN WUM 1.110 8.88 15.54 20.20 32.19 394 583 595 1,277 - --------------------------------------------------------------------------------------------------------------------------- MAIN IOWA 1.055 8.44 14.77 19.20 30.60 375 554 565 1,213 - --------------------------------------------------------------------------------------------------------------------------- MAIN OECAR 1.075 8.60 15.05 19.57 31.18 382 564 576 1,236 - ---------------------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 69 [LOGO] PACE | Global Energy Services ELWOOD PROJECT CHARACTERIZATION AND COSTS Pace will simulate the operations of the Project in accordance with the assumptions in Exhibit 48. Exhibit 48: Elwood Project Specifications ================================================================================
- ----------------------------------------------------------------------------------------------------------------- Item Units Actual Exelon PSA Aquila PSA - ----------------------------------------------------------------------------------------------------------------- Units 1-9 1-4,9 5-8 - ----------------------------------------------------------------------------------------------------------------- Location (city/state) Elwood, IL Elwood, IL Elwood, IL - ----------------------------------------------------------------------------------------------------------------- Technology Combustion Turbine Combustion Turbine Combustion Turbine - ----------------------------------------------------------------------------------------------------------------- Unit 5-6 : 8/31/2021 PSA Termination Date NA 12/31/2012 Unit 7-8 : 8/31/2022 - ----------------------------------------------------------------------------------------------------------------- Winter Net Capacity MW 167.8 167.8 167.8 - ----------------------------------------------------------------------------------------------------------------- Summer Net Capacity MW 156.5 156.5 156.5 - ----------------------------------------------------------------------------------------------------------------- Winter Heat Rate - (HHV) Btu/kWh 10,400 10,900 10,400 - ----------------------------------------------------------------------------------------------------------------- Summer Heat Rate - (HHV) Btu/kWh 10,600 10,900 10,600 - ----------------------------------------------------------------------------------------------------------------- Fuel Adder $/MMBtu NA $0.32 $0.10 - ----------------------------------------------------------------------------------------------------------------- Variable O&M - 1998 Dollars $/MWh $3.50 $1.37 $0.98 - ----------------------------------------------------------------------------------------------------------------- Min Up Hours Hours 4 4 4 - ----------------------------------------------------------------------------------------------------------------- Min Down Hours Hours 2 2 2 - ----------------------------------------------------------------------------------------------------------------- Jun-Sep: 80 Maximum Operating Hours per Day Hours NA Oct-May: 60 NA - ----------------------------------------------------------------------------------------------------------------- Units 1-4 : 1,500 Maximum Operating Hours per Year Hours Units 5-9 : 2,500 1,500 2,500 - ----------------------------------------------------------------------------------------------------------------- Cost per CT Start - 1998 Dollars $/Start NA $2,974 $2,439 - ----------------------------------------------------------------------------------------------------------------- Forced Outage Rate % 2.5% 2.5% 2.5% - ----------------------------------------------------------------------------------------------------------------- Summer Planned Maintenance Weeks 0 0 0 - ----------------------------------------------------------------------------------------------------------------- Winter Planned Maintenance Weeks 2 2 2 - ----------------------------------------------------------------------------------------------------------------- Primary Fuel Gas Gas Gas - ----------------------------------------------------------------------------------------------------------------- Power Sub-region MAIN-NI MAIN-NI MAIN-NI - ----------------------------------------------------------------------------------------------------------------- Fuel Sub-Region Chicago Chicago Chicago - -----------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 70 [LOGO] PACE | Global Energy Services ================================================================================ FUEL PRICING ================================================================================ Pace developed fuel price forecasts for each major fuel (natural gas, #2 distillate fuel oil, #6 residual fuel oil, coal, and uranium) in the MAIN market region. The base year fuel prices and annual escalation rates in the forecast are based on Pace's analysis of historical price data and the fundamental factors driving each fuel market. All forecast prices are in 1998 real dollars and represent a regional benchmark market price.(33) A more extensive evaluation of the fuel arrangements for the Project may be obtained by referring to Pace's Independent Fuel Consultant's Report for the Project. Pace's forecasting methodology recognizes that actual prices to existing facilities often vary from the regional benchmark due to advantages/disadvantages in supply contract terms or transportation rates. To develop plant-specific fuel forecasts for these facilities, the regional benchmark price is adjusted to reflect plant-specific cost factors. These plant-specific cost factors are maintained throughout the forecast. Pace applies monthly fuel adjustment factors as shown in Exhibit 49 to reflect monthly fluctuations in fuel prices. For the first three years of the natural gas forecast, the seasonal factors change each year to reflect a relatively steep decline in annual prices to the longer-term forecast. Exhibit 49: Monthly Fuel Price Adjustment Factors ================================================================================
- ---------------------------------------------------------------------------------------------------------------------- Month Gas 2001 Gas 2002 Gas 2003 Gas 2004-25 Coal #2 Oil #6 Oil - ---------------------------------------------------------------------------------------------------------------------- Jan 144% 126% 131% 112% 102% 100% 108% - ---------------------------------------------------------------------------------------------------------------------- Feb 118% 117% 120% 108% 101% 97% 93% - ---------------------------------------------------------------------------------------------------------------------- Mar 108% 102% 103% 103% 99% 96% 92% - ---------------------------------------------------------------------------------------------------------------------- Apr 102% 94% 93% 96% 95% 98% 95% - ---------------------------------------------------------------------------------------------------------------------- May 98% 95% 94% 94% 101% 97% 96% - ---------------------------------------------------------------------------------------------------------------------- Jun 90% 94% 93% 94% 102% 93% 94% - ---------------------------------------------------------------------------------------------------------------------- Jul 89% 90% 87% 95% 102% 95% 97% - ---------------------------------------------------------------------------------------------------------------------- Aug 88% 91% 90% 95% 102% 100% 98% - ---------------------------------------------------------------------------------------------------------------------- Sep 91% 91% 89% 95% 102% 106% 101% - ---------------------------------------------------------------------------------------------------------------------- Oct 93% 94% 93% 96% 94% 109% 108% - ---------------------------------------------------------------------------------------------------------------------- Nov 91% 101% 101% 104% 100% 105% 109% - ---------------------------------------------------------------------------------------------------------------------- Dec 89% 106% 107% 109% 98% 103% 108% - ----------------------------------------------------------------------------------------------------------------------
================================================================================ The remainder of this section reviews Pace's major conclusions and Base Case assumptions regarding fuel pricing. - -------------- 33 Gas-fired expansion plants are assigned the natural gas regional benchmark price. - -------------------------------------------------------------------------------- Proprietary & Confidential 71 [LOGO] PACE | Global Energy Services NATURAL GAS Pace's independent forecast of delivered natural gas prices in MAIN is comprised of commodity prices, as represented by the price for gas on the New York Mercantile Exchange ("NYMEX") at the Henry Hub in Louisiana, plus a regional basis adjustment to reflect price differentials between the Gulf Coast and various MAIN delivered price sub-regions. Commodity Prices In general, Pace expects Henry Hub commodity prices to peak in 2001 and then decline through 2009. Thereafter, Pace expects a 0.5 percent annual real price increase throughout the Study Period. Fundamental factors driving Pace's Henry Hub commodity forecast are: o Supply from a year of record drilling is beginning to enter the market. The gas industry has entered a cycle of lower prices and higher injections, which may lead to further price declines. Pace expects natural gas prices at the Henry Hub to average about $4.00/MMBtu for the remainder of the 2001, although cash market prices on a given day may be higher or lower due to short-term technical factors. o Leading gas supply indicators are currently at record levels, signaling that a significant rebound is likely under way. The U.S. gas-directed rig count stood at over 1,000 in June 2001, compared to a count just above 600 eighteen months previously. Assuming a six to eighteen month lag between drilling and new production, and normal summer weather patterns, Pace expects continued, if not intensifying, increased downward pressure on prices throughout 2001. o As of June 1, 2001, the industry has added over 770 Bcf to gas inventories. This is 451 Bcf greater than injections during the same period last year and inventories are now over 50 percent full. o Pace expects that substantial incremental gas demand from new Greenfield gas-fired power generation during the next three years will offset some of the downward price pressure exerted by new supply from increased drilling. Pace estimates that new gas fired generation will add almost 5.4 Bcf/d in incremental natural gas consumption by 2004. o Expansion of the North American pipeline grid and productive capacity from the Gulf Coast and the Western Canadian Sedimentary Basin will increase competition, particularly in the Midwest and Northeast. By 2004, several new pipeline projects, such as Millennium and Independence should be completed, which will encourage gas-on-gas competition causing Henry Hub prices to decline further from current levels. o Both onshore and offshore Gulf Coast production will increase in 2001 and 2002 due to record drilling during 2000. Increases in deep water offshore drilling will offset production declines from the shallow offshore. o Over the long term, Pace does not anticipate in its Base Case commodity forecast sustained natural gas shortfalls as producers respond to higher prices. Higher prices - -------------------------------------------------------------------------------- Proprietary & Confidential 72 [LOGO] PACE | Global Energy Services support a greater and faster expected return on drilling investments, high rig counts, and future production growth. o Environmental regulations requiring the use of cleaner, more efficient fuels have shifted consumption preferences to natural gas thereby contributing to a higher long-term real price escalation rate relative to other fuels. o In the long run, technologically driven declines in exploration and production costs, and increases in finding rates will increase productive capacity. These supply-side fundamentals will keep real gas prices from escalating too high relative to other fuels. Regional Basis The delivered gas price forecast incorporates general price differentials and the cost of transportation to MAIN gas price sub-regions, as depicted in Exhibit 50. Exhibit 50: Pace Gas Price MAIN Sub-regions ================================================================================ MAP OF MAIN GAS PRICE SUB-REGIONS. ================================================================================ Each gas price region is defined by its primary liquid supply source, interstate transporter, and that transporter's applicable market-based transportation rates. The regional basis from the Henry Hub to these gas price regions is driven primarily by the following fundamentals: o Numerous pipelines deliver supply from the Gulf of Mexico and the Mid-Continent to the Midwest region. Much of this supply is otherwise destined for markets in Chicago and Michigan. As such, these markets greatly influence the pricing for this region. Therefore, Pace forecasts this region's price as an average of Chicago and Michigan delivered pricing. - -------------------------------------------------------------------------------- Proprietary & Confidential 73 [LOGO] PACE | Global Energy Services o The Chicago region receives supply from most of the major North American basins, including the Gulf Coast, Mid-Continent, Western Canada, Rockies and Permian. These supplies can be supplemented with local production in Illinois and Michigan. As such, Chicago is considered to have a high degree of gas on gas competition. Prices in Chicago are at a slight discount to the Midwest region because of the lack of influence by the Michigan markets on pricing and the addition of inexpensive Western Canadian supply. o The South Plains region is dominated by mid-stream supply on Panhandle Eastern Pipeline Company. This region will trade at a slight discount to the Michigan region because of the lower transportation rates on Panhandle associated with shorter transport paths from the Mid-continent supply basin. o East Wisconsin currently receives supply primarily from ANR Pipeline. Looking ahead, the region is the target of expansion projects such as Guardian Pipeline, which has recently received approval from the FERC and is on track for an in-service date of November 2002. Increased competition and deliverability will guard against rising real basis values in this region. o The Upper Midwest receives nearly all of its supply from Northern Natural Pipeline, which receives its supply from the Mid-Continent directly and from Western Canada via interconnects with Viking Gas Transmission and Northern Border Pipeline. The Alliance pipeline is not designed to make any deliveries in this region. Because of the competition between inexpensive Canadian supply and nearby Mid-Continent supply, receipt point gas in the Upper Midwest is competitively priced at an annual average of $0.10/MMBtu discount to the Henry Hub. Maximum tariff rates, used because of the captive nature of the region to Northern Natural, are applied to the supply price to calculate a delivered gas price for this region. o The Great Lakes region is primarily served by Great Lakes Gas Transmission ("GLGT"). Imported supply from Western Canada delivered at Emerson, a border point between the U.S. and Canada, is the chief supply source for the region. Pace forecasts a transportation rate of $0.20/MMBtu on GLGT, which is consistent with market-based rates applicable to markets located further downstream in Michigan. Exhibit 51 provides a summary of Pace's independent forecast of annual Henry Hub and delivered prices to each respective MAIN fuel sub-region. - -------------------------------------------------------------------------------- Proprietary & Confidential 74 [LOGO] PACE | Global Energy Services Exhibit 51: MAIN Natural Gas Price Forecasts (1998 $/MMBtu) ================================================================================
=========================================================================================== South East Upper Year Henry Hub Chicago Great Lakes Midwest Plains Wisconsin Midwest - ------------------------------------------------------------------------------------------- 2001 4.98 5.05 4.47 5.10 5.14 5.33 5.14 - ------------------------------------------------------------------------------------------- 2002 3.80 3.86 3.81 3.91 3.96 4.15 3.96 - ------------------------------------------------------------------------------------------- 2003 3.28 3.33 3.28 3.38 3.44 3.63 3.44 - ------------------------------------------------------------------------------------------- 2004 2.94 3.00 2.95 3.05 3.10 3.29 3.10 - ------------------------------------------------------------------------------------------- 2005 2.72 2.79 2.74 2.84 2.88 3.07 2.88 - ------------------------------------------------------------------------------------------- 2006 2.57 2.64 2.59 2.69 2.73 2.92 2.73 - ------------------------------------------------------------------------------------------- 2007 2.47 2.54 2.49 2.59 2.63 2.82 2.63 - ------------------------------------------------------------------------------------------- 2008 2.41 2.48 2.43 2.53 2.57 2.76 2.57 - ------------------------------------------------------------------------------------------- 2009 2.40 2.47 2.42 2.52 2.56 2.75 2.55 - ------------------------------------------------------------------------------------------- 2010 2.41 2.48 2.43 2.53 2.57 2.76 2.57 - ------------------------------------------------------------------------------------------- 2011 2.42 2.49 2.44 2.54 2.58 2.77 2.58 - ------------------------------------------------------------------------------------------- 2012 2.43 2.50 2.45 2.55 2.59 2.78 2.59 - ------------------------------------------------------------------------------------------- 2013 2.45 2.52 2.47 2.57 2.61 2.80 2.60 - ------------------------------------------------------------------------------------------- 2014 2.46 2.53 2.48 2.58 2.62 2.81 2.61 - ------------------------------------------------------------------------------------------- 2015 2.47 2.54 2.49 2.59 2.63 2.82 2.63 - ------------------------------------------------------------------------------------------- 2016 2.48 2.55 2.50 2.60 2.64 2.83 2.64 - ------------------------------------------------------------------------------------------- 2017 2.50 2.57 2.52 2.62 2.66 2.85 2.65 - ------------------------------------------------------------------------------------------- 2018 2.51 2.58 2.53 2.63 2.67 2.86 2.66 - ------------------------------------------------------------------------------------------- 2019 2.52 2.59 2.54 2.64 2.68 2.87 2.68 - ------------------------------------------------------------------------------------------- 2020 2.53 2.60 2.55 2.65 2.69 2.88 2.69 - ------------------------------------------------------------------------------------------- 2021 2.55 2.62 2.57 2.67 2.71 2.90 2.70 - ------------------------------------------------------------------------------------------- 2022 2.56 2.63 2.58 2.68 2.72 2.91 2.71 - ------------------------------------------------------------------------------------------- 2023 2.57 2.64 2.59 2.69 2.73 2.92 2.73 - ------------------------------------------------------------------------------------------- 2024 2.58 2.65 2.60 2.70 2.74 2.93 2.74 - ------------------------------------------------------------------------------------------- 2025 2.60 2.67 2.62 2.72 2.76 2.95 2.75 - ------------------------------------------------------------------------------------------- 2026 2.61 2.68 2.63 2.73 2.77 2.96 2.77 ===========================================================================================
================================================================================ FUEL OIL Pace forecasts prices for #2 oil, #2 Low Sulfur ("LS"), #6 1.0% Sulfur, and #6 3.0% Sulfur oil for MAIN based on the consumption profile of the generators in the region. The forecast prices are comprised of the following components, which are detailed in the remainder of this section: o Commodity prices as represented by the price for West Texas Intermediate ("WTI") crude oil on the NYMEX in Cushing, Oklahoma, o Location basis, and o Crack spreads. Commodity Prices The strength of crude oil prices in 2000 can be attributed to low inventory levels and demand growth stemming from a continued strong U.S. economy and economic recovery in Asia. Prices were at levels that, if sustained, will stimulate non-OPEC production and encourage OPEC members to exceed current quota levels and expand production capacity. Therefore, it is Pace's view that world prices will eventually fall to levels that are comparable to the average real price - -------------------------------------------------------------------------------- Proprietary & Confidential 75 [LOGO] PACE | Global Energy Services for the five-year period prior to the 1998 price collapse. Pace's WTI forecast is based on the following key fundamentals: OPEC Production o The OPEC price-band mechanism that was agreed upon in March 2000 will remain in effect. The agreement requires OPEC to meet if a basket of OPEC crude falls below $22.00 or rises above $28.00 per barrel over a 20-day period. OPEC's largest producer, Saudi Arabia, has voiced its desire for a $25 per barrel price and aggressively increased production in the latter half of 2000 to meet that goal. Prices began to soften in late 2000 in response to this increase in supply. o In spite of bearish price trends during the late fourth quarter of 2000, the market remains concerned over Middle East tensions, unreliable Iraqi exports, and possible OPEC production cuts. Therefore, Pace expects the world price of oil to rise to the upper bounds of OPEC's price band. However, global crude demand growth, expected to slow during 2001, will preclude prolonged price spikes over $30.00 per barrel. o OPEC, led by swing producer Saudi Arabia, will attempt to avoid future sustained prices above $25.00, which inhibit global economic growth and lead to increased exploration and production in non-OPEC countries. The price of crude will be driven toward the long-term equilibrium price of approximately $21.00. o OPEC was producing at nearly its maximum capacity in 2000, and will undertake relatively ambitious capacity expansion programs in order to accommodate the projected rise in long term. Much of the expansion will occur in the Persian Gulf where the reserves-to-production ratio already exceeds 80 years. o OPEC's relative market share will grow from its current level of approximately 40 percent, but will not surpass the historic high of 53 percent reached in 1973. Non-OPEC Production o Non-OPEC production was surprisingly resilient in the low price environment prior to mid-1999, largely due to innovations in exploration and drilling technologies and investment-friendly government policies. While the prices in Pace's forecasted range are sufficient not only to sustain but in some regions expand output by non-OPEC producers, the relative share of non-OPEC output will fall due to expected strong growth in OPEC production. o U.S. crude oil output, which has been declining since 1985 due to a combination of lower prices and rising production costs, will continue falling at a rate of about 1 percent annually. The impact of sharply lower Alaskan oil output, which has historically represented about 25 percent of total U.S. crude oil production, is tempered somewhat by - -------------------------------------------------------------------------------- Proprietary & Confidential 76 [LOGO] PACE | Global Energy Services technological innovations that improve success rates and lower costs for deepwater exploration and production in the Gulf of Mexico.(34) o Optimism remains high concerning the long-term resource potential of the Former Soviet Union ("FSU") region, but production growth will be slow until after 2005 due to the startup delays of many Caspian Basin projects as well as a generally pessimistic outlook for investment in Russia. o North Sea production, the largest supply component in the European Union, is expected to enter a decline phase soon. Oil Demand o Demand growth in industrialized countries is projected to be flat to modest due to lower expected GDP growth and a gradual shift away from oil for non-transportation uses such as power generation and space heating. o Dramatic demand increases in developing countries are anticipated largely due to higher assumed rates of GDP growth as well as the greater tendency in developing countries to use oil for a wider variety of applications. GDP growth is expected to be strongest in the developing economies of Asia, particularly China. o FSU and Eastern Europe are projected to have relatively rapid GDP growth, but the impact on petroleum demand will be modest because the transition to a market system will lead to offsetting improvements in energy efficiency. Exhibit 52 shows Pace's crude oil price forecast for WTI for the period of 2001-2026. Exhibit 52: WTI Crude Oil Price Forecast (1998 $/MMBtu) ================================================================================ --------------------------------- Year WTI Price Forecast --------------------------------- 2001 4.76 --------------------------------- 2002 4.52 --------------------------------- 2003 4.28 --------------------------------- 2004 4.04 --------------------------------- 2005 3.80 --------------------------------- 2006-2026 3.60 --------------------------------- ================================================================================ Location Basis An adjustment for WTI crude oil prices must be made to reflect the price differentials between Cushing, Oklahoma, and the oil regions presented in Exhibit 53. The location adjustment for each region is calculated by reviewing the differential between prices for oil products in Oklahoma and each oil sub-region. - ---------- 34 Combined with the expected growth in U.S. oil demand, the decline in U.S. production implies an increase in U.S. oil imports. - -------------------------------------------------------------------------------- Proprietary & Confidential 77 [LOGO] PACE | Global Energy Services Exhibit 53: Pace Oil Price Sub-regions for MAIN ================================================================================ MAP OF PACE'S OIL PRICE SUB-REGIONS FOR MAIN. ================================================================================ A local delivery charge is also applied to crack pricing to reflect transport charges to the plant sites. The final regional Location Basis is presented in Exhibit 54. Exhibit 54: MAIN Fuel Oil Location Basis (1998 $/MMBtu) ================================================================================ ====================================== Cushing, OK to: Location Basis -------------------------------------- Chicago (0.05) -------------------------------------- Missouri 0.05 -------------------------------------- Minnesota 0.23 -------------------------------------- Iowa 0.21 ====================================== ================================================================================ Refined Product Crack Spreads Ten years of historical U.S. Gulf Coast and New York Harbor spot prices were used to determine the average crack spreads between crude oil and #2 fuel oil, #6 1.0%, and #6 0.3% oil. The average crack spreads shown in Exhibit 55 are forecasted to determine the refined product prices in each region. - -------------------------------------------------------------------------------- Proprietary & Confidential 78 [LOGO] PACE | Global Energy Services Exhibit 55: Crude Oil to Refined Product Crack Spreads (1998 $/MMBtu) ================================================================================
- ----------------------------------------------------------------------------------------------- Year LS #2 Oil #2 Oil #6 0.3% Oil #6 1.0% Oil #6 3.0% Oil - ----------------------------------------------------------------------------------------------- 2001 1.22 1.09 0.16 (0.70) (1.38) - ----------------------------------------------------------------------------------------------- 2002 1.10 0.99 0.07 (0.68) (1.28) - ----------------------------------------------------------------------------------------------- 2003 0.98 0.89 (0.01) (0.66) (1.18) - ----------------------------------------------------------------------------------------------- 2004 0.86 0.79 (0.09) (0.64) (1.07) - ----------------------------------------------------------------------------------------------- 2005 0.86 0.79 (0.09) (0.64) (1.07) - ----------------------------------------------------------------------------------------------- 2006-2026 0.86 0.79 (0.09) (0.64) (1.07) - -----------------------------------------------------------------------------------------------
================================================================================ Delivered Oil Price Forecasts Exhibit 56 provides Pace's forecast of annual delivered oil prices resulting from the summation of the components detailed above. Exhibit 56: Fuel Oil Price Forecast by MAIN Sub-region (1998 $/MMBtu) ================================================================================
=========================================================================================================== Chicago Missouri Year ------------------------------------------------------------------------------------------------ #2 LS #2 #6 1.0% #6 3.0% #2 LS #2 #6 1.0% #6 3.0% - ----------------------------------------------------------------------------------------------------------- 2001 5.80 5.93 4.01 3.33 5.90 6.03 4.11 3.43 - ----------------------------------------------------------------------------------------------------------- 2002 5.46 5.57 3.79 3.19 5.56 5.67 3.89 3.29 - ----------------------------------------------------------------------------------------------------------- 2003 5.12 5.21 3.57 3.05 5.22 5.31 3.67 3.15 - ----------------------------------------------------------------------------------------------------------- 2004 4.78 4.85 3.35 2.92 4.88 4.95 3.45 3.02 - ----------------------------------------------------------------------------------------------------------- 2005 4.54 4.61 3.11 2.68 4.64 4.71 3.21 2.78 - ----------------------------------------------------------------------------------------------------------- 2006-2026 4.34 4.41 2.90 2.48 4.44 4.51 3.00 2.58 =========================================================================================================== =========================================================================================================== Minnesota Iowa Year ------------------------------------------------------------------------------------------------ #2 LS #2 #6 1.0% #6 3.0% #2 LS #2 #6 1.0% #6 3.0% - ----------------------------------------------------------------------------------------------------------- 2001 6.08 6.21 4.29 3.61 6.06 6.19 4.27 3.59 - ----------------------------------------------------------------------------------------------------------- 2002 5.74 5.85 4.07 3.47 5.72 5.83 4.05 3.45 - ----------------------------------------------------------------------------------------------------------- 2003 5.40 5.49 3.85 3.33 5.38 5.47 3.83 3.31 - ----------------------------------------------------------------------------------------------------------- 2004 5.06 5.13 3.63 3.20 5.04 5.11 3.61 3.18 - ----------------------------------------------------------------------------------------------------------- 2005 4.82 4.89 3.39 2.96 4.80 4.87 3.37 2.94 - ----------------------------------------------------------------------------------------------------------- 2006-2026 4.62 4.69 3.18 2.76 4.60 4.67 3.16 2.74 ===========================================================================================================
================================================================================ COAL Historical, weighted-average delivered coal prices for generating facilities are presented in Exhibit 57. Pace's forecast reflects the market outlook for various sulfur grades of coal, trends in the cost of coal transportation, historical data on the composition of coal deliveries by sulfur grade, and supply basin. Pace used the following procedure to generate its forecast: o Step 1: A coal consumption profile was developed for MAIN indicating the shares of coal consumption by sulfur grade and supply area. - -------------------------------------------------------------------------------- Proprietary & Confidential 79 [LOGO] PACE | Global Energy Services o Step 2: National trends in coal supply and demand were reviewed to forecast escalation rates for coal commodity prices as a function of sulfur grade. o Step 3: A base year average delivered coal cost was estimated and escalated according to the consumption profile and escalation rates obtained in Steps 1 and 2. Exhibit 57: Historical Delivered Coal Prices for MAIN by Sulfur Content (1998 $/MMBtu) ================================================================================ GRAPH OF HISTORICAL DELIVERED COAL PRICES FOR MAIN BY SULFUR CONTENT FROM 1989 TO 1999. Sources Pace and RDI COALdat. ================================================================================ MAIN Coal Consumption Profile To reflect variations in coal quality, Pace divided coal consumption by power generators into four categories based on three sulfur grades, with the lowest sulfur grade split between Western sub-bituminous coal from the Powder River Basin ("PRB") and bituminous coal. The defined grades are: o Low Sulfur (Non-PRB) - less than or equal to 1.2 pounds SO(2)/MMBtu, or the average) emission rate that utilities were required to meet by January 1, 2000, under the Clean Air Act Amendments of 1990 ("CAAA"). o PRB (from the Powder River Basin) - less than or equal to 1.2 pounds SO(2)/MMBtu. o Medium Sulfur - greater than 1.2 pounds but less than or equal to 3.34 pounds SO(2)/MMBtu. o High Sulfur - greater than 3.34 pounds SO(2)/MMBtu. - -------------------------------------------------------------------------------- Proprietary & Confidential 80 [LOGO] PACE | Global Energy Services The composition of coal consumption for power generation in MAIN is shown in Exhibit 58. PRB coal accounts for nearly 65 percent of MAIN coal consumption, up from less than 30 percent in 1990. Meanwhile, consumption of high sulfur coal has declined from over 40 percent in 1990 to about 15 percent currently. The remaining 20 percent are closely split between low and medium sulfur grades. Exhibit 58: MAIN Coal Consumption by Sulfur Grade ================================================================================ GRAPH OF MAIN COAL CONSUMPTION SEGREGATED BY SULPHUR GRADE IN 1990, 1995, AND 1998. ================================================================================ As shown in Exhibit 59, Northern Wyoming and Montana, the location of the Powder River Basin, supply a large majority of the low sulfur coal consumed in MAIN. The Central Rockies, primarily Colorado and Southern Wyoming, supply most of the remaining low sulfur coal, while the Illinois Basin is the source for most of the medium and high sulfur coal. - -------------------------------------------------------------------------------- Proprietary & Confidential 81 [LOGO] PACE | Global Energy Services Exhibit 59: MAIN Coal Consumption by Source Region, 1999 ================================================================================ PIE CHART DISPLAYING MAIN COAL CONSUMPTION BY SOURCE REGION IN 1999. ================================================================================ Coal Price Escalation Rates In order to reflect both the overall decline in coal prices and grade-specific variations and trends, Pace applied the real escalation rates by coal type in Exhibit 60. Exhibit 60: Pace Delivered Real Coal Price Escalation Rates ================================================================================
- ----------------------------------------------------------------------------------------------------------------------- Coal Type 2001 2002 2003 2004 2005-2010 2011-2020 2021 2001-2026 - ----------------------------------------------------------------------------------------------------------------------- Low Sulfur 40.00% -5.00% -1.00% -1.00% -0.80% -0.50% 0.00% 0.80% - ----------------------------------------------------------------------------------------------------------------------- Medium Sulfur 35.00% -10.00% -5.00% -1.80% -1.30% -0.90% 0.00% -0.21% - ----------------------------------------------------------------------------------------------------------------------- High Sulfur 20.00% -20.00% -5.00% -2.00% -1.50% -1.00% 0.00% -1.43% - ----------------------------------------------------------------------------------------------------------------------- PRB Sub-bituminous 70.00% -5.00% -20.00% -5.00% -0.30% -0.30% 0.00% 0.75% - -----------------------------------------------------------------------------------------------------------------------
================================================================================ Coal Supply, Demand, and Transportation Trends Pace's long-term coal market outlook is based on a review of fundamental market drivers affecting overall coal prices and the relative values of specific coal grades. Fundamental Drivers Affecting General Delivered Coal Prices o Abundant domestic coal reserves are sufficient to sustain current production levels for over 200 years. o Labor and mining productivity enhancements of recent years, in both underground and surface mines, will continue to moderate extraction costs. The Energy Information - -------------------------------------------------------------------------------- Proprietary & Confidential 82 [LOGO] PACE | Global Energy Services Administration ("EIA") reports that national growth in mining productivity, measured in tons per miner per hour, averaged 6.2 percent per year from 1977 to 1998. o Competition among coal producers and transporters will stimulate innovation and technological advancement that will lower production and transportation costs, particularly in regions east of the Mississippi River. o Increased cross-fuel competition from cleaner and more efficient natural gas will put downward pressure on coal prices because of a shift in the power generation sector toward gas. o The expiration of long-term contracts priced "over market" and a trend toward shorter-term contracts that are better indexed to spot market prices will result in lower average pricing. o U.S. producers face intensified competition from foreign producers, either directly penetrating U.S. markets (e.g., Colombia) or displacing U.S. exports to European and Asian markets e.g., Indonesia and South Africa. Fundamental Drivers Affecting Grade-Specific Coal Prices o Compliance with stricter air quality standards under Phase II of the CAAA is expected to increase demand for coal with a sulfur content of 1.2 lbs. of SO(2)/MMBtu or less. This in turn will have a mitigating effect on the expected real decline of the price of low sulfur coal. o Absolute demand, and hence the rate of price decline for low-sulfur coal will be determined by the balance of the market value of emission allowances, capital cost of scrubbers, and the amount of emission allowances banked by an individual generator. However, most utilities have found the use of low sulfur coal to be the most cost efficient way to comply with the CAAA. o The price for higher sulfur coal is expected to decline faster than other grades as utilities and IPPs comply with stricter emission standards, which entered into force on January 1, 2000. However, the decline in demand for high sulfur coal is expected to level off starting in 2005-2006 when some electric power generators, particularly in regions producing high sulfur coal, plan to install scrubbers to meet stricter emission standards. o Real price declines for medium sulfur coal will be bounded by the economics of burning cleaner coal without scrubbing, versus consuming higher sulfur coals with scrubbing or utilizing emission allowances. o The outlook for various sulfur grades of coal is reflected in current coal production forecasts. As shown in Exhibit 61, production is expected to grow in the West (where most low sulfur coal is mined), to remain generally stable in the Interior region (where most high sulfur coal is mined), and to decline gently in the Appalachian region (which produces a cross-section of coals that are medium sulfur on average). - -------------------------------------------------------------------------------- Proprietary & Confidential 83 [LOGO] PACE | Global Energy Services Exhibit 61: Projected Coal Production Growth by Region(35) ================================================================================ GRAPH OF PROJECTED COAL PRODUCTION GROWTH BY REGION FROM 1998 TO 2020. Source: EIA, Annual Energy Outlook 2001. ================================================================================ Fundamental Drivers Affecting Transportation Rates o Productivity gains through consolidation and the application of new technology in the rail transportation industry will keep transportation costs low or declining. o The use of aluminum rail cars, improved scheduling and fleet management, utilization of electronic control mechanisms, and better locomotive engineering are factors expected to contribute to decreased cycle times and enhanced rail productivity. o Barge rates are expected to continue to be more volatile than rail rates. However, the retirement of old vessels and the construction of new terminals, as well as rehabilitation of old terminals, will keep barge rates on a declining trend. Delivered Coal Price Forecast In developing the plant-by-plant coal price forecast, Pace examined the coal purchasing characteristics underlying each MAIN coal-fired power plant, as well as the overall market for steam coal, to determine the likely delivered coal costs to each plant in the future. Pace also - ---------- 35 Appalachia production includes production from Alabama, Eastern Kentucky, Maryland, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia. Interior production includes production from Arkansas, Illinois, Indiana, Kansas, Western Kentucky, Louisiana, Missouri, Oklahoma, and Texas. Western production includes production from Alaska, Arizona, Colorado, Montana, New Mexico, North Dakota, Utah, Washington, and Wyoming. - -------------------------------------------------------------------------------- Proprietary & Confidential 84 [LOGO] PACE | Global Energy Services reviewed the monthly coal deliveries to each of the facilities (as reported by FERC Form 423 and RDI COALdat) and incorporated into the delivered price forecast an assessment of the level of "over-market" coal contracts at these plants and the assumptions regarding the timing of "over-market" coal contract expiration and phase-out periods, as well as spot coal price escalation. Pace applied the escalator set, as weighted by these factors, to arrive at the plant specific delivered price forecasts. URANIUM Pace expects uranium prices to remain constant in real terms over the next 20 years. Therefore, Pace assumed utility uranium prices would be equal to their 1996 average value (zero percent annual real rate of escalation). - -------------------------------------------------------------------------------- Proprietary & Confidential 85 [LOGO] PACE | Global Energy Services ================================================================================ APPENDIX A - SENSITIVITIES ================================================================================ HIGH GAS CASE Given the recent rise in natural gas prices and the resulting uncertainty in gas price levels, Pace conducted a high natural gas sensitivity to evaluate the effect of higher natural gas prices on the Project. Pace's High Natural Gas Case forecast represents an average 57% increase over Pace's Base Case gas forecast as outlined in Exhibit 62. Exhibit 63 and Exhibit 64 illustrate the effect that this sensitivity has on forecast Northern Illinois market-clearing prices. Over the Study Period, average market-clearing prices are forecast to average $38.79/MWh per year, an increase of $8.38/MWh or 27.5% over Base Case average market-clearing prices. On-peak prices average $47.85 /MWh per year, an increase of $8.17/MWh or 20.6%, while off-peak prices average $30.56/MWh per year, an increase $ 8.56/MWh or 38.9%. The effect of this sensitivity is to increase average market-clearing prices as a whole, as gas-fired capacity increasingly becomes the dominant fuel on the margin and thus the marginal price setter. The effect is slightly more pronounced on off-peak prices than on-peak prices as gas becomes increasingly on the margin not only in on-peak periods but in off-peak periods as well. Exhibit 65 and Exhibit 66 outline and summarize the impact that the High Natural Gas Case has on the generation and revenue profile of the Project over the Study Period.(36) Increases in natural gas prices as simulated in this sensitivity place gas-fired generators at a competitive disadvantage compared to low-cost, coal-fired generators, non-gas-fired based purchases, and lower priced gas regions outside of the Project's transmission region. These factors cause the Project to move higher up dispatch curve resulting in slightly decreased capacity factors and generation. The following summarizes the effects of this sensitivity on the Project compared to the Base Case: o Average annual capacity factors decrease to 11.08% per year from 11.93% per year. o Average annual generation decreases to 1,367 GWh per year from 1,472 GWh per year. o Average energy and capacity revenues increase to $153.2 million per year from $134.3 million per year. o Average energy and capacity revenues per MWh increase to $116.06/MWh per year from $95.12/MWh per year. - ---------- 36 The comparison to the Project Base Case revenue forecast excludes forecast volatility values from the calculation. - -------------------------------------------------------------------------------- Proprietary & Confidential 86 [LOGO] PACE | Global Energy Services o Average gross margins increase to $88.54 million per year or $62.86/kW-year compared to $88.18 million per year or $62.60/kW-year. The impact of the High Gas Case on the operational results for the Exelon and Aquila PSAs are similar to those outlined previously: decreased capacity factors and generation, but increased revenues due to higher average market-clearing prices, leading to a small change in gross margins. Exhibit 62: Comparison of Base Case and High Gas Case Henry Hub Prices - (1998 $/MMBtu) ================================================================================ -------------------------------------------------- Base High Gas % Year Case Case Difference -------------------------------------------------- 2001 4.98 5.71 15% -------------------------------------------------- 2002 3.80 5.13 35% -------------------------------------------------- 2003 3.28 4.61 41% -------------------------------------------------- 2004 2.94 4.27 45% -------------------------------------------------- 2005 2.72 4.05 49% -------------------------------------------------- 2006 2.57 3.90 52% -------------------------------------------------- 2007 2.47 3.80 54% -------------------------------------------------- 2008 2.41 3.74 55% -------------------------------------------------- 2009 2.40 3.73 55% -------------------------------------------------- 2010 2.41 3.77 56% -------------------------------------------------- 2011 2.42 3.80 57% -------------------------------------------------- 2012 2.43 3.84 58% -------------------------------------------------- 2013 2.45 3.88 58% -------------------------------------------------- 2014 2.46 3.92 59% -------------------------------------------------- 2015 2.47 3.96 60% -------------------------------------------------- 2016 2.48 4.00 61% -------------------------------------------------- 2017 2.50 4.04 62% -------------------------------------------------- 2018 2.51 4.08 63% -------------------------------------------------- 2019 2.52 4.12 64% -------------------------------------------------- 2020 2.53 4.16 64% -------------------------------------------------- 2021 2.55 4.20 65% -------------------------------------------------- 2022 2.56 4.25 66% -------------------------------------------------- 2023 2.57 4.29 67% -------------------------------------------------- 2024 2.58 4.33 68% -------------------------------------------------- 2025 2.60 4.37 68% -------------------------------------------------- 2026 2.61 4.42 69% -------------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 87 [LOGO] PACE | Global Energy Services Exhibit 63: MAIN - NI Annual System Average Market Price - High Gas Case (1998 $/MWh) ================================================================================ ------------------------------------------------------- Off-Peak On-Peak Average Year $/MWh $/MWh $/MWh ------------------------------------------------------- 2001 29.34 51.59 39.93 ------------------------------------------------------- 2002 29.40 50.36 39.38 ------------------------------------------------------- 2003 27.54 45.82 36.25 ------------------------------------------------------- 2004 26.02 44.57 34.85 ------------------------------------------------------- 2005 26.52 44.73 35.19 ------------------------------------------------------- 2006 25.58 45.14 34.90 ------------------------------------------------------- 2007 25.98 43.89 34.51 ------------------------------------------------------- 2008 27.20 43.53 34.97 ------------------------------------------------------- 2009 27.04 43.69 34.97 ------------------------------------------------------- 2010 28.38 44.70 36.15 ------------------------------------------------------- 2011 28.28 46.80 37.10 ------------------------------------------------------- 2012 29.26 46.39 37.41 ------------------------------------------------------- 2013 29.66 46.24 37.55 ------------------------------------------------------- 2014 30.41 46.38 38.01 ------------------------------------------------------- 2015 30.89 47.36 38.73 ------------------------------------------------------- 2016 31.01 47.98 39.09 ------------------------------------------------------- 2017 31.99 48.68 39.94 ------------------------------------------------------- 2018 32.06 49.19 40.22 ------------------------------------------------------- 2019 33.54 49.55 41.17 ------------------------------------------------------- 2020 33.48 49.68 41.19 ------------------------------------------------------- 2021 33.30 49.59 41.06 ------------------------------------------------------- 2022 34.47 50.11 41.92 ------------------------------------------------------- 2023 34.60 50.57 42.20 ------------------------------------------------------- 2024 35.33 52.27 43.40 ------------------------------------------------------- 2025 36.02 51.94 43.60 ------------------------------------------------------- 2026 37.29 53.39 44.96 ------------------------------------------------------- Avg. 30.56 47.85 38.79 ------------------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 88 [LOGO] PACE | Global Energy Services Exhibit 64: Difference - Base Case & High Gas Case Market Prices (1998 $/MWh) ================================================================================ ------------------------------------------------------- Off-Peak On-Peak Average Year $/MWh $/MWh $/MWh ------------------------------------------------------- 2001 2.35 2.31 2.33 ------------------------------------------------------- 2002 5.07 4.97 5.02 ------------------------------------------------------- 2003 5.20 4.95 5.08 ------------------------------------------------------- 2004 5.05 5.13 5.09 ------------------------------------------------------- 2005 5.58 5.67 5.62 ------------------------------------------------------- 2006 5.40 6.03 5.70 ------------------------------------------------------- 2007 5.85 5.74 5.80 ------------------------------------------------------- 2008 6.49 5.63 6.08 ------------------------------------------------------- 2009 6.74 6.10 6.44 ------------------------------------------------------- 2010 7.34 6.54 6.96 ------------------------------------------------------- 2011 7.57 7.08 7.34 ------------------------------------------------------- 2012 7.96 7.69 7.83 ------------------------------------------------------- 2013 8.18 7.73 7.97 ------------------------------------------------------- 2014 8.74 8.02 8.39 ------------------------------------------------------- 2015 9.08 8.43 8.77 ------------------------------------------------------- 2016 9.53 9.32 9.43 ------------------------------------------------------- 2017 10.02 9.58 9.81 ------------------------------------------------------- 2018 10.15 10.05 10.10 ------------------------------------------------------- 2019 11.09 10.45 10.79 ------------------------------------------------------- 2020 11.20 10.45 10.84 ------------------------------------------------------- 2021 11.22 10.84 11.04 ------------------------------------------------------- 2022 11.91 11.27 11.61 ------------------------------------------------------- 2023 12.00 11.41 11.72 ------------------------------------------------------- 2024 12.42 12.11 12.27 ------------------------------------------------------- 2025 12.89 12.13 12.53 ------------------------------------------------------- 2026 13.62 12.86 13.26 ------------------------------------------------------- Avg. 8.56 8.17 8.38 ------------------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 89 [LOGO] PACE | Global Energy Services Exhibit 65: Project Annual Operational Summary - High Natural Gas Case (1998 $) ================================================================================
- ------------------------------------------------------------------------------------------------------------------ Capacity Capacity Variable and and O&M Energy Energy Gross Gross Capacity Generation Capacity Fuel Costs Costs Revenue Revenue Margin Margin Year MW GWh Factor $1000 $1000 $1000 $/MWh $1000 $/KW - ------------------------------------------------------------------------------------------------------------------ 2001 1,409 983 7.97% 60,934 1,030 170,111 172.99 108,147 76.78 - ------------------------------------------------------------------------------------------------------------------ 2002 1,409 1,088 8.82% 60,514 1,133 163,002 149.85 101,354 71.96 - ------------------------------------------------------------------------------------------------------------------ 2003 1,409 915 7.42% 45,556 959 135,753 148.33 89,238 63.36 - ------------------------------------------------------------------------------------------------------------------ 2004 1,409 842 6.83% 39,318 894 125,148 148.57 84,936 60.30 - ------------------------------------------------------------------------------------------------------------------ 2005 1,409 1,110 9.00% 49,566 1,168 135,852 122.38 85,118 60.43 - ------------------------------------------------------------------------------------------------------------------ 2006 1,409 1,131 9.17% 48,609 1,199 135,452 119.75 85,643 60.80 - ------------------------------------------------------------------------------------------------------------------ 2007 1,409 1,115 9.04% 46,941 1,169 129,694 116.29 81,584 57.92 - ------------------------------------------------------------------------------------------------------------------ 2008 1,409 1,191 9.66% 49,688 1,255 135,413 113.66 84,470 59.97 - ------------------------------------------------------------------------------------------------------------------ 2009 1,409 1,212 9.83% 50,349 1,275 132,950 109.66 81,326 57.74 - ------------------------------------------------------------------------------------------------------------------ 2010 1,409 1,107 8.97% 46,354 1,178 133,989 121.02 86,457 61.38 - ------------------------------------------------------------------------------------------------------------------ 2011 1,409 922 7.47% 38,892 976 133,800 145.15 93,932 66.69 - ------------------------------------------------------------------------------------------------------------------ 2012 1,409 1,079 8.75% 45,830 1,154 135,714 125.75 88,730 63.00 - ------------------------------------------------------------------------------------------------------------------ 2013 1,409 1,499 12.15% 63,296 3,204 153,208 102.21 86,707 61.56 - ------------------------------------------------------------------------------------------------------------------ 2014 1,409 1,633 13.23% 70,049 3,472 160,787 98.49 87,266 61.96 - ------------------------------------------------------------------------------------------------------------------ 2015 1,409 1,739 14.09% 74,859 3,836 165,380 95.12 86,685 61.54 - ------------------------------------------------------------------------------------------------------------------ 2016 1,409 1,447 11.73% 62,905 3,209 151,606 104.78 85,492 60.70 - ------------------------------------------------------------------------------------------------------------------ 2017 1,409 1,768 14.33% 77,716 3,864 169,991 96.14 88,410 62.77 - ------------------------------------------------------------------------------------------------------------------ 2018 1,409 1,709 13.85% 75,781 3,754 166,558 97.43 87,023 61.78 - ------------------------------------------------------------------------------------------------------------------ 2019 1,409 1,944 15.76% 87,028 4,180 178,517 91.82 87,308 61.99 - ------------------------------------------------------------------------------------------------------------------ 2020 1,409 1,654 13.40% 74,544 3,664 167,493 101.27 89,285 63.39 - ------------------------------------------------------------------------------------------------------------------ 2021 1,409 1,672 13.55% 76,004 3,840 165,643 99.07 85,799 60.92 - ------------------------------------------------------------------------------------------------------------------ 2022 1,409 1,587 12.86% 72,827 4,724 163,729 103.16 86,178 61.18 - ------------------------------------------------------------------------------------------------------------------ 2023 1,409 1,477 11.97% 67,978 5,171 160,580 108.69 87,431 62.07 - ------------------------------------------------------------------------------------------------------------------ 2024 1,409 1,517 12.30% 70,521 5,310 168,296 110.93 92,465 65.65 - ------------------------------------------------------------------------------------------------------------------ 2025 1,409 1,528 12.38% 71,910 5,348 166,795 109.16 89,537 63.57 - ------------------------------------------------------------------------------------------------------------------ 2026 1,409 1,670 13.53% 79,520 5,845 176,899 105.94 91,534 64.99 - ------------------------------------------------------------------------------------------------------------------ Avg. 1,409 1,367 11.08% 61,827 2,800 153,168 116.06 88,541 62.86 - ------------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 90 [LOGO] PACE | Global Energy Services Exhibit 66: Difference - Base Case & High Natural Gas Case Project Results (1998 $) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------ Capacity Capacity Variable and and O&M Energy Energy Gross Gross Capacity Generation Capacity Fuel Costs Costs Revenue Revenue Margin Margin Year MW GWh Factor $1000 $1000 $1000 $/MWh $1000 $/KW - ------------------------------------------------------------------------------------------------------------------ 2001 0 -14 -0.11% 6,654 -21 6,223 8.69 -410 -0.29 - ------------------------------------------------------------------------------------------------------------------ 2002 0 -40 -0.33% 13,440 -44 13,958 17.75 563 0.40 - ------------------------------------------------------------------------------------------------------------------ 2003 0 -42 -0.34% 11,307 -44 11,470 18.54 207 0.15 - ------------------------------------------------------------------------------------------------------------------ 2004 0 -95 -0.77% 8,601 -100 8,396 23.95 -104 -0.07 - ------------------------------------------------------------------------------------------------------------------ 2005 0 -189 -1.53% 9,561 -204 9,278 24.94 -78 -0.06 - ------------------------------------------------------------------------------------------------------------------ 2006 0 -188 -1.53% 10,165 -204 10,098 24.75 137 0.10 - ------------------------------------------------------------------------------------------------------------------ 2007 0 -221 -1.79% 9,460 -231 8,667 25.73 -562 -0.40 - ------------------------------------------------------------------------------------------------------------------ 2008 0 -224 -1.82% 10,576 -237 10,461 25.38 122 0.09 - ------------------------------------------------------------------------------------------------------------------ 2009 0 -167 -1.36% 12,310 -183 11,728 21.80 -399 -0.28 - ------------------------------------------------------------------------------------------------------------------ 2010 0 -132 -1.07% 12,265 -139 12,607 23.03 482 0.34 - ------------------------------------------------------------------------------------------------------------------ 2011 0 -104 -0.84% 10,459 -112 9,819 24.29 -529 -0.38 - ------------------------------------------------------------------------------------------------------------------ 2012 0 -119 -0.97% 12,639 -127 12,741 23.16 230 0.16 - ------------------------------------------------------------------------------------------------------------------ 2013 0 -223 -1.81% 16,580 -442 16,007 22.55 -132 -0.09 - ------------------------------------------------------------------------------------------------------------------ 2014 0 -103 -0.84% 22,597 -257 22,939 19.08 599 0.43 - ------------------------------------------------------------------------------------------------------------------ 2015 0 -147 -1.20% 23,285 -341 23,229 19.75 285 0.20 - ------------------------------------------------------------------------------------------------------------------ 2016 0 -135 -1.10% 19,606 -289 20,009 21.61 692 0.49 - ------------------------------------------------------------------------------------------------------------------ 2017 0 -98 -0.80% 26,152 -250 26,731 19.38 829 0.59 - ------------------------------------------------------------------------------------------------------------------ 2018 0 -118 -0.96% 25,098 -305 25,116 20.03 323 0.23 - ------------------------------------------------------------------------------------------------------------------ 2019 0 -74 -0.60% 30,857 -127 31,100 18.77 370 0.26 - ------------------------------------------------------------------------------------------------------------------ 2020 0 -34 -0.28% 27,563 -113 28,645 19.01 1,194 0.85 - ------------------------------------------------------------------------------------------------------------------ 2021 0 -28 -0.23% 28,225 -72 28,684 18.51 531 0.38 - ------------------------------------------------------------------------------------------------------------------ 2022 0 -42 -0.34% 27,190 -72 27,980 19.83 861 0.61 - ------------------------------------------------------------------------------------------------------------------ 2023 0 -71 -0.58% 24,865 -249 26,174 21.90 1,558 1.11 - ------------------------------------------------------------------------------------------------------------------ 2024 0 -7 -0.06% 27,873 -25 28,218 19.03 370 0.26 - ------------------------------------------------------------------------------------------------------------------ 2025 0 -35 -0.29% 27,609 -124 28,667 20.81 1,181 0.84 - ------------------------------------------------------------------------------------------------------------------ 2026 0 -70 -0.57% 30,069 -245 31,003 22.09 1,180 0.84 - ------------------------------------------------------------------------------------------------------------------ Avg. 0 -105 -0.85% 18,654 -175 18,844 20.94 365 0.26 - ------------------------------------------------------------------------------------------------------------------
* The comparison to the Project Base Case revenue forecast excludes forecast volatility values from the calculation. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 91 [LOGO] PACE | Global Energy Services OVERBUILD CASE In addition to a High Natural Gas Case, Pace also analyzed the performance of the Project using a capacity overbuild scenario. Pace's Overbuild Case assumes that an additional 2,739 MW of gas-fired combined cycle capacity (equivalent to 5% of 2005 peak demand) is in operation in 2005. The addition of this incremental capacity in the Overbuild Case increases the MAIN annual reserve margin from 19.78% in 2005 under the Base Case to 23.89% and the 2009 Base Case value from 16.22% to 17.61%. The impact of this overbuild is concentrated during the period 2005-2012. During this period, excess capacity lowers market-clearing prices in the region as well as generation and revenues for the Project. As demand increases, and excess capacity represents an increasingly smaller proportion of system resources, the market gradually returns to an equilibrium point by 2013. Exhibit 67 and Exhibit 68 illustrate the effect that this sensitivity has on forecast Northern Illinois market-clearing prices. Over the Study Period, average market-clearing prices are forecast to average $30.07/MWh per year, a decrease of $0.35/MWh or 1.14% compared to Base Case average market-clearing prices. On-peak prices average $39.16/MWh per year, a decrease of $0.51 /MWh or 1.30%, while off-peak prices average $21.80 /MWh per year, a decrease of $0.19/MWh or 0.88%. Exhibit 69 and Exhibit 70 outline and summarize the impact that the Overbuild Case has on the generation and revenue profile of the Project over the Study Period.(37) The introduction of additional gas-fired combined cycle generators to the MAIN market, together with the consequential reduction in market-clearing prices as the market returns to equilibrium, leads to reductions in generation, capacity factors, revenues and gross margins for the Project. The following summarizes the effects of this sensitivity on the Project compared to the Base Case: o Average annual capacity factors decrease to 11.07% per year from 11.93% per year. o Average annual generation decreases to 1,366 GWh per year from to 1,472 GWh per year. o Average energy and capacity revenues decrease to $128.4 million per year from $134.3 million per year. o Average revenues per MWh increase to $100.11/MWh per year from $95.12/MWh per year. - ---------- 37 The comparison to the Project Base Case revenue forecast excludes forecast volatility values from the calculation. - -------------------------------------------------------------------------------- Proprietary & Confidential 92 [LOGO] PACE | Global Energy Services o Average gross margins, decrease to $85.46 million per year or $60.68/kW-year compared to $88.18 million per year or $62.60/kW-year. The impact of the Overbuild Case on the operational results for the Exelon and Aquila PSAs are similar to those outlined above: reduced capacity factors, generation, total revenues and gross margins. Exhibit 67: MAIN-NI Annual Price Summary - Overbuild Case (1998 $/MWh) ================================================================================ --------------------------------------------- Off-Peak On-Peak Average Year $/MWh $/MWh $/MWh --------------------------------------------- 2001 26.98 49.28 37.60 --------------------------------------------- 2002 24.33 45.40 34.37 --------------------------------------------- 2003 22.34 40.87 31.16 --------------------------------------------- 2004 20.96 39.44 29.76 --------------------------------------------- 2005 19.67 35.55 27.23 --------------------------------------------- 2006 19.46 35.76 27.22 --------------------------------------------- 2007 19.52 35.76 27.25 --------------------------------------------- 2008 19.61 36.15 27.49 --------------------------------------------- 2009 19.95 36.51 27.83 --------------------------------------------- 2010 20.53 37.68 28.69 --------------------------------------------- 2011 20.64 39.18 29.47 --------------------------------------------- 2012 20.92 38.42 29.25 --------------------------------------------- 2013 21.48 38.51 29.59 --------------------------------------------- 2014 21.67 38.36 29.62 --------------------------------------------- 2015 21.81 38.93 29.96 --------------------------------------------- 2016 21.48 38.66 29.66 --------------------------------------------- 2017 21.97 39.09 30.13 --------------------------------------------- 2018 21.91 39.14 30.11 --------------------------------------------- 2019 22.45 39.10 30.38 --------------------------------------------- 2020 22.28 39.23 30.35 --------------------------------------------- 2021 22.08 38.74 30.01 --------------------------------------------- 2022 22.56 38.84 30.31 --------------------------------------------- 2023 22.60 39.16 30.49 --------------------------------------------- 2024 22.91 40.16 31.13 --------------------------------------------- 2025 23.13 39.80 31.07 --------------------------------------------- 2026 23.67 40.53 31.70 --------------------------------------------- Avg. 21.80 39.16 30.07 --------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 93 [LOGO] PACE | Global Energy Services Exhibit 68: Difference - Base Case & Overbuild Case Market Prices (1998 $/MWh) ================================================================================ --------------------------------------------- Off-Peak On-Peak Average Year $/MWh $/MWh $/MWh --------------------------------------------- 2001 0.00 0.00 0.00 --------------------------------------------- 2002 0.00 0.00 0.00 --------------------------------------------- 2003 0.00 0.00 0.00 --------------------------------------------- 2004 0.00 0.00 0.00 --------------------------------------------- 2005 -1.27 -3.51 -2.34 --------------------------------------------- 2006 -0.72 -3.35 -1.98 --------------------------------------------- 2007 -0.61 -2.39 -1.46 --------------------------------------------- 2008 -1.10 -1.75 -1.41 --------------------------------------------- 2009 -0.35 -1.07 -0.70 --------------------------------------------- 2010 -0.51 -0.49 -0.50 --------------------------------------------- 2011 -0.07 -0.55 -0.30 --------------------------------------------- 2012 -0.38 -0.27 -0.33 --------------------------------------------- 2013 0.00 0.00 0.00 --------------------------------------------- 2014 0.00 0.00 0.00 --------------------------------------------- 2015 0.00 0.00 0.00 --------------------------------------------- 2016 0.00 0.00 0.00 --------------------------------------------- 2017 0.00 0.00 0.00 --------------------------------------------- 2018 0.00 0.00 0.00 --------------------------------------------- 2019 0.00 0.00 0.00 --------------------------------------------- 2020 0.00 0.00 0.00 --------------------------------------------- 2021 0.00 0.00 0.00 --------------------------------------------- 2022 0.00 0.00 0.00 --------------------------------------------- 2023 0.00 0.00 0.00 --------------------------------------------- 2024 0.00 0.00 0.00 --------------------------------------------- 2025 0.00 0.00 0.00 --------------------------------------------- 2026 0.00 0.00 0.00 --------------------------------------------- Avg. -0.19 -0.51 -0.35 --------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 94 [LOGO] PACE | Global Energy Services Exhibit 69: Project Annual Operational Summary - Overbuild Case (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- Capacity Capacity Variable and and O&M Energy Energy Gross Gross Capacity Generation Capacity Fuel Costs Costs Revenue Revenue Margin Margin Year MW GWh Factor $1000 $1000 $1000 $/MWh $1000 $/KW - ---------------------------------------------------------------------------------------------------------------------------------- 2001 1,409 998 8.08% 54,280 1,051 163,889 164.29 108,557 77.07 - ---------------------------------------------------------------------------------------------------------------------------------- 2002 1,409 1,128 9.14% 47,074 1,178 149,044 132.11 100,792 71.56 - ---------------------------------------------------------------------------------------------------------------------------------- 2003 1,409 958 7.76% 34,249 1,002 124,283 129.79 89,031 63.21 - ---------------------------------------------------------------------------------------------------------------------------------- 2004 1,409 937 7.59% 30,717 994 116,752 124.62 85,041 60.38 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 1,409 596 4.83% 18,037 626 86,254 144.68 67,591 47.99 - ---------------------------------------------------------------------------------------------------------------------------------- 2006 1,409 821 6.65% 23,930 861 94,112 114.69 69,322 49.22 - ---------------------------------------------------------------------------------------------------------------------------------- 2007 1,409 941 7.63% 26,290 992 97,298 103.36 70,016 49.71 - ---------------------------------------------------------------------------------------------------------------------------------- 2008 1,409 928 7.52% 25,378 970 100,253 108.08 73,905 52.47 - ---------------------------------------------------------------------------------------------------------------------------------- 2009 1,409 1,019 8.26% 27,771 1,069 104,390 102.40 75,550 53.64 - ---------------------------------------------------------------------------------------------------------------------------------- 2010 1,409 1,201 9.73% 32,925 1,264 116,862 97.29 82,673 58.70 - ---------------------------------------------------------------------------------------------------------------------------------- 2011 1,409 918 7.44% 25,393 975 117,671 128.14 91,303 64.82 - ---------------------------------------------------------------------------------------------------------------------------------- 2012 1,409 1,051 8.52% 29,110 1,117 117,177 111.47 86,950 61.73 - ---------------------------------------------------------------------------------------------------------------------------------- 2013 1,409 1,722 13.96% 46,716 3,646 137,201 79.65 86,839 61.65 - ---------------------------------------------------------------------------------------------------------------------------------- 2014 1,409 1,736 14.07% 47,452 3,729 137,848 79.41 86,667 61.53 - ---------------------------------------------------------------------------------------------------------------------------------- 2015 1,409 1,886 15.29% 51,575 4,177 142,151 75.36 86,400 61.34 - ---------------------------------------------------------------------------------------------------------------------------------- 2016 1,409 1,582 12.82% 43,299 3,498 131,597 83.17 84,800 60.21 - ---------------------------------------------------------------------------------------------------------------------------------- 2017 1,409 1,866 15.13% 51,564 4,115 143,260 76.76 87,581 62.18 - ---------------------------------------------------------------------------------------------------------------------------------- 2018 1,409 1,827 14.81% 50,683 4,059 141,442 77.40 86,700 61.55 - ---------------------------------------------------------------------------------------------------------------------------------- 2019 1,409 2,018 16.36% 56,171 4,307 147,416 73.05 86,938 61.72 - ---------------------------------------------------------------------------------------------------------------------------------- 2020 1,409 1,688 13.68% 46,981 3,776 138,848 82.26 88,091 62.54 - ---------------------------------------------------------------------------------------------------------------------------------- 2021 1,409 1,700 13.78% 47,779 3,912 136,959 80.56 85,268 60.54 - ---------------------------------------------------------------------------------------------------------------------------------- 2022 1,409 1,629 13.20% 45,637 4,795 135,749 83.33 85,317 60.57 - ---------------------------------------------------------------------------------------------------------------------------------- 2023 1,409 1,549 12.55% 43,112 5,420 134,406 86.79 85,873 60.97 - ---------------------------------------------------------------------------------------------------------------------------------- 2024 1,409 1,524 12.35% 42,648 5,335 140,078 91.90 92,095 65.39 - ---------------------------------------------------------------------------------------------------------------------------------- 2025 1,409 1,564 12.67% 44,300 5,472 138,129 88.34 88,356 62.73 - ---------------------------------------------------------------------------------------------------------------------------------- 2026 1,409 1,740 14.10% 49,451 6,090 145,896 83.85 90,355 64.15 - ---------------------------------------------------------------------------------------------------------------------------------- Avg. 1,409 1,366 11.07% 40,097 2,863 128,422 100.11 85,462 60.68 - ----------------------------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 95 [LOGO] PACE | Global Energy Services Exhibit 70: Difference - Base Case & Overbuild Case Project Results (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- Capacity Capacity Variable and and O&M Energy Energy Gross Gross Capacity Generation Capacity Fuel Costs Costs Revenue Revenue Margin Margin Year MW GWh Factor $1000 $1000 $1000 $/MWh $1000 $/KW - ---------------------------------------------------------------------------------------------------------------------------------- 2001 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2002 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2003 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2004 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 0 -703 -5.70% -21,968 -746 -40,320 47.24 -17,605 -12.50 - ---------------------------------------------------------------------------------------------------------------------------------- 2006 0 -499 -4.04% -14,514 -542 -31,241 19.70 -16,185 -11.49 - ---------------------------------------------------------------------------------------------------------------------------------- 2007 0 -395 -3.20% -11,191 -408 -23,729 12.80 -12,130 -8.61 - ---------------------------------------------------------------------------------------------------------------------------------- 2008 0 -488 -3.95% -13,733 -521 -24,698 19.80 -10,444 -7.41 - ---------------------------------------------------------------------------------------------------------------------------------- 2009 0 -360 -2.92% -10,268 -390 -16,832 14.55 -6,175 -4.38 - ---------------------------------------------------------------------------------------------------------------------------------- 2010 0 -38 -0.30% -1,164 -53 -4,519 -0.70 -3,301 -2.34 - ---------------------------------------------------------------------------------------------------------------------------------- 2011 0 -108 -0.87% -3,040 -114 -6,310 7.28 -3,157 -2.24 - ---------------------------------------------------------------------------------------------------------------------------------- 2012 0 -148 -1.20% -4,081 -163 -5,796 8.88 -1,551 -1.10 - ---------------------------------------------------------------------------------------------------------------------------------- 2013 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2014 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2015 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2016 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2017 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2018 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2019 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2020 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2021 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2022 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2023 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2024 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2025 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- 2026 0 0 0.00% 0 0 0 0.00 0 0.00 - ---------------------------------------------------------------------------------------------------------------------------------- Avg. 0 -105 -0.85% -3,075 -113 -5,902 4.98 -2,713 -1.93 - ----------------------------------------------------------------------------------------------------------------------------------
* The comparison to the Project Base Case revenue forecast excludes forecast volatility values from the calculation. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 96 [LOGO] PACE | Global Energy Services AQUILA PSA EXTENSION CASE In addition to the High Natural Gas and Overbuild Cases, Pace also analyzed the performance of the Project assuming that Aquila would not extend the initial terms of each of the Aquila PSAs for additional 5-year terms as assumed in the Base Case. The Base Case assumes that the term of the Aquila PSA 1 would be extended to August 31, 2021 and that the term of the Aquila PSA 2 would be extended to August 31, 2022. This scenario assumes that the Aquila PSA 1 would terminate on August 31, 2016, rather than on August 31, 2021 and that the Aquila PSA2 would terminate on August 31, 2017 rather than on August 31, 2022. The impact of the non-extension of the Aquila PSAs is concentrated during the period 2016-2026. During this period, Units 5-8 are no longer dispatched according to the Aquila PSAs and are operated on a merchant basis by Elwood using the specifications outlined in Exhibit 48. Exhibit 67 and Exhibit 68 illustrate the effect that this sensitivity has on forecast Northern Illinois market-clearing prices. The non-extension of the Aquila PSAs has a negligible impact on market-clearing prices. Exhibit 69 and Exhibit 70 outline and summarize the impact that the Aquila PSA Extension Case has on the generation and revenue profile of the Project over the Study Period.(38) The following summarizes the effects of this sensitivity on the Project compared to the Base Case: o Average annual capacity factors decrease to 11.63% per year from 11.93% per year. o Average annual generation decreases to 1,435 GWh per year from to 1,472 GWh per year. o Average energy and capacity revenues decrease to $133.3 million per year from $134.3 million per year. o Average revenues per MWh increase to $96.23/MWh per year from $95.12/MWh per year. o Average gross margins, decrease to $87.94 million per year or $62.43/kW-year compared to $88.18 million per year or $62.60/kW-year. - ---------- 38 The comparison to the Project Base Case revenue forecast excludes forecast volatility values from the calculation. - -------------------------------------------------------------------------------- Proprietary & Confidential 97 [LOGO] PACE | Global Energy Services Exhibit 71: MAIN-NI Annual Price Summary - Aquila PSA Extension Case (1998 $/MWh) ================================================================================ -------------------------------------------- Off-Peak On-Peak Average Year $/MWh $/MWh $/MWh -------------------------------------------- 2001 26.98 49.28 37.60 -------------------------------------------- 2002 24.33 45.40 34.37 -------------------------------------------- 2003 22.34 40.87 31.16 -------------------------------------------- 2004 20.96 39.44 29.76 -------------------------------------------- 2005 20.94 39.06 29.57 -------------------------------------------- 2006 20.18 39.12 29.20 -------------------------------------------- 2007 20.13 38.15 28.71 -------------------------------------------- 2008 20.71 37.90 28.89 -------------------------------------------- 2009 20.30 37.59 28.53 -------------------------------------------- 2010 21.04 38.16 29.19 -------------------------------------------- 2011 20.71 39.73 29.76 -------------------------------------------- 2012 21.29 38.69 29.58 -------------------------------------------- 2013 21.48 38.51 29.59 -------------------------------------------- 2014 21.67 38.36 29.62 -------------------------------------------- 2015 21.81 38.93 29.96 -------------------------------------------- 2016 21.47 38.66 29.65 -------------------------------------------- 2017 21.98 39.09 30.13 -------------------------------------------- 2018 21.92 39.14 30.12 -------------------------------------------- 2019 22.44 39.11 30.38 -------------------------------------------- 2020 22.28 39.22 30.35 -------------------------------------------- 2021 22.07 38.72 30.00 -------------------------------------------- 2022 22.55 38.83 30.31 -------------------------------------------- 2023 22.60 39.16 30.49 -------------------------------------------- 2024 22.91 40.16 31.13 -------------------------------------------- 2025 23.13 39.80 31.07 -------------------------------------------- 2026 23.67 40.53 31.70 -------------------------------------------- Avg. 22.00 39.68 30.42 -------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 98 [LOGO] PACE | Global Energy Services Exhibit 72: Difference - Base Case & Aquila Extension Case Market Prices (1998 $/MWh) ================================================================================ -------------------------------------------- Off-Peak On-Peak Average Year $/MWh $/MWh $/MWh -------------------------------------------- 2001 0.00 0.00 0.00 -------------------------------------------- 2002 0.00 0.00 0.00 -------------------------------------------- 2003 0.00 0.00 0.00 -------------------------------------------- 2004 0.00 0.00 0.00 -------------------------------------------- 2005 0.00 0.00 0.00 -------------------------------------------- 2006 0.00 0.00 0.00 -------------------------------------------- 2007 0.00 0.00 0.00 -------------------------------------------- 2008 0.00 0.00 0.00 -------------------------------------------- 2009 0.00 0.00 0.00 -------------------------------------------- 2010 0.00 0.00 0.00 -------------------------------------------- 2011 0.00 0.00 0.00 -------------------------------------------- 2012 0.00 0.00 0.00 -------------------------------------------- 2013 0.00 0.00 0.00 -------------------------------------------- 2014 0.00 0.00 0.00 -------------------------------------------- 2015 0.00 0.00 0.00 -------------------------------------------- 2016 -0.01 0.00 -0.01 -------------------------------------------- 2017 0.01 0.00 0.00 -------------------------------------------- 2018 0.01 0.00 0.00 -------------------------------------------- 2019 -0.02 0.01 0.00 -------------------------------------------- 2020 0.00 -0.01 0.00 -------------------------------------------- 2021 -0.01 -0.02 -0.01 -------------------------------------------- 2022 0.00 -0.01 -0.01 -------------------------------------------- 2023 0.00 0.00 0.00 -------------------------------------------- 2024 0.00 0.00 0.00 -------------------------------------------- 2025 0.00 0.00 0.00 -------------------------------------------- 2026 0.00 0.00 0.00 -------------------------------------------- Avg. 0.00 0.00 0.00 -------------------------------------------- ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 99 [LOGO] PACE | Global Energy Services Exhibit 73: Project Annual Operational Summary - Aquila PSA Extension Case (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- Capacity Capacity Variable and and O&M Energy Energy Gross Gross Capacity Generation Capacity Fuel Costs Costs Revenue Revenue Margin Margin Year MW GWh Factor $1000 $1000 $1000 $/MWh $1000 $/KW - ---------------------------------------------------------------------------------------------------------------------------------- 2001 1,409 998 8.08% 54,280 1,051 163,889 164.29 108,557 77.07 - ---------------------------------------------------------------------------------------------------------------------------------- 2002 1,409 1,128 9.14% 47,074 1,178 149,044 132.11 100,792 71.56 - ---------------------------------------------------------------------------------------------------------------------------------- 2003 1,409 958 7.76% 34,249 1,002 124,283 129.79 89,031 63.21 - ---------------------------------------------------------------------------------------------------------------------------------- 2004 1,409 937 7.59% 30,717 994 116,752 124.62 85,041 60.38 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 1,409 1,299 10.53% 40,005 1,372 126,574 97.44 85,196 60.49 - ---------------------------------------------------------------------------------------------------------------------------------- 2006 1,409 1,320 10.69% 38,444 1,403 125,353 95.00 85,507 60.71 - ---------------------------------------------------------------------------------------------------------------------------------- 2007 1,409 1,336 10.83% 37,480 1,401 121,027 90.56 82,146 58.32 - ---------------------------------------------------------------------------------------------------------------------------------- 2008 1,409 1,415 11.47% 39,111 1,492 124,951 88.28 84,348 59.89 - ---------------------------------------------------------------------------------------------------------------------------------- 2009 1,409 1,380 11.18% 38,039 1,458 121,222 87.85 81,725 58.02 - ---------------------------------------------------------------------------------------------------------------------------------- 2010 1,409 1,239 10.04% 34,089 1,317 121,381 97.99 85,975 61.04 - ---------------------------------------------------------------------------------------------------------------------------------- 2011 1,409 1,026 8.31% 28,433 1,088 123,981 120.86 94,460 67.06 - ---------------------------------------------------------------------------------------------------------------------------------- 2012 1,409 1,199 9.72% 33,192 1,281 122,973 102.58 88,501 62.83 - ---------------------------------------------------------------------------------------------------------------------------------- 2013 1,409 1,722 13.96% 46,716 3,646 137,201 79.65 86,839 61.65 - ---------------------------------------------------------------------------------------------------------------------------------- 2014 1,409 1,736 14.07% 47,452 3,729 137,848 79.41 86,667 61.53 - ---------------------------------------------------------------------------------------------------------------------------------- 2015 1,409 1,886 15.29% 51,575 4,177 142,151 75.36 86,400 61.34 - ---------------------------------------------------------------------------------------------------------------------------------- 2016 1,409 1,573 12.75% 42,957 3,724 131,350 83.52 84,669 60.11 - ---------------------------------------------------------------------------------------------------------------------------------- 2017 1,409 1,740 14.10% 47,573 5,168 139,279 80.06 86,538 61.44 - ---------------------------------------------------------------------------------------------------------------------------------- 2018 1,409 1,736 14.07% 47,647 5,629 139,018 80.07 85,742 60.87 - ---------------------------------------------------------------------------------------------------------------------------------- 2019 1,409 1,717 13.92% 47,188 6,009 139,011 80.97 85,813 60.93 - ---------------------------------------------------------------------------------------------------------------------------------- 2020 1,409 1,580 12.81% 43,476 5,531 135,895 86.00 86,889 61.69 - ---------------------------------------------------------------------------------------------------------------------------------- 2021 1,409 1,513 12.26% 41,925 5,296 131,864 87.14 84,643 60.09 - ---------------------------------------------------------------------------------------------------------------------------------- 2022 1,409 1,519 12.31% 42,347 5,317 132,471 87.19 84,807 60.21 - ---------------------------------------------------------------------------------------------------------------------------------- 2023 1,409 1,535 12.44% 42,732 5,372 133,889 87.23 85,785 60.90 - ---------------------------------------------------------------------------------------------------------------------------------- 2024 1,409 1,534 12.43% 42,897 5,370 139,651 91.03 91,384 64.88 - ---------------------------------------------------------------------------------------------------------------------------------- 2025 1,409 1,560 12.64% 44,134 5,459 138,384 88.72 88,791 63.04 - ---------------------------------------------------------------------------------------------------------------------------------- 2026 1,409 1,723 13.97% 48,977 6,032 145,135 84.21 90,126 63.99 - ---------------------------------------------------------------------------------------------------------------------------------- Avg. 1,409 1,435 11.63% 42,027 3,288 133,253 96.23 87,937 62.43 - ----------------------------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 100 [LOGO] PACE | Global Energy Services Exhibit 74: Difference - Base Case & Aquila PSA Extension Case Project Results (1998 $) ================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------- Capacity Capacity Variable and and O&M Energy Energy Gross Gross Capacity Generation Capacity Fuel Costs Costs Revenue Revenue Margin Margin Year MW GWh Factor $1000 $1000 $1000 $/MWh $1000 $/KW - ---------------------------------------------------------------------------------------------------------------------------------- 2001 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2002 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2003 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2004 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2005 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2006 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2007 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2008 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2009 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2010 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2011 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2012 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2013 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2014 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2015 0 0 0 0 0 0 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2016 0 -10 0 -342 226 -248 0 -131 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2017 0 -127 0 -3,991 1,053 -3,981 3 -1,043 -1 - ---------------------------------------------------------------------------------------------------------------------------------- 2018 0 -91 0 -3,036 1,570 -2,424 3 -959 -1 - ---------------------------------------------------------------------------------------------------------------------------------- 2019 0 -301 0 -8,983 1,702 -8,405 8 -1,124 -1 - ---------------------------------------------------------------------------------------------------------------------------------- 2020 0 -108 0 -3,505 1,754 -2,953 4 -1,202 -1 - ---------------------------------------------------------------------------------------------------------------------------------- 2021 0 -187 0 -5,854 1,385 -5,095 7 -625 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2022 0 -110 0 -3,290 522 -3,278 4 -510 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2023 0 -14 0 -380 -48 -517 0 -89 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2024 0 10 0 250 35 -427 -1 -712 -1 - ---------------------------------------------------------------------------------------------------------------------------------- 2025 0 -4 0 -166 -13 256 0 435 0 - ---------------------------------------------------------------------------------------------------------------------------------- 2026 0 -17 0 -474 -58 -761 0 -229 0 - ---------------------------------------------------------------------------------------------------------------------------------- Avg. 0 -37 -0.30% -1,145 313 -1,071 1.10 -238 -0.17 - ----------------------------------------------------------------------------------------------------------------------------------
* The comparison to the Project Base Case revenue forecast excludes forecast volatility values from the calculation. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 101 Annex C-2 Fuel Consultant's Report [LOGO] PACE | Global Energy Services 4401 Fair Lakes Court, Suite 400 Fairfax, Virginia 22033-3848 USA Phone: 703-818-9100 Fax: 703-818-9103 Independent Fuel Consultant's Report Prepared for Elwood Energy LLC August 21, 2001 ================================================================================ This Report was produced by Pace Global Energy Services, LLC ("Pace") and is meant to be read as a whole and in conjunction with this disclaimer. Any use of this Report other than as a whole and in conjunction with this disclaimer is forbidden. Any use of this Report outside of its stated purpose without the prior written consent of Pace is forbidden. Except for its stated purpose, this Report may not be copied or distributed in whole or in part without Pace's prior written consent. This Report and the information and statements herein are based in whole or in part on information obtained from various sources as of August 21, 2001. While Pace believes such information to be accurate, it makes no assurances, endorsements or warranties, express or implied, as to the validity, accuracy or completeness of any such information, any conclusions based thereon, or any methods disclosed in this Report. Pace assumes no responsibility for the results of any actions taken on the basis of this Report. By a party using, acting or relying on this Report, such party consents and agrees that Pace, its employees, directors, officers, contractors, advisors, members, affiliates, successors and agents shall have no liability with respect to such use, actions or reliance. This Report does contain some forward-looking opinions. Certain unanticipated factors could cause actual results to differ from the opinions contained herein. Forward-looking opinions are based on historical and/or current information that relate to future operations, strategies, financial results or other developments. Some of the unanticipated factors, among others, that could cause the actual results to differ include regulatory developments, technological changes, competitive conditions, new products, general economic conditions, changes in tax laws, adequacy of reserves, credit and other risks associated with Elwood Energy LLC and/or other third parties, significant changes in interest rates and fluctuations in foreign currency exchange rates. Further, certain statements, findings and conclusions in this Report are based on Pace's interpretations of various contracts. Interpretations of these contracts by legal counsel or a jurisdictional body could differ. ================================================================================ 20 years of setting the pace in energy - ---------------------------------------------------------------------------- Website: paceglobal.com [LOGO] PACE | Global Energy Services ================================================================================ TABLE OF CONTENTS ================================================================================ Executive Summary ......................................................... 1 Key Findings ............................................................ 1 Project Overview and Fuel Requirements .................................. 2 Fuel Plan ............................................................... 4 Gas Supply ............................................................ 6 Natural Gas Transportation ............................................ 6 Fuel Management ....................................................... 7 Natural Gas Market Assessment ........................................... 7 Midwest Gas Supply .................................................... 7 Midwest Gas Transportation and Storage ................................ 8 Midwest Gas Pricing and Liquidity ..................................... 8 Pro Forma Model Review .................................................. 8 Risks and Risk Mitigation ............................................... 9 Adequacy of Supply .................................................... 9 Reliability of Transportation Services ................................ 9 Fuel Management ....................................................... 10 Price of Gas Supply ................................................... 10 Fuel Plan Assessment ...................................................... 12 Management Plan Review .................................................. 13 Cinergy Fuel Management Experience and Capability ....................... 14 Fuel Management Requirements ............................................ 15 Initial Agreement Review ................................................ 16 Midwest Natural Gas Market Assessment ..................................... 18 Key Findings ............................................................ 18 Midwest Natural Gas Market Structure .................................. 18 Regional Transportation Infrastructure ................................ 19 Assessment of Nicor and PGL Transportation Services ................... 20 Midwest Gas Market Structure ............................................ 20 Supply Assessment ..................................................... 21 Demand Assessment ..................................................... 27 Pricing and Liquidity Assessment ...................................... 29 Regional Transportation Infrastructure .................................. 34 Midwest Pipeline Infrastructure ....................................... 34 Expansion Overview .................................................... 36 Illinois Utilization Rates ............................................ 39 Gas Storage ........................................................... 40 Capacity Availability ................................................. 41 Assessment of Transportation Services ................................... 49 Pro Forma Fuel Pricing .................................................... 51 Pace Fuel Price Forecast ................................................ 51 Fuel-Related Pro Forma Inputs ........................................... 53 - -------------------------------------------------------------------------------- Proprietary & Confidential i [LOGO] PACE | Global Energy Services ================================================================================ EXHIBITS ================================================================================ Exhibit 1: Project Location .............................................. 3 Exhibit 2: Elwood Fuel Plan Overview ..................................... 5 Exhibit 3: Overview of Nicor T&B Transportation Rights ................... 6 Exhibit 4: Elwood Organization ........................................... 14 Exhibit 5: Initial Contract Summary ...................................... 16 Exhibit 6: Sources of Natural Gas Supply ................................. 22 Exhibit 7: Natural Gas Resource Base Accessible to the Midwest Region .... 23 Exhibit 8: North American Natural Gas Reserves and Production, 1999 ...... 24 Exhibit 9: Forecast of Lower 48 Natural Gas Demand by Sector (Bcf/yr) .... 28 Exhibit 10: Forecast of Midwest Gas Demand by Sector (Bcf/yr) ............. 29 Exhibit 11: Midwest Trading Points ........................................ 30 Exhibit 12: Chicago and Henry Hub Gas Prices .............................. 31 Exhibit 13: Monthly Contract Index Volumes Traded in the Midwest ('000 MMBtu/d) ................................................ 33 Exhibit 14: Daily Volumes at Relevant Midwest Liquid Trading Points ('000 MMBtu/d) ................................................ 34 Exhibit 15: Midwest Region Pipeline Corridors ............................. 36 Exhibit 16: Announced Midwest Pipeline Expansions ......................... 37 Exhibit 17: Illinois Pipeline Utilization Trends .......................... 39 Exhibit 18: Overview of Midwest Storage Operations, 1999 .................. 40 Exhibit 19: Location of Proposed Midwest Storage Projects ................. 41 Exhibit 20: Decontracting Schedules of Select Interstate Pipelines Serving Chicago ............................................... 43 Exhibit 21: Historic Summer and Winter Basis Values (1997 - 2001) ......... 45 Exhibit 22: Summary of Historical Capacity Release Transactions ........... 46 Exhibit 23: Availability and Pricing of Released Capacity ................. 47 Exhibit 24: Key Nicor and PGL Receipt Capabilities (Mcf/d) ................ 49 Exhibit 25: Chicago Area Pipeline System Map .............................. 50 Exhibit 26: Chicago Area Pipeline Deliverability Attributes ............... 50 Exhibit 27: Sub-Regional Delivered Gas Price Forecasts (1998 $/MMBtu) ..... 53 - -------------------------------------------------------------------------------- Proprietary & Confidential ii [LOGO] PACE | Global Energy Services ================================================================================ EXECUTIVE SUMMARY ================================================================================ Pace Global Energy Services, LLC ("Pace") has prepared this independent fuel consultant's report on behalf of the lenders to assess the Fuel Plan and regional natural gas market fundamentals that apply to the 1,409 megawatt ("MW") Elwood Energy LLC ("Elwood") merchant power plant (the "Project").(1) The Project is located in the Mid-American Interconnected Network ("MAIN") power region and is being developed by Elwood Energy LLC, a joint venture of Dominion Energy Inc. ("Dominion") and Peoples Energy Resources Corp. ("Peoples"). This location falls within the U.S. Midwest natural gas market region, as discussed in this report. In performing its independent due diligence, Pace reviewed the following market issues affecting the Project: the proposed integrated fuel strategy ("Fuel Plan"), the initial fuel-related agreements, the fundamental drivers of natural gas supply and transportation markets in the Midwest Region(2), and the fuel-related inputs to Elwood's financial pro forma model. KEY FINDINGS Pace makes the following key conclusions regarding the fuel-related aspects of the Project: o The robust spot market at the Chicago hub will provide Elwood Energy LLC ("Elwood") with a highly reliable natural gas supply at market-sensitive prices for the Project. o Pace expects that natural gas supply and transportation market liquidity will continue to grow in the Midwest United States with the introduction of new pipeline capacity, the geographic availability of aquifer storage capacity, the integration of new pipeline interconnections, and the development of new interstate and utility retail service offerings, thus enabling Elwood to procure reliable supply on the spot market at the Chicago hub for the Project. Trading activity at the Chicago hub approximates 2 billion cubic per day ("Bcf/d"), or about ten times the threshold Pace uses to define a liquid trading points. o Elwood will purchase all of the Project's natural gas supplies on a delivered basis from Cinergy Marketing and Trading LLC ("Cinergy"), a nationally recognized natural gas and electricity marketer, under a one-year, executed Fuel Supply and Management Agreement ("FMA") at a published Chicago daily spot price, plus a nominal premium. o Elwood intends to negotiate a new multi-year FMA for the Project with Cinergy or another national energy marketing company. A number of reputable and creditworthy natural gas suppliers and marketers operate in the Midwest United States natural gas - ---------- 1 This Report and the information and statements herein are based in whole or in part on information obtained from various sources as of August 21, 2001. Plant output assumption based on summer rating. 2 For the purposes of this analysis, Pace defines the Midwest Region to include the following states: Ohio; West Virginia; Kentucky; Indiana; Illinois; Michigan; Wisconsin; Iowa; Minnesota; North Dakota; South Dakota; and Nebraska. - -------------------------------------------------------------------------------- Proprietary & Confidential 1 [LOGO] PACE | Global Energy Services markets that will be financially motivated to provide fuel management and natural gas supply services at competitive prices to Elwood for the Project upon the expiration of the current FMA. o Based on its experience in competitive power markets and regional natural gas markets, Cinergy is highly qualified to provide adequate fuel management and natural gas procurement expertise to match the Project's natural gas and power dispatch requirements. Moreover, Cinergy's compensation and required communications protocols identified in the executed FMA are appropriate and consistent with industry norms. o Potential natural gas commodity price risk to Elwood for the Project is fully mitigated by the energy payment terms contained in the executed Power Sales Agreements ("PSAs") and the FMA. The overall effect of these contracts is to index energy pricing to the market price of the natural gas commodity obtained by Elwood for the Project. o Elwood has entered into a long-term transportation and storage balancing service agreement for the Project with Northern Illinois Gas Company ("Nicor") for firm (non-interruptible) hourly delivery of natural gas supplies to meet the firm power dispatch obligations at the facility. Initial terms under the Transportation and Balancing Agreement with Nicor ("T&B Agreement") range from 41 months (Units 1-4) to 5 years (Units 5-9), but the T&B Agreement can be extended for up to 5 years by giving 180 days written notice prior to expiration of the respective initial terms. The T&B Agreement provides Elwood access to purchase, rights to transport, and rights to store Chicago hub spot supplies for the Project. o Access to the Chicago hub via the T&B Agreement is facilitated through the Peoples Gas Light & Coke system ("PGL") through a companion agreement that contains substantially the same terms and conditions as the T&B Agreement. o The Project benefits from existing access to Alliance Pipeline ("APL") and Northern Border Pipeline Company ("NBPL") receipts through PGL as well as the potential to establish direct connections with high pressure interstate pipelines in close proximity to Elwood such as Vector Pipeline, L.P. ("Vector") and ANR Pipeline Co. ("ANR"). PROJECT OVERVIEW AND FUEL REQUIREMENTS As shown in Exhibit 1, the Project is located in Elwood, Illinois in Will County, 50 miles southwest of Chicago. The 1,409 MW Project consists of nine operating gas-fired peaking combustion turbine units, which commenced commercial operations in stages between 1999 and 2001. - -------------------------------------------------------------------------------- Proprietary & Confidential 2 [LOGO] PACE | Global Energy Services Exhibit 1: Project Location ================================================================================ NBPL : 1050 psig | | ------- Meter ------- Alliance: 750 psig | | | | ------- | Meter <-------------------> | -------------> ------- ----------------------------------------><---------- | | PGL 24" line: 650 psig PGL 250 ft. | | |---><-----| | Nicor Chromatograph | --------> |----------------------- 0.8 mile lateral ------- ------- Meter Nicor Meter Nicor ------- ------- | | | | | | ------------ ------------ Units 1 - 4 Units 5 - 9 ------------ ------------ [MAP OF MIDWEST DISPLAYING THE LOCATION OF THE PROJECT] Sources: Pace, RDI, and Peoples Energy. ================================================================================ Pace estimates that the plant will consume 238,966 million Btu per day ("MMBtu/d") of natural gas at maximum burn over a 16-hour day, if all units are dispatched.(3) According to the Pace's Power Market Assessment, the Project is expected to dispatch at an average annual capacity factor of 11.93 percent.(4) The Project will undergo a level of natural gas volume variance during the course of a particular day or week subject to the plant's availability and prevailing market prices. Elwood will sell all of the Project's output at indexed pricing under executed long-term PSAs with Exelon Generation Company, LLC ("Exelon") and Aquila Energy Marketing Corporation ("Aquila"). The primary term for the PSA between Elwood and Exelon is March 1, 2001 through December 31, 2012. - ---------- 3 Average heat rate derived from unit performance test results in Table 4-2, Draft Independent Technical Review report by Stone & Webster, July 13, 2001. The fuel requirements calculation is based on the following equation: 156.5 MWs * 9 units * 10,600 Btu/kWh heat rate * 100 percent capacity factor * 16 hour day / 1,000,000). 4 Based on Pace's MAIN Power Market Assessment, dated as of August 17, 2001. Results include the periods covered by the Exelon and Aquila PSA's, including all contract extension periods, plus a merchant period which commences no later than 2022 for any of the units. - -------------------------------------------------------------------------------- Proprietary & Confidential 3 [LOGO] PACE | Global Energy Services The primary terms for the PSAs between Elwood and Aquila are bifurcated: the agreement for Units 5 and 6 runs from June 1, 2001 to August 31, 2016 and the agreement for Units 7 and 8 runs from July 1, 2001 through August 31, 2017. Aquila has the unilateral right to extend each of these agreements for another 5 years if Aquila provides written notice two years prior to the expiration of the respective initial terms. Under both of the PSAs, capacity and energy are provided to Exelon and Aquila in exchange for fixed capacity payments and variable charges for energy. The variable charge is composed of a natural gas index and an O&M charge designed to pass through the variable costs of plant operations to Exelon and Aquila. PGL is the owner and operator of the natural gas pipeline delivering to the Project, but Nicor holds the utility franchise to provide natural gas utility services in this region. Elwood has initially contracted with Nicor for a negotiated (bypass) retail service on behalf of the Project (the "Nicor-Elwood Agreement" within the T&B Agreement), but may elect to directly connect to nearby interstate pipelines for service in the future. Nicor only owns meters at the Project and Nicor renders this service with the support of PGL, through a companion agreement between Nicor and PGL that contains substantially the same terms and conditions as the Nicor-Elwood agreement. Because the Project is located within 3.5 miles or less of several interstate pipelines - APL, NBPL, ANR, and Vector - opportunities exist to ultimately bypass LDC service and establish direct connections. The PGL system has substantial high pressure receipt capabilities that can support the upstream natural gas requirement of the Project. As shown in Exhibit 1, PGL's 24-inch pipeline operates at pressures of approximately 650 psig. Both APL and NBPL can deliver 600 MMcf/d of natural gas into PGL, although PGL's 24-inch line has an aggregate deliverability of 600 MMcf/d. Under the T&B Agreement executed with Nicor and the companion agreement between Nicor and PGL, the Project can also utilize Natural Gas Pipeline Company of America ("NGPL") capacity through displacement.(5) FUEL PLAN An overview of Elwood's Fuel Plan is presented in Exhibit 2. As shown, Elwood relies primarily on market-based, firm, spot supplies to be arranged for transportation and delivery to the Project using the transportation and storage capacity obtained from Nicor. The fuel manager will act as agent to optimize the T&B Agreement and will supply the correct balance of interstate natural gas supply, storage and Nicor system supply to meet the Project's natural gas requirements from day-to-day. - ---------- 5 Gas Transportation and Balancing Agreement between Nicor and Elwood Energy, executed May 1, 2001. - -------------------------------------------------------------------------------- Proprietary & Confidential 4 [LOGO] PACE | Global Energy Services Exhibit 2: Elwood Fuel Plan Overview ================================================================================
- ------------------------------------------------------------------------------------------------------------- Natural Gas Supply Transportation Project - ------------------------------------------------------------------------------------------------------------- Upstream Pipeline Options Supply Laterals & Interconnections Site - --------------------------------------- -------------------------------------------- Northern Border --> NGPL --> (1) Alliance --> Fuel Supply --> (2) (3) Nicor --> Interconnection and --> Elwood Agreement Lateral (5) PGL --> 238,966 MMBtu/d ANR --> Maximum Fuel Requirement Vector --> - -------------------------------------------------------------------------------------------------------------
Gas Supply Agreements (1) Cinergy Marketing & Trading LLC - Fuel Supply and Management Agreement o Cinergy to make all gas supply arrangements on behalf of the Project. o Gas supply priced at Gas Daily Chicago Large End Users index plus $0.04/MMBtu. o Access numerous interstate pipelines through Nicor and Peoples gas interconnects. Gas Transportation Agreements (2) Nicor Gas Company - Transportation and Balancing Agreement o Primary Terms: 5/01/01-9/30/04 for Phase I (Units 1-4) and 5/1/01-5/31/06 for Phase II (Units 5-9). o Elective Extensions: 10/1/04-3/31/06 for Phase I Units and 6/1/06-3/31/11 for Phase II Units. Jointly, terms for Phase I and Phase II Units can be extended from 04/01/06 to 03/31/11. o Firm MDQ of 241,600 MMBtu/d (Summer) and 284,400 MMBtu/d (Non-Summer). o Firm MHQ of 15,100 MMBtu/hr (Summer) and 17,775 MMBtu/d (Non-Summer). o Reservation and volumetric charges for Nicor and upstream transportation charges. o Minimum Annual Bill of $4.35 Million. (3) Cinergy Marketing & Trading LLC - Fuel Supply and Management Agreement o Additional non-firm capacity above Nicor T&B Agreement Firm MDQ. o Additional balancing flexibility priced at the lowest rate in the Nicor T&B Agreement. o Balancing volumes in excess of 241,600 Dth (Summer) or 88,895 Dth (Winter) subject balancing charges in the Nicor T&B Agreement. Laterals & Interconnections (4) Nicor Gas Company - Transportation and Balancing Agreement o Nicor to own meter facilities. o Elwood holds an option to buy out the Nicor T&B Agreement early and purchase the interconnect facilities from Nicor. o PGL owns the pipeline serving the Project. Management Agreement (5) Cinergy Marketing & Trading LLC - Fuel Supply and Management Agreement o One year primary term. o Cinergy responsible for acquiring gas commodity and providing fuel management services. o Cinergy will manage and administer the Nicor T&B Agreement. o Monthly reservation fees equivalent to $65,000 June - September; $10,000 October - April. Source: Pace. ================================================================================ Elwood will continue to evaluate the competitiveness and reliability of interstate pipeline bypass cases. The Project will use such options to ensure the competitiveness of the Nicor services and the negotiation of more favorable terms in the extension period. The Fuel Plan will utilize highly liquid natural gas hubs and multiple interstate and intrastate pipeline systems to source natural gas from major U.S. and Canadian natural gas supply basins. - -------------------------------------------------------------------------------- Proprietary & Confidential 5 [LOGO] PACE | Global Energy Services Gas Supply The Project's proximity to the Chicago hub facilitates primary access to natural gas supplied from the following areas: Gulf Coast, Mid-Continent(6), Western Canada Sedimentary Basin ("WCSB"), the Rockies, and to a lesser extent the Permian Basin, and local supply. The Chicago region contains substantial aquifer storage capacity, bringing ample supplies to the region for injections. Through existing interconnections to PGL's 24-inch diameter pipeline and the overall resources of Nicor, as well as potential direct connections to major interstate pipelines (i.e., ANR, APL, NBPL, NGPL, and Vector), the Project or its agent/fuel manager should be able to purchase reliable supplies of natural gas at market-based prices. Under the FMA with Cinergy, delivered natural gas will be priced according to the Midpoint of Gas Daily's Chicago Large End Users daily index plus a $0.04/MMBtu supplier margin. Natural Gas Transportation The T&B Agreement establishes the terms and conditions under which Nicor will provide firm natural gas transportation services and no-notice balancing services that allow the Project to receive delivery of natural gas supplies at hourly rates to meet the peaking requirements. The T&B Agreement provides Elwood with interstate natural gas supply receipt points delivered from APL, NBPL and NGPL. Although contractually Elwood has transportation service with Nicor, the physical transportation of natural gas is provided by PGL's 24-inch pipeline, which is connected to the interstate pipelines of APL and NBPL.(7) Nicor provides natural gas transportation and delivery services to the Project via a companion agreement with PGL and on substantially the same terms and conditions as the Nicor-Elwood Agreement. As outlined in Exhibit 3, the T&B Agreement provides Elwood with firm natural gas delivery rights for specified daily and hourly terms. Exhibit 3: Overview of Nicor T&B Transportation Rights ================================================================================ - -------------------------------------------------------------------------------- Maximum Hourly Daily Firm Transportation Rights Transportation Rights Season (MMBtu/Day) (MMBtu/Hour) - -------------------------------------------------------------------------------- Summer 241,600 15,100 - -------------------------------------------------------------------------------- Winter 284,400 17,775 - -------------------------------------------------------------------------------- Source: Pace. ================================================================================ - ---------- 6 The Mid-Continent producing basin is also referred to as the Anadarko/Arkoma Basin. 7 Developed originally to transport synthetic natural gas. - -------------------------------------------------------------------------------- Proprietary & Confidential 6 [LOGO] PACE | Global Energy Services Natural gas transportation is scheduled for delivery by the fuel manager with daily input from Nicor on the maximum level to deliver from interstate pipelines. Natural gas transportation is firm and subject to the terms of the T&B Agreement and the general terms of Nicor's tariff for retail transportation services. As such, natural gas supplies must be nominated in accordance with Nicor and FERC/GISB guidelines. Elwood's transportation and balancing services provide for up to 16 hours of natural gas supply per day on a no-notice basis. The PGL system has substantial high pressure receipt capabilities that can support the upstream natural gas requirements of the Project. For example, both APL and NBPL can deliver 600 million cubic feet per day ("MMcf/d") of natural gas into PGL, although PGL's 24-inch line (approximately 650 psig) has an aggregate deliverability of 600 MMcf/d. Under the T&B Agreement executed with Nicor and the companion agreement between Nicor and PGL, Elwood can also utilize NGPL capacity through displacement. Fuel Management Initially, Elwood's fuel management arrangements will be administered by Cinergy. Cinergy has expertise involving financial and physical transactions of natural gas in the Midwest Region. As fuel manager, Cinergy will handle all day-to-day responsibilities for procuring, scheduling, and delivering sufficient natural gas to Nicor and/or PGL to meet the Project's natural gas requirements as well as administering a portfolio of supply and transportation agreements to meet the Project's daily/hourly natural gas requirements, including the T&B Agreement. NATURAL GAS MARKET ASSESSMENT The Midwest natural gas market in which the Project will operate offers the required liquidity to execute the Fuel Plan in support of the power marketing strategy in a cost-effective manner. The supply and transportation sectors consist of numerous participants (marketers, interstate pipelines, and producers) that compete to provide services across different natural gas routes in the Midwest Region. The general interconnectivity of the pipeline grid within the Midwest Region coupled with the availability of market area storage services and the Project's access to multiple pipeline systems will help ensure that natural gas is competitively priced and reliable. Midwest Gas Supply o Pace projects supply availability in the general Midwest Region will exceed demand through the 25-year financing term ("Financing Term"). o An orderly commodity market exists in North America that enables natural gas buyers to procure natural gas at market clearing prices at numerous locations. o Power generators in the Midwest marketplace have access to nearly all major North American producers and natural gas marketing companies. - -------------------------------------------------------------------------------- Proprietary & Confidential 7 [LOGO] PACE | Global Energy Services o Prolific aggregate supplies of natural gas are available for delivery into the Midwest from the following resource areas: Gulf Coast, Permian, Mid-Continent, Rockies, WCSB, Appalachia, and to a lesser extent local production. Midwest Gas Transportation and Storage o The Chicago hub is the heart of the Midwest natural gas infrastructure. Numerous high-pressure pipeline systems are designed to transport natural gas to or through this market. Numerous parties offer services that leverage access to Chicago receipt liquidity. These entities can provide special hub services to assist customers with balancing their regional natural gas requirements. o Market area storage offered by LDCs and interstate natural gas pipelines augments liquidity and seasonal deliverability requirements. o New pipeline expansions on NBPL and APL have added up to 2.3 Bcf/d of new deliverability of natural gas into Chicago since 1998. o Numerous additional pipeline expansions have been announced recently to optimize natural gas deliveries within the Midwest and to deliver fast-growing Rockies production into the region either directly or through interconnecting pipelines in the Mid-Continent. Over the long term, Pace forecasts significant new capacity expansions into the Midwest. Midwest Gas Pricing and Liquidity o Midwest natural gas supply markets are liquid and competitive, and provide flexibility and reliability. Each of these characteristics is valuable to the long-term operations of a merchant power project. o Because natural gas is so widely traded in the region, prices referenced at the Chicago and Dawn(8) hubs have become the primary market indices for the Midwest. PRO FORMA MODEL REVIEW Pace reviewed the fuel-related inputs in the pro forma financial model and makes the following findings.(9) o Pace's long-term average annual delivered price to power generators near Chicago is $0.07/MMBtu over the Henry Hub index. o The Project's pro forma accurately incorporates Pace's natural gas price forecast. o Fuel management costs have been accurately reflected in the pro forma model. o Base Case balancing provisions have been accounted for appropriately in the pro forma. - ---------- 8 Dawn is a gas-trading hub in Western Ontario that provides liquid pricing. 9 Stone & Webster Pro Forma Model, July 19, 2001. - -------------------------------------------------------------------------------- Proprietary & Confidential 8 [LOGO] PACE | Global Energy Services RISKS AND RISK MITIGATION Adequacy of Supply Risk: Natural gas commodity supply will not be sufficiently available to meet the Project's requirements throughout the Financing Term. Risk Mitigation: Because of its access to the Chicago hub, the Project has the flexibility to acquire abundant natural gas supplies from numerous sources including the Gulf Coast, Mid-Continent, WCSB, Rockies, Permian, and local production basins. Numerous high-pressure, high deliverability natural gas pipelines interconnect near Chicago and link this market to prolific natural gas reserves in upstream basins. Pace expects, conservatively, that natural gas resources supplied from these basins will exceed the natural gas supplies required for the Project during the initial Financing Term. The extensive development of liquid trading points throughout the U.S. and Canada, and the Midwest's favorable location on the natural gas transportation grid, facilitate inter-basin transfers and flexibility in meeting specific supply requirements. Reliability of Transportation Services Risk: Elwood will not be able to obtain the transportation service reliability necessary to meet the peak hourly dispatch requirements under the executed power sales agreements for the Project. Risk Mitigation: The Fuel Plan incorporates the flexibility required to adjust to the hourly dispatch requirements of the Project. Pace finds that the executed transportation and balancing arrangements with Nicor and the fuel and fuel management arrangements with Cinergy provide adequate terms and conditions of service to enable Elwood to meet potential variation in load requirements expected by the Project during the intermediate term. Several elements of the Fuel Plan enable Elwood to flexibly respond to off-takers' requests for short-notice power: (1) Elwood maintains a total storage inventory of 725,000 MMBtu or enough natural gas to fuel all 9 turbines at the facility for approximately 50 hours, (2) Elwood can inject/withdrawal up to 181,200 MMBtu/d of natural gas in the Summer and 88,875 MMBtu/d of natural gas in the Non-Summer Period,(10) and (3) Elwood can purchase Requested Authorized Use natural gas from - ---------- 10 Non-Summer Period comprises the months October, November, December, January, February, March, April, and May. Assuming all 9 units are dispatched at maximum load these provisions provide Elwood with 12 hours of fuel during the Summer and 6 hours of fuel during the Non-Summer Period. Cinergy is obligated to provide Elwood with enough firm natural gas to satisfy the plant's Summer peak day requirements for up to 16 hours on as little as one hour's notice; during the Non-Summer Period Cinergy is only responsible for delivering 88,875 MMBtu/d plus transportation gas under a 4 hour notice period (or enough fuel to operate all 5 Exelon units for no more than 16 hours in a day). - -------------------------------------------------------------------------------- Proprietary & Confidential 9 [LOGO] PACE | Global Energy Services Nicor if the Project exceeds its firm service and overrun withdrawal rights from storage.(11) Moreover, if transportation reliability is attributable to Cinergy's failure to perform, Elwood has the right to purchase natural gas at reasonable cover costs and be reimbursed through liquidated damages from Cinergy. In addition to these agreements, PGL's substantial receipt capabilities from APL, Northern Border, and NGPL (via displacement) provide Elwood with redundant access to Chicago hub gas supplies in the event of an upstream mainline disruption on one of the high capacity pipelines. Fuel Management Risk: The existing Fuel Supply and Management Agreement with Cinergy is for a term of one year. Risk Mitigation: Numerous creditworthy natural gas marketers and suppliers provide bundled natural gas delivery services into the Midwest, particularly at the Chicago hub. As such, by the end of 2001 Elwood intends to solicit proposals for a three to five year natural gas supply and management agreement to replace the current arrangement with Cinergy. Further, Pace concludes that the Project will be able to acquire these services from credit-worthy natural gas marketers at market-based prices upon the expiration of the anticipated 3 to 5 year FMA contract through the end of the Financing Term and beyond. Price of Gas Supply Risk: Delivered natural gas prices into the Midwest market are sustained at current high levels and affect the dispatch of gas-fired units relative to other types of generation. Risk Mitigation: Elwood's natural gas commodity price risk is fully mitigated because energy payments in the PSAs executed with Exelon and Aquila are based on the same fuel index - Midpoint for Gas Daily's Chicago Large End Users daily index - referenced in the FMA with Cinergy. Hence, the natural gas commodity portion of the Project's fuel cost is effectively passed through under the PSAs. In addition, while natural gas market prices are not material for Elwood during the term of the PSAs, Pace's outlook is for natural gas prices to fall to more historical levels over the mid-term. Pace expects Henry Hub commodity prices to peak in 2001 and then decline rapidly as the natural gas market moves from a shortage and back into balance. Over the long run, high natural gas prices that are disconnected from prices for other fuels, including coal, distillate, fuel oil, and - ---------- 11 Elwood has a unilateral right to purchase Requested Authorized Use supplies from Nicor at the higher of (1) Nicor's Gas Cost (2) or the "market price" of gas (the midpoint of the Gas Daily's daily index for Chicago Large End Users on flow day) plus $0.20/MMBtu during the Summer; Elwood requires Nicor's consent, however, to purchase Requested Authorized Use natural gas during the non-Summer period. In addition, Elwood has the flexibility to purchase natural gas from Nicor to cover Forecast Variances and authorized overruns of Elwood's Balancing and Storage Service at negotiated prices. - -------------------------------------------------------------------------------- Proprietary & Confidential 10 [LOGO] PACE | Global Energy Services more exotic sources of natural gas, such as LNG imports, are unsustainable. Competing coal technologies suggest a long-term cap on natural gas prices in the $3.50 to $4.00 MMBtu range at the Henry Hub, while LNG imports would cap natural gas prices below this level. Additionally, Pace expects the supply response from recent high natural gas prices, coupled with technologically driven declines in exploration and production costs, and increases in finding rates, will generally increase U.S. productive capacity. Coupled with higher natural gas imports, these supply-side fundamentals will keep real natural gas prices from escalating too high relative to other fuels. - -------------------------------------------------------------------------------- Proprietary & Confidential 11 [LOGO] PACE | Global Energy Services ================================================================================ FUEL PLAN ASSESSMENT ================================================================================ Pace's assessment of Elwood's Fuel Plan for the Project is based on a review of the written Fuel Plan and discussions with Elwood's representatives for the Project.(12) The following are key findings related to that review: o Gas commodity price risk exposure is fully mitigated through energy payment terms in the executed long-term PSAs. Under payment terms detailed in the PSAs, the Project is reimbursed for the full cost of the natural gas commodity based on the Midpoint of Gas Daily's Chicago Large End Users daily index. Because natural gas is purchased under the FMA using this same index, natural gas commodity costs are a pass-through to Exelon and Aquila. Additional Project costs related to natural gas transportation under the T&B Agreement are not directly reimbursed by the PSAs fuel-related payments. o The Fuel Plan is focused on achieving a competitive, market-based natural gas supply while ensuring the reliability required to fulfill hourly dispatch requirements under the PSAs. o Transportation reliability has been assured in the following ways: o Acquiring pressure guarantees from Nicor. o Establishing Chicago as the primary receipt point for the Project and thus minimizing upstream capacity risk. o Executing a transportation agreement with Nicor that provides firm, no-notice rights that satisfy Elwood's anticipated peak natural gas needs for the Project. o Obtaining balancing and storage services that will enable Elwood to meet intra-day natural gas swings on behalf of the Project. o Based on its regional experience in competitive Midwest power markets and natural gas markets, Cinergy is highly qualified to provide adequate fuel management and natural gas procurement expertise to match Elwood's natural gas and power dispatch requirements for the Project. o The proposed fuel management costs are reasonable. o Cinergy's required communications protocols identified in the executed FMA are appropriate and consistent with industry norms. o The Fuel Plan incorporates the flexibility required to adjust to the hourly dispatch requirements of the Project. o Elwood intends to secure a 3 to 5 year fuel management agreement upon the expiration of the current agreement with Cinergy in April 2002. This will bring this agreement substantially in line with the term of the existing T&B agreement. - ---------- 12 "Elwood Fuel Plan - Phase II Development" prepared as part of an August 22, 2000 report to the Elwood Management Committee on the merits of various fuel approaches for the Project. - -------------------------------------------------------------------------------- Proprietary & Confidential 12 [LOGO] PACE | Global Energy Services o Elwood has significant potential leverage to secure competitive supply costs because of its proximity to multiple nearby high-pressure interstate pipelines and the Chicago hub. Pace understands that Elwood is unlikely to renew the existing T&B Agreement under prevailing Phase II terms. Rather, Elwood will continue to negotiate for a cost effective bypass of Nicor or establish more favorable pricing terms for the Project. MANAGEMENT PLAN REVIEW Pace finds that the Project's structural organization related to the Fuel Plan is reasonable and consistent with other frameworks for contract and merchant energy management. Pace understands that Elwood will oversee long-term, strategic responsibilities involving fuel arrangements for the Project such as negotiating fuel supply and management agreements with third-parties, determining the kinds of services needed under these agreements, evaluating bypass opportunities to establish direct connections to nearby interstate pipelines, and monitoring fuel-related regulatory and market developments. Day-to-day operational responsibilities (e.g., nominating natural gas and resolving imbalances) will be assigned to an experienced, creditworthy third-party, fuel manager. In performing these duties, the fuel manager is solely responsible for procuring all natural gas on behalf of the Project at market-based indices for delivery into Chicago citygates. Initially, Elwood will employ separate power and fuel managers, however at some point, Elwood may hire a single toller that would be responsible for all fuel arrangements and marketing all of the Project's output. An overview of Elwood's management structure is illustrated in Exhibit 4. - ---------- 13 "Elwood Fuel Plan - Phase II Development" prepared as part of an August 22, 2000 report to the Elwood Management Committee on the merits of various fuel approaches for the Project. - -------------------------------------------------------------------------------- Proprietary & Confidential 13 [LOGO] PACE | Global Energy Services Exhibit 4: Elwood Organization ================================================================================ -------------------------------------- _ Elwood Energy LLC | -------------------------------------- | | | -------------------------------------- | Elwood Energy LLC | "Asses Operator" | -------------------------------------- | | Power | -------------------------------------- Sales [---|-- Aquila/Exelon Agreement | "Power Manager" | -------------------------------------- | | Fuel Supply | -------------------------------------- & Management -- Cinergy Marketing and Trading Agreement [------ "Fuel Manager" -------------------------------------- | | | [MAP OF -------------------] [GRAPHIC OF PIPELINES POWER PLANT.] NEAR PROJECT SITE.] ELWOOD Will County, IL [GRAPHIC } Gas arrangements OF GAS 2,42,000 MMBtu/d } structured to fulfill terms WELL] Chicago Gas Supply } of PSAs --------------------------------- Firm transportation and balancing Nicor --] services provided under existing agreements between Elwood and Nicor/Cinergy --------------------------------- Source: Pace. ================================================================================ CINERGY FUEL MANAGEMENT EXPERIENCE AND CAPABILITY Cinergy is a leading marketer of natural gas within the Midwest Region. The Midwest and contiguous regions are Cinergy's target markets for its financial and physical energy commodities trading business. Cinergy maintains a 24-hour, 7-day per week trading operation. In 2000, Cinergy's non-regulated natural gas sales exceeded $2.4 billion. Cinergy is a creditworthy counterpart; as of January 31, 2001, Cinergy Corp's S&P credit ratings met or exceeded BBB+ for corporate credit, senior unsecured debt, and commercial paper. Gas trading volumes were about 15.3 Bcf/d in 2000. In addition, Cinergy has the eighth largest electric trading organization in the U.S. The New York Mercantile Exchange's "into Cinergy" hub for Midwest electricity futures trading is the most active in the United States. Cinergy owns, operates or has under development over 21,000 MW of electrical and combined heat and power plant generation. Electric trading volumes equaled 166 million MW hours in 2000. - -------------------------------------------------------------------------------- Proprietary & Confidential 14 [LOGO] PACE | Global Energy Services FUEL MANAGEMENT REQUIREMENTS The Project's fuel management requirements are driven by PSA commitments regarding dispatch and contractual arrangements for fuel deliveries. The key attributes of the PSAs pertaining to fuel requirements are the following: o The Project's actual natural gas commodity costs are directly reimbursed in the PSA through an energy payment. The PSA utilizes a daily natural gas price index - the midpoint of Gas Daily's Chicago Large End Users - for determining the reimbursement of fuel commodity costs. o Elwood's nine units are fully dispatchable by Aquila and Exelon, within certain limitations: o During the Summer Period (as defined in the PSAs) the units can be dispatched with as little as one hour's notice subject to certain conditions. o The PSAs obligate both Exelon and Aquila to provide a day-ahead schedule of anticipated dispatch. o The Exelon PSA obligates the Project to operate a maximum of 16 hours per day during the Summer Period and 12 hours per day during the Non-Summer Period (as defined in the PSAs). For dispatch during the Summer Off-Peak Period and the Non-Summer Period (as defined in the PSAs), Exelon must provide 4-hours notice. During the Summer Peak Periods, Exelon may provide as little as one hour's notice. o The Aquila PSA requires the Project to respond to changes in dispatch during the Summer On-Peak hours with as little as one hour's notice. For dispatch during the Non-Summer Period and the Summer Off-Peak hours, Aquila must provide notice according to the day-ahead schedule. The Fuel Plan and initial agreements contain the following attributes to enable Elwood to fulfill its obligations under the PSAs as described above: o Elwood's Fuel Plan has a "no-notice" capability to meet natural gas dispatch requirements through use of a 725,000 MMBtu market area storage inventory or "bank" under the T&B Agreement. o Elwood has secured firm service for its maximum load for up to a 16-hour period on a given day through the T&B Agreement. o Under the FMA, Cinergy is obligated to provide a no-notice natural gas supply to the Project based on the Project's maximum output for up to a 16-hour period on a given day. These agreements are discussed in more detail below. - -------------------------------------------------------------------------------- Proprietary & Confidential 15 [LOGO] PACE | Global Energy Services INITIAL AGREEMENT REVIEW Pace has reviewed all key available transportation, supply and energy management agreements executed by Elwood on behalf of the Project. This section summarizes the key clauses in current executed agreements (Exhibit 5). Exhibit 5: Initial Contract Summary ================================================================================ - ------------------------------------------------------------------------------------------------------------------- Contracted Nicor Gas Company Cinergy Marketing & Trading LLC Party - ------------------------------------------------------------------------------------------------------------------- Contract Transportation and Balancing Agreement Fuel Supply and Management Agreement Type - ------------------------------------------------------------------------------------------------------------------- Contract Primary Terms: 5/01/01-9/30/04 for Phase I (Units May 1, 2001 to April 30, 2002 Term 1-4) and 5/1/01-5/31/06 for Phase II (Units 5-9). Elective Extensions: 10/1/04-3/31/06 for Phase I Units and 6/1/06-3/31/11 for Phase II Units. Jointly, terms for Phase I and Phase II Units can be extended from 04/01/06 to 03/31/11. - ------------------------------------------------------------------------------------------------------------------- Volume Max. Daily Contract Quantity Summer = 241,600 Max. Daily Quantity Summer = 362,400 Dth/d Dth/d (241,600 firm and 120,800 non-firm) Max. Daily Contract Quantity Non-Summer = Max. Daily Quantity Non-Summer = 426,600 284,400 Dth/d Dth/d (213,300 firm and 213,300 non-firm) Max. Hourly Quantity Summer = 15,100 Dth/hr Max. Hourly Quantity Summer= 15,100 Max. Hourly Quantity Non-Summer = 17,775 Dth/d Dth/hr Max. Hourly Quantity Non-Summer = 17,775 Dth/d - ------------------------------------------------------------------------------------------------------------------- Balancing Nicor provides no-notice balancing service on a Competitive balancing services. Elwood firm basis. Service may be reduced during pays Nicor $0.05/MMBtu up to the Forecast Critical Days on Nicor's system or when heating Variance listed below: degree-days exceed 60. Balancing charges Forecast Variance Summer = 241,600 Dth increase with variance level. Firm variance Forecast Variance Non-Summer = 88,895 quantities differ by season, as follows: Dth Max. Balancing Service Account Balance = 725,000 Dth Max. Firm Balancing Quantity Summer = 181,200 Dth Max. Firm Balancing Quantity Non-Summer = 88,875 Dth - ------------------------------------------------------------------------------------------------------------------- Pricing Includes summer reservation fees for Monthly Fuel Manager Fee of $65,000 transportation and balancing on Nicor and year- (Summer) and $10,000 (Winter). round reservation charge for transportation on Gas Priced at Gas Daily Midpoint Citygate upstream pipelines. Volumetric transportation, price (Chicago LDC's, large end users) plus storage and balancing charges apply year-round. $0.04 per MMBtu. Variable balancing Contract specifies minimum annual bill charges may also apply. requirements. - ------------------------------------------------------------------------------------------------------------------- Other Gas must come from NBPL, NGPL or APL. Cinergy obligated to procure, schedule and Elwood has options to purchase Nicor equipment deliver to Nicor and/or PGL volumes in order to connect directly with interstate sufficient to meet Elwood's natural gas pipelines and to buy out the contract early. requirements and to manage and administer the T&B Agreement. - -------------------------------------------------------------------------------------------------------------------
================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 16 [LOGO] PACE | Global Energy Services The T&B Agreement secures the Project's interconnection to the interstate pipeline grid through Nicor's intrastate system. Nicor interconnects upstream to NBPL, NGPL and APL. The Project will also have access to natural gas and storage from PGL. The contractual arrangements under the Fuel Plan include the necessary flexibility to buy out the interconnect facilities and T&B Agreement from Nicor and pursue alternative transportation arrangements, if market fundamentals make such options economic. The supply and transportation portfolio will be reviewed periodically by the fuel manager and modified as necessary to ensure cost competitiveness and reliability. - -------------------------------------------------------------------------------- Proprietary & Confidential 17 [LOGO] PACE | Global Energy Services ================================================================================ MIDWEST NATURAL GAS MARKET ASSESSMENT ================================================================================ This section presents an analysis of the Midwest natural gas commodity and transportation markets relevant to the Project. The market analysis is divided into the following subsections: o Key Findings o Midwest Gas Market Structure o Regional Transportation Infrastructure o Assessment of Transportation Services KEY FINDINGS Midwest Natural Gas Market Structure Supply o The Midwest market has access to all major producing basins in North America. These include the Gulf Coast, Permian, Mid-Continent, Rockies, WCSB, Appalachian basins, and to a lesser extent local production. o The Midwest Region's linkage by interstate pipelines to all major North American gas basins provides assurance of long-term access to supply. That supply historically has originated predominantly from the Gulf Coast, Mid-Continent, Permian and Western Canadian basins. Pace forecasts an increased reliance on Canadian supplies and incremental volumes from the Rocky Mountain region between 2001 and 2030 (the "Forecast Period"). o Midwest customers have access to nearly all leading producers and natural gas marketing companies in North America. o Pace projects natural gas supply availability to surpass demand throughout the Financing Term. Demand o The Midwest constitutes approximately 21 percent of total U.S. natural gas consumption. Illinois, Michigan and Ohio represent 70 percent of this consumption. Residential and commercial/industrial loads have historically accounted for about 39 and 38 percent of this consumption, respectively. o Aggregate demand is highly seasonal, with strong wintertime peaks to meet space heating requirements and dramatic dips during the non-heating season. Demand swings above 600 Bcf/month during peak winter periods and can fall below 200 Bcf/month during the non-heating season. - -------------------------------------------------------------------------------- Proprietary & Confidential 18 [LOGO] PACE | Global Energy Services o The Midwest Region has historically had one of the lowest ratios of power generation by natural gas of any U.S. region. In 1999, for example, natural gas constituted only 20 percent of the fuel used by electric utilities. That ratio is increasing as economic and environmental requirements make natural gas the primary fuel for new power generation. o Pace projects natural gas-fired power generation demand to increase significantly during the Forecast Period, from 362 MMcf/d in 2000 to 1,500 MMcf/d in 2004, 2,500 MMcf/d in 2010, 4,500 MMcf/d in 2020, and 5,800 MMcf/d in 2030. Pricing and Liquidity o The region is the focus of increasing competition and natural gas market activity. Chicago has developed as a major downstream hub and liquid pricing point; nearly 3 Bcf/d of gas transactions took place at the Chicago hub during a typical day in 2000. Growing regional demand for natural gas, coupled with additional pipeline capacity, has fostered a robust liquid market for short and mid-term natural gas transactions in the Midwest. o Because gas is so widely traded in Chicago, transactions based on "Chicago index" plus some premium are commonplace. o Pace forecasts the average annual Chicago citygate basis to be approximately $0.07/MMBtu above natural gas commodity prices reported at the Henry Hub throughout the Forecast Period. o Additional key pricing points include the Northern interconnect at Ventura, Viking at Emerson, large LDC citygates in Michigan, and Columbia Gas Transmission in the Appalachian sub-region. Pace forecasts prices at Ventura and Emerson to fall approximately $0.15/MMBtu to $0.25/MMBtu below Chicago, while prices at Michigan citygates and off Columbia Gas Transmission will range from $0.10/MMBtu to $0.15/MMBtu above Chicago citygate prices. Regional Transportation Infrastructure o While localized constraints exist, the Midwest Region natural gas market is characterized by excess pipeline capacity and comparatively low utilization rates on key pipelines. Since 1998, two large-scale pipeline expansions accounting for more than 2 Bcf/d have been placed into service to serve this market - APL and the NBPL Expansion - and other projects have been proposed. o Historically, the value of transportation capacity has remained significantly below maximum tariff rates and this trend is likely to continue. Basis between the Henry Hub and Chicago hub will generally remain in the $0.00 to $0.10/MMBtu range, while climbing only marginally at other regional trading points. - -------------------------------------------------------------------------------- Proprietary & Confidential 19 [LOGO] PACE | Global Energy Services o Large quantities of primary capacity rights are becoming available as existing contracts expire and "turnback capacity" is made available to new shippers. Key pipelines in this regard include ANR, CMS Panhandle Eastern Pipeline Company ("PEPL"), Great Lakes Gas Transmission ("Great Lakes"), NGPL, Northern Natural Gas Company ("NNG"), and Columbia Gas Transmission. o The Midwest Region provides a robust secondary capacity release market where capacity trades significantly below maximum tariffs. Cumulative, short-term capacity trades last year exceeded 8.7 Bcf/d on ANR, 1.1 Bcf/d on NGPL, and 1.0 Bcf/d on Panhandle. o The Midwest Region has the largest working gas storage capacity of any region, with daily deliverability exceeding 43 Bcf. Both interstate pipelines and LDCs own and offer storage services. These services are being restructured to more specifically address the peaking and balancing requirements of private power generators. The largest natural gas storage-holding states are Michigan, Illinois, West Virginia and Ohio. Nearly 147 Bcf of incremental storage capacity has been proposed recently in the Midwest. o Unbundling transportation services for small-volume LDC customers will intensify the trend toward shifting primary capacity rights on interstate pipelines from LDCs to marketers and large-volume customers. The result will be more efficient optimization of pipeline capacity and continued downward pressure on the value of interstate capacity. Assessment of Nicor and PGL Transportation Services o Together, Nicor and PGL have access to multiple market hubs and basins through interconnections with major interstate pipelines - APL, ANR, NGPL, NBPL, NNG, Midwestern Gas Transmission Company ("Midwestern") and PEPL - enabling them to deliver Gulf Coast, WCSB, Rockies, Mid-Continent, Permian, and local supply. o Provisions in the balancing services offered by Nicor will enable Elwood to obtain the flexibility required to meet variable dispatch loads. Nicor can provide this flexibility through its ownership of seven market-area underground storage facilities. o Pressure and deliverability on PGL's 24-inch line are sufficient to meet Elwood's fuel requirements for the Project. o Through the T&B Agreement Nicor will provide firm service to meet Elwood's contracted energy output under the executed long-term PSAs with Exelon and Aquila for the Project. MIDWEST GAS MARKET STRUCTURE Pace's assessment of the overall market place for gas-fired generators and other gas consumers in the Western region focuses on the following components: o Supply Assessment - Natural gas supplied to the Midwest Region will exceed demand within the region because of the Midwest Region's access to multiple supply basins with abundant resources. - -------------------------------------------------------------------------------- Proprietary & Confidential 20 [LOGO] PACE | Global Energy Services o Demand Assessment - Natural gas demand from power generators in the Midwest Region will rise from 3 to 22 percent of the region's total annual natural gas consumption during the Forecast Period. o Liquidity and Pricing - The Midwest Region has access to numerous natural gas supply sources as well as high demand downstream markets, creating liquid term and spot trading. A combination of these market fundamentals and the continuing development of competitive energy markets will foster the further development and continuation of a liquid, short-term market for gas supply in the Midwest Region. Supply Assessment The Midwest Region has a limited indigenous natural gas resource base and therefore produces only a fraction of its own supply. Numerous major interstate pipelines, however, traverse the region providing Midwestern natural gas users access to virtually all major North American production basins, including the Gulf Coast, Mid-Continent, WCSB, Rockies, Permian, and the Appalachian. Consequently, the Midwest Region is one of the most liquid natural gas trading areas in North America. Resources and Production Trends Due to its limited indigenous natural gas resource base, the Midwest Region relies extensively upon natural gas supply basins in the Southwestern and Western United States as well as Western Canada. Exhibit 6 illustrates the principal natural gas supply basins serving the Midwest Region. - ---------- 14 The Mid-Continent producing basin is also referred to as the Anadarko/Arkoma Basin. - -------------------------------------------------------------------------------- Proprietary & Confidential 21 [LOGO] PACE | Global Energy Services Exhibit 6: Sources of Natural Gas Supply ================================================================================ MAP OF PRINCIPAL NATURAL GAS SUPPLY BASINS SERVING THE MIDWEST REGION. Source: Pace and RDI. ================================================================================ According to the Potential Gas Committee ("PGC"), the major basins supplying the Midwest Region have over 830 Tcf of potential natural gas resources. Exhibit 7 presents PGC's estimates of the resource base for each of the natural gas supply basins accessible to the Midwest Region. - -------------------------------------------------------------------------------- Proprietary & Confidential 22 [LOGO] PACE | Global Energy Services Exhibit 7: Natural Gas Resource Base Accessible to the Midwest Region - -------------------------------------------------------------------------------- Resource Estimate Basin/Source (Bcf) Percent of Total - -------------------------------------------------------------------------------- Mid-Continent 70,164 8.45% - -------------------------------------------------------------------------------- Gulf Coast Basin - -------------------------------------------------------------------------------- Onshore 105,358 12.68% - -------------------------------------------------------------------------------- Offshore 113,433 13.65% - -------------------------------------------------------------------------------- Subtotal 218,791 26.34% - -------------------------------------------------------------------------------- Appalachian Basin - -------------------------------------------------------------------------------- Onshore 41,050 4.94% - -------------------------------------------------------------------------------- Coalbed 12,945 1.56% - -------------------------------------------------------------------------------- Subtotal 53,995 6.50% - -------------------------------------------------------------------------------- Michigan Basin 6,035 0.73% - -------------------------------------------------------------------------------- Illinois Basin - -------------------------------------------------------------------------------- Onshore 5,360 0.65% - -------------------------------------------------------------------------------- Coalbed 2,137 0.26% - -------------------------------------------------------------------------------- Subtotal 7,497 0.90% - -------------------------------------------------------------------------------- Rocky Mountain Area - -------------------------------------------------------------------------------- Onshore 125,487 15.11% - -------------------------------------------------------------------------------- Coalbed Methane 58,604 7.05% - -------------------------------------------------------------------------------- Subtotal 184,091 22.16% - -------------------------------------------------------------------------------- Permian 39,169 4.71% - -------------------------------------------------------------------------------- Western Canadian Sedimentary Basin 251,000 30.21% - -------------------------------------------------------------------------------- Total Midwest Market 830,742 100.00% - -------------------------------------------------------------------------------- Source: Potential Gas Committee. ================================================================================ Reserves Of the supply basins accessible to the Midwest Region, the Appalachian Basin, Rocky Mountain Area, and WCSB generally have higher reserve/production ("R/P") ratios than the Lower 48 average, as shown in Exhibit 8.(15) The lower R/P ratios in the Gulf of Mexico are representative of a mature production basin with sophisticated management practices that do not require a large proven reserve base to maintain annual production levels. A developing basin, such as the Rockies, will experience a higher R/P ratio as drilling and production practices progress. - ---------- 15 The R/P ratio is a measure in years of the existing volume of proved reserves divided by the current production per year expressed as follows: R/P ratio (years) = Proved Reserves (Bcf) / Current Production (Bcf/yr). It is a very rough measure since the amount of wellhead deliverability will typically decline as reserves are drawn down. - -------------------------------------------------------------------------------- Proprietary & Confidential 23 [LOGO] PACE | Global Energy Services Exhibit 8: North American Natural Gas Reserves and Production, 1999 ================================================================================ GRAPH OF RESERVE/PRODUCTION RATIOS FOR SUPPLY BASINS ACCESSIBLE TO THE MIDWEST REGION. Source: U.S. EIA and Statistics Canada. ================================================================================ Pace views the current R/P ratios as a sign of a competitive natural gas supply sector and not an indication of scarcity. Based on independent estimates of North American gas resources, Pace expects sufficient natural gas supply to be available to the Project throughout the Financing Term. Production Production within the Midwest Region is concentrated in the Michigan and Illinois Basins. Overall, Midwest production accounts for only 14 percent of current annual regional consumption. The remainder of this section examines activity in the gas supply basins outside the Midwest Region and their future production potential. Gulf Coast - The Gulf Coast is the most important producing region in North America. In 1998, total Gulf Coast production of 8.8 Tcf represented over one third of North American production. Many new fields have been added during the 1990s to replace depleting fields and the region is currently faced with the challenge of maintaining and developing sufficient natural gas transportation infrastructure to bring natural gas from new, discovered fields. As the second largest U.S. supply basin, the Onshore Gulf Coast accounts for 18 percent of total Lower 48 production. In 1998, the region produced 3.4 Tcf, more than any other onshore region. - -------------------------------------------------------------------------------- Proprietary & Confidential 24 [LOGO] PACE | Global Energy Services Unlike many other supply regions, the Gulf Coast Onshore has access to an abundance of interstate and intrastate pipeline capacity to move natural gas from the wellhead to market. Because production decline rates from new wells average 10 to 20 percent per year, new fields must constantly be found to replace depleting fields. Looking ahead, Pace expects a high degree of exploration activity to continue in this region. Exploration and development innovations, such as horizontal drilling, multilateral completions, optimization of well locations via 3-D seismic technology and monitoring-while-drilling will be instrumental in boosting the region's production levels and reducing finding and production costs. Included as part of the Gulf Coast onshore, the East Texas basin is comprised of Northern Louisiana and parts of Northeast Texas. Production from this basin accounts for approximately 5 percent of total Lower 48 supplies. One-half of East Texas's production and reserves are in just five fields: Carthage, Oak Hill, Willow Springs, Whelan, and Hawkins. In recent years, this region has been one of the few onshore regions to register substantial new fields, including at least 550 Bcf of reserves recently found in the Cotton Valley Lime reef. Gulf Coast onshore and offshore production levels began to fall in 1997, with declines continuing into 1998 and 1999. With large initial production rates and decline rates of 10 to 20 percent a year, offshore wells have high net present values and relatively quick payouts. However, a slow down in drilling, as occurred in 1998 and 1999, will result in significant production declines, which requires a recovery in drilling to reverse. This effect has contributed to the current high price environment, although this year's drilling recovery in response to the high market price will ultimately lead to increased production and a downward price correction closer to the long-run cost of production. The deep waters of the Gulf of Mexico supply an increasing share of Gulf Coast production. Deepwater wells produce at very high rates (30-100 MMcf), and recent drilling added over 100 Bcf of production in 1997 and 179 Bcf in 1998. Also, due to high initial flow rates, fewer wells need to be drilled to replace depleted reserves and maintain strong production growth. The deep offshore currently accounts for over 500 Bcf per year of production. For the time being, further production growth is limited by the lack of an adequate offshore gathering infrastructure to bring the natural gas ashore. As more infrastructure is added, Pace expects total offshore production to grow from 4.9 Tcf currently to almost 5.9 Tcf by 2010. Mid-Continent - This region includes three of the ten largest natural gas fields in the Lower 48 States, and accounts for 13 percent of total Lower 48 supplies. A sharp decline in Oklahoma's productive capacity occurred during the 1990s and is expected to continue to decline at a rate of 2 to 3 percent per year. Production for the region as a whole is declining gradually as existing natural gas fields are depleted. Output gains through drilling and further exploration are needed to maintain Anadarko/Arkoma production. Mobil and Anadarko Petroleum have planned to jointly exploit deeper horizons in Hugoton, the second largest natural gas field in the Lower 48 states. The Hugoton field is located in western Kansas, parts of Oklahoma, and the Texas - -------------------------------------------------------------------------------- Proprietary & Confidential 25 [LOGO] PACE | Global Energy Services Panhandle. Production has been declining gradually, and well completions remain low compared to 1997 levels. Permian - The Permian basin produces approximately 8 percent of Lower 48 natural gas supplies with a majority of deliveries staying within the South Central region. One third of Permian basin production had historically been shipped to California, but it is being replaced by stiff competition from other basins. These volumes are now being delivered to Gulf and Texas pipelines to serve more eastern natural gas markets. Permian natural gas production has continued to decline throughout the decade. However, Pace expects improvements in seismic technology and drilling methods to revive production in the basin. For example, an aggressive campaign is currently underway to develop the Val Verde area. Rocky Mountain - Rocky Mountain production represents approximately 12 percent of total Lower 48 supply and is largely untapped. The region is diverse and complex with many low permeability formations. Federal tax credits, to be phased-out by 2002, have made coalbed methane gas an important and growing facet of Colorado gas production. Pipeline expansions into the Midwest and West will bring increasing amounts of inexpensive Rocky Mountain supply to large markets in these regions. The Rocky Mountain basin is the fastest growing producing region in the U.S., regardless of any obstacles the region faces from expiring coalbed methane tax credits, saturation of Western markets, and the capital expense of building additional pipeline capacity. Rocky Mountain natural gas production grew from less than 100 Bcf per month in 1990 to almost 160 Bcf per month by the end of 1999. Historically, natural gas production in this area has been restricted by the area's take-away capacity, or the ability to move natural gas out of the region. The increase in production reflects the expansion of the take-away capacities. After a slump in 1999 due to low prices, the rig count recovered to over 80 by the summer of 2000. This biggest constraint on low cost Rocky Mountain natural gas production is the amount of exporting pipeline capacity. WCSB - Canadian natural gas resources are located across the western provinces of British Columbia, Alberta, and Saskatchewan. Canadian imports have increased sharply in response to a number of market-oriented regulation changes. The 1985 Agreement on Natural Gas Markets and Prices, which allowed for market-oriented pricing, was followed two years later by a market-based change in procedure to determine export volumes to the U.S. The U.S.-Canadian Free Trade Agreement ("CFTA") of 1988 also encouraged Canadian exports by prohibiting most trade restrictions on energy products. Production costs in the WCSB area have been relatively low, resulting in a lower regional natural gas price. However, with APL connecting the additional WCSB natural gas resources to the U.S. market, the local natural gas price has tended to increase in response to a higher U.S. market price. WCSB production accounted for 23 percent of total North American production in 1999. An R/P ratio of 10.5 indicates that production in this area can be increased to feed expanding pipelines serving the Midwest and Eastern U.S. markets. Canadian exports are expected to - -------------------------------------------------------------------------------- Proprietary & Confidential 26 [LOGO] PACE | Global Energy Services exceed 4 Tcf by 2005 due to a variety of pipeline expansion projects in both the U.S. and Canada. Gas Basin Flows Historically, most natural gas imported into the Midwest Region has flowed from the Gulf Coast and Mid-Continent. During the past decade, however, Canadian deliveries into the Midwest Region have significantly increased. As discussed above, Michigan and Appalachia are regional sources that also contribute to local supply. Pace estimates that approximately 67 percent of natural gas flowing into the Midwest has been supplied from the Gulf Coast and Mid-Continent supply areas, and 28 percent has been from Canada. The remainder has originated primarily in the Rocky Mountains and the Permian basin. Pace expects the Midwest Region's reliance on Canadian supplies to increase in the near-term and remain at elevated levels from historical amounts. Pace projects aggregate Canadian imports into the Midwest to grow between 1.0 to 1.3 percent annually from 2001 through 2015 to balance the region's natural gas demands, particularly from the power generation sector. Canadian export capacity into the U.S. Midwest exceeded 5.2 Bcf/d at the end of 2000. Estimates by Natural Resources Canada show that about 50 percent of the growth in Canadian export volumes between 2000 and 2010 will be attributed to deliveries into the U.S. Midwest.(16) Demand Assessment Current U.S. natural gas consumption exceeds 20 Tcf per year.(17) Most industry forecasters expect natural gas consumption to grow to 30 Tcf between 2015 and 2020 depending on assumptions about economic growth, fuel prices, production trends and deregulation in the power industry. Pace forecasts natural gas demand of 30 Tcf by 2016.(18) Excluding lease and plant fuel, demand from the power sector accounts for 37 percent of consumption by 2020, compared to 21 percent in 2000. The compound annual growth rate of power sector demand over this period averages 5.2 percent. Other sectors grow less robustly. Residential natural gas consumption increases 1.4 percent annually, from 4.8 to 6.3 Tcf by 2020. Commercial consumption grows 1.3 percent annually, from 3.1 to 4.1 Tcf, and industrial consumption grows 1.0 percent annually, from 8.2 to 10.0 Tcf by 2020. Exhibit 9 illustrates Pace's long-range natural gas demand forecast by sector for the Lower 48. - ---------- 16 Canadian Natural Gas Market Review and Outlook, Natural Resources Canada, 2000. 17 This section refers to total natural gas demand as the sum of residential, commercial, industrial, and power generation sectors. 18 When including natural gas consumption for plant and lease fuel, Pace's demand forecast reaches 30 Tcf by 2012. - -------------------------------------------------------------------------------- Proprietary & Confidential 27 [LOGO] PACE | Global Energy Services Exhibit 9: Forecast of Lower 48 Natural Gas Demand by Sector (Bcf/yr) ================================================================================ GRAPH ILLUSTRATING PACE'S LONG-RANGE NATURAL GAS DEMAND FORECAST BY SECTOR FOR THE LOWER 48 STATES (THROUGH 2030). Source: Pace. ================================================================================ Demand for natural gas will grow significantly in the Midwest over the next two decades. Total natural gas demand for the region is projected to rise from 4.7 Bcf/yr in 2000 to 7.7 Bcf/yr in 2020. Over this same period power generators located in the Midwest are expected to increase their share of the area's total annual gas consumption from 3 percent to 22 percent. The residential, commercial and industrial sectors are expected to increase by approximately 1.4 percent annually throughout the Forecast Period. Pace's projection of Midwest demand growth is shown in Exhibit 10. - -------------------------------------------------------------------------------- Proprietary & Confidential 28 [LOGO] PACE | Global Energy Services Exhibit 10: Forecast of Midwest Gas Demand by Sector (Bcf/yr) ================================================================================ GRAPH ILLUSTRATING PACE'S PROJECTION OF MIDWEST GAS DEMAND THROUGH 2030. Source: Pace. ================================================================================ Pricing and Liquidity Assessment The Midwest is characterized by a strong correlation between market-area and Henry Hub natural gas prices, and increasing market liquidity. Chicago is by far the most liquid market, averaging nearly 3 Bcf/d in average volumes. Chicago's significance has intensified since the commencement of APL's commercial operations in December 2000. APL is also likely to reduce the basis differential of Western Canadian supply, which is already approaching zero. Other high-volume trading points in the Midwest include the interconnect points of Northern at Ventura, Viking at Emerson, and the Michigan LDC citygates of Michigan Consolidated Gas and Michigan Consumers Energy. The latter two LDCs are referenced cumulatively in the exhibits below as "Michigan Citygates." Midwest Market Prices The Midwest natural gas market has a number of active liquid trading points, as illustrated in Exhibit 11. - -------------------------------------------------------------------------------- Proprietary & Confidential 29 [LOGO] PACE | Global Energy Services Exhibit 11: Midwest Trading Points ================================================================================ MAP SHOWING MIDWEST Source: Pace. TRADING POINTS. ================================================================================ Pricing Determinants and Differentials Key factors driving natural gas prices in the Midwest are: o Increased market competition and continued access to all of North America's producing regions. o Increased flow of Canadian supply at competitive prices. o Increased flow of Rocky Mountain supply at competitive prices. o Ability of supply to surpass demand throughout the Forecast Period. o Less excess pipeline capacity and competition in the Appalachian sub-region, reflecting higher projected prices at the TCO Pool. o Less liquidity and competition at Michigan Citygates than at Chicago, reflecting the consistently higher differential in Michigan. Midwest Points Trends toward greater gas-on-gas competition and gas-fired generation increases have led to the development of liquidity in several Midwest locations. Of primary importance: o APL, coincident with incremental capacity to move natural gas from APL to eastern markets, will further enhance Chicago-area liquidity. - -------------------------------------------------------------------------------- Proprietary & Confidential 30 [LOGO] PACE | Global Energy Services o Liquid Chicago-area pricing points are relied upon for a significant portion of natural gas contracts in the Midwest. o Published Chicago-area indexes such as Gas Daily and Inside F.E.R.C.'s Gas Market Report exhibit a strong correlation to natural gas prices at Henry Hub. Natural gas differentials between the Henry Hub and Chicago, however, have been extremely volatile and weather-driven on a short-term basis during peak winter seasons. o Liquidity at Northern Border's Ventura interconnect and other Midwest pricing points has increased, resulting in high volumes traded on the spot market. o Large-volume purchases at Michigan LDC citygates sometimes exceed Chicago-area volumetric transactions and serve as an alternate pricing point. Exhibit 12 illustrates the correlation between a daily-published Chicago index and the price at Henry Hub. Prices at these two liquid trading centers are highly correlated.(19) Exhibit 12: Chicago and Henry Hub Gas Prices ================================================================================ GRAPH SHOWING THE CORRELATION BETWEEN A DAILY-PUBLISHED CHICAGO INDEX AND THE GAS PRICE AT HENRY HUB FROM JANUARY 2000 AND MAY 2001. Source: RDI's GasDat. ================================================================================ - ---------- 19 Analysis of the relationship between daily spot prices over the past eighteen months at the Henry Hub and Chicago-LDC's, large end users indicates an R-squared of 0.969. That is, 96.9 percent of the variance in pricing at Chicago is explained by price variance at the Henry Hub. - -------------------------------------------------------------------------------- Proprietary & Confidential 31 [LOGO] PACE | Global Energy Services Midwest Trading Volumes Gas Daily defines a highly liquid pricing point as having Monthly Contract Index trade volumes in excess of 200,000 MMBtu/d, while volumes under 25,000 MMBtu/d characterize low liquidity. The Monthly Contract Index table is published in Gas Daily on the first business day of each month. The indexes, which are volume-weighted average costs of natural gas, are calculated from data collected during bid week. Monthly contract indexes do not change after they have been set. The Daily Price Survey lists price ranges for packages of spot gas of about 5 MMcf/d, with many larger and some smaller packages. Historically, marketed volumes based on the Chicago Large End-Users and Michigan Citygates indices have demonstrated a high degree of liquidity. In fact, monthly traded volumes for natural gas purchased in markets defined by these indices have equaled about 2.5 Bcf/d typically or about ten times the high liquidity threshold.(20) As a pricing point becomes more liquid, up to one-half of the volumes traded on the spot market are not physically flowing through the point. Paper trades account for these additional volumes. Exhibit 13 shows volumes of natural gas, as reported by Gas Daily, traded under the monthly contract index price for a given month at various Midwest liquid-trading points. - ---------- 20 The fuel price indices referenced in the PSAs and the FMA are based on daily midpoint of Gas Daily's Chicago Large End Users index not the month contract index price. - -------------------------------------------------------------------------------- Proprietary & Confidential 32 [LOGO] PACE | Global Energy Services Exhibit 13: Monthly Contract Index Volumes Traded in the Midwest ('000 MMBtu/d) ================================================================================
- ------------------------------------------------------------------------------------------------- Chicago- Henry LDCS, Large Michigan ANR ML-7 Viking Dawn, Flow Date Hub End-Users Citygates (Entire Zone) (Emerson) Ontario - ------------------------------------------------------------------------------------------------- Jun-99 3,384 2,691 2,946 434 69 145 - ------------------------------------------------------------------------------------------------- Jul-99 3,225 3,481 3,634 547 47 628 - ------------------------------------------------------------------------------------------------- Aug-99 3,916 3,542 3,349 275 24 1,540 - ------------------------------------------------------------------------------------------------- Sep-99 3,967 2,856 3,164 759 56 651 - ------------------------------------------------------------------------------------------------- Oct-99 3,464 2,938 3,430 668 81 758 - ------------------------------------------------------------------------------------------------- Nov-99 3,444 2,939 3,879 509 44 955 - ------------------------------------------------------------------------------------------------- Dec-99 3,378 3,244 3,978 560 90 996 - ------------------------------------------------------------------------------------------------- Jan-00 2,767 2,051 2,363 424 25 324 - ------------------------------------------------------------------------------------------------- Feb-00 2,643 2,868 3,140 638 155 906 - ------------------------------------------------------------------------------------------------- Mar-00 3,276 2,752 2,333 437 5 531 - ------------------------------------------------------------------------------------------------- Apr-00 2,297 2,405 2,434 372 12 555 - ------------------------------------------------------------------------------------------------- May-00 3,432 2,623 1,992 525 12 766 - ------------------------------------------------------------------------------------------------- Jun-00 1,980 2,451 1,317 225 5 440 - ------------------------------------------------------------------------------------------------- Jul-00 2,787 2,022 1,403 206 5 301 - ------------------------------------------------------------------------------------------------- Aug-00 1,886 1,896 1,199 231 5 135 - ------------------------------------------------------------------------------------------------- Sep-00 2,311 2,024 2,120 563 41 231 - ------------------------------------------------------------------------------------------------- Oct-00 1,799 1,725 1,704 435 5 246 - ------------------------------------------------------------------------------------------------- Nov-00 2,366 1,531 1,627 552 5 450 - ------------------------------------------------------------------------------------------------- Dec-00 2,103 2,481 2,687 645 0 714 - ------------------------------------------------------------------------------------------------- Jan-01 1,776 1,753 1,252 120 5 643 - ------------------------------------------------------------------------------------------------- Feb-01 1,527 1,195 1,599 200 100 300 - ------------------------------------------------------------------------------------------------- Mar-01 1,560 1,357 2,330 526 55 366 - ------------------------------------------------------------------------------------------------- Apr-01 1,365 1,906 3,160 498 99 579 - ------------------------------------------------------------------------------------------------- May-01 1,718 1,326 2,188 471 18 353 - ------------------------------------------------------------------------------------------------- Average 2,599 2,336 2,468 451 40 563 - -------------------------------------------------------------------------------------------------
Note: Michigan Citygates equals the sum of Michigan-MichCon and Michigan-Consumers Energy index volumes. Sources: Pace and RDI's GasDat. ================================================================================ On the daily market, Chicago Large End-Users and Michigan Citygates pricing points continue to have the highest liquidity of points in the Midwest. Exhibit 14 illustrates daily volumes traded at designated liquid points between January 2000 and May 2001, as reported by Gas Daily. Daily volumes reported by Gas Daily at the Chicago Large End Users index averaged about 2,000,000 MMBtu/d during this period or nearly ten times the Project's estimated peak day summer natural gas requirements. - -------------------------------------------------------------------------------- Proprietary & Confidential 33 [LOGO] PACE | Global Energy Services Exhibit 14: Daily Volumes at Relevant Midwest Liquid Trading Points ('000 MMBtu/d) ================================================================================ GRAPH ILLUSTRATING DAILY VOLUMES TRADED AT RELEVANT MIDWEST LIQUID TRADING POINTS BETWEEN JANUARY 2000 AND MAY 2001. Source: RDI's GasDat. ================================================================================ REGIONAL TRANSPORTATION INFRASTRUCTURE The three primary pipeline corridors into the Midwest are the Gulf Coast, Mid-Continent and Western Canada. Secondary natural gas routes are represented by the Rocky Mountain, Permian, and Appalachian basins. The key pipelines constituting these corridors are listed below: Midwest Pipeline Infrastructure 1) Gulf Coast Corridor: o Natural Gas Pipeline Company of America o CMS Trunkline Gas Co. o Midwestern Gas Transmission Co. o Texas Gas Transmission Corp. o ANR Pipeline Company o Texas Eastern Transmission Corp. - -------------------------------------------------------------------------------- Proprietary & Confidential 34 [LOGO] PACE | Global Energy Services 2) Mid-Continent Corridor: o Natural Gas Pipeline Company of America o ANR Pipeline Company o CMS Panhandle Eastern Pipeline Co. o Northern Natural Gas Co. 3) Western Canadian Corridor: o Northern Border Pipeline Company o Alliance Pipeline Company o Great Lakes Gas Transmission 4) Rocky Mountain Corridor: o Colorado Interstate Gas Co. o Trailblazer Pipeline Co. 5) Permian Corridor: o Natural Gas Pipeline Company of America o Northern Natural Gas Co. 6) Appalachian Corridor: o Columbia Gas Transmission Corp. o Dominion Transmission Inc. The main gas transportation routes or pipeline corridors serving the Midwest market are illustrated in Exhibit 15. Over the past several decades, Chicago has grown into a major natural gas market hub. The Chicago hub offers diverse, convenient and efficient access to premium markets for both natural gas buyers and sellers with direct connections with six major interstate pipelines including ANR, NGPL, NBPL, NNG, Midwestern, and PEPL. Energy service providers are offering a host of services at the Chicago hub including interruptible transportation, parking, loaning, wheeling and balancing. - -------------------------------------------------------------------------------- Proprietary & Confidential 35 [LOGO] PACE | Global Energy Services Exhibit 15: Midwest Region Pipeline Corridors ================================================================================ MAP OF THE GAS TRANSPORTATION ROUTES OR PIPELINE CORRIDORS SERVING THE MIDWEST MARKET. Source: Pace and RDI. ================================================================================ Expansion Overview Pursuit of higher netback prices for producers and stronger than expected demand growth in electric generation has led to substantial expansion of the pipeline grid to and from the Midwest.(21) Several expansion projects either have been recently completed or are under way and will increase pipeline deliverability into the Midwest Region, particularly from Western Canada and the Rocky Mountains. Producers in these supply regions are likely to realize higher commodity prices as a result of improved deliverability to natural gas markets. If all planned projects are completed, deliverability to the Midwest will increase by more than 3 Bcf/d, fostering the availability of natural gas supplies at the Chicago hub. Pace believes that the overall incremental gas capacity brought into the Midwest Region exceeds outflows; consequently, the majority of proposed pipeline expansion projects in the Midwest Region are targeted at delivering natural gas downstream of Chicago. Exhibit 16 illustrates announced inter and intra-regional pipelines for the Midwest. - ---------- 21 Netback Price: The effective wellhead price to the producer of natural gas, based on the downstream market price for the natural gas less the charges for delivering the gas to market. - -------------------------------------------------------------------------------- Proprietary & Confidential 36 [LOGO] PACE | Global Energy Services Exhibit 16: Announced Midwest Pipeline Expansions ================================================================================ MAP OF ANNOUNCED MIDWEST PIPELINE EXPANSIONS
Estimated # Project Capacity In Service Sponsor Start End (MMcf/d) Date State State - --------------------------------------------------------------------------------------------------------------------------- 1 SupplyLink 750 2002 ANR IL OH - --------------------------------------------------------------------------------------------------------------------------- 2 Guardian Pipeline 730 2002 Viking Gas Transmission, CMS IL WI Energy, and WICOR - --------------------------------------------------------------------------------------------------------------------------- 3 Horizon Pipeline 370 2002 Kinder Morgan IL IL - --------------------------------------------------------------------------------------------------------------------------- 4 Independence 1,000 2002 ANR OH PA - --------------------------------------------------------------------------------------------------------------------------- 5 Trailblazer 308 2002 Kinder Morgan CO NE - --------------------------------------------------------------------------------------------------------------------------- 6 WestLeg Expansion Project TBD 2003 ANR IL WI - ---------------------------------------------------------------------------------------------------------------------------
Sources: Pace and RDI. ================================================================================ Impact of Pipeline Expansion Project The APL project has added 1,350 MMcf/d of capacity from Western Canada to the Chicago hub. A large percentage of the natural gas from the APL project is destined for end users in the Northeast. To move this natural gas eastward, two competing corridors have developed in the eastern portion of the Midwest Region. The more northerly of the two corridors is comprised of the recently completed Vector pipeline, which extends from Joliet, Illinois, to Dawn, Ontario, and the proposed Millennium Pipeline ("Millennium"), which would commence at Dawn and terminate in Westchester County, New York. The second, more southerly corridor begins with the SupplyLink project, which will loop ANR's existing pipeline from Joliet to Defiance, Ohio. At Defiance, the proposed Independence Pipeline would begin and transport supply for 400 miles to Leidy, Pennsylvania, where the proposed MarketLink project would then move supply to the New York City area. - -------------------------------------------------------------------------------- Proprietary & Confidential 37 [LOGO] PACE | Global Energy Services Based upon recent regulatory developments, Pace believes that the projects associated with both of these corridors will be completed. The southern corridor will likely enter into service late in 2003, whereas the northern corridor will not be complete until probably late 2004, with a significant chance for further delays. The recent swelling of political support for Millennium Pipeline's revised route, however, bodes well for the eventual completion of the more northerly corridor. Both corridors will enhance considerably the deliverability into the eastern portion of the Midwest. Additional major pipeline expansions affecting the Midwest Region include Guardian Pipeline, Horizon Pipeline, and ANR's WestLeg Expansion. The first two projects, which recently received the approval of the Federal Energy Regulatory Commission ("FERC"), will augment deliverability from Joliet, Illinois to southern Wisconsin and northern Illinois, respectively. Finally, ANR held in May 2001 an open season to determine market interest in a possible expansion of its system in south-central Wisconsin. Pipeline Utilization Rates Future Midwest capacity requirements and basis pricing will hinge on the utilization of existing and proposed pipeline capacity. Midwest pipelines reflect a wide range of load factors. Overall, however, capacity utilization serving the Midwest is comparatively low. During 1998, utilization on U.S.-sourced pipelines averaged approximately 70 percent. Many factors influence the utilization of pipeline capacity including: o Type of load (e.g., industrial process versus seasonal space heat demand), o End user portfolio strategies, o Pipeline maintenance/repairs at compressor stations, o Customer mix, o Availability of capacity at alternate receipt/interconnect points, o Liquidity of primary and secondary markets, o Availability and proximity of market area storage, o Level of rates and surcharges, o Rate design, and o Flexibility of operational business practices (i.e., nomination and scheduling procedures, alternate receipt and delivery point use, balancing/cashout provisions, segmentation practices, and pooling practices). Illinois consumes the most natural gas of any state in the Midwest. The next section discusses recent trends affecting the utilization of pipeline capacity in the state. - -------------------------------------------------------------------------------- Proprietary & Confidential 38 [LOGO] PACE | Global Energy Services Illinois Utilization Rates Recent historical load factors for key pipelines delivering into Illinois are presented in Exhibit 17.(22) NBPL has the highest load factor for deliveries into the state.(23) When considered in terms of its total capacity into Illinois, ANR's annual average annual load factors are relatively low due to the pipeline's bi-directional capability. During the summer, natural gas on ANR flows north into Illinois and Michigan to meet summer load and injections into ANR's storage fields located in Michigan. In the winter, natural gas from storage flows south, reducing annual average flows into Michigan and adding capacity for natural gas to flow south into Illinois. When only considering capacity flowing north into Illinois, ANR's average annual load factor has ranged from 83 to 95 percent. Exhibit 17: Illinois Pipeline Utilization Trends ================================================================================
- ------------------------------------------------------------------------------------------------------- ANR Trunkline PEPL - ------------------------------------------------------------------------------------------------------- Load Load Load Year Flow Capacity Factor Flow Capacity Factor Flow Capacity Factor - ------------------------------------------------------------------------------------------------------- 1990 570 2,313 25% 1,020 1,799 57% 1,115 1,361 82% - ------------------------------------------------------------------------------------------------------- 1994 925 2,403 38% 1,088 1,799 60% 982 1,361 72% - ------------------------------------------------------------------------------------------------------- 1995 1,221 2,453 50% 919 1,799 51% 1,248 1,361 92% - ------------------------------------------------------------------------------------------------------- 1996 794 2,453 32% 1,241 1,799 69% 1,304 1,361 96% - ------------------------------------------------------------------------------------------------------- 1997 766 2,587 30% 1,178 1,799 65% 1,160 1,361 85% - ------------------------------------------------------------------------------------------------------- 1998 727 2,587 28% 975 1,799 54% 922 1,361 68% - ------------------------------------------------------------------------------------------------------- 1999 727 2,696 27% 1,142 1,799 63% 1,010 1,361 74% - ------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- NGPL Northern Border* ---------------------------------------------------------------------------- Load Load Year Flow Capacity Factor Flow Capacity Factor ---------------------------------------------------------------------------- 1990 1,993 3,221 62% N/A N/A N/A ---------------------------------------------------------------------------- 1994 2,449 3,315 74% N/A N/A N/A ---------------------------------------------------------------------------- 1995 2,565 3,315 77% N/A N/A N/A ---------------------------------------------------------------------------- 1996 2,603 3,315 79% N/A N/A N/A ---------------------------------------------------------------------------- 1997 2,589 3,315 78% N/A N/A N/A ---------------------------------------------------------------------------- 1998 2,324 3,425 68% N/A N/A N/A ---------------------------------------------------------------------------- 1999 1,997 3,425 58% 581 663 88% ----------------------------------------------------------------------------
*Natural gas began flowing on Northern Border into Illinois in December 1998. Source: EIA. ================================================================================ - ---------- 22 APL, which is omitted from Exhibit 17, commenced commercial operations on December 1, 2000. From December 2000 through April 2001 capacity utilization on APL has varied from 96 percent to 114 percent or from 1.4 to 1.6 Bcf/d. 23 NBPL extended its system into the Chicago area in 1998. - -------------------------------------------------------------------------------- Proprietary & Confidential 39 [LOGO] PACE | Global Energy Services Gas Storage Key characteristics of Midwest natural gas storage are the following: o The Midwest represents nearly 50 percent of U.S. storage capacity. o The Midwest contains the largest amount of working gas capacity and deliverability of any U.S. region. o Michigan, Illinois, West Virginia and Ohio lead respectively in total storage capacity, while Wisconsin, North and South Dakota are the only states with no storage fields. o The Midwest's natural gas storage fields are aquifers, depleted oil and natural gas fields as well as salt caverns. An overview of key states providing storage deliverability to the Midwest Region is shown in Exhibit 18. Exhibit 18: Overview of Midwest Storage Operations, 1999 ================================================================================
- ---------------------------------------------------------------------------------------- Total Gas Estimated Daily Percent of Number of Capacity Deliverability U.S. State Active Sites (Bcf) (MMcf/d) Capacity - ---------------------------------------------------------------------------------------- Iowa 4 273 3,033 3.32% Illinois 30 899 9,989 10.92% Indiana 28 113 1,256 1.38% Kentucky 25 220 2,444 2.67% Michigan 49 1,072 11,408 13.02% Minnesota 1 7 78 0.09% Nebraska 1 39 433 0.48% Ohio 24 575 6,389 6.99% West Virginia 36 733 8,144 8.91% - ---------------------------------------------------------------------------------------- Total Midwest 198 3,931 43,174 47.78% - ---------------------------------------------------------------------------------------- Total Lower 48 413 8,229 90,930 100.00% - ----------------------------------------------------------------------------------------
Source: EIA. ================================================================================ Storage projects have been proposed in the Midwest Region in the locations designated in Exhibit 19. - -------------------------------------------------------------------------------- Proprietary & Confidential 40 [LOGO] PACE | Global Energy Services Exhibit 19: Location of Proposed Midwest Storage Projects ================================================================================ MAP OF LOCATIONS OF PROPOSED MIDWEST STORAGE PROJECTS Source: Pace and RDI. ================================================================================ Michigan and Kentucky, followed by Ohio, are the principal states where new working gas capacity has been proposed. About 400 MMcf/d of new withdrawal capability has been proposed at one large project in Michigan; a total of 230 MMcf/d at four projects in Kentucky; and 156 MMcf/d, consisting of numerous sites, in Ohio. Several projects are also underway in West Virginia, but total withdrawal capacity is much less significant. Capacity Availability Two major markets for interstate pipeline capacity exist: a primary market and a secondary market.(24) Primary market capacity consists of firm transportation contracts between shippers and interstate pipelines exceeding one-year in duration. Secondary market capacity, on the other hand, comprises an array of services including short-term firm (less than one-year), interruptible, or released capacity. Firm primary capacity is usually available on pipelines that are not fully subscribed, or may become available through pipeline expansions or future contract expirations. Both types of capacity are discussed below. Primary Capacity The expiration of long-term firm transportation ("FT") agreements between interstate pipelines and their customers, or "capacity turnback," will play an important role in satisfying potential requirements for new capacity deliverability on a firm basis. LDCs, the traditional purchasers of firm capacity in the Midwest, are gradually exiting the merchant natural gas business because of - ---------- 24 Capacity can also be acquired as part of a bundled or delivered gas arrangement with a gas marketer. - -------------------------------------------------------------------------------- Proprietary & Confidential 41 [LOGO] PACE | Global Energy Services state unbundling initiatives and revised corporate objectives. As this trend progresses, capacity held by LDCs will become available to other large volume customers, especially marketers. Capacity Turnback Besides acquiring capacity from pipelines expanding their systems or developing greenfield projects, opportunities exist to purchase turnback capacity from pipelines, made available by shippers who have not exercised their rights of first refusal to retain capacity. Pace's analysis of primary capacity availability on ANR, NGPL, NBPL, and Trunkline indicates that a significant amount of capacity is likely to become available under expiring contracts during the short- and mid-term. Of these pipelines, between 2002 and 2005 NGPL will experience the greatest potential turnback of capacity-3,600 MMcf/d. During the same period ANR, NBPL, and Trunkline will have contracts expire for 1,900 MMcf/d, 1,400 MMcf/d, and 1,100 MMcf/d of firm capacity, respectively. Pace expects the majority of this capacity to be resubscribed in the future. However, Pace believes that the new agreements may be for shorter periods and subject to selective discounting. The outlook for potential capacity turnback on ANR, NGPL, NBPL, and Trunkline is depicted in Exhibit 20.(25) - ---------- 25 Capacity on APL was subscribed under contracts; therefore it has not been included in the analysis above. - -------------------------------------------------------------------------------- Proprietary & Confidential 42 [LOGO] PACE | Global Energy Services Exhibit 20: Decontracting Schedules of Select Interstate Pipelines Serving Chicago ================================================================================ GRAPH DEPICTING OUTLOOK FOR POTENTIAL CAPACITY TURNBACK ON ANR, NGPL, NBPL AND TRUNKLINE PIPELINES.
- ------------------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-2030 - ------------------------------------------------------------------------------------------------------------- ANR 1264 438 754 498 178 146 30 314 27 418 587 - ------------------------------------------------------------------------------------------------------------- Trunkline 792 761 162 138 31 0 30 0 0 20 135 - ------------------------------------------------------------------------------------------------------------- NGPL 2441 769 2097 231 485 80 267 441 20 57 137 - ------------------------------------------------------------------------------------------------------------- NBPL 135 0 1154 170 120 81 60 950 338 160 152 - -------------------------------------------------------------------------------------------------------------
Sources: Pace and RDI. ================================================================================ Secondary Capacity The marketplace for trading released capacity in the Midwest is robust. Pace finds that secondary market transactions often reflect the following characteristics: o Marketers control a growing share of total capacity in the Midwest and are significant holders of released capacity. o Capacity deals are usually structured so that receipt points are located at liquid upstream pooling points. o The release market is a vital component of the overall fuel plans of large volume customers in the Midwest. o After removing long-term deals, use of the release market is seasonal, peaking in the summer. Midwest shippers have adopted a varied approach to buying and selling released capacity. For example, many shippers' short-term release portfolio often includes transactions with the following terms: one year; seasonal deals that last 5 to 7 months for peak (i.e., Winter) and off-peak (i.e., Summer) periods; one month; or intra-month deals. - -------------------------------------------------------------------------------- Proprietary & Confidential 43 [LOGO] PACE | Global Energy Services Pipeline Transportation Rates In addition to capacity availability, pipelines experience large differences between primary and secondary market pricing. Maximum tariff firm transportation rates are used as a benchmark for transportation pricing in the primary market while basis values, interruptible transportation, and prices for released capacity provide indicators of secondary market valuation. Primary Market The primary transportation market consists of capacity obtained directly from the pipelines and priced at either full tariff or at a discount. Pipelines tend to make discounts available, when competitive alternatives and/or excess capacity on a specific line exists. Discounts to full tariff are frequently available in Midwest markets since pipelines compete to increase their respective load factors. Discounts are also obtained in the secondary capacity release market, which is discussed below. The following characteristics are indicative of transportation pricing in the Midwest market: o There is a slight seasonal variation in the basis between the Midwest Region and the Henry Hub, ranging approximately from $0.05/MMBtu to $0.15/MMBtu. o Basis and transportation prices generally are facing downward pressure as incremental pipeline capacity in the region is brought on line. As a result, the basis differentials between key liquid downstream points in the Midwest and the Henry Hub are narrowing. o Growing competition among pipelines and suppliers is driving costs down to the marginal cost of transporting supply from the Gulf Coast to Chicago. As a result, transportation rates from the Gulf Coast will likely be a significantly lower percentage of the total delivered natural gas price in the Midwest when compared to rates from Western Canada. o Transportation rates from Western Canada during peak days will be valued by the market at or slightly above maximum tariff rates, while rates from the Gulf Coast will be valued at a significant discount to maximum tariff rates. Secondary Market The value of Midwest transportation capacity, as reflected in secondary release markets, tends to be substantially less than the maximum tariff rate. This reflects both the general mildness of recent winters, and the nature of pipeline capacity to be bid down to variable cost if excess capacity exists, and to be bid up well above actual costs if capacity is tight. - -------------------------------------------------------------------------------- Proprietary & Confidential 44 [LOGO] PACE | Global Energy Services Exhibit 21 provides a side-by-side comparison of basis values for the past four winters and summers. Average basis values in the Chicago market have traded around $0.07/MMBtu in the summer and $0.15/MMBtu in the winter between 1997 and the first few months of 2001. The introduction of new pipeline capacity into the region during this period has resulted in a highly competitive transportation market. Michigan basis values trade within a few cents per MMBtu of the Chicago market. Exhibit 21: Historic Summer and Winter Basis Values (1997 - 2001) ================================================================================ GRAPH COMPARING BASIS VALUES FOR THE PAST FOUR WINTERS AND SUMMERS AT VARIOUS TRADING POINTS. Source: Pace. ================================================================================ Interruptible Transportation Rates Secondary market value can also be determined based on the actual rates charged for interruptible transportation (IT) on an interstate pipeline. Maximum tariff IT rates are often equivalent to firm transportation rates on a 100 percent load factor firm transportation rate. The price advantage for contracting IT capacity is achieved by avoiding fixed monthly charges and contracting higher discounts to maximum tariff rates. Since IT discounts were not publicly available, short-term capacity release deals are a fair indicator for the value of IT capacity. Capacity Release Rates Liquid secondary market trading exists on most Midwest pipelines, and plays a key role in determining actual transportation costs to the region. Deals are transacted with an array of terms: - -------------------------------------------------------------------------------- Proprietary & Confidential 45 [LOGO] PACE | Global Energy Services single day, intra-month, monthly, seasonal, and long-term. Most capacity is traded under one-month or long-term (deals greater than 6-months) deals. Using released capacity is an important tool for shippers in the Midwest to augment their natural gas supply needs. The single most important factor affecting capacity release rates is weather-driven temperatures that produce a tightening of capacity, particularly in the winter, but also during the summer cooling season on some pipelines as demand for gas-fired electric generation increasingly competes with storage injections. The intensity and significance of this factor differs among pipelines and along specific pipeline paths. A summary of the availability and pricing of released capacity in the Midwest is presented in Exhibit 22. Exhibit 22: Summary of Historical Capacity Release Transactions ================================================================================ GRAPH DISPLAYING THE AVAILABILITY AND PRICING OF RELEASED CAPACITY FOR THE NGPL PIPELINE FROM JANUARY 1, 1997 TO APRIL 1, 2001. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 46 [LOGO] PACE | Global Energy Services GRAPH DISPLAYING THE AVAILABILITY AND PRICING OF RELATED CAPACITY FOR THE ANR PIPELINE FROM JANUARY 1, 1997 TO APRIL 1, 2001. Sources: Pace and RDI. ================================================================================ Exhibit 23 compares monthly pricing of released capacity on ANR's Illinois Line, NGPL, PEPL, Trunkline, and NBPL. Historically ANR capacity has traded for about 50 percent of its maximum tariff value. Typically about 300,000 MMBtu/d of capacity is traded in the Upper Midwest zones on ANR's system. Recently, released capacity volumes on NGPL near Chicago have declined. Pace attributes this decline in trades starting in 1999 to a two-year negotiated capacity contract. Through this agreement, a large natural gas marketer acquired capacity for 500,000 MMBtu/d, or approximately 15 percent of NGPL's throughput into Chicago, for a term of two years. Pace believes this marketer is using this capacity to provide delivered natural gas arrangements to large end users and power generators, who otherwise would be entering the short-term capacity release market. Exhibit 23: Availability and Pricing of Released Capacity ================================================================================
- ------------------------------------------------------------------------------------------------------- NGPL ANR - ------------------------------------------------------------------------------------------------------- Percent of Percent of Date Volume Price Bid Rate Volume Price Bid Rate - ------------------------------------------------------------------------------------------------------- 01/97 34,349 $0.11 21% 3,000 $0.42 100% 02/97 59,024 $0.14 31% 3,000 $0.42 100% - ------------------------------------------------------------------------------------------------------- 03/97 178,285 $0.11 24% 218,738 $0.18 55% - ------------------------------------------------------------------------------------------------------- 04/97 381,385 $0.12 30% 225,752 $0.14 40% - ------------------------------------------------------------------------------------------------------- 05/97 178,214 $0.17 42% 182,223 $0.17 53% - ------------------------------------------------------------------------------------------------------- 06/97 346,772 $0.17 42% 73,802 $0.23 81% - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Proprietary & Confidential 47 [LOGO] PACE | Global Energy Services
- ---------------------------------------------------------------------------------------------------------- NGPL ANR - ---------------------------------------------------------------------------------------------------------- Percent of Percent of Date Volume Price Bid Rate Volume Price Bid Rate - ---------------------------------------------------------------------------------------------------------- 07/97 299,280 $0.17 40% 115,656 $0.19 65% - ---------------------------------------------------------------------------------------------------------- 08/97 303,220 $0.17 41% 201,829 $0.14 50% - ---------------------------------------------------------------------------------------------------------- 09/97 335,119 $0.15 36% 169,434 $0.16 49% - ---------------------------------------------------------------------------------------------------------- 10/97 213,188 $0.22 51% 292,268 $0.12 37% - ---------------------------------------------------------------------------------------------------------- 11/97 122,730 $0.29 56% 154,614 $0.15 51% - ---------------------------------------------------------------------------------------------------------- 12/97 38,240 $0.16 33% 71,733 $0.20 91% - ---------------------------------------------------------------------------------------------------------- 01/98 35,985 $0.13 28% 107,769 $0.16 68% - ---------------------------------------------------------------------------------------------------------- 02/98 46,985 $0.12 29% 346,214 $0.12 55% - ---------------------------------------------------------------------------------------------------------- 03/98 122,604 $0.07 17% 407,557 $0.10 37% - ---------------------------------------------------------------------------------------------------------- 04/98 287,471 $0.11 34% 525,353 $0.08 29% - ---------------------------------------------------------------------------------------------------------- 05/98 301,224 $0.15 47% 502,401 $0.14 44% - ---------------------------------------------------------------------------------------------------------- 06/98 356,849 $0.14 45% 349,416 $0.11 40% - ---------------------------------------------------------------------------------------------------------- 07/98 561,659 $0.20 62% 550,668 $0.09 34% - ---------------------------------------------------------------------------------------------------------- 08/98 547,180 $0.20 62% 492,161 $0.09 32% - ---------------------------------------------------------------------------------------------------------- 09/98 619,434 $0.23 70% 689,890 $0.09 33% - ---------------------------------------------------------------------------------------------------------- 10/98 539,466 $0.26 77% 622,154 $0.08 30% - ---------------------------------------------------------------------------------------------------------- 11/98 382,920 $0.28 80% 501,804 $0.15 51% - ---------------------------------------------------------------------------------------------------------- 12/98 59,767 $0.20 51% 244,216 $0.18 52% - ---------------------------------------------------------------------------------------------------------- 01/99 75,855 $0.18 44% 246,893 $0.21 74% - ---------------------------------------------------------------------------------------------------------- 02/99 136,642 $0.14 36% 255,220 $0.20 75% - ---------------------------------------------------------------------------------------------------------- 03/99 99,180 $0.10 25% 325,828 $0.19 67% - ---------------------------------------------------------------------------------------------------------- 04/99 222,066 $0.05 17% 501,655 $0.07 31% - ---------------------------------------------------------------------------------------------------------- 05/99 60,000 $0.08 27% 392,853 $0.06 32% - ---------------------------------------------------------------------------------------------------------- Jun-99 10,000 $0.01 2% 329,430 $0.08 37% - ---------------------------------------------------------------------------------------------------------- Jul-99 2,475 $0.00 0% 464,788 $0.06 29% - ---------------------------------------------------------------------------------------------------------- Aug-99 16,781 $0.23 37% 441,067 $0.06 29% - ---------------------------------------------------------------------------------------------------------- Sep-99 15,975 $0.24 39% 435,417 $0.06 28% - ---------------------------------------------------------------------------------------------------------- Oct-99 13,500 $0.28 46% 460,548 $0.07 35% - ---------------------------------------------------------------------------------------------------------- Nov-99 -- $0.00 0% 242,197 $0.12 55% - ---------------------------------------------------------------------------------------------------------- Dec-99 140,190 $0.35 93% 207,421 $0.16 70% - ---------------------------------------------------------------------------------------------------------- Jan-00 -- $0.00 0% 222,029 $0.14 66% - ---------------------------------------------------------------------------------------------------------- Feb-00 -- $0.00 0% 229,435 $0.15 65% - ---------------------------------------------------------------------------------------------------------- Mar-00 -- $0.00 0% 205,476 $0.14 66% - ---------------------------------------------------------------------------------------------------------- Apr-00 109,099 $0.28 87% 256,772 $0.14 60% - ---------------------------------------------------------------------------------------------------------- May-00 10,000 $0.05 18% 222,956 $0.17 71% - ---------------------------------------------------------------------------------------------------------- Jun-00 10,000 $0.05 18% 206,475 $0.11 42% - ---------------------------------------------------------------------------------------------------------- Jul-00 10,000 $0.05 18% 285,137 $0.12 51% - ---------------------------------------------------------------------------------------------------------- Aug-00 30,000 $0.03 10% 257,890 $0.13 56% - ---------------------------------------------------------------------------------------------------------- Sep-00 30,000 $0.03 10% 231,589 $0.09 29% - ---------------------------------------------------------------------------------------------------------- Oct-00 30,000 $0.03 10% 155,165 $0.15 57% - ---------------------------------------------------------------------------------------------------------- Nov-00 50,000 $0.11 28% 114,712 $0.18 84% - ---------------------------------------------------------------------------------------------------------- Dec-00 50,000 $0.15 35% 172,946 $0.18 84% - ---------------------------------------------------------------------------------------------------------- Jan-01 50,000 $0.13 31% 159,901 $0.23 104% - ---------------------------------------------------------------------------------------------------------- Feb-01 50,000 $0.13 31% 196,483 $0.23 99% - ---------------------------------------------------------------------------------------------------------- Mar-01 50,000 $0.13 31% 250,038 $0.23 92% - ---------------------------------------------------------------------------------------------------------- Apr-01 10,000 $0.17 49% 163,084 $0.12 66% - ---------------------------------------------------------------------------------------------------------- May-01 1,000 $0.03 9% 215,045 $0.10 56% - ----------------------------------------------------------------------------------------------------------
Note: Evaluation of the short-term market for released capacity on APL, Vector, and NBPL is not possible because of the lack of historical time series data. Sources: Pace and RDI. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 48 [LOGO] PACE | Global Energy Services ASSESSMENT OF TRANSPORTATION SERVICES Overall, Pace believes that Elwood can obtain adequate delivery of natural gas supply to support the Project's power sales arrangements. Nicor and PGL have adequate pipeline deliverability at sufficient pressure to meet reliably the Project's natural gas requirements. Pace also finds that the Project's upstream link via Nicor and PGL to NBPL, NGPL, and APL and provides access to adequate supply diversity. Nicor, a local distribution company, delivers 278 Bcf of natural gas annually to nearly 2 million customers in northern Illinois. Nicor's 29,000-mile distribution system transports natural gas from major production regions in North America. Nicor has seven underground natural gas storage facilities and over the last three years has withdrawn an average of 123 Bcf annually and injected an average of 126 Bcf annually. Nicor interconnects with multiple interstate pipelines, including NBPL, NGPL, Midwestern, ANR, Panhandle, and APL. PGL, a local distribution company, delivers 90 Bcf of natural gas annually to 835,000 customers in Chicago. PGL is connected to major pipelines such as ANR, NGPL, and NBPL, which provide access to every major natural gas production area in the U.S. and Canada. PGL has one underground natural gas storage facility and over the last three years has withdrawn an average of 60 Bcf annually and injected an average of 55 Bcf annually. Exhibit 24 illustrates the interconnect capacities of various pipelines to the LDCs. In addition to the transportation capacity, PGL and Nicor have extensive market area storage capabilities. For example, peak day natural gas delivery for PGL and Nicor, respectively, is 900 MMcf/d and 2,600 MMcf/d, or a total of 3,500 MMcf/d. Aggregate working gas storage capacity for these LDC is about 170 Bcf/year. Exhibit 24: Key Nicor and PGL Receipt Capabilities (Mcf/d) ================================================================================ Interconnecting Pipeline Deliveries to PGL Deliveries to Nicor (MMcf/d) (MMcf/d) ANR 300 200 (Shorewood) 200 (Hampshire) APL 600 300 - 350 Midwestern 300 268 NBPL 600 400 (Troy Grove) 400 (Minooka) NGPL 1,500 1,200 - 1,400 Northern Natural N/A 200 Trunkline 300 N/A Sources: Pace and LDC representatives. ================================================================================ Elwood is located within Nicor's natural gas utility franchise area. As a result, Elwood has entered into an agreement with Nicor to transport natural gas to Elwood; separately Nicor and PGL have entered into a companion agreement to support Nicor's service to Elwood. - -------------------------------------------------------------------------------- Proprietary & Confidential 49 [LOGO] PACE | Global Energy Services As shown in Exhibit 25 numerous pipelines could meet the natural gas requirements of the Project. Exhibit 25: Chicago Area Pipeline System Map ================================================================================ [GRAPHIC] Sources: Pace and RDI. ================================================================================ In addition to the Nicor and PGL local distribution company systems, numerous interstate pipelines deliver natural gas into the Chicago area. Upon the expiration of the existing agreement with Nicor, Pace finds that Elwood has numerous transportation alternatives. The deliverability attributes of these interstate pipeline systems are presented in Exhibit 26. Exhibit 26: Chicago Area Pipeline Deliverability Attributes ================================================================================
- ------------------------------------------------------------------------------------------------------------------------- Approximate Estimated Mainline Distance from Capacity Pressure Diameter Primary Sources of Supply Pipeline Project (Miles) (MMcf/d) (PSIG) (Inches) - ------------------------------------------------------------------------------------------------------------------------- ANR 2.0 505* 450-745 2x30" Mid-Continent, Gulf Coast - ------------------------------------------------------------------------------------------------------------------------- NBPL 2.8 618 760-980 1x30" WCSB - ------------------------------------------------------------------------------------------------------------------------- Midwestern 3.0 650 936 1x30" Gulf Coast - ------------------------------------------------------------------------------------------------------------------------- NGPL 5.0 1,705 450 2x30" Permian, Mid-Continent, Gulf Coast 1x36" - ------------------------------------------------------------------------------------------------------------------------- APL Less than 1/4 mile 1,250 1,740 1x36" WCSB - ------------------------------------------------------------------------------------------------------------------------- Vector 1.7 1,000 1,000 1x30" Any supply delivered into Chicago or Dawn (Permian, Mid-Continent, Gulf Coast, WCSB, Rockies, etc.) - -------------------------------------------------------------------------------------------------------------------------
*As measured in Will County. Source: Pace. ================================================================================ - -------------------------------------------------------------------------------- Proprietary & Confidential 50 [LOGO] PACE | Global Energy Services ================================================================================ PRO FORMA FUEL PRICING ================================================================================ This section of the report addresses Pace's review of fuel-related cost and revenue price inputs used in the pro forma model. Projections of the Project's natural gas commodity and transportation costs, both regional and plant specific are also discussed. PACE FUEL PRICE FORECAST The Project is located in the Pace Chicago Citygate natural gas price region. Pace's forecast of natural gas commodity prices at the Henry Hub and regional benchmark delivered basis is discussed below. The Base Year prices and annual escalation rates in the forecast are based on Pace's analysis of historical price data and the fundamental factors driving the natural gas market. All forecast prices are in 1998 dollars and represent a regional benchmark market price.(26) Pace's forecasting methodology recognizes that actual prices to existing facilities often vary from the regional benchmark due to advantages/disadvantages in supply contract terms or transportation rates. To develop plant-specific fuel forecasts for these facilities, the regional benchmark price is adjusted to reflect plant-specific cost factors. These plant-specific cost factors are maintained throughout the Forecast Period. Pace's independent forecast of delivered natural gas prices is comprised of commodity prices, represented by the price for natural gas on the New York Mercantile Exchange ("NYMEX") at the Henry Hub in Louisiana, plus a regional basis adjustment to reflect price differentials between the Gulf Coast and various delivered price sub-regions. In general, Pace expects Henry Hub commodity prices to peak in 2001 and then decline through 2009. Thereafter, Pace expects a 0.5 percent annual real price increase throughout the remainder of the Forecast Period. Fundamental factors driving Pace's Henry Hub commodity forecast are: o Supply from a year of record drilling is beginning to enter the market. The industry has entered a cycle of lower prices and higher injections, which may lead to further price declines. Pace expects natural gas prices at the Henry Hub to average about $4.00/MMBtu for the remainder of the 2001, although cash market prices on a given day may be higher or lower due to short-term technical factors. o Leading natural gas supply indicators are currently at record levels, signaling that a significant rebound is likely under way. The U.S. natural gas-directed rig count stood at over 1,000 in June 2001, compared to a count just above 600 eighteen months previously. Assuming a six to eighteen month lag between drilling and new production, and normal - ---------- 26 Gas-fired expansion plants are assigned the natural gas regional benchmark price. - -------------------------------------------------------------------------------- Proprietary & Confidential 51 [LOGO] PACE | Global Energy Services summer weather patterns, Pace expects continued, if not intensifying, increased downward pressure on prices throughout 2001. o As of June 1, 2001, the industry has added over 770 Bcf to natural gas storage inventories. This is 451 Bcf greater than injections during the same period last year and inventories are now over 50 percent full. o Pace expects that substantial incremental natural gas demand from new greenfield gas-fired power generation during the next three years will offset some of the downward price pressure exerted by new supply from increased drilling. Pace estimates that new gas fired generation will add almost 5.4 Bcf/d in incremental natural gas consumption by 2004. o Expansion of the North American pipeline grid and productive capacity from the Gulf Coast and the Western Canadian Sedimentary Basin will increase competition, particularly in the Midwest and Northeast. By 2004, several new pipeline projects, such as Millennium and Independence should be completed, which will encourage gas-on-gas competition causing Henry Hub prices to decline further from current levels. o Both onshore and offshore Gulf Coast production will increase in 2001 and 2002 due to record drilling during 2000. Increases in deep water offshore drilling will offset production declines from the shallow offshore. o Over the long term, Pace does not anticipate in its Base Case commodity forecast sustained natural gas shortfalls as producers respond to higher prices. Higher prices support a greater and faster expected return on drilling investments, high rig counts, and future production growth. o Environmental regulations requiring the use of cleaner, more efficient fuels have shifted consumption preferences to natural gas thereby contributing to a higher long-term real price escalation rate relative to other fuels. o In the long run, technologically driven declines in exploration and production costs, and increases in finding rates will increase productive capacity. These supply-side fundamentals will keep real natural gas prices from escalating too high relative to other fuels. Pace's long-term forecast of Midwest Regional natural gas prices is presented in Exhibit 27. - -------------------------------------------------------------------------------- Proprietary & Confidential 52 [LOGO] PACE | Global Energy Services Exhibit 27: Sub-Regional Delivered Gas Price Forecasts (1998 $/MMBtu) ================================================================================
- --------------------------------------------------------------------------------------------------------- Chicago Great South East Upper Year Henry Hub Citygate* Lakes Midwest Plains Wisconsin Midwest - --------------------------------------------------------------------------------------------------------- 2001 4.98 5.05 4.47 5.10 5.14 5.33 5.14 - --------------------------------------------------------------------------------------------------------- 2002 3.80 3.86 3.81 3.91 3.96 4.15 3.96 - --------------------------------------------------------------------------------------------------------- 2003 3.28 3.33 3.28 3.38 3.44 3.63 3.44 - --------------------------------------------------------------------------------------------------------- 2004 2.94 3.00 2.95 3.05 3.10 3.29 3.10 - --------------------------------------------------------------------------------------------------------- 2005 2.72 2.79 2.74 2.84 2.88 3.07 2.88 - --------------------------------------------------------------------------------------------------------- 2006 2.57 2.64 2.59 2.69 2.73 2.92 2.73 - --------------------------------------------------------------------------------------------------------- 2007 2.47 2.54 2.49 2.59 2.63 2.82 2.63 - --------------------------------------------------------------------------------------------------------- 2008 2.41 2.48 2.43 2.53 2.57 2.76 2.57 - --------------------------------------------------------------------------------------------------------- 2009 2.40 2.47 2.42 2.52 2.56 2.75 2.55 - --------------------------------------------------------------------------------------------------------- 2010 2.41 2.48 2.43 2.53 2.57 2.76 2.57 - --------------------------------------------------------------------------------------------------------- 2011 2.42 2.49 2.44 2.54 2.58 2.77 2.58 - --------------------------------------------------------------------------------------------------------- 2012 2.43 2.50 2.45 2.55 2.59 2.78 2.59 - --------------------------------------------------------------------------------------------------------- 2013 2.45 2.52 2.47 2.57 2.61 2.80 2.60 - --------------------------------------------------------------------------------------------------------- 2014 2.46 2.53 2.48 2.58 2.62 2.81 2.61 - --------------------------------------------------------------------------------------------------------- 2015 2.47 2.54 2.49 2.59 2.63 2.82 2.63 - --------------------------------------------------------------------------------------------------------- 2016 2.48 2.55 2.50 2.60 2.64 2.83 2.64 - --------------------------------------------------------------------------------------------------------- 2017 2.50 2.57 2.52 2.62 2.66 2.85 2.65 - --------------------------------------------------------------------------------------------------------- 2018 2.51 2.58 2.53 2.63 2.67 2.86 2.66 - --------------------------------------------------------------------------------------------------------- 2019 2.52 2.59 2.54 2.64 2.68 2.87 2.68 - --------------------------------------------------------------------------------------------------------- 2020 2.53 2.60 2.55 2.65 2.69 2.88 2.69 - --------------------------------------------------------------------------------------------------------- 2021 2.55 2.62 2.57 2.67 2.71 2.90 2.70 - --------------------------------------------------------------------------------------------------------- 2022 2.56 2.63 2.58 2.68 2.72 2.91 2.71 - --------------------------------------------------------------------------------------------------------- 2023 2.57 2.64 2.59 2.69 2.73 2.92 2.73 - --------------------------------------------------------------------------------------------------------- 2024 2.58 2.65 2.60 2.70 2.74 2.93 2.74 - --------------------------------------------------------------------------------------------------------- 2025 2.60 2.67 2.62 2.72 2.76 2.95 2.75 - --------------------------------------------------------------------------------------------------------- 2026 2.61 2.68 2.63 2.73 2.77 2.96 2.77 - ---------------------------------------------------------------------------------------------------------
*Price equivalent to Gas Daily's published index Midpoint of Chicago Large End Users. Source: Pace. ================================================================================ FUEL-RELATED PRO FORMA INPUTS Pace reviewed the fuel-related inputs in the pro forma financial model and makes the following findings.(27) o The Project's pro forma accurately incorporates Pace's natural gas price forecast throughout the Financing Term. o The monthly reservation and volumetric charges applied to utilizing local transportation and storage/balancing contracts identified in the in the pro forma have been accounted for accurately. The pro forma conservatively assumes that these costs are required throughout the Financing Term. o Storage and balancing agreements have been appropriately incorporated into the pro forma model. - ---------- 27 Stone & Webster Pro Forma Model, July 19, 2001. - -------------------------------------------------------------------------------- Proprietary & Confidential 53 [LOGO] PACE | Global Energy Services o The 3.0 percent annual escalation factor for local transportation and balancing services beyond the initial contract periods is reasonable. o Fuel management costs have been accurately reflected in the pro forma model. Even though the Cinergy FMA has only a 1-year term, Pace finds that it is appropriate that the pro forma accounts for fuel management costs throughout the Financing Term. - -------------------------------------------------------------------------------- Proprietary & Confidential 54 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers Elwood Energy LLC - ----------------- The Delaware Limited Liability Company Act permits a limited liability company to indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever, subject to the standards and restrictions set forth in such company's operating agreement. Article XIII of the operating agreement of Elwood Energy LLC ("Elwood") requires Elwood to indemnify its members, managers, officers and agents against liability incurred in all proceedings arising out of their service to Elwood or to other limited liability companies, partnerships, corporations or other entities that the member, manager, officer or agent was serving at the request of Elwood, except in the case of gross negligence, willful misconduct or a knowing violation of the criminal law. In addition, under Article XIII of the operating agreement of Elwood, the determination that indemnification under Article XIII is permissible, and of the reasonableness of the related expenses and fees, is determined (1) in good faith by the management committee if the claimant is member or officer, and (2) by legal counsel agreed upon by Elwood and the person claiming indemnification if the claimant is a manager. The effect of Elwood's operating agreement, together with the Delaware Limited Liability Company Act, is to eliminate liability of members, managers, officers and agents of Elwood for monetary damages so long as the required standard of conduct is met. Dominion Resources, Inc. - ------------------------ Article VI of the articles of incorporation of Dominion Resources, Inc. ("Dominion") mandates indemnification of its directors and officers to the full extent permitted by the Virginia Stock Corporation Act (the "Virginia Act"), and any other applicable law. The Virginia Act permits a corporation to indemnify its directors and officers against liability incurred in all proceedings, including derivative proceedings, arising out of their service to the corporation or to other corporations or enterprises that the officer or director was serving at the request of the corporation, except in the case of willful misconduct or a knowing violation of a criminal law. Dominion is required to indemnify its directors and officers in all such proceedings if they have not violated this standard. In addition, Article VI of Dominion's articles of incorporation limits the liability of its directors and officers to the full extent permitted by the Virginia Act as now and hereafter in effect. The Virginia Act places a limit on the liability of a director or officer in derivative or shareholder proceedings equal to the lesser of (i) the amount specified in the corporation's articles of incorporation or a shareholder-approved by law; or (ii) the greater of (a) $100,000 or (b) twelve months of cash compensation received by the director or officer. The limit does not apply in the event the director or officer has engaged in willful misconduct or a knowing violation of a criminal law or a federal or state securities law. The effect of Dominion's articles of incorporation, together with the Virginia Act, is to eliminate liability of directors and officers for monetary damages in derivative or shareholder proceedings so long as the required standard of conduct is met. Dominion has purchased directors' and officers' liability insurance policies. Within the limits of their coverage, the policies insure (1) the directors and officers of Dominion against certain losses resulting from claims against them in their capacities as directors and officers to the extent that such losses are not indemnified by Dominion and (2) Dominion to the extent that it indemnifies such directors and officers for losses as permitted under the laws of Virginia. Dominion has, in connection with certain acquisition transactions, entered into agreements with directors and officers of the entities that were the subject of such acquisitions to indemnify them for periods of time following the acquisition closing for their acts or omissions as directors and officers of the acquired entity. Some of these individuals are now directors and officers of Dominion. Peoples Energy Corporation - -------------------------- Under the Articles of Incorporation of Peoples Energy Corporation ("Peoples"), no director of Peoples will be liable to Peoples or to the shareholders of Peoples for monetary damages for breach of fiduciary duty as a director, provided that a director will still be liable (i) for any breach of the director's duty of loyalty to Peoples or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law, (iii) under Section 8.65 of the Illinois Business Corporation Act of 1983, as amended, or (iv) for any transaction from which the director derived an improper personal benefit. The Articles of Incorporation and the By-Laws do not eliminate or limit the liability of a director of Peoples before March 3, 1995. Any repeal or modification of such provisions by the shareholders of Peoples shall not adversely affect any right or protection of a director of Peoples existing at the time of such repeal or modification. Peoples' Articles of Incorporation and By-Laws also provide that the Peoples will indemnify, to the fullest extent permitted under the laws of the State of Illinois and any other applicable laws, any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of Peoples), by reason of the fact that he or she is or was a director, officer or employee of Peoples, or is or was serving at the request of Peoples as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. Expenses incurred by such a director, officer or employee in defending a civil or criminal action, suit or proceeding will be paid by Peoples in advance of the final disposition of such action, suit or proceeding to the fullest extent permitted under the laws of the State of Illinois and any other applicable laws. The rights provided by or granted by the Articles of Incorporation and the By-Laws are not exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled. The foregoing provisions regarding indemnification and advancement of expenses provided will also apply to a person who has ceased to be a director, officer or employee and to the heirs, executors and administrators of that person. Item 21. Exhibits and Financial Statement Schedules. 1.1 Purchase Agreement, dated as of October 12, 2001, among Elwood Energy LLC ("Elwood") and Credit Suisse First Boston Corporation, ABN AMRO Incorporated and Westdeutsche Landesbank Girozentrale (Dusseldorf) as "Initial Purchasers". 1.2 Exchange and Registration Rights Agreement, dated as of October 12, 2001, among Elwood and the Initial Purchasers. 3.1 Certificate of Formation of Elwood, as amended. 3.2 Amended and Restated Operating Agreement of Elwood Energy LLC, dated as of August 3, 2001, between Dominion Elwood, Inc. and Peoples Elwood, LLC. 3.3 Form of First Amendment to the Amended and Restated Operating Agreement of Elwood Energy LLC. 4.1 Trust Indenture, dated as of October 23, 2001, between Elwood and Bank One Trust Company, National Association ("Bank One"), as Trustee and Securities Intermediary. 4.2 First Supplemental Indenture, dated as of October 23, 2001, between Elwood and Bank One. 4.3 Form of Second Supplemental Indenture 4.4 Deposit and Disbursement Agreement, dated as of October 23, 2001, among Elwood, Elwood II Holdings, LLC, Elwood III Holdings, LLC and Bank One, as Collateral Agent, Administrative Agent and Intercreditor Agent. 4.5 Intercreditor Agreement, dated as of October 23, 2001, among Elwood, Bank One, as Collateral Agent, Administrative Agent and Intercreditor Agent, and any other secured party that becomes party to such agreement. 4.6 Collateral Agency Agreement, dated as of October 23, 2001, between Elwood and certain secured parties named therein. 4.7 Debt Service Reserve Guaranty, dated October 23, 2001, issued by Dominion Resources, Inc. for the benefit of Bank One in its capacity as Administrative Agent under the Deposit and Disbursement Agreement. 4.8 Debt Service Reserve Guaranty, dated October 23, 2001, issued by Peoples Energy Corporation for the benefit of Bank One in its capacity as Administrative Agent under the Deposit and Disbursement Agreement. 4.9 Form of Bonds (included in Exhibit 4.3) 5.1 Opinion of McGuireWoods LLP. 10.1 Amended and Restated Power Sales Agreement, dated as of April 5, 1999, between Engage Energy America LLC (as successor in interest to Engage Energy US, L.P.) and Elwood. 10.2 Amendment 1 to Amended and Restated Power Sales Agreement, dated as of November 10, 1999, between Engage Energy America LLC (as successor in interest to Engage Energy US, L.P.) and Elwood. 10.3 Second Amended and Restated Power Sales Agreement, dated as of March 1, 2001, between Exelon Generation Company, LLC (as assignee of Commonwealth Edison Company) and Elwood. 10.4 Amended and Restated Power Sales Agreement, dated as of June 30, 2000, between Aquila Energy Marketing Corporation, UtiliCorp United Inc. and Elwood (as successor in interest to Elwood Energy II, LLC). 10.5 Power Sales Agreement, dated as of June 30, 2000, between Aquila Energy Marketing Corporation, UtiliCorp United Inc. and Elwood (as successor in interest to Elwood Energy III, LLC). 10.6 Fuel Supply and Management Agreement, dated as of May 1, 2001, between Elwood Energy LLC, Elwood Energy II, LLC, Elwood Energy III, LLC and Cinergy Marketing & Trading, LLC. 10.7 Gas Transportation and Balancing Agreement, dated as of May 1, 2001, between Northern Illinois Gas Company d/b/a Nicor Gas Company, Elwood Energy LLC, Elwood Energy II, LLC and Elwood Energy III, LLC. 10.8 Letter Agreement Modifying Elwood Energy LLC's Gas Transportation and Balancing Agreement, dated October 31, 2001, between Nicor Gas Company and Elwood Energy LLC. 10.9 Amended and Restated Operation and Maintenance Agreement, dated as of October 1, 2001, between Elwood and Dominion Elwood Services Company, Inc. 10.10 Common Facilities Agreement, dated as of April 16, 1999, between The Peoples Gas Light and Coke Company ("PGL") and Elwood, which was assigned by PGL to Peoples Energy Resources Corp. ("PERC"). 10.11 Amendment No. 1 to Common Facilities Agreement, dated as of March 30, 2000, between PERC and Elwood. 10.12 Amendment No. 2 to Common Facilities Agreement, dated as of August 1, 2001, between PERC and Elwood. 10.13 Ground Lease, dated as of September 30, 1998, between PGL and Elwood, which was assigned by PGL to PERC. 10.14 First Amendment to Ground Lease, dated as of April 16, 1999, between PERC and Elwood. 12.1 Statement regarding computation of ratios. 21.1 Subsidiaries of Elwood. 23.1 Consent of Pace Global Energy Services, LLC. 23.2 Consent of Stone & Webster Consultants, Inc. 23.3 Consent of Deloitte & Touche LLP. 23.4 Consent of Arthur Anderson LLP. 23.5 Consent of McGuireWoods LLP (included in Exhibit 5.1). 24.1 Powers of Attorney. 25.1 Statement of Eligibility of Bank One Trust Company, National Association for the Bonds. 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery 99.3 Form of Letter to Clients 99.4 Form of Letters to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees 99.5 Form of Exchange Agent Agreement Item 22. Undertakings. (a) The undersigned registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post effective amendment to this registration statement: (i) To include any prospectus required by Section 10 (a) (3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, managers, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by any of the registrants of expenses incurred or paid by a director, manager, officer or controlling person of such registrant in the successful defense of any action, suit or proceeding) is asserted by such director, manager, officer or controlling person in connection with the securities being registered, such registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, each filing of each registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (d) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] SIGNATURES OF ELWOOD ENERGY LLC Pursuant to the requirements of the Securities Act of 1933, Elwood Energy LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Richmond, Virginia, on the 10th day of January, 2002. ELWOOD ENERGY LLC By: /s/ Tony Belcher ------------------------------ Tony Belcher, General Manager Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated and on the 10th of January, 2002. The officers and managers whose signatures appear below hereby constitute Tony Belcher, Robert Harrington, Don Burnette or Tom Linquist, any of whom may act, as their true and lawful attorneys-in-fact, with full power to sign on their behalf individually and in each capacity stated below and file all amendments and post-effective amendments to the registration statement making such changes in the registration statement as the registrant deems appropriate and generally to do all things in their name in their capacities as officers and directors to enable the registrant to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission. Signature Title --------- ----- /s/ Tony Belcher General Manager ---------------- (chief executive officer) Tony Belcher /s/ William Morrow Manager ------------------ William Morrow /s/ Edward Rivas Manager ---------------- Edward Rivas /s/ Lee Katz Principal Financial and ------------ Accounting Officer Lee Katz SIGNATURES OF DOMINION RESOURCES, INC. Pursuant to the requirements of the Securities Act of 1933, Dominion Resources, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Richmond, the Commonwealth of Virginia, on the 10th day of January, 2002. DOMINION RESOURCES, INC. By: /s/ Thos. E. Capps ----------------------------------- Thos. E. Capps, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated and on the 10th of January, 2002. The officers and directors whose signatures appear below hereby constitute Patricia A. Wilkerson, Karen W. Doggett, James F. Stutts or Christine M. Schwab, any of whom may act, as their true and lawful attorneys-in-fact, with full power to sign on their behalf individually and in each capacity stated below and file all amendments and post-effective amendments to the registration statement making such changes in the registration statement as the registrant deems appropriate and generally to do all things in their name in their capacities as officers and directors to enable the registrant to comply with the provisions of the Securities Act of 1933 and all requirements of the Securities and Exchange Commission. Signature Title --------- ----- /s/ William S. Barrack, Jr. Director --------------------------- William S. Barrack, Jr. /s/ Thos. E Capps Chairman, President and ----------------- Chief Executive Officer Thos. E. Capps /s/ Ronald J. Calise Director -------------------- Ronald J. Calise /s/ George A. Davidson, Jr. Director --------------------------- George A. Davidson, Jr. /s/ John W. Harris Director ------------------ John W. Harris /s/ Benjamin J. Lambert, III Director ---------------------------- Benjamin J. Lambert, III /s/ Richard L. Leatherwood Director -------------------------- Richard L. Leatherwood /s/ Margaret A. McKenna Director ----------------------- Margaret A. McKenna /s/ Steven A. Minter Director -------------------- Steven A. Minter /s/ Kenneth A. Randall Director ---------------------- Kenneth A. Randall /s/ Frank S. Royal Director ------------------ Frank S. Royal /s/ S. Dallas Simmons Director --------------------- S. Dallas Simmons /s/ Robert H. Spilman Director --------------------- Robert H. Spilman /s/ David A. Wollard Director -------------------- David A. Wollard /s/ Thomas N. Chewning Executive Vice President ---------------------- and Chief Financial Officer Thomas N. Chewning /s/ Steven A. Rogers Vice President and Controller -------------------- (Principal Accounting Officer) Steven A. Rogers SIGNATURES OF PEOPLES ENERGY CORPORATION Pursuant to the requirements of the Securities Act of 1933, Peoples Energy Corporation has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois, on the 10th day of January, 2002. PEOPLES ENERGY CORPORATION, as a Registrant By: /s/ Richard E. Terry --------------------- Richard E. Terry, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
NAMES SIGNATURES TITLE DATE - ----- ---------- ----- ---- James R. Boris /s/ James R. Boris Director --------------------------------- William J. Brodsky /s/ William J. Brodsky Director --------------------------------- Pastora San Juan Cafferty /s/ Pastora San Juan Cafferty Director --------------------------------- Homer J. Livingston /s/ Homer J. Livingston Director --------------------------------- Lester H. McKeever /s/ Lester H. McKeever Director --------------------------------- Thomas M. Patrick /s/ Thomas M. Patrick Director --------------------------------- Richard E. Terry /s/ Richard E. Terry Director, Chairman and --------------------------------- Chief Executive Officer Richard P. Toft /s/ Richard P. Toft Director --------------------------------- Arthur R. Velasquez /s/ Arthur R. Velasquez Director --------------------------------- Thomas A. Nardi /s/ Thomas A. Nardi Senior Vice President and --------------------------------- Chief Financial Officer Joan T. Gagen /s/ Joan T. Gagen Vice President and --------------------------------- Controller
EXHIBIT INDEX Exhibit ------- Number Description ------ ----------- 1.1 Purchase Agreement, dated as of October 12, 2001, among Elwood Energy LLC ("Elwood") and Credit Suisse First Boston Corporation, ABN AMRO Incorporated and Westdeutsche Landesbank Girozentrale (Dusseldorf) as "Initial Purchasers". 1.2 Exchange and Registration Rights Agreement, dated as of October 12, 2001, among Elwood and the Initial Purchasers. 3.1 Certificate of Formation of Elwood, as amended. 3.2 Amended and Restated Operating Agreement of Elwood Energy LLC, dated as of August 3, 2001, between Dominion Elwood, Inc. and Peoples Elwood, LLC. 3.3 Form of First Amendment to the Amended and Restated Operating Agreement of Elwood Energy LLC. 4.1 Trust Indenture, dated as of October 23, 2001, between Elwood and Bank One Trust Company, National Association ("Bank One"), as Trustee and Securities Intermediary. 4.2 First Supplemental Indenture, dated as of October 23, 2001, between Elwood and Bank One. 4.3 Form of Second Supplemental Indenture 4.4 Deposit and Disbursement Agreement, dated as of October 23, 2001, among Elwood, Elwood II Holdings, LLC, Elwood III Holdings, LLC and Bank One, as Collateral Agent, Administrative Agent and Intercreditor Agent. 4.5 Intercreditor Agreement, dated as of October 23, 2001, among Elwood, Bank One, as Collateral Agent, Administrative Agent and Intercreditor Agent, and any other secured party that becomes party to such agreement. 4.6 Collateral Agency Agreement, dated as of October 23, 2001, between Elwood and certain secured parties named therein. 4.7 Debt Service Reserve Guaranty, dated October 23, 2001, issued by Dominion Resources, Inc. for the benefit of Bank One in its capacity as Administrative Agent under the Deposit and Disbursement Agreement. 4.8 Debt Service Reserve Guaranty, dated October 23, 2001, issued by Peoples Energy Corporation for the benefit of Bank One in its capacity as Administrative Agent under the Deposit and Disbursement Agreement. 4.9 Form of Bonds (included in Exhibit 4.3) 5.1 Opinion of McGuireWoods LLP. 10.1 Amended and Restated Power Sales Agreement, dated as of April 5, 1999, between Engage Energy America LLC (as successor in interest to Engage Energy US, L.P.) and Elwood. 10.2 Amendment 1 to Amended and Restated Power Sales Agreement, dated as of November 10, 1999, between Engage Energy America LLC (as successor in interest to Engage Energy US, L.P.) and Elwood. 10.3 Second Amended and Restated Power Sales Agreement, dated as of March 1, 2001, between Exelon Generation Company, LLC (as assignee of Commonwealth Edison Company) and Elwood. 10.4 Amended and Restated Power Sales Agreement, dated as of June 30, 2000, between Aquila Energy Marketing Corporation, UtiliCorp United Inc. and Elwood (as successor in interest to Elwood Energy II, LLC). 10.5 Power Sales Agreement, dated as of June 30, 2000, between Aquila Energy Marketing Corporation, UtiliCorp United Inc. and Elwood (as successor in interest to Elwood Energy III, LLC). 10.6 Fuel Supply and Management Agreement, dated as of May 1, 2001, between Elwood Energy LLC, Elwood Energy II, LLC, Elwood Energy III, LLC and Cinergy Marketing & Trading, LLC. 10.7 Gas Transportation and Balancing Agreement, dated as of May 1, 2001, between Northern Illinois Gas Company d/b/a Nicor Gas Company, Elwood Energy LLC, Elwood Energy II, LLC and Elwood Energy III, LLC. 10.8 Letter Agreement Modifying Elwood Energy LLC's Gas Transportation and Balancing Agreement, dated October 31, 2001, between Nicor Gas Company and Elwood Energy LLC. 10.9 Amended and Restated Operation and Maintenance Agreement, dated as of October 1, 2001, between Elwood and Dominion Elwood Services Company, Inc. 10.10 Common Facilities Agreement, dated as of April 16, 1999, between The Peoples Gas Light and Coke Company ("PGL") and Elwood, which was assigned by PGL to Peoples Energy Resources Corp. ("PERC"). 10.11 Amendment No. 1 to Common Facilities Agreement, dated as of March 30, 2000, between PERC and Elwood. 10.12 Amendment No. 2 to Common Facilities Agreement, dated as of August 1, 2001, between PERC and Elwood. 10.13 Ground Lease, dated as of September 30, 1998, between PGL and Elwood, which was assigned by PGL to PERC. 10.14 First Amendment to Ground Lease, dated as of April 16, 1999, between PERC and Elwood. 12.1 Statement regarding computation of ratios. 21.1 Subsidiaries of Elwood. 23.1 Consent of Pace Global Energy Services, LLC. 23.2 Consent of Stone & Webster Consultants, Inc. 23.3 Consent of Deloitte & Touche LLP. 23.4 Consent of Arthur Anderson LLP. 23.5 Consent of McGuireWoods LLP (included in Exhibit 5.1). 24.1 Powers of Attorney. 25.1 Statement of Eligibility of Bank One Trust Company, National Association for the Bonds. 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery 99.3 Form of Letter to Clients 99.4 Form of Letters to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees 99.5 Form of Exchange Agent Agreement EX-1.1 3 dex11.txt PURCHASE AGREEMENT DATED OCTOBER 12, 2001 Exhibit 1.1 $402,000,000 ELWOOD ENERGY LLC 8.159% Senior Secured Bonds due July 5, 2026 PURCHASE AGREEMENT ------------------ October 12, 2001 Credit Suisse First Boston Corporation ABN AMRO Incorporated Westdeutcshe Landesbank Girozentrale (Dhsseldorf), c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. Introductory. Elwood Energy LLC, a Delaware limited liability company (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the "Purchasers") U.S.$402,000,000 principal amount of its 8.159% Senior Secured Bonds due July 5, 2026 ("Offered Securities") to be issued under a Trust Indenture, dated as of October 23, 2001 (the "Indenture"), between the Company and Bank One Trust Company, National Association, as Trustee. The United States Securities Act of 1933, as amended, is herein referred to as the "Securities Act." The holders of the Offered Securities will be entitled to the benefits of a Registration Rights Agreement of even date herewith among the Company and the Purchasers (the "Registration Rights Agreement"), pursuant to which the Company agrees to file a registration statement with the Securities Exchange Commission (the "Commission") registering the resale of the Offered Securities under the Securities Act. All defined terms used in this Agreement and not defined herein shall have the meanings given thereto in the Indenture. The Company hereby agrees with the several Purchasers as follows: 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Purchasers that: (a) A preliminary offering circular, dated October 5, 2001 and an offering circular, dated as of the date hereof, relating to the Offered Securities to be offered by the Purchasers have been prepared by the Company. Such preliminary offering circular (the "Preliminary Offering Circular") and offering circular (the "Offering Circular"), as amended or supplemented as of the date of this Agreement, are hereinafter collectively referred to as the "Offering Document". On the date of this Agreement, the Offering Document does not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Purchaser through Credit Suisse First Boston Corporation ("CSFBC") 1 specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (b) The Company has been duly organized and is an existing limited liability company in good standing under the laws of the State of Delaware, with power and authority (as a limited liability company and otherwise) to own its properties and conduct its business as described in the Offering Document; and the Company is duly qualified to do business as a foreign limited liability company in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification (except for any such failure to be so qualified which would not individually or in the aggregate (i) cause a material adverse change in the condition (financial or otherwise), business, properties or results of operations of the Company and its subsidiaries taken as a whole or (ii) cause any event or occurrence of whatever nature which materially affects (a) the Company's ability to perform its obligations under any Financing Document or any Material Project Document, or (b) the perfection, validity or priority of the Secured Parties' security interests in the Collateral ("Material Adverse Effect")). (c) Each subsidiary of the Company has been duly organized and is an existing limited liability company in good standing under the laws of the jurisdiction of its incorporation, with power and authority (as a limited liability company and otherwise) to own its properties and conduct its business as described in the Offering Document; and each subsidiary of the Company is duly qualified to do business as a foreign limited liability company in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification (except for any such failure to be so qualified which would not individually or in the aggregate have a Material Adverse Effect); all of the issued and outstanding membership interests of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and, except as otherwise disclosed in the Offering Document, the membership interests of each subsidiary are owned by the Company free from liens, encumbrances and defects. (d) The Indenture and each of the other Transaction Documents have been duly authorized by the Company; the Offered Securities have been duly authorized by the Company; and when the Offered Securities are delivered and paid for pursuant to this Agreement on the Closing Date (as defined below), the Indenture and each of the other Transaction Documents will have been duly executed and delivered by the Company, such Offered Securities will have been duly executed, authenticated, issued and delivered and will conform to the description thereof contained in the Offering Document, and the Indenture, such Offered Securities and each of the other Transaction Documents will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Except (i) to the extent that compliance with the blue sky or securities laws of any state or of any jurisdiction outside the United States may be required in connection with the offer and sale of the Offered Securities, (ii) for the filing of instruments to perfect the security interests and (iii) for the filing and effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement (each as defined in the Registration Rights Agreement) and qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), no consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement in connection with the issuance and sale of the Offered Securities by the Company. (f) (i) The execution, delivery and performance by the Company of the Indenture, this Agreement, the other Transaction Documents and the Registration Rights Agreement and (ii) the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or order of any governmental agency or body or any court, domestic or 2 foreign, having jurisdiction over the Company, any subsidiary of the Company or any of their properties (except for any such breach, violation or default which would not individually or in the aggregate have a Material Adverse Effect), or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound, or to which any of the properties of the Company or any such subsidiary is subject (except for any such breach, violation or default which would not individually or in the aggregate have a Material Adverse Effect), or the certificate of formation or operating agreement of the Company or any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (g) This Agreement and the Registration Rights Agreement have been duly authorized, executed and delivered by the Company. (h) Except for Permitted Liens, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them, and except where the failure to maintain such good and marketable title would not individually or in the aggregate have a Material Adverse Effect; and, except as disclosed in the Offering Document, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (i) The Security Documents create valid first priority security interests in all of the Collateral in favor of the Secured Parties, subject only to Permitted Liens. (j) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (k) The Company is in compliance with all Applicable Laws, except where such non-compliance would not individually or in the aggregate have a Material Adverse Effect. (l) The Company and its subsidiaries have no employees, and neither the Company nor its subsidiaries are a member of a controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code of 1986, as amended) having any employees. (m) The Company and its subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (n) Neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse 3 Effect; and to the best of the Company's knowledge after due inquiry, it is not aware of any pending investigation which might lead to such claim, except where such claim would not individually or in the aggregate have a Material Adverse Effect. (o) Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under the Indenture, this Agreement or the Registration Rights Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to the Company's knowledge, threatened or contemplated. (p) The financial statements included in the Offering Document present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis, except that no statement of cash flows and no footnotes have been included for the period ended June 30, 2001. (q) Since the respective most recent dates as of which information is given in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and there has been no dividend or distribution of any kind declared, paid or made by the Company on membership interests. (r) The Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940 (the "Investment Company Act"); and the Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" as defined in the Investment Company Act. (s) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange registered under Section 6 of the United States Securities Exchange Act of 1934 ("Exchange Act") or quoted in a U.S. automated inter-dealer quotation system. (t) Assuming that the representations and warranties of the Purchasers contained in Section 4 are true, correct and complete, and assuming compliance by the Purchasers with their agreements herein, the offer and sale of the Offered Securities in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act and it is not necessary to qualify an indenture in respect of the Offered Securities under the United States Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). (u) Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf (other than the Purchasers and their respective affiliates, as to which the Company makes no representations or warranties) (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S ("Regulation S") under the Securities Act, by means of any directed selling efforts 4 within the meaning of Rule 902(c) of Regulation S. The Company, its affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. The Company has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement. (v) Neither the Company nor any of its subsidiaries is or will, solely as a result of their participation in the transactions contemplated by the Financing Documents (as defined in the Indenture) or their ownership, use or operation of the Facility described in the Offering Circular under the heading "Our Business and Regulatory Environment" (the "Facility") be subject to (i) regulation under the Public Utility Holding Company Act of 1935, as amended ("PUHCA") as a "public utility company" or a "holding company" or (ii) regulation under the Federal Power Act ("FPA"), or (iii) state laws and regulations in respect of the rates or the financial or organizational regulation of utilities, except (A) for the rules or regulations applicable to "exempt wholesale generators" ("EWGs") under Section 32 of PUHCA, (B) the Company is a "public utility," as such term is defined under the FPA, but has been granted authority under Section 205 of the FPA to sell electric energy, capacity and ancillary services at wholesale at market-based rates and (C) the Company is subject to state laws applicable to EWGs. In addition, none of the Purchasers will, solely as a result of purchasing and/or reselling the Offered Securities pursuant to this Agreement, be a "public utility company," an "electric utility company," a "gas utility company," a "holding company," a "subsidiary" or an "affiliate" under PUHCA, or otherwise subject to regulation under PUHCA, the FPA or rate, financial or organizational regulation under any state law or regulation. (w) The Company conducts no business other than the development, construction and operation of the Facility, and activities related thereto. (x) The Company has filed all tax returns and paid all Taxes other than any Taxes which (i) are being contested in a Good Faith Contest and for which adequate reserves (in accordance with US GAAP) are being maintained or (ii) the failure to file or pay could not reasonably be expected to have a Material Adverse Effect. (y) No Event of Default has occurred and is continuing; no event of force majeure, or breach or default under any Financing Document or Material Project Document or other material contract has occurred and is continuing, except for any such event, breach or default that could not reasonably be expected to have a Material Adverse Effect. (z) All representations and warranties by the Company and, to its knowledge, each Project Party are true and correct, or, if made as of a specific date, were true and correct when made, except to the extent such misrepresentations could not reasonably be expected to have a Material Adverse Effect. (aa) The proceeds to the Company from the offering of the Offered Securities will not be used in a manner which would violate or be inconsistent with the provisions of Regulations T, U or X of the Federal Reserve Board. (bb) To the best of the Company's knowledge, the services to be performed, the materials to be supplied and the easements, licenses and other rights granted or to be granted to the Company pursuant to the terms of the Project Documents, provide or will provide the Company with all rights and property interests required to enable the Company to obtain all services, materials or rights (including access) required for the operation and maintenance of the Facility, including the Company's full and prompt performance of its obligations, and full and timely satisfaction of all conditions precedent to the performance by others of their obligations, under the Material Project Documents, other than those services, materials or rights that reasonably can be expected to be obtainable in the ordinary course of business without material additional expenses or material delay or the failure to obtain could not reasonably be expected to have a Material Adverse Effect. 5 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Purchasers, and the Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 99.125% of the principal amount thereof plus accrued interest from October 23, 2001 to the Closing Date (as hereinafter defined), the respective principal amounts of Offered Securities set forth opposite the names of the several Purchasers in Schedule A hereto. The Company shall deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global Securities in definitive form (the "Global Securities") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent global Securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Offered Securities shall be made by the Purchasers in Federal (same day) funds or wire transfer (in accordance with the wire transfer instructions attached hereto as Schedule B) to an account at a bank acceptable to CSFBC drawn to the order of Elwood Energy LLC at 9:30 A.M. (New York time), on October 23, 2001, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "Closing Date." The Global Securities will be made available for checking at the office of Skadden, Arps, Slate, Meagher & Flom LLP at least 24 hours prior to the Closing Date. 4. Representations by Purchasers; Resale by Purchasers. (a) Each Purchaser severally represents and warrants to the Company that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. (b) Each Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Purchaser severally represents and agrees that it has offered and sold the Offered Securities, and will offer and sell the Offered Securities only in accordance with Rule 903 or Rule 144A under the Securities Act ("Rule 144A"). Accordingly, neither such Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirements of Regulation S and Rule 144A. (c) Each Purchaser severally represents and agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Purchasers or affiliates of the other Purchasers or with the prior written consent of the Company. (d) Each Purchaser severally represents and agrees that it and each of its affiliates have not and will not offer or sell the Offered Securities in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Purchaser severally agrees, with respect to resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. (e) Each of the Purchasers severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Offered Securities will not offer or sell any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or 6 agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Offered Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. 5. Certain Agreements of the Company. The Company agrees with the several Purchasers that: (a) The Company will advise CSFBC promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplement without CSFBC's consent. If, at any time prior to the completion of the resale of the Offered Securities by the Purchasers, any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Company promptly will notify CSFBC of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission. Neither CSFBC's consent to, nor the Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. The prior notice and approval provisions of this Section 5(a) will not apply to any Exchange Act filings by Dominion Resources, Inc. or Peoples Energy Corporation; provided, however, that the prior notice and approval provisions of this Section 5(a) will apply to any Exchange Act filings by Dominion Resources, Inc. or Peoples Energy Corporation that purport to correct an untrue statement of a material fact in the Offering Document or an omission to state any material fact necessary in order to make the statements in the Offering Document, in the light of the circumstantces under which they were made, not misleading. (b) The Company will furnish to CSFBC copies of the Offering Document and all amendments and supplements thereto in such quantities as CSFBC reasonably requests, and the Company will furnish to CSFBC three copies of the Offering Document signed by a duly authorized officer of the Company, one of which will include the independent accountants' reports therein manually signed by such independent accountants, in each case as soon soon as available, but in any event on or before the Closing Date. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish or cause to be furnished to CSFBC (and, upon request, to each of the other Purchasers) and, upon request of holders and prospective purchasers of the Offered Securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. (c) The Company will take such action as the Purchasers may reasonably request for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States and Canada as CSFBC designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Purchasers, provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state. (d) During the period of ten years hereafter the Company will furnish to CSFBC and, upon request, to each of the other Purchasers (i) as soon as available, but in any event within the time periods specified in the Indenture, a copy of each balance sheet (audited or unaudited) of the Company, with related statements of income and capital and statements of cash flows required to be furnished to the Trustee under the Indenture, (ii) all certificates of authorized officers of the Company 7 and all other information and notices sent by the Company to the Trustee pursuant to section 4.1 of the Indenture and (iii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (e) During the period of two years after the Closing Date, the Company will, upon request, furnish to CSFBC, each of the other Purchasers and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. (f) During the period of two years after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them. (g) During the period of two years after the Closing Date, the Company will not be or become, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. (h) The Company will pay all expenses incidental to the performance of its obligations under this Agreement, the Indenture, the other Financing Documents and the Registration Rights Agreement, including (i) the fees and expenses of the Trustee and its professional advisers; (ii) the fees and expenses of counsel for the Purchasers and the fees and expenses of the Independent Engineer, the Market Consultant, the Fuel Consultant, the Insurance Consultant and the Environmental Consultant; (iii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities and, as applicable, the Exchange Securities (as defined in the Registration Rights Agreement), the preparation and printing of this Agreement, the Offered Securities, the Indenture, the other Financing Documents, the Registration Rights Agreement, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities and as applicable, the Exchange Securities; (iv) any expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities or the Exchange Securities for sale under the laws of such jurisdictions in the United States and Canada as CSFBC designates and the printing of memoranda relating thereto; (v) any fees charged by investment rating agencies for the rating of the Offered Securities or the Exchange Securities; and (vi) expenses incurred in distributing preliminary offering circulars and the Offering Document (including any amendments and supplements thereto) to the Purchasers. The Company will also pay or reimburse the Purchasers (to the extent incurred by them) for all travel expenses of the Purchasers and the Company's officers and employees and any other expenses of the Purchasers and the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities from the Purchasers. (i) In connection with the offering, until CSFBC shall have notified the Company and the other Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. 6. Conditions of the Obligations of the Purchasers. The obligations of the several Purchasers to purchase and pay for the Offered Securities will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Purchasers shall have received, at the time this Agreement is executed, letters from Deloitte and Touche LLP ("Deloitte and Touche") and Arthur Andersen LLP ("Arthur Andersen"), dated the date of this Agreement, containing statements and information of the type ordinarily 8 included in accountants' SAS 72 "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Offering Document. (b) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market, or (ii) (A) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as one enterprise which, in the judgment of a majority in interest of the Purchasers including CSFBC, is material and adverse and makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities; (B) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (C) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (D) any banking moratorium declared by U.S. Federal or New York authorities; or (E) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Purchasers including CSFBC, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the offering or sale of and payment for the Offered Securities. (c) The Purchasers shall have received an opinion, dated the Closing Date, of McGuireWoods LLP ("McGuireWoods"), counsel for the Company, in substantially the form of Exhibit A hereto. (d) The Purchasers shall have received an opinion, dated the Closing Date, of McGuireWoods, local Illinois counsel for the Company, in substantially the form of Exhibit B hereto. (e) The Purchasers shall have received an opinion, dated the Closing Date, of McGuireWoods LLP, as federal regulatory energy counsel, environmental regulatory counsel and as Illinois energy regulatory counsel for the Company, in substantially the form of Exhibit C hereto. (f) The Purchasers shall have received from Skadden, Arps, Slate, Meagher & Flom LLP ("SASM&F"), counsel for the Purchasers, such opinion or opinions, dated the Closing Date, with respect to the validity of the Offered Securities, the Offering Circular, the exemption from registration for the offer and sale of the Offered Securities by the Company to the several Purchasers and the resales by the several Purchasers as contemplated hereby and other related matters as CSFBC may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, SASM&F may rely as to the formation of the Company upon the opinion of McGuireWoods LLP referred to in paragraph (c) above. (g) The Purchasers shall have received from in-house counsel for the Trustee, such opinion, dated the Closing Date, with respect to the incorporation of the Trustee, the enforceability of the Offered Securities and the Indenture, the authentication of the Offered Securities and any necessary approvals and other related matters as CSFBC may require, and the Company shall have furnished to 9 such counsel such documents as they reasonably request for the purpose of enabling them to pass on such matters. (h) The Purchasers shall have received from in-house counsel to Peoples Energy Corporation an opinion, dated the Closing Date, in substantially the form of Exhibits D hereto. (i) The Purchasers shall have received from in-house counsel to Dominion Resources, Inc. an opinion, dated the Closing Date, in substantially the form of Exhibit E hereto. (j) The Purchasers shall have received a certificate, dated the Closing Date, of the General Manager and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and that, subsequent to the date of the most recent financial statements in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in the Offering Document or as described in such certificate. (k) The Purchasers shall have received letters dated Closing Date, of Deloitte and Touche and Arthur Andersen which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such letter will be a date not more than three business days prior to the Closing Date for the purposes of this subsection. (l) Each Power Sales Agreement and each other Material Project Document shall be in full force and effect and reasonably satisfactory in all respects to the Purchasers. (m) The Mortgage and any other documents necessary to establish control of the Project Site, together with all easements and rights-of-way necessary for the operation of the Facility, shall be in full force and effect and reasonably satisfactory in all respect to the Purchasers. Mortgagee title insurance for the security interest of the holders of the Offered Securities in all real property relating to the Facility at an amount equal to $279,000,000 shall be in effect. (n) Insurance coverages in accordance with the report of the Insurance Consultant and the terms of the Indenture shall be in full force and effect. (o) (i) No Material Adverse Effect shall have occurred and (ii) no material adverse change shall have occurred in the business, operations or condition (financial or otherwise) of the obligor under any Power Sales Agreement (or related guaranty) or any Material Project Document which could reasonably be expected to have a Material Adverse Effect. (p) The Purchasers shall have received an Annual Operating Budget (prepared in accordance with the provisions of Section 4.1(i) of the Indenture), covering the period from the Closing Date to the end of the current calendar year. (q) The Purchasers shall have received a report from the Independent Engineer, Independent Market Consultant, Insurance Consultant and such other independent consultants as may be agreed, each in a form and substance reasonably satisfactory to the Purchasers. (r) The Purchasers shall have received a copy of Woodward-Clyde's Environmental Investigation Report, dated August 3, 1998, for the Project Site, together with a reliance and bring-down letter in respect of such report in form and substance satisfactory to the Purchasers. 10 (s) Each of the Consents (and related opinions) shall have been executed and delivered in form and substance satisfactory to the Purchasers. (t) Moody's Investors Services, Inc. ("Moody's") shall have delivered to the Company and the Purchasers a final rating letter, setting forth a rating of "Baa3" or better with respect to the Offered Securities, and (ii) Standard & Poor's Ratings Services ("S&P") shall have delivered to the Company and the Purchasers a final rating letter, setting forth a rating of "BBB-" or better with respect to the Offered Securities. (u) Each of the Company, the Permitted Subsidiaries, Dominion Elwood, Peoples Elwood, Dominion Resources, Inc. and Peoples Energy Corporation shall have furnished to the Purchasers (i) a certified copy of the resolutions of its Board of Directors or Executive Committee, as applicable, duly authorizing the execution, delivery and performance of this Agreement and any other documents executed by or on behalf of it in connection with this Agreement, (ii) certified copies of its organizational documents and, (iii) if applicable, incumbency certificates or certified copies of powers-of-attorney, if any, pursuant to which officers of such entity shall execute this Agreement and any other documents executed by or on behalf of it in connection with this Agreement. Documents described as being "in the agreed form" are documents which are in the forms which have been initialed for the purpose of identification by SASM&F, copies of which are held by the Company and CSFBC, with such changes as CSFBC may approve. The Company will furnish the Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Purchasers reasonably request. CSFBC may in its sole discretion waive on behalf of the Purchasers compliance with any conditions to the obligations of the Purchasers hereunder, whether in respect of an Optional Closing Date or otherwise. 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Purchaser, its partners, directors and officers and each person, if any, who controls such Purchaser within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject, under the Securities Act or the Exchange Act or any other statute or common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any of the representations and warranties of the Company contained herein or any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Purchaser through CSFBC specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below; and provided, further, that with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from any preliminary offering circular the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Purchaser that sold the Offered Securities concerned to the person asserting any such losses, claims, damages or liabilities, to the extent that such sale was an initial resale by such Purchaser and any such loss, claim, damage or liability of such Purchaser results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Offered Securities to such person, a copy of the Offering Document (exclusive of any material included therein but not attached thereto) if the Company had previously furnished copies thereof to such Purchaser. (b) Each Purchaser will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any, who controls the Company within the meaning of 11 Section 15 of the Securities Act, against any losses, claims, damages or liabilities to which they or any of them may become subject, under the Securities Act or the Exchange Act or any other statute or common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Purchaser through CSFBC specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Purchaser consists of (i) the following information in the Offering Document furnished on behalf of each Purchaser: under the caption "Plan of Distribution" paragraphs three, five, eight (second sentence only) and ten; provided, however, that the Purchasers shall not be liable for any losses, claims, damages or liabilities arising out of or based upon the Company's failure to perform its obligations under Section 5(a) of this Agreement. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise under subsection (a) or (b) above, except to the extent the indemnifying party shall have been materially prejudiced by such failure. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party). After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened action in respect of which any indemnity could have been sought hereunder by such indemnified party (whether or not the indemnified party is an actual or potential party to such proceeding) unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, (ii) does not include a statement as to or an admission of fault, culpability or failure to act by or on behalf of any indemnified party and (iii) does not involve any payment of money or other value by any indemnified party or any injunctive relief or findings of fact or stipulation binding on such indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above in such proportion as shall be appropriate to reflect (i) the relative fault of each indemnifying party on the one hand and the indemnified party on the other in connection with the statements or omissions which have resulted in such losses, claims, damages or liabilities, (ii) the relative benefits received by the Company on the one hand and the Purchasers on the other hand from the offering of the Offered Securities pursuant to this Agreement, and (iii) any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and each of the Purchasers agrees that it would not be just and equitable if contributions pursuant to this subsection (d) were to be determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. 12 The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Purchasers' obligations in this subsection (d) to contribute are several and not joint and shall be in proportion to their respective purchase obligations as set forth in Schedule A hereto. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Purchasers under this Section shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. Default of Purchasers. If any Purchaser or Purchasers default in their obligations to purchase Offered Securities hereunder and the aggregate principal amount of Offered Securities that such defaulting Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount number of Offered Securities, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Purchasers, but if no such arrangements are made by the Closing Date, the non-defaulting Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Purchasers agreed but failed to purchase. If any Purchaser or Purchasers so default and the aggregate principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Purchaser or the Company, except as provided in Section 9. As used in this Agreement, the term "Purchaser" includes any person substituted for a Purchaser under this Section. Nothing herein will relieve a defaulting Purchaser from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Purchasers pursuant to Section 7 shall remain in effect. If the purchase of the Offered Securities by the Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (C), (D) or (E) of Section 6(b)(ii), the Company will reimburse the Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Purchasers will be mailed, delivered or faxed and confirmed to the Purchasers, c/o Credit Suisse First Boston Corporation, One Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department - Transactions Advisory Group (fax: 212-325-4296), or, if sent to the Company, will be mailed, delivered or faxed and confirmed to it at Elwood Energy LLC, c/o Dominion Energy, Inc., 120 Tredegar Street, Richmond, Virginia 23219, Attention: Corporate Secretary (fax: 804-819-2211) and c/o Peoples Energy Resources Corp., 130 East Randolph Drive, Chicago, Illinois 60601, Attention: Assistant Vice President -- Structured Finance (fax: 312-240-4348); provided, however, that any notice to a Purchaser pursuant to Section 7 will be mailed, delivered or faxed and confirmed to such Purchaser. 13 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons, officers and directors referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company as if such holders were parties thereto. 12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 13. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If the foregoing is in accordance with the Purchasers' understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Purchasers in accordance with its terms. Very truly yours, ELWOOD ENERGY LLC By: /s/ Donald G. Burnette, Jr. ------------------------------------ Name: Donald G. Burnette, Jr. Title: Authorized Representative The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. Credit Suisse First Boston Corporation ABN AMRO Incorporated Westdeutcshe Landesbank Girozentrale (Dhsseldorf) By: Credit Suisse First Boston Corporation Acting on behalf of themselves and as the Representatives of the several Purchasers By: /s/ Galvin M. Wolff --------------------------- Name: Galvin M. Wolff Title: Director 14 SCHEDULE A Principal Amount of Purchaser Offered Securities - --------- ------- Credit Suisse First Boston Corporation........................ $341,700,000 ABN AMRO Incorporated......................................... $ 30,150,000 Westdeutsche Landesbank Girozentrale (Dusseldorf)............. $ 30,150,000 ------------ Total............................................... $402,000,000 15 SCHEDULE B The Chase Manhattan Bank, New York, New York ABA 021000021 Account 323364047 16 EXHIBIT A [FORM OF NEW YORK COUNSEL OPINION] 17 EXHIBIT B [FORM OF ILLINOIS COUNSEL OPINION] 18 EXHIBIT C [FORM OF FERC, ENVIRONMENTAL AND ILLINOIS REGULATORY COUNSEL OPINION] 19 EXHIBIT D [FORM OF PEOPLES ENERGY CORPORATION IN-HOUSE OPINION] 20 EXHIBIT E [FORM OF DOMINION RESOURCES, INC. IN-HOUSE OPINION] 21 EX-1.2 4 dex12.txt EXCHANGE AND REGISTRATION RIGHTS AGREEMENT Exhibit 1.2 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ ELWOOD ENERGY LLC $402,000,000 8.159% Senior Secured Bonds due July 5, 2026 October 12, 2001 Credit Suisse First Boston Corporation ABN AMRO Incorporated Westdeutsche Landesbank Girozentrale (Dusseldorf) c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010 Ladies and Gentlemen: In connection with the issue and sale of $402,000,000 principal amount of 8.159% Senior Secured Bonds due July 5, 2026 (the "Initial Securities") ------------------ issued by Elwood Energy LLC, a Delaware limited liability company (the "Issuer"), pursuant to the terms of the Indenture (as defined below) and as an ------ inducement to Credit Suisse First Boston Corporation, ABN AMRO Incorporated and Westdeutsche Landesbank Girozentrale (Dusseldorf) (collectively, the "Initial ------- Purchasers") to enter into the Purchase Agreement, dated as of October 12, 2001 - ---------- (the "Purchase Agreement"), among the Issuer and the Initial Purchasers, the ------------------ Issuer hereby agrees to provide the registration rights set forth in this Registration Rights Agreement (this "Agreement") for the benefit of the holders --------- of the Initial Securities. The execution of this Agreement is a condition to the purchase of the Initial Securities under the Purchase Agreement. SECTION 1. Definitions. Capitalized terms used herein without ----------- definition shall have the respective meanings ascribed thereto, whether expressly or by reference to another agreement or document, in the Indenture. The definitions set forth in this Agreement shall equally apply to both the singular and plural forms of the terms defined. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have the meaning set forth in the last paragraph of ------ Section 5 of this Agreement. - --------- "Affiliate", with respect to any Person, shall mean any other Person --------- that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such first Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities or by contract or otherwise. For purposes of Section 2, an "Affiliate" of the Issuer shall mean and include, in --------- addition, any Person deemed an affiliate thereof under the Securities Act or the Exchange Act in connection with the Exchange Offer. "Closing Date" shall mean the date of the initial issuance and sale of ------------ the Initial Securities. "Commission" shall mean the United States Securities and Exchange ---------- Commission. "Cure Date" shall have the meaning set forth in Section 4(a) of this --------- ------------ Agreement. "Effective Date" shall mean the date which is 270 days after the -------------- Closing Date. "Effective Period" shall have the meaning set forth in Section 3(a) of ---------------- ------------ this Agreement. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Offer" shall have the meaning set forth in Section 2(a) of -------------- ------------ this Agreement. "Exchange Offer Registration Statement" shall have the meaning set ------------------------------------- forth in Section 2(a) of this Agreement. ------------ "Exchange Period" shall have the meaning set forth in Section 2(a) of --------------- ------------ this Agreement. 2 "Exchange Securities" shall have the meaning set forth in Section 2(a) ------------------- ------------ of this Agreement. A "holder" of Registrable Securities shall mean the registered holder ------ of such securities or any beneficial owner thereof. "Holder Indemnified Party" shall have the meaning set forth in Section ------------------------ ------- 8(a) of this Agreement. - ---- "Holder Information" shall have the meaning set forth in Section 8(a) ------------------ ------------ of this Agreement. "Illiquidity Event" with respect to the Registrable Securities shall ----------------- mean any of the following events: (a) as of the Effective Date, both (i) an Exchange Offer Registration Statement (which, if applicable pursuant to Section 2(a), covers resales of ------------ such Exchange Securities) has not become effective and (ii) the Registrable Securities are not the subject of an Initial Shelf Registration Statement which has become effective; or (b) the Exchange Securities offered in exchange for the Registrable Securities are the subject of an Exchange Offer Registration Statement which was effective (and which, if applicable pursuant to Section 2(a), ------------ covered resales of such Exchange Securities) but which ceased to be effective for any reason prior to the end of the Exchange Period; or (c) the Registrable Securities are the subject of an Initial Shelf Registration Statement or Subsequent Shelf Registration Statement which was effective but which has ceased to be effective for any reason prior to the end of the Effective Period. An Illiquidity Event shall be deemed to cease to exist on the date subsequent to the occurrence of such Illiquidity Event on which: (i) in the case of an Illiquidity Event described in clause (a) above, either (i) an Exchange Offer Registration Statement (which, if applicable pursuant to Section 2(a), covers resales of the Exchange ------------ Securities exchanged for such Registrable Securities) shall become effective and an Exchange Offer for such Registrable Securities shall have commenced or (ii) an Initial Shelf 3 Registration Statement covering such Registrable Securities shall become effective; or (ii) in the case of an Illiquidity Event described in clause (b) above, either (i) an Exchange Offer Registration Statement (which, if applicable pursuant to Section 2(a), covers resales of the Exchange ------------ Securities offered in exchange for such Initial Securities) shall become effective and an Exchange Offer for such Registrable Securities shall have commenced pursuant to an Exchange Offer Registration Statement or (ii) an Initial Shelf Registration Statement covering such Registrable Securities shall become effective; or (iii) in the case of an Illiquidity Event described in clause (c) above, a Subsequent Shelf Registration Statement covering such Registrable Securities shall become effective. "Indenture" shall mean the Trust Indenture dated as of October 23, --------- 2001 and as further amended or supplemented from time to time in accordance with the terms thereof, between the Issuer and the Trustee, and pursuant to which the Initial Securities are to be issued. "Initial Purchasers" shall have the meaning set forth in the first ------------------ paragraph of this Agreement. "Initial Securities" shall have the meaning set forth in the first ------------------ paragraph of this Agreement. "Initial Shelf Registration Statement" shall have the meaning set ------------------------------------ forth in Section 3(a) of this Agreement. ------------ "Inspectors" shall have the meaning set forth in Section 5(m) of this ---------- ------------ Agreement. "Issuer" shall have the meaning set forth in the first paragraph of ------ this Agreement. "NASD" shall mean the National Association of Securities Dealers, Inc. ---- "Prospectus" shall mean the prospectus included in any Registration ---------- Statement (including, without limitation, a prospectus that discloses information 4 previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments and all material incorporated by reference into such prospectus. "Purchase Agreement" shall have the meaning set forth in the first ------------------ paragraph of this Agreement. "Records" shall have the meaning set forth in Section 5(m) of this ------- ------------ Agreement. "Registrable Securities" shall mean the Initial Securities upon ---------------------- original issuance thereof and at all times subsequent thereto until, in the case of any such Initial Security, (i) a Registration Statement covering such Initial Security, or the Exchange Security to be exchanged for such Initial Security (and, in the case of any Resale Security, any resale thereof), has been declared effective and such Initial Security has been disposed of or exchanged (or, in any case where such Registration Statement covers the resale of Resale Securities, such Initial Security has been exchanged and the Resale Security received therefor has been resold), as the case may be, in accordance with such effective Registration Statement, (ii) such Initial Security is sold in compliance with Rule 144 or would be permitted to be sold pursuant to Rule 144(k), (iii) such Initial Security shall have been otherwise transferred and a new certificate therefor not bearing a legend restricting further transfer shall have been delivered by or on behalf of the Issuer and such Initial Security shall be tradeable by each holder thereof without restriction under the Securities Act or the Exchange Act and without material restriction under the applicable blue sky or state securities laws or (iv) such Initial Security ceases to be outstanding. "Registration Statement" shall mean any registration statement ---------------------- (including any Shelf Registration Statement) of the Issuer that covers any of the Registrable Securities or the Exchange Securities, as the case may be, pursuant to the provisions of this Agreement, including the Prospectus which is part of such Registration Statement, amendments (including post-effective amendments) and supplements to such Registration Statement and all exhibits and appendices to any of the foregoing. For purposes of the foregoing, unless the context requires otherwise, a Registration Statement for an Exchange Offer shall not be deemed to cover Registrable Securities held by a Restricted Person unless such Registration Statement covers the resale of Resale Securities to be received by such Restricted Person pursuant to such 5 Exchange Offer and any such Initial Securities shall continue to be Registrable Securities. "Resale Initial Purchaser" shall have the meaning set forth in Section ------------------------ ------- 8(a) of this Agreement. - ---- "Resale Securities" shall mean any Exchange Security received by a ----------------- Restricted Person pursuant to an Exchange Offer, and at all times subsequent thereto, until, subject to the time periods set forth herein, such Exchange Security has been resold by such Restricted Person. "Restricted Person" shall mean (a) any Affiliate of the Issuer, (b) ----------------- any Initial Purchaser or (c) any Affiliate of any Initial Purchaser (other than Affiliates of such Initial Purchaser that (i) are acquiring Exchange Securities in the ordinary course of business and do not have an arrangement with any Person to distribute Exchange Securities and (ii) may trade such Exchange Securities without restriction under the Securities Act). "Rule 144" shall mean Rule 144 under the Securities Act, as such Rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "Rule 144A" shall mean Rule 144A under the Securities Act, as such --------- Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "Rule 415" shall mean Rule 415 under the Securities Act, as such Rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. "Securities Act" shall mean the Securities Act of 1933, as amended, -------------- and the rules and regulations of the Commission promulgated thereunder. "Shelf Notice" shall have the meaning set forth in Section 2(b) of ------------ ------------ this Agreement. "Shelf Registration Statement" shall have the meaning set forth in ---------------------------- Section 3(b) of this Agreement. - ------------ 6 "Special Counsel" shall mean Skadden, Arps, Slate, Meagher & Flom LLP, --------------- special counsel to the Initial Purchasers, or any other firm acceptable to the Issuer, acting as special counsel to the holders of Registrable Securities or Exchange Securities. "Subsequent Shelf Registration Statement" shall have the meaning set --------------------------------------- forth in Section 3(b) of this Agreement. ------------ "TIA" shall mean the Trust Indenture Act of 1939, as amended, and the --- rules and regulations of the Commission promulgated thereunder. "Trustee" shall mean Bank One Trust Company, National Association, its ------- successors and any successor trustee under the Indenture. "Underwritten Registration" or "Underwritten Offering" shall mean a ------------------------- --------------------- registration in which securities are sold to an underwriter or group of underwriters for reoffering to the public. SECTION 2. Exchange Offer. -------------- (a) Unless the Issuer determines in good faith that the Exchange Offer shall not be permissible under applicable law or Commission policy, the Issuer shall prepare and cause to be filed with the Commission as soon as reasonably practicable after the Closing Date, subject to Sections 2(b) and 2(c) ------------- ---- of this Agreement, a Registration Statement (an "Exchange Offer Registration --------------------------- Statement") for an offer to exchange (an "Exchange Offer") the Registrable - --------- -------------- Securities (subject to Section 2(c)) for a like aggregate principal amount of ------------ debt securities of the Issuer that are in all material respects substantially identical to the Initial Securities (the "Exchange Securities") (and which are ------------------- entitled to the benefits of the Indenture, which shall be qualified under the TIA in connection with such registration, or a trust indenture which is substantially identical in all material respects to the Indenture), other than such changes to the Indenture or any such substantially identical indenture as the Trustee and the Issuer may deem necessary in connection with the Trustee's rights and duties or to comply with any requirements of the Commission to effect or maintain the qualification thereof under the TIA. The Exchange Offer shall be registered under the Securities Act on the appropriate form of Registration Statement and shall comply with all applicable tender offer rules and regulations under the Exchange Act and with all other applicable laws. Subject to the terms and limitations of Section 2(c), such Exchange Offer Registration ------------ Statement may also cover any resales of Exchange Securities by any 7 Restricted Person, in the manner or manners designated by them which, in any event, are reasonably acceptable to the Issuer. The Issuer shall use its reasonable best efforts to (i) cause the Exchange Offer Registration Statement to become effective under the Securities Act on or prior to the Effective Date, (ii) keep the Exchange Offer open for a period of not less than the shorter of (A) the period ending when the last remaining Initial Security is tendered into the Exchange Offer and (B) 30 days from the date notice is mailed to the holders of Initial Securities (provided -------- that in no event shall such period be less than the period required under applicable Federal and state securities laws), and (iii) maintain such Exchange Offer Registration Statement continuously effective for a period (the "Exchange -------- Period") of not less than the longer of (A) the period until the consummation of - ------ the Exchange Offer and (B) 120 days after effectiveness of the Exchange Offer Registration Statement, provided however, that in the event that all resales of -------- ------- Exchange Securities (including, subject to the time periods set forth herein, any Resale Securities and including, subject to the time periods set forth herein, any resales by broker-dealers that receive Exchange Securities for their own account pursuant to the Exchange Offer) covered by such Exchange Offer Registration Statement have been made, the Exchange Offer Registration Statement need not remain continuously effective for the period set forth in clause (B) above. Upon consummation of the Exchange Offer, the Issuer shall deliver to the Trustee under the Indenture for cancellation all Initial Securities tendered by the holders thereof pursuant to the Exchange Offer and not withdrawn prior to the date of consummation of the Exchange Offer. Each Restricted Person shall notify the Issuer promptly after reselling all Resale Securities held by such Restricted Person which are covered by any such Registration Statement. Each holder of Registrable Securities to be exchanged in the Exchange Offer (other than any Restricted Person) shall be required as a condition to participating in the Exchange Offer to represent that (i) it is not an Affiliate of the Issuer, (ii) any Exchange Securities to be received by it shall be acquired in the ordinary course of its business and (iii) that at the time of the consummation of the Exchange Offer it shall have no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities. Upon consummation of an Exchange Offer in accordance with this Section 2 and compliance with the other provisions of this --------- Section 2, the Issuer shall, subject to Sections 2(b) and 2(c), have no further - --------- ------------- ---- obligation to register Registrable Securities pursuant to Section 3 of this --------- Agreement; provided that the other provisions of this Agreement shall continue -------- to apply as set forth in such provisions. 8 (b) In the event that the Issuer reasonably determines in good faith that (i) the Exchange Securities would not, upon receipt in the Exchange Offer by any holder of Registrable Securities (other than any Restricted Person and other than any holder who is not acquiring such Exchange Securities in the ordinary course of business or who has an arrangement with any person to participate in the distribution of such Exchange Securities), be tradeable by each holder thereof without restriction under the Securities Act and the Exchange Act and without restriction under applicable blue sky or state securities laws, (ii) after conferring with counsel, the Commission is unlikely to permit the Exchange Offer Registration Statement to become effective prior to the Effective Date (except in the circumstances set forth in Section 2(c)) or ------------ (iii) the Exchange Offer may not be made in compliance with applicable laws, then the Issuer shall promptly deliver notice thereof (the "Shelf Notice") to ------------ the holders of the Registrable Securities and the Trustee and shall thereafter file an Initial Shelf Registration Statement pursuant to, and otherwise comply with, the provisions of Section 3(a). Following the delivery of a Shelf Notice ------------ in accordance with this Section 2(b) and compliance with Section 3(a), the ------------ ------------ Issuer shall not have any further obligation under this Section 2. --------- (c) In the event that the Issuer reasonably determines in good faith that (i) the Exchange Securities would not, upon consummation of any resale thereof by a Restricted Person to any Person other than another Restricted Person, be tradeable by each holder thereof without restriction under the Securities Act (other than applicable prospectus requirements) and the Exchange Act and without restriction under applicable blue sky or state securities laws or (ii) the Commission is unlikely to permit the Exchange Offer Registration Statement to become effective prior to the Effective Date solely because such Registration Statement covers resales of the Exchange Securities by Restricted Persons, then the Issuer shall promptly deliver a Shelf Notice to the Restricted Persons who are holders of Registrable Securities and to the Trustee, and the Issuer shall thereafter file an Initial Shelf Registration Statement with respect to any such Registrable Securities pursuant to, and otherwise comply with, the provisions of Section 3(a); provided that such Initial Shelf ------------ -------- Registration Statement shall only cover resales of Registrable Securities by Restricted Persons if a Shelf Notice is not then otherwise required to be delivered pursuant to Section 2(b). Following the delivery of a Shelf Notice in ------------ accordance with this Section 2(c) and compliance with Section 3(a), the Issuer ------------ ------------ shall not have any further obligation under this Section 2 with respect to the --------- filing of an offer to exchange the Registrable Securities held by the Restricted Persons (including, without limitation, any obligation to provide that an Exchange Offer Registration Statement filed pursuant to Section 2(a) cover ------------ resales of Exchange Securities by Restricted Persons); provided that the -------- provisions of this 9 Section 2 shall otherwise remain in full force and effect with respect to - --------- Registrable Securities held by any person other than a Restricted Person. SECTION 3. Shelf Registration; Registrable Securities. With respect ------------------------------------------ to the Registrable Securities, if a Shelf Notice is delivered in accordance with Section 2(b) or 2(c) of this Agreement, then the Issuer shall comply with the - ------------ ---- following provisions of this Section 3: --------- (a) Initial Shelf Registration. The Issuer shall prepare and cause -------------------------- to be filed with the Commission a Registration Statement for an offering to be made on a continuous basis covering all of the Registrable Securities (or, if a Shelf Notice is delivered solely pursuant to Section 2(c), all of the ------------ Registrable Securities held by any Restricted Persons) (the "Initial Shelf ------------- Registration Statement"); provided, however, that no holder shall be entitled to - ---------------------- -------- ------- have its Registrable Securities covered by such Initial Shelf Registration Statement unless such holder agrees in writing, within 10 Business Days after actual receipt of a request therefrom, to be bound by all the provisions of this Agreement applicable to such holder. No holder shall be entitled to the benefits of Section 4 of this Agreement unless and until such holder shall have --------- provided all information reasonably requested by the Issuer (after conferring with counsel), and such holder shall not be entitled to such benefits with respect to any period during which such information was not provided. Each holder to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuer all information required to be disclosed in order to make the information previously furnished to the Issuer by such holder not materially misleading. The Initial Shelf Registration Statement shall be an appropriate form permitting registration of such Registrable Securities for resale by the holders thereof in the manner or manners reasonably designated by them (but excluding any Underwritten Offerings). The Issuer shall use its reasonable best efforts to (A) cause the Initial Shelf Registration Statement to be declared effective under the Securities Act on or prior to the Effective Date and (B) keep the Initial Shelf Registration Statement continuously effective under the Securities Act for a period of two (2) years after the Closing Date (subject to extension pursuant to the last paragraph of Section 5 and subject, --------- with respect to Registrable Securities held by Restricted Persons, to the limitations set forth in Section 2(c)) (such two (2) year period, as it may be ------------ extended or shortened, being the "Effective Period"), or such shorter period ---------------- ending when (1) all Registrable Securities covered by the Initial Shelf Registration Statement have been sold or (2) a Subsequent Shelf Registration Statement covering all of such Registrable Securities remaining unsold has been declared effective under the Securities Act or (3) all Registrable Securities may be sold pursuant to subsection (k) of Rule 144. 10 Notwithstanding any other provision hereof, the Issuer may postpone or suspend the filing or the effectiveness of a Registration Statement (or any amendments or supplements thereto), if (1) such action is required by applicable law, or (2) such action is taken by the Issuer in good faith and for valid business reasons (not including avoidance of the Issuer's obligations hereunder), including the acquisition or divestiture of assets, other pending corporate developments, public filings with the Commission or other similar events, so long as the Issuer promptly thereafter complies with the requirements of Section 5(b) hereof, if applicable. The Effective Period shall be extended ------------ by the number of days during which the effectiveness of a Registration Statement is suspended. (b) Subsequent Shelf Registrations. If the Initial Shelf ------------------------------ Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effective Period after the Effective Date, the Issuer may attempt to obtain the withdrawal of any order suspending the effectiveness thereof, and may amend such Initial Shelf Registration Statement or Subsequent Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement applicable to the Initial Securities pursuant to Rule 415 covering all of such Registrable Securities remaining unsold (a "Subsequent Shelf Registration ----------------------------- Statement"). If a Subsequent Shelf Registration Statement is declared - --------- effective, the Issuer shall use its reasonable best efforts to keep such Subsequent Shelf Registration Statement continuously effective for a period beyond the Effective Period equal to the aggregate number of days from the date of the order suspending the effectiveness of the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement to the date of the effectiveness of the applicable Subsequent Shelf Registration Statement. As used herein, the term "Shelf Registration Statement" means the Initial Shelf Registration Statement and any Subsequent Shelf Registration Statement. SECTION 4. Additional Interest for Illiquidity. ----------------------------------- (a) The Issuer acknowledges and agrees that the Initial Purchasers (and any subsequent holders of the Initial Securities) have acquired the Initial Securities in reliance on the Issuer's covenant to use its reasonable best efforts (i) to cause to become effective on or prior to the Effective Date (A) the Exchange Offer Registration Statement or (B) an Initial Shelf Registration Statement, and (ii) to maintain the respective effectiveness of such Registration Statements as described herein. The Issuer further acknowledges and agrees that the failure of the Issuer to fulfill such covenants will have an adverse effect on the holders of the Initial Securities. Therefore, the Issuer agrees that from and after the date on which any Illiquidity Event 11 occurs, additional interest (in addition to the interest otherwise payable with respect to the Registrable Securities) shall accrue with respect to the Initial Securities until but not including the date on which such Illiquidity Event shall cease to exist (and provided no other Illiquidity Event with respect to any Initial Securities shall then be continuing), at the rate of one half of one percent (0.50%) per annum, which additional interest shall be payable by the Issuer to the holders of all Initial Securities at the times, in the manner and subject to the same terms and conditions set forth in the Indenture, as nearly as may be, as though the interest rates provided in such Initial Securities had been increased by one half of one percent (0.50%) per annum. Subject to the provisions of this Section 4, the Issuer agrees that it shall be liable to the --------- holders of all Initial Securities for the payment of any and all additional interest on the Initial Securities that shall accrue pursuant to this Section 4. --------- Any such additional interest accrued on any such Initial Securities but unpaid on the date on which such interest ceases to accrue (the "Cure Date") --------- shall be due and payable on the first interest payment date following the next record date following such Cure Date (or the record date occurring on such Cure Date, if such Cure Date is a record date) to the holders of record of such Initial Securities on such record date. (b) The Issuer shall promptly notify the holders of the Initial Securities and the Trustee of the occurrence of any Illiquidity Event of which it has knowledge. Notwithstanding the foregoing, the Issuer shall not be required to pay the additional interest described in clause (a) of this Section 4 to a holder --------- with respect to the Registrable Securities held by such holder if the applicable Illiquidity Event arises by reason of the failure of such holder to provide such information as (i) the Issuer may reasonably request, with reasonable prior written notice, for use in the Shelf Registration Statement or any Prospectus included therein to the extent the Issuer reasonably determines that such information is required to be included therein by applicable law, (ii) the NASD or the Commission may request in connection with such Shelf Registration Statement, or (iii) is required to comply with the agreements of such holder contained in clause (a) of Section 3 to the extent compliance thereof is --------- necessary for the Shelf Registration Statement to be declared effective. SECTION 5. Registration Procedures. In connection with the ----------------------- registration of any Registrable Securities or Exchange Securities pursuant to Sections 2 and 3 hereof, the Issuer shall use its reasonable best efforts to - ---------- - effect such registration to permit the sale of such Registrable Securities or Exchange Securities in accordance 12 with any permitted intended method or methods of disposition thereof, and pursuant thereto the Issuer shall: (a) prepare and cause to be filed with the Commission a Registration Statement or Registration Statements as prescribed by Sections 2 and 3 of this ---------- - Agreement, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective for the applicable period as provided herein; provided, however, that (i) during the period in which the -------- ------- Initial Registration Statement is open for the Restricted Persons, the Issuer shall afford any Restricted Person which is a holder of Registrable Securities or Exchange Securities and the Special Counsel, upon such holder's written request to the Issuer, an opportunity to review copies of all such documents proposed to be filed, and (ii) if such filing is pursuant to Section 3, before --------- filing any Registration Statement or Prospectus or any amendments or supplements thereto (including documents that would be incorporated therein by reference after the initial filing of the Registration Statement), the Issuer shall afford the Special Counsel for all holders of the Registrable Securities covered by such Registration Statement an opportunity to review copies of all such documents proposed to be filed; (b) prepare and cause to be filed with the Commission such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period as provided herein; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act, the Exchange Act and the rules and regulations of the Commission promulgated thereunder with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented in accordance with the intended methods of disposition by the sellers of Registrable Securities covered thereby set forth therein; (c) if a Shelf Registration Statement is filed pursuant to Section 3 --------- hereof, notify the selling holders of Registrable Securities promptly after the Issuer becomes aware thereof, and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use 13 of any preliminary prospectus or Prospectus or the initiation of any proceedings for that purpose, (iv) of the receipt by the Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities for offer or sale in any jurisdiction, or the initiation of any proceeding for such purpose, (v) of the existence of any fact known to the Issuer which results in such Registration Statement or related Prospectus or any document incorporated therein by reference containing any untrue statement of a material fact or omitting to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (which notice may be accompanied by an instruction that such notice constitutes material non-public information and to suspend the use of the prospectus until the requisite changes have been made, and which instruction shall require that such holders shall not communicate such material non-public information to any third party and shall not sell or purchase, or offer to sell or purchase, any securities of the Issuer after receipt of such notice) and (vi) if the Issuer reasonably determines that the filing of a post- effective amendment to such Registration Statement would be appropriate; (d) if a Shelf Registration Statement is filed pursuant to Section 3, --------- use its reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment; (e) if a Shelf Registration Statement is filed pursuant to Section 3, --------- furnish to each selling holder of Registrable Securities who so requests (at such holder's address set forth in the Securities Register) without charge, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (f) if a Shelf Registration Statement is filed pursuant to Section 3, --------- deliver to each selling holder of Registrable Securities without charge, as many copies of the Prospectus (including each preliminary prospectus) and each amendment or supplement thereto as such persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuer hereby consents to --------- the use of such Prospectus and each amendment or supplement thereto by each of the selling holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of 14 the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (g) prior to any public offering of Registrable Securities, register or qualify, or cooperate with the selling holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification), of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as the selling holders reasonably request in writing (provided that, if Registrable --------- Securities are offered other than through an Underwritten Offering, the Issuer agrees to cause its counsel to perform blue sky investigations and file registrations and qualifications required to be filed pursuant to this Section ------- 5(g)); keep each such registration or qualification (or exemption therefrom) - ---- effective during the period such Registration Statement is required to be kept effective; and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the -------- ------- Issuer will not be required to qualify as a foreign corporation, or to do business, to file a general consent or take any action which would subject it to service of process in any jurisdiction or take any action which would subject itself to taxation in any such jurisdiction; (h) if a Shelf Registration Statement is filed pursuant to Section 3, --------- cooperate with the Trustee and the selling holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company, and enable such Registrable Securities to be in such authorized denominations and registered in such names as the holders may reasonably request at least three (3) Business Days prior to any such sale; (i) if a Shelf Registration Statement is filed pursuant to Section 3, --------- upon the occurrence of any event contemplated by Section 5(c), prepare a ------------ supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Issuer so notifies the holders to suspend the use of the Prospectus after the occurrence of such an event, the holders shall suspend use of the Prospectus, and not communicate such material non-public information to any third party, and not sell or 15 purchase, or offer to sell or purchase, any securities of the Issuer, until the Issuer has amended or supplemented the Prospectus to correct such misstatement or omission; (j) use its reasonable best efforts to cause the Registrable Securities covered by the Registration Statement to continue to be rated by the Rating Agencies during the period that the Registration Statement is required hereunder to remain effective (it being acknowledged, however, that the foregoing shall not be deemed to require the Issuer to maintain the rating of such Registrable Securities at the rating given the Initial Securities); (k) prior to the effective date of the first Registration Statement relating to the Registrable Securities or the Exchange Securities, as the case may be, (i) provide the Trustee with printed certificates for such securities in definitive form or in a global form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for such Registrable Securities or Exchange Securities represented by such certificates; (l) if a Shelf Registration Statement is filed pursuant to Section 3, --------- enter into such reasonably required agreements and take all other appropriate actions in order to expedite or facilitate the registration or the disposition of such Registrable Securities; (m) in the event of any Underwritten Offering (which shall only be undertaken at the request of a majority in interest of the holders of Registrable Securities), if a Shelf Registration Statement is filed pursuant to Section 3, make available prior to the filing thereof for inspection by a - --------- representative of the holders of a majority in aggregate principal amount of the Registrable Securities being sold, and the Special Counsel, on the one hand, or underwriter on the other hand (collectively, the "Inspectors"), during ---------- reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Issuer and its subsidiaries (collectively, the "Records"), and cause the officers, management committee members and employees ------- of the Issuer and its subsidiaries to supply all relevant information as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities; provided, however, that, as a condition to supplying such -------- ------- information, the Issuer shall receive an agreement in writing from the Special Counsel agreeing that any information that is designated in writing by the Issuer, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such Inspector (other than as to holders of Registrable Securities) and by any holders of Registrable Securities receiving such information, unless (i) disclosure of such information is required pursuant to applicable law or by court or administrative 16 order, (ii) disclosure of such information is, in the reasonable opinion of counsel to the Issuer, necessary to avoid or correct a misstatement or omission of a material fact in the Registration Statement, Prospectus or any supplement or post-effective amendment thereto or disclosure is otherwise required by law, (iii) such information becomes generally available to the public other than as a result of a disclosure by any Inspector or any such holder of Registrable Securities in violation of this Section 5(m) or (iv) such information is ------------ approved for release by the Issuer, in writing; (n) use its best efforts to cause the Indenture or the trust indenture provided for in Section 2, as the case may be, to be qualified under --------- the TIA not later than the effective date of such Registration Statement; and, in connection therewith, cooperate with the Trustee and the holders of the Registrable Securities to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use its best efforts to cause such Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the Commission to enable the Indenture or the trust indenture provided for in Section 2 to be so qualified in a timely --------- manner; (o) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission. For purposes of the covenants set forth in this Section 5, references --------- to a Shelf Registration Statement, including a Shelf Registration Statement filed pursuant to Section 3, shall be deemed to include any Registration --------- Statement, filed pursuant to Section 2, which covers, for the period set forth --------- therein, resales of Exchange Securities held by Restricted Persons as provided in Section 2, and, in connection with such resales such Restricted Persons shall --------- be entitled to exercise all rights, receive all notices and copies of documents, and otherwise receive all benefits afforded to sellers or holders of Registrable Securities under this Section 5 in connection with a Shelf Registration --------- Statement. Without limiting the generality of the foregoing, the Issuer agrees to fulfill its obligations set forth in Sections 5(a), (b), (c), (d), (e), (f), ------------- --- --- --- --- --- (h), (i), (l) and (m) with respect to any such Registration Statement filed - --- --- --- --- pursuant to Section 2 insofar as it covers such resales. --------- The Issuer may require each seller of Registrable Securities as to which any registration is being effected, as a condition thereto, to furnish to the Issuer such information regarding the holder and the distribution of such Registrable Securities as the Issuer may, from time to time, request in writing, including without limitation stating that (i) it is not an Affiliate of the Issuer, (ii) the amount of 17 Registrable Securities held by such holder prior to the Exchange Offer, (iii) the amount of Registrable Securities owned by such holder to be exchanged in the Exchange Offer and representing that such holder is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any Person to participate in, a distribution of the Exchange Securities to be issued, and (iv) it is acquiring the Exchange Securities in its ordinary course of business and to covenant and agree to promptly notify the Issuer if any such information so provided by such seller ceases to be true and correct and will promptly thereafter furnish the Issuer with corrected information. The Issuer may exclude from such registration the Registrable Securities of any Person who fails to furnish such information (or any information required to be included in the applicable Registration Statement with respect to such holder) within a reasonable time after receiving such request. Each holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Issuer of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii), ---------------- --------- 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such holder shall forthwith discontinue - -------- ------- -------- disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such holder is advised in writing (the "Advice") ------ by the Issuer that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto and, if so directed by the Issuer, such holder will deliver to the Issuer (at its expense) all copies in its possession, other than permanent file copies then in such holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice, or certify in writing as to the destruction thereof. In the event the Issuer shall give any such notice, the length of the Effective Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(i) or (y) the Advice. ------------ SECTION 6. Delivery of Prospectus; Notification Upon Resale. The ------------------------------------------------ Initial Purchasers acknowledge that it is the position of the staff of the Commission that any broker-dealer that receives Exchange Securities for its own account in exchange for Registrable Securities pursuant to the Exchange Offer must deliver a prospectus in connection with any resale of such Resale Securities. By so acknowledging, such Initial Purchasers shall not be deemed to admit that, by delivering a prospectus, it is an underwriter within the meaning of the Securities Act. 18 The Initial Purchasers shall notify the Issuer promptly upon the completion of the resale of the Resale Securities received by such Initial Purchasers pursuant to the Exchange Offer. SECTION 7. Registration Expenses. --------------------- The Issuer shall bear all expenses incurred in connection with the performance of its obligations under Sections 2, 3 and 4; provided, however, ---------- - - -------- ------- that the Issuer shall bear or reimburse the holders for the reasonable fees and disbursements of only one counsel, the Special Counsel, in accordance with the terms of the Purchase Agreement; provided, further, however, that in the event -------- ------- ------- of an Underwritten Offering, the Issuer shall not be responsible for any fees and expenses of any underwriter, including any underwriting discounts and commissions or any legal fees and expenses of counsel to the underwriters (except for the reasonable fees and disbursements of counsel in connection with state securities or blue sky qualification of any of the Registrable Securities or the Exchange Securities). SECTION 8. Indemnification and Contribution. -------------------------------- (a) The Issuer agrees to (A) indemnify and hold harmless each holder of Registrable Securities (including any Initial Purchaser which holds Registrable Securities, including Resale Securities, for its own account (each, a "Resale Initial Purchaser") and each Person, if any, who controls any such ------------------------ Person within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee or agent of each such Person (each a "Holder ------ Indemnified Party") against any and all losses, claims, damages or liabilities, - ----------------- joint or several, to which they or any of them are subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement covering Registrable Securities held by such person or any Prospectus relating to any such Registration Statement, or any amendment thereof or supplement thereto and all documents incorporated by reference therein, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, and (B) reimburse each such Holder Indemnified Party for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the - -------- ------- 19 Issuer will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement or Prospectus, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information relating to such holder provided by such holder to the Issuer specifically for use therein (collectively, the "Holder Information"); provided, further, ------------------ -------- ------- however, that the indemnity obligations arising out of this Section 8 with - ------- --------- respect to any untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary Prospectus shall not inure to the benefit of any holder or any controlling Person of such holder if such holder failed to send or deliver to the Person asserting any such losses a copy of the final Prospectus with or prior to the delivery of the written confirmation of the sale of the Registrable Securities or the Exchange Securities, as the case may be, if a prospectus relating to such Registrable Securities or Exchange Securities was required to be delivered by such holder under the Securities Act, and such final Prospectus would have cured the untrue statement or omission giving rise to such losses if the Issuer had previously furnished copies thereof to such holder. This indemnity agreement will be in addition to any liability which the Issuer may otherwise have. (b) As a condition to the inclusion of a holder's Registrable Securities in a Registration Statement, such holder shall agree to (i) indemnify and hold harmless the Issuer and each person who controls the Issuer within the meaning of either the Securities Act or the Exchange Act, and each director, management committee member, officer, employee or agent of each such person, against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them are subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in a Registration Statement covering Registrable Securities held by such holder or any Prospectus relating to any such Registration Statement or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, and (ii) reimburse each such indemnified party for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; in each and every case under clause (i) and (ii) above to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement or Prospectus or in any amendment thereof or supplement thereto, in reliance upon and in conformity with the Holder Informa- 20 tion. This indemnity agreement will be in addition to any liability which any such holder may otherwise have. In no event shall the liability of any selling holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such holder upon the sale (or, in the case of Resale Securities, the resale) of the Registrable Securities giving rise to such indemnification obligation. (c) Promptly after receipt by an indemnified party under this Section ------- 8 of notice of the commencement of any action, such indemnified party will, if a - - claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof - --------- (enclosing a copy of all papers served); but the omission to so notify the indemnifying party (i) shall not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such omission results in the forfeiture by the indemnifying party or material impairment of substantial rights and defenses and (ii) shall not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligations provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party of its election to so assume the defense of such claim or action, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by --------- such indemnified party in connection with the defense thereof other than costs of investigation; provided that if (i) the defendants in any such action include -------- both the indemnified party and the indemnifying party and the indemnified party shall have received the written opinion of counsel that representation of both parties by the same counsel would be inappropriate due to actual or likely conflicts of interest between them, or (ii) the indemnifying party shall not have employed counsel for the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action, then the indemnified party or parties shall have the right to select one firm of separate counsel (in addition to the fees and expenses of local counsel) to assert any separate legal defenses and to otherwise defend such action on behalf of such indemnified party or parties. No indemnifying party shall be liable for any settlement of any action or claim for monetary damages which an indemnified party may effect without the written consent of the indemnifying party, which consent shall not be unreasonably withheld. 21 (d) If the indemnification provided for in Section 8(a) or (b) hereof ------------ --- is for any reason, other than as specified in such provisions, unavailable to or insufficient to hold harmless an indemnified party, then each indemnifying party shall contribute to the aggregate losses, claims, damages or liabilities (or actions in respect thereof) referred to in Section 8(a) or (b) hereof in such ------------ --- proportion as is appropriate to reflect the relative fault and benefits to the Issuer on the one hand and such holders on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the Issuer and such holders shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any untrue statement or omission. The obligations of the holders in this Section 8(d) are several in proportion to their respective obligations hereunder - ------------ and not joint. Notwithstanding the provisions of this Section 8(d), in no event ------------ shall any holder of Registrable Securities be required to contribute any amount which is in excess of (i) the aggregate principal amount of Initial Securities sold or exchanged by such holder less (ii) the amount of any damages that such person has otherwise been required to pay by reason of such alleged untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to ------------- contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each Holder Indemnified --------- Party shall have the same rights to contribution as a holder, and each person who controls the Issuer within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee and agent of such person, shall have the same rights to contribution as the Issuer, subject in each case to the applicable terms and conditions of this Section 8(d). Any party entitled ------------ to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section ------- 8(d), notify such party or parties from whom contribution may be sought; but the - ---- omission to so notify such party or parties (x) shall not relieve the party or parties from whom contribution may be sought from any liability under this Section 8(d) unless and to the extent it did not otherwise learn of such action - ------------ and such omission results in the forfeiture by the party or parties from whom contribution may be sought or material impairment of substantial rights and defenses and (y) shall not, in any event, relieve such party or parties from any obligations other than under this Section 8(d). ------------ (e) The provisions of this Section 8 will remain in full force and --------- effect, regardless of any investigation made by or on behalf of any holder of Registrable Securities, the Initial Purchasers, the Issuer or any of the officers, directors or 22 controlling persons referred to in this Section 8 and will survive the sale (or, --------- in the case of Resale Securities, the resale) by a holder of Registrable Securities of such Registrable Securities. SECTION 9. Underwritten Registrations (If Any). No holder may ---------------------------------- participate in any Underwritten Registration, which Underwritten Registration shall only be undertaken at the option of the Issuer, unless such holder (a) agrees to sell such holder's Initial Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. SECTION 10. Termination. In the event that no Initial Securities are ----------- sold to the Initial Purchasers pursuant to the Purchase Agreement, this Agreement shall automatically terminate, without liability on the part of any party. Upon the fulfillment of all obligations on the part of the Issuer to register the Initial Securities as set forth herein (including maintaining the effectiveness of any applicable Registration Statements), this Agreement shall terminate; provided that the provisions of Sections 7 and 8 hereof shall survive -------- ---------- - any termination and remain in full force and effect. SECTION 11. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Issuer has not, as of the date -------------------------- hereof, entered into, and shall not, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities herein or otherwise conflicts with the provisions hereof. (b) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Issuer has obtained the written consent of holders of at least a majority of the then outstanding aggregate principal amount of the Registrable Securities (or, after the consummation of any Exchange Offer in accordance with Section 2, of Exchange Securities); provided that, with respect --------- -------- to any matter that directly or indirectly affects the rights of any Restricted Person hereunder occurring within the period in which the Initial Registration Statement is open for the Restricted Persons, the Issuer shall obtain the written consent of each such Restricted Person 23 against which such amendment, modification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except for the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of holders of Registrable Securities whose securities are being sold or exchanged pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other holders of Registrable Securities may be given by holders of at least a majority in aggregate principal amount of the Registrable Securities being sold or exchanged by such holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, - -------- ------- modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of Resale Initial Purchasers and that does not directly or indirectly affect the rights of holders of Registrable Securities or Exchange Securities may be given by each of the Resale Initial Purchasers affected thereby. (c) Notices. All notices and other communications (including, ------- without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing and delivered by hand delivery, registered first-class mail, next-day air courier or telecopier: (i) if to a holder of Registrable Securities, at the most current address given by such holder to the Issuer in accordance with the provisions of this Section 11(c), which address initially is, with respect ------------- to the Initial Purchasers, at the address set forth in the Purchase Agreement and thereafter at the address for such holders of Registrable Securities set forth in the Security Register applicable to such Registrable Securities; and (ii) if to the Issuer, initially at the address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 11(c). ------------- All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; one (1) Business Day after being timely delivered to a next-day air courier; and when received, if telecopied. 24 Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (d) Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors and assigns of each of the parties hereto, including without limitation and without the need for an express assignment or any consent by the Issuer thereto, subsequent holders of Registrable Securities. (e) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York without regard to the principles of conflicts of laws thereof (other than Section 5-1401 of the New York General Obligations Law). Each of the parties hereto hereby submits to the non-exclusive jurisdiction of the Federal and State Courts of the Borough of Manhattan in the City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. (h) Severability. In the event that any one or more of the ------------ provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (i) Entire Agreement. This Agreement, together with the Purchase ---------------- Agreement, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, together with the Purchase 25 Agreement, supersedes all prior agreements and understandings between the parties with respect to such subject matter. (j) Securities Held by the Issuer, etc. Whenever the consent or ----------------------------------- approval of holders of a specified percentage of principal amount of Registrable Securities is required hereunder, Registrable Securities held by the Issuer or any of its Affiliates (other than subsequent holders of Registrable Securities if such subsequent holders are deemed to be Affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the holders of such required percentage. 26 Please confirm that the foregoing correctly sets forth this agreement between the Issuer and you. Very truly yours, ELWOOD ENERGY LLC By: /s/ Donald G. Burnette, Jr. ----------------------------- Name: Donald G. Burnette, Jr. Title: Authorized Representative Accepted in New York, New York October 12, 2001 CREDIT SUISSE FIRST BOSTON CORPORATION, as Representative of the Initial Purchasers By: /s/ Jonathan Baliff -------------------------- Name: Jonathan Baliff Title: Vice-President EX-3.1 5 dex31.txt CERTIFICATE OF FORMATION OF ELWOOD, AS AMENDED EXHIBIT 3.1 CERTIFICATE OF FORMATION OF ELWOOD ENERGY LLC This Certificate of Formation of Elwood Energy LLC (the "LLC") dated as of May 12, 1998, is being duly executed and filed by Patricia Merrill, as an authorized person, to form a limited liability company under the Delaware Limited Liability Company Act. First. The name of the limited liability company formed hereby is Elwood Energy LLC. Second. The address of the registered office of the LLC in the State of Delaware is c/o Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801. Third. The name and address of the registered agent for service of process on the LLC in the State of Delaware is Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801. In Witness Whereof, the undersigned has executed this Certificate of Formation as of the date first written above. /s/ Patricia Merrill -------------------- Patricia Merrill Authorized Person CERTIFICATE OF MERGER ELWOOD ENERGY II, LLC (a Delaware limited liability company) INTO ---- ELWOOD ENERGY LLC (a Delaware limited liability company) This Certificate of Merger is hereby filed with the Delaware Secretary of State pursuant to Section 18-209(c) of the Delaware Limited Liability Company Act. 1. Names and Jurisdictions. The name and jurisdiction of formation of ----------------------- each limited liability company to merge has been set forth below: Name Jurisdiction of Formation ---- ------------------------- Elwood Energy LLC Delaware Elwood Energy II, LLC Delaware 2. Approval of Agreement and Plan of Merger. An Agreement and Plan of ---------------------------------------- Merger has been approved and executed by each of the limited liability companies to merge. 3. Name of Surviving Limited Liability Company. The name of the ------------------------------------------- surviving limited liability company is set forth below: Elwood Energy LLC 4. Document on File. The Agreement and Plan of Merger is on file at the ---------------- principal place of business of the surviving limited liability company, which is located at: Elwood Energy LLC 120 Tredegar Street Richmond, Virginia 23219 5. Copy To Be Furnished. A copy of the Agreement and Plan of Merger -------------------- will be furnished by the surviving limited liability company, on request and without cost, to any member of any limited liability company to merge. IN WITNESS WHEREOF, this Certificate of Merger has been duly executed on the date shown below by an authorized person of the surviving limited liability company in the merger. DATE OF FILING: August 2, 2001 Elwood Energy LLC By: /s/ James W. Braswell --------------------- James W. Braswell Manager CERTIFICATE OF MERGER ELWOOD ENERGY III, LLC (a Delaware limited liability company) INTO ---- ELWOOD ENERGY LLC (a Delaware limited liability company) This Certificate of Merger is hereby filed with the Delaware Secretary of State pursuant to Section 18-209(c) of the Delaware Limited Liability Company Act. 1. Names and Jurisdictions. The name and jurisdiction of formation of ----------------------- each limited liability company to merge has been set forth below: Name Jurisdiction of Formation ---- ------------------------- Elwood Energy LLC Delaware Elwood Energy III, LLC Delaware 2. Approval of Agreement and Plan of Merger. An Agreement and Plan of ---------------------------------------- Merger has been approved and executed by each of the limited liability companies to merge. 3. Name of Surviving Limited Liability Company. The name of the ------------------------------------------- surviving limited liability company is set forth below: Elwood Energy LLC 4. Document on File. The Agreement and Plan of Merger is on file at the ---------------- principal place of business of the surviving limited liability company, which is located at: Elwood Energy LLC 120 Tredegar Street Richmond, Virginia 23219 5. Copy To Be Furnished. A copy of the Agreement and Plan of Merger -------------------- will be furnished by the surviving limited liability company, on request and without cost, to any member of any limited liability company to merge. IN WITNESS WHEREOF, this Certificate of Merger has been duly executed on the date shown below by an authorized person of the surviving limited liability company in the merger. DATE OF FILING: August 3, 2001 Elwood Energy LLC By: /s/ James W. Braswell --------------------- James W. Braswell Manager EX-3.2 6 dex32.txt AMENDED AND RESTATED OPERATING AGREEMENT EXHIBIT 3.2 ================================================================================ AMENDED AND RESTATED OPERATING AGREEMENT OF ELWOOD ENERGY LLC Dated as of August 3, 2001 ================================================================================ TABLE OF CONTENTS ----------------- ARTICLE I DEFINED TERMS 1.1 Definitions................................................................... 1 ARTICLE II FORMATION AND PURPOSES 2.1 Formation and Name............................................................ 6 2.2 Registered Agent.............................................................. 7 2.3 Permitted Purpose............................................................. 7 2.4 No Other Purpose.............................................................. 7 2.5 No Member Benefit............................................................. 7 2.6 Limited Liability............................................................. 8 2.7 Term.......................................................................... 8 ARTICLE III MEMBERS 3.1 General....................................................................... 8 3.2 Member List................................................................... 8 3.3 Consent or Approval of Members................................................ 8 3.4 Admission of Members.......................................................... 9 3.5 Resignation of Member......................................................... 9 ARTICLE IV MANAGEMENT 4.1 Management by Management Committee............................................ 9 4.2 Powers of Management Committee................................................ 9 4.3 Composition of the Management Committee....................................... 11 4.4 Meetings of the Management Committee.......................................... 11 4.5 Votes of Members of the Management Committee.................................. 12 4.6 Function and Operation of Management Committee................................ 12 4.7 Delegation.................................................................... 12 4.8 General Manager............................................................... 12 4.9 Limitation on Authority of General Manager, Officers and Agents............... 12 4.10 Designation of Managers and General Manager.................................. 13 4.11 Tenure of Managers........................................................... 14 4.12 Tenure of General Manager.................................................... 14 4.13 Compensation................................................................. 14 4.14 Development Plans............................................................ 14 4.15 Operating Budget............................................................. 14 4.16 Plan Reporting and Compliance................................................ 14
i ARTICLE V RELATIONSHIPS AMONG MEMBERS AND MANAGERS 5.1 Liabilities of Members and Managers........................................... 15 5.2 Dealings with the Company..................................................... 15 5.3 Other Activities.............................................................. 15 ARTICLE VI RELATED AGREEMENTS 6.1 Related Agreements............................................................. 16 6.2 Loaned Employees............................................................... 16 ARTICLE VII ASSIGNMENTS 7.1 General Definitions........................................................... 17 7.2 Right to Make Permitted Assignments........................................... 18 7.3 Other Assignments............................................................. 18 7.4 Notice of Assignments; Effectiveness.......................................... 18 7.5 Status and Obligations of an Assignor......................................... 19 7.6 Rights of an Assignee......................................................... 19 ARTICLE VIII CAPITAL 8.1 Capital Accounts.............................................................. 19 8.2 Capital Contributions......................................................... 20 8.3 Additional Contributions or Loans............................................. 20 8.4 Return of Capital............................................................. 23 ARTICLE IX ALLOCATIONS 9.1 General Allocation of Profits and Losses...................................... 23 9.2 Special Tax Allocations....................................................... 23 9.3 Tax Allocations: Code Section 704(c).......................................... 24 9.4 Proration of Allocations...................................................... 25 9.5 Accrual of Items.............................................................. 25 9.6 Separate Items................................................................ 25 9.7 Installment Sales............................................................. 25 9.8 Tax Allocations............................................................... 25 9.9 Capital Account Deficits...................................................... 25 9.10 Special Allocation for Unit #9................................................ 26
ii ARTICLE X DISTRIBUTIONS 10.1 Distributions of Cash........................................................ 26 10.2 Distributions Following Dissolution.......................................... 27 10.3 Distributions of Property in Kind............................................ 27 ARTICLE XI TAX MATTERS 11.1 Tax Classification........................................................... 27 11.2 Tax Matters.................................................................. 28 ARTICLE XII DISSOLUTION 12.1 Events of Dissolution........................................................ 29 12.2 Winding Up and Termination................................................... 29 ARTICLE XIII INDEMNIFICATION 13.1 Indemnification.............................................................. 30 ARTICLE XIV ADMINISTRATIVE PROVISIONS 14.1 Offices...................................................................... 31 14.2 Books and Records............................................................ 31 14.3 Fiscal Year.................................................................. 31 14.4 Accountants/Reports.......................................................... 31 14.5 Notices...................................................................... 31 ARTICLE XV BONA FIDE OFFERS TO SELL 15.1 Right of First Offer......................................................... 32 15.2 Sale to Third Parties; Admission............................................. 32 15.3 Admission of Offeror......................................................... 32 15.4 Purchase Right for Prohibited Transfer of Control............................ 33 ARTICLE XVI DISPUTE RESOLUTION 16.1 Resolution of Member Disputes................................................ 34 16.2 Mandatory Buy-Sell Provisions................................................ 35
iii 16.3 Binding Election............................................................. 35 16.4 Closing and Default.......................................................... 35 16.5 Impact to Bona Fide Offers to Sell........................................... 36 ARTICLE XVII OPTION ON OTHER PHASES 17.1 Option to Develop Additional Phases Prior to July 1, 2003.................... 36 17.2 Cooperation.................................................................. 37 17.3 Other Assurances............................................................. 39 17.4 Miscellaneous................................................................ 39 17.5 Option to Develop Additional Phases After July 1, 2003....................... 40 ARTICLE XVIII MISCELLANEOUS 18.1 Amendment.................................................................... 42 18.2 Interpretation............................................................... 42 18.3 Invalidity................................................................... 42 18.4 No Third Party Beneficiaries................................................. 42 18.5 Confidentiality.............................................................. 42 18.6 Waiver of Partition.......................................................... 43 18.7 Press Releases............................................................... 43 18.8 Relationship of Parties...................................................... 43 18.9 Counterparts................................................................. 43 18.10 Further Assurances........................................................... 43 18.11 Complete Agreement........................................................... 44 18.12 Governing Law, Jurisdiction.................................................. 44
iv AMENDED AND RESTATED OPERATING AGREEMENT OF ELWOOD ENERGY LLC This Amended and Restated Operating Agreement (the "Agreement") of Elwood Energy LLC (the "Company") is made as of August 3, 2001, by and between the undersigned Members (as defined below). RECITALS The Company was formed pursuant to a Certificate of Formation dated May 13, 1998 in connection with an electric power generating business in Elwood, Illinois. The Company recently acquired by merger the assets and obligations of two related entities. As a result, the Company's business on the date hereof consists of nine turbines and may include further development. In anticipation of the potential benefits to be derived from the Company's business, the Members have agreed, on the terms and conditions set forth below, to amend and restate the Company's Operating Agreement dated as of July 23, 1998. ARTICLE I DEFINED TERMS 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings specified below: "Acceptance Notice" has the meaning set forth in Section 15.4(b). "Act" means the Delaware Limited Liability Company Act, as amended, and any successor act. "Adjusted Capital Account" has the meaning set forth in Section 9.9. "Additional Phase Development Notice" has the meaning set forth in Section 17.5(a). "Additional Phases" means such additional simple cycle and/or combined cycle power generating facilities, and any related assets, as may be developed from time to time for the purpose of enhancing or expanding the Facility. "Affiliate" means, with respect to any Member, a Person that, directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Member, whether through the ownership of voting securities, by contract or otherwise. "Agreement" has the meaning set forth in the preamble. "Applicable Appraised Value" has the meaning set forth in Section 15.4(f). "Appraised Value" has the meaning set forth in Section 17.5(d). "Appraiser" has the meaning set forth in Section 15.4(f). "Approving Member" has the meaning set forth in Section 17.1(a). "Assignee" has the meaning set forth in Section 7.1(a). "Assignment" has the meaning set forth in Section 7.1(a). "Assignor" has the meaning set forth in Section 7.1(a). "Buy-Out Notice" has the meaning set forth in Section 17.5(c). "Buy-Sell Notice" has the meaning set forth in Section 16.1(c). "Capital Account" has the meaning set forth in Section 8.1. "Capital Defaulting Member" has the meaning set forth in Section 8.3(d). "Capital Non-Defaulting Member" has the meaning set forth in Section 8.3(d). "Code" means the Internal Revenue Code of 1986, as amended, and any successor code. Reference to any particular provision of the Code shall mean that provision on the date hereof and any successor provision. "Company Minimum Gain" has the meaning given to partnership minimum gain in Section 1.704-2(b)(2) and (d) of the Treasury Regulations. A Member's share of Company Minimum Gain shall be determined in accordance with Section 1.704- 2(g)(1) of the Treasury Regulations, substituting the term "member" for "partner" therein. "Confidential Information" has the meaning set forth in Section 18.5. "Consolidated Net Worth" means, at any time with respect to any entity, the total owners equity (including retained earnings) of such entity and its subsidiaries on a consolidated basis, as determined in accordance with generally accepted accounting principles. "Current Phases" means, as of any date, the Current Project and any additional facilities which, as of such date, have been constructed or have been approved by the Management Committee. 2 "Current Project" means the 1409 MW simple cycle peaking power generating facility located on the date of this Agreement in Elwood, Illinois, and all related assets. As of the date of this Agreement, the Current Project includes, without limitation, nine turbines. "Default Rate" means a fixed annual interest rate equal to the lower of the following: (a) the highest rate allowed by law; or (b) the sum of three percent (3%) plus the then current "prime rate" as published in the Money Rates section of the Wall Street Journal (or a comparable rate if such rate is no longer published). "Developing Member" has the meaning set forth in Section 17.5(c). "Development Plan" has the meaning set forth in Section 4.14. "Disclosing Member" has the meaning set forth in Section 18.5. "Dominion" means Dominion Elwood, Inc., a Delaware corporation and a direct wholly-owned subsidiary of Dominion Energy. Such term also shall refer to any successor entity. "Dominion Energy" means Dominion Energy, Inc., a Virginia corporation, which is a direct wholly-owned subsidiary of Dominion Resources. Such term also shall refer to any successor entity. "Dominion Resources" means Dominion Resources, Inc., a Virginia corporation. Such term also shall refer to any successor entity. "Dominion Manager" has the meaning set forth in Section 4.3. "Eligible Member" has the meaning set forth in Section 15.1(b). "Elwood II" means Elwood Energy II, LLC, a Delaware limited liability company that merged with and into the Company on the Merger II Date. "Elwood III" means Elwood Energy III, LLC, a Delaware limited liability company that merged with and into the Company on the Merger III Date. "Event of Dissolution" has the meaning set forth in Section 12.1(a). "Facility" means the Current Project, together with any Current Phases and Additional Phases. "First Appraiser" has the meaning set forth in Section 17.5(c). "GE" means General Electric Company and any Affiliate. "General Manager" has the meaning set forth in Section 4.8. References in this Agreement to the General Manager shall not constitute a reference to a Manager. 3 "Land Value Amount" has the meaning set forth in Section 17.2(a). "Loss" means any damage, loss, liability or expense (including, without limitation, reasonable expenses of investigation and litigation and reasonable legal, accounting and other professional fees). "Management Committee" has the meaning set forth in Section 4.1. "Manager" has the meaning set forth in Section 4.3. References in this Agreement to a Manager shall not constitute a reference to the General Manager. "Member List" has the meaning set forth in Section 3.2. "Member Nonrecourse Debt" has the meaning given to partner nonrecourse liability as referred to in Sections 1.704-2(b)(4) and 1.704-2(i) of the Treasury Regulations. "Member Nonrecourse Debt Minimum Gain" has the meaning given to partner nonrecourse debt minimum gain in Section 1.704-2(i)(2) and (3) of the Treasury Regulations. "Members" has the meaning set forth in Section 3.1. "Merger II Date" means August 2, 2001. "Merger III Date" means August 3, 2001. "New Developer" has the meaning set forth in Section 17.1(b). "Non-Approving Member" has the meaning set forth in Section 17.1(a). "Nondeductible Expenditure" has the meaning set forth in Section 9.2(b). "Non-Developing Member" has the meaning set forth in Section 17.5(c). "Notice" has the meaning set forth in Section 15.1(a). "Obtaining Member" has the meaning set forth in Section 18.5. "Offer" has the meaning set forth in Section 15.1. "Offer Amount" has the meaning set forth in Section 17.5(c). "Offer Date" has the meaning set forth in Section 15.1(a). "Offer Notice" has the meaning set forth in Section 15.4(a). "Offered Company Interest" has the meaning set forth in Section 15.4. 4 "Offered Interest" has the meaning set forth in Section 15.1(a). "Offeror" has the meaning set forth in Section 15.1(a). "Operating Budget" has the meaning set forth in Section 4.15. "Peoples" means Peoples Elwood, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of PERC Power, LLC, a Delaware limited liability company, which is a direct wholly-owned subsidiary of Peoples Energy Resources. "Peoples Energy" means Peoples Energy Corporation, an Illinois corporation. Such term also shall refer to any successor entity. "Peoples Energy Resources" means Peoples Energy Resources Corp., an Illinois corporation and a direct wholly-owned subsidiary of Peoples Energy. Such term also shall refer to any successor entity. "Peoples Manager" has the meaning set forth in Section 4.3. "Percentage Interest" has the meaning set forth in Section 3.2. "Permitted Assignment" has the meaning set forth in Section 7.1(d). "Permitted Transfer of Control" has the meaning set forth in Section 7.1(c). "Person" means an individual, partnership (general or limited), corporation, limited liability company, association or other form of business organization (whether or not regarded as a legal entity under applicable law), trust, estate or any other entity. "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, and whether formal or informal. "Prohibited Transfer of Control" has the meaning set forth in Section 7.1(a). "Proposed Phase" has the meaning set forth in Section 17.1. "Receipt Date" has the meaning set forth in Section 16.2(a). "Receiving Member" has the meaning set forth in Section 16.2(a). "Regulatory Allocations" has the meaning set forth in Section 9.2. "Regulatory Requirements" means the requirement for issuance of an Exempt Wholesale Generator Certificate from the Federal Energy Regulatory Commission and any other 5 local, state or federal requirements for the Company to become a licensed wholesale generator of electricity in any location to which it makes sales of electricity. "Related Agreements" has the meaning set forth in Section 6.1. "Resolution Period" has the meaning set forth in Section 16.1(b). "Response" has the meaning set forth in Section 16.2(a). "Second Appraiser" has the meaning set forth in Section 17.5(c). "Selling Entity" has the meaning set forth in Section 15.4. "Selling Member" has the meaning set forth in Section 15.1. "Sending Member" has the meaning set forth in Section 16.1(c). "Tax Matters Member" has the meaning given to "tax matters partner" in Section 6231(a)(7) of the Code. "Tendered Interest" has the meaning set forth in Section 16.1(c). "Third Appraiser" has the meaning set forth in Section 17.5(c). "Treasury Regulations" means the regulations promulgated by the United States Treasury Department under the Code and any successor regulations. Reference to any particular provision of the Treasury Regulations shall mean that provision on the date hereof and any successor provision. "Unit #9" means that certain GE Model 7FA gas-fired combustion turbine generator and other related equipment purchased for use at the Facility from Elwood III Holdings, LLC, a Delaware limited liability company. "Unit #9 Remaining Allocation" means, with respect to any date, the portion of the total Unit #9 Special Allocation that, as of such date, remains to be allocated in accordance with this Agreement. "Unit #9 Special Allocation" has the meaning set forth in Section 9.10. ARTICLE II FORMATION AND PURPOSES 2.1 Formation and Name. The Members acknowledge and agree that: (a) the Company has been formed under, and is governed by, the Act; (b) Elwood II merged with and into the Company, effective on the Merger II Date; (c) Elwood III merged with and into the 6 Company, effective on the Merger III Date; (d) the Company, as the result of such mergers, is the successor to all rights, properties, assets, duties, obligations, debts and liabilities of Elwood II and Elwood III; (e) prior to such mergers, the indirect subsidiaries of Dominion Resources and Peoples Energy that were then the members of Elwood II and Elwood III were merged with and into Dominion and Peoples, respectively; and (f) prior to the mergers involving the members of Elwood III, the members thereof agreed to alter the amounts of certain capital contributions to be made to Elwood III in connection with Unit #9, while preserving the original agreement that, for such purpose, the member affiliated with Peoples shall contribute $4 million more than the member affiliated with Dominion. All business of the Company shall be conducted in the name "Elwood Energy LLC" and such assumed names as may be approved by the Management Committee. 2.2 Registered Agent. The Company shall maintain a registered office and agent in accordance with the Act. 2.3 Permitted Purpose. The permitted purpose of the Company is: (a) to own, acquire, construct, lease, develop, permit, operate, finance and manage the Facility; (b) to purchase and sell fuel, electricity and capacity for and from the Facility, and to obtain such other property and services as are necessary or appropriate in connection with the construction, ownership and operation of the Facility, and to enter into contracts and commitments in connection with all of the foregoing; (c) to operate and manage the Facility as an ongoing power generation business; (d) to engage in any other activities which are permitted by law and are agreed upon by the Management Committee; and (e) to engage in any and all activities and to execute all documents which are incidental, related, necessary or appropriate in connection with any of the foregoing. 2.4 No Other Purpose. The Company shall have no purpose other than as set forth in Section 2.3 above. 2.5 No Member Benefit. The credit and the assets of the Company shall be used solely for the benefit of the Company and shall not be used to further the personal gain of any 7 Member. No asset of the Company shall be transferred or encumbered for, or in payment of, any individual obligation of a Member. 2.6 Limited Liability. No Member or Manager shall have any personal obligation for any liabilities of the Company solely by reason of being a Member or Manager, unless expressly required by the Act or any other applicable laws. 2.7 Term. The term of the Company shall continue until dissolved as set forth in Section 12.1 hereof. ARTICLE III MEMBERS 3.1 General. The term "Members" means only Dominion, Peoples and any Persons subsequently admitted as Members in accordance with the terms hereof. A Member shall cease to be a Member upon the Assignment of such Person's entire interest in the Company in accordance with the terms hereof. 3.2 Member List. The Company shall maintain at its principal office a current list (the "Member List") showing the name, address, and percentage interest in profits and losses with respect to each Member ("Percentage Interest"). The Member List as of the date of this Agreement is attached as Schedule A. The Member List and the Percentage Interest of each Member reflected - ---------- thereon shall be amended promptly to reflect any changes permitted under this Agreement, including, without limitation, any Assignments of an interest in the Company in accordance with Article VII and any additional capital contributed to the Company pursuant to Article VIII. Notwithstanding the foregoing, the Unit #9 Special Allocation shall not be considered for purposes of determining a Member's Percentage Interest as set forth in this Section 3.2, and shall not affect the Percentage Interests of the Members as set forth on Schedule A. ---------- Notwithstanding the immediately preceding sentence, the Unit #9 Special Allocation shall be reflected in the Capital Account of Peoples pursuant to Section 8.1. 3.3 Consent or Approval of Members. Except as otherwise provided herein, the consents or approvals of Members shall be based on their Percentage Interests at the time the consents or approvals are required. Each Member shall be given prior written notice, which may be waived in writing, of at least five (5) business days of any action requiring a consent or approval of Members. Except as otherwise provided herein, the unanimous approval of the Members shall be required for every action or consent taken or given by the Members. If the Members reasonably expect to admit additional Persons to the membership of the Company, then the Members shall consider amending this Agreement prior to such admission to address issues 8 raised by multiple membership, including whether approval by the Members should be based on a majority of the Percentage Interests. 3.4 Admission of Members. The Company shall not directly grant, offer or issue any membership interest in the Company to any Person and shall not admit such Person as a Member, whether in addition to the existing Members or in replacement of a Member or Members, unless each of the following requirements is satisfied: (a) the Members unanimously grant their prior written consent to the admission of such Person as a Member; (b) such Person executes a counterpart signature page to this Agreement, as it may have been amended, and makes all required capital contributions to the Company; and (c) the Company receives an opinion from its legal counsel, reasonably satisfactory to the Company in form and substance, confirming that the proposed transaction (i) would not violate any applicable laws, including but not limited to state or federal securities laws, and (ii) would not result in termination of the Company for federal income or other tax purposes. The preceding requirement of an opinion from legal counsel may be waived or limited only by the unanimous written consent of the Members. Each consent by a Member under this Section may be granted or withheld in the sole and absolute discretion of such Member. The Members acknowledge and agree that admission of a Member by transfer of a membership interest is addressed in Section 7.4. 3.5 Resignation of Member. Each Member agrees not to resign or withdraw from the Company except in connection with an Assignment of the Member's entire interest in the Company, and only in a manner permitted by this Agreement. ARTICLE IV MANAGEMENT 4.1 Management by Management Committee. The management of the business of the Company shall be vested in a management committee (the "Management Committee"). The Management Committee shall be empowered to set policy for, and to make all decisions in respect of, the business and operations of the Company subject to the limitations set forth in this Agreement. The acts of the Management Committee shall bind the Members and the Company when such acts are within the scope of the authority of the Management Committee. 4.2 Powers of Management Committee. The Management Committee shall have the full, exclusive and complete authority to manage, direct and control the business and affairs of the Company, and shall be responsible for the enforcement of the rights of the Company pursuant to this Agreement and the Related Agreements. Without limiting the generality of the foregoing, the Management Committee, upon the unanimous vote or consent of the Managers, shall have the right and power, on behalf of the Company, to do any or all of the following: 9 (a) negotiate with any Persons (including without limitation, management personnel, lenders, and representatives of governmental agencies and regulatory authorities) concerning potential contracts or other agreements, including, without limitation, those contracts and agreements contemplated by any Development Plan or Operating Budget, and to continue, complete or terminate negotiations with respect thereto, and execute and deliver contracts and agreements resulting therefrom; (b) open, maintain and close bank accounts and draw checks or other orders for the payment of money; (c) invest Company funds on a temporary basis; (d) make calls for capital contributions in excess of the capital contributions called for in any Development Plan, or set or revise the timing or amounts of such capital contributions, or agree to accept and repay loans in lieu of capital contributions; (e) receive, sell, lease or otherwise dispose of, and deal in any of the assets and liabilities of the Company in the ordinary course of business; (f) sell or dispose of substantially all or part of the assets of the Company outside of the ordinary course of business; (g) retain attorneys, accountants, consultants, custodians, contractors and other agents, and pay them compensation on behalf of the Company; (h) borrow money and commit the credit of the Company to the extent necessary, convenient or incidental to the purposes of the Company and grant liens on and security interests in the Company's property to secure any such borrowings, on such terms and conditions as the Management Committee deems appropriate; provided, however, that in connection therewith, the Management Committee may not commit, nor delegate any authority to commit, the credit of any Member without such Member's prior written consent; (i) execute, in furtherance of any purpose of the Company, any deed, lease, mortgage, bill of sale, contract or other instrument purporting to encumber the real or personal property of the Company; (j) determine the accounting methods and conventions to be used in preparation of the Company's financial statements and tax returns and make any and all elections under any applicable tax laws, subject to the terms of this Agreement; 10 (k) maintain one or more offices on behalf of the Company; (l) obtain all necessary permits and undertake or contract with other Persons to undertake all necessary regulatory compliance activities, including fulfillment of the Regulatory Requirements, provided, however, such permits and regulatory applications shall, to the extent possible, be filed and maintained in the name of the Company; (m) review and approve Development Plans and Operating Budgets in accordance with Sections 4.14 through 4.16; and (n) engage in any other activity and perform and carry out contracts of any kind which may be necessary or appropriate to conduct the Company's business and accomplish its purposes, as may be lawfully carried on or performed by a limited liability company under the laws of the State of Delaware and the laws of the states and municipalities in which the Company conducts business. 4.3 Composition of the Management Committee. The Management Committee shall consist of two individuals (each, a "Manager"). Managers may be given such titles as are unanimously approved by the Members. Dominion shall be entitled to appoint one Manager to represent Dominion on the Management Committee (a "Dominion Manager"). Peoples shall be entitled to appoint one Manager to represent Peoples on the Management Committee (a "Peoples Manager"). In addition, each Member shall be entitled to appoint one or more alternates for each Manager it appoints. Each alternate shall have all of the powers of the regular Manager in the regular Manager's absence, declination or inability to serve from time to time. Notwithstanding the foregoing, each Dominion Manager and alternative Dominion Manager shall be an employee of Dominion or an Affiliate thereof when appointed by Dominion and at all times thereafter while serving in such position, and each Peoples Manager and alternate Peoples Manager shall be an employee of Peoples or an Affiliate thereof when appointed by Peoples and at all times thereafter while serving in such position. 4.4 Meetings of the Management Committee. The Management Committee shall meet at least quarterly. Such meetings may be held by telephone conference. Special meetings of the Management Committee may be called from time to time by either Manager. Except as otherwise provided herein, or as waived in writing by the Managers, each Manager shall be given prior written notice of at least five (5) days of any meeting of the Management Committee. Such notice shall contain the time and place of such meeting, along with an agenda of items to be discussed and/or voted on at such meeting. A quorum shall consist of both Managers. In lieu of a meeting, action may be taken by the unanimous written consent of the Managers. Each written consent shall indicate the date of execution by each Manager and shall be effective on the date designated in the consent, or if no effective date is designated, on the latest date of execution. 11 4.5 Votes of Members of the Management Committee. On any matters coming before the Management Committee, the number of votes that may be cast by each Manager shall equal the Percentage Interest of the Member represented by such Manager. Except as otherwise provided herein, the unanimous approval of the Managers shall be required for the Management Committee to act or to refrain from acting. 4.6 Function and Operation of Management Committee. The Management Committee is authorized to adopt such rules as the Managers consider necessary to govern its operations, provided such rules are not inconsistent with this Agreement and do not restrict or impede the rights of any Manager or Member as set forth herein. 4.7 Delegation. (a) Except as otherwise provided herein, the Management Committee is authorized to designate a Manager or other duly authorized officers or agents (i) to make, execute and deliver in the name of and on behalf of the Company, such certificates and documents as are necessary or appropriate for the conduct of the Company's business or to effectuate the purposes of this Agreement, and (ii) to sign on behalf of, and to bind, the Company. (b) The Management Committee is authorized to designate such officers and other agents, and may grant such Persons such rights and powers, as the Management Committee may deem appropriate; provided, however, that such -------- ------- designations and grants are not inconsistent with or in contravention of the provisions of this Agreement, including, without limitation, Section 4.9. Without limiting the generality of the foregoing, the Management Committee periodically may delegate certain project-related duties to one or more project managers, who shall oversee such specific duties as are designated in writing by the Management Committee. 4.8 General Manager. The Management Committee shall appoint a general manager of the Company (the "General Manager") who shall (a) be an individual who is not a Manager, (b) be responsible for all daily operations of the Company if not otherwise inconsistent with this Agreement, (c) attend meetings (except for executive sessions) of the Management Committee, and (d) undertake such other duties and serve on such other terms and conditions as authorized by resolution of, or otherwise in writing by, the Management Committee. 4.9 Limitation on Authority of General Manager, Officers and Agents. Notwithstanding any provision of this Agreement to the contrary, the Managers acting individually, the General Manager, officers and other agents of the Company shall not undertake or consent to any of the following acts on behalf of the Company without obtaining the prior written consent of the Management Committee specifically authorizing such act: 12 (a) sell or otherwise dispose of, or contract to sell or otherwise dispose of, assets of the Company outside the ordinary course of business; (b) enter into any agreement or undertake any commitment which would generate revenues for the Company, or cause the Company to incur obligations or contingent liabilities or make capital expenditures, in excess of $100,000 individually or $250,000 in the aggregate in any fiscal year; (c) make any assignment for the benefit of creditors of the Company, or otherwise cause the Company to seek protection under any bankruptcy or insolvency law; (d) execute any material amendment to or make any material modification of any of the Related Agreements; (e) enter into any contract with any Member, Manager or any Affiliate of any Member or Manager, or any officer, director, employee or family member of a Member, Manager or Affiliate thereof; (f) approve any additional capital contribution required of the Members; (g) initiate or settle any claim in excess of $25,000 on behalf of the Company; (h) borrow money in the name of the Company or pledge or grant a security interest in any of the Company's assets; (i) enter into any agreement of merger, consolidation or liquidation of or with the Company; (j) hire any employees; and (k) enter into any agreements, grant any consents or undertake any commitments, with respect to any of the foregoing. 4.10 Designation of Managers and General Manager. The Managers, their alternates, and the General Manager as of date of this Agreement are as set forth on Schedule B, which shall be amended promptly to reflect any changes ---------- permitted under this Agreement. 13 4.11 Tenure of Managers. Any Member may at any time or from time to time, remove a Manager or alternate Manager appointed by such Member, with or without cause. 4.12 Tenure of General Manager. The Management Committee shall remove a General Manager, with or without cause, promptly upon the written request of any Member or Members holding fifty percent (50%) or more of the Percentage Interests. 4.13 Compensation. The Managers shall receive no compensation for serving on the Management Committee or services rendered in such capacity. All other officers and agents of the Company (including, without limitation, the General Manager) shall receive such compensation, if any, as may be approved by the Management Committee. 4.14 Development Plans. The Management Committee shall cause the preparation of an annual construction, development, and permitting plan and budget for the long-term development objectives of the Company, if any (the "Development Plan"). Each Development Plan, if any, shall reflect each phase of long-term development and shall include, for each fiscal year, the following items: (a) projected development activity to be undertaken, including construction, development, and permitting, (b) projected completion dates for such activity, and (c) projected capitalization required, including the amount, source, and timing thereof. 4.15 Operating Budget. For each fiscal year, the Management Committee shall cause the preparation of an annual operating budget and related operating plan (the "Operating Budget"). The Operating Budget shall include separate fiscal year projections for one-year and three-year periods showing the following: (a) projected capital expenditures of the Company, (b) projected working capital and reserves to be maintained or funded, (c) projected revenues, (d) projected operating expenses broken down in reasonable detail satisfactory to the Managers and the Members, (e) projected compensation changes including bonuses, (f) projected general and administrative expenses of the Company, and (g) projected capitalization and indebtedness of the Company and the debt service payable thereon. 4.16 Plan Reporting and Compliance. (a) At least ninety (90) days before the end of each fiscal year, the Management Committee shall cause preparation of, and shall review and attempt to approve, the Operating Budget and any Development Plan for the next fiscal year. At its fourth quarter meeting, the Management Committee shall approve such plans as it considers appropriate, including any amendments requested by the Managers. The Management Committee is authorized to revise any Development Plan or the Operating Budget from time to time as it deems appropriate. In the event the Management Committee is unable to approve or disapprove an Operating Budget, all line items of the new Operating Budget which the Management 14 Committee has approved shall go into effect and all line items on which the Management Committee has been unable to reach a decision shall be deemed increased by three percent (3%) from the level specified in the last Operating Budget approved by the Management Committee, with the exception of Capital Contributions, which shall not automatically increase. (b) The General Manager shall report to the Management Committee at least monthly, and such report shall compare the actual results of the Company to the projections set forth in any Development Plan or the Operating Budget as last approved by the Management Committee. A copy of such monthly report shall be delivered to the Management Committee and each Member within fifteen (15) days after the end of the month in question. At each meeting of the Management Committee that occurs in any month in which development of any Additional Phase is ongoing, the Management Committee shall review the Development Plan for the next month and shall consider for approval those expenditures and other actions that the General Manager anticipates for such month. ARTICLE V RELATIONSHIPS AMONG MEMBERS AND MANAGERS 5.1 Liabilities of Members and Managers. Except for the contractual obligations of the Members, the Managers and the General Manager under this Agreement, the Related Agreements, or otherwise, no Member, Manager or General Manager shall have any liability to, or any obligation for the debts of, the Company arising out of a transaction, occurrence or course of conduct unless such Member, Manager or General Manager engaged in willful misconduct, gross negligence or a knowing violation of criminal law. The obligations of the Members, the Managers and the General Manager under this Agreement and the Related Agreements are not intended to confer, and shall not confer, any rights or remedies upon any Person who is not a party hereto or thereto. 5.2 Dealings with the Company. The Management Committee is authorized to engage the services of, or to cause the Company to transact business with, any of the following: (a) any Member or Manager, (b) any Affiliate of a Member or Manager (iii) any Person having a financial interest in a Member or (iv) any Person in which a Member or Manager has a financial interest. In all cases, the provisions of any contracts between the Company and any of the foregoing shall not be less favorable to the Company than generally would be obtainable in an arms length transaction from unrelated and unaffiliated Persons, unless the provisions that are less favorable to the Company are fully disclosed in advance to the Management Committee. 5.3 Other Activities. A Member or its Affiliate shall be entitled to engage in, or to possess an interest, in any types and categories of business ventures, independently or with others, and whether similar or dissimilar to the business of the Company, even if competitive with the business of the Company, and the pursuit of such other business ventures shall not be 15 deemed wrongful or improper. Notwithstanding the foregoing, no Member or Affiliate shall use Confidential Information in connection with such other business ventures. The Company and the other Members shall have no rights by virtue of this Agreement in or to such other business ventures or the income or profits derived therefrom. No Member or Affiliate thereof shall be obligated (a) to provide notice to the Company or other Members of other business ventures, or (b) to present the Company or other Members with the opportunity to invest or participate in such other business ventures, even if such other business ventures are similar to or competitive with the business of the Company. ARTICLE VI RELATED AGREEMENTS 6.1 Related Agreements. In connection with the Facility and the Company's business, the Company shall be entitled to enter into each of the following agreements (collectively, the "Related Agreements") as directed by the Management Committee. (a) An Amended and Restated Operation and Maintenance Agreement, pursuant to which an Affiliate of Dominion or an entity jointly owned by Dominion and Peoples, or Affiliates thereof as the Management Committee determines, shall operate and maintain the Facility; (b) An Engineering, Procurement and Construction Agreement relating to the construction of the Facility; (c) Any agreement necessary to lease, purchase or accept the transfer of the site for the Facility; (d) Equity contribution agreements pursuant to which Peoples Energy and Dominion Energy commit to contribute required equity to the Members; and (e) Such other agreements as the Management Committee may approve. 6.2 Loaned Employees. Officers and employees performing services for the Company may be loaned to the Company by the Members or their Affiliates (in which case they shall remain officers and employees of the loaning Member or Affiliate). In the case of loaned officers or employees, the Company shall reimburse the loaning Member (or its Affiliate) for the services of loaned officers and employees pursuant to the terms and conditions set forth in separate agreements to be entered into between the loaning Member and the Company. 16 ARTICLE VII ASSIGNMENTS 7.1 General Definitions. (a) Except as set forth below, the term "Assignment" means a sale, gift, exchange, pledge, encumbrance or other transfer (including, without limitation, transfers upon dissolution, reorganization or merger), whether voluntary or involuntary, of: (i) any interest in the Company; or (ii) any interest in a Member (or any interest in a Person owning, directly or indirectly, through one or more intermediaries, an interest in a Member) such that fifty percent (50%) or more of the total voting interest in the Member, or fifty percent (50%) or more of the capital or profits of such Member, shall thereby have been transferred directly or indirectly to Persons not owning such voting or economic interest as of the date of this Agreement (a "Prohibited Transfer of Control"). To the extent that a Member, or an owner thereof, is a disregarded entity for tax purposes, the preceding clause shall apply with equal force and effect to the first Person in the chain of ownership that is not disregarded. Without limiting the scope of the foregoing, a pledge or encumbrance of any interest in a Member (regardless of whether such pledge or encumbrance is of less than fifty percent (50%) of the total voting interest in such Member) shall constitute an "Assignment" for purposes of this Agreement. The term "Assignor" means any Person who makes an Assignment. The term "Assignee" means the Person or Persons, other than a Member, to which an Assignment is made. An intended Assignee of an interest in the Company may become a Member only in the manner provided in this Agreement. (b) Notwithstanding the foregoing, none of the following shall constitute an "Assignment" for purposes of this Agreement: (i) a pledge or encumbrance of all or any portion of the stock of Dominion Resources, Dominion Energy, Peoples Energy or Peoples Energy Resources; (ii) a sale or other transfer of all or any portion of the stock of Dominion Resources or Peoples Energy; or (iii) a "Permitted Transfer of Control" (as defined below). (c) The term "Permitted Transfer of Control" means: 17 (i) a sale or other transfer of the capital stock of Dominion Energy to (A) the public in connection with a registered public offering of such capital stock pursuant to which such capital stock is listed on a recognized national exchange or on NASDAQ; (B) the then shareholders of Dominion Resources pursuant to a distribution or other direct or indirect transfer of the capital stock of Dominion Energy; or (C) a Person having Consolidated Net Worth, determined immediately prior to such transfer in accordance with generally accepted accounting principles, of not less than forty percent (40%) of the Consolidated Net Worth of the assets of Dominion Resources determined as of the same date; and (ii) a sale or other transfer of the capital stock of Peoples Energy Resources to (A) the public in connection with a registered public offering of such capital stock pursuant to which such capital stock is listed on a recognized national exchange or on NASDAQ; (B) the then shareholders of Peoples Energy pursuant to a distribution or other direct or indirect transfer of the capital stock of Peoples Energy Resources; or (C) a Person having Consolidated Net Worth, determined immediately prior to such transfer in accordance with generally accepted accounting principles, of not less than forty percent (40%) of the Consolidated Net Worth of Peoples Energy determined as of the same date. (d) The term "Permitted Assignment" means (i) an Assignment of an interest in the Company to a Member or its Affiliate at least fifty-one percent (51%) of which is wholly-owned, directly or indirectly, by Dominion Resources or Dominion Energy with respect to Dominion, or by Peoples Energy or Peoples Energy Resources with respect to Peoples; provided, however, that such assignment does -------- ------- not result in a Prohibited Transfer of Control or a violation of any agreement or obligation under this Agreement or otherwise relating to the ownership or operation of the Company or the Facility, (ii) a Permitted Transfer of Control; or (iii) a transfer to an Offeror pursuant to Section 15.4(d). 7.2 Right to Make Permitted Assignments. A Member shall be entitled to make a Permitted Assignment at any time provided that any of its obligations relating to the Company or the financing thereof shall remain in full force and effect and that all other Members have received prior written notice of any such Assignment. 7.3 Other Assignments. Except for Permitted Assignments or as otherwise provided herein, no Assignment may be made by a Member without the prior written consent of each other Member. Such consent may be granted or withheld by a Member in its sole and absolute discretion. 7.4 Notice of Assignments; Effectiveness. The Company shall not be required to recognize any Assignment of an interest in the Company until (a) the Assignee executes a counterpart signature page to this Agreement, as it may have been amended, and tenders full 18 payment of applicable purchase price for such interest in such manner as may be approved by the Members in their reasonable discretion; and (b) the Company receives an opinion from its legal counsel, reasonably satisfactory to the Company in form and substance, confirming that the proposed transaction (i) would not violate any applicable laws, including but not limited to state or federal securities laws, and (ii) would not result in a termination of the Company for federal income or other tax purposes. The preceding requirement of an opinion from legal counsel may be waived or limited only by the unanimous written consent of the Members, which may be granted or withheld in the sole and absolute discretion thereof. A purported Assignment in violation of this Agreement shall be void and unenforceable against the Company. 7.5 Status and Obligations of an Assignor. A Member that makes an Assignment of an interest in the Company shall thereafter be considered a Member only to the extent of its remaining interest in the Company. Notwithstanding the foregoing, if the Assignment results in a Prohibited Transfer of Control, the Member as to which the Assignment occurs shall (a) lose all of its rights as a Member, including, without limitation, the right to vote; and (b) retain all of its obligations as a Member until each other Member grants its consent to relief from such obligations. Such consent may be granted or withheld by a Member in its sole and absolute discretion. 7.6 Rights of an Assignee. An Assignment of an interest in the Company entitles the Assignee, to the extent assigned, to the Capital Account and Percentage Interest of the Assignor. An Assignment does not entitle the Assignee to participate in the management and affairs of the Company or to become a Member with respect to the interest assigned until full compliance with Section 7.4. ARTICLE VIII CAPITAL 8.1 Capital Accounts. The Company shall maintain a capital account for each Member as set forth in this Article VIII (a "Capital Account"). (a) The value of each Capital Account shall equal (i) the sum of the cash contributions to the account, the fair market value of contributions of property other than cash to the account on the date of contribution (net of liabilities secured by such property that the Company is considered to assume or take subject to under Code Section 752), and the share of the net profits of the Company allocated to the account, less (ii) cash and the fair market value of ---- property distributions made to the owner of the account on the date of distribution (net of liabilities secured by such distributed property that such person is considered to assume or take subject to under Code Section 752), the share of the net losses of the Company allocated to the account (together with the amounts allocated or to be allocated pursuant to Section 9.10 hereof), and the share of expenditures of the Company described in Code Section 705(a)(2)(b) allocated 19 to the account. Capital Accounts shall be maintained in accordance with the applicable provisions of the Code, shall not bear interest and, except as otherwise provided in Section 8.1(c) hereof, shall be adjusted thereafter in accordance with the requirements of Treasury Regulation Sections 1.704-1, 1.704- 2, 1.704-3, and 1.704-4, including, without limitation, the revaluation provisions of Treasury Regulation Sections 1.704-1(b)(2)(iv)(e)-(g). (b) This Article VIII and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with the requirements of Section 1.704-1(b) of the Treasury Regulations and shall be interpreted and applied in a manner consistent therewith. If the Management Committee determines that it is prudent to modify the manner in which the Capital Accounts are computed to comply with such Treasury Regulations, the Management Committee may make such modifications; provided, however, that the -------- ------- Management Committee determines in good faith that such modifications are not likely to have a material effect on the amounts distributable to any Member upon dissolution of the Company. (c) The Members acknowledge and agree that the Capital Account of a Member as of the date of this Agreement shall equal (i) the aggregate amount of such Member's "capital account" in the Company and in Elwood II as of the Merger II Date (as such amounts were determined under the operating agreements then in effect with respect to each such entity); increased by (ii) such ------------ Member's "capital account" in Elwood III as of the Merger III Date (as such amount was determined under the operating agreement then in effect with respect to such entity), all without adjustment for any increase or decrease in the valuation of property (including intangible assets such as goodwill) of the Company, Elwood II or Elwood III that may have occurred prior to or on the Merger II Date or the Merger III Date, respectively, and all in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f). 8.2 Capital Contributions. The Members shall not be required to make any additional capital contributions, except as required by Section 8.3 hereof. 8.3 Additional Contributions or Loans. Additional capital may be required of each Member only in accordance with this Section 8.3. (a) Each Member hereby agrees to contribute its Percentage Interest of all additional payments due from the Company: (i) to GE under any contract or purchase order for turbine generator sets, to be contributed prior to the date such payments are due or as directed by the Management Committee in connection therewith, (ii) to GE (or such other entity with which the Company may contract) pursuant to any engineering, procurement and construction contract which may be entered into by the Company with respect to the Facility, to be contributed prior to the date such payments are due or as directed by the Management Committee in connection therewith, and (iii) for such other amounts as may be included in any approved Development Plan. To the extent the foregoing payments are made directly from a Member to GE (or another entity with which the Company may contract), such payments shall be deemed to have been 20 made to the Company pursuant to this Section 8.3, and shall constitute capital contributions for the purposes hereof. The Management Committee is authorized to obtain debt financing for all or part of any Current Phases or Additional Phases. (b) Each Member also hereby agrees to contribute such additional capital under Section 8.3(a) as may be determined by the Management Committee. Such contributions shall be proportionate to each Member's Percentage Interest. (c) In lieu of a capital contribution, with the consent of the Management Committee, a Member may provide capital to the Company in the form of a loan on commercially reasonable terms and conditions. Capital provided in the form of a loan shall not be deemed a capital contribution hereunder. (d) In the event that a Member (the "Capital Defaulting Member") fails to make a required additional capital contribution when due (including without limitation a capital contribution required by any Development Plan or any loan in lieu of a capital contribution as determined by the Management Committee), the Management Committee or the non-defaulting Member (the "Capital Non-Defaulting Member") shall give written notice of default to the Capital Defaulting Member. If the Capital Defaulting Member does not pay all amounts due within ten (10) days after such notice is given, the Capital Non-Defaulting Member shall be entitled to take, or to cause the Company to take, any of the following actions (or any combination of such actions, to the extent not inconsistent or mutually exclusive): (i) The Company may apply any distributions otherwise payable to the Capital Defaulting Member under this Agreement, the Related Agreements or otherwise, toward the payment of the defaulted capital contribution, plus interest thereon at the Default Rate from the date when originally due. (ii) The Capital Non-Defaulting Member may loan to the Company the amount of the defaulted capital contribution, in which event interest shall accrue at the Default Rate from the date of such loan. Repayment of the loan to the Capital Non-Defaulting Member shall have priority over any other distributions to be made under this Agreement or any Related Agreements, and the amount of interest paid by the Company for any such loan shall be deducted from the share of profits to be paid to the Capital Defaulting Member. Upon the making of any such loan to the Company, the Company shall be deemed to have made a simultaneous loan in the same amount and at the same interest rate to the Capital Defaulting Member, and such simultaneous loan shall be due and payable upon demand of the Management Committee acting in accordance with Section 8.3(d)(v). 21 (iii) The Capital Non-Defaulting Member may contribute to the Company the amount of any defaulted capital contribution, in which case the respective Percentage Interests of the Capital Defaulting Member and the Capital Non-Defaulting Member shall be adjusted proportionately, provided such reduction and increase do not violate any law or a regulatory requirement. (iv) Upon notice (a "Purchase Notice") to the Capital Defaulting Member, which notice may be given at any time before the Capital Defaulting Member pays such defaulted capital contribution, or if the Capital Non-Defaulting Member has loaned the defaulted capital contribution to the Company in accordance with this Section 8.3(d), before such loan has been repaid by the Capital Defaulting Member, the Capital Non-Defaulting Member may purchase the entire interest of the Capital Defaulting Member in the Company. The purchase price shall equal seventy-five percent (75%) of the Capital Account balance of the Capital Defaulting Member as of the date of the Purchase Notice and shall be paid in cash. Closing on any such purchase shall take place on the date specified by the Capital Non- Defaulting Member, but shall not occur sooner than fifteen (15) days nor later than thirty (30) days after the date of the Purchase Notice. (v) Provided that the Capital Non-Defaulting Member has not exercised the remedies set forth in Sections 8.3(d)(iii) or (iv) above, or, if it has exercised the remedy set forth in Section 8.3(d)(i) above, provided that such distributions have not fully paid the defaulted capital contribution and interest thereon, the Company may sue to collect the defaulted capital contribution, together with interest thereon at the Default Rate from the date when originally due, plus all collection costs (including reasonable legal fees and expenses). (e) Except as expressly provided herein, the foregoing remedies shall be cumulative and shall not be exclusive. No course of dealing between the Capital Non-Defaulting Member and the Capital Defaulting Member and no delay in exercising any right, power or remedy conferred in this Section, whether now or hereafter existing at law or in equity, shall operate as a waiver or otherwise prejudice any such right, power, or remedy. In addition to the remedies set forth above, until such time as (i) the Capital Defaulting Member has paid in full any loan made by the other Member to the Company pursuant to Section 8.3(d)(ii), (ii) the amount of such defaulted capital contribution and interest due thereon has been paid in full by the application of distributions pursuant to Section 8.3(d)(i), or (iii) the Capital Non-Defaulting Member completes the exercise of its rights under Sections 8.3(d)(iii), (iv) or (v), the Capital Defaulting Member, and the Manager appointed by the Capital Defaulting Member to the Management Committee, shall have no right to vote on any matters as to which such Member or Manager would otherwise be entitled to vote, and any actions requiring the consent, approval or direction of the Members or the Management Committee may be taken by the Capital Non-Defaulting Member without the consent, approval or vote of the Capital Defaulting Member or the Manager appointed by it. 22 8.4 Return of Capital. No Member shall be entitled to require the return of all or any part of such Member's capital contributions or Capital Account balance prior to dissolution of the Company. ARTICLE IX ALLOCATIONS 9.1 General Allocation of Profits and Losses. Except as otherwise provided in this Agreement, the profits and losses of the Company shall be allocated to or deducted from, the Capital Accounts of the Members, annually or more frequently, in accordance with their Percentage Interests. 9.2 Special Tax Allocations. The allocations under this Agreement shall comply with the requirements of Sections 703 and 704(b) of the Code and the Treasury Regulations promulgated thereunder, including Treasury Regulation Sections 1.704-1 and 1.704-2 (the "Regulatory Allocations"), pursuant to which the special tax allocations of this Section 9.2 shall be made prior to the allocations of Section 9.1, and in the following order: (a) If a net decrease occurs in Company Minimum Gain during any Company taxable year, except as provided in Section 1.704-2(f) of the Treasury Regulations, each Member shall be allocated items of income and gain for such taxable year (and, if necessary, for subsequent taxable years) to the extent, in the manner, and at the time required under Section 1.704-2(g) of the Treasury Regulations. This Section 9.2(a) is intended to comply with the minimum gain charge back requirements under Section 1.704-2(f) of the Treasury Regulations and shall be interpreted consistently with such intent. (b) Any item of the Company's loss, deduction, or nondeductible expenditure under Section 705(a)(2)(B) of the Code ("Nondeductible Expenditure") that is attributable to a Member Nonrecourse Debt pursuant to Section 1.704- 2(i)(2) of the Treasury Regulations shall be allocated to the Member or Members who bear the economic risk of loss for such debt in the time and manner described in Section 1.704-(2)(i) of the Treasury Regulations. If a net decrease occurs in Member Nonrecourse Debt Minimum Gain pursuant to Section 1.704-2(i)(4) of the Treasury Regulations, then any Member with a share in such minimum gain shall be allocated items of Company income and gain for such taxable year (and, if necessary, for subsequent taxable years) to the extent required under Section 1.704-2(i) of the Treasury Regulations. The provisions of this Section 9.2(b) are intended to comply with requirements in Section 1.704-2(i) of the Treasury Regulations and shall be interpreted consistently with such intent. 23 (c) If the Company makes an election under Section 754 of the Code, to the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Sections 734(b) or 743(b) is required pursuant to Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases basis) or loss (if the adjustment decreases basis). Such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which Capital Accounts are required to be adjusted pursuant to such section of the Treasury Regulations. (d) In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the Treasury Regulations, items of the Company's income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the deficit in such Member's Adjusted Capital Account (as defined hereafter) as quickly as possible, provided that an allocation pursuant to this Section 9.2(d) shall be made if and only to the extent that the Member would have a deficit in his Adjusted Capital Account after all other allocations provided for in this Section 9.2 have been tentatively made as if this Section 9.2(d) were not in the Agreement. This Section 9.2(d) is intended to comply with the qualified income offset provisions of Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently with that intent. (e) As noted above, the allocations set forth in this Agreement are intended to comply with certain requirements of the Treasury Regulations, including Sections 1.704-1 and 1.704-2. These Regulatory Allocations may not be consistent with the manner in which the Members intend to divide the Company's distributions. Accordingly, the Management Committee is authorized to cause the Company to allocate future profits, losses, and other items among the Members so as to prevent the Regulatory Allocations from distorting the manner in which Company distributions shall be divided between the Members pursuant to this Agreement to the extent permitted under the Treasury Regulations. 9.3 Tax Allocations: Code Section 704(c). (a) Income, gain, loss, and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated between the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its net fair market value in accordance with Section 1.704-1(b)(2)(iv) of the Treasury Regulations. (b) If the value of any Company asset is adjusted pursuant to Section 8.1, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted tax basis of such asset for federal income tax purposes and its adjusted value in the same manner as under Section 704(c) of the Code and the 24 Treasury Regulations under Sections 704(c) and 704(b) of the Code. The Management Committee shall make any elections or other decisions relating to such allocations in any manner that reasonably reflects the purpose and intention of this Agreement. (c) Allocations pursuant to this Section 9.3 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or its share of profits, losses, or distributions pursuant to any provision of this Agreement. 9.4 Proration of Allocations. If additional Members are admitted to the Company on different dates during any fiscal year or other period, the profits or losses allocated to the Members for such fiscal year or other period shall be allocated during such fiscal year in accordance with Section 706 of the Code using a proration method unless the Management Committee determines another permitted convention would give materially more equitable results. 9.5 Accrual of Items. For purposes of determining the profits, losses, or any other items allocable to any period, profits, losses and any other items shall be determined on a daily, monthly, or other basis, as the Management Committee shall determine using any permissible method under Section 706 of the Code and Treasury Regulations. 9.6 Separate Items. Except as otherwise provided in this Agreement, all items of Company income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided between the Members in the same proportions as they share profits or losses, as the case may be, for the fiscal year or other period. 9.7 Installment Sales. If the Company sells any asset for an installment obligation (other than a de minimis obligation) and the Management Committee -- ------- determines to retain and collect the obligation in the Company, the Company shall account for obligations as if it distributed out the present value of the obligation as determined by the Management Committee. Any interest on such obligation shall be allocated to the Members in accordance with their share received in the deemed distribution. 9.8 Tax Allocations. Except as otherwise set forth in this Agreement or required by the Code or the Treasury Regulations, tax items shall be allocated in the same manner as book items. 9.9 Capital Account Deficits. No net losses shall not be allocated to a Member to the extent that such allocation would cause a deficit in such Member's Adjusted Capital Account. For purposes of this Agreement, the term "Adjusted Capital Account" means the 25 Capital Account of a Member, established and maintained as required by Article VIII of this Agreement, (i) increased for the amount a Member is obligated to restore to the Company or is deemed obligated to restore pursuant to Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, (ii) increased pursuant to the penultimate sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations, and (iii) reduced for the adjustments required under Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6) of the Treasury Regulations relating to reasonably expected adjustments, allocations, and distributions. 9.10 Special Allocation for Unit #9. Notwithstanding anything contained herein to the contrary, with respect to Unit #9, Peoples shall receive a special allocation of depreciation expense and deduction, for both book and tax purposes, in the total amount of $4,000,000, as reduced for book and tax depreciation taken prior to the Merger III Date pursuant to the Amended and Restated Operating Agreement of Elwood III, as further amended and then in effect (the "Unit #9 Special Allocation"). The amount of the Unit #9 Special Allocation shall be calculated based on a recovery of $4,000,000 over the depreciable life of Unit #9 in accordance with the book and tax methods of depreciation that apply to Unit #9, including for this purpose the depreciation claimed for book and tax purposes with respect to Unit #9 by Elwood III prior to the Merger III Date. Immediately prior to any sale or other disposition of Unit #9 by the Company, or any assignment by Peoples of its interest in the Company (other than an assignment described in Section 7.1(d)(i) or (ii) above), items of expense or deduction shall be specially allocated to Peoples in the amount of the Unit #9 Remaining Allocation, which shall occur without any requirement of notice or other action by the Members or the Company. To the extent possible, the Unit #9 Remaining Allocation shall reflect, for both book and tax purposes, an allocation of depreciation expense and deduction attributable to Unit #9. If the Unit #9 Remaining Allocation exceeds the remaining depreciation expense and deduction attributable to Unit #9 at the time of such sale or disposition, the excess portion of the Unit #9 Remaining Allocation shall reflect other items of ordinary expense and deduction of the Company. The Members shall take all steps necessary to ensure that all such special allocations of depreciation expense are deemed to have "substantial economic effect" for purposes of Section 704 of the Code, including the maintenance of Capital Accounts in accordance with all special allocations. Notwithstanding the foregoing special allocations, all other capital costs associated with the installation, replacement, modification or otherwise, with respect to Unit #9, shall be depreciated in accordance with each Member's Percentage Interest. ARTICLE X DISTRIBUTIONS 10.1 Distributions of Cash. Cash which the Management Committee determines is not necessary for the operations or reserves of the Company may be distributed to the Members quarterly or more frequently in accordance with their Percentage Interests. The Management Committee shall base its determination of cash to be distributed upon the Company's net cash available from operations during such quarter and previous quarters not yet distributed, less cash reasonably deemed necessary by the Management Committee to meet the Company's 26 requirements for debt service, capital expenditures and operating costs for the succeeding three months (or longer if deemed necessary based on reasonable cash flow projections), plus a reasonable reserve for future contingencies. The Members' current intention is that cash distributions shall be made by the Company within thirty (30) days after the end of each fiscal quarter, from net cash available for such purpose, after deduction of the amounts noted in the previous sentence. 10.2 Distributions Following Dissolution. Following the dissolution of the Company and the winding up of its affairs, the assets shall be distributed: (a) First, to satisfy debts and obligations of the Company, including those owed to Members or their Affiliates; (b) Second, to fund any reserves deemed appropriate by the Management Committee; and (c) Third, between the Members in proportion to the amounts in their Capital Accounts, after reduction for the Unit #9 Remaining Allocation attributable to such Member, if any. The profits and losses incurred in the winding up of the affairs of the Company (including profits and losses incurred in connection with the disposition of Company assets in liquidation) shall be credited or charged to the Members' Capital Accounts in accordance with Articles VIII and IX hereof. 10.3 Distributions of Property in Kind. The Management Committee may determine with the unanimous consent of the Members whether and to whom properties should be distributed in kind rather than liquidated. Any property distributed in kind shall be treated as though the property were sold for its fair market value at the time of distribution and the cash proceeds were distributed. The difference between the fair market value of property distributed in kind and its previous recorded value shall be treated as profits or losses on sale of the property and shall be credited or charged to the Members' Capital Accounts in accordance with their interests in such profits or losses pursuant to Article IX. ARTICLE XI TAX MATTERS 11.1 Tax Classification. The Members intend that the Company shall continue to be classified as a partnership for United States federal income tax purposes and this Agreement shall be interpreted accordingly. 27 11.2 Tax Matters. The following provisions specify certain tax matters applicable to the Company. (a) The tax year of the Company shall be a fiscal year beginning on October 1 and ending on September 30, unless the Code requires otherwise or unless the Company elects, to the extent permitted under the Code, to have a different tax year. (b) The Management Committee shall designate a Tax Matters Member as required by the Code. Unless otherwise changed by the unanimous agreement of the Management Committee, the Tax Matters Member shall be Dominion. The Tax Matters Member shall make an appropriate election under Code Section 754 and shall have the authority to make, refrain from making, or revoke any other tax elections under the Code or comparable provisions under state or local law. (c) The General Manager shall prepare, or cause to be prepared, a federal and any required state and local income tax returns for the Company for each tax year of the Company Within ninety (90) days after the end of each year of the Company, the General Manager shall send to each person who was a Member at any time during such year such tax information, including, without limitation, a federal tax Schedule K-1, as shall be reasonably necessary for the preparation by such person of its federal income tax return. (d) In the event of an audit of a Company income tax return, the General Manager shall, at the expense of the Company, participate in, retain accountants in accordance with Section 14.4 and other professionals to participate in, the audit, and may contest, with the consent of the Management Committee, assertions by the auditing agent that may be adverse to the Members and the Company. (e) The Members acknowledge and agree that, with respect to the mergers described in Section 2.1 above and in accordance with Section 708(b)(2)(A) of the Code and Section 1.708-1(c)(1) of the Treasury Regulations, Elwood II and Elwood III were terminated for U.S. federal income tax purposes on the Merger II Date and the Merger III Date, respectively. 28 ARTICLE XII DISSOLUTION 12.1 Events of Dissolution. (a) The Company shall be dissolved, and its assets distributed according to Section 10.2, within one hundred twenty (120) days after the first to occur of the following events (each, an "Event of Dissolution"): (i) the unanimous consent of the Members; (ii) the sale or other disposition of substantially all of the non-cash assets of the Company outside of the ordinary course of business; (iii) the liquidation or dissolution of a Member, unless the remaining Member, within ninety (90) days of such event, elects to continue the Company and a new Member is admitted, in which event the business of the Company shall be continued in accordance with this Agreement; (iv) any event in which a Member (1) institutes, or consents to the institution of, proceedings to be adjudicated bankrupt or insolvent; (2) has instituted against it, without its consent, proceedings to be adjudicated bankrupt or insolvent and such proceedings are not dismissed within sixty (60) calendar days, (3) consents to the appointment of any receiver, liquidator, trustee or similar official with respect to itself or any substantial part of its property, (4) makes an assignment for the benefit of its creditors, or (5) admits in writing its general inability to pay its debts as they become due; or (v) any event requiring dissolution under the Act or this Agreement. (b) In the event of dissolution, this Agreement shall terminate and the Members shall have no further obligations hereunder, other than to cooperate with each other in winding up the business of the Company. 12.2 Winding Up and Termination. The Members shall cause the Managers to wind up the business of the Company promptly following its dissolution. Upon completion of such winding up, the Company and its legal existence shall be terminated by the filing of a Certificate of Cancellation with the Delaware Secretary of State. 29 ARTICLE XIII INDEMNIFICATION 13.1 Indemnification. (a) The Company shall indemnify any Member, Manager, officer or other agent who was or is a party to any Proceeding, including a Proceeding brought on behalf of the Members of the Company, because such Person is or was a Member, Manager, officer or other agent of the Company, or is or was serving at the request of the Company as a manager, trustee, partner or officer of another Person, against any Loss incurred by such Person in connection with such Proceeding unless such Person has engaged in gross negligence, willful misconduct or a knowing violation of the criminal law, or unless such Proceeding is to enforce contractual obligations of a Member, Manager or officer under this Agreement or otherwise, including the Related Agreements. No amendment of this Article shall have any effect on the rights provided herein with respect to any act or omission occurring prior to such amendment. (b) The Company shall promptly make advances or reimbursements for any Loss incurred by any Person claiming indemnification under this Article, unless it has been determined that such Person is not entitled to indemnification because of a failure to meet the standards set forth in this Article. Such advances or reimbursements shall be conditioned upon receipt from the Person claiming indemnification of a written undertaking to repay the amount of such advances or reimbursements if it is ultimately determined that such Person is not entitled to indemnification. (c) The determination that indemnification under this Article is permissible, and of the reasonableness of expenses and legal fees which constitute or are part of any Loss, shall be determined (1) in good faith by the Management Committee if the claimant is a Member or officer, and is not a Manager; and (2) by legal counsel agreed upon by the Company and the Person claiming indemnification if the claimant is a Manager. The determination may be made before or after a claim for indemnification is made. (d) If any Person entitled to indemnification pursuant to this Article is indemnified for the claim in question by a third party, including an insurer, such Person shall notify the Company thereof. To the extent such Person actually receives indemnification payments from such third party, such Person shall not be entitled to seek or receive any indemnification payments from the Company to the extent covered by such third party, and the Company shall require such Person to reimburse the Company for any amounts which it has previously received and which have been or are being reimbursed by such third party. 30 ARTICLE XIV ADMINISTRATIVE PROVISIONS 14.1 Offices. The Management Committee shall be authorized to change the registered office and registered agent of the Company, subject to any requirements of the Act.. 14.2 Books and Records. The General Manager shall keep full and accurate books of account, records and financial statements with respect to the Company at its principal office. Upon reasonable notice, each Member, or a Member's designated representative, shall have access to such books and records during ordinary business hours and shall have the opportunity to inspect and make copies of them at the Member's expense. 14.3 Fiscal Year. The fiscal year of the Company shall begin on October 1 and shall end on September 30. 14.4 Accountants/Reports. The Management Committee may appoint a major internationally recognized accounting firm to serve the Company. Within ninety (90) days after the end of each fiscal year, each Member shall be furnished with (a) audited financial statements which shall contain a balance sheet as of the end of the fiscal year, together with statements of income, a statement of cash flows and a reconciliation of capital accounts for the fiscal year then ended, (b) a comparison of actual financial results to projections set forth in the Operating Budget, and (c) a comparison of actual project costs incurred, a revised projection of future project costs yet to be incurred, and scheduled completion dates, to projections set forth in the Operating Budget. Each Member shall be furnished each month with (a) monthly unaudited financial statements promptly after such financial statements are completed, including a balance sheet, income statement, statement of cash flows, a reconciliation of capital accounts, (b) a comparison of actual financial results to projections set forth in the Operating Budget, and (c) a comparison of actual project costs incurred, a revised projection of future project costs yet to be incurred, and scheduled completion dates, to projections set forth in the Operating Budget. 14.5 Notices. All notices and other communications with respect to this Agreement shall be in writing and shall be delivered, as applicable, to the Company at its principal executive office or to a Member at the address shown in the records of the Company. Each notice or other communication that satisfies the requirements set forth above shall be deemed to have been properly given or delivered: (a) on the fifth business day after being mailed by United States certified mail, return receipt requested, postage prepaid; (b) on the day when delivered by hand; (c) on the first business day after being deposited with a national overnight courier; or (d) on the day when transmitted by facsimile with confirmation of receipt or successful transmission. A party to this Agreement may elect to receive notices or communications at a different address by notifying each other party in accordance with the preceding requirements. 31 ARTICLE XV BONA FIDE OFFERS TO SELL 15.1 Right of First Offer. Except as provided in Section 15.2, if any Member (the "Selling Member") receives a valid bona fide offer (the "Offer") to purchase all or any portion of the Selling Member's interest in the Company in an Assignment other than a Permitted Assignment, and if the Selling Member desires to sell such interest, the Selling Member may transfer such interest only after first offering such interest to the other Member of the Company, as provide herein. (a) The Selling Member shall deliver to the Company and the other Member a written copy of the following information (collectively, the "Notice"): (i) a copy of the Offer; (ii) the name and address of the prospective transferee (the "Offeror"); (iii) the interest in the Company subject to the proposed transfer (the "Offered Interest"); (iv) the proposed price for such interest; (v) the terms of the proposed transfer; and (vi) the date the Offer was made (the "Offer Date"). (b) For a period of sixty (60) days following receipt of the Notice, the other Member of the Company (the "Eligible Member") shall have the right to elect to purchase all, but not less than all, of the Offered Interest on the same terms as set forth in the Offer. (c) The purchase price and terms for the Offered Interest shall be the same as set forth in the Notice. A failure by the Eligible Member to respond to the Notice shall be deemed an acknowledgment that the Eligible Member does not elect to purchase the Offered Interest. 15.2 Sale to Third Parties; Admission. If the Eligible Member fails to purchase all of the Offered Interest, the Selling Member may sell the Offered Interest to the Offeror at the purchase price and terms set forth in the Notice. If the Selling Member fails to transfer the Offered Interest within one hundred twenty (120) days after the Offer Date, the entire Offered Interest shall again become subject to the terms and conditions of this Agreement as if the Offer had not been made. 15.3 Admission of Offeror. Notwithstanding any provision of this Article XV to the contrary, the purchase of the Offered Interest by the Offeror or the Eligible Member shall be subject to the provisions of Section 7.4, and the status of the Offeror as Assignee or Member, and the status of the Selling Member as Assignor, shall be determined in accordance with the provisions of Article VII. 32 15.4 Purchase Right for Prohibited Transfer of Control. If Dominion Resources, Inc. or Peoples Energy (the "Selling Entity"), as the case may be, receives an Offer to purchase fifty percent (50%) or more of the Selling Entity's interest in Dominion Energy or Peoples Energy Resources Corp., respectively, whether in one transaction or a series of related transactions, in an Assignment which would qualify as a Prohibited Transfer of Control, and if the Selling Entity desires to transfer such interest, the Selling Entity may transfer such interest only after first offering to the other Member of the Company the right to purchase the ownership interest in the Company owned by the Selling Entity or its Affiliate (the "Offered Company Interest") as provided herein. (a) The Selling Entity shall deliver to the Company and the other Member a written notice (the "Offer Notice") indicating (i) the name and address of the Offeror, (ii) the interest in Dominion Energy or Peoples Energy Resources Corp., as the case may be, included in the proposed Prohibited Transfer of Control and (iii) whether the purchase price for the Offered Company Interest shall be based on the book value of the Company's assets (as more particularly described in Section 15.4(c)(i)) or the Applicable Appraised Value (as defined below); (b) For a period of twenty (20) days following receipt of the Offer Notice, the Eligible Member shall have the right to elect, by written notice (the "Acceptance Notice") to the Selling Entity, to purchase the Offered Company Interest at the price and on the terms set forth below. (c) The purchase price for such Offered Company Interest shall be (i) in the case in which the Offer Notice specifies the book value of the Company's assets as the method for establishing the purchase price for the Offered Company Interest, 1.75 times the product of (A) the book value of the Company's assets as carried on the books of the Company (net of book depreciation or amortization and, for any sale or other transfer of an interest in the Company by Peoples pursuant to this Article XV, after reduction for the Unit #9 Remaining Allocation, if any), as of the latest audited financial statement of the Company, multiplied by (B) the Percentage Interest in the Company represented by the Offered Company Interest or (ii) in the case in which the Offer Notice specifies the Applicable Appraised Value (as defined below) as the method for establishing the purchase price for the Offered Company Interest, the Applicable Appraised Value. (d) If the Eligible Member fails to give the Acceptance Notice to the Selling Entity within twenty (20) days after receipt of the Offer Notice, then the Eligible Member shall be deemed to have elected not to purchase the Offered Company Interest, in which case the Selling Entity shall be free to sell its interest in Dominion Energy or Peoples Energy Resources Corp., as the case may be, to the Offeror on such terms as it deems appropriate free and clear of any right of the Eligible Member to purchase the Offered Company Interest pursuant to this Section 15.4. 33 (e) If the Eligible Member gives the Acceptance Notice within such twenty (20) day period, then the Eligible Member shall purchase the Offered Company Interest on the terms set forth herein, and the closing of such purchase shall be consummated on a date specified by the Eligible Member, which date shall not be later than sixty (60) days after the date of the Acceptance Notice, except as set forth below. If despite diligent efforts, the Eligible Member is unable to consummate such closing as a result of the inability to obtain third party consents or approvals, then such closing date shall be extended for such additional reasonable period as shall be necessary, but in no event more than sixty (60) additional days. The Selling Entity shall cooperate with the Eligible Member in obtaining any such necessary third party consents or approvals. (f) If the Selling Entity has elected the Applicable Appraised Value as the method of establishing the purchase price of the Offered Company Interest, then the Selling Entity shall propose an appraiser to establish the Applicable Appraised Value (as defined below) for the Offered Company Interest. The Eligible Member shall have ten (10) days from the date of receipt of the name of the Selling Entity's proposed appraiser to either agree to such appraiser or nominate another appraiser. If the Eligible Member nominates a second appraiser, the apprasiers nominated by each party shall select a third appraiser. The appraiser nominated by the Selling Entity, if the Eligible Member does not object, or the appraiser nominated by the two appraisers, if one has been selected, shall be the "Appraiser" hereunder. The cost of the Appraiser shall be paid equally by the Selling Entity and the Eligible Member. The Appraiser shall determine, within thirty (30) days after appointment, the fair market value of the Company as of such date. The "Applicable Appraised Value" purchase price for the Offered Company Interest shall be the fair market value of the Company as determined by the Appraiser multiplied by the Percentage Interest represented by the Offered Company Interest. ARTICLE XVI DISPUTE RESOLUTION 16.1 Resolution of Member Disputes. (a) In the event the Members disagree with respect to a matter that is material to the operation, financial success, capital requirements or liability of the Company, and if such disagreement is not otherwise resolved within a period of thirty (30) days, then either Member may declare a "material deadlock" in writing to the other Member. (b) Upon declaration of a material deadlock as provided above, each Member shall cause one or more of the senior executive officers of Dominion Energy to negotiate in good faith with designated senior executive officers of Peoples Energy and such other Members and their Affiliates as may be reasonably requested in an effort to resolve the dispute within the next sixty (60) days (the "Resolution Period"). 34 (c) If the Members are unable to resolve the dispute within the Resolution Period, either Member may initiate the buy-sell procedures described in Section 16.2 by delivering a written notice (the "Buy-Sell Notice") to the other Member. The Buy-Sell Notice shall specify a cash price for the entire interest in the Company (the "Tendered Interest") of the Member delivering such notice (the "Sending Member"), together with a proposed closing date for the sale of the Tendered Interest, which shall be no sooner than sixty (60) days and no later than one hundred twenty (120) days after such Buy-Sell Notice. In addition, the Sending Member shall include with the Buy-Sell Notice such documentation as may be necessary to reasonably establish the financial ability of the Sending Member to acquire the interests of the other Members if obligated to do so pursuant to Section 16.2. (d) If the Buy-Sell Notice is not delivered within sixty (60) days following the end of the Resolution Period, and if the material deadlock remains at the end of such sixty (60) day period, representatives of the Members, upon written notice from either of the Members, shall again meet in accordance with Section 16.1(b). If the dispute is not resolved within thirty (30) days following the date on which representatives of the Members meet again, the Company shall be dissolved in accordance with Article XII hereof. 16.2 Mandatory Buy-Sell Provisions. (a) If the Buy-Sell Notice is delivered in accordance with Section 16.1(c), within sixty (60) days after receipt (the "Receipt Date"), the receiving Member (the "Receiving Member") shall give a written notice (the "Response") to the Sending Member stating whether or not the Receiving Member or its designee elects to purchase the Tendered Interest on the terms and conditions set forth in the Buy-Sell Notice. (b) If the Receiving Member does not elect to purchase all of the Tendered Interest, the Receiving Member shall be required to sell all of its interest in the Company to the Sending Member or its designee on the terms and conditions set forth in the Buy-Sell Notice. 16.3 Binding Election. The election made in the Response shall be binding on all Members. If there is no Response given within the time specified above, the Receiving Member shall be deemed to have agreed to sell all of its interests in the Company to the Sending Member as provided in Section 16.2(b). 16.4 Closing and Default. The purchase and sale of a Member's interests pursuant to Section 16.2 and Section 16.3 shall be closed at the principal office of the Company on the date specified in the Notice, but in no event less than thirty (30) days or more than one hundred eighty (180) days after the Receiving Member's receipt of the Notice. If no closing date is specified in the Notice, then the closing shall occur one hundred eighty (180) days after the Receiving 35 Member's receipt of the Notice. The applicable purchase price shall be paid in full in cash at closing. The seller of such Member's interests shall convey such interests at the closing free and clear of all liens, security interests and encumbrances, and in the event of a purchase, the purchasing Member shall hold the selling Member harmless from liability for payment of any existing obligations of the Member in the nature of guarantees of Company indebtedness. 16.5 Impact to Bona Fide Offers to Sell. Notwithstanding anything to the contrary, the buy-sell provisions described in this Article XVI shall cease to apply during any period in which a Member (or its designee) is exercising the purchase rights set forth in Article XV. ARTICLE XVII OPTION ON OTHER PHASES 17.1 Option to Develop Additional Phases Prior to July 1, 2003. In the event that in connection with the consideration by the Management Committee of approval of any Development Plan or amendment thereto, either the Dominion Manager or Peoples Manager shall make prior to July 1, 2003 a proposal to develop and construct all or part of the Additional Phases. Such proposal shall describe in reasonable detail the proposed additional facilities and the estimated cost and timetable for development thereof (the "Proposed Phase"). If the Proposed Phase is not approved by the Management Committee, then the following shall apply: (a) If the Member whose nominated Manager approved the Proposed Phase (the "Approving Member") still intends to proceed with the Proposed Phase, such Approving Member shall give written notice to the Member whose nominated Manager did not approve the Proposed Phase (the "Non-Approving Member") that the Approving Member intends to proceed with the Proposed Phase (the "Notice of Intent to Proceed"); provided, however, that such option shall not apply (and the provisions of Article XVI shall apply) with respect to any disputes regarding the Proposed Phase if both the Dominion Manager and the Peoples Manager approved the concept and general timing of developing and building the Proposed Phase but disagreed on any other aspect of such Proposed Phase which would normally be considered a "material deadlock" under Section 16.1. (b) If, within thirty (30) days after delivery of the Notice of Intent to Proceed, the Manager nominated by the Non-Approving Member does not give written notice that it has changed its vote to approve the Proposed Phase, then the Approving Member shall be entitled (but not obligated), proceeding by itself, through an Affiliate and/or through a Person owned by it or an Affiliate in conjunction with any other Person (collectively, the "New Developer"), to proceed with construction of the Proposed Phase. In such event, the Company shall no longer be entitled to develop, construct or operate such Proposed Phase unless the New Developer fails to commence construction of the proposed Phase within twelve (12) months after the Notice of Intent to Proceed. 36 (c) If construction is not commenced within such twelve (12) month period, the New Developer shall have no right to proceed with the Proposed Phase unless it again seeks the approval of the Management Committee and, after following the procedures set forth in clauses (a) and (b) above, the Non- Approving Member again fails to approve the Proposed Phase. 17.2 Cooperation. If the New Developer complies with the conditions set forth in Section 17.1 above and proceeds with the Proposed Phase, then, subject to Section 17.4 hereof, the following shall apply: (a) The Company shall deed or lease (at the New Developer's option) to the New Developer, if owned, or sublease to the New Developer, if leased by the Company, such portions of the unimproved real estate which are part of the Facility (other than the generator locations on the Current Phases) as the New Developer reasonably considers to be required to develop, construct and operate the Proposed Phase, and which are approved by the Non-Approving Member, which approval shall not be unreasonably withheld. The terms of such transfer or lease shall be negotiated in good faith, provided that (i) the amount paid for any such transfer by deed shall equal the amount (the "Land Value Amount") paid by the Company to acquire the real estate (determined on a per square foot basis), plus a pro rata portion of any land development costs incurred by the Company in connection with the Current Phases and which benefit the real estate to be purchased for the Proposed Phase, (ii) the annual rent payable by New Developer under any such lease shall equal the Land Value Amount, as amortized evenly over the shorter of fifteen (15) years or the original lease term with a financing rate imputed at the per annum interest rate at which the Company would be able to obtain a mortgage loan for undeveloped land, and such lease may contain a nominal value purchase option exercisable at the end of the term thereof; and (iii) any sublease shall be on comparable terms as such property has been leased to the Company and the subrent payable thereunder shall equal the greater of the rent payable under the leasehold which is being sublet to New Developer or the annual rent determined in accordance with clause (ii) above. In the case of a lease or sublease, such lease or sublease lease shall contain terms typical of fully net ground leases in which the rent payable by the lessee is fully net to the lessee and all other obligations with respect to the leased property are borne by the lessee. In connection with the foregoing, the Company shall cooperate with the New Developer in obtaining a survey and, if necessary for transferability and separate property taxation of the property for the Proposed Phase, replatting such property. In addition, subject to the approval of the Company, which approval shall not be unreasonably withheld, the Company shall take such other necessary, appropriate and reasonable steps with respect to county, municipal and other governmental authorities as are requested by New Developer in connection with any such subdivision or replatting of the property for the Proposed Phase, with any costs incurred by the Company in connection with the foregoing being borne by the New Developer. (b) The Company shall not unreasonably withhold its approval of any request by the New Developer to enter into easements or other agreements which permit the New Developer, on the terms set forth therein, to use the switchyard, the gas, electric and steam lines 37 and the transmission facilities which are part of the Facility or are available to the Company by agreement or easement. The cost of ongoing maintenance and operation of the foregoing (including amortization over useful lives of the original construction costs, plus carrying costs) shall be shared by the New Developer and the Company based on relative use or another equitable basis to be negotiated by the parties in good faith. (c) The Company and the New Developer shall negotiate in good faith any other agreements for joint use of roads, sidewalks, transmission facilities, waste water and waste treatment facilities and other utility facilities on Company property, or which are available to the Company by agreement or easement, as are deemed reasonably necessary by the New Developer and the Company for the operation of the Proposed Phase. All costs of maintenance or operation associated with the joint use of the foregoing (including amortization over useful lives of any construction costs, plus carrying costs) shall be shared by the New Developer and Company based on relative use or another equitable basis to be negotiated by the parties in good faith. (d) The Company and the New Developer shall negotiate in good faith and enter into any cross access or other easements, licenses, party wall agreements, and other mutual use agreements as shall be deemed reasonably necessary by the New Developer and the Company, and any lender of either, to efficiently operate the Current Phases and to build and operate the Proposed Phase in a manner that does not impair or interfere with the operation of the Current Phases. (e) The Company shall not unreasonably withhold its approval of any request by New Developer to amend existing air, water and other environmental permits for the Current Phases which permit emission levels in excess of the anticipated levels for the Current Phases, to the extent necessary for construction and operation of the Proposed Phase. (f) The Company and the New Developer shall enter into confidentiality agreements as reasonably necessary to protect confidentiality of plans, drawings or other data relating to the Current Phases, the Proposed Phase, the Company, the New Developer or Affiliates thereof, consistent with the provisions of Section 18.5 hereof. (g) At the option of the New Developer, the Additional Phases may be managed, power marketing services may be supplied to it, and/or fuel may be supplied to it, by the same or different suppliers of such services as supply them to the Company as, to the extent, and on such terms as are agreed to by such suppliers. 38 17.3 Other Assurances. (a) The Non-Approving Member shall cause its designated Manager to agree to all necessary approvals and authorizations of the Management Committee to effectuate the provisions of this Article XVII. (b) The Company and the New Developer shall negotiate in good faith any other documents and otherwise cooperate with each other and each other's lenders, as shall be reasonably necessary to foster efficient development, construction, financing, and operation of the Current Phases and the Proposed Phase. 17.4 Miscellaneous. (a) Notwithstanding any provision to the contrary contained in this Article XVII, whenever the terms of this Article XVII require that the Company's approval, agreement, cooperation or consent is required to or with any action or proposed action by New Developer and state that such approval, agreement, cooperation, or consent must be "reasonable", undertaken in "good faith" or not "unreasonably withheld" (or any grammatical variation thereof), the Company shall be deemed to have acted in accordance with such standards if, in withholding or conditioning any such approval, agreement, cooperation or consent, the Non-Approving Member reasonably believes that the proposed action (i) could reasonably be expected to materially and adversely affect the use, operation, safety or cost of operation of the Current Phases or the prospects for development of Additional Phases other than the Proposed Phase, (ii) could reasonably be expect to result in a violation of any agreement, law or permit applicable to or binding upon the Current Phases or the Company, or (iii) requires the consent of any lender providing financing to the Company or any other unrelated third party and such consent is withheld. In no event shall the Company be obligated to transfer any property, enter in any lease, grant any request, amend or obtain any permits, enter into any agreements or take, or permit to be taken, any other action with respect to the Proposed Phase if the Company would have been reasonable in withholding its approval of any such action in accordance with the standard set forth in the previous sentence. In no event shall the Company withhold its approval, agreement, cooperation or consent of any proposed action with respect to the Proposed Phase on the criteria that the Proposed Phase would be competitive with or adversely affect the competitiveness of the Current Phases or Additional Phases other than the Proposed Phase based on the price or cost of the power produced by the Proposed Phase, and the withholding of approval, agreement, cooperation or consent on the basis of such criteria shall be deemed unreasonable. (b) All actions by the Company under Sections 17.1, 17.2 and 17.3 may be taken by the Non-Approving Member acting alone and the Approving Member, or its Manager or other representatives shall have no right to vote on or participate in any actions by the Management Committee or the Company in connection with any such actions by the Company. 39 (c) Notwithstanding anything in the Agreement to the contrary, the New Developer shall be fully responsible for, and shall, as directed by the Company or the Non-Approving Member, either pay directly or reimburse the Company or the Non-Approving Member for, all costs and expenses incurred by the Company or the Non-Approving Member in connection with, or arising from, (i) the Proposed Phase; (ii) any actions taken or requested to be taken by the Company or the Non-Approving Member under this Section 17; (iii) the lease, sale, sublease, subdivision, surveying or replatting of any real property; (iv) any easements, joint use agreements, or other agreements entered into between the Company and the New Developer or any other Person in connection with the Proposed Phase; (v) the amendment of any permits, the obtaining of new permits, any studies or filings in connection with any such amendments or new permits, any changes in operations, production, ash disposal, pollution control equipment or procedures, fuel usage or otherwise with respect to the Current Phases or the Company arising from or in connection with any such permit amendments or new permits; (vi) obtaining the consent of the Company's lenders and any consultant reports, lender charges, or amendments to loan documents required in connection therewith; and (vii) all legal, engineering and other consultant and transaction costs incurred by the Company or the Non-Approving Member in connection with any of the foregoing. 17.5 Option to Develop Additional Phases After July 1, 2003. In the event that in connection with the consideration by the Management Committee of approval of any Development Plan or amendment thereto, either the Dominion Manager or Peoples Manager proposes after July 1, 2003 to develop and construct one or more Proposed Phases (other than the Current Phases), and such development and construction is not then approved by the Management Committee, then the following shall apply: (a) Notice. The Member that desires to develop such Proposed Phase must send a notice to the other Member, and such notice shall (i) identify, in reasonable detail, the proposal for the development of the Additional Phase, and (ii) set forth the estimated costs and timing of such development (the "Additional Phase Development Notice"). (b) Election to Participate. The other Member shall have thirty (30) days from the date of receipt of the Additional Phase Development Notice to elect to participate in the Proposed Phase described in the Additional Phase Development Notice. If the other Member elects to participate in the Additional Phase, such election shall be deemed equivalent of an approval by the Management Committee, on the terms set forth in the Additional Phase Development Notice, pursuant to Section 4.5 hereof. The other Member's election to participate in such Additional Phase shall be sent jointly to the Member sending the Additional Phase Development Notice and to the Company. Failure to send a response to the Additional Phase Development Notice within such period shall be deemed an election not to participate. In all cases, the Additional Phase Development Notice shall provide for development, ownership and operation of the Proposed Phase in the same percentages, and with the same approval, management and other rights and responsibilities on the part of the Members, as are provided for in this Agreement with respect to the Current Phases. 40 (c) Appraisal Procedure. If the other Member does not elect to participate in the development of the Proposed Phase, then the Member who elects to participate in the Proposed Phase (the "Developing Member") shall have the option to elect to effect such development and purchase the Interests of the other Member (the "Non-Developing Member"). If the Developing Member elects to develop such Proposed Phase, the Developing Member shall send a notice (the "Buy-Out Notice") to the Non-Developing Member, which Buy-Out Notice shall (i) notify the Non-Developing Member that the Developing Member has elected to proceed with the Proposed Phase, (ii) propose an appraiser to establish the Buy- Out Price (as defined below) for the Non-Developing Member's Interest in the Company (the "First Appraiser"), and (iii) indicate the amount at which the Developing Member would agree to purchase the Non-Developing Member's Interest in the Company (the "Offer Amount"). The Non-Developing Member shall have thirty (30) days from the date of receipt of the Buy-Out Notice to (A) agree to sell its Interest to the Developing Member at the Offer Amount, or (B) elect for an appraisal. If the Non-Developing Member elects for an appraisal, its response shall either agree to the First Appraiser, or shall nominate another appraiser (the "Second Appraiser"). If the Non-Developing Member nominates a Second Appraiser, the First Appraiser and the Second Appraiser shall select a third appraiser (the "Third Appraiser"). The First Appraiser, if the Non-Developing Member does not object to the First Appraiser, or the Third Appraiser, if one has been selected, shall be the Appraiser hereunder. The cost of the Appraiser shall be paid equally by the Developing Member and the Non-Developing Member, provided that if the Developing Member does not elect to purchase the Interests of the Non-Developing Member, the Developing Member shall pay the entire cost of the Appraiser. (d) Purchase of Interest. The Appraiser shall, within sixty (60) days from the date of its appointment, determine the fair market value of the Company as of such date. The Buy-Out Price of the Non-Developing Member's Interest shall be the greater of (i) the Offer Amount, and (ii) the fair market value of the Company as determined by the Appraiser, times the Percentage Interest of the Non-Developing Member's Interest being acquired (the "Appraised Value"), provided that if the Appraised Value is more than 125% of the Offer Value, the Developing Member shall have option to purchase the Non-Developing Member's Interest or to terminate its plans to proceed with the Additional Phase. Unless the Developing Member terminates its plans to proceed with the Additional Phases, the Developing Member shall purchase the Interest of the Non- Developing Member for the Buy-Out Price. Such purchase shall be consummated within thirty (30) days of the determination of the Buy-Out Price, at the principal offices of the Company. (e) Eligible Appraisers. All appraisers nominated hereunder shall be investment banking firms or accounting firms with expertise in evaluating and appraising electric generating facilities. No appraiser shall have been retained by any Member, or any Affiliate of any member, within the last 12 months. 41 (f) Limitations. No Member may initiate the procedures set forth in this Section 17.5 if such Member has previously initiated such procedures within the previous six months. ARTICLE XVIII MISCELLANEOUS 18.1 Amendment. This Agreement may be amended only in a writing evidenced by the consent of all of the Members. 18.2 Interpretation. Unless the context otherwise requires, terms used and not defined in this Agreement shall have the definitions set forth in the Act. 18.3 Invalidity. If any provision of this Agreement is determined to be invalid or unenforceable, such determination shall not affect in any respect whatsoever the validity or enforceability of the remainder of this Agreement. 18.4 No Third Party Beneficiaries. No provision of this Agreement shall operate to the benefit of, or be enforceable by, any third party, including, without limitation, any creditor of the Company or any creditor of a Member. 18.5 Confidentiality. The terms of this Agreement shall be kept confidential by each of the Members and its respective representatives. Each of the Members and the Company shall hold any "Confidential Information" (as defined below) obtained by it (the "Obtaining Member") from any other party (the "Disclosing Member") in strict confidence, unless such information (a) is or becomes generally available to the public other than as a result of a disclosure by the Obtaining Member, its officers, employees or agents or by others to whom the Obtaining Member or its officers, employees or agents have disclosed such information, (b) was in the possession of the Obtaining Member on a nonconfidential basis prior to its disclosure by or at the request of the Disclosing Member, or (c) becomes available to the Obtaining Member on a nonconfidential basis from a source other than the Disclosing Member, provided, however, that such source is not known by the Obtaining Member to be bound by a confidentiality agreement with the Disclosing Member or otherwise prohibited from disclosing such information to the Obtaining Member by a contractual, legal or fiduciary obligation. "Confidential Information" shall mean information about a Member that is not generally available to the public, information about a Member that such Member has designated as "confidential", the terms of this Agreement, or unique and specific information about the Company or the Facility. Notwithstanding the foregoing, nothing in this Section shall preclude the Obtaining Member from disclosing such information to auditors, attorneys, potential Assignees, financial advisors and other consultants and advisors subject to the confidentiality requirements set forth herein, in 42 connection with the transactions contemplated hereunder and, in the case of potential Assignees, they sign a confidentiality agreement by which they agree expressly to be bound by the terms of this Section and notice is given by the Disclosing Member to the Obtaining Member prior to the disclosure of Confidential Information to such potential Assignee. 18.6 Waiver of Partition. Unless otherwise expressly authorized in this Agreement, no Member, either directly or indirectly, shall take any action to require partition or appraisement of the Company or any of its assets or property or to cause the sale of any property of the Company, and notwithstanding any provisions of applicable law to the contrary, each Member (and its legal representative, successor or assign) hereby irrevocably waives any and all right to maintain any action for partition or to compel any sale with respect to its interest in, or with respect to any assets or properties of the Company except as expressly provided in this Agreement. 18.7 Press Releases. Except as required by applicable law (including, without limitation, federal and state securities laws), each press release or public statement about the Company, the business of the Company, or the transactions or operations contemplated hereby shall require the prior mutual consent of Dominion and Peoples, and such consent shall not be unreasonably withheld. 18.8 Relationship of Parties. It is understood and agreed that the relationship of the parties is limited to that specifically contained herein and the Related Agreements, and the parties shall have no fiduciary or other obligation to each other or the Company, except for those set forth in this Agreement and the Related Agreements. Further, neither Dominion nor Peoples nor any of their respective Affiliates, employees or agents shall be construed as the agent, employee or representative of the other, and neither party has the authority to bind the other or to incur any obligation on its behalf, except as provided herein or in the Related Agreements. Without limiting the foregoing, the Company shall not be construed as a partnership (including a limited partnership) or joint venture other than for federal and state income tax purposes. 18.9 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same instrument and shall be binding on the Members. The signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. 18.10 Further Assurances. The parties hereto agree that they shall cooperate with each other and shall execute and deliver, or cause to be delivered, all such other instruments, and shall take such other actions, as any party hereto may reasonably request from time to time in order to effectuate the provisions and purposes hereof. 43 18.11 Complete Agreement. This Agreement constitutes the complete and exclusive agreement among the Members with respect to the management and governance of the Company. It supersedes all prior written and oral agreements and no representation, statement, condition or warranty not contained in this Agreement shall be binding on the Members or have any force or effect whatsoever. 18.12 Governing Law, Jurisdiction. This Agreement shall be governed by the laws of the State of Delaware, without giving effect to its choice of laws rules. Furthermore, each Member agrees to subject itself to the jurisdiction of the courts of the State of Delaware and has designated an agent for service of process. IN WITNESS WHEREOF, the Members have executed this Agreement. Dominion: Dominion Elwood, Inc. - -------- a Delaware corporation By: /s/ James P. O'Hanlon ------------------------------ James P. O'Hanlon, President Peoples: Peoples Elwood, LLC - ------- a Delaware limited liability company By: Peoples Energy Resources Corp. Its: Manager By: /s/ William E. Morrow ---------------------------- William E. Morrow, President 44 Schedule A ---------- MEMBER LIST OF ELWOOD ENERGY LLC As of August 3, 2001 Name and Business Percentage Address of Member Interest - ----------------- -------- 1. Dominion Elwood, Inc. 50% c/o Dominion Energy, Inc. 5000 Dominion Boulevard Glen Allen, Virginia 23060 2. Peoples Elwood LLC 50% c/o Peoples Energy Resources Corp. 130 E. Randolph Drive Chicago, Illinois 60601 45 Schedule B ---------- MANAGERS AND ALTERNATES OF ELWOOD ENERGY LLC As of August 3, 2001 Member Manager Alternate - ------ ------- --------- Dominion James W. Braswell Malcolm G. Deacon, Jr. Peoples William E. Morrow Curtis Cole General Manager: Tony W. Belcher 46 EX-3.3 7 dex33.txt 1ST AMENDMENT TO THE OPERATING AGREEMENT EXHIBIT 3.3 FORM OF FIRST AMENDMENT TO THE AMENDED AND RESTATED OPERATING AGREEMENT OF ELWOOD ENERGY LLC This First Amendment ("First Amendment") to the Amended and Restated Operating Agreement of Elwood Energy LLC, a Delaware limited liability company (the "Company"), is made as of October 24, 2001 by and between Dominion Elwood, Inc., a Delaware corporation ("Dominion"), and Peoples Elwood LLC, a Delaware limited liability company ("Peoples"). RECITALS A. Dominion and Peoples are the members of the Company and the parties to the Company's Amended and Restated Operating Agreement dated as of August 3, 2001 (the "Operating Agreement"). The Operating Agreement provides for, among other things, a special allocation with respect to a certain gas- fired combustion turbine known as "Unit #9," based upon an additional capital contribution previously made by Peoples in the amount of $4 million to Elwood Energy III, LLC, which merged with and into the Company on August 3, 2001. B. The respective parent corporations of Dominion and Peoples have settled a dispute with General Electric Company and have entered into various agreements relating to such settlement, including an Agreement Regarding Payment of Settlement dated as of October 24, 2001. Such agreement provides that the parent corporation of Dominion shall cause Dominion to make a capital contribution to the Company in the amount of $4 million and that the Operating Agreement shall be amended accordingly. C. The tax and fiscal year of the Company ends on September 30. Dominion and Peoples have agreed to amend the Operating Agreement, as provided herein, to reflect the additional capital contributions from each of them and to address certain other matters. NOW THEREFORE, in consideration of the mutual covenants contained herein, together with other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. TERMS USED. Terms that are capitalized in this First Amendment and are not defined herein shall have the meanings set forth in the Operating Agreement, unless the context requires otherwise. 2. AMENDMENTS RELATING TO ALLOCATIONS. Dominion and Peoples hereby agree that the Operating Agreement is hereby amended as follows, effective as of the date of this First Amendment: A. The definitions for "Unit #9 Remaining Allocation" and "Unit #9 Special Allocation" are deleted from Section 1.1. B. Section 1.1 is amended to include the following new definitions: "Dominion Remaining Allocation" means, with respect to any date prior to October 1, 2002, the portion of the total dollar amount of the Dominion Special Allocation that, as of such date, remains to be allocated in accordance with Section 9.10 and, with respect to any date on or after October 1, 2002, zero. "Dominion Special Allocation" has the meaning set forth in Section 9.10. C. Section 3.2 is amended by deleting the final two sentences to cause such Section to read as follows in its entirety: 3.2 Member List. The Company shall maintain at its principal office a current list (the "Member List") showing the name, address, and percentage interest in profits and losses with respect to each Member ("Percentage Interest"). The Member List as of the date of this Agreement is attached as Schedule A. The Member List and the Percentage Interest of each Member reflected thereon shall be amended promptly to reflect any changes permitted under this Agreement, including, without limitation, any Assignments of an interest in the Company in accordance with Article VII and any additional capital contributed to the Company pursuant to Article VIII. D. Section 8.1(a)(ii) is amended by deleting the last parenthetical reference to cause such provision to read as follows: (ii) cash and the fair market value of property distributions made to the owner of the account on the date of distribution (net of liabilities secured by such distributed property that such person is considered to assume or take subject to under Code Section 752), the share of the net losses of the Company allocated to the account, and the share of expenditures of the Company described in Code Section 705(a)(2)(b) allocated to the account. E. Section 9.10 is deleted in its entirety and replaced by the following: 9.10 Special Allocations. Dominion and Peoples acknowledge and agree as follows: (a) Peoples received (with respect to its prior additional capital contribution to Elwood III in the amount of $4 million 2 relating to Unit #9) special allocations of depreciation expense and deduction, for both book and tax purposes, for tax and fiscal years of Elwood III and/or the Company ending on or prior to September 30, 2001; (b) for tax or fiscal years of the Company beginning on or after October 1, 2001, Peoples shall receive no further special allocation of depreciation expense or deduction, for either book or tax purposes, with respect to its additional capital contribution in the amount of $4 million relating to Unit #9; (c) as soon as possible, but in no event later than September 30, 2002, Dominion shall receive (with respect to its additional capital contribution to the Company in the amount of $4 million relating to a settlement with GE) a special allocation of depreciation expense and deduction, for both book and tax purposes (the "Dominion Special Allocation"), which shall equal the cumulative special allocation of depreciation expense and deduction received by Peoples with respect to the additional capital contribution in the amount of $4 million previously made by Peoples relating to Unit #9; (d) for tax or fiscal years of the Company beginning on or after October 1, 2002, Dominion shall receive no further special allocation of depreciation expense or deduction, for either book or tax purposes with respect to its additional capital contribution in the amount of $4 million relating to the GE settlement; (e) the intended purpose of the foregoing is to cause the respective Capital Accounts of Dominion and Peoples to be equal on October 1, 2002, provided that no unequal adjustments, contributions, distributions or allocations are otherwise made prior to such date; and (f) the Percentage Interests of the Members shall not be altered in any way by the foregoing special allocations. F. Section 10.2(c) is amended to cause such provision to read as follows in its entirety: (c) Third, between the Members in proportion to the amounts in their Capital Accounts, after reduction for the Dominion Remaining Allocation attributable to such Member, if any. The profits and losses incurred in the winding up of the affairs of the Company (including profits and losses incurred in connection with the disposition of Company assets in liquidation) shall be credited or charged to the Members' Capital Accounts in accordance with Articles VIII and IX hereof. 3 G. Section 15.4(c)(i)(A) is amended to cause such provision to read as follows in its entirety: (A) the book value of the Company's assets as carried on the books of the Company (net of book depreciation or amortization and, for any sale or other transfer of an interest in the Company by Dominion pursuant to this Article 15, after reduction for the Dominion Remaining Allocation, if any), as of the latest audited financial statement of the Company, multiplied by ... 3. OTHER AMENDMENTS. ---------------- A. Section 1.1 is amended to include the following new definitions: "Dominion LLC Affiliate" means any Person that both is an Affiliate of Dominion Resources and that has a direct or indirect interest in the Company, whether through the ownership of voting securities or otherwise. As of the date hereof, such term includes each of Dominion and Dominion Energy. "Peoples LLC Affiliate" means any Person that both is an Affiliate of Peoples Energy and that has a direct or indirect interest in the Company, whether through the ownership of voting securities or otherwise. As of the date hereof, such term includes each of Peoples, PERC Power, LLC and Peoples Energy Resources. B. Section 7.1(b) is amended to read as follows in its entirety: (b) Notwithstanding the foregoing, none of the following shall constitute an "Assignment" for purposes of this Agreement: (i) a pledge or encumbrance of all or any portion of the stock or other equity securities of Dominion Resources or any Dominion LLC Affiliate, or of Peoples Energy or any Peoples LLC Affiliate; (ii) a sale or other transfer of all or any portion of the stock or other equity securities of Dominion Resources or Peoples Energy; or (iii) a "Permitted Transfer of Control" (as defined below). C. Section 7.1(c) is amended to read as follows in its entirety: (c) The term "Permitted Transfer of Control" means: (i) a sale or other transfer of the capital stock or other applicable common equity security of any Dominion LLC Affiliate to (A) the public in connection with a registered public offering of such common equity security pursuant to which such common equity security is listed on a recognized national exchange or on NASDAQ; (B) the then 4 shareholders of Dominion Resources pursuant to a distribution or other direct or indirect transfer of the capital stock or other common equity security of any Dominion LLC Affiliate; or (C) a Person having Consolidated Net Worth, determined immediately prior to such transfer in accordance with generally accepted accounting principles, of not less than forty percent (40%) of the Consolidated Net Worth of the assets of Dominion Resources determined as of the same date; and (ii) a sale or other transfer of the capital stock or other applicable common equity security of any Peoples LLC Affiliate to (A) the public in connection with a registered public offering of such common equtiy security pursuant to which such common equity security is listed on a recognized national exchange or on NASDAQ; (B) the then shareholders of Peoples Energy pursuant to a distribution or other direct or indirect transfer of the capital stock or other common equity security of any Peoples LLC Affiliate; or (C) a Person having Consolidated Net Worth, determined immediately prior to such transfer in accordance with generally accepted accounting principles, of not less than forty percent (40%) of the Consolidated Net Worth of Peoples Energy determined as of the same date. D. Section 7.1(d) is amended to read as follows in its entirety: (d) The term "Permitted Assignment" means (i) an Assignment of an interest in the Company to a Member or its Affiliate at least fifty-one percent (51%) of which is wholly-owned, directly or indirectly, by Dominion Resources or any Dominion LLC Affiliate with respect to Dominion, or by Peoples Energy or any Peoples LLC Affiliate with respect to Peoples; provided, however, that such assignment does not result in a Prohibited Transfer of Control or a violation of any agreement or obligation under this Agreement or otherwise relating to the ownership or operation of the Company or the Facility, (ii) a Permitted Transfer of Control; or (iii) a transfer to an Offeror pursuant to Section 15.4(d). E. The first paragraph of Section 15.4 and Section 15.4(a) are amended to read as follows in their entirety: 15.4 Purchase Right for Prohibited Transfer of Control. If Dominion Resources or Peoples Energy or any Dominion LLC Affiliate or Peoples LLC Affiliate (the "Selling Entity"), as the case may be, receives an Offer to purchase fifty percent (50%) or more of the Selling Entity's interest in any Dominion LLC Affiliate or Peoples LLC Affiliate, respectively, whether in one transaction or a series of related transactions, in an Assignment which would qualify as a 5 Prohibited Transfer of Control, and if the Selling Entity desires to transfer such interest, the Selling Entity may transfer such interest only after first offering to the other Member of the Company the right to purchase all of the ownership interests in the Company owned by the Selling Entity and its Affiliates (the "Offered Company Interest") as provided herein. (a) The Selling Entity shall deliver to the Company and the other Member a written notice (the "Offer Notice") indicating (i) the name and address of the Offeror, (ii) the interest in the Dominion LLC Affiliate or Peoples LLC Affiliate, as the case may be, included in the proposed Prohibited Transfer of Control and (iii) whether the purchase price for the Offered Company Interest shall be based on the book value of the Company's assets (as more particularly described in Section 15.4(c)(i)) or the Applicable Appraised Value (as defined below); F. Section 15.4(d) is amended to read in its entirety as follows: (d) If the Eligible Member fails to give the Acceptance Notice to the Selling Entity within twenty (20) days after receipt of the Offer Notice, then the Eligible Member shall be deemed to have elected not to purchase the Offered Company Interest, in which case the Selling Entity shall be free to sell its interest in the applicable Dominion LLC Affiliate(s) or Peoples LLC Affiliate(s), as the case may be, to the Offeror on such terms as it deems appropriate free and clear of any right of the Eligible Member to purchase the Offered Company Interest pursuant to this Section 15.4. 4. GENERAL. ------- A. Except as amended by this First Amendment, the Operating Agreement is hereby ratified and confirmed in its entirety. Except as set forth above, there are no other amendments of, or modifications to, the provisions of the Operating Agreement. B. The laws of the State of Delaware (without regard to provisions or principles involving choice of law or conflicts of law) shall govern this First Amendment and all matters relating to its interpretation or enforcement. C. This First Amendment may be executed in counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute a single instrument. D. Each party shall take such further actions, including but not limited to the execution and delivery of additional documents, as may be reasonably requested by another party or the Company to effectuate this First Amendment. 6 WITNESS the following signatures: Dominion: Dominion Elwood, Inc. a Delaware corporation By: _________________________________ James P. O'Hanlon, President Peoples: Peoples Elwood, LLC a Delaware limited liability company By: Peoples Energy Resources Corp. Its: Manager By: ___________________________ William E. Morrow, President EX-4.1 8 dex41.txt TRUST INDENTURE DATED OCTOBER 23, 2001 EXHIBIT 4.1 EXECUTION COPY -------------- ================================================================================ TRUST INDENTURE dated as of October 23, 2001 among ELWOOD ENERGY LLC and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee and Securities Intermediary --------------- Providing for the Issuance from Time to Time of Debt Securities in One or More Series ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION --------------------------------- Section 1.1 Definitions; Construction............................................... 2 Section 1.2 Compliance Certificates and Opinions.................................... 41 Section 1.3 Form of Documents Delivered to Trustee.................................. 42 Section 1.4 Notices, Etc. to Trustee and Issuer..................................... 43 Section 1.5 Notices to Holders; Waiver.............................................. 44 Section 1.6 Effect of Heading and Table of Contents................................. 45 Section 1.7 Successors and Assigns.................................................. 45 Section 1.8 Severability Clause..................................................... 45 Section 1.9 Benefits of Indenture................................................... 45 Section 1.10 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial............ 45 Section 1.11 Legal Holidays.......................................................... 46 Section 1.12 Execution in Counterparts............................................... 47 Section 1.13 Securities Intermediary................................................. 47 ARTICLE II THE BONDS --------- Section 2.1 Form of Bond to Be Established by Series Supplemental Indenture......... 50 Section 2.2 Form of Trustee's Authentication........................................ 50 Section 2.3 Amount; Issuable in Series.............................................. 50 Section 2.4 Authentication and Delivery of Bonds.................................... 52 Section 2.5 Form.................................................................... 53 Section 2.6 Execution of Bonds...................................................... 55 Section 2.7 Temporary Bonds......................................................... 56 Section 2.8 Registration; General Restrictions on Transfer and Exchange............. 56 Section 2.9 Transfer and Exchange................................................... 57 Section 2.10 Mutilated, Destroyed Lost and Stolen Bonds.............................. 73 Section 2.11 Payment of Principal and Interest; Principal and Interest Rights Preserved............................................................ 74 Section 2.12 Persons Deemed Owners................................................... 76 Section 2.13 Cancellation; Purchase by the Issuer.................................... 76 Section 2.14 Dating of Bonds; Computation of Interest................................ 77 Section 2.15 Source of Payments Limited; Rights and Liabilities of the Issuer........ 77 Section 2.16 Parity of Bonds......................................................... 77
i ARTICLE III ESTABLISHMENT OF FUNDS Section 3.1 Establishment of Indenture Funds and Sub-Funds........................... 77 Section 3.2 Security Interest........................................................ 78 Section 3.3 Bond Fund................................................................ 78 Section 3.4 Interest Sub-Fund; Application of Moneys in Interest Sub-Fund............ 79 Section 3.5 Principal Sub-Fund; Application of Moneys in Principal Sub-Fund.......... 80 Section 3.6 Redemption Sub-Fund; Application of Moneys in Redemption Sub-Fund........ 80 Section 3.7 Investment of Funds...................................................... 80 Section 3.8 Disposition of Indenture Funds Upon Retirement of Bonds.................. 81 Section 3.9 Fund Balance Statements.................................................. 81 ARTICLE IV AFFIRMATIVE COVENANTS --------------------- Section 4.1 Affirmative Covenants of the Issuer...................................... 82 Section 4.2 Information Confidential................................................. 89 ARTICLE V NEGATIVE COVENANTS ------------------ Section 5.1 Negative Covenants of the Issuer......................................... 89 ARTICLE VI REDEMPTION OF BONDS ------------------- Section 6.1 Applicability of Article................................................. 97 Section 6.2 Election to Redeem; Notice to Trustee.................................... 98 Section 6.3 Optional Redemption; Extraordinary Mandatory Redemption; Redemption at the Option of the Holders; Selection of Bonds to be Redeemed...... 98 Section 6.4 Notice of Redemption..................................................... 99 Section 6.5 Bonds Payable on Redemption Date......................................... 100 Section 6.6 Bonds Redeemed in Part................................................... 101 Section 6.7 Cancellation of Bonds.................................................... 101 ARTICLE VII SINKING FUNDS ------------- Section 7.1 Applicability of Article................................................. 101 Section 7.2 Sinking Funds for Bonds.................................................. 101
ii ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES ------------------------------ Section 8.1 Events of Default....................................................... 102 Section 8.2 Enforcement of Remedies................................................. 105 Section 8.3 Specific Remedies....................................................... 106 Section 8.4 Judicial Proceedings Instituted by Trustee.............................. 107 Section 8.5 Holders May Demand Enforcement of Rights by Trustee..................... 109 Section 8.6 Control by Holders...................................................... 109 Section 8.7 Waiver of Past Defaults or Events of Default............................ 110 Section 8.8 Holder May Not Bring Suit Under Certain Conditions...................... 110 Section 8.9 Undertaking to Pay Court Costs.......................................... 111 Section 8.10 Right of Holders to Receive Payment Not to be Impaired.................. 111 Section 8.11 Application of Moneys Collected by Trustee.............................. 111 Section 8.12 Bonds Held by Certain Persons Not to Share in Distribution.............. 113 Section 8.13 Waiver of Stay or Extension Laws........................................ 113 Section 8.14 Remedies Cumulative; Delay or Omission Not a Waiver..................... 113 Section 8.15 The Intercreditor Agreement and the Collateral Agency Agreement......... 113 ARTICLE IX CONCERNING THE TRUSTEE ---------------------- Section 9.1 Certain Rights and Duties of Trustee.................................... 114 Section 9.2 Trustee Not Responsible for Recitals, Etc............................... 117 Section 9.3 Trustee and Others May Hold Bonds....................................... 117 Section 9.4 Moneys held by Trustee or Paying Agent; Investments..................... 117 Section 9.5 Compensation of Trustee and Its Lien.................................... 117 Section 9.6 Right of Trustee to Rely on Officer's Certificates and Opinions of Counsel............................................................ 118 Section 9.7 Persons Eligible for Appointment As Trustee............................. 119 Section 9.8 Resignation and Removal of Trustee; Appointment of Successor............ 119 Section 9.9 Acceptance of Appointment by Successor Trustee.......................... 120 Section 9.10 Merger, Conversion or Consolidation of Trustee.......................... 121 Section 9.11 Maintenance of Offices and Agencies..................................... 122 Section 9.12 Trustee Risk............................................................ 124 Section 9.13 Appointment of Co-Trustee............................................... 124 Section 9.14 Disqualification; Conflicting Interests................................. 125 Section 9.15 Reports by Trustee...................................................... 131 Section 9.16 Limitation on Duty of Trustee in Respect of Collateral.................. 131 Section 9.17 No Liability for Clean-up of Hazardous Materials........................ 132
iii ARTICLE X CONCERNING THE HOLDERS ---------------------- Section 10.1 Acts of Holders........................................................ 133 --------------- Section 10.2 Bonds Owned by the Issuer or Affiliates Deemed Not Outstanding......... 134 ARTICLE XI HOLDERS' MEETINGS ----------------- Section 11.1 Purposes for Which Holders' Meetings May Be Called...................... 135 Section 11.2 Call of Meetings by Trustee............................................. 135 Section 11.3 Issuer and Holders May Call Meeting..................................... 136 Section 11.4 Persons Entitled To Vote at Meeting..................................... 136 Section 11.5 Determination of Voting Rights; Conduct and Adjournment of Meeting...... 136 Section 11.6 Counting Votes and Recording Action of Meeting.......................... 137 ARTICLE XII SUPPLEMENTAL INDENTURES ----------------------- Section 12.1 Supplemental Indentures and Amendments to Financing Documents Without Consent of Holders................................................. 138 Section 12.2 Supplemental Indenture with Consent of Holders.......................... 139 Section 12.3 Documents Affecting Immunity or Indemnity............................... 141 Section 12.4 Execution of Supplemental Indentures.................................... 141 Section 12.5 Effect of Supplemental Indentures....................................... 141 Section 12.6 Reference in Bonds to Supplemental Indentures........................... 141 ARTICLE XIII DEFEASANCE ---------- Section 13.1 Defeasance............................................................. 142 Section 13.2 Conditions to Defeasance............................................... 143 ARTICLE XIV EXCULPATION ----------- Section 14.1 Liability to Secured Parties........................................... 145 ARTICLE XV REQUEST FOR INFORMATION FROM THE TRUSTEE ---------------------------------------- Section 15.1 Information to Holders................................................. 146
iv SCHEDULES, APPENDICES AND EXHIBITS SCHEDULE I: Description of Insurance SCHEDULE II-A: Options Under Power Sales Agreements (with Independent Engineer Confirmation SCHEDULE II-B: Options Under Power Sales Agreements (without Independent Engineer Confirmation) SCHEDULE III: Capacity Percentage Calculation Examples SCHEDULE IV: Elwood Affiliate Transactions EXHIBIT A: Form of Consent EXHIBIT B: Form of Request for Information from the Trustee EXHIBIT C: Form of Certificate of Transfer EXHIBIT D: Form of Certificate of Exchange EXHIBIT E: Form of Bond EXHIBIT F: Subordination Provisions v TRUST INDENTURE, dated as of October 23, 2001 (this "Indenture"), ---------- between ELWOOD ENERGY LLC, a Delaware limited liability company (the "Issuer") ------ and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association formed under the laws of the United States (the "Trustee"). ------- W I T N E S S E T H WHEREAS, the Issuer has duly authorized the creation of an issue of its senior secured bonds to be issued in one or more series (the "Bonds") up to ----- such principal amount authorized in accordance with the terms of this Indenture, and the Issuer has duly authorized the execution and delivery of this Indenture to secure the Bonds and to provide for the authentication and delivery of the Bonds by the Trustee; and WHEREAS, the Issuer wishes to secure the payment of the principal of, premium, if any, and interest on the Bonds authenticated and delivered hereunder and issued by the Issuer hereunder and the covenants herein and therein contained and to mortgage, pledge and assign substantially all of its assets for the benefit of the Collateral Agent, the Trustee and the other Secured Parties; and WHEREAS, all obligations of the Issuer under this Indenture will be secured as set forth in the Security Documents pursuant to which the Collateral Agent has been granted a security interest in the Collateral; and WHEREAS, all acts necessary to make this Indenture a valid instrument for the security of the Bonds, in accordance with its and their terms, have been done; and WHEREAS, the Trustee has agreed to maintain control of the Indenture Funds and each item of property credited to the Indenture Funds (whether cash, a security, an instrument or obligation, share, participation, interest or other property whatsoever), each such item of property to be treated as a financial asset under Article 8 of the New York UCC, in accordance with this Indenture; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, in consideration of the premises and of the purchase of the Bonds by the Holders, and in order to secure the payment of the principal of, premium, if any, and interest on all of the Bonds from time to time outstanding and the performance of the covenants therein and herein contained and to declare the terms and conditions on which such Bonds are secured, the Issuer hereby grants, bargains, mortgages, sells, releases, conveys, assigns, transfers, pledges, sets over and confirms to the Trustee, and grants to the Trustee a security interest in, the following: All right, title and interest of the Issuer in and to the Indenture Funds (including any and all moneys contained therein or hereafter delivered to the Trustee for deposit therein), including, in each case, all moneys received and the right to receive moneys thereunder (the "Indenture Collateral"); -------------------- TO HAVE AND TO HOLD, all the same with all privileges and appurtenances hereby given, granted, pledged and assigned or agreed or intended so to be, unto the Trustee and its successors in said trust and to it and its assigns forever; IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Holders from time to time of Outstanding Bonds without any priority of any such Bond over any other such Bond; PROVIDED, HOWEVER, that if, after the right, title and interest of the Trustee in and to the Indenture Collateral shall have ceased, terminated and become void in accordance with Article XIII hereof, or the principal of, ------------ premium, if any, and interest on the Bonds shall have been paid to the Holders thereof, then and in that case this Indenture and the estate and rights hereby granted shall cease, terminate and be void, and the Trustee shall cancel and discharge this Indenture and execute and deliver to the Issuer such instruments as the Issuer shall require to evidence the discharge hereof; otherwise this Indenture shall be and remain in full force and effect; and THE PARTIES HEREBY COVENANT AND AGREE AS FOLLOWS: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION --------------------------------- Section 1.1 Definitions; Construction. For all purposes of this ------------------------- Indenture (and for all purposes of any other Financing Document or other instrument or agreement that incorporates provisions of this Indenture by reference, mutatis mutandis), except as otherwise expressly provided or unless ---------------- the context otherwise requires: (a) except as otherwise expressly provided herein, (i) all accounting terms used herein shall be interpreted, (ii) all financial statements and all certificates and reports as to financial matters required to be delivered to the Trustee hereunder shall be prepared and (iii) all calculations made for the purposes of determining compliance with this Indenture shall (except as otherwise expressly provided herein) be made, in accordance with, or by application of, GAAP applied on a basis consistent (except inconsistencies that are disclosed in writing to the Trustee and are in accordance with GAAP as certified by a firm of independent certified public accountants of recognized national standing) with those used in the 2 preparation of the latest corresponding financial statements furnished hereunder to the Trustee; (b) except as expressly indicated otherwise, all references in this Indenture to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Indenture; (c) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (d) unless the context clearly intends to the contrary, pronouns having a masculine or feminine gender shall be deemed to include the other; (e) unless otherwise expressly specified, any agreement, contract or document defined or referred to herein shall mean such agreement, contract or document as in effect as of the date hereof, as the same may thereafter be amended, supplemented or otherwise modified from time to time in accordance with the terms of this Indenture and the other Transaction Documents and shall include any agreement, contract or document in substitution or replacement of any of the foregoing entered into in accordance with the terms of this Indenture and the other Transaction Documents; (f) For any calculations to be made under any Financing Document with respect to periods following a Bond Payment Date, the beginning point of such calculation shall be the first day of the month in which the Bond Payment Date occurs; (g) any reference to any Person shall include its permitted successors and assigns in accordance with the terms of this Indenture and the other Transaction Documents and, in the case of any Governmental Authority, any Person succeeding to its functions and capacities; and (h) the following terms shall have the following meanings: "Acceptable Replacement Power Arrangement" shall mean an agreement ---------------------------------------- for the purchase of Replacement Power entered into or arranged for by the Issuer: (i) that has a delivery period not exceeding 45 days; or (ii) that would not reasonably be expected to result in a Material Adverse Effect (as confirmed in writing by the Independent Engineer); or (iii) (a) the counterparty of which or the credit support provider for such counterparty (including any parent of such counterparty which guarantees such counterparty's obligations) shall be rated at least "BBB-" by S&P or at least "Baa3" by Moody's, provided -------- that such counterparty or such credit support provider, as applicable, shall not be required to satisfy such rating 3 standard if such counterparty has dedicated existing generating assets and capacity for the provision of such Replacement Power and such generating assets have a proven track record for satisfying the obligation to provide all of such Replacement Power, and (b) that has a delivery period not exceeding 90 days. "Accounts" shall mean, collectively, the Revenue Account, the O&M -------- Account, the Sales Tax Reserve Account, the Debt Service Payment Account, the DSR LOC Loan Principal Account, the Debt Service Reserve Account, the Major Maintenance Reserve Account, the PSA Contingency Reserve Account, the Distribution Suspense Account, the Distribution Account, the Proceeds Account, the Holdings II Account, the Holdings III Account and such other accounts as may be established pursuant to the Deposit and Disbursement Agreement. "Act," when used with respect to any Holder, shall have the meaning --- set forth in Section 10.1. ------------ "Additional Indebtedness" shall mean Indebtedness incurred under ----------------------- Section 5.1(c)(viii) or (ix). - ---------------------------- "Additional Indebtedness Agent" shall mean any agent, trustee or ----------------------------- similar representative for the Additional Indebtedness Holders under an Additional Indebtedness Agreement. "Additional Indebtedness Agreement" shall mean an agreement among the --------------------------------- Issuer, an Additional Indebtedness Agent and Additional Indebtedness Holders pursuant to which such Additional Indebtedness Holders agree to provide Additional Indebtedness to the Issuer on the terms and conditions set forth therein and in accordance with the Financing Documents, including, without limitation, Section 5.1(c)(ix). ------------------ "Additional Indebtedness Holders" shall mean the financial ------------------------------- institutions from time to time party to an Additional Indebtedness Agreement. "Additional Project Document" shall mean any contract, agreement, --------------------------- understanding, or instrument related to the ownership, construction, testing, maintenance, repair, operation, financing or use of the Project entered into by the Issuer after the Closing Date, but excluding any Financing Document. "Administrative Agent" shall mean, initially, Bank One Trust Company, -------------------- National Association, a national banking association formed under the laws of the United States, and any Person appointed as a substitute or replacement Administrative Agent under the Deposit and Disbursement Agreement. 4 "Administrative Services Agreements" shall mean, collectively, (i) the ---------------------------------- Administrative Services Agreement, dated as of December 27, 2000, between the Operator and Elwood II Holdings and (ii) the Administrative Services Agreement, dated as of December 27, 2000, between the Operator and Elwood III Holdings. "Advances Agreement" shall mean the Advances Agreement, dated as of ------------------ October 23, 2001, among the Borrower, DEI and PERC.. "Affiliate", with respect to any Person, shall mean any other Person --------- directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, the term "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Annexation Agreements" shall mean, collectively, (i) the Annexation --------------------- Agreement, dated November 30, 1998, regarding 189.74 acres of the Issuer's property, between the Village of Elwood and the Issuer, (ii) the Annexation Agreement, dated November 30, 1998, regarding 1.271 acres of the Issuer's property, between the Village of Elwood and the Issuer and (iii) the Annexation Agreement, dated November 30, 1998, among the Village of Elwood, the Issuer and Mary T. Keigher. "Annual Operating Budget" shall have the meaning set forth in Section ----------------------- ------- 4.1(i). - ------ "Applicable Law" shall mean any constitution, statute, law, rule, -------------- regulation, ordinance, judgment, order, decree or Governmental Approval, or any published directive or requirement which has the force or law, or other governmental restriction which has the force of law, or any determination by, or interpretation of any of the foregoing by, any judicial authority, applicable to and/or binding on a given Person or the Project, as the context may require, whether in effect as of the Closing Date or thereafter and in each case as amended (including, without limitation, all Environmental Laws and any of the foregoing pertaining to land use or zoning restrictions). "Applicable Procedures" shall mean, with respect to any transfer or --------------------- exchange of or for beneficial interests in any Global Bond, the rules and procedures of the Registered Depositary, Euroclear and Cedel that apply to such transfer or exchange. 5 "Aquila" shall mean Aquila Energy Marketing Corporation, a Delaware ------ corporation. "Aquila Power Sales Agreement" shall mean, collectively, the Aquila ---------------------------- Units 5/6 PSA and the Aquila Units 7/8 PSA. "Aquila Units 5/6 PSA" shall mean the Amended and Restated Power Sales -------------------- Agreement, dated as of June 30, 2000, between Aquila, Utilicorp and Elwood Energy II. "Aquila Units 7/8 PSA" shall mean the Power Sales Agreement, dated as -------------------- of June 30, 2000, between Aquila, Utilicorp and Elwood Energy III. "Auditors" shall have the meaning specified in Section 4.1(f)(ii). -------- ------------------ "Authenticating Agent" shall mean any Person acting as Authenticating -------------------- Agent hereunder pursuant to Section 9.11. ------------ "Authorized Agent" shall mean any Paying Agent, Authenticating Agent ---------------- or Security Registrar or other agent appointed in accordance with this Indenture to perform any function that this Indenture authorizes the Trustee or such agent to perform. "Authorized Officer" or "Authorized Representative" shall mean, with ------------------ ------------------------- respect to any Person, the chief executive officer, president, chief financial officer, general counsel, principal accounting officer or any vice president of such Person, or the equivalent position of such Person provided pursuant to the applicable Organizational Documents, or such other officer or representative specifically authorized by such Person's board of directors, management committee, or equivalent governing body. "Available Funds" shall mean, with respect to the payment of principal --------------- of or interest on, as the case may be, any series of Bonds as of any Payment Date, the aggregate of all amounts on deposit in the Interest Sub-Fund or Principal Sub-Fund, as the case may be, of the Bond Fund in respect of such series of Bonds. "Bankruptcy Code" shall mean the United States Bankruptcy Reform Act --------------- of 1978 of the United States of America, as amended and as the same may be further amended, and any other Applicable Laws with respect to bankruptcy, insolvency or reorganization that are successors thereto. "Bankruptcy Event" shall have the meaning set forth in Section 8.1(g). ---------------- -------------- 6 "Bond Fund" shall mean the Bond Fund established pursuant to Section --------- ------- 3.1. - --- "Bond Payment Date" shall mean each July 5 and January 5 (or if any ----------------- such day is not a Business Day, the next succeeding Business Day). "Bonding Arrangements" shall have the meaning set forth in Section -------------------- ------- 5.1(c)(x). - --------- "Bonds" shall have the meaning set forth in the Preamble. ----- "Broker Dealer" shall mean any broker or dealer registered under the ------------- Exchange Act. "Business Day" shall mean any day other than a Saturday or Sunday or ------------ other day on which banks in New York, New York are authorized or required to be closed. "Buy-Out" shall have the meaning provided in Section 4.1(o). ------- -------------- "Capital Lease" shall mean any lease of personal property, which, in ------------- accordance with GAAP, would be required to be capitalized on a balance sheet of the lessee thereof. "Cash Available for Debt Service" shall mean, for any period, all ------------------------------- Operating Revenues (excluding any receipts derived from the sale of any property (other than energy, capacity, ancillary services, fuel or fuel transportation rights) pertaining to the Project) received, or to be received, during such period, minus (i) all O&M Costs paid, or to be paid, during such period and (ii) ----- all deposits, if any, made, or to be made, into the Sales Tax Reserve Account and the Major Maintenance Reserve Account (other than deposits made into the Major Maintenance Reserve Account on the Closing Date from the proceeds of the Bonds) during such period. "Casualty Event" shall mean an event that causes all or a portion of -------------- the Project to be damaged, destroyed or rendered unfit for normal use for any reason whatsoever, other than an Expropriation Event or a Title Event. "Casualty Proceeds" shall mean all insurance proceeds or other amounts ----------------- actually received on account of a Casualty Event, except proceeds of delayed opening or business interruption insurance. "Cedel" shall mean Cedelbank. ----- 7 "Change of Control" shall mean DEI (or Dominion Resources or any ----------------- successor entity to DEI which is a majority owned subsidiary of Dominion Resources) and PERC (or Peoples Energy Corporation or any successor entity to PERC which is a majority owned subsidiary of Peoples Energy Corporation), collectively, shall cease to own, directly or indirectly, at least 50.1% of the membership interests in the Issuer; provided that such failure to own shall not -------- be deemed a "Change of Control" if (x) such failure to own resulted from a transfer to a Qualified Transferee or (y) such events are approved by Bondholders holding at least 66 2/3% in aggregate principal amount of the outstanding Bonds. "Cinergy" shall mean Cinergy Marketing & Trading, LLC, a Delaware ------- limited liability company. "Cinergy Fuel Agreement" shall mean the Fuel Supply and Management ---------------------- Agreement, dated as of May 1, 2001, between the Issuer, Elwood Energy II, Elwood Energy III and Cinergy. "Closing Date" shall mean the date of issuance and delivery of the ------------ Initial Bonds. "Collateral" shall mean all assets, rights, interests and other ---------- property in or upon which a security interest or Lien is or is purported to be granted to the Collateral Agent for the benefit of the Secured Parties pursuant to the Security Documents. "Collateral Agency Agreement" shall mean the Collateral Agency --------------------------- Agreement, dated as of the Closing Date, among the Issuer, the Collateral Agent, the Intercreditor Agent, the Administrative Agent and any other Secured Party that becomes a party thereto pursuant to the terms thereof. "Collateral Agent" shall mean, initially, Bank One Trust Company, ---------------- National Association, a national banking association formed under the laws of the United States, and any Person appointed as a substitute or replacement Collateral Agent under the Collateral Agency Agreement. "ComEd" shall mean Commonwealth Edison Company, an Illinois ----- corporation. "Commercially Feasible Basis" shall mean that, following a Casualty --------------------------- Event, an Expropriation Event or a Title Event, (i) the Casualty Proceeds, the Expropriation Proceeds or the Title Proceeds, as the case may be, together with any other amounts that the Issuer is irrevocably committed, or irrevocably commits, to contribute to Restoring all or a portion, as the case may be, of the Project, will be sufficient to permit such Restoration of the Project, (ii) the sum of (a) the proceeds of 8 the business interruption insurance which the Issuer shall have received, (b) the moneys available in the O&M Account, (c) any amounts that the Issuer is irrevocably committed, or irrevocably commits, to contribute (without duplication of such amounts referred to in clause (i) above) and (d) the anticipated Operating Revenues during the estimated period of Restoration will be sufficient to pay all Debt Service and O&M Costs (taking into account the limitation on the use of such funds set forth in the Deposit and Disbursement Agreement) during the estimated period of Restoration, and (iii) the Issuer shall reasonably believe that the Project can be operated in accordance with the provisions of the Project Documents that are then in effect or that are expected to be in effect after the completion of the Restoration. "Common Facilities Agreement" shall mean the Common Facilities --------------------------- Agreement, dated as of April 16, 1999, by and between PGL and the Issuer, as assigned by PGL to PERC by a letter dated August 23, 1999, and as amended by Amendment No. 1 to Common Facilities Agreement, dated March 30, 2000, by and between PERC and the Issuer, and Amendment No. 2 to Common Facilities Agreement, dated August 1, 2001, by an between PERC and the Issuer. "Consents" shall mean, collectively: -------- (i) the Consent and Agreement with respect to the Engage Power Sales Agreement, dated as of the date hereof, by and among Engage, the Issuer and the Collateral Agent; (ii) the Consent and Agreement with respect to the Exelon Power Sales Agreement, dated as of the date hereof, by and among Exelon, the Issuer and the Collateral Agent; (iii) the Consent and Agreement with respect to the Aquila Power Sales Agreement, dated as of the date hereof, by and among Aquila, the Issuer and the Collateral Agent; (iv) the Consent and Agreement with respect to the Aquila Power Sales Agreement, dated as of the date hereof, by and among Utilicorp, the Issuer and the Collateral Agent; (v) the Consent and Agreement with respect to the Cinergy Fuel Agreement, dated as of the date hereof, by and among Cinergy, the Issuer and the Collateral Agent; (vi) the Consent and Agreement with respect to the Nicor Transportation and Balancing Agreement, dated as of the date hereof, by and among Nicor, the Issuer and the Collateral Agent; 9 (vii) the Consent and Agreement with respect to the Interconnection Agreements, dated as of the date hereof, by and among ComEd, the Issuer and the Collateral Agent; (viii) the Consent and Agreement with respect to the O&M Agreement, dated as of the date hereof, by and among the Operator, the Issuer and the Collateral Agent; (ix) the Consent and Agreement with respect to the Common Facilities Agreement, dated as of the date hereof, by and among PERC, the Issuer and the Collateral Agent; (x) the Consent and Agreement with respect to the EPC Contracts, dated as of the date hereof, by and among GE, the Issuer and the Collateral Agent; (xi) the Consent and Agreement with respect to the Equipment Sale Agreement to which Elwood II Holdings is party, dated as of the date hereof, by and among Elwood II Holdings, the Issuer and the Collateral Agent; (xii) the Consent and Agreement with respect to the Equipment Sale Agreements to which Elwood III Holdings is party, dated as of the date hereof, by and among Elwood III Holdings, the Issuer and the Collateral Agent; (xiii) any third party consent with respect to any material Additional Project Document, entered into in accordance with Section 4.1(t). "Corporate Trust Office" shall mean, with respect to the Trustee, the ---------------------- principal office of the Trustee at which at any particular time corporate trust business of the Trustee shall be administered, which at the time of the execution of the Transaction Documents to which the Trustee is a party is 1 Bank One Plaza, Mail Suite IL1-0823, Chicago, Illinois 60670-0823, Attention: Global Corporate Trust Services, or such other office as may be designated by the Trustee to the Issuer, the Administrative Agent, the Collateral Agent and each Holder. "Covenant Defeasance" shall have the meaning set forth in Section ------------------- ------- 13.1. - ---- "Custodian" shall have the meaning set forth in Section 2.5. --------- ----------- "Debt Service" shall mean, for any period, without duplication, (i)the ------------ aggregate of all fees payable to the Secured Parties in respect of Permitted Indebtedness during such period, plus (ii) the aggregate of all principal, ---- premium (if any) and interest payable with respect to Permitted Indebtedness outstanding (other 10 than Subordinated Indebtedness and intercompany Indebtedness in existence on the Closing Date between the Issuer and the Permitted Subsidiaries) for such period, plus (iii) the aggregate amount of overdue principal, premium (if any) and - ---- interest payments owed with respect to Permitted Indebtedness outstanding (other than Subordinated Indebtedness) from previous periods, all as determined on a cash basis in accordance with GAAP. "Debt Service Coverage Ratio" means, for any period, the ratio of (i) --------------------------- the aggregate of all Cash Available for Debt Service for such period to (ii) the aggregate of all Debt Service for such period. "Debt Service Payment Account" shall have the meaning given to such ---------------------------- term in the Deposit and Disbursement Agreement. "Debt Service Reserve Account" shall have the meaning given to such ---------------------------- term in the Deposit and Disbursement Agreement. "Debt Service Reserve L/C" shall have the meaning given to such term ------------------------ in the Deposit and Disbursement Agreement. "Debt Service Reserve L/C Agent" shall have the meaning given to such ------------------------------ term in the Deposit and Disbursement Agreement. "Debt Service Reserve L/C Agreement" shall have the meaning given to ---------------------------------- such term in the Deposit and Disbursement Agreement. "Debt Service Reserve L/C Bank" shall mean a bank or other financial ----------------------------- institution party to a Debt Service Reserve L/C Agreement. "Debt Service Reserve L/C Provider" shall have the meaning given to --------------------------------- such term in the Deposit and Disbursement Agreement. "Debt Service Reserve Requirement" shall have the meaning given to -------------------------------- such term in the Deposit and Disbursement Agreement. "Default" shall mean any occurrence, circumstance or event, or any ------- combination thereof, which, with the lapse of time and/or the giving of notice, would constitute an Event of Default. "Definitive Bond" shall mean a certificated Bond registered in the --------------- name of the Holder thereof and issued in accordance with Section 2.9 hereof, ----------- substantially in the form of Exhibit E hereto except that such Bond shall not --------- bear the Global Bond Legend and shall not have the "Schedule of Exchanges of Interests in the Global Bond" attached thereto. 11 "DEI" shall mean Dominion Energy, Inc., a Virginia corporation. --- "Deposit and Disbursement Agreement" shall mean the Deposit and ---------------------------------- Disbursement Agreement, dated as of the Closing Date, among the Issuer, the Collateral Agent, the Intercreditor Agent and the Administrative Agent. "Distribution Conditions" shall have the meaning given to such term in ----------------------- the Deposit and Disbursement Agreement. "Distribution Suspense Account" shall have the meaning given to such ----------------------------- term in the Deposit and Disbursement Agreement. "Dollars" and "$" shall mean United States dollars or such coin or ------- currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts in the United States of America. "Dominion Elwood" shall mean Dominion Elwood, Inc., a Delaware --------------- corporation. "Dominion Elwood Security Agreement" shall mean the Security ---------------------------------- Agreement, dated as of the Closing Date, by Dominion Elwood in favor of the Collateral Agent. "Dominion Resources" shall mean Dominion Resources, Inc., a Virginia ------------------ corporation. "DSR LOC Loan Principal Account" shall have the meaning given to such ------------------------------ term in the Deposit and Disbursement Agreement. "Easements" shall mean the easements appurtenant, easements in gross, --------- license agreements and other rights running in favor of the Issuer and/or appurtenant to the Site, including, without limitation, those certain easements and licenses described in the Title Policy. "Electric Service Contracts" shall mean, collectively, the Elwood -------------------------- Electric Service Contract and the Elwood III Electric Service Contract. "Eligible Facility" shall mean an "eligible facility", as that term is ----------------- defined in 15 U.S.C. (S) 79z-5(a)(2). "Elwood Electric Service Contract" shall mean the Electric Service -------------------------------- Contract, dated October 1, 2001, by and between the Issuer and ComEd. 12 "Elwood Energy II" shall mean Elwood Energy II, LLC, a Delaware ---------------- limited liability company, which has been merged into the Issuer. "Elwood Energy III" shall mean Elwood Energy III, LLC, a Delaware ----------------- limited liability company, which has been merged into the Issuer. "Elwood III Electric Service Contract" shall mean the Electric Service ------------------------------------ Contract, dated April 30, 2001, by and between Elwood Energy III and ComEd. "Elwood II Holdings" shall mean Elwood II Holdings, LLC, a Delaware ------------------ limited liability company. "Elwood III Holdings" shall mean Elwood III Holdings, LLC, a Delaware ------------------- limited liability company. "Elwood I Interconnection Agreement" shall mean the Interconnection ---------------------------------- Agreement, dated April 23, 1999, between ComEd and the Issuer. "Elwood II Interconnection Agreement" shall mean the Interconnection ----------------------------------- Agreement, dated January 4, 2001, between ComEd, Elwood Energy II and the Issuer. "Elwood III Interconnection Agreement" shall mean the Interconnection ------------------------------------ Agreement, dated January 4, 2001, between ComEd, Elwood Energy III and the Issuer. "Engage" shall mean Engage Energy America LLC, a Delaware limited ------ liability company. "Engage Power Sales Agreement" shall mean the Amended and Restated ---------------------------- Power Sales Agreement, dated as of April 5, 1999, between Engage and the Issuer, as amended by Amendment 1 to Amended and Restated Power Sales Agreement, dated as of November 10, 1999. "Environmental Claim(s)" shall mean any and all administrative, ---------------------- regulatory or judicial actions, suits, demands, demand letters, claims, liens, written notices actually received by the Issuer of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law affecting or relating to any activity or operations at any time conducted at the Project, including, without limitation (i) by any Governmental Authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (ii) by any third party seeking damages, contribution, indemnification, cost, recovery, compensation or injunctive relief resulting from 13 hazardous materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Consultant" shall mean Woodward-Clyde International- ------------------------ Americas, or another nationally recognized environmental consultant selected by the Issuer. "Environmental Law" shall mean any and all Applicable Laws relating ----------------- to: (i) noise, emissions, discharges, spills, releases or threatened releases of Environmentally Regulated Materials into ambient air, surface water, groundwater, watercourses, publicly or privately-owned treatment works, drains, sewer systems, wetlands, septic systems or onto land surface or subsurface strata; (ii) the use, treatment, storage, disposal, handling, manufacture, processing, distribution, transportation, or shipment of Environmentally Regulated Materials; or (iii) pollution or the protection of human health, the environment or natural resources. "Environmentally Regulated Materials" shall mean (i) hazardous ----------------------------------- materials, hazardous wastes, hazardous substances, extremely hazardous wastes, restricted hazardous wastes, toxic substances, toxic pollutants, contaminants, pollutants or words of similar import as used under Environmental Laws, including but not limited to the following: the Hazardous Materials Transportation Act, 49 U.S.C. (S) 5101 et seq., the Resource Conservation and -- ---- Recovery Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive Environmental -- ---- Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., the Clean -- ---- Water Act, 33 U.S.C. (S) 1251 et seq., the Clean Air Act, 42 U.S.C. (S) 7401 et -- ---- -- seq., the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., the Safe - ---- -- ---- Drinking Water Act, 42 U.S.C. (S) 300f through 300j-18, and the Oil Pollution Act, 33 U.S.C. (S) 2701 et seq., and their state and local counterparts or -- ---- equivalents; (ii) petroleum and petroleum products including crude oil and any fractions thereof; (iii) natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, solid, liquid or gaseous waste; and (vi) any substance that, whether by its nature or its use, is now or hereafter subject to regulation under any Environmental Law or with respect to which any United States federal, state or local Environmental Law or governmental agency requires environmental investigation, monitoring or remediation. "EPC Contracts" shall mean the Agreement between the Issuer and GE for ------------- Engineering, Design, Procurement, Construction & Installation Services for the Elwood Facility, dated as of July 23, 1998, as amended; the Agreement between the Issuer and GE for Engineering, Design, Procurement, Construction & Installation Services for the Elwood Generation Facility Phase II Units 3&4, dated as of September 25, 1998, as amended; the Agreement between the Issuer (as successor-in-interest to Elwood Energy II) and GE for Engineering, Design, Procurement, Construction & Installation Services for Units 5&6 of the Elwood II Generation 14 Facility, dated as of July 31, 2000; the Agreement between the Issuer (as successor-in-interest to Elwood Energy III) and GE for Engineering, Design, Procurement, Construction & Installation Services for Units 7&8 of the Elwood III Generation Facility, dated as of July 31, 2000; and the Agreement between the Issuer (as successor-in-interest to Elwood Energy III) and GE for Engineering, Design, Procurement, Construction & Installation Services for Unit 9 of the Elwood III Generation Facility, dated as of September 20, 2000. "Equipment Sale Agreements" shall mean, collectively, (i) the ------------------------- Equipment Sale Agreement, dated December 20, 2000 (as amended by the Installment Sale Payment Agreement), by and between the Issuer (as successor-in-interest to Elwood Energy II) and Elwood II Holdings, (ii) the Equipment Sale Agreement, dated December 20, 2000 (as amended by the Installment Sale Payment Agreement), by and between the Issuer (as successor-in-interest to Elwood Energy III) and Elwood III Holdings (300 MW facility), and (iii) the Equipment Sale Agreement, dated December 20, 2000 (as amended by the Installment Sale Payment Agreement), by and between the Issuer (as successor-in-interest to Elwood Energy III) and Elwood III Holdings (150 MW facility). "ERISA" shall mean the United States Employee Retirement Income ----- Security Act of 1974, as amended, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA as in effect on the date of this Indenture and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "Escalated" shall mean with respect to any amount and as at any date --------- of determination, such amount as multiplied by a quotient (a) the numerator of which is the Consumer Price Index All Urban Consumers (1982-1984 = 100) as published by the Bureau of Statistics of the Department of Labor the ("Consumer -------- Price Index") (or if the publication of the Consumer Price Index is - ----------- discontinued, a comparable index similar in nature to the discontinued index which clearly reflects the diminution (or increase) in the real value of the purchasing power of the U.S. Dollar (hereafter in this definition referred to as the "index") reported for the calendar year immediately preceding such date and (b) the denominator of which is equal to the Consumer Price Index reported for 2001, provided, however, that if an Escalation has to be determined in a -------- ------- particular year at a time prior to the time that the Consumer Price Index is published, the figure used immediately prior thereto shall be used. "Euroclear" shall mean Euroclear Bank, S.A./N.V., as operator of the --------- Euroclear System, or any successor to Euroclear Bank, S.A./N.V., as operator thereof. "Event of Abandonment" shall mean: (a) the suspension for more than -------------------- 120 consecutive days (as such period may be extended on a day for day basis 15 corresponding with the occurrence and continuance of any event of force majeure (as defined in any of the Project Documents) so long as the Issuer is diligently proceeding to mitigate the consequences of such event) of all or substantially all operation of the Project (other than (1) by reason of the failure to be dispatched or (2) by reason of the occurrence of a Casualty Event or an Expropriation Event) or (b) the announcement by the Issuer of a decision to permanently cease operation of the Project. "Event of Default" shall have the meaning set forth in Section 8.1. ---------------- ----------- "Exchange Act" shall mean the United States Securities Exchange Act of ------------ 1934, amended. "Exchange Bonds" shall mean the Bonds issued in the Exchange Offer -------------- pursuant to Section 2.9(f) hereof. -------------- "Exchange Offer" shall have the meaning set forth in the Registration -------------- Rights Agreement. "Exchange Offer Registration Statement" shall have the meaning set ------------------------------------- forth in the Registration Rights Agreement. "Exelon" shall mean Exelon Generation Company, LLC, a Pennsylvania ------ limited liability company. "Exelon Power Sales Agreement" shall mean the Second Amended and ---------------------------- Restated Power Sales Agreement, dated as of March 1, 2001 between Exelon (as assignee of ComEd) and the Issuer. "Exempt Wholesale Generator" shall mean an "exempt wholesale -------------------------- generator", as that term is defined in 15 U.S.C. (S) 79z-5a(a-1). "Expropriation Event" shall mean any compulsory transfer or taking or ------------------- transfer under threat of compulsory transfer or taking of a material part of the Collateral by any Governmental Authority or Person acting under power of eminent domain unless such transfer or taking is the subject of a Good Faith Contest. "Expropriation Proceeds" shall mean all eminent domain proceeds, ---------------------- insurance proceeds or other amounts (including instruments) actually received on account of an Expropriation Event (after deducting all reasonable expenses incurred in litigating, arbitrating, compromising, settling or consenting to the settlement of any claims against the appropriate Governmental Authority). 16 "Final Maturity Date" shall mean the latest stated maturity date of ------------------- the Bonds of a particular series. "Financing Documents" shall mean, collectively, this Indenture, the ------------------- First Supplemental Indenture, the Bonds, any Debt Service Reserve L/C Agreement, any Working Capital Agreement (when entered into by the Issuer), any Additional Indebtedness Agreement (when entered into by the Issuer) and the Security Documents. "First Supplemental Indenture" shall mean the First Supplemental ---------------------------- Indenture, dated as of the Closing Date, between the Trustee and the Issuer. "Fiscal Year" shall mean the accounting year of the Issuer commencing ----------- each year on October 1 and ending on September 30 or such other period adopted as such by the Issuer. "Fuel Agreements" shall mean, collectively, the Cinergy Fuel Agreement --------------- and the Nicor Transportation and Balancing Agreement. "Fuel Consultant" shall mean Pace Global Energy Services, LLC, or --------------- another nationally recognized fuel consultant selected by the Issuer. "GAAP" shall mean generally accepted accounting principles in the ---- United States of America as in effect from time to time. "GE" shall mean General Electric Company, a New York corporation. -- "Global Bonds" shall mean, individually and collectively, each of the ------------ Restricted Global Bonds and the Unrestricted Global Bonds, substantially in the form of Exhibit E hereto issued in accordance with Section 2.5, 2.9(b)(iv), --------- ----------- ---------- 2.9(d)(ii) or 2.9(f) hereof. - ---------- ------ "Global Bond Legend" shall mean the legend set forth in Section ------------------ ------- 2.9(g)(ii), which is required to be placed on all Global Bonds issued under this - ---------- Indenture. "Good Faith Contest" shall mean the contest of an item if (i) the item ------------------ is diligently being contested in good faith and, when applicable, by appropriate proceedings timely instituted, (ii) adequate reserves are established in accordance with GAAP with respect to the contested item (if and to the extent GAAP requires the establishment of such reserves), (iii) during the period of such contest, the enforcement of any contested item is effectively stayed, unless such enforcement would not reasonably be expected to result in a Material Adverse Effect and (iv) the failure to pay or comply with the contested item during the period of such Good 17 Faith Contest would not reasonably be expected to result in a Material Adverse Effect. "Governmental Approval" shall mean any consent, license, approval, --------------------- registration, permit or other authorization of any nature which is required to be granted by any Governmental Authority (i) for the formation of the Issuer, (ii) for the enforceability of any Transaction Document and the making of any payments contemplated thereunder, (iii) for the construction, ownership, operation and maintenance of the Project and (iv) for all such other matters as may be necessary in connection with the Project or the performance of any Person's obligations under any Transaction Document. "Governmental Authority" shall mean any government, governmental ---------------------- department, ministry, commission, board, bureau, agency, regulatory authority, instrumentality of any government (central or state), judicial, legislative or administrative body, federal, state or local, having jurisdiction over the matter or matters in question. "Guaranty" shall mean, with respect to any Person, any obligation, -------- contingent or otherwise, of such Person directly or indirectly guaranteeing in any manner any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, bonds or services, to take-or-pay or to maintain financial statement conditions or otherwise), (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) or (iii) to reimburse any Person for the payment by such Person under any letter of credit, surety, bond or other guaranty issued for the benefit of such other Person, provided that the term -------- "Guaranty" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" or "Guaranteed" used as a verb has a correlative meaning. "Holder" shall mean a Person in whose name a Bond is registered in the ------ Security Register. "Holdings II Account" shall have the meaning given to such term in the ------------------- Deposit and Disbursement Agreement. "Holdings III Account" shall have the meaning given to such term in -------------------- the Deposit and Disbursement Agreement. 18 "Holdings II Security Agreement" shall mean the Security Agreement, ------------------------------ dated as of the Closing Date, by Elwood II Holdings in favor of the Collateral Agent. "Holdings III Security Agreement" shall mean the Security Agreement, ------------------------------- dated as of the Closing Date, by Elwood III Holdings in favor of the Collateral Agent. "Indebtedness" of any Person at any date shall mean, without ------------ duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person under leases which are or should be, in accordance with GAAP, recorded as Capital Leases in respect of which such Person is liable to the extent of the capitalized amount thereof determined in accordance with GAAP, (v) all obligations of such Person under interest rate or currency protection agreements or other hedging instruments, (vi) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities (or property), (vii) all deferred obligations of such Person to reimburse any bank or other Person in respect of amounts paid or advanced under a letter of credit or other instrument, (viii) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, and (ix) all Indebtedness of others Guaranteed directly or indirectly by such Person or as to which such Person has an obligation substantially the economic equivalent of a Guarantee or other arrangement to assure a creditor against loss. "Indenture" shall have the meaning set forth in the Preamble. --------- "Indenture Collateral" shall have the meaning set forth in the -------------------- recitals to this Indenture. "Indenture Funds" shall mean the Bond Fund (and each sub-fund thereof) --------------- created pursuant to Section 3.1 and any Sinking Fund created pursuant to Section ----------- ------- 7.2. - --- "Independent Consultants" shall mean the Independent Engineer, the ----------------------- Market Consultant, the Environmental Consultant, the Fuel Consultant and the Insurance Consultant. "Independent Engineer" shall mean Stone & Webster Consultants, Inc. or -------------------- another nationally recognized independent engineer selected by the Issuer. 19 "Indirect Participant" shall mean a Person who holds a beneficial -------------------- interest in a Global Bond through a Participant. "Initial Bonds" shall mean the $402,000,000 8.159% Senior Secured ------------- Bonds due July 5, 2026 issued by the Issuer on the Closing Date under the First Supplemental Indenture. "Initial Purchasers" shall mean Credit Suisse First Boston ------------------ Corporation, ABN AMRO Incorporated and Westdeutsche Landesbank Girozentrale (Dusseldorf). "Installment Sale Payment Agreement" shall mean the Installment Sale ---------------------------------- Payment Agreement, dated as of October 23, 2001, among the Issuer, Elwood II Holdings and Elwood III Holdings. "Insurance Consultant" shall mean Marsh USA, Inc., or another -------------------- nationally recognized insurance consultant selected by the Issuer. "Interconnection Agreements" shall mean, collectively, the Elwood I -------------------------- Interconnection Agreement, the Elwood II Interconnection Agreement and the Elwood III Interconnection. "Intercreditor Agent" shall mean, initially, Bank One Trust Company, ------------------- National Association, a national banking association formed under the laws of the United States, and any Person appointed as a substitute or replacement Intercreditor Agent under the Intercreditor Agreement. "Intercreditor Agreement" shall mean the Intercreditor Agreement, ----------------------- dated as of the Closing Date, by and among the Issuer, the Trustee, the Collateral Agent, the Intercreditor Agent, the Administrative Agent and any other Secured Party that becomes a party thereto pursuant to the terms thereof. "Interest Sub-Fund" shall mean the Interest Sub-Fund established ----------------- pursuant to Section 3.1. ----------- "Internal Revenue Code" shall mean the United States Internal Revenue --------------------- Code of 1986, as amended, and the regulations promulgated and rulings issued thereunder. Section references to the Internal Revenue Code are to the Internal Revenue Code, as in effect at the date of this Indenture and any subsequent provisions of the Internal Revenue Code, amendatory thereof, supplemental thereto or substituted therefor. "Involuntary Buy-Out" shall mean any Buy-Out of a Power Sales ------------------- Agreement that is not voluntarily sought by the Issuer, but into which the Issuer is 20 legally or practically required to enter by force of law or regulation, or by an actual or threatened Expropriation Event, or by an actual or threatened bankruptcy proceeding or other action adverse to the material rights and benefits granted to the Issuer under such Power Sales Agreement on the part of, or an actual or threatened termination of such Power Sales Agreement by, the purchaser of electricity under such Power Sales Agreement. "Issuer" shall have the meaning set forth in the Preamble. ------ "Issuer Request" and "Issuer Order" shall mean, respectively, a -------------- ------------ written request or order signed in the name of the Issuer by an Authorized Representative. "Knowledge" shall mean, with respect to the Issuer, the actual --------- knowledge of any officer or manager of the Issuer that has day-to-day responsibility for the operation or finances of the Project. "Legal Defeasance" shall have the meaning set forth in Section 13.1. ---------------- ------------ "Letter of Transmittal" means the letter of transmittal to be prepared --------------------- by the Issuer and sent to all Holders of the Bonds for use by such Holders in connection with the Exchange Offer. "Lien", with respect to any asset, shall mean any mortgage, deed of ---- trust, lien, pledge, charge, security interest or easement or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected or effective under Applicable Law, as well as the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loss Event" shall mean a Casualty Event, an Expropriation Event or a ---------- Title Event. "Loss Proceeds" shall mean Casualty Proceeds, Expropriation Proceeds ------------- and Title Proceeds. "Make-Whole Premium" shall have the meaning given to such term in the ------------------ First Supplemental Indenture. "Major Maintenance Expenditures" shall mean labor, materials and other ------------------------------ direct expenses for any overhaul of, or major maintenance procedure for, the turbines which requires significant disassembly or shutdown of the Project pursuant to manufacturers' guidelines or recommendations, engineering or operating considerations or the requirements of any Applicable Law. 21 "Major Maintenance Reserve Account" shall have the meaning given to --------------------------------- such term in the Deposit and Disbursement Agreement. "Major Maintenance Reserve Requirement" shall have the meaning given ------------------------------------- to such term in the Deposit and Disbursement Agreement. "Market Consultant" shall mean Pace Global Energy Services, LLC, or ----------------- another nationally recognized electricity market consultant selected by the Issuer. "Material Adverse Effect" shall mean: (i) a material adverse change ----------------------- in the status of the business, operations, property or financial condition of the Issuer; or (ii) any event or occurrence of whatever nature which materially adversely affects (a) the Issuer's ability to perform its obligations under any Financing Document or any Material Project Document or (b) the perfection, validity or priority of the Secured Parties' security interests in the Collateral. "Material Project Documents" shall mean, collectively, the EPC -------------------------- Contracts, the Power Sales Agreements, the Interconnection Agreements, the Fuel Agreements, the O&M Agreement, the Common Facilities Agreement, the Operating Agreement, the Sales Tax Agreements, the Annexation Agreements, the Equipment Sale Agreements, the Installment Sale Payment Agreement, and any Additional Project Document providing for payments by the Issuer of more than $2,000,000 per annum or which if breached or terminated could reasonably be expected to result in a Material Adverse Effect. "Member Security Agreements" shall mean, collectively, the Peoples -------------------------- Elwood Security Agreement and the Dominion Elwood Security Agreement. "Members" shall mean Dominion Elwood, Inc. and Peoples Elwood, Inc. ------- "Moody's" shall mean Moody's Investors Service, Inc., a Delaware ------- corporation. "Mortgage" shall mean the Mortgage, Leasehold Mortgage, Security -------- Agreement, Assignment of Leases and Rents and Fixture Filings, dated as of the date hereof, by the Issuer, as mortgagor to the Administrative Agent and the Collateral Agent, as mortgagee. "Mortgage Estate" shall have the meaning given to the term "Mortgaged --------------- Property" in the Mortgage. "MW" shall mean a unit of electrical energy equal to one million watts -- of power. 22 "New Generation Facility" shall mean a new electric generation ----------------------- facility to be constructed and/or owned by one or more Affiliates of the Issuer or its members (but not by the Issuer), or by a third party, on all or part of the parcels of land adjacent to the Site. "Nicor" shall mean Northern Illinois Gas Company, an Illinois ----- corporation, d/b/a Nicor Gas Company. "Nicor Transportation and Balancing Agreement" shall mean the Gas -------------------------------------------- Transportation and Balancing Agreement, dated as of May 1, 2001, between Nicor, the Issuer, Elwood II and Elwood III. "Non-U.S. Person" shall mean a Person who is not a U.S. Person. --------------- "O&M Account" shall have the meaning given to such term in the Deposit ----------- and Disbursement Agreement. "O&M Agreement" shall mean the Amended and Restated Operation and ------------- Maintenance Agreement for the Elwood Generation Facility, dated as of October 1, 2001, by and between the Issuer and the Operator. "O&M Costs" shall mean, for any period, the sum, computed without --------- duplication, of the following: all cash expenses incurred by the Issuer during such period for maintenance, administration and operation of the Project, including payments made by the Issuer in respect of fuel or fuel transportation, Taxes (other than those based on the Issuer's income), insurance and consumables, payments under any leases or pursuant to the O&M Agreement, the Equipment Sale Agreements, the Common Facilities Agreement and the Administrative Services Agreements, legal fees and expenses paid by the Issuer in connection with the management, maintenance or operation of the Project, fees paid in connection with obtaining, transferring or amending any governmental approvals, and reasonable general and administrative expenses; provided, -------- however, that O&M Costs shall not include (i) any non-cash charges, including - ------- depreciation or obsolescence charges or reserves therefor, or amortization or other bookkeeping entries of a similar nature, (ii) Debt Service and all other interest and principal payable on Permitted Indebtedness, (iii) Major Maintenance Expenditures to the extent paid with funds on deposit in or credited to the Major Maintenance Reserve Account, (iv) payments into any of the Accounts, (v) the cost of Restorations, (vi) distributions of any kind to the Issuer or its affiliates or payments on, or amounts due in respect of, Subordinated Indebtedness, (vii) capital expenditures (whether or not such capital expenditures are Major Maintenance Expenditures) other than those included in and approved as part of the Annual Operating Budget and not funded with Permitted Indebtedness, and (viii) Taxes paid with funds on deposit in the Sales Tax Reserve Account. 23 "Officer's Certificate" shall mean a certificate executed by an --------------------- Authorized Officer of the Issuer. "144A Global Bond" shall mean a global bond substantially in the form ---------------- of Exhibit E hereto bearing the Global Bond Legend and the Private Placement --------- Legend and deposited with or on behalf of, and registered in the name of, the Registered Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Bonds sold in reliance on Rule 144A. "Operating Agreement" shall mean the Amended and Restated Operating ------------------- Agreement of Elwood Energy LLC, dated as of August 3, 2001, between Dominion Elwood and Peoples Elwood. "Operating Revenues" shall mean all of the following, without ------------------ duplication, received by the Issuer: (i) all payments received by the Issuer under the Power Sales Agreements; (ii) proceeds of any business interruption insurance; (iii) income derived from the sale or use of electric capacity or energy produced, transmitted or distributed by the Project; (iv) liquidated damages and other payments received as actual damages or liquidated damages under any Project Document; (v) all other revenues from the operation of the Project together with any receipts derived from the sale of any property pertaining to the Project or incidental to the operation of the Project, including, without limitation, transmission upgrade credits; (vi) receipts under hedging agreements; (vii) all amounts received by the Issuer from a Permitted Subsidiary as distributions or as the repayment of intercompany Indebtedness (including transfers to the Revenue Account pursuant to clauses (b) and (c) of Section 3.2 of the Deposit and Disbursment Agreement); and (viii) the investment - ----------- income on amounts in the Accounts (but solely to the extent deposited from time to time in the Revenue Account); all as determined in conformity with cash accounting principles and excluding any payments received in connection with any Buy-Out. "Operator" shall mean Dominion Elwood Services Company, Inc., a -------- Virginia corporation, or any successor thereto under the O&M Agreement or as operator of the Project. "Opinion of Counsel" shall mean a written opinion of counsel for any ------------------ Person either expressly referred to herein or otherwise reasonably satisfactory to the Trustee which may include, without limitation, counsel for the Issuer, whether or not such counsel is an employee of the Issuer. "Optional Modification" shall mean any modification or improvement to --------------------- the Project (other than Required Modifications) the aggregate cost of which does not exceed $25,000,000. 24 "Organizational Documents" shall mean, as to any Person, the articles ------------------------ of incorporation, bylaws, partnership agreement, limited liability company agreement or other organizational or governing documents of such Person including, in the case of the Issuer, the Operating Agreement. "Outstanding," when used with respect to Bonds, shall mean, as of the ----------- date of determination, all Bonds theretofore authenticated and delivered under this Indenture, except: (i) Bonds theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Bonds for whose redemption money in the necessary amount has been theretofore deposited with the Trustee; provided that pursuant to -------- Article VI notice of such redemption has been duly given or provision therefor - ---------- satisfactory to the Trustee has been made; (iii) Bonds or portions thereof deemed to have been paid within the meaning of Section 13.1; ------------ (iv) Bonds as to which defeasance has been effected pursuant to Article XIII; and - ------------ (v) Bonds which have been paid pursuant to Section 2.9 or that ----------- have been exchanged for other Bonds or Bonds in lieu of which other Bonds have been authenticated and delivered pursuant to this Indenture other than any Bonds in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Bonds are held by a bona fide purchaser in whose hands such Bonds constitute valid obligations of the Issuer; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal of Bonds outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder or whether or not a quorum is present at a meeting of Holders, Bonds owned by any of the Issuer, any member of the Issuer or an Affiliate of any thereof shall be disregarded and deemed not to be outstanding as provided in Section 10.2, except that in determining whether ------------ the Trustee shall be protected in making such a determination or relying on any quorum, consent or vote, only Bonds which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. "Overdue Interest" shall mean, as of any Payment Date, all interest on ---------------- any Bond which has become due and payable and not been punctually paid or duly provided for when and as due and payable, whether as a result of insufficient Available Funds or otherwise. 25 "Overdue Principal" shall mean, as of any Payment Date, all principal ----------------- of any Bond which has become due and payable and not been punctually paid or duly provided for when and as due and payable, whether as a result of insufficient Available Funds or otherwise. "Participant" shall mean, with respect to the Registered Depositary, ----------- Euroclear or Cedel, a Person who has an account with the Registered Depositary, Euroclear or Cedel, respectively (and, with respect to the Registered Depositary, shall include Euroclear and Cedel). "Parts" shall mean any part, appliance, instrument, appurtenance or ----- accessory necessary or useful to the operation, maintenance, service or repair of the Project. "Paying Agent" shall mean any Person acting as Paying Agent hereunder ------------ pursuant to Section 9.11. ------------ "Payment Date" shall mean (i) any Bond Payment Date, (ii) any ------------- Redemption Date or (iii) any other date specified for the payment of Overdue Interest or Overdue Principal pursuant to Section 2.11. ------------ "Peoples Elwood" shall mean Peoples Elwood, LLC, a Delaware limited -------------- liability company. "Peoples Elwood Security Agreement" shall mean the Security Agreement, --------------------------------- dated as of the Closing Date, by Peoples Elwood in favor of the Collateral Agent. "Peoples Energy Corporation" shall mean Peoples Energy Corporation, an -------------------------- Illinois corporation. "PERC" shall mean Peoples Energy Resources Corp., an Illinois ---- corporation. "Permitted Indebtedness" shall have the meaning given to such term in ---------------------- Section 5.1(c). - -------------- "Permitted Investments" shall mean: (i) securities issued or directly --------------------- and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having a maturity not exceeding 90 days from the date of issuance; (ii) time deposits and certificates of deposit having a maturity not exceeding 90 days of any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000; (iii) commercial paper issued 26 by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 and commercial paper of any domestic corporation rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's and, in each case, having a maturity not exceeding 90 days from the date of acquisition; (iv) fully secured repurchase obligations with a term not exceeding seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications established in clause (ii) above; (v) high-grade corporate bonds rated at least "AA" or the equivalent thereof by S&P or at least "Aa2" or the equivalent thereof by Moody's; and (vi) money market funds having a rating in the highest investment category granted thereby by a Rating Agency at the time of acquisition, including any fund for which the Trustee or an Affiliate of the Trustee serves as an investment advisor, administrator, shareholder, servicing agent, custodian or subcustodian, notwithstanding that (a) the Trustee or an Affiliate of the Trustee charges and collects fees and expenses from such funds for services rendered (provided that such charges, fees and expenses are on terms consistent with terms negotiated at arm's-length) and (b) the Trustee charges and collects fees and expenses for services rendered pursuant to this Indenture. "Permitted Liens" shall have the meaning set forth in Section 5.1(d). --------------- --------------- "Permitted PPA" shall mean: ------------- (i) an arms-length, executed, valid and binding agreement that is then in full force and effect and not in default in any material respect and which is not terminable without cause between the Issuer and either: (A) a purchaser (including an Affiliate of the Issuer) whose (or, if the obligations of such purchaser are unconditionally guaranteed, whose guarantor's) long-term senior unsecured debt is rated no less than "Baa3" by Moody's and "BBB-" by S&P; or (B) an Affiliate of the Issuer, so long as such affiliate has executed a valid and binding agreement with a third party purchaser whose (or, if the obligations of such purchaser are unconditionally guaranteed, whose guarantor's) long-term senior unsecured debt is rated no less than "Baa3" by Moody's and "BBB-" by S&P with substantially the same terms (other than any pricing spread) as such affiliate's agreement with the Issuer; in each case, for the sale of electric energy or capacity (in the case of both energy and capacity, on a take or pay, take and pay, or take, if tendered basis) at prices established at a formula, index or other price risk management methodology not based on spot market prices (unless such agreement is structured such that it (or it 27 together with a financial hedge arrangement of the type described in clause (ii) below) creates an arrangement that is the functional equivalent of a tolling arrangement or other contractual arrangement not dependent on spot market prices) by the Issuer to such third party or such affiliate, as applicable; or (ii) financial hedge agreements relating to energy or capacity pricing that are: (A) fully supported by available energy or capacity of the Issuer; and (B) with counterparties having long-term senior unsecured debt that is rated no less than "Baa2" by Moody's and "BBB" by S&P; provided, that, notwithstanding anything to the contrary contained in this - -------- definition, each Power Sales Agreement in effect on the date hereof shall be deemed a Permitted PPA. "Permitted Subsidiaries" shall mean, collectively, Elwood II Holdings ---------------------- and Elwood III Holdings. "Person" shall mean any natural person, corporation, partnership, ------ limited liability company, firm, association, trust, Governmental Authority or any other entity whether acting in an individual, fiduciary or other capacity. "PGL" shall mean The Peoples Gas Light and Coke Company, an Illinois --- corporation. "Place of Payment", when used with respect to the Bonds of any series, ---------------- shall mean the office or agency maintained pursuant to Section 9.11 and such ------------ other place, or places, if any, where the principal of and interest on the Bonds of such series are payable as specified in the Series Supplemental Indenture setting forth the terms of the Bonds of such series. "Post Default Rate" shall mean the rate of interest on the applicable ----------------- Bonds at the time of determination (determined without reference to the Post Default Rate) plus 2%. "Power Sales Agreements" shall mean the Engage Power Sales Agreement, ---------------------- the Exelon Power Sales Agreement, the Aquila Power Sales Agreement and any other agreement for the sale of all or a portion of the net electric capacity and generation from the Project entered into by the Issuer from time to time. 28 "Power Purchaser" shall mean any purchaser of electricity under a --------------- Power Sales Agreement or any Additional Project Document providing for the sale of electricity from the Project. "Predecessor Bonds," with respect to any particular Bond, shall mean ----------------- any previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond; for the purposes of this definition, any Bond authenticated and delivered under Section 2.9 in lieu of a lost, destroyed or ----------- stolen Bond shall be deemed to evidence the same debt as the lost, destroyed or stolen Bond. "Principal Sub-Fund" shall mean the Principal Sub-Fund established ------------------ pursuant to Section 3.1. ----------- "Private Placement Legend" shall mean the legend set forth in Section ------------------------ ------- 2.9(g)(i) to be placed on all Bonds issued under this Indenture except where - --------- otherwise permitted by the provisions of this Indenture. "Proceeds Account" shall have the meaning given to such term in the ---------------- Deposit and Disbursement Agreement. "Procurement Agreements" shall mean the Amended and Restated Unit 5 ---------------------- Combustion Turbine Power Plant and Balance of Plant Equipment Procurement Agreement, dated as of October 6, 2000, between Elwood II Holdings and GE; the Amended and Restated Unit 6 Combustion Turbine Power Plant and Balance of Plant Equipment Procurement Agreement, dated as of October 6, 2000, between Elwood II Holdings and GE; the Amended and Restated Unit 7&8 Combustion Turbine Power Plant and Balance of Plant Equipment Procurement Agreement, dated as of October 6, 2000, between Elwood III Holdings and GE; and the Amended and Restated Unit 9 Combustion Turbine Power Plant and Balance of Plant Equipment Procurement Agreement, dated as of September 20, 2000, between Elwood III Holdings and GE. "Project" shall mean the approximately 1409 MW gas fired electric ------- generating peaking facility built on the Site, together with the Issuer's interest in all buildings, structures or improvements erected on the Site and the Easements (to the extent owned by the Issuer), all alterations thereto or replacements thereof, all fixtures, attachments, appliances, equipment, machinery and other articles attached thereto or used in connection therewith (to the extent owned by the Issuer) and all Parts which may from time to time be incorporated or installed in or attached thereto, all contracts and agreements for the purchase or sale of commodities or other personal property related thereto, all leases of real or personal property related thereto, all other real and tangible and intangible personal property owned by the Issuer and placed upon or used in connection with the facility built upon the Site and 29 the Easements, the Site, the Easements, the Governmental Approvals relating to the Project, and any transmission lines owned by the Issuer. "Project Documents" shall mean the EPC Contracts, the Power Sales ----------------- Agreements, the Interconnection Agreements, the Fuel Agreements, the Common Facilities Agreement, the O&M Agreement, the Operating Agreement, the Consents, the Sales Tax Agreements, the Equipment Sale Agreements, the Installment Sale Payment Agreement, the Annexation Agreements, the Procurement Agreements, the Advances Agreement, the Administrative Services Agreements, the Electric Service Contracts, and, when entered into, any Additional Project Document. "Project Party" shall mean any party to any Project Document other ------------- than the Issuer, and other than any party to a Project Document that has expired on its scheduled termination date or that has been fully performed. "Projected Debt Service Coverage Ratio" means, for any period, the ------------------------------------- ratio of (i) the aggregate of all Cash Available for Debt Service for such period to (ii) the aggregate of all Debt Service for such period, in each case calculated by the Issuer on a projected basis and confirmed in writing by the Independent Engineer. "Prudent Utility Practices" shall mean, at a particular time, (i) any ------------------------- of the practices, methods and acts engaged in or approved by a significant portion of the competitive electric generating industry operating in the United States at such time, or (ii) with respect to any matter to which clause (i) does not apply, any of the practices, methods and acts which, in the exercise of reasonable judgment at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. "Prudent Utility --------------- Practice" is not intended to be limited to the optimum practice, method or act - -------- to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts having due regard for, among other things, manufacturers' warranties and the requirements of any Governmental Authority of competent jurisdiction. "PSA Contingency Reserve Account" shall have the meaning given to such ------------------------------- term in the Deposit and Disbursement Agreement. "PSA Contingency Reserve Requirement" shall have the meaning given to ----------------------------------- such term in the Deposit and Disbursement Agreement. "Purchase Agreement" shall mean the Purchase Agreement, dated October ------------------ 12, 2001, among the Issuer and Credit Suisse First Boston Corporation, as representative of the Initial Purchasers. 30 "QIB" shall mean a "qualified institutional buyer" as defined in Rule --- 144A. "Qualified Transferee" shall mean any person that shall acquire after -------------------- the Closing Date, directly or indirectly, ownership of membership interests in the Issuer so long as (i) such person has, or is controlled by a Person that has, (a) significant experience in the business of owning and operating facilities similar to the Project and (b) a senior unsecured credit rating of at least "BBB-" from S&P and "Baa3" by Moody's, (ii) after giving effect to such transfer, no Default or Event of Default shall have occurred and be continuing, (iii) such acquisition could not reasonably be expected to result in a Material Adverse Effect, (iv) to the extent relevant to such acquisition, the Collateral Agent shall have received a pledge of and lien on the membership interests so acquired in accordance with the Security Documents and the Issuer shall have furnished to the Trustee and the Collateral Agent such documents, certificates and Opinions of Counsel to such Person and the Issuer as the Trustee and the Collateral Agent shall have reasonably required, and (v) each Rating Agency shall confirm that such acquisition will not result in a Rating Downgrade. "Rating Agency" shall mean Moody's or S&P, provided that such rating ------------- -------- agency provides a rating on the Bonds or the Company in question, as applicable. "Rating Downgrade" shall mean a downgrade in the then current ratings ---------------- of the Bonds by a Rating Agency either within a particular category or from one category to another; provided, that with respect to a Voluntary Buy-Out, "Rating -------- Downgrade" shall mean a downgrade in the initial ratings of the Bonds by a Rating Agency either within a particular category or from one category to another. "Record Date" shall mean a Regular Record Date or a Special Record ----------- Date. "Redemption Date" shall have the meaning set forth in Section 6.2. --------------- ----------- "Redemption Price" shall mean, with respect to any Outstanding Bond ---------------- for any Redemption Date, an amount equal to the principal amount, premium, if any, and interest accrued to but not including the Redemption Date of such Outstanding Bond to be paid for Bonds to be redeemed prior to maturity as specified in a notice of redemption given pursuant to Section 6.4. ----------- "Redemption Sub-Fund" shall mean the Redemption Sub-Fund established ------------------- pursuant to Section 3.1. ----------- 31 "Registered Depositary" shall mean The Depository Trust Company, --------------------- having a principal office at 55 Water Street, New York, New York 10041-0099, together with any Person succeeding thereto by merger, consolidation or acquisition of all or substantially all of its assets, including substantially all of its securities payment and transfer operations. "Registration Rights Agreement" shall mean the Registration Rights ----------------------------- Agreement, dated as of October 12, 2001, by and among the Issuer and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Regular Record Date", for any Bond of a series, for the Bond Payment ------------------- Date of any installment of principal thereof or payment of interest thereon, shall mean the 15th day (whether or not a Business Day) preceding such Bond Payment Date, or any other date specified for such purpose in the form of Bond of such series attached to the Series Supplemental Indenture relating to the Bonds of such series. "Regulation S" shall mean Regulation S promulgated under the ------------ Securities Act. "Regulation S Global Bond" shall mean a Regulation S Temporary Global ------------------------ Bond or Regulation S Permanent Global Bond, as appropriate. "Regulation S Permanent Global Bond" shall mean a permanent Global ---------------------------------- Bond in the form of Exhibit E hereto bearing the Global Bond Legend and the --------- Private Placement Legend and deposited with or on behalf of and registered in the name of the Registered Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Bond upon expiration of the Restricted Period. "Regulation S Temporary Global Bond" shall mean a temporary Global ---------------------------------- Bond in the form of Exhibit E hereto bearing the Private Placement Legend and --------- deposited with or on behalf of and registered in the name of the Registered Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Bonds initially sold in reliance on Rule 903 of Regulation S. "Regulation S Temporary Global Bond Legend" shall mean the legend set ----------------------------------------- forth in Section 2.9(g)(iii) which is required to be placed on all Regulation S ------------------- Temporary Global Bonds issued under this Indenture. "Replacement Power" shall mean electric energy or capacity provided by ----------------- or for the Issuer under a Power Sales Agreement or Permitted PPA from a source 32 other than the Project's generating assets specifically contemplated in such Power Sales Agreement or Permitted PPA, as applicable. "Replacement Project Document" shall mean any Additional Project ---------------------------- Document entered into in replacement of a Project Document (i) with substantially similar economic effect on the Issuer as the Project Document being replaced and (ii) with a counterparty (including any guarantor of such counterparty's obligations) having substantially similar creditworthiness and experience (taking into account the experience of any Affiliate of such counterparty) as the counterparty to the Project Document being replaced, provided, that with respect to Project Documents other than the Power Sales - -------- Agreements, any investment grade rating is deemed of equal creditworthiness with any higher rated counterparty. "Required Modifications" shall mean those modifications or ---------------------- improvements to the Project (i) which are reasonably necessary for the Issuer to maintain its status as an Exempt Wholesale Generator or the Project to maintain its status as an Eligible Facility or (ii) which are reasonably necessary or which the Issuer believes (with the concurrence of the Independent Engineer) are appropriate for the Project to remain in substantial compliance with all Applicable Laws and Governmental Approvals, including enacted or anticipated changes in Applicable Laws or the interpretation thereof. "Responsible Officer" shall mean, with respect to the Trustee, any ------------------- officer assigned to the Corporate Trust Office, including any vice president, assistant vice president, assistant treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of the Financing Documents to which the Trustee is a party, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restoration", "Restoring" or "Restore(d)" shall mean repairing, ----------- --------- ---------- rebuilding or otherwise restoring the Project due to the occurrence of a Casualty Event or a Loss Event, or, upon the occurrence of any Title Event, curing such Title Event. "Restricted Definitive Bond" shall mean a Definitive Bond bearing the -------------------------- Private Placement Legend. "Restricted Global Bond" shall mean a Global Bond bearing the Private ---------------------- Placement Legend. "Restricted Period" shall mean the 40-day restricted period as defined ----------------- in Regulation S. 33 "Revenue Account" shall have the meaning given to such term in the --------------- Deposit and Disbursement Agreement. "Rule 144" shall mean Rule 144 under the Securities Act. -------- "Rule 144A" shall mean Rule 144A under the Securities Act. --------- "Rule 903" shall mean Rule 903 promulgated under the Securities Act. -------- "Rule 904" shall mean Rule 904 promulgated the Securities Act. -------- "S&P" shall mean Standard & Poor's Ratings Group, a New York --- corporation. "Sales Tax Agreements" shall mean the Point of Sales Sales-Tax-Sharing -------------------- Agreement between the Village of Elwood and Elwood II Holdings, dated as of November 13, 2000, and the Point of Sales Sales-Tax-Sharing Agreement between the Village of Elwood and Elwood III Holdings, dated as of November 13, 2000. "Sales Tax Reserve Account" shall have the meaning given to such term ------------------------- in the Deposit and Disbursement Agreement. "Sales Tax Reserve Requirement" shall have the meaning given to such ----------------------------- term in the Deposit and Disbursement Agreement. "SEC" shall mean the Securities and Exchange Commission. --- "Secured Parties" shall mean the Trustee, the Bondholders, the --------------- Collateral Agent, the Administrative Agent, the Securities Intermediary, any Working Capital Bank, any Working Capital Agent, any Debt Service Reserve L/C Provider that has provided an Issuer Debt Service Reserve L/C, any Debt Service Reserve L/C Bank, any Debt Service Reserve L/C Agent, any Additional Indebtedness Holder and any Additional Indebtedness Agent, in each case to the extent such party (or an agent on its behalf) is, or pursuant to the Intercreditor Agreement becomes, a party to the Intercreditor Agreement. "Securities Account Control Agreements" shall mean, collectively, (i) ------------------------------------- the Securities Account Control Agreement, dated as of the Closing Date, by and among the Issuer, the Collateral Agent and Bank One Trust Company, National Association, as securities intermediary, (ii) the Securities Account Control Agreement, dated as of the Closing Date, by and among Elwood II Holdings, the Collateral Agent and Bank One Trust Company, National Association, as securities intermediary and (iii) the Securities Account Control Agreement, dated as of the 34 Closing Date, by and among Elwood III Holdings, the Collateral Agent and Bank One Trust Company, National Association, as securities intermediary. "Securities Act" shall mean the United States Securities Act of 1933, -------------- as amended. "Securities Intermediary" shall have the meaning set forth in Section ----------------------- ------- 1.13(a). - ------- "Security Agreement" shall mean the Security Agreement, dated as of ------------------ the Closing Date, by the Issuer in favor of the Collateral Agent. "Security Documents" shall mean, collectively, the Mortgage, the ------------------ Security Agreement, the Member Security Agreements, the Holdings II Security Agreement, the Holdings III Security Agreement, the Consents, the Deposit and Disbursement Agreement, the Collateral Agency Agreement, the Intercreditor Agreement, the Securities Account Control Agreements and the Uncertificated Securities Control Agreements. "Security Register" shall have the meaning set forth in Section 2.8. ----------------- ----------- "Security Registrar" shall mean any Person acting as Security ------------------ Registrar pursuant to Section 9.11. ------------ "Senior Secured Obligations" shall mean, collectively, without -------------------------- duplication: (i) all Indebtedness, financial liabilities and obligations of the Issuer, of whatsoever nature and howsoever evidenced (including, but not limited to, principal, interest, fees, reimbursement obligations, penalties, indemnities and legal and other expenses, whether due after acceleration or otherwise) to the Secured Parties in their capacity as such under or pursuant to this Indenture, the Bonds, any Working Capital Agreement, any Debt Service Reserve L/C Agreement (including any Debt Service Reserve LOC Loans and Debt Service Reserve LOC Bonds issued thereunder), any Additional Indebtedness Agreement, the Security Documents, any other Financing Document or any other agreement, document or instrument evidencing, securing or relating to such indebtedness, financial liabilities or obligations, in each case, direct or indirect, primary or secondary, fixed or contingent, now or hereafter arising out of or relating to any such agreements; (ii) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve its security interest in the Collateral; and (iii) in the event of any proceeding for the collection or enforcement of the obligations described in clauses (i) and (ii) above, after an Event of Default shall have occurred and be continuing and unwaived, the expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights under the Security Documents, together with reasonable attorneys' fees and court costs. 35 "Series Supplemental Indenture" shall mean an indenture supplemental ----------------------------- to this Indenture entered into by the Issuer and the Trustee for the purpose of establishing, in accordance with Article II of this Indenture, the title, form ---------- and terms of the Bonds of any series; "Series Supplemental Indentures" shall ------------------------------ mean each and every Series Supplemental Indenture. "Shared Facilities" means roads, easements, fuel and utility lines and ----------------- pipes, transmission lines and interconnects, water disposal and treatment systems, control systems, permits and other property or rights which (or, in the case of easements and roads, the underlying property of which ) are owned or leased by the Issuer and as to which the Issuer has granted a license or right of use for the benefit of a New Generation Facility. "Shared Facilities Agreement" means an agreement between the Issuer --------------------------- and the owner or lessee of a New Generation Facility relating to the use of any Shared Facilities. "Shelf Registration Statement" shall mean the Shelf Registration ---------------------------- Statement as defined in the Registration Rights Agreement. "Sinking Fund" shall have the meaning assigned thereto in Section 7.2. ------------ ----------- "Sinking Fund Redemption Dates" shall have the meaning assigned ----------------------------- thereto in Section 7.2. ----------- "Sinking Fund Requirements" shall have the meaning assigned thereto in ------------------------- Section 7.2. - ----------- "Site" shall mean the approximately 71 acre parcel of land located ---- near Elwood, Illinois on which the Project is located. "Special Record Date" for the payment of any Overdue Interest or ------------------- Overdue Principal shall mean a date fixed by the Trustee pursuant to Section ------- 2.11. - ---- "Sponsors" shall mean Dominion Energy, Inc. and Peoples Energy -------- Resources Corp. "Subordinated Indebtedness" shall have the meaning set forth in ------------------------- Section 5.1(c)(v). - ----------------- "Subordinated Indebtedness Agreement" shall mean an agreement among ----------------------------------- the Issuer and Subordinated Indebtedness Holders pursuant to which such Subordinated Indebtedness Holders agree to provide Subordinated Indebtedness to 36 the Issuer on the terms and conditions set forth therein and in accordance with the Financing Documents, including, without limitation, Section 5.1(c)(v). ----------------- "Subordinated Indebtedness Holders" shall mean the holders of --------------------------------- Subordinated Indebtedness from time to time party to a Subordinated Indebtedness Agreement. "Taxes" shall mean all taxes of every kind (including without ----- limitation, gross and net income, gross and net receipts, capital gains, excess profits and minimum taxes, taxes on tax preferences, capital, net worth, franchise, sales, use, rental, value-added, stamp, documentary, excise, property and other similar taxes), charges and withholdings, levies, imposts, duties, fees and deductions imposed by any government or political subdivision thereof, quasi-governmental authority or taxing jurisdiction or authority, together with all interest, additions to tax, penalties and similar add-ons payable with respect thereto, enacted or imposed with respect to: (i) the Project or any part or component thereof; (ii) the Transaction Documents (including any payment made pursuant thereto or any activity or act in connection therewith or pursuant thereto); (iii) the execution, issue, delivery, registration, notarization, assignment or transfer or transfer of any interest in, or for the legality, validity or enforceability of the Transaction Documents and any documents related to the Transaction Documents; (iv) the manufacture, financing, refinancing, construction, acceptance, rejection, transfer, control, operation, condition, occupancy, servicing, maintenance, repair, abandonment, replacement, purchase, sale, ownership, delivery, nondelivery, registration, reregistration, leasing, subleasing, mortgaging, pledging, insuring, possession, repossession, use, improvement, transfer of title, return or other disposition of the Project, or any indebtedness with respect thereto; (v) the rental, receipts or earnings arising from the Project or payments with respect to principal or interest or premium on the debt instruments evidencing the Senior Secured Obligations; (vi) the income or other proceeds received with respect to the Project or any part thereof upon the disposition thereof, any contract relating to the manufacture, construction, acquisition or delivery of the Project or any part thereof, in each case as supplemented or amended; or (vii) otherwise in connection with the transactions contemplated by the Transaction Documents. "Title Event" shall mean the existence of any defect of title or lien ----------- or encumbrance on the Mortgage Estate (other than Permitted Liens in effect on the Closing Date) that entitles the Collateral Agent to make a claim under the Title Policy. "Title Insurer" shall mean Chicago Title Insurance Company and ------------- Commonwealth Land Title Insurance Company, as co-insurers. 37 "Title Policy" shall mean collectively, (i) that certain policy of ------------ title insurance insuring the Mortgage issued by Chicago Title Insurance Company and (ii) that certain policy of title insurance insuring the Mortgage issued by Commonwealth Land Title Insurance Company, in each case, dated as of the Closing Date, including all amendments thereto, endorsements thereof and substitutions or replacements therefor. "Title Proceeds" shall mean all amounts and proceeds actually -------------- received, including instruments, under the Title Policy or any other title insurance policy on account of a title event. "Transaction Documents" shall mean the Project Documents and the --------------------- Financing Documents. "Trust Indenture Act" shall mean the United States Trust Indenture Act ------------------- of 1939, as amended, as in force at the date as of which this Indenture was executed (or, with respect to any supplemental indenture, the date as of which such supplemental indenture was executed). "Trustee" shall mean the Person named as the "Trustee" in the Preamble ------- of this Indenture and its successors, and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party, or any successor to all or substantially all of its corporate trust business, provided that any such successor or surviving corporation shall be -------- eligible for appointment as trustee pursuant to Section 9.7 until a successor ----------- Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Uncertificated Securities Control Agreements" shall mean, -------------------------------------------- collectively (i) the Uncertificated Securities Control Agreement, dated as of the Closing Date, among Dominion Elwood, the Collateral Agent and the Issuer, (ii) the Uncertificated Securities Control Agreement, dated as of the Closing Date, among Peoples Elwood, the Collateral Agent and the Issuer, (iii) the Uncertificated Securities Control Agreement, dated as of the Closing Date, among the Issuer, the Collateral Agent and Elwood II Holdings and (iv) the Uncertificated Securities Control Agreement, dated as of the Closing Date, among the Issuer, the Collateral Agent and Elwood III Holdings. "Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial ----------------------- --- Code as in effect from time to time in the State of New York and any other jurisdiction the laws of which control the creation or perfection of security interests under this Indenture and the Security Documents. 38 "Unrestricted Global Bond" shall mean a permanent Global Bond ------------------------ substantially in the form of Exhibit E attached hereto that bears the Global --------- Bond Legend and that has the "Schedule of Exchanges of Interests in the Global Bond" attached thereto, and that is deposited with or on behalf of and registered in the name of the Registered Depositary, representing a series of Bonds that do not bear the Private Placement Legend. "Unrestricted Definitive Bond" shall mean one or more Definitive Bonds ---------------------------- that do not bear and are not required to bear the Private Placement Legend. "UtiliCorp" shall mean UtiliCorp United Inc., a Delaware corporation. --------- "Village of Elwood" shall mean the Village of Elwood, an Illinois home ----------------- rule municipal corporation. "Voluntary Buy-Out" shall mean any Buy-Out that is not an Involuntary ----------------- Buy-Out. "Working Capital Agent" shall mean any agent for the Working Capital --------------------- Banks under a Working Capital Agreement. "Working Capital Agreement" shall mean an agreement among the Issuer, ------------------------- the Working Capital Agent and the Working Capital Banks pursuant to which the Working Capital Banks agree to make Working Capital Loans to the Issuer on the terms and conditions set forth therein and in accordance with the Financing Documents, including, without limitation, Section 5.1(c)(vi). ------------------ "Working Capital Banks" shall mean the financial institutions or other --------------------- Persons (including Affiliates of the Issuer) from time to time party to a Working Capital Agreement. "Working Capital Loans" shall have the meaning set forth in Section --------------------- ------- 5.1(c)(vi). - ---------- Section 1.2 Compliance Certificates and Opinions. Except as ------------------------------------ otherwise expressly provided by this Indenture, upon any application or request by the Issuer to the Trustee that the Trustee take any action under any provision of this Indenture, the Issuer shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any particular application or request as to which the furnishing of documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion 39 need be furnished. The Trustee may conclusively rely, and shall be fully protected in relying, on any such Officer's Certificate. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, such examination or investigation has been made as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with; and (e) in the case of an Officer's Certificate of the Issuer, a statement that no Event of Default under this Indenture has occurred and is continuing (unless such Officer's Certificate relates to an Event of Default). Section 1.3 Form of Documents Delivered to Trustee. In any case -------------------------------------- where several matters are required to be certified by, or covered by opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any Officer's Certificate of the Issuer or Opinion of Counsel may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows or has reason to believe that the certificate or opinion or representations with respect to the matters upon which such Officer's Certificate is based are erroneous. Any such Officer's Certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate of, or representations by, an Authorized Representative of the Issuer, stating that the information with respect to such factual matters is in the possession of the Issuer, unless such counsel knows that the certificate or representations with respect to such matters are erroneous. 40 Any Opinion of Counsel stated to be based on the opinion of other counsel shall be accompanied by a copy of such other opinion. Where any Person is required to give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 1.4 Notices, Etc. to Trustee and Issuer. Any Act of ----------------------------------- Holders or other document provided or permitted by this Indenture shall be deemed to have been given only if such notice is in writing and delivered personally, or by registered or certified first-class mail with postage prepaid, or made, given or furnished in writing by confirmed telecopy or facsimile transmission, or by prepaid courier service to the appropriate party as set forth below: Trustee: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Issuer: Elwood Energy LLC c/o Peoples Energy Resources Corp. 130 East Randolph Drive Chicago, IL 60601 Attn: John E. Horton Telephone No.: (312) 240-7181 Telecopy No.: (312) 240-3966 With copies to, as applicable: Elwood Energy LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 Attn: Donald Burnette Telephone No.: (804) 819-2411 Telecopy No.: (804) 819-2211 41 Collateral Agent: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Intercreditor Agent: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Administrative Agent: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Any party may change its address by giving notice of such change in the manner set forth herein. Any notice given to a party by mail or by courier shall be deemed delivered upon receipt thereof (unless the party refuses to accept delivery, in which case the party shall be deemed to have accepted delivery upon presentation). Any notice given to a party by telecopy or facsimile transmission shall be deemed effective on the date it is actually sent to the intended recipient by confirmed telecopy or facsimile transmission to the telecopier number specified above. Section 1.5 Notices to Holders; Waiver. Where this Indenture -------------------------- provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder, at its address as it appears in the Security Register, not later than the latest date, if any, and not earlier than the earliest date, if any, prescribed for the giving of such notice. Where this Indenture provides for notice, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such 42 notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders, and any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given. Section 1.6 Effect of Heading and Table of Contents. The Article --------------------------------------- and Section headings herein and in the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.7 Successors and Assigns. All covenants, agreements, ---------------------- representations and warranties contained or incorporated by reference in this Indenture by the Trustee and the Issuer shall bind and, to the extent permitted hereby, shall inure to the benefit of and be enforceable by their respective successors and assigns, whether so expressed or not. Section 1.8 Severability Clause. In case any provision in this ------------------- Indenture or in the Bonds shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.9 Benefits of Indenture. Nothing in this Indenture or in --------------------- the Bonds, expressed or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Bonds, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 1.10 Governing Law; Consent to Jurisdiction; Waiver of Jury ------------------------------------------------------ Trial. - ----- (a) THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE LIEN AND SECURITY INTEREST HEREUNDER, OR THE REMEDIES HEREUNDER, ARE GOVERNED BY THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. REGARDLESS OF ANY PROVISION IN ANY OTHER AGREEMENT, FOR PURPOSES OF THE NEW YORK UCC, THE "SECURITIES INTERMEDIARY'S JURISDICTION" OF THE TRUSTEE WITH RESPECT TO THE INDENTURE FUNDS IS THE STATE OF NEW YORK. 43 (b) Any legal action or proceeding by or against the Issuer with respect to or arising out of this Indenture may be brought in or removed to the courts of the State of New York, in and for the County of New York, or of the United States of America for the Southern District of New York. By execution and delivery of this Indenture, the Issuer accepts, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts for legal proceedings arising out of or in connection with this Indenture and irrevocably consents to the appointment of CT Corporation System, with offices on the date hereof at 111 Eighth Avenue, New York, New York 10011 as its agent to receive service of process in New York, New York. If for any reason such agent shall cease to be available to act as such, the Issuer agrees to appoint a new agent on the terms and for the purposes of this provision. Nothing herein shall affect the right to serve process in any other manner permitted by law or any right to bring legal action or proceedings in any other competent jurisdiction. The Issuer further agrees that the aforesaid courts of the State of New York and of the United States of America for the Southern District of New York shall have exclusive jurisdiction with respect to any claim or counterclaim of the Issuer based upon the assertion that the rate of interest charged by or under this Indenture or under the other Financing Documents is usurious. The Issuer hereby waives any right to stay or dismiss any action or proceeding under or in connection with the Project, this Indenture or any other Transaction Document brought before the foregoing courts on the basis of forum ----- non-conveniens or improper venue. - -------------- (c) EACH PARTY HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS INDENTURE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE OTHER PARTIES HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO TO ENTER INTO THIS INDENTURE. Section 1.11 Legal Holidays. In any case where the Redemption Date -------------- or the Bond Payment Date or the date of any installment of principal thereof or payment of interest thereon, or any date on which any Overdue Interest or Overdue Principal is proposed to be paid, shall not be a Business Day, then (notwithstanding any other provision of this Indenture or such Bond) payment of interest, principal, Overdue Interest or Overdue Principal, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Redemption Date or on the Bond Payment Date, or on the date on which the Overdue Interest or Overdue Principal is proposed to be paid, and, except as provided in the Series Supplemental Indenture setting forth the terms of such Bond, no interest shall accrue for the period from and after such Redemption Date or 44 Bond Payment Date, or date for the payment of Overdue Interest or Overdue Principal, as the case may be, to the date of such payment. Section 1.12 Execution in Counterparts. This Indenture may be ------------------------- executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 1.13 Securities Intermediary. ----------------------- (a) Acceptance of Appointment of Securities Intermediary. Bank One ---------------------------------------------------- Trust Company, National Association hereby agrees to act as securities intermediary (in such capacity, the "Securities Intermediary") under this ----------------------- Indenture. Each of the Trustee and the Issuer hereby acknowledges that the Securities Intermediary shall act as securities intermediary under this Indenture. (b) Confirmation and Agreement. The Securities Intermediary -------------------------- acknowledges, confirms and agrees, as of the Closing Date, that (i) the Securities Intermediary has established the Indenture Funds as set forth in Section 3.1 (including, without limitation, as special, segregated and - ----------- irrevocable cash collateral accounts, in the form of non-interest bearing accounts, which shall be maintained at all times until the termination of this Indenture), (ii) each Indenture Fund is and will be maintained as a "securities account" (within the meaning of Section 8-501 of the New York UCC), (iii) the Issuer is the "entitlement holder" (within the meaning of Section 8-102(a)(7) of the New York UCC) in respect of the "financial assets" (within the meaning of Section 8-102(a)(9) of the New York UCC) carried in or credited to the Indenture Funds, but the Indenture Funds shall be under the exclusive control of the Securities Intermediary, (iv) all property delivered to the Securities Intermediary pursuant to this Indenture or the Security Documents will be promptly credited to an Indenture Fund, (v) all financial assets in registered form or payable to or to the order of and credited to any Indenture Fund shall be registered in the name of, payable to or to the order of, or specially indorsed to, the Securities Intermediary or in blank, or credited to another securities account maintained in the name of the Securities Intermediary, and in no case will any financial asset credited to any Indenture Fund be registered in the name of, payable to or to the order of, or specially indorsed to, the Issuer except to the extent the foregoing have been specially indorsed by the Issuer to the Securities Intermediary or in blank, (vi) the Securities Intermediary shall promptly comply with all instructions of the Trustee, and, to the limited extent set forth in this Indenture, the Issuer and (vii) the Securities Intermediary shall not change the name or account number of any Indenture Fund without the prior written consent of the Trustee and the Issuer. (c) Financial Assets Election. The Securities Intermediary agrees ------------------------- that each item of property (whether cash, a security, an instrument or obligation, 45 share, participation, interest or other property whatsoever) credited to any Indenture Fund shall be treated as a financial asset under Article 8 of the New York UCC. (d) Entitlement Orders; No Other Control Agreements; No Other Liens. --------------------------------------------------------------- The Issuer agrees that the Securities Intermediary may, and the Securities Intermediary agrees that it shall, comply with orders purporting to be entitlement orders if originated by the Trustee and relating to any security entitlements carried in or credited to any Indenture Fund without further consent by the Issuer or any other Person. In the event that the Securities Intermediary receives conflicting entitlement orders from the Trustee and the Issuer or any other Person, the Securities Intermediary shall comply with the entitlement orders originated by the Trustee. The Securities Intermediary shall not execute and deliver, or otherwise become bound by, any agreement (a "Control ------- Agreement") under which the Securities Intermediary agrees with any Person other - --------- than the Trustee to comply with entitlement orders originated by such Person relating to any of the Indenture Funds or the security entitlements that are the subject of this Indenture. The Securities Intermediary shall not grant any lien or security interest in any financial asset that is the subject of any security entitlement that is the subject of this Indenture. (e) Subordination of Lien; Waiver of Set-Off. In the event that the ---------------------------------------- Securities Intermediary has or subsequently obtains by agreement, operation of law or otherwise a lien or security interest in any Indenture Fund, any security entitlement carried therein or credited thereto or any financial asset that is the subject of any such security entitlement, the Securities Intermediary agrees that such lien or security interest shall (except to the extent provided in the last sentence of this Section 1.13(e)) be subordinate to the Lien and security --------------- interest of the Trustee. The financial assets standing to the credit of the Indenture Funds will not be subject to deduction, set-off, banker's lien or any other right in favor of any Person other than the Trustee (except to the extent of returned items and chargebacks either for uncollected checks or other items of payment and transfers previously credited to one or more of the Indenture Funds, and the Issuer and the Trustee hereby authorize the Securities Intermediary to debit the relevant Indenture Fund or Indenture Funds for such amounts). (f) No Other Agreements. Neither the Securities Intermediary nor the ------------------- Issuer have entered into any agreement with respect to the Indenture Funds or any security entitlements or any financial assets carried in or credited to any Indenture Fund other than this Indenture, the Security Documents and agreements with respect to the making of Permitted Investments. The Securities Intermediary has not entered into any agreement with the Issuer or any other Person purporting to limit or condition the obligation of the Securities Intermediary to comply with entitlement orders originated by the Trustee in accordance with Section 1.13(d). In the event of any conflict between this --------------- Section 1.13 (or any portion thereof) and any other - ------------ 46 agreement now existing or hereafter entered into, the terms of this Section 1.13 ------------ shall prevail. (g) Notice of Adverse Changes. Except for the claim and interest of ------------------------- the Trustee and the Issuer in each of the Indenture Funds, the Securities Intermediary does not know (without independent investigation), as of the Closing Date, of any claim to, or interest in, any Indenture Fund or in any security entitlement or financial asset carried therein or credited thereto. If any officer of the Securities Intermediary charged with administering the Indenture Funds on a day-to-day basis obtains actual knowledge that any Person has asserted any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any Indenture Fund or in any security entitlement or financial asset carried therein or credited thereto, the Securities Intermediary will promptly notify the Issuer and the Trustee thereof. (h) Rights and Powers of the Trustee. The rights and powers granted -------------------------------- to the Trustee by the Securities Intermediary have been granted in order to perfect its Lien and security interest in the Indenture Funds and the security entitle ments and financial assets carried therein or credited thereto, are powers coupled with an interest and will neither be affected by the bankruptcy of the Issuer nor the lapse of time. (i) Limited Rights of Issuer. Until the payment in full of all ------------------------ outstanding Bonds, the Issuer shall not have any rights against or to monies held in the Indenture Funds, as third party beneficiary or otherwise, except to the extent the Issuer has the right to direct the investment of monies held in the Indenture Funds, as permitted by Section 3.7. In no event shall any amounts ----------- or Permitted Investments deposited in or credited to any Indenture Fund be registered in the name of the Issuer, payable to the order of the Issuer or specially indorsed to the Issuer except to the extent that the foregoing have been specially indorsed by the Issuer to the Securities Intermediary or in blank. ARTICLE II THE BONDS --------- Section 2.1 Form of Bond to Be Established by Series Supplemental ----------------------------------------------------- Indenture. The Bonds of each series shall be substantially in the form (not - --------- inconsistent with this Indenture, including Section 2.5) established in the ----------- Series Supplemental Indenture relating to the Bonds of such series. Section 2.2 Form of Trustee's Authentication. The Trustee's -------------------------------- certificate of authentication on all Bonds shall be in substantially the following form: 47 Dated: This Bond is one of the Bonds referred to in the within-mentioned Indenture. BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION as Trustee By: _______________________ Authorized Signatory Section 2.3 Amount; Issuable in Series. The aggregate principal -------------------------- amount of Bonds that may be authenticated and delivered under this Indenture is unlimited. The Bonds may be issued in one or more series. There shall be established in one or more Series Supplemental Indentures, prior to the issuance of Bonds of any series: (a) the title of the Bonds of such series (which shall distinguish the Bonds of such series from all other Bonds) and the form or forms of Bonds of such series; (b) any limit upon the aggregate principal amount of the Bonds of such series that may be authenticated and delivered under this Indenture (except for Bonds authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Bonds of such series pursuant to Section 2.7, ----------- 2.8, 2.10, 6.6 or 12.6 and except for Bonds that, pursuant to the last paragraph - --- ---- --- ---- of Section 2.4, are deemed never to have been authenticated and delivered ----------- hereunder); (c) the date or dates on which the principal of the Bonds of such series is payable, the amounts of principal payable on such date or dates and the Regular Record Date for the determination of Holders to whom principal is payable; and the date or dates on or as of which the Bonds of such series shall be dated, if other than as provided in Section 2.14(a); --------------- (d) the rate or rates at which the Bonds of such series shall bear interest, or the method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue, the interest payment dates on which such interest shall be payable and the Regular Record Date for the determination of Holders to whom interest is payable; and the basis of computation of interest, if other than as provided in Section 2.14(b); --------------- 48 (e) if other than as provided in Section 9.11, the place or places ------------ where (i) the principal of and interest on Bonds of such series shall be payable, (ii) Bonds of such series may be surrendered for registration of transfer or exchange and (iii) notices and demands to or upon the Issuer in respect of the Bonds of such series and this Indenture may be served; (f) the price or prices at which, the period or periods within which, and the terms and conditions upon which, Bonds of such series may be redeemed, in whole or in part, at the option of the Issuer; (g) the obligation, if any, of the Issuer to redeem, purchase or repay Bonds of such series pursuant to any sinking fund or analogous provision or at the option of a Holder thereof and the price or prices at which and the period or periods within which and the term and conditions upon which Bonds of such series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligations; (h) if other than minimum denominations of $100,000 and any integral multiple of $100 in excess thereof, the denominations in which Bonds of such series shall be issuable; (i) any other terms of such series (which terms shall not be inconsistent with the provisions of this Indenture); (j) any trustees, authenticating or paying agents, warrant agents, transfer agents or registrars with respect to the Bonds of such series if different than those provided for herein; and (k) CUSIP numbers, if any. Section 2.4 Authentication and Delivery of Bonds. Subject to Section ------------------------------------ ------- 2.3, at any time and from time to time after the execution and delivery of this - --- Indenture, the Issuer may deliver Bonds of any series executed by the Issuer to the Trustee for authentication, together with an Issuer Order for the authentication and delivery of such Bonds, and the Trustee shall thereupon authenticate and make available for delivery such Bonds in accordance with such Issuer Order, without any further action by the Issuer. No Bond shall be secured by or entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Bond a certificate of authentication, in the form provided for herein, executed by the Trustee by the manual signature of any Responsible Officer thereof, and such certificate upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly authenticated and delivered thereunder. In authenticating such Bonds and accepting the additional responsibilities under this Indenture in 49 relation to such Bonds, the Trustee shall be entitled to receive, and (subject to Section 9.1) shall be fully protected in relying upon: ----------- (a) an executed Series Supplemental Indenture with respect to the Bonds of such series; (b) an Officer's Certificate of the Issuer (i) certifying as to resolutions of the Management Committee of the Issuer by or pursuant to which the terms of the Bonds of such series were established and (ii) certifying that all conditions precedent under this Indenture to the Trustee's authentication and delivery of such Bonds have been complied with; and (c) an Opinion of Counsel to the effect that (i) the form or forms and the terms of such Bonds have been established by a Series Supplemental Indenture as permitted by Sections 2.1 and 2.3 in conformity with the provisions ------------ --- of this Indenture,(ii) all conditions precedent to the Trustee's authentication and delivery of such Bonds and the execution and delivery by the Trustee of such Series Supplemental Indenture set forth in this Indenture have been complied with and (iii) the Bonds of such series, when authenticated and made available for delivery by the Trustee and issued by the Issuer in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and binding obligations of the Issuer, enforceable against the Issuer in accordance with their terms, except as enforceability (A) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights and remedies generally and (B) is subject to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). Notwithstanding the foregoing, if any Bond shall have been authenticated and delivered hereunder but never issued and sold by the Issuer, and the Issuer shall deliver such Bond to the Trustee for cancellation as provided in Section 2.13(a) together with a written statement (which need not --------------- comply with Section 1.2 and need not be accompanied by an Opinion of Counsel) ----------- stating that such Bond has never been issued and sold by the Issuer, for all purposes of this Indenture such Bond shall be deemed never to have been authenticated and delivered hereunder and shall never have been or be entitled to the benefits hereof. Section 2.5 Form. ---- (a) General. The Bonds of each series shall be in registered form and ------- may have such letters, numbers or other marks of identification and such legends or endorsements printed, lithographed, engraved, typewritten or photocopied thereon, as may be required to comply with the rules of any securities exchange upon which the Bonds of any such series are to be listed, if any, or to conform to any usage in 50 respect thereof, or as may, consistently herewith, be prescribed by resolution of the Management Committee of the Issuer or by the officers of the Issuer executing such Bonds, such determination by said officers to be evidenced by their signing the Bonds. The terms and provisions contained in the Bonds shall constitute, and are hereby expressly made, a part of this Indenture and the Issuer and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Bond conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. The Bonds shall be printed, lithographed, engraved, typewritten, photocopied or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange upon which the Bonds of any such series are to be listed, if any, all as determined by the officers executing such Bonds, as evidenced by their execution of such Bonds. (b) Global and Definitive Bonds. The Bonds may be issued in the form --------------------------- of (a) Definitive Bonds or (b) one or more Global Bonds. Bonds issued in the form of a Definitive Bond shall be registered in the name or names of such Persons and for such principal amounts as the Issuer may request. Bonds issued in the form of a Global Bond shall be registered in the name of the Registered Depositary or its nominee and shall represent the beneficial interests of Persons purchasing the Bonds. In the event any of the Bonds are issued in a transaction under Rule 144A, any such Person shall purchase such Bonds in transactions complying with Rule 144A. In the event any of the Bonds are issued in a transaction under Regulation S, any such Person shall purchase such Bonds in transactions complying with Regulation S. Bonds issued in global form in reliance on Regulation S and Bonds issued in global form in reliance on Rule 144A shall not be represented by the same Global Bond. Beneficial interests in each Regulation S Global Bond may be held through Euroclear or Cedel, as participants in the Registered Depositary. The Trustee, as custodian ("Custodian"), shall act as custodian of each Global Bond for the Registered --------- Depositary or appoint a sub-custodian to act in such capacity. So long as the Registered Depositary or its nominee is the registered owner of a Global Bond, it shall be considered the Holder of the Bonds represented thereby for all purposes hereunder and under such Global Bond. None of the Issuer, the Trustee or any Paying Agent shall have any responsibility or liability for any aspect of the records relating to or payments made by the Registered Depositary on account of beneficial interests in any Global Bond. Interests in the Global Bonds shall be transferred on the Registered Depositary's book-entry settlement system. Bonds issued in the form of a Global Bond shall be substantially in the form of Exhibit E attached hereto (including the Global Bond Legend thereon --------- 51 and the "Schedule of Exchanges of Interests in the Global Bond" attached thereto). Bonds issued in the form of a Definitive Bond shall be substantially in the form of Exhibit E attached hereto (but without the Global Bond Legend --------- thereon and without the "Schedule of Exchanges of Interests in the Global Bond" attached thereto). Each Global Bond and Definitive Bond shall represent such of the outstanding Bonds as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Bonds from time to time endorsed thereon and that the aggregate principal amount of outstanding Bonds represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Bond to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Bonds represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.9 hereof. ----------- (c) Temporary Global Bonds. Bonds offered and sold in reliance on ---------------------- Regulation S shall be issued initially in the form of the Regulation S Temporary Global Bond, which shall be deposited on behalf of the purchasers of the Bonds represented thereby with the Trustee, at its New York office, as custodian for the Registered Depositary, and registered in the name of the Registered Depositary or the nominee of the Registered Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel, duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of a written certificate from the Registered Depositary, together with copies of certificates from Euroclear and Cedel certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Bond (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Bond bearing a Private Placement Legend, all as contemplated by Section ------- 2.9(a)(ii) hereof). Following the termination of the Restricted Period, - ---------- beneficial interests in the Regulation S Temporary Global Bond shall be exchanged for beneficial interests in Regulation S Permanent Global Bonds pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Bonds, the Trustee shall cancel the Regulation S Temporary Global Bond. The aggregate principal amount of the Regulation S Temporary Global Bond and the Regulation S Permanent Global Bonds may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Registered Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (d) Euroclear and Cedel Procedures Applicable. The provisions of the ----------------------------------------- "Operating Procedures of the Euroclear System" and "Terms and Conditions 52 Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Bond and the Regulation S Permanent Global Bonds that are held by Participants through Euroclear or Cedel. Section 2.6 Execution of Bonds. The Bonds shall be executed on ------------------ behalf of the Issuer by an Authorized Representative. The signature of any such Authorized Representative on the Bonds may be manual or facsimile. Bonds bearing the manual or facsimile signatures of individuals who were, at the time such signatures were affixed, the proper officers of the Issuer shall bind the Issuer notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Bonds or did not hold such offices at the date of such Bonds. Section 2.7 Temporary Bonds. Pending the preparation of permanent --------------- Bonds of any series pursuant to Section 2.10, the Issuer may execute, and upon ------------ receipt of an Issuer Order, the Trustee shall authenticate and make available for delivery, temporary Bonds of such series that are printed, lithographed, typewritten, photocopied or otherwise produced, in any denomination, substantially of the tenor of the permanent Bonds in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers of the Issuer executing such Bonds may determine, as evidenced by their execution of such Bonds. If temporary Bonds of any series are issued, the Issuer shall cause permanent Bonds of such series to be prepared without unreasonable delay. After the preparation of permanent Bonds of such series, the temporary Bonds of such series shall be exchangeable for permanent Bonds of such series upon surrender of the temporary Bonds of such series at the Place of Payment, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Bonds of any series, the Issuer shall execute, and the Trustee shall authenticate and make available for delivery, in exchange therefor, permanent Bonds of such series of authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, such temporary Bonds of any series shall in all respects be entitled to the same benefits under this Indenture as permanent Bonds of such series. Section 2.8 Registration; General Restrictions on Transfer and -------------------------------------------------- Exchange. The Issuer shall cause to be kept at the Corporate Trust Office of - -------- the Security Registrar a register which, subject to such reasonable regulations as the Issuer may prescribe, shall provide for the registration of Bonds and for the registration of transfers and exchanges of Bonds. This register and, if there shall be more than one Security Registrar, the combined registers maintained by all such Security Registrars, are herein sometimes referred to as the "Security Register". The ----------------- 53 Trustee is hereby appointed Security Registrar for the purpose of so keeping the Security Register and registering Bonds and transfers and exchanges of Bonds as herein provided. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Bond other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. If a Person other than the Trustee is appointed by the Issuer as Security Registrar, the Issuer shall give the Trustee prompt written notice of the appointment of a Security Registrar and of the location, and any change in the location, of the Security Register, and the Trustee shall have the right to inspect the Security Register at all reasonable times and to obtain copies thereof, and the Trustee shall have the right to rely upon such Security Register as to the names and addresses of the Holders of the Bonds and the principal amounts and numbers of such Bonds. Subject to the other restrictions on transfers and exchanges set forth herein, at the option of the Holder, Bonds of any series may be exchanged for other Bonds of the same series to be registered in the name of such Holder, of authorized denominations and of like tenor, maturity, interest rate and aggregate principal amount, upon surrender of the Bonds to be exchanged at any office or agency maintained for such purpose pursuant to Section 9.11. Whenever ------------ any Bonds are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and make available for delivery, the Bonds which the Holder making the exchange is entitled to receive. The Issuer shall execute and deliver to the Trustee from time to time, for safekeeping and subsequent authentication, a stock of definitive registered Bonds of each series in such quantities as the Issuer, after consultation with the Trustee, determines to be sufficient to permit the issuance of definitive Bonds and the exchanges contemplated by this Section 2.8. ----------- Every Bond presented or surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Issuer, and the Security Registrar or any transfer agent, duly executed by the Holder thereof or such Holder's attorney duly authorized in writing. Section 2.9 Transfer and Exchange. --------------------- (a) Transfer and Exchange of Global Bonds. A Global Bond may not be ------------------------------------- transferred as a whole except by the Registered Depositary to a nominee of the 54 Registered Depositary, by a nominee of the Registered Depositary to the Registered Depositary or to another nominee of the Registered Depositary, or by the Registered Depositary or any such nominee to a successor Registered Depositary or a nominee of such successor Registered Depositary. All Global Bonds will be exchanged by the Issuer for Definitive Bonds if (i) the Issuer delivers to the Trustee notice from the Registered Depositary that it is unwilling or unable to continue to act as Registered Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Registered Depositary is not appointed by the Issuer within 120 days after the date of such notice from the Registered Depositary, (ii) the Issuer in its sole discretion determines that the Global Bonds (in whole but not in part) should be exchanged for Definitive Bonds and delivers a written notice to such effect to the Trustee or (iii) after the occurrence of an Event of Default, beneficial owners holding interests representing an aggregate principal amount of Bonds of not less than 51% of the Bonds represented by the Global Bonds advise the Trustee through the Registered Depositary in writing that the continuation of a book-entry system through the Registered Depositary with respect to the Bonds is no longer in such owner's best interests; provided that -------- in no event shall the Regulation S Temporary Global Bond be exchanged by the Issuer for Definitive Bonds prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act. Upon the occurrence of any of the events in clauses (i) through (iii) of the preceding sentence, the Trustee shall, by forwarding any notice received by the Trustee from the Issuer, be deemed to have notified all Persons who hold a beneficial interest in the Global Bond through participants in the Registered Depositary or indirect participants through participants in the Registered Depositary of the availability of definitive Bonds. Upon surrender by the Registered Depositary of the Global Bond and receipt of instructions for re-registration, the Security Registrar will exchange the Global Bond for an equal aggregate principal amount of definitive Bonds. Global Bonds also may be exchanged or replaced, in whole or in part, as provided in Sections 2.7 and 2.10 hereof. Every Bond ------------ ---- authenticated and delivered in exchange for, or in lieu of, a Global Bond or any portion thereof, pursuant to this Section 2.9 or Sections 2.7 or 2.10 hereof, ----------- ------------ ---- shall be authenticated and delivered in the form of, and shall be, a Global Bond. A Global Bond may not be exchanged for another Bond other than as provided in this Section 2.9(a); however, beneficial interests in a Global Bond -------------- may be transferred and exchanged as provided in Section 2.9(b), (c) or (f) -------------- --- --- hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Bonds. ----------------------------------------------------------------- The transfer and exchange of beneficial interests in the Global Bonds shall be effected through the Registered Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Bonds shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Bonds also shall require compliance with either subparagraph (i) or (ii) 55 below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Bond. Beneficial interests in any Restricted Global Bond may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Bond in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of -------- ------- the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Bond may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Bond may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Bond. No written orders or instructions shall be required to be delivered to the Security Registrar to effect the transfers described in this Section ------- 2.9(b)(i). - --------- (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Bonds. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.9(b)(i) above, the transferor of ----------------- such beneficial interest must deliver to the Security Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Registered Depositary in accordance with the Applicable Procedures directing the Registered Depositary to credit or cause to be credited a beneficial interest in another Global Bond in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Registered Depositary in accordance with the Applicable Procedures directing the Registered Depositary to cause to be issued a Definitive Bond in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Registered Depositary to the Security Registrar containing information regarding the Person in whose name such Definitive Bond shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Bonds be -------- issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Bond prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Issuer in accordance with Section 2.9(f) hereof, the requirements of this -------------- Section 2.9(b)(ii) shall be deemed to have been satisfied upon receipt by the - ------------------ Security Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Bonds. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Bonds contained in this Indenture and the Bonds or otherwise applicable under the 56 Securities Act, the Trustee shall adjust the principal amount of the relevant Global Bond(s) pursuant to Section 2.9(h) hereof. -------------- (iii) Transfer of Beneficial Interests to Another Restricted Global Bond. A beneficial interest in any Restricted Global Bond may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Bond if the transfer complies with the requirements of Section 2.9(b)(ii) above and the Security Registrar receives the following: - ------------------ (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Bond, then the transferor must deliver a certificate in the form of Exhibit C hereto, including the certifications in item (1) thereof; and (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Bond or the Regulation S Global Bond, then the transferor must deliver a certificate in the form of Exhibit C hereto, including the certifications in item (2) thereof. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Bond for Beneficial Interests in the Unrestricted Global Bond. A beneficial interest in any Restricted Global Bond may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Bond or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Bond if the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and: ------------------ (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Bonds or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Security Registrar receives the following: 57 (1) if the holder of such beneficial interest in a Restricted Global Bond proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Bond, a certificate from such holder in the form of Exhibit D hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Bond proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Bond, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Security Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Security Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Bond has not yet been issued, the Issuer shall issue and, upon receipt of an authentication order in accordance with Section 2.4 hereof, the Trustee shall authenticate one or more ----------- Unrestricted Global Bonds in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Bond cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Bond. (c) Transfer or Exchange of Beneficial Interests for Definitive Bonds. ----------------------------------------------------------------- (i) Beneficial Interests in Restricted Global Bonds to Restricted Definitive Bonds. If any holder of a beneficial interest in a Restricted Global Bond proposes to exchange such beneficial interest for a Restricted Definitive Bond or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Bond, then, upon receipt by the Security Registrar of the following documentation: 58 (A) if the holder of such beneficial interest in a Restricted Global Bond proposes to exchange such beneficial interest for a Restricted Definitive Bond, a certificate from such holder in the form of Exhibit D hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non- U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to the Issuer or any of its Subsidiaries, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(b) thereof; or (F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Bond to be reduced accordingly pursuant to Section 2.9(h) hereof, -------------- and the Issuer shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Bond in the appropriate principal amount. Any Definitive Bond issued in exchange for a beneficial interest in a Restricted Global Bond pursuant to this Section ------- 2.9(c) shall be registered in such name or names and in such authorized ------ denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Registered Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Bonds to the Persons in whose names such Bonds are so registered. Any Definitive Bond issued in exchange for a beneficial interest in a Restricted Global Bond pursuant to this Section ------- 2.9(c)(i) shall bear the --------- 59 Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Beneficial Interests in Regulation S Temporary Global Bond to Definitive Bonds. Notwithstanding Sections 2.9(c)(i)(A) and (C) hereof, --------------------- --- a beneficial interest in the Regulation S Temporary Global Bond may not be exchanged for a Definitive Bond or transferred to a Person who takes delivery thereof in the form of a Definitive Bond prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Bonds to Unrestricted Definitive Bonds. A holder of a beneficial interest in a Restricted Global Bond may exchange such beneficial interest for an Unrestricted Definitive Bond or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Bond only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Bonds or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Security Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Bond proposes to exchange such beneficial interest for a Definitive Bond that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit D hereto, including the certifications in item (1)(b) thereof; or 60 (2) if the holder of such beneficial interest in a Restricted Global Bond proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Bond that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Security Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Security Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) Beneficial Interests in Unrestricted Global Bonds to ---------------------------------------------------- Unrestricted Definitive Bonds. If any holder of a beneficial interest in an - ----------------------------- Unrestricted Global Bond proposes to exchange such beneficial interest for a Definitive Bond or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Bond, then, upon satisfaction of the conditions set forth in Section 2.9(b)(ii) hereof, the Trustee shall cause ------------------ the aggregate principal amount of the applicable Global Bond to be reduced accordingly pursuant to Section 2.9(h) hereof, and the Issuer shall execute and -------------- the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Bond in the appropriate principal amount. Any Definitive Bond issued in exchange for a beneficial interest pursuant to this Section 2.9(c)(iii) shall be registered in such name or names and in such - ------------------- authorized denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Registered Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Bonds to the Persons in whose names such Bonds are so registered. Any Definitive Bond issued in exchange for a beneficial interest pursuant to this Section 2.9(c)(iii) shall not bear the Private Placement ------------------- Legend. (d) Transfer and Exchange of Definitive Bonds for Beneficial -------------------------------------------------------- Interests. - --------- (i) Restricted Definitive Bonds to Beneficial Interests in Restricted Global Bonds. If any Holder of a Restricted Definitive Bond proposes to exchange such Bond for a beneficial interest in a Restricted Global Bond or to transfer such Restricted Definitive Bonds to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Bond, then, upon receipt by the Security Registrar of the following documentation: 61 (A) if the Holder of such Restricted Definitive Bond proposes to exchange such Bond for a beneficial interest in a Restricted Global Bond, a certificate from such Holder in the form of Exhibit D hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Bond is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Bond is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Bond is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Bond is being transferred to the Issuer or any of its subsidiaries, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(b) thereof; or (F) if such Restricted Definitive Bond is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit C hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Bond, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Bond, in the case of clause (B) above, the 144A Global Bond, and in the case of clause (C) above, the Regulation S Global Bond. (ii) Restricted Definitive Bonds to Beneficial Interests in Unrestricted Global Bonds. A Holder of a Restricted Definitive Bond may exchange such Bond for a beneficial interest in an Unrestricted Global Bond or transfer such Restricted Definitive Bond to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Bond only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement 62 and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Bonds or (3) a Person who is an affiliate (as defined in Rule 144) of either Issuer; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Security Registrar receives the following: (1) if the Holder of such Definitive Bonds proposes to exchange such Bonds for a beneficial interest in the Unrestricted Global Bond, a certificate from such Holder in the form of Exhibit D hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Bonds proposes to transfer such Bonds to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Bond, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Security Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Security Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.9(d)(ii), the Trustee shall cancel the Definitive Bonds and ------------------ increase or cause to be increased the aggregate principal amount of the Unrestricted Global Bond. (iii) Unrestricted Definitive Bonds to Beneficial Interests in Unrestricted Global Bonds. A Holder of an Unrestricted Definitive Bond may exchange such Bond for a beneficial interest in an Unrestricted Global Bond or 63 transfer such Definitive Bonds to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Bond at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Bond and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Bonds. If any such exchange or transfer from a Definitive Bond to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Bond has not yet been issued, the Issuer shall issue and, upon receipt of an authentication order in accordance with Section 2.4 hereof, the Trustee shall authenticate one or more ----------- Unrestricted Global Bonds in an aggregate principal amount equal to the principal amount of Definitive Bonds so transferred. (e) Transfer and Exchange of Definitive Bonds for Definitive Bonds. -------------------------------------------------------------- Upon request by a Holder of Definitive Bonds and such Holder's compliance with the provisions of this Section 2.9(e), the Registrar shall register the transfer -------------- or exchange of Definitive Bonds. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Security Registrar the Definitive Bonds duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Security Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.9(e). -------------- (i) Restricted Definitive Bonds to Restricted Definitive Bonds. Any Restricted Definitive Bond may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Bond if the Security Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit C hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit C hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. 64 (ii) Restricted Definitive Bonds to Unrestricted Definitive Bonds. Any Restricted Definitive Bond may be exchanged by the Holder thereof for an Unrestricted Definitive Bond or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Bond if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Bonds or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuers; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Security Registrar receives the following: (1) if the Holder of such Restricted Definitive Bonds proposes to exchange such Bonds for an Unrestricted Definitive Bond, a certificate from such Holder in the form of Exhibit D hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Bonds proposes to transfer such Bonds to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Bond, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Security Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Issuer to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Bonds to Unrestricted Definitive Bonds. A Holder of Unrestricted Definitive Bonds may transfer such 65 Bonds to a Person who takes delivery thereof in the form of an Unrestricted Definitive Bond. Upon receipt of a request to register such a transfer, the Security Registrar shall register the Unrestricted Definitive Bonds pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in -------------- accordance with the Registration Rights Agreement, the Issuer shall issue and, upon receipt of an authentication order in accordance with Section 2.4, the ----------- Trustee shall authenticate (i) one or more Unrestricted Global Bonds in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Bonds tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker- dealers, (y) they are not participating in a distribution of the Exchange Bonds and (z) they are not affiliates (as defined in Rule 144) of the Issuer, and accepted for exchange in the Exchange Offer and (ii) Definitive Bonds in an aggregate principal amount equal to the principal amount of the Restricted Definitive Bonds accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Bonds, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Bonds to be reduced accordingly, and the Issuer shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Bonds so accepted Definitive Bonds in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all ------- Global Bonds and Definitive Bonds issued under this Indenture or a Supplemental Indenture unless specifically stated otherwise in the applicable provisions of this Indenture or a Supplemental Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Bond and each Definitive Bond (and all Bonds issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS BOND (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS BOND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS BOND IS HEREBY NOTIFIED THAT THE SELLER OF THIS BOND MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. 66 THE HOLDER OF THIS BOND AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS BOND MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS BONDFROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE." (B) Notwithstanding the foregoing, any Global Bond or Definitive Bond issued pursuant to subparagraphs (b)(iv), (c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.9 ----------- (and all Bonds issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Bond Legend. Each Global Bond shall bear a legend in substantially the following form: "THIS BOND IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO. THIS GLOBAL BOND IS HELD BY THE REGISTERED DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS BOND) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED BY THE INDENTURE, (II) THIS GLOBAL BOND MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.9(a) OF THE INDENTURE, (III) THIS GLOBAL BOND MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.13 OF THE 67 INDENTURE AND (IV) THIS GLOBAL BOND MAY BE TRANSFERRED TO A SUCCESSOR REGISTERED DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUER." (iii) Regulation S Temporary Global Bond Legend. The Regulation S Temporary Global Bond shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL BOND, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED BONDS, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL BOND SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Bonds. At such time as ---------------------------------------------- all beneficial interests in a particular Global Bond have been exchanged for Definitive Bonds or a particular Global Bond has been redeemed, repurchased or canceled in whole and not in part, each such Global Bond shall be returned to or retained and canceled by the Trustee in accordance with Section 2.13 hereof. At ------------ any time prior to such cancellation, if any beneficial interest in a Global Bond is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Bond or for Definitive Bonds, the principal amount of Bonds represented by such Global Bond shall be reduced accordingly and an endorsement shall be made on such Global Bond by the Trustee or by the Registered Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Bond, such other Global Bond shall be increased accordingly and an endorsement shall be made on such Global Bond by the Trustee or by the Registered Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. ------------------------------------------------------ (i) To permit registrations of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Global Bonds and Definitive Bonds upon the Issuer's order or at the Security Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Bond or to a Holder of a Definitive Bond for any registration of transfer or exchange, but the Security Registrar and the Issuer may 68 require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.7, 6.6, or 12.6 hereof). ------------ --- ---- (iii) The Security Registrar shall not be required to register the transfer of or exchange any Bond selected for redemption in whole or in part, except the unredeemed portion of any Bond being redeemed in part. (iv) All Global Bonds and Definitive Bonds issued upon any registration of transfer or exchange of Global Bonds or Definitive Bonds shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Bonds or Definitive Bonds surrendered upon such registration of transfer or exchange. (v) The Security Registrar and the Issuer shall not be required (A) to issue, to register the transfer of or to exchange any Bonds during a period beginning at the opening of business 15 days before the day of any selection of Bonds for redemption under Section 6.2 hereof and ending at the ----------- close of business on the day of selection, (B) to register the transfer of or to exchange any Bond so selected for redemption in whole or in part, except the unredeemed portion of any Bond being redeemed in part or (C) to register the transfer of or to exchange a Bond between a Record Date and the next succeeding Bond Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Bond, the Trustee, any Agent and the Issuer may deem and treat the Person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of receiving payment of principal of and interest on such Bonds and for all other purposes, and none of the Trustee, any Authorized Agent or the Issuer shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Bonds and Definitive Bonds in accordance with the provisions of Sections 2.2 and 2.4 hereof. ------------ --- (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Security Registrar pursuant to this Section 2.9 ----------- to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.10 Mutilated, Destroyed Lost and Stolen Bonds. If (a) any ------------------------------------------ mutilated Bond is surrendered to the Trustee, the Issuer or the Security Registrar, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Bond, and (b) there is delivered to the Issuer, the Security Registrar and the Trustee evidence to their satisfaction of the ownership and authenticity of such mutilated, destroyed, lost or stolen Bond, and such security or indemnity as may be 69 required by them to save each of them harmless, then, in the absence of notice to the Issuer, the Security Registrar or the Trustee that such Bond has been acquired by a bona fide purchaser, the Issuer shall execute and, upon the Issuer's request, the Trustee shall authenticate and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Bond, a new Bond of the same series and of like tenor and principal amount, bearing a number not then outstanding. If, after the delivery of such new Bond, a bona fide purchaser of the original Bond in lieu of which such new Bond was issued presents for payment such original Bond, the Issuer and the Trustee shall be entitled to recover such new Bond from the Person to whom it was delivered or any Person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Trustee in connection therewith. Notwithstanding the foregoing, in case any such mutilated, destroyed, lost or stolen Bond has become or is about to become due and payable, the Issuer, upon satisfaction of the conditions set forth in clauses (a) and (b) of the preceding paragraph, may, instead of issuing a new Bond, pay such Bond. Upon the issuance of any new Bond under this Section 2.10, the Issuer ------------ may require the payment of a sum sufficient to cover any Tax that may be imposed in relation thereto and any other expenses connected therewith. Every new Bond issued pursuant to this Section 2.10 in lieu of any ------------ mutilated, destroyed, lost or stolen Bond shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the security and benefits of this Indenture and the Security Documents equally and proportionately with any and all other Bonds duly issued hereunder. The provisions of this Section 2.10 are exclusive and shall preclude ------------ (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Bonds. Section 2.11 Payment of Principal and Interest; Principal and ------------------------------------------------ Interest Rights Preserved. Principal of or interest on any Bond that is - ------------------------- payable, and punctually paid or duly provided for, on any Bond Payment Date shall be paid to the Person in whose name such Bond (or one or more Predecessor Bonds) is registered at the close of business on the Regular Record Date for such principal or interest. Payment of principal of and interest on the Bonds of any series shall (to the extent there are sufficient Available Funds) be made at the Place of Payment (or, if such office is not in the Borough of Manhattan, The City of New York, at either such office or an office to be maintained in such Borough), or by check or in another manner or manners if so provided in the Series Supplemental Indenture creating the 70 Bonds of such series, except for the final installment of principal payable with respect to a Bond, which shall (to the extent there are sufficient Available Funds) be payable as provided in Section 6.5 (in the case of Bonds redeemed) or ----------- payable upon presentation and surrender of such Bond at the Place of Payment. Any principal of or interest on any Bond of any series that is payable, but is not punctually paid or duly provided for, on any Bond Payment Date for an installment of principal or payment of interest shall forthwith cease to be payable to the Holder on the relevant Regular Record Date and such Overdue Interest or Overdue Principal may be paid, except as otherwise provided in Article III, by the Issuer, at its election, in each case as provided in ----------- paragraph (a) or paragraph (b) below: (a) The Issuer may elect to make payment of all or any portion of such Overdue Interest or Overdue Principal, to the extent there are sufficient Available Funds, to the Persons in whose names the Bonds of such series (or their respective Predecessor Bonds) in respect of which Overdue Interest or Overdue Principal is outstanding are registered at the close of business on a Special Record Date for the payment of such Overdue Interest or Overdue Principal, which shall be fixed in the following manner. The Issuer shall notify the Trustee and the Paying Agent in writing of the amount of Overdue Interest or Overdue Principal proposed to be paid on each Bond of such series and the date of the proposed payment, and concurrently there shall be deposited with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Overdue Interest or Overdue Principal or there shall be made arrangements acknowledged by the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Overdue Interest or Overdue Principal as provided in this paragraph. Thereupon, the Trustee shall fix a Special Record Date for the payment of such Overdue Interest or Overdue Principal (together with other amounts payable with respect to such Overdue Interest or Overdue Principal) which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Issuer and the Security Registrar of such Special Record Date and, in the name and at the expense of the Issuer, shall cause notice of the proposed payment of such Overdue Interest or Overdue Principal and the Special Record Date therefor to be mailed, first class postage prepaid, to each Holder of a Bond of such series at such Holder's address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Overdue Interest or Overdue Principal and the Special Record Date therefor having been mailed as aforesaid, such Overdue Interest or Overdue Principal shall be paid to the Persons in whose names the Bonds of such series (or their respective Predecessor Bonds) are registered on such Special Record Date and shall no longer be payable pursuant to the following paragraph (b). 71 (b) Subject to the provisions of the other Financing Documents, the Issuer may make, or cause to be made, payment of any Overdue Interest or Overdue Principal (together with other amounts payable with respect to such Overdue Interest or Overdue Principal) in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Bonds in respect of which Overdue Interest or Overdue Principal is outstanding may be listed, and, upon such notice as may be required by such exchange, if, after notice given by the Issuer to the Trustee of the proposed payment pursuant to this paragraph, such payment shall be deemed reasonable by the Trustee. Subject to the foregoing provisions of this Section 2.11, each Bond ------------ delivered under this Indenture upon registration of transfer, of or in exchange for, or in lieu of, any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond. Section 2.12 Persons Deemed Owners. Subject to Section 2.11, prior --------------------- ------------ to due presentment of a Bond for registration of transfer, the Person in whose name any Bond is registered shall be deemed to be the owner of such Bond for the purpose of receiving payment of principal of and interest on such Bond and for all other purposes whatsoever, whether or not such Bond be overdue, regardless of any notice to anyone to the contrary. Section 2.13 Cancellation; Purchase by the Issuer. (a) All Bonds ------------------------------------ surrendered for payment, redemption, credit against any sinking fund payment or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee for cancellation. The Issuer may at any time deliver to the Trustee for cancellation (i) any Bonds previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever or (ii) any Bond to be replaced by a Bond identical to the Bond to be cancelled, other than with respect to provisions thereof amended in accordance with the terms of this Indenture, and all Bonds so delivered shall be promptly cancelled by the Trustee. No Bonds shall be authenticated in lieu of or in exchange for any Bonds cancelled as provided in this Section 2.13, except ------------ as expressly permitted by this Indenture. All cancelled Bonds held by the Trustee shall be disposed of by the Trustee in accordance with its policy of disposal. (b) The Issuer may at any time purchase any Bond in the open market or otherwise at any price and any Bond so purchased by the Issuer will not be deemed to have been redeemed or cancelled until that Bond has been surrendered to the Trustee for cancellation in accordance with Section 2.13(a) and may not --------------- be re-issued or re-sold. 72 Section 2.14 Dating of Bonds; Computation of Interest. (a) Except ---------------------------------------- as otherwise provided in the Series Supplemental Indenture relating to the Bonds of a series, each Bond of such series shall be dated the date of its authentication. (b) Except as otherwise provided in the Series Supplemental Indenture relating to the Bonds of a series, interest on the Bonds of such series shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Section 2.15 Source of Payments Limited; Rights and Liabilities of ----------------------------------------------------- the Issuer. Except as otherwise specifically provided in this Indenture or the - ---------- other Financing Documents, all payments of principal, premium, if any, and interest to be made in respect of the Bonds and this Indenture shall be made only from the assets of the Issuer and the income and proceeds received by the Trustee or the Administrative Agent pursuant to the Financing Documents and allocable to the Trustee therefrom. Each Holder, by its acceptance of a Bond, agrees that (a) it will look solely to the assets of the Issuer and the income and proceeds received by the Trustee or the Administrative Agent pursuant to the Financing Documents and allocable to the Trustee therefrom to the extent available for distribution to such Holder as herein provided or as provided in the Security Documents and (b) recourse shall be otherwise limited in accordance with Section 14.1. ------------ Section 2.16 Parity of Bonds. All Bonds of a series issued and --------------- Outstanding hereunder rank on a parity with each other Bond of the same series and with all Bonds of each other series, and each Bond of a series shall be secured equally and ratably by this Indenture and the Security Documents with each other Bond of the same series and with all Bonds of each other series, without preference, priority or distinction of any one thereof over any other by reason of difference in time of issuance or otherwise, and each Bond of a series shall be entitled to the same benefits and security in this Indenture and the Security Documents as each other Bond of the same series and with all Bonds of each other series. ARTICLE III ESTABLISHMENT OF FUNDS Section 3.1 Establishment of Indenture Funds and Sub-Funds. The ---------------------------------------------- Securities Intermediary hereby establishes the following special, segregated and irrevocable cash collateral funds and sub-funds in the form of non-interest bearing accounts (each such Indenture Fund being (or to be, when established) a "securities account" as such term is defined in Section 8-501(a) of the New York UCC), which shall be maintained at all times until the termination of this Indenture: (i) Bond Fund; and 73 (ii) an Interest Sub-Fund, a Principal Sub-Fund and a Redemption Sub- Fund created within the Bond Fund. Certain additional sub-funds within certain of the Indenture Funds may be established and created from time to time in accordance with this Article ------- III. - --- All such amounts shall constitute a part of the Indenture Collateral and shall not constitute payment of any Indebtedness or any other obligation of the Issuer until applied as hereinafter provided. Section 3.2 Security Interest. As collateral security for the ----------------- prompt and complete payment and performance when due of all the Bonds, the Issuer has pledged, assigned, hypothecated and transferred to the Trustee for the benefit of the Trustee and the Holders, and has granted to the Trustee for the benefit of the Trustee and the Holders, a Lien on and security interest in and to, (a) each Indenture Fund and (b) all cash, investments and securities at any time on deposit in any Indenture Fund, including all income or gain earned thereon. Section 3.3 Bond Fund. The following amounts received by the --------- Trustee shall be deposited as promptly as practicable into the Bond Fund directly upon receipt from the Administrative Agent or as soon as practicable after receipt, in each case in accordance with this Section 3.3: (i) all ----------- payments received from the Administrative Agent in respect of interest payable on the Bonds; (ii) all payments received from the Administrative Agent in respect of principal payable of the Bonds; (iii) all payments received from the Administrative Agent in respect of any redemption, in whole or in part, of the Bonds; (iv) all payments received from the Administrative Agent in respect of any withdrawal from the Debt Service Reserve Account pursuant to Section 3.6 of ----------- the Deposit and Disbursement Agreement; (v) any amounts earned from the investment of the moneys in any of the Bond Fund, Interest Sub-Fund, Principal Sub-Fund or Redemption Sub-Fund pursuant to Section 3.7; and (vi) all other ----------- amounts (howsoever earned) and proceeds of any nature whatsoever received from the Administrative Agent in respect of the Bonds. The Issuer hereby agrees and confirms (x) that it has irrevocably instructed each of the Collateral Agent and the Administrative Agent and (y) that each of the Collateral Agent and the Administrative Agent has received such instruction, to make all such payments directly to the Trustee for deposit in the Bond Fund in accordance with the terms of this Section 3.3. If, notwithstanding the foregoing, any such amounts ----------- are remitted directly to the Issuer (or any Affiliate of the Issuer), the Issuer shall (or shall cause any such Affiliate to) hold such payments in trust for the Trustee and shall promptly remit such payments to the Trustee for deposit in the Bond Fund, in the form received, with any necessary endorsements. (i) Upon the deposit into the Bond Fund of any payment in respect of interest on the Bonds pursuant to the Deposit and Disbursement 74 Agreement (other than as described in clause (iii) immediately below), the Trustee shall separately segregate such payments in the Interest Sub-Fund of the Bond Fund until application of such amounts pursuant to Section 3.4. ----------- (ii) Upon the deposit into the Bond Fund of any payment in respect of principal of the Bonds pursuant to the Deposit and Disbursement Agreement (other than as described in clause (iii) immediately below), the Trustee shall separately segregate such payments in the Principal Sub-Fund of the Bond Fund until application of such amounts pursuant to Section 3.5. ----------- (iii) Upon the deposit into the Bond Fund of the proceeds of any payment in respect of any redemption pursuant to the Deposit and Disbursement Agreement, the Trustee shall separately segregate such payments in the Redemption Sub-Fund of the Bond Fund until application of such amounts pursuant to Section 3.6 and Article VI. ----------- ---------- (iv) In the event the Trustee receives moneys in respect of Bonds without adequate written instruction with respect to the proper sub- fund into which such moneys are to be deposited, the Trustee shall deposit such moneys into the Bond Fund and segregate such moneys from all other amounts on deposit in the Bond Fund and notify the Issuer of the receipt of such moneys. Upon receipt of' written instructions from the Issuer, the Trustee shall transfer such moneys to the Interest Sub-Fund, the Principal Sub-Fund or the Redemption Sub-Fund of the Bond Fund as specified by the Issuer. Section 3.4 Interest Sub-Fund; Application of Moneys in Interest ---------------------------------------------------- Sub-Fund. Subject to the provisions of Section 2.11, the Issuer hereby - -------- ------------ irrevocably authorizes the Trustee on each Payment Date to make withdrawals of moneys to the extent then available in the Interest Sub-Fund of the Bond Fund and not segregated for any specific purpose and to apply such moneys in the following order: (i) First: to the payment of all Overdue Interest on the ----- Outstanding Bonds, among all Bonds as to which there is Overdue Interest without any preference or priority as to series or maturity, pro rata as to --- ---- the amount of interest due; and (ii) Second: after making the payment specified in clause ------ (i), to the payment of all interest then due and payable on the Outstanding Bonds, without any preference or priority as to series or maturity, pro --- rata as to the amount of interest due. ---- Section 3.5 Principal Sub-Fund; Application of Moneys in Principal ------------------------------------------------------ Sub-Fund. Subject to the provisions of Section 2.11, the Issuer hereby - -------- ------------ irrevocably authorizes the Trustee on each Payment Date to make withdrawals of 75 moneys to the extent then available in the Principal Sub-Fund of the Bond Fund and not segregated for any specific purpose and to apply such monies in the following order: (i) First: to the payment of all Overdue Principal of the ----- Outstanding Bonds among all Bonds as to which there is Overdue Principal without any preference or priority as to series or maturity, pro rata as to --- ---- the amount of principal due; and (ii) Second: after making the payment specified in clause ------ (i), to the payment of all principal then due and payable on the Outstanding Bonds, without any preference or priority as to series or maturity, pro rata as to the amount of principal due. --- ---- Section 3.6 Redemption Sub-Fund; Application of Moneys in --------------------------------------------- Redemption Sub-Fund. The Issuer hereby irrevocably authorizes the Trustee, on - ------------------- each Redemption Date, to make withdrawals of moneys to the extent then available in the Redemption Sub-Fund of the Bond Fund and not segregated for any specific purpose and to apply such moneys in the following order: (i) First: to the payment of all Overdue Principal and ----- premium, if any, of the Outstanding Bonds among all Bonds as to which there is Overdue Principal without any preference or priority as to series or maturity, pro rata as to the amount of principal due; and --- ---- (ii) Second: after making the payment specified in clause ------ (i), to the payment of principal of the Outstanding Bonds, without any preference or priority as to series or maturity, pro rata as to the amount --- ---- of principal due. Section 3.7 Investment of Funds. Moneys held in any Indenture Fund ------------------- created by and held under this Indenture shall be invested and reinvested in Permitted Investments at the written direction (which may be in the form of a standing instruction) of an Authorized Representative of the Issuer; provided -------- however, that at any time when (a) a Responsible Officer of the Trustee has - ------- received written notice that an Event of Default shall have occurred and be continuing or (b) an Authorized Representative of the Issuer has not timely furnished such a written direction or, after a request by the Trustee, has not so confirmed a standing instruction to the Trustee, the Trustee shall invest such moneys only in Permitted Investments of the type specified in clause (vi) of the definition of Permitted Investments, provided that the Trustee shall have -------- no obligation to obtain the highest yield. Such investments shall mature in such amounts and have maturity dates or be subject to redemption at the option of the holder thereof on or prior to maturity as needed for the purposes of such Indenture Funds, but in no event shall such 76 investments mature more than 180 days after the date acquired. The Trustee may at any time and from time to time liquidate any or all of such investments prior to their maturity as needed in order to effect the withdrawals contemplated by this Article III. In the event any such investments are redeemed prior to the ----------- maturity thereof or at any other time, the Trustee shall not be liable for any loss or penalties relating thereto. Any income or gain realized from such investments shall be deposited into the Indenture Fund from which such moneys came. Any loss shall be charged to the applicable Indenture Fund. The Trustee shall not be liable for any such loss other than by reason of its willful misconduct or gross negligence. For purposes of any income tax payable on account of any income or gain on an investment, such income or gain shall be for the account of the Issuer. Section 3.8 Disposition of Indenture Funds Upon Retirement of ------------------------------------------------- Bonds. Upon the payment in full of the principal of and interest on all series - ----- of Bonds such that no Bonds are Outstanding, and after payment to the Trustee of all amounts, if any, due to the Trustee in respect of this Indenture and the other Transaction Documents, all amounts held in the Indenture Funds shall be transferred to the Issuer upon its written request. Section 3.9 Fund Balance Statements. The Trustee shall, on a ----------------------- monthly basis and at such other times as the Issuer may from time to time reasonably request, provide to the Issuer fund balance statements in respect of each of the Indenture Funds, sub-funds and amounts segregated in any of the Indenture Funds. Such balance statements shall also include deposits, withdrawals and transfers from and to any Indenture Fund, sub-fund or segregated amount. ARTICLE IV AFFIRMATIVE COVENANTS --------------------- Section 4.1 Affirmative Covenants of the Issuer. The Issuer hereby ----------------------------------- covenants and agrees, for so long as any Bonds are Outstanding hereunder or under any Series Supplemental Indenture, as follows: (a) Maintenance of Existence and Properties. The Issuer shall at all --------------------------------------- times (i) preserve and maintain in full force and effect (A) its existence and its good standing under the laws of the State of Delaware and (B) its qualification to do business in each other jurisdiction in which the character of its properties or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not reasonably be expected to result in a Material Adverse Effect, and (ii) preserve and maintain (A) good and marketable title to or valid leasehold or other rights to or in the Project, the Site and all other Collateral owned or leased by it (subject only to Permitted Liens and to the Issuer's ability to sell, lease, transfer or otherwise dispose of any such property in accordance with Section 5.1(g)) and --------------- (B) a valid and subsisting grant of the Easements, except in the case of 77 clauses (ii)(A) and (ii)(B) where the failure to so preserve and maintain would not reasonably be expected to result in a Material Adverse Effect. (b) Maintenance of Government Approvals. The Issuer shall obtain and ----------------------------------- maintain, or cause to be obtained and maintained, in full force and effect all Governmental Approvals required to be obtained in the name of the Issuer from time to time in connection with (i) the ownership, operation and maintenance of the Project as contemplated by the Project Documents and (ii) the issuance of the Bonds, the borrowing by the Issuer under the Financing Documents and the execution, delivery and performance by the Issuer of the Transaction Documents to which it is a party, except, in either case, where failure to so obtain or maintain any such Governmental Approval could not reasonably be expected to result in a Material Adverse Effect. The Issuer shall furnish copies of any material Governmental Approvals obtained or made after the Closing Date to the Trustee, the Collateral Agent and the Independent Engineer promptly upon receipt. (c) Compliance with Laws and Governmental Approvals. The Issuer shall ----------------------------------------------- comply with (a) all Applicable Laws and Governmental Approvals and (b) the terms of each Project Document, except, in either case, where noncompliance could not reasonably be expected to result in a Material Adverse Effect. (d) Insurance. The Issuer shall maintain or cause to be maintained --------- insurance at substantially the same levels as in effect on the Closing Date or such greater level of insurance as Prudent Utility Practices would dictate unless (i) the Issuer provides to the Trustee a report from the Insurance Consultant that such insurance (A) is no longer needed, (B) is no longer material in relation to the property of the Issuer and its business or (C) is no longer appropriate in the context of Prudent Utility Practices, or (ii) if any such insurance is not available on commercially reasonable terms, the best similar insurance or other risk management tool available on commercially reasonable terms shall be obtained and maintained. In the case of clause (ii), a certificate of an independent national insurance broker and an Officer's Certificate shall be provided attesting to the fact that such insurance is not available on commercially reasonable terms and that the insurance (or other risk management tool) provided is the best similar insurance (or other risk management tool) that is available on commercially reasonable terms. All policies of insurance shall name the Collateral Agent as an additional insured or loss payee pursuant to a loss payee/mortgagee clause in a form approved by the Insurance Consultant. A general description of the insurance in effect on the Closing Date is attached hereto as Schedule I. (e) Pari Passu. The Issuer will cause its payment obligations with ---------- respect to the Bonds to constitute direct senior secured obligations of the Issuer and to rank senior in priority of payment, in right of security and in all other respects to all other Indebtedness of the Issuer, except that the Bonds will rank pari passu with 78 any other Senior Secured Obligations (except for the Trustee's Lien granted pursuant to Section 9.5) issued in accordance with the terms of the Financing ----------- Documents and any Permitted Indebtedness described in clause (i) of Section ------- 5.1(c). - ------ (f) Information: The Issuer shall deliver to the Trustee, the ----------- Collateral Agent, the Rating Agencies and, with respect to clauses (i) and (ii), any Holder or owner of a beneficial interest in a Global Bond upon request (which request may indicate that it is a continuing request for such information until further notice from such Holder or such owner of a beneficial interest in a Global Bond to the contrary): (i) As soon as available but, in any event, within 60 days after the close of each of the first three quarterly accounting periods in each Fiscal Year (commencing with the quarter ending December 31, 2001), a complete unaudited balance sheet of the Issuer as at the end of such quarterly period with related statements of income and capital and statements of cash flows for such quarterly period and for the elapsed portion of the Fiscal Year ended with the last day of such quarterly period, prepared in accordance with GAAP (but without footnotes), consistently applied and setting forth comparative unaudited figures for the related periods in the prior Fiscal Year, all of which shall be accompanied by a certificate of an Authorized Representative of the Issuer to the effect that such financial statements present fairly the financial condition and results of operation of the Issuer on the dates and for the periods indicated, subject to normal year-end audit adjustments; (ii) As soon as available but, in any event, within 120 days after the close of each Fiscal Year (commencing with the Fiscal Year ended September 30, 2001), the following: (A) a balance sheet of the Issuer as at the end of such Fiscal Year with the related statements of income and capital and statements of cash flows for such Fiscal Year, in each case setting forth comparative figures for the preceding Fiscal Year and certified by the Independent Accountants or a nationally recognized independent accounting firm (the "Auditors") (all such statements being in -------- agreement with the Issuer's books of account and prepared in accordance with GAAP, consistently applied); and (B) a report or other written communication from the Auditors indicating whether, in the course of their regular audit of the financial statements of the Issuer, the Auditors obtained knowledge of any Default or Event of Default which has occurred and is continuing (and, in the event the Auditors obtained any such knowledge, indicating the nature of such Default or Event of Default); (iii) At the time of the delivery of the financial statements provided for in clause (i) or (ii) immediately above, a certificate of an 79 Authorized Officer of the Issuer to the effect that, to such Authorized Officer's Knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof and what action the Issuer is taking or proposes to take in response thereto; (iv) (A) Promptly, but in all cases within 10 Business Days after the Issuer obtains Knowledge thereof, notice of any event which constitutes a Default or an Event of Default, specifying the nature of such Default or Event of Default and any steps the Issuer is taking or proposes to take to remedy the same, and (B) promptly, and in any event within 10 Business Days after the Issuer obtains Knowledge thereof, notice of: (1) any litigation, arbitration or governmental proceeding (other than any governmental proceeding in the ordinary course of business) pending (a) against the Issuer or (b) with respect to any Transaction Document to which the Issuer is a party, which, in either case, individually or in the aggregate could reasonably be expected to result in a Material Adverse Effect; (2) the occurrence and continuance of any Expropriation Event that could reasonably be expected to give rise to Expropriation Proceeds in an amount in excess of $5,000,000; (3) any change in the Authorized Representatives of the Issuer, accompanied by certified specimen signatures of any Authorized Representatives so appointed; (4) (a) any actual or proposed cure plan, termination, rescission or discharge (otherwise than by performance) under any Material Project Document, and (b) any actual amendment of any provision of any Material Project Document or actual waiver of any provision of any Material Project Document; (5) (a) any report, notice, correspondence received or initiated by the Issuer relating to any Governmental Approval or any other license or authorization necessary for the performance by the Issuer of its obligations under the Transaction Documents and (b) any report, notice, correspondence or other documents relating to defaults, force majeure events, instances of non-compliance, achievement of milestones and other similar events received or initiated by the Issuer under the Material Project Documents, in each case which report, notice, correspondence and other document is received or initiated other than in the ordinary 80 course of business and which could reasonably be expected to result in a Material Adverse Effect; (6) any notice received by the Issuer purporting to cancel or materially alter the terms of any insurance policy which the Issuer is required to maintain pursuant to clause (d) of this Section 4.1; or ----------- (7) any pending Environmental Claim against the Issuer which involves a claim or claims in excess of $5,000,000 or could reasonably be expected to result in a Material Adverse Effect. (g) Securities Act Information: So long as any of the Bonds are -------------------------- "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, unless at the time the Issuer is subject to and in compliance with the reporting requirements of Sections 13 and 15(d) of the Exchange Act, the Issuer shall provide to the Trustee, and, upon request, to any Holder or beneficial owner of an interest in a Global Bond or any prospective purchaser of Bonds designated by a Holder or beneficial owner of an interest in a Global Bond, the information described in Rule 144A(d)(4) under the Securities Act. At any time after a registration statement with respect to the Bonds shall have been filed with and declared effective by the SEC, and notwithstanding that the Issuer may no longer be required to do so pursuant to the Exchange Act or the rules and regulations promulgated thereunder, the Issuer shall provide to the Trustee and each Holder such periodic and other reports that the Issuer would be required to file if it were subject to Sections 13 or 15(d) of the Exchange Act (within the time limits prescribed in Section 4.1(f) with regard to quarterly and annual reports); provided that, with the consent of Holders of a majority in -------- principal amount of the Outstanding Bonds, the Issuer may be relieved of its obligation to provide such reports if the Issuer is not required to do so pursuant to the Exchange Act or the rules and regulations promulgated thereunder. (h) Operation and Maintenance. The Issuer shall, or shall cause the ------------------------- Operator, to use, maintain and operate the Project and the Site in compliance with Prudent Utility Practices, all Applicable Laws and Governmental Approvals and the Project Documents except, in each case, where such non-compliance could not reasonably be expected to result in a Material Adverse Effect. (i) Annual Operating Budget. Not later than November 1 of each year, ----------------------- the Issuer shall submit to the Independent Engineer a proposed annual operating budget for the following calendar year, detailed by month (the "Annual Operating ---------------- Budget"). Each Annual Operating Budget shall be, in all material respects, - ------ consistent with the provisions of the Project Documents and shall specify the Issuer's good faith estimate of the power sales pursuant to the Power Sales 81 Agreements and/or sales into the market, as applicable, the rates and revenues for such sales, all O&M Costs and working capital requirements, all Major Maintenance Expenditures, a forecast of personnel to operate and maintain the Project and a periodic inspection, maintenance and repair schedule, in each case, for the applicable year. To the extent the Independent Engineer shall have provided its comments, if any, to the Issuer within 30 days of the Independent Engineer's receipt of the proposed Annual Operating Budget, the Issuer shall reasonably consider such comments in its preparation of a final Annual Operating Budget, which shall then be provided to the Trustee, the Collateral Agent and the Independent Engineer. (j) Major Maintenance Plan. The Issuer shall include in each Annual ---------------------- Operating Budget a re-assessment of (i) the anticipated scheduling and probable cost of Major Maintenance Expenditures for such year, and (ii) the Major Maintenance Reserve Requirement. The Major Maintenance Reserve Requirement shall be modified in accordance with Section 3.7 of the Deposit and Disbursement ----------- Agreement. (k) Insurance Report. Within 120 days after the end of each Fiscal ---------------- Year, the Issuer shall submit to the Trustee and the Collateral Agent an Officer's Certificate of the Issuer confirming that all insurance policies required pursuant to clause (d) of this Section 4.1 are in full force and effect ----------- on the date thereof. (l) Right of Inspections. Subject to requirements of Applicable Law -------------------- and safety requirements, and upon reasonable notice, the Issuer shall permit the Independent Engineer, the Trustee and the Collateral Agent or any agents or representatives of any of the foregoing, from time to time, as the Independent Engineer, the Trustee or the Collateral Agent may desire during normal business hours (i) to conduct reasonable inspections and examinations of the Project and the records of the Issuer relating to the Project and (ii) to discuss the affairs, finances and accounts of the Issuer with the principal officers of DEI, PERC and the Auditors. (m) Actions to Maintain EWG Status. The Issuer shall use all ------------------------------ reasonable efforts to maintain its status as an Exempt Wholesale Generator and to maintain the Project's status as an Eligible Facility, and in the event of a loss of either such status, shall act diligently to pursue remedies available to it, unless after the loss of either such status the Issuer shall meet a valid exception to regulation as a public utility under the Public Utility Holding Company Act of 1935 or no such regulation is then applicable because either the Public Utility Holding Company Act of 1935 or the applicable provisions thereof have been repealed. (n) Further Assurances. The Issuer shall take or cause to be taken ------------------ all action reasonably required to maintain and preserve the Liens purported to be provided for in the Security Documents. The Issuer shall from time to time execute 82 or cause to be executed any and all further instruments (including financing statements, continuation statements and similar statements with respect to the Liens granted in Security Documents) required to maintain and preserve the Liens purported to be provided for in the Security Documents. (o) Project Party Buy-Out. In the event that a Power Purchaser --------------------- notifies the Issuer that such Power Purchaser intends to exercise, whether or not in accordance with the terms and conditions of a Power Sales Agreement to which such Power Purchaser is a party, a right of such Power Purchaser to pay the Issuer to terminate such Power Sales Agreement or to reduce capacity and energy to be sold under such Power Sales Agreement (a "Buy-Out"), the Issuer ------- shall provide written notice to the Trustee, the Collateral Agent, the Independent Engineer and the Rating Agencies disclosing the identity of such Power Purchaser and any relevant and available details regarding the Buy-Out. (p) New Member. The Issuer shall cause each person who becomes a ---------- member of the Issuer to become a party to each Security Document relating to the interests acquired in the Issuer (and such Security Documents may be so modified without the consent of the Holders or any other Secured Party), and to execute such other documents required to preserve the Liens purported to be granted by the Security Documents and to furnish to the Trustee and the Collateral Agent such documents, certificates or Opinions of Counsel to such person and the Issuer with respect to the foregoing as the Trustee or the Collateral Agent shall reasonably request (in each case in form and substance substantially consistent with the correlative documents, certificates and Opinions of Counsel delivered on the Closing Date). (q) Use of Proceeds. The Issuer shall use the proceeds of the Bonds --------------- for (i) working capital; (ii) financing, legal and consulting fees and expenses associated with the offering of the Bonds; (iii) required funding of the Major Maintenance Account; (iv) payments for residual construction costs under contracts with GE and to other third parties (which the Issuer reasonably believes will amount to approximately $17,323,000); and (v) repayment in full of Indebtedness outstanding under existing intercompany loans provided by the Sponsors and the Members and partial reimbursement of the Sponsors and Members for advances or capital contributions to the Issuer that the Issuer has used to pay the costs of developing, constructing and financing the Project, and for no other purpose. On and after the Closing Date, the Issuer shall retain, in a segregated account, the amount of proceeds it reasonably believes will be payable to GE and other third parties in accordance with clause (iv) above and shall use the funds on deposit therein to pay GE and other third parties for the aforementioned residual construction costs, and shall not use such funds for any other purpose until all amounts payable to GE under the EPC contracts and to other third parties in respect of residual construction costs have been paid in full. 83 (r) Taxes. The Issuer shall, prior to the time penalties shall attach ----- thereto, (i) file, or cause to be filed, all tax and information returns that are required to be, or are required to have been, filed by it in any jurisdiction, and (ii) pay or cause to be paid all Taxes shown to be, or to have been, due and payable on such returns and all other Taxes lawfully imposed and payable by it, to the extent the same shall have become due and payable, except to the extent there is a Good Faith Contest thereof by the Issuer. (s) Loss Events. If a Loss Event shall occur, the Issuer shall ----------- diligently pursue all rights it may have to compensation in respect of such Loss Event. (t) Additional Project Documents. If the Issuer enters into any ---------------------------- Additional Project Document, the Issuer shall take all action reasonably required to cause such Additional Project Document to be or become subject to the Lien of the Security Documents and shall use reasonable efforts to cause the counterparty to such Additional Project Document to execute and deliver a Consent (together with a related legal opinion), each in substantially the form attached hereto as Exhibit A. Section 4.2 Information Confidential. Each Person, including ------------------------ Holders, beneficial owners of Bonds and prospective investors in the Bonds, who receives information from the Issuer pursuant to the terms hereof agrees, by their receipt of such information, to keep confidential such information and not to disclose the same to any other Person without the prior written consent of the Issuer. ARTICLE V NEGATIVE COVENANTS ------------------ Section 5.1 Negative Covenants of the Issuer. The Issuer hereby -------------------------------- covenants and agrees, for so long as any Bonds are Outstanding hereunder or under any Series Supplemental Indenture, as follows: (a) Amendments to Project Documents. The Issuer shall not terminate, ------------------------------- amend, waive or modify any of the Material Project Documents (other than a Power Sales Agreement) to which it is a party or exercise any rights it may have to consent to any assignment of any of the Material Project Documents (other than a Power Sales Agreement) by the other Project Party thereto or exercise any option under any of the Material Project Documents to which it is a party unless such termination, amendment, waiver, modification, assignment or exercise: (i) would not reasonably be expected to result in a Material Adverse Effect, as certified in an Officer's Certificate of the Issuer delivered to the Trustee and the Collateral Agent and, if such termination, amendment, waiver, modification, assignment or option would materially change the pricing or volume provisions of, or materially reduce 84 the duration of, such Material Project Document, concurred with in writing by the Independent Engineer; (ii) is reasonably necessary in order to maintain a Power Sales Agreement in full force and effect, as certified in an Officer's Certificate of the Issuer delivered to the Trustee and the Collateral Agent and concurred with in writing by the Independent Engineer; (iii) is necessary in order for the Issuer to be in compliance with Applicable Law or to be able to obtain or maintain, or comply with the terms and conditions of, any Governmental Approval necessary for the Issuer to conduct its business as currently conducted or as proposed to be conducted or to permit the Project to maintain its certification as an Eligible Facility or the Issuer to maintain its certification as an Exempt Wholesale Generator, in each case as certified in an Officer's Certificate of the Issuer delivered to the Trustee and the Collateral Agent and accompanied by an Opinion of Counsel to such effect; or (iv) is the result of (A) a change in tariffs or similar publicly promulgated rates approved by any Governmental Authority which are incorporated by reference into a Project Document or (B) implementation of provisions requiring adjustments to price or volume under, and in accordance with, the terms of a Material Project Document, if the Issuer exercises good faith and commercially reasonable efforts to negotiate price changes under such provisions for adjustments to price so as not to result in a Material Adverse Effect; (b) Amendments to Power Sales Agreements. (i) The Issuer shall not ------------------------------------ terminate, amend, waive any material obligation under, or modify any of the Power Sales Agreements or exercise any rights it may have to consent to any assignment of any of the Power Sales Agreements by the other Project Party party thereto or exercise any option listed on Schedule II-A attached hereto under any -------------- of the Power Sales Agreements unless such termination, amendment, waiver, modification, assignment or exercise would not reasonably be expected to result in a Material Adverse Effect, as certified in an Officer's Certificate of the Issuer delivered to the Trustee and the Collateral Agent and concurred with in writing by the Independent Engineer. (ii) The Issuer shall not exercise any option listed on Schedule -------- II-B attached hereto under any of the Power Sales Agreements unless such - ---- exercise would not reasonably be expected to result in a Material Adverse Effect. (c) Indebtedness. The Issuer shall not, nor shall it permit any of ------------ its Subsidiaries to, create or incur or suffer to exist any Indebtedness except as follows, without duplication (all such Indebtedness being referred to hereinafter as "Permitted Indebtedness"): ---------------------- (i) the Senior Secured Obligations (other than Indebtedness incurred in respect of Required Modifications and/or Optional Modifications); 85 (ii) purchase money debt or Capital Lease obligations incurred to finance assets of the Issuer that are readily replaceable personal property with a principal amount and capitalized portion not exceeding $5,000,000 in the aggregate outstanding at any time; (iii) trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (iv) Guarantees of Permitted Indebtedness; (v) Indebtedness which is (A) fully subordinated (pursuant to subordination provisions in the form attached as Exhibit F) in right of payment to the Senior Secured Obligations and (B) not secured by any of the Collateral (such Indebtedness, "Subordinated Indebtedness"); ------------------------- (vi) working capital loans ("Working Capital Loans") which do --------------------- not at any time exceed $20,000,000, as Escalated, in aggregate principal amount; (vii) Indebtedness incurred under any Debt Service Reserve L/C Agreement; (viii) Additional Indebtedness incurred in respect of Required Modifications so long as each of the following conditions have been satisfied: (A) no Default or Event of Default shall have occurred and is continuing, or will result from the incurrence of such Additional Indebtedness; and (B) either (x) each Rating Agency shall confirm that the incurrence of such Additional Indebtedness will not result in a Rating Downgrade or (y) the Debt Service Coverage Ratio for the two quarter period preceding the date such Additional Indebtedness is incurred (for the purposes of this clause (B), the "Incurrence Date") and the Projected Debt --------------- Service Coverage Ratio for the four quarter period succeeding such Incurrence Date (after taking into account the incurrence of such Additional Indebtedness) shall each be greater than or equal to: (1) 1.5 to 1.0; or 86 (2) 1.4 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 25% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; or (3) 1.3 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 50% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; or (4) 1.2 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 75% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; or (5) 1.1 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, 100% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; and (C) The Issuer shall have delivered to the Trustee and the Collateral Agent an Officer's Certificate of the Issuer certifying as to the matters described in clauses (A) and (B) above (including the relevant PPAs). The Issuer shall determine the satisfaction of the conditions in clause (B) based on projections prepared by the Issuer in good faith based upon assumptions consistent in all material respects with the relevant contracts and agreements, the Transaction Documents, historical operations and the Issuer's good faith projections of future revenues and projections of operating and maintenance expenses for the Issuer in light of existing or reasonably expected regulatory and market environments in the markets in which the Project is or will be operated and upon the assumption that there will be no early redemption or prepayment of Indebtedness or that any Indebtedness which matures within such projected periods will be refinanced on reasonable terms. For the avoidance of doubt, the examples set forth on Schedule III hereto illustrate how the applicable ------------ percentage of capacity shall be calculated in clauses (2), (3), (4) and (5) of Section 5.1(c)(viii)(B) above. (ix) Additional Indebtedness incurred in respect of Optional Modifications so long as each of the following conditions have been satisfied: 87 (A) no Default or Event of Default shall have occurred and is continuing, or will result from the incurrence of such Additional Indebtedness; and (B) the Debt Service Coverage Ratio for the two quarter period preceding the date such Additional Indebtedness is incurred (for the purposes of this clause (B), the "Incurrence Date") and the Projected Debt --------------- Service Coverage Ratio for the four quarter period succeeding such Incurrence Date (after taking into account the incurrence of such Additional Indebtedness) shall each be greater than or equal to: (1) 1.7 to 1.0; or (2) 1.6 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 25% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; or (3) 1.45 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 50% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; or (4) 1.3 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 75% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; or (5) 1.2 to 1.0, if as of such Incurrence Date, the Issuer is party to Permitted PPAs covering, in the aggregate, 100% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Incurrence Date; and (C) The Issuer shall have delivered to the Trustee and the Collateral Agent an Officer's Certificate of the Issuer certifying as to the matters described in clauses (A) and (B) above (including the relevant PPAs). The Issuer shall determine the satisfaction of the conditions in clause (B) based on projections prepared by the Issuer in good faith based upon assumptions consistent in all material respects with the relevant contracts and agreements, the Transaction Documents, historical operations and the Issuer's good faith projections of future revenues and projections of operating and 88 maintenance expenses for the Issuer in light of existing or reasonably expected regulatory and market environments in the markets in which the Project is or will be operated and upon the assumption that there will be no early redemption or prepayment of Indebtedness or that any Indebtedness which matures within such projected periods will be refinanced on reasonable terms. For the avoidance of doubt, the examples set forth on Schedule III hereto illustrate how the applicable percentage of capacity shall be calculated in clauses (2), (3), (4) and (5) of Section 5.1(c)(ix)(B) above. (x) surety bonds, performance bonds or similar arrangements with third-party sureties or indemnitors or similar persons ("Bonding ------- Arrangements") in connection with a Good Faith Contest or otherwise permitted by - ------------ this Indenture or any other Transaction Document; (xi) indemnities and similar obligations, if any, arising under the Transaction Documents, to the extent the same constitute Indebtedness; (xii) Indebtedness in respect of non-speculative interest rate hedging agreements; and (xiii) intercompany Indebtedness in existence on the Closing Date between the Issuer and the Permitted Subsidiaries. (d) Liens. The Issuer shall not, nor shall it permit any of its ----- Subsidiaries to, create or suffer to exist or permit any Lien upon or with respect to any of its properties, other than the following ("Permitted Liens"): --------------- (i) Liens specifically created or required to be created by this Indenture or any other Financing Document; (ii) Liens securing Senior Secured Obligations; (iii) Liens with respect to Bonding Arrangements permitted by this Indenture consisting of Liens on cash collateral and related investments held as cash cover with respect thereto in an aggregate amount not exceeding $5,000,000, at any time outstanding, plus monies so furnished from amounts otherwise available as a distribution permitted in accordance with Section 3.9 of the Deposit and ----------- Disbursement Agreement; (iv) Liens for Taxes which are either not yet due or are due but payable without penalty or are the subject of a Good Faith Contest by the Issuer; (v) any exceptions to title existing on the Closing Date and set forth on the Title Policy; (vi) such defects, easements, rights of way, restrictions, irregularities, encumbrances and clouds on title and statutory Liens that do not materially impair the property affected thereby and that do not individually or in the aggregate materially impair the value of the security interests granted under the Security Documents; (vii) deposits or pledges to secure (A) statutory obligations or appeals, (B) releases of attachment, stays of execution or injunction, (C) performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or (D) for purposes of like general nature in the ordinary course of business; (viii) Liens in connection with worker's compensation, 89 unemployment insurance, or other social security or pension or similar obligations; (ix) legal or equitable encumbrances deemed to exist by reason of the existence of any litigation or other legal proceeding if the same are the subject of a Good Faith Contest (excluding any attachment prior to judgment, judgment lien, or attachment in aid of execution on a judgement); (x) mechanics', workmen's, materialmen's, suppliers', construction or other similar Liens arising in the ordinary course of business or incident to the construction, operation, repair, restoration or improvement of any property in respect of obligations which are not yet due or which are removed or bonded within 60 days of filing thereof (but in any event prior to enforcement thereof), or which are the subject of a Good Faith Contest; (xi) Liens on assets acquired with the proceeds of Indebtedness described in clause (c)(ii) of this Section 5.1; (xii) Liens substantially similar to any of the foregoing Liens - ----------- described in clauses (i)-(xi), provided that any such Lien would not reasonably -------- be expected to result in a Material Adverse Effect; and (xiii) Liens arising under Shared Facilities Agreements. (e) Distributions. The Issuer shall not make any distributions ------------- (including by transfer of assets or assumption or incurrence of any other Indebtedness or liability) to its equity holders other than as permitted under Section 3.9 of the Deposit and Disbursement Agreement. - ----------- (f) Nature of Business. The Issuer shall not engage in any business ------------------ other than the development, construction, ownership, operation, maintenance, administration and financing of the Project as contemplated or permitted by the Transaction Documents. (g) Prohibition on Fundamental Changes and Disposition of Assets. The ------------------------------------------------------------ Issuer shall not enter into any transaction of merger or consolidation, change its form of organization or its business, or liquidate or dissolve itself (or suffer any liquidation or dissolution) unless contemporaneously reconstituted with no adverse effect on the Secured Parties. The Issuer shall not purchase or otherwise acquire all or substantially all of the assets of any other person except as contemplated by the Transaction Documents. In addition, except as contemplated by the Transaction Documents, the Issuer shall not sell, lease (as lessor) or transfer (as transferor) any property or assets material to the operation of the Project except: (i) in the ordinary course of business to the extent that (A) such property is worn out or is no longer useful or necessary in connection with the operation of the Project or (B) such property shall be replaced with property of equivalent use and value or (C) such sale, lease or transfer is required to comply with any Applicable Law or to obtain, maintain or comply with the terms and conditions of any Governmental Approval necessary for the Issuer to conduct its business pursuant to the Project Documents; provided -------- that the Issuer shall have the right to (x) share its property and the use thereof in accordance with, and to the extent reasonably necessary to effect, the 90 Shared Facilities Agreements and (y) to effect a merger with one or both of its Permitted Subsidiaries so long as the Issuer is the surviving entity of such merger. (h) Investments. The Issuer shall not make any investment other than ----------- Permitted Investments. (i) Transactions with Affiliates. The Issuer shall not enter into any ---------------------------- transaction or agreement with any Affiliate other than (i) the agreements and transactions described on Schedule IV, Shared Facilities Agreements and (ii) transactions and agreements on fair and reasonable terms no less favorable to the Issuer than the Issuer would obtain in an arm's-length transaction with a person that is not an Affiliate of the Issuer. Prior to entering into any transaction contemplated by clause (ii) of the preceding sentence, the Issuer shall deliver to the Trustee and the Collateral Agent an Officer's Certificate stating that the requirements of such clause (ii) are satisfied. (j) Employees and Employee Plans. The Issuer shall not adopt, ---------------------------- establish, maintain, sponsor, administer, contribute to or participate in any employee benefit plan subject to ERISA or the Internal Revenue Code if such plan could reasonably be expected to give rise to any liability or obligation to contribute that, either alone or in the aggregate with all other such liabilities and obligations, would reasonably be expected to result in a Material Adverse Effect. (k) Replacement Power. The Issuer shall not elect to utilize ----------------- Replacement Power unless (i) it arranges for or enters into an Acceptable Replacement Power Arrangement, (ii) the Issuer is physically, legally or otherwise practically constrained from generating and delivering power; and (iii) such use of Replacement Power would not reasonably be expected to result in a Material Adverse Effect (as certified by the Issuer to the Trustee and the Collateral Agent). (l) Additional Documents. The Issuer shall not enter into any -------------------- material agreements, contracts or other arrangements or commitments other than (a) the Transaction Documents and (b) agreements, contracts or other arrangements or commitments which are (i) contemplated by the Transaction Documents, (ii) entered into by the Issuer with respect to a disposition of assets permitted by Section 5.1(g), (iii) entered into by the Issuer in the -------------- ordinary course of business and which are included in the Annual Operating Budget, or (iv) in substitution for existing agreements, contracts or other arrangements which are on substantially similar terms and conditions, (c) the Shared Facilities Agreements, (d) Permitted PPAs and Acceptable Replacement Power Arrangements, (e) agreements for sale of excess fuel or firm transportation (to the extent not required for the operation of the Project or the performance of the Issuer's obligations under the Power Sales Agreements), the performance of which could not reasonably be expected to result in a Material 91 Adverse Effect, and (f) contracts for emergency repairs or to avoid or minimize unplanned outages. (m) Permitted Subsidiaries. The Issuer shall neither establish nor ---------------------- maintain any Subsidiaries other than the Permitted Subsidiaries and, notwithstanding anything in Section 5.1(c) or 5.1(d) to the contrary, shall -------------- ------ cause each Permitted Subsidiary not to engage in any business or activity, directly or indirectly, except for the businesses and activities in which such Permitted Subsidiary is engaged on the Closing Date. (n) New Generation Facilities. Affiliates of the Issuer are ------------------------- considering the development of New Generation Facilities on land that such Affiliates control adjacent to portions of the Site. If the New Generation Facilities are developed, the owners of the New Generation Facilities will need to enter into certain agreements with the Issuer with respect to Shared Facilities and the use thereof for the benefit of the New Generation Facilities. Some of the Shared Facilities may be facilities that are used by the Issuer in the operation of the Project. The Issuer shall not enter in any Shared Facility Agreement unless the execution, delivery and performance of such Shared Facility Agreement (a) will not result in a Rating Downgrade, as confirmed by each of the Rating Agencies, (b) could not reasonably be expected to result in a Material Adverse Effect (as certified by an Authorized Officer of the Issuer) and (c) will not have a material adverse effect on the operation or technical integrity of the Project, including, without limitation, as to availability and anticipated financial performance (all as certified by the Independent Engineer). ARTICLE VI REDEMPTION OF BONDS ------------------- Section 6.1 Applicability of Article. Bonds of any series that are ------------------------ subject to redemption before their Final Maturity Date shall be redeemed in accordance with their terms and (except as otherwise specified in the Series Supplemental Indenture creating such series) in accordance with this Article VI. ---------- Section 6.2 Election to Redeem; Notice to Trustee. The election of ------------------------------------- the Issuer to redeem any Bonds, otherwise than through a sinking fund, shall be evidenced by an Issuer Order. If the Issuer determines or is required to redeem any Bonds, the Issuer shall, at least 15 days prior to the date upon which notice of redemption is required to be given to the Holders pursuant to Section ------- 6.4, deliver to the Trustee an Issuer Order specifying the date on which such - --- redemption shall occur (the "Redemption Date") as determined in accordance with --------------- this Article VI, the series and principal amount of Bonds to be redeemed and ---------- evidence that the moneys necessary for such redemption will be delivered to the Trustee not later than the Business Day prior to the Redemption Date. In the case of any redemption of Bonds 92 prior to the expiration of any restriction on or condition to such redemption provided in the terms of such Bonds, the Series Supplemental Indenture relating thereto or elsewhere in this Indenture, the Issuer shall furnish the Trustee with an Officer's Certificate and Opinion of Counsel evidencing compliance with such restriction or condition. Section 6.3 Optional Redemption; Extraordinary Mandatory -------------------------------------------- Redemption; Redemption at the Option of the Holders; Selection of Bonds to be - ----------------------------------------------------------------------------- Redeemed. - -------- (a) The Bonds of any series or any portion thereof shall be subject to redemption from time to time at the option of the Issuer only as provided in the Series Supplemental Indenture relating thereto. (b) The Trustee shall apply all funds received by it pursuant to Section 3.9(c) or Sections 3.10(a) through 3.10(c) of the Deposit and - -------------- ---------------- ------- Disbursement Agreement to the redemption of the Bonds, pro rata among each --- ---- series of the Bonds, based upon the then outstanding principal amounts of each series of Bonds, within 90 days after the receipt by the Trustee of such funds in accordance with written allocation instructions from the Issuer provided to the Trustee in accordance with the notice provisions set forth in this Article ------- VI. The foregoing provisions of this Section 6.3(b) may be altered in a Series - -- -------------- Supplemental Indenture, but such altered provisions shall not be effective while any Outstanding Bonds on the date of such Series Supplemental Indenture remain Outstanding. (c) If requested by any Holder, the Outstanding Bonds owned by such Holder shall be redeemed prior to maturity, as a whole or in part, at a Redemption Price equal to 101% of the principal amount thereof plus accrued and unpaid interest thereon to but not including the Redemption Date, upon the occurrence of a Change of Control. Within 5 Business Days after any such request by a Holder, the Issuer shall pay to the Trustee for deposit in the Redemption Sub-Fund of the Bond Fund an amount of funds sufficient to redeem the Outstanding Bonds owned by such Holder. The Trustee shall apply all such funds received by it to the redemption of the Bonds pursuant to this Section 6.3(c) as -------------- soon as practicable after the receipt by the Trustee of such funds in accordance with written allocation instructions from the Issuer provided to the Trustee in accordance with the notice provisions set forth in Article VI. The foregoing ---------- provisions of this Section 6.3(c) may be altered in a Series Supplemental -------------- Indenture, but such altered provisions shall not be effective while any Outstanding Bonds on the date of such Series Supplemental Indenture remain Outstanding. (d) Except as otherwise specified herein or in the Series Supplemental Indenture relating to the Bonds of a series, if less than all of the Bonds of such series are to be redeemed or prepaid pursuant to Section ------- 6.3(a), the particular - ------ 93 Bonds of such series to be redeemed or prepaid shall be selected by the Trustee from the Outstanding Bonds of such series not previously called for redemption or prepayment in whole, by such method (including by lot) as the Trustee shall deem appropriate. (e) The Trustee shall promptly notify the Issuer in writing of the Bonds selected for redemption or prepayment and, in the case of any Bonds to be redeemed or prepaid in part, the principal amount thereof to be redeemed or prepaid. (f) For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption or prepayment of Bonds shall relate, in the case of any Bonds redeemed or prepaid or to be redeemed or prepaid only in part, to the portion of the principal amount of such Bonds that has been or is to be redeemed or prepaid. (g) The Issuer shall execute and deliver to the Trustee from time to time, for safekeeping and subsequent authentication, a stock of definitive registered Bonds of each series in such quantities as the Issuer, after consultation with the Trustee, determines to be sufficient to permit any redemption contemplated by this Indenture. Section 6.4 Notice of Redemption. Except as otherwise specified in -------------------- the Series Supplemental Indenture relating to the Bonds of a series to be redeemed, notice of redemption shall be given in the manner provided in Section ------- 1.5 to the Holders of Bonds of such series to be redeemed at least 30 days but - --- not more than 60 days prior to the Redemption Date. All notices of redemption shall state: (a) the Redemption Price (including any applicable Make-Whole Premium); (b) the Redemption Date; (c) if less than all of the Outstanding Bonds of any series are to be redeemed, the portion of the principal amount of each Bond of such series to be redeemed in part and a statement that, on and after the Redemption Date, upon surrender of such Bond, a new Bond or Bonds of such series in principal amount equal to the remaining unpaid principal amount thereof will be issued; (d) that on and after the Redemption Date, interest thereon will cease to accrue; (e) the Place or Places of Payment where such Bonds are to be surrendered for payment of the Redemption Price (including any applicable Make- Whole Premium); 94 (f) that the redemption is for a sinking fund, if such is the case; (g) that the availability in the Redemption Sub-Fund by 10:00 a.m. New York time on the date of such redemption of an amount of immediately available funds to pay the Bonds to be redeemed in full is a condition precedent to the redemption; and (h) the CUSIP number(s) of the Bonds to be redeemed. Notice of redemption of Bonds to be redeemed shall be given by the Issuer or, at the Issuer's request, by the Trustee in the name and at the expense of the Issuer. Section 6.5 Bonds Payable on Redemption Date. Notice of redemption -------------------------------- having been given as aforesaid, and the conditions, if any, set forth in such notice having been satisfied, the Bonds or portions thereof so to be redeemed shall on the Redemption Date become due and payable, and from and after such date such Bonds or portions thereof shall cease to bear interest. Upon surrender of any such Bond for redemption in accordance with such notice, an amount in respect of such Bond or portion thereof shall be paid as provided therein; provided, however, that any payment of interest on any Bond the Bond -------- ------- Payment Date of which is on or prior to the Redemption Date shall be payable to the Holder of such Bond or one or more Predecessor Bonds registered as such at the close of business on the related Regular Record Date according to the terms of such Bond and subject to the provisions of Section 2.11. ------------ Section 6.6 Bonds Redeemed in Part. Any Bond that is to be ---------------------- redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Issuer or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Issuer and the Trustee duly executed by, the Holder thereof or its attorney duly authorized in writing), and the Issuer shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Bond without service charge, a new Bond or Bonds of the same series, of any authorized denomination requested by such Holder and of like tenor and in aggregate principal amount equal to and in exchange for the remaining unpaid principal amount of the Bond so surrendered. Section 6.7 Cancellation of Bonds. All Bonds redeemed under any --------------------- provision of this Indenture or any Series Supplemental Indenture shall forthwith be cancelled. 95 ARTICLE VII SINKING FUNDS ------------- Section 7.1 Applicability of Article. The provisions of this ------------------------ Article VII shall be applicable to any sinking fund for the retirement of the - ----------- Bonds of any series except as otherwise specified in the Series Supplemental Indenture creating the Bonds of such series. Section 7.2 Sinking Funds for Bonds. Any Series Supplemental ----------------------- Indenture may provide for a sinking fund for the retirement of the Bonds of the series created thereby (a "Sinking Fund") in accordance with which the Issuer ------------ will be required to redeem on the dates set forth therein ("Sinking Fund ------------ Redemption Dates") Bonds of principal amounts set forth therein ("Sinking Fund - ---------------- ------------ Requirements"). - ------------ Except as otherwise specified in the Series Supplemental Indenture relating to the Bonds of a series, the particular Bonds of such series, if any, to be redeemed through a Sinking Fund shall be selected in the manner provided in Section 6.3(d), and notice of such redemption shall be given in the manner -------------- provided in Section 6.4. ----------- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES ------------------------------ Section 8.1 Events of Default. The term "Event of Default," ----------------- ---------------- whenever used herein, shall mean any of the following events (whatever the reason for such event and whether it shall be voluntary or involuntary or come about or be effected by operation of law, or be pursuant to or in compliance with any Applicable Law), on and after the Closing Date, and any such event shall continue to be an Event of Default if and for so long as it shall not have been remedied: (a) the Issuer shall fail to pay or cause to be paid any principal of, premium, if any, or interest on any Bond when the same becomes due and payable, whether by scheduled maturity or required redemption or by acceleration or otherwise, and such failure shall continue uncured for 5 or more days; or (b) any representation or warranty made by the Issuer herein or in any other Financing Document, or in any certificate furnished to the Secured Parties or the Independent Consultants in accordance with the terms of the Financing Documents, shall prove to have been false or misleading in any respect as of the time made, and the fact, event or circumstance that gave rise to such misrepresentation has resulted in or is reasonably expected to result in a Material Adverse Effect and such misrepresentation or such Material Adverse Effect shall continue uncured for 30 or more days from the date the Issuer obtains Knowledge thereof; provided that if the Issuer commences efforts to cure -------- (or to cause to be cured) such misrepresentation by 96 curing (or causing to be cured) the factual situation resulting in such misrepresentation or such Material Adverse Effect within such 30-day period, the Issuer may continue to effect (or cause) such cure, and such misrepresentation shall not be deemed an Event of Default, for an additional 90 days so long as an Authorized Representative of the Issuer certifies to the Trustee and the Collateral Agent that such misrepresentation or such Material Adverse Effect is reasonably capable of being cured within such period and that the Issuer is diligently pursuing (or causing) such cure; or (c) the Issuer shall fail to perform or observe any covenant or agreement described in Section 4.1(d); provided, however, that the Issuer shall -------------- -------- ------- have 5 Business Days grace prior to the occurrence of any Event of Default under this clause (c) to correct or cause to be corrected any error in any endorsement; or (d) the Issuer shall fail to perform or observe in any material respect any covenant or agreement contained in Section 4.1(a) or (q), Section -------------- --- ------- 5.1(b), (c), (d), (e), (f), (g), (h) or (l) and such failure shall continue - ----- --- --- --- --- --- --- --- uncured for 30 or more days after the Issuer has Knowledge of such failure; or (e) the Issuer shall fail to perform or observe in any material respect any of its covenants contained in any other provision of this Indenture (other than those referred to in clauses (a), (c) or (d) above) or any other Financing Document and such failure shall continue uncured for 30 or more days after the Issuer has Knowledge of such failure; provided that if the Issuer -------- commences efforts to cure such default within such 30-day period, the Issuer may continue to effect such cure of the default (and such default shall not be deemed an Event of Default) for an additional 180 days so long as an Authorized Representative of the Issuer provides an Officer's Certificate to the Trustee and the Collateral Agent stating that such default is reasonably capable of being cured within such period and that the Issuer is diligently pursuing the cure; provided further, in the case of a default arising from the Issuer's -------- ------- failure to comply with permits or laws, or to maintain permits, and within such 180 day period the Issuer enters into a consent decree or other arrangement pursuant to which the applicable Governmental Authorities agree to stay or delay enforcement against such non-compliance, then such cure period shall be further extended for the period of such stay or delay; or (f) the Issuer shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or substantially all of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code or any similar or corresponding insolvency law, (iv) file a petition seeking to take advantage of any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against such person 97 in an involuntary case under the Bankruptcy Code or any similar or corresponding insolvency law, (vi) admit in writing its inability, or generally be unable, to pay its debts as such debts become due or (vii) take any corporate or other action for the purpose of effecting any of the foregoing; or (g) a proceeding or case shall be commenced with respect to the Issuer without the application or consent of the Issuer in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution, winding- up, or the composition or readjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Person under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or any order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 90 or more consecutive days, or any order for relief against such person shall be entered in an involuntary case under the Bankruptcy Code or any similar or corresponding insolvency law (each event described in clause (f) and (g) of this Section 8.1, a "Bankruptcy Event"); or - ----------- ---------------- (h) any Lien granted in the Security Documents shall cease to be a perfected Lien in favor of the Collateral Agent on any material portion, taken individually or in the aggregate, of the Collateral described therein (other than with respect to property or assets which the terms of the Financing Documents permit the Issuer to convey or transfer) with the priority purported to be created by the Security Documents; or (i) with respect to any Transaction Document, (i) a term of such Transaction Document (A) ceases to be a valid and binding obligation of the parties thereto or (B) is declared unenforceable by a Governmental Authority, (ii) such Transaction Document is terminated (prior to its scheduled expiration), or (iii) a Project Party denies its liability with respect to a Project Document or such Project Party defaults in respect of its obligations under such Project Document (and any grace or cure period with respect to such failure has expired), and in each case such event described in clauses (i), (ii) or (iii) would reasonably be expected to result in a Material Adverse Effect; provided that none of such events described in clauses (i), (ii) or (iii) shall - -------- be deemed an Event of Default with respect to a Project Document if within 180 days from the occurrence of any such event, the Issuer shall have (A) cured or caused the relevant Project Party to cure the circumstances described in clauses (i), (ii) or (iii), as applicable, and caused the relevant Project Party to resume performance in accordance with the relevant Project Document, or (B) entered into a Replacement Project Document in substitution of the relevant Project Document which is reasonably satisfactory to the Independent Engineer; or (j) the Issuer shall fail to make any payment in respect of any Indebtedness, including Permitted Indebtedness, having an outstanding principal 98 amount of more than $15,000,000 (other than any amount referred to in clause (a) above) when due, and a default and acceleration shall be declared with respect to such Indebtedness and shall not have been rescinded, or such Indebtedness shall not have been repaid; or (k) a final and non-appealable judgment or judgments for the payment of money in excess of $15,000,000 shall be rendered against the Issuer, and the same shall remain unpaid or unstayed for a period of 90 or more consecutive days after such payment is due and payable; or (l) an Event of Abandonment shall occur. Section 8.2 Enforcement of Remedies. (a) If one or more Events of ----------------------- Default shall have occurred and be continuing, then, subject to the terms of the Intercreditor Agreement: (i) in the case of an Event of Default that is a Bankruptcy Event, the entire principal amount of the Outstanding Bonds, all interest accrued and unpaid thereon, and all other amounts payable under the Bonds and this Indenture, if any, shall automatically become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby waived; or (ii) in the case of an Event of Default described in: (A) Section 8.1(a), upon the direction of the Holders of no -------------- less than 33 1/3% in aggregate principal amount of the Outstanding Bonds; or (B) Section 8.1(b), (c), (d), (e), (h), (i), (j), (k) or (l), -------------- --- --- --- --- --- --- --- --- upon the direction of the Holders of not less than a majority in aggregate principal amount of the Outstanding Bonds; the Trustee shall, by written notice to the Issuer, declare the entire principal amount of the Outstanding Bonds, all interest accrued and unpaid thereon, and all other amounts payable under the Bonds and this Indenture, if any, to be due and payable, whereupon the same shall become immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby waived. If an Event of Default occurs and is continuing and if a Responsible Officer of the Trustee has actual knowledge of such Event of Default, the Trustee shall mail to each Holder notice of the Event of Default within 30 days after receipt by the Trustee of notice of such Event of Default. Except in the case of an Event of Default in the payment of principal of or interest on any Bond, the Trustee may (but shall not be obligated to) withhold the notice to the Holders if a committee of Responsible 99 Officers of the Trustee in good faith determines that withholding the notice is in the interest of the Holders. (b) At any time after the principal of the Bonds shall have become due and payable upon a declared acceleration as provided herein, and before any judgment or decree for the payment of the money so due, or any portion thereof, shall be entered, the Holders of not less than a majority in aggregate principal amount of the Outstanding Bonds, by written notice to the Issuer and the Trustee, may rescind and annul such declaration and its consequences if: (i) there shall have been paid to or deposited with the Trustee a sum sufficient to pay: (A) all Overdue Interest on the Bonds; (B) the principal of any Bonds that have become due (including Overdue Principal) other than by such declaration of acceleration and interest thereon at the Post Default Rate; (C) to the extent that payment of such interest is lawful, interest upon Overdue Interest at the Post Default Rate; and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (ii) all Events of Default, other than the nonpayment of the principal of the Bonds that has become due solely by such acceleration, have been cured or waived as provided in Section 8.7. ----------- No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 8.3 Specific Remedies. If any Event of Default shall have ----------------- occurred and be continuing and an acceleration shall have occurred pursuant to Section 8.2, subject to the provisions of Sections 8.4, 8.5, 8.6 and 8.7, the - ----------- ------------ --- --- --- Trustee, by such officer or agent as it may appoint, may deliver notice to the Collateral Agent, in accordance with the Intercreditor Agreement, requesting that the Collateral Agent sell, without recourse, for cash or credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Collateral Agent deems necessary, the Collateral as an entirety, or in any such portions as the Holders of a majority in aggregate principal amount of the Bonds then Outstanding shall request by an Act of Holders, or, in the absence of such request, as the Trustee deems necessary in the interest of the Holders, at public or private sale, provided, however, -------- ------- 100 that the Collateral Agent shall not be required to so sell any such Collateral unless it is required to do so pursuant to the terms of the Intercreditor Agreement. Section 8.4 Judicial Proceedings Instituted by Trustee. (a) If ------------------------------------------ there shall exist an Event of Default, then the Trustee, in its own name, and as trustee of an express trust, subject to the provisions of Sections 2.14, 8.2 and ------------- --- 8.7 and the Intercreditor Agreement, shall be entitled and empowered to - --- institute any suits, actions or proceedings at law, in equity or otherwise, for the collection of the sums so due and unpaid on the Bonds, and may prosecute any such claim or proceeding to judgment or final decree, and, subject to the Security Documents, may enforce any such judgment or final decree and collect the moneys adjudged or decreed to be payable in any manner provided by law, whether before or after or during the pendency of any proceedings for the enforcement of the Lien of this Indenture, or of any of the Trustee's rights or the rights of the Holders under this Indenture, and such power of the Trustee shall not be affected by any sale hereunder or by the exercise of any other right, power or remedy for the enforcement of the provisions of this Indenture or for the foreclosure of the Lien hereof. (b) Trustee May Recover Unpaid Indebtedness after Sale of Indenture --------------------------------------------------------------- Collateral. Subject to Section 2.14, in the case of a sale of the Indenture - ---------- ------------ Collateral, and of the application of the proceeds of such sale and the moneys contained in the Indenture Funds to the payment of the Indebtedness secured by this Indenture, the Trustee in its own name, and as trustee of an express trust, shall be entitled and empowered by any appropriate means, legal, equitable or otherwise, to enforce payment of, and to receive all amounts then remaining due and unpaid upon, all or any of the Bonds, for the benefit of the Holders thereof, and upon any other portion of such Indebtedness remaining unpaid, with interest at the rates specified in the respective Bonds on Overdue Principal and (to the extent that payment of such interest is legally enforceable) on Overdue Interest. (c) Recovery of Judgment Does Not Affect Rights. No recovery of any ------------------------------------------- such judgment or final decree by the Trustee and no levy of any execution under any such judgment upon any of the Indenture Collateral, or upon any other property, shall in any manner or to any extent affect the Lien of this Indenture upon any of the Indenture Collateral, or any rights, powers or remedies of the Trustee, or any liens, rights, powers or remedies of the Holders, but all such liens, rights, powers or remedies shall continue unimpaired as before. (d) Trustee May File Proofs of Claim; Appointment of Trustee as ----------------------------------------------------------- Attorney-in-Fact in Judicial Proceedings. Subject to Sections 2.14 and 8.2 and - ---------------------------------------- ------------- --- the Intercreditor Agreement, the Trustee in its own name, or as trustee of an express trust, or as attorney-in-fact for the Holders, or in any one or more of such capacities (irrespective of whether the principal of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the 101 Trustee shall have made any demand for the payment of Overdue Principal or Overdue Interest), shall be entitled and empowered to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Holders (whether such claims be based upon the provisions of the Bonds or of this Indenture) allowed in any equity, receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or any other judicial proceedings relating to the Issuer, the creditors of the Issuer, the Indenture Collateral or any other property of the Issuer and any receiver, assignee, trustee, liquidator or sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. The Trustee is hereby irrevocably appointed (and the successive respective Holders of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) the true and lawful attorney-in-fact of the respective Holders, with authority to (i) make and file in the respective names of the Holders (subject to deduction from any such claims of the amounts of any claims filed by any of the Holders themselves), any claim, proof of claim or amendment thereof, debt, proof of debt or amendment thereof, petition or other document in any such proceedings and to receive payment of any amounts distributable on account thereof, (ii) execute any such other papers and documents and do and perform any and all such acts and things for and on behalf of such Holders as may be necessary or advisable in order to have the respective claims of the Indenture Collateral or any property of the Issuer allowed in any such proceeding and (iii) receive payment of or on account of such claims and debt; provided, however, that nothing contained in this Indenture shall be deemed to - -------- ------- give to the Trustee any right to accept or consent to any plan or reorganization or otherwise by action of any character in any such proceeding to waive or change in any way any right of any Holder. Any moneys collected by the Trustee under this Section 8.4 shall, subject to the Intercreditor Agreement, be applied as provided in Section 8.11. ------------ (e) Trustee Need Not Have Possession of Bonds. All proofs of claim, ----------------------------------------- rights of action and rights to assert claims under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of the Bonds or the production thereof at any trial or other proceedings instituted by the Trustee. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture or the Bonds to which the Trustee shall be a party) the Trustee shall be held to represent all the Holders of the Bonds and it shall not be necessary to make any such Holders parties to such proceedings. (f) Suit to be Brought for Ratable Benefit of Holders. Any suit, ------------------------------------------------- action or other proceeding at law, in equity or otherwise which shall be instituted by the Trustee under any of the provisions of this Indenture or the Bonds shall be for the 102 equal, ratable and common benefit of all of the Holders, subject to the provisions of this Indenture. (g) Trustee May Be Restored to Former Position and Rights in Certain ---------------------------------------------------------------- Circumstances. In case the Trustee shall have instituted any proceeding to - ------------- enforce any right, power or remedy under this Indenture or the Bonds by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Issuer the Trustee and the Holders shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of the Trustee shall continue as if no such proceedings had been taken. Section 8.5 Holders May Demand Enforcement of Rights by Trustee. --------------------------------------------------- If an Event of Default shall have occurred and be continuing, the Trustee shall, subject to the terms of the Security Documents, upon the written request of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding and upon the offering and provision of indemnity as provided in Section 9.1(d), proceed to institute one or more suits, actions or proceedings - -------------- at law, in equity or otherwise, or take any other appropriate remedy, to enforce payment of the principal of or interest on the Bonds, or to foreclose the Lien of this Indenture or to sell the Indenture Collateral under a judgment or decree of a court or courts of competent jurisdiction or under the power of sale granted herein, or, subject to the terms of the Intercreditor Agreement, take such other appropriate legal, equitable or other remedy, as the Trustee, which may be advised by counsel, shall deem most effectual to protect and enforce any of the rights or powers of the Trustee or the Holders, or, in case such Holders shall have requested a specific method of enforcement permitted hereunder, in the manner requested, provided that such action shall not be otherwise than in -------- accordance with law and the provisions of this Indenture, and the Trustee, subject to Section 9.1(d), shall have the right to decline to follow any such -------------- request if the Trustee in good faith shall determine that the suit, proceeding or exercise of the remedy so requested would involve the Trustee in personal liability or expense. Section 8.6 Control by Holders. Subject to the Intercreditor ------------------ Agreement, the Holders of not less than a majority in aggregate principal amount of the Outstanding Bonds shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (a) such -------- direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may decline to follow such direction if it shall not have been indemnified to its satisfaction pursuant to Section 9.1(d) and (c) the Trustee -------------- may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 8.7 Waiver of Past Defaults or Events of Default. The -------------------------------------------- Holders of not less than a majority in aggregate principal amount of the Outstanding 103 Bonds may on behalf of the Holders of all Bonds waive any past Default or Event of Default and its consequences except that (a) only the Holders of all Bonds affected thereby may waive a Default or an Event of Default in the payment of the principal of and interest on or other amounts due under any Outstanding Bond and (b) except as provided in clause (a), only the Holders of all Outstanding Bonds may waive a Default or an Event of Default in respect of a covenant or provision hereof that under Article XII cannot be modified or amended without ----------- the consent of the Holder of each Outstanding Bond affected. Upon any such waiver, such Default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 8.8 Holder May Not Bring Suit Under Certain Conditions. A -------------------------------------------------- Holder shall not have the right to institute any suit, action or proceeding at law or in equity or otherwise for the appointment of a receiver or for the enforcement of any other remedy under or upon this Indenture, unless: (a) such Holder previously shall have given written notice to a Responsible Officer of the Trustee of a continuing Event of Default; (b) the Holders of at least 25% in aggregate principal amount of the Outstanding Bonds shall have requested a Responsible Officer of the Trustee in writing to institute such action, suit or proceeding and shall have offered and provided to the Trustee an indemnity as provided in Section 9.1(d); -------------- (c) the Trustee shall have refused or neglected to institute any such action suit or proceeding for 60 days after receipt by a Responsible Officer of the Trustee of such notice, request and offer and provision of indemnity; (d) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of Outstanding Bonds; and (e) the institution of such suit, action or proceeding is not prohibited by the Intercreditor Agreement. It is understood and intended that no one or more of the Holders shall have any right in any manner whatever hereunder or under the Bonds to (i) surrender, impair, waive, affect, disturb or prejudice the Lien of this Indenture on any property subject thereto or the rights of the Holders of any other Bonds, (ii) obtain or seek to obtain priority or preference over any other such Holder or (iii) enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all the Holders subject to the provisions of this Indenture. 104 Section 8.9 Undertaking to Pay Court Costs. All parties to this ------------------------------ Indenture, and each Holder by its acceptance of a Bond, shall be deemed to have agreed that any court may in its discretion require, in any suit, action or proceeding against the Trustee for any action taken or omitted by it as Trustee hereunder, the filing by any party litigant in such suit, action or proceeding of an undertaking to pay the costs of such suit, action or proceeding, and that such court may, in its discretion, assess reasonable costs, including reasonable attorney's fees and expenses, against any party litigant in such suit, action or proceeding having due regard to the merits and good faith of the claim or defenses made by such party litigant; provided, however, the provisions of this -------- ------- Section 8.9 shall not apply to (a) any suit, action or proceeding instituted by - ----------- the Trustee, (b) any suit, action or proceeding instituted by any Holder or group of Holders holding in the aggregate more than 10% in aggregate principal amount of the Outstanding Bonds or (c) any suit, action or proceeding instituted by any Holder for the enforcement of the payment of the principal of or interest on any of the Bonds on or after the respective due dates expressed therein. Section 8.10 Right of Holders to Receive Payment Not to be Impaired. ------------------------------------------------------ Anything in this Indenture to the contrary notwithstanding, the right of any Holder to receive payment of the principal of and interest on any Bond on or after the respective due dates expressed in such Bond (or, in case of redemption, on the Redemption Date fixed for such Bond), or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 8.11 Application of Moneys Collected by Trustee. Subject to ------------------------------------------ the Intercreditor Agreement, any money collected or to be applied by the Trustee pursuant to this Article VIII in respect of the Bonds of a series, together with ------------ any other moneys which may then be held by the Trustee under any of the provisions of this Indenture as security for the bonds of such series (other than moneys at the time required to be held for the payment of specific Bonds of such series) shall be applied in the following order from time to time, on the date or dates fixed by the Trustee and, in the case of a distribution of such moneys on account of principal or interest, upon presentation of the Outstanding Bonds of such series, if only partially paid, and upon presentation and surrender thereof, if fully paid: FIRST: to the payment of all amounts due the Trustee or any predecessor Trustee under Section 9.5; ----------- SECOND: in case the unpaid principal amount of the Outstanding Bonds of such series or any of them shall not have become due, to the payment of any Overdue Interest, in the order of the maturity of the payments thereof, with interest at the rates specified in the Bonds of such series in respect of Overdue Interest (to the extent that payment of such interest shall be legally enforceable) on such Overdue Interest; 105 THIRD: in case the unpaid principal amount of a portion of the Outstanding Bonds of such series shall have become due, first to the payment of Overdue Interest on all Outstanding Bonds of such series in the order of the maturity of the payments thereof, together with interest at the respective rates specified in the Bonds of such series for Overdue Principal and (to the extent that payment of such interest shall be legally enforceable) Overdue Interest, and next to the payment of the Overdue Principal on all Bonds of such series then due; FOURTH: in case the unpaid principal amount of all the Outstanding Bonds of such series shall have become due, first to the payment of the whole amount then due and unpaid upon the Outstanding Bonds of such series for principal and interest, together with interest at the respective rates specified in the Bonds of such series for Overdue Principal and (to the extent that payment of such interest shall be legally enforceable) Overdue Interest; and FIFTH: in case the unpaid principal amount of all the Outstanding Bonds of such series shall have become due, and all of the Outstanding Bonds of such series shall have been fully paid, any surplus then remaining shall be paid to the Issuer or any other Person lawfully entitled thereto; provided, however, that all payments in respect of the Bonds of a series to be - -------- ------- made pursuant to clauses "SECOND" through "FOURTH" of this Section 8.11 shall be ------------ made (within each such clause) ratably to the Holders of Bonds of such series entitled thereto, without discrimination or preference, based upon the ratio of (a) the unpaid principal amount of the Bonds of such series in respect of which such payments are to be made that are held by each such Holder to (b) the unpaid principal amount of all Bonds of such series. Section 8.12 Bonds Held by Certain Persons Not to Share in --------------------------------------------- Distribution. Any Bonds actually known to a Responsible Officer of the Trustee - ------------ to be owned or held by, or for the account or benefit of, the Issuer or any member of the Issuer, or an Affiliate of any of the foregoing, shall not be entitled to share in any payment or distribution provided for in this Article ------- VIII until all Bonds held by other Persons have been indefeasibly paid in full - ---- in cash or cash equivalents. Section 8.13 Waiver of Stay or Extension Laws. The Issuer covenants -------------------------------- (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the 106 execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 8.14 Remedies Cumulative; Delay or Omission Not a Waiver. --------------------------------------------------- Each and every right, power and remedy herein specifically given to the Trustee shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Trustee and the exercise or the commencement of the exercise of any right, power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy, and no delay or omission by the Trustee in the exercise of any right, power or remedy or in the pursuance of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of the Issuer or to be an acquiescence therein. Section 8.15 The Intercreditor Agreement and the Collateral Agency ----------------------------------------------------- Agreement. Simultaneously with the execution and delivery of this Indenture, - --------- the Trustee shall enter into the Intercreditor Agreement and the Collateral Agency Agreement and the other Transaction Documents to which it is or is intended to be a party on behalf of itself and all Holders of the Outstanding Bonds and all future Holders of any of the Bonds. Each Holder, by its acceptance of a Bond, authorizes the Trustee to enter into the Intercreditor Agreement and the Collateral Agency Agreement and the other Transaction Documents to which it is or is intended to be a party on its behalf. All rights, powers and remedies (other than as provided in Section 12.2 hereof) ------------ available to the Trustee and the Holders of the Outstanding Bonds, and all future Holders of any of the Bonds, with respect to the Collateral, or otherwise pursuant to the Intercreditor Agreement or the Collateral Agency Agreement and the other Transaction Documents to which it is or is intended to be a party, shall be subject to the Intercreditor Agreement and the Collateral Agency Agreement. In the event of any conflict or inconsistency between the terms and provisions of this Indenture and the terms and provisions of the Intercreditor Agreement or the Collateral Agency Agreement, the terms and provisions of the Intercreditor Agreement and the Collateral Agency Agreement shall govern and control, except to the extent that such provisions conflict with the Trust Indenture Act. In acting, or directing the Intercreditor Agent or the Collateral Agent to act, under the Intercreditor Agreement or the Collateral Agency Agreement, the Trustee shall rely, and shall be fully protected in relying, on instructions given by the Holders in accordance with the terms of this Indenture. If the Trustee is required to vote in any Intercreditor Vote (as defined in the Intercreditor Agreement) pursuant to the Intercreditor Agreement, the Trustee shall cast its votes according to the percentage of Holders voting in favor of or against, as the case may be, the decision which is subject to such Intercreditor Vote. 107 ARTICLE IX CONCERNING THE TRUSTEE ---------------------- Section 9.1 Certain Rights and Duties of Trustee. ------------------------------------ (a) The Trustee may conclusively rely and shall be fully protected in acting, or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties or with respect to any action it takes or omits to take in good faith in accordance with a direction received by it from Holders holding a sufficient percentage of Bonds to give such direction as permitted by this Indenture. (b) Any request, direction, order or demand of the Issuer mentioned herein shall be sufficiently evidenced by an instrument signed in the name of the Issuer by an Authorized Representative; and any Board Resolution of the Issuer shall be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Issuer. (c) The Trustee may consult with counsel of its selection and the advice of counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (d) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture, and may refuse to perform any duty or exercise any such rights or powers unless it shall have been offered and provided reasonable security or indemnity to its satisfaction against the costs, expenses and liabilities which may be incurred therein or thereby. (e) The Trustee shall not be liable for any action taken, suffered or omitted by it and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture (or any other Transaction Document) or with respect to any action it takes or omits to take in accordance with a direction received by it from Holders holding a sufficient percentage of Bonds to give such direction as permitted by this Indenture absent misapplication of monies by the Trustee or gross negligence or willful misconduct on the part of the Trustee. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture or other paper or document with respect to such series of Bonds believed by it to be genuine and to have been signed or presented by the proper parties unless requested 108 in writing to do so by the Holders of not less than a majority in aggregate principal amount of the Bonds of such series then Outstanding; provided that, if -------- the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity satisfactory to it against such expenses or liabilities as a condition to so proceeding. (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Trustee shall not be responsible for any act or omissions on the part of any agent or attorney appointed with due care by it hereunder or under any of the other Transaction Documents. (h) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs in a similar situation. (i) Except during the continuance of an Event of Default: (i) the Trustee need perform only those duties as are specifically set forth in this Indenture and the other Financing Documents to which it is a party and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (j) Every provision of this Indenture that in any way relates to the Trustee is subject to this Section 9.1. ----------- (k) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that 109 (1) this Subsection (l) shall not be construed to limit the effect of Subsection (i) of this Section; (2) the Trustee shall not be liable for any error of judgement made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Bonds of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Bonds of such series. (l) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Bonds and this Indenture; and (m) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. Section 9.2 Trustee Not Responsible for Recitals, Etc. The ------------------------------------------ recitals contained herein and in the Bonds, except the Trustee's certificate of authentication, shall be taken as the statements of the Issuer and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture, the Indenture Collateral or of the Bonds. The Trustee shall not be accountable for the use or application by the Issuer of any of the Bonds or of the proceeds of such Bonds. Section 9.3 Trustee and Others May Hold Bonds. The Trustee or any --------------------------------- Paying Agent or Security Registrar or any other Authorized Agent of the Trustee, or any Affiliate thereof, in its individual or any other capacity, may become the owner or pledgee of Bonds and may otherwise deal with the Issuer or any other obligor on the Bonds with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other Authorized Agent. 110 Section 9.4 Moneys held by Trustee or Paying Agent; Investments. --------------------------------------------------- All moneys received by the Trustee or any Paying Agent shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. Neither the Trustee nor any Paying Agent shall be under any liability for interest on any moneys received by it hereunder except such as it may agree in writing with the Issuer to pay thereon. Section 9.5 Compensation of Trustee and Its Lien. For so long as ------------------------------------ any of the Bonds shall remain outstanding, the Issuer covenants and agrees to pay to the Trustee (all references in this Section 9.5 to the Trustee shall be ----------- deemed to apply to the Trustee in its capacities as Trustee, Paying Agent, Securities Intermediary, Collateral Agent, Intercreditor Agent, Administrative Agent and Security Registrar) from time to time, and the Trustee shall be entitled to, compensation for all services rendered by it hereunder (which shall be agreed to from time to time by the Issuer and the Trustee and which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and, except as herein otherwise expressly provided, the Issuer shall pay or reimburse the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense or disbursement as may arise from its gross negligence, willful misconduct or bad faith misapplication of monies. The Issuer covenants and agrees to indemnify the Trustee or any predecessor Trustee and their agents for and to hold them harmless against, any loss, liability, claim, damage or expense incurred without gross negligence, willful misconduct or bad faith misapplication of monies on the part of the Trustee or any of its employees, officers, affiliates or agents, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including liability which the Trustee may incur as a result of failure to withhold, pay or report Taxes and including the costs and expenses of defending itself against any claim or liability in the premises. Nothing in this Indenture shall be construed to require the Trustee to make advances. The obligations of the Issuer under this Section 9.5 shall survive ----------- payment in full of the Bonds, the resignation or removal of the Trustee and the termination of this Indenture. When the Trustee or any predecessor Trustee incurs expenses or renders services in connection with the performance of its obligations hereunder (including its services as Paying Agent, if so appointed by the Issuer) after an Event of Default specified in Section 8.1(g) or (h) occurs, the expenses and -------------- --- compensation for such services are intended to constitute expenses of administration under applicable bankruptcy, insolvency or other similar United States federal or state law to the extent provided in Section 503(b)(5) of the Bankruptcy Code. 111 The Trustee shall have a Lien prior to the Bonds as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 9.5, except with respect to funds held in trust ----------- for the benefit of the Holders of particular Bonds. Section 9.6 Right of Trustee to Rely on Officer's Certificates and ------------------------------------------------------ Opinions of Counsel. Before the Trustee acts or refrains from acting with - ------------------- respect to any matter contemplated by this Indenture, it may require an Officer's Certificate or an Opinion of Counsel, which shall conform to the provisions of Section 1.3. The Trustee shall not be liable for any action it ----------- takes or omits to take in good faith in reliance on such certificate or opinion as set forth in Section 9.1(a). -------------- Section 9.7 Persons Eligible for Appointment As Trustee. There ------------------------------------------- shall at all times be a Trustee hereunder which shall at all times be a corporation which complies with the eligibility requirements of the Trust Indenture Act, having a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of a supervising or examining authority referred to in Section 310(a) of the Trust Indenture Act, then for the purposes of this Section 9.7, the combined capital and surplus of such corporation shall be - ----------- deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with this Section 9.7, the Trustee shall resign ----------- immediately in the manner and with the effect specified in Section 9.8. ----------- Section 9.8 Resignation and Removal of Trustee; Appointment of -------------------------------------------------- Successor. (a) The Trustee, or any trustee or trustees hereafter appointed, may - --------- at any time resign with respect to any one or more or all series of Bonds by giving written notice to the Issuer and by giving notice of such resignation to the Holders of Bonds in the manner provided in Section 1.5, provided, that if ----------- -------- the Trustee is also the Inercreditor Agent, Collateral Agent and/or the Administrative Agent, it must also forfeit these roles, as applicable, if it resigns as trustee. (b) In case at any time any of the following shall occur with respect to any series of Bonds: (i) the Trustee shall cease to be eligible under Section 9.7 ----------- and shall fail to resign immediately in accordance with Section 9.7 after ----------- written request therefor by the Issuer or by any Holder of such series, or (ii) the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, 112 then, in any such case, (A) the Issuer may remove the Trustee with respect to the applicable series of Bonds and appoint a successor trustee by written instrument, in duplicate, or (B) subject to the requirements of Section 8.9, any ----------- Holder who has been a bona fide Holder of a Bond or Bonds of any such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to such series of Bonds. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor Trustee with respect to such series of Bonds. (c) The Holders of a majority in aggregate principal amount of the Bonds at the time Outstanding may at any time remove the Trustee and appoint a successor Trustee by delivering to the Trustee so removed, to the successor Trustee so appointed and to the Issuer, the evidence provided for in Section ------- 10.1 of the action taken by the Holders. - ---- (d) If the Trustee shall resign, be removed or become incapable of acting or if a vacancy shall occur in the office of Trustee with respect to Bonds of any series for any cause, the Issuer may promptly appoint a successor Trustee or Trustees with respect to the applicable series of Bonds by written instrument, in duplicate, executed by resolution of the Management Committee of the Issuer, one copy each of which instruments shall be delivered to the former Trustee and one copy to the successor Trustee. If no successor Trustee shall have been so appointed with respect to a particular series and have accepted such appointment pursuant to Section 9.9 within 30 days after the mailing of ----------- such notice of resignation or removal, the former Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee at the sole cost and expense of the Issuer, or any Holder who has been a bona fide Holder of a Bond or Bonds of the applicable series for at least six months may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee. (e) Any resignation or removal of the Trustee and any appointment of a successor Trustee pursuant to this Section 9.8 shall become effective only ----------- upon acceptance of appointment by the successor Trustee as provided in Section ------- 9.9. - --- Section 9.9 Acceptance of Appointment by Successor Trustee. Any ---------------------------------------------- successor Trustee appointed under Section 9.8 shall execute, acknowledge and ----------- deliver to the Issuer and to its predecessor Trustee with respect to any or all applicable series of Bonds an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, 113 shall become vested with all the rights, powers, trusts, duties and obligations with respect to such series of its predecessor Trustee hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Issuer or of the successor Trustee, the Trustee ceasing to act shall, upon payment of any such amounts then due it pursuant to the provisions of Section 9.5, execute and deliver an instrument transferring to ----------- such successor Trustee all of the rights, powers and trusts with respect to such series of the Trustee so ceasing to act. Upon request of any such successor Trustee, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or collected by such Trustee to secure any amounts then due it pursuant to Section 9.5. ----------- In the case of the appointment hereunder of a successor Trustee with respect to the Bonds of one or more (but not all) series, the Issuer, the predecessor Trustee and each successor Trustee with respect to the Bonds of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such mutually agreeable provisions as shall be deemed necessary or desirable to confirm that all of the rights, powers, trusts and duties of the predecessor Trustee with respect to the Bonds of any series as to which the predecessor Trustee is not retiring shall continue to be vested in the predecessor Trustee, and shall, by mutual agreement, add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-Trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee. No successor Trustee with respect to any series of Bonds shall accept appointment as provided in this Section unless at the time of such acceptance such successor Trustee shall with respect to such series be eligible under Section 9.7. - ----------- Upon acceptance of appointment by a successor Trustee with respect to the Bonds of any series, the Issuer shall give notice of the succession of such Trustee hereunder to the Holders of Bonds in the manner provided in Section 1.5. ----------- If the Issuer fails to give such notice within 10 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be given at the expense of the Issuer. Section 9.10 Merger, Conversion or Consolidation of Trustee. Any ---------------------------------------------- Person into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor 114 of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such -------- successor Trustee shall be eligible under the provisions of Section 9.7 and ----------- Section 310(a) of the Trust Indenture Act. Section 9.11 Maintenance of Offices and Agencies. (a) There shall ----------------------------------- at all times be maintained in the City of New York, and in such other Places of Payment, if any, as shall be specified for the Bonds of any series in the related Series Supplemental Indenture, an office or agency where Bonds may be presented or surrendered for registration of transfer or exchange and for payment of principal and interest. Such office shall be initially located at the following address: Bank One Trust Company, National Association, 153 West 51/st/ Street, Mail Suite IL1-4015, New York, New York 10019, Attention: Global Corporate Trust Services. Notices and demands to or upon the Trustee in respect of the Bonds of this Indenture may be served at the Corporate Trust Office. Written notice of the location of each of such other office or agency and of any change of location thereof shall be given by the Issuer to the Trustee and by the Trustee to the Holders in the manner specified in Section 1.5. In the event that no such ----------- office or agency shall be maintained or no such notice of location or of change of location shall be given, presentation, surrenders and demands may be made and notices may be served at the Corporate Trust Office. (b) There shall at all times be a Security Registrar and a Paying Agent hereunder. In addition, at any time when any Bonds remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents with respect to the Bonds of one or more series which shall be authorized to act on behalf of the Trustee to authenticate Bonds of such series issued upon original issuance, exchange, registration of transfer or partial redemption thereof or pursuant to Section 2.9, and Bonds so authenticated shall be entitled to the benefits of - ----------- this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder (it being understood that wherever reference is made in this Indenture to the authentication and delivery of Bonds by the Trustee or the Trustee's certification of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent). If an appointment of an Authenticating Agent with respect to the Bonds of one or more series shall be made pursuant to this Section 9.11(b), the Bonds of such series may have endorsed thereon, in addition - --------------- to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: The Bond is one of the series of Bonds referred to in the within- mention Indenture. _______________________________ Trustee 115 By:____________________________ Authenticating Agent By:____________________________ Authorized Signatory Any Authorized Agent shall be a bank or trust company, shall be a Person organized and doing business under the laws of the United States or any State thereof, with a combined capital and surplus of at least $50,000,000, and shall be authorized under such laws to exercise corporate trust powers, subject to supervision by United States federal or state authorities. If such Authorized Agent publishes reports of its condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 9.11, the combined capital and ------------ surplus of such Authorized Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authorized Agent shall cease to be eligible in accordance with the provisions of this Section 9.11, such Authorized Agent shall resign immediately ------------ in the manner and with the effect specified on this Section 9.11. ------------ The Trustee at its office specified in the first paragraph of this Indenture is hereby appointed as Paying Agent and Security Registrar hereunder. (c) Any Paying Agent (other than the Trustee) from time to time appointed hereunder shall execute and deliver to the Trustee an instrument in which said Paying Agent shall agree with the Trustee, subject to the provisions of this Section 9.11, that such Paying Agent will: ------------ (i) hold all sums held by it for the payment of principal of and interest on Bonds in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (ii) give the Trustee within five days thereafter notice of any default by any obligor upon the Bonds in the making of any such payment of principal or interest; and (iii) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. Notwithstanding any other provision of this Indenture, any payment required to be made to or received or held by the Trustee may, to the extent authorized by written instructions of the Trustee, be made to or received or held by a Paying Agent in the Borough of Manhattan, The City of New York, for the account of the Trustee. 116 (d) Any Person into which any Authorized Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, consolidation or conversion to which any Authorized Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of any Authorized Agent, shall be the successor to such Authorized Agent hereunder, if such successor Person is otherwise eligible under this Section 9.11, without the execution or filing of any paper or any further ------------ act on the part of the parties hereto or such Authorized Agent or such successor Person. (e) Any Authorized Agent may at any time resign by giving written notice of resignation to the Trustee and the Issuer. The Issuer may, and at the request of the Trustee shall, at any time, terminate the agency of any Authorized Agent by giving written notice of such termination to the Authorized Agent and the Trustee. Upon the resignation or termination of an Authorized Agent or in case at any time any such Authorized Agent shall cease to be eligible under this Section 9.11 (when, in either case, no other Authorized ------------ Agent performing the functions of such Authorized Agent shall have been appointed), the Issuer shall promptly appoint one or more qualified successor Authorized Agents approved by the Trustee to perform the functions of the Authorized Agent which has resigned or whose agency has been terminated or who shall have ceased to be eligible under this Section 9.11. The Issuer shall give ------------ written notice of any such appointment to all Holders as their names and addresses appear on the Security Register. Section 9.12 Trustee Risk. None of the provisions contained in this ------------ Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers. Whether or not expressly provided herein, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to Section 9.1. - ----------- Section 9.13 Appointment of Co-Trustee. It is the purpose of this ------------------------- Indenture that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in case of litigation under this Indenture or any other Transaction Document, and in particular in case of the enforcement of any such document on default, or in case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties in trust as herein granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee. The following provisions of this Section 9.13 are adopted to these ends. ------------ 117 In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vested in such separate or co-trustee, but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them. Should any instrument in writing be required by the separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to him or it such properties, rights, powers, suits, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate trustee or co-trustee, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co- trustee. No trustee shall be personally liable by reason of any act or omission of any other trustee hereunder. The Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. Section 9.14 Disqualification; Conflicting Interests. --------------------------------------- (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section 9.14, then, within 90 days after ascertaining that it ------------ has such conflicting interest, and if the default (for purposes of this Section ------- 9.14, a default shall mean a default in payment of principal which shall have - ---- continued for 30 days or more and shall not have been cured) to which such conflicting interest relates has not been cured or duly waived or otherwise eliminated before the end of such 90-day period, it shall resign in the manner and with the effect hereinafter specified in this Article IX. ---------- (b) In the event that the Trustee shall fail to comply with the provisions of subsection (a) of this Section 9.14, the Trustee shall, within 10 ------------ days after the expiration of such 90-day period, transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such failure. (c) For the purposes of this Section 9.14, the Trustee shall be ------------ deemed to have a conflicting interest if the Bonds are in default and: 118 (i) the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of any obligor on the Bonds are outstanding unless (A) the Bonds are collateral trust notes under which the only collateral consists of securities issued under such other indenture, (B) such other indenture is a collateral trust indenture under which the only collateral consists of Bonds issued under this Indenture or (C) such obligor has no substantial unmortgaged assets and is engaged primarily in the business of owning, or of owning and developing and/or operating, real estate, and this Indenture and such other indenture are secured by wholly separate and distinct parcels of real estate, provided that there shall be excluded from the operation of this paragraph other series under this Indenture; (ii) the Trustee or any of its directors or executive officers is an underwriter for an obligor on the Bonds; (iii) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of any obligor on the Bonds, or of an underwriter (other than the Trustee itself) for such obligor who is currently engaged in the business of underwriting, except that (A) one individual may be a director or an executive officer, or both, of the Trustee and a director or an executive officer, or both, of an obligor on the Bonds but may not be at the same time an executive officer of both the Trustee and such obligor, (B) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director or an executive officer, or both, of the Trustee and a director of an obligor on the Bonds, and (C) the Trustee may be designated by an obligor on the Bonds or by any underwriter for such obligor to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary, or in any other similar capacity, or subject to the provisions of paragraph (i) of this subsection, to act as trustee, whether under an indenture or otherwise; (iv) 10% or more of the voting securities of the Trustee are beneficially owned either by any obligor on the Bonds or by any director, partner or executive officer thereof, or 20% or more of such voting securities are beneficially owned, collectively, by any two or more of such Persons; or 10% or more of the voting securities of the Trustee are beneficially owned either by an underwriter for any obligor on the Bonds or by any director, partner or executive officer thereof, or are beneficially owned collectively by any two or more of such Persons; (v) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, (A) 5% or more of the voting securities, or 10% or more of any other class of security, of any obligor on the Bonds not including the Bonds issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (B) 10% or more of any class of security of an underwriter for any obligor on the Bonds; 119 (vi) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, any obligor on the Bonds; (vii) the Trustee is the beneficial owner of, or holds collateral security for an obligation which is in default, 10% or more of any class of security of any person who, to the knowledge of the Trustee, owns 50% or more of the voting securities of any obligor on the Bonds; (viii) the Trustee owns, on the date of default upon the Bonds or any anniversary of such default while such default upon the Bonds remains outstanding, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraphs (v), (vi) or (vii) of this subsection. As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the immediately preceding sentence shall not apply for a period of not more than two years from the date of such acquisition to the extent that such securities included in such estate do not exceed 25% of such voting securities or 25% of any such class of security. Promptly after the dates of any such default upon the Bonds and annually in each succeeding year that the Bonds remain in default, the Trustee shall make a check of its holdings of such securities in any of the above- mentioned capacities as of such dates. If any obligor on the Bonds fails to make payment in full of the principal of, premium, if any, or interest on any of the Bonds when and as the same becomes due and payable and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and, after such date, notwithstanding the foregoing provisions of this paragraph, all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall be considered as though beneficially owned by the Trustee for the purposes of paragraphs (v), (vi) and (vii) of this subsection; or (ix) except under the circumstances described in Section 9.3 or ----------- Section 9.5, the Trustee shall be or shall become a creditor of the obligor. - ----------- For the purposes of paragraph (i) of this subsection, the term "series of securities" or "series" means a series, class or group of Bonds issuable under this Indenture pursuant to whose terms Holders of one such series may vote to direct the Trustee, or otherwise take action pursuant to a vote of such Holders, separately from 120 Holders of another such series, provided that "series of securities" or "series" -------- ---- shall not include any series of Bonds issuable under this Indenture if all such series rank equally and are wholly unsecured. The specification of percentages in paragraphs (iv) to (viii) inclusive, of this subsection, shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (iii) or (vi) of this subsection. For the purposes of paragraphs (v), (vi), (vii) and (viii) of this subsection only, (A) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys loaned to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness, and (B) the Trustee shall not be deemed to be the owner or holder of (1) any security that it holds as collateral security, as trustee or otherwise, for an obligation which is not in default, or (2) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (3) any security that it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity. Except as provided in the next preceding paragraph, the word "security" or "securities" as used in this Indenture shall mean any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for security, fractional undivided interest in oil, gas or other mineral rights, any put, call, straddle, option or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereon) or any put, call, straddle, option or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security," or any certificate or interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to purchase, any of the foregoing. (d) For the purposes of this Section: (i) The term "underwriter" when used with reference to any obligor on the Bonds, means every person who, within one year prior to the time as of which the determination is made, has purchased from such obligor with a view to, or has offered or sold for such obligor in connection with, the distribution of any security of such obligor outstanding at such time, or has participated or has had a 121 direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. (ii) The term "director" means any director of a corporation, or any individual performing similar functions with respect to any organization whether incorporated or unincorporated. (iii) The term "person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization or a government or political subdivision thereof. As used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security. (iv) The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person. (v) The term "obligor" means the Issuer. (vi) The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors. (e) The percentage of the voting securities and other securities specified in this Section 9.14 shall be calculated in accordance with the ------------ following provisions: (i) A specified percentage of the voting securities of the Trustee, any obligor or any other person referred to in this Section 9.14 (each ------------ of whom is referred to as a "person" in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. 122 (ii) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. (iii) The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares and the number of units if relating to any other kind of security. (iv) The term "outstanding" as used in this Section 9.14 means ------------ issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: (A) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; (B) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise; (C) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and (D) securities held in escrow if placed in escrow by the issuer thereof; provided, however, that any voting securities of an issuer shall be deemed - -------- ------- outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. (v) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders substantially the same rights and privileges; provided, however, that in the -------- ------- case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture. Section 9.15 Reports by Trustee. ------------------ (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the 123 Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15 following the date of this Indenture, deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of such Section 313(a). (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange, if any, upon which the Bonds are listed, with the SEC and with the Issuer. The Issuer will promptly notify the Trustee when the Securities are listed on any stock exchange and of any delisting thereof. Section 9.16 Limitation on Duty of Trustee in Respect of Collateral. ------------------------------------------------------ (a) Beyond the exercise of reasonable care in the custody thereof, the Trustee shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to preservation of rights against prior parties or any other rights pertaining thereto and the Trustee shall not be responsible for filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times or otherwise perfecting or maintaining the perfection of any security interest in the Collateral. The Trustee shall be deemed to have exercised reasonable care in the custody of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property and shall not be liable or responsible for any loss or diminution in the value of any of the Collateral, by reason of the act or omission of any carrier, forwarding agency or other agent or bailee selected by the Trustee in good faith. (b) The Trustee shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Liens in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder, except to the extent such action or omission constitutes negligence, bad faith or wilful misconduct on the part of the Trustee, for the validity or sufficiency of the Collateral or any agreement or assignment contained therein, for the validity of the title of the Issuer to the Collateral, for insuring the Collateral or for the payment of taxes, charges, assessments or Liens upon the Collateral or otherwise as to the maintenance of the Collateral. Section 9.17 No Liability for Clean-up of Hazardous Materials. In ------------------------------------------------ the event that the Trustee is required to acquire title to an asset for any reason, or take any managerial action of any kind in regard thereto, in order to carry out any fiduciary or trust obligation for the benefit of another, which in the Trustee's sole discretion may cause the Trustee to be considered an "owner or operator" under the 124 provisions of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 72 U.S.C. (S)9601, et seq., or otherwise cause the ------ ------ Trustee to incur liability under CERCLA or any other federal, state or local law, the Trustee reserves the right to, instead of taking such action, either resign as Trustee or arrange for the transfer of the title or control of the asset to a court appointed receiver. The Trustee shall not be liable to the Issuer or any other Persons for any environmental claims or contribution actions under any federal, state or local law, rule or regulation by reason of the Trustee's actions and conduct as authorized, empowered and directed hereunder or relating to the discharge, release or threatened release of hazardous materials into the environment. ARTICLE X CONCERNING THE HOLDERS ---------------------- Section 10.1 Acts of Holders. (a) Any request, demand, --------------- authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders (collectively, an "Act" of such --- Holders, which term also shall refer to the instruments or record evidencing or embodying the same) may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing or, alternatively, may be embodied in and evidenced by the record of Holders of Bonds voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Bonds duly called and held in accordance with the provisions of Article XI, or a ---------- combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record, or both, are received by the Trustee, and when it is specifically required herein, by the Issuer. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 9.1) conclusive in favor of ----------- the Trustee, and the Issuer, if made in the manner provided in this Section ------- 10.1. The record of any meeting of Holders of Bonds shall be proved in the - ---- manner provided in Section 11.6. ------------ (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the certificate of any public or other officer of any jurisdiction authorized to take acknowledgments of deeds or administer oaths that the Person executing such instrument acknowledged to such officer the execution thereof, or by an affidavit of a witness to such execution sworn to before any such notary or other such officer, and where such execution is by an officer of a corporation or association or of a partnership, on behalf of such corporation, association or partnership, such certificate or affidavit shall also constitute sufficient proof of such Person's authority. The fact and date of the execution of any such 125 instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The principal amount and serial numbers of Bonds held by any Person, and the date or dates of holding the same, shall be proved by the Security Register and the Trustee shall not be affected by notice to the contrary. (d) Any Act by the Holder of any Bond (i) shall bind every future Holder of the same Bond and the Holder of every Bond issued upon the transfer thereof or the exchange therefor or in lieu thereof, whether or not notation of such action is made upon such Bond and (ii) shall be valid notwithstanding that such Act is taken in connection with the transfer of such Bond to any other Person, including the Issuer or any Affiliate thereof. (e) Until such time as written instruments shall have been delivered with respect to the requisite percentage of principal amount of Bonds for the Act contemplated by such instruments, any such instrument executed and delivered by or on behalf of a Holder of Bonds may be revoked with respect to any or all of such Bonds by written notice by such Holder (or its duly appointed agent) or any subsequent Holder (or its duly appointed agent), proven in the manner in which such instrument was proven unless such instrument is by its terms expressly irrevocable. (f) Bonds of any series authenticated and delivered after an Act of Holders may, and shall if required by the Issuer, bear a notation in a form approved by the Issuer as to any action taken by such Act of Holders. If the Issuer shall so determine, new Bonds of any series so modified as to conform, in the opinion of the Issuer, to such action, may be prepared and executed by the Issuer and authenticated and delivered by the Trustee in exchange for outstanding Bonds of such series, which outstanding bonds shall be cancelled by the Trustee. The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to sign any instrument evidencing or embodying an Act of the Holders. If a record date is fixed, those Persons who were Holders at such record date (or their duly appointed agents), and only those Persons, shall be entitled to sign any such instrument evidencing or embodying an Act of Holders or to revoke any such instrument previously signed, whether or not such Persons continue to be Holders after such record date. No such instrument shall be valid or effective if signed more than 90 days after such record date, and may be revoked as provided in paragraph (e) above. Section 10.2 Bonds Owned by the Issuer or Affiliates Deemed Not -------------------------------------------------- Outstanding. In determining whether the Holders of the requisite aggregate - ----------- principal amount of Bonds have concurred in any request, demand, authorization, direction, 126 notice, consent and waiver or other act under this Indenture, Bonds which are owned by the Issuer or any member of the Issuer or any Affiliate of any of the foregoing shall be disregarded and deemed not to be Outstanding for the purpose of any such determination except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds for which a Responsible Officer of the Trustee has received written notice of such ownership as conclusively evidenced by the Security Register shall be so disregarded. The Issuer shall furnish the Trustee, upon its reasonable request, with a list of such Affiliates. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 10.2, if the pledgee shall establish to the ------------ satisfaction of the Trustee that the pledgee has the right to vote such Bonds and that the pledgee is not an Affiliate of the Issuer. In case of a dispute as to such right, any decision by the Trustee, taken upon the advice of counsel, shall be full protection to the Trustee. ARTICLE XI HOLDERS' MEETINGS ----------------- Section 11.1 Purposes for Which Holders' Meetings May Be Called. A -------------------------------------------------- meeting of Holders may be (but shall not be required to be) called at any time and from time to time pursuant to this Article XI for any of the following ---------- purposes: (a) to give any notice to the Issuer or to the Trustee, or to give any directions to the Trustee, or to waive or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to Article IX; ---------- (b) to remove the Trustee and appoint a successor Trustee pursuant to Article IX; - ---------- (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to Section 12.2; ------------ (d) to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Bonds under any other provision of this Indenture or under applicable law; or (e) canvas Holders for any vote held pursuant to the terms of the Intercreditor Agreement. Section 11.2 Call of Meetings by Trustee. The Trustee may at any --------------------------- time call a meeting of Holders of any series to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and the place of such 127 meeting and in general terms the action proposed to be taken at such meeting, shall be given by the Trustee, in the manner provided in Section 1.5, not less ----------- than 10 nor more than 180 days prior to the date fixed for the meeting, to the Holders of Bonds of such series. Section 11.3 Issuer and Holders May Call Meeting. In case the ----------------------------------- Issuer or the Holders of at least 10% in aggregate principal amount of the Bonds of any series then Outstanding shall have requested the Trustee to call a meeting of Holders of such series, by written request setting forth in general terms the action proposed to be taken at the meeting, and the Trustee shall not have made the mailing of the notice of such meeting within 20 days after receipt of such request, then the Issuer or the Holders of such Bonds in the amount above specified may determine the time and the place in the Borough of Manhattan, The City of New York, for such meeting and may call such meeting to take any action authorized in Section 11.1 by giving notice thereof as provided ------------ in Section 11.2. ------------ Section 11.4 Persons Entitled To Vote at Meeting. To be entitled to ----------------------------------- vote at any meeting of Holders a Person shall be (a) a Holder of one or more Outstanding Bonds with respect to which such meeting is being held or (b) a Person appointed by an instrument in writing as proxy for the Holder or Holders of such outstanding bonds by a holder of one or more such Outstanding Bonds. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Issuer and its counsel. Section 11.5 Determination of Voting Rights; Conduct and Adjournment ------------------------------------------------------- of Meeting. Notwithstanding any other provisions of this Indenture, the Trustee - ---------- may make such reasonable regulations as it may deem advisable for any meeting of Holders, in regard to proof of the holding of Bonds and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the meeting as it shall think fit. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 10.1 or other proof. Except as otherwise permitted or ------------ required by any such regulations, the holding of Bonds shall be proved in the manner specified in Section 10.1 and the appointment of any proxy shall be ------------ proved in the manner specified in Section 10.1 or by having the signature of the ------------ Person executing the proxy witnessed or guaranteed by any bank, banker, trust company or firm satisfactory to the Trustee. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Issuer or Holders as provided in Section 11.3, in which case the Issuer or the Holders ------------ calling 128 the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in principal amount of the Bonds represented at the meeting and entitled to vote. Subject to the provisions of Section 10.2, at any meeting each Holder ------------ of a Bond of a series or proxy shall be entitled to one vote for each $100 principal amount of Bonds of such series held or represented by him; provided, -------- however, that no vote shall be cast or counted at any meeting in respect of any - ------- Bond challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Bonds of such series held by him or instruments in writing as aforesaid duly designating him as the Person to vote on behalf of other Holders of such series. Any meeting of Holders duly called pursuant to Section 11.2 or 11.3 may be adjourned from time to time, and the meeting may be - ------------ ---- held as so adjourned without further notice. At any meeting, the presence of Persons holding or representing Bonds with respect to which such meeting is being held in an aggregate principal amount sufficient to take action upon the business for the transaction of which such meeting was called shall be necessary to constitute a quorum; but, if less than a quorum may be present, the Persons holding or representing a majority of the Bonds represented at the meeting may adjourn such meeting with the same effect, for all intents and purposes, as though a quorum had been present. Section 11.6 Counting Votes and Recording Action of Meeting. The ---------------------------------------------- vote upon any resolution submitted to any meeting of Holders of a series shall be by written ballots on which shall be subscribed the signatures of the Holders of Bonds of such series or of their representatives by proxy and the serial numbers and principal amounts of the Bonds of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 11.2. The record shall show the serial numbers (if any) of ------------ the Bonds voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Issuer and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. 129 Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE XII SUPPLEMENTAL INDENTURES ----------------------- Section 12.1 Supplemental Indentures and Amendments to Financing --------------------------------------------------- Documents Without Consent of Holders. Without the consent of the Holders of any - ------------------------------------ Bonds, the Issuer, when authorized by a resolution of the Management Committee of the Issuer (copies of which shall be delivered to the Trustee), and the Trustee (or, if the Trustee is not a party to such Financing Document or if another agent is also a party to such Financing Document, the Collateral Agent, the Administrative Agent, the Intercreditor Agent and/or the Securities Intermediary), at any time and from time to time, may enter into or consent to amendments or supplements to the Financing Documents (including this Indenture) in form satisfactory to the Trustee, for any of the following purposes: (a) to establish the form and terms of Bonds of any series permitted by Sections 2.1, 2.3 and 2.7, and to provide for the issuance of exchange Bonds ------------ --- --- as contemplated hereby; or (b) to evidence the succession of another entity to the Issuer and the assumption by any such successor of the covenants of the Issuer incorporated herein by reference or herein contained; or (c) to evidence the succession of a new Trustee hereunder pursu-ant to Section 9.9; or ----------- (d) to add to the covenants of the Issuer, for the benefit of the Holders, or to surrender any right or power conferred in this Indenture or any other Financing Document upon the Issuer; or (e) to convey, transfer and assign to the Trustee properties or assets to secure the Bonds, or to the Collateral Agent properties or assets to secure the Senior Secured Obligations, and to correct or amplify the description of any property at any time subject to the Lien of this Indenture or the Lien of any Security Document or to assure, convey and confirm unto the Trustee any property subject or required to be subject to the Lien of this Indenture or unto the Collateral Agent any property subject to or required to be subject to the Lien of the Security Documents; or (f) to release any Collateral which the Issuer sells pursuant to Section 5.1(g); or - -------------- 130 (g) in connection with and to reflect any amendments to the provisions hereof required by a Rating Agency in circumstances in which a rating reaffirmation is required under this Indenture; provided, however, such -------- ------- amendments are not, in the judgment of the Trustee, to the prejudice of the Holders or the Trustee; or (h) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to register any Bonds under the Securities Act or the Exchange Act, or to comply with any applicable rules or regulations of any securities exchange on which any Bonds may be listed or to qualify, requalify or continue the qualification of this Indenture (including any supplemental indenture) under the Trust Indenture Act, or under any similar United States federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by the Trust Indenture Act, excluding, however, the provisions referred to in Section 316(a)(2) of the Trust Indenture Act as in effect at the date as of which this Indenture was executed or any corresponding provision in any similar United States federal statute hereafter enacted; or (i) to permit or facilitate the issuance of Bonds in uncertificated form; or (j) to cure any ambiguity, to correct or supplement any provision in any Financing Document (including this Indenture) that may be defective or inconsistent with any other provision in such Financing Document, or to make any other provisions with respect to matters or questions arising under any Financing Document, provided, that such action shall not adversely affect the -------- interests of the Holders of any series in any material respect; or (k) to grant non-disturbance with respect to the Lien of the Security Documents to any party (other than the Issuer or its successor or transferee) to a Shared Facilities Agreement. Section 12.2 Supplemental Indenture with Consent of Holders. Subject ---------------------------------------------- to Section 12.1, with the consent of the Holders of not less than a majority in ------------ aggregate principal amount of the Bonds of all series then Outstanding, considered as one class, by Act of said Holders delivered to the Issuer and the Trustee, the Issuer may, and the Trustee, subject to Sections 12.3 and 12.4, ------------- ---- shall, enter into an indenture or indentures supplemental hereto for the purpose of adding any mutually agreeable provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture; provided, however, that if -------- ------- there shall be Bonds of more than one series Outstanding hereunder and if a proposed supplemental indenture shall directly affect the rights of the Holders of one or more, but less than all, of such series, then the consent only of the Holders of not less than a majority in aggregate principal amount of the Outstanding Bonds of all series so directly affected considered as one class 131 shall be required; and provided, further, that no such supplemental indenture -------- ------- shall, without the consent of the Holder of each Outstanding Bond directly affected thereby: (a) change any Bond Payment Date of any Bond or change the principal amount thereof or the interest thereon, or change the place of payment where, or the coin or currency in which, any Bond or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment of principal or interest on or after the Bond Payment Date for such payment (or, in the case of redemption, on or after the Redemption Date); or (b) except to the extent expressly permitted by this Indenture or the Intercreditor Agreement, permit the creation of any Lien prior to or pari passu ---- ----- with the Lien of this Indenture with respect to any of the Indenture Collateral, terminate the Lien of this Indenture on any Indenture Collateral (except as specifically contemplated hereby) or deprive any Holder of the security afforded by the Lien of this Indenture; or (c) reduce the percentage in principal amount of the Outstanding Bonds the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (d) modify any of the provisions of Section 8.7 or of this Section ----------- ------- 12.2. - ---- A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Bonds, or which modifies the rights of the Holders of Bonds of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Bonds of any other series. The provisions of Article IX shall not be amended by supplemental ---------- indenture or otherwise without the consent of the Trustee. Upon the written request of the Issuer and such other documentation as the Trustee may reasonably require and upon the filing with the Trustee of evidence of the Act of said Holders, the Trustee shall join in the execution of such supplemental indenture or other instrument, as the case may be, subject to the provisions of Sections 12.3 and 12.4. ------------- ---- 132 It shall not be necessary for any Act of Holders under this Section ------- 12.2 to approve the particular form of any proposed supplemental indenture, but - ---- it shall be sufficient if such Act shall approve the substance thereof. Section 12.3 Documents Affecting Immunity or Indemnity. If in the ----------------------------------------- opinion of the Issuer or the Trustee any document required to be executed by it pursuant to the terms of Section 12.2 affects any interest, right, duty, ------------ immunity or indemnity in favor of the Issuer or the Trustee under this Indenture, the Issuer or the Trustee, as the case may be, may in its discretion decline to execute such document. Section 12.4 Execution of Supplemental Indentures. The Trustee may, ------------------------------------ but shall not be required to, take any action that increases its duties and responsibilities hereunder. In executing or accepting the additional trusts created by any Series Supplemental Indenture or other supplemental indenture permitted by this Article XII or the modifications thereby of the trusts created ----------- by this Indenture, the Trustee shall receive, and (subject to Section 9.1) shall ----------- be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is permitted by this Indenture. Section 12.5 Effect of Supplemental Indentures. Upon the execution --------------------------------- of any supplemental indenture under this Article XII, this Indenture shall be, ----------- and the Bonds shall be deemed to be, modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Bonds theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 12.6 Reference in Bonds to Supplemental Indentures. Bonds --------------------------------------------- authenticated and delivered after the execution of any supplemental indenture pursuant to this Article XII may, and shall if required by the Issuer, bear a ----------- notation in form approved by the Issuer and the Trustee as to any matter provided for in such supplemental indenture; and, in such case, suitable notation may be made upon Outstanding Bonds after proper presentation and demand. If the Issuer shall so determine, new Bonds so modified as to conform, in the opinion of the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Trustee in exchange for Outstanding Bonds, which shall be cancelled by the Trustee. ARTICLE XIII DEFEASANCE ---------- Section 13.1 Defeasance. (a) Subject to Sections 13.1(b) and 13.2, ---------- ---------------- ---- the Issuer at any time may terminate (i) all its obligations under this Indenture, the Bonds and the other Financing Documents which the Bonds enjoy the benefit of, and may terminate the Liens of the Security Documents on the Collateral to the extent 133 that such Liens run to the benefit of the Trustee, the Holder or other agents under this Indenture, including the Securities Intermediary (a "Legal ----- Defeasance"), or (ii) its obligations under any of their covenants under this - ---------- Indenture, the Bonds and the other Financing Documents which the Bonds enjoy the benefit of, other than under Sections 4.1(a) and 4.2(a) and their obligation to --------------- ------ make payments on the Bonds pursuant to Section 2.11, and may terminate the Liens ------------ of the Security Documents on the Collateral to the extent that such Liens run to the benefit of the Trustee, the Holders or other agents under this Indenture, including the Securities Intermediary (a "Covenant Defeasance"). With respect to ------------------- any Covenant Defeasance, except as specified in clause (ii) of the preceding sentence, the remainder of this Indenture and the Bonds shall be unaffected thereby. The Issuer may exercise a Legal Defeasance notwithstanding the prior exercise of a Covenant Defeasance. If the Issuer exercises a Legal Defeasance, payment of the Bonds may not be accelerated due to an Event of Default. Upon satisfaction of the conditions set forth herein and on demand of the Issuer, the Trustee (x) shall acknowledge in writing the discharge of the obligations terminated by the Issuer, (y) shall execute (or cooperate in the execution of) documents and deliver (or cooperate in the delivery of) such instruments in writing as shall be required by the Issuer to reconvey, release, assign and deliver to the Issuer any and all of the Trustee's interest in the Indenture Collateral and the Collateral, and the right, title and interest in and to any and all rights conveyed, assigned or pledged to the Trustee or otherwise subject to this Indenture and (z) shall turn over to the Issuer upon request all balances then held by it hereunder. Covenant Defeasance, as effected hereby, means that the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth under any of the covenants in this Indenture except as set forth herein above, whether directly or indirectly by reason of any reference elsewhere herein to any such covenant or to any other provision herein or in any other document. (b) Notwithstanding Section 13.1(a) above, the obligations of the --------------- Issuer pursuant to Sections 2.8, 2.9, 2.10, 2.11 and 9.5 shall survive until the ------------ --- ---- ---- --- Bonds have been paid in full. Thereafter, the obligations of the Issuer pursuant to Section 9.5 shall survive. ----------- Section 13.2 Conditions to Defeasance. Either the Legal Defeasance ------------------------ or the Covenant Defeasance may be exercised only if: (a) The Issuer shall have irrevocably deposited, or caused to be deposited, in trust with the Trustee (or another trustee satisfying the requirements of Section 9.7 who shall agree to comply with the provisions of ----------- this Article XIII applicable to it) (i) cash in an amount which, when added to ------------ any other moneys held by the Trustee and available for such payment and to the amounts deposited pursuant to clauses (ii) and (iii) below, would be sufficient to pay (A) the principal of and interest on all Bonds issued hereunder and under any Series Supplemental Indenture when due, whether on any Bond Payment Date or upon redemption, acceleration or 134 otherwise, and (B) all other sums payable hereunder and under any Series Supplemental Indenture, (ii) non-callable direct obligations of, or obligations guaranteed by, the United States, maturing on or before the date or dates when the payments specified in clause (i) above shall become due, the principal amount of which and the interest thereon, when due, is or will be, in the aggregate and taken together with the amounts deposited pursuant to clauses (i) and (iii), sufficient to make all such payments, and/or (iii) securities evidencing ownership interests in obligations or in specified portions thereof (which shall consist of specified portions of the principal of or interest on such obligations) of the character described in clause (ii), sufficient to make, when taken together with the amounts deposited pursuant to clauses (i) and (ii) all the payments specified in clause (i) above, and such deposit shall not cause the Trustee to have a conflicting interest as defined in and for the purposes of the Trust Indenture Act; (b) The Issuer shall have delivered to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the deposited cash and/or the obligations as described in clause (a) of this Section 13.2 without any reinvestment thereof will provide cash at such ------------ times and in such amounts as will be sufficient to pay principal of and interest on all Outstanding Bonds when due, whether on any Bond Payment Date or upon redemption, acceleration or otherwise; (c) The Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that as of the date of such opinion (i) subject to certain assumptions and exceptions the trust funds will not, on the 91st day following the deposit, be subject to any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (ii) the defeasance trust will not be subject to the rights of holders of Indebtedness other than the Bonds, and (iii) the Holders shall have a perfected security interest under applicable law in the obligations so deposited; (d) No Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than from the incurrence of Indebtedness the proceeds of which will be used for the Legal Defeasance or the Covenant Defeasance, as the case may be); (e) Such Legal Defeasance or Covenant Defeasance, as the case may be, shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Financing Documents) to which the Issuer is a party or by which the Issuer is bound; (f) In the case of a Legal Defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel confirming that (i) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling 135 or (ii) since the date of this Indenture there has been a change in the applicable United States federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for United States federal income tax purposes as a result of such Legal Defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (g) In the case of a Covenant Defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel confirming that the Holders will not recognize income, gain or loss for United States federal income tax purposes as a result of such Covenant Defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; and (h) The Issuer shall have delivered to the Trustee an Officer's Certificate and Opinion of Counsel, each stating that all conditions precedent provided for relating to either the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with. Neither the obligations nor moneys deposited with the Trustee pursuant to this Section 13.2 shall be substituted, withdrawn, reinvested or used for any ------------ purpose other than, and shall be segregated and held in trust for, the payment of the principal of and interest on the Bonds. ARTICLE XIV EXCULPATION ----------- Section 14.1 Liability to Secured Parties. Notwithstanding any ---------------------------- other provision of the Financing Documents (but subject to the last sentence of this Section 14.1), there shall be no recourse against (and the Holders and ------------ beneficial owners of Bonds and the parties hereto other than the Issuer, and other than in respect of any obligations undertaken directly in the Transaction Documents by any Non-Recourse Party (as defined below), waive any claim against) any member of the Issuer or any of their respective Affiliates (other than the Issuer), shareholders, members, managers, officers, directors, representatives or employees (each, a "Non-Recourse Party") for any liability under this ------------------ Indenture or any other Financing Document, by operation of law or otherwise, and the Secured Parties shall look solely to the Issuer (but not to any Non-Recourse Party) and the Collateral and the rents, issues, profits and proceeds of the Collateral in enforcing rights and obligations under and in connection with the Financing Documents; provided that: (a) the foregoing provisions of this -------- Section 14.1 shall not constitute a waiver, release or discharge of any of the - ------------ indebtedness under, or of any of the terms, covenants, conditions or provisions of, this Indenture or any other Financing Document, and the 136 same shall continue until fully paid, discharged, observed or performed, subject to the limitations on recourse against the Non-Recourse Parties contained herein; and (b) the foregoing provisions of this Section 14.1 shall not limit or ------------ restrict the right of the Trustee and/or the other Secured Parties to name any Person (but not any Non-Recourse Party) as a defendant in any action or suit for a money judgment, deficiency judgment (which judgment shall in either case be satisfied solely out of the Collateral and any other property of the Issuer) or judicial foreclosure. The foregoing acknowledgments, agreements and waivers shall be enforceable by any Non-Recourse Party. Notwithstanding any of the foregoing, it is expressly understood and agreed, however, that nothing contained in this Section 14.1 shall limit or restrict any right or remedy of ------------ the Secured Parties (or any assignee or beneficiary thereof or successor thereto) with respect to, and each of the Non-Recourse Parties shall remain fully liable to the extent that it would otherwise be liable for its own actions with respect to, any fraud or willful misrepresentation by such Person. ARTICLE XV REQUEST FOR INFORMATION FROM THE TRUSTEE ---------------------------------------- Section 15.1 Information to Holders. With respect to the ---------------------- information and documents required to be delivered to the Trustee by the Issuer pursuant to Rule 144A(d) under the Securities Act or to any Holder or beneficial owner of a Bond pursuant to those sections of this Indenture which state that specified information will be provided to Holders or beneficial owners of the Bonds, the Trustee shall deliver, at the expense of the Issuer, any such documents and information to any Holder or owner of a beneficial interest in a Global Bond who makes a request to the Trustee substantially in the form of Exhibit B hereto (which request may indicate that it is a continuing request for - --------- such information until further notice from such Holder or owner of a beneficial interest in a Global Bond to the contrary) for such documents or information. 137 IN WITNESS WHEREOF, the parties hereto have each caused this Indenture to be executed by their duly authorized officers and attested on the date first above written. ELWOOD ENERGY LLC By: /s/ Don Burnette ------------------------------ Name: Don Burnette Title: Authorized Representative BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee and Securities Intermediary By: /s/ Benita A. Pointer ------------------------------- Name: Benita A. Pointer Title: Account Executive SCHEDULE I INSURANCE --------- I-1 SCHEDULE II-A OPTIONS UNDER POWER SALES AGREEMENTS ------------------------------------ (WITH INDEPENDENT ENGINEER CONFIRMATION) ---------------------------------------- Unless otherwise indicated, all references to Sections shall refer to the named Section in the applicable Power Sales Agreement: "Options" under the Exelon Power Sales Agreement Section 6(f)(v): If a new air compliance program would result in annual costs to Exelon in excess of the Pass Through Cap Amount, Elwood may, subject to the satisfaction of Section 5.1(b)(i) of the Indenture, elect to absorb the excess costs or ask Exelon to pay the costs (whereupon Exelon may pay the costs, terminate the agreement or reopen the pricing). II-A-1 SCHEDULE II-B OPTIONS UNDER POWER SALES AGREEMENTS ------------------------------------ (WITHOUT ISSUER CERTIFICATION) ------------------------------ Unless otherwise indicated, all references to Sections shall refer to the named Section in the applicable Power Sales Agreement: "Options" under the Engage Power Sales Agreement Section 6(b): Elwood may, subject to the satisfaction of Section 5.1(b)(ii) of the Indenture, operate the Units in excess of their net dependable capacity and offer to sell the excess capacity to Engage. Section 6(d)(ii): Elwood may, subject to the satisfaction of Section 5.1(b)(ii) of the Indenture, increase, reduce, curtail or interrupt generation at the Units in accordance with Prudent Utility Practice or as may be necessary to operate, maintain or protect the Units during an "Emergency Condition." "Options" under the Aquila Power Sales Agreements Section 4.3.1: Elwood may, subject to the satisfaction of Section 5.1(b)(ii) of the Indenture, overfire a Unit to compensate for the Forced Derating of another Unit. Section 4.8: During an Emergency condition, Elwood may, subject to the satisfaction of Section 5.1(b)(ii) of the Indenture, increase, reduce, curtail or interrupt generation at the Facility or take other action that Elwood deems reasonably necessary to operate, maintain and protect the Facility during the Emergency condition. Section 13.3.2: If an Aquila event of default is continuing, Elwood may, subject to the satisfaction of Section 5.1(b)(ii) of the Indenture, sell capacity and energy to third parties during the continuance. II-B-1 SCHEDULE III CAPACITY PERCENTAGE CALCULATION EXAMPLES ---------------------------------------- The following examples illustrate how the applicable percentage of capacity covered by Permitted PPAs is to be calculated: Assume for the purposes of each example that the capacity of the Project is 1400 MW. Example 1: On the applicable date of determination, the Issuer is party to Permitted PPAs with terms that extend for all eight of the quarters that follow such date. These Permitted PPAs cover, in the aggregate, 1000 MW of the Project's capacity. Therefore, the applicable percentage is (1000/1400) x 100% = 71.4%. Example 2: On the applicable date of determination, the Issuer is party to Permitted PPAs with terms that extend for the first six of the eight quarters that follow such date. These Permitted PPAs cover 1000 MW of the Project's capacity during such first six quarters and 0 MW of the Project's capacity during the seventh and eight quarters following such date. Therefore, the applicable percentage is [(1000/1400) x (75%)] + [(0/1400) x (25%)] = (53.6%) + (0%) = 53.6% Example 3: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 1000 MW of the Project's capacity during the first six quarters following such date and 500 MW of the Project's capacity during the seventh and eight quarters following such date. Therefore, the applicable percentage is [(1000/1400) x (75%)] + [(500/1400) x (25%)] = (53.6%) + (8.9%) = 62.5% Example 4: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 0 MW of the Project's capacity during the first six quarters following such date and 1400 MW of the Project's capacity during the seventh and eight quarters following such date. Therefore, the applicable percentage is [(0/1400) x (75%)] + [(1400/1400) x (25%)] = (0%) + (25%) = 25% Example 5: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 1400 MW of the Project's capacity during the first four quarters following such date and 0 MW of the Project's III-1 capacity during the fifth, sixth, seventh and eighth quarters following such date. Therefore, the applicable percentage is [(1400/1400) x (50%)] + [(0/1400) x (50%)] = (50%) + (0%) = 50% Example 6: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 1400 MW of the Project's capacity during the first 3 1/2 quarters following such date and 0 MW of the Project's capacity during the last 1/2 of the fourth quarter and during the fifth, sixth, seventh and eighth quarters following such date. Therefore, the applicable percentage is [(1400/1400) x (43.75%)] + [(0/1400) x (56.25%)] = (43.75%) + (0%) = 43.75% III-2 EXHIBIT A CONSENT AND AGREEMENT --------------------- This CONSENT AND AGREEMENT (this "Consent"), dated as of [________], ------- [_____] is between [Party to Assigned Agreement], a [______] [corporation][limited liability company][limited partnership] (the "Consenting ---------- Party"), and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as collateral agent - ----- (together with its successors in such capacity, the "Collateral Agent") for the ---------------- Secured Parties pursuant to the Collateral Agency Agreement, dated as of October 23, 2001 (as amended, restated, modified or otherwise supplemented from time to time in accordance with the terms thereof, the "Collateral Agency Agreement"), --------------------------- among Elwood Energy LLC (the "Issuer"), the Administrative Agent, the Collateral ------ Agent, the Intercreditor Agent, the Securities Intermediary and the other Secured Parties party thereto. All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Trust Indenture, dated as of October 23, 2001, between the Issuer and Bank One Trust Company, National Association, as trustee (as amended, restated, modified or otherwise supplemented from time to time in accordance with the terms thereof, the "Indenture"). ---------- RECITALS -------- A. The Issuer has entered or will enter into certain documents providing for, among other things, the ownership, development, construction, operation, maintenance and financing of a 1,409 megawatt ("MW") natural gas- -- fired electric generating peaking facility to be located in Elwood, Illinois (the "Project"). ------- B. The Consenting Party and the Issuer have entered into the [Title of Assigned Agreement], dated [_________], by and between the Consenting Party and the Issuer (as further amended, restated, modified or otherwise supplemented from time to time in accordance with the terms thereof and hereof, the "Assigned -------- Agreement"). - --------- C. Pursuant to the Security Agreement, dated as of October 23, 2001 (as amended, restated, modified or otherwise supplemented from time to time in accordance with the terms thereof, the "Security Agreement"), between the Issuer ------------------ and the Collateral Agent, as security for the Senior Secured Obligations, the Issuer has assigned all of its right, title and interest in, to and under, and granted a security interest in, the Assigned Agreement and all of its rights to receive payment under or A-1 with respect to such Assigned Agreement and all payments due and to become due to the Issuer under or with respect to such Assigned Agreement, whether as contractual obligations, damages, indemnity payments or otherwise, to the Collateral Agent for the benefit of the Secured Parties. D. Certain financing documents relating to the Project ("the Financing Documents") contemplate the execution, delivery and implementation of - ------------------- this Consent and its exhibits and it is a condition precedent to the making of Disbursements under the Financing Documents that the Consenting Party shall have executed and delivered this Consent. NOW THEREFORE, in consideration of the Secured Parties now or hereafter entering into the Financing Documents and to induce the Secured Parties to purchase, hold and release the proceeds of the issuance and sale of the senior secured bonds (the "Bonds") and other senior secured obligations ----- (together with the Bonds, the "Senior Secured Obligations"), and for other good -------------------------- and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: SECTION 1. CONSENT TO ASSIGNMENT, ETC. --------------------------- 1.1 Consent to Assignment. The Consenting Party (a) acknowledges --------------------- that the Secured Parties are now or hereafter entering into the Financing Documents in reliance upon the execution and delivery by the Consenting Party of this Consent, (b) consents in all respects to the pledge and assignment to the Collateral Agent pursuant to the Security Agreement of all of the Issuer's right, title and interest in, to and under the Assigned Agreement including, without limitation, all of the Issuer's rights to receive payment under or with respect to the Assigned Agreement and all payments due and to become due to the Issuer under or with respect to the Assigned Agreement, whether as contractual obligations, damages, indemnity payments or otherwise (collec tively, the "Assigned Interests"), and (c) acknowledges the right of the Collateral Agent or ------------------ any designee of the Collateral Agent, in the exercise of the Collateral Agent's rights and remedies under the Security Agreement, to make all demands, give all notic es, take all actions and exercise all rights of the Issuer under the Assigned Agreement. 1.2 Substitute Owner. The Consenting Party agrees that (i) if the ---------------- Collateral Agent shall notify the Consenting Party in writing that an event of default under the Financing Documents has occurred and is continuing and that the Collateral Agent or any designee of the Collateral Agent has elected to exercise the rights and remedies set forth in the Security Agreement, then the Collateral Agent, the Collateral Agent's designee or the Collateral Agent's transferee or any purchaser of the Assigned A-2 Interests in a judicial or nonjudicial foreclosure sale, in each case, which is a "Permitted Assignee" and assumes the obligations of the Issuer under the Assigned Agreement and cures any outstanding monetary defaults (the "Substitute ---------- Owner"), shall be substituted for the Issuer under the Assigned Agreements and - ----- (ii) in such event, the Consenting Party will recognize the Substitute Owner and will continue to perform its obligations under the Assigned Agreement in favor of the Substitute Owner. "Permitted Assignee" shall mean a Person (i) who is ------------------ creditworthy in the reasonable judgment of the Consenting Party and (ii) who possesses experience in the operation of electric generation facilities or who has contracted for the operation of the Project with an operator who possesses such experience. A Person whose credit is comparable to that of the Issuer shall be deemed "creditworthy" for the purposes hereof. 1.3 Right to Cure. In the event of a default by the Issuer in the ------------- performance of any of its obligations under the Assigned Agreement, or upon the occurrence or non-occurrence of any event or condition under the Assigned Agree ment which would immediately or with the passage of any applicable grace period or the giving of notice, or both, enable the Consenting Party to terminate the Assigned Agreement (each hereinafter a "default"), the Consenting Party will not ------- terminate the Assigned Agreement until it first gives prompt written notice of such default to the Collateral Agent or its designees and affords each such party a period of at least thirty (30) days (or if such default is a nonmonetary default, such longer period as is required so long as any such party has commenced and is diligently pursuing appropriate action to cure such default) from receipt of such notice to cure such default; provided, however, that if any -------- ------- such party is prohibited from curing any such default by any pro cess, stay or injunction issued by any governmental authority or pursuant to any bank ruptcy or insolvency proceeding or other similar proceeding involving the Issuer, then provided that the Collateral Agent is diligently pursuing its rights to cure such default, the time periods specified herein for curing a default shall be extended for the period of such prohibition. 1.4 No Amendments. The Consenting Party agrees that it will not ------------- enter into any amendment, supplement, assignment, transfer, suspension, novation, extension, restatement or other modification of the Assigned Agreement, or enter into any consensual or unilateral cancellation or termination of the Assigned Agreement (except as permitted pursuant to the terms of the Assigned Agreement, subject to Section 1.3 of this Consent), or assign or ----------- otherwise transfer any of its right, title and interest under the Assigned Agreement, or consent to any such assignment or transfer by the Issuer, unless the Consenting Party has received (i) the prior written consent of the Collateral Agent, which consent shall not be unreasonably withheld, (ii) a written acknowledgment from the Collateral Agent that its consent is not required or (iii) a A-3 written certificate from the Issuer that the Collateral Agent's consent is not required under Section 5.1(a) or (b) of the Indenture. 1.5 Replacement Agreement. In the event that the Assigned Agreement --------------------- is terminated as a result of any bankruptcy or insolvency proceeding affecting the Issuer, the Consenting Party will, at the option of the Collateral Agent, enter into a new agreement with the Collateral Agent or its transferee or nominee having terms substantially the same as the terms of the Assigned Agreement. 1.6 No Liability. The Consenting Party acknowledges and agrees that ------------ neither the Collateral Agent nor its designees shall have any liability or obligation under the Assigned Agreement as a result of this Consent, the Security Agreement or otherwise nor shall the Collateral Agent or its designees be obligated or required to (i) perform any of the Issuer's obligations under the Assigned Agreement, except during any period in which the Collateral Agent is a Substitute Owner pursuant to Section 1.2, in which case the obligations of ----------- such Substitute Owner shall be no more than that of the Issuer under the Assigned Agreement, or (ii) take any action to collect or enforce any claim for payment assigned under the Security Agreement. 1.7 Delivery of Notices. The Consenting Party shall deliver to the ------------------- Collateral Agent and its designees, concurrently with the delivery thereof to the Issuer, a copy of each material notice, request or demand given by the Consenting Party to the Issuer pursuant to the Assigned Agreement. SECTION 2. PAYMENTS UNDER THE ASSIGNED AGREEMENT ------------------------------------- 2.1 Payments. The Consenting Party will pay all amounts payable by -------- it under the Assigned Agreement in the manner and as and when required by the Assigned Agreement directly into the appropriate account specified on Exhibit A --------- hereto, or to such other person or account as shall be specified from time to time by the Collateral Agent to the Consenting Party in writing. By its acceptance and agreement to this Consent, the Issuer, for itself and its successors and permitted assigns, consents to making by the Consenting Party of payments as provided in the previous sentence. 2.2 No Offset, etc. All payments required to be made by the -------------- Consenting Party under the Assigned Agreement shall be made without any offset, recoupment, abatement, withholding, reduction or defense whatsoever, other than that expressly allowed by the terms of the Assigned Agreement. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE ------------------------------------- A-4 CONSENTING PARTY ---------------- In order to induce the Secured Parties to enter into the Financing Documents, purchase, hold and release the proceeds of the issuance and sale of the Bonds, the Consenting Party makes the following representations and warranties as to itself as of the date hereof. 3.1 Organization. The Consenting Party is a [corporation][limited ------------ liability company][limited partnership] duly organized, validly existing and in good standing under the laws of the state of its formation, and is duly qualified, authorized to do business and in good standing as a limited liability company in every jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified, and has all requisite power and authority to enter into and to perform its obligations hereunder and under the Assigned Agreement, and to carry out the terms hereof and thereof and the transactions contemplated hereby and thereby. 3.2 Authorization. The execution, delivery and performance by the ------------- Consenting Party of this Consent and the Assigned Agreement have been duly authorized by all necessary corporate action on the part of the Consenting Party and do not require any approval or consent of any holder (or any trustee for any holder) of any indebtedness or other obligation of (a) the Consenting Party or (b) any other person or entity, except approvals or consents which have previously been obtained. 3.3 Execution and Delivery; Binding Agreements. Each of this Consent ------------------------------------------ and the Assigned Agreement is in full force and effect, has been duly executed and delivered on behalf of the Consenting Party by the appropriate officers of the Consenting Party, and constitutes the legal, valid and binding obligation of the Consenting Party, enforceable against the Consenting Party in accordance with its terms, except as the enforceability thereof may be limited by (a) bankruptcy, insol vency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and (b) general equitable principles (whether considered in a proceed ing in equity or at law). 3.4 Litigation. There is no legislation, litigation, action, suit, ---------- proceeding or investigation pending or (to the best of the Consenting Party's knowl edge after due inquiry) threatened against the Consenting Party before or by any court, administrative agency, arbitrator or governmental authority, body or agency which, if adversely determined, individually or in the aggregate, (a) could adversely affect the performance by the Consenting Party of its obligations hereunder or under the As signed Agreement, or which could modify or otherwise adversely affect the Approvals (as defined in Section 3.6), (b) ----------- could have a material adverse effect on the A-5 condition (financial or otherwise), business or operations of the Consenting Party or (c) questions the validity, binding effect or enforceability hereof or of the Assigned Agreement, any action taken or to be taken pursuant hereto or thereto or any of the transactions contemplated hereby or thereby. 3.5 Compliance with Other Instruments, Etc. The execution, delivery -------------------------------------- and performance by the Consenting Party of this Consent and the performance by the Consenting Party of the Assigned Agreement and the consummation of the transactions contemplated hereby and thereby will not result in any violation of, breach of or default under any term of its formation or governance documents, or of any contract or agreement to which it is a party or by which it or its property is bound, or of any license, permit, franchise, judgment, writ, injunction, decree, order, charter, law, ordinance, rule or regulation applicable to it, except for any such violations which, individually or in the aggregate, would not adversely affect the performance by the Consenting Party of its obligations under this Consent and the Assigned Agreement. 3.6 Government Consent. No consent, order, authorization, waiver, ------------------ approval or any other action, or registration, declaration or filing with, any person, board or body, public or private (collectively, the "Approvals"), is --------- required to be obtained by the Consenting Party in connection with the performance of the Assigned Agreement or the consummation of the transactions contemplated thereunder, except which have been previously obtained. 3.7 No Default or Amendment. Neither the Consenting Party nor, to ----------------------- the best of the Consenting Party's knowledge, any other party to the Assigned Agree ment is in default of any of its obligations thereunder. The Consenting Party and, to the best of the Consenting Party's knowledge, each other party to the Assigned Agreement has complied with all conditions precedent to the respective obligations of such party to perform under the Assigned Agreement. To the best of the Consenting Party's knowledge, no event or condition exists which would either immediately or with the passage of any applicable grace period or giving of notice, or both, enable either the Consenting Party or the Issuer to terminate or suspend its obligations under the Assigned Agreement. The Assigned Agreement has not been amended, modified or supplemented in any manner. 3.8 No Previous Assignments. The Consenting Party has no notice of, ----------------------- and has not consented to, any previous assignment by the Issuer of all or any part of its rights under the Assigned Agreement. SECTION 4. OPINION OF COUNSEL ------------------ A-6 The Consenting Party shall deliver an opinion of counsel relating to the Assigned Agreement and this Consent, which opinion shall be substantially in the form attached hereto as Exhibit B. --------- SECTION 5. MISCELLANEOUS ------------- 5.1 Notices. All notices and other communications hereunder shall be ------- in writing, shall be deemed given upon receipt thereof by the party or parties to whom such notice is addressed, shall refer on their face to the Assigned Agreement (although failure to so refer shall not render any such notice of communication ineffective), shall be sent by first class mail, by personal delivery or by a nationally recognized courier service, and shall be directed (a) if to the Consenting Party, in accordance with the Assigned Agreement, (b) if to the Collateral Agent, to ____________, Attention: _________, Telefax: ________, Telephone: _________, and (c) to such other address or addressee as any such party may designate by notice given pursuant hereto. 5.2 Governing Law; Submission to Jurisdiction. ----------------------------------------- (a) THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). (b) Any legal action or proceeding with respect to this Consent and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York, in and for the County of New York, or of the United States of America for the Southern District of New York, and, by execution and delivery of this Consent, the Consenting Party hereby accepts for itself and in respect of its property, generally and unconditionally, the non- exclusive jurisdiction of the aforesaid courts and appellate courts from any appeal thereof. The Consenting Party irrevocably designates, appoints and empowers CT Corporation, with offices on the date hereof at 1633 Broadway, New York, New York 10019, as its designee, appointee and agent to receive and accept for and on its behalf service of any and all legal process, summons, notices and documents which may be served in such action or proceeding. If for any reason such designee, appointee and agent shall cease to be available to act as such, the Consenting Party agrees to designate a new designee, appointee and agent in New York, New York on terms and for purposes of this provision satisfactory to the Collateral Agent. The Consenting Party further irrevoca bly consents to the service of process out of any of the aforementioned courts in any A-7 such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Consenting Party at its notice address provided pursuant to Section 5.1 hereof. The Consenting Party hereby irrevocably ----------- waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Consent brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of the Collateral Agent or its designees to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Consenting Party in any other jurisdiction. [Choice of Law and Venue subject to negotiation based on the law governing the Assigned Agreement]. 5.3 Counterparts. This Consent may be executed in any number of ------------ counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 5.4 Headings Descriptive. The headings of the several sections and -------------------- subsections of this Consent are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Consent. 5.5 Severability. In case any provision in or obligation under this ------------ Consent shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or im paired thereby. 5.6 Amendment, Waiver. Neither this Consent nor any of the terms ----------------- hereof may be terminated, amended, supplemented, waived or modified except by an instrument in writing signed by the Consenting Party and the Collateral Agent. 5.7 Termination. The Consenting Party's obligations hereunder are ----------- absolute and unconditional, and the Consenting Party has no right, and shall have no right, to terminate this Consent or to be released, relieved or discharged from any obli gation or liability hereunder (a) so long as any Bonds shall be outstanding and (b) until all other Senior Secured Obligations shall have been indefeasibly satisfied in full in cash or cash equivalents; provided, -------- however, in the event that the Assigned Agreement terminates on its scheduled - ------- termination date at the end of the Term (as defined in the Assigned Agreement) or in accordance with Section 1.4 hereof prior to the satisfaction of such ----------- obligations, the Consenting Party's obligations hereunder shall terminate. Any liabilities of the parties existing before such termination date shall A-8 survive the termination of this Consent. The Collateral Agent shall notify the Consenting Party when all such obligations have been satisfied. 5.8 Successors and Assigns. This Consent shall be binding upon the ---------------------- Consenting Party and its permitted successors and assigns and shall inure to the benefit of the Collateral Agent, its designees and their respective successors and assigns, the Secured Parties and any successor, assign or holder of any debt that amends, restates or refinances the debt of the Issuer relating to the Project. 5.9 Further Assurances. The Consenting Party hereby agrees to exe ------------------ cute and deliver all such instruments and take all such action as may be necessary to effectuate fully the purposes of this Consent. 5.10 Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY APPLICABLE ----------------------- LAW, THE CONSENTING PARTY AND THE COLLATERAL AGENT HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS CONSENT OR ANY MATTER ARISING HEREUNDER. 5.11 Entire Agreement. This Consent and any agreement, document or ---------------- instrument attached hereto or referred to herein integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral negotiations and prior writings in respect to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Consent and any such agreement, document or instrument, the terms, conditions and provisions of this Consent shall prevail. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] A-9 IN WITNESS WHEREOF, the Consenting Party has caused this Con sent to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [CONSENTING PARTY] By: ________________________ Name: Title: Accepted and Agreed to: BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral Agent By: _________________________ Name: Title: ELWOOD ENERGY LLC By: _________________________ Name: Title: A-10 Exhibit A to Form of Consent and Agreement ----------------------------- A-11 All amounts payable by the Consenting Party under the Assigned Agreement shall be paid as follows: Bank: __________________________________ ABA#: __________________________________ A/C# __________________________________ Ref: __________________________________ Attn: __________________________________ A-12 Exhibit B to Form of Consent and Agreement ----------------------------- FORM OF OPINION OF COUNSEL TO [CONSENTING PARTY] ------------------------------------------------ 1. [___________] (the "Consenting Party") has been duly formed or ---------------- incorporated and is validly existing and in good standing under the laws of the jurisdiction of its formation. 2. The Consenting Party is duly qualified and authorized to do business and is in good standing in each jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified. 3. The Consenting Party has the power and authority to execute and deliver the Assigned Agreement and the Consent and Agreement, dated as of [________] (the "Consent"), between the Consenting Party and Bank One Trust ------- Company, National Association, as Collateral Agent, and perform all of its obligations under the Assigned Agreement and the Consent. 4. The execution and delivery by the Consenting Party of the Consent and the consummation by the Consenting Party of the transactions contemplated thereby have been duly authorized by all requisite [______] power or other action on the part of the Consenting Party and do not require any approval or consent of any holder (or any trustee for or agent of any holder) of any indebtedness or other obligation of the Consenting Party or any other person or entity, other than approvals or consents which have previously been obtained and which are in full force and effect. 5. The Assigned Agreement and the Consent has been duly executed and delivered by the Consenting Party. 6. The Assigned Agreement and the Consent constitutes the valid and binding obligation of the Consenting Party enforceable against the Consenting Party in accordance with its terms, except as the enforceability thereof may be limited by (a) bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors' rights generally and (b) general equitable principles (whether considered in a proceeding in equity or at law). A-13 7. The execution and delivery by the Consenting Party of the Assigned Agreement and the Consent and the performance by the Consenting Party of its obligations thereunder do not (a) conflict with the formation or governance documents of the Consenting Party or (b) conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon any of the property or assets of the Consenting Party pursuant to the terms of, any indenture, mortgage, deed of trust, agreement or other instrument to which the Consenting Party is a party or by which it or any of its properties or assets is bound, which conflict, breach or lien could reasonably be expected to have a material adverse effect on the Consenting Party. A-14 EXHIBIT B FORM OF REQUEST FOR INFORMATION FROM THE TRUSTEE ------------------------------------------------ Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite 1L1-0823 Chicago, Illinois 60670-0823 Attention: Global Corporate Trust Services Re: $402,000,000 8.159% Senior Secured Bonds due July 5, 2026 Pursuant to Section 15.1 of that certain Trust Indenture, dated as of ------------ October 23, 2001 (as amended, modified or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between Elwood Energy LLC --------- (the "Issuer") and Bank One Trust Company, National Association, as Trustee (the ------ "Trustee"), [NAME OF HOLDER], as beneficial holder, hereby requests, which ------- request is a continuing request until further notice to the contrary, that you deliver to us at [ADDRESS OF HOLDER] all information and copies of all documents that the Issuer is required to deliver, and has delivered, to you pursuant to Rule 144A(d) under the Securities Act of 1933, as amended, or pursuant to those sections of the Indenture which state that specified information will be provided to holders or beneficial owners of the bonds issued thereunder upon their request. [NAME OF HOLDER] hereby certifies that it is a beneficial holder of Bonds issued under the Indenture. [NAME OF HOLDER] ____________________________ _____________________ Authorized Signature Date B-1 EXHIBIT C FORM OF CERTIFICATE OF TRANSFER ------------------------------- Elwood Energy LLC c/o Peoples Energy Resources Corp. 130 East Randolph Drive Chicago, IL 60601 Attention: John E. Horton with a copy to: Elwood Energy LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 Attention: Donald Burnette Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite 1L1-0823 Chicago, IL 60670-0823 Attention: Global Corporate Trust Services Re: [fill in full title of securities] ---------------------------------- Reference is hereby made to the Indenture, dated as of October 23, 2001 (the "Indenture"), between Elwood Energy LLC, (the "Issuer"), and Bank One Trust Company, National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Bond[s] or interest in such Bond[s] specified in Annex A hereto, in the principal amount of $___________ in such Bond[s] or interests (the "Transfer"), to __________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: C-1 [CHECK ALL THAT APPLY] 1. [_] Check if Transferee will take delivery of a beneficial interest --------------------------------------------------------------- in the 144A Global Bond or a Definitive Bond Pursuant to Rule 144A. The - ------------------------------------------------------------------ Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Bond is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Bond for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Bond will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Bond and/or the Definitive Bond and in the Indenture and the Securities Act. 2. [_] Check if Transferee will take delivery of a beneficial interest --------------------------------------------------------------- in the Temporary Regulation S Global Bond, the Regulation S Global Bond or a - ---------------------------------------------------------------------------- Definitive Bond pursuant to Regulation S. The Transfer is being effected - ---------------------------------------- pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Bond will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Bond, the Temporary Regulation S Global Bond and/or the Definitive Bond and in the Indenture and the Securities Act. 3. [_] Check and complete if Transferee will take delivery of a -------------------------------------------------------- beneficial interest in a Definitive Bond pursuant to any provision of the - ------------------------------------------------------------------------- Securities Act other than Rule 144A or Regulation S. The Transfer is being - --------------------------------------------------- effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Bonds and Restricted Definitive Bonds and pursuant to and in C-2 accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [_] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [_] such Transfer is being effected to the Issuer or a subsidiary thereof; or (c) [_] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act. or 4. [_] Check if Transferee will take delivery of a beneficial interest --------------------------------------------------------------- in an Unrestricted Global Bond or of an Unrestricted Definitive Bond. - -------------------------------------------------------------------- (a) [_] Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Bond will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Bonds, on Restricted Definitive Bonds and in the Indenture. (b) [_] Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Bond will no longer be subject to the restrictions on transfer enumerated in the Private Placement C-3 Legend printed on the Restricted Global Bonds, on Restricted Definitive Bonds and in the Indenture. (c) [_] Check if Transfer is Pursuant to Other Exemption. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Bond will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Bonds or Restricted Definitive Bonds and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer. ___________________________________ [Insert Name of Transferor] By:________________________________ Name: Title: Dated:_______ C-4 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [_] a beneficial interest in the: (i) [_] 144A Global Bond (CUSIP _____), or (ii) [_] Regulation S Global Bond (CUSIP______); or (b) [_] a Restricted Definitive Bond. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [_] a beneficial interest in the: (i) [_] 144A Global Bond (CUSIP______), or (ii) [_] Regulation S Global Bond (CUSIP_____); or (iii) [_] Unrestricted Global Bond (CUSIP_____); or (b) [_] a Restricted Definitive Bond; or (c) [_] an Unrestricted Definitive Bond, in accordance with the terms of the Indenture. C-5 EXHIBIT D FORM OF CERTIFICATE OF EXCHANGE ------------------------------- Elwood Energy LLC c/o Peoples Energy Resources Corp. 130 East Randolph Drive Chicago, IL 60601 Attention: John E. Horton with a copy to: Elwood Energy LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 Attention: Donald Burnette Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite 1L1-0823 Chicago, IL 60670-0823 Attention: Global Corporate Trust Services Re: [fill in full title of securities] ---------------------------------- (CUSIP ____________) Reference is hereby made to the Indenture, dated as of October 23, 2001 (the "Indenture"), between Elwood Energy LLC, (the "Issuer"), and Bank One Trust Company, National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Bond[s] or interest in such Bond[s] specified herein, in the principal amount of $____________ in such Bond[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. Exchange of Restricted Definitive Bonds or Beneficial Interests in ------------------------------------------------------------------ a Restricted Global Bond for Unrestricted Definitive Bonds or Beneficial - ------------------------------------------------------------------------ Interests in an Unrestricted Global Bond - ---------------------------------------- D-1 (a) [_] Check if Exchange is from beneficial interest in a Restricted Global Bond to beneficial interest in an Unrestricted Global Bond. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Bond for a beneficial interest in an Unrestricted Global Bond in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Bonds and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Bond is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [_] Check if Exchange is from beneficial interest in a Restricted Global Bond to Unrestricted Definitive Bond. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Bond for an Unrestricted Definitive Bond, the Owner hereby certifies (i) the Definitive Bond is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Bonds and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Bond is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [_] Check if Exchange is from Restricted Definitive Bond to beneficial interest in an Unrestricted Global Bond. In connection with the Owner's Exchange of a Restricted Definitive Bond for a beneficial interest in an Unrestricted Global Bond, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Bonds and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [_] Check if Exchange is from Restricted Definitive Bond to Unrestricted Definitive Bond. In connection with the Owner's Exchange of a Restricted Definitive Bond for an Unrestricted Definitive Bond, the Owner hereby certifies (i) the Unrestricted Definitive Bond is being acquired for the Owner's own D-2 account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Bonds and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Bond is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. Exchange of Restricted Definitive Bonds or Beneficial Interests in ------------------------------------------------------------------ Restricted Global Bonds for Restricted Definitive Bonds or Beneficial Interests - ------------------------------------------------------------------------------- in Restricted Global Bonds - -------------------------- (a) [_] Check if Exchange is from beneficial interest in a Restricted Global Bond to Restricted Definitive Bond. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Bond for a Restricted Definitive Bond with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Bond is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Bond issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Bond and in the Indenture and the Securities Act. (b) Check if Exchange is from Restricted Definitive Bond to beneficial interest in a Restricted Global Bond. In connection with the Exchange of the Owner's Restricted Definitive Bond for a beneficial interest in the [CHECK ONE] [_] 144A Global Bond, [_] Regulation S Global Bond, with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Bonds and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Bond and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer. ______________________________ [Insert Name of Transferor] D-3 By:______________________________ Name: Title: Dated:_____________ D-4 EXHIBIT E [Form of face of [__]% Senior Secured Bonds due [____]] ELWOOD ENERGY LLC [__]% SENIOR SECURED BONDS DUE [____] [INSERT THE GLOBAL BOND LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] [INSERT THE PRIVATE PLACEMENT LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] [INSERT THE REGULATION S TEMPORARY GLOBAL BOND LEGEND, IF APPLICABLE PURSUANT TO THE PROVISIONS OF THE INDENTURE] No. ______ CUSIP NUMBER: ____________ PRINCIPAL AMOUNT: $____________ FINAL BOND PAYMENT DATE: ____________ ISSUE DATE: ____________ REGISTERED HOLDER: [IF THIS BOND IS A GLOBAL BOND, INSERT: "Cede & Co."] INTEREST RATE: ______% ELWOOD ENERGY LLC, a Delaware corporation (hereinafter called the "Issuer"), which term includes any successor or assign under the Indenture ------ referred to below), for value received hereby promises to pay to [________________] [IF A GLOBAL BOND, INSERT "CEDE & CO."], or its registered assigns, the outstanding principal amount hereof, such payment to be made in semiannual E-1 installments on January 5 and July 5 of each year (commencing [____________]) and ending on the final Bond Payment Date set forth above, each such installment to be in an amount equal to the principal amount hereof multiplied by the percentage set forth opposite the applicable payment date in the table set forth on Annex A attached hereto (provided that the portion of the ------- -------- principal amount remaining unpaid on the final Bond Payment Date, together with all interest accrued thereon, shall in any and all cases be due and payable on the final Bond Payment Date), and to pay interest on the unpaid portion of the Principal Amount at the interest rate set forth above from the most recent Bond Payment Date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the issue date set forth above, semiannually on January 5 and July 5 in each year (commencing [_______________]) until the principal amount is paid in full or payment thereof is duly provided for. Any installment of principal and, to the extent permitted by applicable law, any payment of interest not punctually paid or duly provided for shall continue to bear interest at a rate equal to the interest rate set forth above. The principal and interest so payable, and punctually paid or duly provided for, at any Bond Payment Date shall, as provided in the Indenture, be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered in the Security Register at the close of business on the Regular Record Date for such payment of principal and interest, which shall be the 15th day (whether or not a Business Day) next preceding such Bond Payment Date. Any such principal and interest that is payable, but is not so punctually paid or duly provided for at any Bond Payment Date, shall forthwith cease to be payable to the Holder hereof on such Regular Record Date, and such Overdue Interest or Overdue Principal may be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on a Special Record Date for the payment of such Overdue Principal and Overdue Interest (together with any other amounts payable with respect to such Overdue Principal and Overdue Interest), to be fixed by the Trustee, notice of which shall be given to the Holder hereof not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which this Bond may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payments of principal of and interest on this Bond shall be made (i) if the Issuer so elects, by check mailed to the Holder of this Bond at his or her registered address or (ii) otherwise, at the Place of Payment; provided that the final installment of principal payable with respect -------- to this Bond shall be made as provided in Section 6.5 of the Indenture (in the ----------- event this Bond is redeemed) or shall be made upon presentation and surrender of this Bond at the Place of Payment. All payments in respect of this Bond shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of debts. E-2 [INSERT THE FOLLOWING IF THIS IS A REGULATION S TEMPORARY GLOBAL BOND:] Until this Regulation S Temporary Global Bond is exchanged for one or more Regulation S Permanent Global Bonds, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Bond shall in all other respects be entitled to the same benefits as other Bonds under the Indenture.] Whenever any amount to be paid hereunder is stated to be due on a day that is not a Business Day, such amount shall be payable on the next succeeding Business Day, and if such payment is timely made, no interest shall accrue for the period from and after the day on which such payment was due. Interest payments for this Bond will be computed and paid on the basis of a 360-day year consisting of twelve 30-day months. Reference is made to the further provisions of this Bond set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Bond shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. E-3 IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed. ELWOOD ENERGY LLC By:__________________ Name: Title: E-4 CERTIFICATE OF AUTHENTICATION Dated: This Bond is one of the [___]% Senior Secured Bonds due [_______________] of Elwood Energy LLC referred to in the within-mentioned Indenture. BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION as Trustee By:__________________________________ Authorized Signatory E-5 [Form of reverse of [___]% Senior Secured Bonds due [______] ELWOOD ENERGY LLC [___]% SENIOR SECURED BONDS DUE [_____] This bond is one of an authorized issue of Bonds of the Issuer known as its [___]% Senior Secured Bonds due [______] (the "Bonds"). The Bonds are ----- issued under the Trust Indenture dated as of October 23, 2001 (the "Original -------- Indenture") between the Issuer and Bank One Trust Company, National Association, - --------- a national banking association formed under the laws of the United States, as trustee (in such capacity, together with its successors in such capacity, the "Trustee"), as supplemented by the [_______] Supplemental Indenture dated as of - -------- [______________] (the "[_________] Supplemental Indenture") between the Issuer ----------------------- and the Trustee (the Original Indenture, as so supplemented, and as the same may be amended, modified and further supplemented, the "Indenture"). All --------- capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Indenture. All Bonds of any series issued and Outstanding under the Indenture rank on a parity with each other Bond of the same series and with all Bonds of each other series. Reference is hereby made to the Indenture for a description of the nature and extent of the Bonds and the respective rights, limitations of the rights, duties and immunities thereunder of the Holders of the Bonds and of the Trustee and the Issuer in respect of the Bonds and the terms upon which the Bonds are made and are to be authenticated and delivered. Except as otherwise specifically provided in the Indenture, the Intercreditor Agreement or the Deposit and Disbursement Agreement, all payments of principal of, premium, if any, and interest on this Bond are (i) payable only from the assets of the Issuer and the income and proceeds thereof received by the Trustee or the Administrative Agent and allocable to the Trustee therefrom and (ii) secured by assets subject to the Lien of the Indenture, and all payments of principal, premium, if any, and interest shall be made in accordance with the terms of the Indenture. Each Holder, by acceptance of this Bond, hereby acknowledges and agrees that recourse for any such amounts payable shall be otherwise limited in accordance with Section 2.15 and Section 14.1 of the ------------ ------------ Original Indenture. The obligations of the Issuer to pay the principal of and interest on the Bonds when due as herein prescribed are absolute and unconditional and no provision of this Bond or the Indenture shall alter or impair such obligations. E-6 The Indenture permits, with certain exceptions, as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Bonds under the Indenture at any time by the Issuer without the consent of the Holders or with the consent of the Holders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Bonds of all series then Outstanding, on behalf of the Holders of all the Bonds, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any Act (as such term is defined in the Indenture), including, but not limited to, such a consent, waiver or direction by the Holder of this Bond shall be conclusive and binding upon the Holder and upon all future Holders of this Bond and the Holder of every Bond issued upon the transfer hereof or the exchange herefor or in lieu hereof whether or not notation of such Act is made upon this Bond. As provided in the Indenture, the aggregate principal amount of Bonds which may be issued, authenticated and delivered thereunder is unlimited. This Bond is one of the series designated on the face hereof, limited to [$______________] in aggregate principal amount as provided in the [_______] Supplemental Indenture. This Bond and all Bonds issued or to be issued in the series created under the [_______] Supplemental Indenture [are (i) redeemable at the option of the Issuer, in accordance with the terms of the Indenture and the [_______] Supplemental Indenture, and the Issuer is required to redeem this Bond upon the occurrence of certain specified events pursuant to Section 6.3 of the Indenture ----------- and Sections 3.9(c), 3.10(a), 3.10(b) and 3.10(c) of the Deposit and --------------- ------- ------- ------- Disbursement Agreement, and (ii) not subject to any sinking fund]. Notice of any optional redemption of Bonds will be given at least 30 days but not more than 60 days before the Redemption Date to each Holder at its address as it appears in the Security Register. Bonds (or portions thereof as aforesaid) for the redemption of which provision is made in accordance with the Indenture shall cease to bear interest from and after any Redemption Date. The Indenture contains provisions for, upon compliance by the Issuer with certain conditions set forth in the Indenture, the defeasance of (a) the entire indebtedness of this Bond and (b) certain restrictive covenants and agreements. E-7 The unpaid portion of the principal amount hereof, together with any interest accrued and unpaid thereon and all other amounts due hereunder, if any, may become due and payable upon the occurrence and during the continuance of any Event of Default, but only as provided in the Indenture. The Bonds are issuable only as registered Bonds without coupons in minimum denominations of $100,000 and any integral multiple of $100 in excess thereof. The transfer of Bonds may be registered and Bonds may be exchanged as provided in the Indenture. The Security Registrar, the Trustee and the Issuer may require a Holder, among other things, to pay any taxes and fees required by law or permitted by the Indenture and to furnish appropriate endorsements and transfer documents. [INSERT THE FOLLOWING IF THIS IS A REGULATION S TEMPORARY GLOBAL BOND: This Regulation S Temporary Global Bond is exchangeable in whole or in part for one or more Global Bonds only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article II of the Indenture. Upon exchange of this Regulation S Temporary - ---------- Global Bond for one or more Global Bonds, the Trustee shall cancel this Regulation S Temporary Global Bond.] The person in whose name this Bond is registered shall be deemed to be the owner and holder hereof for the purpose of receiving payment as herein provided and for all other purposes whether or not this Bond be overdue regardless of any notice to anyone to the contrary. Bonds known to a Responsible Officer of the Trustee to be owned or held by, or for the account or benefit of, the Issuer or any of the Issuer's members, or an Affiliate of any of the foregoing, shall not be entitled to share in any payment or distribution provided for in Article VIII of the Indenture ------------ until all Bonds held by other Persons have been indefeasibly paid in full. THIS BOND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. E-8 ABBREVIATIONS The following abbreviations when used in the inscription on the face of this instrument shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT_______________________ (Cust) (Minor) under Uniform Gift to Minors Act ________________________________ (State) Additional abbreviations may also be used though not in the above list _______________ E-9 FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto Identifying Number of Assignee__________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Please print or typewrite name and address, including zip code of Assignee) the within Bond and all rights thereunder, hereby irrevocably constituting and appointing ________________________________________ attorney to transfer said Bond on the books of the Issuer, with full power of substitution in the premises. Dated:____________________ ___________________________________ NAME: NOTICE: The signature to this assignment must correspond with the name as written upon the first page of the within instrument in every particular, without alteration or enlargement or any change whatsoever. E-10 ANNEX A TO [___]% SENIOR SECURED BOND DUE [_____] The following table sets forth the date of each semiannual installment of principal to be paid on this Bond and the applicable percentage of the original principal amount payable on each such date: Scheduled Percentage of Payment Principal Date Amount Payable --------------- -------------------- [INSERT AMORTIZATION TABLE FOR PARTICULAR SERIES OF BONDS] E-11 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL BOND* The following exchanges of a part of this Global Bond for an interest in another Global Bond or for a Definitive Bond, or exchanges of a part of another Global Bond or Definitive Bond for an interest in this Global Bond, have been made:
Amount of decrease in Amount of increase in Principal Amount of Signature of Principal Amount Principal Amount this Global Bond authorized officer of Date of of of following such decrease Trustee or Bond Exchange this Global Bond this Global Bond (or increase) Custodian - --------- ---------------------- --------------------- ----------------------- ---------------------
- ------------------------- * [THIS SCHEDULE SHOULD BE INCLUDED ONLY IF THE BOND IS ISSUED IN GLOBAL FORM] E-12 EXHIBIT F to Indenture ------------ Form of ------- Subordination Provisions ------------------------ I. The indebtedness evidenced by this Note* and the other obligations described in the definition of "Subordinated Indebtedness" is subordinated and subject in right of payment to the prior payment in full of all Senior Secured Obligations. Each holder of this Note, by its acceptance hereof, agrees to and shall be bound by all the provisions hereof. All terms used but not defined herein shall have the meaning set forth in the Indenture, dated as of October 23, 2001, between Elwood Energy LLC (the "Issuer") and ------ Bank One Trust Company, National Association, as Trustee. II. No payment on account of principal, premium or interest on the Subordinated Indebtedness shall be made unless (a) full payment of all amounts then due and payable with respect to Senior Secured Obligations has been made, (b) such payment would be permitted by the Financing Documents, (c) each of the conditions for the making of a "Distribution" set forth in Section 3.9 of ----------- the Deposit and Disbursement Agreement has been satisfied and (d) immediately after giving effect to such payment, there shall not exist any Default or Event of Default. Any such payment permitted pursuant to this paragraph is hereinafter referred to as a "Permitted Payment". For the purposes of these provisions, no Senior Secured Obligation shall be deemed to have been paid in full until the obligee of such Senior Secured Obligation shall have indefeasibly received payment in full in cash. Any cash payment on the Senior Secured Obligations made by a Person which is solvent at the time of and after giving effect to such payment shall be presumed to have been indefeasibly paid in full in cash absent actual knowledge by the payor to the contrary. Any failure to make any payment on this Note prior to the time permitted by this paragraph shall not constitute a default under this Note. III. Upon any payment or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or total or partial liquidation or reorganization of the Issuer, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, then and in any such event all Senior Secured Obligations and all amounts (including interest, indemnities and fees) due or to become due upon all Senior Secured Obligations shall first be paid in full before the holders of the Subordinated Indebtedness shall be entitled to retain any assets so paid or distributed in respect of the Subordinated Indebtedness (for principal, premium, interest or otherwise) and upon any such dissolution or winding up or liquidation ____________________________ * Or other debt instrument, as applicable. F-1 or reorganization, any payment or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities, to which the holders of the Subordinated Indebtedness would be entitled, except as otherwise provided herein, shall be paid by the Issuer or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the holders of the Subordinated Indebtedness if received by them, directly to the holders of the Senior Secured Obligations or their representatives for application to such Senior Secured Obligations in accordance with their terms. So long as any Senior Secured Obligation is outstanding, the holder of this Note shall not commence, or join with any creditor other than any Person to whom Senior Secured Obligations are owed, in commencing, or directly or indirectly causing the Issuer to commence, or assist the Issuer in commencing, any proceeding referred to in the preceding sentence. IV. The holder of this Note hereby irrevocably authorizes and empowers (without imposing any obligation on) each Person to whom any Senior Secured Obligation is owed and such Person's representatives, under the circumstances set forth in the immediately preceding paragraph, to demand, sue for, collect and receive every such payment or distribution described therein and give acquittance therefor, to file claims and proofs of claims in any statutory or nonstatutory proceeding, to vote such Person's ratable share of the full amount of the Subordinated Indebtedness evidenced by this Note in its sole discretion in connection with any resolution, arrangement, plan of reorganization, compromise, settlement or extension and to take all such other action (including the right to participate in any composition of creditors and the right to vote such Person's ratable share of the Subordinated Indebtedness, evidenced by this Note, at creditors' meetings for the election of trustees, acceptances of plans and otherwise), in the name of the holder of the Subordinated Indebtedness evidenced by this Note or otherwise, as such Person's representatives may deem necessary or desirable for the enforcement of the subordination provisions of this Note. The holder of this Note shall execute and deliver to each Person to whom any Senior Secured Obligation is owed and such Person's representatives all such further instruments confirming the foregoing authorization, and all such powers of attorney, proofs of claim, assignments of claim and other instruments, and shall take all such other action as may be reasonably requested by such Person or such Person's representatives in order to enable such holder to enforce all claims upon or in respect of such Person's ratable share of the Subordinated Indebtedness evidenced by this Note; provided, however, that nothing herein shall obligate the holder of this Note to pay or incur any cost, expense or liability or to take any action that may result in the imposition of any cost, expense or liability. V. The holder of this Note shall not, without the prior written consent of the Trustee and the Collateral Agent, have any right to accelerate payment of, or institute any proceedings to enforce, the Subordinated Indebtedness so long as any Senior Secured Obligation is outstanding. F-2 VI. If any payment (other than a Permitted Payment) on account of principal, premium or interest, or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities, shall be received by the holder of the Subordinated Indebtedness before all Senior Secured Obligations are paid in full, such payment or distribution will be held in trust for the benefit of, and shall be immediately paid over to, the holders of the Senior Secured Obligations or their representatives for application to such Senior Secured Obligations in accordance with their terms. VII. Nothing contained in this Note is intended to or shall impair as between the Issuer, its creditors (other than the holders of Senior Secured Obligations) and the holders of the Subordinated Indebtedness, the obligations of the Issuer, to pay to the holders of the Subordinated Indebtedness, as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the holders of the Subordinated Indebtedness and creditors of the Issuer (other than holders of Senior Secured Obligations). VIII. The Persons to whom Senior Secured Obligations are due shall not be prejudiced in their rights to enforce the subordination contained herein in accordance with the terms hereof by any act or failure to act on the part of the Issuer. IX. The holder of this Note agrees to execute and deliver such further documents and to do such other acts and things as the Trustee or the Collateral Agent may reasonably request in order fully to effect the purposes of these subordination provisions. Each holder of this Note by its acceptance hereof authorizes and directs the Trustee and the Collateral Agent on its behalf to take such further action as may be necessary to effectuate the subordination as provided herein and appoints each of the Trustee and the Collateral Agent, as its attorney-in-fact for any and all such purposes. X. The subordination effected by these provisions, and the rights of the Persons to whom Senior Secured Obligations are owed, shall not be affected by (i) any amendment of, or addition or supplement to any Transaction Document, or any other document evidencing or securing any Senior Secured Obligation, (ii) any exercise or nonexercise of any right, power or remedy under or in respect of any Transaction Document, or any other document evidencing or securing any Senior Secured Obligation or (iii) any waiver, consent, release, indulgence, extension, renewal, modification, delay, or other action, inaction or omission, in respect of, any Transaction Document, or any other document evidencing or securing any Senior Secured Obligation, whether or not any holder of any Subordinated Indebtedness shall have had notice or knowledge of any of the foregoing. No failure on the part of any holder of a Senior Secured Obligation to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. F-3 XI. The holder of this Note and the Issuer each hereby waive promptness, diligence, notice of acceptance and any other notice with respect to any Senior Secured Obligation and these terms of subordination and any requirement that any Secured Party protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right to take any action against the Issuer or any other Person or any collateral. XII. These terms of subordination shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Senior Secured Obligation is rescinded or must otherwise be returned by the Person to whom such Senior Secured Obligation is owed upon the insolvency, bankruptcy or reorganization of the Issuer or otherwise, all as though such payment had not been made. XIII. The provisions of these terms of subordination constitute a continuing agreement and shall (i) remain in full force and effect until the Indenture has been terminated and all amounts owed thereunder have been paid and the Lien of the Security Documents has been terminated or discharged, (ii) be binding upon the holder of this Note and the Issuer and their respective successors, transferees and assignees and (iii) inure to the benefit of, and be enforceable by, the Secured Parties. Without limiting the generality of the foregoing clause (iii), the Secured Parties may assign or otherwise transfer all or any portion of their rights and obligations under all or any of the Transaction Documents to any other Person (to the extent permitted by the Transaction Documents), and such other Person shall thereupon become vested with all the rights in respect thereof granted to the Lease Financing Parties herein or otherwise. XIV. This Note shall be governed by and construed in accordance with, the laws of the State of New York but without giving effect to the conflict of laws principles thereof which would require the application of the law of any other jurisdiction. F-4 EX-4.2 9 dex42.txt FIRST SUPPLEMENTAL INDENTURE EXHIBIT 4.2 ________________________________________________________________________________ FIRST SUPPLEMENTAL INDENTURE dated as of October 23, 2001 to TRUST INDENTURE dated as of October 23, 2001 among ELWOOD ENERGY LLC and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee ________________________________________________________________________________ FIRST SUPPLEMENTAL INDENTURE, dated as of October 23, 2001 (this "First Supplemental Indenture"), to the Trust Indenture, dated as of October 23, ---------------------------- 2001 (the "Original Indenture"), between ELWOOD ENERGY LLC, a Delaware limited ------------------ liability company (together with its successors and assigns, the "Issuer") and ------ BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, a national banking corporation (the "Trustee"). ------- WHEREAS, the Issuer and the Trustee have heretofore executed and delivered the Original Indenture to provide for the issuance from time to time of Bonds (as defined in the Original Indenture) of the Issuer, to be issued in one or more series; WHEREAS, Sections 2.1, 2.3 and 12.1 of the Original Indenture provide, ------------ --- ---- among other things, that the Issuer and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of establishing the designation, form, terms and provisions of Bonds of any series as permitted by Sections 2.1, 2.3 and 12.1 of the Original Indenture; ------------ --- ---- WHEREAS, the Issuer (i) desires the issuance of a series of Bonds to be designated as hereinafter provided and (ii) has requested the Trustee to enter into this First Supplemental Indenture for the purpose of establishing the designation, form, terms and provisions of the Bonds of such series; WHEREAS, all action on the part of the Issuer necessary to authorize the issuance of said Bonds under the Original Indenture and this First Supplemental Indenture (the Original Indenture, as supplemented by this First Supplemental Indenture, being hereinafter called the "Indenture") has been duly --------- taken. NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: That, in order to establish the designation, form, terms and provisions of, and to authorize the authentication and delivery of, said Bonds, and in consideration of the acceptance of said Bonds by the Holders thereof and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS ----------- (a) Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Original Indenture. (b) The rules of interpretation set forth in the Original Indenture shall be applied hereto as if set forth in full herein. (c) For all purposes of this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following respective meanings (such meanings shall apply equally to both the singular and plural forms of the respective terms): "Initial Bonds" shall mean the Senior Secured Bonds due 2026. ------------- "Make-Whole Premium" shall mean an amount equal to the Discounted ------------------ Present Value calculated on the third Business Day before the Redemption Date for any Bond subject to redemption less the unpaid principal amount of such Bond; provided, that the Make-Whole Premium shall not be less than zero. For -------- purposes of this definition, "Discounted Present Value" of any Bond subject to ------------------------ redemption shall be equal to the present value of all principal and interest payments scheduled to become due in respect of such Bond after the date of such redemption (excluding accrued interest to the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months), at a discount rate equal to the sum of (1) the yield to maturity on the United States treasury securities having an interpolated maturity equal to the remaining average life of such Bond and trading in the secondary market at the price closest to par and (2) fifty (50) basis points; provided, however, that if there is no United States treasury security having an - -------- ------- interpolated maturity equal to the remaining average life of such Bond, such discount rate shall be calculated using a yield to maturity interpolated or extrapolated on a straight-line basis (rounding to the nearest month, if necessary) from the yields to maturity for two United States treasury securities having average lives most closely corresponding to the remaining average life of such Bond and trading in the secondary market at the price closest to par. "Senior Secured Bonds due 2026" shall have the meaning ascribed ----------------------------- thereto in Section 2.1(a) hereof. -------------- ARTICLE II THE TERMS OF THE BONDS ---------------------- SECTION 2.1. Terms of 8.159% Senior Secured Bonds due July 5, 2026. ----------------------------------------------------- (a) There is hereby created one series of Bonds designated: 8.159% Senior Secured Bonds due July 5, 2026, in the aggregate principal amount of $402,000,000 (the "Senior Secured Bonds due 2026"). The Senior Secured Bonds due ----------------------------- 2026 may forthwith be executed by the Issuer and delivered to the Trustee for authentication and delivery by the Trustee in accordance with the provisions of Section 2.4 of the Original Indenture. - ----------- (b) Each of the Senior Secured Bonds due 2026 shall have and be subject to such other terms as provided in the Indenture and shall be evidenced by a Bond in the form of Exhibit E to the Original Indenture. --------- SECTION 2.2. Interest and Principal. ---------------------- Each Initial Bond shall bear interest on the unpaid principal amount thereof from time to time outstanding from the date thereof until such amount is paid in full at a rate of 8.159% per annum. The principal amount of each Initial Bond shall be due and payable in installments as set forth below: Scheduled Percentage of Payment Principal Date Amount Payable ------- ---------------- January 5, 2002 1.393% July 5, 2002 0.632% January 5, 2003 2.903% July 5, 2003 0.530% January 5, 2004 2.998% July 5, 2004 0.669% January 5, 2005 3.194% July 5, 2005 0.978% January 5, 2006 3.478% July 5, 2006 1.100% January 5, 2007 3.460% July 5, 2007 1.179% January 5, 2008 3.644% July 5, 2008 1.361% January 5, 2009 3.801% July 5, 2009 1.542% January 5, 2010 4.007% July 5, 2010 1.639% January 5, 2011 4.139% July 5, 2011 1.833% January 5, 2012 4.443% July 5, 2012 2.313% January 5, 2013 5.061% July 5, 2013 0.093% January 5, 2014 1.949% July 5, 2014 0.014% January 5, 2015 1.852% July 5, 2015 0.018% January 5, 2016 2.057% July 5, 2016 0.013% January 5, 2017 1.421% July 5, 2017 0.064% January 5, 2018 3.212% July 5, 2018 0.081% January 5, 2019 3.592% July 5, 2019 0.042% January 5, 2020 3.846% July 5, 2020 0.265% January 5, 2021 4.879% July 5, 2021 0.130% January 5, 2022 6.410% July 5, 2022 0.401% January 5, 2023 4.991% July 5, 2023 0.161% January 5, 2024 2.366% July 5, 2024 0.192% January 5, 2025 2.991% July 5, 2025 0.291% January 5, 2026 1.943% July 5, 2026 0.429% Payment of principal of and interest on each Bond of the series created hereby shall be made (a) if the Issuer so elects, by check mailed to the Holder at his or her registered address, (b) otherwise as provided in Section ------- 2.11 of the - ---- 4 Original Indenture or (c) upon application by a record Holder of at least $1,000,000 in aggregate principal amount of Initial Bonds to the Trustee not later than 15 days prior to the applicable Payment Date, by wire transfer to an account maintained by such record Holder with a bank in The City of New York; provided that the final installment of principal payable with respect to each - -------- Bond of the series created hereby shall be payable as provided in Section 6.5 of -------- the Original Indenture (in the case of any such Bond redeemed) or payable upon presentation and surrender of each such Bond at the Place of Payment. SECTION 2.3. Optional Redemption. The Bonds may be redeemed at the ------------------- option of the Issuer in accordance with and subject to Section 6.3 of the Original Indenture as follows: (i) The Outstanding Bonds may be redeemed prior to maturity, as a whole or in part ratably, at any time, at a Redemption Price equal to the outstanding principal amount of the Bonds being redeemed, plus accrued and unpaid interest thereon to but not including the Redemption Date, plus the Make- Whole Premium, upon notice given by the Issuer to the Holders of the Bonds not less than 30 nor more than 60 days prior to the Redemption Date. Notwithstanding Section 6.4 of the Original Indenture, the notice of redemption under this Section 2.3 or under Section 2.4(b) need not set forth the Redemption Price but - ----------- -------------- only the manner of calculation thereof. The Issuer shall notify the Trustee of the Redemption Price promptly after the calculation thereof, and the Trustee shall have no responsibility for such calculation. (ii) All proceeds received by the Trustee from or on behalf of the Issuer identified as proceeds for an optional redemption of the Bonds under this Section 2.3(a) shall be applied by the Trustee to the redemption of such -------------- Bonds on the Redemption Date thereof. SECTION 2.4. Mandatory Redemption. The Bonds are subject to -------------------- mandatory redemption in accordance with and subject to the provisions of Section 6.3 of the Original Indenture as follows: (a) Mandatory Redemption Without Make-Whole Premium. The Bonds will ----------------------------------------------- be subject to mandatory redemption as follows: (i) Loss Event With No Restoration of Project. In accordance with and ----------------------------------------- subject to the terms of Section 3.10(a)(i) of the Deposit and Disbursement Agreement, if (A) a Loss Event occurs and (B) either (x) the Issuer 5 determines not to Restore the Project or (y) the Issuer determines that the Project cannot be Restored to permit operation of the Project on a Commercially Feasible Basis, then all Loss Proceeds in excess of $5,000,000 received by the Issuer in connection with such Loss Event shall be used to redeem the Bonds pro rata with the other Senior Secured Obligations, at a Redemption Price equal to the outstanding principal amount of the Bonds being redeemed, plus accrued and unpaid interest thereon to but not including the Redemption Date. (ii) Loss Event With Restoration of Project. In accordance with and -------------------------------------- subject to the terms of Section 3.10 (a)(ii) of the Deposit and Disbursement Agreement, if (A) a Loss Event occurs, (B) the Issuer receives Loss Proceeds in respect of such Loss Event and (C) the Issuer determines that the Project can be Restored to permit operation of the Project on a Commercially Feasible Basis, then upon completion of any Restoration Work, all such Loss Proceeds in excess of $5,000,000 received by Issuer in connection with such Loss Event remaining after giving effect to the cost of the Restoration shall be used to redeem the Bonds pro rata with the other Senior Secured Obligations, at a Redemption Price equal to the outstanding principal amount of the Bonds being redeemed, plus accrued and unpaid interest thereon to but not including the Redemption Date. (iii) Receipt of Buy-Out Proceeds. In accordance with and subject to --------------------------- the terms of Section 3.10(b) of the Deposit and Disbursement Agreement, if (A) the aggregate amount of Buy-Out Proceeds received by or on behalf of the Issuer in connection with an Involuntary Buy-Out or Involuntary Buy- Outs exceeds $10,000,000 and (B) any Rating Agency does not confirm in writing that such Involuntary Buy-Out or Involuntary Buy-Outs will not result in a Rating Downgrade by such Rating Agency, then all such Buy-Out Proceeds received by the Issuer in connection with such Involuntary Buy-Out or Involuntary Buy-Outs in excess of $10,000,000 shall be used to redeem the Bonds pro rata with the other Senior Secured Obligations, at a Redemption Price equal to the outstanding principal amount of the Bonds being redeemed, plus accrued and unpaid interest thereon to but not including the Redemption Date. (iv) Proceeds of Permitted Asset Dispositions. In accordance with and ---------------------------------------- subject to the terms of Section 3.10(c) of the Deposit and Disbursement Agreement, all Asset Sale Proceeds in excess of $5,000,000 received by the Issuer in connection with a disposition of assets permitted by Section ------- 5.1(g) ------ 6 of the Indenture shall be used to redeem the Bonds pro rata with the other Senior Secured Obligations, at a Redemption Price equal to the outstanding principal amount of the Bonds being redeemed, plus accrued and unpaid interest thereon to but not including the Redemption Date. (b) Mandatory Redemption With Make Whole Premium. In accordance with -------------------------------------------- and subject to the terms of Section 3.10(b) of the Deposit and Disbursement Agreement, if (A) the aggregate amount of Buy-Out Proceeds received by or on behalf of the Issuer in connection with a Voluntary Buy-Out or Voluntary Buy- Outs exceeds $10,000,000 and (B) any Rating Agency does not confirm in writing that such Voluntary Buy-Out or Voluntary Buy-Outs will not result in a Rating Downgrade by such Rating Agency, then all such Buy-Out Proceeds received by the Issuer in connection with such Voluntary Buy-Out or Voluntary Buy-Outs in excess of $10,000,000 shall be used to redeem the Bonds pro rata with the other Senior Secured Obligations, at a Redemption Price equal to the outstanding principal amount of the Bonds being redeemed, plus accrued and unpaid interest thereon to but not including the Redemption Date, plus the Make-Whole Premium. SECTION 2.5. Restrictions on Transfer and Exchange of Initial ------------------------------------------------ Bonds. The Initial Bonds shall be represented by one or more Restricted Global - ----- Bonds registered in the name of the nominee for the Registered Depositary. Interests in the Initial Bonds may be transferred only in accordance with the applicable procedures set forth in the Original Indenture and the rules of the Registered Depositary and, in the case of a Regulation S Global Bond, the Euroclear System and Clearstream Banking, societe anonyme, as applicable. ARTICLE III MISCELLANEOUS ------------- SECTION 3.1. Execution of Supplemental Indenture. ----------------------------------- This First Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this First Supplemental Indenture forms a part thereof. SECTION 3.2. Concerning the Trustee. ---------------------- The recitals contained herein and in the Bonds of the series created hereby, except with respect to the Trustee's certificates of authentication, shall be 7 taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture or of the Bonds of the series created hereby. SECTION 3.3. Counterparts. ------------ This First Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 3.4. Governing Law. ------------- THIS FIRST SUPPLEMENTAL INDENTURE AND EACH BOND OF THE SERIES CREATED HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. [THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK.] 8 IN WITNESS WHEREOF, the parties have caused this First Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. ELWOOD ENERGY LLC By: /s/ Don Burnette ------------------------------------ Name: Don Burnette Title: Authorized Representative BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: /s/ Benita A. Pointer ------------------------------------ Name: Benita A. Pointer Title: Account Executive EX-4.3 10 dex43.txt FORM OF SECOND SUPPLEMENTAL INDENTURE Exhibit 4.3 ================================================================================ SECOND SUPPLEMENTAL INDENTURE dated as of ___________, 2002 to TRUST INDENTURE dated as of October 23, 2001 between ELWOOD ENERGY LLC and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee ================================================================================ SECOND SUPPLEMENTAL INDENTURE, dated as of ___________, 2002 (this "Second Supplemental Indenture"), to the Trust Indenture, dated as of October 23, 2001 (the "Original Indenture", and, together with the First Supplemental Indenture dated October 23, 2001, the "Indenture"), between ELWOOD ENERGY LLC, a Delaware limited liability company (together with its successors and assigns, the "Issuer") and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, a national banking corporation (the "Trustee"). WHEREAS, the Issuer and the Trustee have heretofore executed and delivered the Original Indenture to provide for the issuance from time to time of Bonds (as defined in the Original Indenture) of the Issuer, to be issued in one or more series; WHEREAS, the Issuer has filed the Exchange Offer Registration Statement and completed the Exchange Offer, as contemplated by the Registration Rights Agreement; WHEREAS, the holders of $________________ in initial principal amount of the Initial Bonds have accepted the Exchange Offer; and WHEREAS, all action on the part of the Issuer necessary to authorize the issuance of the Exchange Bonds has been taken. NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH: The parties hereto hereby agree as follows: ARTICLE I DEFINITIONS (a) Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Indenture. (b) The rules of interpretation set forth in the Original Indenture shall be applied hereto as if set forth in full herein. ARTICLE II THE EXCHANGE BONDS SECTION 2.1. Issuance of the Exchange Bonds. Upon receipt of an authentication order in accordance with Section 2.4 of the Original Indenture, the Trustee shall authenticate an Unrestricted Global Bond in the form of Exhibit A and having a stated principal amount of $____________ representing the Exchange Bonds. 1 SECTION 2.2. Reduction of Aggregate Principal Amount of Initial Bonds. The Trustee shall cause the stated principal amount of the Restricted Global Bond(s) representing the Initial Bonds to be reduced to $___________. SECTION 2.3. Credit for Prior Payments. The principal amounts set forth in Sections 2.1 and 2.2 are stated in terms of the applicable issuance amount of the Initial Bonds for ease of computation. All payments of principal and interest made on Initial Bonds being exchanged for Exchange Bonds on or before the date of authentication of the Exchange Bonds shall be credited against amounts payable under the Exchange Bonds. ARTICLE III MISCELLANEOUS SECTION 3.1. Execution of Supplemental Indenture. This Second Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Second Supplemental Indenture forms a part thereof. SECTION 3.2. Concerning the Trustee. The recitals contained herein and in the Bonds of the series created hereby, except with respect to the Trustee's certificates of authentication, shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Second Supplemental Indenture or of the Bonds of the series created hereby. SECTION 3.3. Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 3.4. Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. [THE REMAINDER OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK.] 2 IN WITNESS WHEREOF, the parties have caused this Second Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. ELWOOD ENERGY LLC By: -------------------------------------- Name: Title: BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: -------------------------------------- Name: Title: 3 EXHIBIT A [Form of face of 8.159% Senior Secured Bonds due 2026] ELWOOD ENERGY LLC 8.159% SENIOR SECURED BONDS DUE 2026 THIS BOND IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO. THIS GLOBAL BOND IS HELD BY THE REGISTERED DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS BOND) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED BY THE INDENTURE, (II) THIS GLOBAL BOND MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.9(a) OF THE INDENTURE, (III) THIS GLOBAL BOND MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.13 OF THE INDENTURE AND (IV) THIS GLOBAL BOND MAY BE TRANSFERRED TO A SUCCESSOR REGISTERED DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUER No. R-2 CUSIP NUMBER: ____________ PRINCIPAL AMOUNT: $___________ FINAL BOND PAYMENT DATE: July 5, 2026 ISSUE DATE: ____________ REGISTERED HOLDER: Cede & Co. INTEREST RATE: 8.159% ELWOOD ENERGY LLC, a Delaware limited liability company (hereinafter called the "Issuer"), which term includes any successor or assign under the Indenture referred to below), for value received hereby promises to pay to CEDE & CO., or its registered assigns, the outstanding principal amount hereof, such payment to be made in semiannual installments on January 5 and July 5 of each year (commencing January 5, 2002) and ending on the final Bond Payment Date set forth above, each such installment to be in an amount equal to the principal 1 amount hereof multiplied by the percentage set forth opposite the applicable payment date in the table set forth on Annex A attached hereto (provided that the portion of the principal amount remaining unpaid on the final Bond Payment Date, together with all interest accrued thereon, shall in any and all cases be due and payable on the final Bond Payment Date), and to pay interest on the unpaid portion of the Principal Amount at the interest rate set forth above from the most recent Bond Payment Date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the issue date set forth above, semiannually on January 5 and July 5 in each year (commencing January 5, 2002) until the principal amount is paid in full or payment thereof is duly provided for. Any installment of principal and, to the extent permitted by applicable law, any payment of interest not punctually paid or duly provided for shall continue to bear interest at a rate equal to the interest rate set forth above. The principal and interest so payable, and punctually paid or duly provided for, at any Bond Payment Date shall, as provided in the Indenture, be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered in the Security Register at the close of business on the Regular Record Date for such payment of principal and interest, which shall be the 15th day (whether or not a Business Day) next preceding such Bond Payment Date. Any such principal and interest that is payable, but is not so punctually paid or duly provided for at any Bond Payment Date, shall forthwith cease to be payable to the Holder hereof on such Regular Record Date, and such Overdue Interest or Overdue Principal may be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on a Special Record Date for the payment of such Overdue Principal and Overdue Interest (together with any other amounts payable with respect to such Overdue Principal and Overdue Interest), to be fixed by the Trustee, notice of which shall be given to the Holder hereof not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which this Bond may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payments of principal of and interest on this Bond shall be made (i) if the Issuer so elects, by check mailed to the Holder of this Bond at his or her registered address or (ii) otherwise, at the Place of Payment; provided that the final installment of principal payable with respect to this Bond shall be made as provided in Section 6.5 of the Indenture (in the event this Bond is redeemed) or shall be made upon presentation and surrender of this Bond at the Place of Payment. All payments in respect of this Bond shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of debts. Whenever any amount to be paid hereunder is stated to be due on a day that is not a Business Day, such amount shall be payable on the next succeeding Business Day, and if such payment is timely made, no interest shall accrue for the period from and after the day on which such payment was due. Interest payments for this Bond will be computed and paid on the basis of a 360-day year consisting of twelve 30-day months. 2 Reference is made to the further provisions of this Bond set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Bond shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed. ELWOOD ENERGY LLC By: ------------------------------------- Name: Title: 3 CERTIFICATE OF AUTHENTICATION Dated: This Bond is one of the 8.159% Senior Secured Bonds due July 5, 2026 of Elwood Energy LLC referred to in the within-mentioned Indenture. BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION as Trustee By: ---------------------------------------- Authorized Signatory Dated: ------------------------------------- 4 [Form of reverse of 8.159% Senior Secured Bonds due 2026] ELWOOD ENERGY LLC 8.159% SENIOR SECURED BONDS DUE 2026 This bond is one of an authorized issue of Bonds of the Issuer known as its 8.159% Senior Secured Bonds due 2026 (the "Bonds"). The Bonds are issued under the Trust Indenture dated as of October 23, 2001 (the "Original Indenture") between the Issuer and Bank One Trust Company, National Association, a national banking association formed under the laws of the United States, as trustee (in such capacity, together with its successors in such capacity, the "Trustee"), as supplemented by the First Supplemental Indenture dated as of October 23, 2001 (the "First Supplemental Indenture") and the Second Supplemental Indenture dated as of [______________] (the "Second Supplemental Indenture") between the Issuer and the Trustee (the Original Indenture, as so supplemented, and as the same may be amended, modified and further supplemented, the "Indenture"). All capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Indenture. All Bonds of any series issued and Outstanding under the Indenture rank on a parity with each other Bond of the same series and with all Bonds of each other series. Reference is hereby made to the Indenture for a description of the nature and extent of the Bonds and the respective rights, limitations of the rights, duties and immunities thereunder of the Holders of the Bonds and of the Trustee and the Issuer in respect of the Bonds and the terms upon which the Bonds are made and are to be authenticated and delivered. Except as otherwise specifically provided in the Indenture, the Intercreditor Agreement or the Deposit and Disbursement Agreement, all payments of principal of, premium, if any, and interest on this Bond are (i) payable only from the assets of the Issuer and the income and proceeds thereof received by the Trustee or the Administrative Agent and allocable to the Trustee therefrom and (ii) secured by assets subject to the Lien of the Indenture, and all payments of principal, premium, if any, and interest shall be made in accordance with the terms of the Indenture. Each Holder, by acceptance of this Bond, hereby acknowledges and agrees that recourse for any such amounts payable shall be otherwise limited in accordance with Section 2.15 and Section 14.1 of the Original Indenture. The obligations of the Issuer to pay the principal of and interest on the Bonds when due as herein prescribed are absolute and unconditional and no provision of this Bond or the Indenture shall alter or impair such obligations. The Indenture permits, with certain exceptions, as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights 5 of the Holders of the Bonds under the Indenture at any time by the Issuer without the consent of the Holders or with the consent of the Holders of not less than a majority in aggregate principal amount of the Bonds of all series then Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Bonds of all series then Outstanding, on behalf of the Holders of all the Bonds, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any Act (as such term is defined in the Indenture), including, but not limited to, such a consent, waiver or direction by the Holder of this Bond shall be conclusive and binding upon the Holder and upon all future Holders of this Bond and the Holder of every Bond issued upon the transfer hereof or the exchange herefor or in lieu hereof whether or not notation of such Act is made upon this Bond. As provided in the Indenture, the aggregate principal amount of Bonds which may be issued, authenticated and delivered thereunder is unlimited. This Bond is one of the series designated on the face hereof, limited to $402,000,000 in aggregate principal amount as provided in the First Supplemental Indenture. All payments of principal and interest made with respect to interests in the Restricted Global Bond for which interests in this Unrestricted Global Bond were exchanged on or before the date of authentication of this Unrestricted Global Bond shall be credited against amounts payable hereunder. This Bond and all Bonds issued or to be issued in the series created under the Second Supplemental Indenture are (i) redeemable at the option of the Issuer, in accordance with the terms of the Indenture and the First Supplemental Indenture, and the Issuer is required to redeem this Bond upon the occurrence of certain specified events pursuant to Section 6.3 of the Indenture and Sections 3.9(c), 3.10(a), 3.10(b) and 3.10(c) of the Deposit and Disbursement Agreement, and (ii) not subject to any sinking fund. Notice of any optional redemption of Bonds will be given at least 30 days but not more than 60 days before the Redemption Date to each Holder at its address as it appears in the Security Register. Bonds (or portions thereof as aforesaid) for the redemption of which provision is made in accordance with the Indenture shall cease to bear interest from and after any Redemption Date. The Indenture contains provisions for, upon compliance by the Issuer with certain conditions set forth in the Indenture, the defeasance of (a) the entire indebtedness of this Bond and (b) certain restrictive covenants and agreements. The unpaid portion of the principal amount hereof, together with any interest accrued and unpaid thereon and all other amounts due hereunder, if any, may become due and 6 payable upon the occurrence and during the continuance of any Event of Default, but only as provided in the Indenture. The Bonds are issuable only as registered Bonds without coupons in minimum denominations of $100,000 and any integral multiple of $100 in excess thereof. The transfer of Bonds may be registered and Bonds may be exchanged as provided in the Indenture. The Security Registrar, the Trustee and the Issuer may require a Holder, among other things, to pay any taxes and fees required by law or permitted by the Indenture and to furnish appropriate endorsements and transfer documents. The person in whose name this Bond is registered shall be deemed to be the owner and holder hereof for the purpose of receiving payment as herein provided and for all other purposes whether or not this Bond be overdue regardless of any notice to anyone to the contrary. Bonds known to a Responsible Officer of the Trustee to be owned or held by, or for the account or benefit of, the Issuer or any of the Issuer's members, or an Affiliate of any of the foregoing, shall not be entitled to share in any payment or distribution provided for in Article VIII of the Indenture until all Bonds held by other Persons have been indefeasibly paid in full. THIS BOND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 7 ABBREVIATIONS The following abbreviations when used in the inscription on the face of this instrument shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT ------------------------------- (Cust) (Minor) under Uniform Gift to Minors Act ------------------------------------------ (State) Additional abbreviations may also be used though not in the above list --------------- 8 FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto Identifying Number of Assignee ------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please print or typewrite name and address, including zip code of Assignee) the within Bond and all rights thereunder, hereby irrevocably constituting and appointing ________________________________________ attorney to transfer said Bond on the books of the Issuer, with full power of substitution in the premises. Dated: --------------------- ------------------------------- NAME: NOTICE: The signature to this assignment must correspond with the name as written upon the first page of the within instrument in every particular, without alteration or enlargement or any change whatsoever. 9 ANNEX A TO 8.159% SENIOR SECURED BOND DUE 2026 The following table sets forth the date of each semiannual installment of principal to be paid on this Bond and the applicable percentage of the original principal amount payable on each such date: Scheduled Percentage of Payment Principal Date Amount Payable --------------------- ------------------------ Jan 5, 2002 ............................. 1.393% Jul 5, 2002 ............................. 0.632 Jan 5, 2003 ............................. 2.903 Jul 5, 2003 ............................. 0.530 Jan 5, 2004 ............................. 2.998 Jul 5, 2004 ............................. 0.669 Jan 5, 2005 ............................. 3.194 Jul 5, 2005 ............................. 0.978 Jan 5, 2006 ............................. 3.478 Jul 5, 2006 ............................. 1.100 Jan 5, 2007 ............................. 3.460 Jul 5, 2007 ............................. 1.179 Jan 5, 2008 ............................. 3.644 Jul 5, 2008 ............................. 1.361 Jan 5, 2009 ............................. 3.801 Jul 5, 2009 ............................. 1.542 Jan 5, 2010 ............................. 4.007 Jul 5, 2010 ............................. 1.639 Jan 5, 2011 ............................. 4.139 Jul 5, 2011 ............................. 1.833 Jan 5, 2012 ............................. 4.443 Jul 5, 2012 ............................. 2.313 Jan 5, 2013 ............................. 5.061 Jul 5, 2013 ............................. 0.093 Jan 5, 2014 ............................. 1.949 Jul 5, 2014 ............................. 0.014 Jan 5, 2015 ............................. 1.852 Jul 5, 2015 ............................. 0.018 Jan 5, 2016 ............................. 2.057 10 Jul 5, 2016 ............................. 0.013% Jan 5, 2017 ............................. 1.421 Jul 5, 2017 ............................. 0.064 Jan 5, 2018 ............................. 3.212 Jul 5, 2018 ............................. 0.081 Jan 5, 2019 ............................. 3.592 Jul 5, 2019 ............................. 0.042 Jan 5, 2020 ............................. 3.846 Jul 5, 2020 ............................. 0.265 Jan 5, 2021 ............................. 4.879 Jul 5, 2021 ............................. 0.130 Jan 5, 2022 ............................. 6.410 Jul 5, 2022 ............................. 0.401 Jan 5, 2023 ............................. 4.991 Jul 5, 2023 ............................. 0.161 Jan 5, 2024 ............................. 2.366 Jul 5, 2024 ............................. 0.192 Jan 5, 2025 ............................. 2.991 Jul 5, 2025 ............................. 0.291 Jan 5, 2026 ............................. 1.943 Jul 5, 2026 ............................. 0.429 11 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL BOND The following exchanges of a part of this Global Bond for an interest in another Global Bond or for a Definitive Bond, or exchanges of a part of another Global Bond or Definitive Bond for an interest in this Global Bond, have been made: Date of Amount of decrease in Amount of increase in Principal Amount of Signature of Exchange Principal Amount Principal Amount this Global Bond authorized officer of of of following such decrease Trustee or Bond this Global Bond this Global Bond (or increase) Custodian - ---------- --------------------- --------------------- ----------------------- ---------------------
12 EX-4.4 11 dex44.txt DEPOSIT AND DISBURSEMENT AGREEMENT EXHIBIT 4.4 EXECUTION COPY -------------- ================================================================================ DEPOSIT AND DISBURSEMENT AGREEMENT among ELWOOD ENERGY LLC, ELWOOD II HOLDINGS, LLC, ELWOOD III HOLDINGS, LLC, BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral Agent, BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Administrative Agent and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Intercreditor Agent Dated as of October 23, 2001 ================================================================================ TABLE OF CONTENTS -----------------
Page ARTICLE I DEFINITIONS ----------- SECTION 1.1 Capitalized Terms.......................................... 2 SECTION 1.2 Rules of Interpretation.................................... 13 SECTION 1.3 Uniform Commercial Code.................................... 13 ARTICLE II ESTABLISHMENT OF THE ACCOUNTS ----------------------------- SECTION 2.1 Establishment of Accounts.................................. 13 SECTION 2.2 Termination................................................ 15 ARTICLE III THE ACCOUNTS ------------ SECTION 3.1 Revenue Account............................................ 15 SECTION 3.2 O&M Account................................................ 20 SECTION 3.3 Sales Tax Reserve Account.................................. 21 SECTION 3.4 Debt Service Payment Account............................... 24 SECTION 3.5 DSR LOC Loan Principal Account............................. 25 SECTION 3.6 Debt Service Reserve Account............................... 26 SECTION 3.7 Major Maintenance Reserve Account.......................... 29 SECTION 3.8 PSA Contingency Reserve Account............................ 33 SECTION 3.9 Distribution Suspense Account.............................. 36 SECTION 3.10 Proceeds Account........................................... 39 SECTION 3.11 Permitted Investments...................................... 43 SECTION 3.12 Events of Default.......................................... 44 SECTION 3.13 Disposition of Accounts Upon Debt Termination Date......... 45 SECTION 3.14 Account Balance Statements................................. 45 SECTION 3.15 Instructions to the Administrative Agent................... 45 ARTICLE IV THE ADMINISTRATIVE AGENT ------------------------ SECTION 4.1 Appointment of the Administrative Agent, Powers and Immunities........................................... 46 SECTION 4.2 Reliance by the Administrative Agent....................... 48 SECTION 4.3 Court Orders............................................... 49
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SECTION 4.4 Resignation or Removal..................................... 49 ARTICLE V EXPENSES; INDEMNIFICATION; FEES ------------------------------- SECTION 5.1 Expenses................................................... 50 SECTION 5.2 Indemnification............................................ 51 SECTION 5.3 Fees....................................................... 51 ARTICLE VI LIMITATION OF LIABILITY ----------------------- SECTION 6.1 Limitation of Liability.................................... 51 ARTICLE VII MISCELLANEOUS ------------- SECTION 7.1 Amendments; Etc............................................ 51 SECTION 7.2 Addresses for Notices...................................... 51 SECTION 7.3 Integration, Etc........................................... 52 SECTION 7.4 Headings; Table of Contents; Section References............ 52 SECTION 7.5 No Third Party Beneficiaries............................... 52 SECTION 7.6 No Waiver.................................................. 52 SECTION 7.7 Severability............................................... 52 SECTION 7.8 Successors and Assigns..................................... 52 SECTION 7.9 Execution in Counterparts.................................. 53 SECTION 7.10 Special Exculpation........................................ 53 SECTION 7.11 Governing Law.............................................. 53 SECTION 7.12 Payments in Respect of Bonds............................... 54
Annex A Calculation Examples Schedule I Accounts Schedule II Major Maintenance Reserve Required Balance Schedule III Sales Tax Reserve Required Balance Schedule IV PSA Yearly Factor Exhibit A Form of Debt Service Reserve Guaranty Exhibit B Form of Major Maintenance Reserve Guaranty Exhibit C Form of PSA Contingency Reserve Guaranty Exhibit D Form of Sales Tax Reserve Guaranty Exhibit E Maintenance Requisition Exhibit F Restoration Requisition Exhibit G Independent Engineer Restoration Requisition ii This DEPOSIT AND DISBURSEMENT AGREEMENT, dated as of October 23, 2001 (this "Agreement"), is by and among ELWOOD ENERGY LLC, a limited liability --------- company duly formed and validly existing under the laws of the State of Delaware (the "Issuer"), ELWOOD II HOLDINGS, LLC, a limited liability company duly formed ------ and validly existing under the laws of the State of Delaware ("Elwood II --------- Holdings"), ELWOOD III HOLDINGS, LLC, a limited liability company duly formed - -------- and validly existing under the laws of the State of Delaware ("Elwood III ---------- Holdings"), BANK ONE TRUST COMPANY, NATIONAL ASSOCI ATION, a national banking - -------- association formed under the laws of the United States, in its capacity as collateral agent under the Collateral Agency Agreement (together with its successors and permitted assigns in such capacity, the "Collateral Agent"), BANK ---------------- ONE TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as administrative agent (together with its successors and permitted assigns in such capacity, the "Administrative Agent"), and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, in - --------------------- its capacity as intercreditor agent under the Intercreditor Agreement (together with its successors and permitted assigns in such capacity, the "Intercreditor ------------- Agent"). - ----- RECITALS -------- WHEREAS, the Issuer was formed for the purpose of developing, financing, constructing, owning and operating an approximately 1,409 MW natural gas-fired electric generation peaking facility located in Elwood, Illinois; WHEREAS, the Issuer has determined to issue $402,000,000 aggregate principal amount of its 8.159% Senior Secured Bonds due July 5, 2026 (the "Bonds") pursuant to the Trust Indenture, dated as of the date hereof (the ----- "Indenture"), between the Issuer and Bank One Trust Company, National Associa --------- tion, as trustee (the "Trustee"); ------- WHEREAS, the Issuer (as successor-in-interest to Elwood Energy II, LLC) and Elwood II Holdings are parties to that certain Equipment Sale Agreement, dated December 20, 2000 (the "Holdings II ESA"); --------------- WHEREAS, the Issuer (as successor-in-interest to Elwood Energy III, LLC) and Elwood III Holdings are parties to (i) that certain Equipment Sale Agree ment, dated December 20, 2000 (300 MW Facility), and (ii) to that certain Equipment Sale Agreement, dated December 20, 2000, and Elwood III Holdings (150 MW Facility)(collectively, the "Holdings III ESAs"); and ----------------- WHEREAS, the Issuer will use the proceeds of the Bonds to repay in full all indebtedness outstanding under existing intercompany loans provided by the Members and the Sponsors and to partially reimburse the Members and the Sponsors for development, financing and construction costs (including, without limitation, issuance costs, punchlist items, consultant and legal fees, the funding of reserve accounts and working capital) incurred by or on behalf of the Issuer in connection with the Project. AGREEMENT --------- NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- SECTION 1.1 Capitalized Terms. ----------------- (a) Each capitalized term used herein and not otherwise defined herein shall have the definition assigned to that term in the Indenture. (b) The following terms shall have the following respective meanings: "Administrative Claims" means all obligations of the Issuer, now or --------------------- hereafter existing, to pay fees, costs and expenses to any trustee or agent of any Secured Party, including, without limitation, the Collateral Agent, the Administrative Agent, the Intercreditor Agent and the Trustee. "Allocation Certificate" shall have the meaning given to such term in ---------------------- Section 3.9(c). - -------------- "Asset Sale Proceeds" shall have the meaning given to such term in ------------------- Section 3.10(c). - --------------- "Buy-Out Proceeds" shall mean any cash or other proceeds received by ---------------- or on behalf of the Issuer in connection with a Buy-Out. "Contracted Cash Available for Debt Service" means, for any period, ------------------------------------------ the aggregate of all payments to be received by the Issuer under Permitted PPAs for such period, plus investment income on amounts in the Accounts attributable to units subject to such Permitted PPAs for such period, minus (i) all O&M Costs attributable 2 to units subject to such Permitted PPAs for such period and (ii) all deposits, if any, into the Sales Tax Reserve Account for such period. "Contracted Coverage Ratio" means, for any period, the ratio of (i) ------------------------- the aggregate of all Contracted Cash Available for Debt Service for such period to (ii) the aggregate of all Debt Service for such period, in each case calculated on a projected basis and confirmed by the Independent Engineer. "Current Major Maintenance Required Balance" shall mean, for any date ------------------------------------------ of determination, the amount set forth on Schedule II hereto opposite the Bond ----------- Payment Date on or immediately succeeding such date of determination (provided -------- that such Schedule II may be amended on an annual basis upon the delivery to the ----------- Trustee and the Administrative Agent of an Officer's Certificate by the Issuer, which shall be confirmed by the Independent Engineer, that such amendment is reasonable in light of the historic levels of operations of the Facility, is in accordance with Prudent Industry Practice, and is reasonably expected to be sufficient to fund scheduled Major Maintenance Expenditures on a timely basis). "Debt Payment Amount" shall have the meaning set forth in Section ------------------- ------- 3.6(c). - ------ "Debt Service Payment Account" shall mean the account established ---------------------------- pursuant to Section 2.1 having the name and account number set forth below the ----------- title "Debt Service Payment Account" in Schedule I hereto. ---------- "Debt Service Reserve Account" shall mean the account established ---------------------------- pursuant to Section 2.1 having the name and account number set forth below the ----------- title "Debt Service Reserve Account" in Schedule I hereto. ---------- "Debt Service Reserve Guarantor" shall mean any Person issuing a Debt ------------------------------ Service Reserve Guaranty. "Debt Service Reserve Guaranty" shall mean an unconditional guaranty ----------------------------- issued by Dominion Resources, Peoples Energy Corporation, an Affiliate of either Dominion Resources or Peoples Energy Corporation, or any other Person whose long-term senior unsecured debt is rated at least "BBB" by S&P and "Baa2" by Moody's, and otherwise in substantially the form attached hereto as Exhibit A. --------- "Debt Service Reserve L/C" shall have the meaning given to such term ------------------------ in Section 3.6(a). -------------- 3 "Debt Service Reserve L/C Agent" shall mean any agent for the banks ------------------------------ and other financial institutions party to a Debt Service Reserve L/C Agreement. "Debt Service Reserve L/C Agreement" shall mean any agreement ---------------------------------- providing for the issuance of an Issuer Debt Service Reserve L/C. "Debt Service Reserve L/C Provider" shall mean the bank or other --------------------------------- financial institution providing a Debt Service Reserve L/C. "Debt Service Reserve LOC Bonds" shall mean Debt Service Reserve LOC ------------------------------ Loans converted into substitute loans which (i) amortize, (ii) mature on the Final Maturity Date and (iii) bear interest at a rate specified in the applicable Debt Service Reserve L/C Agreement. "Debt Service Reserve LOC Loans" shall mean any loans made to the ------------------------------ Issuer under a Debt Service Reserve L/C Agreement. "Debt Service Reserve Requirement" shall mean: -------------------------------- (a) for any date of determination occurring on a Six-Month DSR Date, an amount equal to (i) the principal and interest which will be due or has become due on the Senior Secured Obligations during the period from and including the day after the immediately preceding Bond Payment Date through and including the Bond Payment Date succeeding such date of determination (or, if such date of determination is a Bond Payment Date, through and including such date of determi nation), less (ii) the amount of Monies already on deposit in or credited to the Debt Service Reserve Account, if any, less (iii) the aggregate of the Drawing Amounts of any Debt Service Reserve L/Cs, less (iv) the aggregate of the Guaranteed Amounts under any Debt Service Reserve Guaranties; or (b) for any date of determination other than a Six-Month DSR Date, an amount equal to (i) the principal and interest which will be due or has become due on the Senior Secured Obligations during the period from and including the day after the immediately preceding Bond Payment Date through and including the next two Bond Payment Dates (or, if such date of determination is a Bond Payment Date, through and including the next Bond Payment Date), less (ii) the amount of Monies already on deposit in or credited to the Debt Service Reserve Account, if any, less (iii) the aggregate of the Drawing Amounts of any Debt Service Reserve L/Cs, less (iv) the aggregate of the Guaranteed Amounts under any Debt Service Reserve Guaranties. 4 "Debt Termination Date" means the date on which (i) all Senior Secured --------------------- Obligations, other than contingent liabilities and obligations which are unasserted at such date, have been paid and satisfied in full (or legally defeased in full in accordance with the express terms and conditions of the related Financing Documents), (ii) all Senior Secured Obligations that are letters of credit have terminated or have expired in accordance with their terms and (iii) all commitments of the Secured Parties under the Financing Documents have been terminated. "Default" shall have the meaning given to such term in the ------- Intercreditor Agreement. "Disbursement Date" shall mean a date on which Monies are withdrawn or ----------------- transferred from an Account for the purposes set forth in a Requisition or Funding Date Certificate. "Distribution Conditions" shall have the meaning given to such term in ----------------------- Section 3.9(a). - -------------- "Distribution Suspense Account" shall mean the account established ----------------------------- pursuant to Section 2.1 having the name and account number set forth below the ----------- title "Distribution Suspense Account" in Schedule I hereto. ---------- "Drawing Amount" shall mean, with respect to a letter of credit at any -------------- given time, the amount available to be drawn under such letter of credit at such time. "DSR Insufficiency Amount" shall have the meaning given to such term ------------------------ in Section 3.6(c). -------------- "DSR LOC Loan Principal Account" shall mean the account established ------------------------------ pursuant to Section 2.1 having the name and account number set forth below the ----------- title "DSR LOC Loan Principal Account" in Schedule I hereto. ---------- "Event of Default" shall have the meaning given to such term in the ---------------- Intercreditor Agreement. "Event of Default Date" shall have the meaning given to such term in --------------------- Section 3.12(a). - --------------- "Funding Date" shall mean the last day of each calender month (or, if ------------ such day is not a Business Day, the next succeeding Business Day). 5 "Funding Date Certificate" shall have the meaning given to such term ------------------------ in Section 3.1(b). -------------- "Funding Period" shall mean a period commencing on a Funding Date and -------------- ending on the day preceding the next succeeding Funding Date. "Guaranteed Amount" shall have the meaning applied to the term ----------------- "Guaranty Cap" in any Debt Service Reserve Guaranty, any Major Maintenance Reserve Guaranty, any Sales Tax Reserve Guaranty, or any PSA Contingency Reserve Guaranty as applicable. "Holdings II Account" shall mean the account established pursuant to ------------------- Section 2.1 having the name and account number set forth below the title "Elwood - ----------- II Holdings Account" in Schedule I hereto. ---------- "Holdings III Account" shall mean the account established pursuant to -------------------- Section 2.1 having the name and account number set forth below the title "Elwood - ----------- III Holdings Account" in Schedule I hereto. ---------- "Holdings II ESA Amount" shall have the meaning given to such term in ---------------------- Section 3.2(a). - -------------- "Holdings III ESA Amount" shall have the meaning given to such term in ----------------------- Section 3.2(a). - -------------- "Holdings II Periodic Tax Amount" shall mean$22,972.44. ------------------------------- "Holdings III Periodic Tax Amount" shall mean $41,192.15. -------------------------------- "Holdings II Return Amount" shall mean, for any date of determination ------------------------- (which shall be a Funding Date), the difference between (i) the Holdings II ESA Amount and (ii) the Holdings II Periodic Tax Amount. "Holdings III Return Amount" shall mean, for any date of determination -------------------------- (which shall be a Funding Date), the difference between (i) the Holdings III ESA Amount and (ii) the Holdings III Periodic Tax Amount. "Independent Engineer Restoration Certificate" shall have the meaning -------------------------------------------- given to such term in Section 3.10(a)(iii)(B). ----------------------- 6 "Initial Stub Period" shall mean the period of time commencing on (and ------------------- including) the Closing Date and ending on (and including) the first Bond Payment Date occurring after the Closing Date. "Issuer Debt Service Reserve L/C" shall mean any Debt Service Reserve ------------------------------- L/C for which the Issuer is the account party liable for the reimbursement obligations under the applicable Debt Service Reserve L/C Agreement. "Major Maintenance Insufficiency Amount" shall have the meaning set -------------------------------------- forth in Section 3.7(e). -------------- "Maintenance Requisition" shall have the meaning given to such term in ----------------------- Section 3.7(b). - -------------- "Major Maintenance Reserve Account" shall mean the account established --------------------------------- pursuant to Section 2.1 having the name and account number set forth below the ----------- title "Major Maintenance Reserve Account" in Schedule I hereto. ---------- "Major Maintenance Reserve Guarantor" shall mean any Person issuing a ----------------------------------- Major Maintenance Reserve Guaranty. "Major Maintenance Reserve Guaranty" shall mean a guaranty issued by ---------------------------------- any Person whose long-term senior unsecured debt is rated at least "BBB" by S&P and "Baa2" by Moody's, and otherwise in substantially the form attached hereto as Exhibit B. --------- "Major Maintenance Reserve L/C" shall have the meaning set forth in ----------------------------- Section 3.7(c). - -------------- "Major Maintenance Reserve L/C Provider" shall mean the bank or other -------------------------------------- financial institution providing a Major Maintenance Reserve L/C. "Major Maintenance Reserve Requirement" shall mean, for any date of ------------------------------------- determination, an amount equal to (i) the Current Major Maintenance Required Balance, less (ii) the amount of Monies on deposit in or credited to the Major Maintenance Reserve Account (as determined on (x) the Bond Payment Date immediately preceding such date of determination or (y) if such date of determination is during the Initial Stub Period, the Closing Date), less (iii) the aggregate of the Drawing Amounts of any Major Maintenance Reserve L/Cs (as determined on (x) the Bond Payment Date immediately preceding such date of determination or (y) if such date of determination is during the Initial Stub Period, 7 the Closing Date), less (iv) the aggregate of the Guaranteed Amounts under any Major Maintenance Reserve Guaranties (as determined on (x) the Bond Payment Date immediately preceding such date of determination or (y) if such date of determination is during the Initial Stub Period, the Closing Date). "Maximum PSA Contingency Amount" shall mean, at any time, an amount ------------------------------ equal to the difference between (a) the aggregate principal amount of the Bonds then Outstanding and (b) the amount set forth opposite the applicable year on Schedule IV hereto. - ----------- "Monies" shall mean all cash, payments, Permitted Investments and ------ other amounts (including instruments evidencing such amounts) on deposit in or credited to any Account. "O&M Account" shall mean the account established pursuant to Section ----------- ------- 2.1 having the name and account number set forth below the title "O&M Account" - --- in Schedule I hereto. ---------- "Post-2012 Debt Service Reserve Shortfall Guaranty" shall mean a Debt ------------------------------------------------- Service Reserve Guaranty that guarantees payment of all or any portion of any Post-2012 Debt Service Reserve Shortfall. "Post-2012 Debt Service Reserve Shortfall" shall mean, for any date of ---------------------------------------- determination occurring on or after January 1, 2013, the positive difference, if any, between (x) the Debt Service Reserve Requirement calculated in accordance with clause (b) of the definition thereof and (y) the Debt Service Reserve Requirement calculated in accordance with clause (a) of the definition thereof. "Proceeds Account" shall mean the account established pursuant to ---------------- Section 2.1 having the name and account number set forth below the title - ----------- "Proceeds Account" in Schedule I hereto. ---------- "Projected PSA Coverage Ratio" shall mean, for any period, the ratio ---------------------------- of (i) the aggregate of all Cash Available for Debt Service for such period plus all deposits, if any, made or to be made to the Major Maintenance Reserve Account during such period, to (ii) the aggregate of all Debt Service for such period, in each case calculated by the Issuer on a projected basis and confirmed by the Independent Engineer. "PSA Contingency Insufficiency Amount" shall have the meaning set ------------------------------------ forth in Section 3.8(c). -------------- 8 "PSA Contingency Reserve Account" shall mean the account established ------------------------------- pursuant to Section 2.1 having the name and account number set forth below the ----------- title "PSA Contingency Reserve Account" in Schedule I hereto. ---------- "PSA Contingency Reserve Amount" shall mean, at the date of ------------------------------ determination (which shall be the last Funding Date immediately preceding a Bond Payment Date): (i) $0, if, on such date of determination, either (a) the average Contracted Coverage Ratio for the consecutive period of the lesser of (x) sixteen full fiscal quarters following such date of determination and (y) the number of full fiscal quarters from such date of determination until the first Bond Payment Date in 2024, in either case taken as a whole, is equal to or greater than 1.40 to 1.0 or (b) the PSA Coverage Ratio for the six fiscal quarter period immediately preceding such date of determination is greater than or equal to the PSA Historical Ratio, and the Projected PSA Coverage Ratio for the consecutive period of the lesser of (A) sixteen full fiscal quarters following such date of determination and (B) the number of full fiscal quarters from such date of determination until the first Bond Payment Date in 2024, in either case taken as a whole, is greater than or equal to the PSA Projected Ratio; or (ii) if the requirement set forth in clause (i) above has not been satisfied, 25% of the Maximum PSA Contingency Amount, if, on such date of determination, the average Contracted Coverage Ratio for the consecutive period of the lesser of (x) sixteen full fiscal quarters following such date of determination and (y) the number of full fiscal quarters from such date of determination until the first Bond Payment Date in 2024, in either case taken as a whole, is equal to or greater than 1.25 to 1.0; or (iii) if the requirements set forth in clauses (i) or (ii) above have not been satisfied, 33-1/3% of the Maximum PSA Contingency Amount, if, on such date of determination, the average Contracted Coverage Ratio for the consecutive period of the lesser of (x) sixteen full fiscal quarters following such date of determination and (y) the number of full fiscal quarters from such date of determination until the first Bond Payment Date in 2024, in either case taken as a whole, is equal to or greater than 1.1 to 1.0; or (iv) if the requirements set forth in clauses (i), (ii) or (iii) above have not been satisfied, the Maximum PSA Contingency Amount. 9 "PSA Contingency Reserve Guarantor" shall mean any Person issuing a --------------------------------- PSA Contingency Reserve Guaranty. "PSA Contingency Reserve Guaranty" shall mean a guaranty issued by any -------------------------------- Person whose long-term senior unsecured debt is rated at least "BBB" by S&P and "Baa2" by Moody's, and otherwise in substantially the form attached hereto as Exhibit C attached hereto. - --------- "PSA Contingency Reserve L/C" shall have the meaning set forth in --------------------------- Section 3.8(a). - -------------- "PSA Contingency Reserve L/C Provider" shall mean the bank or ------------------------------------ financial institution providing a PSA Contingency Reserve L/C. "PSA Contingency Reserve Requirement" shall mean, for any date of ----------------------------------- determination, an amount equal to (i) the PSA Contingency Reserve Amount for the Bond Payment Date immediately preceding such date of determination, less (ii) the amount of Monies already on deposit in or credited to the PSA Contingency Reserve Account, less (iii) the aggregate of the Drawing Amounts of any PSA Contingency Reserve L/Cs, less (iv) the aggregate of the Guaranteed Amounts under any PSA Contingency Reserve Guaranties. "PSA Coverage Ratio" shall mean, for any period, the ratio of (i) the ------------------ aggregate of all Cash Available for Debt Service for such period plus all deposits, if any, made to the Major Maintenance Reserve Account for such period, to (ii) the aggregate of all Debt Service for such period. "PSA Funding Reduction Date" shall have the meaning set forth in -------------------------- Section 3.1(b)(vii). - ------------------- "PSA Historical Ratio" shall mean, for any date of determination, (x) -------------------- (i) 4.0 minus (ii) 2.6 times the percentage of the Project's capacity that is covered by Permitted PPAs for the six-quarter period, taken as a whole, immediately preceding such date of determination, to (y) 1.0. For the avoidance of doubt, the examples set forth on Annex A illustrate how the applicable ------- percentage of capacity shall be calculated in this definition of "PSA Historical Ratio". "PSA Projected Ratio" shall mean, for any date of determination, (x) ------------------- (i) 4.0 minus (ii) 2.6 times the percentage of the Project's capacity that is covered by Permitted PPAs for the sixteen-quarter (or less, if applicable) period, taken as a whole, immediately following such date of determination to (y) 1.0. For the 10 avoidance of doubt, the examples set forth on Annex A hereto illustrate how the ------- applicable percentage of capacity shall be calculated in this definition of "PSA Projected Ratio". "PSA Reserve Excess" shall have the meaning set forth in Section ------------------ ------- 3.1(b)(vii). - ----------- "Redeemable Facilities" shall mean, in the context of any redemption --------------------- or prepayment obligation, (i) the Bonds and (ii) each facility constituting a Senior Secured Obligation whose agent, trustee or similar representative is party to the Collateral Agency Agreement and which, pursuant to the terms of its Financing Documents, has opted to be prepaid pursuant to the terms of the Section hereof which refers to such prepayment obligation. "Required Secured Parties" shall have the meaning given to such term ------------------------ in the Intercreditor Agreement. "Requisition" shall mean a Maintenance Requisition or a Restoration ----------- Requisition. "Restoration Requisition" shall have the meaning given to such term in ----------------------- Section 3.10(a)(iii)(A). - ----------------------- "Revenue Account" shall mean the account established pursuant to --------------- Section 2.1 having the name and account number set forth below the title - ----------- "Revenue Account" in Schedule I hereto. ---------- "Sales Tax Final Payment Date" shall mean the date on which final ---------------------------- payment is due under the Sales Tax Agreements. "Sales Tax Funding Date" shall mean each March 31, June 30, September ---------------------- 30 and December 31 (or if any such day is not a Business Day, the next succeeding Business Day) commencing March 31, 2006 and ending on the last such date prior to the Sales Tax Final Payment Date. "Sales Tax Reserve Account" shall mean the account established ------------------------- pursuant to Section 2.1 having the name and account number set forth below the ----------- title "Sales Tax Reserve Account" in Schedule I hereto. ---------- "Sales Tax Reserve Guarantor" shall mean any Person issuing a Sales --------------------------- Tax Reserve Guaranty. 11 "Sales Tax Reserve Guaranty" shall mean a guaranty issued by any -------------------------- Person whose long-term senior unsecured debt is rated at least "BBB" by S&P and "Baa2" by Moody's, and otherwise in substantially the form attached hereto as Exhibit D attached hereto. - --------- "Sales Tax Reserve Insufficiency Amount" shall have the meaning set -------------------------------------- forth in Section 3.3(c). -------------- "Sales Tax Reserve L/C" shall have the meaning set forth in Section --------------------- ------- 3.3(a). - ------ "Sales Tax Reserve Requirement" shall mean, for any date of ----------------------------- determination, an amount equal to (i) the applicable amount for such date set forth on Schedule III hereto, less (ii) the amount of Monies already on deposit in or credited to the Sales Tax Reserve Account, less (iii) the aggregate of the Drawing Amounts of any Sales Tax Reserve L/Cs, less (iv) the aggregate of the Guaranteed Amounts under any Sales Tax Reserve Guaranties. "Six-Month DSR Date" shall mean (a) any date of determination ------------------ occurring on or after January 1, 2013 on which (i) the Issuer is party to Permitted PPAs covering, in the aggregate, 75% or more of the capacity of the Project for the consecutive period of four full fiscal quarters, taken as a whole, following such date of determination and (ii) either (x) the Issuer has provided one or more Post-2012 Debt Service Reserve Shortfall Guaranties or (y) each Rating Agency has confirmed that the failure to provide such Post-2012 Debt Service Reserve Shortfall Guaranties will not result in a Rating Downgrade, or (b) any date of determination occurring on or before December 31, 2012. SECTION 1.2 Rules of Interpretation. Except as otherwise expressly ----------------------- provided herein, the rules of interpretation set forth in the Indenture shall apply to this Agreement. SECTION 1.3 Uniform Commercial Code. As used herein, the term /_"New ----------------------- York UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. All terms defined in the New York UCC shall have the respective meanings given to those terms in the New York UCC, except where the context otherwise requires. ARTICLE II ESTABLISHMENT OF THE ACCOUNTS ----------------------------- 12 SECTION 2.1 Establishment of Accounts. The Administrative Agent has ------------------------- established the following special, segregated and irrevocable cash collateral accounts (together with all sub-accounts to be established pursuant to this Agreement, the "Accounts") in the form of non-interest bearing accounts (each -------- such Account being (or to be, when established) a "securities account" as such term is defined in Section 8-501(a) of the New York UCC), which shall be maintained at all times until the termination of this Agreement in accordance with the Securities Account Control Agreement: (a) Revenue Account; (b) O&M Account; (c) Holdings II Account; (d) Holdings III Account; (e) Sales Tax Reserve Account; (f) Debt Service Payment Account; (g) DSR LOC Loan Principal Account; (h) Debt Service Reserve Account; (i) Major Maintenance Reserve Account; (j) PSA Contingency Reserve Account; (k) Distribution Suspense Account; (l) Distribution Account; and (m) Proceeds Account. The account numbers of the Accounts established hereunder on the Closing Date are set forth on Schedule I hereto. The Accounts shall not be ---------- evidenced by passbooks or similar writings. The Collateral Agent may, with the consent of the Issuer (and, with respect to the Holdings II Account or the Holdings III Account, with the consent of Elwood II Holdings or Elwood III Holdings, respectively) and upon notice to the Trustee, any Working Capital Agent, any Debt Service Reserve L/C Agent and any Additional Indebtedness Agent, cause the Administrative Agent to establish and create sub-accounts within the Accounts. In the event that, in accordance with this Agreement, the Administrative Agent is required to segregate certain monies in an Account from any other amounts on deposit in such Account pending transfer or withdrawal in accordance with this Agreement, the Collateral Agent shall cause the Administrative Agent to either (i) hold such monies in such Account for use solely for such transfer or withdrawal or (ii) create a separate sub-account for such purpose. All amounts from time to time held in each Account (other than the Holdings II Account and the Holdings III Account) shall be held (A) in the name of 13 the Issuer subject to the lien and security interest of the Collateral Agent for the benefit of the Secured Parties and (B) in the custody of, and subject to the control of, the Collateral Agent and the Administrative Agent for the purposes and on the terms set forth in this Agreement. All such amounts shall constitute a part of the Collateral and shall not constitute payment of any Indebtedness or any other obligation of the Issuer until applied as hereinafter provided. All amounts from time to time held in the Holdings II Account shall be held (A) in the name of Elwood II Holdings subject to the lien and security interest of the Collateral Agent for the benefit of the Secured Parties and (B) in the custody of, and subject to the control of, the Collateral Agent and the Administrative Agent for the purposes and on the terms set forth in this Agreement. All such amounts shall constitute a part of the Collateral and shall not constitute payment of any Indebtedness or any other obligation of the Issuer until applied as hereinafter provided. All amounts from time to time held in the Holdings III Account shall be held (A) in the name of Elwood III Holdings subject to the lien and security interest of the Collateral Agent for the benefit of the Secured Parties and (B) in the custody of, and subject to the control of, the Collateral Agent and the Administrative Agent for the purposes and on the terms set forth in this Agreement. All such amounts shall constitute a part of the Collateral and shall not constitute payment of any Indebtedness or any other obligation of the Issuer until applied as hereinafter provided. SECTION 2.2 Termination. This Agreement shall remain in full force ----------- and effect until the Debt Termination Date. ARTICLE III THE ACCOUNTS ------------ SECTION 3.1 Revenue Account. --------------- (a) Deposits into the Revenue Account. --------------------------------- (i) Deposits. Except as otherwise expressly provided herein, the -------- Issuer shall cause the following amounts to be deposited into the Revenue Account directly, or if received by the Issuer, as soon as practicable (but no more than three (3) Business Days) after receipt, or otherwise in accordance with the provisions of this Agreement: 14 (A) all Operating Revenues received by the Issuer (including any income from the investment of monies on deposit in the Accounts); (B) any proceeds of Additional Indebtedness which are not disbursed directly to vendors or contractors; and (C) all other income (howsoever earned), revenue (howsoever generated) and proceeds of any nature whatsoever received by the Issuer (including, without limitation, the proceeds of any business interruption insurance or other payments received for interruption of operations in respect of any Loss Event, but excluding amounts required by the terms hereof to be deposited into the Proceeds Account, amounts contributed by the Members as equity (if any), the proceeds of the Bonds issued on the Closing Date and the proceeds of Permitted Indebtedness under Sections -------- 5.1(c)(v) and 5.1(c)(vi) of the Indenture). --------- ---------- (ii) Instructions. The Issuer hereby (A) acknowledges that it has ------------ irrevocably instructed each Project Party party to each Project Document in effect as of the Closing Date pursuant to which payments may be made to or received by the Issuer, and agrees that it shall so instruct each Project Party party to each Project Document entered into after the Closing Date under which payments may be made to, or received by, the Issuer, to make all such payments directly to the Administrative Agent for deposit in the Revenue Account (and to specify in writing when making such payments the source and nature of such payments), and (B) acknowledges that it has obtained or will obtain to the extent required under the Indenture and the other Financing Documents, a Consent evidencing, among other things, the agreement or acknowledgment of each Project Party to each Project Document in effect on the Closing Date to make all such payments directly to the Administrative Agent for deposit in the Revenue Account. If, notwithstanding the foregoing, any Operating Revenues are remitted directly to the Issuer, the Issuer shall hold such payments in trust for the Collateral Agent and shall as promptly as practicable (but no more than three (3) Business Days) after receipt remit such payments to the Administrative Agent (together with an Officer's Certificate of the Issuer specifying the source and nature of such payments) for deposit in the Revenue Account in accordance with the terms of this Agreement, in the form received, together with any necessary endorsements. (iii) Certain Transfers of Amounts with respect to Additional ------------------------------------------------------- Indebtedness. Upon deposit into the Revenue Account of any proceeds of - ------------ Additional Indebtedness (as identified in an Officer's Certificate of the Issuer), the 15 Administrative Agent shall (i) establish and create a sub-account within the Revenue Account in accordance with Section 2.1 (and no separate consent of the ----------- Issuer or the Collateral Agent shall be required), (ii) transfer such proceeds to such sub-account and (iii) transfer such proceeds from time to time in accordance with Officers' Certificates (and in accordance with other conditions (if any) established in the Additional Indebtedness Documents relating to such Additional Indebtedness) for application consistent with the purposes for which such Additional Indebtedness was incurred pursuant to the terms of the Indenture. (iv) Identification of Amounts. In the event the Administrative ------------------------- Agent receives monies without adequate identification or adequate instruction with respect to the proper Account in which such monies are to be deposited, the Administrative Agent shall deposit such monies into the Revenue Account, segregate such monies from all other Monies on deposit in the Revenue Account and notify the Issuer of the receipt of such monies. Upon receipt of an Officer's Certificate of the Issuer containing written identification and instruction from the Issuer regarding such monies, the Administrative Agent shall (if necessary and in accordance with this Agreement) transfer such monies from the Revenue Account to the Account in which such monies were to be deposited in accordance with this Agreement as specified by the Issuer in such Officer's Certificate. (b) Applications and Transfers. Subject to Section 3.11, the Issuer -------------------------- ------------ shall, on each Funding Date, cause the Administrative Agent to transfer Monies to the extent then available in the Revenue Account and not segregated for any specific purpose as provided in this Section 3.1 (except as otherwise set forth ----------- in this Agreement), and the Administrative Agent shall so transfer such Monies, in accordance with an Officer's Certificate of the Issuer to be received by the Administrative Agent at least three (3) Business Days prior to such Funding Date setting forth the amounts to be applied or transferred pursuant to this Section ------- 3.1(b) and the Persons referred to in clauses (i) through (viii) (inclusive) - ------ below that are entitled to payment or Accounts to which amounts withdrawn are to be paid or deposited (with respect to each Funding Date, the "Funding Date ------------ Certificate") in the amounts and order of priority set forth below. To the - ----------- extent that applications are not effected on such Funding Date, the related amounts will be retained in the Revenue Account pending application at such time as such amounts are due and payable to the Persons or Accounts entitled thereto (and the Issuer and the Administrative Agent shall not apply such amounts for any other purpose). The order of priority of application or transfer of monies from the Revenue Account on each Funding Date is as follows: (i) First: (i) transfer from the Revenue Account to the O&M ----- Account the amount set forth in such Funding Date Certificate and certified 16 therein to be the Issuer's good faith estimate of the amounts due and payable for O&M Costs (other than O&M Costs that will be paid with the proceeds of Working Capital Loans) on such Funding Date or reasonably expected to be due and payable within the Funding Period commencing on such Funding Date and (ii) at the election of the Issuer, to the repayment of amounts outstanding under any Working Capital Agreement if and to the extent that such amounts were used to pay O&M costs previously incurred; (ii) Second: if such Funding Date is a Sales Tax Funding Date, ------ transfer from the Revenue Account to the Sales Tax Reserve Account an amount (as set forth in such Funding Date Certificate) which is equal to the then current Sales Tax Reserve Requirement; (iii) Third: beginning with the Funding Date occurring on November 30, ----- 2001, transfer from the Revenue Account to the Debt Service Payment Account an amount (as set forth in such Funding Date Certificate) equal to the sum of (A) one-sixth (or, during the Initial Stub Period, one-third) of the interest, principal and premium, if any, due and payable with respect to the Bonds on the next succeeding Bond Payment Date (unless such Funding Date is the last Funding Date prior to a Bond Payment Date when the amount transferred shall equal the excess of the total amount of interest, principal and premium, if any, due and payable on the Bonds on such Bond Payment Date less the amounts already transferred to the Debt Service Payment Account for such purpose), (B) one-third or one-sixth, as applicable, of the interest, principal and premium, if any, due and payable on the next Bond Payment Date with respect to any other Senior Secured Obligation payable on a quarterly or semi-annual basis, as the case may be, and (C) all other amounts (other than principal of Debt Service Reserve LOC Loans which shall be paid under priority Fourth below) due and payable at any ------ time during the Funding Period commencing on such Funding Date with respect to the Senior Secured Obligations; provided that any transfers required pursuant to -------- this priority Third which were not made on the prior Funding Date because the ----- amounts in the Revenue Account were insufficient to make such transfers shall also be made as of the current Funding Date; (iv) Fourth: transfer from the Revenue Account to the DSR LOC Loan ------ Principal Account an amount (as set forth in such Funding Date Certificate) which, together with the Monies on deposit in or credited to the DSR LOC Loan Principal Account, is equal to the principal amount of Debt Service Reserve LOC Loans due and payable during the Funding Period commencing on such Funding Date; provided that if the principal of the Debt Service Reserve LOC Loan is payable - -------- on a quarterly or semi-annual basis, then the amount transferred to the DSR LOC Loan Principal Account on each Funding Date shall equal 1/3 or 1/6, as applicable, of such quarterly or semi-annual principal payment; provided -------- further, - ------- 17 that any transfers required pursuant to this priority Fourth which were ------ not made on the prior Funding Date because the amounts in the Revenue Account were insufficient to make such transfers shall also be made as of the current Funding Date; (v) Fifth: transfer from the Revenue Account to the Debt Service ----- Reserve Account an amount (as set forth in such Funding Date Certificate) which is equal to the then current Debt Service Reserve Requirement; (vi) Sixth: beginning with the Funding Date occurring on November 30, ----- 2001, transfer from the Revenue Account to the Major Maintenance Reserve Account an amount (as set forth in such Funding Date Certificate) which is equal to one- sixth (or, during the Initial Stub Period, one-half) of the then current Major Maintenance Reserve Requirement; (vii) Seventh: beginning on the Funding Date immediately preceding the ------- first Bond Payment Date in 2013 and ending on the Funding Date immediately preceding the first Bond Payment Date in 2024, transfer from the Revenue Account to the PSA Contingency Reserve Account an amount which is equal to the then current PSA Contingency Reserve Requirement; provided, however, that, on any -------- ------- Funding Date when Monies on deposit in or credited to the PSA Contingency Reserve Account exceed the PSA Contingency Reserve Amount, subject to Sections -------- 3.8(c) and 3.8(d) below, an amount equal to such excess (the "PSA Reserve - ------ ------ ----------- Excess") shall be transferred to the Distribution Suspense Account; provided, - ------ -------- further, however, notwithstanding the foregoing, if, on any Funding Date, the - ------- ------- PSA Contingency Reserve Amount is reduced from the Maximum PSA Contingency Amount to $0 as a result of the Issuer meeting the test set forth in clause (i)(b) of the definition of PSA Contingency Reserve Amount (such date, the "PSA --- Funding Reduction Date"), then, notwithstanding such reduction of the PSA - ---------------------- Contingency Reserve Amount to $0, the amount of Monies required to remain in the PSA Contingency Reserve Account (taking into account any PSA Contingency Reserve L/Cs and PSA Contingency Reserve Guaranties) after giving effect to any such transfer to be made on a Funding Date, shall equal: (i) on such PSA Funding Reduction Date and until the first anniversary of such PSA Funding Reduction Date, 50% of the amount on deposit in the PSA Contingency Reserve Account immediately prior to the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency Amount to $0, (ii) on the first anniversary of such PSA Funding Reduction Date and until the second anniversary of such PSA Funding Reduction Date, 25% of the amount on deposit in the PSA Contingency Reserve Account immediately prior to the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency Amount to $0, (iii) on the second anniversary of such PSA Funding Reduction Date and until the third anniversary of such PSA Funding Reduction Date, 12.5% of the amount on deposit in the PSA 18 Contingency Reserve Account immediately prior to the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency Amount to $0, and (iv) on the third anniversary of such PSA Funding Reduction Date and until the fourth anniversary of such PSA Funding Reduction Date, 6.25% of the amount on deposit in the PSA Contingency Reserve Account immediately prior to the reduction in the PSA Contingency Reserve Amount from the Maximum PSA Contingency Amount to $0; provided, further, however, that if, on any Funding Date, the -------- ------- ------- requirements set forth in any of clauses (i)(a), (ii), (iii) or (iv) of the definition of "PSA Contingency Reserve Amount" shall have been satisfied, the remainder of the PSA Reserve Excess shall be transferred to the Distribution Suspense Account as set forth above); and (viii) Eighth: transfer from the Revenue Account to the Distribution ------ Suspense Account the remaining Monies on deposit in or credited to the Revenue Account after application of clauses (i) through (vii) above. SECTION 3.2 O&M Account. (a) On each Funding Date until the Funding Date ----------- occurring in June 2011, Monies on deposit in or credited to the O&M Account shall be transferred, pursuant to an Officer's Certificate delivered to the Administrative Agent delivered no later than three (3) Business Days prior to such Funding Date, (i) to the Holdings II Account in the amount that is due and payable to Elwood II Holdings under the Holdings II ESA on such date (the "Holdings II ESA Amount") and (ii) to the Holdings III Account in the amount ---------------------- that is due and payable to Elwood III Holdings under the Holdings III ESA on such date (the "Holdings III ESA Amount"); provided, that, on any Funding Date, ----------------------- -------- Monies shall only be transferred once from the O&M Account to the Holdings II Account and once from the O&M Account to the Holdings III Account. The Officer's Certificate delivered pursuant to the preceding sentence shall set forth the Holdings II ESA Amount and the Holdings III ESA Amount. Subject to the first sentence of this Section 3.2(a), Monies on deposit in or credited to the O&M -------------- Account may be remitted to the Issuer or paid directly to third parties in an amount set forth in an Officer's Certificate of the Issuer (which Officer's Certificate shall be delivered to the Administrative Agent no later than three (3) Business Days before the date on which such Monies are to be remitted or paid directly to third parties) as being the amount of O&M Costs due and payable on such date or reasonably expected to be due and payable by the Issuer within the next thirty (30) days, less any amounts previously transferred in respect of such O&M Costs; provided, however, that Monies may be disbursed from the O&M -------- ------- Account (and Officer's Certificates may be delivered) more often than monthly if necessary to pay O&M Costs which are due and payable on the date of disbursement. An Officer's Certificate of the Issuer delivered to the Administrative Agent pursuant to this Section 3.2 shall indicate (a) the name of ----------- each Person (including the Issuer or any third parties) to whom payment of any O&M Costs requested under such 19 Officer's Certificate is to be made and (b) the payment or wire transfer instructions for the payment or transfer of such amounts by the Administrative Agent to each such Person. The Administrative Agent shall transfer to the Revenue Account any amounts on deposit in or credited to the O&M Account which are not needed to pay O&M Costs due or payable hereunder prior to the next Funding Date, as certified by an Authorized Officer of the Issuer. (b) Holdings II Account. Elwood II Holdings irrevocably directs the ------------------- Administrative Agent, on each Funding Date on which Monies are transferred from the O&M Account to the Holdings II Account pursuant to Section 3.2(a), (i) to -------------- remit an amount equal to the Holdings II Periodic Tax Amount from the Holdings II Account to Elwood II Holdings for payment of sales tax due and owing by it under the applicable Sales Tax Agreement and (ii) to transfer the Holdings II Return Amount from the Holdings II Account to the Revenue Account for disbursement on such Funding Date in accordance with Section 3.1(b). -------------- (c) Holdings III Account. Elwood III Holdings irrevocably directs the -------------------- Administrative Agent, on each Funding Date on which Monies are transferred from the O&M Account to the Holdings III Account pursuant to Section 3.2(a), (i) to -------------- remit an amount equal to the Holdings III Periodic Tax Amount from the Holdings III Account to Elwood III Holdings for payment of sales tax due and owing by it under the applicable Sales Tax Agreement and (ii) to transfer the Holdings III Return Amount from the Holdings III Account to the Revenue Account for disbursement on such Funding Date in accordance with Section 3.1(b). -------------- (d) It is the intention of the parties hereto that the Administrative Agent shall transfer the Holdings II Return Amount and the Holdings III Return Amount to the Revenue Account as soon as possible after, but in any event on the same Funding Date as, the transfers of the Holdings II ESA Amount or the Holdings III ESA Amount, as applicable, from the O&M Account to the Holdings II Account or the Holdings III Account, respectively. In addition, the parties hereto acknowledge that amounts transferred into the Revenue Account pursuant to Sections 3.2 (b) and 3.2(c) hereof (i) shall not again be transferred into the - ---------------- ------ O&M Account to pay O&M Costs unless necessary to fund a shortfall in the O&M Account remaining after the initial transfer of funds to the O&M Account on such Funding Date, and (ii) shall be added to amounts otherwise on deposit in the Revenue Account before transfer or application of funds from the Revenue Account to any priority below First. ----- SECTION 3.3 Sales Tax Reserve Account. ------------------------- 20 (a) The Issuer may provide (i) one or more letters of credit (each, until replaced, a "Sales Tax Reserve L/C") in substitution for all or any --------------------- portion of the Monies required to be on deposit and/or (ii) one or more Sales Tax Reserve Guaranties in substitution for all or any portion of the Monies required to be on deposit in or credited to the Sales Tax Reserve Account, provided that any such Sales Tax Reserve L/C complies with the requirements set - -------- forth in clause (b) below, and any such Sales Tax Reserve Guaranty complies with the definition thereof. The Issuer may provide, from time to time as the Issuer determines, substitute or replacement Sales Tax Reserve L/Cs or Sales Tax Reserve Guaranties that meet the requirements hereof. Upon receipt of an Officer's Certificate of the Issuer requesting such release, the Administrative Agent shall release and pay to the Issuer or its designee such amount of Monies for which Sales Tax Reserve L/Cs or Sales Tax Reserve Guaranties are substituted (b) The Issuer shall ensure that each Sales Tax Reserve L/C shall: (i) be an irrevocable direct pay letter of credit naming the Collateral Agent for the benefit of the Secured Parties as beneficiary; (ii) be issued by a bank or other financial institution rated at least "A2" by Moody's and at least "A" by S&P; and (iii) name a Person other than the Issuer as the party responsible for reimbursement or other obligations in respect of such Sales Tax Reserve L/C. (c) On the Sales Tax Final Payment Date, Monies on deposit or credited to the Sales Tax Reserve Account may be remitted to the Issuer or paid directly to the taxing authority to whom such sales taxes are due in an amount set forth in an Officer's Certificate of the Issuer (which Officer's Certificate shall be delivered to the Administrative Agent no later than three (3) Business Days before the date on which such Monies are to be remitted or paid directly to the taxing authority to whom such sales taxes are due) as being the amount owing pursuant to the Sales Tax Agreements on the Sales Tax Final Payment Date. An Officer's Certificate of the Issuer delivered to the Administrative Agent pursuant to this Section 3.3 shall indicate (a) the name of each Person to whom ----------- the payment requested under such Officer's Certificate is to be made and (b) the payment or wire transfer instructions for the payment or transfer of such amounts by the Administrative Agent to each such Person. To the extent that amounts held in the Sales Tax Reserve Account at 12:00 p.m. (noon) two (2) Business Days prior to the Sales Tax Final Payment Date are insufficient to fund the amounts set forth in such Officer's Certificate, one (1) Business Day prior to such Sales Tax Final Payment Date, the Administrative Agent shall deliver to (x) each Sales Tax Reserve L/C Provider, if any, on such date a draft on its respective Sales Tax Reserve L/C, together with an appropriate certificate with respect thereto if required under such Sales Tax Reserve L/C and (y) to each Sales Tax Reserve Guarantor, if any, a notice of payment by such Sales Tax Reserve Guarantor under its Sales Tax Reserve 21 Guaranty. The aggregate amount to be drawn on all Sales Tax Reserve L/Cs and paid under all such Sales Tax Reserve Guaranties in accordance with the immediately preceding sentence shall be equal to such insufficiency (the "Sales ----- Tax Reserve Insufficiency Amount") and the amount to be drawn under each such - -------------------------------- Sales Tax Reserve L/C and each such Sales Tax Reserve Guaranty shall be determined ratably based on the aggregate of the Drawing Amounts and the aggregate of the Guaranteed Amounts available under all such Sales Tax Reserve L/Cs and all such Sales Tax Reserve Guaranties, respectively. The Administrative Agent shall deposit the amounts, if any, received from each Sales Tax Reserve L/C Provider and each Sales Tax Reserve Guarantor in the Sales Tax Reserve Account for disbursement in accordance with the first sentence of this Section ------- 3.3(c). The Administrative Agent shall transfer to the Revenue Account any - ------ amounts which remain on deposit in or credited to the Sales Tax Reserve Account after the Sales Tax Final Payment Date. (d) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) prior to the expiration of any Sales Tax Reserve L/C delivered to the Administrative Agent in respect of the Sales Tax Reserve Account, provided that such Sales Tax Reserve L/C has not been previously -------- renewed, extended or replaced (with a new Sales Tax Reserve L/C or a Sales Tax Reserve Guaranty), the Administrative Agent shall deliver to the Sales Tax Reserve L/C Provider providing such Sales Tax Reserve L/C on such date (i) a draft on such Sales Tax Reserve L/C in an amount equal to the Drawing Amount of such Sales Tax Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such Sales Tax Reserve L/C. The Administrative Agent shall deposit the amounts received from such Sales Tax Reserve L/C Provider in payment of such draft in the Sales Tax Reserve Account to be applied in accordance with this Section 3.3. ----------- (e) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any Sales Tax Reserve L/C Provider is rated less than "A" by S&P or less than "A2" by Moody's, provided that the Sales Tax Reserve L/C issued by such Sales Tax Reserve L/C - -------- Provider has not been replaced on or before the end of such 45-day period with a Sales Tax Reserve L/C issued by a new Sales Tax Reserve L/C Provider or a Sales Tax Reserve Guaranty, the Administrative Agent shall deliver to such Sales Tax Reserve L/C Provider on such date (i) a draft on such Sales Tax Reserve L/C in an amount equal to the Drawing Amount of such Sales Tax Reserve Account L/C and (ii) an appropriate certificate with respect thereto if required by such Sales Tax Reserve L/C. The Administrative Agent shall deposit the amounts received from such Sales Tax Reserve L/C Provider in payment of such draft in the Sales Tax Reserve Account to be applied in accordance with this Section 3.3. ----------- 22 (f) Upon receipt of a notice from any Sales Tax Reserve L/C Provider that the Sales Tax Reserve L/C provided by such Sales Tax Reserve L/C Provider will be terminated prior to its stated expiration date, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such Sales Tax Reserve L/C has not been replaced with a new Sales Tax Reserve L/C or a Sales Tax Reserve Guaranty, the Administrative Agent shall deliver to such Sales Tax Reserve L/C Provider (i) a draft on such Sales Tax Reserve L/C in an amount equal to the Drawing Amount of such Sales Tax Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such Sales Tax Reserve L/C. The Administrative Agent shall deposit the amounts received from such Sales Tax Reserve L/C Provider in payment of such draft in the Sales Tax Reserve Account to be applied in accordance with this Section 3.3. - ----------- (g) Upon receipt of a notice from any Sales Tax Reserve Guarantor that the Sales Tax Reserve Guaranty provided by such Sales Tax Reserve Guarantor will be terminated, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such Sales Tax Reserve Guaranty has not been replaced with a new Sales Tax Reserve Guaranty or a Sales Tax Reserve L/C, the Administrative Agent shall deliver to such Sales Tax Reserve Guarantor a notice of payment to such Sales Tax Reserve Guarantor in an amount equal to the Guaranteed Amount of such Sales Tax Reserve Guaranty. The Administrative Agent shall deposit amounts received from such Sales Tax Reserve Guarantor in the Sales Tax Reserve Account to be applied in accordance with this Section 3.3. ----------- (h) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any Sales Tax Reserve Guarantor is rated less than "BBB" by S&P or less than "Baa2" by Moody's, provided that the Sales Tax Reserve Guaranty issued by such Sales Tax Reserve - -------- Guarantor has not been replaced with a Sales Tax Reserve Guaranty issued by a new Sales Tax Reserve Guarantor or with a Sales Tax Reserve L/C, the Administrative Agent shall deliver to such Sales Tax Reserve Guarantor on such date a notice of payment to such Sales Tax Reserve Guarantor in an amount equal to the Guaranteed Amount of such Sales Tax Reserve Guaranty. The Administrative Agent shall deposit amounts received from such Sales Tax Reserve Guarantor in the Sales Tax Reserve Account to be applied in accordance with this Section 3.3. ----------- SECTION 3.4 Debt Service Payment Account. Monies on deposit in or ---------------------------- credited to the Debt Service Payment Account shall be allocated ratably (based on an Officer's Certificate of the Issuer provided to the Administrative Agent) among sub-accounts of the Debt Service Payment Account for each credit facility (including the Bonds) constituting a Senior Secured Obligation, based on the principal of, 23 premium, if any, and interest due or becoming due, and fees, indemnities or other amounts owed in respect of such credit facility on the next succeeding payment date therefor (other than the principal of any Debt Service Reserve LOC Loans). On any date that amounts for the payment of such Senior Secured Obligations are due and payable and have been specified in a Funding Date Certificate delivered to the Administrative Agent in accordance with Section ------- 3.1(b)(iii) (or if such day is not a Business Day, then on the next succeeding - ----------- Business Day) and have been allocated to a sub-account of the Debt Service Payment Account applicable to such Senior Secured Obligations, the Administrative Agent shall remit such amounts to the Persons specified in such Funding Date Certificate for the payment of such Senior Secured Obligations; provided, however, that the Administrative Agent shall segregate such amounts - -------- ------- from any other monies on deposit in the Debt Service Payment Account until such time as payment is made to the Persons entitled thereto. The Issuer hereby instructs the Collateral Agent and the Administrative Agent to make all such payments in respect of the Bonds directly to the Trustee for deposit into the Bond Fund in accordance with the terms of Section 3.3 of the Indenture, and the ----------- Collateral Agent and the Administrative Agent hereby acknowledge receipt of such instruction. In the event that Monies on deposit in or credited to the Debt Service Payment Account exceed the amount of Monies required by this Agreement to be deposited therein or credited thereto after giving effect to the payments made pursuant to this Section 3.4, the Administrative Agent shall transfer such ----------- excess amounts from the Debt Service Payment Account to the Revenue Account at the written direction of the Issuer. SECTION 3.5 DSR LOC Loan Principal Account. ------------------------------ (a) Monies on deposit in or credited to the DSR LOC Loan Principal Account shall be used for the payment of principal of outstanding Debt Service Reserve LOC Loans. On any date that such amounts have been specified in a Funding Date Certificate in accordance with Section 3.1(b)(iv), the ------------------ Administrative Agent shall withdraw the monies on deposit in or credited to the DSR LOC Loan Principal Account and remit such monies to the Debt Service Reserve L/C Agent for the payment of such amounts. (b) In the event that Monies on deposit in or credited to the DSR LOC Loan Principal Account exceed the amount of Monies required by this Agreement to be deposited therein or credited thereto after giving effect to the payments made pursuant to this Section 3.5, the Administrative Agent shall transfer such ----------- excess amounts from the DSR LOC Loan Principal Account to the Revenue Account at the written direction of the Issuer. SECTION 3.6 Debt Service Reserve Account. ---------------------------- 24 (a) The Issuer may provide (i) one or more letters of credit (each, a "Debt Service Reserve L/C") and/or (ii) one or more Debt Service Reserve ------------------------ Guaranties in each case in substitution for all or any portion of the Monies required to be on deposit in or credited to the Debt Service Reserve Account, provided that (A) any such Debt Service Reserve L/C complies with the - -------- requirements set forth in clause (b) below, (B) any such Debt Service Reserve Guaranty complies with the definition thereof and (C) prior to the issuance of any Debt Service Reserve L/C that is an Issuer Debt Service Reserve L/C, each Rating Agency shall confirm that there will be no Rating Downgrade as a result of the incurrence of Indebtedness by the Issuer in connection with such Issuer Debt Service Reserve L/C or the Issuer Debt Service Reserve L/C Agreement related thereto. The Issuer may, from time to time as the Issuer determines, provide substitute or replacement Debt Service Reserve L/Cs or Debt Service Reserve Guaranties that meet the requirements hereof. The Administrative Agent shall release such amount of Monies for which Issuer Debt Service Reserve L/Cs are substituted in accordance with clause (viii) of Section 3.1(b). Upon -------------- receipt of an Officer's Certificate of the Issuer requesting such release, the Administrative Agent shall release and pay to the Issuer or its designee such amount of Monies for which Debt Service Reserve L/Cs (other than Issuer Debt Service Reserve L/Cs) or Debt Service Reserve Guaranties are substituted. (b) The Issuer shall ensure that each Debt Service Reserve L/C shall: (i) be an irrevocable direct pay letter of credit naming the Collateral Agent for the benefit of the Secured Parties as beneficiary; (ii) be issued by a bank or other financial institution rated at least "A2" by Moody's and at least "A" by S&P; (iii) if such Debt Service Reserve L/C is an Issuer Debt Service Reserve L/C, be issued under a Debt Service Reserve L/C Agreement with payment terms which are consistent with the terms of this Agreement and with other terms customary for debt service reserve obligations similar to those described herein, including, without limitation, (A) a requirement that any drawing under such Debt Service Reserve L/C be converted into a Debt Service Reserve LOC Loan which matures not less than five (5) years after the date of such drawing, and (B) a provision which permits the Debt Service Reserve L/C Provider to convert outstanding Debt Service Reserve LOC Loans into Debt Service Reserve LOC Bonds at any time on or after the 5/th/ anniversary of the Closing Date and otherwise in accordance with the terms of the applicable Debt Service Reserve L/C Agreement; and (iv) if such Debt Service Reserve L/C is not an Issuer L/C, name a Person other than the Issuer as the account party. (c) On each date on which the Administrative Agent is required to withdraw or transfer amounts from the Debt Service Payment Account to make payments with respect to Senior Secured Obligations under Section 3.4, the ----------- 25 Administrative Agent shall first withdraw or transfer (for and only for the purposes described in Section 3.4) amounts then held in the Debt Service Payment ----------- Account. To the extent that amounts then held in the Debt Service Payment Account at 12:00 p.m. (noon) two (2) Business Days prior to the date of the requested withdrawal or transfer are insufficient to fund such withdrawal or transfer (the "Debt Payment Amount"), as evidenced by an Officer's Certificate ------------------- of the Issuer, one (1) Business Day prior to such date the Administrative Agent shall transfer the Monies on deposit in or credited to the Debt Service Reserve Account, if any, to the Debt Service Payment Account provided that, if, after -------- such transfer of Monies from the Debt Service Reserve Account to the Debt Service Payment Account, the Monies on deposit in or credited to the Debt Service Payment Account are insufficient to fund the Debt Payment Amount, the Administrative Agent shall, one (1) Business Day prior to the date of the requested withdrawal or transfer, deliver to (x) each Debt Service Reserve L/C Provider, if any, on such date a draft on its respective Debt Service Reserve L/C, together with an appropriate certificate with respect thereto if required under such Debt Service Reserve L/C and (y) to each Debt Service Reserve Guarantor, if any, a notice of payment by such Debt Service Reserve Guarantor under its Debt Service Reserve Guaranty. The aggregate amount to be drawn on all such Debt Service Reserve L/Cs and paid under all such Debt Service Reserve Guaranties in accordance with the immediately preceding sentence shall be equal to the amount of such insufficiency (the "DSR Insufficiency Amount") and the ------------------------ amount to be drawn under each such Debt Service Reserve L/C and each such Debt Service Reserve Guaranty shall be determined ratably based on the aggregate of the Drawing Amounts and the aggregate of the Guaranteed Amounts then available under all such Debt Service Reserve L/Cs and all such Debt Service Reserve Guaranties, respectively. The Administrative Agent shall deposit the amounts, if any, received from each Debt Service Reserve L/C Provider and each Debt Service Reserve Guarantor in the Debt Service Payment Account. (d) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) prior to the expiration of any Debt Service Reserve L/C delivered to the Administrative Agent in respect of the Debt Service Reserve Account, provided that such Debt Service Reserve L/C has not been -------- previously renewed, extended or replaced with a new Debt Service Reserve L/C or a Debt Service Reserve Guaranty, the Administrative Agent shall deliver to the Debt Service Reserve L/C Provider providing such Debt Service Reserve L/C on such date (i) a draft on such Debt Service Reserve L/C in an amount equal to the Drawing Amount of such Debt Service Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such Debt Service Reserve L/C. The Administrative Agent shall deposit the amounts received from such Debt Service Reserve L/C 26 Provider in payment of such draft in the Debt Service Reserve Account to be applied in accordance with this Section 3.6. ----------- (e) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any Debt Service Reserve L/C Provider is rated less than "A" by S&P or less than "A2" by Moody's, provided that the Debt Service Reserve L/C issued by such Debt Service Reserve - -------- L/C Provider has not been replaced on or before the end of such 45-day period with a Debt Service Reserve L/C issued by a new Debt Service Reserve L/C Provider or a Debt Service Reserve Guaranty, the Administrative Agent shall deliver to such Debt Service Reserve L/C Provider on such date (i) a draft on such Debt Service Reserve L/C in an amount equal to the Drawing Amount of such Debt Service Reserve Account L/C and (ii) an appropriate certificate with respect thereto if required by such Debt Service Reserve L/C. The Administrative Agent shall deposit the amounts received from such Debt Service Reserve L/C Provider in payment of such draft in the Debt Service Reserve Account to be applied in accordance with this Section 3.6. ----------- (f) Upon receipt of a notice from any Debt Service Reserve L/C Provider that the Debt Service Reserve L/C provided by such Debt Service Reserve L/C Provider will be terminated prior to its stated expiration date, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such Debt Service Reserve L/C has not been replaced with a new Debt Service Reserve L/C or a Debt Service Reserve Guaranty, the Administrative Agent shall deliver to such Debt Service Reserve L/C Provider (i) a draft on such Debt Service Reserve L/C in an amount equal to the Drawing Amount of such Debt Service Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such Debt Service Reserve L/C. The Administrative Agent shall deposit the amounts received from such Debt Service Reserve L/C Provider in payment of such draft in the Debt Service Reserve Account to be applied in accordance with this Section 3.6. ----------- (g) Upon receipt of a notice from any Debt Service Reserve Guarantor that the Debt Service Reserve Guaranty provided by such Debt Service Reserve Guarantor will be terminated, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such Debt Service Reserve Guaranty has not been replaced with a new Debt Service Reserve Guaranty or a Debt Service Reserve L/C, the Administrative Agent shall deliver to such Debt Service Reserve Guarantor a notice of payment to such Debt Service Reserve Guarantor in an amount equal to the Guaranteed Amount of such Debt Service Reserve Guaranty. The Administrative Agent shall deposit amounts received from such Debt Service Reserve Guarantor in the Debt Service Reserve Account to be applied in accordance with this Section 3.6. ----------- 27 (h) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any Debt Service Reserve Guarantor is rated less than "BBB" by S&P or less than "Baa2" by Moody's, provided that the Debt Service Reserve Guaranty issued by such Debt -------- Service Reserve Guarantor has not been replaced with a Debt Service Reserve Guaranty issued by a new Debt Service Reserve Guarantor or with a Debt Service Reserve L/C, the Administrative Agent shall deliver to such Debt Service Reserve Guarantor on such date a notice of payment to such Debt Service Reserve Guarantor in an amount equal to the Guaranteed Amount of such Debt Service Reserve Guaranty. The Administrative Agent shall deposit amounts received from such Debt Service Reserve Guarantor in the Debt Service Reserve Account to be applied in accordance with this Section 3.6. ----------- SECTION 3.7 Major Maintenance Reserve Account. --------------------------------- (a) Application of Amounts. Except as otherwise provided in this ---------------------- Agreement, amounts held in the Major Maintenance Reserve Account shall be applied solely for the payment of Major Maintenance Expenditures due and payable as of any Disbursement Date or the reimbursement for Major Maintenance Expenditures paid prior to such Disbursement Date (as evidenced by invoices received by the Issuer). All Monies withdrawn from the Major Maintenance Reserve Account shall be withdrawn in accordance with the disbursement procedure hereinafter described in this Section 3.7. In the event that Monies on deposit ----------- in or credited to the Major Maintenance Reserve Account, after giving effect to the payments made pursuant to this Section 3.7, exceed the amount of Monies required by this Agreement to be deposited therein or credited thereto, the Administrative Agent shall transfer such excess amounts from the Major Maintenance Reserve Account to the Revenue Account at the written direction of the Issuer. (b) Conditions Precedent to Withdrawals. As a condition precedent to ----------------------------------- any withdrawal from the Major Maintenance Reserve Account, there shall be delivered by the Issuer to the Administrative Agent on or prior to the date three (3) Business Days prior to each Disbursement Date a requisition from the Issuer in the form attached hereto as Exhibit E (a "Maintenance Requisition") --------- ----------------------- signed by an Authorized Representative of the Issuer. (c) The Issuer may provide (i) one or more letters of credit (each, a "Major Maintenance Reserve L/C") and/or (ii) one or more Major Maintenance ----------------------------- Reserve Guaranties in each case in substitution for all or any portion of the Monies required to be on deposit in or credited to the Major Maintenance Reserve Account, provided that any such Major Maintenance Reserve L/C complies with the -------- 28 requirements set forth in clause (d) below, and any such Major Maintenance Reserve Guaranty complies with the definition thereof. The Issuer may provide, from time to time as the Issuer determines, substitute or replacement Major Maintenance Reserve L/Cs or Major Maintenance Reserve Guaranties that meet the requirements hereof. Upon receipt of an Officer's Certificate of the Issuer requesting such release, the Administrative Agent shall release and pay to the Issuer or its designee such amount of Monies for which Major Maintenance Reserve L/Cs or Major Maintenance Reserve Guaranties are substituted. (d) The Issuer shall ensure that each Major Maintenance Reserve L/C shall: (i) be an irrevocable direct pay letter of credit naming the Collateral Agent for the benefit of the Secured Parties as beneficiary; (ii) be issued by a bank or other financial institution rated at least "A2" by Moody's and at least "A" by S&P; and (iii) name a Person other than the Issuer as the party responsible for reimbursement or other obligations in respect of such Major Maintenance Reserve L/C. (e) On each Disbursement Date following delivery by the Issuer to the Administrative Agent of all documentation relating to such Disbursement Date described in Section 3.7(b), the Issuer shall (subject to Section 3.11) instruct -------------- ------------ the Administrative Agent to apply, and the Administrative Agent so apply, Monies on deposit or credited to the Major Maintenance Reserve Account to make payments in amounts set forth in, and otherwise in accordance with, the related Major Maintenance Requisition. To the extent that amounts held in the Major Maintenance Reserve Account at 12:00 p.m. (noon) two (2) Business Days prior to the such Disbursement Date are insufficient to fund the amounts set forth in such Major Maintenance Requisition, one (1) Business Day prior to such Disbursement Date, the Administrative Agent shall deliver to (x) each Major Maintenance Reserve L/C Provider, if any, on such date a draft on its respective Major Maintenance Reserve L/C, together with an appropriate certificate with respect thereto if required under such Major Maintenance Reserve L/C, and (y) to each Major Maintenance Reserve Guarantor a notice of payment by such Major Maintenance Reserve Guarantor under its Major Maintenance Reserve Guaranty. The aggregate amount to be drawn on all such Major Maintenance Reserve L/Cs and paid under all such Major Maintenance Reserve Guaranties in accordance with the immediately preceding sentence shall be equal to the amount of such insufficiency (the "Major Maintenance Insufficiency Amount") and the amount to -------------------------------------- be drawn under each such Major Maintenance Reserve L/C and each such Major Maintenance Reserve Guaranty shall be determined ratably based on the aggregate of the Drawing Amounts and the aggregate of the Guaranteed Amounts then available under all such Major Maintenance Reserve L/Cs and all such Major Maintenance Reserve Guaranties, respectively. The Administrative Agent shall deposit the amounts, if any, received from each Major Maintenance Reserve 29 L/C Provider and each Major Maintenance Reserve Guarantor in the Major Maintenance Reserve Account for disbursement in accordance with the first sentence of this Section 3.7(e). -------------- (f) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) prior to the expiration of any Major Maintenance Reserve L/C delivered to the Administrative Agent in respect of the Major Maintenance Reserve Account, provided that such Major Maintenance Reserve L/C -------- has not been previously renewed, extended or replaced with a new Major Maintenance Reserve L/C or a Major Maintenance Reserve Guaranty, the Administrative Agent shall deliver to the Major Maintenance Reserve L/C Provider providing such Major Maintenance Reserve L/C on such date (i) a draft on such Major Maintenance Reserve L/C in an amount equal to the Drawing Amount of such Major Maintenance Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such Major Maintenance Reserve L/C. The Administrative Agent shall deposit the amounts received from such Major Maintenance Reserve L/C Provider in payment of such draft in the Major Maintenance Reserve Account to be applied in accordance with this Section 3.7. ----------- (g) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any Major Maintenance Reserve L/C Provider is rated less than "A" by S&P or less than "A2" by Moody's, provided that the Major Maintenance Reserve L/C issued by such Major Maintenance - -------- Reserve L/C Provider has not been replaced on or before the end of such 45-day period with a Major Maintenance Reserve L/C issued by a new Major Maintenance Reserve L/C Provider or with a Major Maintenance Reserve Guaranty, the Administrative Agent shall deliver to such Major Maintenance Reserve L/C Provider on such date (i) a draft on such Major Maintenance Reserve L/C in an amount equal to the Drawing Amount of such Major Maintenance Reserve Account L/C and (ii) an appropriate certificate with respect thereto if required by such Major Maintenance Reserve L/C. The Administrative Agent shall deposit the amounts received from such Major Maintenance Reserve L/C Provider in payment of such draft in the Major Maintenance Reserve Account to be applied in accordance with this Section 3.7. ----------- (h) Upon receipt of a notice from any Major Maintenance Reserve L/C Provider that the Major Maintenance Reserve L/C provided by such Major Maintenance Reserve L/C Provider will be terminated prior to its stated expiration date, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such Major Maintenance Reserve L/C has not been replaced with a new Major Maintenance Reserve L/C or with a Major Maintenance Reserve Guaranty, the Administrative Agent shall deliver to such Major 30 Maintenance Reserve L/C Provider (i) a draft on such Major Maintenance Reserve L/C in an amount equal to the Drawing Amount of such Major Maintenance Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such Major Maintenance Reserve L/C. The Administrative Agent shall deposit the amounts received from such Major Maintenance Reserve L/C Provider in payment of such draft in the Major Maintenance Reserve Account to be applied in accordance with this Section 3.7. ----------- (i) Upon receipt of a notice from any Major Maintenance Reserve Guarantor that the Major Maintenance Reserve Guaranty provided by such Major Maintenance Reserve Guarantor will be terminated, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such Major Maintenance Reserve Guaranty has not been replaced with a new Major Maintenance Reserve Guaranty or a Major Maintenance Reserve L/C, the Administrative Agent shall deliver to such Major Maintenance Reserve Guarantor a notice of payment in an amount equal to the Guaranteed Amount of such Major Maintenance Reserve Guaranty. The Administrative Agent shall deposit amounts received from such Major Maintenance Reserve Guarantor in the Major Maintenance Reserve Account to be applied in accordance with this Section 3.7. ----------- (j) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any Major Maintenance Reserve Guarantor is rated less than "BBB" by S&P or less than "Baa2" by Moody's, provided that the Major Maintenance Reserve Guaranty issued by such -------- Major Maintenance Reserve Guarantor has not been replaced with a Major Maintenance Reserve Guaranty issued by a new Major Maintenance Reserve Guarantor or with a Major Maintenance Reserve L/C, the Administrative Agent shall deliver to such Major Maintenance Reserve Guarantor on such date a notice of payment in an amount equal to the Guaranteed Amount of such Major Maintenance Reserve Guaranty. The Administrative Agent shall deposit amounts received from such Major Maintenance Reserve Guarantor in the Major Maintenance Reserve Account to be applied in accordance with this Section 3.7. ----------- SECTION 3.8 PSA Contingency Reserve Account. ------------------------------- (a) The Issuer may provide (i) one or more letters of credit (each, a "PSA Contingency Reserve L/C") and/or (ii) one or more PSA Contingency Reserve --------------------------- Guaranties in each case in substitution for all or any portion of the Monies required to be on deposit in or credited to the PSA Continency Reserve Account, provided that any such PSA Contingency Reserve L/C complies with the - -------- requirements set forth in clause (b) below, and any such PSA Contingency Reserve Guaranty complies with the definition thereof. The Issuer may provide, from time to 31 time as the Issuer determines, substitute or replacement PSA Contingency Reserve L/Cs or PSA Contingency Reserve Guaranties that meet the requirements hereof. Upon receipt of an Officer's Certificate of the Issuer requesting such release, the Administrative Agent shall release and pay to the Issuer or its designee such amount of Monies for which PSA Contingency Reserve L/Cs or PSA Contingency Reserve Guaranties are substituted. (b) The Issuer shall ensure that each PSA Contingency Reserve L/C shall: (i) be an irrevocable direct pay letter of credit naming the Collateral Agent for the benefit of the Secured Parties as beneficiary; (ii) be issued by a bank or other financial institution rated at least "A2" by Moody's and at least "A" by S&P; and (iii) name a Person other than the Issuer as the party responsible for reimbursement or other obligations in respect of such PSA Contingency Reserve L/C. (c) If, after giving effect to the transfers to the Debt Service Payment Account contemplated by Sections 3.1(b)(iii) and 3.6(c), amounts held in -------------------- ------- the Debt Service Payment Account are insufficient to fund the Debt Payment Amount, the Administrative Agent shall, prior to the making of any transfers to the Distribution Suspense Account in accordance with Section 3.1(b)(vii) or any ------------------- transfers contemplated by clause (d) of this Section 3.8, transfer the Monies on ----------- deposit in or credited to the PSA Contingency Reserve Account, if any, to the Debt Service Payment Account; provided that, if, after such transfer of Monies -------- from the PSA Contingency Reserve Account to the Debt Service Payment Account, the Monies on deposit in or credited to the Debt Service Payment Account are insufficient to fund the Debt Payment Amount, the Administrative Agent shall, one (1) Business Day prior to the date for payment of the Debt Service Payment Amount, deliver to (x) each PSA Contingency Reserve L/C Provider, if any, on such date a draft on its respective PSA Contingency Reserve L/C, together with an appropriate certificate with respect thereto if required under such PSA Contingency Reserve L/C and (y) to each PSA Contingency Reserve Guarantor, if any, a notice of payment by such PSA Contingency Reserve Guarantor under its PSA Contingency Reserve Guaranty. The aggregate amount to be drawn on all such PSA Contingency Reserve L/Cs and paid under all such PSA Contingency Reserve Guaranties in accordance with the proviso to the immediately preceding sentence shall be equal to the amount of such insufficiency (the "PSA Contingency --------------- Insufficiency Amount") and the amount to be drawn under each such PSA - -------------------- Contingency Reserve L/C and each such PSA Contingency Reserve Guaranty shall be determined ratably based on the aggregate of the Drawing Amounts and the aggregate of the Guaranteed Amounts then available under all such PSA Contingency Reserve L/Cs and all such PSA Contingency Reserve Guaranties, respectively. 32 The Administrative Agent shall deposit the amounts, if any, received under this clause (c) from each PSA Contingency Reserve L/C Provider and each PSA Contingency Reserve Guarantor in the Debt Service Payment Account. (d) After making the transfer contemplated by Section 3.8(c), if any, -------------- on any Funding Date on which monies on deposit in or credited to the PSA Contingency Reserve Account are to be transferred to the Distribution Suspense Account in accordance with Section 3.1(b)(vii), (i) the Debt Service Reserve ------------------- Requirement is greater than zero (after giving effect to the transfer set forth in Section 3.1(b)(v)), or (ii) the Major Maintenance Reserve Requirement is ------------------ greater than zero (after giving effect to the transfer set forth in Section ------- 3.1(b)(vi), the Administrative Agent shall transfer the Monies otherwise - ---------- available for distribution from the PSA Contingency Reserve Account, if any, first, to the Debt Service Reserve Account in an amount equal to the Debt Service Reserve Requirement and second, to the Major Maintenance Account in an amount equal to the Major Maintenance Reserve Requirement. (e) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) prior to the expiration of any PSA Contingency Reserve L/C delivered to the Administrative Agent in respect of the PSA Contingency Reserve Account, provided that such PSA Contingency Reserve L/C has -------- not been previously renewed, extended or replaced with a new PSA Contingency Reserve L/C or with a PSA Contingency Reserve Guaranty, the Administrative Agent shall deliver to the PSA Contingency Reserve L/C Provider providing such PSA Contingency Reserve L/C on such date (i) a draft on such PSA Contingency Reserve L/C in an amount equal to the Drawing Amount of such PSA Contingency Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such PSA Contingency Reserve L/C. The Administrative Agent shall deposit the amounts received from such PSA Contingency Reserve L/C Provider in payment of such draft in the PSA Contingency Reserve Account to be applied in accordance with this Section 3.8. - ----------- (f) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any PSA Contingency Reserve L/C Provider is rated less than "A" by S&P or less than "A2" by Moody's, provided that the PSA Contingency Reserve L/C issued by such PSA Contingency - -------- Reserve L/C Provider has not been replaced on or before the end of such 45-day period with a PSA Contingency Reserve L/C issued by a new PSA Contingency Reserve L/C Provider or with a PSA Contingency Reserve Guaranty, the Administrative Agent shall deliver to such PSA Contingency Reserve L/C Provider on such date (i) a draft on such PSA Contingency Reserve L/C in an amount equal to the Drawing Amount of such PSA Contingency Reserve Account L/C and (ii) an 33 appropriate certificate with respect thereto if required by such PSA Contingency Reserve L/C. The Administrative Agent shall deposit the amounts received from such PSA Contingency Reserve L/C Provider in payment of such draft in the PSA Contingency Reserve Account to be applied in accordance with this Section 3.8. ----------- (g) Upon receipt of a notice from any PSA Contingency Reserve L/C Provider that the PSA Contingency Reserve L/C provided by such PSA Contingency Reserve L/C Provider will be terminated prior to its stated expiration date, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such PSA Contingency Reserve L/C has not been replaced with a new PSA Contingency Reserve L/C or a PSA Contingency Reserve Guaranty, the Administrative Agent shall deliver to such PSA Contingency Reserve L/C Provider (i) a draft on such PSA Contingency Reserve L/C in an amount equal to the Drawing Amount of such PSA Contingency Reserve L/C and (ii) an appropriate certificate with respect thereto if required by such PSA Contingency Reserve L/C. The Administrative Agent shall deposit the amounts received from such PSA Contingency Reserve L/C Provider in payment of such draft in the Debt Service Reserve Account to be applied in accordance with this Section 3.8. - ----------- (h) Upon receipt of a notice from any PSA Contingency Reserve Guarantor that the PSA Contingency Reserve Guaranty provided by such PSA Contingency Reserve Guarantor will be terminated, if, not less than fifteen (15) Business Days prior to the termination date as provided in such notice of termination, such PSA Contingency Reserve Guaranty has not been replaced with a new PSA Contingency Reserve Guaranty or a PSA Contingency Reserve L/C, the Administrative Agent shall deliver to such PSA Contingency Reserve Guarantor a notice of payment in an amount equal to the Guaranteed Amount of such PSA Contingency Reserve Guaranty. The Administrative Agent shall deposit amounts received from such PSA Contingency Reserve Guarantor in the PSA Contingency Reserve Account to be applied in accordance with this Section 3.8. ----------- (i) Forty-five (45) days (or if such day is not a Business Day, on the next succeeding Business Day) after receipt of notice that any PSA Contingency Reserve Guarantor is rated less than "BBB" by S&P or less than "Baa2" by Moody's, provided that the PSA Contingency Reserve Guaranty issued by such PSA -------- Contingency Reserve Guarantor has not been replaced with a PSA Contingency Reserve Guaranty issued by a new PSA Contingency Reserve Guarantor or with a PSA Contingency Reserve L/C, the Administrative Agent shall deliver to such PSA Contingency Reserve Guarantor on such date a notice of payment in an amount equal to the Guaranteed Amount of such PSA Contingency Reserve Guaranty. The Administrative Agent shall deposit amounts received from such PSA Contingency 34 Reserve Guarantor in the PSA Contingency Reserve Account to be applied in accordance with this Section 3.8. ----------- SECTION 3.9 Distribution Suspense Account. ----------------------------- (a) On any Bond Payment Date on which all of the conditions set forth in clause (b) of this Section 3.9 (the "Distribution Conditions") are satisfied, ----------- ----------------------- upon delivery to the Collateral Agent, the Administrative Agent and the Trustee of an Officer's Certificate of the Issuer certifying as such three (3) Business Days prior to such Bond Payment Date, the Administrative Agent shall transfer Monies from the Distribution Suspense Account (regardless of whether such Monies have been on deposit therein for more than 12 consecutive months) to the Distribution Account in accordance with clause (b) of this Section 3.9 in an ----------- amount equal to the Monies on deposit in or credited to the Distribution Suspense Account or such lesser amount, as specified by the Issuer in its Officer's Certificate. (b) Subject to clauses (c) and (d) of Section 3.9, the transfer of ----------- Monies on any Bond Payment Date from the Distribution Suspense Account to the Distribution Account as described in clause (a) of this Section 3.9 is subject ----------- to the following conditions: (i) all required transfers and payments described in clauses (i) through (viii) of Section 3.1(b) shall have been completed; -------------- (ii) no Default or Event of Default shall have occurred and be continuing or shall result from such transfer of Monies to the Distribution Account; (iii) The Debt Service Coverage Ratio for the four quarter period preceding such Bond Payment Date (or with respect to the first Bond Payment Date, the number of full fiscal quarters that have elapsed since the Closing Date) measured as one accounting period, and the Projected Debt Service Coverage Ratio for each of the two four quarter periods succeeding such Bond Payment Date (each such four quarter period measured as one accounting period), shall each be greater than or equal to: (A) 1.7 to 1.0; or (B) 1.6 to 1.0, if as of such Bond Payment Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 25% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Bond Payment Date; or 35 (C) 1.45 to 1.0, if as of such Bond Payment Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 50% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Bond Payment Date; or (D) 1.3 to 1.0, if as of such Bond Payment Date, the Issuer is party to Permitted PPAs covering, in the aggregate, at least 75% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Bond Payment Date; or (E) 1.2 to 1.0, if as of such Bond Payment Date, the Issuer is party to Permitted PPAs covering, in the aggregate, 100% of the capacity of the Project for the consecutive period of eight full quarters, taken as a whole, following such Bond Payment Date; and (iv) The Issuer shall have delivered to the Trustee, the Collateral Agent and the Administrative Agent an Officer's Certificate of the Issuer certifying as to the matters described in clauses (i) through (iii) above (including the relevant PPAs). The Issuer shall determine the satisfaction of the conditions in clause (iii) based on projections prepared by the Issuer in good faith based upon assumptions consistent in all material respects with the relevant contracts and agreements, the Transaction Documents, historical operations and the Issuer's good faith projections of future revenues and projections of operating and maintenance expenses for the Issuer in light of existing or reasonably expected regulatory and market environments in the markets in which the Project is or will be operated and upon the assumption that there will be no early redemption or prepayment of Indebtedness or that any Indebtedness which matures within such projected periods will be refinanced on reasonable terms. For the avoidance of doubt, the examples set forth on Annex A ------- hereto illustrate how the applicable percentage of capacity shall be calculated in clauses (B), (C), (D) and (E) of Section 3.9(b)(iii) above. (c) If (A) any Monies remain on deposit in or credited to the Distribution Suspense Account for twelve (12) months continuously without being transferred to the Distribution Account pursuant to clause (a) of this Section ------- 3.9, (B) the Issuer delivers an Issuer Request to the Trustee requesting the - --- Trustee to call a vote of the Holders to determine whether to apply such funds to a redemption or prepayment, as applicable, of the Redeemable Facilities, and (C) Holders holding at least 66 2/3% of the Outstanding Bonds vote to apply such funds to such redemption and prepayment, then the Monies that have so remained on deposit in or credited to the Distribution Suspense Account for twelve (12) consecutive months without being transferred to the Distribution Account pursuant to clause (a) of this Section 3.9 shall ----------- 36 be used to redeem or prepay, as applicable, the Redeemable Facilities on a pro rata basis, as among the Redeemable Facilities, based upon the then outstanding principal amounts of each of the Redeemable Facilities, at the prices for redemption or prepayment set forth in the Indenture or the applicable facility agreement in respect of such Redeemable Facility, as applicable,shall provide the Administrative Agent a certificate (an "Allocation Certificate") setting ---------------------- forth the amount to be so allocated to each Redeemable Facility and the account or accounts into which each Redeemable Facility's allocable share shall be deposited in accordance with the terms of the Indenture or the applicable Additional Indebtedness Agreement, as applicable. Within two (2) Business Days of its receipt of an Allocation Certificate, the Administrative Agent shall make the transfers specified therein. The Issuer hereby instructs the Collateral Agent and the Administrative Agent to make all such payments in respect of the Bonds directly to the Trustee for deposit into the Bond Fund in accordance with the terms of Section 3.3 of the Indenture, and the Collateral Agent and the ----------- Administrative Agent hereby acknowledge receipt of such instruction. (d) Pending any other application of Monies on deposit in or credited to the Distribution Suspense Account as provided herein, the Administrative Agent shall, on any Funding Date, withdraw and transfer Monies on deposit in or credited to the Distribution Suspense Account to the Debt Service Payment Account if and to the extent such amounts on deposit in the Debt Service Payment Account and the Debt Service Reserve Account are insufficient to pay any amounts due on the Senior Secured Obligations on such Funding Date. (e) Subject to Section 3.9(c), the Issuer may, at any time, request in -------------- writing that the Administrative Agent transfer any amounts on deposit in the Distribution Suspense Account to any other Account (other than the Distribution Account). (f) The Administrative Agent shall withdraw and transfer Monies on deposit in or credited to the Distribution Account to such Persons as may be directed in an Officer's Certificate of the Issuer delivered at any time to the Administrative Agent three (3) Business Days prior to the date of such withdrawal and transfer. Such Officer's Certificate shall state that all conditions precedent provided for in this Section 3.9 have been complied with. ----------- SECTION 3.10 Proceeds Account. ---------------- (a) Loss Events. Except as otherwise expressly provided herein, all ----------- Loss Proceeds shall be deposited into the Proceeds Account directly, or if received by the Issuer, as soon as practicable (but no more than three (3) Business Days) after receipt, in either case in accordance with this Section ------- 3.10(a). The - ------- 37 Administrative Agent shall separately segregate such Loss Proceeds for distribution in the manner as set forth below: (i) If (A) a Loss Event occurs and (B) either (x) the Issuer determines not to Restore the Project or (y) the Issuer determines that the Project cannot be Restored to permit operation of the Project on a Commercially Feasible Basis, upon delivery to the Administrative Agent and the Collateral Agent of an Officer's Certificate of the Issuer certifying to the foregoing (together with, in the case of clause (y) immediately above, a certificate signed by an authorized representative of the Independent Engineer concurring with such Officer's Certificate), then the Loss Proceeds in excess of $5,000,000 received by the Issuer in connection with such Loss Event shall be used to redeem or prepay, as applicable, the Redeemable Facilities on a pro rata basis --- ---- among the Redeemable Facilities, based upon the then outstanding principal amounts of each of the Redeemable Facilities, at the prices for redemption or prepayment set forth in the applicable Financing Document, and the Issuer shall provide the Administrative Agent an Allocation Certificate setting forth the amount to be so allocated to each Redeemable Facility and the account or accounts into which each Redeemable Facility's allocable share shall be deposited in accordance with the terms of the applicable Financing Document. Within three (3) Business Days of its receipt of an Allocation Certificate, the Administrative Agent shall make the transfers from the Proceeds Account specified therein. The Issuer hereby instructs the Collateral Agent and the Administrative Agent to make all such payments in respect of the Bonds directly to the Trustee for deposit into the Bond Fund in accordance with the terms of Section 3.3 of the Indenture, and the Collateral Agent and the Administrative - ----------- Agent hereby acknowledge receipt of such instruction. Amounts remaining in the Proceeds Account after the redemption required under this Section 3.10(a)(i) ------------------ shall be transferred by the Administrative Agent from the Proceeds Account to the Revenue Account for disbursement in accordance with Section 3.1(b). -------------- (ii) If (A) a Loss Event occurs, (B) the Issuer receives Loss Proceeds in respect of such Loss Event and (C) the Issuer determines that the Project can be Restored to permit operation of the Project on a Commercially Feasible Basis, the Issuer shall deliver to the Administrative Agent and the Collateral Agent an Officer's Certificate of the Issuer certifying to the foregoing and a certificate signed by an authorized representative of the Independent Engineer concurring with such Officer's Certificate, and such Loss Proceeds shall be applied as set forth in paragraphs (iii), (iv) and (v) below. (iii) Before any withdrawal or transfer shall be made from the Proceeds Account with respect to any Restoration, there shall be filed with the Administrative Agent three (3) Business Days prior to any Disbursement Date: 38 (A) a requisition from the Issuer substantially in the form attached hereto as Exhibit F (a "Restoration Requisition") and signed by an --------- ----------------------- Authorized Representative of the Issuer; (B) if the cost of the Restoration is anticipated to exceed $5,000,000, a certificate of the Independent Engineer substantially in the form attached hereto as Exhibit G (an "Independent Engineer Restoration --------- -------------------------------- Certificate"). ----------- (iv) On the Disbursement Date referred to in Section 3.10(a)(iii) -------------------- or as soon thereafter as practicable following receipt of the documents described in Sections 3.10(a)(iii)(A) and (B) above, the Administrative Agent ------------------------ --- shall withdraw and transfer from the Proceeds Account and shall make available to the Issuer the amount set forth in the Restoration Requisition and, thereafter, the Issuer shall remit such amount to the applicable payees with respect to the Restoration Work (or, in the case of reimbursement for the costs of Restoration Work theretofore paid by the Issuer, retain such amounts for itself). (v) Upon completion of any Restoration Work, there shall be filed with the Administrative Agent and the Collateral Agent (A) an Officer's Certificate of the Issuer certifying the completion of such Restoration Work and the amount, if any, required in its opinion to be retained in the Proceeds Account for the payment of any costs of such Restoration Work not then due and payable or the liability for payment of which is being contested or disputed by the Issuer, and for the payment of reasonable contingencies following completion of such Restoration Work and (B) if the Restoration Work required an Independent Engineer Restoration Certificate under Section 3.10(a)(iii)(B) above, an officer's certificate of the Independent Engineer stating that completion of the Restoration has occurred and concurring with the amounts to be retained in the Proceeds Account. Upon receipt of such Officer's Certificate and, if applicable, such Independent Engineer Restoration Certificate, the Administrative Agent shall first, transfer the amount remaining in the Proceeds Account in excess of ----- the amounts to remain in the Proceeds Account as stated in such Officer's Certificate to the applicable payees (or, in the case of reimbursement for the costs of the Restoration theretofore paid by the Issuer, to the Issuer) with respect to such Restoration Work, and second, segregate the remaining excess in ------ the Proceeds Account from any other amounts therein. If such remaining excess exceeds $5,000,000, then the Loss Proceeds received in connection with such Loss Event in excess of $5,000,000, after giving effect to the cost of the Restoration, shall be used to redeem or prepay, as applicable, the Redeemable Facilities on a pro rata basis among the Redeemable Facilities, based upon the --- ---- then outstanding principal amounts of each of the Redeemable Facilities, at the prices for redemption 39 or prepayment set forth in the applicable Financing Document, and the Issuer shall provide the Administrative Agent an Allocation Certificate setting forth the amount to be so allocated to each Redeemable Facility and the account or accounts into which each Redeemable Facility's allocable share shall be deposited in accordance with the terms of the applicable Financing Document. Within three (3) Business Days of its receipt of an Allocation Certificate, the Administrative Agent shall make the transfers specified therein. The Issuer hereby instructs the Collateral Agent and the Administrative Agent to make all such payments in respect of the Bonds directly to the Trustee for deposit into the Bond Fund in accordance with the terms of Section 3.3 of the Indenture, and ----------- the Collateral Agent and the Administrative Agent hereby acknowledge receipt of such instruction. If the remaining excess is equal to or less than $5,000,000, the Administrative Agent shall transfer such monies to the Revenue Account. Thereafter, upon receipt of an Officer's Certificate of the Issuer certifying payment of all costs of Restoration Work for the Project, the Administrative Agent shall transfer any amounts remaining in the Proceeds Account to the Revenue Account. (b) Receipt of Buy-Out Proceeds. All Buy-Out Proceeds shall be --------------------------- deposited into the Proceeds Account directly, or, if received by the Issuer, as soon as practicable (but no more than three (3) Business Days) after receipt, in either case in accordance with this Section 3.10(b). If (i) the aggregate --------------- amount of Buy-Out Proceeds received by or on behalf of the Issuer is less than or equal to $10,000,000 or (ii) the aggregate amount of Buy-Out Proceeds received by or on behalf of the Issuer exceeds $10,000,000 and the Administrative Agent receives written confirmation from each Rating Agency that the related Buy-Out or Buy-Outs will not result in a Rating Downgrade (taking into account the proviso to the definition of Rating Downgrade for Voluntary Buy-Outs) by such Rating Agency, then the Administrative Agent shall transfer the Monies representing such Buy-Out Proceeds to the Revenue Account for application in accordance with Section 3.1(b). If (A) the aggregate amount of -------------- Buy-Out Proceeds received by or on behalf of the Issuer is in excess of $10,000,000 and (B) any Rating Agency does not confirm in writing that such Buy- Out or Buy-Outs will not result in a Rating Downgrade (taking into account the proviso to the definition of Rating Downgrade for Voluntary Buy-Outs) by such Rating Agency, then the Buy-Out Proceeds so received by the Issuer shall be used to redeem or prepay, as applicable, the Redeemable Facilities on a pro rata --- ---- basis among the Redeemable Facilities, based upon the then outstanding principal amounts of each of the Redeemable Facilities, at the prices for redemption or prepayment set forth in the applicable Financing Document, and the Issuer shall provide the Administrative Agent an Allocation Certificate setting forth the amount to be so allocated to each Redeemable Facility and the account or accounts into which each Redeemable Facility's allocable share shall be deposited in accordance with the terms of the applicable Financing Document. Within three (3) Business Days of its receipt 40 of an Allocation Certificate, the Administrative Agent shall make the transfers specified therein. (c) Proceeds of Permitted Asset Dispositions. All proceeds received by ---------------------------------------- the Issuer in connection with a disposition of assets permitted by Section ------- 5.1(g) of the Indenture ("Asset Sale Proceeds") shall be deposited into the - ------ ------------------- Proceeds Account directly, or, if received by the Issuer, as soon as practicable (but no more than three (3) Business Days) after receipt, in either case in accordance with this Section 3.10(c). If the Issuer receives more than --------------- $5,000,000 of Asset Sale Proceeds in connection with any disposition of assets permitted by Section 5.1(g) of the Indenture, then such Asset Sale Proceeds in -------------- excess of $5,000,000 shall be used to redeem or prepay, as applicable, the Redeemable Facilities on a pro rata basis among the Redeemable Facilities, based --- ---- upon the then outstanding principal amounts of each of the Redeemable Facilities, at the prices for redemption or prepayment set forth in the applicable Financing Document, and the Issuer shall provide the Administrative Agent an Allocation Certificate setting forth the amount to be so allocated to each Redeemable Facility and the account or accounts into which each Redeemable Facility's allocable share shall be deposited in accordance with the terms of the applicable Financing Document. Within three (3) Business Days of its receipt of an Allocation Certificate, the Administrative Agent shall make the transfers specified therein. The Issuer hereby instructs the Collateral Agent and the Administrative Agent to make all such payments in respect of the Bonds directly to the Trustee for deposit into the Bond Fund in accordance with the terms of Section 3.3 of the Indenture, and the Collateral Agent and the ----------- Administrative Agent hereby acknowledge receipt of such instruction. Any Asset Sale Proceeds remaining on deposit in the Proceeds Account after the making of the transfers contemplated by this Section 3.10(d) shall be deposited in the --------------- Revenue Account for application in accordance with Section 3.1(b). -------------- SECTION 3.11 Permitted Investments. Amounts held in any Account --------------------- created by and held under this Agreement (other than the Distribution Account) shall be invested and reinvested in Permitted Investments at the written direction (which may be in the form of a standing instruction) of an Authorized Representative of the Issuer (or, in the case of the Holdings II Account or the Holdings III Account, an Authorized Representative of Elwood II Holdings or Elwood III Holdings, as applicable); provided, however, that at any time when -------- ------- (a) an Authorized Officer of the Administrative Agent has received written notice from the Collateral Agent or any other Secured Party that an Event of Default shall have occurred and be continuing or (b) an Authorized Representative of the Issuer, Elwood II Holdings or Elwood III Holdings, as the case may be, has not timely furnished such a written direction or, after a request by the Administrative Agent, has not so confirmed a standing instruction to the Administrative Agent, the 41 Administrative Agent shall invest such monies only in Permitted Investments of the type referred to in clause (vi) of the definition of "Permitted Investments". Any written direction of an Authorized Representative of the Issuer (or, with respect to the Holdings II Account and the Holdings III Account, Elwood II Holdings or Elwood III Holdings, respectively) with respect to the investment or reinvestment of monies held in any Account (other than the Distribution Account) shall direct investment or reinvestment only in Permitted Investments that shall mature in such amounts and have maturity dates or be subject to redemption at the option of the holder thereof on or prior to maturity thereof as needed for the purposes of such Accounts, but in no event shall such Permitted Investments mature more than one year after the date acquired. The Administrative Agent shall have no duty to determine whether any investment or reinvestment shall satisfy the criteria set forth in the definition of "Permitted Investment" in the Indenture or the other criteria set forth in this Section 3.11 and neither the Administrative Agent nor the ----------- Collateral Agent shall have any liability in the event that the value of any Permitted Investment decreases. The Administrative Agent shall at any time and from time to time liquidate any or all of such investments prior to the maturity as needed in order to effect the transfers and withdrawals contemplated by this Agreement in accordance with an Officer's Certificate of the Issuer; provided -------- that, in the absence of timely receipt of such an Officer's Certificate, the Administrative Agent shall liquidate all such investments as necessary in order to effect the transfers and withdrawals contemplated by this Agreement. In the event any such investments are redeemed prior to the maturity thereof, the Administrative Agent shall not be liable for any loss or penalties relating thereto. Any income or gain realized from such investments shall be deposited into the Revenue Account as and when realized. For purposes of any income tax payable on account of any income or gain on an investment, such income or gain shall be for the account of the Issuer. SECTION 3.12 Events of Default. On and after any date on which the ----------------- Administrative Agent receives written notice from the Intercreditor Agent pursuant to Section 2.4 of the Intercreditor Agreement that an Event of Default ----------- has occurred (the date of receipt of such notice, the "Event of Default Date"), --------------------- the Administrative Agent shall, until the Administrative Agent receives notice from the Intercreditor Agent that the Event of Default has been cured, thereafter accept all notices and instructions required to be given to the Administrative Agent pursuant to the terms of this Agreement only from the Collateral Agent (acting upon instructions from the Intercreditor Agent, acting pursuant to the Intercreditor Agreement) and not from any other Person and the Administrative Agent shall not withdraw, transfer, pay or otherwise distribute any monies in any of the Accounts except pursuant to such notices and instructions from the Collateral Agent (acting upon instructions from the Intercreditor Agent, acting pursuant to the Intercreditor Agreement). On the Event of Default Date, the Administrative Agent shall render an accounting of all monies in 42 in the Accounts as of the Event of Default Date to the Collateral Agent and the Intercreditor Agent. SECTION 3.13 Disposition of Accounts Upon Debt Termination Date. In -------------------------------------------------- the event that the Administrative Agent shall have received a certificate of a Responsible Officer of the Collateral Agent stating that the Debt Termination Date shall have occurred, all Administrative Claims of which the Collateral Agent is aware shall have been paid in full and all fees, charges and expenses of the Independent Consultants and all other amounts required to be paid hereunder and under the other Financing Documents of which the Collateral Agent is aware shall have been paid in full, all amounts remaining in the Accounts shall, upon receipt of a certificate of a Responsible Officer of the Collateral Agent authorizing such payments from the Accounts, be remitted to or as directed by the Issuer, Elwood II Holdings or Elwood III Holdings, as applicable, or as otherwise directed by the Issuer. SECTION 3.14 Account Balance Statements. The Administrative Agent -------------------------- shall, on a monthly basis, provide to the Collateral Agent and the Issuer (and, with respect to the Holdings II Account or the Holdings III Account, Elwood II Holdings or Elwood III Holdings, respectively) account balance statements in respect of each of the Accounts and amounts segregated in any of the Accounts. Such balance statement shall also include deposits, withdrawals and transfers from and to any Account and segregated amounts. At such other times as the Collateral Agent or the Issuer (or, with respect to the Holdings II Account or the Holdings III Account, Elwood II Holdings or Elwood III Holdings, respectively) may from time to time reasonably request (but not more frequently than once each week unless an Event of Default shall have occurred and is continuing), the Administrative Agent shall provide written informal account information regarding (a) balances in respect of each of the Accounts and, to the extent reasonably available, amounts segregated in any of the Accounts and (b) deposits, withdrawals and transfers from and to any Account and, to the extent reasonably available, segregated amounts. SECTION 3.15 Instructions to the Administrative Agent. Each ---------------------------------------- direction to the Administrative Agent under this Agreement to transfer or withdraw amounts in an Account shall sufficiently identify (a) the Account from which such amounts are to be withdrawn or transferred, (b) the Account in which such amount is to be deposited or Person to whom such amount is to be transferred and (c) the applicable provision of this Agreement which authorizes such transfer or withdrawal. In the event that the Administrative Agent believes that it lacks sufficient information to make a transfer or withdrawal or to determine whether it has authority under this Agreement to make such transfer or withdrawal, it may refrain from making such transfer or withdrawal until it has received the information required to 43 make such transfer or confirmed its authority to its satisfaction. In no event shall the Administrative Agent be responsible for making calculations relating to deposits to or withdrawals from the Accounts. ARTICLE IV THE ADMINISTRATIVE AGENT ------------------------ The provisions of this Article IV are solely for the benefit of the ---------- Secured Parties, the Administrative Agent and the Collateral Agent and, except to the extent expressly provided in this Article IV, the Issuer shall not have ---------- any rights under this Article IV against the Administrative Agent, the ---------- Collateral Agent or any other Secured Party; provided that the Administrative -------- Agent shall be liable to for its gross negligence or willful misconduct. SECTION 4.1 Appointment of the Administrative Agent, Powers and --------------------------------------------------- Immunities. The Collateral Agent hereby irrevocably appoints and authorizes - ---------- Bank One Trust Company, National Association, to act as Administrative Agent hereunder, with such powers as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Bank One Trust Company, National Association, hereby agrees to act as Administrative Agent under this Agreement. Each of the Issuer, Elwood II Holdings and Elwood III Holdings hereby acknowledges the appointment of the Administrative Agent to act as the agent of the Collateral Agent hereunder, with such powers as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Administrative Agent shall not have any duties or responsibilities to any Person except those expressly set forth in this Agreement and shall not have any fiduciary relationship with any other Secured Party (and no implied covenants, functions or responsibilities shall be read into this Agreement or otherwise exist with respect to the Administrative Agent). Without limiting the generality of the foregoing, the Administrative Agent shall take all actions as the Collateral Agent shall direct it to perform in accordance with the express provisions of this Agreement and the Intercreditor Agreement. Notwithstanding anything to the contrary contained herein, the Administrative Agent shall not be required to take any action which is contrary to this Agreement and the Intercreditor Agreement or Applicable Law. Neither the Administrative Agent nor any of its Affiliates shall be responsible to any other Secured Party for any recitals, statements, representations or warranties made by the Issuer, Elwood II Holdings, Elwood III Holdings or the Collateral Agent contained in this Agreement or any other Transaction Document or in any certificate or other document referred to or provided for in, or received by any other Secured Party under, this Agreement or any other Transaction Document for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any 44 other Transaction Document or any other document referred to or provided for herein or therein or for any failure by the Issuer, Elwood II Holdings or Elwood III Holdings to perform its obligations hereunder or thereunder. The Administrative Agent shall not be required to ascertain or inquire as to the performance by the Issuer, Elwood II Holdings or Elwood III Holdings of any of its respective obligations under this Agreement or any other Transaction Document or any other document or agreement contemplated hereby or thereby. The Administrative Agent shall not be (a) required to initiate or conduct any litigation or collection proceeding hereunder or under any other Transaction Document or (b) responsible for any action taken or omitted to be taken by it hereunder (except for its own gross negligence or willful misconduct) or in connection with any other Transaction Document. Except as otherwise expressly set forth in this Agreement, the Administrative Agent shall take action under this Agreement only as it shall be directed in writing by the Collateral Agent. Whenever, in the administration of this Agreement, the Administrative Agent shall deem it necessary or desirable that a factual matter be proved or established in connection with the Administrative Agent taking, suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof is herein specifically prescribed) may be deemed to be conclusively proved or established by an Officer's Certificate or a certificate of any Responsible Officer of the Collateral Agent, if appropriate. The Administrative Agent shall have the right at any time to seek instructions concerning the administration of this Agreement from the Collateral Agent, legal counsel or any court of competent jurisdiction. The Administrative Agent shall not be deemed to have actual, constructive, direct or indirect knowledge or notice of the occurrence of an Event of Default unless and until a Responsible Officer of the Administrative Agent has received an Officer's Certificate of the Issuer or a written notice or certificate from a Secured Party stating that an Event of Default has occurred. Each of the Secured Parties expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents or attorneys-in-fact has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including, without limitation, any review of the Project or of the affairs of the Issuer, shall be deemed to constitute any representation or warranty by the Administrative Agent to any other Secured Party. Each Secured Party (other than any other Secured Party that has no obligation to make appraisals, investigations or credit analyses under the Financing Documents to which it is a party, including, without limitation, the Collateral Agent and the Administrative Agent) represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Secured Party, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the 45 Project and the Issuer. Each Secured Party (other than a Secured Party that has no obligation to make appraisals, investigations or credit analyses under the Financing Documents to which it is a party, including, without limitation, the Collateral Agent and the Administrative Agent) also represents that it will, independently and without reliance upon the Administrative Agent or any other Secured Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Project and Issuer. Except for notices, reports and other documents expressly required to be furnished to the other Secured Parties by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any other Secured Party with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Project and the Issuer which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents or attorneys-in-fact. SECTION 4.2 Reliance by the Administrative Agent. The Administrative ------------------------------------ Agent shall be entitled to rely upon any Officer's Certificate, officer's certificate of an Authorized Officer of any Secured Party, Independent Engineer's certificate, certificate of a Responsible Officer of the Collateral Agent or any other certificate, notice or other document (including any cable, telegram or telecopy) believed by it to be genuine and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice of legal counsel, independent accountants and other experts selected by the Administrative Agent and shall have no liability for its actions taken thereupon, unless due to the Administrative Agent's willful misconduct or gross negligence. Without limiting the foregoing, the Administrative Agent shall be required to make payments to the Secured Parties or other Persons only as set forth herein. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or the Intercreditor Agreement (i) if such action would, in the opinion of the Administrative Agent, be contrary to Applicable Law or the terms of this Agreement or the Intercreditor Agreement, (ii) if such action is not specifically provided for in this Agreement or the Intercreditor Agreement and it shall not have received any such advice or concurrence of the Collateral Agent as it deems appropriate or (iii) if, in connection with the taking of any such action that would constitute an exercise of remedies under any Financing Document (whether such action is or is intended to be an action of the Administrative Agent or the Collateral Agent), it shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement 46 or any other Financing Document in accordance with a request of the Collateral Agent (to the extent that the Collateral Agent is expressly authorized to direct the Administrative Agent to take or refrain from taking such action), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Secured Parties. In the event that the Administrative Agent is required to perform any action on a particular date only following the delivery of an Officer's Certificate or other document, the Administrative Agent shall be fully justified in failing to perform such action if it has not first received such Officer's Certificate or other document and shall be fully justified in continuing to fail to perform such action until such time as it has received such Officer's Certificate or other document. SECTION 4.3 Court Orders. The Administrative Agent is hereby ------------ authorized, in its exclusive discretion, to obey and comply with all writs, orders, judgments or decrees issued by any court or administrative agency affecting any money, documents or things held by the Administrative Agent. The Administrative Agent shall not be liable to any of the parties hereto or any other Secured Party, their successors, heirs or personal representatives by reason of the Administrative Agent's compliance with such writs, orders, judgments or decrees, notwithstanding such writ, order, judgment or decree is later reversed, modified, set aside or vacated. SECTION 4.4 Resignation or Removal. Subject to the appointment and ---------------------- acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to the Collateral Agent, the Issuer, Elwood II Holdings and Elwood III Holdings (provided that if the Administrative Agent is also the -------- Collateral Agent and the Trustee, it must also at the same time resign as Collateral Agent and as Trustee), and the Administrative Agent may be removed at any time with cause by the Collateral Agent. In the event that the Administrative Agent shall decline to take any action without first receiving adequate indemnity and, having received adequate indemnification, shall continue to decline to take such action, the Collateral Agent shall be deemed to have sufficient cause to remove the Administrative Agent. Prior to the occurrence of an Event of Default, the Issuer shall have the right to remove the Administrative Agent upon 30 day's notice to the Secured Parties with or without cause, subject to the appointment and acceptance of a successor Administrative Agent as provided below. Upon any such resignation or removal, the Collateral Agent shall have the right to appoint a successor Administrative Agent which shall be a single bank or trust company that (i) has an office in New York, New York, (ii) has capital, surplus and undivided profits of at least $50,000,000, (iii) is experienced in administering sophisticated financing transactions, and (iv) so long as no Event of Default has occurred and is continuing, is reasonably acceptable to the Issuer. If no successor Administrative Agent shall have been appointed by the Collateral Agent and shall have accepted such appointment within 30 days after the retiring 47 Administrative Agent's giving of notice of resignation or the removal of the retiring Administrative Agent, then the retiring Administrative Agent may appoint a successor Administrative Agent, which shall be a single bank or trust company that (i) has an office in New York, New York, (ii) has capital, surplus and undivided profits of at least $50,000,000, (iii) is experienced in administering sophisticated financing transactions, and (iv) so long as no Event of Default has occurred and is continuing, is reasonably acceptable to the Issuer. Upon the acceptance of any appointment as Administrative Agent hereunder by the successor Administrative Agent, (a) such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and (b) the retiring Administrative Agent shall promptly transfer all Accounts within its possession or control to the possession or control of the successor Administrative Agent and the retiring Administrative Agent shall execute and deliver such notices, instructions and assignments as may be necessary or desirable to transfer the rights of the retiring Administrative Agent with respect to such Accounts to the successor Administrative Agent. After the retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article IV and of Article V shall ---------- --------- continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while acting as Administrative Agent. Further, a corporation into which the Administrative Agent is merged or converted or with which it is consolidated or which results from a merger, conversion or consolidation to which it is a party shall, to the extent permitted by Applicable Law, be the successor Administrative Agent under this Agreement without further formality and shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Administrative Agent with which such corporation was merged, converted or consolidated. The Administrative Agent shall forthwith notify such event to the Issuer and the Collateral Agent. ARTICLE V EXPENSES; INDEMNIFICATION; FEES ------------------------------- SECTION 5.1 Expenses. The Issuer agrees to pay or reimburse all -------- reasonable out-of-pocket expenses of the Administrative Agent (including, without limitation, the reasonable fees and disbursements of outside counsel engaged by the Administrative Agent) in respect of, or incidental to, the administration or enforcement of any of the provisions of this Agreement or in connection with any amendment, waiver or consent relating to this Agreement. SECTION 5.2 Indemnification. The Issuer agrees to indemnify the --------------- Administrative Agent in its capacity as such, and, in their capacity as such, its officers, directors, shareholders, controlling persons, employees, agents and servants 48 in accordance with and in the manner contemplated by Article 7.17 of the ------------ Intercreditor Agreement. SECTION 5.3 Fees. On the Closing Date, and on each anniversary of the ---- Closing Date to and including the Debt Termination Date, the Issuer shall pay the Administrative Agent an annual fee in an amount mutually agreed on by the Issuer and the Administrative Agent in writing on or prior to the date of appointment of the Administrative Agent. The provisions of this Article V shall survive the termination of this --------- Agreement or the resignation or removal of the Administrative Agent. ARTICLE VI LIMITATION OF LIABILITY ----------------------- SECTION 6.1 Limitation of Liability. Section 14.1 of the Indenture is ----------------------- ------------ incorporated herein by reference as if set forth in full herein. ARTICLE VII MISCELLANEOUS ------------- SECTION 7.1 Amendments; Etc. No amendment or waiver of, or consent --------------- with respect to, any provision of this Agreement shall in any event be effective unless the same shall be made in accordance with the Intercreditor Agreement. SECTION 7.2 Addresses for Notices. All notices, requests and other --------------------- communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. SECTION 7.3 Integration, Etc. This Agreement and the other Financing ---------------- Documents to which the parties hereto are a party constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, written or oral, relating to the subject matter 49 hereof. This Agreement shall become effective at such time as the Collateral Agent shall have received counterparts hereof signed by all of the intended parties hereto. SECTION 7.4 Headings; Table of Contents; Section References. Headings ----------------------------------------------- used in this Agreement, and the table of contents included in this Agreement, are for convenience of reference only and do not constitute part of this Agreement for any purpose. Unless otherwise specified in this Agreement, section references shall refer to sections of this Agreement. SECTION 7.5 No Third Party Beneficiaries. The agreements of the ---------------------------- parties hereto are solely for the benefit of the Issuer, Elwood II Holdings, Elwood III Holdings, the Collateral Agent, the Administrative Agent, the Intercreditor Agent and the other Secured Parties and their respective successors and assigns and no Person (other than the parties hereto and such other Secured Parties) shall have any rights hereunder. SECTION 7.6 No Waiver. No failure on the part of the Administrative --------- Agent, the Collateral Agent or any other Secured Party or any of their nominees or representatives to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Administrative Agent, the Collateral Agent or any other Secured Party or any of their nominees or representatives of any right, power or remedy. SECTION 7.7 Severability. If any provision of this Agreement or the ------------ application thereof shall be invalid or unenforceable to any extent, (a) the remainder of this Agreement and the application of such remaining provisions shall not be affected thereby and (b) each such remaining provision shall be enforced to the greatest extent permitted by law. SECTION 7.8 Successors and Assigns. All covenants, agreements, ---------------------- representations and warranties in this Agreement by the Administrative Agent, the Collateral Agent, the Intercreditor Agent and the Issuer shall bind and, to the extent permitted hereby, shall inure to the benefit of and be enforceable by their respective successors and assigns, whether so expressed or not. SECTION 7.9 Execution in Counterparts. This Agreement may be executed ------------------------- in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 50 SECTION 7.10 Special Exculpation. No claim may be made by the Issuer, ------------------- Elwood II Holdings, Elwood III Holdings or any other person against the Administrative Agent, the Collateral Agent, the Intercreditor Agent or any other Secured Party or the affiliates, directors, officers, employees, attorneys or agents of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or relating to this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby, or any act, omission or event occurring in connection therewith, and the Issuer, Elwood II Holdings and Elwood III Holdings hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 7.11 Governing Law. (a) THIS AGREEMENT SHALL BE GOVERNED BY, ------------- AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE LIEN AND SECURITY INTEREST HEREUNDER, OR THE REMEDIES HEREUNDER, ARE GOVERNED BY THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. REGARDLESS OF ANY PROVISION IN ANY OTHER AGREEMENT, FOR PURPOSES OF THE NEW YORK UCC, THE "SECURITIES INTERMEDIARY'S JURISDICTION" OF THE ADMINISTRATIVE AGENT WITH RESPECT TO THE ACCOUNTS IN RESPECT OF WHICH THE COLLATERAL AGENT HAS BEEN GRANTED A SECURITY INTEREST UNDER THE SECURITY AGREEMENT IS THE STATE OF NEW YORK. (b) Any legal action or proceeding by or against the Issuer, Elwood II Holdings or Elwood III Holdings with respect to or arising out of this Agreement may be brought in or removed to the courts of the State of New York, in and for the County of New York, or of the United States of America for the Southern District of New York. By execution and delivery of this Agreement, each of the Issuer, Elwood II Holdings and Elwood III Holdings accepts, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts for legal proceedings arising out of or in connection with this Agreement and the Issuer irrevocably consents to the appointment of CT Corporation System, with offices on the date hereof at 111 Eighth Avenue, New York, New York 10011 as its agent to receive service of process in New York, New York. If for any reason such agent shall cease to be available to act as such for the Issuer, the Issuer agrees to appoint a new agent on the terms and for the purposes of this provision. Nothing herein shall affect the right to serve process in any other manner permitted by law or any right to bring legal action or proceedings in any other competent jurisdiction. Each of the Issuer, Elwood II Holdings and Elwood III Holdings further agrees that the aforesaid courts of the State of New York and of the United States of America for the Southern District of New York shall have exclusive jurisdiction with respect to any claim or counterclaim of any such Person based upon the assertion that the rate of interest charged by or under any Financing Documents is usurious. Each of the Issuer, 51 Elwood II Holdings and Elwood III Holdings hereby waives any right to stay or dismiss any action or proceeding under or in connection with the Project, this Agreement or any other Transaction Document brought before the foregoing courts on the basis of forum non-conveniens or improper venue. -------------------- (c) EACH PARTY HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE OTHER PARTIES HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT. SECTION 7.12 Payments in Respect of Bonds. The Issuer hereby ---------------------------- instructs the Collateral Agent and the Administrative Agent to make all payments to be made in respect of the Bonds hereunder directly to the Trustee for deposit into the Bond Fund in accordance with the terms of Section 3.3 of the Indenture, ----------- and the Collateral Agent and the Administrative Agent hereby acknowledge receipt of such instruction. 52 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. ELWOOD ENERGY LLC By: /s/ Thomas B. Linquist --------------------------- Name: Thomas B. Linquist Title: Authorized Representative Address for Notices: Elwood Energy LLC c/o Peoples Energy Resources Corp. 130 East Randolph Drive Chicago, IL 60601 Attn: John E. Horton Telephone No.: (312) 240-7181 Telecopy No.: (312) 240-3966 with a copy to: Elwood Energy LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 Attn: Donald Burnette Telephone No.: (804) 819-2411 Telecopy No.: (804) 819-2211 ELWOOD II HOLDINGS, LLC By: /s/ Thomas B. Linquist --------------------------- Name: Thomas B. Linquist Title: Authorized Representative Address for Notices: Elwood II Holdings, LLC c/o Peoples Energy Resources Corp. 130 East Randolph Drive Chicago, IL 60601 Attn: John E. Horton Telephone No.: (312) 240-7181 Telecopy No.: (312) 240-3966 with a copy to: Elwood II Holdings, LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 Attn: Donald Burnette Telephone No.: (804) 819-2411 Telecopy No.: (804) 819-2211 ELWOOD III HOLDINGS, LLC By: /s/ Thomas B. Linquist ----------------------------- Name: Thomas B. Linquist Title: Authorized Representative Address for Notices: Elwood III Holdings, LLC c/o Peoples Energy Resources Corp. 130 East Randolph Drive Chicago, IL 60601 Attn: John E. Horton Telephone No.: (312) 240-7181 Telecopy No.: (312) 240-3966 with a copy to: Elwood III Holdings, LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 Attn: Donald Burnette Telephone No.: (804) 819-2411 Telecopy No.: (804) 819-2211 BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral Agent By: /s/ Benita A. Pointer -------------------------------- Name: Benita A. Pointer Title: Account Executive Address for Notices: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Administrative Agent By: /s/ Benita A. Pointer ------------------------------ Name: Benita A. Pointer Title: Account Executive Address for Notices: 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Intercreditor Agent By: /s/ Benita A. Pointer ------------------------------ Name: Benita A. Pointer Title: Account Executive Address for Notices: 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Annex A to Deposit and Disbursement Agreement ---------------------------------- Calculation Examples -------------------- The following examples illustrate how the applicable percentage of capacity covered by Permitted PPAs is to be calculated for the purposes of Section 3.9(b)(iii) of this Agreement: Assume for the purposes of each example that the capacity of the Project is 1400 MW. Example 1: On the applicable date of determination, the Issuer is party to Permitted PPAs with terms that extend for all eight of the quarters that follow such date. These Permitted PPAs cover, in the aggregate, 1000 MW of the Project's capacity. Therefore, the applicable percentage is (1000/1400) x 100% = 71.4%. Example 2: On the applicable date of determination, the Issuer is party to Permitted PPAs with terms that extend for the first six of the eight quarters that follow such date. These Permitted PPAs cover 1000 MW of the Project's capacity during such first six quarters and 0 MW of the Project's capacity during the seventh and eight quarters following such date. Therefore, the applicable percentage is [(1000/1400) x (75%)] + [(0/1400) x (25%)] = (53.6%) + (0%) = 53.6% Example 3: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 1000 MW of the Project's capacity during the first six quarters following such date and 500 MW of the Project's capacity during the seventh and eight quarters following such date. Therefore, the applicable percentage is [(1000/1400) x (75%)] + [(500/1400) x (25%)] = (53.6%) + (8.9%) = 62.5% Example 4: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 0 MW of the Project's capacity during the first six quarters following such date and 1400 MW of the Project's capacity during Annex A-1 the seventh and eight quarters following such date. Therefore, the applicable percentage is [(0/1400) x (75%)] + [(1400/1400) x (25%)] = (0%) + (25%) = 25% Example 5: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 1400 MW of the Project's capacity during the first four quarters following such date and 0 MW of the Project's capacity during the fifth, sixth, seventh and eighth quarters following such date. Therefore, the applicable percentage is [(1400/1400) x (50%)] + [(0/1400) x (50%)] = (50%) + (0%) = 50% Example 6: On the applicable date of determination, the Issuer is party to Permitted PPAs that cover 1400 MW of the Project's capacity during the first 3 1/2 quarters following such date and 0 MW of the Project's capacity during the last 1/2 of the fourth quarter and during the fifth, sixth, seventh and eighth quarters following such date. Therefore, the applicable percentage is [(1400/1400) x (43.75%)] + [(0/1400) x (56.25%)] = (43.75%) + (0%) = 43.75% Annex A-2 Schedule I to Deposit and Disbursement Agreement ---------------------------------- Accounts -------- 1. Revenue Account Account Name: Elwood Energy Revenue Account Account Number: 2600015505 2. O&M Account Account Name: Elwood Energy O&M Account Account Number: 2600015506 3. Holdings II Account Account Name: Elwood Energy Holdings II Account Account Number: 2600015507 4. Holdings III Account Account Name: Elwood Energy Holdings III Account Account Number: 2600015508 5. Sales Tax Reserve Account Account Name: Elwood Energy Sales Tax Reserve Account Account Number: 2600015509 6. Debt Service Payment Account Account Name: Elwood Energy Debt Service Payment Account Account Number: 2600015510 7. DSR LOC Loan Principal Account I-1 Account Name: Elwood Energy DSR LOC Loan Principal Account Account Number: 2600015511 8. Debt Service Reserve Account Account Name: Elwood Energy Debt Service Reserve Account Account Number: 2600015512 9. Major Maintenance Reserve Account Account Name: Elwood Energy Major Maintenance Reserve Account Account Number: 2600015513 10. PSA Contingency Reserve Account Account Name: Elwood Energy PSA Contingency Reserve Account Account Number: 2600015514 11. Distribution Suspense Account Account Name: Elwood Energy Distribution Suspense Account Account Number: 2600015515 12. Distribution Account Account Name: Elwood Energy Distribution Account Account Number: 2600015516 13. Proceeds Account Account Name: Elwood Energy Proceeds Account Account Number: 2600015517 I-2 Schedule II to Deposit and Disbursement Agreement ---------------------------------- Current Major Maintenance Required Balance* (in thousands) ------------------------------------------ October 23, 2001 $ 2,000 January 5, 2002 $ 3,800 July 5, 2002 $ 7,400 January 5, 2003 $11,000 July 5, 2003 $14,600 January 5, 2004 $18,200 July 5, 2004 $21,800 January 5, 2005 $25,400 July 5, 2005 $29,000 January 5, 2006 $27,818 July 5, 2006 $31,418 January 5, 2007 $28,703 July 5, 2007 $32,303 January 5, 2008 $34,093 July 5, 2008 $37,693 January 5, 2009 $39,139 July 5, 2009 $42,739 January 5, 2010 $22,232 July 5, 2010 $25,832 January 5, 2011 $18,500 July 5, 2011 $22,100 January 5, 2012 $24,840 July 5, 2012 $28,440 January 5, 2013 $32,040 July 5, 2013 $41,040 January 5, 2014 $45,632 July 5, 2014 $54,632 January 5, 2015 $59,181 July 5, 2015 $68,181 January 5, 2016 $48,218 July 5, 2016 $57,218 January 5, 2017 $45,936 July 5, 2017 $52,936 January 5, 2018 $56,622 July 5, 2018 $63,622 January 5, 2019 $64,731 July 5, 2019 $71,731 II-1 January 5, 2020 $70,020 July 5, 2020 $77,020 January 5, 2021 $37,052 July 5, 2021 $47,907 January 5, 2022 $40,154 July 5, 2022 $51,154 January 5, 2023 $61,715 July 5, 2023 $72,715 January 5, 2024 $68,633 July 5, 2024 $76,633 January 5, 2025 $51,157 July 5, 2025 $59,157 January 5, 2026 $29,515 July 5, 2026 $32,515 * Each amount set forth herein shall be adjusted as necessary to reflect anticipated Major Maintenance Expenditures from the Major Maintenance Reserve Account during the six-month period ending on such Bond Payment Date as certified in the applicable Funding Date Certificate. II-2 Schedule III to Deposit and Disbursement Agreement ---------------------------------- Sales Tax Reserve Required Balance ---------------------------------- - ---------------------------------------------------------------- Date Amount Date Amount - ---------------------------------------------------------------- March 31, 2006 $ 350,000 December 31, 2008 $4,200,000 - ---------------------------------------------------------------- June 30, 2006 $ 700,000 March 31, 2009 $4,550,000 - ---------------------------------------------------------------- September 30, 2006 $1,050,000 June 30, 2009 $4,900,000 - ---------------------------------------------------------------- December 31, 2006 $1,400,000 September 30, 2009 $5,250,000 - ---------------------------------------------------------------- March 31, 2006 $1,750,000 December 31, 2009 $5,600,000 - ---------------------------------------------------------------- June 30, 2007 $2,100,000 March 31, 2010 $5,950,000 - ---------------------------------------------------------------- September 30, 2007 $2,450,000 June 30, 2010 $6,300,000 - ---------------------------------------------------------------- December 31, 2007 $2,800,000 September 30, 2010 $6,650,000 - ---------------------------------------------------------------- March 31, 2008 $3,150,000 December 31, 2010 $7,000,000 - ---------------------------------------------------------------- June 30, 2008 $3,500,000 March 31, 2011 $7,350,000 - ---------------------------------------------------------------- September 30, 2008 $3,850,000 June 30, 2011 $7,700,000 - ---------------------------------------------------------------- III-1 Schedule IV to Deposit and Disbursement Agreement ---------------------------------- PSA Yearly Factor ----------------- 2013 $45,000,000 2014 $45,000,000 2015 $45,000,000 2016 $45,000,000 2017 $45,000,000 2018 $40,000,000 2019 $40,000,000 2020 $42,000,000 2021 $32,500,000 2022 $17,000,000 2023 $15,000,000 IV-1 Exhibit A to Deposit and Disbursement Agreement ------------------------------------- FORM OF DEBT SERVICE RESERVE GUARANTY ------------------------------------- A-1 Exhibit B to Deposit and Disbursement Agreement ------------------------------------- FORM OF MAJOR MAINTENANCE RESERVE GUARANTY ------------------------------------------ B-1 Exhibit C to Deposit and Disbursement Agreement ---------------------------------- FORM OF PSA CONTINGENCY RESERVE GUARANTY C-1 Exhibit D to Deposit and Disbursement Agreement ---------------------------------- FORM OF SALES TAX RESERVE GUARANTY D-1 Exhibit E to Deposit and Disbursement Agreement ---------------------------------- MAINTENANCE REQUISITION ----------------------- No. ______ [Date] Bank One Trust Company, National Association, as Administrative Agent 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attention: Global Corporate Trust Services Re: Deposit and Disbursement Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement Agreement"), among Elwood Energy LLC (the ---------------------------------- "Issuer"), Bank One Trust Company, National Association, in its capacity as ------ Collateral Agent, Bank One Trust Company, National Association, in its capacity as Administrative Agent, and Bank One Trust Company, National Association, in its capacity as Intercreditor Agent. Ladies and Gentlemen: This requisition (this "Maintenance Requisition") is delivered to you ----------------------- pursuant to Section 3.7(b) of the Deposit and Disbursement Agreement. -------------- Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Deposit and Disbursement Agreement (including defined terms incorporated therein by reference from the Indenture). The information relating to this Maintenance Requisition is as follows: 1. The aggregate amount requested to be withdrawn from the Major Maintenance Reserve Account in accordance with this Maintenance Requisition is $____________. 2. The Disbursement Date on which the withdrawals and transfers pursuant to this Maintenance Requisition are to be made is _________ __, ____. E-1 3. Set forth on Schedule I attached hereto is the name of each Person to ---------- whom any payment is to be made, the aggregate amount incurred on or prior to the Disbursement Date or reasonably expected to be incurred within the thirty (30) day period following the Disbursement Date by such Person and a summary description of the work performed, services rendered, materials, equipment or supplies delivered or any other purpose for which each payment was or is to be made. 4. The proceeds of this Maintenance Requisition withdrawn from the Major Maintenance Reserve Account will be used to pay Major Maintenance Expenditures due and payable as of the Disbursement Date or to reimburse the Issuer or the appropriate third parties for the costs of Major Maintenance Expenditures paid prior to the Disbursement Date (as evidenced by invoices received or provided by the Issuer). ELWOOD ENERGY LLC By:___________________ Name: Title: E-2 Schedule I to Exhibit E to Deposit and Disbursement Agreement ------------------------------------- Amount Name of Payment Purpose ---- ---------- ------- E-3 Exhibit F to Deposit and Disbursement Agreement RESTORATION REQUISITION - ----------------------- No. ______ [Date] Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attention: Global Corporate Trust Services Re: Deposit and Disbursement Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement Agreement"), among Elwood Energy LLC (the ---------------------------------- "Issuer"), Bank One Trust Company, National Association, in its capacity as ------ Collateral Agent, Bank One Trust Company, National Association, in its capacity as Administrative Agent, and Bank One Trust Company, National Association, in its capacity as Intercreditor Agent. Ladies and Gentlemen: This requisition (this "Restoration Requisition") is delivered to you ----------------------- pursuant to Section 3.10(a)(iii)(A) of the Deposit and Disbursement Agreement. ----------------------- Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Deposit and Disbursement Agreement (including defined terms incorporated therein by reference from the Indenture). The information relating to this Restoration Requisition is as follows: 1. The aggregate amount requested to be withdrawn from the Proceeds Account in accordance with this Restoration Requisition is $____________. 2. The Disbursement Date on which the withdrawals and transfers pursuant to this Restoration Requisition are to be made is _________ __, ____. 3. Set forth on Schedule I attached hereto is the name of each Person to ---------- whom any payment is to be made, the aggregate amount incurred on or prior to the Disbursement Date or reasonably expected to be incurred F-1 within the thirty (30) day period following the Disbursement Date by such Person and a summary description of the work performed, services rendered, materials, equipment or supplies delivered or any other purpose for which each payment was or is to be made. 4. The proceeds of this Restoration Requisition withdrawn from the Proceeds Account will be used to pay the costs of rebuilding, restoration or repair of the Project in accordance with the budget and schedule for the Restoration, and the Administrative Agent may properly charge such costs against the Proceeds Account. 5. The rebuilding, restoration or repair costs which have been paid or for which payment is requested under this Restoration Requisition are in accordance with the budget and schedule for the Restoration Work. 6. The costs of rebuilding, restoration or repair for which payment is requested under this Restoration Requisition from the Proceeds Account have not been the basis for any prior requisition by the Issuer. 7. As of the date hereof, the Issuer has not received any written notice of any lien, right to lien or attachment upon, or claim affecting the right of the Issuer to receive any portion of the amount of this Restoration Requisition (other than in respect of Permitted Liens), or in the event that the Issuer has received notice of any such lien, right to lien, attachment or claim (other than a Permitted Lien), such lien, right to lien, attachment or claim has been released or discharged as of the date hereof or is expected to be released or discharged upon payment of the costs for which payment is requested under this Restoration Requisition, or is subject to a Good Faith Contest. ELWOOD ENERGY LLC By:______________________________ Name: Title: F-2 Schedule I to Exhibit F to Deposit and Disbursement Agreement ------------------------------------- Amount Name of Payment Purpose ---- ---------- ------- F-3 Exhibit G to Deposit and Disbursement Agreement ------------------------------------- INDEPENDENT ENGINEER RESTORATION CERTIFICATE - -------------------------------------------- No. _____ [Date] Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attention: Global Corporate Trust Services Re: Deposit and Disbursement Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement Agreement"), among Elwood Energy LLC (the ---------------------------------- "Issuer"), Bank One Trust Company, National Association, in its capacity as ------ Collateral Agent, Bank One Trust Company, National Association, in its capacity as Administrative Agent, and Bank One Trust Company, National Association, in its capacity as Intercreditor Agent. Ladies and Gentlemen: This Certificate (this "Independent Engineer's Restoration ---------------------------------- Certificate") is delivered to you pursuant to Section 3.10(a)(iii)(B) of the - ----------- ----------------------- Deposit and Disbursement Agreement and in connection with the requisition for payment dated __________ __, ____ (the "Restoration Requisition") delivered ----------------------- together with this Independent Engineer's Restoration Certificate. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Deposit and Disbursement Agreement (including defined terms incorporated therein by reference from the Indenture). We hereby certify to the Administrative Agent as of the date hereof that: 1. We have reviewed the material and data made available to us by the Issuer with respect to [describe rebuilding, repair or restoration of project] and have performed such other investigation as is referenced in Annex 1 attached hereto (the "Review"). Our Review was ------- ------ G-1 performed in accordance with generally accepted engineering and construction practices and included such investigation, [insert customary exceptions and qualifications] and review as we in our professional capacity deemed necessary or appropriate in the circumstances and within the scope of our appointment [insert customary exceptions and qualifications]. We have also reviewed the Restoration Requisition and any appendices, schedules and requisitions and/or invoices attached thereto or delivered therewith. 2. Based on our Review and the understanding and assumption that we have been provided true, correct and complete information, and [insert customary exceptions and qualifications] we are of the opinion that, as of the date hereof: a. After giving effect to the payments requested under the Restoration Requisition, the undisbursed moneys in the Proceeds Account together with any other amounts that the Issuer is willing to commit or cause to be committed to such rebuilding, repair or restoration is reasonably estimated to equal or exceed the amount necessary to pay for (i) all work, labor or services performed and all materials, supplies or equipment furnished for which payment has not yet been made and (ii) all other reasonably anticipated costs of rebuilding, repair or restoration ("Restoration Costs") which have yet to be paid ----------------- in order to achieve operation of [all] [a portion] of the Project. [Alternative if applicable: After giving effect to the payments requested under the Restoration Requisition, the undisbursed moneys in the Proceeds Account may be less than the amount necessary to pay for (i) all work, labor or services performed and all materials, supplies or equipment furnished for which payment has not yet been made and (ii) all other reasonably anticipated Restoration Costs which have yet to be paid in order to achieve operation of [all] [a portion] of the Project; however, in our opinion, such insufficiency could not reasonably be expected to result in a Material Adverse Effect.] b. The major rebuilding, repair and restoration activities and the progress of the rebuilding, repair and restoration of the Project through the date of this Independent Engineer's Restoration Certificate are proceeding in a satisfactory manner in accordance with the budget and the schedule for the Restoration. G-2 c. The Restoration Costs set forth on Schedule I to the Restoration ---------- Requisition not incurred on or prior to the Disbursement Date are reasonably anticipated to be incurred during the thirty (30) day period following the Disbursement Date. d. The payments made with respect to the Restoration Requisition are in accordance with the budget and schedule for the Restoration. The person signing this Independent Engineer's Restoration Certificate is a duly qualified representative of the Independent Engineer and as such is authorized to execute this Independent Engineer's Restoration Certificate on behalf of the Independent Engineer. Very truly yours, [Stone & Webster Consultants, Inc.] By:_________________________ Name: Title: G-3 EX-4.5 12 dex45.txt INTERCREDITOR AGREEMENT EXHIBIT 4.5 ================================================================================ INTERCREDITOR AGREEMENT Dated as of October 23, 2001 among ELWOOD ENERGY LLC, BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee, THE OTHER SECURED PARTIES (OR REPRESENTATIVES THEREOF) PARTY HERETO, BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Collateral Agent, Intercreditor Agent and Administrative Agent ================================================================================ EXHIBIT 4.5 INTERCREDITOR AGREEMENT ----------------------- This INTERCREDITOR AGREEMENT (this "Agreement"), dated as of October --------- 23, 2001, is by and among ELWOOD ENERGY LLC, a Delaware limited liability company (the "Issuer"), BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, a ------ national banking association formed under the laws of the United States, as Trustee, Collateral Agent, Administrative Agent and Intercreditor Agent, and each other Secured Party (or representative thereof) that becomes a party to this Agreement pursuant to Section 7.18. ------------ RECITALS -------- WHEREAS, the Issuer was formed for the purpose of developing, financing, constructing, owning and operating an approximately 1,409 MW natural gas-fired electric generation peaking facility located in Elwood, Illinois; WHEREAS, the Issuer has determined to issue $402,000,000 aggregate principal amount of its 8.159% Senior Secured Bonds due July 5, 2026 (the "Bonds") pursuant to the Trust Indenture, dated as of the date hereof (the ----- "Indenture"), between the Issuer and Bank One Trust Company, National - ---------- Association, as trustee (the "Trustee"); ------- WHEREAS, the Issuer will use proceeds of the Bonds for (i) working capital; (ii) financing, legal and consulting fees and expenses associated with the offering of the Bonds; (iii) required funding of the Major Maintenance Account; (iv) payments for residual construction costs under contracts with GE; and (v) repayment in full of Indebtedness outstanding under existing intercompany loans provided by the Members and partial reimbursement of the Sponsors and Members for advances or capital contributions to the Issuer that the Issuer has used to pay the costs of developing, constructing and financing the Project, and for no other purpose; and WHEREAS, in connection with the issuance and sale of the Bonds and the execution of the related Financing Documents, the parties hereto wish to enter into this Agreement in order to set forth certain intercreditor provisions, including the method of voting and decision making for the Secured Parties, the arrangements applicable to joint consultation and actions in respect of approval rights and waivers, the limitations on rights of enforcement upon default and the appointment of the Intercreditor Agent for the purposes set forth herein. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS; RULES OF INTERPRETATION ------------------------------------ Section 1.1 Definitions. Except as otherwise expressly provided ----------- herein, capitalized terms used in this Agreement and its exhibits and schedules shall have the meanings given thereto in the Indenture. In addition, the terms set forth below shall have the respective meanings given such terms below. To the extent such terms are defined by reference to other Transaction Documents, for purposes hereof such terms shall continue to have their original definitions (but will bear the governing law of this Agreement) notwithstanding any termination, expiration or amendment of such agreements except to the extent the parties hereto agree to the contrary. "Acceleration Event" has the meaning set forth in Section 6.6.3. ------------------ ------------- "Additional Indebtedness Facility" means the aggregate amount of the -------------------------------- Combined Exposure outstanding under any Additional Indebtedness Agreement. "Bond Facility" means the aggregate amount of the Combined Exposure ------------- outstanding under the Indenture. "Combined Exposure" means, as of any date of calculation, the sum ----------------- (calculated without duplication) of the following, to the extent the same is held by a Secured Party: (i) the aggregate amount of Indebtedness outstanding under the Facility Documents; (ii) the aggregate amount of all available undrawn financing commitments under the Facility Documents which the Secured Parties party thereto have no right to terminate other than upon the occurrence of an event of default (howsoever defined) thereunder; and (iii) the maximum amount available to be drawn under all letters of credit issued pursuant to the Facility Documents. "Debt Service Reserve L/C Facility" means the aggregate amount of the --------------------------------- Combined Exposure outstanding under any Debt Service Reserve L/C Agreement. 2 "Decision Period" means the period of time determined by the --------------- Intercreditor Agent and designated in any notice delivered by the Intercreditor Agent for the Designated Voting Parties to make any decision hereunder, subject to the following: (i) any such period of time may be extended by any Designated Voting Party for a period not to exceed thirty (30) days on a one time basis only for any notice; (ii) if there is no period for giving of notice, passage of time or cure of the event or circumstance that is the subject of such notice (each, a "Cure Period"), if the Cure Period has expired, or if the remaining ----------- Cure Period is less than fifteen (15) days after the date of such notice, the Decision Period shall end not earlier than fourteen (14) days nor later than twenty-one (21) days after the date of such notice; and (iii) in all other cases, the Decision Period shall end not earlier than fourteen (14) days after the date of such notice nor later than the end of the Cure Period; provided that -------- the Intercreditor Agent may designate a lesser period (being at least seven (7) days) as it may consider necessary or advisable in circumstances where the interests of the Secured Parties or any of them would otherwise be likely to be prejudiced. "Default" means any event or condition that, with the giving of notice ------- or the passage of time, or both, would constitute an Event of Default. "Designated Voting Party" means, at any time, with respect to any ----------------------- Voting Facility, the Person then entitled to cast the votes under this Agreement for such Voting Facility. The Designated Voting Party for each Voting Facility is as follows: (a) with respect to the Bond Facility, the Designated Voting Party is the Trustee acting in accordance with the terms and provisions of the Indenture; (b) with respect to any Working Capital Facility, the Designated Voting Party is the Working Capital Agent therefor acting in accordance with the terms and provisions of the applicable Working Capital Agreement; (c) with respect to any Debt Service Reserve L/C Facility, the Designated Voting Party is the Debt Service Reserve L/C Agent therefor, acting in accordance with the terms and provisions of the applicable Debt Service Reserve L/C Agreement; and (d) with respect to any Additional Indebtedness Facility, the Designated Voting Party is the Additional Indebtedness Agent therefor, acting in accordance with the terms and provisions of the applicable Additional Indebtedness Agreement. 3 "Event of Default" means an "event of default" under any Facility ---------------- Document. "Facility Documents" means, collectively, the Indenture, any Working ------------------ Capital Agreement, any Debt Service Reserve L/C Agreement and any Additional Indebtedness Agreement. "Fundamental Decisions" has the meaning set forth in Section 6.1. --------------------- ----------- "Initiating Percentage" means Designated Voting Parties representing, --------------------- in the aggregate, (i) in the case of an Event of Default under Section 8.1(a) of -------------- the Indenture or any similar Event of Default under any other Financing Document, Secured Parties holding at least thirty-three and one-third percent (33 1/3%) of the aggregate Combined Exposure, and (ii) in the case of any other Event of Default, Senior Secured Parties holding greater than fifty percent (50%) of the aggregate Combined Exposure. "Intercreditor Vote" means, at any time, a vote conducted in ------------------ accordance with the procedures set forth in Article 4 of this Agreement among --------- the Designated Voting Parties with respect to the particular decision at issue at such time. "Loan Party" means any of the Intercreditor Agent, the Administrative ---------- Agent, the Collateral Agent or any Designated Voting Party, as applicable. "Majority Secured Parties" means Secured Parties holding greater than ------------------------ fifty percent (50%) of the aggregate Combined Exposure. "Modification" means, with respect to any Financing Document, any ------------ amendment, supplement, Waiver or other modification of the terms and provisions thereof. "Notice of Default" has the meaning set forth in Section 5.1. ----------------- ----------- "One Hundred Percent Secured Parties" means Secured Parties holding ----------------------------------- one hundred percent (100%) of the aggregate Combined Exposure. "Other Unit" has the meaning set forth in Section 2.2.3. ---------- ------------- "Proposed Remedies" has the meaning set forth in Section 5.2.1. ----------------- ------------- 4 "Relevant Person" means any Project Party, any Designated Voting --------------- Party, any other Secured Party or any other advisor or other Person with respect to any of the Transaction Documents. "Remedies Commencement Date" has the meaning set forth in Section -------------------------- ------- 5.2.2. - ----- "Remedies Initiation Notice" has the meaning set forth in Section -------------------------- ------- 5.2.1. - ----- "Remedies Instruction" has the meaning set forth in Section 5.3.1. -------------------- ------------- "Required Secured Parties" has the following meaning: ------------------------ (a) Designated Voting Parties representing, in the aggregate, the One Hundred Percent Secured Parties with respect to any Modification, instruction or exercise of discretion pursuant to Section 6.1; ----------- (b) Designated Voting Parties representing, in the aggregate, the Majority Secured Parties with respect to any Modification, instruction or exercise of discretion pursuant to Section 6.2, except as otherwise ----------- provided therein; (c) the Initiating Percentage with respect to any decision to exercise remedies made pursuant to Section 5.2.3; or ------------- (d) Designated Voting Parties representing, in the aggregate, the Majority Secured Parties with respect to any other action not otherwise described or dealt with in this definition of "Required Secured Parties" or elsewhere in this Agreement and not otherwise specifically delegated to the Intercreditor Agent. "Subordinated Affiliate Bonds" means Bonds which are beneficially or ---------------------------- legally held by the Issuer, any equity participant in the Issuer or any of their respective Affiliates and which are purchased after a Default or an Event of Default shall exist and be continuing. "Voting Facility" means any of the Bond Facility, any Working Capital --------------- Facility, any Debt Service Reserve L/C Facility or any Additional Indebted ness Facility, as applicable. 5 "Waiver" means, with respect to any particular conduct, event or other ------ circumstance, any change to an obligation of any Person under any Transaction Document requiring the consent of one or more Senior Secured Parties, which consent has the effect of excusing performance of or compliance with such obligation, or any Default or Event of Default with respect thereto to the extent relating to such conduct, event or circumstance, provided that any Waiver -------- shall be limited solely to the particular conduct, event or circumstance and shall not purport, directly or indirectly, to alter or otherwise modify the relevant obligation with respect to future occurrences of the same conduct, event or circumstance. "Working Capital Facility" means the aggregate amount of the Combined ------------------------ Exposure outstanding under any Working Capital Agreement. Section 1.2 Rules of Interpretation. Except as otherwise expressly ----------------------- provided herein, the principles of construction set forth in the Indenture shall apply to this Agreement. ARTICLE II INTERCREDITOR AGENT ------------------- Section 2.1 Appointment of the Intercreditor Agent. Each of the -------------------------------------- Secured Parties that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) hereby appoints Bank One Trust Company, National Association to act as its intercreditor agent in connection with the Project and the Transaction Documents and authorizes it to exercise such rights, powers, authorities and discretion as are specifically delegated to the Intercreditor Agent by the terms hereof and any of the other Financing Documents together with all such rights, powers, authorities and discretion as are reasonably incidental thereto. The Intercreditor Agent shall have no duties or obligations except those expressly set forth herein and in the other Financing Documents. By its signature hereto, Bank One Trust Company, National Association accepts such appointment. Section 2.2 Intercreditor Agent's Rights and Obligations. -------------------------------------------- 2.2.1 In the course of its duties hereunder, the Intercreditor Agent may at all times: (a) assume, absent written notice to the contrary, that (i) any representation warranty, recital or statement made by the Issuer or any Project Party in connection with any Transaction 6 Document is true, (ii) no Default or Event of Default exists; and (iii) neither the Issuer nor any Project Party is in breach or default of its obligations under any Transaction Document; (b) assume any notice, certificate or report given by any Relevant Person has been validly given by a Person authorized to do so evidenced by a writing which states that such Person is an authorized representative of such Relevant Person and act upon such notice or certificate unless the same is revoked or superseded by a further such notice or certificate; (c) assume that the address, telecopy and tele phone numbers for the giving of any written notice to any Person hereunder are those identified in Section 7.1 until it has received from such Person a ----------- written notice designating some other office of such Person to replace any such address, telecopy or telephone number, and act upon any such notice until the same is superseded by a further such written notice; (d) pay reasonable fees and expenses for the advice or services of any lawyers, accountants, engineers, consultants or other experts whose advice or services the Intercreditor Agent may determine are necessary, expedient or desirable and rely upon any advice so obtained, and, if it so decides to make any such payment, such fees and expenses shall be reimbursed to the Intercreditor Agent pursuant to Section 7.16; provided that it shall be under no obligation to act ------------ -------- upon such advice if it does not deem such action to be appropriate; (e) rely and act upon a certificate or request signed by or on behalf of any Relevant Person with respect to any matters of fact which might reasonably be expected to be within the knowledge of such Relevant Person and which states that the Person signing such certificate is an authorized representative of such Relevant Person and, where applicable, states specifically the Facility Document and provision thereof pursuant to which the Intercreditor Agent is being directed to act; (f) rely upon any communication (including, but not limited to, any note, letter, cablegram, telegram, telecopy, telex or teletype message) or document from any Person reasonably believed by it to be genuine; 7 (g) refrain from acting or continuing to act in accordance with any instructions of the Required Secured Parties to begin any legal action or proceeding arising out of or in connection with any Transaction Document until it shall have received such indemnity, security or undertaking for costs from the Secured Parties as it may require (whether by payment in advance or otherwise) for all costs, claims, losses and expenses (including reasonable legal fees and expenses) and liabilities which it will or may expend or incur in complying or continuing to comply with such instructions; and (h) seek instructions from the Required Secured Parties as to the exercise of any of its rights, powers or discretion hereunder and in the event that it does so it shall not be considered as having acted unreasonably when acting in accordance with such instructions or, in the absence of any (or any clear) instructions, when refraining from taking any action or exercising any right, power or discretion hereunder. 2.2.2 The Intercreditor Agent shall, subject to Section 2.2.1: ------------- (a) promptly provide each Designated Voting Party with a copy of any material notice or document which it, in its capacity as Intercreditor Agent, receives from or delivers to: (i) the Issuer; (ii) any Project Party; (iii) the Administrative Agent; (iv) the Collateral Agent; (v) any other Designated Voting Party; (vi) any Independent Consultant; or (vii) any Governmental Authority; (b) except as otherwise provided herein, act as Intercreditor Agent hereunder in accordance with any instructions given to it by the Required Secured Parties; and (c) if so instructed by the Required Secured Parties, refrain from exercising any right, power or discretion vested in it as the Intercreditor Agent hereunder. 2.2.3 The relevant branch(es), division(s) or department(s) of the Person serving as the Intercreditor Agent hereunder shall be treated as a separate entity from any other of its branches, divisions or departments ("Other ----- Units") and, if any Other Unit should act for any Secured Party in any capacity - ----- in relation to any other matter, any information given by such Secured Party to such Other Unit in such other capacity may be treated as confidential by such Person. 8 Section 2.3 Intercreditor Agent. ------------------- 2.3.1 Notwithstanding anything to the contrary expressed or implied herein, the Intercreditor Agent shall not: (a) be bound to inquire as to (i) whether or not any representation or warranty made by any Person in connection with any Transaction Document is true, (ii) the occurrence or other wise of any Default or Event of Default, (iii) the performance by any Person of its obligations under any of the Transaction Documents or (iv) any breach of or default by any Person of its obligations under any of the Transaction Documents; (b) be bound to account to any Person for any sum or the profit element of any sum received by it for its own account; (c) be bound to disclose to any other Person any information relating to the Project or any Person if such disclosure would, or might, constitute a breach of any law or regulation or be otherwise actionable at the suit of any Person; (d) be under any fiduciary duties or obligations other than those for which express provision is made herein or in any of the other Financing Documents to which it is a party; or (e) whether at the direction of the Required Secured Parties (pursuant to a Remedies Instruction or otherwise), and regardless of whether it is indemnified with respect thereto, be required to take or direct the Collateral Agent to take any action which it believes, based on a written opinion of counsel, is in conflict with any Applicable Law, any Governmental Approval, this Agreement or any other Financing Document or any order of any court or administrative agency. 2.3.2 The Intercreditor Agent is not responsible for and does not accept any responsibility for: (i) any recitals, statements, representations or warranties made by the Issuer, any Project Party or any Secured Party (other than itself in its capacity as Intercreditor Agent) contained in this Agreement or any other Transaction Document or in any certificate or other document referred to or provided for in, or received by any Secured Party under, this Agreement or any other Transaction Document; (ii) the value, validity, effectiveness, genuineness, 9 enforceability or sufficiency of this Agreement or any other Transaction Document or any other document referred to or provided for hereunder or thereunder; (iii) the value, validity, perfection, priority or enforceability of any Lien purported to be created by any Security Document; or (iv) any failure by the Issuer, any Project Party or any Secured Party (other than itself in its capacity as Intercreditor Agent) to perform its obligations under this Agreement or any other Transaction Document; provided, however, that nothing in this -------- ------- Section 2.3.2 shall be deemed or construed as limiting the rights of the - ------------- Intercreditor Agent or any Secured Party or the obligations of any Project Party, in each case as is set forth in the applicable Transaction Documents. 2.3.3 Each of the Secured Parties that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) understands and agrees that it has itself been, and will continue to be, solely responsible for making its own independent appraisal of, and investigations into, the financial condition, creditworthiness, condition, affairs, status and nature of the Issuer and each Project Party and, accordingly, each such Secured Party warrants to the Intercreditor Agent that it has not relied on and will not hereafter rely on the Intercreditor Agent: (a) to check or inquire on its behalf into the adequacy, accuracy or completeness of any information provided by any Relevant Person in connection with any of the Transaction Documents or the transactions therein contemplated (whether or not such information has been or is hereafter circulated to such Relevant Person by the Intercreditor Agent); or (b) to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of any Relevant Person. It is agreed and understood that the Trustee makes no representation as to itself but only in its capacity as the Trustee and based only on the authorization and represen tations set forth in the Indenture. Section 2.4 Defaults. The Intercreditor Agent shall not be deemed to -------- have knowledge or notice of the occurrence of any Default or Event of Default unless the Intercreditor Agent has received a written notice (i) from a Designated Voting Party, referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "Notice of Default", (ii) from the Issuer referring to a Transaction Document, describing such Default or Event of Default, (iii) from a Project Party stating that a default exists pursuant to any 10 Transaction Document to which it is a party or (iv) from the Collateral Agent stating that it has received a notice from a Project Party that a default exists pursuant to a Transaction Document to which such Project Party is a party. If the Intercreditor Agent receives such a notice of the occurrence of a Default or an Event of Default, the Intercreditor Agent shall give prompt notice thereof to each Designated Voting Party (and each Designated Voting Party shall, in turn, give prompt notice thereof to each party to its respective Facility Document). The Intercreditor Agent shall take such action with respect to any Default or Event of Default as is provided in this Intercreditor Agreement; provided, -------- however, that unless and until the Intercreditor Agent shall have received - ------- directions from the Required Secured Parties, the Intercreditor Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as is in the best interest of the Secured Parties. Section 2.5 Nonliability. Each of the Secured Parties that is a ------------ party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) agrees that neither the Intercreditor Agent nor any of its officers, directors, employees, affiliates or agents shall be liable to any Secured Party or any other Relevant Person for any action taken or omitted under this Agreement or under the other Financing Documents or in connection herewith or therewith except to the extent directly caused by the Intercreditor Agent's gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction no longer subject to appeal or review. Each of the Secured Parties that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) hereby releases, waives, discharges, exculpates and covenants not to sue the Intercreditor Agent for any action taken or omitted under this Agreement or under the other Financing Documents and from any cost, claim, loss, expense or liability resulting therefrom, except to the extent directly caused by the Intercreditor Agent's gross negligence or willful misconduct, as finally deter mined by a court of competent jurisdiction no longer subject to appeal or review. Section 2.6 Resignation of the Intercreditor Agent. -------------------------------------- 2.6.1 The Intercreditor Agent may resign its appointment hereunder at any time without providing any reason therefor by giving not less than thirty (30) days prior written notice to that effect to each of the other parties hereto, provided that neither such resignation or a removal of the Intercreditor Agent pursuant to Section 2.7, shall be effective until: ----------- 11 (a) a successor for the Intercreditor Agent is appointed in accordance with (and subject to) the succeeding provisions of this Section 2.6; ----------- (b) the resigning or removed Intercreditor Agent has transferred to its successor all of its rights, powers, privileges and obligations in its capacity as Intercreditor Agent under this Agreement and the other Financing Documents; and (c) the successor Intercreditor Agent has executed and delivered an agreement to be bound by the terms hereof and of the other Financing Documents and to perform all duties required of the Intercreditor Agent hereunder and under the other Financing Documents. 2.6.2 If the Intercreditor Agent has given notice of its resignation pursuant to this Section 2.6 or if the Required Secured Parties give ----------- the Intercreditor Agent notice of removal pursuant to Section 2.7, then a ----------- successor to the Intercreditor Agent may be appointed by the Required Secured Parties during the period of such notice but, if no such successor is so appointed within thirty (30) days after the above notice, the Intercreditor Agent may petition a court of competent jurisdiction or it may appoint such a successor which (a) is authorized under the laws of the jurisdiction of its incorporation to exercise corporation trust powers, (b) shall have a combined capital and surplus of at least fifty million Dollars (US$50,000,000),] (c) shall be rated "Baa3" or better by Moody's or "BBB-" or better by S&P and (d) shall be acceptable to the Required Secured Parties (provided that, if the Required Secured Parties do not confirm such acceptance in writing within thirty (30) days following selection of such successor by the Intercreditor Agent or select another Intercreditor Agent within such thirty (30) day period, then they shall be deemed to have given such acceptance and such successor shall be deemed appointed as the Intercreditor Agent hereunder) and, so long as no Default or Event of Default has occurred and is continuing, the Issuer. 2.6.3 If a successor to the Intercreditor Agent is appointed under the provisions of Section 2.6.1 or Section 2.6.2, then: ------------- ------------- (a) the predecessor Intercreditor Agent shall be discharged from any further obligation hereunder (but without prejudice to any accrued liabilities); (b) notwithstanding the predecessor Intercreditor Agent's resignation pursuant to this Section 2.6 or removal pursuant ----------- to 12 Section 2.7, the provisions of this Agreement shall continue to inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement and the other Financing Documents while it was the Intercreditor Agent; and (c) the successor Intercreditor Agent and each of the other parties hereto shall have the same rights and obligations among themselves as they would have had if such successor Intercreditor Agent originally had been a party to this Agreement. Section 2.7 Removal of the Intercreditor Agent. Designated Voting ---------------------------------- Parties representing, in the aggregate, Secured Parties holding at least thirty- three percent (33%) of the Combined Exposure may remove the Intercreditor Agent from its appointment hereunder with or without cause by giving not less than ninety (90) days prior written notice to that effect to the Intercreditor Agent and the Issuer; provided that no such removal shall be effective until a -------- successor for the Intercreditor Agent is appointed in accordance with Section ------- 2.6. If the Intercreditor Agent is also the Collateral Agent and the - --- Administrative Agent, it must also forfeit these roles if removed by the Secured Parties as Intercreditor Agent. Section 2.8 Authorization. The Intercreditor Agent is hereby ------------- authorized by each of the Secured Parties that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) to execute, deliver and perform each of the Financing Documents to which the Intercreditor Agent is a party and each Secured Party that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) agrees to be bound by all of the agreements of the Intercreditor Agent contained in the Financing Documents. Section 2.9 Intercreditor Agent as Secured Party; Other Banking --------------------------------------------------- Business. With respect to any Secured Obligations held by it, the Person - -------- serving as Intercreditor Agent hereunder shall have the same rights and powers under the Financing Documents as any other Secured Party and may exercise the same as though it were not the Intercreditor Agent. The term "Secured Party", "Secured Parties", "Holder" or "Holders", and any other similar terms, when used with respect to such Person, shall, unless otherwise expressly indicated, include such Person in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of and generally engage in any kind of business with the Issuer or any other Person without any duty to account therefor to the Secured Parties. 13 Section 2.10 Notice of Amounts Owed. Upon the request of the ---------------------- Intercreditor Agent, in connection with the taking of any action hereunder by the Intercreditor Agent, each Secured Party hereto shall promptly notify the Intercreditor Agent in writing, as of any time that the Intercreditor Agent may specify in such request, of (i) the aggregate amount of Secured Obligations owing under its respective Facility Document as of such date, (ii) the principal, interest, expenses and other components of such Secured Obligations, and (iii) such other information as the Intercreditor Agent may reasonably request. ARTICLE III SHARING ------- Section 3.1 Payments Received by Intercreditor Agent or Collateral ------------------------------------------------------ Agent. Subject to the provisions of Section 3.3 and the provisions set forth in - ----- ----------- each Facility Document which affect the allocation of funds among the Secured Parties party to such Facility Document, all amounts paid to the Collateral Agent or realized by the Collateral Agent that are to be redistributed to the Secured Parties (other than the Designated Voting Parties in their respective capacities as agents) shall be paid, to the extent funds are available, to each Secured Party (without priority of any one over any other except as set forth in Section 3.3) in accordance with Article IV of the Collateral Agency Agreement. - ----------- ---------- Section 3.2 Payments Received by Any Other Senior Secured Party. --------------------------------------------------- Except as excluded in Section 3.3 or otherwise provided under this Agree ment, ----------- if any Secured Party (other than the Collateral Agent as contemplated by Section ------- 3.1 above) shall obtain any amount (whether (i) by way of voluntary or - --- involuntary payment, (ii) by virtue of an exercise of any right of set-off, banker's lien or counterclaim, (iii) as proceeds of any insurance policy covering any proper ties or assets of the Issuer, (iv) from proceeds of liquidation or dissolution of the Issuer or distribution of its assets among its creditors, however such liquidation, dissolution or distribution may occur, (v) as payment of any Senior Secured Obligations following the acceleration thereof, whether in whole or in part, (vi) as consideration for the agreement of such Secured Party or as part of any transaction or series of related transactions in which such Secured Party shall have agreed to waive or amend any provision of any Financing Document, (vii) from any realization on any Collateral, (viii) by virtue of the application of any provision of any of the Financing Documents (other than this Agreement), or (ix) in any other manner) other than amounts obtained from or through the Collateral Agent pursuant to the Financing Documents or amounts representing capitalized interest in respect of any Financing Document, such Secured Party shall forthwith notify the Intercreditor Agent thereof and shall promptly, and in any event within ten (10) Business Days of its so 14 obtaining the same, pay such amount (less any reasonable costs and expenses incurred by such Secured Party in obtaining such amount) to the Collateral Agent for the account of the Secured Parties, to be shared among the Secured Parties in accordance with Section 3.1. Upon receipt of any such payment, the Collateral ----------- Agent shall distribute the appropriate amount to each Secured Party as provided in the previous sentence. Section 3.3 Amounts Not Subject to Sharing. Notwithstanding any ------------------------------ other provision of this Agreement or any other Financing Document, no Secured Party shall have any obligation to share: (a) any payment made to a Secured Party pursuant to any provision of any Financing Document which is in the nature of a closing or commitment fee or an indemnity against or reimbursement for (i) additional funding costs and similar costs incurred by such Secured Party including, without limitation, payments with respect to increased reserve provisions, capital adequacy provisions, make-whole premiums, breakage provisions or other similar provisions, (ii) costs with respect to taxes incurred or payable by such Secured Party on principal, interest and other payments payable to it under the Financing Documents, and (iii) costs, liabilities, claims and other expenses incurred by such Secured Party which are the subject of any indemnity or reimbursement provision contained in the Financing Documents; (b) any non pro rata prepayment made to any Secured Party pursuant to any Financing Document; and (c) any payment of fees made to the Intercreditor Agent pursuant to any separate fee arrangement between the Intercreditor Agent and the Issuer. Notwithstanding the foregoing, sharing of payments made with respect to a particular Voting Facility shall be subject to the sharing provisions of the applicable Facility Document. Section 3.4 Presumption Regarding Payments. For purposes hereof, any ------------------------------ payment received by a Secured Party pursuant to this Article III may be presumed ----------- by such Secured Party to have been properly received by such Secured Party in accordance with this Article III unless such Secured Party receives notice from ----------- any other Secured Party that such payment was not made in accordance herewith. If any such distributed or shared payment is rescinded or must otherwise 15 be restored by the Secured Party that first obtained it, each other Secured Party that shares the benefit of such payment shall return to such Secured Party its portion of the payment so rescinded or required to be restored. Section 3.5 No Separate Security. Each Secured Party that is a party -------------------- hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) (a) agrees that all collateral security pledged under the Security Documents is for the joint benefit of all the Secured Parties and (b) represents and warrants to each other Secured Party that, in respect of the Senior Secured Obligations owing to it, it has received no security or guarantees from the Issuer or any of its Affiliates other than its interest in the Collateral as provided in the Security Documents. Section 3.6 Subordinated Affiliate Bonds. Notwithstanding any ---------------------------- provision of this Article III or any Financing Document to the contrary, so long ----------- as any Default or Event of Default shall exist and be continuing, no sharing or other payment shall be made in respect of any Subordinated Affiliate Bonds until the remainder of the Secured Obligations have been indefeasibly paid in full in cash or in cash equivalents. Any proceeds otherwise payable as contemplated by this Agreement and the Collateral Agency Agreement in respect of any Subordinated Affiliate Bonds shall be distributed to the remainder of the Secured Parties in accordance with Article IV of the Collateral Agency ---------- Agreement. ARTICLE IV VOTING AND DECISION MAKING -------------------------- Section 4.1 Decision Making. --------------- 4.1.1 Each Secured Party that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) agrees that no Secured Party shall, except in accordance with the provisions of this Agreement, but without prejudice to any separate rights expressly granted to a Designated Voting Party under the Facility Documents, exercise or enforce any right, remedy or power under any Financing Document where such right, remedy or power arises as a result of a Default or an Event of Default under such Financing Document (it being agreed that no acceleration in respect of an Event of Default or termination or suspension of a commitment under a Facility Document shall be deemed to be a remedy for any purposes of this Agreement). 4.1.2 Each Secured Party that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through 16 it) agrees that each decision made in accordance with the terms of this Agreement shall be binding upon each Secured Party that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) and each other party to the Financing Documents. 4.1.3 Notwithstanding Section 4.1.2 or any other term or ------------- provision of this Agreement, no term or provision of any Facility Document may be Modified except with the written consent of the applicable Designated Voting Party thereto (acting in accordance with the terms of the relevant Facility Document), but any Modification of a provision of any other Financing Document made in accordance with the terms of this Agreement and such Financing Document that is incorporated by reference into such Facility Document shall also be deemed to modify such Facility Document, mutatis mutandis, without such written consent of such Designated Voting Party. Section 4.2 Voting Generally; Intercreditor Votes. Where, in ------------------------------------- accordance with this Agreement or any other Financing Document, any Modification, direction or other decision of the Intercreditor Agent, the Collateral Agent or the Administrative Agent is required (other than as otherwise provided in Section 5.2), the granting or withholding of such ----------- Modification, the giving of such direction, or the making of such other decision shall be determined through an Intercreditor Vote; provided, however, that the -------- ------- Intercreditor Agent shall (or shall instruct any party it is entitled to instruct to), at the request of the Issuer or any Designated Voting Party, make such corrections to any Financing Document as are permitted under Section 12.1 of the Indenture and such other corrections so long as the corrections are of patent errors in the document and reflective of the clear intent of the parties to such document (for example, errant cross-references and misspelled defined terms) and do not involve any material change whatsoever (the Intercreditor Agent being entitled to rely on the advice of counsel and having all of the rights provided to it under Article 2 hereof). --------- Section 4.3 Intercreditor Votes; Each Party's Entitlement to Vote. ----------------------------------------------------- 4.3.1 Each Designated Voting Party shall be entitled to vote in each Intercreditor Vote conducted under this Agreement. 4.3.2 For all purposes of voting under this Agreement, no actual vote need be taken in respect of any Bond if the Indenture permits the Trustee to rely on a certificate, report of an expert or Rating Agency confirmation in determining how to cast its votes in any Intercreditor Vote. Upon receipt of such certificate, report or confirmation, the Trustee shall cast its votes in accordance therewith. 17 4.3.3 Except (i) for the limitation on the enforcement of rights, remedies and powers under Section 4.1.1, (ii) for matters requiring an ------------- Intercreditor Vote under Section 4.2 or this Section 4.3 or (iii) as otherwise ----------- ----------- expressly provided for in a Facility Document, the respective Designated Voting Parties may make all decisions, determine the acceptability of and rely on certificates, exercise discretion, execute Modifications and grant Waivers as are contemplated by such Facility Document. Section 4.4 Intercreditor Votes; Votes Allocated to Each Party. -------------------------------------------------- 4.4.1 Each Person that is a Designated Voting Party for any Intercreditor Vote shall have a number of votes in such Intercreditor Vote equal to the portion of the Combined Exposure represented by its Voting Facility. 4.4.2 In calculating the percentage of the Combined Exposure in any Intercreditor Vote consenting to, approving, waiving or otherwise providing direction with respect to a decision which requires an Intercreditor Vote, the total dollar amount of the Combined Exposure voting, through the Designated Voting Parties, in any one direction with respect to such decision shall be divided by the aggregate Combined Exposure. Each Designated Voting Party and each of the Secured Parties that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) hereby waives any and all rights it may have to object to or seek relief from the decision of the Designated Voting Parties voting with respect to such matter and agrees to be bound by such decision. Nothing contained in this Section ------- 4.4.2 shall preclude any Designated Voting Party from participating in any re- - ----- voting or further voting relating to such matter. 4.4.3 No Bonds held by the Issuer or any member of the Issuer or any of their respective Affiliates shall have any vote in respect of any matter and such Bonds shall be disregarded for all purposes of any such vote. ARTICLE V DEFAULTS AND REMEDIES --------------------- Section 5.1 Notice of Defaults. Promptly after any Designated Voting ------------------ Party obtains knowledge of the occurrence of any Default or Event of Default under any Financing Document to which it is a party or that any Default or Event of Default under any Financing Document to which it is a party has ceased to exist or has been rescinded, such Designated Voting Party shall notify the Intercreditor Agent 18 in writing thereof (such notice, a "Notice of Default"). Each such Notice of ----------------- Default shall specifically refer to this Section 5.1 and shall describe such ----------- Default or Event of Default (or its cessation or rescission) in reasonable detail (including the date of occurrence of the same). Upon receipt by the Intercreditor Agent of any such Notice of Default, it shall promptly send copies thereof to each Designated Voting Party. Section 5.2 Election to Pursue Remedies Following Events of Default. ------------------------------------------------------- 5.2.1 At any time after the occurrence of an Event of Default, any Designated Voting Party in respect of a Facility Document under which an Event of Default has occurred and is continuing may serve a notice (such notice, a "Remedies Initiation Notice") on the Intercreditor Agent which describes the -------------------------- Event of Default with respect to which such Designated Voting Party is seeking to pursue remedies as well as the various remedies (the "Proposed Remedies") ----------------- that such Designated Voting Party wishes the Intercreditor Agent to pursue. 5.2.2 If the Intercreditor Agent receives any Remedies Initiation Notice from any Designated Voting Party pursuant to Section 5.2.1, ------------- and if such notice has not been withdrawn by such Designated Voting Party prior to the end of the fifth Business Day after the day on which the Intercreditor Agent receives such notice, the Intercreditor Agent shall promptly after such fifth Business Day provide each Designated Voting Party with a copy of such notice and inform each of them of the date (such date, which shall be the 30th day after the date that the Intercreditor Agent receives the Remedies Initiation Notice, the "Remedies Commencement Date") on which the Intercreditor Agent will -------------------------- commence the exercise of the Proposed Remedies if so directed by Designated Voting Parties constituting the Initiating Percentage. Unless the Remedies Initiation Notice was executed by Designated Voting Parties constituting the Initiating Percentage, the Intercreditor Agent shall request instructions from the Designated Voting Parties as to whether the Intercreditor Agent should exercise the Proposed Remedies or other remedies on the Remedies Commencement Date or no remedies. 5.2.3 If, on or prior to the Remedies Commencement Date (as that date may be extended pursuant to the definition of Decision Period), Designated Voting Parties constituting the Initiating Percentage direct the Intercreditor Agent to exercise remedies (which direction may include an instruction to exercise the Proposed Remedies or an instruction to exercise other remedies), the Intercreditor Agent shall exercise any such remedies in accordance with Section 5.4 below beginning on the Remedies Commencement Date as ----------- directed by Designated Voting Parties constituting the Initiating Percentage, provided that the Event of Default which is the subject of such Remedies Initiation Notice has not been previously 19 cured or waived (by Modification of the provisions giving rise to such Event of Default in accordance with the terms of Article 6 of this Agreement). --------- 5.2.4 During the period prior to the Remedies Commencement Date with respect to any Event of Default, no Secured Party (other than the Intercreditor Agent as provided in the proviso to Section 2.4) shall be entitled ----------- to exercise any remedy in connection with such Event of Default, nor shall any Secured Party instruct the Intercreditor Agent to exercise any remedy in connection with such Event of Default. 5.2.5 A Designated Voting Party may serve only one Remedies Initiation Notice with respect to any Event of Default and each Remedies Initiation Notice served by such Designated Voting Parties shall be deemed to have been served with respect to all Events of Default in existence on the date such Remedies Initiation Notice is served. 5.2.6 Nothing in this Section 5.2 shall be construed to ----------- restrict the right of the Required Secured Parties to elect at any time to agree to any Modification of the Financing Documents in accordance with Article 6 that --------- could have the effect of waiving or rescinding such Event of Default. Section 5.3 Exercise of Remedies. -------------------- 5.3.1 If the Required Secured Parties pursuant to Section 5.2.3 ------------- above elect to exercise remedies, then subject to Section 5.3.3 the ------------- Intercreditor Agent shall follow the written instruction regarding the exercise of remedies delivered by the Required Secured Parties which may be in the form of an Intercreditor Vote (the "Remedies Instruction"). Each Remedies Instruction -------------------- shall specify the particular action that the Required Secured Parties propose to cause the Intercreditor Agent to take. 5.3.2 At the direction of the Required Secured Parties pursuant to a Remedies Instruction, the Intercreditor Agent shall exercise the remedies provided therein (provided that the relevant Security Documents permit such -------- remedy) including, if so directed, to promptly instruct the Collateral Agent to seek to enforce the Security Documents, to realize upon the Collateral or, in the case of a proceeding against the Issuer under the Bankruptcy Code, to seek to enforce the claims of the Secured Parties thereunder. 5.3.3 Each Remedies Instruction shall, except as otherwise provided herein, be effective on the date set forth in such notice. In the event that more than one group of Secured Parties constituting the Required Secured Parties 20 delivers a Remedies Instruction, then the Remedies Instruction from the group representing the greatest percentage of the Combined Exposure shall control unless the Intercreditor Agent has already commenced action called for by another Remedies Instruction having an earlier effective date, and the Intercreditor Agent shall be entitled to ignore any Remedies Instruction regarding the same Default or Event of Default provided by any other group of Secured Parties. 5.3.4 Allocation of Collateral Proceeds. Upon the occurrence of --------------------------------- an Acceleration Event, the proceeds of any collection, recovery, receipt, appropriation, realization or sale of any or all of the Collateral or the enforcement of any Security Document ("Collateral Proceeds") shall be applied in ------------------- accordance with Article IV of the Collateral Agency Agreement. ---------- 5.3.5 No Remedies. No Bonds held by the Issuer or any member of ----------- the Issuer or any of their respective Affiliates shall have the benefit of any remedies until the remainder of the Senior Secured Obligations are indefeasibly paid in full in cash or cash equivalents. ARTICLE VI MODIFICATIONS; INSTRUCTIONS; OTHER RELATIONSHIPS ------------------------------------------------ Section 6.1 100% Voting Issues: Modifications of, and Instructions ------------------------------------------------------- with Respect to, Fundamental Aspects of the Financing Documents. With respect to - --------------------------------------------------------------- any of the matters listed on the attached Schedule A (the "Fundamental ---------- ----------- Decisions"), (i) no Modification shall be agreed to by the Intercreditor Agent, the Collateral Agent or the Administrative Agent under any Financing Document, (ii) no instruction shall be given to the Intercreditor Agent under or with respect to any Financing Document, and (iii) no discretion shall be exercised by the Intercreditor Agent under or with respect to any Financing Document, unless, in each case, an Intercreditor Vote is taken in accordance with the procedures set forth in Section 6.4 and the One Hundred Percent Secured Parties, through ----------- the Designated Voting Parties, authorize the Intercreditor Agent to agree to such Modification, provide the Intercreditor Agent with such instruction or authorize the Intercreditor Agent to exercise such discretion, as the case may be. Section 6.2 Majority Voting Issues: Modifications of, and ---------------------------------------------- Instructions with Respect to, Material Aspects of the Financing Documents. - ------------------------------------------------------------------------- Except as expressly provided for in Section 6.1 and Section 6.4 and except as ----------- ----------- set forth in the proviso to Section 4.2, (i) no Modification shall be agreed to ----------- by the Intercreditor Agent, the Collateral Agent or the Administrative Agent under any Financing Document, (ii) no instruction shall be given to the Intercreditor Agent under or with 21 respect to any Financing Document, and (iii) no discretion shall be exercised by the Intercreditor Agent under or with respect to any Financing Document, unless, in each case, an Intercreditor Vote is taken in accordance with the procedures set forth in Section 6.3 and the Majority Secured Parties authorize the ----------- Intercreditor Agent to agree to such Modification, provide the Intercreditor Agent with such instruction or authorize the Intercreditor Agent to exercise such discretion, as the case may be. Section 6.3 Certain Procedures Relating to Modifications, --------------------------------------------- Instructions and Exercises of Discretion. - ---------------------------------------- 6.3.1 If, at any time: (a) the Intercreditor Agent (i) proposes to agree to a Modification or proposes to authorize any Secured Party to agree to a Modification under any Financing Document or (ii) proposes to exercise any discretion conferred on it under the Financing Documents; or (b) any Designated Voting Party or the Issuer (i) proposes that there should be a Modification under any Financing Document, (ii) proposes to provide the Intercreditor Agent with instructions regarding the Financing Documents, or (iii) proposes a matter with respect to which it believes the Intercreditor Agent should exercise its discretion, and, in each case, notifies the Intercreditor Agent to that effect; then the Intercreditor Agent shall promptly notify each Designated Voting Party of the matter in question specifying: (i) the nature of the Modification, instruction or exercise of discretion that is at issue (which shall be conspicuously stated); (ii) the Required Secured Parties applicable to the decision; and (iii) the Decision Period determined by the Intercreditor Agent by which the Designated Voting Parties must provide the Intercreditor Agent with their votes with respect to such decision. 22 6.3.2 Each Designated Voting Party shall, within the specified Decision Period pursuant to Section 6.3.1, provide a certificate to the ------------- Intercreditor Agent setting forth its vote with respect to the matter for which its instructions were sought by the Intercreditor Agent under Section 6.3.1. ------------- 6.3.3 If (i) a Designated Voting Party fails to provide such a certificate to the Intercreditor Agent setting forth its vote within the specified Decision Period and (ii) the matter for which its instructions were sought by the Intercreditor Agent requires a vote of the One Hundred Percent Secured Parties, then the Intercreditor Agent shall notify such Designated Voting Party on or before the close of business on the next Business Day following the last day of the Decision Period of such Designated Voting Party's failure to provide such certificate and request that it provide such certificate no later than 11:00 a.m. on the third Business Day after the last day of the Decision Period; provided that the Intercreditor Agent shall not be held liable -------- for any failure by it to provide such notice to such Designated Voting Party; and provided, further that if such Designated Voting Party does not provide such -------- ------- certificate by 11:00 a.m. on the third Business Day after the last day of the Decision Period, such Designated Voting Party shall be deemed to have cast its votes against the subject decision. Section 6.4 Modifications by Secured Parties to their Respective ---------------------------------------------------- Facilities. Notwithstanding any provision contained herein to the contrary, - ---------- each Secured Party (other than the Intercreditor Agent, the Administrative Agent and the Collateral Agent) may, at any time and from time to time, without any consent of or notice to any other Secured Party and without impairing or releasing the obligations of any Person under this Agreement: (a) make any Modifications under the Facility Document to which such Person is a party (and to which none of the Intercreditor Agent, the Collateral Agent or the Administrative Agent is a party); or (b) release anyone liable in any manner under, or in respect of the Senior Secured Obligations owing under, such Facility Document (but only in respect of such Senior Secured Obligations). The rights of each Secured Party pursuant to the foregoing sentence are subject to the provisions of its respective Facility Document regarding such Modifications and releases. Section 6.5 Effect of Modification on Intercreditor Agent. No --------------------------------------------- Modifications shall be made to any Financing Document by any party hereto that adversely affects the Intercreditor Agent without the written consent of the Intercreditor Agent. 23 Section 6.6 Provision of Information; Meetings. ---------------------------------- 6.6.1 Each Secured Party that is a party hereto (for itself, each party on whose behalf it executes this Agreement and any Person claiming through it) agrees that it will, from time to time (as it deems reasonably necessary or appropriate in its sole judgment), consult with the other Secured Parties with respect to the Senior Secured Obligations, the Project, the Collateral or the affairs of the Issuer in general. 6.6.2 Any Designated Voting Party may, at any time following the occurrence and during the continuation of an Event of Default, request that a meeting or meetings of the Designated Voting Parties be convened, at reasonable times and locations, and with reasonable frequency, and upon such request having been given in accordance herewith, such meetings shall be convened as provided herein. Such a request for a meeting shall be made by written notice given to each Designated Voting Party in accordance herewith. Each such notice shall state the date of such meeting (which shall be not less than fifteen (15) nor more than thirty (30) days after the date of such notice, unless otherwise agreed by the Designated Voting Parties) and a general outline of the issues to be discussed at such meeting. Any Designated Voting Party shall have the right to appoint any Person (including, without limitation, another Designated Voting Party) to act as its representative at any such meeting of Designated Voting Parties. No Person shall be obligated to attend any such meetings, and no votes shall be taken at such meeting unless consented to by the Required Secured Parties. Any costs or expenses incurred by any Secured Party in connection with the meetings described in this Section 6.6.2 shall be reimbursed ------------- to such Secured Party in accordance with Section 7.16. ------------ 6.6.3 Each Designated Voting Party shall use reasonable efforts to make available promptly to each other Designated Voting Party any material information received by it regarding the occurrence of any Default or Event of Default or any determination to accelerate the Indebtedness under its Facility Document (an "Acceleration Event") or other event requiring joint action; ------------------ provided, however, that this Section 6.6.3 shall not require any Designated - -------- ------- ------------- Voting Party to make available to any other Person (a) information subject to confidentiality restrictions or governmental or security clearance requirements prohibiting such disclosure, (b) analyses, data or reports prepared solely for internal use, or (c) information that the Issuer is obligated to provide. No Designated Voting Party shall have any liability for any failure to make available to any other party such information or for any inaccuracy or incompleteness of any such information made available in good faith. 24 6.6.4 Each Designated Voting Party further agrees that it will from time to time provide such information to each other Designated Voting Party as may be necessary to enable such Designated Voting Party to make any calculation required under the Financing Documents. 6.6.5 Each Designated Voting Party shall provide copies of any Modifications to the Financing Documents to the Intercreditor Agent. ARTICLE VII MISCELLANEOUS ------------- Section 7.1 Addresses. Any communications between the parties hereto --------- or notices provided herein to be given shall be deemed to have been given only if such notice is in writing and delivered personally, or by registered or certified first-class mail with postage prepaid, or made, given or furnished in writing by confirmed telecopy or facsimile transmission, or by prepaid courier service to the appropriate party as set forth below: Issuer: Elwood Energy LLC c/o Peoples Energy Resources Corporation 130 East Randolph Drive Chicago, IL 60601 Attn: John E. Horton Telephone No.: (312) 240-7181 Telecopy No.: (312) 240-4348 with a copy to: Elwood Energy LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, VA 23219 Attn: Donald Burnette Telephone No.: (804) 819-2411 Telecopy No.: (804) 819-2211 Trustee: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services 25 Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Collateral Agent: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Intercreditor Agent: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Administrative Agent: Bank One Trust Company, National Association 1 Bank One Plaza Mail Suite IL1-0823 Chicago, Illinois 60670-0823 Attn: Global Corporate Trust Services Telephone No.: (312) 407-5252 Telecopy No.: (312) 336-8840 Senior Secured Parties Becoming Party Hereto After the Date Hereof: To be specified at the time of execution of a counter part hereto pursuant to Section 7.18 ------------ hereof. Any party may change its address by giving notice of such change in the manner set forth herein. Any notice given to a party by mail or by courier shall be deemed delivered upon receipt thereof (unless the party refuses to accept delivery, in which case the party shall be deemed to have accepted delivery upon presentation). Any notice given to a party by telecopy or facsimile transmission shall be deemed effective on the date it is actually sent to the intended recipient by confirmed telecopy or facsimile transmission to the telecopier number specified above. 26 Section 7.2 Delay and Waiver. No delay or omission to exercise any ---------------- right, power or remedy accruing upon the occurrence of any Default or Event of Default or any other breach or default of the Issuer under this Agreement shall impair any such right, power or remedy of any Secured Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring, nor shall any single or partial exercise by any such party of any right, power or remedy hereunder preclude any other or future exercise thereof or the exercise of any other right, power or remedy, nor shall any waiver of any single Default, Event of Default or other breach or default be deemed a waiver of any other Default, Event of Default or other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Secured Party of any Default, Event of Default or other breach or default under this Agreement or any other Financing Document, or any waiver on the part of any Secured Party, of any provision or condition of this Agreement or any other Transaction Document must be in writing and signed by such Secured Party and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or any other Financing Document or by law or otherwise afforded to any Secured Party, shall be cumulative and not alternative. Section 7.3 Entire Agreement. This Agreement and the other ---------------- Financing Documents integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral negotiations and prior writings in respect to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and any Financing Document the terms, conditions and provisions of this Agreement shall prevail. Section 7.4 Governing Law. This Agreement shall be governed by the ------------- laws of the State of New York of the United States of America and shall for all purposes be governed by and construed in accordance with the laws of such state without regard to the conflict of law rules thereof other than Section 5-1401 of the New York General Obligations Law; provided, however, that, to the extent any -------- ------- terms of this Agreement are incorporated in and made part of any other Financing Document, any such term so incorporated shall for all purposes be governed by and construed in accordance with the law governing the Financing Document into which such term is so incorporated. Section 7.5 Severability. In case any one or more of the provisions ------------ contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and the parties hereto shall enter into good faith negotiations to replace the invalid, illegal or unenforceable provision with 27 a view to obtaining the same commercial effect as this Agreement would have had if such provision had been legal, valid and enforceable. Section 7.6 Headings. Section headings have been inserted in this -------- Agreement as a matter of convenience for reference only and it is agreed that such section headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement. Section 7.7 Successors and Assigns. ---------------------- 7.7.1 The provisions of this Agreement shall be binding upon and inure to the benefit of each party hereto and their respective successors and assigns; provided that the Issuer shall not assign any of its rights or -------- obligations hereunder without the consent of the Required Secured Parties. 7.7.2 Any Secured Party may transfer, assign or grant all or such relevant part of its rights and obligations hereunder in connection with an assignment or transfer of all or any part of its interest in its Senior Secured Obligations in accordance with the applicable Financing Documents, provided -------- that each assignee and participant shall be bound by the terms of this Agreement and each applicable Financing Document. Section 7.8 Reinstatement. This Agreement shall continue to be ------------- effective or be reinstated, as the case may be, if at any time payment and performance of the Issuer's obligations hereunder, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any Secured Party. In the event that any payment or any part thereof is so rescinded, reduced, restored or returned, such obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. Section 7.9 Counterparts. This Agreement may be executed in one or ------------ more duplicate counterparts and when signed by all of the parties listed below shall constitute a single binding agreement. Section 7.10 Termination. Upon the indefeasible payment in full in ----------- cash of the Senior Secured Obligations in respect of each Financing Document and the termination of all of the commitments of the Secured Parties under the Financing Documents, and except as provided in Sections 7.8, 7.16 and 7.17, this ------------ ---- ---- Agreement shall terminate and be of no further force and effect. 28 Section 7.11 No Partnership. Nothing contained in this Agreement -------------- and no action by any Secured Party is intended to constitute or shall be deemed to constitute such Secured Parties (or any of them) a partnership, association, joint venture or other entity. Section 7.12 No Reliance. No Secured Party has relied on any ----------- representation or warranty of any other Secured Party with respect to this Agreement and the transactions contemplated hereunder unless such representation or warranty has been set forth expressly in this Agreement. Section 7.13 Third-Party Beneficiaries. This Agreement is for the ------------------------- benefit of the parties hereto (and the Secured Parties claiming through such parties) and their respective successors and permitted assigns, and nothing herein shall give any other Person any benefit or any legal or equitable right or remedy under this Agreement. Section 7.14 Obligations of the Issuer Unaffected. The obligations ------------------------------------ of the Issuer under the Financing Documents are absolute and shall be unaffected by this Agreement. Section 7.15 Action without the Intercreditor Agent. If the -------------------------------------- Intercreditor Agent shall not, in accordance with Section 2.2.1(g), be required ---------------- to take action as permitted by Section 2.2.1(g), the Secured Parties may then ---------------- elect, upon written notice to the Collateral Agent and the Issuer (provided that -------- if a Bankruptcy Event shall have occurred with respect to the Issuer, such notice shall not be required and shall be deemed to have been given upon the election by the Secured Parties to take action hereunder), to take action hereunder, including pursuing remedies directly and not acting through the Intercreditor Agreement, if such remedies or other actions are otherwise permitted by the terms of this Agreement. Section 7.16 Costs and Expenses. The Issuer shall pay to each ------------------ Designated Voting Party all of their costs and expenses incurred in connection with the preparation, negotiation and closing of this Agreement and the documents contemplated hereby, including the reasonable fees, expenses and disbursements of counsel retained by the Designated Voting Parties in connection with the preparation of such documents and any amendments hereof or thereof, the reasonable fees, expenses and disbursements of the Independent Consultants and any other engineer ing, insurance and construction consultants to the Secured Parties subsequent to the Closing Date, and the costs of the Designated Voting Parties in administering the Secured Obligations, including the reasonable travel and reasonable out-of-pocket costs incurred by the Designated Voting Parties following the Closing Date. The Issuer shall reimburse the Collateral Agent and the 29 Intercreditor Agent for all reasonable costs and expenses, including reasonable attorneys' fees and Independent Consultant expenses, expended or incurred by the Collateral Agent and the Intercreditor Agent in enforcing the Financing Documents in connection with a Default or an Event of Default, in actions for declaratory relief in any way related to the Financing Documents or in collecting any sum which becomes due on the Secured Obligations. Section 7.17 Indemnification. --------------- 7.17.1 Except as provided in Section 7.17.2, the Issuer shall -------------- indemnify, defend and hold harmless each of the Intercreditor Agent, the Collateral Agent, the Administrative Agent and the Trustee and their respective officers, directors, shareholders, affiliates, controlling persons, employees, agents and servants (collectively, the "Indemnitees") from and against and ----------- reimburse the Indemnitees for: (a) any and all claims, obligations, liabilities, losses, damages, injuries (to person, property, or natural resources), penalties, stamp or other similar taxes, actions, suits, judgments, costs and expenses (including attorneys' fees subject to commercially reasonable limitations) of whatever kind or nature, whether or not well founded, meritorious or unmeritorious, which are demanded, asserted or claimed against any such Indemnitee (collectively, "Subject Claims") in any way -------------- relating to, or arising out of or in connection with this Agreement, the other Transaction Documents or the Project, except for claims by the Issuer against an Indemnitee (other than such claims determined against the Issuer, as the case may be); (b) any and all Subject Claims arising in connection with the release or presence of any Environmentally Regulated Materials at the Project, whether foreseeable or unforeseeable, including all costs of removal and disposal of such Environmentally Regulated Materials, all reasonable costs required to be incurred in (i) determining whether the Project is in compliance and (ii) causing the Project to be in compliance, with all Applicable Laws, all reasonable costs associated with claims for damages to persons or property, and reasonable attorneys' and consultants' fees and court costs; and (c) any and all Subject Claims in any way relating to, or arising out of or in connection with any claims, suits, liabilities against the Issuer, any Member or any of their Affiliates (it being understood that this Section 7.17 shall not entitle an Indemnitee to ------------ compensation for the costs of monitoring claims or suits against the Issuer, any Member or any of their 30 Affiliates by third persons other than the Indemnitees except to the extent reasonably required in such a claim or suit where participation therein by the Indemnitee is reasonably deemed necessary to protect a material right or interest of the Indemnitee). 7.17.2 The foregoing indemnities shall not apply with respect to an Indemnitee, to the extent arising as a result of the gross negligence, willful misconduct or bad faith of such Indemnitee or its officers or employees, but shall continue to apply to other Indemnitees (e.g., willful misconduct by an ---- Intercreditor Agent employee will bar indemnification to the Intercreditor Agent, but not to the Collateral Agent, the Administrative Agent or the Trustee). 7.17.3 With respect to Subject Claims arising prior to the payment in full of all Senior Secured Obligations of the Issuer under this Agreement and the other Financing Documents, the provisions of this Section 7.17 ------------ shall survive foreclosure of the Security Documents and satisfaction or discharge of the Issuer's obligations under the Financing Documents, and shall be in addition to any other rights and remedies of the Secured Parties. 7.17.4 In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall promptly notify the Issuer of the commencement thereof, and the Issuer shall be entitled, at its expense, acting through counsel reasonably acceptable to such Indemnitee, to participate in, and, to the extent that the Issuer desires, to assume and control the defense thereof. Such Indemnitee shall be entitled, at its expense, to participate in any action, suit or proceeding the defense of which has been assumed by the Issuer. Notwithstanding the foregoing, the Issuer and the Indemnitee shall each be entitled to participate with their own counsel, and the Issuer shall not be accorded control over the defenses of any such action, suit or proceedings, if and to the extent that, in the reasonable opinion of such Indemnitee and its counsel, such action, suit or proceeding involves the genuine threat of the imposition of criminal liability upon such Indemnitee or a fundamental conflict of interest between such Indemnitee and the Issuer or between such Indemnitee and another Indemnitee, and in such event (other than with respect to disputes between such Indemnitee and another Indemnitee) the Issuer shall pay the reasonable expenses of such Indemnitee in such defense. 7.17.5 The Issuer shall report to such Indemnitee on the status of such action, suit or proceeding as developments shall occur and at least within 60 days of the previous report. The Issuer shall deliver to such Indemnitee a copy of each document filed or served on any party in such action, suit or proceeding. 31 7.17.6 Notwithstanding the Issuer's rights hereunder to control certain actions, suits or proceedings, any Indemnitee against whom any Subject Claim is made shall be entitled to compromise or settle any such Subject Claim if (a) failure to compromise or settle such Subject Claim could reasonably be expected to have a material adverse effect on such Indemnitee, the Project or such Indemnitee's interest in the Project and (b) the Issuer refuses to pursue diligent, good faith and timely efforts, in consultation with the Indemnitee, to settle such claim; provided that prior to entering into any final and binding -------- compromise or settlement of any such Subject Claim without the Issuer's consent such Indemnitee shall provide notice to, and shall consult with, the Issuer. Any such compromise or settlement by the Indemnitee in accordance with this Section 7.17 shall be binding upon the Issuer for purposes of this Section 7.17. - ------------ ------------ 7.17.7 Upon payment of any Subject Claim by the Issuer pursuant to this Section 7.17 or other similar indemnity provisions contained herein to ------------ or on behalf of an Indemnitee, the Issuer, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto, and such Indemnitee shall cooperate with the Issuer and give such further assurances as are necessary or advisable to enable the Issuer vigorously to pursue such claims. 7.17.8 Any amounts payable by the Issuer pursuant to this Section 7.17 shall be regularly payable after the Issuer receives an invoice for - ------------ such amounts from any applicable Indemnitee. 7.17.9 Notwithstanding anything to the contrary set forth herein, the Issuer shall not, in connection with any one legal proceeding or claim, or separate but related proceedings or claims arising out of the same general allegations or circumstances, in which the interests of the Indemnitees do not materially differ, be liable to the Indemnitees (or any of them) under any of the provisions set forth in this Section 7.17 for the fees and expenses ------------ of more than one separate firm of attorneys (which firm shall be selected by the affected Indemnitees) subject to the Issuer's reasonable approval. The provisions of Sections 7.16 and 7.17 hereunder shall survive ------------- ---- termination of this Agreement and the other Financing Documents and the resignation or removal of any Indemnity. Section 7.18 Additional Secured Parties. Each of the parties to -------------------------- this Agreement agrees that any Person which becomes a Secured Party (or representative thereof) after the Closing Date shall become a party to this Agreement upon execu tion and delivery by such Person of a counterpart to this Agreement. Any Person that becomes a party to this Agreement pursuant to this Section 7.18 shall be - ------------ 32 bound by and subject to the terms and conditions hereof and the covenants, stipulations and agreements contained herein. Section 7.19 Amendments. Amendments hereof shall be in writing, ---------- shall be made in accordance with Article VI and shall require the written ---------- consent of the Issuer. 33 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their officers thereunto duly authorized as of the day and year first above written. BANK ONE TRUST COMPANY, NATIONAL ASOCIATION, in its capacity as the Intercreditor Agent By: /s/ Benita Pointer -------------------------- Name: Benita Pointer Title: Account Executive BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as the Collateral Agent By: /s/ Benita Pointer -------------------------- Name: Benita Pointer Title: Account Executive BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as the Collateral Agent By: /s/ Benita Pointer -------------------------- Name: Benita Pointer Title: Account Executive BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as the Collateral Agent By: /s/ Benita Pointer ------------------------------ Name: Benita Pointer Title: Account Executive ELWOOD ENERGY LLC By: /s/ Don Burnette --------------------------- Name: Don Burnette Title: Authorized Representative Additional SENIOR SECURED PARTY pursuant to Section 7.18 By:____________________________ Name: Title: Schedule A to Intercreditor Agreement ------------------------------------- Fundamental Decisions --------------------- The following Fundamental Decisions require the vote of the One Hundred Percent Secured Parties: (a) Any Modification of the Financing Documents to which the Intercreditor Agent, the Collateral Agent or the Administrative Agent is a party that has the effect of changing the date for (including any changes to mandatory or voluntary prepayments), changing the method of calculation contained in, altering the amount of, or changing the currency of, any payment of principal, interest or of any other fee, commission or any other amount payable to any Secured Party under any Financing Document; (b) any Modification of the Financing Documents to which the Intercreditor Agent, the Collateral Agent or the Administrative Agent is a party that has the effect of releasing Collateral from the Lien of any of the Security Documents or releasing funds held by the Collateral Agent or the Administrative Agent, in each case other than as expressly permitted in accordance with the terms of the Financing Documents; (c) except as set forth in the proviso to Section 4.2 of ----------- the foregoing Intercreditor Agreement, any Modification of Section 3.1(b) -------------- of the Deposit and Disbursement Agreement; (d) except as set forth in the proviso to Section 4.2 of ----------- the foregoing Intercreditor Agreement and Section 12.1 of the Indenture, any Modification of any provision of the Intercreditor Agreement; (e) any Modification of any definition contained in the Deposit and Disbursement Agreement or in any other Financing Docu ment to which the Intercreditor Agent, the Collateral Agent or the Adminis trative Agent is a party but only if and to the extent such Modification would result in the making of any of the Modifications referred to in clauses (a) through (d) above; (f) any Modification of a Financing Document to which the Intercreditor Agent, the Collateral Agent or the Administrative Agent is a party which would permit the assignment by the Issuer of its rights under any Financing Document or any Power Sales Agreement other than as A-1 expressly permitted under the Financing Documents (prior to such Modification). A-2 TABLE OF CONTENTS -----------------
Page ---- RECITALS......................................................................................... 1 AGREEMENT........................................................................................ 1 ARTICLE I DEFINITIONS; RULES OF INTERPRETATION................................................... 2 Section 1.1 Definitions....................................................................... 2 Section 1.2 Rules of Interpretation........................................................... 6 ARTICLE II INTERCREDITOR AGENT................................................................... 6 Section 2.1 Appointment of the Intercreditor Agent............................................ 6 Section 2.2 Intercreditor Agent's Rights and Obligations...................................... 6 Section 2.3 Intercreditor Agent............................................................... 9 Section 2.4 Defaults.......................................................................... 10 Section 2.5 Nonliability...................................................................... 11 Section 2.6 Resignation of the Intercreditor Agent............................................ 11 Section 2.7 Removal of the Intercreditor Agent................................................ 13 Section 2.8 Authorization..................................................................... 13 Section 2.9 Intercreditor Agent as Secured Party; Other Banking Business...................... 13 Section 2.10 Notice of Amounts Owed............................................................ 14 ARTICLE III SHARING.............................................................................. 14 Section 3.1 Payments Received by Intercreditor Agent or Collateral Agent...................... 14 Section 3.2 Payments Received by Any Other Senior Secured Party............................... 14 Section 3.3 Amounts Not Subject to Sharing.................................................... 15 Section 3.4 Presumption Regarding Payments.................................................... 15 Section 3.5 No Separate Security.............................................................. 16 Section 3.6 Subordinated Affiliate Bonds...................................................... 16 ARTICLE IV VOTING AND DECISION MAKING............................................................ 16 Section 4.1 Decision Making................................................................... 16 Section 4.2 Voting Generally; Intercreditor Votes............................................. 17 Section 4.3 Intercreditor Votes; Each Party's Entitlement to Vote............................. 18 Section 4.4 Intercreditor Votes; Votes Allocated to Each Party................................ 18 ARTICLE V DEFAULTS AND REMEDIES.................................................................. 19 Section 5.1 Notice of Defaults................................................................ 19 Section 5.2 Election to Pursue Remedies Following Events of Default........................... 19 Section 5.3 Exercise of Remedies.............................................................. 21 ARTICLE VI MODIFICATIONS; INSTRUCTIONS; OTHER RELATIONSHIPS...................................... 22 Section 6.1 100% Voting Issues: Modifications of, and Instructions with
Page ---- Respect to, Fundamental Aspects of the Financing Documents........................ 22 Section 6.2 Majority Voting Issues: Modifications of, and Respect to, Material Aspects of the Financing Instructions with Documents......................................... 22 Section 6.3 Certain Procedures Relating to Modifications, Instructions and Exercises of Discretion........................................................................ 22 Section 6.4 Modifications by Secured Parties to their Respective Facilities................... 24 Section 6.5 Effect of Modification on Intercreditor Agent..................................... 24 Section 6.6 Provision of Information; Meetings................................................ 24 ARTICLE VII MISCELLANEOUS....................................................................... 25 Section 7.1 Addresses......................................................................... 25 Section 7.2 Delay and Waiver.................................................................. 27 Section 7.3 Entire Agreement.................................................................. 27 Section 7.4 Governing Law..................................................................... 28 Section 7.5 Severability...................................................................... 28 Section 7.6 Headings.......................................................................... 28 Section 7.7 Successors and Assigns............................................................ 28 Section 7.8 Reinstatement..................................................................... 28 Section 7.9 Counterparts...................................................................... 29 Section 7.10 Termination....................................................................... 29 Section 7.11 No Partnership.................................................................... 29 Section 7.12 No Reliance....................................................................... 29 Section 7.13 Third-Party Beneficiaries......................................................... 29 Section 7.14 Obligations of the Issuer Unaffected.............................................. 29 Section 7.15 Action without the Intercreditor Agent............................................ 29 Section 7.17 Indemnification................................................................... 30 Section 7.18 Additional Secured Parties........................................................ 33 Schedule A - Fundamental Decisions
ii EX-4.6 13 dex46.txt COLLATERAL AGENCY AGREEMENT EXHIBIT 4.6 ================================================================================ COLLATERAL AGENCY AGREEMENT dated as of October 23, 2001 among ELWOOD ENERGY LLC, THE SECURED PARTIES NAMED HEREIN, and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Administrative Agent, Collateral Agent and Intercreditor Agent ================================================================================ Table of Contents -----------------
Page ---- ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION....................... 1 1.1 Definitions................................................... 1 1.2 Principles of Construction.................................... 2 ARTICLE II COLLATERAL AGENT; RELATIONS AMONG SECURED PARTIES............. 2 2.1 Appointment of Collateral Agent; Powers and Immunities........ 2 2.2 Reliance by Collateral Agent.................................. 3 2.3 Events of Default............................................. 4 2.4 Duties, Immunities and Liabilities of Collateral Agent........ 5 2.5 Documents..................................................... 5 2.6 Non-Reliance on Collateral Agent and Other Secured Parties.... 6 2.7 Resignation or Removal of Collateral Agent.................... 6 2.8 Authorization................................................. 7 2.9 Additional Collateral Agents.................................. 8 ARTICLE III ADMINISTRATION OF THE COLLATERAL.............................. 11 ARTICLE IV APPLICATION OF PROCEEDS....................................... 11 ARTICLE V MISCELLANEOUS................................................. 13 5.1 Amendments.................................................... 13 5.2 Successors and Assigns........................................ 13 5.3 Transfers..................................................... 13 5.4 Delay and Waiver.............................................. 13 5.5 Costs and Expenses; Indemnity................................. 14 5.6 Collateral Agency Fee......................................... 14 5.7 Notices....................................................... 14 5.8 Headings...................................................... 14 5.9 Counterparts.................................................. 14 5.10 Governing Law................................................. 14 5.11 Consent to Jurisdiction....................................... 14 5.12 Waiver of Jury Trial.......................................... 15 5.13 Entire Agreement.............................................. 15 5.14 Severability.................................................. 15 5.15 References to Collateral Agency Agreement..................... 15
i COLLATERAL AGENCY AGREEMENT --------------------------- This COLLATERAL AGENCY AGREEMENT, dated as of October 23, 2001 (this "Agreement"), is by and among ELWOOD ENERGY LLC, a Delaware limited liability - ---------- company (the "Issuer"), each of the other Persons listed on the signature pages ------ hereto under the caption "Secured Parties", each other Senior Secured Party that becomes a party hereto pursuant to Section 5.17, and BANK ONE TRUST COMPANY, ------------ NATIONAL ASSOCIATION, as the Administrative Agent, the Collateral Agent and the Intercreditor Agent. RECITALS -------- WHEREAS, the Issuer was formed for the purpose of developing, constructing, operating, maintaining, owning and financing a 1,409 MW gas-fired electric generating peaking facility to be located in Elwood, Illinois; WHEREAS, the Issuer has determined to issue $402,000,000 aggregate principal amount of its 8.159% Senior Secured Bonds due July 5, 2026 (the "Bonds") pursuant to the Trust Indenture, dated as of the date hereof (the ----- "Indenture"), between the Issuer and Bank One Trust Company, National --------- Association, as trustee (the "Trustee"); and ------- WHEREAS, the Issuer will use the proceeds of the Bonds for (i) working capital; (ii) financing, legal and consulting fees and expenses associated with the offering of the Bonds; (iii) required funding of the Major Maintenance Account; (iv) payments for residual construction costs under contracts with GE; and (v) repayment in full of Indebtedness outstanding under existing intercompany loans provided by the Members and partial reimbursement of the Sponsors and Members for advances or capital contributions to the Issuer that the Issuer has used to pay the costs of developing, constructing and financing the Project, and for no other purpose. AGREEMENT --------- NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS; PRINCIPLES OF CONSTRUCTION --------------------------------------- 1.1 Definitions. Except as otherwise expressly provided herein, ----------- capitalized terms used in this Agreement shall have the meanings given in the Indenture. The following terms have the following respective meanings when used herein: "Default" shall have the meaning ascribed thereto in the Intercreditor ------- Agreement. "Event of Default" shall have the meaning ascribed thereto in the ---------------- Intercreditor Agreement. "Subject Claims" shall have the meaning ascribed thereto in the -------------- Intercreditor Agreement. 1.2 Principles of Construction. Except as otherwise expressly provided -------------------------- herein, the principles of construction set forth in the Indenture shall apply to this Agreement. ARTICLE II COLLATERAL AGENT; RELATIONS AMONG SECURED PARTIES ------------------------------------------------- 2.1 Appointment of Collateral Agent; Powers and Immunities. (a) Subject ------------------------------------------------------ to Section 2.7 hereof, each of the Secured Parties, on the terms and conditions ----------- hereof, hereby irrevocably appoints and authorizes Bank One Trust Company, National Association (together with its successors and assigns in such capacity, the "Collateral Agent") to act as their agent hereunder, under the Security ---------------- Documents and all other Transaction Documents to which the Collateral Agent is a party, with such powers as are expressly delegated to the Collateral Agent by the terms of this Agreement, the Security Documents and the other Transaction Documents, together with such other powers as are reasonably incidental thereto. The execution of this Agreement by the Collateral Agent shall be deemed an acceptance by the Collateral Agent of the appointment made under this Section ------- 2.1 and an agreement to act as agent on behalf of each of the other Secured - --- Parties. The Collateral Agent (which term, when used in this sentence and, in the next sentence of this Section 2.1 and in Section 2.2 and Section 2.4 and in ----------- ----------- ----------- Section 7.16 and Section 7.17 of the Intercreditor Agreement, shall include - ------------ ------------ reference to its Affiliates and to its own and its Affiliates' officers, directors, employees and agents) shall not have any duties or responsibilities except those expressly set forth in this Agreement, the Security Documents and the other Transaction Documents to which the Collateral Agent is a party, or be a trustee for or have any fiduciary obligation to any Secured Party. The Collateral Agent shall be entitled to advice of counsel concerning all matters pertaining to its duties. (b) Notwithstanding anything to the contrary contained herein, the Collateral Agent shall not be required to take any action (i) which is contrary to this Agreement, the Security Documents or any other Transaction Document to which the Collateral Agent is a party, (ii) which is contrary to applicable law or (iii) if the Collateral Agent has not received an indemnity or other undertaking from all or a portion of the Secured Parties with respect to any Subject Claims arising out of such action, which undertaking is satisfactory to the Collateral Agent in its sole discretion. The Collateral Agent shall be entitled to cease taking any action, once it has commenced taking action, if it no longer deems any indemnity or undertaking from the Secured Parties to be sufficient. The Collateral Agent agrees not to resign solely as a result of the occurrence and continuance of a Default or an Event of Default. 2 (c) None of the Collateral Agent or any other Secured Party, or any of their respective Affiliates, shall be responsible to any other Secured Party for (i) any recitals, statements, representations or warranties made by the Issuer or any Member (each, an "Obligor," and collectively, the "Obligors") contained ------- -------- in this Agreement, the Security Documents or any other Transaction Documents or in any certificate or other document referred to or provided for in, or received by any Secured Party under, this Agreement, the Security Documents or any other Transaction Documents, (ii) the value, validity, effectiveness, genuineness, enforce ability or sufficiency of the Collateral, this Agreement, the Security Documents or any other Transaction Documents or any other documents referred to or provided for hereunder or thereunder or (iii) any failure by any Obligor to perform its respective obligations hereunder or thereunder; provided, however, -------- ------- that nothing in this Section 2.1 shall be deemed or construed as limiting the ----------- rights of the Collateral Agent or any Secured Party or the obligations of the Obligors, in each case as is set forth in the applicable Financing Documents. (d) The Collateral Agent shall be entitled to advice of counsel and other professionals concerning all matters of trust and its duty hereunder, but the Collateral Agent shall not be answerable for the professional malpractice of any attorney-at-law or certified public accountant or for the acts or omissions of any other professional in connection with the rendering of professional advice in accordance with the terms of this Agreement, if such attorney-at-law, certified public accountant or other professional was selected by the Collateral Agent with due care. The Collateral Agent may employ agents and attorneys-in- fact and shall not be responsible for the acts or omissions of any of such agents or attorneys-in-fact selected by it in good faith. (e) The Collateral Agent shall not be responsible for any action taken or omitted to be taken by it hereunder, under any Security Document or under any other Transaction Document to which the Collateral Agent is a party or in connection herewith or therewith, except for its own gross negligence or willful misconduct. Except as otherwise provided under this Agreement, the Security Documents and the other Transaction Documents to which the Collateral Agent is a party, the Collateral Agent shall take such action with respect to the Security Documents and the other Transaction Documents to which it is a party as it shall be directed to take by the Intercreditor Agent (acting pursuant to the Intercreditor Agreement). 2.2 Reliance by Collateral Agent. The Collateral Agent shall be entitled ---------------------------- to rely upon any certificate, notice or other document (including any cable, telegram, telecopy or telex) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons and need not investigate any fact or matter stated in any such document. The Collateral Agent shall be entitled to rely upon any judicial order or judgment, upon any advice or statements of legal counsel, independent consultants and other experts selected by it in good faith or upon any certification, instruction, notice or other writing delivered 3 to it by the Issuer in compliance with the provisions of this Agreement without being required to determine the authenticity or the correctness of any fact stated therein or the propriety or validity of service thereof. The Collateral Agent may act in reliance upon any such instrument comporting with the provisions of this Agreement or any signature reasonably believed by it to be genuine and may assume that any person purporting to give notice or receipt or advice or make any statement or execute any document in connection with the provisions hereof has been duly authorized to do so. As to any matters not expressly provided for by this Agreement, the Security Documents or the other Transaction Documents to which the Collateral Agent is a party, the Collateral Agent shall not be required to take any action or exercise any discretion, but shall be required to act or to refrain from acting upon instructions of the Intercreditor Agent (acting pursuant to the Intercreditor Agreement) and shall in all such cases be fully protected in acting, or in refraining from acting, hereunder or under any of the Security Documents or any other Transaction Documents to which the Collateral Agent is a party in accordance with such instructions of the Intercreditor Agent (acting pursuant to the Intercreditor Agreement), and any action taken or failure to act pursuant thereto shall be binding on all of the Secured Parties. 2.3 Events of Default. (a) Unless a Responsible Officer of the Collateral ----------------- Agent shall otherwise have obtained actual knowledge of the occurrence of a Default or an Event of Default, the Collateral Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or an Event of Default unless a Responsible Officer of the Collateral Agent has received notice from a Secured Party or an Obligor referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "Notice of Default." (b) In the event that any Responsible Officer of the Collateral Agent receives a notice from a Secured Party or an Obligor of the occurrence of a Default or an Event of Default, the Collateral Agent shall give notice thereof to each of the other Secured Parties. (c) In the event that any Responsible Officer of the Collateral Agent otherwise obtains actual knowledge of the occurrence of a Default or an Event of Default, the Collateral Agent shall give notice thereof to the other Secured Parties; provided, however, that, subject to the standard of conduct of the -------- ------- Collateral Agent set forth in Section 2.1(e) hereof, the Collateral Agent shall -------------- not incur any liability to any Obligor or any other Secured Party on account of any failure to provide such notice. (d) The Collateral Agent shall take such action with respect to such Default or Event of Default as so directed pursuant to Article 3 hereof; --------- provided that, unless and until the Collateral Agent shall have received such - -------- directions, the Collateral Agent may (but shall not be obligated to) take, or refrain from taking, such action with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Secured Parties. 4 2.4 Duties, Immunities and Liabilities of Collateral Agent. At all times ------------------------------------------------------ the Collateral Agent shall be required to perform such duties and only such duties as are expressly and specifically set forth in the Security Documents and no implied duties or obligations whatsoever shall be read into this Agreement against the Collateral Agent. No provision in this Agreement shall require the Collateral Agent to risk or expend its own funds or otherwise incur any financial liability in the performance of any of its duties or powers or rights hereunder unless the Issuer or any Secured Party, jointly or severally, has offered and provided to the Collateral Agent security or indemnity, which the Collateral Agent, in its sole subjective discretion, deems adequate for such fees, expenses and liabilities that the Collateral Agent may incur. The Collateral Agent shall be entitled to interest (calculated on a per annum basis) on all amounts advanced by it hereunder in its discretion at the rate of the prime commercial lending rate published in the Eastern Edition of The Wall Street Journal plus one percent (1%). The Collateral Agent shall not be responsible for the recording or filing of any document relating to the Security Documents or of financing statements (or continuation statements in connection therewith) or of any supplemental instruments or documents of further assurance as may be required by law in order to perfect the security interests or Lien on the Site. The Collateral Agent shall not be deemed to have made representations as to the Site or the Collateral or as to the validity or sufficiency of any such document relating thereto. The Collateral Agent shall not be accountable for the use or application by the Issuer or any other party of any funds which the Collateral Agent has released under this Agreement or any other Financing Document. 2.5 Documents. The Collateral Agent will forward promptly after the --------- Collateral Agent's receipt thereof (and will use its best efforts to forward within five (5) Banking Days of such receipt) (a) to each Secured Party a copy of each document furnished to the Collateral Agent for such Secured Party under the Security Documents and (b) to the Administrative Agent, the Intercreditor Agent and the Trustee any notice delivered to the Collateral Agent pursuant to any Consent. The Collateral Agent will forward to each Secured Party, promptly upon such Secured Party's request therefor, a copy of any other document furnished to the Collateral Agent under the Security Documents or any other Transaction Document to which the Collateral Agent is a party. 2.6 Non-Reliance on Collateral Agent and Other Secured Parties. (a) Each ---------------------------------------------------------- Secured Party represents that it has, independently and without reliance on the Collateral Agent or any other Secured Party, and based on such documents and information as it has deemed appropriate, made its own appraisal of the financial condition and affairs of the Obligors and its own decision to enter into this Agreement, the Security Documents and the other Transaction Documents to which 5 it is a party and agrees that it will, independently and without reliance upon the Collateral Agent or any other Secured Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own appraisals and decisions in taking or not taking action under this Agreement, the Security Documents and the other Transaction Documents to which it is a party. (b) Neither the Collateral Agent nor any Secured Party shall be required to keep informed as to the performance or observance by the Obligors under this Agreement or any other document referred to or provided for herein or to make inquiry of, or to inspect the properties or books of, the Obligors. (c) Except for notices, reports and other documents and information expressly required to be furnished to the Secured Parties by the Collateral Agent hereunder and under the Security Documents and the other Transaction Documents to which the Collateral Agent is a party, the Collateral Agent shall not have any duty or responsibility to provide any Secured Party with any credit or other information concerning any Obligor which may come into the possession of the Collateral Agent or any of its Affiliates. (d) Notwithstanding the generality of the foregoing, nothing in this Section 2.6 shall be deemed or construed as limiting the rights of the - ----------- Collateral Agent or any Secured Party or the obligations of the Obligors, in each case as set forth in the applicable Financing Documents. 2.7 Resignation or Removal of Collateral Agent. Subject to the ------------------------------------------ appointment and acceptance of a successor Collateral Agent as provided below, (i) the Collateral Agent may resign at any time by giving not less than thirty (30) days notice thereof to the Administrative Agent, the Intercreditor Agent, the Trustee and the Issuer and (ii) the Collateral Agent may be removed at any time with or without cause by the Intercreditor Agent (acting pursuant to the Intercreditor Agreement). Upon any such resignation or removal referred to in clauses (i) and (ii) of the preceding sentence, the Intercreditor Agent (acting pursuant to the Intercreditor Agreement) shall have the right to appoint a successor Collateral Agent, which Collateral Agent shall be reasonably acceptable to the Issuer unless an Event of Default shall have occurred and be continuing. If no successor Collateral Agent shall have been so appointed by the Intercreditor Agent (acting pursuant to the Intercreditor Agreement) and shall have accepted such appointment within thirty (30) days after the retiring Collateral Agent's giving of notice of resignation or the Intercreditor Agent (acting pursuant to the Intercreditor Agreement) removal of the retiring Collateral Agent, then the retiring Collateral Agent may, on behalf of the Intercreditor Agent (acting pursuant to the Intercreditor Agreement) and the other Secured Parties, petition a court of competent jurisdiction for a successor or it may appoint a successor Collateral Agent, which shall be a bank or trust company (a) acceptable to the Intercreditor Agent (acting pursuant to the Intercreditor Agreement), (b) having a combined capital and surplus of at least $50,000,000, (c) having offices in New York, New York, (d) having a long- term credit rating of not less than "BBB-" from 6 S&P and "Baa3" from Moody's, provided that any such bank with long-term credit -------- ratings of "BBB-" and "Baa3" shall not cease to be a Collateral Agent upon a downward change in either such rating of no more than one category or grade of such rating, as the case may be, and (e) unless an Event of Default has occurred and is continuing, reasonably acceptable to the Issuer. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, (i) such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations hereunder, and (ii) the retiring Collateral Agent shall promptly transfer all Collateral within its possession or control to the possession or control of the successor Collateral Agent and shall execute and deliver such notices, instructions and assignments as may be necessary or desirable to transfer the rights of the Collateral Agent in respect of the Collateral to the successor Collateral Agent. After any retiring Collateral Agent's resignation, removal or replacement hereunder as Collateral Agent, the provisions of this Article 2 shall continue in effect for its benefit in respect of any actions - --------- taken or omitted to be taken by it while it was acting as Collateral Agent. 2.8 Authorization. (a) The Collateral Agent is hereby authorized by each ------------- of the other Secured Parties to execute, deliver and perform each of the Security Documents to which the Collateral Agent is or is intended to be a party, each of the Consents and each other Transaction Document to which the Collateral Agent is or is intended to be a party and, subject to the terms of the Security Documents and the other Transaction Documents, to draw on, or otherwise act under, any letter of credit or guarantee delivered to the Collateral Agent for the benefit of the Secured Parties, and each of the Secured Parties agrees to be bound by all of the agreements of the Collateral Agent contained in, and all of the other terms and conditions of, the Security Documents, each of the Consents and each other Transaction Document to which the Collateral Agent is or is intended to be a party. (b) Without the prior written consent of, or direction from, the Intercreditor Agent (acting pursuant to the Intercreditor Agreement), the Collateral Agent shall not consent to any modification, supplement or waiver under any of the Security Documents or under any other Transaction Document to which the Collateral Agent (in its capacity as such) is a party and shall not (i) release any Collateral or otherwise terminate any Lien under any Security Document, (ii) consent to any modification of this Section 2.8 or of the ----------- definition of "Senior Secured Obligations" or "Secured Parties", (iv) release any letter of credit or other instrument securing the obligations of any Person under any Transaction Document or (v) consent to any Lien under any Security Document securing obligations other than the Secured Obligations; provided, -------- however, that, notwithstanding any provision contained herein or in any other - ------- Financing Document to the contrary, but subject in all respects to Section 5.1 of the Indenture, the Collateral Agent shall release, or cause the release of the Lien of the Secured Parties or the portion of any other Senior Collateral that the Issuer is entitled to transfer pursuant to Section 5.1(g) of the -------------- Indenture upon receipt of an officer's certificate of the Issuer, signed by an 7 Authorized Officer, requesting such release and certifying that such release complies with Section 5.1(g) of the Indenture. -------------- (c) For the avoidance of doubt, nothing in this Section 2.8, in ----------- Section 2.1 of this Agreement or elsewhere in this Agreement or in any other - ----------- Security Document or Transaction Document shall limit the obligations of the Obligors under any Security Document or other Transaction Document, including, without limitation, any obligation of any of the Obligors to obtain any consent or approval of any of the Secured Parties obtained or required to be obtained by the Obligors prior to any amendment of, modification or supplement to or waiver under any Security Document or other Transaction Document. 2.9 Additional Collateral Agents. ---------------------------- 2.9.1 Whenever the Collateral Agent shall deem it necessary or prudent in order either to conform to any law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any claim or bring any suit with respect to the Collateral, or the Collateral Agent shall have been advised by counsel that it is so necessary or prudent in the interests of the Secured Parties, or in the event that the Collateral Agent shall have been requested to do so by the Intercreditor Agent (acting pursuant to the Intercreditor Agreement), or as otherwise expressly provided herein, the Collateral Agent shall take such action (including, to the extent required, the execution and delivery of an agreement supplemental hereto and such other instruments and agreements) as may be necessary or proper to constitute another bank or trust company, or one or more Persons approved by the Collateral Agent and, unless an Event of Default has occurred and is continuing, reasonably acceptable to the Issuer, either to act as an additional collateral agent of all or any part of the Collateral, jointly with the Collateral Agent, or to act as a separate collateral agent or trustee of all or any part of the Collateral (any such additional or separate agent or trustee being herein called an "Additional ---------- Collateral Agent"), in any such case with such powers as may be granted pursuant - ---------------- to such action, and to vest in such bank, trust company or Person as an Additional Collateral Agent any property, title, right or power of the Collateral Agent deemed necessary or advisable by the Collateral Agent, subject to the remaining provisions of this Section 2.9. The Collateral Agent shall ----------- provide prompt written notice to the Administrative Agent, the Intercreditor Agent, the Trustee and the Issuer upon the appointment of an Additional Collateral Agent pursuant to this Section 2.9. The Collateral Agent may, at the ----------- expense of the Issuer, execute, deliver or perform any deed, conveyance, assignment or other instrument in writing as may be required by any Additional Collateral Agent for more fully and certainly vesting in and confirming to it, him or her any property, title, right or power which by the terms of such agreement supplemental hereto are expressed to be conveyed or conferred to or upon such Additional Collateral Agent. 2.9.2 Every Additional Collateral Agent shall, to the extent permitted by law, be appointed and act, and the Collateral Agent shall act, subject to the following provisions and conditions: 8 (a) all powers, duties, obligations and rights conferred or imposed upon the Collateral Agent in respect of the receipt, custody, investment and payment of moneys shall be exercised solely by the Collateral Agent; (b) all other rights, powers, duties and obligations conferred or imposed upon the Collateral Agent may be conferred or imposed upon and exercised or performed by the Additional Collateral Agent and the Collateral Agent, except to the extent that, under any law of any jurisdiction in which any particular act or acts are to be performed, the Collateral Agent shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to any part of the Collateral in any such jurisdiction) shall be exercised and performed by such Additional Collateral Agent; (c) no power hereby given to, or with respect to which it is hereby provided may be exercised by, any such Additional Collateral Agent shall be exercised hereunder by such Additional Collateral Agent unless such power is exercised jointly with, or with the consent of, the Collateral Agent; (d) the Additional Collateral Agent shall act only upon and to the extent of written instructions from the Collateral Agent and no other party, and the Additional Collateral Agent shall not be required to take and shall not be responsible for taking any action as Additional Collateral Agent under this Agreement, any Security Document or any other Transaction Document unless it has received such written instructions from the Collateral Agent; and (e) the Collateral Agent shall not be personally liable by reason of any act or omission of any Additional Collateral Agent hereunder, nor shall any Additional Collateral Agent be personally liable by reason of any act or omission of the Collateral Agent or any other Additional Collateral Agent hereunder; provided, however, that nothing in this -------- ------- Agreement shall excuse the liability of the Collateral Agent or any Additional Collateral Agent for its own respective gross negligence or willful misconduct. 2.9.3 If at any time the Collateral Agent shall deem it no longer necessary or prudent in order to conform to any such law or take any such action or shall be advised by counsel that it is no longer so necessary or prudent in the interest of the Secured Parties, or in the event that the Collateral Agent shall have been requested to do so in writing by the Intercreditor Agent (acting pursuant to the Intercreditor Agreement), the Collateral Agent shall execute and deliver an agreement supplemental hereto and all other instruments and agreements necessary or proper to remove any Additional Collateral Agent. 9 2.9.4 Any Additional Collateral Agent may at any time by an instrument in writing constitute the Collateral Agent its agent or attorney-in- fact, with full power and authority, to the extent which may be authorized by law, to do all acts and things and exercise all discretion which it is authorized or permitted to do or exercise, for and on its behalf and in its name. In case any such Additional Collateral Agent shall become incapable of acting, resign or be removed, all of the assets, property, rights, powers, trusts, duties and obligations of such Additional Collateral Agent under this Agreement, so far as permitted by law, shall vest in and be exercised by the Collateral Agent, without the appointment of a new successor to such Additional Collateral Agent unless and until a successor is appointed in the manner hereinbefore provided. 2.9.5 Any request, approval or consent in writing by the Collateral Agent to any Additional Collateral Agent shall be sufficient warrant to such Additional Collateral Agent to take such action as may be so requested, approved or consented. 2.9.6 Each Additional Collateral Agent appointed pursuant to this Section 2.9 shall be subject to, and shall have the benefits of, the provisions - ----------- of this Agreement insofar as they apply to the Collateral Agent. ARTICLE III ADMINISTRATION OF THE COLLATERAL -------------------------------- The Collateral Agent shall hold the Collateral and any Lien thereon for the benefit of the Secured Parties pursuant to the terms of this Agreement, the Security Documents and any other Transaction Document to which the Collateral Agent is a party. The Collateral Agent shall administer the Collateral in the manner contemplated by the Security Documents and the other Transaction Documents. The Collateral Agent shall exercise such rights and remedies with respect to the Collateral as are granted to it under the Security Documents, the other Transaction Documents and applicable law and, except as otherwise expressly provided in the Security Documents and such other Transaction Documents, as it shall be directed by the Intercreditor Agent (acting pursuant to the Intercreditor Agreement). No Secured Party or class or classes thereof (other than the Intercreditor Agent (acting pursuant to the Intercreditor Agreement)) shall have any right to direct the Collateral Agent to take any action in respect of the Collateral and no Secured Party shall have any right to take action with respect to the Collateral independently of the Collateral Agent. Unless otherwise directed by the Intercreditor Agent (acting pursuant to the Intercreditor Agreement), the Collateral Agent shall retain possession of, or cause possession thereof to be retained by its designee, all membership interest certificates pledged to the Collateral Agent (on behalf of the Secured Parties) pursuant to the Permitted Subsidiary Pledge Agreement, the Dominion Elwood Pledge Agreement and the Peoples Elwood Pledge Agreement. 10 ARTICLE IV APPLICATION OF PROCEEDS ----------------------- Following the occurrence of an Event of Default (as defined in the Intercreditor Agreement), the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant to the Security Documents and any other cash at the time of such collection, sale or other realization held by the Collateral Agent under the Security Documents or this Article 4, shall be applied by the Collateral Agent in the following order or - --------- priority and, with the exception of Clause (1) below, shall be based upon information furnished to the Collateral Agent by the appropriate Secured Party: (1) first, to the payment of (a) all reasonable costs and expenses ----- relating to the sale of the Senior Collateral and the collection of all amounts owing hereunder, including attorneys' fees and disbursements and the reasonable compensation of the Collateral Agent, the Administrative Agent and the Intercreditor Agent for services rendered in connection therewith or in connection with any proceeding to sell if a sale is not completed, in each case, whether arising hereunder or under the other Senior Security Documents or other Financing Documents, (b) all charges, expenses and advances incurred or made by the Collateral Agent, the Administrative Agent and the Intercreditor Agent in order to protect the Liens of the Senior Security Documents or the security afforded thereby, and (c) all liabilities (including those specified in clauses (a) and (b) immediately above) incurred by the Collateral Agent, the Administrative Agent and the Intercreditor Agent, regardless of whether such liabilities arise out of the sale of Senior Collateral or the collection of amounts owing hereunder, which are covered by the indemnity provisions of this Agreement or the other Senior Security Documents or other Financing Documents, together with interest thereon at the rate per annum equal the Post Default Rate, computed on the basis of the actual number of days elapsed and a year of 360 days; (2) second, to the payment of accrued and unpaid interest on interest ------ that became overdue on the Senior Secured Obligations, ratably, in an amount necessary to make the respective Senior Secured Parties current on interest on overdue interest due under the respective Financing Documents to the same proportionate extent as the other respective Senior Secured Parties are then current on interest on overdue interest due under the respective Financing Documents; (3) third, to the payment of accrued and unpaid interest on principal ----- of the Senior Secured Obligations, ratably, in an amount necessary to make the respective Senior Secured Parties current on interest on overdue principal due under the respective Financing Documents to the same proportionate extent as the other respective Senior Secured Parties are then 11 current on interest on overdue principal due under the respective Financing Documents; (4) fourth, to the payment to each of the Senior Secured Parties of ------ any accrued but unpaid commitment fees or other fees owed to such Person, pro rata in accordance with the respective amounts owed to such Person; --- ---- (5) fifth, to the payment to each of the Senior Secured Parties of the ----- remaining principal, premium (if any), interest and other Senior Secured Obligations owed to such Person hereunder or under any other Transaction Document, pro rata in accordance with the respective principal amount of --- ---- Senior Secured Obligations owed to such Person, to be applied by each such Person in accordance with the respective Financing Documents pursuant to which such Senior Secured Obligations were incurred; and (6) finally, to the payment to the Issuer, or its successors or ------- assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. As used in this Article 4, "proceeds" of Collateral shall mean cash, securities --------- -------- and other property realized in respect of, and distributions in kind of, Collateral, including, without limitation, any cash, securities and other property received under any reorganization, liquidation or adjustment of Indebtedness of the Issuer or any other issuer of or obligor on any of the Collateral. ARTICLE V MISCELLANEOUS ------------- 5.1 Amendments. Neither this Agreement nor any terms or conditions hereof ---------- may be amended, changed, waived, discharged, terminated or otherwise modified unless such amendment, change, waiver, discharge, termination or modification is in writing, is in accordance with the terms of the Financing Documents and is executed by each of the Issuer and the Collateral Agent (acting upon instructions from the Intercreditor Agent (acting pursuant to the Intercreditor Agreement)). 5.2 Successors and Assigns. The provisions of this Agreement shall be ---------------------- binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. The Issuer may not assign or otherwise transfer any of its rights or obligations under this Agreement. 5.3 Transfers. Any Secured Party may at any time assign, transfer, grant --------- or sell participations in its rights and interests under the Security Documents, subject, however, to the restrictions, if any, imposed on the assignment, transfer, grant or sale of participations in the Secured Obligations owing to such Secured Party pursuant to 12 the Financing Documents, and provided that any such assignee, transferee or participant becomes bound by the terms hereof. 5.4 Delay and Waiver. No failure on the part of any Secured Party or any ---------------- of their nominees or representatives to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall impair any such right, power or remedy of the Secured Parties or their nominees or representatives nor shall it operate as a waiver thereof; nor shall any single or partial exercise by any Secured Party or any of their nominees or representatives of any right, power or remedy hereunder preclude any other or future exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 5.5 Costs and Expenses; Indemnity. The Issuer shall pay the costs and ----------------------------- expenses of, and shall indemnify, defend and hold harmless, the Collateral Agent and each of the other Secured Parties as provided in Sections 7.16 and 7.17 of ------------- ---- the Intercreditor Agreement, which Sections 7.16 and 7.17 are incorporated ------------- ---- herein by this reference, mutatis mutandis, as if set forth in full herein. ---------------- 5.6 Collateral Agency Fee. On the Closing Date, and on each anniversary --------------------- thereof occurring during the period commencing on the Closing Date and continuing to and including the date upon which all obligations of the Obligors under the Financing Documents have been indefeasibly paid in full, the Issuer shall pay to the Collateral Agent an annual collateral agency fee as described in the letter agreement between the Collateral Agent and the Issuer. 5.7 Notices. Unless otherwise specifically herein provided, all notices ------- required or permitted under the terms and provisions hereof shall be in writing and any such notice shall become effective if given in accordance with the provisions of Section 7.1 of the Intercreditor Agreement. ----------- 5.8 Headings. Paragraph headings have been inserted in this Agreement as -------- a matter of convenience for reference only and it is agreed that such paragraph headings are not part of this Agreement and shall not be used in the interpretation of any provision of this Agreement. 5.9 Counterparts. This Agreement may be executed in one or more duplicate ------------ counterparts and when signed by all of the parties listed below shall constitute a single binding agreement. 5.10 Governing Law. This Agreement shall be governed by the laws of the ------------- State of New York of the United States of America and shall for all purposes be governed by and construed in accordance with the laws of such state without regard to the conflict of law rules thereof other than Section 5-1401 of the New York General Obligations Law. 13 5.11 Consent to Jurisdiction. Any legal action or proceeding by or against ----------------------- the Issuer with respect to or arising out of this Agreement may be brought in or removed to the courts of the State of New York, in and for the County of New York, or of the United States of America for the Southern District of New York. By execution and delivery of this Agreement, the Issuer accepts, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts for legal proceedings arising out of or in connection with this Agreement and irrevocably consents to the appointment of CT Corporation System, with offices on the date hereof at 111 Eighth Avenue, New York, New York 10011 as its agent to receive service of process in New York, New York. If for any reason such agent shall cease to be available to act as such, the Issuer agrees to appoint a new agent on the terms and for the purposes of this provision. Nothing herein shall affect the right to serve process in any other manner permitted by law or any right to bring legal action or proceedings in any other competent jurisdiction, including judicial or non-judicial foreclosure of real property interests which are part of the Collateral. The Issuer further agrees that the aforesaid courts of the State of New York and of the United States of America for the Southern District of New York shall have exclusive jurisdiction with respect to any claim or counterclaim of the Issuer based upon the assertion that the rate of interest charged by or under this Agreement or under the other Financing Documents is usurious. The Issuer hereby waives any right to stay or dismiss any action or proceeding under or in connection with the Project, this Agreement or any other Transaction Document brought before the foregoing courts on the basis of forum non-conveniens or improper venue. -------------------- 5.12 Waiver of Jury Trial. EACH PARTY HERETO HEREBY KNOWINGLY, -------------------- VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE OTHER PARTIES HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT, THE ADMINISTRATIVE AGENT, THE INTERCREDITOR AGENT AND THE OTHER SECURED PARTIES TO ENTER INTO THIS AGREEMENT. 5.13 Entire Agreement. This Agreement and any agreement, document or ---------------- instrument attached hereto or referred to herein integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral negotiations and prior writings in respect to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Agreement and any such agreement, document or instrument, the terms, conditions and provisions of this Agreement shall prevail. 5.14 Severability. In case any one or more of the provisions contained in ------------ this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way 14 be affected or impaired thereby, and the parties hereto shall enter into good faith negotiations to replace the invalid, illegal or unenforceable provision with a view to obtaining the same commercial effect as this Agreement would have had if such provision had been legal, valid and enforceable. 5.15 References to Collateral Agency Agreement. On and after the date ----------------------------------------- hereof, each reference in any of the Transaction Documents to the "Collateral Agency Agreement" shall mean the Collateral Agency Agreement as amended and restated hereby. 5.16 Additional Senior Secured Parties. Each of the parties to this --------------------------------- Agreement agrees that any Person which becomes a Secured Party after the Closing Date shall become a party to this Agreement upon execution and delivery by such Person of a counterpart to this Agreement. Any Person that becomes a party to this Agreement pursuant to this Section 5.16 shall be bound by and subject to ------------ the terms and conditions hereof and the covenants, stipulations and agreements contained herein. 15 IN WITNESS WHEREOF, the parties hereto have caused this Collateral Agency Agreement to be executed by their respective officers or representatives hereunto duly authorized as of the day and year first above written. ELWOOD ENERGY LLC By: /s/ Don Burnette --------------------------------- Name: Don Burnette Title: Authorized Representative 16 SECURED PARTIES: --------------- BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION in its capacity as the Administrative Agent By: /s/ Benita Pointer ----------------------------- Name: Benita Pointer Title: Account Executive BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as the Collateral Agent By: /s/ Benita Pointer ----------------------------- Name: Benita Pointer Title: Account Executive BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as the Intercreditor Agent By: /s/ Benita Pointer ----------------------------- Name: Benita Pointer Title: Account Executive BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as the Trustee By: /s/ Benita Pointer ----------------------------- Name: Benita Pointer Title: Account Executive EX-4.7 14 dex47.txt DEBT SERVICE RESERVE GUARANTY Exhibit 4.7 Debt Service Reserve Guaranty This DEBT SERVICE RESERVE GUARANTY (this "Guaranty"), dated as of October -------- 23, 2001, is issued by Dominion Resources, Inc., a Virginia corporation, as guarantor (the "Guarantor") in favor of Bank One Trust Company, National --------- Association, in its capacity as Administrative Agent under the Deposit and Disbursement Agreement referred to below, as beneficiary (the "Beneficiary"). ----------- WITNESSETH: WHEREAS, the Guarantor is the indirect parent of Elwood Energy LLC, a Delaware limited liability company, (the "Issuer"); ------ WHEREAS, the Issuer has entered into that certain Indenture, dated as of October 23, 2001 (the "Indenture"), with Bank One Trust Company, National --------- Association, as Trustee (in such capacity, the "Trustee"); ------- WHEREAS, the Issuer has entered into that certain Deposit and Disbursement Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement ------------------------ Agreement"), with Bank One Trust Company, National Association, as - --------- Administrative Agent (in such capacity, the "Administrative Agent"), Bank One -------------------- Trust Company, National Association, as Collateral Agent (in such capacity, the "Collateral Agent") and Bank One Trust Company, National Association, as ---------------- Intercreditor Agent (in such capacity, the "Intercreditor Agent"), pursuant to ------------------- which the Issuer is required, among other things, to fund the Debt Service Reserve Account (as defined therein) with a combination of cash, letters of credit and guaranties (such guaranties to be in substantially the same form as this Guaranty); and WHEREAS, the Guarantor anticipates benefiting directly and indirectly from the transactions contemplated by the Indenture and the Deposit and Disbursement Agreement. NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the Guarantor, the receipt and sufficiency of which are hereby acknowledged, the Guarantor agrees as follows: SECTION 1. DEFINITIONS 1 (a) Each capitalized term used herein and not otherwise defined herein shall have the definition assigned to that term in the Deposit and Disbursement Agreement . (b) The following terms shall have the following respective meanings: "Guaranty Cap" shall mean: ------------ (a) for any date of determination occurring on a Six-Month DSR Date, an amount equal to 50% of the scheduled principal and interest which will be due or has become due on the Senior Secured Obligations during the period from and including the day after the Bond Payment Date immediately preceding such date of determination through and including the Bond Payment Date succeeding such date of determination; o r (b) for any date of determination other than a Six-Month DSR Date, an amount equal to 50% of the scheduled principal and interest which will be due or has become due on the Senior Secured Obligations during the period from and including the day after the Bond Payment Date immediately preceding such date of determination through and including the two Bond Payment Dates succeeding such date of determination; provided, however, in the event of payment of any amounts by the Guarantor under - -------- ------- Section 2.1, the Guaranty Cap shall, subject to Section 4 hereof, be reduced by - ----------- --------- the amount of such payment. "Notice of Payment" shall mean a notice of payment in substantially ----------------- the form attached hereto as Exhibit A. --------- SECTION 2. GUARANTEE Section 2.1 Subject to the terms hereof, the Guarantor hereby unconditionally and irrevocably undertakes, as primary obligor and not merely as a surety, for the benefit of the Beneficiary to pay to the Administrative Agent, on first demand in the form of a Notice of Payment, the amount specified in such Notice of Payment, but in no event exceeding the Guaranty Cap. Each demand for payment under this 2 Guaranty shall be made in writing to the address set forth in Section 7.2 ----------- hereof and shall be in the form of the Notice of Payment. Section 2.2 The Guarantor shall make payment to the Beneficiary hereunder on first demand in the form of a Notice of Payment and notwithstanding any objection to such payment by the Issuer or any other Person. The Guarantor shall not require the Beneficiary to justify further its demand for payment, nor shall the Guarantor have any recourse against the Beneficiary in respect of any payment made hereunder. The Guarantor shall pay any sum demanded by the Beneficiary hereunder in immediately available funds on the date set forth in the Notice of Payment (which date shall be in accordance with the provisions of Section 3.6(c), (g) or (h), as applicable, of the Deposit and Disbursement - -------------- --- --- Agreement). Section 2.3 Subject to Section 5 hereof, this Guaranty is a direct, --------- independent and primary obligation of the Guarantor and is an irrevocable, absolute, present, unconditional and continuing obligation, and the validity and enforceability of this Guaranty shall be absolute and is not conditioned in any way upon (a) the institution of suit or the taking of any other action or any attempt to enforce performance of or compliance with the obligations, covenants or undertakings (including any payment obligations) of the Issuer under the Deposit and Disbursement Agreement or any other Financing Document, (b) the genuineness, validity, legality or enforceability of any of the Transaction Documents or the lack of power or authority of the Issuer to enter into any of the Transaction Documents, or any other circumstance whatsoever (other than payment or performance) that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, (c) any right of set-off, recoupment or counterclaim, (d) any attempt to collect from the Issuer or any other entity or to perfect or enforce any security or any other condition or contingency or (e) any other action, occurrence or circumstance whatsoever. Section 2.4 Without limiting the generality of the foregoing, and subject to Section 5 hereof, the Guarantor shall have no right to terminate this --------- Guaranty, or to be released, relieved or discharged from its obligations hereunder, and such obligations shall be neither affected nor diminished for any reason whatsoever, including: (i) any amendment or supplement to or modification of any of the Transaction Documents, any extension or renewal of the Issuer's obligations under any Transaction Document, or any subletting, 3 assignment or transfer of the Issuer's or the Beneficiary's interest in the Transaction Documents; (ii) any bankruptcy, insolvency, readjustment, composition, liquidation or any other change in the legal status of the Issuer or any rejection or modification of the obligations of the Issuer or the Beneficiary as a result of any bankruptcy, reorganization, insolvency or similar proceeding; (iii) any furnishing or acceptance of additional security or any exchange, substitution, surrender or release of any security; (iv) any waiver, consent or other action or inaction or any exercise or nonexercise of any right, remedy or power with respect to any of the Transaction Documents; (v) the unenforceability, lack of genuineness or invalidity of the Senior Secured Obligations or any part thereof or the unenforceability, lack of genuineness or invalidity of any agreement relating thereto; (vi) (A) any merger or consolidation of the Issuer or the Guarantor into or with any other Person, (B) any change in the structure of the Issuer or the Guarantor, (C) any change in the ownership of the Issuer or the Guarantor or (D) any sale, lease or transfer of any or all of the assets of the Issuer or the Guarantor to any other Person; (vii) any default, misrepresentation, negligence, misconduct or other action or inaction of any kind by the Beneficiary under or in connection with any Financing Document or any other agreement relating to this Guaranty; or (viii) any other circumstance whatsoever (except the complete payment and performance of the Senior Secured Obligations), including, without limitation, any act or omission of the Issuer or the Beneficiary which changes the scope of the Guarantor's risk. Section 2.5 The Guarantor hereby unconditionally waives and releases, to the extent permitted by law any circumstance which might constitute a defense 4 available to, or a discharge of, the Guarantor. No failure to exercise and no delay in exercising, on the part of the Beneficiary, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other power or right. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. Section 2.6 The Guarantor agrees to pay any costs and expenses incurred by the other parties to any Financing Document in connection with the enforcement of this Guaranty. SECTION 3. GUARANTOR'S REPRESENTATIONS AND WARRANTIES The Guarantor represents and warrants unto the Beneficiary as set forth in this Section 3. --------- Section 3.1 The Guarantor's long-term senior unsecured debt is rated at least "BBB" by S&P and "Baa2" by Moody's. Section 3.2 The Guarantor is duly organized, validly existing and in good standing under the laws of the state of its organization and has full power, authority and legal right to execute, deliver and perform this Guaranty. Section 3.3 The execution, delivery and performance by the Guarantor of this Guaranty has been duly authorized by all necessary corporate action. This Guaranty constitutes a legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforcement may be affected by applicable bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights generally. Section 3.4 The execution, delivery and performance of this Guaranty will not contravene any provision of law, rule or regulation to which the Guarantor is subject or any judgment, decree or order applicable to the Guarantor nor conflict or be inconsistent with or result in any breach of any terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien or other encumbrance upon any of the property or assets of the Guarantor pursuant to the terms of any agreement or other instrument to which the Guarantor is a party or by which it or its property is 5 bound or to which it or its property may be subject, the violation of which could have a material adverse effect on the financial condition of the Guarantor, nor violate any provision of the constitutive documents of the Guarantor. Section 3.5 No pending or, to the knowledge of the Guarantor, threatened action, suit, investigation or proceeding against the Guarantor before any Governmental Authority exists which, if determined adversely to the Guarantor, would materially adversely affect the Guarantor's ability to perform its obligations under this Guaranty. Section 3.6 No consent from any Person is required for the execution, delivery and performance by the Guarantor of this Guaranty except that which has been obtained. SECTION 4. SURVIVAL OF GUARANTY Notwithstanding anything to the contrary herein, this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any of the amounts paid to the Beneficiary, in whole or in part, is required to be repaid upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of the Guarantor, the Issuer or any other Person, or as a result of the appointment of a custodian, interviewer, receiver, trustee, or other officer with similar powers with respect to the Guarantor, the Issuer or any other Person or with respect to any substantial part of the property of the Guarantor, the Issuer or such other Person, all as if such payments had not been made. SECTION 5. TERMINATION Section 5.1 Subject to Section 5.2 hereof, this Guaranty and the ----------- Guarantor's duties and obligations hereunder shall remain in full force and effect and be binding in accordance with its terms until the earlier of (i) the date on which all Senior Secured Obligations shall have been satisfied by payment and performance in full, (ii) the date on which the obligations of the Guarantor hereunder shall have been satisfied by payment and performance in full and (iii) the date on which the Issuer provides to the Beneficiary (w) cash (to be deposited in the Debt Service Reserve Account), (x) a Debt Service Reserve L/C, (y) a replacement Debt Service Reserve Guaranty, or (z) any combination of (w), (x) and (y), such that, on such date, the Debt Service Reserve Account shall be fully funded without taking into account the 6 amount that would otherwise be available under this Guaranty. Upon the earliest to occur of the dates set forth in clause (i), (ii) and (iii) above, this Guaranty and the Guarantor's duties and obligations hereunder (including its obligations under Section 2.1 hereof, shall terminate and be of no further force ----------- and effect. Section 5.2 Notwithstanding anything to the contrary contained herein, the Guarantor shall have the right to terminate this Guaranty upon 45 Business Days' written notice to the Issuer and the Administrative Agent, which notice shall set forth the date on which this Guaranty will terminate (the "Termination ----------- Date"). In the event the Guarantor (a) terminates this Guaranty in accordance - ---- with this Section 5.2, and (b) receives, not less than 15 Business Days prior to ----------- the Termination Date, a Notice of Payment from the Administrative Agent, the Guarantor shall pay the amount set forth in such Notice of Payment in accordance with Section 2.1 hereof. ----------- SECTION 6. REMEDIES; SUBROGATION Section 6.1 Remedies. In the event the Guarantor shall fail to pay immediately any amounts due under this Guaranty, or to comply with any other term of this Guaranty, the Beneficiary shall be entitled to all rights and remedies to which it may be entitled hereunder or at law, in equity or by statute . Section 6.2 Subrogation. The Guarantor will not exercise any rights that it may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Senior Secured Obligations shall have been paid in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Senior Secured Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Beneficiary to be credited and applied to by the Guarantor hereunder. Section 6.3 Survival of Remedies and Subrogation Rights. The provisions of this Section 6 shall survive the termination of this Guaranty and the payment in --------- full of the Obligations and the termination of the Operative Documents. SECTION 7. MISCELLANEOUS Section 7.1 Amendments and Waivers. No term, covenant, agreement or condition of this Guaranty may be terminated, amended or compliance therewith waived (either generally or in a particular instance, retroactively or prospectively) 7 except by an instrument or instruments in writing executed by the Guarantor and consented to by the Beneficiary. Section 7.2 Notices. Unless otherwise expressly specified or permitted by the terms hereof, all communications and notices provided for herein shall be in writing or by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including by overnight mail or courier service, (b) in the case of notice by United States mail, certified or registered, postage prepaid, return receipt requested, upon receipt thereof, or (c) in the case of notice by such a telecommunications device, upon transmission thereof, provided such transmission is promptly confirmed by either of the methods set forth in clauses (a) or (b) above, in each case addressed to the Guarantor hereto at its address set forth below or at such other address as such party may from time to time designate by written notice. If to the Guarantor: Dominion Resources, Inc. 120 Tredegar Street Richmond, VA 23219 Telephone No.: (804) 819-2411 Facsimile No.: (804) 819-2211 Attention: Corporate Secretary Section 7.3 Survival. Except as expressly set forth herein, the warranties and covenants made by the Guarantor shall not survive the expiration or termination of this Guaranty. Section 7.4 Assignment and Assumption. This Guaranty may not be assigned by the Guarantor to, or assumed by, any successor to, or assignee of, the Guarantor without the prior written consent of the Beneficiary. Section 7.5 Governing Law. This Guaranty shall be in all respects governed by and construed in accordance with the laws of the State of New York, including all matters of construction, validity and performance (without giving effect to the conflicts of laws provisions thereof, other than Section 5-1401 of the New York General Obligations Law). 8 Section 7.6 Severability. Any provision of this Guaranty that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 7.7 Merger. This Guaranty constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral between or among the Guarantor, the Issuer, and the Beneficiary with respect to the subject matter hereof. Section 7.8 Headings. The headings of the sections of this Guaranty are inserted for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof. Section 7.9 Further Assurances. The Guarantor will promptly and duly execute and deliver such further documents to make such further assurances for and take such further action reasonably requested by the Beneficiary, all as may be reasonably necessary to carry out more effectively the intent and purpose of this Guaranty. Section 7.10 Effectiveness of Guaranty. This Guaranty shall be effective on the date of its execution and delivery by the Guarantor. Section 7.11 Ratings Events. The Guarantor hereby agrees to provide written notice to the Issuer and the Beneficiary within 10 days of becoming aware that its long-term senior unsecured debt is rated less than "Baa3" by Moody's or "BBB-" by S&P (a "Ratings Event"). ------------- 9 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized. DOMINION RESOURCES, INC., as Guarantor By: /s/ Thos. E. Capps --------------------------------- Name: Thos. E. Capps Title: Chief Executive Officer and President Exhibit A to Debt Service Reserve Guaranty ----------------------------- Form of Notice of Payment ------------------------- [Date] Dominion Resources, Inc. 120 Tredegar Street Richmond, VA 23219 Attention: Corporate Secretary Re: Debt Service Reserve Guaranty ----------------------------- Reference is made herein to (i) that certain Deposit and Disbursement Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement ------------------------ Agreement"), among Elwood Energy LLC (the "Issuer"), Bank One Trust Company, - --------- ------ National Association, as Administrative Agent (in such capacity, the"Administrative Agent"), Bank One Trust Company, National Association, as -------------------- Collateral Agent (in such capacity, the "Collateral Agent") and Bank One Trust ---------------- Company, National Association, as Intercreditor Agent (in such capacity, the "Intercreditor Agent") and (ii) that certain Debt Service Reserve Guaranty, ------------------- dated as of October 23, 2001 (the "Guaranty"), issued by Dominion Resources, -------- Inc., a Virginia corporation (the "Guarantor"), in favor of the Administrative --------- Agent, as beneficiary (the "Beneficiary"). All terms used herein and not ----------- otherwise defined herein shall have the meaning assigned to such term in the Deposit and Disbursement Agreement. The undersigned, an authorized officer of the Beneficiary, does hereby certify on behalf of the Beneficiary, that: 1. This Notice of Payment is delivered pursuant to Section 2.1 of the ----------- Guaranty. 2. The Beneficiary hereby instructs the Guarantor to pay $_________ to the Beneficiary in immediately available funds in accordance with the wiring instructions attached hereto as Schedule I. Exhibit A-1 11 3. [The Beneficiary is entitled to draw on the Guaranty pursuant to Section 3.6(c) of the Deposit and Disbursement Agreement in the amount set forth - -------------- in Section 2 hereof, which represents the Guarantor's ratable share of the DSR --------- Insufficiency Amount.] - or - 3. [The Beneficiary has received notice from the Guarantor that the Guaranty will be terminated on [________] in accordance with Section 5.2 of the ----------- Guaranty, and (i) the Guaranty has not been replaced with a new Debt Service Reserve Guaranty or with a Debt Service Reserve L/C and (ii) the amount set forth in Section 2 hereof is no greater than the amount of the Guaranty Cap (as defined in the Guaranty).] - or - 3. [The Beneficiary has received notice, in accordance with Section 7.11 of the Guaranty from the Guarantor that a Ratings Event (as defined in the Guaranty) has occurred, and (i) the Guaranty has not been replaced with a new Debt Service Reserve Guaranty or with a Debt Service Reserve L/C, (ii) the date of this Notice of Payment is at least 45 days after the Beneficiary received notice of the Ratings Event (as defined in the Guaranty), and (iii) the amount set forth in Section 2 hereof is no greater than the amount of the Guaranty Cap (as defined in the Guaranty).] IN WITNESS WHEREOF, the Beneficiary has executed this Notice of Payment as of the date first written above. BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Administrative Agent, as Beneficiary By:_______________________________ Name: Title: ___________________ /1/ Insert date that is not less than 15 Business Days prior to the Termination Date (as defined in the Guaranty). Exhibit A-2 12 EX-4.8 15 dex48.txt DEBT SERVICE RESERVE GUARANTY Exhibit 4.8 Debt Service Reserve Guaranty This DEBT SERVICE RESERVE GUARANTY (this "Guaranty"), dated as of October -------- 23, 2001, is issued by Peoples Energy Corporation, an Illinois corporation, as guarantor (the "Guarantor") in favor of Bank One Trust Company, National --------- Association, in its capacity as Administrative Agent under the Deposit and Disbursement Agreement referred to below, as beneficiary (the "Beneficiary"). ----------- WITNESSETH: WHEREAS, the Guarantor is the indirect parent of Elwood Energy LLC, a Delaware limited liability company, (the "Issuer"); ------ WHEREAS, the Issuer has entered into that certain Indenture, dated as of October 23, 2001 (the "Indenture"), with Bank One Trust Company, National --------- Association, as Trustee (in such capacity, the "Trustee"); ------- WHEREAS, the Issuer has entered into that certain Deposit and Disbursement Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement ------------------------ Agreement"), with Bank One Trust Company, National Association, as - --------- Administrative Agent (in such capacity, the "Administrative Agent"), Bank One -------------------- Trust Company, National Association, as Collateral Agent (in such capacity, the "Collateral Agent") and Bank One Trust Company, National Association, as ---------------- Intercreditor Agent (in such capacity, the "Intercreditor Agent"), pursuant to ------------------- which the Issuer is required, among other things, to fund the Debt Service Reserve Account (as defined therein) with a combination of cash, letters of credit and guaranties (such guaranties to be in substantially the same form as this Guaranty); and WHEREAS, the Guarantor anticipates benefiting directly and indirectly from the transactions contemplated by the Indenture and the Deposit and Disbursement Agreement. NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the Guarantor, the receipt and sufficiency of which are hereby acknowledged, the Guarantor agrees as follows: SECTION 1. DEFINITIONS (a) Each capitalized term used herein and not otherwise defined herein shall have the definition assigned to that term in the Deposit and Disbursement Agreement. (b) The following terms shall have the following respective meanings: "Guaranty Cap" shall mean: ------------ (a) for any date of determination occurring on a Six-Month DSR Date, an amount equal to 50% of the scheduled principal and interest which will be due or has become due on the Senior Secured Obligations during the period from and including the day after the Bond Payment Date immediately preceding such date of determination through and including the Bond Payment Date succeeding such date of determination; or (b) for any date of determination other than a Six-Month DSR Date, an amount equal to 50% of the scheduled principal and interest which will be due or has become due on the Senior Secured Obligations during the period from and including the day after the Bond Payment Date immediately preceding such date of determination through and including the two Bond Payment Dates succeeding such date of determination; provided, however, in the event of payment of any amounts by the Guarantor under - -------- ------- Section 2.1, the Guaranty Cap shall, subject to Section 4 hereof, be reduced by - ----------- --------- the amount of such payment. "Notice of Payment" shall mean a notice of payment in substantially ----------------- the form attached hereto as Exhibit A. --------- SECTION 2. GUARANTEE Section 2.1 Subject to the terms hereof, the Guarantor hereby unconditionally and irrevocably undertakes, as primary obligor and not merely as a surety, for the benefit of the Beneficiary to pay to the Administrative Agent, on first demand in the form of a Notice of Payment, the amount specified in such Notice of Payment, but in no event exceeding the Guaranty Cap. Each demand for payment 2 under this Guaranty shall be made in writing to the address set forth in Section ------- 7.2 hereof and shall be in the form of the Notice of Payment. - --- Section 2.2 The Guarantor shall make payment to the Beneficiary hereunder on first demand in the form of a Notice of Payment and notwithstanding any objection to such payment by the Issuer or any other Person. The Guarantor shall not require the Beneficiary to justify further its demand for payment, nor shall the Guarantor have any recourse against the Beneficiary in respect of any payment made hereunder. The Guarantor shall pay any sum demanded by the Beneficiary hereunder in immediately available funds on the date set forth in the Notice of Payment (which date shall be in accordance with the provisions of Section 3.6(c), (g) or (h), as applicable, of the Deposit and Disbursement - -------------- --- --- Agreement). Section 2.3 Subject to Section 5 hereof, this Guaranty is a direct, --------- independent and primary obligation of the Guarantor and is an irrevocable, absolute, present, unconditional and continuing obligation, and the validity and enforceability of this Guaranty shall be absolute and is not conditioned in any way upon (a) the institution of suit or the taking of any other action or any attempt to enforce performance of or compliance with the obligations, covenants or undertakings (including any payment obligations) of the Issuer under the Deposit and Disbursement Agreement or any other Financing Document, (b) the genuineness, validity, legality or enforceability of any of the Transaction Documents or the lack of power or authority of the Issuer to enter into any of the Transaction Documents, or any other circumstance whatsoever (other than payment or performance) that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, (c) any right of set-off, recoupment or counterclaim, (d) any attempt to collect from the Issuer or any other entity or to perfect or enforce any security or any other condition or contingency or (e) any other action, occurrence or circumstance whatsoever. Section 2.4 Without limiting the generality of the foregoing, and subject to Section 5 hereof, the Guarantor shall have no right to terminate this --------- Guaranty, or to be released, relieved or discharged from its obligations hereunder, and such obligations shall be neither affected nor diminished for any reason whatsoever, including: (i) any amendment or supplement to or modification of any of the Transaction Documents, any extension or renewal of the Issuer's 3 obligations under any Transaction Document, or any subletting, assignment or transfer of the Issuer's or the Beneficiary's interest in the Transaction Documents; (ii) any bankruptcy, insolvency, readjustment, composition, liquidation or any other change in the legal status of the Issuer or any rejection or modification of the obligations of the Issuer or the Beneficiary as a result of any bankruptcy, reorganization, insolvency or similar proceeding; (iii) any furnishing or acceptance of additional security or any exchange, substitution, surrender or release of any security; (iv) any waiver, consent or other action or inaction or any exercise or nonexercise of any right, remedy or power with respect to any of the Transaction Documents; (v) the unenforceability, lack of genuineness or invalidity of the Senior Secured Obligations or any part thereof or the unenforceability, lack of genuineness or invalidity of any agreement relating thereto; (vi) (A) any merger or consolidation of the Issuer or the Guarantor into or with any other Person, (B) any change in the structure of the Issuer or the Guarantor, (C) any change in the ownership of the Issuer or the Guarantor or (D) any sale, lease or transfer of any or all of the assets of the Issuer or the Guarantor to any other Person; (vii) any default, misrepresentation, negligence, misconduct or other action or inaction of any kind by the Beneficiary under or in connection with any Financing Document or any other agreement relating to this Guaranty; or (viii) any other circumstance whatsoever (except the complete payment and performance of the Senior Secured Obligations), including, without limitation, any act or omission of the Issuer or the Beneficiary which changes the scope of the Guarantor's risk. Section 2.5 The Guarantor hereby unconditionally waives and releases, to the extent permitted by law any circumstance which might constitute a defense 4 available to, or a discharge of, the Guarantor. No failure to exercise and no delay in exercising, on the part of the Beneficiary, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other power or right. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. Section 2.6 The Guarantor agrees to pay any costs and expenses incurred by the other parties to any Financing Document in connection with the enforcement of this Guaranty. SECTION 3. GUARANTOR'S REPRESENTATIONS AND WARRANTIES The Guarantor represents and warrants unto the Beneficiary as set forth in this Section 3. --------- Section 3.1 The Guarantor's long-term senior unsecured debt is rated at least "BBB" by S&P and "Baa2" by Moody's. Section 3.2 The Guarantor is duly organized, validly existing and in good standing under the laws of the state of its organization and has full power, authority and legal right to execute, deliver and perform this Guaranty. Section 3.3 The execution, delivery and performance by the Guarantor of this Guaranty has been duly authorized by all necessary corporate action. This Guaranty constitutes a legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as such enforcement may be affected by applicable bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights generally. Section 3.4 The execution, delivery and performance of this Guaranty will not contravene any provision of law, rule or regulation to which the Guarantor is subject or any judgment, decree or order applicable to the Guarantor nor conflict or be inconsistent with or result in any breach of any terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien or other encumbrance upon any of the property or assets of the Guarantor pursuant to the terms of any agreement or other instrument to which the Guarantor is a party or by which it or its property is 5 bound or to which it or its property may be subject, the violation of which could have a material adverse effect on the financial condition of the Guarantor, nor violate any provision of the constitutive documents of the Guarantor. Section 3.5 No pending or, to the knowledge of the Guarantor, threatened action, suit, investigation or proceeding against the Guarantor before any Governmental Authority exists which, if determined adversely to the Guarantor, would materially adversely affect the Guarantor's ability to perform its obligations under this Guaranty. Section 3.6 No consent from any Person is required for the execution, delivery and performance by the Guarantor of this Guaranty except that which has been obtained. SECTION 4. SURVIVAL OF GUARANTY Notwithstanding anything to the contrary herein, this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any of the amounts paid to the Beneficiary, in whole or in part, is required to be repaid upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of the Guarantor, the Issuer or any other Person, or as a result of the appointment of a custodian, interviewer, receiver, trustee, or other officer with similar powers with respect to the Guarantor, the Issuer or any other Person or with respect to any substantial part of the property of the Guarantor, the Issuer or such other Person, all as if such payments had not been made. SECTION 5. TERMINATION Section 5.1 Subject to Section 5.2 hereof, this Guaranty and the ----------- Guarantor's duties and obligations hereunder shall remain in full force and effect and be binding in accordance with its terms until the earlier of (i) the date on which all Senior Secured Obligations shall have been satisfied by payment and performance in full, (ii) the date on which the obligations of the Guarantor hereunder shall have been satisfied by payment and performance in full and (iii) the date on which the Issuer provides to the Beneficiary (w) cash (to be deposited in the Debt Service Reserve Account), (x) a Debt Service Reserve L/C, (y) a replacement Debt Service Reserve Guaranty, or (z) any combination of (w), (x) and (y), such that, on such date, the Debt Service Reserve Account shall be fully funded without taking into account the 6 amount that would otherwise be available under this Guaranty. Upon the earliest to occur of the dates set forth in clause (i), (ii) and (iii) above, this Guaranty and the Guarantor's duties and obligations hereunder (including its obligations under Section 2.1 hereof, shall terminate and be of no further force ----------- and effect. Section 5.2 Notwithstanding anything to the contrary contained herein, the Guarantor shall have the right to terminate this Guaranty upon 45 Business Days' written notice to the Issuer and the Administrative Agent, which notice shall set forth the date on which this Guaranty will terminate (the "Termination ----------- Date"). In the event the Guarantor (a) terminates this Guaranty in accordance - ---- with this Section 5.2, and (b) receives, not less than 15 Business Days prior to ----------- the Termination Date, a Notice of Payment from the Administrative Agent, the Guarantor shall pay the amount set forth in such Notice of Payment in accordance with Section 2.1 hereof. ----------- SECTION 6. REMEDIES; SUBROGATION Section 6.1 Remedies. In the event the Guarantor shall fail to pay immediately any amounts due under this Guaranty, or to comply with any other term of this Guaranty, the Beneficiary shall be entitled to all rights and remedies to which it may be entitled hereunder or at law, in equity or by statute. Section 6.2 Subrogation. The Guarantor will not exercise any rights that it may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all of the Senior Secured Obligations shall have been paid in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Senior Secured Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of the Beneficiary to be credited and applied to by the Guarantor hereunder. Section 6.3 Survival of Remedies and Subrogation Rights. The provisions of this Section 6 shall survive the termination of this Guaranty and the payment --------- in full of the Obligations and the termination of the Operative Documents. SECTION 7. MISCELLANEOUS Section 7.1 Amendments and Waivers. No term, covenant, agreement or condition of this Guaranty may be terminated, amended or compliance therewith waived (either generally or in a particular instance, retroactively or prospectively) 7 except by an instrument or instruments in writing executed by the Guarantor and consented to by the Beneficiary. Section 7.2 Notices. Unless otherwise expressly specified or permitted by the terms hereof, all communications and notices provided for herein shall be in writing or by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including by overnight mail or courier service, (b) in the case of notice by United States mail, certified or registered, postage prepaid, return receipt requested, upon receipt thereof, or (c) in the case of notice by such a telecommunications device, upon transmission thereof, provided such transmission is promptly confirmed by either of the methods set forth in clauses (a) or (b) above, in each case addressed to the Guarantor hereto at its address set forth below or at such other address as such party may from time to time designate by written notice. If to the Guarantor: Peoples Energy Corporation 130 East Randolph Drive Chicago, IL 60601 Telephone No.: (312) 240-4063 Facsimile No.: (312) 240-4972 Attention: Treasurer Section 7.3 Survival. Except as expressly set forth herein, the warranties and covenants made by the Guarantor shall not survive the expiration or termination of this Guaranty. Section 7.4 Assignment and Assumption. This Guaranty may not be assigned by the Guarantor to, or assumed by, any successor to, or assignee of, the Guarantor without the prior written consent of the Beneficiary. Section 7.5 Governing Law. This Guaranty shall be in all respects governed by and construed in accordance with the laws of the State of New York, including all matters of construction, validity and performance (without giving effect to the conflicts of laws provisions thereof, other than Section 5-1401 of the New York General Obligations Law). 8 Section 7.6 Severability. Any provision of this Guaranty that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 7.7 Merger. This Guaranty constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral between or among the Guarantor, the Issuer, and the Beneficiary with respect to the subject matter hereof. Section 7.8 Headings. The headings of the sections of this Guaranty are inserted for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof. Section 7.9 Further Assurances. The Guarantor will promptly and duly execute and deliver such further documents to make such further assurances for and take such further action reasonably requested by the Beneficiary, all as may be reasonably necessary to carry out more effectively the intent and purpose of this Guaranty. Section 7.10 Effectiveness of Guaranty. This Guaranty shall be effective on the date of its execution and delivery by the Guarantor. Section 7.11 Ratings Events. The Guarantor hereby agrees to provide written notice to the Issuer and the Beneficiary within 10 days of becoming aware that its long-term senior unsecured debt is rated less than "Baa3" by Moody's or "BBB-" by S&P (a "Ratings Event"). ------------- 9 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized. Peoples Energy Corporation, as Guarantor By: /s/ Thomas A. Nardi -------------------------------- Name: Thomas A. Nardi Title: Senior Vice President and Chief Financial Officer Exhibit A to Debt Service Reserve Guaranty ----------------------------- Form of Notice of Payment ------------------------- [Date] Peoples Energy Corporation 130 East Randolph Drive Chicago, IL 60601 Attention: Treasurer Re: Debt Service Reserve Guaranty ----------------------------- Reference is made herein to (i) that certain Deposit and Disbursement Agreement, dated as of October 23, 2001 (the "Deposit and Disbursement ------------------------ Agreement"), among Elwood Energy LLC (the "Issuer"), Bank One Trust Company, - --------- ------ National Association, as Administrative Agent (in such capacity, the "Administrative Agent"), Bank One Trust Company, National Association, as -------------------- Collateral Agent (in such capacity, the "Collateral Agent") and Bank One Trust ---------------- Company, National Association, as Intercreditor Agent (in such capacity, the "Intercreditor Agent") and (ii) that certain Debt Service Reserve Guaranty, ------------------- dated as of October 23, 2001 (the "Guaranty"), issued by Peoples Energy -------- Corporation, an Illinois corporation (the "Guarantor"), in favor of the --------- Administrative Agent, as beneficiary (the "Beneficiary"). All terms used herein ----------- and not otherwise defined herein shall have the meaning assigned to such term in the Deposit and Disbursement Agreement. The undersigned, an authorized officer of the Beneficiary, does hereby certify on behalf of the Beneficiary, that: 1. This Notice of Payment is delivered pursuant to Section 2.1 of the ----------- Guaranty. 2. The Beneficiary hereby instructs the Guarantor to pay $_________ to the Beneficiary in immediately available funds in accordance with the wiring instructions attached hereto as Schedule I. Exhibit A-1 3. [The Beneficiary is entitled to draw on the Guaranty pursuant to Section 3.6(c) of the Deposit and Disbursement Agreement in the amount set forth - -------------- in Section 2 hereof, which represents the Guarantor's ratable share of the DSR --------- Insufficiency Amount.] - or - 3. [The Beneficiary has received notice from the Guarantor that the Guaranty will be terminated on [________]/1/ in accordance with Section 5.2 of ----------- the Guaranty, and (i) the Guaranty has not been replaced with a new Debt Service Reserve Guaranty or with a Debt Service Reserve L/C and (ii) the amount set forth in Section 2 hereof is no greater than the amount of the Guaranty Cap (as defined in the Guaranty).] - or - 3. [The Beneficiary has received notice, in accordance with Section 7.11 of the Guaranty from the Guarantor that a Ratings Event (as defined in the Guaranty) has occurred, and (i) the Guaranty has not been replaced with a new Debt Service Reserve Guaranty or with a Debt Service Reserve L/C, (ii) the date of this Notice of Payment is at least 45 days after the Beneficiary received notice of the Ratings Event (as defined in the Guaranty), and (iii) the amount set forth in Section 2 hereof is no greater than the amount of the Guaranty Cap (as defined in the Guaranty).] IN WITNESS WHEREOF, the Beneficiary has executed this Notice of Payment as of the date first written above. BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Administrative Agent, as Beneficiary By:_______________________________ Name: Title: ________________________ /1/ Insert date that is not less than 15 Business Days prior to the Termination Date (as defined in the Guaranty). Exhibit A-2 EX-5.1 16 dex51.txt OPINION OF MCGUIREWOODS, LLP EXHIBIT 5.1 Elwood Energy LLC 120 Tredegar Street Richmond, Virginia 23219 We have acted as counsel to Elwood Energy LLC (the "Issuer") in connection with, and have participated in the preparation of, a Registration Statement on Form S- 4 (the "Registration Statement") filed with the Securities Exchange Commission with respect to the Issuer's 8.159% Senior Secured Bonds due 2026 (the "Bonds") and the related Debt Service Reserve Guaranties (the "Guaranties") of Dominion Resources, Inc. and Peoples Energy Corporation (the "Guarantors"). We have examined such corporate and other records, certificates and other documents as we have considered relevant or necessary for purposes of this opinion. Based upon the foregoing, we are of the opinion that, when issued as contemplated by the Registration Statement, the Bonds will be legally issued and will constitute valid and binding obligations of the Issuer, and the Guaranties will be legally issued and will constitute valid and binding obligations of the Guarantors. Enforceability of the Issuer's obligations under the Bonds or the Guarantors' obligations under the Guaranties may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent transfer, moratorium and similar laws affecting the enforcement of creditors' rights generally or by the application of equitable principles. We express no opinion as the laws of jurisdictions other than the laws of New York, Virginia Illinois and the United States of America and the Delaware Limited Liability Company Act (including provisions of the Delaware Constitution and case law pertaining thereto). We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the Registration Statement. In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. /s/ McGuireWoods LLP January 10, 2002 EX-10.1 17 dex101.txt AMENDED AND RESTATED POWER SALES AGREEMENT EXHIBIT 10.1 AMENDED AND RESTATED POWER SALES AGREEMENT Dated as of April 5, 1999 Between Engage Energy US, L.P. and Elwood Energy LLC TABLE OF CONTENTS 1. Definitions and Interpretation.................................... 1 ------------------------------ (a) Definitions.............................................. 1 ----------- (b) Interpretation........................................... 6 -------------- (c) Legal Representation of Parties.......................... 7 ------------------------------- (d) Titles and Headings...................................... 7 ------------------- (e) Order of Precedence...................................... 7 2. Term.............................................................. 8 ---- 3. Generating Capacity............................................... 8 ------------------- (a) Right to Capacity and Energy............................. 8 ---------------------------- (b) Testing of Capacity...................................... 8 ------------------- 4. Electric Energy Supply............................................ 9 ---------------------- (a) Supply................................................... 9 ------ (b) Dispatch................................................. 9 -------- (c) Operating Notifications.................................. 9 ----------------------- (d) Title and Risk of Loss................................... 10 ---------------------- (e) Transmission Costs....................................... 10 ------------------ (f) Imbalances............................................... 10 ---------- (g) Communications........................................... 11 5. Metering; Billing; Payment........................................ 11 -------------------------- (a) Metering................................................. 11 -------- (b) Billing.................................................. 13 ------- (c) Billing Disputes......................................... 13 ---------------- (d) Records.................................................. 14 ------- (e) Auditing Rights.......................................... 14 --------------- 6. Operation of Committed Units...................................... 14 ---------------------------- (a) Standard of Operation.................................... 14 --------------------- (b) Excess Capacity.......................................... 15 --------------- (c) Outages.................................................. 15 ------- (d) Operating Characteristics................................ 17 ------------------------- (e) Fuel Source and Emissions Reports........................ 18 --------------------------------- 7. Compensation...................................................... 18 ------------ (a) Monthly Charges.......................................... 18 --------------- (b) Start-up Charge.......................................... 19 --------------- (c) Profit Sharing........................................... 19 --------------
i (d) Capacity Adjustment Factor............................... 20 -------------------------- (e) Energy Imbalance Charges/ Other Charges and Penalties.... 21 ----------------------------------------------------- (f) Rates Not subject to Review................................... 21 8. Early Start; Delayed Start........................................ 21 -------------------------- (a) Early Start.............................................. 21 ----------- (b) Delay Liquidated Damages................................. 22 ------------------------ 9. Ancillary Services................................................ 22 ------------------ 10. Limitation of Liability........................................... 22 ----------------------- 11. Disagreements..................................................... 23 ------------- (a) Negotiations............................................. 23 ------------- (b) Settlement Discussions................................... 23 ---------------------- (c) Obligations to Pay Charges and Perform................... 24 -------------------------------------- 12. Assignment; Transfer of Committed Units........................... 24 --------------------------------------- (a) Assignment............................................... 24 ---------- (b) Consent to Assignment to Lender.......................... 24 ------------------------------- 13. Security.......................................................... 25 -------- (a) Buyer Security........................................... 25 -------------- (b) Seller Security.......................................... 25 --------------- 14. Default; Termination and Remedies................................. 25 --------------------------------- (a) Seller's Default......................................... 25 ---------------- (b) Buyer Default............................................ 26 ------------- (c) Remedies................................................. 26 -------- (d) Extended Outage.......................................... 26 --------------- 15. Representations and Warranties.................................... 27 ------------------------------ (a) Representations and Warranties of Seller................. 27 ---------------------------------------- (b) Representations and Warranties of Buyer.................. 27 --------------------------------------- 16. Indemnification................................................... 28 --------------- 17. Notices........................................................... 28 ------- 18. Confidentiality................................................... 30 ---------------
ii 19. Governing Law..................................................... 30 ------------- 20. Force Majeure Event............................................... 30 ------------------- (a) Definition............................................... 30 ---------- (b) Obligations Under Force Majeure.......................... 31 ------------------------------- (c) Continued Payment Obligation............................. 31 ---------------------------- 21. Regulatory Approvals.............................................. 32 -------------------- 22. Taxes............................................................. 32 ----- (a) Applicable Taxes......................................... 32 ---------------- (b) Tax Indemnity............................................ 32 ------------- (c) Contested Taxes.......................................... 32 --------------- (d) Other Charges............................................ 32 ------------- 23. Miscellaneous Provisions.......................................... 32 ------------------------ (a) Non-Waiver............................................... 32 ---------- (b) Third Party Beneficiaries................................ 33 ------------------------- (c) Relationship of Parties.................................. 33 ----------------------- (d) Successors and Assigns................................... 33 ---------------------- (e) Severability............................................. 33 ------------ (f) Counterparts............................................. 33 ------------ (g) UCC...................................................... 33 --- 24. Entire Agreement and Amendments................................... 33 -------------------------------
APPENDICES Appendix A Design Limits Appendix B MAIN Guide Number 3 Appendix C Communications and Guidelines Appendix D Reporting Forms Appendix E FOAF Calculations Appendix F Form of Buyer's Guarantee Appendix G-1 Form of Seller's Guarantees (Dominion Energy, Inc.) Appendix G-2 Form of Seller's Guarantees (Peoples Energy Corporation) Appendix H Net Dependable Capacity and Output Adjustment Curve iii AMENDED AND RESTATED POWER SALES AGREEMENT THIS AMENDED AND RESTATED POWER SALES AGREEMENT (including Appendices, this "Agreement") dated as of April 5, 1999 is entered into between ENGAGE ENERGY US, L.P., a Delaware limited partnership with its principal place of business at Five Greenway Plaza, Suite 1200, Houston Texas ("Buyer"), and ELWOOD ENERGY LLC, a Delaware limited liability company with its principal place of business at 120 Tredegar Street, Richmond, Virginia ("Seller") to amend and restate that certain Power Sales Agreement between the Parties previously executed as of April 5, 1999 (the "Original Agreement"); Buyer and Seller are sometimes referred to herein individually as a "Party" and collectively as the "Parties"). W I T N E S S E T H: WHEREAS, Seller is developing a four-unit electric generating facility (the "Facility") and will be engaged in the generation and sale of capacity, Electric Energy, and Ancillary Services (each as defined herein) from the Facility; and WHEREAS, Seller anticipates the Commercial Operations Date (as defined herein) of the Facility will occur by July 1, 1999; and WHEREAS, Buyer desires to receive and purchase, and Seller desires to deliver and sell a portion of the Electric Energy, Substitute Electric Energy (as defined herein), capacity, and associated Ancillary Services from two of the units of the Facility pursuant to this Agreement and WHEREAS, the Parties desire that this Agreement supersede the Original Agreement in its entirety. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the Parties hereto agree as follows: 1. Definitions and Interpretation. ------------------------------ (a) Definitions. As used in this Agreement, (i) the terms set ----------- forth below in this Section 1(a) shall have the respective meanings so set forth, and (ii) the terms defined elsewhere in this Agreement shall have the meanings therein so specified. "Affiliate" (i) when used with respect to any Person, means any Person controlling, controlled by or under common control with such Person, (ii) when used with respect to Seller, includes Dominion Energy, Inc., Peoples Energy Corporation and their respective Affiliates and (iii) when used with respect to Buyer, includes The Coastal Corporation, Westcoast Energy Inc. and their respective Affiliates. For the purposes of this definition, the term "controlling" (and, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or agency or otherwise. "Ancillary Services" has the meaning set forth in Article 9. "Available" means a state in which a Committed Unit is capable of providing at least 60% of its Net Dependable Capacity, whether or not it is actually in service. "Bankruptcy" means any case, action or proceeding under any bankruptcy, reorganization, debt arrangement, insolvency or receivership law or any dissolution or liquidation proceeding commenced by or against a Person (provided, however, that if such case, action or proceeding is not commenced by such Person, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in an order for relief or shall remain undismissed for ninety (90) days) or a Person has made an assignment of its property for the benefit of its creditors. "Business Day" means any day that is not a Saturday, Sunday or any Federal Reserve Bank holiday. "Buyer Event of Default" has the meaning specified in Section 14(b). "Capacity Adjustment Factor" is the adjustment calculation set forth in Section 7(d). "Capacity Charge" means $9/kw/Month fixed for the first Contract Year, and $5/kw/Month fixed from January 1, 2000 thereafter until the end of the Term, prorated for any partial month. "Capacity Payment" means, with respect to each Committed Unit, for each Month: the product of (i) the Net Dependable Capacity of such Committed Unit and (ii) the Capacity Charge. "Capacity Test" means a three (3) hour period of generation to test the Net Dependable Capacity of a Committed Unit conducted as specified in Guide No. 3 of MAIN (attached as Appendix B). "ComEd" means Commonwealth Edison Company and its successors. "ComEd/Elwood Switchyard" means that switchyard that will be owned by ComEd that provides interconnection service to Seller's Facility. "Commercial Operations Date," with respect to each Committed Unit, means the date upon which Seller first declares such Committed Unit to be Available. "Committed Unit" means the units of the Facility dedicated to this Agreement, i.e., numbers 1 and 2. "Competitive Information" has the meaning specified in Section 5(d). "Confidential Information" has the meaning specified in Section 18. 2 "Contract Year" means, in the case of the first Contract Year, the period beginning on July 1, 1999 and ending on December 31, 1999, and for each Contract Year thereafter, the calendar year. "Control Area of the Interconnected Utility" means the Interconnected Utility's electrical system bounded by interconnection (tie-line) metering and telemetering and wherein the Interconnected Utility controls generation to maintain the system's interchange schedule with other control areas and contributes to frequency regulation of the interchange. "CPT" or "Central Prevailing Time" means the prevailing time (i.e., Standard Time or Daylight Savings Time) on any given day in the Central Time Zone. "Day" means a period of twenty-four (24) consecutive hours beginning and ending at 2400 CPT. "Default Rate" means (a) the "Prime Rate" as published from time to time in the "Money Rates" section of The Wall Street Journal, plus (b) 2.5% (250 basis points) per annum. "Delay Liquidated Damages" are calculated in accordance with Section 8(b). "Design Limits" means, with respect to a Committed Unit, the items listed in Appendix A, with respect to such Committed Unit. "Dispatch" means Buyer's rights to control the generating level of the Committed Unit(s) within and subject to the Design Limits as set forth in Appendix A and consistent with Prudent Utility Practice, or to require the Committed Unit to be off-line. "Effective Date" means the date of this Agreement. "Electric Energy" means all electric energy that Seller sells and delivers to Buyer from the Committed Units at the Point of Delivery pursuant to this Agreement. "Emergency Condition" means a condition or situation which (i) in the sole judgment of the Interconnected Utility (or the ISO) presents an imminent physical threat of danger to life, or significant threat to health or property, (ii) in the sole judgment of the Interconnected Utility (or the ISO) could cause a significant disruption on or significant damage to the Interconnected Utility's System (or any material portion thereof) or the transmission system of a third party (or any material portion thereof), (iii) in the sole judgment of Seller presents an imminent physical threat of danger to life, or significant threat to health or property or (iv) in the sole judgment of Seller could cause significant damage to the ComEd/Elwood Switchyard or a Committed Unit (or any material portion thereof). "Energy Charge" means an amount determined under Section 7(a)(ii) or (iii) in respect of a Month for Electric Energy or Substitute Electric Energy, as applicable. "Excess Capacity" has the meaning specified in Section 6(b)(ii). "FERC" means the Federal Energy Regulatory Commission and its successors. 3 "Force Majeure Event" has the meaning set forth in Section 20(a). "Forced Derating" has the meaning set forth in Appendix E. "Forced Outage" has the meaning set forth in Appendix E. "Forced Outage Adjustment Factor" or "FOAF" has the meaning set forth in Appendix E. "Imbalance Charges" means charges for the oversupply or undersupply of energy incurred pursuant to Schedule 4 of the ComEd Open Access Transmission Tariff, or the equivalent provisions of a superseding tariff, or the Interconnection Agreement. "Interconnection Agreement" means the Interconnection Agreement to be executed between the Interconnected Utility and Seller with respect to the Facility. "Interconnected Utility" means ComEd or its successors and assigns, including the ISO. "Interconnected Utility System" means the electric transmission and distribution system owned by ComEd and its Affiliates, or their successors and assigns, including any ISO. "ISO" means any Person, other than ComEd, that becomes responsible as system operator for the transmission system to which the Units are connected. "kW" means kilowatt. "Lenders" means with respect to any Person (i) any person or entity that, from time to time, has made loans to such Person, for the financing or refinancing of the Facility or which are secured by the Facility, (ii) any holder of indebtedness of such Person, (iii) any person or entity acting on behalf of such holder(s) to which any holders' rights under financing documents have been transferred, any trustee or agent on behalf of any such holders, or (iv) any Person who purchases the Facility in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of the Facility pursuant to a net lease. "MAIN" means the Mid-America Interconnected Network. "Maintenance Outage" means the removal of a Committed Unit from service to perform work on specific components that can be deferred beyond the end of the next weekend, but requires the Committed Unit be removed from service before the next Planned Outage. Typically, Maintenance Outages may occur any time during the year, have flexible start dates, and may or may not have predetermined durations; provided, however, that any Maintenance Outage may only be performed during Off-Peak Hours. Further, such Maintenance Outage will be scheduled to be completed such that the Committed Unit is able to generate at Net Dependable Capacity for the first hour of the On-Peak Hours following such Maintenance Outage. If any Maintenance Outage is not completed within such schedule and if the Committed Unit continues to be in an outage or derating as of the first hour of the On-Peak Hours, such outage or derating shall be a Forced Outage or Forced Derating, as applicable. 4 "Month" means a calendar month commencing at 0000 CPT on the first day of such calendar month and ending at 2400 CPT on the last day of such calendar month. "MW" means megawatts. "MWh" means megawatt hours. "NERC" means the North American Electric Reliability Council. "Net Dependable Capacity" for each Committed Unit means the level of MW of that Committed Unit, based upon demonstrated output (net of station service and auxiliaries) achieved during a Capacity Test of such Committed Unit pursuant to Section 3(b), adjusted by reference to the curves in Appendix H (i) to conditions of 90(degree)F and 60% relative humidity and (ii) for expected degradation. Net Dependable Capacity shall not exceed 160 MW per Committed Unit. The Net Dependable Capacity of each Committed Unit as demonstrated by the Capacity Test will be set forth in Appendix H hereto. "Non-Summer Period" means October 1 through May 31. "Off-Peak Hours" means all hours that are not On-Peak Hours. "On-Peak Hours" means hours beginning at 0600 and ending at 2200 CPT, Monday through Friday, excluding NERC holidays. "Payment Date" means fifteen (15) Business Days after a statement is rendered by one Party to the other Party hereunder but not earlier than the 25th Day of a Month and in the event the 25th Day of the Month is not a Business Day, shall mean the next Business Day. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. "Planned Outage" means the removal of a Committed Unit from service to perform work on specific components that is scheduled well in advance and has a predetermined start date and duration (e.g., annual overhaul, inspections or testing); provided, however, that any Planned Outage may not be performed during the Summer Period. "Point of Delivery" is the point of interconnection between the Facility and the Interconnected Utility System at the metering station in the ComEd/Elwood Switchyard. "Prudent Utility Practice" means any of the practices, methods and acts required or approved by the ISO or engaged in or approved by a significant portion of the electric utility industry in the geographic region covered by MAIN during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. "Prudent Utility Practice" is not intended to be limited to the optimum practice, 5 method or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the geographic region covered by MAIN. "Requirement of Law" means any federal, state and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any federal, state, local or other governmental authority or regulatory body (including those pertaining to electrical, building, zoning, environmental and occupational safety and health requirements) or a tariff filed with any federal, state, local or other governmental authority or regulatory body. "Revenue Meter" means Seller's meter located on the generator leads of each Committed Unit. "Seller Event of Default" has the meaning specified in Section 14(a). "Site" means the real property on which the Committed Units are located. "Start Up" means the Start Up of a Committed Unit from zero generation pursuant to a Dispatch order of Buyer; provided, however, that Start Up shall not include the return to service of a Committed Unit less than twenty-four hours following a Forced Outage or Force Majeure Event. "Substitute Electric Energy" means electric energy sold and delivered by Seller to Buyer under this Agreement from a source other than a Committed Unit. "Summer Period" means the period from June 1 through September 30. "Target FOAF" means five (5) percent for the On-Peak Hours of the Summer Period. There is no Target FOAF any other hours during the Term. "Term" has the meaning specified in Section 2. "Termination Date" means the earlier of (i) December 31, 2004, or (ii) the date on which this Agreement is terminated by a Party, pursuant to its terms. "Week" means the period commencing 0000CPT on Monday and ending at 2400CPT on Sunday. (b) Interpretation. In this Agreement, unless a clear -------------- contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, in the case of a Party, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; 6 (iv) reference to any agreement (including this Agreement), document, instrument or tariff means such agreement, document, instrument or tariff as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; (v) reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, including, if applicable, rules and regulations promulgated thereunder; (vi) reference to any Section or Appendix means such Section of this Agreement or such Appendix to this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof or thereof; (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and (ix) relative to the determination of any period of time, "from" means "from and including", "to" means "to but excluding" and "through" means "through and including". (c) Legal Representation of Parties. This Agreement was ------------------------------- negotiated by the Parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party shall not apply to any construction or interpretation hereof or thereof. (d) Titles and Headings. Section and Appendix titles and ------------------- headings in this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement. (e) Order of Precedence. In the event of any conflict ------------------- between any of the provisions of this Agreement, the following order of interpretation shall prevail: (i) Appendix A (ii) Appendix E (iii) Articles 1 through 23 (iv) Appendix H (v) Appendix F (vi) Appendix G-1, Appendix G-2 (vii) Appendix C (viii) Appendix D (ix) Appendix B 7 2. Term. ---- This Agreement shall have a term (the "Term") commencing on the Effective Date and ending on the Termination Date. The provisions of Sections 6(e) (Fuel Source and Emissions Reports), 5(d) (Records), 5(e) (Auditing Rights), 10 (Limitation of Liability), 11 (Disagreements), 14 (Default, Termination and Remedies), 16 (Indemnification), 18 (Confidentiality) and 22 (Taxes) shall survive the termination of this Agreement. 3. Generating Capacity. ------------------- (a) Right to Capacity and Energy. Except as provided in ---------------------------- Section 6(b) (Excess Capacity), Sections 6(d)(ii) and (iii) (Operating Characteristics), Section 8(a) (Early Start) and Section 14(c)(ii) (Event of Default), from and after the Commercial Operations Date for each Committed Unit (i) Buyer shall have the exclusive right to the generating capacity and electric energy of such Committed Unit (net of station service and auxiliaries), and (ii) except in connection with station service and auxiliaries, Seller shall have no right to Dispatch or sell any of the generating capacity or electric energy of the Committed Units to any other Person. If a Committed Unit is operating, Seller may consume electric energy from such Committed Unit for station service and auxiliaries (including start up of other units at the Facility). (b) Testing of Capacity. ------------------- (i) Prior to the Commercial Operations Date, a Capacity Test of each Committed Unit shall be performed to determine the Net Dependable Capacity. Following the Commercial Operations Date, Buyer shall require Seller to perform a Capacity Test once each year either in May, June or July to verify the Net Dependable Capacity of each Committed Unit. Within the first three days a Committed Unit is Dispatched on-line after such Capacity Test, Seller shall have the right to reestablish Net Dependable Capacity pursuant to up to three Capacity Tests for each Committed Unit, provided, that the Capacity Tests are performed at a time Buyer is Dispatching the tested Committed Unit on-line. (ii) All Capacity Tests will be performed on a date mutually agreed by the Parties. Buyer shall have the right to have personnel present at each Capacity Test. Written test results shall be provided by Seller to Buyer within five (5) Business Days after the test is performed. The Net Dependable Capacity demonstrated by the Capacity Test (or, in the event of reperformance of the Capacity Test as elected by Seller pursuant to paragraph (i) above, as demonstrated by the last such Capacity Test) will be set forth in an exhibit to be initialed by the Parties and appended hereto as Appendix H and shall be effective as of the first day following the day on which the Capacity Test was conducted. All Capacity Tests shall be performed at Seller's expense. No tests will be conducted or continued which, in the opinion of Seller, should not be conducted or continued in accordance with Prudent Utility Practice. If Seller prevents or discontinues a test in accordance with Prudent Utility Practice, Buyer shall have the right to retest the affected Committed Unit upon prior notice to Seller 8 (iii) After the Commercial Operations Date, all electric energy (net of station service and auxiliaries) generated during a Capacity Test will be treated as a sale of Electric Energy to Buyer pursuant to this Agreement. (iv) No electric energy generated prior to the Commercial Operations Date (for startup and testing or station service or auxiliaries) will be sold to Buyer pursuant to this Agreement. (v) Testing of the Committed Units during the calendar year in which the first Contract Year occurs may require Seller to operate the Committed Units up to but not to exceed 100 hours prior to the Commercial Operations Date. These operation hours will be included in the hours of operation that count towards the 1500 hour per year operating limit of each Committed Unit set forth in Appendix A for the first Contract Year. Seller shall use all reasonable efforts to limit the number of such hours for testing. (vi) Notwithstanding the provisions of Section 4(b), during any Capacity Test, Seller shall designate a maximum level for Buyer's Dispatch during such Capacity Test which may be above the then current Net Dependable Capacity. 4. Electric Energy Supply. ---------------------- (a) Supply. Subject to the terms and conditions of this ------ Agreement, Seller shall make available at the Point of Delivery to Buyer for delivery and sale, and Buyer shall receive and purchase from Seller at the Point of Delivery, Electric Energy as Dispatched by Buyer. Buyer shall not be obligated to receive or purchase any electric energy from Seller except such Electric Energy as is Dispatched by Buyer pursuant to Section 4(b). (b) Dispatch. Beginning on the Commercial Operations Date, -------- Buyer may Dispatch the delivery of Electric Energy from each Committed Unit in accordance with the provisions set forth in Appendices A and C at a rate up to the Net Dependable Capacity for such Committed Unit (or such greater or lesser rate as Seller may from time to time declare to be Available in accordance with Appendix C). Buyer shall not Dispatch a Committed Unit (1) during any Planned Outage or Maintenance Outage, (2) during any period that Seller has designated a Forced Outage or declared a Force Majeure Event (except to the extent of Seller's ability to deliver Electric Energy during such Force Majeure Event), (3) above Seller's designated derated capacity level during the period of any Forced Derating, (4) during any period when the circumstances of Sections 6(d)(ii) or (iii) apply (to the extent such Dispatch will interfere with the response to such circumstances), or (5) during any other period when Buyer is expressly prohibited from doing so under the provisions of this Agreement. If Seller notifies Buyer that Seller will make Substitute Electric Energy available, Buyer may dispatch such Substitute Electric Energy at levels and in accordance with Seller's notice. Notwithstanding item (4) of this Section 4(b), Seller will comply with Buyer's Dispatch orders during any period when circumstances of Sections 6(d)(ii) or (iii) apply to the extent that, in the reasonable judgment of Seller, compliance with any Buyer Dispatch order is consistent with the requirements imposed upon Seller under such circumstances. (c) Operating Notifications. ----------------------- 9 (i) Week Ahead Notification. Not less than forty-eight (48) ----------------------- hours before the beginning of each Week, Buyer shall provide to Seller an estimate of its requirements, on an hour-by-hour basis, for Electric Energy, Start Ups and Ancillary Services during that Week and also, provisionally, during the following Week. These estimates shall not be binding upon Buyer and Buyer may subsequently alter its requirements. (ii) Plant Availability Notification. Seller shall, by 1200 ------------------------------- CPT each Day, inform Buyer of the estimated capacity of each Committed Unit that Seller will have Available during each hour of that Day commencing thirty-six (36) hours later and, provisionally, for the Day immediately thereafter. Seller shall advise Buyer as soon as possible of any changes in its estimated capacity for such Days. These estimates shall not be binding upon Seller and Seller may subsequently revise its estimates. (iii) Day Ahead Notification. Not later than 1000 Central ---------------------- Prevailing Time each Day, Buyer shall provide to Seller an estimate of its requirements, on an hour by hour basis, for Electric Energy, Start Ups, and Ancillary Services provisionally for the following Day. These estimates shall not be binding upon Buyer and Buyer may subsequently alter its requirements. (iv) Minimum Notification Periods. The minimum notification ---------------------------- periods required for the Dispatch of each Committed Unit and minimum on-line and off-line times are set forth in Appendix A. Buyer shall have the right to Dispatch the Committed Units in accordance with Appendix A. (d) Title and Risk of Loss. Electric Energy will be ---------------------- delivered at the Point of Delivery. Substitute Electric Energy will be delivered at a delivery point identified pursuant to Section 6(c)(iii). As between the Parties, Seller shall be deemed to be in exclusive control (and responsible for any damages or injury caused thereby) of the Electric Energy or Substitute Electric Energy prior to delivery and Buyer shall be deemed to be in exclusive control (and responsible for any damages or injury caused thereby) of the Electric Energy or Substitute Electric Energy from and after delivery. Electric Energy and Substitute Electric Energy shall be delivered by Seller free and clear of all liens, claims and encumbrances arising prior to delivery. Title to Electric Energy shall transfer from Seller to Buyer upon delivery at the Point of Delivery. Title to Substitute Electric Energy shall transfer from Seller to Buyer upon delivery at the delivery point identified pursuant to Section 6(c)(iii). (e) Transmission Costs. Seller shall be responsible for all ------------------ costs or charges imposed on or associated with the delivery of Electric Energy (or Substitute Electric Energy), including control area services, inadvertent energy flows, transmission losses and/or loss charges to the Point of Delivery (or the delivery point of Substitute Electric Energy) and all costs attributable thereto. Buyer shall be responsible for arranging for transmission and for all costs or charges imposed on or associated with the transmission of Electric Energy (or Substitute Electric Energy), including control area services, inadvertent energy flows, transmission losses and/or loss charges from the Point of Delivery (or the delivery point of Substitute Electric Energy) and all costs attributable thereto. (f) Imbalances. Each Party shall indemnify and hold the ---------- other Party harmless from any Imbalance Charges that are incurred as a result of the fault of the indemnifying Party. 10 (g) Communications. The Parties shall develop mutually -------------- acceptable procedures for communications between Seller, Buyer and the Interconnected Utility's EO Dispatch center and associated reporting forms for such communications to be appended to this Agreement as Appendices C - Communications Guidelines and D - Reporting Forms, respectively. 5. Metering; Billing; Payment. -------------------------- (a) Metering -------- (i) All Electric Energy delivered by Seller to Buyer from each Committed Units under this Agreement shall be metered by the Revenue Meter. Readings from the Revenue Meter shall be reduced for transformer and transmission line losses between the Revenue Meter and the Point of Delivery in accordance with Prudent Utility Practice. If technically feasible (as determined by the Parties) Buyer shall be permitted to install its own back-up metering system at Buyer's sole expense. The amount of megawatt-hours for which Buyer will be billed also will be adjusted by the amount of electricity that had been both generated by the applicable Committed Unit and consumed by other units at the Facility during the billing period to yield the "billable generation" for the billing period calculated as described below. To establish the kilowatt- hours of electricity provided by a Committed Unit and consumed by other units for a billing period, the total for each billing period of electricity consumed by each unit at the Facility will be determined from the individual unit meter readings using the revenue meter located at the generator leads which will then be summed for all four units. From this sum, the total monthly electricity purchased from the Interconnected Utility (as determined from the Interconnected Utility's revenue meter in the ComEd/Elwood Switchyard) will be subtracted, yielding an aggregate total of the electricity consumed by all the units that had been generated by one or more other units at the Facility. This amount will then be multiplied by the ratio of the total operating hours of a given Committed Unit to the total operating hours of all units. This product will represent the electricity generated by a given Committed Unit and consumed by other units. This value will be subtracted from the reading of the Revenue Meter for a particular Committed Unit for billing purposes for the billing period. The following example demonstrates the calculation methodology: Total Electricity generated Unit 1 - 30,000 MWh Total Electricity generated Unit 2 - 22,500 MWh Total Electricity generated Unit 3 - 15,000 MWh Total Electricity generated Unit 4 - 0 MWh Total electricity consumed Unit 1 - 20,000 kWh Total electricity consumed Unit 2 - 30,000 kWh Total electricity consumed Unit 3 - 15,000 kWh 11 Total electricity consumed Unit 4 - 1,000 kWh Total electricity consumed All Units = 20,000 + 30,000 + 15,000 + 1,000 = 67,000 kWh Total electricity purchased from the Interconnected Utility- 30,000 kWh Total electricity consumed at the Facility generated by the Facility = 67,000 - 30,000 = 37,000 kWh Unit 1 Monthly Operating Hours - 200 Unit 2 Monthly Operating Hours - 150 Unit 3 Monthly Operating Hours - 100 Unit 4 Monthly Operating Hours - 0 Total Operating Hours=200+150+100+0= 450 hours CALCULATION : Electricity Furnished by Unit 1 and consumed at the Facility = (200/450) (37,000) = 16,444 kWh (16.444 MWh) Electricity Furnished by Unit 2 and consumed at the Facility = (150/450) (37,000) = 12,333 kWh (12.333 MWh) Electricity Furnished by Unit 3 and consumed by the Facility = (100/450) (37,000) = 8,222 kWh (8.222 MWh) Electricity Furnished by Unit 4 and consumed by the Facility = (0/450) (37,000) = 0 kWh Billable Generation Unit 1 = 30,000 - 16.444 = 29,983 MWh Billable Generation Unit 2 = 22,500 - 12.333 = 22,488 MWh Billable Generation Unit 3 = 15,000 - 8.222 = 14,992 MWh Billable (ii) The Revenue Meter shall be tested by the Parties at least once each year at Seller's expense and at any other reasonable time upon request by either Party, at the requesting Party's expense. Seller shall give Buyer at least fourteen (14) days notice of 12 any testing of the Revenue Meters and Buyer shall have the right to be present during all testing and shall be furnished all testing results on a timely basis. (iii) If testing of the Revenue Meter indicates an inaccuracy in measurement of Electric Energy of more than +/- 0.5% has occurred, the affected Revenue Meter shall be recalibrated promptly to register accurately within the Revenue Meter manufacturer stated tolerances. (iv) Each Party shall comply with any reasonable request of the other concerning the sealing of meters (including both Revenue Meters and any Buyer back up meters), the presence of a representative of the other Party when the seals are broken (for which the applicable Party shall provide 72 hours advance notice to the other Party) and the tests are made, and other matters affecting the accuracy of the measurement of Electric Energy delivered from the Committed Units. If either Party believes that there has been a meter failure or stoppage, it shall immediately notify the other Party. (v) If, for any reason, any Revenue Meter is out of service or out of repair so that the amount of Electric Energy delivered cannot be ascertained or computed from the readings thereof, the Electric Energy delivered during the period of such outage shall be estimated and agreed upon by the Parties hereto upon the basis of the best data available. (b) Billing. As soon as practicable after the end of each ------- Month commencing with the first Month of the first Contract Year and after the Termination Date, Seller shall render a statement to Buyer for the amounts due in respect of such Month under Section 6(b) and Article 7, which statement shall contain reasonable detail showing the manner in which the applicable charges were determined. Billings for Electric Energy shall be based on Revenue Meter information. The amount due to Seller as shown on any such Monthly statement rendered by Seller shall be paid by Buyer by electronic wire transfer to an account specified by Seller by the Payment Date. Any amount not paid by Buyer when due shall bear interest at the Default Rate from the date that the payment was due until the date payment by Buyer is made. (c) Billing Disputes. ---------------- (i) If a Party in good faith disputes an amount claimed to be due and payable hereunder by the other Party, it shall make such payment under protest and thereafter shall be reimbursed by the other Party for any amount in error after resolution for the dispute in accordance with Section 5(c)(ii). (ii) In the event that a Party, by timely notice to the other Party, questions or contests the correctness of any charge or payment claimed to be due by the notified Party, the notified Party shall promptly review the questioned charge or payment and shall respond to the contesting Party, within fifteen Business Days following receipt of such notice, with a statement of the amount of any error and the amount of any reimbursement that the contesting Party is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen (15) Business Days after receipt of such responding statement shall be resolved in accordance with Section 11. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by the owing Party. 13 (iii) Reimbursements made under this Section 5(c) shall include interest from the date the original payment was made until the date such reimbursement together with interest is made, which interest shall accrue at the Default Rate. (d) Records. Each Party shall keep and maintain all records ------- as may be necessary or useful in performing or verifying any calculations made pursuant to this Agreement, or in verifying such Party's performance hereunder. All such records shall be retained by each Party for at least three (3) calendar years following the calendar year in which such records were created. Each Party shall make such records available to the other Party for inspection and copying at the other Party's expense, upon reasonable notice during such Party's regular business hours, provided, however, that in the event that a Party, in good faith, deems any such records to contain proprietary information, the disclosure of which could result in substantial harm or competitive disadvantage for such Party ("Competitive Information"), such records shall only be made available to the auditor appointed pursuant to Section 5(e). (e) Auditing Rights. On a quarterly basis and at any other --------------- time there is a good faith dispute with regard to any calculation made pursuant to this Agreement, each Party shall have the right to request that an audit of the other Party's books and records relevant to the calculation be performed (including transactions pursuant to Section 7(c)(ii)). The auditor (who may be an employee or other representative of the auditing Party or its Affiliates) will be selected by the auditing Party but shall be subject to the consent of the other Party, such consent not to be unreasonably withheld. The Party whose books and records are subject to examination shall have the right to require that Competitive Information of the Party be kept confidential by the auditor. The Parties will execute a confidentiality agreement to protect the confidentiality of Competitive Information, and the examining Party will assume responsibility for compliance with the Confidentiality Agreement by its auditor(s). In such case, the auditor shall report the results of its findings to the disputing Party but shall not reveal the Competitive Information to the disputing Party. 6. Operation of Committed Units. ---------------------------- (a) Standard of Operation. Consistent with Prudent Utility --------------------- Practice, Seller shall use reasonable efforts to operate each Committed Unit in accordance with (i) the practices, methods, acts, guidelines, standards and criteria of MAIN, NERC, the Interconnected Utility, the ISO and any successors to the functions thereof; (ii) the requirements of the Interconnection Agreement; and (iii) all applicable Requirements of Law. Seller will obtain all certifications, permits, licenses and approvals necessary to operate and maintain each Committed Unit and to perform its obligations under this Agreement during the Term. Seller shall notify Buyer promptly in the event of any changes in the practices, methods, acts, guidelines, standards or criteria of MAIN, NERC, the Interconnected Utility, the ISO or any successor thereto or of any changes to the Interconnection Agreement from the draft dated March 9,1999 and shall provide a copy thereof to Buyer. Seller shall not agree to any change to the Interconnection Agreement from the draft dated March 9, 1999 that would have a material adverse affect on any of Buyer's rights under this Agreement, without the prior written consent of Buyer, which shall not be unreasonably withheld, or delayed. 14 (b) Excess Capacity. Buyer acknowledges that each Committed --------------- Unit may have a capability in excess of its Net Dependable Capacity but that Seller will not operate the Committed Units at such levels under normal conditions. If Seller, in its sole discretion, desires to operate a Committed Unit such that it shall have electric generation capacity in excess of its Net Dependable Capacity ("Excess Capacity"), Seller shall offer to sell such capacity and associated electric energy (net of station service and auxiliaries) and Ancillary Services first to Buyer based on a separate cost-based pricing structure (as further described below), with profits from the sale of such Excess Capacity, associated electric energy and Ancillary Services shared 85% to Seller and 15% to Buyer. The pricing structure will be subject to the mutual agreement of the Parties at the time of the offer. "Cost-based" for the purpose of this provision shall mean the incremental variable cost to Seller to operate the Committed Unit at the Excess Capacity level as compared to the Net Dependable Capacity level. If Buyer declines to purchase such Excess Capacity (and associated electric energy or Ancillary Services), Seller may offer and sell Excess Capacity (and associated electric energy or Ancillary Services) to third parties on the same terms as offered by Seller to Buyer. Such Excess Capacity (and associated electric energy or Ancillary Services) may only be sold by Seller to third parties during hours that Buyer has scheduled the Committed Unit to be generating Electric Energy. It is further understood that, in the event that any such Excess Capacity sales shall be made and a derating of the associated Committed Unit occurs, such Excess Capacity (and associated electric energy or Ancillary Services) sales shall be curtailed in full before any curtailment of Electric Energy Dispatched by Buyer from such Committed Unit as a result of such derating. In the case of each sale of Excess Capacity, as soon as practical thereafter (and after Seller has provided all Seller information necessary for Buyer to prepare such reports), Buyer shall prepare and provide to Seller a report (subject to audit pursuant to Section 5(e) of this Agreement) that summarizes all such sales of Excess Capacity, the revenue derived therefrom and a calculation of the profits to be split among the Parties as specified in this Section 6(b). (c) Outages. ------- (i) Planned Outages. No later than July 1, 1999, Seller --------------- shall submit to Buyer a proposal schedule of Planned Outages scheduled by Seller for the period October 1 through December 31, 1999. No later than September 30, 1999 and each anniversary thereof, Seller shall submit to Buyer a proposed schedule of Planned Outages scheduled by Seller for the following Contract Year for the Committed Units, which schedule shall be supplemented by Seller every six months thereafter to extend the period covered by such schedule by six months; provided, however, that no Planned Outage may be scheduled to cover any portion of the Summer Period. Such schedule, and each supplement thereto, shall indicate the planned start and completion dates for each Planned Outage during the period covered thereby and the amount of the Net Dependable Capacity of a Committed Unit that will be affected. Within thirty (30) days of receipt of such schedule or any supplement thereto, Buyer may request reasonable modifications in the Planned Outages schedule contained therein. If within three (3) months prior to the scheduled start of a Planned Outage, Buyer desires to change the scheduled start or duration of such Planned Outage, Buyer shall notify Seller of Buyer's requested change, Seller shall use reasonable efforts to accommodate Buyer's request, but in the event the change would result in additional costs to Seller, Seller shall propose compensation from Buyer to Seller for such additional costs. Buyer shall then have the right to either direct such change and pay Seller such compensation, or withdraw the request for such change. 15 At least one week prior to any Planned Outage, Seller shall orally notify Buyer of the expected start date of such Planned Outage, the amount of generating capacity at the Committed Units which will not be available to Buyer during such Planned Outage, and the expected completion date of such Planned Outage. Seller shall orally notify Buyer of any subsequent changes in such generating capacity not available or any subsequent changes in the Planned Outage completion date. As soon as practicable, all such oral notifications shall be confirmed in writing. (ii) Maintenance Outages. To the extent that during any ------------------- Contract Year Seller needs to schedule a Maintenance Outage of a Committed Unit, Seller shall notify Buyer of such proposed Maintenance Outage and the Parties shall plan such outage of generating capacity to mutually accommodate the reasonable requirements of Seller and service obligations of Buyer. Notice of a proposed Maintenance Outage shall include the expected start date of the outage, the amount of Net Dependable Capacity of a Committed Unit that will not be Available and the expected completion date of the outage, and shall be given to Buyer at the time the need for the Maintenance Outage is determined by Seller. Buyer shall promptly respond to such notice and may request reasonable modifications in the schedule for the outage. Seller shall use all reasonable efforts to comply with such a request to reschedule a Maintenance Outage, provided that it is able to do so in accordance with the Design Limits and Prudent Utility Practice as such practice relates solely to Seller's operation of the Facility. Seller shall notify Buyer of any subsequent changes in such generating capacity not Available to Buyer or any subsequent changes in such Maintenance Outage completion date. As soon as practicable, any such notifications given orally shall be confirmed in writing. (iii) Forced Outage. Seller shall within one (1) hour of its ------------- occurrence, provide to Buyer an oral report in accordance with the provisions of Appendix C of any unplanned event that affects the ability of the Committed Units to be Available, which report shall include the amount of the Net Dependable Capacity at the Committed Units that will not be Available because of such unplanned event and the expected return date of such generating capacity, and shall update such report as necessary to advise Buyer of changed circumstances. As soon as practicable, all such oral reports shall be confirmed in writing. If Seller experiences an unplanned event that, in any such instance, continues for a period of three (3) consecutive days or longer, Seller may, at no additional cost to Buyer, make Substitute Electric Energy and capacity available to Buyer at a delivery point acceptable to Buyer inside the Control Area of the Interconnected Utility or any other mutually acceptable location. To the extent Seller makes Substitute Electric Energy and capacity available to Buyer in accordance with and in fulfillment of Buyer's Dispatch, the Committed Units shall be considered Available for purposes of calculation of the FOAF. Notwithstanding the above, Seller is not obligated to provide Substitute Electric Energy to Buyer at any time, and, except as provided in Section 10, Buyer's sole remedy and Seller's sole liability for failure to deliver Electric Energy as Dispatched by Buyer shall be the adjustment to Capacity Payments based upon the Capacity Adjustment Factor. (iv) Non-Summer Period. Notwithstanding that there is no ----------------- Target FOAF during Non-Summer Periods, Seller shall use commercially reasonable efforts to achieve a high level of availability for the Committed Units during the Non-Summer Periods. 16 (v) Information Related to Outages. In addition to the ------------------------------ foregoing, Seller shall provide to Buyer information relating to outages of generating capacity at the Committed Units which could affect Seller's ability to deliver Electric Energy from such Units. (d) Operating Characteristics. ------------------------- (i) The operating characteristics of each Committed Unit shall be consistent with the Design Limits for such Committed Unit set forth in Appendix A unless otherwise mutually agreed upon by the Parties. Any changes to such operating characteristics which may affect the delivery of Electric Energy pursuant to this Agreement must be agreed by the Parties. (ii) Buyer understands that Seller may be required to increase, reduce, curtail or interrupt electrical generation at the Committed Units in accordance with Prudent Utility Practice or take other appropriate action in accordance with the applicable provisions of the Interconnection Agreement which in the reasonable judgment of the Interconnected Utility may be necessary to operate, maintain and protect the Interconnected Utility System or the transmission system of another utility during an Emergency Condition or in the reasonable judgment of Seller may be necessary to operate, maintain and protect the Committed Units during an Emergency Condition. For purposes of calculating the FOAF, the Committed Units shall not be considered to be under a Forced Outage or Forced Derating during any such increase, reduction, curtailment, or interruption, required by the Interconnected Utility except as provided in paragraph (iv) below. (iii) Buyer acknowledges that other conditions on the Interconnected Utility System (for example, transmission outages or interruptions) may impact Seller's ability to deliver Electric Energy into the Interconnected Utility System at the Point of Delivery. For purposes of calculating the FOAF, and except as provided in paragraph (iv) below, the Committed Units shall not be considered to be under Forced Outage or Forced Derating during any time that the Committed Units would have been actually Available but for conditions (including, for example, transmission outages or interruptions) on the Interconnected Utility System. (iv) In the event that the Interconnected Utility has suspended, terminated or otherwise interrupted transmission of the electric energy of a Committed Unit due to a breach of or default under the Interconnection Agreement by Seller alleged by the Interconnected Utility by written notice of breach or default by Seller pursuant to the terms of the Interconnection Agreement to have occurred, the Committed Unit will be considered under a Forced Outage or Forced Derating for the purpose of calculating the FOAF, whether or not such claim by the Interconnected Utility is ultimately resolved in Seller's favor. (v) If the Interconnected Utility requires Seller to alter the level of electrical generation (net of station service and auxiliaries) at a Committed Unit, pursuant to Section 6(d)(ii) or (iii), then Seller shall notify Buyer as soon as practicable. Seller will make reasonable efforts to sell to Buyer any energy (net of station service and auxiliaries) 17 generated during such circumstances to the extent practicable and consistent with any such order from the Interconnected Utility provided, however, if Seller is unable to sell such energy to Buyer, Buyer recognizes and agrees that Seller shall have the right to sell or provide such energy to the Interconnected Utility. (e) Fuel Source and Emissions Reports. Seller shall provide --------------------------------- Buyer with information concerning Seller's fuel sources and emissions (including carbon dioxide, nitrous oxides and sulfur dioxide omissions) as reasonably requested by Buyer in order to allow Buyer to meet its statutory reporting obligations (including those reporting obligations imposed by Section 16-127 of the Illinois Public Utilities Act and associated rules of the Illinois Commerce Commission) in respect of such information to governmental bodies, customers or other Persons. 7. Compensation. ------------ (a) Monthly Charges. Unless the Commercial Operations Date --------------- has not occurred and Seller has declared such delay to have resulted from an Event of Force Majeure in accordance with the terms of this Agreement, Buyer shall pay to Seller, in respect of each Month commencing with the first Month of the first Contract Year, the amounts specified in this Section 7(a). To the extent the Commercial Operations Date has not occurred as a result of a Force Majeure Event declared by Seller, Buyer shall be relieved of its obligation to make such payments (prorated daily) until the Commercial Operations Date occurs. (i) Capacity Payment. A Capacity Payment calculated based ---------------- upon the applicable Capacity Charge for that Month. In the event that the Commercial Operations Date has not occurred by July 1, 1999 (and to the extent the delay is not excused by a Force Majeure Event), the Capacity Payment shall be based on a Net Dependable Capacity of 150 MW per Committed Unit until the Net Dependable Capacity has been determined by a Capacity Test. (ii) Electric Energy Charge. For each hour during that Month, ---------------------- an amount equal to the product of the Electric Energy (expressed in MWh) sold to Buyer under this Agreement during such hour, multiplied by $/MWh applicable to the Dispatch level of a Committed Unit set forth below: $/MWh Dispatch Level ----- -------------- $30.00/MWh 100% $31.00/MWh 90% $32.00/MWh 80% $33.50/MWh 70% $35.00/MWh 60% For Dispatch levels between the above percentages, the prices will be prorated to the proportionate level between the points in the table. The Dispatch level will be determined by the Dispatch level requested by Buyer for such hour. (iii) Substitute Electric Energy Charge. Buyer shall pay for --------------------------------- the Substitute Electric Energy at the lesser of $30.00/MWH or the cost to Seller for the Substitute 18 Electric Energy, delivered to the substitute delivery point. Seller shall provide Buyer with information regarding the cost of Substitute Electric Energy as soon as reasonably practical. (iv) Emergency Condition. If (x) Seller is required by the ------------------- Interconnected Utility to operate a Committed Unit pursuant to Sections 6(d)(ii) or (iii) either at a time when Buyer has not Dispatched such Committed Unit on-line or at a level above the level Dispatched by Buyer, and (y) to the extent Seller does not sell to Buyer any energy generated as a result pursuant to Buyer's rights under Section 6(d)(v), then Seller shall pay to Buyer the portion of any amounts Seller receives from the Interconnected Utility for such energy generated during such period that exceeds what Buyer would have paid to Seller for such energy pursuant to Section 7(a)(ii). (b) Start Up Charge. For each Start Up of a Committed Unit --------------- Seller shall be entitled to a payment of $2500.00 (the "Start Up Charge"). No Start Up Charge shall be payable unless a Committed Unit reaches at least 90% of the Dispatch level requested by Buyer. (c) Profit Sharing. -------------- (i) For any Contract Year in which Buyer has a positive Net Margin (as hereinafter defined), Buyer and Seller shall share such positive Net Margin based 16.25% Seller / 83.75% Buyer. The Net Margin shall be calculated as follows: Net Margin = AGR - RC where: AGR = Buyer's annual gross revenues from the sales of Electric Energy, capacity and Ancillary Services (including gains from the purchase or sale of financial instruments related to such sales) from the Committed Units during such Contract Year. RC = The total of the adjusted Capacity Payments, Energy Charges and Start Up Charges due from Buyer to Seller for such Contract Year, plus the costs incurred by Buyer to make sales of capacity, Electric Energy and Ancillary Services from the Committed Units to third parties during such Contract Year, including (i) all costs of transmission from the Point of Delivery, (ii) charges imposed by regulatory authorities with respect to such sales, (iii) non-income related taxes, (iv) unit availability insurance costs, (v) costs (such as premiums) and losses resulting from the purchase and sale of financial instruments related to such sales (but specifically excluding Buyer costs and losses related to Buyer's breach of the terms of such instruments), (vi) broker's fees associated with the sale of Electric Energy and (vii) all other costs, losses or expenses mutually acceptable to the Parties. (ii) To allow verification of the components of the Net Margin, all transactions based on the Committed Units will be kept in a separate book of business by Buyer (the "Elwood Book"), and copies of the documents listed below will be made 19 available to Seller for inspection, pursuant to Seller's request and subject to the Confidentiality Agreement referred to in Section 5(e). In addition, Buyer shall maintain and provide reports (including information included in (w), (x), (y) and (z) below) to Seller each Month using the forms to be developed and included in Appendix D. (w) Copies of all confirmations of purchases and sales of financial instruments associated with the Electric Energy, capacity and Ancillary Services of the Committed Units. (x) Copies of all term contracts (with counterparty names redacted) associated with the Electric Energy, capacity and Ancillary Services of the Committed Units. (y) Copies of all confirmations (with counterparty names redacted) relating to daily transactions from the Committed Units; and (z) For hourly transactions not covered by (x) or (y) above, the average price of all of Seller's trades in the MAIN region in that hour will be used in the gross revenue calculation for that hour. (iii) The calculation and payment of any amount due to Seller shall be made by Buyer no later than February 28 of each Contract Year for the previous Contract Year. Seller shall have auditing rights in accordance with the procedures set forth in Section 5(e) to the Elwood Book in Buyer's internal electric trading system (EXTRA) or any replacement program or system. This system will list counterparties, transaction size, sale price and duration. In addition to the entries into this system, there will also be an audit trail provided by the Dispatch schedule of the Committed Units and the NERC tagging procedures related to the Dispatch of the Committed Units. For those hours that a Committed Unit was dispatched, Seller shall have auditing rights in accordance with the procedures set forth in Section 5(e) to EXTRA for all of Buyer's trades in that hour in the MAIN region. The information described in this Section 7(c)(iii) shall be treated as Competitive Information of Buyer unless otherwise agreed by Buyer. (iv) For all sales after July 1, 1999, Buyer shall have sole discretion in determining the nature, type and quantity of resales to third parties of output from the Committed Units of capacity, Electric Energy and Ancillary Services, including the identity of the purchaser, the term of the contract or other arrangement for the sale, the price or any other terms and conditions of the sale. Buyer shall have no obligation to market the capacity, Electric Energy or Ancillary Services of the Committed Units to any particular customer or market and nothing in this Agreement shall affect Buyer's discretion with respect to marketing other sources of generating capacity or energy available to it. (d) Capacity Adjustment Factor. No later than January 31 of -------------------------- each Contract Year, Buyer shall calculate an adjustment to the Capacity Payments as described below (the "Capacity Adjustment Factor") and shall provide a written statement to Seller setting forth its calculations. For every one percent (1)% (or portion thereof) that the aggregate FOAF of both Committed Units during the prior Contract Year exceeds the Target FOAF, Buyer shall be 20 entitled to a credit in an amount equal to one percent (1%) (or a portion thereof) of the aggregate Capacity Payments received by Seller for the prior Contract Year (or in the case of the first Contract Year, since July 1, 1999); provided, however, that in no event shall Buyer's credit under this Section 7(d) exceed the annual amount of aggregate Capacity Payments actually received by Seller for the prior Contract Year. For every one (1)% (or portion thereof) that the aggregate FOAF of both Committed Units during the prior Contract Year is less than the Target FOAF, Buyer shall owe Seller a bonus of one percent (1%) (or portion thereof) of the aggregate Capacity Payments Seller received during the prior Contract Year (or in the case of the first Contract Year, since July 1, 1999). If a credit is due to Buyer pursuant to this Section 7(d), it shall be applied by Buyer as an offset against amounts due to Seller hereunder. If a bonus is due to Seller, it shall be paid within fifteen (15) Business Days following delivery to Seller of the statement showing the calculation of the Capacity Adjustment Factor. At the end of the Term, the FOAF shall be calculated within thirty (30) days after the end of the Term and any payment due from one Party to the other will be made within fifteen (15) Business Days following such calculation. If the end of the Term occurs during a Summer Period, the FOAF calculation shall be adjusted as appropriate for the truncated period. If Net Dependable Capacity changes during a Summer Period, then for purposes of calculating the Capacity Adjustment Factor for such Summer Period, Net Dependable Capacity shall be deemed to be the weighted average Net Dependable Capacity over such Summer Period. (e) Energy Imbalance Charges/ Other Charges and Penalties. To the ----------------------------------------------------- extent a Party incurs Imbalance Charges for which the other Party is liable pursuant to Section 4(f), such Party will provide a statement to the other Party of such costs no more frequently than once each Month, together with supporting documentation, and the amount is shown on such statement will be due on the Payment Date. (f) Rates Not subject to Review. The rates for service specified --------------------------- herein (i.e., delivery of Electric Energy, Substitute Electric Energy and capacity) shall remain in effect for the term of this Agreement, and shall not be subject to change through application to FERC pursuant to provisions of Section 205 of the Federal Power Act, absent agreement of the Parties. 8. Early Start; Delayed Start. -------------------------- (a) Early Start. Seller anticipates that the Commercial Operations ----------- Date will occur no later than July 1, 1999. If the Commercial Operations Date occurs prior to July 1, 1999, then until July 1, 1999, Buyer shall market the output (net of station service and auxiliaries) of the Committed Units for Seller, under the arrangements described in this Section 8(a). The Dispatch of the Committed Units for the purpose of these sales will be subject to the mutual agreement of Buyer and Seller. Buyer shall be entitled to 15% of the "Net Profits" (as hereinafter defined) from such sales. "Net Profits" for the purposes of this Section 8(a) shall mean the profits remaining after each Party has been reimbursed for its costs and expenses related to such sales, including (i) Seller's direct operation and maintenance expenses incurred in producing such Electric Energy, (ii) the cost of fuel used for such generation (including transportation costs), (iii) transmission costs, (iv) costs (such as premiums), losses resulting from the purchase and sale of financial instruments related to such sales (but specifically excluding Buyer costs and losses related to Buyer's breach of the terms of such instruments), (v) charges imposed by regulatory authorities with respect to such sales, (vi) non-income related taxes, (vii) unit availability insurance costs, (viii) broker's fees associated with the sale of Electric Energy 21 and (ix) all other costs or expenses mutually acceptable to the Parties. (b) Delay Liquidated Damages. ------------------------ (i) If the Commercial Operations Date for a Committed Unit does not occur by July 1, 1999, (and to the extent such delay is not excused by a Force Majeure Event declared by Seller), Seller shall owe Delay Liquidated Damages to Buyer in an amount equal to $870 per day multiplied by 150 MW for each day after July 1, 1999 until the earlier to occur of (x) August 31, 1999, or (y) the date on which the Commercial Operations Date has been achieved for such Committed Unit. For the avoidance of doubt, the Commercial Operations Date cannot occur for a Committed Unit unless such Committed Unit is capable of generating at least 90 MW. (ii) If the Commercial Operations Date for a Committed Unit has not been achieved by September 1, 1999 (and to the extent such delay is not excused by a Force Majeure Event declared by Seller), no Capacity Payment shall be due from Buyer for the first Contract Year and Seller shall have no liability for any Delay Liquidated Damages, or any other damages whatsoever as a result of such delay other than (x) the Delay Liquidated Damages owed pursuant to Section 8(b)(i) above, and (y) for circumstances described in Section 10(d), the remedy set forth in such Section 10(d). (iii) If the Commercial Operation Date for a Committed Unit has not occurred by January 1, 2000 (and to the extent such delay is not excused by a Force Majeure Event declared by Seller), Seller shall owe Delay Liquidated Damages commencing on January 1, 2000 in an amount equal to $164 per day multiplied by 150 MW for each day commencing January 1, 2000 until the Commercial Operations Date has been achieved for such Committed Unit. (iv) The Delay Liquidated Damages due from Seller pursuant to this Section 8(b) shall be applied currently as a credit against any Capacity Payments due from Buyer for the same time period. 9. Ancillary Services. ------------------ Buyer shall be entitled (at no extra charge) to all Ancillary Services with respect to the Net Dependable Capacity at the Delivery Point. Such services are described in the Interconnecting Utility's Open Access Transmission Tariff as filed with FERC, and as Seller is permitted to provide (including reactive supply and voltage control from generation sources, regulation and frequency response, operating spinning reserve and supplemented operating reserve) consistent with any requirements of the Interconnection Agreement, FERC, MAIN, NERC, any ISO and any successors to the functions thereof, provided that Seller can provide such Ancillary Services without adverse operational impact on Seller's operations in accordance with Design Limits included in Appendix A. 10. Limitation of Liability. ----------------------- (a) In no event or under any circumstances shall either Party (including such Party's Affiliates and such Party's and such Affiliates' respective directors, officers, employees 22 and agents) be liable to the other Party (including such Party's Affiliates and such Party's and such Affiliate's respective directors, officers, employees and agents) for any special, incidental, exemplary, indirect, punitive or consequential damages or damages in the nature of lost profits, whether such loss is based on contract, warranty or tort (including intentional acts, errors or omissions, negligence, indemnity, strict liability or otherwise). A Party's liability under this Agreement shall be limited to direct, actual damages, and all other damages at law or in equity are waived. (b) Buyer's sole remedies and Seller's sole liabilities (i) for Seller's failure to meet Target FOAF, or to deliver Electric Energy as Dispatched by Buyer shall be the adjustment to Capacity Payments based upon the Capacity Adjustment Factor subject to the limit on Seller's liability for such adjustment set forth in Section 7(d), and eventual termination pursuant to Section 14(d) and (ii) for circumstances described in Sections 10(c) and (d) below, the remedy set forth in such Sections 10(c) and (d); (c) For late Commercial Operations Date (unless such delay is excused by a Force Majeure Event), Buyer shall be entitled to Delay Liquidated Damages set forth in Section 8(b), subject to the limitation on Seller's liability set forth in such Section 8(b). (d) If Seller sells or provides electric energy from a Committed Unit (net of station service and auxiliaries) to any Person other than Buyer (other than pursuant to Seller's rights under Sections 3(a)(ii), 3(b)(iv) and (v), 6(b), 6(d) (so long as Seller complies with the provisions of Section 7(a)(iv)) or 14(c)(ii)), then, Buyer shall be entitled: (i) to recover from Seller the cost of cover for replacement energy purchased by Buyer, and (ii) to seek specific performance of this Agreement by Seller by a court of competent jurisdiction. Seller agrees not to defend such action by pleading that Buyer has an adequate remedy at law, or that specific performance is otherwise not available. 11. Disagreements. ------------- (a) Negotiations. The Parties shall attempt in good faith to resolve ------------ all disputes promptly by negotiation, as follows. A Party may give the other Party written notice of any dispute not resolved in the normal course of business. Executives of both Parties at levels at least one level above the personnel who have previously been involved in the dispute shall meet at a mutually acceptable time and place within ten (10) days after delivery of such notice, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. If the matter has not been resolved within thirty (30) days from the referral of the dispute to senior executives, or if no meeting of senior executives has taken place within fifteen (15) days after such referral, either Party may initiate legal action. If a Party intends to be accompanied at a meeting by an attorney, the other Party shall be given at least three (3) Business Days' notice of such intention and may also be accompanied by an attorney. All negotiations pursuant to this clause are confidential. (b) Settlement Discussions. The Parties agree that no written ---------------------- statements of position or offers of settlement made in the course of the negotiations described in Section 11(a) 23 above will be offered into evidence for any purpose in any litigation or arbitration between the Parties, nor will any such written statements or offers of settlement be used in any manner against either Party in any such litigation or arbitration. Further, no such written statements or offers of settlement shall constitute an admission or waiver of rights by either Party in connection with any such litigation or arbitration. At the request of either Party, any such written statements and offers of settlement, and all copies thereof, shall be promptly returned to the Party providing the same. (c) Obligations to Pay Charges and Perform. If a disagreement should -------------------------------------- arise on any matter which is not resolved as provided in Section 11(a), then, pending the resolution of the disagreement, Seller shall continue to operate the Committed Units in a manner consistent with the applicable provisions of this Agreement and Buyer shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. 12. Assignment; Transfer of Committed Units. --------------------------------------- (a) Assignment. Except as set forth in this Section 12, neither Party ---------- may assign its rights or obligations under this Agreement without the prior written consent of the other Party, which shall not be unreasonably withheld. Either Party may assign this Agreement, without the consent of the other Party to an Affiliate, but no such assignment shall release such assignor from any obligations hereunder whether arising before or after such assignment. For the purposes of this Section 12(a), any direct transfer or series of direct transfers (whether voluntary or by operation of law) of a majority of the outstanding voting equity interests of a Party (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of such Party) to any party other than an Affiliate shall be deemed an assignment of this Agreement. (b) Consent to Assignment to Lender. Notwithstanding the above, Buyer ------------------------------- hereby consents to the assignment by Seller of a security interest in this Agreement to its Lenders. Buyer further agrees to execute documentation to evidence such consent reasonably required by the Lenders typical for project finance (including an opinion of its counsel in typical form regarding such consents and this Agreement). Buyer recognizes that such consent may grant certain rights to such Lenders, which shall be fully developed and described in the consent documents, including but not limited to (i) this Agreement shall not be amended or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, (ii) the Lenders shall be given notice of, and a reasonable time period at least sixty (60) days beyond that granted to Seller, to cure any Seller breach or default of this Agreement, (iii) if a Lender forecloses, takes a deed in lieu or otherwise exercises its remedies pursuant to any security documents, that Buyer shall, at Lender's request and provided that any breach by Seller has been cured (to the extent any such breaches can be cured by the payment of money) and Seller's security provided under Section 13(b) remains in place, continue to perform all of its obligations hereunder, and Lender or its nominee may perform in the place of Seller, and may assign this Agreement to another party in place of Seller, and enforce all of Seller's rights hereunder, (iv) that Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of the Facility, (v) that Buyer shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (vi) that Buyer shall make all payments to an account designated by Lender(s), and (vii) that Buyer shall 24 make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) Buyer's corporate existence, (B) Buyer's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of this Agreement on Buyer, (D) receipt of regulatory approvals (if any) by Buyer with respect to its performance under this Agreement, and (E) whether any defaults by Seller are known by Buyer then to exist under this Agreement. 13. Security. -------- (a) Buyer Security. No later than thirty (30) days after the -------------- Effective Date, Buyer shall post with Seller a letter of credit in a form reasonably acceptable to Seller in the same amount as the parent guarantee in Appendix F, or, at Buyer's option, a parent guarantee in the form of Appendix F. If a letter of credit is posted, Buyer shall replace such letter of credit when necessary to ensure that such security is continuously in place through the Term. If Buyer fails to pay any amounts due pursuant to this Agreement, Seller may draw such amounts from the letter of credit, and within ten (10) days thereafter, Buyer must restore the letter of credit to the full original value. In addition, if Buyer has not posted a replacement letter of credit at least ten (10) days prior to the expiration of the then current letter of credit, Seller may draw the full amount of the existing letter of credit. Buyer may, at its option, provide two guarantees (from The Coastal Company and another entity acceptable to Seller in its sole discretion) which total $109,032,000. If two guarantees are provided, changes may be made to the form of the guarantees as appropriate to reflect that each guarantor is liable for 50% of the indebtedness. Buyer shall remain obligated to provide the guarantee in the form of Appendix F until such time as Seller finds that the guarantor in addition to The Coastal Corporation is acceptable to Seller. (b) Seller Security. No later than thirty (30) days after the --------------- Effective Date, Seller shall furnish to Buyer parent guarantees in the form of Appendix G-1 and Appendix G-2. 14. Default; Termination and Remedies. --------------------------------- (a) Seller Default. The occurrence and continuation of any of the -------------- following events or circumstances at any time during the Term, except to the extent caused by, or resulting from, an act or omission of Buyer in breach of this Agreement, shall constitute an event of default by Seller ("Seller Event of Default"): (i) Seller fails to pay any sum due from it hereunder on the due date thereof and such failure is not remedied within fifteen (15) days after receipt of written notice thereof; (ii) the Bankruptcy of Seller or any guarantor thereof; (iii) Seller's failure to furnish the guarantee as required by Article 13; or (iv) Seller fails in any material respect to perform or comply with any other obligation in this Agreement on its part to be observed or performed (other than Seller's obligations to meet Target FOAF or to comply with Buyer's Dispatch orders for which the exclusive remedies are enumerated in Section 10(b)) which failure materially and adversely affects Buyer, and if reasonably capable of remedy, is not remedied within sixty (60) days after Buyer has given written notice to Seller of such failure and requiring 25 its remedy; provided, however, that if such failure cannot reasonably be cured within such period of sixty (60) days, such failure shall not constitute a Seller Event of Default if Seller has promptly commenced and is diligently proceeding to cure such default. (b) Buyer Default. The occurrence and continuation of any of the ------------- following events or circumstances at any time during the Term, except to the extent caused by, or resulting from, an act or omission of Seller in breach of this Agreement, shall constitute an event of default by Buyer ("Buyer Event of Default"): (i) Buyer fails to pay any sum due from it hereunder on the due date thereof and such failure is not remedied within fifteen (15) days after receipt of Seller's notice to Buyer of such failure requiring its remedy; (ii) the Bankruptcy of Buyer or any guarantor thereof; (iii) Buyer's failure to post or replace security as required by Article 13; or (iv) Buyer fails in any material respect to perform or comply with any other obligation in this Agreement on its part to be observed or performed which failure materially and adversely affects Seller, and if reasonably capable of remedy, is not remedied within sixty (60) days after Seller has given written notice to Buyer of such failure and requiring its remedy; provided, however, that if such failure cannot reasonably be cured within such period of sixty (60) days, such failure shall not constitute a Buyer Event of Default if Buyer has promptly commenced and is diligently proceeding to cure such default. (c) Remedies. -------- (i) Upon the occurrence and during the continuance of a Buyer Event of Default or a Seller Event of Default, the non-defaulting Party may at its discretion terminate this Agreement upon thirty (30) days prior written notice to the Party in default. (ii) Upon the occurrence of a Buyer Event of Default pursuant to Section 14(b)(i), (ii) or (iii), and beginning on the 61st day after Seller's notice under Section (b)(iv) above, Seller shall use reasonable efforts to sell all electric energy (net of station service and auxiliaries) and capacity to third parties without liability to Buyer whatsoever until such time as the Event of Default or failure under section (iv) is cured or this Agreement is terminated. If such sales are made, Seller shall make reasonable efforts to sell both capacity and electric energy (net of station service and auxiliaries) at prices equal to or greater than the prices Buyer would have paid hereunder. If the sales prices are less than those Buyer would be liable for under this Agreement, Buyer shall be liable to Seller for the difference. (d) Extended Outage. Buyer may terminate this Agreement with regard --------------- to a Committed Unit upon thirty (30) days prior written notice to Seller if a Forced Outage or a Force Majeure Event at such Committed Unit prevents Seller from performing its obligations hereunder for a consecutive period of 120 days, provided that if Seller demonstrates that it has taken significant steps toward remediating the circumstances which led to such Forced Outage or 26 Force Majeure Event and certifies in writing to Buyer that such outage will end within 240 days of its commencement (and such outage in fact ends within such 240 days), then Buyer may not so terminate this Agreement. 15. Representations and Warranties. ------------------------------ (a) Representations and Warranties of Seller. Seller hereby makes ---------------------------------------- the following representations and warranties to Buyer: (i) Seller is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, is qualified to do business in the State of Illinois and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and, subject to the receipt of the regulatory approvals set forth in Article 21, carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (ii) The execution, delivery and performance by Seller of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of Seller's Management Committee or equity holders or any other Person other than that which has been obtained. (iii) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement, do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Seller is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing, and Seller has obtained all permits, licenses, approvals and consents of governmental authorities required for the lawful performance of its obligations hereunder. (iv) This Agreement constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (v) There is no pending, or to the knowledge of Seller, threatened action or proceeding affecting Seller before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. (b) Representations and Warranties of Buyer. Buyer hereby makes the --------------------------------------- following representations and warranties to Seller: 27 (i) Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (ii) The execution, delivery and performance by Buyer of this Agreement have been duly authorized by all necessary partnership action, and do not and will not require any consent or approval of any Person other than that which has been obtained. (iii) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or its articles of incorporation or bylaws, or any deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Buyer is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing. (iv) This Agreement constitutes the legal, valid and binding obligation of Buyer enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (v) There is no pending, or to the knowledge of Buyer, threatened action or proceeding affecting Buyer before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. 16. Indemnification. --------------- Each Party shall indemnify and hold harmless the other Party, and its officers, directors, agents and employees from and against any and all claims, demands, actions, losses, liabilities, expenses (including reasonable legal fees and expenses), suits and proceedings of any nature whatsoever for personal injury, death or property damage to each other's property or facilities or personal injury, death or property damage to third parties (collectively "Liabilities") caused by the gross negligence or willful misconduct of the indemnifying Party that arise out of or are in any manner connected with the performance of this Agreement except to the extent such Liabilities are attributable to the gross negligence or willful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. Each Party also shall indemnify and hold harmless the other Party from and against all suits, actions, debts, accounts, damages, costs, losses and expenses arising out of the indemnifying Party's ownership, possession or control of the Electric Energy (or Substitute Electric Energy) up to or from the Point of Delivery (or the delivery point for Substitute Electric Energy), as the case may be. 17. Notices. ------- 28 Unless otherwise provided in this Agreement, any notice, consent or other communication required to be made under this Agreement shall be in writing and shall be delivered to the address set forth below or such other address or persons as the receiving Party may from time to time designate by written notice: If to Buyer, to: Engage Energy US, L.P. Five Greenway Plaza, Suite 1200 Houston, Texas 77046 Telecopy No. (713) 877-3583 Attention: Director, Contract Administration with a copy to: Engage Energy US, L.P. 3000 Town Center Suite 2800 Southfield, Michigan 48075 Telecopy No.: (248) 304-3243 Attention: Vice President, Structured Power Engage Energy US, L.P. Five Greenway Plaza, 13/th/ Floor Houston, Texas 77046 Telecopy No.: (713) 297-1026 Attention: Manager, 24 Hour Electric Desk If to Seller, to: Elwood Energy LLC c/o Dominion Energy, Inc. 120 Tredegar Street Richmond, Virginia 23219 Telecopy No.: (804) 819-2202 Attention: Diane Leopold/Christine M. Schwab, Esq. with a copy to: Elwood Energy LLC c/o McGuire, Woods, Battle & Boothe LLP 901 East Cary Street Richmond, Virginia 23219 Attention: Mark J. La Fratta Telephone: (804) 775-1106 Telecopy No: (804) 698-2096 Verbal notices may not be made to a Party's voice mail or other messaging system. 29 All notices shall be effective when received. Notice by overnight mail or courier shall be deemed to have been received on the next Business Day after it was sent or such earlier time as is confirmed by the receiving Party. Notice delivered by hand shall be deemed to be received at the time it is delivered to an officer or responsible employee of the receiving Party. Notice via first class or certified mail shall be considered delivered two (2) Business Days after the day it is posted. Notice via telecopy shall be deemed to be received upon the sending Party's receipt of its telecopier's confirmation of receipt of such telecopy by the receiving Party. 18. Confidentiality. --------------- Each Party agrees that the terms of this Agreement are confidential and that it will treat in confidence all documents, materials and other information marked "Confidential" or "Proprietary" by the disclosing Party ("Confidential Information") which it shall have obtained during the course of the negotiations leading to, and its performance of, this Agreement (whether obtained before or after the date of this Agreement). Confidential Information shall not be communicated to any third party (other than, in the case of Seller, to its Affiliates who have a need to know such information, to its counsel, accountants, financial or tax advisors, or insurance consultants, to prospective partners and other investors in Seller and their counsel, accountants, or financial or tax advisors, or in connection with its financing or refinancing; and in the case of Buyer, to its Affiliates who have a need to know such information, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants (in each case such parties hereafter referred to as "Representatives"). Each Party hereby agrees to be responsible for a breach of this provision by its Representatives. As used herein, the term "Confidential Information" shall not include any information which (i) is or becomes available to a Party from a source other than the other Party, (ii) is or becomes available to the public other than as a result of disclosure by the receiving Party or its agents, (iii) is required to be disclosed under applicable law or judicial, administrative or regulatory process, but only to the extent it must be disclosed or (iv) was previously known to the receiving Party. 19. Governing Law. ------------- This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois without regard to its conflicts of laws provisions. 20. Force Majeure Event. ------------------- (a) Definition. For the purposes of this Agreement, "Force Majeure ---------- Event" means an event, condition or circumstance beyond the reasonable control of the Party affected (the "Affected Party") which, despite all reasonable efforts of the Affected Party to prevent it or mitigate its effects, prevents the performance by such Affected Party of its obligations hereunder. Subject to the foregoing, "Force Majeure Event" shall include: (i) explosion and fire (in either case to the extent not attributable to the negligence of the Affected Party); (ii) flood, earthquake, storm, or other natural calamity or act of God; 30 (iii) strike or other labor dispute (other than as a result of Seller's violation of its labor agreements); (iv) war, insurrection or riot; (v) actions or failure to act by governmental entities or officials, failure to obtain governmental permits or approvals despite timely application therefore and due diligence on the part of Seller; (vi) changes in Requirements of Law affecting operation of a Committed Unit; and (vii) lack of fuel caused by a Force Majeure Event (as defined in this Agreement) experienced by a Committed Unit's fuel supplier or transporter (as if for purposes of this Section 20(a)(vii) such fuel supplier or transporter is the Affected Party), provided, however, acquisition of fuel at an economically disadvantageous price shall not be considered to be a Force Majeure Event. (viii) mechanical breakdown of equipment if the cause of the breakdown is itself a Force Majeure Event pursuant to Section 20(a)(ii) above. (b) Obligations Under Force Majeure. ------------------------------- (i) If either Party is rendered unable, wholly or in part, by a Force Majeure Event, to carry out some or all of its obligations under this Agreement (other than obligations to pay money) despite all reasonable efforts of such Party to prevent or mitigate its effects, then, during the continuance of such inability, the obligation of such Party to perform the obligations so affected shall be suspended. (ii) A Party relying on a Force Majeure Event shall give written notice of such Force Majeure Event to the other Party as soon as practicable after such event occurs, which notice shall include information with respect to the nature, cause and date of commencement of the occurrence(s), and the anticipated scope and duration of the delay. Upon the conclusion of the Force Majeure Event, the Party heretofore relying on such Force Majeure Event shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. (iii) Notwithstanding the foregoing, a Party shall not be excused under this Section 20, (x) for any non-performance of its obligations under this Agreement having a greater scope or longer period than is justified by the Force Majeure Event, or (y) for the performance of obligations that arose prior to the Force Majeure Event. (c) Continued Payment Obligation. A Party's obligation to make ---------------------------- payments (including Monthly Capacity Payments) shall not be suspended by the occurrence or continuance of a Force Majeure Event, except in the event of a Force Majeure Event that delays the Commercial Operations Date. 31 21. Regulatory Approvals. -------------------- The obligations of the Parties under this Agreement are conditioned upon the acceptance of the Seller's market-based rate schedule for filing by the FERC pursuant to Section 205 of the Federal Power Act. 22. Taxes. ----- (a) Applicable Taxes. Each Party shall be responsible for the payment ---------------- of all taxes imposed on its income or net worth. Except as provided in this Article 22, Seller shall be responsible for the payment of all present or future federal, state, municipal or other lawful taxes applicable by reason of the operation of the Facility or assessable on Seller's property or operations. Buyer shall pay all existing and any new sales, use, excise, ad valorem, and any other similar taxes, if any, imposed or levied by a governmental agency on the Electric Energy, Substitute Electric Energy and Net Dependable Capacity sold and delivered under this Agreement arising at or after the Point of Delivery. (b) Tax Indemnity. Buyer shall indemnify, defend, and hold Seller ------------- harmless from any liability for all such taxes for which Buyer is responsible. Seller shall indemnify, defend, and hold Buyer harmless from any liability from all such taxes for which Seller is responsible. Buyer shall reimburse Seller promptly on demand for the amount of any such tax that is Buyer's responsibility hereunder that Seller remits, plus any penalties and interest incurred and remitted, except such penalties as result from Seller's conduct. Likewise, Seller shall reimburse Buyer promptly on demand for the amount of any such tax that is Seller's responsibility hereunder that Buyer remits, plus any penalties, interest incurred and remitted, except penalties as a result from Buyer's conduct. (c) Contested Taxes. Neither Party shall be required to pay any such --------------- tax, assessment, charge, levy, account payable or claim if the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any property utilized under this Agreement or any material interference with the use thereof. (d) Other Charges. Seller will pay and discharge all lawful ------------- assessments and governmental charges or levies imposed upon it or in respect to all or any part of its property or business, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor, or materials which, if unpaid might become a lien or charge upon the Facility. 23. Miscellaneous Provisions. ------------------------ (a) Non-Waiver. The failure of either Party to insist in any one or ---------- more instances upon strict performance of any provisions of this Agreement, or to take advantage of any of its rights hereunder, shall not be construed as a waiver of any such provisions or the relinquishment of any such right or any other right hereunder, which shall remain in full force and effect. 32 (b) Third Party Beneficiaries. This Agreement is intended solely for ------------------------- the benefit of the Parties hereto. Nothing in this Agreement shall be construed to create any duty to, or standard of care with reference to, or any liability to, any person not a Party to this Agreement. (c) Relationship of Parties. This Agreement shall not be interpreted ----------------------- or construed to create an association, joint venture, or partnership between the Parties or to impose any partnership obligation or liability upon either Party. Seller is an independent contractor and neither Party shall have any right, power or authority to enter into any agreement or undertaking for, or to act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, the other Party. (d) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and permitted assigns of the Parties. (e) Severability. If any provision of this Agreement is determined to ------------ be invalid, void or unenforceable by any court having competent jurisdiction, such determination shall not invalidate, void or make unenforceable any other provision, agreement or covenant of this Agreement, which shall remain in full force and effect. (f) Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. (g) UCC. Except as other provided for herein, the provisions of the --- Uniform Commercial Code ("UCC") of the state the law of which shall govern this Agreement shall be deemed to apply to all sales of Energy pursuant to this Agreement and the Energy so sold shall be deemed to be a "good" for purposes of the UCC. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER EXPRESSLY DISCLAIMS ANY, AND MAKES NO OTHER, REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH RESPECT TO CONFORMITY TO MODELS OR SAMPLES, MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. 24. Entire Agreement and Amendments. ------------------------------- This Agreement supersedes all previous representations, understandings, negotiations and agreements either written or oral between the Parties hereto or their representatives with respect to the subject matter hereof (including without limitation, the letter agreement between Buyer and Seller, dated February 18, 1999) and constitutes the entire agreement of the Parties with respect to the subject matter hereof. No amendments or changes to this Agreement shall be binding unless made in writing and duly executed by both Parties. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. Engage Energy US, L.P. 33 By: /s/ Clark C. Smith ------------------------------ Name: Clark C. Smith Title: President Elwood Energy LLC By: /s/ Ronald D. Usher ------------------------------ Name: Ronald D. Usher Title: General Manager 34 APPENDIX A DESIGN LIMITS PER COMMITTED UNIT Buyer shall have the right to Dispatch a Committed Unit up to its Net Dependable Capacity with the following restrictions: (a) Maximum takes. 1500 hours per unit per Committed Unit per ------------- Contract Year maximum (or 3000 hours cumulative for 2 Committed Units). As set forth in Section 6(b)(iii), during 1999, Seller may take up to 100 hours per unit during the Start Up and testing phase prior to the Commercial Operations Date. These hours will count towards the 1500-hour/year limitation per Committed Unit in calendar year 1999. For purposes of this Agreement, the Committed Units shall be considered "operating" from the first moment of firing, and all time during firing shall count towards the 1500 hour limitation. (b) Minimum/maximum loads. Buyer may Dispatch each Committed Unit --------------------- from 60% of Net Dependable Capacity up to its Net Dependable Capacity. Each hour that a Committed Unit is operating, regardless of the output, will count towards the 1500-hour/year limitation per Committed Unit. (c) Start Up Notification times. During On-Peak Hours in the Summer --------------------------- Period, Seller will start a Committed Unit within one-hour after being notified of Buyer's Dispatch order. If Buyer's dispatch order requests start up of both Committed Units at the same time, Seller will start one Committed Unit within the one-hour notification time and the second Committed Unit within the ten minutes of starting the first unit. During all other times, Buyer shall provide at least one Day's notice for start ups. (d) Load Range and Ramp Times. Once a Committed Unit starts, the ------------------------- Committed Unit will ramp to base load of 60% of Net Dependable Capacity within 20 minutes. From base load, Buyer can choose to ramp between base load and Net Dependable Capacity. The Committed Units can ramp from base load to Net Dependable Capacity within 10 minutes. The units can be loaded approximately twice as fast due to a feature purchased from GE by Elwood, but this operation is at the expense of the machine's life. If Buyer requests this fast load ramp option, and Elwood agrees to such operation, this will be priced at $500 per start up. (e) Minimum on-line and off-line times. 4-hour minimum run-time per ---------------------------------- start and 2 hour minimum off-time between start ups. (f) Estimated Reactive Capability Curves. The provision of Ancillary ------------------------------------ Services pursuant to this Agreement (including terms of Article 9 hereof) shall be consistent with the curve attached hereto as Schedule A-1. A-1 APPENDIX B MAIN GUIDE NO. 3 MAIN Guide No. 3A (Formerly Guide No. 3) (Revision No. 3) June 8, 1995 Approved November 9, 1995 PROCEDURE FOR THE UNIFORM RATING OF GENERATING EQUIPMENT ----------------------- The Mid-America Interconnected Network, Inc. bylaws provide for the coordination of planning, construction and utilization of generation and transmission facilities on a regional basis for reliability of electric bulk power supply. This MAIN Guide presents the criteria for uniform rating of generating equipment on the systems of MAIN members. I. General Generating capability to meet the system load and provide the required amount of reserves is necessary to assure the maximum degree of service reliability. This generating capability must be accounted for in a uniform manner which assures the use of consistently attainable values for planning and operating the system. Procedures are herein established for rating generating units in service or which will be brought into service in the future. These procedures define the framework under which the ratings are to be established while recognizing the necessity of exercising judgement in their determination. The tests required are functional and do not require special instrumentation. They are designed to demonstrate that the ratings can be obtained for the time periods required under normal operating conditions for the equipment being tested. It is intended that the terms defined and the ratings established pursuant to this MAIN Guide shall be used for all MAIN purposes, including determining generation reserves for both planning and operating purposes, scheduling maintenance, and preparation of reports or other information for industry organizations, news media, and governmental agencies. II. Uniform Ratings Each MAIN member shall establish Monthly Net Capability ratings for each generating unit and station on the member's system. The Monthly Net Capability is the net power output which can be obtained for the period specified on a monthly adjusted basis with all equipment in service under average conditions of operation and with equipment in an average state of maintenance. The Monthly Net Capability should include generating capability which is temporarily out of service for maintenance or repair. The monthly adjustments required to develop Monthly Net Capability are intended to include such seasonal variations as ambient temperature, condensing water B-1 temperature and availability, fuels, steam heating loads, reservoir levels, and scheduled reservoir discharge. Generating capability shall be tested annually to demonstrate and verify that the Monthly Net Capability can be achieved in the month of the test. It is intended that frequent changes in Monthly Net Capability be avoided. The reported capability is, therefore, a figure which should not be altered until the accumulated evidence of tests and analyses or operating experience indicate that a long-term change has taken place. The Monthly Net Capability shall be confirmed annually and revised at other times when necessary. Confirmations and revisions will be submitted to the MAIN Coordination Center. III. General Guides for Establishing Capability Ratings The following general guides shall be applied in establishing Monthly Net Capability: A. The total Monthly Net Capability rating shall be that available regularly to satisfy the daily load patterns of the member and shall be available for four continuous hours or more. The rating established must not require a period of operation at a reduced level during a system's remainder of the peak period to recover the Monthly Net Capability. B. The Monthly Net Capability will be determined separately for each generating unit in a power plant where the input to the prime mover of the unit is independent of the others. The Monthly Net Capability will be determined as a group for commonheader steam plants or multiple-unit hydro plants and each unit assigned a rating by apportioning the combined capability among the units. C. Monthly Net Capability, as reported, will not be reduced to provide regulating margin or spinning reserve. It will reflect operation at the power factor level at which the generating equipment is normally expected to be operated over the daily peak load period. It will exclude the temporary higher output attainable immediately after a new unit goes into service or immediately after an overhaul. D. Extended capability of a unit or plant obtained through bypassing of feedwater heaters, by utilizing other than normal steam conditions, or by abnormal operation of auxiliaries in steam plants; or by abnormal utilization of reservoir storage in hydro plants; or by abnormal operation of combustion turbines or diesel units; may be included in the Monthly Net Capability if the following conditions are met: 1. The extended capability based on such conditions will be available for a period of not less than four continuous hours when needed and meets the restrictions of Section III-A. 2. Normal procedures have been established so that this capability will be made available promptly when requested by the dispatcher. E. The Monthly Net Capability established for nuclear units will be B-2 determined taking into consideration the fuel management program and any restrictions imposed by governmental agencies. F. The Monthly Net Capability established for hydro-electric plants, including pumped-hydro, will be determined taking into consideration the reservoir storage program and any restrictions imposed by governmental agencies and will be based on median hydro conditions. IV. Testing Procedures to Demonstrate Capability A. General Procedure for Testing 1. Ratings will be confirmed annually or more frequently if appropriate to demonstrate the Monthly Net Capability. If adequate ----------- data are available to demonstrate the capability during normal peak ------------------------------------------------------------------- load period operation, no special test is required. Peaking units and -------------------------------------------------- cold reserve units which are not operated frequently shall be tested at such intervals as necessary to assure that capability is available to meet operating reserve requirements. 2. If the total capability of a plant is materially affected by the interaction of its parts, a test of the entire plant will be performed to demonstrate Monthly Net Capability. 3. All equipment when tested will be in normal operating condition with all auxiliary equipment needed for normal operation in service and with provision for extended capability if this capability is to be included in Monthly Net Capability. Energy consumption by auxiliary facilities common to the entire plant (for example, coal- handling or lighting) will be distributed over the appropriate units in the plant, and will represent the consumption normally experienced during the high-load period of the day. 4. It is intended that the test loadings should be maintained at a constant level. The reported test results will be no greater than the MWh/hr integrated output for the test period. B. Steam Turbo-Generation Unit Tests, Excluding Steam Turbines with Gas or Oil Fired Boilers 1. The test period for steam turbo-generator units, including both fossil fuel and nuclear reactor steam generators, will be not less than four continuous hours. 2. Generating unit net capability as affected by the turbine exhaust pressure will be corrected to the average for the past five years of the monthly averages of the daily maximum circulating water temperatures for the month of the test. Steam conditions will correspond to the operating standard established by the member for the unit or plant. The steam generator will be operated with B-3 the regularly available type and quality of fuel. C. Tests of Combustion Turbine and Diesel Units and Steam Turbines with Gas or Oil Fired Boilers 1. The test period for combustion turbine and diesel units and steam turbines with gas or oil fired boilers will be of sufficient duration to permit stabilized operating conditions to be attained. 2. Ambient temperature conditions will be corrected to the average for the past five years of the monthly maximum temperatures for the month of the test. Where evaporative coolers are used, the temperature at the discharge of the evaporative coolers shall be the basis for ambient temperature corrections. 3. Generating unit net capability as affected by the turbine exhaust pressure will be corrected to the average for the past five years of the monthly averages of the daily maximum circulating water temperatures for the month of the test. Steam conditions will correspond to the operating standard established by the member for the unit or plant. The steam generator will be operated with the regularly available type and quality of fuel. D. Hydro-Electric Unit Tests 1. The test period for hydro-electric units, including pumped- hydro units, will be not less than one hour. 2. Water conditions will be corrected to the median conditions for the month of the test. E. Reactivated Unit Tests Deactivated generating equipment which is not being reported and is being returned to active status shall be tested within thirty days to demonstrate its Monthly Net Capability. V. Reporting Procedures Each member shall submit the required data on the included Uniform Rating Forms to the MAIN Coordination Center annually on or before November 1 for the following calendar year. Each annual report shall cover all existing units, planned start-up of new units, and planned retirements of units and shall consist of the following: 1. A letter identifying those units whose rating has not changed, showing the dates of latest tests confirming capabilities. 2. Completely revised forms (Form A and B-1, B-2, or B-3) for units on which a change has occurred. B-4 3. Completely revised form (Form A) showing planned additions or retirements beginning with the month of commercial operation or month of retirement. Between annual reporting, revised forms shall be submitted as necessary for new units placed in commercial operation, units retired, and for units where tests show the rating has changed. Any change in additions, retirements, or ratings shall be submitted within 30 days of the addition, retirement, or test. In this manner, by each November 1, all test data should be current. However, the letter should be submitted confirming the dates of tests. The MAIN Coordination Center will analyze and review the annual reporting for completeness and correctness and report the need for clarification to the member concerned. The MAIN Coordination Center will maintain the updated set of reports, including current changes as they occur, from the MAIN members, and will provide complete reports and/or revisions to the members requesting them. A. Uniform Rating Form A This form is used to report the Monthly Net Capability of each unit in each station. Where required by the number of units in a station, additional sheets should be used. B. Uniform Rating Forms B-1, B-2, and B-3 These forms are used to report test results, certain actual and five year average variables where pertinent, and to show relationship of actual net generation to stated capability during the month of the test. It is the intent that test data equal or exceed stated Monthly Net Capability to demonstrate that this level of generation can be achieved. Where simultaneous tests of several units are conducted, as in common steam header plants, data should be reported for each unit and total of the group. Test results should be reported as follows: Form B-1 --steam turbo-generator units Form B-2 --hydro electric units Form B-3 --Combustion turbine units and diesel units Note: In submitting revised forms, each form shall be submitted in such a manner that it completely replaces the sheet on which data are being revised. B-5 APPENDIX C COMMUNICATIONS [To be developed by the parties] C-1 APPENDIX D REPORTING FORMS [To be developed by the Parties] D-1 APPENDIX E FOAF CALCULATIONS I. Formula -------- FOAF = FOH + EFDH ---------- PH Where: "FOAF" is "Forced Outage Adjustment Factor" "FOH" is "Forced Outage Hours" in the Summer Period "EFDH" is "Equivalent Forced Derated Hours" in the Summer Period "PH" is "Period Hours" in the Summer Period II. Definitions A. Operation and Outage States Forced Derating An unplanned component failure (immediate, delayed, postponed) or other condition (including a Force Majeure Event after the Commercial Operations Date) that requires the load on a Committed Unit be reduced immediately, within six hours, or before the end of the next weekend, other than during time periods when (a) Seller delivers Substitute Electric Energy (and to the extent of such delivery) or (b) a Committed Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 6(d)(ii) or (iii). The existence of a Forced Derating is not in any way dependent on the applicable Committed Unit being under a Buyer Dispatch order at the time or during the Forced Derating. Forced Outage An unplanned component failure (immediate, delayed, postponed, startup failure) or other condition (including a Force Majeure Event after the Commercial Operations Date) that requires a Committed Unit be removed from service immediately, within six hours, or before the end of the next weekend, other than during time periods when (a) Seller delivers Substitute Electric Energy (and to the extent of such delivery) or (b) a Committed Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 6(d)(ii) or (iii). The existence of a Forced Outage is not in any way dependent on the applicable Committed Unit being under a Buyer Dispatch order at the time of the Forced Outage. For the avoidance of doubt, in the event that the Interconnecting Utility has suspended, terminated or otherwise interrupted transmission of the Electric Energy of a Committed Unit due to a breach of or default under the Interconnection Agreement by Seller alleged by the E-1 Interconnected Utility by written notice of breach or default by Seller pursuant to the terms of the Interconnection Agreement to have occurred, the Committed Unit will be considered under a Forced Outage or Forced Derating for the purpose of calculating the FOAF, whether or not such claim by the Interconnecting Utility is ultimately resolved in Seller's favor. B. Time (Calculated during Summer Period On Peak Hours Only) Equivalent Forced Derated Hours (EFDH) * The product of Forced Derated Hours (FDH) and Size of Reduction during Summer Period On Peak Hours, divided by Net Dependable Capacity (NDC). Forced Derated Hours (FDH) Sum of all On Peak Hours during which there is a Forced Derating in the Summer Period. Forced Outage Hours (FOH) Sum of all On Peak Hours during which there is a Forced Outage in the Summer Period. Period Hours (PH) The sum of all On Peak Hours during the Summer Period. *Equivalent hours are computed for each derating and then summed. Size of Reduction is determined by subtracting the Net Available Capacity (NAC) from the Net Dependable Capacity (NDC). In cases of multiple deratings, the Size of Reduction of each derating is the difference in the Net Available Capacity of the unit prior to the initiation of the derating and the reported Net Available Capacity as a result of the derating. C. Capacity and Energy Gross Available Capacity (GAC) Greatest capacity (MW) at which a unit can operate with a reduction imposed by a derating. Net Available Capacity (NAC) GAC less the unit capacity (MW) utilized for that unit's station service or auxiliaries. D. FOAF SAMPLE CALCULATIONS 1. First Incident is a Forced Derating at Committed Unit 1: ------------------------------------------------------- Assume for a period of 48 hours between 6:00 a.m. on a Tuesday and 6:00 a.m. on the following Thursday in July, Committed Unit 1 can only operate at 100 MW (as adjusted for temperature and relative humidity). Net Dependable Capacity (as adjusted for temperature and relative humidity) is 150 MW. The Committed Unit Forced Derating occurred for 32 On Peak hours, (16 Hours Tuesday and 16 hours Wednesday). As such EFDH = FDH x Size of Reduction, or --------------------------- E-2 NDC EFDH = 32 hours x 50 MW = 1600 MWH = 10.67 hours ---------------- -------- 150 MW 150 MW 2. Second Incident is a Forced Outage at Committed Unit 1: ------------------------------------------------------- Assume Committed Unit 1 is totally unavailable for a period from 6:00 a.m. Friday through 2:00 a.m. the following Tuesday in August. The Forced Outage occurred for 32 On Peak hours (i.e., 16 Friday, zero Saturday and Sunday, 16 Monday and zero Tuesday) 3. Third Incident is a Forced Outage at Committed Unit 2: ------------------------------------------------------ Assume Committed Unit 2 has a 7 hour Forced Outage from 8:00 p.m. until 3:00 a.m. on a Thursday in August. The Forced Outage then lasted for 2 On Peak Hours. 4. Fourth Incident is a Forced Outage on Committed Unit 2: ------------------------------------------------------ Assume Committed Unit 2 has a 36 hour Forced Outage from 8:00 a.m. on a Thursday in November until 8:00 p.m. the following Friday. The Forced Outage was not in the Summer Period and as such is not part of FOAF calculation. 5. FOAF for the Year ----------------- If these are the only four incidents in a contract year (assuming the number of weekdays in Summer Period is the same as in 1999 and assuming two NERC holidays), then, Incident 1 is 10.67 hours. Incident 2 is 32 hours. Incident 3 is 2 hours. Incident 4 is zero hours. FOAF = 10.67 hours + 32 hours + 2 hours = .0324636 -------------------------------- 1376 On Peak Hours or, 3.25% 5% - 3.25% = 1.75%, and Seller gets a bonus of 1.75% times the applicable Contract Year's Capacity Payment. E-3 APPENDIX F GUARANTY THIS GUARANTY dated as of ___________, is made by The Coastal Corporation, a Delaware corporation ("Guarantor"), in favor of Elwood Energy LLC, a Delaware limited liability company ("Creditor"). WHEREAS, Creditor and Engage Energy US, L.P., a Delaware limited partnership ("Debtor"), have entered into that certain Power Sales Agreement dated ___________, 1999 (the "Contract"); and WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the Contract, Guarantor has agreed to provide to Creditor this Guaranty; NOW, THEREFORE, in consideration of the premises, Creditor's execution of the Contract and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty. Subject to the provisions hereof, Guarantor hereby -------- irrevocably, absolutely and unconditionally guarantees the timely payment of all financial obligations which become due and payable by Debtor to Creditor under or in connection with the Contract (collectively, "Obligations" and individually, an "Obligation") such that, if Debtor fails, neglects or refuses to perform any Obligation, Guarantor shall make such payment within ten business days after Guarantor receives written notice thereof. Notwithstanding the foregoing, (i) the maximum aggregate liability of Guarantor under this Guaranty for all Obligations shall not exceed the Guaranty Cap Amount (as hereinafter defined) plus any amounts owed pursuant to the next sentence hereof, and (ii) as to any Obligation which Guarantor is called upon to pay or cause payment to be made, Guarantor reserves to itself the right to assert any and all defenses under the Contract which Debtor could assert against Creditor with respect to such Obligation; provided, however, that such reservation shall not include any legal or equitable discharge or defense of a guarantor or surety arising out of any of the events described in Section 2 or Section 3 hereof. In addition to Guarantor's liability for the Obligations set forth herein, Guarantor agrees to pay to Creditor such further amounts as shall be sufficient to cover the costs of collecting or enforcing this Guaranty (including reasonable fees, expenses and disbursements of counsel). This Guaranty is a guaranty of payment and not of collection. As used herein, the term "Guaranty Cap Amount" means, at any given time, $109,032,000 minus the sum as of such time of (a) any amounts indefeasibly paid in full to Creditor by the Debtor in respect of "Capacity Payments" as defined in the Contract, plus (b) any amounts indefeasibly paid in full under this Guaranty to Creditor by the Guarantor. 2. Guaranty Absolute. Except as otherwise expressly provided in 3(b) ----------------- hereof, Creditor may, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment of, or (if applicable) interest F-1 rate on, or renew, extend or alter, any or all of the Obligations; (b) amend, waive, terminate or otherwise modify the Contract or any other document, instrument or agreement relating to any Obligation; (c) release (in whole or in part) or compromise or settle with Debtor or any other person liable in any manner for payment of any or all of the Obligations; (d) exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent; and (e) take, substitute, surrender, exchange or release any collateral or other security for any or all of the Obligations. 3. Effect of Certain Events. Guarantor agrees that, except as otherwise ------------------------ expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will not be released, reduced or impaired by the occurrence of any of the following events: (a) the liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or the Contract in or as a result of any such proceeding; (b) the renewal, consolidation, extension, modification or amendment from time to time of the Contract or any document, instrument or agreement relating to any Obligation, provided, however, that notwithstanding anything contained in this Guaranty or the Contract to the contrary, Creditor and Debtor may not, without the prior written consent of Guarantor, (i) extend or lengthen the Term of the Contract (as defined in the Contract as of the date hereof) beyond December 31, 2004, or (ii) change, modify or amend the definition of the term "Capacity Payments" in any manner that would increase Guarantor's liability under this Guaranty; (c) the failure, delay, waiver or refusal by Creditor to exercise, in whole or in part, any right or remedy held by Creditor with respect to the Contract or the Obligations thereunder; or (d) the sale, encumbrance, transfer or other modification of the ownership of Debtor or Creditor or any change in the name, identity, business, structure, composition, financial condition or management (including, without limitation, by reason of a merger, dissolution, consolidation or reorganization) of Debtor or Creditor; (e) future changes in conditions, including change of law, or any invalidity, unenforceability or irregularity with respect to the execution and delivery of the Contract or this Guaranty; and (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety, subject to clause (ii) of Section 1 hereof. F-2 4. Waivers. Except as expressly provided in Section 1 hereof, Guarantor ------- waives: (a) notice of acceptance of this Guaranty, of the creation or existence of the Contract or any Obligation thereunder, and of any action by Creditor in reliance hereon or in connection herewith; (b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to any Obligation; (c) any requirement that suit be brought against, or any other action by Creditor be taken against, Debtor or any other person as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor. (d) notice of adverse change in the financial condition of Debtor or any other fact which might increase Creditor's risk; and (e) any other notices or demands to which guarantors or sureties may be entitled. 5. Continuing Guaranty. This Guaranty is an absolute and continuing ------------------- guaranty. This Guaranty shall terminate when all of the Obligation have been indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time, either before or after the termination hereof, payment of the Obligations guaranteed pursuant to this Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as though such payment had not been made. 6. Representations and Warranties. Guarantor represents and warrants to ------------------------------ Creditor as follows: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has full corporate power and authority to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty by Guarantor have been and remain duly authorized by all necessary corporate action on the part of by Guarantor and do not contravene any provision of law or of Guarantor's certificate of incorporation or bylaws or any contractual restriction binding on Guarantor or any of its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty by Guarantor have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance by Guarantor of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to F-3 bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Debtor is indirectly partially owned by Guarantor, and this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. 7. Covenants. Guarantor agrees that, so long as this Guaranty remains in --------- effect, Guarantor will promptly furnish to Creditor, upon request at any time and from time to time, a copy of Guarantor's most recent annual report on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the Securities and Exchange Commission (the "SEC"); provided however, if Guarantor is not required to file such reports with the SEC, Guarantor agrees to furnish to Creditor such comparable financial information respecting Guarantor as Creditor may from time to time reasonably request. 8. Miscellaneous. ------------- (a) Notice. Any notice or other communication given hereunder by ------ either Guarantor or Creditor to the other party ("Notice") shall be in writing and delivered personally, mailed by registered or certified mail, postage prepaid and return receipt requested, by telecopier, or by courier guaranteeing overnight delivery, as follows: (i) if to Guarantor: The Coastal Corporation Nine Greenway Plaza Houston, Texas 77046 Attention: Corporate Secretary Telecopy No.: (713) 877-7071 (ii) if to Creditor: Elwood Energy LLC c/o Dominion Energy, Inc. 120 Tredegar Street Richmond, Virginia 23219 Attention: Diane Leopold/Christine M. Schwab, Esq. Telecopy No.: (804) 819-2202 with a copy to: Peoples Energy 130 East Randolph Drive Chicago, Illinois 60601 Attention: William W. Reynolds, Treasurer Telecopy No.: (312) 240-4348 Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. F-4 Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. Notice given by telecopier shall be deemed effective upon transmission and electronic confirmation by the transmitting telecopier. All Notices by telecopier shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address. All amounts becoming payable by Guarantor to Creditor under this Guaranty shall be payable at Creditor's offices located at its address for purposes of Notice, or such other place as Creditor may from time to time designate (including wire transfer instructions). (b) Amendments; Waivers; Remedies. All amendments, waivers, consents ----------------------------- or approvals arising pursuant to this Guaranty must be in writing signed by Guarantor and Creditor. No failure on the part of Creditor to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right, power or privilege operate as such a waiver. No right, power or remedy of Creditor under this Guaranty or the Contract shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to any other right, power or remedy thereunder or now or hereafter existing by law or in equity. (c) Severability. If any provision of this Guaranty or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable. (d) Assignment. Neither Guarantor nor Creditor may assign its rights ---------- or obligations under this Guaranty without the other party's prior written consent, which consent may not be unreasonably withheld; provided, however, Creditor may assign its rights hereunder without consent of Guarantor (but with prior notice thereof to Guarantor) to any party to whom the Contract has been properly assigned in accordance with the terms thereof. Subject to the foregoing, this Guaranty shall be binding on, and shall inure to the benefit of, Guarantor and Creditor and their respective successors and assigns. (e) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. (f) Headings. The headings of the sections and subsections of this -------- Guaranty are for convenience only, and shall not limit or otherwise affect the meaning hereof. F-5 (g) Counterparts. Guarantor may sign this Guaranty in any number of ------------ counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument. (h) Construction of Agreement. Unless the context of this ------------------------- Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of whatever gender, shall include natural persons, corporations, and associations of every kind and character, (ii) the gender of all words used in this Guaranty shall include the masculine, feminine and neuter, (iii) the words "includes" or "including" shall mean "including without limitation", and (iv) the words "hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer to this Guaranty as a whole and not any particular section or subsection in which such words appear. (i) Interpretation and Reliance. No presumption will apply in favor ---------------------------- of any party hereto in the interpretation of this Guaranty or in the resolution of any ambiguity of any provision hereof. (j) Time. TIME IS OF THE ESSENCE IN THIS GUARANTY, AND THE TERMS ---- HEREIN SHALL BE SO CONSTRUED. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed effective as of the date first above written. THE COASTAL CORPORATION By: _______________________________ Name: _______________________________ Title: _______________________________ F-6 APPENDIX G-1 GUARANTY THIS GUARANTY dated as of ___________, is made by Dominion Energy, Inc., a Virginia corporation ("Guarantor"), in favor of Engage Energy US, L.P., a Delaware limited partnership ("Creditor"). WHEREAS, Creditor and Elwood Energy LLC, a Delaware limited liability company ("Debtor"), have entered into that certain Power Sales Agreement dated ___________, 1999 (the "Contract"); WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent membership interest in Debtor and the remaining 50 percent membership interest is indirectly owned by Peoples Energy Corporation ("Peoples"); and WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the Contract, Guarantor has agreed to provide to Creditor this Guaranty; NOW, THEREFORE, in consideration of the premises, Creditor's execution of the Contract and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty. Subject to the provisions hereof, Guarantor hereby -------- irrevocably, absolutely and unconditionally guarantees the timely payment of all financial obligations which become due and payable by Debtor to Creditor under or in connection with the Contract (collectively, "Obligations" and individually, an "Obligation") such that, if Debtor fails, neglects or refuses to perform any Obligation, Guarantor shall make such payment within ten business days after Guarantor receives written notice thereof. Notwithstanding the foregoing, as to any Obligation which Guarantor is called upon to pay or cause payment to be made, Guarantor reserves to itself the right to assert any and all defenses under the Contract which Debtor could assert against Creditor with respect to such Obligation; provided, however, that such reservation shall not include any legal or equitable discharge or defense of a guarantor or surety arising out of any of the events described in Section 2 or Section 3 hereof. The guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of the Obligations ; provided, however, that in no event shall the maximum aggregate liability of Guarantor under this Guaranty exceed $12,500,000 (the "Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this Guaranty pursuant to the next sentence hereof; provided further, that Guarantor's obligations hereunder are separate and independent obligations from those of Peoples under Peoples' Guaranty of even date herewith and neither Guarantor nor Peoples shall be liable for the obligations of the other under their respective guaranties by reason of joint and several liability or otherwise. In addition to Guarantor's liability for the Obligations set forth herein, Guarantor agrees to pay to Creditor such further amounts as shall be sufficient to cover the costs of collecting or enforcing this Guaranty (including reasonable fees, expenses and disbursements of counsel). This Guaranty is a guaranty of payment and not of collection. 2. Guaranty Absolute. Except as otherwise expressly provided in ------------------ Section 3(b) hereof, G-1 Creditor may, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment of, or (if applicable) interest rate on, or renew, extend or alter, any or all of the Obligations; (b) amend, waive, terminate or otherwise modify the Contract or any other document, instrument or agreement relating to any Obligation; (c) release (in whole or in part) or compromise or settle with Debtor or any other person liable in any manner for payment of any or all of the Obligations; (d) exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent; and (e) take, substitute, surrender, exchange or release any collateral or other security for any or all of the Obligations. 3. Effect of Certain Events. Guarantor agrees that, except as ------------------------- otherwise expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will not be released, reduced or impaired by the occurrence of any of the following events: (a) the liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or the Contract in or as a result of any such proceeding; (b) the renewal, consolidation, extension, modification or amendment from time to time of the Contract or any document, instrument or agreement relating to any Obligation, provided, however, that notwithstanding anything contained in this Guaranty or the Contract to the contrary, Creditor and Debtor may not, without the prior written consent of Guarantor, (i) extend or lengthen the Term of the Contract (as defined in the Contract as of the date hereof) beyond December 31, 2004, or (ii) change, modify or amend the definition of the term "Capacity Payments" (as defined in the Contract as of the date hereof) in any manner that would increase Guarantor's liability under this Guaranty; (c) the failure, delay, waiver or refusal by Creditor to exercise, in whole or in part, any right or remedy held by Creditor with respect to the Contract or the Obligations thereunder; or (d) the sale, encumbrance, transfer or other modification of the ownership of Debtor or Creditor or any change in the name, identity, business, structure, composition, financial condition or management (including, without limitation, by reason of a merger, dissolution, consolidation or reorganization) of Debtor or Creditor; (e) future changes in conditions, including change of law, or any invalidity, G-2 unenforceability or irregularity with respect to the execution and delivery of the Contract or this Guaranty; and (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety, subject to clause (ii) of Section 1 hereof. 4. Waivers. Except as expressly provided in Section 1 hereof, ------- Guarantor waives: (a) notice of acceptance of this Guaranty, of the creation or existence of the Contract or any Obligation thereunder, and of any action by Creditor in reliance hereon or in connection herewith; (b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to any Obligation; (c) any requirement that suit be brought against, or any other action by Creditor be taken against, Debtor or any other person as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor. (d) notice of adverse change in the financial condition of Debtor or any other fact which might increase Creditor's risk; and (e) any other notices or demands to which guarantors or sureties may be entitled. 5. Continuing Guaranty. This Guaranty is an absolute and continuing ------------------- guaranty. This Guaranty shall terminate when all of the Obligations have been indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time, either before or after the termination hereof, payment of the Obligations guaranteed pursuant to this Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as though such payment had not been made. 6. Representations and Warranties. Guarantor represents and warrants ------------------------------ to Creditor as follows: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Virginia and has full corporate power and authority to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty by Guarantor have been and remain duly authorized by all necessary corporate action on the part of by Guarantor and do not contravene any provision of law or of Guarantor's certificate of incorporation or bylaws or any contractual restriction binding on Guarantor or any of its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and G-3 performance of this Guaranty by Guarantor have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance by Guarantor of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Debtor is indirectly partially owned by Guarantor, and this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. 7. Covenants. Guarantor agrees that, so long as this Guaranty --------- remains in effect, Guarantor will promptly furnish to Creditor, upon request at any time and from time to time, a copy of Guarantor's most recent annual report on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the Securities and Exchange Commission (the "SEC"); provided however, if Guarantor is not required to file such reports with the SEC, Guarantor agrees to furnish to Creditor such comparable financial information respecting Guarantor as Creditor may from time to time reasonably request. 8. Miscellaneous. ------------- (a) Notice. Any notice or other communication given hereunder ------ by either Guarantor or Creditor to the other party ("Notice") shall be in writing and delivered personally, mailed by registered or certified mail, postage prepaid and return receipt requested, by telecopier, or by courier guaranteeing overnight delivery, as follows: (i) if to Guarantor: Dominion Energy, Inc. 120 Tredegar Street Richmond, Virginia 23219 Attention: Diane Leopold / Christine M. Schwab, Esq. Telecopy No.: (804) 819-2202 (ii) if to Creditor: Engage Energy US, L.P. Five Greenway Plaza, Suite 1200 Houston, Texas 77046 Attention: Vice President - Credit Telecopy No.: (713) 297-1605 Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. Notice given by telecopier shall be deemed effective upon transmission and electronic confirmation G-4 by the transmitting telecopier. All Notices by telecopier shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address. All amounts becoming payable by Guarantor to Creditor under this Guaranty shall be payable at Creditor's offices located at its address for purposes of Notice, or such other place as Creditor may from time to time designate (including wire transfer instructions). (b) Amendments; Waivers; Remedies. All amendments, waivers, ----------------------------- consents or approvals arising pursuant to this Guaranty must be in writing signed by Guarantor and Creditor. No failure on the part of Creditor to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right, power or privilege operate as such a waiver. No right, power or remedy of Creditor under this Guaranty or the Contract shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to any other right, power or remedy thereunder or now or hereafter existing by law or in equity. (c) Severability. If any provision of this Guaranty or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable. (d) Assignment. Neither Guarantor nor Creditor may assign its ---------- rights or obligations under this Guaranty without the other party's prior written consent, which consent may not be unreasonably withheld; provided, however, Creditor may assign its rights hereunder without consent of Guarantor (but with prior notice thereof to Guarantor) to any party to whom the Contract has been properly assigned in accordance with the terms thereof. Subject to the foregoing, this Guaranty shall be binding on, and shall inure to the benefit of, Guarantor and Creditor and their respective successors and assigns. (e) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. (f) Headings. The headings of the sections and subsections of -------- this Guaranty are for convenience only, and shall not limit or otherwise affect the meaning hereof. G-5 (g) Counterparts. Guarantor may sign this Guaranty in any ------------ number of counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument. (h) Construction of Agreement. Unless the context of this ------------------------- Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of whatever gender, shall include natural persons, corporations, and associations of every kind and character, (ii) the gender of all words used in this Guaranty shall include the masculine, feminine and neuter, (iii) the words "includes" or "including" shall mean "including without limitation", and (iv) the words "hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer to this Guaranty as a whole and not any particular section or subsection in which such words appear. (i) Interpretation and Reliance. No presumption will apply in ---------------------------- favor of any party hereto in the interpretation of this Guaranty or in the resolution of any ambiguity of any provision hereof. (j) Time. TIME IS OF THE ESSENCE IN THIS GUARANTY, AND THE TERMS ---- HEREIN SHALL BE SO CONSTRUED. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed effective as of the date first above written. DOMINION ENERGY, INC. By: _________________________ Name: _________________________ Title: _________________________ G-6 APPENDIX G-2 GUARANTY THIS GUARANTY dated as of ___________, is made by Peoples Energy Corporation, an Illinois corporation ("Guarantor"), in favor of Engage Energy US, L.P., a Delaware limited partnership ("Creditor"). WHEREAS, Creditor and Elwood Energy LLC, a Delaware limited liability company ("Debtor"), have entered into that certain Power Sales Agreement dated ___________, 1999 (the "Contract"); WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent membership interest in Debtor and the remaining 50 percent membership interest is indirectly owned by Dominion Energy, Inc. ("Dominion"); and WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the Contract, Guarantor has agreed to provide to Creditor this Guaranty; NOW, THEREFORE, in consideration of the premises, Creditor's execution of the Contract and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty. Subject to the provisions hereof, Guarantor hereby -------- irrevocably, absolutely and unconditionally guarantees the timely payment of all financial obligations which become due and payable by Debtor to Creditor under or in connection with the Contract (collectively, "Obligations" and individually, an "Obligation") such that, if Debtor fails, neglects or refuses to perform any Obligation, Guarantor shall make such payment within ten business days after Guarantor receives written notice thereof. Notwithstanding the foregoing, as to any Obligation which Guarantor is called upon to pay or cause payment to be made, Guarantor reserves to itself the right to assert any and all defenses under the Contract which Debtor could assert against Creditor with respect to such Obligation; provided, however, that such reservation shall not include any legal or equitable discharge or defense of a guarantor or surety arising out of any of the events described in Section 2 or Section 3 hereof. The guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of the Obligations ; provided, however, that in no event shall the maximum aggregate liability of Guarantor under this Guaranty exceed $12,500,000 (the "Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this Guaranty pursuant to the next sentence hereof; provided further, that Guarantor's obligations hereunder are separate and independent obligations from those of Dominion under Dominion's Guaranty of even date herewith and neither Guarantor nor Dominion shall be liable for the obligations of the other under their respective guaranties by reason of joint and several liability or otherwise. In addition to Guarantor's liability for the Obligations set forth herein, Guarantor agrees to pay to Creditor such further amounts as shall be sufficient to cover the costs of collecting or enforcing this Guaranty (including reasonable fees, expenses and disbursements of counsel). This Guaranty is a guaranty of payment and not of collection. G-7 2. Guaranty Absolute. Except as otherwise expressly provided in ------------------ Section 3(b) hereof, Creditor may, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment of, or (if applicable) interest rate on, or renew, extend or alter, any or all of the Obligations; (b) amend, waive, terminate or otherwise modify the Contract or any other document, instrument or agreement relating to any Obligation; (c) release (in whole or in part) or compromise or settle with Debtor or any other person liable in any manner for payment of any or all of the Obligations; (d) exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent; and (e) take, substitute, surrender, exchange or release any collateral or other security for any or all of the Obligations. 3. Effect of Certain Events. Guarantor agrees that, except as ------------------------- otherwise expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will not be released, reduced or impaired by the occurrence of any of the following events: (a) the liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or the Contract in or as a result of any such proceeding; (b) the renewal, consolidation, extension, modification or amendment from time to time of the Contract or any document, instrument or agreement relating to any Obligation, provided, however, that notwithstanding anything contained in this Guaranty or the Contract to the contrary, Creditor and Debtor may not, without the prior written consent of Guarantor, (i) extend or lengthen the Term of the Contract (as defined in the Contract as of the date hereof) beyond December 31, 2004, or (ii) change, modify or amend the definition of the term "Capacity Payments" (as defined in the Contract as of the date hereof) in any manner that would increase Guarantor's liability under this Guaranty; (c) the failure, delay, waiver or refusal by Creditor to exercise, in whole or in part, any right or remedy held by Creditor with respect to the Contract or the Obligations thereunder; or (d) the sale, encumbrance, transfer or other modification of the ownership of Debtor or Creditor or any change in the name, identity, business, structure, composition, financial condition or management (including, without limitation, by reason of a merger, dissolution, consolidation or reorganization) of Debtor or Creditor; G-8 (e) future changes in conditions, including change of law, or any invalidity, unenforceability or irregularity with respect to the execution and delivery of the Contract or this Guaranty; and (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety, subject to clause (ii) of Section 1 hereof. 4. Waivers. Except as expressly provided in Section 1 hereof, ------- Guarantor waives: (a) notice of acceptance of this Guaranty, of the creation or existence of the Contract or any Obligation thereunder, and of any action by Creditor in reliance hereon or in connection herewith; (b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to any Obligation; (c) any requirement that suit be brought against, or any other action by Creditor be taken against, Debtor or any other person as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor. (d) notice of adverse change in the financial condition of Debtor or any other fact which might increase Creditor's risk; and (e) any other notices or demands to which guarantors or sureties may be entitled. 5. Continuing Guaranty. This Guaranty is an absolute and continuing ------------------- guaranty. This Guaranty shall terminate when all of the Obligations have been indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time, either before or after the termination hereof, payment of the Obligations guaranteed pursuant to this Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as though such payment had not been made. 6. Representations and Warranties. Guarantor represents and warrants ------------------------------ to Creditor as follows: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Illinois and has full corporate power and authority to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty by Guarantor have been and remain duly authorized by all necessary corporate action on the part of by Guarantor and do not contravene any provision of law or of Guarantor's certificate of incorporation or bylaws or any contractual restriction binding on Guarantor or any of its assets. (c) All consents, authorizations and approvals of, and registrations and G-9 declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty by Guarantor have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance by Guarantor of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Debtor is indirectly partially owned by Guarantor, and this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. 7. Covenants. Guarantor agrees that, so long as this Guaranty --------- remains in effect, Guarantor will promptly furnish to Creditor, upon request at any time and from time to time, a copy of Guarantor's most recent annual report on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the Securities and Exchange Commission (the "SEC"); provided however, if Guarantor is not required to file such reports with the SEC, Guarantor agrees to furnish to Creditor such comparable financial information respecting Guarantor as Creditor may from time to time reasonably request. 8. Miscellaneous. ------------- (a) Notice. Any notice or other communication given hereunder by ------ either Guarantor or Creditor to the other party ("Notice") shall be in writing and delivered personally, mailed by registered or certified mail, postage prepaid and return receipt requested, by telecopier, or by courier guaranteeing overnight delivery, as follows: (i) if to Guarantor: Peoples Energy Corporation 130 East Randolph Drive Chicago, Illinois Attention: William W. Reynolds, Treasurer Telecopy No.: (312) 240-4348 (ii) if to Creditor: Engage Energy US, L.P. Five Greenway Plaza, Suite 1200 Houston, Texas 77046 Attention: Vice President - Credit Telecopy No.: (713) 297-1605 Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. G-10 Notice given by telecopier shall be deemed effective upon transmission and electronic confirmation by the transmitting telecopier. All Notices by telecopier shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address. All amounts becoming payable by Guarantor to Creditor under this Guaranty shall be payable at Creditor's offices located at its address for purposes of Notice, or such other place as Creditor may from time to time designate (including wire transfer instructions). (b) Amendments; Waivers; Remedies. All amendments, waivers, ----------------------------- consents or approvals arising pursuant to this Guaranty must be in writing signed by Guarantor and Creditor. No failure on the part of Creditor to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right, power or privilege operate as such a waiver. No right, power or remedy of Creditor under this Guaranty or the Contract shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to any other right, power or remedy thereunder or now or hereafter existing by law or in equity. (c) Severability. If any provision of this Guaranty or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable. (d) Assignment. Neither Guarantor nor Creditor may assign its ---------- rights or obligations under this Guaranty without the other party's prior written consent, which consent may not be unreasonably withheld; provided, however, Creditor may assign its rights hereunder without consent of Guarantor (but with prior notice thereof to Guarantor) to any party to whom the Contract has been properly assigned in accordance with the terms thereof. Subject to the foregoing, this Guaranty shall be binding on, and shall inure to the benefit of, Guarantor and Creditor and their respective successors and assigns. (e) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. (f) Headings. The headings of the sections and subsections of -------- this Guaranty are for convenience only, and shall not limit or otherwise affect the meaning hereof. G-11 (g) Counterparts. Guarantor may sign this Guaranty in any number ------------ of counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument. (h) Construction of Agreement. Unless the context of this ------------------------- Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of whatever gender, shall include natural persons, corporations, and associations of every kind and character, (ii) the gender of all words used in this Guaranty shall include the masculine, feminine and neuter, (iii) the words "includes" or "including" shall mean "including without limitation", and (iv) the words "hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer to this Guaranty as a whole and not any particular section or subsection in which such words appear. (i) Interpretation and Reliance. No presumption will apply in ---------------------------- favor of any party hereto in the interpretation of this Guaranty or in the resolution of any ambiguity of any provision hereof. (j) Time. TIME IS OF THE ESSENCE IN THIS GUARANTY, AND THE ---- TERMS HEREIN SHALL BE SO CONSTRUED. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed effective as of the date first above written. PEOPLES ENERGY CORPORATION By: ____________________________ Name: ____________________________ Title: ____________________________ G-12 EX-10.2 18 dex102.txt AMENDMENT #1 TO RESTATED POWER SALES AGREEMENT EXHIBIT 10.2 AMENDMENT 1 TO AMENDED AND RESTATED POWER SALES AGREEMENT THIS AMENDMENT, made and entered into as of the 10th day of November, 1999, by and between ENGAGE ENERGY US, L.P., a Delaware limited partnership ("Buyer"), and ELWOOD ENERGY LLC, a Delaware limited liability company ("Seller"), who may hereinafter be referred to collectively as "Parties" or individually as "Party". WITNESSETH: WHEREAS, the Parties entered into an Amended and Restated Power Sales Agreement dated as of April 5, 1999 (hereinafter referred to as the "Contract"); and NOW THEREFORE, in consideration of the mutual convenants and agreements set forth herein, Buyer and Seller do hereby agree to amend the Contract as follows: I. 1. Section 1(a). Definitions is hereby amended by adding the ----------- following: "Commercially Reasonable" (regardless of whether such term has initial capitalization) means, with respect to any action required to be made, attempted or taken by a Party under this Agreement, the level of effort required to be made in light of the facts known to a Party at the time a decision is made that: (i) can reasonably be expected to accomplish the desired action; (ii) is consistent with Prudent Utility Practices; (iii) takes into consideration, among other things, the amount of notice of the need to take such action, the duration and type of the action and the competitive environment in which such action occurs, and (iv) with respect to Dispatch notices made for hours other than On-Peak Hours during the Summer Period, notwithstanding the applicability of Section 20(a)(vii), takes into consideration the availability of fuel, the availability of transportation necessary to obtain fuel, the delivered cost of fuel, and other variable costs. "Minimum Notification Period" (regardless of whether such term has initial capitalization) means the minimum advance notice time for Start Up of a Committed Unit for the applicable time period which shall be three (3) hours for the Non-Summer Period and Off-Peak Hours in the Summer Period and one (1) hour for On-Peak Hours in the Summer Period. 1 2. Section 5(a)(i) of the Contract shall be deleted in its entirety and replaced as follows: "(i) All Electric Energy delivered by Seller to Buyer from each Committed Unit under this Agreement shall be metered by the Revenue Meter. Readings from the Revenue Meter shall be reduced for transformer and transmission line losses between the Revenue Meter and the Point of Delivery in accordance with Prudent Utility Practice. If technically feasible (as determined by the Parties) Buyer shall be permitted to install its own back-up metering system at Buyer's sole expense. The amount of megawatt-hours for which Buyer will be billed also will be adjusted by the amount of electricity that had been both generated by the applicable Committed Unit and consumed by other units at the Facility during the billing period to yield the "billable generation" for the billing period calculated as described below. To establish the kilowatt-hours of electricity provided by a Committed Unit and consumed by other units for a billing period, the total for each billing period of electricity consumed by each unit at the Facility will be determined from the individual unit meter readings using the revenue meter located at the generator leads which will then be summed for all four units. From this sum, the total monthly electricity purchased from the Interconnected Utility (as determined from the Interconnected Utility's revenue meter in the ComEd/Elwood Switchyard) will be subtracted, yielding an aggregate total of the electricity consumed by all the units that had been generated by one or more other units at the Facility. This amount will then be multiplied by the ratio of the total operating hours of a given Committed Unit to the total operating hours of all units. This product will represent the electricity generated by a given Committed Unit and consumed by other units. This value will be subtracted from the reading of the Revenue Meter for a particular Committed Unit for billing purposes for the billing period. The following example demonstrates the calculation methodology: Total Electricity generated Unit 1 - 30,000 MWh Total Electricity generated Unit 2 - 22,500 MWh Total Electricity generated Unit 3 - 15,000 MWh Total Electricity generated Unit 4 - 0 MWh Total electricity consumed Unit 1 - 20,000 kWh Total electricity consumed Unit 2 - 30,000 kWh Total electricity consumed Unit 3 - 15,000 kWh Total electricity consumed Unit 4 - 2,000 kWh Total electricity consumed All Units = 20,000 + 30,000 + 15,000 + 2,000 = 67,000 kWh Total electricity purchased from the Interconnected Utility- 30,000 kWh 2 Total electricity consumed at the Facility generated by the Facility = 67,000 - 30,000 = 37,000 kWh Unit 1 Monthly Operating Hours - 200 Unit 2 Monthly Operating Hours - 150 Unit 3 Monthly Operating Hours - 100 Unit 4 Monthly Operating Hours - 0 Total Operating Hours = 200 + 150 + 100 + 0 = 450 hours CALCULATION: Electricity Furnished by Unit 1 and consumed at the Facility = (200/450) (37,000) = 16,444 kWh (16.444 MWh) Electricity Furnished by Unit 2 and consumed at the Facility = (150/450) (37,000) = 12,333 kWh (12.333 MWh) Electricity Furnished by Unit 3 and consumed by the Facility = (100/450) (37,000) = 8,222 kWh (8.222 MWh) Electricity Furnished by Unit 4 and consumed by the Facility = (0/450) (37,000) = 0 kWh Billable Generation Unit 1 = 30,000 - 16.444 = 29,983 MWh Billable Generation Unit 2 = 22,500 - 12.333 = 22,488 MWh Billable Generation Unit 3 = 15,000 - 8.222 = 14,992 MWh Billable Generation Unit 4 = 0-0 = 0 MWh" 3. Section 6(c)(iv) of the Contract shall be deleted in its entirety and replaced as follows: "Non-Summer Period and Off-Peak Hours During the Summer Period. ------------------------------------------------------------- Notwithstanding there is no Target FOAF during the Non-Summer Period or during Off-Peak Hours during the Summer Period, Seller shall use Commercially Reasonable efforts to achieve a high level of availability for the Committed Units during such periods. 3 If Seller determines in its sole discretion that operation of a Committed Unit(s) in response to a Dispatch notification from Buyer for such periods is not Commercially Reasonable, then Seller shall notify Buyer that Seller does not intend to Start Up the applicable Committed Unit(s) (such notice a "Refusal Notice"). Seller shall provide such Refusal Notice by telephone within thirty (30) minutes of receipt of Buyer's Dispatch notification. In such Refusal Notice, Seller shall propose a rate at which it will be willing to operate such Committed Unit(s) in accordance with the schedule for Start Up and run time in the Buyer's Dispatch notification. If Seller does not provide such Refusal Notice within such thirty (30) minute period, Seller shall be deemed to have found such Dispatch order Commercially Reasonable. If Buyer accepts the rate proposed in the Refusal Notice during the telephone conference in which such Refusal Notice is given, then Seller shall Start Up and operate the applicable Committed Unit(s) in accordance with the applicable Dispatch notification. If Buyer does not so accept such rate, Buyer may accept such rate for a period of one hour from Seller's provision of the applicable Refusal Notice proposing such rate by providing Seller with a new Dispatch order with notice at least equal to the Minimum Notification Period provided such new Dispatch order is for run time comparable to the original Dispatch order. If Buyer does not accept Seller's proposed rate within such one hour period, Buyer's Dispatch notification shall be void. In such event, Seller shall not be obligated to Start Up or operate any Committed Unit in accordance with such void Dispatch notification and Buyer shall not be obligated to pay charges associated with cancellation of Start Ups as set forth in Section 7(a)(ii). With respect to the Non-Summer Period and Off-Peak Hours during the Summer Period, any request by Buyer (x) to Start Up a Committed Unit(s) after such a Dispatch order becomes void, or (y) to expand the run time in a currently valid Dispatch order shall constitute a new Dispatch order, subject to the Minimum Notification Period and subject to Seller's right to find such a Dispatch order to be not Commercially Reasonable in its sole discretion in accordance with the provisions of this Section 6(c)(iv). The preceding Subsection (y) shall not apply to situations where Buyer requests an extension of the run time of an operating Committed Unit(s) from On-Peak Hours during the Summer Period into Off-Peak Hours in the Summer Period in accordance with the third sentence of Section (d) of Appendix A." 4. Section 7(a)(ii) is hereby amended by adding the following new sentence to the end of such section: "If Buyer issues a Dispatch notification requesting Start Up of a Committed Unit(s) and (x) subsequently cancels such Start Up at any time after the Minimum Notification Period has begun and before the requested time for such Start Up, or (y) issues a Dispatch notification to cease operation before the Committed Unit has operated for the minimum run time identified in Appendix A, Section (g), Buyer shall pay Seller the Start Up Charge and the Electric Energy Charge in accordance with this Section as if Seller had generated Electric Energy for the first four (4) hours after the requested Start Up time pursuant to the generation schedule in the original Dispatch notification; provided, however, such hours shall not count toward the maximum take hours applicable to each Committed Unit as set forth in Section (a) of Appendix A." 4 5. Appendix A of the Contract shall be deleted in its entirety and replaced with the attached Revised Appendix A. 6. Appendix C attached hereto is hereby incorporated into and made a part of the Contract. 7. Appendix D attached hereto is hereby incorporated into and made a part of the Contract. 8. Appendix E of the Contract shall be deleted in its entirety and replaced with the attached Revised Appendix E. II. Except as herein provided, the Contract shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in duplicate originals as of the date first written above. ENGAGE ENERGY US, L.P. By: /s/ James Dyer, IV ---------------------------------- Name: James Dyer, IV -------------------------------- Title: Executive Vice President and -------------------------------- Chief Operating Officer ------------------------------- ELWOOD ENERGY LLC By: /s/ William E. Morrow ------------------------------ Name: William E. Morrow ---------------------------- Title: Vice President --------------------------- 5 REVISED APPENDIX A DESIGN LIMITS PER COMMITTED UNIT Buyer shall have the right to Dispatch a Committed Unit up to its Net Dependable Capacity with the following restrictions: (a) Maximum takes. 1500 hours per Committed Unit per Contract Year ------------- maximum (or 3000 hours cumulative for 2 Committed Units). As set forth in Section 6(b)(iii), during 1999, Seller may take up to 100 hours per unit during the Start Up and testing phase prior to the Commercial Operations Date. These hours will count towards the 1500-hour/year limitation per Committed Unit in calendar year 1999. For purposes of this Agreement, the Committed Units shall be considered "operating" from the first moment of firing, and all time during firing shall count towards the 1500 hour limitation. (b) Minimum/maximum loads. Buyer may Dispatch each Committed Unit --------------------- from 60% of Net Dependable Capacity up to its Net Dependable Capacity. Each hour that a Committed Unit is operating, regardless of the output, will count towards the 1500-hour/year limitation per Committed Unit. (c) Start Up Notification. --------------------- (i) Dispatch For On-Peak Hours in the Summer Period. With ----------------------------------------------- respect to Start Up notifications for generation during On- Peak Hours in the Summer Period, Seller shall cause a Committed Unit to be started not later than the later of (A) one (1) hour after receipt of Dispatch notification from Buyer, or (B) the requested Start Up time stipulated in such Dispatch notification. If such notification requests Start Up of both Committed Units at the same time, the first Committed Unit will be Started Up by the time specified in the Dispatch notification, and the second Committed Unit will be Started Up within ten (10) minutes of the first Committed Unit. (ii) Dispatch For All Other Times. With respect to Start Up ---------------------------- notifications for generation during all hours other than On-Peak Hours in the Summer Period, Seller shall cause a Committed Unit to be started not later than the later of (A) three (3) hours after receipt of Dispatch notification from Buyer, or (B) the requested Start Up time stipulated in such Dispatch notification. If such notification requests Start Up of both Committed Units at the same time, the first Committed Unit will be Started Up by the time specified in the Dispatch notification, and the second Committed Unit will be Started Up within ten (10) minutes of the first Committed Unit. (d) Modification. Buyer may only extend the operation of a Committed ------------ Unit(s) for not less than one (1) hour increments. Notice of such an extension during On-Peak Hours in the Summer Period must be provided 6 to Seller at least one (1) hour prior to the stop time specified in the then current Dispatch notification (as extended). If a Committed Unit is operating during On-Peak Hours during the Summer Period, Buyer may extend such operation into Off-Peak Hours for up to two (2) hours as if such extensions were during On-Peak Hours in the Summer Period. For all other extensions, Buyer must provide a three (3) hour notice. Buyer may issue a notification to cease firing a Committed Unit at any time, subject to Section 7(a)(ii). (e) Cancellation Notification. Notwithstanding Paragraph ------------------------- (c) herein above, (i) On-Peak Summer Hours. With respect to On-Peak -------------------- Hours in the Summer Period, but subject to Section 7(a)(ii), Buyer may cancel a Start Up notification for a Committed Unit by providing Seller with a cancellation notification not less than one (1) hour prior to the Start Up time for such Committed Unit as set forth in such Dispatch notification. (ii) All other hours. With respect to all hours --------------- other than On-Peak Hours in the Summer Period, but subject to Section 7(a)(ii), Buyer may cancel Start Up notification for a Committed Unit by providing Seller with a cancellation notification not less than three (3) hours prior to the Start Up time for such Committed Unit as set forth in such Dispatch notification. (f) Load Range and Ramp Times. Once a Committed Unit -------------------------- starts, the Committed Unit will ramp to base load of 60% of Net Dependable Capacity within 20 minutes. From base load, Buyer can choose to ramp between base load and Net Dependable Capacity. The Committed Units can ramp from base load to Net Dependable Capacity within 10 minutes. The units can be loaded approximately twice as fast due to a feature purchased from GE by Seller, but this operation is at the expense of the machine's life. If Buyer requests this fast load ramp option, and Seller agrees to such operation, this will be priced at $500 per Start Up. (g) Minimum on-line and off-line times. 4-hour minimum ---------------------------------- run-time per start and 2-hour minimum off-time between Start Ups. (h) Estimated Reactive Capability Curves. The provision ------------------------------------ of Ancillary Services pursuant to this Agreement (including terms of Article 9 hereof) shall be consistent with the curve attached hereto as Schedule A-1. 7 APPENDIX C COMMUNICATIONS AND GUIDELINES 1. Purposes. The purposes of this Appendix are (i) to describe the nature of the communications link that will be maintained between Seller and Buyer, (ii) to establish the nature and content of communications relating to availability of the Committed Units and their dispatch, and (iii) to establish certain operating procedures. The Parties recognize that it is important that such communication channels be established so that only responsible and authorized personnel can issue requests and/or orders that may impact unit reliability and availability. For dispatch purposes, Buyer may designate a representative other than a Buyer employee to act on its behalf by providing written notice to Seller of such designation and the data required by section 2(b) below. 2. Communications Link. (a) For the dispatch of the Committed Units, Buyer shall first attempt to contact Seller by telephone. If such attempt fails, Buyer shall contact Seller on Seller's pager system, which shall be used as a primary source for communication for dispatch as contemplated by this Agreement. Seller shall contact Buyer by telephone immediately (within 10 minutes) upon receipt of page to obtain specific dispatch instructions. If Seller has not responded within 10 minutes, Buyer shall contact Seller using Seller's cellular phone system. Seller will notify Buyer as soon as possible of any disruption or unavailability of the pager or cellular phone system. The Parties shall also establish and maintain standard phone lines for communications, which systems shall be used in the event that the aforementioned pager system is unavailable. Seller shall notify Buyer promptly of any problems with said standard phone lines. Buyer shall verify such dispatch by facsimile transmission. (b) Telephone numbers will be exchanged between Buyer and Seller for the indicated persons: Buyer Generation Dispatcher Buyer facsimile number Seller pager number Seller cellular phone numbers Seller control room phone number Seller facsimile number 3. Content of Communications. (a) To the extent that events are known or anticipated, Seller shall provide to Buyer information regarding the availability of the Committed Units, including information regarding the following matters: (i) conditions, issues or events which may affect the output or reliability of the Committed Units; (ii) time of day (based on a twenty-four hour clock) when a Committed Unit is placed on the line and taken off the line; 8 (iii) changes of rated capacity of a Committed Unit, when it is known that such changes have taken place or will take place; (iv) Committed Unit de-ratings, including the amount of any derate, the estimated or known start time and date of the derate, the estimated or known ending time and date of the derate, and the cause of the derate; (v) conditions at the Facility or a Committed Unit that could affect the present or anticipated load following capability of a Committed Unit; (vi) when required testing or other operational work could limit the availability or maneuverability of a Committed Unit; and (vii) when the Interconnected Utility issues an emergency and requests a dispatch level different from that level given by Buyer. As it becomes available or anticipated, such information shall be made available to the Buyer. To the extent that such information reflects anticipated events over which Seller has some control, Seller shall undertake to coordinate the occurrence of such event with Buyer. (b) Seller shall use the Operations Reporting Form (via facsimile) attached in Appendix D for the purpose of reporting Committed Unit capability, outages and deratings as soon as possible after any information about a Committed Unit changes. Buyer shall acknowledge receipt of any such facsimile transmissions by signing the form and transmitting such signed page by facsimile transmission to Seller at the return facsimile transmission number indicated thereon. Copies of the transmissions described in this Section 3(b) shall be retained by Seller and Buyer for at least 36 months, after which they may be destroyed. (c) Seller shall provide information regarding Committed Unit availability by telephone on a daily basis by 1200 CPT each Day for the Day commencing thirty-six (36) hours later to Buyer at the number given for the Buyer. (d) Seller shall provide notification regarding any information outlined in Section 3(a) that is not included in the Operations Reporting Form by telephone to Buyer at the number given for the Buyer as soon as practicable after such information is known to Seller. 9 APPENDIX D OPERATIONS REPORTING FORM 9. DATA APPLICABLE FOR ELWOOD AVAILABILITY DECLARATION Availability Declaration Period Commencing 0001 PM/AM, ____/____/____ to 2400 PM/AM, ____/____/____ - ---- ---- TO: Engage Energy FAX Nr: (713) 297-1050 - -------------------------------------------------------------------------------- This FAX is a submission of - -------------------------------------------------------------------------------- Generator's Offer Data - -------------------------------------------------------------------------------- A REVISION to the previously submitted offer of ____/____/____ -------- - -------------------------------------------------------------------------------- This document is a hardcopy back-up to the offer of ____/____/____ - -------------------------------------------------------------------------------- Unit 1 Available to meet Net Dependable Capacity (NDC-150 MW) ____ Yes ____ No - Unit 2 Available to meet Net Dependable Capacity (NDC-150 MW) ____ Yes ____ No - DERATINGS: Derated Amount Time Time ------ ---- ---- Unit 1 Cause Code: ___ MW ____ Start _____ Date ___/___/___ Stop _____ Date ___/___/___ - Unit 2 Cause Code: ___ MW ____ Start _____ Date ___/___/___ Stop _____ Date ___/___/___ - MINIMUM: Time Time ---- ---- Unit 1 Cause Code: ___ MW ____ Start _____ Date ___/___/___ Stop _____ Date ___/___/___ - Unit 2 Cause Code: ___ MW ____ Start _____ Date ___/___/___ Stop _____ Date ___/___/___ -
REMARKS: _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Submitted By: ____________________________________________ Date: ____________________________________________ If you do not receive all the pages, or if the clarification or retransmission is required, call (815) 423-5192. Return acknowledgement of the FAX to the attention of: _________________________ FAX Number: (815) 423-5058 - -------------------------------------------------------------------------------- Acknowledgement by Engage Energy: ________________________________ (Signature) ________________________________ (Title) Acknowledgement date and time: ________________________________ 10 APPENDIX E FOAF CALCULATIONS I. Formula -------- FOAF = FOH + EFDH ------------ PH Where: "FOAF" is "Forced Outage Adjustment Factor" "FOH" is "Forced Outage Hours" in the Summer Period "EFDH" is "Equivalent Forced Derated Hours" in the Summer Period "PH" is "Period Hours" in the Summer Period II. Definitions A. Operation and Outage States Forced Derating An unplanned component failure (immediate, delayed, postponed) or other condition (including a Force Majeure Event after the Commercial Operations Date) that requires the load on a Committed Unit be reduced immediately, within six hours, or before the end of the next weekend, other than during time periods when (a) Seller delivers Substitute Electric Energy (and to the extent of such delivery) or (b) a Committed Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 6(d)(ii) or (iii). The existence of a Forced Derating is not in any way dependent on the applicable Committed Unit being under a Buyer Dispatch order at the time or during the Forced Derating. Forced Outage An unplanned component failure (immediate, delayed, postponed, startup failure) or other condition (including a Force Majeure Event after the Commercial Operations Date) that requires a Committed Unit be removed from service immediately, within six hours, or before the end of the next weekend, other than during time periods when (a) Seller delivers Substitute Electric Energy (and to the extent of such delivery) or (b) a Committed Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 6(d)(ii) or (iii). The existence of a Forced Outage is not in any way dependent on the applicable Committed Unit being under a Buyer Dispatch order at the time of the Forced Outage. 11 For the avoidance of doubt, in the event that the Interconnecting Utility has suspended, terminated or otherwise interrupted transmission of the Electric Energy of a Committed Unit due to a breach of or default under the Interconnection Agreement by Seller alleged by the Interconnected Utility by written notice of breach or default by Seller pursuant to the terms of the Interconnection Agreement to have occurred, the Committed Unit will be considered under a Forced Outage or Forced Derating for the purpose of calculating the FOAF, whether or not such claim by the Interconnecting Utility is ultimately resolved in Seller's favor. B. Time (Calculated during Summer Period On-Peak Hours Only) Equivalent Forced Derated Hours (EFDH) * The product of Forced Derated Hours (FDH) and Size of Reduction during Summer Period On-Peak Hours, divided by Net Dependable Capacity (NDC). Forced Derated Hours (FDH) Sum of all On-Peak Hours during which there is a Forced Derating in the Summer Period. Forced Outage Hours (FOH) Sum of all On-Peak Hours during which there is a Forced Outage in the Summer Period. Period Hours (PH) The sum of all On-Peak Hours during the Summer Period. *Equivalent hours are computed for each derating and then summed. Size of Reduction is determined by subtracting the Net Available Capacity (NAC) from the Net Dependable Capacity (NDC). In cases of multiple deratings, the Size of Reduction of each derating is the difference in the Net Available Capacity of the unit prior to the initiation of the derating and the reported Net Available Capacity as a result of the derating. C. Capacity and Energy Gross Available Capacity (GAC) Greatest capacity (MW) at which a unit can operate with a reduction imposed by a derating. Net Available Capacity (NAC) GAC less the unit capacity (MW) utilized for that unit's station service or auxiliaries. 12 D. FOAF SAMPLE CALCULATIONS 1. First Incident is a Forced Derating at Committed Unit 1: ------------------------------------------------------- Assume for a period of 48 hours between 6:00 a.m. on a Tuesday and 6:00 a.m. on the following Thursday in July, Committed Unit 1 can only operate at 100 MW (as adjusted for temperature and relative humidity). Net Dependable Capacity (as adjusted for temperature and relative humidity) is 150 MW. The Committed Unit Forced Derating occurred for 32 On-Peak hours, (16 Hours Tuesday and 16 hours Wednesday). As such EFDH = FDH x Size of Reduction, or ----------------------- NDC EFDH = 32 hours x 50 MW = 1600 MWH = 10.67 hours ---------------- -------- 150 MW 150 MW 2. Second Incident is a Forced Outage at Committed Unit 1: ------------------------------------------------------- Assume Committed Unit 1 is totally unavailable for a period from 6:00 a.m. Friday through 2:00 a.m. the following Tuesday in August. The Forced Outage occurred for 32 On-Peak hours (i.e., 16 Friday, zero Saturday and Sunday, 16 Monday and zero Tuesday) 3. Third Incident is a Forced Outage at Committed Unit 2: ------------------------------------------------------ Assume Committed Unit 2 has a 7 hour Forced Outage from 8:00 p.m. until 3:00 a.m. on a Thursday in August. The Forced Outage then lasted for 2 On-Peak Hours. 4. Fourth Incident is a Forced Outage on Committed Unit 2: ------------------------------------------------------ Assume Committed Unit 2 has a 36 hour Forced Outage from 8:00 a.m. on a Thursday in November until 8:00 p.m. the following Friday. The Forced Outage was not in the Summer Period and as such is not part of FOAF calculation. 5. Aggregate FOAF (for both Committed Units) for the Year ------------------------------------------------------ If these are the only four incidents in a contract year (assuming the number of weekdays in Summer Period is the same as in 1999 and assuming two NERC holidays), then, Incident 1 is 10.67 hours. Incident 2 is 32 hours. Incident 3 is 2 hours. 13 Incident 4 is zero hours. FOAF = 10.67 hours + 32 hours + 2 hours = .01623 -------------------------------- 2(1376) On Peak Hours or, 1.62% 5% - 1.62% = 3.38%, and Seller gets a bonus of 3.38% times the applicable Contract Year's Capacity Payment. 14 EX-10.3 19 dex103.txt SECOND AMENDED POWER SALES AGREEMENT EXHIBIT 10.3 Execution Copy SECOND AMENDED AND RESTATED POWER SALES AGREEMENT Dated as of March 1, 2001 Between Exelon Generation Company, LLC (as Assignee of Commonwealth Edison Company) and Elwood Energy LLC Table of Contents 1. Definitions and Interpretation.......................................................................... 2 (a) Definitions................................................................................... 2 (b) Interpretation................................................................................ 11 (c) Legal Representation of Parties............................................................... 12 (d) Titles and Headings........................................................................... 12 (e) Sample Calculations........................................................................... 12 (f) Appendices.................................................................................... 12 (g) Conflicts in Documentation.................................................................... 13 2. Term.................................................................................................... 13 3. Generating Capacity..................................................................................... 13 4. Electric Energy Supply.................................................................................. 13 (a) Supply........................................................................................ 13 (b) Dispatch...................................................................................... 14 (c) Operating Notifications....................................................................... 14 (d) Point of Sale................................................................................. 14 (e) Communications................................................................................. 15 5. Metering; Billing; Payment.............................................................................. 15 (a) Metering...................................................................................... 15 (b) Billing....................................................................................... 18 (c) Billing Disputes.............................................................................. 18 6. Operation of Committed Units............................................................................ 19 (a) Standard of Operation......................................................................... 19 (b) Electric Energy Generation.................................................................... 19 (c) Outages....................................................................................... 19 (d) Operating Characteristics..................................................................... 21 (e) Substitute Electric Energy.................................................................... 22 (f) Fuel and Emissions............................................................................ 22 (g) Records....................................................................................... 25 7. Compensation............................................................................................ 25 (a) Capacity Charge............................................................................... 25 (b) Energy Payments............................................................................... 25 (c) Start-Up Charge............................................................................... 26 (d) Dispatch Cancellation Charges................................................................. 26 (e) Fuel Adjustment Charges....................................................................... 27 (f) Equivalent Availability Adjustment............................................................ 28 (g) Reliability Bonus............................................................................. 29 (h) Imbalance Charges............................................................................. 29 (i) 2001 Special Bonus............................................................................ 29 (j) Rates Not Subject to Review................................................................... 30 (k) Unit 1 and 2 True Up.......................................................................... 30 (l) Placement on Turning Gear..................................................................... 30 8. Commissioning of Unit 9 and Testing of All Committed Units.............................................. 30 (a) Delayed Unit 9 Commercial Operations Date..................................................... 30 (b) Capacity Tests................................................................................ 30 (c) Start-Up and Test Power from Unit 9........................................................... 31
i 9. Ancillary Services...................................................................................... 31 10. Limitation of Liability and Exclusive Remedies.......................................................... 32 11. Disagreements........................................................................................... 33 (a) Negotiations.................................................................................. 33 (b) Arbitration................................................................................... 33 (c) Settlement Discussions........................................................................ 34 (d) Preliminary Injunctive Relief................................................................. 35 (e) Obligations to Pay Charges and Perform........................................................ 35 12. Assignment; Transfer of Committed Units................................................................. 35 (a) Assignment.................................................................................... 35 (b) Consent to Assignment to Lender............................................................... 35 13. Default, Termination and Remedies....................................................................... 36 (a) Seller Default................................................................................ 36 (b) Buyer Default................................................................................. 37 (c) Remedies...................................................................................... 37 (d) Extended Outage............................................................................... 37 (e) Unit 9 Termination............................................................................ 38 14 Representations and Warranties.......................................................................... 38 (a) Representations and Warranties of Seller...................................................... 38 (b) Representations and Warranties of Buyer....................................................... 39 15. Indemnification......................................................................................... 40 16. Notices................................................................................................. 40 17. Confidentiality......................................................................................... 41 18. Governing Law........................................................................................... 42 19. Force Majeure........................................................................................... 42 (a) Definition.................................................................................... 42 (b) Events not a Force Majeure Event.............................................................. 42 (c) Obligations Under Force Majeure............................................................... 43 (d) Force Majeure Not Forced Outage............................................................... 44 (e) Continued Payment Obligation.................................................................. 44 (f) Payment of Monthly Capacity Charges........................................................... 44 20. Intentionally Omitted................................................................................... 44 21. Taxes................................................................................................... 44 (a) Applicable Taxes.............................................................................. 44 (b) Contested Taxes............................................................................... 45 (c) Other Charges................................................................................. 45 22. Miscellaneous Provisions................................................................................ 45 (a) Non-Waiver.................................................................................... 45 (b) Third Party Beneficiaries..................................................................... 45 (c) Relationship of Parties....................................................................... 45 (d) Successors and Assigns........................................................................ 45 23. Entire Agreement and Amendments......................................................................... 45
APPENDICES Appendix A Design Limits per Committed Unit (including Schedule A-1) Appendix B Guide Number 3 ii Appendix C Communications Appendix D Operations Reporting Forms Appendix E Equivalent Availability (including Schedules E-1, E-2, E-3, and E-4) Appendix F Output Adjustment Curve Appendix G Unit 9 Test Power Agreement Appendix H Form of Opinion Appendix I Delay Liquidated Damages for Unit 9 Appendix J Reliability Bonus Appendix K Planned Outages Appendix L Unit One-Line Diagram Appendix M Unit 1 and 2 True Up (including Schedule M-1) iii SECOND AMENDED AND RESTATED POWER SALES AGREEMENT THIS SECOND AMENDED AND RESTATED POWER SALES AGREEMENT (including Appendices and Schedules, this "Agreement") dated as of March 1, 2001, is entered into between EXELON GENERATION COMPANY, LLC (d.b.a. "Power Team"), a Pennsylvania limited liability company, as assignee of COMMONWEALTH EDISON COMPANY, an Illinois corporation ("Buyer"), and ELWOOD ENERGY LLC, a Delaware limited liability company ("Seller") to amend and restate that certain Amended and Restated Power Sales Agreement between the Parties previously executed as of March 24, 1999 (the "Amended and Restated Agreement"); Buyer and Seller are sometimes referred to herein individually as a "Party" and collectively as the "Parties"); W I T N E S S E T H: WHEREAS, Seller owns and operates an electric generating facility (the "Elwood Energy Station") and is engaged in the generation and sale of Electric Energy, Capacity and associated Ancillary Services (each as defined herein); and WHEREAS, Seller is adding an additional unit ("Unit 9") to the Elwood Energy Station and anticipates the Unit 9 Commercial Operations Date of such unit will occur on or prior to June 1, 2001 for Buyer; and WHEREAS, Buyer receives and purchases, and Seller delivers and sells the Electric Energy, Capacity and associated Ancillary Services from units three and four ("Units 3 and 4") of the Elwood Energy Station pursuant to the Amended and Restated Agreement; and WHEREAS, Seller and Engage Energy America, LLC ("Engage") are parties to an Amended and Restated Power Sales Agreement dated as of November 10, 1999 (the "Engage PSA"); and WHEREAS, Buyer and Engage are parties to a contract whereby the Ancillary Services, energy and capacity sold under the Engage PSA are resold by Engage to Buyer (the "Engage Resale PSA") (the Engage PSA and the Engage Resale PSA are hereafter referred to collectively as the "Engage Agreements"); and WHEREAS, the Parties desire to amend and restate the Amended and Restated Agreement as provided hereunder with regard to certain terms in connection with the (i) true up of pricing between this Agreement and the Engage Agreements and (ii) the further amendment and restatement of the Amended and Restated Agreement to revise certain terms and conditions permanently and to reflect the addition of a new unit (such new unit, Unit 9); and WHEREAS, the Parties desire that this Agreement shall supersede the Amended and Restated Agreement in its entirety. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the Parties hereto agree as follows: 1. Definitions and Interpretation ------------------------------ (a) Definitions. As used in this Agreement, (i) the terms set forth below ----------- in this Section 1(a) shall have the respective meanings so set forth, and (ii) the terms defined elsewhere in this Agreement shall have the meanings therein so specified irrespective of whether identified in this Section 1(a). "Affected Party" has the meaning set forth in Section 19(a) (Definition). "Affiliate" means, when used with respect to any Person, any Person controlling, controlled by or under common control with such Person. For the purposes of this definition, the term "controlling" (and, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession of the legal right to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or agency or otherwise. "Allowances" shall mean any allowances, credits, trading units ("ATUs"), allocations, or other comparable terms used to express and quantify regulated air pollutants. "Ancillary Services" has the meaning set forth in Section 9 (Ancillary Services). "Available" means a state in which the Facility has been Dispatched by Buyer and delivers all or a portion of the Electric Energy (or Seller provides an equivalent amount of Substitute Electric Energy) Dispatched by Buyer. If the Facility only delivers a portion of the Electric Energy Dispatched by Buyer for a given time period, the Facility shall be considered Available only to the extent of: (i) such delivery of Electric Energy from the Facility, or (ii) delivery of Substitute Electric Energy. "Balancing Gas Cost" shall mean the two (2) days later than the day of burn published price in Gas Daily, Daily Price Survey, Midpoint for Chicago-LDCs, large end users, flow days. In the event the price ceases to be published, a substitute index for spot gas prices shall be used. "Bankruptcy" means any case, action or proceeding under any bankruptcy, reorganization, debt arrangement, insolvency or receivership law or any dissolution or liquidation proceeding commenced by or against a Person and, if such case, action or proceeding is not commenced by such Person, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in an order for relief or shall remain undismissed for ninety (90) days. "Business Day" means each weekday (Monday through Friday) except NERC Holidays. "Buyer Event of Default" has the meaning specified in Section 13(b) (Buyer Default). 2 "Capacity" means the level of power output capability that is declared by Seller for the Committed Units and as may be tested from time to time and the capability to provide Substitute Electric Energy and to provide reliability in accordance with MAIN requirements. "Capacity Charge" means the rates per kW to be paid as listed in Section 7(a) (Capacity Charge). "Capacity Payment" means, with respect to each Committed Unit for each month the product of (i) the Net Dependable Capacity of such Committed Unit, multiplied by (ii) the Capacity Charge for the applicable Month, except with regard to Units 1 and 2 during the True Up Period as provided in Appendix M (Unit 1 and 2 True Up). "ComEd" means Commonwealth Edison Company and its Affiliates and their successors and assigns. "ComEd System" means the electric transmission and distribution system owned by ComEd and its Affiliates, or their successors and assigns. "ComEd/Elwood Switchyard" means that switchyard that will be owned by ComEd that provides interconnection services to the Facility. "Committed Unit" means each of the combustion turbines of the Facility dedicated to this Agreement, i.e., numbers one (1), two (2), three (3), four (4), and nine (9). Prior to the Engage Termination Date, Units 1 and 2 are Committed Units in the sense that they are subject to the Unit 1 and 2 True Up as set forth in Appendix M (Unit 1 and 2 True Up). After such date, Units 1 and 2 will be fully subject to this Agreement as Committed Units in the same manner as are Units 3, 4 and 9. "Compressor Wash" shall mean the period during which, pursuant to Section 6(c)(iii) (Compressor Wash), a Committed Unit is shut down for a compressor wash. Such offline compressor washes shall be conducted after each period of approximately three hundred (300) hours of operation of a Committed Unit in accordance with Prudent Industry Practice. "Confidential Information" has the meaning specified in Section 17 (Confidentiality). "Contract Year" means, in the case of the first Contract Year, the period beginning on March 1, 2001 and ending on December 31, 2001, and for each Contract Year thereafter, the calendar year. For Unit 9, the first Contract Year shall begin on June 1, 2001 and end on December 31, 2001. "Critical Day" shall be defined per the tariff of the applicable utility or natural gas interstate pipeline. "Day Ahead Schedule" has the meaning set forth in Section 4(c)(i). 3 "Default Rate" means (a) the "Prime Rate" as published from time to time in the "Money Rates" section of The Wall Street Journal, plus (b) 2.5% (250 basis points) per annum. "Design Limits" means, with respect to a Committed Unit, the items listed in Appendix A (Design Limits per Committed Unit). "Dispatch" means Buyer's rights to control the generating level of the Committed Unit(s) within and subject to the Design Limits and consistent with Prudent Utility Practice. Seller shall have the sole discretion as to (i) which Committed Units are operated to meet the Dispatch order or (ii) whether to meet such Dispatch order with delivery of Substitute Electric Energy. "Dispatch Cancellation Charges" shall mean the charges applicable for cancellation of a Dispatch order in accordance with Section 7(d) (Dispatch Cancellation Charges). "EO" means ComEd's Electric Operations Department. "Effective Date" means the date of this Agreement as shown in the preamble. "Electric Energy" means all electric energy output from the Committed Units (net of station service and auxiliaries) which, except as expressly provided in this Agreement, Seller shall sell and deliver to Buyer at the Point of Delivery pursuant to this Agreement, or sell and deliver to Engage for resale to Buyer at the Point of Delivery pursuant to the Engage Agreements for Units 1 and 2 during the True Up Period. "Elwood Energy Station" means the entire generating station owned by Seller (and its Affiliates) including all nine units. "Emergency Condition" means a condition or situation which (i) in the sole judgment of the Interconnected Utility presents an imminent physical threat of danger to life, or significant threat to health or property (including in the ComEd/Elwood Switchyard), (ii) in the sole judgment of the Interconnected Utility could cause a significant disruption on or significant damage to the Interconnected Utility's System (or any material portion thereof) or the transmission system of a third party (or any material portion thereof), (iii) in the sole judgment of Seller presents an imminent physical threat of danger to life, or significant threat to health or property (including in the ComEd/Elwood Switchyard) or (iv) in the sole judgment of Seller could cause significant damage to a Committed Unit (or any material portion thereof). "Energy Charge" means an amount determined under Section 7(b) (Energy Payments). "Energy Payment" means the product of the Energy Charge times the MWh of Electric Energy (or Substitute Electric Energy) as provided in Section 7(b) (Energy Payments), except with respect to Units 1 and 2 during the True Up Period as provided in Appendix M (Unit 1 and 2 True Up). "Engage" means Engage Energy America, LLC or its successors and assigns. 4 "Engage PSA" means the Amended and Restated Power Sales Agreement between Seller and Engage dated as of November 10, 1999 governing Units 1 and 2. "Engage Agreements" means the Engage PSA and the Engage Resale PSA. "Engage Resale PSA" means the Amended and Restated Power Sales Agreement between Buyer and Engage, dated as of June 1, 1999 applicable to Units 1 and 2. "Engage Termination Date" means the earlier of January 1, 2005 or the termination of the Engage Agreements. "Equivalent Availability" or "EA" has the meaning set forth in Appendix E (Equivalent Availability). "Equivalent Availability Adjustment" or "EA Adjustment" has the meaning set forth in Section 7(f) (Equivalent Availability Adjustment) and Appendix E (Equivalent Availability). "Equivalent Forced Derated Hours" or "EFDH" is the product of Forced Derated Hours (FDH) and Size of Reduction divided by the Net Dependable Capacity (NDC). EFDH are computed for each Forced Derating and then summed for the applicable period. "Escalation" means the adjustment of certain dollar figures in this Agreement effective each January 1, beginning January 1, 2002, by a factor equal to the percentage change in the Gross Domestic Product Implicit Price Deflator ("GDP-IPD") as published by the U.S. Department of Commerce. The change in GDP- IPD shall be calculated using "final" estimates, which are typically published in the GDP news release near the end of March, by dividing the 4th quarter index of the latest year by the fourth (4th) quarter index of the prior year, rounded to the nearest tenth of a percent. Because the publication is not available at January 1, true up adjustments shall be invoiced by Seller as soon as practical after publication to make the escalation effective January 1. "Excess Capacity" has the meaning set forth in Section 6(b)(ii) (Electric Energy Generation). "Facility" means the portion of Elwood Energy Station that is made up of the Committed Units 1, 2, 3, 4 and 9. "FERC" means the Federal Energy Regulatory Commission. "Force Majeure Event" has the meaning set forth in Section 19(a) (Definition). "Forced Derated Hours" ("FDH") and "Forced Outage Hours" ("FOH") are calculated over all applicable hours of a specific period, during which a Unit experiences a Forced Derating or Forced Outage, as applicable. They are calculated monthly in the Summer Months for each of 5 the Summer Super Peak Hours, Summer Partial Peak Hours, Summer Non-Peak Hours, and seasonally for Non-Summer On-Peak Hours (as applicable). "Forced Derating" means an unplanned component failure (immediate, delayed, postponed) or other condition that prevents a Committed Unit from delivering a portion of Electric Energy as Dispatched by Buyer for a given time period, other than during time periods when (a) a Committed Unit is shut down for Compressor Washes, (b) Seller delivers Substitute Electric Energy (and to the extent of such delivery), (c) a Committed Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 6(d)(ii) or (iii) (Operating Characteristics), and (d) a Committed Unit is not Available as a result of a Force Majeure Event. "Forced Outage" means an unplanned component failure (immediate, delayed, postponed, Start-Up failure) or other condition that prevents a Committed Unit from delivering any Electric Energy as Dispatched by Buyer for a given time period, other than during time periods when (a) a Committed Unit is shut down for Compressor Washes, (b) Seller delivers Substitute Electric Energy (and to the extent of such delivery), (c) a Committed Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 6(d)(ii) or (iii) (Operating Characteristics), and (d) a Committed Unit is not Available as a result of a Force Majeure Event. "Fuel Adjustment Charges" has the meaning set forth in Section 7(e)(iii) (Increases to Non-Summer On-Peak Hours and Summer Non-Peak Hours). "Fuel Change Fee" has the meaning set forth in Section 7(e)(iv) (Decreases to Non-Summer On-Peak Hours and Summer Non-Peak Hours). "Fuel Charge" has the meaning set forth in Section 7(b) (Energy Payments). "Gas Cost" shall mean the Next Day Gas Cost, Balancing Gas Cost or the Intra-Day Gas Cost, whichever is applicable. "ISO" means any Person, other than ComEd, that becomes responsible as system operator for the Interconnected Utility System. "Imbalance Charge" means a charge for over-supply or under-supply generator imbalances of Electric Energy incurred pursuant to Schedule 4 of ComEd's (or any ISO's) Open Access Transmission Tariff or the Interconnection Agreement. "Integrated Hourly MWh" means the quotient of: (a) the sum during the hour of (i) the amount of MW delivered in accordance with this Agreement as recorded by the Revenue Meter during each recording period within the hour, multiplied by (ii) the length of time of the recording period in minutes, divided by 6 (b) sixty (60) minutes. "Interconnected Utility" means ComEd or its successors and assigns; such assigns may include an ISO operating a control area that includes the ComEd System. "Interconnected Utility System" means the electric transmission and distribution system owned by ComEd and its Affiliates, or their successors and assigns; such assigns may include assignment of operations to an ISO which shall then mean that Interconnected Utility System shall refer to the entire control area operated by such ISO, including what had been the ComEd System. "Interconnection Agreement" means the interconnection agreement agreed to and executed between the Interconnected Utility and Seller with respect to the Facility "Intra-Day Gas Cost" shall mean the Gas Cost that is the higher of the day of burn or next day after burn published price in Gas Daily, Daily Price Survey, Midpoint for Chicago-LDCs, large end users, flow day. In the event the price ceases to be published, a substitute index for next day scheduled spot gas prices shall be used. "Lenders" means with respect to any Person (i) any person or entity that, from time to time, has made loans to such Person, its permitted successors or permitted assigns for the financing or refinancing of the Facility or the marketing of the Electric Energy, Capacity or Ancillary Services of the Facility or which are secured by the Facility, (ii) any holder of indebtedness of such Person, (iii) any person or entity acting on behalf of such holder(s) to which any holders' rights under financing documents have been transferred, any trustee or agent on behalf of any such holders, or (iv) any Person who purchases the Facility in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of the Facility pursuant to a net lease. "Liabilities" has the meaning set forth in Section 15 (Indemnification). "MAIN" means the Mid-America Interconnected Network. "Maintenance Outage" means the removal of a Committed Unit from service to perform work (other than a Compressor Wash) on specific components that can be deferred beyond the end of the next weekend, but requires the Committed Unit be removed from service before the next Planned Outage. Typically, Maintenance Outages may occur any time during the year, have flexible start dates, and may or may not have predetermined durations. "NERC" means the North American Electric Reliability Council. "NERC Holidays" means the days on which the following holidays are observed by NERC: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 7 "Net Dependable Capacity" means the level of MW per Committed Unit, based upon demonstrated output (net of station service and auxiliaries) achieved during Capacity testing of such Committed Unit pursuant to Section 8(b) (Capacity Tests), adjusted by reference to the curves in Appendix F (Output Adjustment Curve) to conditions of 85(Degree) F and 60% relative humidity, at 610 feet above sea level, provided, however, that prior to the Unit 9 Commercial Operations Date, the Net Dependable Capacity of Unit 9 shall be deemed to be one hundred fifty-five (155) MW. "Next Day Gas Cost" shall mean the day of burn published price in Gas Daily, Daily Price Survey, Midpoint for Chicago-LDCs, large end users, flow days. In the event the price ceases to be published, a substitute index for spot gas prices shall be used. "Non-Summer Months" shall mean January through May and October through December of each Contract Year, with the following exceptions. For Contract Year 2001, Non-Summer Months shall mean March through May and October through December. For Unit 9 in Contract Year 2001, Non-Summer Months shall mean October through December. "Non-Summer Months Target EA" means ninety-three percent (93%) per season. "Non-Summer On-Peak Hours" means during the Non-Summer Months, the hour ending 0700 through the hour ending 2200, Monday through Friday, excluding Saturdays, Sundays, and NERC holidays. "Other Contract" has the meaning set forth in Section 23 (Entire Agreement and Amendments). "Period Hours" or "PH" means the total number of Summer Super Peak, Summer Partial Peak, Summer Non-Peak, or Non-Summer On-Peak Hours (as applicable) in each period. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. "Planned Outage" means the removal of a Committed Unit from service to perform work on specific components that is scheduled well in advance and has a predetermined start date and duration (e.g., annual overhaul, inspections or testing) as provided in Section 6(c)(i) (Planned Outages) and Appendix K (Planned Outages). "Point of Delivery" for Electric Energy and Substitute Electric Energy generated by a source within the Elwood Energy Station is the point of interconnection (as identified in Appendix L (Unit One-Line Diagram)) between the Facility and the Interconnected Utility System at the meter in the ComEd/Elwood Switchyard or at a mutually agreeable location for Substitute Electric Energy generated by a source other than the Elwood Energy Station. 8 "Prudent Utility Practice" means any of the practices, methods and acts required or approved by any ISO or engaged in or approved by a significant portion of the electric utility industry in the geographic region covered by MAIN during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. "Prudent Utility Practice" is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the geographic region covered by MAIN. "Reliability Bonus" shall have the meaning provided for such term in Appendix J (Reliability Bonus). "Reliability Bonus Period" has the meaning set forth in Appendix J (Reliability Bonus). "Requirement of Law" means any federal, state and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any federal, state, local or other governmental authority or regulatory body (including those pertaining to electrical, building, zoning, environmental and occupational safety and health requirements). "Revenue Meter" means the meter which measures power flow into the main step up transformer of each Committed Unit at a point after auxiliary loads are withdrawn from the bus. "Seller Event of Default" has the meaning specified in Section 13(a) (Seller Default). "Site" means the real property on which the Committed Units are located. "Size of Reduction" shall have the following meaning. The "Size of Reduction" for a Forced Derating shall be determined by Seller and shall be based upon observed output of a typical unit having the same equipment problems under similar operating and environmental conditions. Buyer may request Seller to justify the size of the reduction through provision of reasonably available historical operating records in support of Seller's selection of the Size of Reduction "Start-Up" means the normal sequence of events, beginning with the cranking process, in order to initiate the generation of Electric Energy by a Committed Unit pursuant to a Dispatch Order from Buyer (not including a restart during the current Dispatch schedule after a Committed Unit's trip after a Successful Start-Up). "Start-Up Charge" has the meaning set forth in Section 7(c) (Start-Up Charge). "Substitute Electric Energy" means electric energy sold and delivered by Seller to Buyer under this Agreement from sources other than a Committed Unit. 9 "Successful Start-Up" means a Start-Up after which the applicable Committed Unit achieves the Dispatched generation level for a minimum of four (4) hours during any day's Dispatch period, provided such hours do not have to be consecutive. "Summer Months" shall mean June through September. "Summer Months Target EA" means ninety-seven percent (97%) per month for Summer On-Peak Hours and ninety-seven percent (97%) per month for Summer Non- Peak Hours. "Summer Non-Peak Hours" shall mean all hours during the Summer Months that are not Summer On-Peak Hours, excluding Saturdays, Sundays, and NERC Holidays. "Summer On-Peak Days" shall mean Monday through Friday, excluding Saturdays, Sundays and NERC holidays in the Summer Months. "Summer On-Peak Hours" shall mean the hour ending 0700 through the hour ending 2200 Monday through Friday, excluding NERC Holidays. "Summer Partial Peak Hours" means, during the Summer Months, the hour ending 0700 through the hour ending 1100 and the hour ending 2000 through the hour ending 2200 Monday through Friday, excluding NERC Holidays. "Summer Super Peak Hours" means, during the Summer Months, the hour ending 1200 through the hour ending 1900 Monday through Friday, excluding NERC Holidays. "Target EA" means the Summer Months Target EA or the Non-Summer Months Target EA, or both, as applicable. "Term" has the meaning specified in Section 2 (Term). "Termination Date" means the earlier of (i) December 31, 2012, or (ii) the date on which this Agreement is terminated by a Party, pursuant to its terms. "Transmission Easement" means the easement granting the Interconnected Utility rights to install transmission facilities on the property of Seller. "True Up Period" means, as to Units 1 and 2, the period prior to the Engage Termination Date during which such Units are subject to the Unit 1 and 2 True Up. "Units 1 and 2" shall mean the units of the Facility under contract under the Engage Agreements which are subject to the Unit 1 and 2 True Up and are under the control of Buyer. "Units 1 and 2 True Up" has the meaning set forth in Appendix M (Unit 1 and 2 True Up). 10 "Unit 9 Commercial Operations Date" means the date on which Seller achieves the conditions of the commercial operations date as set forth in Section 8(a) (Delayed Unit 9 Commercial Operations Date). "Unit 9 Test Power Agreement" means the agreement attached hereto as Appendix G (Unit 9 Test Power Agreement). "Variable O&M Charge" shall have the meaning set forth in Section 7(b) (Energy Payments). (b) Interpretation. In this Agreement, unless a clear contrary intention -------------- appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, in the case of a Party, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes the other; (iv) reference to any agreement (including this Agreement), document, instrument or tariff means such agreement, document, instrument or tariff as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; (v) reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, including, if applicable, rules and regulations promulgated thereunder; (vi) reference to any Section, Schedule or Appendix means such Section of this Agreement, such Schedule of this Agreement, or such Appendix to this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof or thereof; (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; (ix) relative to the determination of any period of time, "from" means "from and including", "to" means "to but excluding" and "through" means "through and including"; and 11 (x) reference to time shall always refer to Central Prevailing Time as in effect in Elwood, Illinois. (c) Legal Representation of Parties. This Agreement was negotiated by the ------------------------------- Parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party shall not apply to any construction or interpretation hereof or thereof. (d) Titles and Headings. Section, Schedule, and Appendix titles and ------------------- headings in this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement. (e) Sample Calculations. Examples of calculations of various items under ------------------- this Agreement are contained in the Schedules. (f) Appendices. This Agreement includes the following Appendices annexed ---------- hereto and any reference in this Agreement to an "Appendix" by letter designation or title shall mean the one of the following so indicated and such reference shall incorporate such Appendix into this Agreement. Appendix A - Design Limits per Committed Unit (including Schedule A-1) Appendix B - MAIN Guide Number 3 Appendix C - Communications Appendix D - Operations Reporting Forms Appendix E - Equivalent Availability (including Schedules E-1, E-2, E-3 and E-4) Appendix F - Output Adjustment Curve Appendix G - Unit 9 Test Power Agreement Appendix H - Form of Opinion Appendix I - Delay Liquidated Damages for Unit 9 Appendix J - Reliability Bonus Appendix K - Planned Outages Appendix L - Unit One-Line Diagram 12 Appendix M - Unit 1 and 2 True Up (Including Schedule M-1) (g) Conflicts in Documentation. Each Party acknowledges that it has -------------------------- reviewed this Agreement and all of the Appendices to this Agreement and to the best of its knowledge, there is no conflict between Sections 1-23 of this Agreement and the Appendices or among the Appendices. Each Party acknowledges that it is relying on the other Party's determination that there is no such conflict. Each Party shall promptly notify the other Party in writing of any apparent conflict or inconsistency among any of the Appendices to this Agreement. If there is any conflict between Sections 1-23 of this Agreement and the Appendices, Sections 1-23 of this Agreement shall be deemed controlling, and any conflict between the Appendices shall be resolved in the following priority: A (Design Limits per Committed Unit), E (Equivalent Availability), F (Output Adjustment Curve), M (Unit 1 and 2 True Up) and the remaining Appendices in the order in which they appear. 2. Term ---- This Agreement shall have a term (the "Term") commencing on the Effective Date and ending on the Termination Date. The provisions of Section 1 (Definitions and Interpretation), Section 6(f) (Fuel and Emissions), Section 6(g) (Records), Section 10 (Limitation of Liability and Exclusive Remedies), Section 11 (Disagreements), Section 13 (Default, Termination and Remedies), Section 15 (Indemnification), Section 17 (Confidentiality), Section 18 (Governing Law), Section 22 (Miscellaneous Provisions), and Section 23 (Entire Agreement and Amendments) shall survive the Termination Date of this Agreement. 3. Generating Capacity ------------------- Subject to the terms and conditions of this Agreement, Seller shall, consistent with Prudent Utility Practice, cause the aggregate peak Capacity of all Committed Units during a Contract Year to be not less than the sum of the Net Dependable Capacities for such Committed Units for such Contract Year. 4. Electric Energy Supply ---------------------- (a) Supply. Subject to the terms and conditions of this Agreement, Seller ------ shall make available at the Point of Delivery to Buyer for delivery and sale (or during the True Up Period, delivery and sale to Engage for resale to Buyer of Electric Energy Dispatched by Buyer), and Buyer shall receive and purchase from Seller (or during the True Up Period, from Engage, Energy Dispatched by Buyer) at the Point of Delivery, Electric Energy as Dispatched by Buyer. Buyer shall not be obligated to receive or purchase any Electric Energy from Seller except such Electric Energy as is Dispatched by Buyer pursuant to Section 4(b) (Dispatch). Seller shall not operate a Committed Unit (including Units 1 and 2 during the True Up Period) except in response to a Dispatch order from Buyer other than (i) for testing purposes prior to the Unit 9 Commercial Operations Date pursuant to Section 8(c) (Start-Up, Test and Pre-COD Power from Unit 9) and other testing pursuant to Section 8(b) (Capacity Tests), (ii) for Seller's rights to sell to third parties pursuant to Section 13(c)(ii) (Remedies), and (iii) as a result of instructions from 13 the Interconnected Utility pursuant to Section 6(d)(ii) (Operating Characteristics) and the Interconnection Agreement. Notwithstanding the above, if a Committed Unit is operating as expressly permitted hereunder, Seller may consume electric energy from that Committed Unit for station service and auxiliaries (including Start-Up of other units at the Facility). Seller shall have the sole discretion as to (i) which Committed Units are operated to meet the Dispatch order or (ii) whether to meet such Dispatch order with delivery of Substitute Electric Energy. Buyer must accept all Substitute Electric Energy delivered from within the Elwood Energy Station. Buyer shall only be obligated to accept Substitute Electric Energy from outside the Elwood Energy Station if it is delivered in accordance with Section 6(e) (Substitute Electric Energy). (b) Dispatch. Buyer may Dispatch the delivery of Electric Energy from the -------- Committed Units in accordance with the provisions set forth in Appendices A (Design Limits per Committed Unit), C (Communications) and E (Equivalent Availability) at a rate up to the aggregate Net Dependable Capacity of the Committed Units. Buyer's Dispatch order shall specify the number of Committed Units to be operated and the operating level for each Committed Unit, but shall not specify particular Committed Units. Notwithstanding the above, except to the extent Seller has notified Buyer that Seller has arranged for delivery of Substitute Electric Energy and Capacity consistent with the terms of this Agreement, Buyer shall not Dispatch a Committed Unit (1) during any Planned Outage, Maintenance Outage, period during which the circumstances of Sections 6(d)(ii) or (iii) (Operating Characteristics) apply, or period of a Force Majeure Event (to the extent the Planned Outage, Maintenance Outage, circumstances of Sections 6(d)(ii) or (iii) or Force Majeure Event causes the level at which a Committed Unit is Available to be less than the Net Dependable Capacity) or (2) during any other period when Buyer is expressly prohibited from doing so under the provisions of this Agreement. (c) Operating Notifications ----------------------- (i) Day Ahead Schedule. Not later than 0830 each day Buyer shall ------------------ provide to Seller estimates of its requirements, on an hour by hour basis, for Electric Energy and Start-Ups for the following day. In the event the estimates accurately reflect the actual Dispatches and Start-Ups for the following day, the Gas Cost for such day will be the Next Day Gas Cost. (ii) Availability Notification. Seller shall, by noon each day, ------------------------- inform Buyer of the estimated Capacity (taking into account the effect of any expected deratings) that will be available to Buyer for the following three (3) days. These estimates shall not be binding upon Seller and Seller may subsequently alter its estimates. Seller shall advise Buyer of any changes in its estimated Capacity as soon as practicable. (iii) Mandatory Notification Obligation. Mandatory minimum --------------------------------- notification periods for the Dispatch of each Committed Unit are set forth in Appendix A (Design Limits per Committed Unit). (d) Point of Sale. The point where sale of Electric Energy and Substitute ------------- Electric Energy will take place and where title to and risk of loss with respect to, such Electric Energy 14 and Substitute Electric Energy shall transfer to Buyer is at the Point of Delivery. Buyer shall be responsible for any transmission costs beyond the Point of Delivery. (e) Communications. The Parties have developed mutually acceptable -------------- procedures for communications between Seller's control room and the EO Dispatch center included herewith as Appendix C (Communications) to this Agreement. The Parties have also developed several mutually acceptable day-to-day operational reporting forms, (i.e., Dispatch Order, Availability, and Change in Unit Status Reports) included herewith as Appendix D (Operations Reporting Forms). The actual language in these forms may change over time to reflect both technological and communicational improvements; all such changes will be agreed to by both Parties prior to inclusion and will in no way contradict or compromise the current economic parameters set forth in this Agreement. Buyer has also expressed interest in a "Ring Down" telecommunications arrangement between Seller's control room, the EO Dispatch center, and Buyer's trading floor. Should such an arrangement be feasible Buyer has agreed to bear any and all costs associated with the implementation and operations of such communication. 5. Metering; Billing; Payment -------------------------- (a) Metering. -------- (i) All Electric Energy delivered by Seller to Buyer from the Committed Units under this Agreement shall be metered by the Revenue Meters and the readings therefrom shall be adjusted for calculated transformer and transmission line losses between the Revenue Meters and the Point of Delivery in accordance with industry standards consistently applied. The Energy Charge for which Buyer will be billed also will be net of an adjustment for the value of the amount of electricity consumed by other non-operating units at the Facility during the billing period to yield the "billable generation" for the billing period calculated as described below. To establish the value of kilowatt hours of electricity provided by a Committed Unit and consumed by other non-operating units for a billing period, the total for each billing period of electricity consumed by each unit at the Facility will be determined from the individual unit meter readings using each Committed Unit's Revenue Meter which will then be summed for all Committed Units as applicable. From this sum, the total monthly electricity delivered by the Interconnected Utility (as determined from the Interconnected Utility's revenue meter in the ComEd/Elwood Switchyard) will be subtracted yielding an aggregate total of the electricity consumed by all the units that had been generated by one or more other units at the Facility. This amount will then be multiplied by the ratio of the total operating hours of a given Committed Unit and the total operating hours of all units. This product will represent the electricity generated by a given Committed Unit and consumed by other non- operating units, and will represent the "non-billable generation" per unit. The non-billable generation for a Committed Unit will be multiplied by the weighted average $/MWh rate for all generation from such Committed Unit in the applicable month pursuant to Section 7(b) (Energy Payments). This value for non-billable generation will be subtracted from the Energy Charge calculated from the reading of the Revenue Meter 15 for a particular Committed Unit for billing purposes for the billing period. Nothing contained herein shall affect the existence or effectiveness of the Engage Agreements. THE FOLLOWING DEMONSTRATES THE CALCULATION METHODOLOGY AND IS FOR EXAMPLE PURPOSES ONLY: Total Electricity generated Unit 1 = 30,000 MWh Total Electricity generated Unit 2 = 22,500 MWh Total Electricity generated Unit 3 = 15,000 MWh Total Electricity generated Unit 4 = 0 MWh Total electricity consumed Unit 1 = 20,000 kWh Total electricity consumed Unit 2 = 30,000 kWh Total electricity consumed Unit 3 = 15,000 kWh Total electricity consumed Unit 4 = 1,000 kWh Total electricity consumed All Units = 20,000 + 30,000 + 15,000 + 1,000 = 66,000 kWh Total electricity delivered by the Interconnected Utility = 30,000 kWh Total electricity consumed at the Facility generated by the Facility = 66,000 - 30,000 = 36,000 kWh Unit 1 Monthly Operating Hours = 200 Unit 2 Monthly Operating Hours = 150 Unit 3 Monthly Operating Hours = 100 Unit 4 Monthly Operating Hours = 0 Total Operating Hours = 200 + 150 + 100 + 0 = 450 hours CALCULATION: (PRICING USED BELOW FOR EXAMPLE PURPOSES ONLY) Unit 1 non-billable generation = (200/450) (36,000) = 16,000 kWh (16 MWh) Unit 2 non-billable generation = (150/450) (36,000) = 12,000 kWh (12 MWh) 16 Unit 3 non-billable generation = (100/450) (36,000) = 8,000 kWh (8 MWh) Unit 4 non-billable generation = (0/450) (36,000) = 0 kWh Average $/MWh for Unit 1 = $32/MWh Therefore the Energy Charge for Unit 1 = [(30,000) (32) - (16) (32)] = $959,488 Average $/MWh for Unit 2 = $30/MWh Therefore the Energy Charge for Unit 2 = [(22,500) (30) - (12) (30)] = $674,640 Average $/MWh for Unit 3 = $31/MWh Therefore the Energy Charge for Unit 3 = [(15,000) (31) - (8) (31)] = $464,752 Average $/MWh for Unit 4 = $0 Therefore the Energy Charge for Unit 4 = (0) (ii) The Revenue Meters shall be tested by the Parties at least once each year at Seller's expense and at any other reasonable time upon request by either Party, at the requesting Party's expense. Seller shall give Buyer at least fourteen (14) days notice of any testing of the Revenue Meters and Buyer shall have the right to be present during all testing and shall be furnished all testing results on a timely basis. (iii) If testing of the Revenue Meters indicates that an inaccuracy of more than +/-0.5% in measurement of Electric Energy has occurred, the affected Revenue Meter shall be recalibrated promptly to register accurately within the Revenue Meter manufacturer stated tolerances. Each Party shall comply with any reasonable request of the other concerning the sealing of meters, the presence of a representative of the other Party when the seals are broken and the tests are made, and other matters affecting the accuracy of the measurement of Electric Energy delivered from the Committed Units. If either Party believes that there has been a meter failure or stoppage, it shall immediately notify the other Party. (iv) If, for any reason, any Revenue Meter is out of service or out of repair so that the amount of Electric Energy delivered cannot be ascertained or computed from the readings thereof, the Electric Energy delivered during the period of such outage shall be estimated and agreed upon by the Parties hereto upon the basis of the best data available, and any failure to agree shall be subject to resolution in accordance with Section 11 (Disagreements). (v) Each Party (and its representative(s)) has the right, at its sole expense, upon reasonable notice and during normal working hours, to examine the records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, charge or computation relating to the output of Electric Energy. If requested, a Party shall 17 provide to the other Party statements evidencing the amounts of Electric Energy delivered at the Point of Delivery. (b) Billing. As soon as practicable after the end of each calendar month ------- during the Term and after the Termination Date, Seller shall render a statement to Buyer for the amounts due in respect of such month or such period of time through the Termination Date under Section 7 (Compensation), which statement shall contain reasonable detail showing the manner in which the applicable charges were determined. Billings for Electric Energy shall be based on Revenue Meter information or, in the event Section 5(a)(iv) (Metering) is applicable, the best available data. The amount due to Seller as shown on any such monthly statement rendered by Seller shall be paid by Buyer by electronic wire transfer to an account specified by Seller within fifteen (15) Business Days after the date such statement is received by Buyer. Any amount not paid by Buyer when due shall bear interest at the Default Rate from the date that the payment was due until the date payment by Buyer is made. Amounts due to Buyer as a result of Unit 9 not achieving the Unit 9 Commercial Operations Date until after June 1, 2001 pursuant to Section 8(a) (Delayed Unit 9 Commercial Operations Date) shall be offset against other payments due from Buyer on a monthly basis. Any amounts due to Buyer as a result of the Equivalent Availability Adjustment pursuant to Section 7(f) (Equivalent Availability Adjustment) shall be offset against other payments due from Buyer as provided in Section 7(f). If Buyer has made Capacity Payments for a period during which its obligation to make Capacity Payments has been relieved pursuant to Section 19(f)(ii) (Payment of Monthly Capacity Charge), Buyer shall be entitled to set off any such amounts against future payments. If, at the end of the Term, there is any outstanding balance due to Buyer, Seller will pay Buyer within thirty (30) days of invoice up to the limits of liability set forth in Appendix E (Equivalent Availability) and Section 8(a) (Delayed Unit 9 Commercial Operations Date). (c) Billing Disputes. ---------------- (i) If Buyer questions or contests any amount claimed by Seller to be due under Section 7 (Compensation) of this Agreement, Buyer shall make such payment under protest and thereafter shall be reimbursed by Seller for any amount in error after resolution of the dispute in accordance with Section 5(c)(ii) (Billing Disputes). (ii) In the event that Buyer, by timely notice to Seller, questions or contests the correctness of any charge or payment claimed to be due by Seller, Seller shall promptly review the questioned charge or payment and shall notify Buyer, within fifteen (15) Business Days following receipt by Seller of such notice from Buyer, of the amount of any error and the amount of any reimbursement that Buyer is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen (15) Business Days after Seller's receipt of notice from Buyer shall be resolved in accordance with 18 Section 11 (Disagreements). Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by Seller. (iii) Reimbursements made by Seller to Buyer under this Section 5(c) (Billing Disputes) shall include interest from the date the original payment was made until the date such reimbursement together with interest is made, which interest shall accrue at the Default Rate. 6. Operation of Committed Units ---------------------------- (a) Standard of Operation. Consistent with Prudent Utility Practice, --------------------- Seller shall operate each Committed Unit in accordance with (i) the practices, methods, acts, guidelines, standards and criteria of MAIN, NERC, any ISO and any successors to the functions thereof; (ii) the requirements of the Interconnection Agreement; and (iii) all applicable Requirements of Law. Seller will obtain all certifications, permits, licenses and approvals necessary to operate and maintain each Committed Unit and to perform its obligations under this Agreement during the Term. (b) Electric Energy Generation. -------------------------- (i) Except as otherwise provided in Section 13(c)(ii) (Remedies), during a Contract Year, Buyer shall have the exclusive right to receive and purchase all electricity (net of station service and auxiliaries) and Ancillary Services generated by each Committed Unit in such Contract Year, provided that if Unit 9 achieves the Unit 9 Commercial Operations Date prior to June 1, 2001, Seller shall be entitled to sell energy and capacity from Unit 9 to third parties until June 1, 2001. (ii) Buyer acknowledges that each Committed Unit may have a load capability that is higher than its Net Dependable Capacity but that Seller will not operate the Committed Units at such levels under normal conditions. If Buyer desires to operate a Committed Unit such that it shall have Capacity in excess of its Net Dependable Capacity ("Excess Capacity"), Buyer shall request such Excess Capacity and associated Electric Energy and Ancillary Services from Seller at mutually agreeable prices. Notwithstanding the above, Seller shall be under no obligation to generate or sell Excess Capacity. (iii) Testing and commissioning of Unit 9 in its first Contract Year may require Seller to operate Unit 9 up to one hundred (100) hours prior to the anticipated Unit 9 Commercial Operations Date of June 1, 2001. These operation hours will count towards the one thousand five hundred (1500) hours per year operating limit set forth in Appendix A (Design Limits per Committed Unit) for the first Contract Year for Unit 9. Regardless of the quantity of hours of testing prior to the Unit 9 Commercial Operations Date performed by Seller for Unit 9, Buyer shall be entitled to one thousand four hundred (1400) Dispatched hours for Unit 9 in the first Contract Year. (c) Outages. ------- 19 (i) Planned Outages. No later than September 30 of each Contract --------------- Year (commencing with 2001), Seller shall submit to Buyer a proposed schedule of Planned Outages scheduled by Seller for the following Contract Year for the Committed Units, which schedule shall be updated by Seller by each March 30 and September 30 thereafter to cover the twelve (12) month period following each such update; provided, however, that no Planned Outage may be scheduled to cover any portion of the month of May or a Summer Month. Such schedule, and each supplement thereto, shall indicate the planned start and completion dates for each Planned Outage during the period covered thereby and the amount of the Net Dependable Capacity of a Committed Unit that will be affected. Within thirty (30) days of receipt of such schedule or any supplement thereto, Buyer may request reasonable modifications in the Planned Outage schedule contained therein. Both parties agree to use reasonable efforts to develop a mutually acceptable final schedule for such Planned Outages. No change shall be made by Seller to any Planned Outage schedule less than six (6) months prior to the start of such Planned Outage without the agreement of Buyer, such agreement not to be unreasonably withheld or delayed. If within six (6) months prior to the scheduled start of a Planned Outage, Buyer desires to change the scheduled start or duration of such Planned Outage, Buyer shall notify Seller of Buyer's requested change and Seller shall use reasonable efforts to accommodate Buyer's requested change. Seller may propose compensation from Buyer to Seller for such change. Buyer shall then have the right to either direct such change and pay Seller such compensation, or withdraw the request for such change. At least one (1) week prior to any Planned Outage, Seller shall orally notify Buyer of the expected start date of such Planned Outage, the amount of Capacity at the Committed Units which will not be available to Buyer during such Planned Outage, and the expected completion date of such Planned Outage. Seller shall orally notify Buyer of any subsequent changes in such Capacity not available or any subsequent changes in the Planned Outage completion date. As soon as practicable, all such oral notifications shall be confirmed in writing. (ii) Maintenance Outages. To the extent that during any Contract ------------------- Year Seller needs to schedule a Maintenance Outage of a Committed Unit, Seller shall notify Buyer of such proposed Maintenance Outage and the Parties shall plan such outage of Capacity to mutually accommodate the reasonable requirements of Seller and service obligations of Buyer. Notice of a proposed Maintenance Outage shall include the expected start date of the outage, the amount of Net Dependable Capacity of a Committed Unit that will not be Available and the expected completion date of the outage, and shall be given to Buyer at the time the need for the Maintenance Outage is determined by Seller. Buyer shall promptly respond to such notice and may request reasonable modifications in the schedule for the outage. Seller shall use all reasonable efforts to comply with such a request to reschedule a Maintenance Outage, provided that it may do so in accordance with the Design Limits and Prudent Utility Practice as such practice relates solely to Seller's operation of the Facility. Seller shall notify Buyer of any subsequent changes in such generating capacity not Available to Buyer or any subsequent changes in such Maintenance Outage completion date. As soon as practicable, any such notifications given orally shall be confirmed in writing. 20 (iii) Compressor Wash. Buyer shall permit Seller to shut down --------------- each Committed Unit (either at the same time or at different times) for a Compressor Wash at a mutually agreeable time, approximately once per month in the Summer Months. Seller shall provide Buyer with notice of an anticipated time for a Compressor Wash. Buyer acknowledges that Seller expects generally to perform a Compressor Wash once per month per Committed Unit, and in the event that Buyer's Dispatch does not so permit, Buyer agrees that Buyer must permit Seller to perform a Compressor Wash on a Committed Unit not later than six (6) weeks from the last Compressor Wash performed on such Committed Unit during the Summer Months. Such Compressor Wash requires that the Committed Unit be off-line for an eighteen (18) hour cool down period prior to the start of such Compressor Wash. Seller agrees that at any time during such cool down period, Buyer may interrupt such cool down, Dispatch the Committed Unit on-line and reschedule the cool down and Compressor Wash at a mutually agreeable time. Buyer agrees that once the actual Compressor Wash begins, the Compressor Wash must be completed without interruption and that Buyer cannot Dispatch the Committed Unit on-line until such Compressor Wash is completed. The lesser of five (5) hours or actual Compressor Wash time per such shut down per Committed Unit will not count as Forced Outage or Maintenance Outage time for calculation of the EA. Unless interrupted by Seller, no cool down time will count as Forced Outage or Maintenance Outage time for calculation of EA, regardless of the number of hours or times that such cool down time has been interrupted and restarted. (iv) Forced Outages. Seller shall promptly provide to Buyer an -------------- oral report of any Forced Outage or Forced Deratings of the Committed Units, which report shall include the amount of the Net Dependable Capacity of the Committed Units that will not be Available because of such Forced Outage or Forced Derating and the expected return date of such Capacity, and shall update such report as necessary to advise Buyer of changed circumstances. As soon as practicable, all such oral reports shall be confirmed in writing. (v) Information Related to Outages. In addition to the ------------------------------ foregoing, Seller shall provide to Buyer information relating to outages of Capacity at the Committed Units which could affect Seller's ability to deliver Electric Energy from such Units. (d) Operating Characteristics. ------------------------- (i) The operating characteristics of each Committed Unit shall be consistent with the Design Limits for such Committed Unit set forth in Appendix A (Design Limits per Committed Unit) unless otherwise mutually agreed by the Parties. Any changes to such operating characteristics, which may affect the delivery of Electric Energy pursuant to this Agreement, must be agreed upon by the Parties. (ii) Buyer understands that Seller may be required to increase, reduce, curtail or interrupt electrical generation at the Committed Units in accordance with Prudent 21 Utility Practice or take other appropriate action in accordance with the applicable provisions of the Interconnection Agreement which in the reasonable judgment of the Interconnected Utility may be necessary to operate, maintain and protect the Interconnected Utility System or the transmission system of another Person during an Emergency Condition or in the reasonable judgment of Seller may be necessary to operate, maintain and protect the Committed Units during an Emergency Condition. For purposes of calculating the EA, the Committed Units shall be considered Available during any such increase, reduction, curtailment, or interruption, unless the order to increase, reduce, curtail or interrupt generation at the Committed Units or the Emergency Condition is caused by an action taken by Seller or a condition on Seller's side of the Point of Delivery, (iii) Buyer acknowledges that other conditions on the Interconnected Utility System (for example, transmission outages or interruptions) may impact Seller's ability to deliver Electric Energy into the Interconnected Utility System, other than a condition caused by Seller, at the Point of Delivery. For purposes of calculating the EA, the Committed Units shall be considered Available during any time that the Committed Units would have been actually Available but for conditions (including, for example, transmission outages or interruptions) on the Interconnected Utility System. (e) Substitute Electric Energy. At any time, subject to mutual agreement -------------------------- on a Point of Delivery if generated by a source outside the Elwood Energy Station, Seller may, at no additional cost to Buyer, make Substitute Electric Energy and the corresponding level of Capacity available to Buyer at the Point of Delivery. Seller may make Substitute Electric Energy available for the same scheduled period only if Seller also provides firm transmission from source to the applicable Point of Delivery at no additional cost to Buyer if such Substitute Electric Energy is generated by a source outside the Elwood Energy Station. To the extent Seller provides Substitute Electric Energy, the Committed Units shall be considered Available for purposes of calculation of the EA. Notwithstanding the above, Seller is not obligated to provide Substitute Electric Energy to Buyer at any time. In addition, Seller's delivery of Substitute Electric Energy shall be included in any determination as to whether Seller is entitled to a bonus (or the amount thereof) to be earned pursuant to the calculations in Appendices E (Equivalent Availability) and J (Reliability Bonus). (f) Fuel and Emissions. ------------------ (i) Any emission allowances, credits or authorizations of any kind ("Allowances") allocated from time to time to the Seller by any state or federal governmental entity for the Committed Units pursuant to any state, regional or national program for the reduction of emissions of air pollutants of any kind that applies to the Committed Units and similarly situated units that are like the Committed Units ("Allowance Budget Program"), including NOx, SO2, mercury, carbon or other greenhouse gases, whether such program now exists or is hereafter established, and including, without limitation, the NOx Budget program being developed for the State of Illinois and commonly referred to as "Subpart W," to respond to Illinois' obligations under what is commonly called the U.S. EPA's "NOx SIP Call," will be used 22 by Seller to support generation under this Agreement (and generation of Electric Energy by Units 1 and 2 under the Engage Agreements during the True-Up Period) (ii) To the extent that the number of Allowances necessary to meet Buyer's Dispatch orders with regard to the Committed Units under any Allowance Budget Program exceeds the amount of NO\\x\\ and/or SO\\2\\ allowances (the "NO\\x\\-SO\\2\\ Allowances") allocated to the Seller for such Committed Units, Buyer shall provide the NO\\x\\-SO\\2\\ Allowances at such time and in such manner and form as are required for Seller to meet its compliance obligations with respect to such allowances under the applicable Allowance Budget Program and at no cost to Seller . (iii) In the event that Buyer fails to supply the NO\\x\\-SO\\2\\ Allowances in accordance with this Section 6(f), Buyer shall indemnify and hold harmless the Seller, its officers and directors, employees and agents against all losses, claims, damages, liabilities, penalties, fines, forfeitures, obligations, payments, costs and expenses incurred by it resulting from or arising out of Buyer's failure to provide the NO\\x\\-SO\\2\\ Allowances to Seller as required under this Agreement. (iv) If taxes, fees, assessments or charges are assessed by any governmental entity against emissions of air pollutants or the consumption of fossil fuels for electric generation pursuant to any state, regional or national program that applies to the Committed Units and similarly situated units that are like the Committed Units, or if obligations are imposed upon the Committed Units pursuant to any state, regional or national program for the reduction in the emissions of air pollutants of any kind that applies to the Committed Units and similarly situated units that are like the Committed Units pursuant to the Allowances Budget Program other than the NO\\x\\-SO\\2\\ Allowances, or which are not an Allowance Budget Program ("New Air Emission Programs"), Buyer shall be responsible, subject to the limitations in Section 6(f)(v) below, for compliance with the New Air Emission Programs to the extent incurred by Seller in meeting is generation obligations under this Agreement (and generation of Electric Energy by Units 1 and 2 under the Engage Agreements during the True Up Period), provided that Seller meets its obligations to develop and implement a "Compliance Plan," as provided below. (v) Once any New Air Emissions Program takes effect, the Parties shall use reasonable efforts to develop and implement a mutually acceptable compliance plan consistent with the terms of this subparagraph to minimize the costs associated with the implementation of such New Air Emissions Programs (the "Compliance Plan"). Buyer agrees that it shall pay for all costs incurred by Seller to comply with each such Compliance Plan up to an annual, aggregate cost to buyer for all Compliance Plans of five hundred sixty-two thousand dollars ($562,000) in 2001 dollars, adjusted for Escalation after 2001 (the "Pass Through Cap Amount"). If the Compliance Plan would result in annual costs to Buyer in excess of the Pass Through Cap Amount, Seller may elect to absorb such costs or ask that Buyer pay such costs. If Seller elects to ask Buyer to pay such costs, Buyer shall have the option to (i) pay such costs above the Pass Through Cap Amount, (ii) terminate this Agreement without any further liability or (iii) reopen the pricing under this Agreement subject to Section 11 (Disagreements). Such Compliance Plan shall be based on the following principles: 23 (A) the Compliance Plan shall be implemented upon passage of final regulations, and the Parties shall agree as to when costs should be incurred in order to meet a compliance deadline; (B) the emission benefits and costs related to any such Compliance Plan shall be allocated pro-rata among the Elwood Energy Station (including the Committed Units and uncommitted units), regardless of the nature of the implementation plan; thus, for example, the Parties may agree to have one (1) Committed Unit modified in order for all units to be environmentally compliant, and the costs related thereto shall be allocated proportionately among all the units. Buyer's payment would have the components of capital, fixed O&M, and variable O&M. Buyer's capital payment portion would be equal to: ICC = ICRP + IF + IV where: ICC = Increased Compliance Cost ICRP = (I\\c\\ *PF)/12 where: I\\c\\ = Total capital cost includes equipment, installation, overhead and interest during construction (IDC), IDC will be calculated at LIBOR, the London Interbank Offered Rates as reported from time to time in the Money Rates section of the Wall Street Journal, at the "In service date" plus .5% PF = Payment Factor - [(1+wacc)/n/ * wacc]/[(1+wacc)/n/ - 1] where: wacc = 30 year Treasury Bond rate at the "in service date" + 250 basis points /n/ = Number of years(or partial years, as the case may be) between in-service date and the date which is 25 years after the Effective Date IF - Incremental Fixed O&M using Prudent Utility Practices paid as a function of the availability levels as defined in the Agreement IV - Incremental Variable O&M using Prudent Utility Practices paid as a function of the availability levels as defined in the Agreement (C) To the extent that there are any benefits related to over- compliance, e.g. credits, such benefits shall also be apportioned pro rata to --- the Facility. (D) The Compliance Plan shall be based on the most efficient, least cost compliance plan that meets the requirements and is consistent with Prudent Utility Practices, considering the total costs associated with the Compliance Plan, including but not limited to, capital costs, variable operating costs, reporting requirements, etc. 24 (E) Upon agreement of such Compliance Plan, Buyer shall pay for compliance for the Committed Units up to the Pass Through Cap Amount and receive its allocated share of benefits, if any, for the Committed Units. (g) Records. Each Party shall keep and maintain all records as may be ------- necessary or useful in performing or verifying any calculations made pursuant to this Agreement, or in verifying such Party's performance hereunder. All such records shall be retained by each Party for at least three (3) calendar years following the calendar year in which such records are created. Each Party shall make such records available to the independent auditors representing the other Party for inspection and copying at the other Party's expense, upon reasonable notice during such Party's regular business hours. Each Party shall have the right, upon thirty (30) days written notice prior to the end of an applicable three (3) calendar year period to request copies of such records. Each Party shall provide such copies, at the other Party's expense, within thirty (30) days of receipt of such notice or shall make such records available to the other Party in accordance with the foregoing provisions of this Section. 7. Compensation ------------ (a) Capacity Charge. Except (i) to the extent of reductions in Buyer's --------------- obligations pursuant to Section 19(f)(ii) (Payment of Monthly Capacity Charges), and (ii) with regard to Units 1 and 2 during the True-Up Period as described in Appendix M (Unit 1 and 2 True Up), commencing on the Effective Date Buyer shall pay the Capacity Payment for each month until the end of the Term as shown below, as adjusted by the EA Adjustment. The monthly Capacity Charges per kW for Unit 9 shall become effective June 1, 2001 and are payable in accordance with this Agreement regardless of the Unit 9 Commercial Operations Date. Units 1-4, 9 Month Years 2001-2012 ----- --------------- January $2.71875 February $2.71875 March $2.71875 April $2.71875 May $2.71875 June $6.525 July $9.7875 August $9.7875 September $4.35 October $2.71875 November $2.71875 December $2.71875 -------- Average $4.35 (b) Energy Payments. Except during the True Up Period as described in --------------- Appendix M (Unit 1 and 2 True Up), each month beginning on the Effective Date and continuing throughout the Term, Buyer shall pay Seller Energy Payments equal to the product of the Energy Charge 25 times the MWh of Electric Energy or Substitute Electric Energy. The Energy Charge has two components and shall be equal to the sum of the Variable O&M Charge plus the Fuel Charge. The Variable O&M Charge on the Effective Date shall be $1.50/MWh, adjusted for Escalation. The Fuel Charge shall be equal to the sum of the Electric Energy (expressed in Integrated Hourly MWh) and Substitute Electric Energy (expressed in MWh) sold to Buyer under this Agreement during each hour of such month, multiplied by the following prices at various Dispatch levels as shown in the table below. MW Level Dispatched in the hour Fuel Charge/MWh ------------------------------- --------------- 60% of Net Dependable Capacity Gas Cost + $0.32 * 12.9 MMBtu/MWh 100% of Net Dependable Capacity Gas Cost + $0.32 * 10.9 MMBtu/MWh To the extent a Committed Unit operates at levels between the above percentages, the heat rate will be prorated to the proportionate level between the points in the table. (c) Start-Up Charge. Except with regard to Units 1 and 2 during the --------------- True Up Period, Buyer shall pay to Seller three thousand two hundred fifty dollars ($3,250) adjusted for Escalation for each Successful Start-Up of a Committed Unit. The Start-Up Charge will be paid for each Successful Start-Up and for any cancelled Start-Up in accordance with Section 7(d) (Cancellation of or Change in Dispatch). (d) Dispatch Cancellation Charges. Buyer may cancel Start-Up of ------------------------------- a Committed Unit anytime prior to the initiation of the Start-Up sequence and ignition of a Committed Unit. For such cancellation, the following Dispatch Cancellation Charges and Fuel Adjustment Charges shall apply: (i) Dispatch Cancellation during Summer On-Peak Hours. No ------------------------------------------------- Dispatch Cancellation Charges or Fuel Adjustment Charges shall apply if Buyer cancels a Dispatch order more than one (1) hour before the time requested for the initiation of Start-Up. If Buyer cancels a Dispatch order (other than as a result of a Force Majeure Event) less than one (1) hour prior to the time requested for the initiation of Start-Up, Buyer shall be liable to Seller for a Dispatch Cancellation Charge of three thousand two hundred fifty dollars ($3,250), adjusted for Escalation, per Committed Unit, but no Fuel Adjustment Charges shall apply. (ii) Dispatch Cancellation during Non-Summer On-Peak Hours and --------------------------------------------------------- Summer Non-Peak Hours. If Buyer cancels a Dispatch order (other than as a result - --------------------- of a Force Majeure Event) more than four (4) hours prior to the time requested for the initiation of Start-Up, no Dispatch Cancellation Charges shall apply but Buyer shall be responsible for Fuel Adjustment Charges pursuant to Section 7(e) (Fuel Adjustment Charges). If Buyer cancels a Dispatch order (other than as a result of a Force Majeure Event) less than four (4) hours but more than two (2) hours prior to the time requested for the initiation of Start-Up, Buyer shall be liable to Seller for a Dispatch Cancellation Charge of one thousand dollars ($1,000), adjusted for Escalation, per 26 Committed Unit and Buyer shall be responsible for Fuel Adjustment Charges pursuant to Section 7(e). If Buyer cancels a Dispatch order less than two (2) hours prior to the time requested for the initiation of Start-Up, Buyer shall be liable to Seller for a Dispatch Cancellation Charge of four thousand dollars ($4,000), adjusted for Escalation, per Committed Unit and Buyer shall be responsible for Fuel Adjustment Charges pursuant to Section 7(e). (iii) Forced Outage During Start-Up. If Seller experiences a Forced ----------------------------- Outage prior to the achievement of a Successful Start-Up of a Committed Unit, Buyer shall have the right to cancel the remainder of the current Dispatch order of such Committed Unit without incurring a Dispatch Cancellation Charge or any Fuel Charges for such Committed Unit. However, Seller shall not accumulate any further Forced Outage Hours after notice of cancellation of Dispatch. If Buyer does not cancel such Dispatch order following a Forced Outage prior to initiation of Start-Up, Seller shall resume operation pursuant to such Dispatch order. If Successful Start-Up is achieved, Buyer shall be liable for the Start- Up Charge. Any cancellation by Buyer thereafter shall be subject to this Section 7(d). In both of these cases the Next Day Gas costs will apply to Electric Energy generated by the Committed Unit. (e) Fuel Adjustment Charges.. ----------------------- (i) Increases to Summer On-Peak Hours Day Ahead Schedule. If Buyer ---------------------------------------------------- increases the amount of Electric Energy to be delivered pursuant to the Day Ahead Schedule, for that amount of Electric Energy delivered that is greater than the nominated amount of Electric Energy (the "Incremental Energy") the Gas Cost shall be the Intra-Day Gas Cost. The Next Day Gas Cost will apply to the original amount of Electric Energy delivered according to the Day Ahead Schedule. (ii) Decreases to Summer On-Peak Hours Day Ahead Schedule. If Buyer ---------------------------------------------------- decreases the amount of Electric Energy to be delivered pursuant to the Day Ahead Schedule, for all Electric Energy delivered to Seller the Gas Cost shall be the Next Day Gas Cost. No other charges are applicable. (iii) Increases to Non-Summer On-Peak Hours and Summer Non-Peak --------------------------------------------------------- Hours. If Seller increases the amount of Electric Energy to be delivered - ----- pursuant to the Day Ahead Schedule, the Fuel Adjustment Charge for the Incremental Energy resulting from an increase of twenty-eight (28) unit hours or less shall equal the Balancing Gas Cost plus a volumetric balancing cost of twelve and one-half cents ($.125) per MMBtu/MWh. If Seller increases the amount of Electric Energy to be delivered pursuant to the Day Ahead Schedule, the Fuel Adjustment Charge for the Incremental Energy resulting from an increase of greater than twenty-eight (28) unit hours but no greater than forty-three (43) unit hours shall equal the Balancing Gas Cost plus a volumetric balancing cost of sixty-two and one-half cents ($.625) per MMBtu/MWh. If Seller increases the amount of Electric Energy to be delivered pursuant to the Day Ahead Schedule, the Fuel Adjustment Charge for the Incremental Energy resulting from an increase of more than forty-three (43) unit hours shall equal the Balancing Gas Cost plus the amount of Seller's volumetric cost of authorized or unauthorized balancing charges per MMBtu. The Next Day Gas Cost will apply to the original amount of Electric Energy delivered according to the 27 Day Ahead Schedule. (iv) Decreases to Non-Summer On-Peak Hours and Summer Non-Peak --------------------------------------------------------- Hours. If Buyer decreases the amount of Electric Energy to be delivered pursuant - ----- to the Day Ahead Schedule, for all Electric Energy delivered to Seller the Gas Cost shall be the Next Day Gas Cost. In addition, a Fuel Change Fee for the excess gas resulting from the decrease in the amount of Electric Energy nominated but not delivered shall be paid by Buyer (the "Excess Gas"). The Fuel Change Fee shall consist of the net of the Next Day Gas Cost and the Balancing Gas Cost (possibly a gain or loss) resulting from the liquidation of the Excess Gas plus the volumetric balancing costs per MMBtu of the Excess Gas. The volumetric balancing costs shall equal: (A) $.125 per MMBtu up to 28 unit hours of decrease (B) $.625 per MMBtu greater than 28 unit hours and less than 44 hours of decrease (C) Seller's volumetric cost of authorized or unauthorized balancing costs per MMBtu for any decrease in excess of 44 unit hours. (v) Forced Outage or Forced Derating. Buyer shall not be -------------------------------- responsible for Fuel Adjustment Charges resulting from changes to the Day Ahead Schedule which occur as a result of Forced Outage, Forced Derating or Force Majeure Event where the Seller is the Affected Party. (f) Equivalent Availability Adjustment. Seller or Buyer, as applicable, ---------------------------------- shall be liable to the other Party for an amount based upon the Equivalent Availability Adjustments as applied to (1) each individual Summer Month when such Summer Month's Capacity Payment is due and (2) the previous Contract Year's aggregate Non-Summer Months Capacity Payments due no later than January 31 of each year, including the Bonus/Penalties calculated pursuant to this Section and to the Equivalent Availability in Appendix E (Equivalent Availability). Recovery of such amounts (if any) by Buyer from Seller shall be offset against current or future payments only. Any amounts due pursuant to calculations under this Section 7(f) shall be combined and the sum shall be that Contract Year's Equivalent Availability Adjustment. Any offset to Buyer for the Equivalent Availability Adjustment shall in no event exceed the applicable Contract Year's aggregate Capacity Payments actually paid to Seller. For the calendar year 2001, the Period Hours for the Non-Summer period will be calculated from March 1, 2001. (i) Summer Months Bonus. Each Summer Month the Equivalent ------------------- Availability for both the Summer Super Peak Hours and Partial Peak Hours across all five (5) Committed Units will be calculated and compared with a ninety-seven percent (97%) Target EA. In the event that the aggregate (across all five (5) Committed Units) Equivalent Availability for a Summer Month's Period exceeds this ninety-seven percent (97%) threshold Seller will be entitled to a bonus as shown in Appendix E (Equivalent Availability). (ii) Summer Months Penalty. Each Summer Month the Equivalent --------------------- Availability for the Summer Super Peak Hours, the Summer Partial Peak Hours, and the Summer 28 Non-Peak Hours will be calculated (each of these will again be done on an aggregate basis across all five (5) Committed Units) and each one will be compared with a ninety-seven percent (97%) Target EA. In the event that the aggregate (across all five (5) Committed Units) Equivalent Availability for either the Summer Super Peak Hours, the Summer Partial Peak Hours, or the Summer Non-Peak Hours is below this ninety-seven percent (97%) threshold, Seller will be subject to penalties as shown in Appendix E (Equivalent Availability). (iii) Non-Summer Months Bonus. In the event that the aggregate ----------------------- (across all five (5) Committed Units) Equivalent Availability for the Non-Summer Period exceeds ninety-three percent (93%), Seller will be entitled to a bonus as shown in Appendix E (Equivalent Availability). (iv) Non-Summer Months Penalty.In the event that the aggregate ------------------------- (across all five (5) Committed Units) Equivalent Availability for the Non-Summer Period is below ninety-three percent (93%), Seller will be liable for penalties as shown in Appendix E (Equivalent Availability). (g) Reliability Bonus. For each Summer Month the Reliability Bonus will ----------------- be calculated in accordance with Appendix J (Reliability Bonus). (h) Imbalance Charges. Buyer shall hold Seller harmless from any Imbalance ----------------- Charges that result from Buyer's Dispatch orders under this Agreement. After December 31, 2004, Seller shall hold Buyer harmless from any Imbalance Charges under the Interconnection Agreement that result from Seller's deviation from Buyer's Dispatch orders under this Agreement caused by any reason whatsoever, including, but not limited to a failure to comply with operating parameters in the Interconnection Agreement. (i) 2001 Special Bonus. Seller has paid to Buyer the sum of two hundred ------------------ fifty thousand dollars ($250,000) and upon such payment, Seller was released from any liability to Buyer for Equivalent Availability Adjustment and any other liability associated with operations or failures to operate (including liabilities under Section 10(d) of the Amended and Restated Agreement or any liability under this Agreement for the Seller's operations in January and February 2001). If the Equivalent Availability for each Summer Month's Period Hours for Units 3 and 4 averaged together exceed 97% for each Summer Month of 2001, Buyer shall refund all or a portion of such two hundred fifty thousand dollars ($250,000) as calculated below. The amounts below will be linearly prorated to a hundredth of a percent between 97% and 100%. June 2001 Maximum $53,600 ($17,866 per one percent (1%) above Target EA) July 2001 Maximum $80,400 ($26,800 per one percent (1%) above Target EA) August 2001 Maximum $80,400 ($26,800 per one percent (1%) above Target EA) September 2001 Maximum $35,700 ($11,900 per one percent (1%) above Target EA) 29 (j) Rates Not Subject to Review. The rates for service specified herein --------------------------- (i.e., delivery of Electric Energy, Substitute Electric Energy, Capacity and Ancillary Services) shall remain in effect for the Term, and shall not be subject to change through application to the FERC pursuant to provisions of Section 205 et seq. of the Federal Power Act, absent agreement of the Parties. (k) Unit 1 and 2 True Up. During the True Up Period, all payments for -------------------- Start-Up Charges, Energy Payments and Capacity Payments with regard to Units 1 and 2 shall be subject to the Unit 1 and 2 True Up as described in Appendix M. (l) Placement on Turning Gear. If Buyer requests this option in the ------------------------- future, it will be at a mutually agreed upon price. 8. Commissioning of Unit 9 and Testing of All Committed Units ---------------------------------------------------------- (a) Delayed Unit 9 Commercial Operations Date. Seller anticipates that ----------------------------------------- the Unit 9 Commercial Operations Date will occur on or prior to June 1, 2001. If Unit 9 has not achieved the Unit 9 Commercial Operations Date on or prior to June 1, 2001, Seller shall be liable to Buyer for delay liquidated damages for every Summer On-Peak Day in the months of June, July and August that the Unit 9 Commercial Operations Date has not occurred. These damages are to be offset against Capacity Charges as they become due beginning on June 1, 2001 in accordance with Appendix I (Delay Liquidated Damages for Unit 9). Should the Unit 9 Commercial Operations Date be later than June 1, 2001, then the presumed Net Dependable Capacity (and the Net Dependable Capacity used in calculating the Capacity Payments) of Unit 9 will be one hundred fifty-five (155) MW. In no event shall the maximum amount of delay liquidated damages for which Seller shall be liable exceed the total twelve-month Capacity Payment amount Seller would have earned through May 31, 2002 for Unit 9 had Unit 9 not been so delayed. No delay liquidated damages shall be assessed for the day the Unit 9 Commercial Operations Date is declared to have occurred if declared before the hour 1200. The occurrence of the Unit 9 Commercial Operations Date is contingent upon Seller's performance of a heat rate and capacity test in accordance with Appendix B. In conjunction with such test, Unit 9 shall operate continuously for a minimum of four (4) consecutive hours synchronized to the ComEd System at a level equal to at least 144 MW. Upon declaration of the Unit 9 Commercial Operations Date, Seller shall provide Buyer with a copy of its notice of Provisional Acceptance (as defined in the contract with General Electric Company ("GE") to construct Unit 9), with an acknowledgment from GE of its receipt of such notice. (b) Capacity Tests. -------------- (i) Any test to determine the Net Dependable Capacity of a Committed Unit shall include a period of two (2) hours during which the Net Dependable Capacity of the Committed Unit is generated and the Electric Energy delivered to the Point of Delivery. Once a test period has been initiated, it must last for two (2) hours unless Buyer's and 30 Seller's authorized representatives mutually agree to a shorter duration. Any such test shall be conducted as specified in Guide No. 3 of MAIN (a copy of which is attached as Appendix B). No tests will be conducted or continued which, in the opinion of Seller, should not be conducted or continued in accordance with Prudent Utility Practice. If Seller prevents or discontinues a test in accordance with Prudent Utility Practice, Buyer shall have the right to require a retest of the affected Committed Unit upon prior notice to Seller, if the test was conducted pursuant to Buyer's request. (ii) Seller will report the magnitude and duration of any known Forced Derating immediately upon becoming aware of such condition. Seller will also report the magnitude and duration of any known derating condition (equipment failure, operating limitation, etc.) immediately upon becoming aware of such condition. Buyer shall have the right to require Seller to reestablish by capacity test the Net Dependable Capacity of each Committed Unit at a mutually agreeable time once before the start of both the Summer Months and the Non-Summer Months. If the results of such tests produce a 4 MW or greater decline in the Net Dependable Capacity for such Committed Unit, then a Forced Derating equal to the decline in the Net Dependable Capacity for such Committed Unit shall be assumed for purposes of calculating EA under Appendix E (Equivalent Availability) based upon the actual number of hours that the Committed Units were operated. This Forced Derating adjustment shall be additive to the amount of any Forced Derating declared during the same period. In the interval between seasonal capacity demonstration tests, Buyer shall have the right, with twenty-four (24) hours notice, to Dispatch the Committed Units and require Seller to conduct a capacity demonstration test. (iii) Seller shall have the right to reestablish Net Dependable Capacity of each Committed Unit pursuant to a capacity test at mutually agreeable time(s). (iv) Notwithstanding the provisions of Section 4(b) (Dispatch), during any capacity testing Seller shall designate a maximum level for Buyer's Dispatch during such capacity testing, which may be above the then current Net Dependable Capacity. (v) For Electric Energy generated during any testing of any Committed Unit requested by Buyer (except with regard to Unit 9 prior to the Unit 9 Commercial Operation Date), the rate to be paid to Seller shall be the rates set forth in Section 7(b) (Energy Payments). If the test was requested by Seller, the Buyer shall pay Seller a price equal to the price set forth in the Unit 9 Test Power Agreement attached hereto as Appendix G (Unit 9 Test Power Agreement). (c) Start-Up and Test Power from Unit 9. Seller anticipates that prior ----------------------------------- to the Unit 9 Commercial Operations Date, Unit 9 will require between fifty (50) and one hundred (100) hours for testing and Start-Up purposes and it shall be sold pursuant to the Unit 9 Test Power Agreement in Appendix G (Unit 9 Test Power Agreement). 9. Ancillary Services ------------------ 31 Buyer shall be entitled, at no additional cost, to all Ancillary Services with respect to the Net Dependable Capacity at the Delivery Point as such services are described in the Interconnecting Utility's Open Access Transmission Tariff as filed with FERC, and as Seller is permitted to provide (including reactive supply and voltage control from generation sources, regulation and frequency response, operating spinning reserve and supplemental operating reserve) consistent with any requirements of MAIN, NERC, the Interconnection Agreement, any ISO and any successors to the functions thereof, provided that Seller can provide such Ancillary Services without adverse operational impact on Seller's operations in accordance with the Design Limits in Appendix A (Design Limits per Committed Unit). 10. Limitation of Liability and Exclusive Remedies ---------------------------------------------- (a) In no event or under any circumstances shall either Party (including such Party's Affiliates and such Party's and such Affiliates' respective directors, officers, employees and agents) be liable to the other Party (including such Party's Affiliates and such Party's and such Affiliate's respective directors, officers, employees and agents) for any special, incidental, exemplary, indirect, punitive or consequential damages or damages in the nature of lost profits, whether such loss is based on contract, warranty, tort or otherwise. A Party's liability under this Agreement shall be limited to direct, actual damages, and all other damages at law or in equity are waived. (b) Except as provided in Section 10(d) below, Buyer's sole remedies and Seller's sole liabilities for Seller's failure to meet the Target EA and for failure to deliver Electric Energy as Dispatched by Buyer shall be the adjustment to Capacity Payments based upon the Equivalent Availability Adjustment subject to the limit on Seller's liability for such adjustment set forth in Section 7(f) (Equivalent Availability Adjustment), Appendix E (Equivalent Availability), reductions of Buyer's obligation pursuant to Section 19(f)(ii) (Payment of Monthly Capacity Charges) and eventual termination for extended Forced Outages pursuant to Section 13(d) (Extended Outage). (c) Buyer's sole remedy and Seller's sole liability for monetary damages due to a delayed Unit 9 Commercial Operations Date shall be the Capacity Payment reduction set forth in Section 8(a) (Delayed Unit 9 Commercial Operations Date) and Appendix I (Delay Liquidated Damages for Unit 9), subject to the limitation on Seller's liability set forth in such Section and Appendix; in addition Buyer shall have the remedy to terminate as provided in Section 13(e) (Unit 9 Termination). (d) If Seller's failure to comply with a Dispatch order from Buyer is not caused by (i) Forced Outage or Forced Derating, (ii) Force Majeure Event, or (iii) Seller negligence or error that in the case of items (i), (ii) or (iii) causes the level at which a Committed Unit is Available to be less than the Net Dependable Capacity, Buyer shall be entitled to: (A) to recover from Seller the cost of cover for replacement energy obtained by Buyer, and 32 (B) to seek specific performance of this Agreement by Seller by a court of competent jurisdiction. Seller agrees not to defend such action by pleading that Buyer has an adequate remedy at law, or that specific performance is otherwise not available. 11. Disagreements ------------- (a) Negotiations. The Parties shall attempt in good faith to resolve all ------------ disputes promptly by negotiation, as follows. Any Party may give the other Party written notice of any dispute not resolved in the normal course of business. Executives of both Parties at levels one level above the personnel who have previously been involved in the dispute shall meet at a mutually acceptable time and place within ten (10) days after delivery of such notice, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. If the matter has not been resolved within thirty (30) days from the referral of the dispute to senior executives, or if no meeting of senior executives has taken place within fifteen (15) days after such referral, either Party may initiate arbitration as provided hereinafter. If a Party intends to be accompanied at a meeting by an attorney, the other Party shall be given at least three (3) Business Days' notice of such intention and may also be accompanied by an attorney. All negotiations pursuant to this clause are confidential. (b) Arbitration. ----------- (i) If the negotiation process provided for in Section 11(a) (Negotiations) has not resolved the dispute, the dispute shall be decided by arbitration at Chicago, Illinois in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be governed by the United States Arbitration Act (9 U.S.C. (S). 1 et seq.), and judgment entered upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. This agreement to arbitrate and any other agreement or consent to arbitrate entered into in accordance herewith will be specifically enforceable under the prevailing arbitration law of any court having jurisdiction. Notice of demand for arbitration must be filed in writing with the other Party to this Agreement. The demand must be made within a reasonable time after the controversy has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such controversy is barred by the applicable statute of limitations. Any arbitration may be consolidated with any other arbitration proceedings. Either party may join any other interested parties. The award of the arbitrator shall be specifically enforceable in a court of competent jurisdiction. (ii) Either Party shall give to the other written notice in sufficient detail of the existence and nature of any dispute proposed to be arbitrated. The Parties shall attempt to agree on a person with special knowledge and expertise with respect to the matter at issue to serve as arbitrator. If the Parties cannot agree on an arbitrator within ten (10) days, each shall then appoint one individual to serve as an arbitrator and the two (2) arbitrators thus appointed shall select a third arbitrator with such special knowledge and expertise to 33 serve as chairman of the panel of arbitrators; and such three (3) arbitrators shall determine all matters by majority vote; provided however, if the two (2) arbitrators appointed by the Parties are unable to agree upon the appointment of the third arbitrator within five (5) days after their appointment, both shall give written notice of such failure to agree to the Parties, and, if the Parties fail to agree upon the selection of such third arbitrator within five (5) days thereafter, then either of the Parties upon written notice to the other may require such appointment from, and pursuant to the rules of, the Chicago office of the American Arbitration Association for commercial arbitration. Prior to appointment, each arbitrator shall agree to conduct such arbitration in accordance with the terms of this Agreement. The arbitration panel may choose legal counsel to advise it on the remedies it may grant, procedure, and such other legal issues as the panel deems appropriate. (iii) The Parties shall have sixty (60) calendar days to perform discovery and present evidence and argument to the arbitrators. During that period, the arbitrators shall be available to receive and consider all such evidence as is relevant and, within reasonable limits due to the restricted time period, to hear as much argument as is feasible, giving a fair allocation of time to each Party to the arbitration. The arbitrators shall use all reasonable means to expedite discovery and to sanction noncompliance with reasonable discovery requests or any discovery order. The arbitrators shall not consider any evidence or argument not presented during such period and shall not extend such period except by the written consent of both Parties. At the conclusion of such period, the arbitrators shall have forty-five (45) calendar days to reach a determination. To the extent not in conflict with the procedures set forth herein, which shall govern, such arbitration shall be held in accordance with the prevailing rules of the Chicago office of the American Arbitration Association for commercial arbitration. (iv) The arbitrators shall have the right only to interpret and apply the terms and conditions of this Agreement and to order any remedy allowed by this Agreement, but may not change any term or condition of this Agreement, deprive either Party of any right or remedy expressly provided hereunder, or provide any right or remedy that has been excluded hereunder. (v) The arbitrators shall give a written decision to the Parties stating their findings of fact, conclusions of law and order, and shall furnish to each Party a copy thereof signed by them within five (5) calendar days from the date of their determination. Each Party shall pay the cost of the arbitrator or arbitrators, and any legal counsel appointed pursuant to subparagraph (a) above, with respect to those issues as to which they do not prevail, as determined by the arbitrator or arbitrators. (c) Settlement Discussions. The Parties agree that no statements of ---------------------- position or offers of settlement made in the course of the dispute process described in this Section 11 above will be offered into evidence for any purpose in any litigation or arbitration between the Parties, nor will any such statements or offers of settlement be used in any manner against either Party in any 34 such litigation or arbitration. Further, no such statements or offers of settlement shall constitute an admission or waiver of rights by either Party in connection with any such litigation or arbitration. At the request of either Party, any such statements and offers of settlement, and all copies thereof, shall be promptly returned to the Party providing the same. (d) Preliminary Injunctive Relief. Nothing in this Section 11 shall ----------------------------- preclude, or be construed to preclude, the resort by either Party to a court of competent jurisdiction solely for the purposes of securing a temporary or preliminary injunction to preserve the status quo or avoid irreparable harm pending arbitration pursuant to this Section 11. (e) Obligations to Pay Charges and Perform. If a disagreement should -------------------------------------- arise on any matter which is not resolved as provided in Section 11(a) (Negotiations), then, pending the resolution of the disagreement by arbitration, Seller shall continue to operate the Committed Units in a manner consistent with the applicable provisions of this Agreement and Buyer shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. 12. Assignment; Transfer of Committed Units --------------------------------------- (a) Assignment. Except as set forth in this Section 12, neither Party may ---------- assign its rights or obligations under this Agreement without the prior written consent of the other Party. Either Party may assign this Agreement, without the consent of the other Party to an Affiliate or the parent company of an Affiliate, but no such assignment shall release such assignor from any obligations hereunder whether arising before or after such assignment. For the purposes of this Section 12(a), any direct transfer or series of direct transfers (whether voluntary or by operation of law) of a majority of the outstanding voting equity interests of a Party (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of such Party) to any party other than an Affiliate controlled by, or under common control with, such Party shall be deemed an assignment of this Agreement. (b) Consent to Assignment to Lender. Buyer consents to Seller's collateral ------------------------------- assignment of this Agreement to any Lenders or the granting to any Lenders of a lien or security interest in any right, title or interest in part or all of the Committed Units or any or all of Seller's rights under this Agreement for the purpose of the financing or refinancing of the Committed Units and the Seller's interconnection facilities; provided, however, that such assignment shall recognize Buyer's rights under this Agreement. Buyer further agrees to execute documentation to evidence such consent as reasonably required by Lenders, provided it shall have no obligation to waive any of its rights under this Agreement except as expressly provided in this Section 12(b). Buyer recognizes that such consent may grant certain rights to such Lenders, which shall be fully developed and described in the consent documents, including (i) this Agreement shall not be amended or terminated (except for termination pursuant to the terms of this Agreement) in any material respect without the consent of Lenders, which consent is not to be unreasonably withheld or delayed, (ii) without extending the cure period set forth in this Agreement, Lenders shall be given notice of, and the same opportunity to cure, any Seller breach or default of this Agreement, provided that notwithstanding the foregoing Lender(s) may have in addition to the 35 cure periods set forth herein an additional sixty (60) days from the expiration of such cure period to cure any breach or default of this Agreement, (iii) if a Lender forecloses, takes a deed in lieu or otherwise exercises its remedies pursuant to any security documents, that Buyer shall, at Lender's request, continue to perform all of its obligations hereunder (subject to Buyer's rights under Section 13 (Default, Termination and Remedies)), and Lender or its nominee may perform in the place of Seller, and may assign this Agreement to another party in place of Seller (provided either (A) such proposed assignee is creditworthy and possesses experience and skill in the operation of electric generation plants similar in nature to the Committed Units or (B) Buyer consents to the assignment to such proposed assignee, which consent shall not be unreasonably withheld (it being understood that Buyer may, in deciding whether to grant such consent, take into account the creditworthiness and the electric generation plant experience and skill of the proposed assignee)), and enforce all of Seller's rights hereunder, (iv) that Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of the Committed Units, (v) that Buyer shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee and (vi) that Buyer shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) Buyer's corporate existence, (B) Buyer's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of (y) the document evidencing Buyer's consent to assignment to Lenders and (z) this Agreement on Buyer, (D) receipt of regulatory approvals by Buyer with respect to its execution and performance under this Agreement, and (E) whether any defaults by Seller are known by Buyer then to exist under this Agreement. The documentation that Lenders may require under this Section 12(b) may include an opinion of counsel substantially in the form of Appendix H (Form of Opinion). Seller agrees to reimburse Buyer for fees and expenses incurred by Buyer in connection with such opinion. 13. Default, Termination and Remedies --------------------------------- (a) Seller Default. The occurrence and continuation of any of the -------------- following events or circumstances at any time during the Term, except to the extent caused by, or resulting from, an act or omission of Buyer in breach of this Agreement, shall constitute an event of default by Seller ("Seller Event of Default"): (i) Seller fails to pay any sum due from it hereunder on the due date thereof and such failure is not remedied within fifteen (15) days after receipt of written notice from Buyer of such failure requiring its remedy; (ii) Seller shall fail to have qualified operators either on site or on call at remote locations for operation of the Facility for a period of seven (7) consecutive days. (iii) Bankruptcy of Seller; or (iv) Seller fails in any material respect to perform or comply with any other obligation in this Agreement on its part to be observed or performed (other than Seller's obligations to meet Target EA or to comply with Buyer's Dispatch 36 orders, the exclusive remedies for which are enumerated in Section 10(b) (Limitations of Liability and Exclusive Remedies) which failure adversely affects Buyer, and if reasonably capable of remedy, is not remedied within sixty (60) days after Buyer has given written notice to Seller of such failure and requiring its remedy; provided, however, that if such failure cannot reasonably be cured within such period of sixty (60) days, such failure shall not constitute a Seller Event of Default if Seller has promptly commenced and is diligently proceeding to cure such default. (b) Buyer Default. The occurrence and continuation of any of the following ------------- events or circumstances at any time during the Term, except to the extent caused by, or resulting from, an act or omission of Seller in breach of this Agreement, shall constitute an event of default by Buyer ("Buyer Event of Default"): (i) Buyer fails to pay any sum due from it hereunder on the due date thereof and such failure is not remedied within fifteen (15) days after receipt of written notice from Seller of such failure requiring its remedy; (ii) Buyer's Bankruptcy; or (iii) Buyer fails in any material respect to perform or comply with any other obligation in this Agreement on its part to be observed or performed which failure adversely affects Seller, and if reasonably capable of remedy, is not remedied within sixty (60) days after Seller has given written notice to Buyer of such failure and requiring its remedy; provided, however, that if such failure cannot reasonably be cured within such period of sixty (60) days, such failure shall not constitute a Buyer Event of Default if Buyer has promptly commenced and is diligently proceeding to cure such default. (c) Remedies. -------- (i) Upon the occurrence and during the continuance of a Buyer Event of Default or a Seller Event of Default, the non-defaulting Party may at its discretion terminate this Agreement upon thirty (30) days prior written notice to the Party in default. (ii) If a Buyer Event of Default under Section 13(b) (Buyer Default) has occurred and is continuing, Seller shall have the right to sell Electric Energy represented by the Net Dependable Capacity on a daily basis to third parties during the continuance of such Buyer Event of Default. (d) Extended Outage. Buyer may terminate this Agreement with regard to a --------------- Committed Unit (other than Unit 9) upon thirty (30) days prior written notice to Seller if a (i) Forced Outage, Planned Outage or Maintenance Outage of such Committed Unit that is not excused by Force Majeure Event prevents Seller from substantially performing its obligations hereunder for a consecutive period of one hundred twenty (120) days, provided that if Seller 37 demonstrates that it has taken significant steps toward remediating the circumstances which led to such Forced Outage, Planned Outage or Maintenance Outage and certifies in writing to Buyer that such outage will end within three hundred sixty five (365) days of its commencement (and such outage in fact ends within such three hundred sixty five (365) days), then Buyer may not so terminate this Agreement with regard to such Committed Unit. To the extent Seller provides Substitute Electric Energy and Capacity in accordance with the terms of this Agreement, the one hundred twenty (120) or three hundred sixty- five (365) day periods specified in this Section 13(d) shall be extended on a day for day basis. (e) Unit 9 Termination. Except to the extent the delay results from a ------------------ Force Majeure Event, if Unit 9 has not achieved the Unit 9 Commercial Operations Date by midnight, May 31, 2002, Buyer may terminate its obligations under this Agreement with regard to Unit 9. In the event of such a termination of the Unit 9 obligation, neither Party shall have any further liability to the other with regard to Unit 9. 14. Representations and Warranties ------------------------------ (a) Representations and Warranties of Seller. Seller hereby makes the ------------------------------------------ following representations and warranties to Buyer: (i) Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, is qualified to do business in the State of Illinois and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and, subject to the receipt of the regulatory approvals set forth in Section 6(a) (Standard of Operation), carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement (except with regard to Seller's rights in Unit 9 which shall be transferred from an Affiliate of Seller to Seller prior to the Unit 9 Commercial Operations Date). (ii) The execution, delivery and performance by Seller of this Agreement have been duly authorized by all necessary action, and do not and will not require any consent or approval of Seller's Management Committee or equity holders other than that which has been obtained. (iii) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement, do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Seller is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing, and Seller has obtained all permits, licenses, approvals and 38 consents of governmental authorities required for the lawful performance of its obligations hereunder. (iv) This Agreement constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (v) There is no pending, or to the knowledge of Seller, threatened action or proceeding affecting Seller before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. (b) Representations and Warranties of Buyer. Buyer hereby makes the --------------------------------------- following representations and warranties to Seller: (i) Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Pennsylvania, is qualified to do business in the State of Illinois and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (ii) The execution, delivery and performance by Buyer of this Agreement have been duly authorized by all necessary action, and do not and will not require any consent or approval of Buyer's Management Committee or equity holders other than that which has been obtained. (iii) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or its articles of incorporation or bylaws, or any deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Buyer is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing. (iv) This Agreement constitutes the legal, valid and binding obligation of Buyer enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general 39 equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (v) There is no pending, or to the knowledge of Buyer, threatened action or proceeding affecting Buyer before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. 15. Indemnification --------------- Each Party shall indemnify and hold harmless the other Party, and its officers, directors, agents and employees from and against any and all claims, demands, actions, losses, liabilities, expenses (including reasonable legal fees and expenses), suits and proceedings of any nature whatsoever for personal injury, death or property damage to each other's property or facilities or personal injury, death or property damage to third parties (collectively "Liabilities") caused by the gross negligence or willful misconduct of the indemnifying Party that arise out of or are in any manner connected with the performance of this Agreement, except to the extent such injury or damage is attributable to the gross negligence or willful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. Title, and all risk relating to, all Electric Energy purchased by Buyer under this Agreement shall pass to Buyer at the Point of Delivery, and Buyer shall indemnify Seller from all Liabilities related to Electric Energy (or Substitute Electric Energy) once sold and delivered at the Point of Delivery; and Seller shall indemnify Buyer for all Liabilities related to Electric Energy (or Substitute Electric Energy) prior to its delivery at the Point of Delivery. 16. Notices ------- Unless otherwise provided in this Agreement, any notice, consent or other communication required to be made under this Agreement shall be in writing and shall be delivered to the address set forth below or such other address or persons as the receiving Party may from time to time designate by written notice: If to Buyer, to: For Billing: Exelon Generation Company Attention: Accounting 300 Exelon Way Kennett Square, PA 19348 Telephone: (610) 765-6648 Fax: (610) 765-6555 For Operations: Exelon Generation Company 40 Attention: Trading Floor 300 Exelon Way Kennett Square, PA 19348 Telephone: (610) 765-6500 Fax: (610) 765-6583 For Legal: Exelon Generation Company Attention: Marjorie P. Philips, Esq. 300 Exelon Way Kennett Square, PA 19348 Telephone: (610) 765-6610 Fax: (610) 767-7610 If to Seller, to: Elwood Energy LLC c/o Dominion Energy, Inc. 5000 Dominion Blvd Glen Allen, VA 23060 Attention: General Manager Fax: (804) 273-2303 With a copy to: Elwood Energy LLC c/o McGuireWoods LLP 901 E. Cary Street Richmond, VA 23219 Attention: Mark J. La Fratta, Esq. Telephone:(804) 775-1106 Fax: (804) 698-2096 All notices shall be effective when received. 17. Confidentiality --------------- Each Party agrees that it will treat in confidence all documents, materials and other information marked "Confidential" or "Proprietary" by the disclosing Party ("Confidential Information") which it shall have obtained during the course of the negotiations leading to, and its performance of, this Agreement (whether obtained before or after the date of this Agreement). Confidential Information shall not be communicated to any third party (other than, in the case of Seller, to its Affiliates, to its counsel, accountants, financial or tax advisors, or insurance consultants, to prospective partners and other investors in Seller and their counsel, accountants, 41 or financial or tax advisors, or in connection with its financing or refinancing; and in the case of Buyer, to its Affiliates, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants). As used herein, the term "Confidential Information" shall not include any information which (i) is or becomes available to a Party from a source other than the other Party, (ii) is or becomes available to the public other than as a result of disclosure by the receiving Party or its agents or (iii) is required to be disclosed under applicable law or judicial, administrative or regulatory process, but only to the extent it must be disclosed. 18. Governing Law ------------- This Agreement shall be construed in accordance with and governed by the laws of the State of Illinois without regard to its conflicts of laws provisions. 19. Force Majeure ------------- (a) Definition. For the purposes of this Agreement, "Force Majeure Event" ---------- means an event, condition or circumstance beyond the reasonable control of the Party affected (the "Affected Party") which, despite all reasonable efforts of the Affected Party to prevent it or mitigate its effects, prevents the performance by such Affected Party of its obligations hereunder. Subject to the foregoing, "Force Majeure Event" as to either Party, shall include: (i) explosion and fire (in either case to the extent not attributable to the negligence of the Affected Party); (ii) flood, earthquake, storm, or other natural calamity or act of God; (iii) strike or other labor dispute not directed at Seller relative to its labor agreements; (iv) war, insurrection or riot; (v) actions or failure to act by governmental entities or officials, failure to obtain governmental permits or approvals despite timely application therefor and due diligence on the part of Seller in the pursuit thereof; (vi) changes in Requirements of Law affecting operation of a Committed Unit (for the purposes of this subsection, the change must affect the operation in a manner other than a solely economic affect); and (vii) lack of fuel caused by a Force Majeure Event (as defined in this Agreement) experienced by a Committed Unit's fuel supplier or transporter (as if for purposes of this Section 19(a)(vii) such fuel supplier or transporter is the Affected Party). (b) Events not a Force Majeure Event. For the purposes of this Agreements -------------------------------- the term "Force Majeure Event" shall not include: 42 (i) a Planned Outage; (ii) a Maintenance Outage; (iii) loss of Buyer's markets; (iv) Buyer's inability to economically use or resell the Electrical Energy or Capacity purchased hereunder; (v) Economic hardship for Seller, which shall include but not be limited to: (A) Seller's ability to sell the Capacity or Electrical Energy to be sold hereunder at a price greater than the price set forth herein; or (B) Seller's ability to reduce its costs by not operating the Committed Units as Dispatched by Buyer; or (vi) Causes or events affecting the performance of third-party suppliers of goods or services, including, but not limited to, natural gas, suppliers and providers of natural gas transportation service, except to the extent caused by an event that fits the definition of Force Majeure Event under this Agreement. (c) Obligations Under Force Majeure. ------------------------------- (i) If either Party is rendered unable, wholly or in part, by a Force Majeure Event, to carry out some or all of its obligations under this Agreement (other than obligations to pay money) despite all reasonable efforts of such Affected Party to prevent or mitigate its effects, then, during the continuance of such inability, the obligation of such Affected Party to perform the obligations so affected shall be suspended. (ii) An Affected Party relying on a Force Majeure Event shall give written notice of such Force Majeure Event to the other Party as soon as practicable after such event occurs, which notice shall include information with respect to the nature, cause and date of commencement of the occurrence(s), and the anticipated scope and duration of the delay. Upon the conclusion of the Force Majeure Event, the Affected Party heretofore relying on such Force Majeure Event shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. (iii) Notwithstanding the foregoing, a Party shall not be excused under this Section 20, (y) for any non-performance of its obligations under this Agreement having a greater scope or longer period than is justified by the Force Majeure Event, or (z) for the performance of obligations that arose prior to the Force Majeure Event. 43 (d) Force Majeure Not Forced Outage. Any periods of Forced Outage or ------------------------------- Forced Derating caused by Force Majeure Events shall not be included as Forced Outage Hours, or Equivalent Forced Derated Hours for calculation of EA. (e) Continued Payment Obligation. Except as provided in Section 19(f) ------------------------------ (Payment of Monthly Capacity Charges), a Party's obligation to make payments shall not be suspended by a Force Majeure Event. (f) Payment of Monthly Capacity Charges. ----------------------------------- (i) Buyer shall not be relieved of its obligation to pay the Monthly Capacity Charges as a result of the occurrence, and the continuance, of a Force Majeure Event listed in Sections 19(a)(ii) or (iv) (Definition), and (ii) Except to the extent that Seller provides Substitute Electric Energy, during any period of a Force Majeure Event (other than those listed in Sections 19 (a)(ii) and (iv)) Buyer shall be relieved from its obligation to pay monthly Capacity Charges (prorated daily) solely to the extent (y) the level at which a Committed Unit is Available is less than the Net Dependable Capacity, and (z) the Committed Unit is Available at a level that is less than Net Dependable Capacity as a result of a Force Majeure Event (other than as listed in Sections 19(a)(ii) or (iv)). 20. Intentionally Omitted --------------------- 21. Taxes ----- (a) Applicable Taxes. Each Party shall be responsible for the payment of ---------------- all taxes imposed on its income or net worth. Except as provided in Section 6(f)(v) (Fuel and Emissions) and this Section 21, Seller shall be responsible for the payment of all present or future federal, state, municipal or other lawful taxes applicable by reason of the operation of the Facility or assessable on Seller's property or operations. Buyer shall pay all existing and any new sales, use, excise, and any other similar taxes, if any, imposed or levied by a governmental agency on the sale or use of or payments for the Electric Energy, Substitute Electric Energy, Ancillary Services, and Net Dependable Capacity sold and delivered under this Agreement arising at or after the Point of Delivery. Buyer shall indemnify, defend, and hold Seller harmless from any liability for all such taxes for which Buyer is responsible. Seller shall indemnify, defend, and hold Buyer harmless from any liability from all such taxes for which Seller is responsible. Buyer shall reimburse Seller promptly on demand for the amount of any such tax that is Buyer's responsibility hereunder that Seller remits, plus any penalties and interest incurred and remitted, except such penalties as result from Seller's conduct. Likewise, Seller shall reimburse Buyer promptly on demand for the amount of any such tax that is Seller's responsibility hereunder that Buyer remits, plus any penalties, interest incurred and remitted, except such penalties as a result from Buyer's conduct. 44 (b) Contested Taxes. Neither Party shall be required to pay any such tax, --------------- assessment, charge, levy, account payable or claim if the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any property utilized under this Agreement or any material interference with the use thereof. (c) Other Charges. Seller and Buyer will pay and discharge all lawful ------------- assessments and governmental charges or levies imposed upon it or in respect to all or any part of its property or business, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor, or materials which, if unpaid might become a lien or charge upon any of its property. 22. Miscellaneous Provisions ------------------------ (a) Non-Waiver. The failure of either Party to insist in any one or more ---------- instances upon strict performance of any provisions of this Agreement, or to take advantage of any of its rights hereunder, shall not be construed as a waiver of any such provisions or the relinquishment of any such right or any other right hereunder, which shall remain in full force and effect. (b) Third Party Beneficiaries. This Agreement is intended solely for ------------------------- the benefit of the Parties hereto. Nothing in this Agreement shall be construed to create any duty to, or standard of care with reference to, or any liability to, any person not a Party to this Agreement, other than the Lenders. (c) Relationship of Parties. This Agreement shall not be interpreted or ----------------------- construed to create an association, joint venture, or partnership between the Parties or to impose any partnership obligation or liability upon either Party. Seller is an independent contractor and neither Party shall have any right, power or authority to enter into any agreement or undertaking for, or to act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, the other Party. (d) Successors and Assigns. This Agreement shall inure to the benefit of ---------------------- and be binding upon the successors and permitted assigns of the Parties. 23. Entire Agreement and Amendments ------------------------------- This Agreement (together with the Transmission Easement) supersedes all previous representations, understandings, negotiations and agreements either written or oral between the Parties hereto or their representatives with respect to the subject matter hereof (including the Power Purchase Agreement Term Sheet between Buyer and Seller dated February 15, 1999 and the Amended and Restated Agreement) and constitutes the entire agreement of the Parties with respect to the subject matter hereof. No amendments or changes to this Agreement shall be binding unless made in writing and duly executed by both Parties. Except to the extent expressly provided otherwise herein with respect to the Interconnection Agreement, this Agreement shall 45 be deemed to have been negotiated without reference to any other arrangement to which the Parties (or their respective Affiliates) are party (any such arrangement and the Interconnection Agreement being referred to herein as an "Other Contract"). Nothing contained herein is intended to reflect the Parties' interpretation of any Other Contract, and nothing contained in any Other Contract shall be used as an aid in interpreting this Agreement. Without limiting the generality of the foregoing, any similarity of, or difference between, any provision hereof and any provision of an Other Contract is irrelevant to the meaning of the provisions hereof or thereof. 46 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. Exelon Generation Company, LLC By /s/ Ian P. McLean -------------------------------------- Name: Ian P. McLean Title: Senior Vice-President Elwood Energy LLC By /s/ Tony W. Belcher -------------------------------------- Name: Tony W. Belcher Title: General Manager APPENDIX A DESIGN LIMITS PER COMMITTED UNIT Buyer shall have the right to Dispatch the Facility up to the Net Dependable Capacity with the following restrictions: (a) Maximum takes. Buyer may not Dispatch more than one thousand five ------------- hundred (1500) hours per Committed Unit (or seven thousand five hundred (7500) hours for all five (5) Committed Units, limited to no more than one thousand five hundred (1500) hours per Committed Unit) per Contract Year (except with regard to Unit 9 in the first Contract Year as provided in Section 6(b)(iii) (Electric Energy Generation)). As set forth in Section 8(b) (Capacity Tests), during 2001, Seller may take up to one hundred (100) hours for Unit 9 during the Start-Up and testing of Unit 9 in accordance with Section 8(c) prior to the Unit 9 Commercial Operations Date. These hours will count towards the one thousand five hundred (1500) hour/year limitation of Unit 9. Seller will consider requests by Buyer for Seller to seek the authorization to increase the one thousand five hundred (1500) hour limitation. Seller shall make reasonable efforts to allocate Buyer's Dispatch orders equally across all five (5) Committed Units over the course of a Contract Year. Once operating hours on individual Committed Units reach one thousand five hundred (1500) hours, Seller shall notify Buyer and Seller shall not be obligated to respond to Dispatch orders for Committed Units that have reached such one thousand five hundred (1500) hour limit. (b) Minimum/maximum loads. Buyer may Dispatch Committed Unit(s) at any --------------------- level per Committed Unit between sixty percent (60%) of Net Dependable Capacity and one hundred percent (100%) of its Net Dependable Capacity. Seller shall have the sole discretion as to (i) which Committed Units are operated to meet the Dispatch order or (ii) whether to meet such Dispatch order with delivery of Substitute Electric Energy from the Elwood Energy Station and subject to mutual agreement if delivered from a source outside the Elwood Energy Station. Each hour that a Committed Unit is operating, regardless of the output, will count towards the one thousand five hundred (1500) hour/year limitation per Committed Unit. (c) Start-Up and Dispatch Notification. ---------------------------------- (1) Start-Up: During Summer On-Peak Hours, except for a simultaneous -------- request of four (4) or more of Committed Units 1, 2, 3, 4 or 9, Seller will initiate the Start-Up for a Committed Unit(s) within one hour after being notified of Buyer's Dispatch order. For a Dispatch request of four (4) units simultaneously, Seller requires a minimum of one (1) hour and fifteen (15) minutes. For a Dispatch request of all five (5) units simultaneously, Seller requires a minimum of one (1) hour and twenty-five (25) minutes. The exact limits of the Committed Units' Start-Up capabilities will be verified or adjusted by Seller with the Buyer prior to June 1, 2001. This will include maximum load definitions, ramp times, times required to synchronize to the power grid, etc. During all other hours, that being Summer Non-Peak and Non-Summer On- Peak Hours, a four (4) hour notification will apply. A-1 (2) During the Non-Summer Months only, in the event that a Critical Day has been declared for the next calendar day, Seller will notify Buyer by 0800 of this fact on the day of declaration. Consequently, Buyer shall provide Seller with a Dispatch schedule, if any, by 0830 of that same day of declaration. After receipt of this initial schedule, if any should occur, it shall be at Seller's sole discretion whether to accept Buyer's subsequent request for changes to this Dispatch schedule. (3) During the Non-Summer Months, Buyer shall be limited to an equivalent of sixty (60) units-hours/day; for example, five (5) units operating for twelve (12) hours/day, or four (4) units operating for fifteen (15) hours/day, etc. If Buyer requires greater than sixty (60) units-hours/day, Seller will quote Buyer its reasonable operating cost to extend the schedule. During the Summer Months, Buyer shall be limited to an equivalent of eighty (80) units-hours/day, i.e., five (5) units operating for sixteen (16) hours/day or four (4) units operating twenty (20) hours/day, etc. If Buyer requires greater than eighty (80) units-hours/day during the Summer Months, Seller will quote Buyer its reasonable operating cost to extend the schedule. (d) Load Range and Ramp Times. Buyer may Dispatch Committed Unit(s) at any ------------------------- level per Committed Unit between sixty percent (60%) of Net Dependable Capacity and one hundred percent (100%) of its Net Dependable Capacity. Once a Committed Unit Starts-Up, the Committed Unit will ramp to base load of sixty percent (60%) of Net Dependable Capacity within twenty (20) minutes. The ramp up or ramp down rate of each Committed Unit is approximately 8.3% of Net Dependable Capacity per minute. (e) Minimum on-line and off-line times. Four (4) hour minimum run-time ---------------------------------- per Start-Up and two (2) hour minimum off-time between Start-Ups. (f) Starting Power Requirements. The power requirements for Start-Up of --------------------------- all five (5) Committed Units of the Facility are 750 kWh per Committed Unit, with a maximum demand of 7.5 MW per Committed Unit for a three (3) minute duration (15 MW demand when starting two (2) Committed Units simultaneously). (g) Estimated Reactive Capability Curve. The provision of Ancillary ----------------------------------- Services pursuant to this Agreement (including the terms of Section 9 (Ancillary Services) hereof) shall be consistent with the curve attached hereto as Schedule A-1. A-2 APPENDIX B MAIN GUIDE NO. 3 MAIN Guide No. 3A (Formerly Guide No. 3) (Revision No. 3) June 8, 1995 Approved November 9, 1995 PROCEDURE FOR THE UNIFORM RATING OF GENERATING EQUIPMENT ----------------------- The Mid-America Interconnected Network, Inc. bylaws provide for the coordination of planning, construction and utilization of generation and transmission facilities on a regional basis for reliability of electric bulk power supply. This MAIN Guide presents the criteria for uniform rating of generating equipment on the systems of MAIN members. I. General Generating capability to meet the system load and provide the required amount of reserves is necessary to assure the maximum degree of service reliability. This generating capability must be accounted for in a uniform manner which assures the use of consistently attainable values for planning and operating the system. Procedures are herein established for rating generating units in service or which will be brought into service in the future. These procedures define the framework under which the ratings are to be established while recognizing the necessity of exercising judgement in their determination. The tests required are functional and do not require special instrumentation. They are designed to demonstrate that the ratings can be obtained for the time periods required under normal operating conditions for the equipment being tested. It is intended that the terms defined and the ratings established pursuant to this MAIN Guide shall be used for all MAIN purposes, including determining generation reserves for both planning and operating purposes, scheduling maintenance, and preparation of reports or other information for industry organizations, news media, and governmental agencies. II. Uniform Ratings Each MAIN member shall establish Monthly Net Capability ratings for each generating unit and station on the member's system. The Monthly Net Capability is the net power output which can be obtained for the period specified on a monthly B-1 adjusted basis with all equipment in service under average conditions of operation and with equipment in an average state of maintenance. The Monthly Net Capability should include generating capability which is temporarily out of service for maintenance or repair. The monthly adjustments required to develop Monthly Net Capability are intended to include such seasonal variations as ambient temperature, condensing water temperature and availability, fuels, steam heating loads, reservoir levels, and scheduled reservoir discharge. Generating capability shall be tested annually to demonstrate and verify that the Monthly Net Capability can be achieved in the month of the test. It is intended that frequent changes in Monthly Net Capability be avoided. The reported capability is, therefore, a figure which should not be altered until the accumulated evidence of tests and analyses or operating experience indicate that a long-term change has taken place. The Monthly Net Capability shall be confirmed annually and revised at other times when necessary. Confirmations and revisions will be submitted to the MAIN Coordination Center. III. General Guides for Establishing Capability Ratings The following general guides shall be applied in establishing Monthly Net Capability: A. The total Monthly Net Capability rating shall be that available regularly to satisfy the daily load patterns of the member and shall be available for four continuous hours or more. The rating established must not require a period of operation at a reduced level during a system's remainder of the peak period to recover the Monthly Net Capability. B. The Monthly Net Capability will be determined separately for each generating unit in a power plant where the input to the prime mover of the unit is independent of the others. The Monthly Net Capability will be determined as a group for commonheader steam plants or multiple-unit hydro plants and each unit assigned a rating by apportioning the combined capability among the units. C. Monthly Net Capability, as reported, will not be reduced to provide regulating margin or spinning reserve. It will reflect operation at the power factor level at which the generating equipment is normally expected to be operated over the daily peak load period. It will exclude the temporary higher output attainable immediately after a new unit goes into service or immediately after an overhaul. D. Extended capability of a unit or plant obtained through bypassing of feedwater heaters, by utilizing other than normal steam conditions, or by abnormal operation of auxiliaries in steam plants; or by abnormal utilization of reservoir storage in hydro plants; or by abnormal operation of combustion B-2 turbines or diesel units; may be included in the Monthly Net Capability if the following conditions are met: 1. The extended capability based on such conditions will be available for a period of not less than four continuous hours when needed and meets the restrictions of Section III-A. 2. Normal procedures have been established so that this capability will be made available promptly when requested by the dispatcher. E. The Monthly Net Capability established for nuclear units will be determined taking into consideration the fuel management program and any restrictions imposed by governmental agencies. F. The Monthly Net Capability established for hydro-electric plants, including pumped-hydro, will be determined taking into consideration the reservoir storage program and any restrictions imposed by governmental agencies and will be based on median hydro conditions. IV. Testing Procedures to Demonstrate Capability A. General Procedure for Testing 1. Ratings will be confirmed annually or more frequently if appropriate to demonstrate the Monthly Net Capability. If adequate ----------- data are available to demonstrate the capability during normal peak ------------------------------------------------------------------- load period operation, no special test is required. Peaking units and -------------------------------------------------- cold reserve units which are not operated frequently shall be tested at such intervals as necessary to assure that capability is available to meet operating reserve requirements. 2. If the total capability of a plant is materially affected by the interaction of its parts, a test of the entire plant will be performed to demonstrate Monthly Net Capability. 3. All equipment when tested will be in normal operating condition with all auxiliary equipment needed for normal operation in service and with provision for extended capability if this capability is to be included in Monthly Net Capability. Energy consumption by auxiliary facilities common to the entire plant (for example, coal- handling or lighting) will be distributed over the appropriate units in the plant, and will represent the consumption normally experienced during the high-load period of the day. B-3 4. It is intended that the test loadings should be maintained at a constant level. The reported test results will be no greater than the MWh/hr integrated output for the test period. B. Steam Turbo-Generation Unit Tests, Excluding Steam Turbines with Gas or Oil Fired Boilers 1. The test period for steam turbo-generator units, including both fossil fuel and nuclear reactor steam generators, will be not less than four continuous hours. 2. Generating unit net capability as affected by the turbine exhaust pressure will be corrected to the average for the past five years of the monthly averages of the daily maximum circulating water temperatures for the month of the test. Steam conditions will correspond to the operating standard established by the member for the unit or plant. The steam generator will be operated with the regularly available type and quality of fuel. C. Tests of Combustion Turbine and Diesel Units and Steam Turbines with Gas or Oil Fired Boilers 1. The test period for combustion turbine and diesel units and steam turbines with gas or oil fired boilers will be of sufficient duration to permit stabilized operating conditions to be attained. 2. Ambient temperature conditions will be corrected to the average for the past five years of the monthly maximum temperatures for the month of the test. Where evaporative coolers are used, the temperature at the discharge of the evaporative coolers shall be the basis for ambient temperature corrections. 3. Generating unit net capability as affected by the turbine exhaust pressure will be corrected to the average for the past five years of the monthly averages of the daily maximum circulating water temperatures for the month of the test. Steam conditions will correspond to the operating standard established by the member for the unit or plant. The steam generator will be operated with the regularly available type and quality of fuel. D. Hydro-Electric Unit Tests 1. The test period for hydro-electric units, including pumped- hydro units, will be not less than one hour. B-4 2. Water conditions will be corrected to the median conditions for the month of the test. E. Reactivated Unit Tests Deactivated generating equipment which is not being reported and is being returned to active status shall be tested within thirty days to demonstrate its Monthly Net Capability. V. Reporting Procedures Each member shall submit the required data on the included Uniform Rating Forms to the MAIN Coordination Center annually on or before November 1 for the following calendar year. Each annual report shall cover all existing units, planned Start-Up of new units, and planned retirements of units and shall consist of the following: 1. A letter identifying those units whose rating has not changed, showing the dates of latest tests confirming capabilities. 2. Completely revised forms (Form A and B-1, B-2, or B-3) for units on which a change has occurred. 3. Completely revised form (Form A) showing planned additions or retirements beginning with the month of commercial operation or month of retirement. Between annual reporting, revised forms shall be submitted as necessary for new units placed in commercial operation, units retired, and for units where tests show the rating has changed. Any change in additions, retirements, or ratings shall be submitted within 30 days of the addition, retirement, or test. In this manner, by each November 1, all test data should be current. However, the letter should be submitted confirming the dates of tests. The MAIN Coordination Center will analyze and review the annual reporting for completeness and correctness and report the need for clarification to the member concerned. The MAIN Coordination Center will maintain the updated set of reports, including current changes as they occur, from the MAIN members, and will provide complete reports and/or revisions to the members requesting them. A. Uniform Rating Form A This form is used to report the Monthly Net Capability of each unit in each station. Where required by the number of units in a station, additional sheets should be used. B-5 B. Uniform Rating Forms B-1, B-2, and B-3 These forms are used to report test results, certain actual and five- year average variables where pertinent, and to show relationship of actual net generation to stated capability during the month of the test. It is the intent that test data equal or exceed stated Monthly Net Capability to demonstrate that this level of generation can be achieved. Where simultaneous tests of several units are conducted, as in common steam header plants, data should be reported for each unit and total of the group. Test results should be reported as follows: Form B-1 --steam turbo-generator units Form B-2-hydro-electric units Form B-3 --Combustion turbine units and diesel units Note: In submitting revised forms, each form shall be submitted in such a manner that it completely replaces the sheet on which data are being revised. B-6 APPENDIX C COMMUNICATIONS 1. Purpose The purpose of this Appendix is: (i) To describe the nature of, and the requirements for the communication link that will be maintained between Seller and Buyer; (ii) To identify and establish a communications procedure that defines the responsibilities for, and the frequency, content, and logistics of communication between personnel responsible for operating the Facility ("Seller's Operator(s)") and EO concerning the availability and Dispatch of the Committed Units. The Parties desire that such a procedure be established so that only responsible and authorized personnel can issue requests and/or orders that may impact reliability and availability of the Committed Units. 2. Communication Link. (i) Buyer shall establish and maintain dedicated phone lines for all communications concerning the availability and Dispatch of the Committed Units. These dedicated systems shall be used as the primary communications link between Seller's Operators and Buyer's EO personnel responsible for Dispatching Buyer's System ("Generation Dispatcher"). In addition to the dedicated phone lines, Seller and Buyer shall establish standard phone line(s) as a back-up system. Seller's dedicated and standard phone lines are to be located at the control facilities of the Committed Units. (ii) At any time a Committed Unit at the Facility is synchronized to the system, Seller must ensure that an operator is available at the dedicated phone line (or back-up phone line if the dedicated line is unavailable) to respond to the Dispatch orders from the EO Generation Dispatcher. Both Seller and Buyer recognize that there may be operational conditions or events that will require Seller's Operator to leave the control room in order to resolve the condition or event. Both Seller and Buyer also recognize that these conditions or events will be infrequent. During such times, Seller's Operator must first notify the EO Generation Dispatcher, and provide information regarding how the Seller's Operator can be reached (i.e. a standard, back-up phone line and/or a cellular phone). C-1 (iii) Seller shall establish and maintain a paging system for the Seller's Operators. Such paging system shall constitute the secondary communications link between Seller's Operators and the EO Generation Dispatcher. During those times when no generator at the Facility is synchronized to the transmission system, or during power operation when Seller's Operator has left the control room to resolve an operational condition or event, this paging system will become the primary communications link between Seller's Operator and the EO Generation Dispatcher. Whenever the paging system is the primary communications link, Seller will ensure at least one operator will be available at all times, via the paging system. Should the EO Generation Dispatcher initiate the paging system, Seller's Operator(s) shall immediately contact the EO Generation Dispatcher via telephone for specific Dispatch orders. Seller will notify Buyer as soon as possible of any disruption or unavailability of the dedicated or standard phone lines, or the pager system, as soon as practicable. Seller shall also provide a list of back-up contacts to the paging system (i.e. the names and home phone numbers for the operators) to be used should the paging system fail, be inadvertently turned off, lost, unavailable due to satellite communication problems, or if the operator fails to respond. This list of back-up contacts shall be incorporated into the Communications Procedure. 3. Communications Procedure (i) Prior to the Commercial Operations Date of the Committed Units, Seller and Buyer shall establish a mutually approved Communication Procedure that defines the responsibilities for, and the frequency, content, and logistics of, all communications between Seller's Operator(s) and the EO Generation Dispatcher concerning the availability and dispatch of the Committed Units. Seller and Buyer shall ensure that the most current mutually approved revision of this Communication Procedure is available to the Seller's Operator(s) and the EO Generation Dispatcher. Both Seller and Buyer shall mutually review and revise the communications procedure, as necessary. (ii) The Communications Procedure shall provide telephone numbers for all dedicated and standard phone lines of both Seller and Buyer (including telephone numbers for facsimile machines) and pager numbers for all of Seller's Operators. The Communications Procedure shall also provide back-up contacts to the paging system (i.e. the names and home phone numbers for the operators) to be used should the paging system fail, be inadvertently turned off, lost, C-2 unavailable due to satellite communication problems, or if the operator fails to respond. In addition, the communications procedure shall provide instructions and requirements to both the Seller's Operator(s) and the EO Generation Dispatcher describing the process(es) for communicating unit availability and Dispatch orders for the Committed Units. At a minimum, the Communication Procedure shall provide communication instructions for the following items: a) Routine notifications (by both Seller's Operator(s) and the EO Generation Dispatcher) of expected hourly capability and demand, as required by Section 4(c) (Operating Notifications) of this Agreement. b) Start-Up and Dispatch orders for Committed Units; c) Conditions, issues or events that could affect the output or reliability of the Committed Units; d) The time of day (based on a twenty-four (24) hour clock) when a Committed Unit is placed on the line and taken off the line; e) Changes of rated capacity of a Committed Unit, when it is known that such changes have taken place or will take place; f) Committed Unit deratings, including the amount of any derate, the estimated or known start time and date of the derate, the estimated or known ending time and date of the derate, and the cause of the derate; g) Conditions at the Facility or a Committed Unit that could affect the present or anticipated load following capability of a Committed Unit; h) Planned and emergency testing requirements, or other operational work that could limit the availability or maneuverability of a Committed Unit; and i) The use of operations reporting forms that are provided in Appendix D (Operations Reporting Forms). C-3 4. Revisions Each Party shall appoint a representative having power and authority to act on its behalf (the "Representative"). Each Party may change its Representative from time-to-time, effective upon notice given to the other Party. A Representative may change addresses, telephone numbers, facsimile numbers and other similar data to be used in directing communications under this Appendix C or Appendix D (Operations Reporting Forms) to the Party represented by that Representative. Each Representative shall be authorized to agree on behalf of the Party that appointed that Representative to any change in the forms or procedures provided under this Appendix C or Appendix D. C-4 APPENDIX D OPERATIONS REPORTING FORMS Exelon Operations Reporting Form - -------------------------------- Elwood Energy Availability Declaration Units 1, 2, 3, 4, and 9 -------------------------------------------------------------- To: ComEd Electric Operations From: Elwood Energy Lombard, Illinois Elwood, Illinois Fax: ( ) ###-#### Fax: ( ) ###-#### Phone: ( ) ###-#### Phone: ( ) ###-#### Covering the Availability Declaration Period Beginning: 0000 Hours,3/24/2001 Ending: 0000 Hours,3/27/2001 Unit 1 is Available to Meet Net Dependable Capacity: _____ Yes _____ No Unit 2 is Available to Meet Net Dependable Capacity: _____ Yes _____ No Unit 3 is Available to Meet Net Dependable Capacity: _____ Yes _____ No Unit 4 is Available to Meet Net Dependable Capacity: _____ Yes _____ No Unit 9 is Available to Meet Net Dependable Capacity: _____ Yes _____ No Derating/Outage Details ----------------------- Submitted By: Prepared: 3/28/2001 5:08:06 PM Page 1 of 1 D-1 APPENDIX E EQUIVALENT AVAILABILITY Calculations and Adjustments In order to promote Seller to operate the Committed Units in the most optimal manner possible a defined bonus and penalty structure (as explained and detailed below) has been created with regards to the overall availability level of Elwood Units 1, 2, 3, 4, and 9 for the various different Period Hours. All of the following descriptions and calculations are intended to be on an aggregate (average) basis; i.e. an Equivalent Availability (as defined below) will be calculated across all five (5) Committed Units during a respective time period. All calculations of Equivalent Availability are therefore calculated as an average for the entire Facility during the time period in question (as opposed to calculating a separate Equivalent Availability for each Committed Unit). Any number derived as a calculation will be limited to that whole number and hundredths of a whole number, represented by two places to the right of the decimal point. For the purposes of this Agreement, a thousandth of a whole number great than or equal to five (5) shall be cause for the existing hundredth number to be rounded up to the next hundredth number. 1) Equivalent Availability Calculation Seller shall calculate an Equivalent Availability ("EA") for the Summer Super Peak Hours, the Summer Partial Peak Hours, and the Summer Non-Peak Hours for each of the Summer Months as well as a seasonal EA for the Non-Summer Peak Months in accordance with the following formula EA = {1 - [FOH + EFDH]} ----------- PH Where: EA = Equivalent Availability FOH = Forced Outage Hours EFDH = Equivalent Forced Derated Hours PH = Period Hours A total of thirteen EA calculations will be performed each Contract Year using the above formula, one (1) for the Non-Summer On-Peak Hours (calculated in January for the previous Contract Year) and three (3) for each of the four (4) Summer Months (covering the Summer Super Peak Hours, the Summer Partial Peak Hours, and the Summer Non-Peak Hours ) Such calculations for the Summer Months will be done in the month immediately following the applicable month). A Forced Outage or Forced Derating event shall only be included in the calculation of the Equivalent Availability when Seller fails to meet, in whole or part, E-1 Buyer's Dispatch and fails to deliver or cause to be delivered Substitute Electric Energy. If Substitute Electric Energy is provided, the Seller will be credited as being Available for those hours that the Substitute Electric Energy is accepted. Buyer will not be obligated to take partial schedules. The "Size of Reduction" for a Forced Derating shall be determined by Seller and shall be based upon observed output of a typical unit having the same equipment problems under similar operating and environmental conditions. Buyer may request Seller to justify the size of the reduction through provision of reasonably available historical operating records in support of Seller's selection of the Size of Reduction. The following shall not be deemed a Forced Outage or Forced Derating for purposes of calculating the Equivalent Availability: (a) a Committed Unit is shut down for Planned Outages, Maintenance Outages, or for a Compressor Wash, (b) a Committed Unit is down or derated, but Seller meets Buyer's Dispatch request through Substitute Electric Energy, (c) a Committed Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility, or (d) to the extent a Committed Unit is not Available as a result of a Force Majeure Event. 2) Adjustments (Applicable Bonuses and Penalties) The Equivalent Availability Adjustments shall be calculated in accordance with the schedules (Schedule E-1, Schedule E-2 and Schedule E-3) attached to this Appendix E. All dollar figures shown below (for both Summer and Non-Summer periods) are on a percentage basis per MW of Net Dependable Capacity, i.e. the dollar impact per MW of Net Dependable Capacity of either surpassing or being below an Availability Target by each percentage point, or portion thereof carried to two (2) decimal places. Summer Months ------------- Bonus - ------------------------------------------------------------------------- MONTH Super-Peak Partial-Peak Off-Peak - ------------------------------------------------------------------------- June $ 71.43 $23.81 $0 - ------------------------------------------------------------------------- July $107.14 $35.71 $0 - ------------------------------------------------------------------------- August $107.14 $35.71 $0 - ------------------------------------------------------------------------- September $ 47.62 $15.87 $0 - ------------------------------------------------------------------------- Penalties The penalties associated with being below an Equivalent Availability Target for the Summer Months are divided into two groups. The first deals with EA percentages below E-2 97% and above or equal to 70% while the second covers EA percentages below 70% and above or equal to 44%. Below a 44% EA no further penalties will apply (other than those already levied). At no time may the aggregate penalties associated with the three EA penalty calculations for such Summer Month exceed that respective month's Capacity Payment. Sample calculations are shown in Schedule E-4 to this Appendix E. The penalties listed below are meant to be a cumulative calculation across the two EA blocks. For EA below target but greater than or equal to 70% - -------------------------------------------------------------------------------- Month Super-Peak Partial-Peak Off-Peak - -------------------------------------------------------------------------------- June $ 74.95 $24.98 $14.27 - -------------------------------------------------------------------------------- July $113.75 $37.91 $21.67 - -------------------------------------------------------------------------------- August $113.75 $37.91 $21.67 - -------------------------------------------------------------------------------- September $ 47.44 $15.81 $ 9.03 - -------------------------------------------------------------------------------- For EA below 70% but greater than or equal to 44% - -------------------------------------------------------------------------------- Month Super-Peak Partial-Peak Off-Peak - -------------------------------------------------------------------------------- June $ 80.79 $26.93 $15.39 - -------------------------------------------------------------------------------- July $121.19 $40.39 $23.08 - -------------------------------------------------------------------------------- August $121.19 $40.39 $23.08 - -------------------------------------------------------------------------------- September $ 53.86 $17.95 $10.25 - -------------------------------------------------------------------------------- Non-Summer Months ----------------- Bonus $47.62 Penalties The penalties associated with being below an Equivalent Availability Target for the Non-Summer Months are divided into three groups. The first deals with EA percentages below 93% and above or equal to 86%, the second covers the EA percentages below 86% and above or equal to 80%, and the third covers the EA percentages below 80% and above or equal to 44%. Below a 44% EA no further penalties will apply (other than those already levied). At no time may the aggregate penalties associated with the Non-Summer Months' EA penalty calculations exceed the Capacity Payments for such Non-Summer Months. Sample calculations are shown in Schedule E-4 to this Appendix E. The penalties listed below are meant to be a cumulative calculation across all three blocks. - -------------------------------------------------------------------------------- Actual EA Penalty - -------------------------------------------------------------------------------- Target > EA => 86% $ 95.24 - -------------------------------------------------------------------------------- E-3 - -------------------------------------------------------------------------------- 86%>EA=>80% $2,811.11 - -------------------------------------------------------------------------------- 80%>EA=>44% $ 117.13 - -------------------------------------------------------------------------------- E-4 ------------------------------------------------------------ APPENDIX F OUTPUT ADJUSTMENT CURVE ------------------------------------------------------------ General Electric Model PG7231 (FA) Gas Turbine Elwood Project Estimated Performance - Configuration: DLN Combustor Design Values Referenced on 544HA232 Rev 0 Fuel: Natural Gas [GRAPH APPEARS HERE] F-1 APPENDIX G UNIT 9 TEST POWER AGREEMENT [THIS AGREEMENT WILL BE EXECUTED PRIOR TO THE UNIT 9 COMMERCIAL OPERATIONS DATE AND UPON EXECUTION WILL BE INCORPORATED INTO THIS APPENDIX] G-1 APPENDIX H FORM OF OPINION [Date] [To lenders] Ladies and Gentlemen: We refer to the Power Sales Agreement (the "Agreement") among Exelon Generation LLC a Pennsylvania limited liability company ("Exgen") as assignee of Commonwealth Edison Company, an Illinois corporation ("ComEd") and Elwood Energy LLC, a Delaware limited liability company (the "Company") dated as of _____________ and the Consent to Assignment (the "Consent to Assignment") among ComEd, Company, and [Lenders or Agent, in its capacity as collateral agent], dated as of the date hereof. We have acted as counsel to ComEd in connection with the Agreement and the Consent to Assignment. Capitalized terms not defined herein have the respective meanings given to such terms in the Agreement and the Consent to Assignment. Pursuant to Section 12(b) (Consent to Assignment to Lender) of the Agreement and Section ___ of the Consent to Assignment, this will advise you that in the opinion of the undersigned: 1. Exgen is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Pennsylvania and licensed to do business in the State of Illinois and has the power and authority to own, lease and operate its properties and assets and to conduct its business as now being conducted. 2. Exgen has the power and authority to execute and deliver the Agreement and the Consent to Assignment, to consummate the transactions contemplated thereby and to comply with and fulfill its obligations under the Agreement and the Consent to Assignment. All proceedings have been taken and all authorizations have been obtained by Exgen which are necessary to authorize the execution and delivery of the Agreement and the Consent to Assignment and the consummation of the transactions contemplated thereby. 3. The Agreement and the Consent to Assignment have been duly authorized, executed and delivered by Exgen. The Agreement and the Consent to Assignment constitute the legal, valid and binding obligations of Exgen enforceable against Exgen in accordance with their terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by the effect of general principles of equity H-1 (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4. Neither the execution and delivery by Exgen of the Agreement or the Consent to Assignment or the consummation by Exgen of the transactions contemplated thereby, nor compliance by Exgen with the terms and provisions thereof, does or will result in any breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration or termination under, (i) the Operating Agreement of Exgen or (ii) to our knowledge, any material agreement, instrument, judgment, decree, order, law, statute, rule or regulation which is applicable to Exgen or its properties, which breach or default could reasonably be expected to have a material adverse effect on Exgen or its ability to perform its obligations under the Agreement or the Consent to Assignment. 5. No consent, approval or authorization of, or registration, filing or declaration with, any federal or state governmental authority or other regulatory agency, which has not been received, waived or satisfied as of the date hereof, as the case may be, is required for the valid execution and delivery by Exgen of the Agreement or the Consent to Assignment, the consummation by Exgen of the transactions contemplated thereby or compliance by Exgen with the terms and provisions thereof. For the purpose of rendering the foregoing opinions, we have relied, as to various questions of fact material to such opinions, upon the representations made in the Consent to Assignment and upon certificates of officers of Exgen. We also have examined originals, or copies of originals certified to our satisfaction, of such agreements, documents, certificates and other statements of government officials and other instruments, have examined such questions of law and have satisfied ourselves as to such matters of fact as we have considered relevant and necessary as a basis for this opinion. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of all natural persons and the conformity with the original documents of any copies thereof submitted to us for examination. We have also assumed that agreements and instruments we have reviewed which purport to have been executed by parties other than Exgen or its affiliates have been duly executed and delivered by such parties and that such parties have all requisite power and authority to execute and deliver such agreements and instruments and comply with the terms and provisions thereof and that such agreements and instruments are legal, valid and binding agreements and instruments of such parties. Any opinion or statement herein which is expressed to be "to our knowledge" or is otherwise qualified by words of like import means that the lawyers in this Firm who have had an involvement in drafting and negotiating the Agreement and the Consent to Assignment have no current awareness of any facts or information contrary to such opinion or statement. H-2 The foregoing opinions are limited to the federal laws of the United States of America and the laws of the State of Pennsylvania and Illinois. This opinion letter is being delivered solely for the benefit of the persons to whom it is addressed; accordingly, it may not be quoted, filed with any governmental authority or other regulatory agency or otherwise circulated or utilized for any other purpose without our prior written consent. We assume no obligation to update or supplement the opinions expressed herein to reflect any facts or circumstances which may hereafter come to our attention with respect to such opinions, including any changes in applicable law which may hereafter occur. Very truly yours, H-3 APPENDIX I DELAYED DAMAGES AND METHODS OF OFFSETTING The total maximum dollar amount for which Seller will be liable for a late Unit 9 Commercial Operations Date is the yearly aggregate Capacity Payments that would be owed to Seller by the Buyer for Unit 9 for a full year (twelve month) period beginning June 1, 2001. This is: $4.35 * NDC * 12 months As an approximation (using 150,000 kW) this is $7,830,000. For every partial or full month that Unit 9 has not achieved the Commercial Operations Date after June 1, 2001 the following delay damages apply: June (21 days) $75,000 per On-Peak Day July (21 days) $142,000 per On-Peak Day August (23 days) $142,000 per On-Peak Day Any delay damages owed to the Buyer by Seller will be offset against the next month's Unit 9 Capacity Payments. If, for example, in all of June Unit 9 has not achieved the Unit 9 Commercial Operations Date, then ($75,000) * (21 On-Peak Days) = $1,575,000 will be offset against July's Capacity Payments. This will result in no Capacity Payment being made to Seller for the month of July ($1,575,000 delay damages versus $1,468,125 Capacity Payment) and a reduced Capacity Payment in August (the $1,468,125 capacity payment less the ongoing existing offset amount of $106,875). This method of adjusting future Capacity Payments for Unit 9 will occur (if necessary) only through the Capacity Payments for August 2001. If any delay damages are still owed to Buyer as of September 1, 2001 (for Unit 9) then commencing with the September 2001, Capacity Payments for Units 3 and 4 will also be decreased (to the extent necessary) for the months September, October, November, and December until all delay damages are paid off in full. The purpose of this is to guarantee that the full delay damages amount (which has a maximum of $7,830,000) is paid to Buyer by December 31, 2001. The Capacity Payments for Unit 9 will continue to be paid in January 1, 2002 (and going forward through May 31, 2002) whether or not Unit 9 is in operation. I-1 APPENDIX J RELIABILITY BONUS During each of the Summer Months, in addition to the potential Equivalent Availability bonuses detailed in Appendix E (Equivalent Availability), a separate "Reliability Bonus" will also be available to Seller should the Reliability Target of the Facility be surpassed by the actual Reliability of the Facility. The dollar figures associated with each Summer Month are listed below and are on a per Committed Unit basis: June: $25,000 per Committed Unit ($1,250 per 1%) July: $100,000 per Committed Unit ($5,000 per 1%) August: $100,000 per Committed Unit ($5,000 per 1%) September: $25,000 per Committed Unit ($1,250 per 1%) Total of $250,000 per Committed Unit A specific Reliability will be determined for each of the five (5) Committed Units for each Summer Month. An average Reliability shall then be calculated for the month in question (across all five (5) units) and this will become the Bonus Reliability achieved during that respective month. This will then be compared with a Threshold Reliability of eighty percent (80%). The Reliability Bonus Period shall consist of the period from hour ending 0700 to hour ending 2200 on the four (4) highest priced On-Peak Days of each month (as defined by Power Markets Week or other mutually agreed daily index into ------------------ ComEd) for a total of sixty-four (64) hours each in June, July, August and September. The percentage calculation shall consist of a calculation of the Equivalent Availability (EA), but only for these hours (the denominator will always be sixty-four (64) hours). The calculation for the Facility will be as follows: [Monthly Reliability Bonus (per %)] x [(Bonus Reliability - 80% Threshold)] x 100 If the EA for the Reliability Bonus is less than eighty percent (80%), no bonus applies. The EA associated with each bonus hour is not dependent upon the Committed Unit(s) being Dispatched on-line during those hours. Example: - ------- For the month of July (2001), the highest priced On-Peak Days are the 17th, 18th, 19th, and the 31st Unit 1 No Forced Outage Hours, No Equivalent Forced Derated Hours Reliability = [1 -((0 + 0)/64)] = 100% Unit 2 2 Forced Outage Hours, 3 Equivalent Forced Derated Hours J-1 Reliability = [1 - ((2 + 3)/64)] = 92.19% Unit 3 4 Forced Outage Hours, No Equivalent Forced Derated Hours Reliability = [1 - ((4 + 0)/64)] = 93.75% Unit 4 No Forced Outage Hours, 1 Equivalent Forced Derated Hour Reliability = [1 - ((0 + 1)/64)] = 98.44% Unit 9 No Forced Outage Hours, No Equivalent Forced Derated Hours Reliability = [1 - (0 + 0)/64)] = 100% Facility Reliability for the month of July (2001) is: (100% + 92.19% + 93.75% + 98.44% + 100%)/5 = 96.88% Bonus is therefore: ($5,000) * (96.88% - 80%) * 100 * 5 units = $422,000 J-2 APPENDIX K PLANNED OUTAGES
Expected Frequency of Duration of - --------------------------------------------------------------------------------------------------------- Type Scheduled Maintenance Inspection Inspection Major Combustion Inspection Every 400 starts or 8,000 equivalent hours 4-5 days ** Major Hot Gas Path Inspection Every 800 starts or 24,000 equivalent hours 10-12 days ** Major Major CT Overhaul Every 1,600 starts or 48,000 equivalent hours 20 days ** Routine* BOP Inspections Each Spring and Fall 4 days - ---------------------------------------------------------------------------------------------------------
- ----------- * Routine Balance of Plant inspections will be scheduled during a Major Inspection outage. ** Assumes all parts are in stock at site. If required parts are not on site, Planned Outage time could be lengthened by as much as four times that indicated. K-1 APPENDIX L UNIT ONE-LINE DIAGRAM (DIAGRAM) L-1 APPENDIX M UNIT 1 AND 2 TRUE UP (Covering the Period 3/1/2001 through the Engage Termination Date) Seller's Units 1 and 2 are currently under contract both between Seller and Engage Energy America, LLC ("Engage") as well as between Engage and Buyer (ostensibly Engage has purchased the exclusive rights for the off-take of these units from Seller and has in turn sold these rights to Buyer). Engage has appointed Buyer as its agent for Dispatch purposes under the Engage PSA. Commencing March 1, 2001 and until the Engage Termination Date, a pricing true up shall occur as described below (the "Unit 1 and 2 True Up") to provide Buyer with the same financial and operational arrangements for Units 1 and 2 that exist in this Agreement with regards to Units 3, 4, and 9. This Unit 1 and 2 True Up shall be made for each sequential month for the period commencing on March 1, 2001 and lasting until the Engage Termination Date. This True-Up will consist of comparing the pricing and operational parameters (taken primarily from the Engage PSA) listed below under "Base Case", with those outlined in this Agreement. Seller shall net the monthly billing for the below listed items (other than the Summer Availability Bonus/Penalty which will be netted prior to January 31 of the following year - see below) against the terms and conditions detailed in this Agreement and will then sum the aggregates. Buyer will be billed any obligations that might be owed to Seller upon completion of this summation and will be offset against any money owed to Seller. Beginning with the Engage Termination Date, Buyer's Units 1 and 2 will be fully subject to the terms of this Agreement as are the other Committed Units for all purposes. This Unit 1 and 2 True Up does not apply to nor will it affect any Reliability Bonus pursuant to Section 7(g) (Reliability Bonus) or the 2001 Special Bonus pursuant to Section 7(i) (2001 Special Bonus). "Base Case": --------- Non-Summer Period (October- May): - --------------------------------- . Net Dependable Capacity based on 90(degrees) F and 60% Relative Humidity . No FOAF target (No Equivalent Availability Calculation necessary) . No Equivalent Availability Adjustment Possible . $5.25/kw-month Capacity Charge . No Variable O&M Charge . Start-Up Charge of $2500.00 per Start-Up . $30 fixed strike price (assumes no energy surcharge) Summer Period (June-September): - ------------------------------- . Net Dependable Capacity based on 90(degrees) F and 60% Relative Humidity . 95% Summer availability target (calculated as 1-FOAF under the Engage PSA) M-1 . FOAF calculated on a 5 x 16-hour seasonal basis (no Off-Peak hours) . Forced Outages and Forced Deratings occur when a Committed Unit is not Available under the Engage PSA . Availability penalties are based on (Summer Capacity Payments) * (% under 95%) . Availability bonuses are based upon (Summer Capacity Payments) * (% over 95%) . $5.25/kw-month Capacity Charge . No Variable O&M Charges . Start-Up Charge of $2500.00 per Start-Up . Energy Charge, consisting of the product of Electric Energy sold to purchaser multiplied by $/MWh applicable to the Dispatch level of a Committed Unit set forth below: $/MWh Dispatch Level ----- -------------- $30.00 100% $35.00 60% Summer Availability Bonus/Penalty Adjustment - -------------------------------------------- There will be an additional true up prior to January 31 after the end of each Contract Year to reconcile the difference in values between the Base Case Summer Period Equivalent Availability (which covers ostensibly the aggregate of the Summer Super Peak Hours and Summer Partial Peak Hours encompassing all four (4) Summer Months and incorporates Forced Outage Hours and Equivalent Forced Derated Hours (as each such term is defined in the Engage PSA) as opposed to Forced Outage Hours and Forced Derated Hours during a Dispatch under this Agreement) and the various Summer Month Equivalent Availability calculations detailed under this Agreement. New Equivalent Availability calculations must be done specifically across only Units 1 and 2 for both the Summer Super Peak Hours and Summer Partial Peak Hours for all the Summer Months (as opposed to the usual EA calculations that cover all five (5) Committed Units) for this additional true up. The resulting eight (8) Equivalent Availability numbers must then be multiplied by their respective bonus or penalty percentages (as applicable). Once summed, it will be this final aggregate number that will be netted against the Base Case Summer Period Equivalent Availability. M-2 EX-10.4 20 dex104.txt RESTATED POWER SALES AGREEMENT DATED JUNE 30, 2000 EXHIBIT 10.4 Execution Copy AMENDED AND RESTATED POWER SALES AGREEMENT Dated as of June 30, 2000 Between Aquila Energy Marketing Corporation, UtiliCorp United Inc. (Buyer) and Elwood Energy II, LLC (Seller) Table of Contents 1. DEFINITIONS AND INTERPRETATION....................................................................... 1 1.1 Definitions....................................................................................... 1 1.2 Interpretation.................................................................................... 14 1.3 Legal Representation of Parties................................................................... 15 1.4 Titles and Headings............................................................................... 15 1.5 Order of Precedence............................................................................... 15 2. TERM AND SURVIVAL.................................................................................... 15 2.1 Term.............................................................................................. 15 2.2 Survival.......................................................................................... 16 3. PROJECT IMPLEMENTATION AND ACHIEVEMENT OF COMMERCIAL OPERATIONS...................................... 16 3.1 Development and Construction...................................................................... 16 3.2 Conditions to Commercial Operations............................................................... 16 3.3 Late Commercial Operations Date................................................................... 17 3.4 Commissioning and Test Power...................................................................... 20 4. ELECTRIC ENERGY DELIVERY, DISPATCH AND FORCED OUTAGES................................................ 20 4.1 Delivery of Electric Energy....................................................................... 20 4.2 Point of Sale..................................................................................... 20 4.3 Dispatch Rights of Buyer.......................................................................... 21 4.4 Incremental Energy................................................................................ 24 4.5 Forced Outages.................................................................................... 24 4.6 Access to Facility................................................................................ 26 4.7 Delivery of Replacement Power and Substitute Power................................................ 27 4.8 Emergency Conditions.............................................................................. 28 5. METERING; BILLING; PAYMENT........................................................................... 28 5.1 Metering Electricity.............................................................................. 28 5.2 Adjustment for Inaccurate Meters.................................................................. 30 5.3 Billing........................................................................................... 30 5.4 Payments.......................................................................................... 31 5.5 Offsets........................................................................................... 31 5.6 Billing Disputes.................................................................................. 31 6. OPERATION AND MAINTENANCE OF THE FACILITY............................................................ 31 6.1 Standard of Operation............................................................................. 31 6.2 Permits and Licenses.............................................................................. 32 6.3 Sole Remedy....................................................................................... 32 6.4 Scheduled Maintenance............................................................................. 32 6.5 Compressor Wash................................................................................... 33 6.6 Operating Characteristics......................................................................... 33 6.7 Records........................................................................................... 34 7. COMPENSATION......................................................................................... 34 7.1 Capacity Charge................................................................................... 34 7.2 Energy Charge..................................................................................... 36
i 7.3 Adjustment to Actual Heat Rate for Failure to Meet Guaranteed Heat Rate........................... 38 7.4 Start Up Charge................................................................................... 39 7.5 Imbalance Charges................................................................................. 39 7.6 Rates Not Subject to Review....................................................................... 39 8. PERFORMANCE TESTS.................................................................................... 39 8.1 Test Procedures................................................................................... 40 8.2 Buyer Right to Request Testing.................................................................... 40 8.3 Seller Right to Retest............................................................................ 40 8.4 Conditions for Testing............................................................................ 40 8.5 Scheduling of Testing............................................................................. 41 9. ANCILLARY SERVICES................................................................................... 41 9.1 Availability of Ancillary Services................................................................ 41 9.2 Operational Considerations........................................................................ 41 9.3 Future Enhancements............................................................................... 41 10. LIMITATION OF LIABILITY AND EXCLUSIVE REMEDIES....................................................... 41 10.1 CONSEQUENTIAL DAMAGES.......................................................................... 41 10.2 SOLE REMEDIES FOR FAILURE TO DELIVER OR RELATED BREACHES....................................... 41 10.3 SOLE REMEDY FOR LATE COMMERCIAL OPERATIONS..................................................... 42 10.4 SOLE TERMINATION FOR DEFAULT REMEDIES.......................................................... 42 10.5 DIRECT DAMAGES FOR OTHER BREACHES.............................................................. 42 11. DISAGREEMENTS........................................................................................ 42 11.1 Negotiations................................................................................... 42 11.2 Arbitration.................................................................................... 43 11.3 Costs.......................................................................................... 44 11.4 Settlement Discussions......................................................................... 44 11.5 Preliminary Injunctive Relief.................................................................. 44 11.6 Obligations to Pay Charges and Perform......................................................... 45 12. ASSIGNMENT; PROJECT FINANCING; AND TRANSFER OF UNITS................................................. 45 12.1 Assignment..................................................................................... 45 12.2 Transfers and Change of Control................................................................ 45 12.3 Consent to Assignment to Lender................................................................ 45 12.4 Potential Changes in Ownership or Control of Aquila............................................ 46 12.5 Transfers Not in Accordance Herewith........................................................... 47 13. DEFAULT, TERMINATION AND REMEDIES; NOTICE OF DEFAULT................................................. 47 13.1 Events of Default of Seller.................................................................... 47 13.2 Buyer Default.................................................................................. 48 13.3 Remedies....................................................................................... 48 13.4 Special Termination for Chronic Poor Availability.............................................. 49 14. REPRESENTATIONS AND WARRANTIES....................................................................... 49 14.1 Representations and Warranties of Seller....................................................... 49 14.2 Representations and Warranties of Buyer........................................................ 50 15. INDEMNIFICATION...................................................................................... 51 16. NOTICES.............................................................................................. 51 17. CONFIDENTIALITY...................................................................................... 52 18. SECURITY............................................................................................. 53
ii 18.1 Seller Guarantees.............................................................................. 53 18.2 Buyer Security................................................................................. 53 19. FORCE MAJEURE........................................................................................ 53 19.1 Definition..................................................................................... 54 19.2 Obligations Under Force Majeure................................................................ 54 19.3 Force Majeure Not Forced Outage................................................................ 55 19.4 No Economic Force Majeure...................................................................... 55 19.5 Continued Payment Obligation................................................................... 55 19.6 Extended Force Majeure Event After Commercial Operations....................................... 56 20. INTERCONNECTION AND TRANSMISSION..................................................................... 57 20.1 Facilities..................................................................................... 57 20.2 Transmission................................................................................... 57 21. TAXES................................................................................................ 57 21.1 Applicable Taxes............................................................................... 57 21.2 Contested Taxes................................................................................ 57 21.3 Other Charges.................................................................................. 58 22. MISCELLANEOUS PROVISIONS............................................................................. 58 22.1 Non-Waiver..................................................................................... 58 22.2 Relationship of Parties........................................................................ 58 22.3 Successors and Assigns......................................................................... 58 22.4 Governing Laws................................................................................. 58 22.5 Counterparts................................................................................... 58 22.6 Third Party Beneficiaries...................................................................... 58 22.7 Financial Information.......................................................................... 58 23. APPOINTMENT OF AQUILA AS UCU'S AGENT................................................................. 59 23.1 Appointment.................................................................................... 59 23.2 Presumption of Authority....................................................................... 59 24. ENTIRE AGREEMENT AND AMENDMENTS...................................................................... 59
APPENDICES Appendix A Design Limits and Other Dispatch Restrictions Appendix B Testing Appendix C Communications Appendix D Reporting Forms Appendix E Equivalent Availability Calculations Appendix F Output and Heat Rate Adjustment Curve Appendix G Non-Billable Generation Appendix H Forms of Guarantees Appendix I Scheduled Maintenance Outages Appendix J Heat Rate Boundary Diagram and Site/Switchyard Map Appendix K Not Used Appendix L One Line Diagram Appendix M Milestone Schedule iii AMENDED AND RESTATED POWER SALES AGREEMENT THIS AMENDED AND RESTATED POWER SALES AGREEMENT (including Appendices, this "Agreement") dated as of June 30, 2000, is entered into between Aquila Energy Marketing Corporation ("Aquila"), and UtiliCorp United Inc. ("UCU") (Aquila and UCU referred to herein collectively as "Buyer"), and Elwood Energy II, LLC, a Delaware limited liability company ("Seller"); Buyer and Seller are sometimes referred to herein individually as a "Party" and collectively as the "Parties"); W I T N E S S E T H: WHEREAS, Seller owns and operates an electric generating facility in Elwood, Illinois and is engaged in the generation and sale of Electric Energy, Capacity and associated Ancillary Services; and WHEREAS, Seller is building the Facility which will be located at the Elwood Station; and WHEREAS, Seller anticipates the Commercial Operations Date of Units 5 and 6 of the Facility will occur on or prior to June 1, 2001; and WHEREAS, Seller and Buyer previously executed a Power Sales Agreement (the "Original Agreement") dated as of June 30, 2000 whereby Buyer shall receive and purchase, and Seller shall deliver and sell the Electric Energy, Capacity and associated Ancillary Services from Units 5 and 6 of the Facility and Replacement Power, pursuant to this Agreement; and WHEREAS, the Parties now desire to revise the Original Agreement such that this Amended and Restated Agreement supersede the Original Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the Parties hereto agree as follows: 1. Definitions and Interpretation. ------------------------------ 1.1 Definitions. As used in this Agreement, the terms set forth below ----------- in this Section 1 shall have the respective meanings so set forth. "ASME" means the American Society of Mechanical Engineers. "Actual Heat Rate" for any period shall be the Heat Rate which is determined based upon actual performance of the Facility and the Elwood III Units during such period and calculated by the quotient of the aggregate gas energy consumption in Btus for Units 5 and 6 (not including gas consumed to generate Test Energy, incremental gas consumed (at a Heat Rate above the Net Heat Rate) to generate Incremental Energy to the extent used to offset what would otherwise be a Forced Derating, or gas consumed during Failed Starts), and the Elwood III Units as measured by the Station Fuel Meter divided by the Electric Energy output (in kWh) produced by the same Units and the Elwood III Units during the identical period as measured by the Revenue Meter. "Affected Party" has the meaning set forth in Section 19.1. "Affiliate" means, when used with respect to any Person, any Person controlling, controlled by or under common control with such Person. For the purposes of this definition, the term "controlling" (and, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or agency or otherwise. "Aggregate Delay LD Cap" means $24,567,500, less any Delay Book Out Charges paid by Seller. "Ancillary Services" has the meaning set forth in Section 9. "Availability Adjustment" has the meaning set forth in Section 7.1.3. "Available" means a state in which the Facility is capable of providing full service, whether or not it is actually in operation or in service. "Average Summer Partial Peak Availability" means the Equivalent Availability during Partial Peak Hours averaged over all months of a given Summer Period, calculated as: 1 - [(sum total of FOH + EFDH)/(sum total of Partial Peak period hours)]. "Average Summer Super Peak Availability" means the Equivalent Availability during Super Peak Hours averaged over all months of a given Summer Period, calculated as: 1 - [(sum total of FOH + EFDH)/(sum total of Super Peak period hours)]. "Bankruptcy" means any case, action or proceeding under any bankruptcy, reorganization, debt arrangement, insolvency or receivership law or any dissolution or liquidation proceeding commenced by or against a Person and, if such case, action or proceeding is not commenced by such Person, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in an order for relief or shall remain undismissed for 90 days. 2 "Bankruptcy Event" means with respect to a Party, an assignment by such Party for the benefit of creditors or the filing of a case in Bankruptcy or any proceeding under any other insolvency law under which such Party is debtor in bankruptcy. "Base Fuel Charge" means the Fuel Index plus either 10 cents/MMBTU or 15 cents/MMBTU, as applicable under Section 7.2.5.1 or Section 7.2.5.2. "Btu" means British thermal unit. "Business Day" means each weekday (Monday through Friday) excluding NERC Holidays. "Buyer Event of Default" has the meaning specified in Section 13.2. "Cap Date" has the meaning specified in Section 3.3.5. "Capacity" means the capability measured in kW of Seller to produce Electric Energy at the Facility or deliver Replacement Power to the Point of Delivery or the Replacement Power Delivery Point, as applicable. "Capacity Bonus" has the meaning set forth in Section 7.1.4. "Capacity Charge" has the meaning set forth in Section 7.1. "Capacity Rate" has the meaning set forth in Section 7.1.2 "Capacity Rate Reduction Amount" has the meaning set forth in Section 3.3.6. "Cap Date" has the meaning set forth in Section 3.3.5. "Change in Law" means, after the Effective Date, the enactment, adoption, promulgation, modification or repeal or a material modification or change in the administrative or judicial application by any Governmental Agency of any applicable Requirement of Law. "ComEd" means Commonwealth Edison Company or its successors and assigns. "ComEd/Elwood Switchyard" means that switchyard that provides interconnection services to the Facility as identified Appendix J. "Commercial Operations" means that a Unit or the Facility shall have achieved all of the conditions specified in Section 3.2. "Commercial Operations Date" means the day on which a Unit or the Facility achieves Commercial Operations. "Commercial Operations Delay Period" is the period of time, if any, between the Target COD and the Commercial Operations Date. 3 "Commission" or "Commissioning" as applicable, means the test and start up process leading up to Commercial Operations. "Compressor Wash" has the meaning set forth in Section 6.5. "Confidential Information" has the meaning specified in Section 17. "Contract Year" means (i) for the first Contract Year, the period commencing on June 1, 2001 and ending on the December 31 occurring immediately thereafter, and (ii) for all other Contract Years (other than the final Contract Year), the calendar year, except that the final Contract Year shall be the period from the first day of the calendar year (during which the Term will expire) through the expiration of the Term. "Cover Period" means a period during which the Seller is permitted pursuant to this Agreement to deliver or cause to be delivered Replacement Power or Substitute Power to Buyer. Such periods shall include only the following: (i) any time during Commercial Operations Delay Period; (ii) a Forced Outage or a Forced Derating; (iii) a period that could reasonably be likely to result in a Forced Outage or Forced Derating, as a result of which Seller determines, in accordance with Prudent Industry Practices, that safety concerns, potential equipment breakdowns or Unit vibration alarms require the Units to be made unavailable for a period of time necessary to diagnose and remedy such operational problems; or (iv) a Force Majeure Period. "Day Ahead Schedule" means Buyer's hour by hour Dispatch schedule for the next calendar day or days, as applicable, as provided to Seller pursuant to Section 4.3.2.1. "Default Rate" means (a) the one-month "LIBOR" as published from time to time in the "Money Rates" section of The Wall Street Journal, plus (b) 4.5% (450 basis points) per annum. "Degradation Curves" means the combustion turbine degradation curve(s) as represented by General Electric Bulletin No. 519HA772, Rev. A, dated February 9, 1995. "Delay Book Out Charge" has the meaning specified in Section 3.3.2 "Delay Election" has the meaning specified in Section 3.3.1 "Delay LDs" has the meaning specified in Section 3.3.3. "Design Limits" means the operating specifications listed in Appendix A. ---------- "Diagnostic Period" has the meaning specified in Section 4.5.3. 4 "Differential Transmission Adjustment" means the difference between the cost to Buyer to have Replacement Power delivered from the Replacement Power Delivery Point to Buyer's ultimate customer and the cost Buyer would have incurred to transmit such power from the Point of Delivery to such customer. Such amount may be a negative or positive number and shall be determined in accordance with Section 7.2.4.3. "Dispatch" means Buyer's rights to schedule the designated Electric Energy output of the Facility pursuant to Section 4.3 or to schedule the delivery of Replacement Power pursuant to Section 4.7. "Dispatch Notification" means that Buyer has notified Seller by telephone conversation of Buyer's Dispatch order in accordance with Appendix C. "Dispatcher" means Buyer's authorized representative for Dispatch under this Agreement. "DLD Escrow" has the meaning set forth in Section 3.3.5. "Dominion" means Dominion Energy, Inc., a Virginia corporation. "Downgrade Event" means (i) with respect to a Buyer or Seller Guarantor whose long term unsecured indebtedness is rated by one or both of Standard & Poor's or Moody's, a downgrade in such ratings such that both fall below Investment Grade, and (ii) with respect to a Seller Guarantor that is not rated, a value below $600,000,000 in owner's equity or a ratio of total liabilities to total assets for Dominion that exceeds 72%. "EPC Contractor" means the party under contract to Seller to design, engineer, procure, and construct the Facility. "Effective Date" means the date of this Agreement. "Electric Energy" means all electric energy output from the Facility (net of Facility station service and auxiliaries for the Units and the Elwood III Units) delivered to Buyer by Seller from and after the Commercial Operations Date in accordance with the terms of this Agreement. "Elwood Station" means the multi-unit power generation station that includes the Facility and other units, located in Elwood, Illinois owned by Seller and its Affiliates. "Elwood III Units" means Units 7 and 8 at Elwood Station. "Emergency Condition" means a condition or situation which (i) in the sole judgment of the Interconnected Utility presents an imminent physical threat of danger to life, or significant threat to health or property (including in the ComEd/Elwood Switchyard), (ii) in the sole judgment of the Interconnected Utility could cause a significant disruption on or significant damage to the Interconnected Utility's System (or any material portion thereof) or the 5 transmission system of a third party (or any material portion thereof), (iii) in the reasonable judgment of Seller presents an imminent physical threat of danger to life, or significant threat to health or property (including in the ComEd/Elwood Switchyard) or (iv) in the reasonable judgment of Seller could cause significant damage to the Facility (or any material portion thereof). "Energy Charge" has the meaning set forth in Section 7.2. "Energy Rate" means, individually or collectively, as the context requires, the Replacement Power Energy Rate, the Incremental Energy Rate, the Facility Electric Energy Rate, or the Test Energy Rate. "Equivalent Availability" has the meaning set forth in Appendix E. ---------- "Equivalent Forced Derated Hours" or "EFDH" has the meaning set forth in Appendix E. "Escrow Agreement" has the meaning specified in Section 3.3.5. "Extension Term" has the meaning set forth in Section 2.1. "Facility" means the natural gas fueled electric generation plant consisting of two GE Frame 7 FA combustion turbines designated as Units 5 and 6, together with appurtenant facilities, and having a total net output estimated to be approximately 303,560 kWs located at the Elwood Station. "Facility Electric Energy Rate" has the meaning set forth in Section 7.2. "Failed Start" means an attempted start up of a Unit whereby Seller initiates the Start Up Sequence but does not achieve a Start Up. "FERC" means the Federal Energy Regulatory Commission. "Final Commercial Operations Date" means June 1, 2002, as such date may be extended pursuant to Section 19, in which case such date shall be extended by the period during which a Force Majeure Event impairs or precludes the performance by a Party of its obligations hereunder, but in no event beyond June 1, 2003. "First Outage Notice" has the meaning set forth in Section 4.5.1. "Force Majeure Event" has the meaning set forth in Section 19.1. "Force Majeure Period" means any period during which a Force Majeure Event affecting Seller occurs that precludes wholly or in part the capability of the Facility to deliver Electric Energy and Capacity as required hereunder. "Forced Derating" has the meaning set forth in Appendix E. ---------- 6 "Forced Outage" has the meaning set forth in Appendix E. ---------- "Forced Outage Hours" or "FOH" has the meaning set forth in Appendix E. ---------- "Four Month Date" has the meaning set forth in Section 3.3.6. "Fuel Charge" means the Base Fuel Charge plus the applicable surcharge, if any, imposed pursuant to Section 7.2.5.3. "Fuel Index" means the index as published in Gas Daily - "Midpoint, --------- Chicago-LDCs, Large e-us" - for the day of Energy delivery to Buyer. If this index ceases to be published the Parties shall select a mutually agreeable substitute index designed to track the market price of gas in the Chicago area for large end users for next day service. "Fuel Metering Point "means the Station Fuel Meter identified in Appendix J. "GDP-IPD" means the Gross Domestic Product - Implicit Price Deflator as published in the National Income and Product Account by the U.S. Department of Commerce. "Government Agency" means any federal, state, local, territorial or municipal government, governmental department, commission, board, bureau, agency, instrumentality, judicial or administrative body (or any agency, instrumentality or political subdivision thereof) having jurisdiction over the Buyer, Seller, the Facility, or the Interconnected Utility. "Governmental Approval" means any authorization, consent, approval, license, ruling, permit, exemption, filing, variance, order, judgment, decree, publication, notice to, declarations of or with or regulation by or with any Government Agency relating to the acquisition, ownership, occupation, construction, Commissioning , operation or maintenance of the Units and the Facility or to the execution, delivery or performance of this Agreement. "Gross Margin" shall mean the reasonable documented actual sales proceeds at Prevailing Market Prices for energy and/or capacity, less Transaction Costs, less (i) the Facility Electric Energy Rate or (ii) in the case of Incremental Energy, $100/MWh. "Guaranteed Availability" means the Guaranteed Non-Summer On Peak Availability, the Guaranteed Summer Partial Peak Availability or the Guaranteed Summer Super Peak Availability for the applicable period. "Guaranteed Heat Rate" means 10,787 Btu/kWh (HHV), new and clean at Reference Conditions. "Guaranteed Non-Summer On Peak Availability" shall be equal to 97%. "Guaranteed Ramp Rate" has the meaning set forth in Appendix A. ---------- "Guaranteed Start-Up Time" has the meaning set forth in Appendix A. ---------- 7 "Guaranteed Summer Partial Peak Availability" shall be equal to 97%. "Guaranteed Summer Super Peak Availability" shall be equal to 97%. "Heat Rate" means the efficiency expressed as the amount of Btus of natural gas consumed to generate a kwh of electric energy. "Heat Rate Credits" has the meaning set forth in Section 7.3.2. "ISO" or "Independent System Operator" means any Person, other than ComEd, that becomes responsible as system operator for the Interconnected Utility System. "Imbalance Charge" means a charge for oversupply or undersupply of Electric Energy incurred pursuant to Schedule 4 of ComEd's Open Access Transmission Tariff or the Interconnection Agreement. "Incremental Energy" has the meaning set forth in Section 4.4. "Incremental Energy Rate" has the meaning set forth in Section 7.2. "Individual Fuel Meter" means the meter located as indicated in Appendix J, measuring gas consumption of an individual Unit or similar meters on the Elwood III Units. "Initial Net Heat Rate" means the Net Heat Rate as tested in the final performance testing for each Unit under the contract with the EPC Contractor averaged over the Units and the Elwood III Units with evaporative coolers in service as corrected to Reference Conditions in accordance with Appendix B. "Initial Term" has the meaning set forth in Section 2.1. "Interconnection Facilities" means the interconnection facilities that will connect the Facility with the Interconnected Utility System, as more fully described in the Interconnection Agreement. "Interconnected Utility" means ComEd or its successors and assigns; such assigns may include an ISO or any other entity operating a control area that includes the Interconnected Utility System. "Interconnected Utility System" means the electric transmission and distribution system owned by ComEd and its Affiliates, or their successors and assigns; such assigns may include assignment of operations to an ISO which shall then mean that Interconnected Utility System operated by such ISO. "Interconnection Agreement" means the Interconnection Agreement to be agreed to and executed between the Interconnected Utility and Seller with respect to the Facility. 8 "Interconnection Facilities" means the interconnection facilities that will connect the Facility with the Interconnected Utility System, as more fully described in the Interconnection Agreement. "Investment Grade" means a rating on the long term unsecured indebtedness of an entity of at least Baa3 from Moody's or at least BBB- from Standard & Poor's. "kW" means kiloWatt "KWh" means kiloWatthour. "Lenders" means with respect to the Seller (i) any person or entity that, from time to time, has made loans to the Seller, its permitted successors or permitted assigns for the financing or refinancing of the Facility or the marketing of the Electric Energy, Capacity or Ancillary Services of the Facility or which are secured by the Facility, (ii) any holder of indebtedness of the Seller, (iii) any person or entity acting on behalf of such holder(s) to which any holders' rights under financing documents have been transferred, any trustee or agent on behalf of any such holders, or (iv) any Person who purchases the Facility in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of the Facility pursuant to a net lease. "Liabilities" has the meaning set forth in Section 15. "MMBtu" means million Btus. "MW" means megaWatt. "MWh" means megaWatthour. "MAIN" means the Mid-America Interconnected Network, or its successors. "Monthly Adjustment Factor" means, with respect to the calculation of the Availability Adjustment, 18% for the month of June, 32% for the month of July and 32% for the month of August. "Moody's" means Moody's Investors Service, or its successor. "NERC" means the North American Electric Reliability Council, or its successor. "NERC Holidays" means New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and other holidays observed by NERC. "Net Dependable Capacity" means the net aggregate generating capacity measured in kWs of both Units of the Facility, based upon demonstrated output (net of station service and auxiliaries for the Units and the Elwood III Units) achieved during capacity testing of the Facility pursuant to Section 8.1 and Appendix B, adjusted by the Degradation Curves and to Reference Conditions; - ---------- provided, however, that prior to the Commercial Operations Date, the Net Dependable Capacity of the Facility shall be deemed to be 303,560 kW, at Reference Conditions. 9 If one Unit achieves Commercial Operations prior to the other Unit, then for the period when only one Unit is in Commercial Operations, Net Dependable Capacity for all purposes other than calculation of Capacity Charges shall mean the net dependable capacity of such Unit. "Net Heat Rate" means the Heat Rate established by periodic testing of the Units and the Elwood III units as corrected with the Degradation Curve to Reference Conditions pursuant to Appendix B. "Nicor" means Northern Illinois Gas Company, or its successors. "Non-Billable Generation" has the meaning specified in Section 5.1 and shall be calculated in accordance with Appendix O. "Non-Summer On Peak Hours" means during the Non-Summer Period, the hour ending 0700 Central Time through the hour ending 2200 Central Time, Monday through Friday, excluding NERC holidays. "Non-Summer Period" means September 1 through May 31. "OEM" means the original equipment supplier. "On Peak Hours" means (i) during the Summer Period, the hour ending 0700 Central Time through the hour ending 2200 Central Time, Monday through Saturday, excluding NERC Holidays and (ii) during the Non-Summer Period, the hour ending 0700 Central Time through the hour ending 2200 Central Time, Monday through Friday, excluding NERC Holidays. "Outage Book Out Charge" has the meaning set forth in Section 4.5.1. "Outage Election" means Seller's election during any Cover Period either to provide Replacement Power or cause to be provided Substitute Power in accordance with Section 4.7.3. "Partial Peak Hours" means, during the Summer Period, the hour ending 0700 through the hour ending 1100 and the hour ending 2000 through the hour ending 2200, Central Time, Monday through Saturday, excluding NERC holidays. "Pecorp" means Peoples Energy Corporation, an Illinois corporation. "Period Hours" or "PH" has the meaning set forth in Appendix E. "Permitted Assignee" means a Person having at least five (5) years experience in the operations and maintenance of electrical generation facilities similar to the Facility and having a level of creditworthiness equivalent to Seller and Seller Guarantors, which Person shall be reasonably acceptable to Buyer. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. 10 "Per Unit Delay LD Cap" means $12,283,750, less any Delay Book Out Charges paid by Seller in respect of the applicable Unit. "Point of Delivery" means, for Electric Energy delivered from a Unit, the point of interconnection between the Facility and the Interconnected Utility System in the ComEd/Elwood Switchyard, as identified in Appendix J. "Post COD Test Energy" means Test Energy generated on and after the Commercial Operations Date. "Pre COD Test Energy" means Test Energy generated before the Commercial Operations Date. "Prevailing Market Price" means the best price available to Buyer (i.e., highest price when Buyer markets Test Energy and Incremental Energy and lowest price when Buyer procures Substitute Power) actually obtained for energy or capacity (taking into account the type, reliability, and duration and other relevant attributes of such energy or capacity), which shall be obtained through commercially reasonable efforts, as evidenced, upon request of Seller, by documentation of such price, unless and until an index or other mechanism mutually acceptable to the Parties is created and agreed upon by the Parties to serve as the Prevailing Market Price. "Prudent Industry Practice" means any of the practices, methods, standards and acts required or approved by any ISO or engaged in or approved by a significant portion of the electric generation industry in the geographic region covered by MAIN during the relevant time period, or any of the practices, methods, standards and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. "Prudent Industry Practice" is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the geographic region covered by MAIN and which generally conform to operation and maintenance standards recommended by the OEM, the Design Limits, and Government Approvals. "Rating Category" means a letter category rating for long term unsecured indebtedness of an entity (e.g. Aaa, Aa, A, Baa, Ba, and so on in the case of Moody's and AAA, AA, A, BBB and so on in the case of Standard & Poor's), disregarding in each case any numerals or other modifiers appended to such rating. "Reference Conditions" means ambient atmospheric temperature of 95 degrees Fahrenheit (dry-bulb), 60% relative humidity, adjusted for elevation above mean sea level. "Reference Heat Rate" shall be determined for each hour using the turbine OEM's heat rate performance curves adjusted to site elevation, ambient conditions, load factor and Degradation Curves and as provided in Appendix F. 11 "Replacement Power" (i) prior to the Commercial Operations Date, means electric Capacity and electric energy provided by Seller from time to time to Buyer from sources (including from other units at the Elwood Station) other than the Facility and (ii) after the Commercial Operations Date, means electric energy provided by Seller from time to time to Buyer from sources (including other units at the Elwood Station) other than the Facility. "Replacement Power Delivery Point" means the point where Replacement Power is delivered to Buyer, at a point or points that are acceptable to Buyer, such acceptance not to be unreasonably withheld or delayed, unless the Replacement Power Delivery Point shall be the same as the Point of Delivery, in which case it shall be deemed to be acceptable to Buyer. "Replacement Power Energy Rate" has the meaning set forth in Section 7.2.2 "Requested Load Delivery Time" means the designated time in Buyer's Dispatch schedule for a Unit to be generating at a specified level. "Requirement of Law" means any applicable federal, state and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any federal, state, local or other Governmental Agency (including those pertaining to electrical, building, zoning, environmental and occupational safety and health requirements). "Revenue Meter" means the meter which measures power flow into the main step up transformer of each Unit and similar meters on the Elwood III Units at a point after auxiliary loads are withdrawn from the bus. "Scheduled Maintenance Outage" means the time period during which a Unit or any portion of the Facility is removed from service to perform work on specific components based upon manufacturer's recommended schedules in accordance with Section 6.4. "Scheduling Fees" means the charge of Buyer to Seller for scheduling Test Energy and Incremental Energy, which shall equal $1.00 per MWh. "Second Outage Notice" has the meaning set forth in Section 4.5.3. "Seller Event of Default" has the meaning specified in Section 13.1. "Seller Guarantees" has the meaning specified in Section 18.1. "Seller Guarantor" means Dominion or Pecorp. "Site" means the real property on which the Units are located. "Size of Reduction" has the meaning set forth in Appendix E. "Standard & Poor's" means Standard & Poor's Rating Group a division of McGraw-Hill, Inc. or its successor. 12 "Start Up" means the initiation of the Start Up Sequence followed by the applicable Unit's generating at least 60% of the Net Dependable Capacity. "Start Up Charge" has the meaning set forth in Section 7.4. "Start Up Sequence" means the normal sequence of events, beginning with the cranking process, in order to achieve Start Up. "Station Fuel Meter" means the Nicor fuel meter common to Units 5 and 6 and to the Elwood III Units. "Substitute Power" (i) prior to the Commercial Operations Date means electric energy and capacity (ii) after the Commercial Operations Date, electric energy, in each case obtained by Buyer at the direction of Seller in accordance with Section 4.7.3. "Substitute Power Cost Credit" is a credit adjustment to Buyer for its reasonable costs to acquire Substitute Power at the direction of Seller and as calculated in accordance with Section 7.2.4.3. "Summer Average Availability" means the Equivalent Availability for all Summer On Peak Hours in each month during the Summer Period of any given Contract Year, averaged over such three months. "Summer Period" means the period from June 1 through August 31 of each Contract Year. "Summer Off Peak Hours" means all hours in the Summer Period other than On Peak Hours. "Summer On Peak Hours" means all Super Peak Hours and Partial Peak Hours. "Super Peak Hours" means, during the Summer Period, the hour ending at 1200 Central Time and through the hour ending 1900 Central Time, Monday through Saturday, excluding NERC holidays. "Target COD" means June 1, 2001, as such date may be extended day-for-day due to Force Majeure Events as and to the extent permitted by Section 19 or for days covered by a Delay Book Out Charge pursuant to Section 3.3.3. "Term" has the meaning specified in Section 2.1. "Test Energy" means electricity generated during a test at a time when the tested Unit would not be Dispatched by Buyer to generate but for the running of the test. "Third Party Damages" has the meaning set forth in Section 4.7.4. "Threshold Heat Rate" is 10,759 Btu/KWh, new and clean at Reference Conditions. 13 "Transaction Costs" means reasonable documented transaction costs associated with the sale and marketing of Electric Energy or Test Energy, as applicable, including and limited to transmission costs (or fees or charges imposed by a third party in lieu of or in addition to such transmission costs in accordance with common industry practice), transmission line losses, Scheduling Fees and ancillary service charges. "Unit" means either of the GE frame 7FA gas-fired turbine generator units of the Facility subject to Dispatch by Buyer under this Agreement, i.e., numbers five (5) and six (6). "Variable O&M Rate" means $1.00/MWh (as of June 1, 1999), and as adjusted on the anniversary of the first and each subsequent Contract Year by the annual change in the GDP-IPD. 1.2 Interpretation. In this Agreement, unless a clear contrary --------------- intention appears: 1.2.1 the singular number includes the plural number and vice versa; 1.2.2 reference to any Person includes such Person's successors and assigns but, in the case of a Party, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; 1.2.3 reference to any gender includes each other gender; 1.2.4 reference to any agreement (including this Agreement), document, instrument or tariff means such agreement, document, instrument or tariff as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; 1.2.5 reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, including, if applicable, rules and regulations promulgated thereunder; 1.2.6 reference to any Section or Appendix means such Section of this Agreement or such Appendix to this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition; 1.2.7 "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof or thereof; 1.2.8 "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; 14 1.2.9 relative to the determination of any period of time, "from" means "from and including", "to" means "to but excluding" and "through" means "through and including"; and 1.2.10 reference to time shall always refer to prevailing Central Time, i.e., standard time or daylight time as applicable in Elwood, Illinois. 1.2.11 wherever this Agreement speaks in terms of both Units (or the Facility), and the context of a provision requires application to only one Unit, then such provision and operative terms or amounts relating thereto shall be appropriately construed or prorated, as appropriate. 1.3 Legal Representation of Parties. This Agreement was negotiated by -------------------------------- the Parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party shall not apply to any construction or interpretation hereof or thereof. 1.4 Titles and Headings. Section and Appendix titles and headings in ------------------- this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement. 1.5 Order of Precedence. In the event of a conflict between any of ------------------- the terms of this Agreement, the conflict shall be resolved by giving priority to the terms in the following order of precedence: (1) Sections 1-23, (2) Appendix E, (3) Appendix A, and (4) the remaining Appendices in the order in which they appear in this Agreement. 2. Term and Survival ----------------- 2.1 Term. This Agreement shall have a term (the "Term") commencing on ---- the Effective Date and ending on August 31, 2016 (the "Initial Term") unless otherwise extended or terminated in accordance with the provisions of this Agreement. The Buyer shall have the unilateral right to extend the Initial Term for a five (5) year period (or such other period as the Parties mutually agree) (the "Extension Term") provided the Buyer notifies Seller in writing by September 1, 2014 of its desire to so extend. 15 2.2 Survival. The provisions of Section 1 (Definitions and -------- Interpretation), Section 6.7 (Records), Section 10 (Limitation of Liability and Exclusivity of Remedies), Section 11 (Disagreements), Section 13 (Default, Termination and Remedies), Section 15 (Indemnification), Section 17 (Confidentiality), Section 18 (Security), Section 22 (Miscellaneous), and Section 24 (Entire Agreement and Amendments) shall survive the termination of this Agreement. 2. Project Implementation and Achievement of Commercial Operations. --------------------------------------------------------------- 3.1 Development and Construction (w) Development. Seller shall (i) -------------------------------------------- use all commercially reasonable efforts to develop, engineer, procure, construct, and Commission the Facility, (ii) achieve the Commercial Operations Date on or prior to the Target COD, and (iii) apply for and obtain all Governmental Approvals and all renewals thereof as are required for Seller to perform its obligations under this Agreement, including air emissions permits. 3.1.2 Construction. Seller shall complete, or cause the ------------ completion of, the design, construction, installation, and Commissioning of the Facility in a manner consistent with Prudent Industry Practices. 3.1.3 Status Report. Starting thirty (30) days after the ------------- Effective Date, Seller shall report to Buyer, each month, on the construction status, fuel supply and transportation status, and shall provide a report on Seller's progress toward achieving the milestone schedule included in Appendix M. Such report shall, at a minimum, provide a schedule showing Facility permit status, items completed and to be completed, the expected Commercial Operations Date, and the estimated percentage of completion for the Facility. 3.2 Conditions to Commercial Operations. The occurrence of ----------------------------------- Commercial Operations of a single Unit or the Facility is contingent upon Seller providing evidence reasonably acceptable to Buyer of the satisfaction or occurrence of all of the following conditions: 3.2.1 Communications. The Facility (or single Unit as -------------- applicable) has demonstrated the reliability of any communications systems and equipment for communications with the Interconnected Utility's system control center required to be provided by Seller pursuant to this Agreement prior to the Commercial Operations Date. 3.2.2 Tests. Seller shall perform a heat rate and capacity test ----- in accordance with Appendix B of a Unit or Units. In conjunction with such test each tested Unit shall operate continuously for a minimum of four (4) consecutive hours synchronized to the Interconnected Utility System at a level equal to at least 288 MW if for both Units and 144 MW if for one Unit, and each Unit has successfully completed five (5) consecutive Start Ups and shutdowns. 16 3.2.3 Security. Seller security arrangements meeting the -------- requirements of Section 18.1 shall have been established. 3.2.4 Fuel Supply and Transportation. Seller shall have entered ------------------------------ into fuel supply and transportation arrangements of a sufficient level of firmness so as to permit Buyer to Dispatch the Unit or Units in accordance with the terms of this Agreement. Seller shall be deemed to satisfy this condition if Seller has in place an agreement for balancing services similar in all material respects to the NICOR Transportation and Balancing Agreement for units 1-4 at the Elwood Station. Construction of pipeline facilities and improvements necessary for operation of the Facility has been completed. 3.2.5 Seller Certification. Seller has delivered a certificate -------------------- stating that (1) the Unit has been completed in all material respects (excepting, e.g., punch list items that do not materially adversely affect the ability of the Unit or Units to operate in accordance with Prudent Industry Practice), (2) the Unit or Units has been designed and constructed and all conditions have been satisfied so as to permit Buyer to Dispatch the Unit or Units pursuant to the terms of the Agreement, and (3) that adequate levels of insurance coverage of the types and with the limits for electrical generation facilities similar to the Facility have been purchased by Seller that are usual and customary in accordance with Prudent Industry Practice. 3.2.6 Opinion of Counsel. An opinion of Seller's counsel has ------------------ been rendered that all permits, licenses, approvals, and other Governmental Approvals required for the construction and operation of the Facility in accordance with this Agreement have been obtained. 3.2.7 Interconnection. The electrical interconnection of the --------------- Facility to the Interconnected Utility System has been completed in accordance with Prudent Industry Practice sufficient to permit Buyer to Dispatch the Unit or Units in accordance with this Agreement. 3.3 Late Commercial Operations Date. Seller anticipates that the ------------------------------- Commercial Operations Date for each Unit will occur no later than the Target COD. 3.3.1 COD Delays. If the Commercial Operations Date for a Unit ---------- does not occur prior to 1000 Central Time on the Target COD and if Seller fails to deliver or cause to be delivered Replacement Power or Substitute Power in accordance with Section 4.7.3 or to agree to Buyer's Delay Book Out Charge as described in Section 3.3.2, Seller shall be liable to Buyer for Delay LDs per Unit per day for the period of the delay. 3.3.2 Delay Book Out Charge. Seller may request that Buyer --------------------- provide Seller a Delay Book Out Charge, which request shall be made by Seller no later than noon sixteen (16) Business Days prior to the Target COD, and by noon every seventh (7/th/) day thereafter, if necessary. Within twenty four (24) hours of Seller's request, Buyer shall provide Seller a quote in dollars at a mutually agreeable time for the first seven (7) days of the Commercial Operations Delay Period (a "Delay Book Out Charge"). 17 Immediately upon Seller's receipt of the quoted Delay Book Out Charge, Seller shall notify Buyer as to whether Seller elects to pay Delay LDs, provide Replacement Power, request Buyer to procure Substitute Power or accept the Delay Book Out Charge (the "Delay Election"). Upon acceptance and payment of the Delay Book Out Charge by Seller, Seller shall be released from any liability for Delay LDs for the first seven (7) days of the Commercial Operations Delay Period and the Target COD shall be delayed by seven (7) days for all purposes other than initiation of Capacity Charges. Seller shall pay Buyer the Delay Book Out Charge within ten (10) days thereafter and may offset such amount against the Capacity Charges due for the period to which the Delay Book Out Charge applies, with such offset discharging Buyer's obligation to pay Capacity Charges to the extent so offset. Subsequent to the Delay Election, if Seller anticipates that the Commercial Operations Date will not occur by the Target COD, Seller may repeat the process for the Delay Election set forth above. If Seller rejects the Delay Book Out Charge, then Seller shall be liable for Delay LDs until the earlier to occur of (a) the time at which Seller begins to deliver or causes to be delivered Replacement Power, (b) the Commercial Operations Date, or (c) the first day of the seven (7) day period to which a subsequent Delay Book Out Charge applies. Any amounts paid by Seller for Delay Book Out Charges shall be deducted from both the Aggregate LD Cap and pro rata from the Per Unit LD Cap for the applicable Unit(s). To the extent that a Unit is capable of delivering and delivers any Electric Energy during a period covered by a Delay Book Out Charge, such Electric Energy shall be purchased by Buyer at a price equal to the Facility Electric Energy Rate plus 80% of the Gross Margin, if the Prevailing Market Price less Transaction Costs exceeds the Facility Electric Energy Rate. 3.3.3 Amounts of Delay LDs. Liquidated damages ("Delay LDs") -------------------- shall accrue at the rate of $100,000 per Unit per day during June, $225,000 per Unit per day during July, $200,000 per Unit per day during August; and for all other months, the prorated daily portion of the applicable month's Capacity Charges per Unit per day, provided however, in no event shall Delay LDs (x) be assessed for the day on which the Commercial Operations Date occurs if it occurs prior to 10:00 a.m. on such day or (y) exceed Per Unit LD Cap, or the Aggregate LD Cap as applicable. Delay LDs shall be offset against Capacity Charges as they come due. 3.3.4 Interest on Deferred Amounts and Offsets. To the extent ---------------------------------------- that accrued Delay LDs exceed the Capacity Charges that would have been paid currently if the Facility or a Unit had achieved Commercial Operations on the Target COD, such amounts shall accrue interest at the Default Rate until recovered by Buyer through offsets against Capacity Charges as they come due. 3.3.5 DLD Escrow. Notwithstanding the foregoing, if the ---------- Commercial Operations Date for one or both Units has not occurred on or before the date (the "Cap Date") that Seller has incurred an aggregate amount of Delay LDs equal to the Per Unit Delay LD Cap (in the case of one Unit) or the Aggregate Delay LD Cap (in the case of both Units), then Seller shall, within seven (7) Business Days after the Cap Date, establish and fund (in cash) an escrow with an A-rated bank (the "DLD Escrow") in an 18 initial amount equal to the gross amount of accrued Delay LDs, plus interest accrued at the Default Rate less offsets of Capacity Charges accrued as of the date the DLD Escrow is funded. If and to the extent Seller fails to establish and/or fully fund the DLD Escrow, the Buyer may draw on the Seller Guarantees for the amount of Delay LDs (plus interest accrued thereon at the Default Rate) not paid or placed in escrow as required by this Section 3.3.5. Upon the Commercial Operations Date, Seller shall be entitled to withdraw from the DLD Escrow an amount equal to the Capacity Charges that accrued from and after the date the DLD Escrow was funded up to and including the Commercial Operations Date. Seller may make subsequent withdrawals each month in an amount equal to such month's Capacity Charges that would be due from Buyer but for offsets pursuant to Section 3.3 until the principal balance in the DLD Escrow is zero. Upon the closing of the account by Seller, Seller shall pay to Buyer an amount equal to the interest that would have been earned on such account at the Default Rate of interest and any funds remaining in the account shall exclusively belong to Seller. At no time shall Buyer be entitled to receive the funds in the account. 3.3.6 Extended COD Delays. If the Commercial Operations Date ------------------- for a Unit has not occurred on or before the date that is 120 days after the Target COD (as extended day-for-day for a Force Majeure Event) (the "Four Month Date"), then the applicable Capacity Rate shall be reduced (the "Capacity Rate Reduction") by an amount equal to $.01 KW-month multiplied by a fraction, the numerator of which is the number of days from the Four Month Date to the Commercial Operations Date and the denominator of which is thirty (30) days. The Capacity Rate Reduction shall take effect beginning with the later to occur of (i) June 1 of the second Contract Year and (ii) the Commercial Operations Date, and continue for the remainder of the Term. 3.3.7 Termination for Extended Delay. Buyer may terminate this ------------------------------ Agreement with regard to a Unit if the Commercial Operations Date for such Unit is not achieved by June 1, 2002, except to the extent such delay is caused by a Force Majeure Event, in which case such termination date shall be extended by the Force Majeure Period, but in no event beyond June 1, 2003 (provided, however, that Buyer may terminate this Agreement following -------- ------- a Force Majeure Period lasting twelve months or more, unless Seller closes on financing for the Facility by May 31, 2002). If this Agreement is terminated with regard to a Unit(s) pursuant to this Section 3.3.7 for failure to achieve the Commercial Operations Date by June 1, 2002, (i) Buyer's sole remedy for damages and Seller's sole liability for damages shall be for Buyer to offset Delay LDs against Capacity Charges accrued and not paid to Seller prior to termination and to receive the Default Rate of interest on Delay LDs accrued in excess of Capacity Charges due at any given time until such Delay LDs are received by Buyer through offsets against Capacity Charges and (ii) Seller shall have no obligation to pay Delay LDs accrued during any Commercial Operations Delay Period except as an offset against Capacity Charges due from Buyer. If this Agreement is terminated pursuant to this Section 3.3.7, neither Party shall have any liability to the other Party whatsoever (including liability for previously accrued Delay LDs or Capacity Charges, but excluding liability in respect of Delay Book Out Charges and interest accrued on the DLD Escrow at the Default Rate). 19 3.4 Commissioning and Test Power. Seller anticipates that prior to ---------------------------- its Commercial Operations Date each Unit will require between 50-100 hours for Commissioning purposes during which Seller will generate Pre COD Test Energy. Buyer shall purchase all Pre COD Test Energy at Pre COD Test Energy Rates as provided in Section 7.2.4. Seller will provide a test schedule prior to each test, and Buyer will advise Seller its estimate of Prevailing Market Prices for Pre COD Test Energy prior to the scheduled start of the testing. Seller shall have no right to sell the Pre COD Test Energy to third parties. 4. Electric Energy Delivery, Dispatch and Forced Outages Delivery of ----------------------------------------------------------------- Electric Energy. Subject to the terms and conditions of this Agreement, Seller - --------------- shall sell, make available and deliver at the Point of Delivery and Buyer shall receive and purchase from Seller at the Point of Delivery, Electric Energy as Dispatched by Buyer. Consistent with the terms of this Agreement, Electric Energy shall be generated and delivered from the Facility and may include Incremental Energy. 4.1.1 Operation in Accordance with Buyer Dispatch. Buyer shall ------------------------------------------- not be obligated to receive or purchase any Electric Energy from Seller except (a) such Electric Energy as is Dispatched by Buyer and (b) Test Energy. Seller shall not operate either Unit except in response to a Dispatch order from Buyer other than (i) for testing purposes prior to the Commercial Operations Date pursuant to Section 3.4, (ii) for testing purposes after the Commercial Operations Date scheduled in accordance with Section 8.1, or in connection with a Scheduled Maintenance Outage, Forced Derating or Forced Outage or to analyze performance of a Unit or its components; (iii) for Seller's rights to sell to third parties pursuant to Section 13.3.2 or (iv) pursuant to instructions from the Interconnected Utility in accordance with Section 6.6.2 and the Interconnection Agreement. Notwithstanding the above, when a Unit is operating, Seller or its Affiliates may consume electric energy from that Unit for Start-Up of the other Unit of the Facility or other units at the Elwood Station, subject to a credit for the value of such electric energy as set forth in Section 5.1. Seller shall not sell Electric Energy or Capacity to any Person other than (a) Buyer, (b) Interconnected Utility pursuant to the requirements of the Interconnection Agreement, or (c) third parties as permitted under Section 13.3.2. 4.1.2 Quality of Electric Energy. All Electric Energy shall be -------------------------- measured by the Revenue Meter and shall meet the specifications of the Interconnected Utility. In the event that electricity delivered by Seller hereunder fails to conform to the specifications of the Interconnected Utility, Seller shall (as soon as reasonably practicable after becoming aware thereof) notify Buyer of the same and of its best good faith estimate of the duration and extent of such failure to conform, and Seller shall attempt to cure such failure as soon as reasonably practicable thereafter. If Seller is unable to deliver electricity to Buyer in accordance with the terms of this Agreement due to such failure to conform to such specifications, such inability to deliver shall be considered a Forced Outage. 4.2 Point of Sale. The point where sale of Electric Energy and ------------- Replacement Power will take place and title to and risk of loss with respect to, such Electric Energy and 20 Replacement Power shall transfer is at the Point of Delivery for Electric Energy and the Replacement Power Delivery Point for Replacement Power. Buyer shall be responsible for any transmission beyond the Point of Delivery or the Replacement Power Delivery Point, as applicable. 4.3 Dispatch Rights of Buyer. ------------------------ 4.3.1 Buyer Dispatch. Beginning on the earlier of the -------------- Commercial Operations Date and the Target COD and provided that Buyer complies with the mandatory notification obligations in Section 4.3.2, Buyer may Dispatch the delivery of Electric Energy and Replacement Power (if applicable) in accordance with the provisions set forth in this Agreement up to the total Net Dependable Capacity of the Units and may Dispatch Incremental Energy as provided in Section 4.4; provided, however, -------- ------- Buyer agrees that Seller may, at its sole discretion but also subject to Prudent Industry Practices, operate any combination of Units 5 and 6 (including overfiring of a Unit to compensate for what would otherwise be a Forced Derating on another Unit), or, during a Cover Period may deliver Replacement Power through other sources (including the Elwood III Units as permitted by the agreement between the owner of the Elwood III Units and the Buyer thereunder) or cause to be delivered Substitute Power to meet Buyer's Dispatch under this Agreement. Notwithstanding the above, except to the extent Seller has notified Buyer that Seller has arranged for delivery of Replacement Power consistent with the terms of this Agreement, Seller shall be obligated to comply with any Dispatch order issued by Buyer except: (1) during any Scheduled Maintenance Outage or Compressor Wash or (2) to the extent that a Force Majeure Event causes a reduction in the level of the Facility's Available Capacity. Failures by Seller to comply with Buyer's Dispatch orders shall be subject to the provisions of Appendix E for calculation of the Equivalent Availability. 4.3.2 Dispatch Notifications ---------------------- 4.3.2.1 Day Ahead Schedule Notification. Buyer shall provide to ------------------------------- Seller, by no later than 0900 Central Time each day, Buyer's schedule for Dispatch for each hour of the following day (such schedule, the "Day Ahead Schedule"). Buyer may subsequently alter its Dispatch schedule set forth in the Day Ahead Schedule in accordance with Section 4.3.2.3 during Summer Period On-Peak Hours and Section 4.3.2.4 for all other hours. 4.3.2.1 Facility Availability Notification. Seller shall, by ---------------------------------- noon Central Time each day, inform Buyer of the estimated Capacity (taking into account the effect of any expected deratings) that will be available to Buyer for the following three (3) days. These estimates shall not be binding upon Seller and Seller may subsequently alter its estimates. Seller shall advise Buyer of any changes in its estimated Capacity as soon as practicable. 4.3.2.3 Mandatory Notification Obligation-Summer On Peak Hours. ------------------------------------------------------ Buyer must provide Seller its Dispatch request and such request must be 21 confirmed by Seller's operator, for any Summer On Peak Hours a minimum of one hour and twenty five (25) minutes prior to the Requested Load Delivery Time of one or both Units, and if Buyer is also dispatching one or both of the Elwood III Units, one hour and thirty five (35) minutes prior to the Requested Load Delivery Time for all Units Dispatched (including Elwood III Units). Units will be started in accordance with the procedure described in Appendix A. Units will ramp to the requested Dispatch level in accordance with the provisions of Appendix A. Seller shall use reasonable commercial efforts to change Dispatch levels at the request of Buyer while a Unit is running. Buyer must provide one hour's notice, confirmed by Seller's operator, to stop Dispatch (reduce Electric Energy to zero) or to change a Dispatch order during the Summer On Peak Hours. Seller shall not be obligated to comply with any Dispatch order issued for generation during Summer On Peak Hours unless issued with the minimum notice required by this Section, but shall use commercially reasonable efforts to do so. Notwithstanding the above, however, any failure to comply with a non- complying Dispatch order between the time of issuance of Buyer's Dispatch order and the expiration of the applicable mandatory notification period for such Dispatch order shall not be taken into account for calculation of the Availability Adjustment. For example, if Buyer's Dispatch order for one Unit was given 75 minutes prior to the Requested Load Delivery Time of 1200 and Seller delivers Electric Energy at the requested load by 1210 such delay beyond the Requested Load Delivery Time shall not be taken into account in calculation of an Availability Adjustment; however, deliveries after 1210 shall be taken into account for calculation of the Availability Adjustment. 4.3.2.4 Mandatory Notification Obligation-Non-Summer Period and ------------------------------------------------------- Summer Off Peak Hours. Buyer must provide Seller its Day Ahead --------------------- Schedule request for Dispatch for any Non-Summer Period and for all Summer Off Peak Hours in accordance with Section 4.3.2.1 above; provided, however, that (a) during the month of September, such Day -------- ------- Ahead Schedule shall not become binding until five (5) hours prior to the scheduled time for a Dispatched Start Up. If Buyer requests to change the Day Ahead Schedule after 0900 on the day covered by such schedule (i.e. the day after the day of its issuance), and if the Unit is on turning gear, Buyer may provide as little as three hours notice prior to its changed Requested Load Delivery Time, with details of the changes to the schedule. Within thirty minutes of Seller's receipt of such notice, Seller shall quote the fee pursuant to Section 7.2.5 in which Seller shall provide Buyer with an expected time at which Seller can achieve the generation level requested by Buyer in its Dispatch order. For the Electric Energy to be delivered between the time of issuance of Buyer's Dispatch order and the expiration of the applicable mandatory notification period for such Dispatch order, Seller shall not be obligated to comply with any Dispatch order issued for generation during the Non-Summer Period or during Summer Off Peak Hours unless either (a) such notice was issued with the minimum notice required by this Section, or (b) Buyer accepts the surcharge above the Base Fuel Charge or a fixed change fee as 22 applicable quoted by Seller pursuant to Section 7.2.5. Immediately upon receipt of Seller's quoted surcharge, Buyer shall either accept such surcharge or the Day Ahead Schedule will remain unchanged. If Buyer accepts such surcharge, Seller shall comply with the revised Dispatch schedule. Notwithstanding the above, however, Buyer must provide one hour's notice to stop Dispatch (reduce Electric Energy to zero). 4.3.2.5 Cancellation of Start Up. If Buyer requests Seller to ------------------------ cancel a scheduled Start Up with less than the applicable mandatory notification period (required pursuant to Section 4.3.2 remaining prior to the scheduled Start Up, Seller shall use reasonable commercial efforts to stop or modify its Start Up of the applicable Units and Buyer shall be obligated to pay all of Seller 's reasonable documented out of pocket costs incurred, if any (other than fuel related costs covered in Section 7.2.5) as a result of such cancellation. In addition, if Seller has begun the Start Up Sequence during Summer On Peak Hours or has put the Unit on turning gear during any other hours prior to receipt of Buyer's cancellation request, Buyer shall pay to Seller the Start Up Charge for such Unit. 4.3.2.6 Communications. The Parties have developed mutually -------------- acceptable procedures for communications between Seller's control room and Buyer's Dispatcher included herewith as Appendix C-Dispatch Communications Guidelines to this Agreement and the Parties shall develop mutually acceptable associated reporting forms for such communications to be appended to this Agreement as Appendix D- Reporting Forms. 4.3.2.7 Remote Monitoring. Seller shall furnish data ----------------- communication ports on its control system(s), the Revenue Meters, and the Station Fuel Meter such that Buyer may remotely monitor (read only) selected meter and operating data for the Facility and the Elwood III Units. Buyer shall be responsible for all data communication equipment from the data communications port interface to the point of remote monitoring, including the cost of equipment purchase, installation, operations, maintenance and upkeep. Seller shall furnish or shall cause to be furnished in a timely fashion the necessary interface protocol requirements and specifications of its control system and metering equipment such that Buyer may specify its compatible equipment. Seller shall have the right and opportunity to review and approve the specification of the first interface and protective devices of the Buyer to assure that such devices are compatible with and shall not interfere with Seller's control system(s) and metering equipment, and such approval shall not be unreasonably withheld. The data to be sampled, transmitted, and monitored shall include everything that is essential to Buyer's Dispatch. Such data shall include, but may not be necessarily limited to, the meter outputs and process control system data points set forth in Appendix K, which Seller shall use commercially reasonable efforts to make available to Buyer at Seller's data communications ports on its control system(s), the Revenue Meters, and the Station Fuel Meter. 23 4.4 Incremental Energy. The Facility may through limited over-firing ------------------ of the Units, have a generation capability that is higher than Net Dependable Capacity of up to approximately five (5) MW per Unit higher than its Net Dependable Capacity. "Incremental Energy" means Electric Energy generated through limited over-firing of the Units (as installed as of the Commercial Operations Date). Buyer may Dispatch Incremental Energy if and to the extent available in an amount of up to 250 hours per Contract Year in accordance with this Section 4.4, if and to the extent that Seller is not generating Incremental Energy to offset a Forced Derating. Buyer shall not be obligated to purchase Incremental Energy at the Incremental Energy Rate to the extent generated by Seller to offset a Forced Derating. 4.5 Forced Outages -------------- 4.5.1 First Outage Notice. Seller must notify Buyer within ------------------- fifteen (15) minutes (the "First Outage Notice") after discovering that a Unit(s) is (a) unable to deliver all or part of the Electric Energy required during a Dispatch schedule or (b) unavailable for future Dispatch schedules. In such notice Seller shall provide its best estimate of the duration of the Forced Outage or Forced Derating. Within fifteen (15) minutes (but not less than ten (10) minutes) of receipt of such notice, Buyer shall provide to Seller a quote, (such price, the "Outage Book Out Charge") for the remainder of the day of such notice. 4.5.2 Seller Election. Immediately upon receipt of Buyer's --------------- Outage Book Out Charge, Seller must elect at its sole option, to either: 4.5.2.1 provide Replacement Power on its own behalf as soon as commercially practicable but not later than beginning at the top of the next hour (unless commercial practices permit earlier delivery); or 4.5.2.2 accept Buyer's quoted Outage Book Out Charge; if Seller elects this option then Seller shall pay the quoted and accepted Outage Book Out Charge and upon such payment, Seller shall be released from any further obligation or liability (including Availability Adjustment) associated with the applicable Dispatch order for the remainder of the day covered by such Outage Book Out Charge. 4.5.2.3 Seller's election pursuant to Section 4.5.2 will remain in effect until the earliest to occur of (a) the expiration of Buyer's anticipated Dispatch schedule in effect for that day, (b) the end of the Forced Outage or Forced Derating, or (c) the end of the day of such notice. 4.5.3 Second Outage Notice. As soon as practicable, but by no -------------------- later than two (2) hours after the start of the Forced Outage or Forced Derating (the "Second Outage Notice"), Seller must notify Buyer of (a) the cause of the Forced Outage or Forced Derating, if known, (b) the proposed corrective action, and (c) Seller's best 24 estimate of the expected duration of the Forced Outage or Forced Derating period. Seller shall in such Second Outage Notice elect to either: 4.5.3.1 provide Replacement Power on its own behalf; or 4.5.3.2 request Buyer to procure Substitute Power in accordance with Section 4.7.3. 4.5.3.3 Seller's election under this Section 4.5.3 shall become effective beginning at 0001 on the next day, and will remain in effect until the earlier to occur of: (a) the end of the Forced Outage or Forced Derating or (b) 2300 on the third Business Day after the day on which the Forced Outage or Forced Derating began (the "Diagnostic Period"). 4.5.4 Consequences for Availability Adjustment. If Seller ---------------------------------------- fails to timely notify Buyer if its election under Section 4.5.2, or its Outage Election or fails to deliver or cause to be delivered either Replacement Power or Substitute Power, such incident shall be included as a Forced Outage or Forced Derating (as applicable) for purposes of the calculation of the Availability Adjustment. 4.5.5 Incidents Longer than Diagnostic Period. If Seller --------------------------------------- determines that the incident is expected to extend beyond the Diagnostic Period, then , Seller shall (as soon as practicable but no later than the expiration of the Diagnostic Period) make an Outage Election applicable to the remainder of the incident. 4.5.6 Resumption of Delivery. ---------------------- 4.5.6.1 From the Facility. Seller may resume delivery of ----------------- Electric Energy from the Unit(s) as soon as the Units can produce Electric Energy (if it can be scheduled by Buyer on such short notice). Otherwise, Seller's election under Sections 4.5.2, as applicable above shall take effect no sooner than the top of the next hour provided Seller notifies Buyer 45 minutes in advance of such delivery (for example, if the incident occurs at 0810, Seller's provision of Replacement Power may begin at 0900, avoiding Availability Adjustments as of 0900 but subject to an Availability Adjustment for the period between 0810 and 0900). Seller shall incur an Availability Adjustment only in the event that the incident meets the definition of Forced Outage or Forced Derating and Seller fails to deliver or cause to be delivered Replacement Power or Substitute Power. If Seller is able to resume delivery of Electric Energy before any Outage Election is made, Seller may do so immediately without waiting until the top of the next hour (if it can be scheduled by Buyer on such short notice). 4.5.6.2 When Substitute Power is Procured. If Seller is able to --------------------------------- resume delivery of Electric Energy from the Unit(s) prior to the expiration of any arrangements (entered into based on Seller's instructions) where Buyer is procuring Substitute Power at Seller's direction in accordance with Section 4.7.3 25 then, at Seller's direction, Buyer shall use commercially reasonable efforts to liquidate or unwind the Substitute Power arrangements at Prevailing Market Prices and any gain or loss realized by Buyer will be for the Seller's own account. 4.5.6.3 During an Outage Book Out. If Seller is able to resume ------------------------- delivery of Electric Energy during a period for which Seller has paid or agreed to pay an Outage Book Out Charge, Seller may resume operation of the applicable Unit(s) or portions thereof and Buyer will market the Electric Energy and pay to Seller 50% of the Gross Margin associated with such transaction plus the Facility Electric Energy Rate, if the Prevailing Market Price less Transaction Costs exceeds the Facility Electric Energy Rate. 4.5.7 Minimization of Outages. Consistent with Prudent ----------------------- Industry Practices, Seller shall use reasonable efforts to avoid Forced Outages and Forced Deratings and to minimize the length of any Forced Outages and Forced Deratings. 4.5.8 Information Related to Outages. In addition to the ------------------------------ foregoing, Seller shall provide to Buyer information relating to outages of Capacity at the Units which could affect Seller's ability to deliver Electric Energy from such Units. 4.6 Access to Facility. Seller authorizes Buyer and its authorized ------------------ agents, employees and inspectors to have access to the Facility, upon reasonable prior notice (in light of the circumstances) and subject to the safety rules and regulations of Seller, solely for the purpose of reading, testing, and maintaining metering equipment, or examining, repairing or removing any of Buyer's property. 26 4.7 Delivery of Replacement Power and Substitute Power -------------------------------------------------- 4.7.1 Replacement Power. All Replacement Power must be ----------------- delivered in accordance with the following: 4.7.1.1 Buyer shall issue Dispatch instructions to schedule Replacement Power not in excess of the Net Dependable Capacity for delivery at each hour, and Seller shall, at its expense, deliver or cause to be delivered, all scheduled Replacement Power to the Replacement Power Delivery Point. 4.7.1.1 Buyer shall pay Capacity Charges for all such scheduled and delivered Replacement Power in accordance with Section 7. 4.7.2 Pre-Commercial Operations Failure to Deliver. If Seller -------------------------------------------- fails to deliver or fails to cause to be delivered all or any part of any Replacement Power or Substitute Power scheduled for delivery prior to the Commercial Operations Date, Seller shall pay to Buyer within ten (10) days of receipt of an invoice therefor an amount equal to Buyer's actual, reasonable documented direct damages incurred for the cost of cover as a result of such failure to deliver Replacement Power or Substitute Power. At the end of each month during the Commercial Operations Delay Period, Buyer shall invoice Seller for such cost of cover if any incurred during such month, and Seller shall pay such amount within ten (10) days of Buyer's invoice therefor, and if Seller fails to timely pay such amount, Buyer may draw on the Seller Guarantees for such amount. 4.7.3 Substitute Power. Any request by Seller that Buyer ---------------- procure Substitute Power shall be in accordance with the following: 4.7.3.1 Seller shall request Buyer to obtain quotes for Substitute Power on Seller's behalf at Prevailing Market Prices, which instructions shall include information as to whether such Substitute Power shall be obtained on a block or hourly basis. 4.7.3.2 Buyer shall use commercially reasonable efforts to obtain such Substitute Power at Prevailing Market Prices. 4.7.3.3 Subject to Section 4.7.4 at the end of each month, in conjunction with regular billings, if Substitute Power arranged by Buyer is not delivered, Buyer shall pay or credit to Seller any cost of cover damages Buyer receives from the entity that is the source of such Substitute Power. 4.7.4 Post Commercial Operations Failure to Deliver. If there --------------------------------------------- is a failure to deliver energy to Buyer under any Substitute Power or Replacement Power arrangement by the entity that is the source of such Replacement Power or Substitute Power, then for the period of the failure until the applicable Unit(s) are able to resume 27 operation in accordance with Buyer's Dispatch Seller shall pay to Buyer the greater of (i) the cost of cover damages ("or market LDs") Seller actually receives from such entity under the Replacement Power arrangement (or the amounts received by Buyer for Substitute Power pursuant to Section 4.7.3.3, (in either case "Third Party Damages") or (ii) the amount of any Availability Adjustment due as a result of such failure, if any. 4.7.5 Characteristics of Replacement and Substitute Power. When --------------------------------------------------- Seller is delivering Replacement Power to Buyer, Seller shall be obligated to deliver the amount of energy (at no cost to Seller, except to the extent required to deliver Replacement Power to the Replacement Power Delivery Point) scheduled by Buyer, up to the level necessary to comply with Buyer's Dispatch order (taking into account Electric Energy still being delivered by Seller during a Forced Derating) along with associated Ancillary Services in accordance with Section 9. Seller shall make appropriate power purchase and transmission arrangements to the Replacement Power Delivery Point to provide energy to Buyer which is of the same level of firmness ------- (e.g. if unit contingent, an availability comparable to that of the Facility) or higher level of firmness (e.g., system firm, firm with liquidated damages, or as firm as utility native load) as the Net Dependable Capacity hereunder. Substitute Power procured by Buyer may be of a lower level of firmness. 4.8 Emergency Conditions. During an Emergency condition, Seller may -------------------- increase, reduce, curtail or interrupt electrical generation at the Facility in accordance with Prudent Industry Practice or take other appropriate action in accordance with the applicable provisions of the Interconnection Agreement which in the reasonable judgment of the Interconnected Utility may be necessary to operate, maintain and protect the Interconnected Utility System or the transmission system of another Person during an Emergency Condition or in the reasonable judgment of Seller may be necessary to operate, maintain and protect the Facility during an Emergency Condition. 5. Metering; Billing; Payment -------------------------- 5.1 Metering Electricity. All Electric Energy delivered by Seller to -------------------- Buyer from the Facility under this Agreement shall be metered by the Revenue Meters and the readings therefrom, including calculated transformer and transmission line losses between the Revenue Meters and the Point of Delivery, shall be made in accordance with Prudent Industry Practice consistently applied. All Replacement Power and Substitute Power delivered to Buyer from facilities inside the Interconnected Utility System, shall be metered by the Interconnected Utility. For all Replacement Power and Substitute Power from sources outside the Interconnected Utility System, the delivered amount shall be the amount scheduled as delivered to the Interconnected Utility System by the system delivering such Replacement Power or Substitute Power into the Interconnected Utility System. The Energy Charge for which Buyer will be billed for Electric Energy also will be net of an adjustment for the value of the amount of electricity consumed by other non-operating Units at the Facility (or the Elwood III Units) during the billing period ("Non-Billable Generation") to yield the "billable generation" for the billing period. To establish the value of kilowatt hours of electricity provided by the Facility and consumed by the Elwood III Units for a billing period, the total for each billing period of electricity consumed by each 28 Unit or unit will be determined from the individual Unit or unit meter readings using the Facility's Revenue Meter(s) (for the Units) and similar meters for the Elwood III Units which will then be summed for (both) Units and the Elwood III Units. Samples of such calculations are set forth in Appendix G. 5.1.1 Fuel. Billings for the fuel component of the Energy Rate ---- shall be based on the Actual Heat Rate and the total consumption of gas as measured by the total Station Fuel Meter as prorated to Units 5 and 6 and the Elwood III Units based upon the Individual Fuel Meters, except where Replacement Power and Substitute Power is applicable, in which case the fuel component of the Energy Rate shall be derived in accordance with Section 7.2. Billings for the Variable O&M Rate component of the Energy Charge shall be derived from Revenue Meter information or, in the event Section 5.1.4 below is applicable, the best available data. 5.1.2 Meter Testing. The Revenue Meters shall be tested by the ------------- Parties at least once each year at Seller's expense and at any other reasonable time upon request by either Party, at the requesting Party's expense; provided, however, Buyer shall have no obligation to pay for any such test if such test results in a recalibration of meters. Seller shall give Buyer at least fourteen (14) days notice of any testing of the Revenue Meters, Station Fuel Meters, and Individual Fuel Meters and Buyer shall have the right to be present during all testing and shall be furnished all testing results on a timely basis. 5.1.3 Inaccurate Meters. If testing of the Revenue Meters ------------------ indicates that an inaccuracy of more than +/-.5% in measurement of Electric Energy has occurred, the affected Revenue Meter shall be recalibrated promptly to register accurately within the Revenue Meter manufacturer stated tolerances. Each Party shall comply with any reasonable request of the other concerning the sealing of meters, the presence of a representative of the other Party when the seals are broken and the tests are made, and other matters affecting the accuracy of the measurement of Electric Energy. If either Party believes that there has been a meter failure or stoppage, it shall immediately notify the other Party. 5.1.4 Failed Meters. If, for any reason, any Revenue Meter is ------------- out of service or out of repair so that the amount of Electric Energy delivered cannot be ascertained or computed from the readings thereof, the Electric Energy delivered during the period of such outage shall be estimated and agreed upon by the Parties hereto upon the basis of the best data available, and any failure to agree shall be subject to resolution in accordance with Section 11. 5.1.5 Examination of Records. Each Party (and its ---------------------- representative(s)) has the right, at its sole expense, upon reasonable notice and during normal working hours, to have an independent third party examine the records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, charge or computation relating to the output of Electric Energy. If requested, a Party shall provide to the other 29 Party statements evidencing the amounts of Electric Energy delivered at the Point of Delivery. 5.2 Adjustment for Inaccurate Meters. If a Revenue Meter fails to -------------------------------- register, or if the measurement made by a Revenue Meter is found upon testing to be inaccurate by more than or less than one half of one percent (.5%), an adjustment shall be made correcting all measurements by the inaccurate or defective Revenue Meter for both the amount of the inaccuracy and the period of inaccuracy, in the following manner: 5.2.1 As may be agreed upon by the Parties, or 5.2.2 In the event that the Parties cannot agree on the amount of the adjustment necessary to correct the measurements made by any inaccurate or defective Revenue Meter, the Parties shall use Seller's backup metering, if installed, to determine the amount of such inaccuracy; provided, however, that Seller's backup metering has been tested and -------- ------- maintained in accordance with the provisions of this Section 5.2.2. In the event that Seller's backup metering also is found to be inaccurate by more than the allowable limits set forth in this Section 5.2.2, the Parties shall mutually agree to estimate the amount of the necessary adjustment on the basis of deliveries of Capacity and Electric Energy during periods of similar operating conditions when the Revenue Meter was registering accurately. 5.2.3 In the event that the Parties cannot agree on the actual period during which the Revenue Meter(s) made inaccurate measurements, the period during which the measurements are to be adjusted shall be the shorter of (i) the last one-half of the period from the last previous test of the Revenue Meter to the test that found the Revenue Meter to be defective or inaccurate, or (ii) the one hundred eighty (180) days immediately preceding the test that found the Revenue Meter to be defective or inaccurate. 5.2.4 To the extent that the adjustment period covers a period of deliveries for which payment has already been made by Buyer, Seller shall use the corrected measurements as determined in accordance with Sections 5.2.1, 5.2.2, or 5.2.3 hereof to recompute the amount due for the period of inaccuracy and shall subtract the previous payments by Buyer for this period from such recomputed amount. If the difference is a positive number, the difference shall be paid by Buyer to Seller; if the difference is a negative number, that difference shall be paid by Seller to Buyer in the form of an offset to payments due Seller by Buyer hereunder. Adjustment of such difference by the owing Party shall be made not later than thirty (30) days after the owing Party receives notice of the amount due, unless Buyer elects payment via an offset. 5.3 Billing. Within ten (10) days after the last day of each month ------- during the Term, Seller shall render a statement to Buyer for the amounts due in respect of such month under Section 7, which statement shall contain reasonable detail showing the manner in which the applicable charges were determined. 30 5.4 Payments. The amount due to Seller as shown on any monthly -------- statement rendered by Seller pursuant to Section 5.3 shall be paid by Buyer by electronic wire transfer to an account specified by Seller within ten (10) days after the date such statement is received by Buyer. Any amount not paid by Buyer when due shall bear interest at the Default Rate from the date that the payment was due until the date payment by Buyer is made. 5.5 Offsets. Amounts due to Buyer as a result of late Commercial ------- Operations Date pursuant to Section 3.3 or amounts due to Buyer pursuant to Section 7 shall be offset against current and future payments due from Buyer with interest accrued daily at the Default Rate until fully offset or paid. 5.6 Billing Disputes. ----------------- 5.6.1 If a Party questions or contests any amount claimed by the other Party to be due under Section 7, the Party obligated to pay shall pay the entire invoiced amount including the disputed portion (except obvious typographical or administrative errors). 5.6.2 In the event that either Party, by timely notice to the invoicing Party, questions or contests the correctness of any charge or payment claimed to be due by the invoicing Party, the invoicing Party shall promptly review the questioned charge or payment and shall notify the invoiced Party, within fifteen (15) Business Days following receipt by the invoicing Party of such notice , of the amount of any error and the amount of any reimbursement that the invoiced Party is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen (15) Business Days after the invoicing Party's receipt of notice from the invoiced Party shall be resolved in accordance with Section 11. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by the invoicing Party to the invoiced Party. 5.6.3 Reimbursements made under this Section 5.6 shall include interest at the Default Rate from the date the original payment was made until the date of such reimbursement. 6. Operation and Maintenance of the Facility ----------------------------------------- 6.1 Standard of Operation --------------------- 6.1.1 Operation and Maintenance. Seller shall manage, control, ------------------------- operate and maintain the Facility in a manner consistent with Prudent Industry Practice, in accordance with (a) the practices, methods, acts, guidelines, standards and criteria of MAIN, NERC, the ISO and any successors to the functions thereof; (b) the requirements of the Interconnection Agreement; and (c) all applicable Requirements of Law and (d) permits taking into account Buyer's Dispatch rights under this Agreement. 31 6.1.2 Fuel Arrangements. Seller shall obtain and maintain fuel ----------------- supply and transportation arrangements in a manner consistent with Prudent Industry Practice, taking into account Buyer's Dispatch rights under this Agreement. 6.1.3 Insurance. Seller shall obtain and maintain appropriate --------- insurance coverages typical for plants similar to the Facility, in accordance with Prudent Industry Practice. 6.2 Permits and Licenses. Seller will obtain and maintain all -------------------- certifications, permits, licenses and approvals necessary to operate and maintain the Facility and to perform its obligations under this Agreement during the Term. 6.3 Sole Remedy. Buyer's sole and exclusive remedy (other than ----------- specific performance) and Seller's sole and exclusive liability for breach of Section 6.1 shall be the Availability Adjustment and the termination rights provided in Section 13.4. 6.4 Scheduled Maintenance. No later than March 1, 2001, Seller shall --------------------- submit to Buyer a proposed schedule of Scheduled Maintenance Outages scheduled by Seller for the following Contract Year for the Units, which schedule shall be updated by Seller by each March 31 and September 30 thereafter to cover the twelve month period following each such update; provided, however, that no Scheduled Maintenance Outage may be scheduled to cover the period from May 15 to September 15. Parameters within which Scheduled Maintenance Outages must be planned are included as Appendix I. If the OEM issues recommendations for changes to the parameters in Appendix I, the parties shall negotiate in good faith to revise Appendix I accordingly. Such schedule, and each supplement thereto, shall indicate the planned start and completion dates for each Scheduled Maintenance Outage during the period covered thereby and the amount of the Net Dependable Capacity of a Unit that will be affected. Within thirty (30) days of receipt of such schedule or any supplement thereto, Buyer may request reasonable modifications in the Scheduled Maintenance Outage schedule contained therein. Both parties agree to use reasonable efforts to develop a mutually acceptable final schedule for such Scheduled Maintenance Outages. If within six months prior to the scheduled start of a Scheduled Maintenance Outage, Buyer desires to change the scheduled start or duration of such Scheduled Maintenance Outage, Buyer shall notify Seller of Buyer's requested change and Seller shall use reasonable efforts to accommodate Buyer's requested change. Seller may propose compensation from Buyer to Seller for such change. Buyer shall then have the right to either direct such change and pay Seller such compensation, or withdraw the request for such change. At least one week prior to any Scheduled Maintenance Outage, Seller shall orally notify Buyer of the expected start date of such Scheduled Maintenance Outage, the amount of Capacity at the Units that will not be available to Buyer during such Scheduled Maintenance Outage, and the expected completion date of such Scheduled Maintenance Outage. Seller shall orally notify Buyer of any subsequent changes in such Capacity not available or any subsequent changes in the Scheduled Maintenance Outage completion date. As soon as practicable, all such oral notifications shall be confirmed in writing. Scheduled Maintenance Outages may be 32 taken in any number of non-contiguous periods, subject to Buyer's approval, which shall not be unreasonably withheld or delayed. Subject to the foregoing, the duration, frequency and timing of Scheduled Maintenance Outages shall be based on OEM recommendations and the age and operation of the Units generally plus up to five (5) days per Unit on a semi-annual basis for Non-Summer Period balance of plant maintenance. 6.5 Compressor Wash. Buyer shall permit Seller to shut down each Unit --------------- (either at the same time or at different times) for a compressor wash, (the "Compressor Wash") at a mutually agreeable time that is not during On-Peak Hours, approximately once per month in the Summer Period. Such Compressor Wash requires that the Unit be off-line for an eighteen (18) hour cool down period prior to the start of such Compressor Wash. Seller agrees that at any time during such cool down period, Buyer may interrupt such cool down, Dispatch the Unit on-line and cause Seller to reschedule the cool down and Compressor Wash for the next mutually agreeable time. Buyer agrees that once the actual Compressor Wash begins, the Compressor Wash must be completed without interruption and that Buyer cannot Dispatch the Unit on-line until such Compressor Wash is completed. 6.6 Operating Characteristics ------------------------- 6.6.1 Design Limits. The operating characteristics of the ------------- Facility shall be consistent with the Design Limits set forth in Appendix A unless otherwise mutually agreed by the Parties. Any such agreed upon change must be in writing, signed by both Parties. If the OEM provides written direction for operations that requires a change to the Design Limits, the Parties will negotiate in good faith to modify the Design Limits accordingly. 6.6.1 Interaction with Interconnected Utility System. Buyer ---------------------------------------------- understands that Seller may be required to increase, reduce, curtail or interrupt electrical generation at the Facility in accordance with Prudent Industry Practice or to take other appropriate action in accordance with the applicable provisions of the Interconnection Agreement which in the reasonable judgment of the Interconnected Utility may be necessary to operate, maintain and protect the Interconnected Utility System or the transmission system of another Person during an Emergency Condition or in the reasonable judgment of Seller may be necessary to operate, maintain and protect the Facility during an Emergency Condition. Any such curtailment shall be applied by Seller prorata across all units at the Elwood Station to the extent allowed by existing contracts (for electrical output from the Elwood Station) which terminate December 31, 2004 and in all cases shall be prorata for future power contracts. For purposes of calculating the Availability Adjustment, the Facility shall be considered Available during any such increase, reduction, curtailment, interruption or action, unless the order to increase, reduce, curtail, interrupt, or take other action with respect to generation at the Facility or the Emergency Condition is caused by a condition on Seller's side of the interconnection point between the Facility and the Interconnected Utility System. Buyer acknowledges that other conditions on the Interconnected Utility System (for example, transmission outages or 33 interruptions) may impact Seller's ability to deliver Electric Energy into the Interconnected Utility System at the Point of Delivery. For purposes of calculating the Availability Adjustment, the Facility shall be considered Available during any time that the Facility would have been actually Available but for conditions (including, for example, transmission outages or interruptions) on the Interconnected Utility System. 6.7 Records. Each Party shall keep and maintain all records as may be ------- necessary or useful in performing or verifying any calculations made pursuant to this Agreement, or in verifying such Party's performance hereunder. All such records shall be retained by each Party for at least six (6) calendar years following the calendar year in which such records were created. Each Party shall make such records available to the other Party for inspection and copying at the other Party's expense, upon reasonable notice during such Party's regular business hours. Each Party shall have the right, upon thirty days written notice prior to the end of an applicable six (6) calendar year period to request copies of such records. Each Party shall provide such copies, at the other Party's expense, within thirty (30) days of receipt of such notice or shall make such records available to the other Party in accordance with the foregoing provisions of this Section 6.7. 7. Compensation ------------ 7.1 Capacity Charge. For each month, commencing June 1, 2001 (as such --------------- date is extended for Force Majeure Events pursuant to Section 19) and each month thereafter during the Term, Buyer shall owe Capacity Charges calculated pursuant to Section 7.1.1 (subject to offsets pursuant to Section 5.5). 7.1.1 Computation. The Capacity Charge for each month shall be ----------- equal to the product of (a) the applicable Capacity Rate for such month times (b) the Net Dependable Capacity for such month, minus the Availability Adjustment, when applicable. 7.1.2 Capacity Rates. The Capacity Rate during the Term shall -------------- be: (a) $7.90 per kW per month from June 1, 2001 to December 31, 2001, and (b) $5.11 per kW per month for the remainder of the Initial Term subject in each case to a Capacity Rate Reduction. The Capacity Rate for the Extension Term shall be $4.90 per kW per month, subject to a Capacity Rate Reduction. 7.1.2 Availability Adjustment to Capacity Charge. From and ------------------------------------------ after the Commercial Operations Date, if the Facility does not achieve the Guaranteed Summer Super Peak Availability, Guaranteed Summer Partial Peak Availability or the Guaranteed Non-Summer On Peak Availability, as measured by Equivalent Availability in accordance with Appendix E, Seller shall be ---------- subject to the application of an Availability Adjustment as liquidated damages as provided in this Section 7.1.3. 34 7.1.3.1 Summer Period. For each month in the Summer Period, the ------------- Availability Adjustment shall equal the sum of (a) the Availability Adjustment for the Super Peak Hours plus (b) the greater of zero and the Availability Adjustment for the Partial Peak Hours where: (i) the Availability Adjustment for Super Peak Hours is the product of (a) the sum of the monthly Capacity Charges (before application of the Availability Adjustment) for the applicable Contract Year and (b) the applicable Monthly Adjustment Factor and (c) 75% and (d) the Guaranteed Summer Super Peak Availability less the actual Equivalent Availability for Super Peak Hours during such month; and (ii) the Availability Adjustment for Partial Peak Hours is the product of (a) the sum of the monthly Capacity Charges (before application of the Availability Adjustment) for the applicable Contract Year and (b) the applicable Monthly Adjustment Factor and (c) 25% and (d) the Guaranteed Summer Partial Peak Availability less the actual Equivalent Availability for Partial Peak Hours during such month. (iii) for purposes of the calculations in subsections (i) and (ii) above and Section 7.1.3.4 only, in the first Contract Year, the first Contract Year shall be deemed to be from June 1, 2001 through May 31, 2002. 7.1.3.2 Non-Summer Period. For the Non-Summer Period the ----------------- Availability Adjustment shall equal the Availability Adjustment for Non-Summer On Peak Hours, where: The Availability Adjustment for Non-Summer On Peak Hours is the product of (a) the sum of the monthly Capacity Charges (before application of the Availability Adjustment) for the applicable Contract Year and (b) 18% and (c) the Guaranteed Non-Summer On Peak Availability less the actual Non-Summer On Peak Availability for such Non-Summer Period. This will be calculated once per Contract Year. 7.1.3.3 Super Peak 80% or below. If the Equivalent Availability ----------------------- during Super Peak Hours in any month is less than or equal to 80%, then for purposes of calculating the Availability Adjustment during the Partial Peak Hours in the same month, the Equivalent Availability during Partial Peak Hours shall be deemed to be equal to the Equivalent Availability during Super Peak Hours for such month. 7.1.3.4 Availability Adjustment Limit. In no event shall the ----------------------------- cumulative Availability Adjustment exceed (i) in the first Contract Year, $24,000,000, (ii) in all other Contract Years, other than the final Contract Year, $18,000,000 per year and (iii) in the final Contract Year $12,000,000. 7.1.4 Capacity Bonus. -------------- 35 7.1.4.1 Applicability of Bonus. Buyer shall pay Seller a ---------------------- Capacity Bonus if both (a) the Average Summer Super Peak Availability exceeds the Guaranteed Summer Super Peak Availability and (b) the Average Summer Partial Peak Availability exceeds the Guaranteed Partial Peak Availability; provided, however, if the Summer Super Peak Availability during any Summer Period month is less than or equal to 80%, then Seller shall not be entitled to a Capacity Bonus. 7.1.4.2 Calculation of Bonus. The Capacity Bonus for each Unit -------------------- shall be equal to: [(Average Summer Super Peak Availability minus Guaranteed Summer Super Peak Availability)/.03 * maximum Capacity Bonus * .75] + [(Average Summer Partial Peak Availability minus Guaranteed Summer Partial Peak Availability)/.03 * maximum Capacity Bonus * .25]. For the first year of Commercial Operations, the maximum Capacity Bonus per Unit shall be equal to the sum of (a) (number of days of Commercial Operations in June / 30 days) * $27,500 and (b) (number of days of Commercial Operations in July / 31 days) * $48,750 and (c) (number of days of Commercial Operations in August / 31 days) * $48,750. For all other Contract Years, the maximum Capacity Bonus shall be equal to $125,000 per Unit. 7.1.4.3 Payable Monthly. The Capacity Bonus shall be divided by --------------- 12 and shall be paid over a 12 month term beginning with September of each Contract Year. 7.2 Energy Charge. Each month beginning on the earlier of the ------------- Commercial Operations Date or the Target COD and continuing for the Term, Buyer shall pay Seller an Energy Charge to the extent Seller delivers Electric Energy, Incremental Energy, Replacement Power or Test Energy. The Energy Charge for a billing month shall equal to the difference between (A) the sum of (a) the product of the total Electric Energy (in MWh) delivered to Buyer at the Point of Delivery from the Facility pursuant to Buyer's Dispatch orders, multiplied by the Facility Electric Energy Rate for each hour of such month plus (b) the product of the total Replacement Power (in MWh) provided by Seller to Buyer at the Replacement Power Delivery Point pursuant to Buyer's Dispatch orders, multiplied by the Replacement Power Energy Rate for each hour of such month adjusted for any Differential Transmission Adjustments incurred by Buyer plus (c) the product of the total Incremental Energy delivered to Buyer at the Point of Delivery pursuant to Section 4.3 multiplied by the Incremental Energy Rate for each hour of such month, plus (d) the product of the Test Energy (either Pre COD Test Energy or Post COD Test Energy, as applicable) multiplied by the applicable Test Energy Rate, minus (B) any Substitute Power Cost Credit. 7.2.1 Facility Electric Energy Rate. The Facility Electric ----------------------------- Energy Rate is calculated as (the Actual Heat Rate x Fuel Charge)/1000+ Variable O&M Rate. 7.2.2 Replacement Power Energy Rate. The Replacement Power ----------------------------- Energy Rate is calculated as (Reference Heat Rate x Fuel Charge)/1000+Variable O&M Rate. 36 7.2.3 Incremental Energy Rate. The Incremental Energy Rate is ----------------------- the sum of $100/MWh of Incremental Energy delivered to the Point of Delivery plus (a) with respect to the first 100 hours per Unit of Incremental Energy Dispatched by Buyer during any Contract Year, twenty percent (20%) of the Gross Margin resulting from such transaction, and (b) with respect to the next 150 hours per Unit of Incremental Energy Dispatched by Buyer in any Contract Year, thirty five (35%) of the Gross Margin resulting from such transaction. 7.2.4 Test Energy Rates ----------------- 7.2.4.1 Pre COD Test Energy. The Pre COD Test Energy Rate shall ------------------- be one of the following. If the Prevailing Market Price (less Transaction Costs) (expressed as $/MWh) is greater than the Facility Electric Energy Rate, the Pre COD Test Energy Rate shall be the sum of the Facility Electric Energy Rate, plus 95% of the difference between the Facility Electric Energy Rate and the Prevailing Market Price (less Transaction Costs). If the Prevailing Market Price (less Transaction Costs) is less than the Facility Electric Energy Rate, the Pre COD Test Energy Rate shall be 100% of such Prevailing Market Price less Transaction Costs, (but not including Scheduling Fees). 7.2.4.2 Post COD Test Energy. The Test Energy Rate for Post COD -------------------- Test Energy shall be equal to either (a) the Facility Electric Energy Rate with respect to a test requested by Buyer the results of which do not require any corrections or adjustments, or (b) the lesser of the Facility Electric Energy Rate or the Prevailing Market Price (less Transaction Costs) in all other circumstances. 7.2.4.3 Substitute Power Cost Credit. Substitute Power Cost ---------------------------- Credit shall be the Buyer's documented cost per MWh of Substitute Power (adjusted for any documented Differential Transmission Adjustments incurred by Buyer, if incrementally higher, or less any amounts of Differential Transmission Adjustments saved by Buyer if incrementally lower, less the Replacement Power Energy Rate multiplied by the Substitute Power (expressed in MWh) purchased by Buyer for each hour of such month. 7.2.5 Fuel Charge ----------- 7.2.5.1 Base Fuel Charge. If Buyer does not alter its Day Ahead ---------------- Schedule, the Fuel Charge for all Electric Energy delivered in accordance with such schedule shall be the Fuel Index value plus 10 cents/MMBtu. 7.2.5.2 Changes to Day Ahead Schedule for the Summer On Peak ---------------------------------------------------- Hours and in September for On Peak Hours. If Buyer makes a change(s) ---------------------------------------- to the Day Ahead Schedule for operation in Summer On Peak Hours or in the On Peak Hours in September as provided in Section 4.3.2.4, the Fuel Charge for such Electric Energy generated pursuant to such Dispatch order shall be the Fuel Index value plus 15 cents/MMBtu. 37 7.2.5.3 Changes to Day Ahead Schedule for Non-Summer Period and ------------------------------------------------------- Summer Off Peak Hours. If Buyer makes changes to the Day Ahead --------------------- Schedule for operation in the Non-Summer Period or Summer Off Peak Hours and such change requires Seller to purchase more gas than would have been purchased but for such change in the schedule, then Seller shall provide Buyer with a quoted surcharge to be added to the Base Fuel Charge, the sum of which shall be the Fuel Charge for all Electric Energy generated pursuant to such changed schedule. If such change requires Seller to liquidate any excess gas, then Seller shall provide Buyer with a quoted fixed change fee pursuant to such changed schedule. If Buyer does not accept the quoted fixed change fee, Seller will proceed with operation of the Facility in accordance with the Dispatch schedule in effect prior to the requested change. 7.2.6 Early Commercial Operations Date. If the Commercial Operations Date occurs prior to June 1, 2001 for one or both Units, Buyer shall market and sell such Electric Energy delivered to Buyer from such Unit(s) at the Prevailing Market Price therefor, if the Prevailing Market Price less Transaction Costs exceeds the Facility Electric Energy Rate and Buyer shall remit to Seller 90% of the Gross Margin on any such transaction. 7.3 Adjustment to Actual Heat Rate for Failure to Meet Guaranteed ------------------------------------------------------------- Heat Rate. --------- 7.3.1 Established by Testing. For purposes of calculating the ---------------------- Facility Electric Energy Rate, the Actual Heat Rate shall be reduced if the results of periodic tests indicate the combined Net Heat Rate of Units 5 and 6 and the Elwood III Units is greater than the Guaranteed Heat Rate under test conditions as set forth in Appendix B. The adjustment to the Actual Heat Rate shall be equal to the ratio of the Guaranteed Heat Rate divided by the Net Heat Rate, times the Actual Heat Rate. If any adjustment is necessary, the Actual Heat Rate Adjustment shall be effective retroactive to the date on which it was mutually determined that the Actual Heat Rate exceeded the Guaranteed Heat Rate and shall remain in effect until it is demonstrated by testing that the Net Heat Rate is less than the Guaranteed Heat Rate. In the event that Seller makes repairs to reduce the Net Heat Rate, the improvement shall be demonstrated by testing conducted at the expense of the Seller and the resulting adjustment to the Actual Heat Rate shall be retroactive to the date that repairs were effected. 7.3.2 Accrual of Heat Rate Credits. To the extent Net Heat ---------------------------- Rate (including the Initial Net Heat Rate) is below the Threshold Heat Rate, Seller shall accrue half of such difference as credits to be applied in the future when the Net Heat Rate exceeds the Guaranteed Heat Rate ("Heat Rate Credits"). To the extent that the Net Heat Rate (beginning with the first test of the Net Heat Rate after the determination of the Initial Net Heat Rate) is less than the Initial Net Heat Rate (after application of the Degradation Curve) all of the difference will be accrued as Heat Rate Credits. For the purposes of tracking and accrual tabulation, the Heat Rate Credits that are established by testing shall be multiplied by the Electric Energy (kWh) delivered over the same period 38 as the test results application period, and shall effectively be accrued in units of heat energy (Btus). If there is retroactive adjustment as provided for in Section 7.3.1, then the accrual tabulation of heat energy units shall be adjusted for the same period. 7.3.3 Application of Heat Rate Credits. If the Net Heat Rate -------------------------------- (including the Initial Heat Rate) exceeds the Guaranteed Heat Rate, Seller may reduce the Net Heat Rate for purposes of calculating the Actual Heat Rate Adjustment (for the period during which such Net Heat Rate is in effect) by up to 50 Btus/kWh so long as Heat Rate Credits exist. The Seller's accumulated quantity of Heat Rate Credits shall be reduced to the extent utilized to reduce the Net Heat Rate. For the purposes of tracking and application tabulation, the negative Heat Rate Credits that are established by testing shall be multiplied by the Electric Energy (kWh) delivered over the same period as the test results application period, and shall effectively become a withdrawal of heat energy units (Btus) from the accumulated units of energy per Section 7.3.2. If there is retroactive adjustment as provided for in Section 7.3.1, then the withdrawal tabulation of heat energy units shall be adjusted for the same period. 7.3.4 Cost of Heat Rate Tests. The costs (and allocation of the ----------------------- costs) of any test pursuant to this Section 7.3 are set forth in Section 8.2. 7.4 Start Up Charge. For each Start Up of a Unit pursuant to the --------------- Dispatch of such Unit by Buyer, Seller shall be entitled to a payment of $2500.00 (the "Start Up Charge") in June 1, 1999 dollars. At the beginning of each Contract Year (i.e., January 1), thereafter, the Start Up Charge shall be adjusted by the change in the GDP-IPD from the GDP-IPD value on the previous January 1 (or June 1 in the case of the first Contract Year). Seller shall pay for the gas consumed during any Failed Starts. 7.5 Imbalance Charges. Buyer shall hold Seller harmless from any ----------------- Imbalance Charges (i) that result from Buyer's Dispatch orders or other scheduling of generation under this Agreement, (ii) that are assessed against Buyer or Seller at any time when the Facility is generating Electric Energy within 1.5% of the Dispatch level directed by Buyer after achieving Start Up and has achieved the desired Dispatched load level for a period of ten (10) minutes, (iii) that are assessed for deliveries of Electric Energy during startup and shutdown, so long as Seller operates, Starts Up and shuts down the Units in accordance with this Agreement or (iv) that result from Unit trips. Buyer and Seller recognize that the Units may produce more or less energy than scheduled by Buyer. 7.6 Rates Not Subject to Review. The rates for service specified --------------------------- herein (i.e., delivery of Electric Energy, Replacement Power and Capacity) shall remain in effect for the Term, and shall not be subject to change through application to the FERC pursuant to provisions of Section 205 et seq. of the Federal Power Act, absent agreement of the Parties. 8. Performance Tests. ----------------- 39 8.1 Test Procedures. Seller must conduct a test to determine the --------------- Initial Net Heat Rate in conjunction with the final performance testing for each Unit under the contract with the EPC Contractor. Seller must conduct a test on or prior to the Commercial Operations Date to determine Net Dependable Capacity. Thereafter at least once per Contract Year, Seller must conduct a test to determine the Net Dependable Capacity and Net Heat Rate. After the Commercial Operations Date, such annual testing shall be conducted on or about June 1 of each Contract Year at a mutually agreeable time. Any test to determine the Net Dependable Capacity and Net Heat Rate shall include a period of two hours during which the Net Dependable Capacity is generated and the Electric Energy delivered to the Point of Delivery. Once a test period has been initiated, it must last for two hours unless Buyer's and Seller's authorized representatives mutually agree to a shorter duration. Testing procedures to establish the Net Dependable Capacity and Net Heat Rate from and after the Commercial Operations Date are included as Appendix B and are consistent with ASME and OEM guidelines to the extent practicable. No tests will be conducted or continued which, in the opinion of Seller, should not be conducted or continued in accordance with Prudent Industry Practice. Seller shall always have the right to perform a Compressor Wash prior to a test. If Seller prevents or discontinues a test in accordance with Prudent Industry Practice, Buyer shall have the right to require a retest upon prior notice to Seller, if the test was conducted pursuant to Buyer's request. 8.2 Buyer Right to Request Testing. Buyer shall have the right, at ------------------------------ its expense (except as provided in this Section 8.2), to require Seller to establish or reestablish the Net Dependable Capacity and Net Heat Rate on or about the Commercial Operations Date and annually thereafter pursuant to a performance test conducted at a mutually agreeable time if the Buyer reasonably believes based upon operation of the Facility over the preceding thirty (30) days that the Net Dependable Capacity as adjusted in accordance with Section 8.1 is more than 2% below the then current level of Net Dependable Capacity or the Net Heat Rate exceeds the Guaranteed Heat Rate. The first such test of a Unit (regardless of the number of Units tested in such tests) in each Contract Year shall be performed without a charge to Buyer. For the second test required by Buyer in the same Contract Year, the Buyer shall pay to Seller $5,000, for the third test, $15,000 and for the fourth test and all subsequent tests, $30,000 (regardless, in each case, of the number of Units tested in such tests). If the results of the test indicate the Net Dependable Capacity is below 2% of the current level or that Net Heat Rate exceeds the Guaranteed Heat Rate, Buyer shall not pay for the cost of the test. 8.3 Seller Right to Retest. Seller shall have the right to ---------------------- reestablish Net Dependable Capacity and Net Heat Rate pursuant to a capacity test at mutually agreeable time(s). The results of each capacity test under this Section 8.3 shall immediately determine or redetermine the Net Dependable Capacity and Net Heat Rate retroactively to the date Seller can reasonably demonstrate that it took corrective actions to improve the Net Dependable Capacity or Net Heat Rate, adjusted by reference to the curves in Appendix F to Reference Conditions. 8.4 Conditions for Testing. During any capacity testing, Seller shall ---------------------- designate a maximum level for Buyer's Dispatch during such capacity testing, which may be above the then current Net Dependable Capacity. All appropriate auxiliary equipment associated with the Facility shall be in service at the time of any test under this Section 8.3. Test data shall be 40 collected with plant instruments, except that Seller shall be allowed to substitute test instrumentation for Facility instrumentation, provided that the test instrumentation is of greater accuracy. Determination of net plant output shall be with the Revenue Meter with appropriate adjustments made for transformer and line losses. 8.5 Scheduling of Testing. Any testing requested by Seller after the --------------------- Commercial Operations Date shall either be performed during times Dispatched by Buyer to generate or at mutually agreeable times. Buyer shall be entitled to witness any such tests. 9. Ancillary Services ------------------ 9.1 Availability of Ancillary Services. Buyer shall be entitled, at ---------------------------------- no additional cost, to all Ancillary Services with respect to the Net Dependable Capacity at the Point of Delivery. Seller does not guarantee the availability of any ancillary services but does warrant that it will not remarket such services to any third party; except in the case of Buyer default under Section 13.2.1. Notwithstanding the above, Seller has the right to use Ancillary Services to meet any requirement of the Interconnected Utility System, the ISO, or their successors. 9.2 Operational Considerations. Buyer may Dispatch the Facility with -------------------------- the objective to avoid the need for energy imbalance service from a control area service provider, and to provide reactive power, load following (consistent with the scheduling), voltage control, and frequency response, provided that such services do not cause the Facility to operate outside of the Design Limits, and do not impose any additional costs or liabilities on Seller. 9.3 Future Enhancements. Seller shall provide such services, ------------------- including but not limited to automatic generation control, to the extent that Buyer agrees to be responsible for reasonable incremental costs incurred by Seller to provide such services subject to mutual agreement of the parties working in good faith to arrive at an equitable arrangement. 10. Limitation of Liability and Exclusive Remedies ---------------------------------------------- 10.1 CONSEQUENTIAL DAMAGES. IN NO EVENT OR UNDER ANY CIRCUMSTANCES --------------------- SHALL EITHER PARTY (INCLUDING SUCH PARTY'S AFFILIATES AND SUCH PARTY'S AND SUCH AFFILIATES' RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) BE LIABLE TO THE OTHER PARTY (INCLUDING SUCH PARTY'S AFFILIATES AND SUCH PARTY'S AND SUCH AFFILIATE'S RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES IN THE NATURE OF LOST PROFITS, WHETHER SUCH LOSS IS BASED ON CONTRACT, WARRANTY OR TORT. A PARTY'S LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES. 10.2 SOLE REMEDIES FOR FAILURE TO DELIVER OR RELATED BREACHES. -------------------------------------------------------- NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, OTHER THAN AS PROVIDED IN SECTION 10.3 BELOW, 41 BUYER'S SOLE REMEDY FOR DAMAGES AND SELLER'S SOLE LIABILITY FOR DAMAGES FOR SELLER'S DEFAULT RELATING TO, ARISING OUT OF, OR IN ANY WAY CONNECTED WITH ANY FAILURE BY SELLER TO MEET GUARANTEED SUMMER ON PEAK AVAILABILITY OR GUARANTEED NON-SUMMER ON PEAK AVAILABILITY, TO DELIVER (OR CAUSE TO BE DELIVERED) ELECTRIC ENERGY, REPLACEMENT POWER OR SUBSTITUTE POWER AS DISPATCHED BY BUYER, OR FAILURE TO COMPLY WITH ANY FACILITY PERFORMANCE RELATED PROVISIONS INCLUDING SECTIONS 4.1, 4.5.7, 4.5.8 OR 6.1, SHALL BE THE ADJUSTMENT TO CAPACITY CHARGES BASED UPON THE AVAILABILITY ADJUSTMENT SUBJECT TO THE LIMIT ON SELLER'S LIABILITY FOR SUCH ADJUSTMENT SET FORTH IN SECTION 7.1.3.4; AND SUCH AVAILABILITY ADJUSTMENT SHALL BE CONSIDERED LIQUIDATED DAMAGES IN LIEU OF ANY OTHER DAMAGES AT LAW, IN EQUITY OR AS SET FORTH ELSEWHERE IN THIS AGREEMENT. 10.3 SOLE REMEDY FOR LATE COMMERCIAL OPERATIONS. BUYER'S SOLE ------------------------------------------ REMEDIES AND SELLER'S SOLE LIABILITY FOR FAILURE OF THE COMMERCIAL OPERATIONS DATE TO OCCUR ON OR BEFORE THE TARGET COD (INCLUDING FAILURE TO COMPLY WITH SECTION 3) SHALL BE (a) THE OFFSET OF DELAY LDs AS SET FORTH IN SECTION 3.3 AGAINST CAPACITY CHARGES AS THEY COME DUE, SUBJECT TO THE LIMITATION ON SELLER'S LIABILITY SET FORTH IN SUCH SECTION 3.3 AND (b) TERMINATION IN ACCORDANCE WITH SECTION 3.3.7, IF THE COMMERCIAL OPERATIONS DATE DOES NOT OCCUR BY THE FINAL COMMERCIAL OPERATIONS DATE. 10.4 SOLE TERMINATION FOR DEFAULT REMEDIES. BUYER'S SOLE AND ------------------------------------- EXCLUSIVE REMEDIES OF TERMINATION FOR DEFAULT SHALL BE AS SET FORTH IN SECTIONS 3.3.7, 13 AND 19, AND SHALL BE, IN LIEU OF ANY OTHER REMEDIES OF TERMINATION AT LAW OR IN EQUITY. 10.5 DIRECT DAMAGES FOR OTHER BREACHES. SUBJECT TO THE LIMITATIONS --------------------------------- SET FORTH IN SECTIONS 10.1, 10.2, AND 10.3, AND SUBJECT FURTHER TO THE ARBITRATION PROVISION OF SECTIONS 11.1 - 11.6, EACH PARTY SHALL BE ENTITLED WITHOUT DUPLICATION TO RECOVER FROM THE OTHER PARTY ITS DIRECT DAMAGES OR SEEK AN INJUNCTION OR OTHER EQUITABLE RELIEF FOR BREACH BY SUCH PARTY OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND TO ENFORCE ANY PAYMENT OBLIGATIONS OF SELLER HEREUNDER OR TO TAKE ALL LEGAL ACTION NECESSARY TO ENFORCE ANY ORDER, DECISION OR SETTLEMENT OF AN ARBITRATOR RENDERED PURSUANT TO SECTION 11.2.5. 11. Disagreements ------------- 11.1 Negotiations. The Parties shall attempt in good faith to resolve ------------ all disputes promptly by negotiation, as follows. Any Party may give the other Party written 42 notice of any dispute not resolved in the normal course of business. Executives of both Parties at levels one level above the personnel who have previously been involved in the dispute shall meet at a mutually acceptable time and place within ten (10) days after delivery of such notice, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. If the matter has not been resolved within thirty (30) days from the referral of the dispute to senior executives, or if no meeting of senior executives has taken place within fifteen (15) days after such referral, either Party may initiate arbitration as provided hereinafter. If a Party intends to be accompanied at a meeting by an attorney, the other Party shall be given at least three (3) Business Days' notice of such intention and may also be accompanied by an attorney. All negotiations pursuant to this clause shall be confidential. 11.2 Arbitration ----------- 11.2.1 If the negotiation process provided for in Section 11.1 above has not resolved the dispute, the dispute shall be decided solely and exclusively by arbitration in Chicago, Illinois in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be governed by the United States Arbitration Act (9 U.S.C. ss. 1 et seq.), and judgment entered upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. This agreement to arbitrate and any other agreement or consent to arbitrate entered into in accordance herewith will be specifically enforceable under the prevailing arbitration law of any court having jurisdiction. Notice of demand for arbitration must be filed in writing with the other Party to this Agreement. The demand must be made within a reasonable time after the controversy has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such controversy is barred by the applicable statute of limitations. Any arbitration may be consolidated with any other arbitration proceedings. Either party may join any other interested parties. The award of the arbitrator shall be specifically enforceable in a court of competent jurisdiction. 11.2.2 Either Party shall give to the other written notice in sufficient detail of the existence and nature of any dispute proposed to be arbitrated. The Parties shall attempt to agree on a person with special knowledge and expertise with respect to the matter at issue to serve as arbitrator. If the Parties cannot agree on an arbitrator within ten (10) days, each shall then appoint one individual to serve as an arbitrator and the two (2) thus appointed shall select a third arbitrator with such special knowledge and expertise to serve as chairman of the panel of arbitrators; and such three (3) arbitrators shall determine all matters by majority vote; provided, however, if the two (2) arbitrators appointed by -------- ------- the Parties are unable to agree upon the appointment of the third arbitrator within five (5) days after their appointment, both shall give written notice of such failure to agree to the Parties, and, if the Parties fail to agree upon the selection of such third arbitrator within five (5) days thereafter, then either of the Parties upon written notice to the other may require such appointment from, and pursuant to the rules of, the Chicago office of the American Arbitration Association for commercial arbitration. Prior to appointment, each arbitrator shall agree to conduct such arbitration in accordance with 43 the terms of this Agreement. The arbitration panel may choose legal counsel to advise it on the remedies it may grant, procedure, and such other legal issues as the panel deems appropriate but subject to limits on remedies and damages set forth in this Agreement. 11.2.3 The Parties shall have sixty (60) days to perform discovery and present evidence and argument to the arbitrators. During that period, the arbitrators shall be available to receive and consider all such evidence as is relevant and, within reasonable limits due to the restricted time period, to hear as much argument as is feasible, giving a fair allocation of time to each Party to the arbitration. The arbitrators shall use all reasonable means to expedite discovery and to sanction noncompliance with reasonable discovery requests or any discovery order. The arbitrators shall not consider any evidence or argument not presented during such period and shall not extend such period except by the written consent of both Parties. At the conclusion of such period, the arbitrators shall have forty-five (45) days to reach a determination. To the extent not in conflict with the procedures set forth herein, which shall govern, such arbitration shall be held in accordance with the prevailing rules of the Chicago office of the American Arbitration Association for commercial arbitration. 11.2.4 The arbitrators shall have the right only to interpret and apply the terms and conditions of this Agreement and to order any remedy allowed by this Agreement, but may not change any term or condition of this Agreement, deprive either Party of any right or remedy expressly provided hereunder, or provide any right or remedy that has been excluded hereunder. 11.2.5 The arbitrators shall give a written decision to the Parties stating their findings of fact, conclusions of law and order, and shall furnish to each Party a copy thereof signed by them within five (5) days from the date of their determination. 11.3 Costs. Each Party shall pay the cost of the arbitrator or ----- arbitrators, and any legal counsel appointed pursuant to subparagraph (a) above, with respect to those issues as to which they do not prevail, as determined by the arbitrator or arbitrators. 11.4 Settlement Discussions. The Parties agree that no statements of ---------------------- position or offers of settlement made in the course of the dispute process described in this Section 11 will be offered into evidence for any purpose in any litigation or arbitration between the Parties, nor will any such statements or offers of settlement be used in any manner against either Party in any such litigation or arbitration. Further, no such statements or offers of settlement shall constitute an admission or waiver of rights by either Party in connection with any such litigation or arbitration. At the request of either Party, any such statements and offers of settlement, and all copies thereof, shall be promptly returned to the Party providing the same. 11.5 Preliminary Injunctive Relief. Nothing in this Section 11 shall ----------------------------- preclude, or be construed to preclude, the resort by either Party to a court of competent jurisdiction solely for the purposes of securing a temporary or preliminary injunction to preserve the status quo or avoid irreparable harm pending arbitration pursuant to this Section 11. 44 11.6 Obligations to Pay Charges and Perform. If a disagreement arises -------------------------------------- on any matter which is not resolved as provided in Section 11.1 above, then, pending the resolution of the disagreement by arbitration, Seller shall continue to perform its obligations hereunder including its obligations to operate the Units in a manner consistent with the applicable provisions of this Agreement and Buyer shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. In addition, notwithstanding the provisions of Section 13.3, neither Party shall be entitled to terminate this Agreement for default (other than defaults pursuant to Sections 13.1.1 or 13.2.1) by the other Party if the alleged default is the subject of an arbitration pursuant to Section 11, pending the outcome of such arbitration. 12. Assignment; Project Financing; and Transfer of Units ---------------------------------------------------- 12.1 Assignment. Except as set forth in this Section 12, neither ---------- Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party. Either Party may assign this Agreement, without the consent of the other Party, to an Affiliate or the parent company of an Affiliate, but no such assignment shall release such assignor from any obligations hereunder whether arising before or after such assignment. 12.2 Transfers and Change of Control. For the Purposes of this ------------------------------- Section 12.2, any direct transfer or series of direct transfers (whether voluntary or by operation of law) of a majority of the outstanding voting equity interests of a Party (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of such Party) to any party other than an Affiliate controlled by, or under common control with, such Party shall be deemed an assignment of this Agreement. In such events; (i) prior notice of any such assignment shall be provided to the other Party; (ii) any assignee (other than Lenders or their designees pursuant to Section 12.3 below) shall expressly assume assignor's obligation hereunder, unless otherwise agreed to by the other Party; and (iii) except with respect to an assignment of this Agreement in its entirety permitted hereunder by the Seller's Lender, no assignment, whether or not consented to, shall relieve the assignor of its obligations hereunder in the event the assignee fails to perform, unless the other party agrees in writing in advance to waive the assignor's continuing obligations pursuant to this Agreement, such waiver not to be unreasonably withheld. 12.3 Consent to Assignment to Lender. Buyer consents to Seller's ------------------------------- assignment of this Agreement to any Lenders or the granting to any Lenders of a lien or security interest in any right, title or interest in part or all of the Facility or any or all of Seller's rights under this Agreement for the purpose of the financing or refinancing of the Facility (or any part thereof) and the Interconnection Facilities; provided, however, that -------- ------- such assignment shall recognize Buyer's rights under this Agreement. Buyer further agrees to comply with reasonable requests of Seller in Seller's efforts to obtain project financing for the Facility, including without limitation execution of a consent to assignment by Buyer and delivery by Buyer's counsel of an opinion as described below as reasonably 45 required by Lenders. Buyer recognizes that such financing will likely entail Buyer's execution of a consent to assignment that may grant certain rights to such Lenders, which shall be fully developed and described in the consent documents, including (i) this Agreement shall not be amended in any material respect or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, which consent is not to be unreasonably withheld or delayed, (ii) Lenders shall be given notice of, and a reasonable opportunity to cure (in addition to the periods designated hereunder), any Seller breach or default of this Agreement, and (iii) if a Lender forecloses, takes a deed in lieu or otherwise exercises its remedies pursuant to any security documents, that Buyer shall, at Lender's request, continue to perform all of its obligations hereunder (subject to Buyer's rights under Section 13), so long as Lender or its nominee is performing all obligations of Seller hereunder in the place of Seller, and Lender may assign this Agreement to a Permitted Assignee so long as such Permitted Assignee assumes all obligations of Seller hereunder and so long as all monetary defaults of Seller are cured prior to such assignment, and may enforce all of Seller's rights to the extent Seller's obligations hereunder are being performed, (iii) that Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of the Facility, (iv) that Buyer shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (v) if this Agreement is rejected in Seller's bankruptcy, Buyer will enter into a replacement agreement identical to this Agreement with a Permitted Assignee so long as such Permitted Assignee assumes all obligations of Seller hereunder and so long as all monetary defaults of Seller are cured prior to such assignment, and (vi) that Buyer shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) Buyer's corporate existence, (B) Buyer's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of (x) the document evidencing Buyer's consent to assignment to Lenders and (y) this Agreement on Buyer, (D) receipt of regulatory approvals by Buyer with respect to its execution and performance under this Agreement, and (E) whether to Buyer's knowledge, any defaults by Seller are known by Buyer then to exist under this Agreement. The documentation that Lenders may require under this Section 12.3 may include an opinion of counsel typical in project finance transactions. Seller agrees to reimburse Buyer for reasonable fees and expenses incurred by Buyer in connection with consent to assignment including without limitation, attorneys' fees and expenses. Such consent to assignment to Lenders shall provide that upon the exercise of trustee's or mortgagee's assignment rights pursuant to such assignment, trustee or mortgagee shall notify Buyer of the date and particulars of any such exercise of assignment rights. 12.4 Potential Changes in Ownership or Control of Aquila. Seller --------------------------------------------------- acknowledges that Aquila may become the subject of a merger, acquisition, transfer of a majority of the outstanding voting equity of Aquila, or other change in control (the "Aquila Change in Control") in the near future and that such transaction may be deemed an assignment of this Agreement pursuant to Section 12.2. Seller agrees that, if, following the consummation of the Aquila Change in Control, Aquila, or its successor entity resulting from such transaction, provides evidence reasonably satisfactory to 46 Lenders (in accordance with common industry practice) demonstrating that it has a credit rating that is equal to or higher than such rating applicable to UCU as of the date of this Agreement, Seller shall provide its consent pursuant to Section 12.1 to such deemed assignment, and upon consummation thereof shall release UCU from its joint and several liability and from all obligations arising from and after the Aquila Change in Control. 12.5 Transfers Not in Accordance Herewith. Any sale, transfer, ------------------------------------ or assignment of any interest in the Facility or in this Agreement made without fulfilling the requirements of this Section 12 shall be null and void and shall constitute an Event of Default. 13. Default, Termination and Remedies; Notice of Default. If Buyer ----------------------------------------------------- defaults under this Agreement, then Seller shall give Buyer written notice describing such default. If Seller defaults under this Agreement, then Buyer shall give Seller written notice describing such default and concurrently provide any Lender with a copy of such notice. 13.1 Events of Default of Seller. The following shall constitute --------------------------- Events of Default of Seller ("Seller Events of Default") upon their occurrence unless cured within seven (7) days after written receipt of Notice from Buyer of such failure requiring its remedy, in the case of defaults under Sections 13.1.1 (and twenty-one (21) days with respect to Section 13.1.2) or within sixty (60) days, in the case of all other defaults, after the date of written notice from Buyer as provided above, provided that, if any such other default cannot be cured within sixty (60) days with exercise of due diligence, and if Seller within such period submits to Buyer a plan reasonably designed to correct the default within a reasonable additional period of time not to exceed six (6) months, then an Event of Default shall not exist unless Seller fails to diligently pursue such cure or fails to cure such default within the additional period of time specified by such plan: 13.1.1 Seller's failure to make payments when due; Seller Guarantor's failure to pay for Substitute Power (if Seller has failed previously to make such payment), a Delay Book Out Charge or an Outage Book Out Charge; 13.1.2 (i) A Seller Guarantee ceases to remain in full force and effect in accordance with its terms (other than as a result of such Seller Guarantee having been fully drawn down by Buyer); (ii) the failure of a Seller Guarantor to make a payment upon a proper drawing by Buyer against a Seller Guarantee; or (iii) Seller fails to deliver a letter of credit as required by Section 18.1 upon a Downgrade Event with respect to a Seller Guarantor. 13.1.3 Seller's dissolution or liquidation; 13.1.4 A Bankruptcy Event occurs with respect to Seller; 13.1.5 Seller's assignment of this Agreement or any of Seller's rights under the Agreement or the sale or transfer of any interest in Seller in each case not in compliance with the provisions of Section 12; 47 13.1.6 The sale by Seller to a third party of Electric Energy or Capacity committed to Buyer by Seller other than as permitted under this Agreement; and 13.1.7 Any representation made by Seller under Section 14.1 shall be false in any material respect. 13.2 Buyer Default. The following shall constitute Events of ------------- Default of ("Buyer Events of Default") upon their occurrence unless cured within seven (7) days after written receipt of Notice from Seller of such failure requiring its remedy, in the case of a default under Section 13.2.1 or within sixty (60) days, in the case of all other defaults, after the date of written notice from Buyer as provided above, provided that, if any such other default cannot be cured within sixty (60) days with exercise of due diligence, and if Seller within such period submits to Buyer a plan reasonably designed to correct the default within a reasonable additional period of time not to exceed six (6) months, then an Event of Default shall not exist unless Seller fails to diligently pursue such cure or fails to cure such default within the additional period of time specified by such plan: 13.2.1 Buyer fails to pay any sum due from it hereunder on the due date thereof; 13.2.2 A Bankruptcy Event occurs with respect to Buyer; 13.2.3 Buyer dissolution or liquidation except in connection with an Aquila Change in Control pursuant to Section 12.4; 13.2.4 Buyer's failure to post or maintain security in the form of a letter of credit as a result of a Downgrade Event with regard to Buyer as described in Section 18.2, to the levels, and upon the timing, specified in such Section 18.2; 13.2.5 Buyer's assignment of this Agreement or any of Buyer's rights under this Agreement or the sale or transfer of any interest in Buyer in each case not in compliance with the provisions of Section 12; or 13.2.6 Any representation made by Buyer under Section 14.1 shall be false in any material respect. 13.3 Remedies. -------- 13.3.1 Upon the occurrence and during the continuance of a Buyer Event of Default or a Seller Event of Default, the non-defaulting Party may at its discretion suspend performance hereunder or terminate this Agreement upon thirty (30) days (or five (5) days for defaults under Section 13.1.4 or 13.2.2 above) prior written notice to the Party in default. In addition, if Seller terminates this Agreement pursuant to this section 13.3.1, Seller may draw the amount of its direct damages incurred as a result of Buyer's default from the Buyer letter of credit, if any, posted pursuant to Section 18.2. 48 13.3.2 If a Buyer Event of Default under Section 13.2.1 has occurred and is continuing, Seller shall have the right to sell Capacity and Electric Energy from the Facility on a daily basis to third parties during the continuance of such Buyer Event of Default. 13.4 Special Termination for Chronic Poor Availability. If the ------------------------------------------------- Summer Average Availability for the Facility for a Summer Period (the "Initial Poor Availability Period") is less than 80%, then Seller shall promptly engage a mutually acceptable independent engineer to conduct an assessment of Seller's operating and maintenance practices to determine what steps are necessary to restore the Facility to an Equivalent Availability of at least 97% and to recommend a detailed and specific protocol of equipment, operational and maintenance improvements necessary to achieve such Equivalent Availability (collectively, the "IE Protocol"). If Seller fails to fully and timely implement the IE Protocol and either (i) the Facility has a Summer Average Availability of less than 80% for each of the two Summer Periods subsequent to the Initial Poor Availability Period or (ii) if the Summer Average Availability for the Initial Poor Availability Period was less than 70%, and the Facility has a Summer Average Availability less than 70% for the Summer Period subsequent to the Initial Poor Availability Period, then Buyer may terminate this Agreement on September 15th of the year that is two years after the Initial Poor Availability Period (in the case of a termination pursuant to the foregoing clause (i)) or on September 15th of the year after the Initial Poor Availability Period (in the case of a termination pursuant to clause (ii)). In the event of such termination, Seller shall have no liability to Buyer except for liability for obligations (including Availability Adjustments) accrued prior to such termination. 14. Representations and Warranties ------------------------------ 14.1 Representations and Warranties of Seller. Seller hereby makes ----------------------------------------- the following representations and warranties to Buyer: 14.1.1 Seller is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, is qualified to do business in the State of Illinois and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and, subject to the receipt of the regulatory approvals set forth in Section 20, carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. 14.1.2 The execution, delivery and performance by Seller of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of Seller's Management Committee or equity holders other than that which has been obtained. 14.1.3 The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement, do not and will not conflict with or constitute a breach of 49 or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Seller is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing, and Seller has obtained all permits, licenses, approvals and consents of governmental authorities required for the lawful performance of its obligations hereunder. 14.1.4 This Agreement constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. 14.1.5 There is no pending, or to the knowledge of Seller, threatened action or proceeding affecting Seller before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. 14.2 Representations and Warranties of Buyer. Aquila and UCU, on a --------------------------------------- joint and several basis, hereby make the following representations and warranties to Seller: 14.2.1 Aquila is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and UCU is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Aquila and UCU is qualified to do business in the State of Illinois and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. 14.2.2 The execution, delivery and performance by each of Aquila and UCU of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of its Board of Directors or shareholders other than that which has been obtained. 14.2.3 The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or its Sections of incorporation or bylaws, or any deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which either Aquila or UCU is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing. 50 14.2.4 This Agreement constitutes the legal, valid and binding obligation of Aquila and UCU enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. 14.2.5 There is no pending, or to the knowledge of Aquila or UtiliCorp, threatened action or proceeding affecting it before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. 15. Indemnification Each Party shall indemnify and hold harmless the other Party, and its officers, directors, agents and employees from and against any and all claims, demands, actions, losses, liabilities, expenses (including reasonable legal fees and expenses), suits and proceedings of any nature whatsoever for personal injury, death or property damage to each other's property or facilities or personal injury, death or property damage to third parties (collectively "Liabilities") caused by the negligence or willful misconduct of the indemnifying Party that arise out of or are in any manner connected with the performance of this Agreement, except to the extent such injury or damage is attributable to the gross negligence or willful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. Buyer shall indemnify Seller from all Liabilities related to Electric Energy and Replacement Power from and after delivery to the Point of Delivery or Replacement Power Delivery Point as applicable; and Seller shall indemnify Buyer for all Liabilities related to Electric Energy or Replacement Power prior to its delivery to the Point of Delivery or Replacement Power Delivery Point as applicable. 16. Notices. ------- Unless otherwise provided in this Agreement, any notice, consent or other communication required to be made under this Agreement shall be in writing and shall be delivered to the address set forth below or such other address or persons as the receiving Party may from time to time designate by written notice: If to Buyer, to: Aquila Energy Marketing Corporation 1100 Walnut - Suite 2900 Kansas City, Missouri 64106 Attention: President Fax: (816) 527-1006 With a copy to: 51 Hogan & Hartson, L.L.P. 555 Thirteenth Street, Columbia Square Washington, D.C. 20004-1109 Attn: John P. Mathis, Esquire Fax: (202) 637-5910 If to Seller, to: Elwood Energy II, LLC c/o Dominion Energy, Inc. 120 Tredegar Street Richmond, VA 23219 Attention: Christine M. Schwab, Esq. Fax: (804) 819-2202 with a copy to: Elwood Energy II, LLC c/o McGuire, Woods, Battle & Boothe LLP 901 E. Cary Street Richmond, VA 23219 Attention: Mark J. La Fratta, Esq. Telephone: (804) 775-1106 Fax: (804) 698-2096 All notices shall be effective when received. 17. Confidentiality --------------- Each Party agrees that it will treat in confidence all documents, materials and other information marked "Confidential" or "Proprietary" by the disclosing Party ("Confidential Information") which it shall have obtained during the course of the negotiations leading to, and its performance of, this Agreement (whether obtained before or after the date of this Agreement). Confidential Information shall not be communicated to any third party (other than, in the case of Seller, to its Affiliates, to its counsel, accountants, financial or tax advisors, or insurance consultants, to prospective partners and other investors in Seller and their counsel, accountants, or financial or tax advisors, or in connection with its financing or refinancing; and in the case of Buyer, to its Affiliates, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants). As used herein, the term "Confidential Information" shall not include any information which (i) is or becomes available to a Party from a source other than the other Party, (ii) is or becomes available to the public other than as a result of disclosure by the receiving Party or its agents or (iii) is required to be disclosed in the opinion for a Party's legal counsel under applicable law or judicial, administrative or regulatory process, but only to the extent it must be disclosed. The timing and content of any press releases associated with this Agreement shall be agreed to by the Parties prior to any public disclosure or distribution. 52 18. Security -------- 18.1 Seller Guarantees. Seller shall provide guarantees of ----------------- Dominion Energy, Inc. ("Dominion") and Peoples Energy Corp ("Pecorp") (the "Seller Guarantees") in the form of Appendix H, each with a cumulative maximum liability amount for the Term equal to ten million dollars ($10,000,000). Such guarantees shall be in force beginning June 1, 2001 and shall remain in force until the termination of this Agreement. If and when a Seller Guarantor has paid out an amount equal to the maximum amount of the Seller Guarantee, such Seller Guarantor shall be released from any further liability to Buyer pursuant to this Agreement, and from and after such date Buyer shall be released from any obligation hereunder to obtain Substitute Power. Such Seller Guarantor may, in its sole discretion, reissue additional guarantees beyond such maximum. If a Downgrade Event occurs with respect to a Seller Guarantor, Seller shall post or cause to be posted in lieu of Seller's Guarantee, a letter of credit in favor of and reasonably acceptable to Buyer in an amount equal to its remaining liability under such Seller Guarantees. Neither Dominion nor Pecorp may assign or transfer its guarantee obligations to a third party entity without the consent of Buyer, and any assignee or transferee must have credit standing of Investment Grade or better . Pursuant to such guarantees, each of Dominion and Pecorp shall be severally, but not jointly or jointly and severally, liable for the performance of Seller, and their liabilities shall be limited to the amount stated in the guarantees for the applicable time period. Upon Buyer's request, Seller shall cause Dominion to provide audited financial statements on an annual basis after April 30 of each year for the preceding calendar year. 18.2 Buyer Security. Upon request of Seller, Buyer shall be -------------- required to post security in the form of a letter of credit in favor of and reasonably acceptable to Seller within ten (10) days of Seller's request if the rating of both Moody's and Standard & Poor's of UCU (or its successor or replacement entity pursuant to the operation of Section 12.4) the co-obligor under this Agreement, falls below Investment Grade. Such letter of credit shall be in an amount equal the next six (6) months Capacity Charges if such rating is one Rating Category below Investment Grade, or twelve (12) months Capacity Charges if such rating is two or more Rating Categories below Investment Grade, upon which Seller may draw any amounts due from Buyer hereunder and not timely paid. Any six month Capacity Charge letter of credit shall have a term of not less than 180 days. Any twelve month Capacity Charge letter of credit shall have a term of not less than 364 days. If such letter of credit is not renewed at least thirty (30) days prior to expiration, Seller may draw the full amount of such letter of credit and hold such amounts to offset against liability (including future liability) of Buyer under this Agreement. If one or both rating agencies restores UCU's (or its successor or replacement entity pursuant to the operation of Section 12.4) long term debt rating to Investment Grade, than Buyer may request that Seller surrender the letter of credit to Buyer, and Seller will do so within three Business Days of such request. 19. Force Majeure ------------- 53 19.1 Definition. For the purposes of this Agreement, "Force Majeure ---------- Event" means an event, condition or circumstance beyond the reasonable control of and without the fault or negligence of the Party affected (the "Affected Party") which, despite all reasonable efforts of the Affected Party to prevent it or mitigate its effects, prevents the performance by such Affected Party of its obligations hereunder. Subject to the foregoing, "Force Majeure Event" as to either Party, shall include: 19.1.1 explosion and fire (in either case to the extent not attributable to the fault or the negligence of the Affected Party); 19.1.2 lightning, flood, earthquake, landslide, tornado, unusually severe storms, or other natural calamity or act of God; 19.1.3 strike or other labor dispute other than any labor dispute or strike by Seller's employees or the employees of any contractor or subcontractor employed at or performing work with respect to the Facility (except to the extent arising out of a strike or labor action by employees or labor organization members not employed at or performing work with respect to the Facility); 19.1.4 war, insurrection, civil disturbance, sabotage or riot; 19.1.5 failure to obtain Governmental Approvals as a result of a Change in Law; 19.1.6 Changes in Law materially adversely affecting operation of the Facility; 19.1.7 lack of fuel caused by a Force Majeure Event (as defined in this Agreement) experienced by the Facility's fuel supplier or transporter (as if for purposes of this Section 19.1.7 such fuel supplier or transporter is the Affected Party) or curtailment of firm gas transportation service to the Facility pursuant governmental order that materially affects the delivery of gas to the Facility; 19.1.8 the failure of performance by any third party having an agreement with Seller, including, without limitation, any vendor, supplier, or customer of Seller that is excused by reason of force majeure (or comparable term), as defined in Seller's agreement with such third party but only if such event would also constitute Force Majeure as defined in this Agreement; and 19.1.9 mechanical equipment breakdown caused by a Force Majeure Event described in Section 19.1.1, 19.1.2 or 19.1.4, and 19.1.10 interruption of acceptance by the Interconnected Utility of delivery of Electric Energy from the Facility into the Interconnected Utility System. 19.2 Obligations Under Force Majeure. -------------------------------- 54 19.2.1 If either Party is rendered unable, wholly or in part, by a Force Majeure Event, to carry out some or all of its obligations under this Agreement (other than obligations to pay money) despite all reasonable efforts of such Party to prevent or mitigate its effects, then, during the continuance of such inability, the obligation of such Party to perform the obligations so affected shall be suspended, except as provided in this Section 19. If Seller is the Affected Party, the Target COD shall be extended day for day for the duration of the effects of a Force Majeure Event. 19.2.2 A Party relying on a Force Majeure Event shall give written notice of such Force Majeure Event to the other Party as soon as practicable after such event occurs, which notice shall include information with respect to the nature, cause and date of commencement of the occurrence(s), and the anticipated scope and duration of the delay. Upon the conclusion of the Force Majeure Event, the Party heretofore relying on such Force Majeure Event shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. 19.2.3 Notwithstanding the foregoing, a Party shall not be excused under this Section 19, (x) for any non-performance of its obligations under this Agreement having a greater scope or longer period than is justified by the Force Majeure Event, (y) for the performance of obligations that arose prior to the Force Majeure Event, or (z) to the extent absent the Force Majeure Event the Affected Party would nonetheless have been unable to perform its obligations under this Agreement. 19.3 Force Majeure Not Forced Outage. Any periods of Forced Outage ------------------------------- or Forced Derating caused by Force Majeure Events shall not be included as Forced Outage Hours, or Forced Derating Hours for purposes of calculation of the Availability Adjustment. 19.4 No Economic Force Majeure. Force Majeure Events do not include ------------------------- changes in market conditions. 19.5 Continued Payment Obligation. Buyer shall have no obligation to ---------------------------- pay the monthly Capacity Charge during a Force Majeure period when the Seller is the Affected Party except: 19.5.1 Prior to Commercial Operations Date. Buyer shall have no ----------------------------------- obligation to pay Capacity Charges during a Force Majeure Period unless, and to the extent Seller delivers or causes to be delivered Replacement Power or Substitute Power. However, Seller's provision of Replacement Power, causing Substitute Power to be delivered, or payment of a Delay or Outage Book Out Charge shall not constitute, in any manner, a waiver of a Force Majeure Event. 19.5.2 After the Commercial Operations Date. After the ------------------------------------ Commercial Operations Date, Buyer shall have no obligation to pay Capacity Charges during any Force Majeure Period where Seller is the Affected Party, except that Buyer shall continue to pay for 50% of the Capacity Charges for up to the first 15 days of any Force Majeure 55 Event as if the Unit(s) were meeting the Guaranteed Availability during such period. Beginning on the sixteenth (16th) day Buyer shall have no obligation to pay Capacity Charges unless and to the extent (a) Seller provides Replacement Power or causes to be delivered Substitute Power, or (b) the Facility is Available for Dispatch by Buyer. 19.5.3 Proration of Effect of Force Majeure Affecting Elwood ----------------------------------------------------- Station and Expansions Thereto. If a Force Majeure Event affects both ------------------------------ the Units and other units at the Elwood Station (including expansions thereof), Seller shall equitably allocate the burdens of the effects of such Force Majeure Event over all affected units (for example, if a gas curtailment affecting Units 1-6 constitutes a Force Majeure, the gas available shall be ratably allocated over such six units to the extent feasible). 19.6 Extended Force Majeure Event After Commercial Operations. If an -------------------------------------------------------- Affected Party reasonably believes that a Force Majeure Event that is preventing it from performing its obligations hereunder could result in a suspension of such performance for a period of one (1) month or longer, the Affected Party shall submit a plan to the other Party to overcome the Force Majeure Event. Such plan shall be submitted within thirty (30) Business Days of the start of the Force Majeure Event. The plan shall set forth a course of repairs, improvements, changes to operations or other actions which could reasonably be expected to permit the Affected Party to resume performance its obligations under this Agreement within a reasonable time frame projected in the plan. While such a plan is in effect, the Affected Party shall provide weekly status reports to the other Party notifying the other Party of the steps which have been taken to remedy the Force Majeure Event and the expected remaining duration of the Party's inability to perform its obligations. If the Force Majeure Event has not been overcome within five (5) months from its inception, the Parties shall meet to reassess the amount of time that is likely to pass before the Affected Party can reasonably be expected to resume performance under this Agreement, and Seller shall have thirty (30) days to establish a revised plan to overcome the Force Majeure Event within twelve (12) months of its beginning. If at the end of such thirty (30) days one or both of the Parties reasonably concludes that the Force Majeure Event cannot be reasonably be expected to be overcome within twelve months of the beginning of the Force Majeure Event, the Party that is not the Affected Party may terminate this Agreement with five (5) days notice to the Affected Party. If the Affected Party is Seller and the Force Majeure Event only materially impacts the operation of one Unit, then any termination by Buyer will be as to the impacted Unit only. Notwithstanding Buyer's election not to terminate this Agreement, Buyer shall nonetheless have the right to terminate this Agreement, if Seller has failed to remedy the effects of the Force Majeure Event within twelve months of its inception such that the Facility is capable of delivering the Net Dependable Capacity and meeting other performance criteria hereunder. Upon termination of this Agreement as provided in this Section 19.6, the Parties shall have no further liability or obligation to each other except for any obligation arising prior to the date of such termination and those that survive termination as listed in Section 2.2. In addition to the foregoing, the Party not prevented from performing its obligations due to the Force Majeure Event may terminate this Agreement upon ten (10) Days prior written notice if (a) the Affected Party fails to provide a Force Majeure remedy plan as provided for in this Section 19.6, (b) the Affected Party fails to carry out the Force Majeure remedy plans in a method reasonably designed to cause that Party to be able to perform it 56 obligations hereunder within twelve (12) months of the Force Majeure Event occurring, or (c) within five (5) Business Days after a request therefor fails to provide a weekly status report to the other Party. 20. Interconnection and Transmission -------------------------------- 20.1 Facilities. Seller shall own, operate, maintain and control ---------- during the Term at its sole cost and expense all interconnection facilities located on the Facility site up to, but not including, the Point of Delivery. Seller shall pay all costs associated with interconnecting the Facility to the Interconnected Utility System, including any facilities upgrades required by ComEd. 20.2 Transmission. Buyer shall be responsible for arranging and ------------ paying for transmission services from the Point of Delivery, including any applicable transmission costs, system charges or line/system losses from the Point of Delivery, except to the extent of Incremental Transmissions Costs for Replacement Power. Buyer shall also be responsible for obtaining and paying for any ancillary or control area services required by FERC, ComEd or any independent system operator or other transmission utility with respect to the delivery and transmission of ComEd past the Point of Delivery. 21. Taxes ----- 21.1 Applicable Taxes. Each Party shall be responsible for the ---------------- payment of all taxes imposed on its income or net worth. Except as provided in this Section 21, Seller shall be responsible for the payment of all present or future federal, state, municipal or other lawful taxes applicable by reason of the operation of the Facility or assessable on Seller's property or operations including taxes on (i) the purchase by Seller or delivery of fuel to the Facility, and (ii) production of electricity. Buyer shall pay all existing and any new sales, use, excise, and any other similar taxes, if any, imposed or levied by a governmental agency on the sale or use of or payments for the Electric Energy, Replacement Power, Substitute Power and Net Dependable Capacity sold and delivered under this Agreement arising at or after the Point of Delivery. Buyer shall indemnify, defend, and hold Seller harmless from any liability for all such taxes for which Buyer is responsible. Seller shall indemnify, defend, and hold Buyer harmless from any liability from all such taxes for which Seller is responsible. Buyer shall reimburse Seller promptly on demand for the amount of any such tax that is Buyer's responsibility hereunder that Seller remits, plus any penalties and interest incurred and remitted, except such penalties as result from Seller's conduct. Seller shall reimburse Buyer promptly on demand for the amount of any such tax that is Seller's responsibility hereunder that Buyer remits, plus any penalties, interest incurred and remitted, except penalties as result from Buyer's conduct. 21.2 Contested Taxes. Neither Party shall be required to pay any --------------- such tax, assessment, charge, levy, account payable or claim if the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings (including 57 posting security as may be required) which will prevent the forfeiture or sale of any property utilized under this Agreement or any material interference with the use thereof. 21.3 Other Charges. Seller and Buyer will pay and discharge all ------------- lawful assessments and governmental charges or levies imposed upon it or in respect to all or any part of its property or business, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor, or materials which, if unpaid might become a lien or charge upon any of its property. 22. Miscellaneous Provisions ------------------------ 22.1 Non-Waiver. The failure of either Party to insist in any one or ---------- more instances upon strict performance of any provisions of this Agreement, or to take advantage of any of its rights hereunder, shall not be construed as a waiver of any such provisions or the relinquishment of any such right or any other right hereunder, which shall remain in full force and effect. 22.2 Relationship of Parties. This Agreement shall not be ----------------------- interpreted or construed to create an association, joint venture, or partnership between the Parties or to impose any partnership obligation or liability upon either Party. Neither Party shall have any right, power or authority to enter into any agreement or undertaking for, or to act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, the other Party. 22.3 Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors and permitted assigns of the Parties. 22.4 Governing Laws. This Agreement shall be construed in accordance -------------- with and governed by the laws of the State of Illinois without regard to its conflicts of laws provisions. 22.5 Counterparts. This Agreement may be executed in more than one ------------ counterpart, each of which may be signed by fewer than all Parties, but all of which constitute the same Agreement. 22.5 Third Party Beneficiaries. This Agreement is intended solely ------------------------- for the benefit of the Parties hereto. Nothing in this Agreement shall be construed to create a duty to or standard of care with reference to, or any liability to, any Person not a Party to this Agreement. 22.7 Financial Information. After Seller closes on any third party --------------------- financing, then from the date of such financing, for information purposes only, Seller shall, on a quarterly basis, provide to Buyer a statement of its debt coverage ratio if it is below 1.5. If Seller's debt coverage ratio is 1.5 or greater, Seller shall only inform Buyer that its debt cover ratio is 1.5 or greater without further information. Buyer agrees to treat such information as confidential pursuant to Section 17. In no event shall Buyer alter its performance under this Agreement in any manner based upon such information. Under no circumstances shall Seller have any liability 58 to Buyer whatsoever as a result of actions taken by Buyer in reliance upon such information and Buyer hereby releases Seller for any liability whatsoever resulting therefrom. 23. Appointment of Aquila As UCU's Agent ------------------------------------ 23.1 Appointment ----------- UCU hereby appoints Aquila as its true and lawful agent and attorney-in-fact, with full power and this Agreement, including without limitation, any notices, consents, elections, waivers, correspondence, agreements, instruments or claims which Aquila deems appropriate; provided, however, that Aquila may not agree to amend this Agreement on behalf of UCU. UCU may terminate this appointment upon written notice to Seller. 23.2 Presumption of Authority. Seller may conclusively presume and ------------------------ rely upon the fact that to the extent specified in Section 23.1, any instrument executed by Aquila acting as Buyer or agent or attorney-in- fact for UCU in authorized, regular, and binding upon UCU, without further need for inquiry. 24. Entire Agreement and Amendments ------------------------------- This Agreement supersedes all previous representations, understandings, negotiations and agreements (including the Original Agreement) either written or oral between the Parties hereto or their representatives with respect to the subject matter hereof and constitutes the entire agreement of the Parties with respect to the subject matter hereof. No amendments or changes to this Agreement shall be binding unless made in writing and duly executed by both Parties. 59 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. Buyer: Aquila Energy Marketing Corporation By /s/ VJ Horgan -------------------------------------- Name: VJ Horgan -------------------------------- Title: Senior VP ------------------------------- Buyer: UtiliCorp United Inc. By /s/ Keith Stamm -------------------------------------- Name: Keith Stamm -------------------------------- Title: Senior VP ------------------------------- Seller: Elwood Energy II, LLC By /s/ Ronald D. Usher -------------------------------------- Name: Ronald D. Usher Title: General Manager 60 APPENDIX A FACILITY DESIGN LIMITS AND OTHER DISPATCH RESTRICTIONS (1) The Design Limits for the Facility shall be the following: ---------------------------------------------------------- (a) The Maximum Load for a Facility shall be equal to the Net Dependable Capacity pursuant to OEM warranties, recommendations, and ambient conditions and the Governmental Approvals relating to the Facility; (b) The Minimum Load for a Unit shall be equal to sixty percent (60%) of Net Dependable Capacity (but no less than ninety (90) MW) which shall adjust with ambient conditions in accordance with actual capability of the Units as provided in Appendix F. (c) The minimum time required to Start-Up any one Unit (including the Elwood III Units) is twenty-two (22) minutes. The minimum time required to Start-Up multiple units under simultaneous Dispatch for two or three units is thirty-seven (37) minutes; provided however that the commencement of the Start-Up of second and the third Unit shall follow the commencement of Start-Up of the first Units by fifteen (15) minutes. The minimum time required to Start-Up four units under simultaneous Dispatch is fifty-two (52) minutes, provided however that the commencement of the Start-Up of the fourth Unit shall follow the commencement Start-Up of the second Unit by fifteen (15) minutes. (d) The ramp rate (load increase rate) from synchronization to Minimum Load is twelve and one-half (12.5) MW per minute per Unit. Minimum time for the load increase from synchronization to Minimum Load is seven (7) minutes. (e) The ramp rate (load increase rate) from Minimum Load to Maximum Load is thirteen (13) MW per minute per Unit. Minimum time for the load increase from Minimum Load to Maximum Load is four and six-tenths (4.6) minutes. (f) The ramp down rate (load decrease rate) from all load levels is fifteen (11.5) MW per minute per Unit. (g) The power factor of Electric Energy from a Unit as measured at the Unit's Revenue Meter shall be in the range from 0.90 lagging to 0.95 leading. (2) Dispatch and Start Procedure ---------------------------- (a) Upon Start Up of Unit(s), Seller will ramp Unit(s) to Minimum Load according to the Design Limits above, and thereafter adjust the load between Minimum Load A-1 and Maximum Load of the Unit(s) according with the Dispatch Notification and in compliance with the Design Limits above. (b) There shall be a minimum run time per Unit of four (4) consecutive hours; provided, however, Buyer shall have the -------- ------ option to Dispatch each Unit for a minimum run time of two (2) consecutive hours up to ten (10) times each Contract Year subject to Prudent Industry Practice and within manufacturer's recommendations. (c) There shall be a minimum idle time of two (2) hours between the time a Unit is taken off-line until the initiation of the next Start Up Sequence for that Unit. (d) Seller shall have the flexibility to Start Up the Units (along with the Elwood III Units) in a manner that meets Buyer's Dispatch schedule with the least number of Units, consistent with Design Limits and Prudent Industry Practice. (3) Generation During Start Up -------------------------- (a) During Start Up of one or more Units and while making load changes in response to Dispatch Requests, Seller shall use Prudent Industry Practices and commercially reasonable efforts to conform the Start Up and operation of the Unit(s) to the Dispatch Request and to minimize the amount of inadvertent Electric Energy generated prior to the Requested Load Delivery Time. (b) Prior to the Requested Load Delivery Time, during the Start Up of one Unit, Seller expects to deliver no more than 26 MWh. (c) Prior to the Dispatch Load Delivery Time, during the Start Up of two Units, Seller expects to deliver no more than 70 MWh. (d) Prior to the Dispatch Load Delivery Time, during the Start Up of three Units, Seller expects to deliver no more than 114 MWh. (e) Prior to the Dispatch Load Delivery Time, during the Start Up of four Units, (a 1Unit then 2 Units then 1 Unit Start Up), Seller expects to deliver no more than 178 MWh. (f) Seller expects to deliver no more than 18 MWh per unit during ramp down to off line. (g) If more MWh are delivered during the Start Up(s) than stated in sections (3)(a) to (3)(f) above, Buyer will market such MWh, and Seller will reimburse Buyer if Buyer's resale price is less than the Facility Electric Energy Rate at such time. A-2 (4) Permitted Runtime Hours ----------------------- (a) A maximum permitted runtime per Unit of 2500 hours per Contract Year, except in the first Contract Year, 90% of the maximum permitted runtime and in the final Contract Year, 92% of the maximum permitted runtime. (b) To the extent that permitted runtime hours are less than 2500 hours per Contract Year, Seller shall be obligated to deliver Replacement Power or comparable consideration between the permitted runtime hours and 2500 hours per Contract Year. A-3 APPENDIX B HEAT RATE and CAPACITY TEST PROCEDURE ------------------------------------- Elwood Units 5-8 ---------------- 1. Introduction ------------ This document describes the procedure for determining the Net Dependable Capacities and corrected Net Heat Rates of Elwood Units 5-8. The Net Dependable Capacities determined by this procedure will serve as the baseline establishing the Capacity Payments and the amount of any future Forced Derating a given Unit may experience. The corrected Net Heat Rates determined by this procedure will be used to evaluate the thermal performance of each unit against the expected degradation in thermal performance as predicted by GE Curve 519HA772, "Expected Gas Turbine Plant Performance Loss Following Normal Maintenance and Off-Line Compressor Wash." The introduction should clarify that there are essentially two performance test procedures considered in this Appendix B. The first will be conducted by the EPC Contractor on or about the Commercial Operations and that the results of that performance testing will serve both to qualify the EPC Contractor's performance commitment to the Seller, and those results will apply in the determination of the Net Dependable Capacity and Initial Net Heat Rate under this Agreement. Thereafter periodic tests will be conducted by the Seller for the purpose of determining ongoing performance of the Units and/or the Facility. The following period tests conducted by the Seller shall be accomplished utilizing permanent meters and instruments installed at the Facility for data acquisition, but otherwise conducted with the intent of yielding results that will be comparable with the first testing series. There will be a series of pre-test activities to verify that the gas turbine generator being tested is operating properly at full capability and is adequately prepared for the capacity test. The Unit will be operated at 100% capability in the normal (not overfiring) operating mode with evaporative coolers in service. The evaluation methodologies utilize correction factors to correct the measured Unit capacity and Heat Rate to the Reference Conditions. Thermal performance and capacity will be further adjusted for degradation according to the accumulated fired hours at the time of the test. These correction factors are determined from curves supplied by the turbine OEM. 2. References ---------- A. Power Sales Agreement between Seller and Buyer relating to Units 5-8. B. ASME Performance Test Procedures For General Electric Heavy Duty Gas Turbines, GEI-41067D. B-1 C. Correction Curve set supplied by GE as part of output and thermal performance guarantees and GE Degradation Curve. D. ASME PTC-22 (1997) Gas Turbine Performance Test Code 3. Measurement and Instrumentation ------------------------------- The test set-up consists of the gas turbine generator unit, selected station instruments, precision psychrometer, and weather instruments installed at the Facility. The ambient air humidity will be measured near the inlet air filter on each Unit using a precision psychrometer. The ambient temperature will be measured near the inlet air filter on each Unit using a precision thermometer. The barometric pressure will be determined by averaging the barometric pressure readings from transmitters installed on each Unit. The gross power output will be measured utilizing the General Electric Mark V control system. The generator net power output will be measured with the installed Transdata watt-hour meter (Revenue Meter). The measurement will be made by repeatedly timing a fixed increment of elapsed Watt-hours. The test point duration will be determined by stopwatch. The gaseous fuel flow rate will be measured with the orifice metering section supplied with the gas turbine and its associated pressure and temperature instrumentation. 4. Pre-Test Preparation -------------------- 4.1 The gas turbine compressor section will be cleaned as described in the GE Turbine Generator Manual immediately prior to testing. The compressor inlet plenum will be inspected before and after the Compressor Wash. If the compressor is judged to be dirty after the initial wash, additional Compressor Wash may be required. 4.2 The gas turbine exhaust thermocouple signal processing system will be confirmed to be operating to control specification. A thermocouple/calibrator will be used to input a 1000EF signal to the unit control system at the terminal strips where the unit thermocouple leads first terminate. At least three thermocouple wire sets for each control system computer will be checked (R, S, and T) for a total of at least nine wire sets. If proper operation cannot be confirmed, the control system must be corrected before testing. This calibration check will be conducted no more than sixty (60) days prior to the test and the calibration data sheets made part of the test record. 4.3 The calibration and proper operation of all pertinent pressure transmitters will be B-2 verified not more than sixty (60) days prior to the conduct of the test. Copies of the calibration data sheets shall be made a part of each test record. At a minimum, the following transmitters shall be checked: . Gas fuel static pressure transmitter(s) . Gas fuel orifice differential pressure transmitter(s) . Barometric pressure transmitter(s) During verification, pressure will be supplied to each transmitter with an NIST traceable device. The input pressure levels shall cover an appropriate estimated range of normal operation. If proper operation cannot be confirmed, the transmitter in question must be re-calibrated before testing. 4.4 The Revenue Meter calibration must have been completed within the interval specified in Section 5.1 of the Agreement and best reasonable efforts shall be used to schedule the Revenue Meter calibration within the sixty (60) day period prior to the test. 4.5 Inlet Guide Vane (IGV) angular position will be measured with a machinist's protractor. The angle will be measured on sixteen vanes around the inlet circumference. The average of these measurements will define the true position of the IGV's. The true angle will be compared to the feedback angle displayed by the unit control system. The control system angle must be in agreement with the measured angle to within plus or minus 0.5 degrees, or the control system must be re-calibrated. 4.6 A fuel sampling location will be identified as close as possible to the gas turbine and upstream of the metering station. 5. Conducting the Test ------------------- Capacity and thermal performance testing will be conducted by Seller and witnessed by Buyer at its discretion. 5.1 A minimum of three test points will be conducted on each unit. Each test point will be conducted with the gas turbine power equipment and all test instrumentation functioning satisfactorily and in a steady-state condition with evaporative coolers in service and with the Mark V control system indicating that the unit is at base load. Prior to and during each test point, the gas turbine wheel space temperatures will be monitored individually to verify thermal stability. The gas turbine will be considered in a steady state condition when each turbine wheel space temperature changes by no more than 5EF over a fifteen minute period. The unit thermal stability will be documented by print-outs from the unit control system. 5.2 In accordance with ASME PTC-22 (1997), additional parameters will be monitored during each test point to verify that the system is in a steady state condition. These parameters and corresponding limits of variation are listed in the following table: B-3 Table: Steady-State Conditions Summary
- -------------------------------------------------------------------------------------------------------- Parameter Monitored Variation Limit Rule - -------------------------------------------------------------------------------------------------------- Turbine Wheelspace Prior to and during n/a May not change more than Temperature (each) test point 5EF over any 15 minute period - -------------------------------------------------------------------------------------------------------- Ambient Temperature During test point + 4/o/F Variation from test - point average may not exceed limit - -------------------------------------------------------------------------------------------------------- Wet Bulb Temperature During test point + 3/o/F Variation from test - point average may not exceed limit - -------------------------------------------------------------------------------------------------------- Gross Power Output During test point + 2.0 % Variation from test - point average may not exceed limit - -------------------------------------------------------------------------------------------------------- Barometric Pressure During test point + 0.5% Variation from test - point average may not exceed limit - --------------------------------------------------------------------------------------------------------
5.3 In accordance with ASME PTC-22 (1997), each test point will be conducted over a thirty minute time period. Data will be recorded at five minute intervals (or more frequently) throughout the duration of the test point for a minimum of seven complete sets of instrument readings. No test point should exceed thirty minutes nor should the data recording interval exceed ten minutes. 5.4. Fuel samples will be taken at the beginning and end of each test point for a total of twelve samples per unit (including duplicates). Fuel samples will be delivered to a reputable third party laboratory for analysis. As a backup, duplicate fuel samples will be retained at the site until all fuel analysis is completed. 5.5 Testing shall be conducted with the inlet bleed heat system off and isolated. 6. Evaluation ---------- 6.0 Test Boundary This test procedure and the calculations employed are intended to determine the Net Dependable Capacity and Net Heat Rate as shown on the Heat Rate Boundary Diagram. 6.1 Net Dependable Capacity Evaluation -------------------------------------- Generator Net Power Output -------------------------- Generator Net Power Output (GNPO) will be calculated from the measured net power output from the test point divided by the test point duration in hours. GNPO = measured net power output (kWh) / test point duration (hrs.) B-4 Net Dependable Capacity ----------------------- Generator Net Power Output (GNPO) will be corrected from the test conditions to the Reference Conditions. The result will be the Net Dependable Capacity (NDC). NDC = Net Dependable Capacity corrected to Reference Conditions. NDC = GNPO x CF\\1\\ x CF\\2\\ x CF\\3\\ where: CF\\1\\ = Factor used to correct power from the measured ambient temperature and humidity to the contract conditions = CF\\a\\ / CF\\b\\ where: CF\\a\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the Reference Conditions CF\\b\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the measured ambient temperature and humidity CF\\2\\ = Factor used to correct power from the measured barometric pressure to the rated barometric pressure = P\\R\\ / P\\M\\ where: P\\R\\ = Rated barometric pressure (14.39 psia) P\\M\\ = Measured barometric pressure CF\\3\\ = Factor used to correct for accumulated fired hours prior to the test = 1 + (% output loss from curve 519HA772) The NDC's determined from each test point will be summed and divided by the number of test points to determine the NDC for contract purposes. B-5 6.2 Net Heat Rate ----------------- Net Heat Rate will be calculated from the measured rate of heat consumption and the measured net power output. NHR = Net Heat Rate, Btu/kWh (uncorrected) NHR = HC / GNPO, Btu/kWh where: HC = Heat consumption rate, BTU/hr GNPO = Generator net power output from paragraph 6.1, kW 6.3 Heat Consumption Rate -------------------------- Turbine rate of heat consumption will be calculated from the measured fuel flow rate (from turbine control system and compensated for fuel temperature) and the fuel higher heating value as determined from the average of laboratory analysis of the fuel samples. HC = Turbine heat consumption rate, Btu/hr HC = 3600 x W\\F\\ x HHV, Btu/hr where: 3600 = units conversion, 3600 sec/hr W\\F\\ = Fuel flow rate, lb/s (measured by turbine control system and compensated for fuel temperature) HHV = Fuel higher heating value, Btu/lb 6.4 Corrected Net Heat Rate ---------------------------- Net Heat Rate will be corrected from test conditions to the Reference Conditions accounting for degradation in accordance with Section 1 of this procedure. CNHR = Corrected Net Heat Rate, Btu/kWh CNHR = NHR x CF1\\HR\\ x CF2\\HR\\ where: NHR = Net Heat Rate from Section 6.2, Btu/kWh CF1\\HR\\ = Correction factor to correct heat rate from the measured ambient temperature and humidity to the Reference Conditions = CF1\\HR(a)\\ / CF1\\HR(b)\\ B-6 where: CF1\\HR(a)\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the Reference Conditions. CF1\\HR(b)\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the measured ambient temperature and humidity CF2\\HR\\ = Factor to correct heat rate for the total fired hours accumulated prior to the test. Factor derived from GE Curve 519HA772 at the accumulated fired hours = 1- (% heat rate degradation from curve 519HA772) B-7 APPENDIX C COMMUNICATIONS 1. Purpose The purpose of this Appendix is: (i) To describe the nature of, and the requirements for the communication link that will be maintained between Seller and Buyer; (ii) To identify and establish a communications procedure (the "Communications Procedure") that defines the responsibilities for, and the frequency, content, and logistics of communication between personnel responsible for operating the Facility ("Seller's Operator(s)") and Dispatcher concerning the availability and Dispatch of the Units. The Parties desire that such a procedure be established so that only responsible and authorized personnel can issue requests and/or orders that may impact reliability and availability of the Units. 2. Communication Link. (i) Buyer shall establish and maintain dedicated phone lines for all communications concerning the availability and Dispatch of the Units. These dedicated systems shall be used as the primary communications link between Seller's Operators and Buyer's Dispatcher responsible for Dispatching Buyer's system ("Generation Dispatcher"). In addition to the dedicated phone lines, Seller and Buyer shall establish standard phone line(s) as a back-up system. Seller's dedicated and standard phone lines are to be located at the control facilities of the Units. (ii) At any time a Unit at the Facility is synchronized to the Interconnected Utility System, Seller must ensure that a Seller's Operator is available at the dedicated phone line (or back-up phone line if the dedicated line is unavailable) to respond to the Dispatch orders from the Generation Dispatcher. Both Seller and Buyer recognize that there may be operational conditions or events that will required Seller's Operator to leave the control room in order to resolve the condition or event. Both Seller and Buyer also recognize that these conditions or events will be infrequent. During such times, Seller's Operator must first notify the Generation Dispatcher, and provide information regarding how the Seller's Operator can be reached (i.e. a standard, back-up phone line and/or a cellular phone). (iii) Seller shall establish and maintain a paging system for the Seller's Operators. Such paging system shall constitute the secondary communications link between Seller's Operators and the Generation Dispatcher. During those times when no Unit at the Facility is synchronized to the Interconnected Utility, or during power operation when Seller's Operator has left the control room to resolve an operational condition or event, this paging system will become the primary communications link between Seller's Operator and the Generation Dispatcher. Whenever the paging system is the primary communications link, Seller will C-1 ensure at least one Seller's Operator will be available at all times, via the paging system. Should the Dispatcher initiate the paging system, Seller's Operator(s) shall immediately contact the Generation Dispatcher via telephone for specific Dispatch orders. Seller will notify Buyer as soon as possible of any disruption or unavailability of the dedicated or standard phone lines, or the pager system, as soon as practicable. Seller shall also provide a list of back-up contracts to the paging system (i.e. the names and home phone numbers for the operators) to be used should the paging system fail, be inadvertently turned off, lost, unavailable due to satellite communication problems, or if the operator fails to respond. This list of back-up contacts shall be incorporated into the Communications Procedure. 3. Communications Procedure (i) Prior to the Commercial Operations Date, Seller and Buyer shall establish a mutually approved Communication Procedure that defines the responsibilities for, and the frequency, content, and logistics of, all communications between Seller's Operator(s) and the Generation Dispatcher concerning the availability and dispatch of the Units. Seller and Buyer shall ensure that the most current mutually- approved revision of this Communication Procedure is available to the Seller's Operator(s) and the Generation Dispatcher. Both Seller and Buyer shall mutually review and revise the communications procedure, as necessary. (ii) The Communications Procedure shall provide telephone numbers for all dedicated and standard phone lines of both Seller and Buyer (including telephone numbers for facsimile machines) and pager numbers for all of Seller's Operators. The Communications Procedure shall also provide back-up contacts to the paging system (i.e. the names and home phone numbers for the operators) to be used should the paging system fail, be inadvertently turned off, lost, unavailable due to satellite communication problems, or if the Seller's Operator fails to respond. In addition, the Communications Procedure shall provide instructions and requirements to both the Seller's Operator(s) and the Generation Dispatcher describing the process(es) for communicating unit availability and Dispatch orders for the Units. At a minimum, the Communication Procedure shall provide communication instructions for the following items: a) Routine notifications (by both Seller's Operator(s) and the Generation Dispatcher) of expected hourly capability and demand, as required by Section 4(e)(ii) of this Agreement. b) Start-up and Dispatch orders for Units; c) Conditions, issues or events that could affect the output or reliability of the Units; C-2 d) The time of day (based on a twenty-four hour clock) when a Unit is placed on line and taken off line; e) Unit deratings, including the amount of any derate, the estimated or known start time and date of the derate, the estimated or known ending time and date of the derate, and the cause of the derate; f) Conditions at the Facility or a Unit that could affect the present or anticipated load following capability of a Unit; g) Planned and emergency testing requirements, or other operational work that could limit the availability or maneuverability of a Unit; and h) The use of operational reporting forms that are provided in Appendix D. 4. Revisions Each Party shall appoint a representative having power and authority to act on its behalf (the "Representative"). Each Party may change its Representative from time-to-time, effective upon notice given to the other Party. A Representative may change addresses, telephone numbers, facsimile numbers and other similar data to be used in directing communications under this Appendix C or Appendix D to the Party represented by that Representative. Each Representative shall be authorized to agree on behalf of the Party that appointed that Representative to any change in the forms or procedures provided under this Appendix C or Appendix D. C-3 APPENDIX D OPERATIONS REPORTING FORM DATA APPLICABLE FOR ELWOOD AVAILABILITY DECLARATION Availability Declaration Period Commencing ___PM/AM,___/___/___TO____PM/AM,___/___/___ TO: FAX No. Telephone No. - ------------------------------------------------------------------------------ This FAX is a submission of - ------------------------------------------------------------------------------ Generator's Offer Data _ - ------------------------------------------------------------------------------ A revision to the previously submitted offer of ____/____/____ _ -------- - ------------------------------------------------------------------------------ This document is a hardcopy back-up to the offer of ____/____/____ _ - ------------------------------------------------------------------------------ Unit_____ Available to Meet Net Dependable Capacity _____ Yes _____ No Unit_____ Available to Meet Net Dependable Capacity _____ Yes _____ No
Deratings: Time Time Unit___ Cause Code: ____ MW____ Start_____Date___/___/___ Stop_____Date ____/___/____ Unit___ Cause Code: ____ MW____ Start_____Date___/___/___ Stop_____Date ____/___/____ Minimum: Time Time Unit____ Cause Code: _____ MW_______ Start______Date___/___/___ Stop_______Date ____/___/___ Unit____ Cause Code: _____ MW_______ Start______Date___/___/___ Stop_______Date ____/___/___
Submitted By: Date: If you do not receive all the pages or if clarification or retransmission is required call Return acknowledgment FAX to the attention of: FAX Number: ================================================================================ Acknowledgment by (Signature) (Title) Acknowledgment date and time___________________________ D-1 APPENDIX E EQUIVALENT AVAILABILITY CALCULATIONS ("EA") Seller shall calculate for each month, an Equivalent Availability ("EA") for calculation of the Availability Adjustment Credit described in Section 7.1.3. The EA will be calculated (a) for the Summer Super Peak Hours; (b) for the Summer Partial-Peak Hours and (c) for the total of all Non-Summer On-Peak Hours in accordance with the following formula: EA = {1 - [FOH + EFDH] } ------------- PH Where: Equivalent Forced Derated Hours ("EFDH") are the product of Forced Derated Hours (FDH) and Size of Reduction (as defined below), divided by the Net Dependable Capacity (NDC). Equivalent hours are computed for each Forced Derating and then summed for the applicable period. Forced Derated Hours ("FDH") and Forced Outage Hours ("FOH") are calculated over On Peak Hours, during the applicable period, during which a Unit experiences a Forced Derating or Forced Outage, as applicable. They are calculated monthly in the Summer Period across all Summer Super Peak Hours and Summer Partial Peak Hours and annually for Non-Summer On Peak Hours (as applicable). Period Hours ("PH") means the total number of Summer Super Peak, Summer Partial Peak or Non-Summer On Peak Hours (as applicable) in each period. A Forced Outage or Forced Derating event shall only be included in the calculation of the Equivalent Availability when Seller fails to meet, in whole or part, Buyer's Dispatch and fails (a) to deliver or cause to be delivered Replacement Power or Substitute Power, (b) to pay to Buyer Third Party Damages pursuant to Section 4.7.4, or (c) to pay the Outage Book Out Charge due to an unplanned component failure or other condition that requires the load on the Unit or Facility to be reduced below the level Dispatched. The Size of Reduction for a Forced Derating shall be determined by Seller and shall be based upon observed output of a typical unit having the same equipment problems under similar operating and environmental conditions. Buyer may request Seller to justify the size of the reduction through provision of reasonably available historical operating records in support of Seller's selection of the Size of Reduction. In the event of a continuing Forced Outage or Forced Derating, Buyer may submit Dispatch requests as if the Unit were available for full operation, provided such requests are submitted in good faith and support Buyer's need to Dispatch a Unit absent the Forced Outage or Forced Derating. If other units at the Elwood Station are operating, Buyer's request shall be deemed to E-1 be in good faith. If no other units are running at the Elwood Station, Buyer shall, if requested by Seller, provide written explanation of the reasons that would demonstrate the economic justification for such Dispatch request. The following shall not be deemed a Forced Outage or Forced Derating for purposes of calculating the Equivalent Availability (a) a Unit is shut down for Scheduled Maintenance Outages or Compressor Washes as provided in Section 6.4 and 6.5 respectively, (b) A Unit is down or derated, but Seller meets Buyer's Dispatch order through (i) Replacement Power, (ii) Substitute Power, (iii) payment of Third Party Damages pursuant to Section 4.7.4, or (iv) payment of an Outage Book Out Charge, (c) a Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 4.8 or 6.6.2, (d) to the extent a Unit is not Available as a result of a Force Majeure Event, or (e) Seller pays imbalance charges to compensate for any under-delivery. E-2 APPENDIX F Output Adjustment Curve Degradation Curves ------------------ - -------------------------------------------------------------------------------- CURVE NUMBER - -------------------------------------------------------------------------------- GE Expected Degradation 719HA722 - -------------------------------------------------------------------------------- Turbine Performance Curves -------------------------- - -------------------------------------------------------------------------------- CURVE NUMBER - -------------------------------------------------------------------------------- Estimated Single Unit Performance, Base 522HA851 - -------------------------------------------------------------------------------- Compressor Inlet Temperature Corrections, Base 522HA852 - -------------------------------------------------------------------------------- Modulated Inlet Guide Vanes Effect 522HA853 - -------------------------------------------------------------------------------- Altitude Correction for Turbine 416HA622B - -------------------------------------------------------------------------------- Humidity Effects Curve 498HA697B - -------------------------------------------------------------------------------- F-1 APPENDIX G Non Billable Generation To establish the kilowatt-hours of electricity provided by a Unit and consumed by other units for a billing period, the total for each billing period of electricity consumed by each of units 5, 6, 7 and 8 to be determined from the individual unit electric meter readings using the Revenue Meter which will then be summed for all four units. From this sum, the total monthly electricity purchased from the Interconnected Utility (as determined from the Interconnected Utility's revenue meter in the ComEd/Elwood Switchyard) will be subtracted, yielding an aggregate total of the electricity consumed by all four units that had been generated by one or more other units. This amount will then be multiplied by the ratio of the total operating hours of a given unit to the total operating hours of all four units. This product will represent the electricity generated by a given unit and consumed by other units. This value will be subtracted from the reading of the Revenue Meter for a particular Committed Unit for billing purposes for the billing period. The following example demonstrates the calculation methodology: Total electricity generated Unit 5 - 30,000 MWh Total electricity generated Unit 6 - 22,500 MWh Total electricity generated Unit 7 - 15,000 MWh Total electricity generated Unit 8 - 0 MWh Total electricity consumed Unit 5 - 20,000 kWh Total electricity consumed Unit 6 - 30,000 kWh Total electricity consumed Unit 7 - 15,000 kWh Total electricity consumed Unit 8- 2,000 kWh Total electricity consumed All Units = 20,000 + 30,000 + 15,000 + 2,000 = 67,000 kWh Total electricity purchased from the Interconnected Utility- 30,000 kWh Total electricity consumed by all four units and generated by all four units = 67,000 - 30,000 = 37,000 kWh G-1 Unit 5 monthly operating hours - 200 Unit 6 monthly operating hours - 150 Unit 7 monthly operating hours - 100 Unit 8 monthly operating hours - 0 Total operating hours = 200 + 150 + 100 + 0 = 450 hours CALCULATION: Electricity furnished by Unit 5 and consumed by the other units = (200/450) (37,000) = 16,444 kWh (16.444 MWh) Electricity furnished by Unit 6 and consumed by the other units = (150/450) (37,000) = 12,333 kWh (12.333 MWh) Electricity furnished by Unit 7 and consumed by the other units = (100/450) (37,000) = 8,222 kWh (8.222 MWh) Electricity furnished by Unit 8 and consumed by the other units = (0/450) (37,000) = 0 kWh Billable Generation Unit 5 = 30,000 - 16.444 = 29,983 MWh Billable Generation Unit 6 = 22,500 - 12.333 = 22,488 MWh Billable Generation Unit 7 = 15,000 - 8.222 = 14,992 MWh Billable Generation Unit 8 = 0-0 = 0 MWh" G-2 APPENDIX H - 1 GUARANTY THIS GUARANTY dated as of ___________, is made by Peoples Energy Corporation, an Illinois corporation ("Guarantor"), in favor of UtiliCorp United Inc. and Aquila Energy Marketing Corporation, Delaware corporations (referring to collectively hereafter as "Creditor"). WHEREAS, Creditor and Elwood Energy, II LLC, a Delaware limited liability company ("Debtor"), have entered into that certain Power Sales Agreement dated ___________, (the "Contract") and capitalized items used and not otherwise defined herein shall have the meanings assigned to them in the Contract; WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent membership interest in Debtor and the remaining 50 percent membership interest is indirectly owned by Dominion Energy, Inc. ("Dominion"); and WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the Contract, Guarantor has agreed to provide to Creditor this Guaranty; NOW, THEREFORE, in consideration of the premises, Creditor's execution of the Contract and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty. Subject to the provisions hereof, Guarantor hereby -------- irrevocably, absolutely and unconditionally guarantees the timely payment of all financial obligations which become due and payable by Debtor to Creditor under or in connection with the Contract (collectively, "Obligations" and individually, an "Obligation") such that, if Debtor fails, neglects or refuses to perform any Obligation, Guarantor shall make such payment within ten business days after Guarantor receives written notice thereof. Notwithstanding the foregoing, as to any Obligation which Guarantor is called upon to pay or cause payment to be made, Guarantor reserves to itself the right to assert any and all defenses under the Contract which Debtor could assert against Creditor with respect to such Obligation; provided, however, that such reservation shall not include any legal or equitable discharge or defense of a guarantor or surety arising out of any of the events described in Section 2 or Section 3 hereof. The guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of the Obligations ; provided, however, that in no event shall the maximum aggregate liability of Guarantor under this Guaranty exceed $10,000,000 (the "Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this Guaranty pursuant to the next sentence hereof; provided further, that Guarantor's obligations hereunder are separate and independent obligations from those of Dominion under Dominion's Guaranty of even date herewith and neither Guarantor nor Dominion shall be liable for the obligations of the other under their respective guaranties by reason of joint and several liability or otherwise. In addition to Guarantor's liability for the Obligations set forth herein, Guarantor agrees to pay to Creditor such further amounts as shall be sufficient to cover the costs of collecting or enforcing this Guaranty (including reasonable fees, expenses and disbursements of counsel). This Guaranty is a guaranty of payment and not of collection. H-1 2. Guaranty Absolute. Except as otherwise expressly provided in ----------------- Section 3(b) hereof, Creditormay, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment of, or (if applicable) interest rate on, or renew, extend or alter, any or all of the Obligations; (b) amend, waive, terminate or otherwise modify the Contract or any other document, instrument or agreement relating to any Obligation; (c) release (in whole or in part) or compromise or settle with Debtor or any other person liable in any manner for payment of any or all of the Obligations; (d) exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent; and (e) take, substitute, surrender, exchange or release any collateral or other security for any or all of the Obligations. 3. Effect of Certain Events. Guarantor agrees that, except as ------------------------ otherwise expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will not be released, reduced or impaired by the occurrence of any of the following events: (a) the liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or the Contract in or as a result of any such proceeding; (b) the renewal, consolidation, extension, modification or amendment from time to time of the Contract or any document, instrument or agreement relating to any Obligation, provided, however, that notwithstanding anything contained in this Guaranty or the Contract to the contrary, Creditor and Debtor may not, without the prior written consent of Guarantor, (i) extend or lengthen the Term of the Contract (as defined in the Contract as of the date hereof) beyond or (ii) change, modify or amend the definition of the term "Capacity Charges" (as defined in the Contract as of the date hereof) in any manner that would increase Guarantor's liability under this Guaranty; (c) the failure, delay, waiver or refusal by Creditor to exercise, in whole or in part, any right or remedy held by Creditor with respect to the Contract or the Obligations thereunder; or (d) the sale, encumbrance, transfer or other modification of the ownership of Debtor or Creditor or any change in the name, identity, business, structure, composition, financial condition or management (including, without limitation, by reason of a merger, dissolution, consolidation or reorganization) of Debtor or Creditor; H-2 (e) future changes in conditions, including change of law, or any invalidity, unenforceability or irregularity with respect to the execution and delivery of the Contract or this Guaranty; and (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety, subject to clause (ii) of Section 1 hereof. 4. Waivers. Except as expressly provided in Section 1 hereof, ------- Guarantor waives: (a) notice of acceptance of this Guaranty, of the creation or existence of the Contract or any Obligation thereunder, and of any action by Creditor in reliance hereon or in connection herewith; (b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to any Obligation; (c) any requirement that suit be brought against, or any other action by Creditor be taken against, Debtor or any other person as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor. (d) notice of adverse change in the financial condition of Debtor or any other fact which might increase Creditor's risk; and (e) any other notices or demands to which guarantors or sureties may be entitled. 5. Continuing Guaranty. This Guaranty is an absolute and continuing ------------------- guaranty. This Guaranty shall terminate when all of the Obligations have been indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time, either before or after the termination hereof, payment of the Obligations guaranteed pursuant to this Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as though such payment had not been made. 6. Representations and Warranties. Guarantor represents and warrants ------------------------------ to Creditor as follows: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Illinois and has full corporate power and authority to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty by Guarantor have been and remain duly authorized by all necessary corporate action on the part of by Guarantor and do not contravene any provision of law or of Guarantor's certificate of incorporation or bylaws or any contractual restriction binding on Guarantor or any of its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and H-3 performance of this Guaranty by Guarantor have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance by Guarantor of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Debtor is indirectly partially owned by Guarantor, and this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. 7. Covenants. Guarantor agrees that, so long as this Guaranty remains --------- in effect, Guarantor will promptly furnish to Creditor, upon request at any time and from time to time, a copy of Guarantor's most recent annual report on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the Securities and Exchange Commission (the "SEC"); provided however, if Guarantor is not required to file such reports with the SEC, Guarantor agrees to furnish to Creditor such comparable financial information respecting Guarantor as Creditor may from time to time reasonably request. 8. Miscellaneous. ------------- (a) Notice. Any notice or other communication given hereunder by ------ either Guarantor or Creditor to the other party ("Notice") shall be in writing and delivered personally, mailed by registered or certified mail, postage prepaid and return receipt requested, by telecopier, or by courier guaranteeing overnight delivery, as follows: (i) if to Guarantor: Peoples Energy Corporation 130 East Randolph Drive Chicago, Illinois Attention: William W. Reynolds, Treasurer Telecopy No.: (312) 240-4348 (ii) if to Creditor: Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. Notice given by telecopier shall be deemed effective upon transmission and electronic confirmation by the transmitting telecopier. All Notices by telecopier shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address. All amounts becoming payable by Guarantor to Creditor under this Guaranty shall be payable at H-4 Creditor's offices located at its address for purposes of Notice, or such other place as Creditor may from time to time designate (including wire transfer instructions). (b) Amendments; Waivers; Remedies. All amendments, waivers, ------------------------------ consents or approvals arising pursuant to this Guaranty must be in writing signed by Guarantor and Creditor. No failure on the part of Creditor to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right, power or privilege operate as such a waiver. No right, power or remedy of Creditor under this Guaranty or the Contract shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to any other right, power or remedy thereunder or now or hereafter existing by law or in equity. (c) Severability. If any provision of this Guaranty or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable. (d) Assignment. Neither Guarantor nor Creditor may assign its ---------- rights or obligations under this Guaranty without the other party's prior written consent, which consent may not be unreasonably withheld; provided, however, Creditor may assign its rights hereunder without consent of Guarantor (but with prior notice thereof to Guarantor) to any party to whom the Contract has been properly assigned in accordance with the terms thereof. Subject to the foregoing, this Guaranty shall be binding on, and shall inure to the benefit of, Guarantor and Creditor and their respective successors and assigns. (e) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. (f) Headings. The headings of the sections and subsections of -------- this Guaranty are for convenience only, and shall not limit or otherwise affect the meaning hereof. (g) Counterparts. Guarantor may sign this Guaranty in any number ------------ of counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument. H-5 (h) Construction of Agreement. Unless the context of this ------------------------- Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of whatever gender, shall include natural persons, corporations, and associations of every kind and character, (ii) the gender of all words used in this Guaranty shall include the masculine, feminine and neuter, (iii) the words "includes" or "including" shall mean "including without limitation", and (iv) the words "hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer to this Guaranty as a whole and not any particular section or subsection in which such words appear. (i) Interpretation and Reliance. No presumption will apply in --------------------------- favor of any party hereto in the interpretation of this Guaranty or in the resolution of any ambiguity of any provision hereof. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed effective as of the date first above written. PEOPLES ENERGY CORPORATION By: _____________________ Name: _____________________ Title: _____________________ H-6 APPENDIX H - 2 GUARANTY THIS GUARANTY dated as of ___________, is made by Dominion Energy, Inc., a Virginia corporation ("Guarantor"), in favor of UtiliCorp United Inc. and Aquila Energy Marketing Corporation, Delaware corporations (referred to collectively hereafter as "Creditor"). WHEREAS, Creditor and Elwood Energy II, LLC, a Delaware limited liability company ("Debtor"), have entered into that certain Power Sales Agreement dated ___________, (the "Contract") and capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Contract; WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent membership interest in Debtor and the remaining 50 percent membership interest is indirectly owned by Peoples Energy Corporation ("Peoples"); and WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the Contract, Guarantor has agreed to provide to Creditor this Guaranty; NOW, THEREFORE, in consideration of the premises, Creditor's execution of the Contract and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty. Subject to the provisions hereof, Guarantor hereby -------- irrevocably, absolutely and unconditionally guarantees the timely payment of all financial obligations which become due and payable by Debtor to Creditor under or in connection with the Contract (collectively, "Obligations" and individually, an "Obligation") such that, if Debtor fails, neglects or refuses to perform any Obligation, Guarantor shall make such payment within ten business days after Guarantor receives written notice thereof. Notwithstanding the foregoing, as to any Obligation which Guarantor is called upon to pay or cause payment to be made, Guarantor reserves to itself the right to assert any and all defenses under the Contract which Debtor could assert against Creditor with respect to such Obligation; provided, however, that such reservation shall not include any legal or equitable discharge or defense of a guarantor or surety arising out of any of the events described in Section 2 or Section 3 hereof. The guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of the Obligations; provided, however, that in no event shall the maximum aggregate liability of Guarantor under this Guaranty exceed $10,000,000 (the "Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this Guaranty pursuant to the next sentence hereof; provided further, that Guarantor's obligations hereunder are separate and independent obligations from those of Peoples under Peoples' Guaranty of even date herewith and neither Guarantor nor Peoples shall be liable for the obligations of the other under their respective guaranties by reason of joint and several liability or otherwise. In addition to Guarantor's liability for the Obligations set forth herein, Guarantor agrees to pay to Creditor such further amounts as shall be sufficient to cover the costs of collecting or enforcing this Guaranty (including reasonable fees, expenses and disbursements of counsel). This Guaranty is a guaranty of payment and not of collection. H-1 2. Guaranty Absolute. Except as otherwise expressly provided in ----------------- Section 3(b) hereof, Creditor may, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment of, or (if applicable) interest rate on, or renew, extend or alter, any or all of the Obligations; (b) amend, waive, terminate or otherwise modify the Contract or any other document, instrument or agreement relating to any Obligation; (c) release (in whole or in part) or compromise or settle with Debtor or any other person liable in any manner for payment of any or all of the Obligations; (d) exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent; and (e) take, substitute, surrender, exchange or release any collateral or other security for any or all of the Obligations. 3. Effect of Certain Events. Guarantor agrees that, except as ------------------------ otherwise expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will not be released, reduced or impaired by the occurrence of any of the following events: (a) the liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or the Contract in or as a result of any such proceeding; (b) the renewal, consolidation, extension, modification or amendment from time to time of the Contract or any document, instrument or agreement relating to any Obligation, provided, however, that notwithstanding anything contained in this Guaranty or the Contract to the contrary, Creditor and Debtor may not, without the prior written consent of Guarantor, (i) extend or lengthen the Term of the Contract (as defined in the Contract as of the date hereof) beyond or ____________. (ii) change, modify or amend the definition of the term "Capacity Charges" (as defined in the Contract as of the date hereof) in any manner that would increase Guarantor's liability under this Guaranty; H-2 (c) the failure, delay, waiver or refusal by Creditor to exercise, in whole or in part, any right or remedy held by Creditor with respect to the Contract or the Obligations thereunder; or (d) the sale, encumbrance, transfer or other modification of the ownership of Debtor or Creditor or any change in the name, identity, business, structure, composition, financial condition or management (including, without limitation, by reason of a merger, dissolution, consolidation or reorganization) of Debtor or Creditor; (e) future changes in conditions, including change of law, or any invalidity, unenforceability or irregularity with respect to the execution and delivery of the Contract or this Guaranty; and (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety, subject to clause (ii) of Section 1 hereof. 4. Waivers. Except as expressly provided in Section 1 hereof, ------- Guarantor waives: (a) notice of acceptance of this Guaranty, of the creation or existence of the Contract or any Obligation thereunder, and of any action by Creditor in reliance hereon or in connection herewith; (b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to any Obligation; (c) any requirement that suit be brought against, or any other action by Creditor be taken against, Debtor or any other person as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor. (d) notice of adverse change in the financial condition of Debtor or any other fact which might increase Creditor's risk; and (e) any other notices or demands to which guarantors or sureties may be entitled. 5. Continuing Guaranty. This Guaranty is an absolute and continuing ------------------- guaranty. This Guaranty shall terminate when all of the Obligations have been indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time, either before or after the termination hereof, payment of the Obligations guaranteed pursuant to this Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as though such payment had not been made. 6. Representations and Warranties. Guarantor represents and warrants ------------------------------ to Creditor as follows: H-3 (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Illinois and has full corporate power and authority to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty by Guarantor have been and remain duly authorized by all necessary corporate action on the part of by Guarantor and do not contravene any provision of law or of Guarantor's certificate of incorporation or bylaws or any contractual restriction binding on Guarantor or any of its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty by Guarantor have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance by Guarantor of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Debtor is indirectly partially owned by Guarantor, and this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. 7. Covenants. Guarantor agrees that, so long as this Guaranty remains --------- in effect, Guarantor will promptly furnish to Creditor, upon request at any time and from time to time, a copy of Guarantor's most recent annual report on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the Securities and Exchange Commission (the "SEC"); provided however, if Guarantor is not required to file such reports with the SEC, Guarantor agrees to furnish to Creditor such comparable financial information respecting Guarantor as Creditor may from time to time reasonably request. 8. Miscellaneous. ------------- (a) Notice. Any notice or other communication given hereunder by ------ either Guarantor or Creditor to the other party ("Notice") shall be in writing and delivered personally, mailed by registered or certified mail, postage prepaid and return receipt requested, by telecopier, or by courier guaranteeing overnight delivery, as follows: (i) if to Guarantor: Dominion Energy, Inc. 120 Tredegar Street Richmond, Virginia 23218 Attention: Diane Leopold/Christine M. Schwab, Esq. Telecopy No.: (804) 819-2202 H-4 (ii) if to Creditor: Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. Notice given by telecopier shall be deemed effective upon transmission and electronic confirmation by the transmitting telecopier. All Notices by telecopier shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address. All amounts becoming payable by Guarantor to Creditor under this Guaranty shall be payable at Creditor's offices located at its address for purposes of Notice, or such other place as Creditor may from time to time designate (including wire transfer instructions). (b) Amendments; Waivers; Remedies. All amendments, waivers, ----------------------------- consents or approvals arising pursuant to this Guaranty must be in writing signed by Guarantor and Creditor. No failure on the part of Creditor to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right, power or privilege operate as such a waiver. No right, power or remedy of Creditor under this Guaranty or the Contract shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to any other right, power or remedy thereunder or now or hereafter existing by law or in equity. (c) Severability. If any provision of this Guaranty or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable. (d) Assignment. Neither Guarantor nor Creditor may assign its ---------- rights or obligations under this Guaranty without the other party's prior written consent, which consent may not be unreasonably withheld; provided, however, Creditor may assign its rights hereunder without consent of Guarantor (but with prior notice thereof to Guarantor) to any party to whom the Contract has been properly assigned in accordance with the terms thereof. Subject to the foregoing, this Guaranty shall be binding on, and shall inure to the benefit of, Guarantor and Creditor and their respective successors and assigns. (e) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER H-5 AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. (f) Headings. The headings of the sections and subsections of -------- this Guaranty are for convenience only, and shall not limit or otherwise affect the meaning hereof. (g) Counterparts. Guarantor may sign this Guaranty in any ------------ number of counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument. (h) Construction of Agreement. Unless the context of this ------------------------- Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of whatever gender, shall include natural persons, corporations, and associations of every kind and character, (ii) the gender of all words used in this Guaranty shall include the masculine, feminine and neuter, (iii) the words "includes" or "including" shall mean "including without limitation", and (iv) the words "hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer to this Guaranty as a whole and not any particular section or subsection in which such words appear. (i) Interpretation and Reliance. No presumption will apply in ---------------------------- favor of any party hereto in the interpretation of this Guaranty or in the resolution of any ambiguity of any provision hereof. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed effective as of the date first above written. DOMINION ENERGY, INC. By: _______________________ Name: _______________________ Title: _______________________ H-6 APPENDIX I Scheduled Maintenance Outages
Frequency of Duration of - ------------------------------------------------------------------------------------------------------------------- Type Scheduled Maintenance Inspection Inspection Major Combustion Inspection Every 400 starts or 8,000 equivalent hours 4-5 days Major Hot Gas Path Inspection Every 800 starts or 24,000 equivalent hours 10-12 days Major Major CT Overhaul Every 1,600 starts or 48,000 equivalent hours 20 days Routine* BOP Inspections Each Spring and Fall 4 days - -------------------------------------------------------------------------------------------------------------------
*Note: Routine Balance of Plant inspections will be scheduled during a Major Inspection outage. APPENDIX K Remote Monitoring Data Points Pursuant to Section 4.3.2.7, Seller shall use commercially reasonable efforts to make available to Buyer the Station Fuel Meter outputs listed below: Station Fuel Meter, including: (a) instantaneous and integrated natural gas fuel flow; (b) instantaneous and integrated natural gas fuel energy flow; (c) instantaneous fuel quality raw data (fuel heat content, delivery pressure, delivery temperature). Pursuant to Section 4.3.2.7, Seller shall make available to Buyer the Facility and Unit outputs listed below: 1. Revenue Meter Per Unit, including: (a) instantaneous and integrated Electric Energy output (corrected to the Point of Delivery); (b) instantaneous reactive power (volt-amperes-reactive, leading or lagging), or power factor (leading or lagging) as available; (c) integrated electric power inflow (backfeed) (d) station voltage (as measured at the Revenue Meter potential transformers; (e) system frequency (as measured on the interconnected Utility system bus, or if not available, at the Revenue Meter) . 2. Individual Fuel Meter instantaneous natural gas fuel flow to the individual Units (including Elwood III Units). 3. Station service instantaneous and integrated electric energy consumption. . 4. Ambient dry-bulb temperature at or near to the combustion turbine air inlet. . 5. Relative humidity or ambient wet-bulb temperature at or near to the combustion turbine air inlet. 6. Ambient atmospheric pressure at or near to the combustion turbine air inlet. I-1 I-2 EX-10.5 21 dex105.txt RESTATED POWER SALES AGREEMENT EXHIBIT 10.5 Execution Copy POWER SALES AGREEMENT Dated as of June 30, 2000 Between Aquila Energy Marketing Corporation, UtiliCorp United Inc. (Buyer) and Elwood Energy III, LLC (Seller) Table of Contents 1. DEFINITIONS AND INTERPRETATION..............................................................................1 1.1 Definitions..............................................................................................1 1.2 Interpretation..........................................................................................13 1.3 Legal Representation of Parties.........................................................................14 1.4 Titles and Headings.....................................................................................15 1.5 Order of Precedence.....................................................................................15 2. TERM AND SURVIVAL..........................................................................................15 2.1 Term....................................................................................................15 2.2 Survival................................................................................................15 3. PROJECT IMPLEMENTATION AND ACHIEVEMENT OF COMMERCIAL OPERATIONS............................................16 3.1 Development and Construction............................................................................16 3.2 Conditions to Commercial Operations.....................................................................16 3.3 Late Commercial Operations Date.........................................................................17 3.4 Commissioning and Test Power............................................................................19 4. ELECTRIC ENERGY DELIVERY, DISPATCH AND FORCED OUTAGES......................................................20 4.1 Delivery of Electric Energy.............................................................................20 4.2 Point of Sale...........................................................................................20 4.3 Dispatch Rights of Buyer................................................................................20 4.4 Incremental Energy......................................................................................23 4.5 Forced Outages..........................................................................................24 4.6 Access to Facility......................................................................................26 4.7 Delivery of Replacement Power and Substitute Power......................................................26 4.8 Emergency Conditions....................................................................................27 5. METERING; BILLING; PAYMENT.................................................................................27 5.1 Metering Electricity....................................................................................28 5.2 Adjustment for Inaccurate Meters........................................................................29 5.3 Billing.................................................................................................30 5.4 Payments................................................................................................31 5.5 Offsets.................................................................................................31 5.6 Billing Disputes........................................................................................31 6. OPERATION AND MAINTENANCE OF THE FACILITY..................................................................31 6.1 Standard of Operation...................................................................................31 6.2 Permits and Licenses....................................................................................32 6.3 Sole Remedy.............................................................................................32 6.4 Scheduled Maintenance...................................................................................32 6.5 Compressor Wash.........................................................................................33 6.6 Operating Characteristics...............................................................................33 6.7 Records.................................................................................................34 7. COMPENSATION...............................................................................................34 7.1 Capacity Charge.........................................................................................34 7.2 Energy Charge...........................................................................................36
i 7.3 Adjustment to Actual Heat Rate for Failure to Meet Guaranteed Heat Rate.................................38 7.4 Start Up Charge.........................................................................................39 7.5 Imbalance Charges.......................................................................................39 7.6 Rates Not Subject to Review.............................................................................40 8. PERFORMANCE TESTS..........................................................................................40 8.1 Test Procedures.........................................................................................40 8.2 Buyer's Right to Retest.................................................................................40 8.3 Seller Right to Retest..................................................................................41 8.4 Conditions for Testing..................................................................................41 8.5 Scheduling of Testing...................................................................................41 9. ANCILLARY SERVICES.........................................................................................41 9.1 Availability of Ancillary Services......................................................................41 9.2 Operational Considerations..............................................................................41 9.3 Future Enhancements.....................................................................................41 10. LIMITATION OF LIABILITY AND EXCLUSIVE REMEDIES.............................................................41 10.1 CONSEQUENTIAL DAMAGES................................................................................41 10.2 SOLE REMEDIES FOR FAILURE TO DELIVER OR RELATED BREACHES.............................................42 10.3 SOLE REMEDY FOR LATE COMMERCIAL OPERATIONS...........................................................42 10.4 SOLE TERMINATION FOR DEFAULT REMEDIES................................................................42 10.5 DIRECT DAMAGES FOR OTHER BREACHES....................................................................42 11. DISAGREEMENTS..............................................................................................43 11.1 Negotiations.........................................................................................43 11.2 Arbitration..........................................................................................43 11.3 Costs................................................................................................44 11.4 Settlement Discussions...............................................................................44 11.5 Preliminary Injunctive Relief........................................................................45 11.6 Obligations to Pay Charges and Perform...............................................................45 12. ASSIGNMENT; PROJECT FINANCING; AND TRANSFER OF UNITS.......................................................45 12.1 Assignment...........................................................................................45 12.2 Transfers and Change of Control......................................................................45 12.3 Consent to Assignment to Lender......................................................................46 12.4 Potential Changes in Ownership or Control of Aquila..................................................47 12.5 Transfers Not in Accordance Herewith.................................................................47 13. DEFAULT, TERMINATION AND REMEDIES; NOTICE OF DEFAULT.......................................................47 13.1 Events of Default of Seller..........................................................................47 13.2 Buyer Default........................................................................................48 13.3 Remedies.............................................................................................49 13.4 Special Termination for Chronic Poor Availability....................................................49 14. REPRESENTATIONS AND WARRANTIES.............................................................................49 14.1 Representations and Warranties of Seller.............................................................49 14.2 Representations and Warranties of Buyer..............................................................50 15. INDEMNIFICATION............................................................................................51 16. NOTICES....................................................................................................51 17. CONFIDENTIALITY............................................................................................52 18. SECURITY...................................................................................................53
ii 18.1 Seller Guarantees....................................................................................53 18.2 Buyer Security.......................................................................................53 19. FORCE MAJEURE..............................................................................................54 19.1 Definition...........................................................................................54 19.2 Obligations Under Force Majeure......................................................................55 19.3 Force Majeure Not Forced Outage......................................................................55 19.4 No Economic Force Majeure............................................................................55 19.5 Continued Payment Obligation.........................................................................56 19.6 Extended Force Majeure Event After Commercial Operations.............................................56 20. INTERCONNECTION AND TRANSMISSION...........................................................................57 20.1 Facilities...........................................................................................57 20.2 Transmission.........................................................................................57 21. TAXES......................................................................................................57 21.1 Applicable Taxes.....................................................................................57 21.2 Contested Taxes......................................................................................58 21.3 Other Charges........................................................................................58 22. MISCELLANEOUS PROVISIONS...................................................................................58 22.1 Non-Waiver...........................................................................................58 22.2 Relationship of Parties..............................................................................58 22.3 Successors and Assigns...............................................................................58 22.4 Governing Laws.......................................................................................58 22.5 Counterparts.........................................................................................59 22.6 Third Party Beneficiaries............................................................................59 22.7 Financial Information................................................................................59 23. APPOINTMENT OF AQUILA AS UCU'S AGENT.......................................................................59 23.1 Appointment..........................................................................................59 23.2 Presumption of Authority.............................................................................59 24. ENTIRE AGREEMENT AND AMENDMENTS............................................................................59
APPENDICES Appendix A Design Limits and Other Dispatch Restrictions Appendix B Testing Appendix C Communications Appendix D Reporting Forms Appendix E Equivalent Availability Calculations Appendix F Output and Heat Rate Adjustment Curve Appendix G Non-Billable Generation Appendix H Forms of Guarantees Appendix I Scheduled Maintenance Outages Appendix J Heat Rate Boundary Diagram and Site/Switchyard Map Appendix K Not Used Appendix L One Line Diagram Appendix M Milestone Schedule iii POWER SALES AGREEMENT THIS POWER SALES AGREEMENT (including Appendices, this "Agreement") dated as of June 30, 2000, is entered into between Aquila Energy Marketing Corporation ("Aquila"), and UtiliCorp United Inc. ("UCU") (Aquila and UCU referred to herein collectively as "Buyer"), and Elwood Energy III, LLC, a Delaware limited liability company ("Seller"); Buyer and Seller are sometimes referred to herein individually as a "Party" and collectively as the "Parties"); W I T N E S S E T H: WHEREAS, Seller owns and operates an electric generating facility in Elwood, Illinois and is engaged in the generation and sale of Electric Energy, Capacity and associated Ancillary Services; and WHEREAS, Seller is building the Facility which will be located at the Elwood Station; and WHEREAS, Seller anticipates the Commercial Operations Date of Units 7 and 8 of the Facility will occur on or prior to July 1, 2001; and WHEREAS, Buyer desires to receive and purchase, and Seller desires to deliver and sell the Electric Energy, Capacity and associated Ancillary Services from Units 7 and 8 of the Facility and Replacement Power, pursuant to this Agreement; and NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the Parties hereto agree as follows: 1. Definitions and Interpretation. ------------------------------ 1.1 Definitions. As used in this Agreement, the terms set forth ----------- below in this Section 1 shall have the respective meanings so set forth. "ASME" means the American Society of Mechanical Engineers. "Actual Heat Rate" for any period shall be the Heat Rate which is determined based upon actual performance of the Facility and the Elwood II Units during such period and calculated by the quotient of the aggregate gas energy consumption in Btus for Units 7 and 8 (not including gas consumed to generate Test Energy, incremental gas consumed (at a Heat Rate above the Net Heat Rate) to generate Incremental Energy to the extent used to offset what would otherwise be a Forced Derating, or gas consumed during Failed Starts), and the Elwood II Units as measured by the Station Fuel Meter divided by the Electric Energy output (in kWh) produced by the same Units and the Elwood II Units during the identical period as measured by the Revenue Meter. "Affected Party" has the meaning set forth in Section 19.1. "Affiliate" means, when used with respect to any Person, any Person controlling, controlled by or under common control with such Person. For the purposes of this definition, the term "controlling" (and, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or agency or otherwise. "Aggregate Delay LD Cap" means $ 21,215,800, less any Delay Book Out Charges paid by Seller. "Ancillary Services" has the meaning set forth in Section 9. "Availability Adjustment" has the meaning set forth in Section 7.1.3. "Available" means a state in which the Facility is capable of providing full service, whether or not it is actually in operation or in service. "Average Summer Partial Peak Availability" means the Equivalent Availability during Partial Peak Hours averaged over all months of a given Summer Period, calculated as: 1 - [(sum total of FOH + EFDH)/(sum total of Partial Peak period hours)]. "Average Summer Super Peak Availability" means the Equivalent Availability during Super Peak Hours averaged over all months of a given Summer Period, calculated as: 1 - [(sum total of FOH + EFDH)/(sum total of Super Peak period hours)]. "Bankruptcy" means any case, action or proceeding under any bankruptcy, reorganization, debt arrangement, insolvency or receivership law or any dissolution or liquidation proceeding commenced by or against a Person and, if such case, action or proceeding is not commenced by such Person, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in an order for relief or shall remain undismissed for 90 days. "Bankruptcy Event" means with respect to a Party, an assignment by such Party for the benefit of creditors or the filing of a case in Bankruptcy or any proceeding under any other insolvency law under which such Party is debtor in bankruptcy. "Base Fuel Charge" means the Fuel Index plus either 10 cents/MMBTU or 15 cents/MMBTU, as applicable under Section 7.2.5.1 or Section 7.2.5.2. "Btu" means British thermal unit. "Business Day" means each weekday (Monday through Friday) excluding NERC Holidays. "Buyer Event of Default" has the meaning specified in Section 13.2. 2 "Cap Date" has the meaning specified in Section 3.3.5. "Capacity" means the capability measured in kW of Seller to produce Electric Energy at the Facility or deliver Replacement Power to the Point of Delivery or the Replacement Power Delivery Point, as applicable. "Capacity Bonus" has the meaning set forth in Section 7.1.4. "Capacity Charge" has the meaning set forth in Section 7.1. "Capacity Rate" has the meaning set forth in Section 7.1.2 "Capacity Rate Reduction Amount" has the meaning set forth in Section 3.3.6. "Cap Date" has the meaning set forth in Section 3.3.5. "Change in Law" means, after the Effective Date, the enactment, adoption, promulgation, modification or repeal or a material modification or change in the administrative or judicial application by any Governmental Agency of any applicable Requirement of Law. "ComEd" means Commonwealth Edison Company or its successors and assigns. "ComEd/Elwood Switchyard" means that switchyard that provides interconnection services to the Facility as identified Appendix J. "Commercial Operations" means that a Unit or the Facility shall have achieved all of the conditions specified in Section 3.2. "Commercial Operations Date" means the day on which a Unit or the Facility achieves Commercial Operations. "Commercial Operations Delay Period" is the period of time, if any, between the Target COD and the Commercial Operations Date. "Commission" or "Commissioning" as applicable, means the test and start up process leading up to Commercial Operations. "Compressor Wash" has the meaning set forth in Section 6.5. "Confidential Information" has the meaning specified in Section 17. "Contract Year" means (i) for the first Contract Year, the period commencing on July 1, 2001 and ending on the December 31 occurring immediately thereafter, and (ii) for all other Contract Years (other than the final Contract Year), the calendar year, except that the final Contract Year shall be the period from the first day of the calendar year (during which the Term will expire) through the expiration of the Term. 3 "Cover Period" means a period during which the Seller is permitted pursuant to this Agreement to deliver or cause to be delivered Replacement Power or Substitute Power to Buyer. Such periods shall include only the following: (i) any time during Commercial Operations Delay Period; (ii) a Forced Outage or a Forced Derating; (iii) a period that could reasonably be likely to result in a Forced Outage or Forced Derating, as a result of which Seller determines, in accordance with Prudent Industry Practices, that safety concerns, potential equipment breakdowns or Unit vibration alarms require the Units to be made unavailable for a period of time necessary to diagnose and remedy such operational problems; or (iv) a Force Majeure Period. "Day Ahead Schedule" means Buyer's hour by hour Dispatch schedule for the next calendar day or days, as applicable, as provided to Seller pursuant to Section 4.3.2.1. "Default Rate" means (a) the one-month "LIBOR" as published from time to time in the "Money Rates" section of The Wall Street Journal, plus (b) 4.5% (450 basis points) per annum. "Degradation Curves" means the combustion turbine degradation curve(s) as represented by General Electric Bulletin No. 519HA772, Rev. A, dated February 9, 1995. "Delay Book Out Charge" has the meaning specified in Section 3.3.2 "Delay Election" has the meaning specified in Section 3.3.1 "Delay LDs" has the meaning specified in Section 3.3.3. "Design Limits" means the operating specifications listed in Appendix -------- A. - - "Diagnostic Period" has the meaning specified in Section 4.5.3. "Differential Transmission Adjustment" means the difference between the cost to Buyer to have Replacement Power delivered from the Replacement Power Delivery Point to Buyer's ultimate customer and the cost Buyer would have incurred to transmit such power from the Point of Delivery to such customer. Such amount may be a negative or positive number and shall be determined in accordance with Section 7.2.4.3. "Dispatch" means Buyer's rights to schedule the designated Electric Energy output of the Facility pursuant to Section 4.3 or to schedule the delivery of Replacement Power pursuant to Section 4.7. "Dispatch Notification" means that Buyer has notified Seller by telephone conversation of Buyer's Dispatch order in accordance with Appendix C. "Dispatcher" means Buyer's authorized representative for Dispatch under this Agreement. "DLD Escrow" has the meaning set forth in Section 3.3.5. 4 "Dominion" means Dominion Energy, Inc., a Virginia corporation. "Downgrade Event" means (i) with respect to a Buyer or Seller Guarantor whose long term unsecured indebtedness is rated by one or both of Standard & Poor's or Moody's, a downgrade in such ratings such that both fall below Investment Grade, and (ii) with respect to a Seller Guarantor that is not rated, a value below $600,000,000 in owner's equity or a ratio of total liabilities to total assets for Dominion that exceeds 72%. "EPC Contractor" means the party under contract to Seller to design, engineer, procure, and construct the Facility. "Effective Date" means the date of this Agreement. "Electric Energy" means all electric energy output from the Facility (net of Facility station service and auxiliaries for the Units and the Elwood II Units) delivered to Buyer by Seller from and after the Commercial Operations Date in accordance with the terms of this Agreement. "Elwood Station" means the multi-unit power generation station that includes the Facility and other units, located in Elwood, Illinois owned by Seller and its Affiliates. "Elwood II Units" means Units 5 and 6 at Elwood Station. "Emergency Condition" means a condition or situation which (i) in the sole judgment of the Interconnected Utility presents an imminent physical threat of danger to life, or significant threat to health or property (including in the ComEd/Elwood Switchyard), (ii) in the sole judgment of the Interconnected Utility could cause a significant disruption on or significant damage to the Interconnected Utility's System (or any material portion thereof) or the transmission system of a third party (or any material portion thereof), (iii) in the reasonable judgment of Seller presents an imminent physical threat of danger to life, or significant threat to health or property (including in the ComEd/Elwood Switchyard) or (iv) in the reasonable judgment of Seller could cause significant damage to the Facility (or any material portion thereof). "Energy Charge" has the meaning set forth in Section 7.2. "Energy Rate" means, individually or collectively, as the context requires, the Replacement Power Energy Rate, the Incremental Energy Rate, the Facility Electric Energy Rate, or the Test Energy Rate. "Equivalent Availability" has the meaning set forth in Appendix E. ---------- "Equivalent Forced Derated Hours" or "EFDH" has the meaning set forth in Appendix E. "Escrow Agreement" has the meaning specified in Section 3.3.5. "Extension Term" has the meaning set forth in Section 2.1. 5 "Facility" means the natural gas fueled electric generation plant consisting of two GE Frame 7 FA combustion turbines designated as Units 7 and 8, together with appurtenant facilities, and having a total net output estimated to be approximately 303,560 kWs located at the Elwood Station. "Facility Electric Energy Rate" has the meaning set forth in Section 7.2. "Failed Start" means an attempted start up of a Unit whereby Seller initiates the Start Up Sequence but does not achieve a Start Up. "FERC" means the Federal Energy Regulatory Commission. "Final Commercial Operations Date" means June 1, 2002, as such date may be extended pursuant to Section 19, in which case such date shall be extended by the period during which a Force Majeure Event impairs or precludes the performance by a Party of its obligations hereunder, but in no event beyond June 1, 2003. "First Outage Notice" has the meaning set forth in Section 4.5.1. "Force Majeure Event" has the meaning set forth in Section 19.1. "Force Majeure Period" means any period during which a Force Majeure Event affecting Seller occurs that precludes wholly or in part the capability of the Facility to deliver Electric Energy and Capacity as required hereunder. "Forced Derating" has the meaning set forth in Appendix E. ---------- "Forced Outage" has the meaning set forth in Appendix E. ---------- "Forced Outage Hours" or "FOH" has the meaning set forth in Appendix E. ---------- "Four Month Date" has the meaning set forth in Section 3.3.6. "Fuel Charge" means the Base Fuel Charge plus the applicable surcharge, if any, imposed pursuant to Section 7.2.5.3. "Fuel Index" means the index as published in Gas Daily - "Midpoint, --------- Chicago-LDCs, Large e-us" - for the day of Energy delivery to Buyer. If this index ceases to be published the Parties shall select a mutually agreeable substitute index designed to track the market price of gas in the Chicago area for large end users for next day service. "Fuel Metering Point "means the Station Fuel Meter identified in Appendix J. "GDP-IPD" means the Gross Domestic Product - Implicit Price Deflator as published in the National Income and Product Account by the U.S. Department of Commerce. 6 "Government Agency" means any federal, state, local, territorial or municipal government, governmental department, commission, board, bureau, agency, instrumentality, judicial or administrative body (or any agency, instrumentality or political subdivision thereof) having jurisdiction over the Buyer, Seller, the Facility, or the Interconnected Utility. "Governmental Approval" means any authorization, consent, approval, license, ruling, permit, exemption, filing, variance, order, judgment, decree, publication, notice to, declarations of or with or regulation by or with any Government Agency relating to the acquisition, ownership, occupation, construction, Commissioning , operation or maintenance of the Units and the Facility or to the execution, delivery or performance of this Agreement. "Gross Margin" shall mean the reasonable documented actual sales proceeds at Prevailing Market Prices for energy and/or capacity, less Transaction Costs, less (i) the Facility Electric Energy Rate or (ii) in the case of Incremental Energy, $100/MWh. "Guaranteed Availability" means the Guaranteed Non-Summer On Peak Availability, the Guaranteed Summer Partial Peak Availability or the Guaranteed Summer Super Peak Availability for the applicable period. "Guaranteed Heat Rate" means 10,787 Btu/kWh (HHV), new and clean at Reference Conditions. "Guaranteed Non-Summer On Peak Availability" shall be equal to 97%. "Guaranteed Ramp Rate" has the meaning set forth in Appendix A. ---------- "Guaranteed Start-Up Time" has the meaning set forth in Appendix A. ---------- "Guaranteed Summer Partial Peak Availability" shall be equal to 97%. "Guaranteed Summer Super Peak Availability" shall be equal to 97%. "Heat Rate" means the efficiency expressed as the amount of Btus of natural gas consumed to generate a kwh of electric energy. "Heat Rate Credits" has the meaning set forth in Section 7.3.2. "ISO" or "Independent System Operator" means any Person, other than ComEd, that becomes responsible as system operator for the Interconnected Utility System. "Imbalance Charge" means a charge for oversupply or undersupply of Electric Energy incurred pursuant to Schedule 4 of ComEd's Open Access Transmission Tariff or the Interconnection Agreement. "Incremental Energy" has the meaning set forth in Section 4.4. "Incremental Energy Rate" has the meaning set forth in Section 7.2. 7 "Individual Fuel Meter" means the meter located as indicated in Appendix J, measuring gas consumption of an individual Unit or similar meters on the Elwood II Units. "Initial Net Heat Rate" means the Net Heat Rate as tested in the final performance testing for each Unit under the contract with the EPC Contractor averaged over the Units and the Elwood II Units with evaporative coolers in service as corrected to Reference Conditions in accordance with Appendix B. "Initial Term" has the meaning set forth in Section 2.1. "Interconnection Facilities" means the interconnection facilities that will connect the Facility with the Interconnected Utility System, as more fully described in the Interconnection Agreement. "Interconnected Utility" means ComEd or its successors and assigns; such assigns may include an ISO or any other entity operating a control area that includes the Interconnected Utility System. "Interconnected Utility System" means the electric transmission and distribution system owned by ComEd and its Affiliates, or their successors and assigns; such assigns may include assignment of operations to an ISO which shall then mean that Interconnected Utility System operated by such ISO. "Interconnection Agreement" means the Interconnection Agreement to be agreed to and executed between the Interconnected Utility and Seller with respect to the Facility. "Interconnection Facilities" means the interconnection facilities that will connect the Facility with the Interconnected Utility System, as more fully described in the Interconnection Agreement. "Investment Grade" means a rating on the long term unsecured indebtedness of an entity of at least Baa3 from Moody's or at least BBB- from Standard & Poor's. "kW" means kiloWatt "KWh" means kiloWatthour. "Lenders" means with respect to the Seller (i) any person or entity that, from time to time, has made loans to the Seller, its permitted successors or permitted assigns for the financing or refinancing of the Facility or the marketing of the Electric Energy, Capacity or Ancillary Services of the Facility or which are secured by the Facility, (ii) any holder of indebtedness of the Seller, (iii) any person or entity acting on behalf of such holder(s) to which any holders' rights under financing documents have been transferred, any trustee or agent on behalf of any such holders, or (iv) any Person who purchases the Facility in connection with a sale-leaseback or other lease arrangement in which the Seller is the lessee of the Facility pursuant to a net lease. 8 "Liabilities" has the meaning set forth in Section 15. "MMBtu" means million Btus. "MW" means megaWatt. "MWh" means megaWatthour. "MAIN" means the Mid-America Interconnected Network, or its successors. "Monthly Adjustment Factor" means, with respect to the calculation of the Availability Adjustment, 18% for the month of June, 32% for the month of July and 32% for the month of August, except that for the first Contract Year only, the Monthly Adjustment Factor shall be 0% for the month of June, and 41% for each of the months of July and August. "Moody's" means Moody's Investors Service, or its successor. "NERC" means the North American Electric Reliability Council, or its successor. "NERC Holidays" means New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and other holidays observed by NERC. "Net Dependable Capacity" means the net aggregate generating capacity measured in kWs of both Units of the Facility, based upon demonstrated output (net of station service and auxiliaries for the Units and the Elwood II Units) achieved during capacity testing of the Facility pursuant to Section 8.1 and Appendix B, adjusted by the Degradation Curves and to Reference Conditions; - ---------- provided, however, that prior to the Commercial Operations Date, the Net Dependable Capacity of the Facility shall be deemed to be 303,560 kW, at Reference Conditions. If one Unit achieves Commercial Operations prior to the other Unit, then for the period when only one Unit is in Commercial Operations, Net Dependable Capacity for all purposes other than calculation of Capacity Charges shall mean the net dependable capacity of such Unit. "Net Heat Rate" means the Heat Rate established by periodic testing of the Units and the Elwood II Units as corrected with the Degradation Curve to Reference Conditions pursuant to Appendix B. "Nicor" means Northern Illinois Gas Company, or its successors. "Non-Billable Generation" has the meaning specified in Section 5.1 and shall be calculated in accordance with Appendix O. "Non-Summer On Peak Hours" means during the Non-Summer Period, the hour ending 0700 Central Time through the hour ending 2200 Central Time, Monday through Friday, excluding NERC holidays. "Non-Summer Period" means September 1 through May 31. 9 "OEM" means the original equipment supplier. "On Peak Hours" means (i) during the Summer Period, the hour ending 0700 Central Time through the hour ending 2200 Central Time, Monday through Saturday, excluding NERC Holidays and (ii) during the Non-Summer Period, the hour ending 0700 Central Time through the hour ending 2200 Central Time, Monday through Friday, excluding NERC Holidays. "Outage Book Out Charge" has the meaning set forth in Section 4.5.1. "Outage Election" means Seller's election during any Cover Period either to provide Replacement Power or cause to be provided Substitute Power in accordance with Section 4.7.3. "Partial Peak Hours" means, during the Summer Period, the hour ending 0700 through the hour ending 1100 and the hour ending 2000 through the hour ending 2200, Central Time, Monday through Saturday, excluding NERC holidays. "Pecorp" means Peoples Energy Corporation, an Illinois corporation. "Period Hours" or "PH" has the meaning set forth in Appendix E. "Permitted Assignee" means a Person having at least five (5) years experience in the operations and maintenance of electrical generation facilities similar to the Facility and having a level of creditworthiness equivalent to Seller and Seller Guarantors, which Person shall be reasonably acceptable to Buyer. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. "Per Unit Delay LD Cap" means $ 10,607,900, less any Delay Book Out Charges paid by Seller in respect of the applicable Unit. "Point of Delivery" means, for Electric Energy delivered from a Unit, the point of interconnection between the Facility and the Interconnected Utility System in the ComEd/Elwood Switchyard, as identified in Appendix J. "Post COD Test Energy" means Test Energy generated on and after the Commercial Operations Date. "Pre COD Test Energy" means Test Energy generated before the Commercial Operations Date. "Prevailing Market Price" means the best price available to Buyer (i.e., highest price when Buyer markets Test Energy and Incremental Energy and lowest price when Buyer procures Substitute Power) actually obtained for energy or capacity (taking into account the type, reliability, and duration and other relevant attributes of such energy or capacity), which shall be obtained through commercially reasonable efforts, as evidenced, upon request of Seller, by 10 documentation of such price, unless and until an index or other mechanism mutually acceptable to the Parties is created and agreed upon by the Parties to serve as the Prevailing Market Price. "Prudent Industry Practice" means any of the practices, methods, standards and acts required or approved by any ISO or engaged in or approved by a significant portion of the electric generation industry in the geographic region covered by MAIN during the relevant time period, or any of the practices, methods, standards and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. "Prudent Industry Practice" is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the geographic region covered by MAIN and which generally conform to operation and maintenance standards recommended by the OEM, the Design Limits, and Government Approvals. "Rating Category" means a letter category rating for long term unsecured indebtedness of an entity (e.g. Aaa, Aa, A, Baa, Ba, and so on in the case of Moody's and AAA, AA, A, BBB and so on in the case of Standard & Poor's), disregarding in each case any numerals or other modifiers appended to such rating. "Reference Conditions" means ambient atmospheric temperature of 95 degrees Fahrenheit (dry-bulb), 60% relative humidity, adjusted for elevation above mean sea level. "Reference Heat Rate" shall be determined for each hour using the turbine OEM's heat rate performance curves adjusted to site elevation, ambient conditions, load factor and Degradation Curves and as provided in Appendix F. "Replacement Power" (i) prior to the Commercial Operations Date, means electric Capacity and electric energy provided by Seller from time to time to Buyer from sources (including from other units at the Elwood Station) other than the Facility and (ii) after the Commercial Operations Date, means electric energy provided by Seller from time to time to Buyer from sources (including other units at the Elwood Station) other than the Facility. "Replacement Power Delivery Point" means the point where Replacement Power is delivered to Buyer, at a point or points that are acceptable to Buyer, such acceptance not to be unreasonably withheld or delayed, unless the Replacement Power Delivery Point shall be the same as the Point of Delivery, in which case it shall be deemed to be acceptable to Buyer. "Replacement Power Energy Rate" has the meaning set forth in Section 7.2.2 "Requested Load Delivery Time" means the designated time in Buyer's Dispatch schedule for a Unit to be generating at a specified level. "Requirement of Law" means any applicable federal, state and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any federal, 11 state, local or other Governmental Agency (including those pertaining to electrical, building, zoning, environmental and occupational safety and health requirements). "Revenue Meter" means the meter which measures power flow into the main step up transformer of each Unit and similar meters on the Elwood II Units at a point after auxiliary loads are withdrawn from the bus. "Scheduled Maintenance Outage" means the time period during which a Unit or any portion of the Facility is removed from service to perform work on specific components based upon manufacturer's recommended schedules in accordance with Section 6.4. "Scheduling Fees" means the charge of Buyer to Seller for scheduling Test Energy and Incremental Energy, which shall equal $1.00 per MWh. "Second Outage Notice" has the meaning set forth in Section 4.5.3. "Seller Event of Default" has the meaning specified in Section 13.1. "Seller Guarantees" has the meaning specified in Section 18.1. "Seller Guarantor" means Dominion or Pecorp. "Site" means the real property on which the Units are located. "Size of Reduction" has the meaning set forth in Appendix E. "Standard & Poor's" means Standard & Poor's Rating Group a division of McGraw-Hill, Inc. or its successor. "Start Up" means the initiation of the Start Up Sequence followed by the applicable Unit's generating at least 60% of the Net Dependable Capacity. "Start Up Charge" has the meaning set forth in Section 7.4. "Start Up Sequence" means the normal sequence of events, beginning with the cranking process, in order to achieve Start Up. "Station Fuel Meter" means the Nicor fuel meter common to Units 7 and 8 and to the Elwood II Units. "Substitute Power" (i) prior to the Commercial Operations Date means electric energy and capacity (ii) after the Commercial Operations Date, electric energy, in each case obtained by Buyer at the direction of Seller in accordance with Section 4.7.3. "Substitute Power Cost Credit" is a credit adjustment to Buyer for its reasonable costs to acquire Substitute Power at the direction of Seller and as calculated in accordance with Section 7.2.4.3. 12 "Summer Average Availability" means the Equivalent Availability for all Summer On Peak Hours in each month during the Summer Period of any given Contract Year, averaged over such three months. "Summer Period" means the period from June 1 through August 31 of each Contract Year. "Summer Off Peak Hours" means all hours in the Summer Period other than On Peak Hours. "Summer On Peak Hours" means all Super Peak Hours and Partial Peak Hours. "Super Peak Hours" means, during the Summer Period, the hour ending at 1200 Central Time and through the hour ending 1900 Central Time, Monday through Saturday, excluding NERC holidays. "Target COD" means July 1, 2001, as such date may be extended day-for-day due to Force Majeure Events as and to the extent permitted by Section 19 or for days covered by a Delay Book Out Charge pursuant to Section 3.3.3. "Term" has the meaning specified in Section 2.1. "Test Energy" means electricity generated during a test at a time when the tested Unit would not be Dispatched by Buyer to generate but for the running of the test. "Third Party Damages" has the meaning set forth in Section 4.7.4. "Threshold Heat Rate" is 10,759 Btu/KWh, new and clean at Reference Conditions. "Transaction Costs" means reasonable documented transaction costs associated with the sale and marketing of Electric Energy or Test Energy, as applicable, including and limited to transmission costs (or fees or charges imposed by a third party in lieu of or in addition to such transmission costs in accordance with common industry practice), transmission line losses, Scheduling Fees and ancillary service charges. "Unit" means either of the GE frame 7FA gas-fired turbine generator units of the Facility subject to Dispatch by Buyer under this Agreement, i.e., numbers seven (7) and eight (8). "Variable O&M Rate" means $1.00/MWh (as of June 1, 1999), and as adjusted on the anniversary of the first and each subsequent Contract Year by the annual change in the GDP-IPD. 1.2 Interpretation. In this Agreement, unless a clear contrary -------------- intention appears: 1.2.1 the singular number includes the plural number and vice versa; 13 1.2.2 reference to any Person includes such Person's successors and assigns but, in the case of a Party, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; 1.2.3 reference to any gender includes each other gender; 1.2.4 reference to any agreement (including this Agreement), document, instrument or tariff means such agreement, document, instrument or tariff as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof; 1.2.5 reference to any Requirement of Law means such Requirement of Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, including, if applicable, rules and regulations promulgated thereunder; 1.2.6 reference to any Section or Appendix means such Section of this Agreement or such Appendix to this Agreement, as the case may be, and references in any Section or definition to any clause means such clause of such Section or definition; 1.2.7 "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Section or other provision hereof or thereof; 1.2.8 "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; 1.2.9 relative to the determination of any period of time, "from" means "from and including", "to" means "to but excluding" and "through" means "through and including"; and 1.2.10 reference to time shall always refer to prevailing Central Time, i.e., standard time or daylight time as applicable in Elwood, Illinois. 1.2.11 wherever this Agreement speaks in terms of both Units (or the Facility), and the context of a provision requires application to only one Unit, then such provision and operative terms or amounts relating thereto shall be appropriately construed or prorated, as appropriate. 1.3 Legal Representation of Parties. This Agreement was negotiated by ------------------------------- the Parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party shall not apply to any construction or interpretation hereof or thereof. 14 1.4 Titles and Headings. Section and Appendix titles and headings in ------------------- this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement. 1.5 Order of Precedence. In the event of a conflict between any of ------------------- the terms of this Agreement, the conflict shall be resolved by giving priority to the terms in the following order of precedence: (1) Sections 1-23, (2) Appendix E, (3) Appendix A, and (4) the remaining Appendices in the order in which they appear in this Agreement. 2. Term and Survival ----------------- 2.1 Term. This Agreement shall have a term (the "Term") commencing on ---- the Effective Date and ending on August 31, 2017 (the "Initial Term") unless otherwise extended or terminated in accordance with the provisions of this Agreement. The Buyer shall have the unilateral right to extend the Initial Term for a five (5) year period (or such other period as the Parties mutually agree) (the "Extension Term") provided the Buyer notifies Seller in writing by September 1, 2015 of its desire to so extend. 2.2 Survival. The provisions of Section 1 (Definitions and -------- Interpretation), Section 6.7 (Records), Section 10 (Limitation of Liability and Exclusivity of Remedies), Section 11 (Disagreements), Section 13 (Default, Termination and Remedies), Section 15 (Indemnification), Section 17 (Confidentiality), Section 18 (Security), Section 22 (Miscellaneous), and Section 24 (Entire Agreement and Amendments) shall survive the termination of this Agreement. 15 3. Project Implementation and Achievement of Commercial Operations. --------------------------------------------------------------- 3.1 Development and Construction Development. Seller shall (i) use ---------------------------------------- all commercially reasonable efforts to develop, engineer, procure, construct, and Commission the Facility, (ii) achieve the Commercial Operations Date on or prior to the Target COD, and (iii) apply for and obtain all Governmental Approvals and all renewals thereof as are required for Seller to perform its obligations under this Agreement, including air emissions permits. 3.1.2 Construction. Seller shall complete, or cause the ------------ completion of, the design, construction, installation, and Commissioning of the Facility in a manner consistent with Prudent Industry Practices. 3.1.3 Status Report. Starting thirty (30) days after the ------------- Effective Date, Seller shall report to Buyer, each month, on the construction status, fuel supply and transportation status, and shall provide a report on Seller's progress toward achieving the milestone schedule included in Appendix M. Such report shall, at a minimum, provide a schedule showing Facility permit status, items completed and to be completed, the expected Commercial Operations Date, and the estimated percentage of completion for the Facility. 3.2 Conditions to Commercial Operations. The occurrence of Commercial ----------------------------------- Operations of a single Unit or the Facility is contingent upon Seller providing evidence reasonably acceptable to Buyer of the satisfaction or occurrence of all of the following conditions: 3.2.1 Communications. The Facility (or single Unit as -------------- applicable) has demonstrated the reliability of any communications systems and equipment for communications with the Interconnected Utility's system control center required to be provided by Seller pursuant to this Agreement prior to the Commercial Operations Date. 3.2.2 Tests. Seller shall perform a heat rate and capacity test ----- in accordance with Appendix B of a Unit or Units. In conjunction with such test each tested Unit shall operate continuously for a minimum of four (4) consecutive hours synchronized to the Interconnected Utility System at a level equal to at least 288 MW if for both Units and 144 MW if for one Unit, and each Unit has successfully completed five (5) consecutive Start Ups and shutdowns. 3.2.3. Security. Seller security arrangements meeting the -------- requirements of Section 18.1 shall have been established. 3.2.4 Fuel Supply and Transportation. Seller shall have entered ------------------------------ into fuel supply and transportation arrangements of a sufficient level of firmness so as to permit Buyer to Dispatch the Unit or Units in accordance with the terms of this Agreement. 16 Seller shall be deemed to satisfy this condition if Seller has in place an agreement for balancing services similar in all material respects to the NICOR Transportation and Balancing Agreement for units 1-4 at the Elwood Station. Construction of pipeline facilities and improvements necessary for operation of the Facility has been completed. 3.2.5 Seller Certification. Seller has delivered a certificate -------------------- stating that (1) the Unit has been completed in all material respects (excepting, e.g., punch list items that do not materially adversely affect the ability of the Unit or Units to operate in accordance with Prudent Industry Practice), (2) the Unit or Units has been designed and constructed and all conditions have been satisfied so as to permit Buyer to Dispatch the Unit or Units pursuant to the terms of the Agreement, and (3) that adequate levels of insurance coverage of the types and with the limits for electrical generation facilities similar to the Facility have been purchased by Seller that are usual and customary in accordance with Prudent Industry Practice. 3.2.6 Opinion of Counsel. An opinion of Seller's counsel has ------------------ been rendered that all permits, licenses, approvals, and other Governmental Approvals required for the construction and operation of the Facility in accordance with this Agreement have been obtained. 3.2.7 Interconnection. The electrical interconnection of the --------------- Facility to the Interconnected Utility System has been completed in accordance with Prudent Industry Practice sufficient to permit Buyer to Dispatch the Unit or Units in accordance with this Agreement. 3.3 Late Commercial Operations Date. Seller anticipates that the ------------------------------- Commercial Operations Date for each Unit will occur no later than the Target COD. 3.3.1 COD Delays. If the Commercial Operations Date for a Unit ---------- does not occur prior to 1000 Central Time on the Target COD and if Seller fails to deliver or cause to be delivered Replacement Power or Substitute Power in accordance with Section 4.7.3 or to agree to Buyer's Delay Book Out Charge as described in Section 3.3.2, Seller shall be liable to Buyer for Delay LDs per Unit per day for the period of the delay. 3.3.2 Delay Book Out Charge. Seller may request that Buyer --------------------- provide Seller a Delay Book Out Charge, which request shall be made by Seller no later than noon sixteen (16) Business Days prior to the Target COD, and by noon every seventh (7th) day thereafter, if necessary. Within twenty four (24) hours of Seller's request, Buyer shall provide Seller a quote in dollars at a mutually agreeable time for the first seven (7) days of the Commercial Operations Delay Period (a "Delay Book Out Charge"). Immediately upon Seller's receipt of the quoted Delay Book Out Charge, Seller shall notify Buyer as to whether Seller elects to pay Delay LDs, provide Replacement Power, request Buyer to procure Substitute Power or accept the Delay Book Out Charge (the "Delay Election"). Upon acceptance and payment of the Delay Book Out Charge by Seller, Seller shall be released from any liability for Delay LDs for the first seven (7) days of the Commercial Operations Delay Period and the Target COD shall be delayed 17 by seven (7) days for all purposes other than initiation of Capacity Charges. Seller shall pay Buyer the Delay Book Out Charge within ten (10) days thereafter and may offset such amount against the Capacity Charges due for the period to which the Delay Book Out Charge applies, with such offset discharging Buyer's obligation to pay Capacity Charges to the extent so offset. Subsequent to the Delay Election, if Seller anticipates that the Commercial Operations Date will not occur by the Target COD, Seller may repeat the process for the Delay Election set forth above. If Seller rejects the Delay Book Out Charge, then Seller shall be liable for Delay LDs until the earlier to occur of (a) the time at which Seller begins to deliver or causes to be delivered Replacement Power, (b) the Commercial Operations Date, or (c) the first day of the seven (7) day period to which a subsequent Delay Book Out Charge applies. Any amounts paid by Seller for Delay Book Out Charges shall be deducted from both the Aggregate LD Cap and pro rata from the Per Unit LD Cap for the applicable Unit(s). To the extent that a Unit is capable of delivering and delivers any Electric Energy during a period covered by a Delay Book Out Charge, such Electric Energy shall be purchased by Buyer at a price equal to the Facility Electric Energy Rate plus 80% of the Gross Margin, if the Prevailing Market Price less Transaction Costs exceeds the Facility Electric Energy Rate. 3.3.3 Amounts of Delay LDs. Liquidated damages ("Delay LDs") -------------------- shall accrue at the rate of $100,000 per Unit per day during June, $225,000 per Unit per day during July, $200,000 per Unit per day during August; and for all other months, the prorated daily portion of the applicable month's Capacity Charges per Unit per day, provided however, in no event shall Delay LDs (x) be assessed for the day on which the Commercial Operations Date occurs if it occurs prior to 10:00 a.m. on such day or (y) exceed Per Unit LD Cap, or the Aggregate LD Cap as applicable. Delay LDs shall be offset against Capacity Charges as they come due. 3.3.4 Interest on Deferred Amounts and Offsets. To the extent ---------------------------------------- that accrued Delay LDs exceed the Capacity Charges that would have been paid currently if the Facility or a Unit had achieved Commercial Operations on the Target COD, such amounts shall accrue interest at the Default Rate until recovered by Buyer through offsets against Capacity Charges as they come due. 3.3.5 DLD Escrow. Notwithstanding the foregoing, if the ---------- Commercial Operations Date for one or both Units has not occurred on or before the date (the "Cap Date") that Seller has incurred an aggregate amount of Delay LDs equal to the Per Unit Delay LD Cap (in the case of one Unit) or the Aggregate Delay LD Cap (in the case of both Units), then Seller shall, within seven (7) Business Days after the Cap Date, establish and fund (in cash) an escrow with an A-rated bank (the "DLD Escrow") in an initial amount equal to the gross amount of accrued Delay LDs, plus interest accrued at the Default Rate less offsets of Capacity Charges accrued as of the date the DLD Escrow is funded. If and to the extent Seller fails to establish and/or fully fund the DLD Escrow, the Buyer may draw on the Seller Guarantees for the amount of Delay LDs (plus interest accrued thereon at the Default Rate) not paid or placed in escrow as required by this Section 3.3.5. Upon the Commercial Operations Date, Seller shall be entitled to 18 withdraw from the DLD Escrow an amount equal to the Capacity Charges that accrued from and after the date the DLD Escrow was funded up to and including the Commercial Operations Date. Seller may make subsequent withdrawals each month in an amount equal to such month's Capacity Charges that would be due from Buyer but for offsets pursuant to Section 3.3 until the principal balance in the DLD Escrow is zero. Upon the closing of the account by Seller, Seller shall pay to Buyer an amount equal to the interest that would have been earned on such account at the Default Rate of interest and any funds remaining in the account shall exclusively belong to Seller. At no time shall Buyer be entitled to receive the funds in the account. 3.3.6 Extended COD Delays. If the Commercial Operations Date for ------------------- a Unit has not occurred on or before the date that is 120 days after the Target COD (as extended day-for-day for a Force Majeure Event) (the "Four Month Date"), then the applicable Capacity Rate shall be reduced (the "Capacity Rate Reduction") by an amount equal to $.01 KW-month multiplied by a fraction, the numerator of which is the number of days from the Four Month Date to the Commercial Operations Date and the denominator of which is thirty (30) days. The Capacity Rate Reduction shall take effect beginning with the later to occur of (i) June 1 of the second Contract Year and (ii) the Commercial Operations Date, and continue for the remainder of the Term. 3.3.7 Termination for Extended Delay. Buyer may terminate this ------------------------------ Agreement with regard to a Unit if the Commercial Operations Date for such Unit is not achieved by June 1, 2002, except to the extent such delay is caused by a Force Majeure Event, in which case such termination date shall be extended by the Force Majeure Period, but in no event beyond June 1, 2003 (provided, however, that Buyer may terminate this Agreement following -------- ------- a Force Majeure Period lasting twelve months or more, unless Seller closes on financing for the Facility by May 31, 2002). If this Agreement is terminated with regard to a Unit(s) pursuant to this Section 3.3.7 for failure to achieve the Commercial Operations Date by June 1, 2002, (i) Buyer's sole remedy for damages and Seller's sole liability for damages shall be for Buyer to offset Delay LDs against Capacity Charges accrued and not paid to Seller prior to termination and to receive the Default Rate of interest on Delay LDs accrued in excess of Capacity Charges due at any given time until such Delay LDs are received by Buyer through offsets against Capacity Charges and (ii) Seller shall have no obligation to pay Delay LDs accrued during any Commercial Operations Delay Period except as an offset against Capacity Charges due from Buyer. If this Agreement is terminated pursuant to this Section 3.3.7, neither Party shall have any liability to the other Party whatsoever (including liability for previously accrued Delay LDs or Capacity Charges, but excluding liability in respect of Delay Book Out Charges and interest accrued on the DLD Escrow at the Default Rate). 3.4 Commissioning and Test Power. Seller anticipates that prior to ---------------------------- its Commercial Operations Date each Unit will require between 50-100 hours for Commissioning purposes during which Seller will generate Pre COD Test Energy. Buyer shall purchase all Pre COD Test Energy at Pre COD Test Energy Rates as provided in Section 7.2.4. Seller will provide a test schedule prior to each test, and Buyer will advise Seller its estimate of Prevailing 19 Market Prices for Pre COD Test Energy prior to the scheduled start of the testing. Seller shall have no right to sell the Pre COD Test Energy to third parties. 4. Electric Energy Delivery, Dispatch and Forced Outages, Delivery of ------------------------------------------------------------------ Electric Energy. Subject to the terms and conditions of this Agreement, --------------- Seller shall sell, make available and deliver at the Point of Delivery and Buyer shall receive and purchase from Seller at the Point of Delivery, Electric Energy as Dispatched by Buyer. Consistent with the terms of this Agreement, Electric Energy shall be generated and delivered from the Facility and may include Incremental Energy. 4.1.1 Operation in Accordance with Buyer Dispatch. Buyer shall ------------------------------------------- not be obligated to receive or purchase any Electric Energy from Seller except (a) such Electric Energy as is Dispatched by Buyer and (b) Test Energy. Seller shall not operate either Unit except in response to a Dispatch order from Buyer other than (i) for testing purposes prior to the Commercial Operations Date pursuant to Section 3.4, (ii) for testing purposes after the Commercial Operations Date scheduled in accordance with Section 8.1, or in connection with a Scheduled Maintenance Outage, Forced Derating or Forced Outage or to analyze performance of a Unit or its components; (iii) for Seller's rights to sell to third parties pursuant to Section 13.3.2 or (iv) pursuant to instructions from the Interconnected Utility in accordance with Section 6.6.2 and the Interconnection Agreement. Notwithstanding the above, when a Unit is operating, Seller or its Affiliates may consume electric energy from that Unit for Start-Up of the other Unit of the Facility or other units at the Elwood Station, subject to a credit for the value of such electric energy as set forth in Section 5.1. Seller shall not sell Electric Energy or Capacity to any Person other than (a) Buyer, (b) Interconnected Utility pursuant to the requirements of the Interconnection Agreement, or (c) third parties as permitted under Section 13.3.2. 4.1.2 Quality of Electric Energy. All Electric Energy shall be -------------------------- measured by the Revenue Meter and shall meet the specifications of the Interconnected Utility. In the event that electricity delivered by Seller hereunder fails to conform to the specifications of the Interconnected Utility, Seller shall (as soon as reasonably practicable after becoming aware thereof) notify Buyer of the same and of its best good faith estimate of the duration and extent of such failure to conform, and Seller shall attempt to cure such failure as soon as reasonably practicable thereafter. If Seller is unable to deliver electricity to Buyer in accordance with the terms of this Agreement due to such failure to conform to such specifications, such inability to deliver shall be considered a Forced Outage. 4.2 Point of Sale. The point where sale of Electric Energy and ------------- Replacement Power will take place and title to and risk of loss with respect to, such Electric Energy and Replacement Power shall transfer is at the Point of Delivery for Electric Energy and the Replacement Power Delivery Point for Replacement Power. Buyer shall be responsible for any transmission beyond the Point of Delivery or the Replacement Power Delivery Point, as applicable. 4.3 Dispatch Rights of Buyer. ------------------------ 20 4.3.1 Buyer Dispatch. Beginning on the earlier of the -------------- Commercial Operations Date and the Target COD and provided that Buyer complies with the mandatory notification obligations in Section 4.3.2, Buyer may Dispatch the delivery of Electric Energy and Replacement Power (if applicable) in accordance with the provisions set forth in this Agreement up to the total Net Dependable Capacity of the Units and may Dispatch Incremental Energy as provided in Section 4.4; provided, however, -------- ------- Buyer agrees that Seller may, at its sole discretion but also subject to Prudent Industry Practices, operate any combination of Units 7 and 8 (including overfiring of a Unit to compensate for what would otherwise be a Forced Derating on another Unit), or, during a Cover Period may deliver Replacement Power through other sources (including the Elwood II Units as permitted by the agreement between the owner of the Elwood II Units and the Buyer thereunder) or cause to be delivered Substitute Power to meet Buyer's Dispatch under this Agreement. Notwithstanding the above, except to the extent Seller has notified Buyer that Seller has arranged for delivery of Replacement Power consistent with the terms of this Agreement, Seller shall be obligated to comply with any Dispatch order issued by Buyer except: (1) during any Scheduled Maintenance Outage or Compressor Wash or (2) to the extent that a Force Majeure Event causes a reduction in the level of the Facility's Available Capacity. Failures by Seller to comply with Buyer's Dispatch orders shall be subject to the provisions of Appendix E for calculation of the Equivalent Availability. 4.3.2 Dispatch Notifications ---------------------- 4.3.2.1 Day Ahead Schedule Notification. Buyer shall provide to ------------------------------- Seller, by no later than 0900 Central Time each day, Buyer's schedule for Dispatch for each hour of the following day (such schedule, the "Day Ahead Schedule"). Buyer may subsequently alter its Dispatch schedule set forth in the Day Ahead Schedule in accordance with Section 4.3.2.3 during Summer Period On-Peak Hours and Section 4.3.2.4 for all other hours. 4.3.2.2 Facility Availability Notification. Seller shall, by noon ---------------------------------- Central Time each day, inform Buyer of the estimated Capacity (taking into account the effect of any expected deratings) that will be available to Buyer for the following three (3) days. These estimates shall not be binding upon Seller and Seller may subsequently alter its estimates. Seller shall advise Buyer of any changes in its estimated Capacity as soon as practicable. 4.3.2.3 Mandatory Notification Obligation-Summer On Peak Hours. ------------------------------------------------------ Buyer must provide Seller its Dispatch request and such request must be confirmed by Seller's operator, for any Summer On Peak Hours a minimum of one hour and twenty five (25) minutes prior to the Requested Load Delivery Time of one or both Units, and if Buyer is also dispatching one or both of the Elwood II Units, one hour and thirty five (35) minutes prior to the Requested Load Delivery Time for all Units Dispatched (including Elwood II Units). Units will be started in accordance with the procedure described in Appendix A. Units will ramp to 21 the requested Dispatch level in accordance with the provisions of Appendix A. Seller shall use reasonable commercial efforts to change Dispatch levels at the request of Buyer while a Unit is running. Buyer must provide one hour's notice, confirmed by Seller's operator, to stop Dispatch (reduce Electric Energy to zero) or to change a Dispatch order during the Summer On Peak Hours. Seller shall not be obligated to comply with any Dispatch order issued for generation during Summer On Peak Hours unless issued with the minimum notice required by this Section, but shall use commercially reasonable efforts to do so. Notwithstanding the above, however, any failure to comply with a non- complying Dispatch order between the time of issuance of Buyer's Dispatch order and the expiration of the applicable mandatory notification period for such Dispatch order shall not be taken into account for calculation of the Availability Adjustment. For example, if Buyer's Dispatch order for one Unit was given 75 minutes prior to the Requested Load Delivery Time of 1200 and Seller delivers Electric Energy at the requested load by 1210 such delay beyond the Requested Load Delivery Time shall not be taken into account in calculation of an Availability Adjustment; however, deliveries after 1210 shall be taken into account for calculation of the Availability Adjustment. 4.3.2.4 Mandatory Notification Obligation-Non-Summer Period and ------------------------------------------------------- Summer Off Peak Hours. Buyer must provide Seller its Day Ahead --------------------- Schedule request for Dispatch for any Non-Summer Period and for all Summer Off Peak Hours in accordance with Section 4.3.2.1 above; provided, however, that (a) during the month of September, such Day -------- ------- Ahead Schedule shall not become binding until five (5) hours prior to the scheduled time for a Dispatched Start Up. If Buyer requests to change the Day Ahead Schedule after 0900 on the day covered by such schedule (i.e. the day after the day of its issuance), and if the Unit is on turning gear, Buyer may provide as little as three hours notice prior to its changed Requested Load Delivery Time, with details of the changes to the schedule. Within thirty minutes of Seller's receipt of such notice, Seller shall quote the fee pursuant to Section 7.2.5 in which Seller shall provide Buyer with an expected time at which Seller can achieve the .generation level requested by Buyer in its Dispatch order. For the Electric Energy to be delivered between the time of issuance of Buyer's Dispatch order and the expiration of the applicable mandatory notification period for such Dispatch order, Seller shall not be obligated to comply with any Dispatch order issued for generation during the Non-Summer Period or during Summer Off Peak Hours unless either (a) such notice was issued with the minimum notice required by this Section, or (b) Buyer accepts the surcharge above the Base Fuel Charge or a fixed change fee as applicable quoted by Seller pursuant to Section 7.2.5. Immediately upon receipt of Seller's quoted surcharge, Buyer shall either accept such surcharge or the Day Ahead Schedule will remain unchanged. If Buyer accepts such surcharge, Seller shall comply with the revised Dispatch schedule. Notwithstanding the above, however, Buyer must provide one hour's notice to stop Dispatch (reduce Electric Energy to zero). 22 4.3.2.5 Cancellation of Start Up. If Buyer requests Seller to ------------------------ cancel a scheduled Start Up with less than the applicable mandatory notification period (required pursuant to Section 4.3.2 remaining prior to the scheduled Start Up, Seller shall use reasonable commercial efforts to stop or modify its Start Up of the applicable Units and Buyer shall be obligated to pay all of Seller 's reasonable documented out of pocket costs incurred, if any (other than fuel related costs covered in Section 7.2.5) as a result of such cancellation. In addition, if Seller has begun the Start Up Sequence during Summer On Peak Hours or has put the Unit on turning gear during any other hours prior to receipt of Buyer's cancellation request, Buyer shall pay to Seller the Start Up Charge for such Unit. 4.3.2.6 Communications. The Parties have developed mutually -------------- acceptable procedures for communications between Seller's control room and Buyer's Dispatcher included herewith as Appendix C-Dispatch Communications Guidelines to this Agreement and the Parties shall develop mutually acceptable associated reporting forms for such communications to be appended to this Agreement as Appendix D- Reporting Forms. 4.3.2.7 Remote Monitoring. Seller shall furnish data ----------------- communication ports on its control system(s), the Revenue Meters, and the Station Fuel Meter such that Buyer may remotely monitor (read only) selected meter and operating data for the Facility and the Elwood II Units. Buyer shall be responsible for all data communication equipment from the data communications port interface to the point of remote monitoring, including the cost of equipment purchase, installation, operations, maintenance and upkeep. Seller shall furnish or shall cause to be furnished in a timely fashion the necessary interface protocol requirements and specifications of its control system and metering equipment such that Buyer may specify its compatible equipment. Seller shall have the right and opportunity to review and approve the specification of the first interface and protective devices of the Buyer to assure that such devices are compatible with and shall not interfere with Seller's control system(s) and metering equipment, and such approval shall not be unreasonably withheld. The data to be sampled, transmitted, and monitored shall include everything that is essential to Buyer's Dispatch. Such data shall include, but may not be necessarily limited to, the meter outputs and process control system data points set forth in Appendix K, which Seller shall use commercially reasonable efforts to make available to Buyer at Seller's data communications ports on its control system(s), the Revenue Meters, and the Station Fuel Meter. 4.4 Incremental Energy. The Facility may through limited over-firing ------------------ of the Units, have a generation capability that is higher than Net Dependable Capacity of up to approximately five (5) MW per Unit higher than its Net Dependable Capacity. "Incremental Energy" means Electric Energy generated through limited over-firing of the Units (as installed as of the Commercial Operations Date). Buyer may Dispatch Incremental Energy if and to the 23 extent available in an amount of up to 250 hours per Contract Year in accordance with this Section 4.4, if and to the extent that Seller is not generating Incremental Energy to offset a Forced Derating. Buyer shall not be obligated to purchase Incremental Energy at the Incremental Energy Rate to the extent generated by Seller to offset a Forced Derating. 4.5 Forced Outages -------------- 4.5.1 First Outage Notice. Seller must notify Buyer within ------------------- fifteen (15) minutes (the "First Outage Notice") after discovering that a Unit(s) is (a) unable to deliver all or part of the Electric Energy required during a Dispatch schedule or (b) unavailable for future Dispatch schedules. In such notice Seller shall provide its best estimate of the duration of the Forced Outage or Forced Derating. Within fifteen (15) minutes (but not less than ten (10) minutes) of receipt of such notice, Buyer shall provide to Seller a quote, (such price, the "Outage Book Out Charge") for the remainder of the day of such notice. 4.5.2 Seller Election. Immediately upon receipt of Buyer's --------------- Outage Book Out Charge, Seller must elect at its sole option, to either: 4.5.2.1 provide Replacement Power on its own behalf as soon as commercially practicable but not later than beginning at the top of the next hour (unless commercial practices permit earlier delivery); or 4.5.2.2 accept Buyer's quoted Outage Book Out Charge; if Seller elects this option then Seller shall pay the quoted and accepted Outage Book Out Charge and upon such payment, Seller shall be released from any further obligation or liability (including Availability Adjustment) associated with the applicable Dispatch order for the remainder of the day covered by such Outage Book Out Charge. 4.5.2.3 Seller's election pursuant to Section 4.5.2 will remain in effect until the earliest to occur of: (a) the expiration of Buyer's anticipated Dispatch schedule in effect for that day, (b) the end of the Forced Outage or Forced Derating, or (c) the end of the day of such notice. 4.5.3 Second Outage Notice. As soon as practicable, but by no -------------------- later than two (2) hours after the start of the Forced Outage or Forced Derating (the "Second Outage Notice"), Seller must notify Buyer of (a) the cause of the Forced Outage or Forced Derating, if known, (b) the proposed corrective action, and (c) Seller's best estimate of the expected duration of the Forced Outage or Forced Derating period. Seller shall in such Second Outage Notice elect to either: 4.5.3.1 provide Replacement Power on its own behalf; or 4.5.3.2 request Buyer to procure Substitute Power in accordance with Section 4.7.3. 24 4.5.3.3 Seller's election under this Section 4.5.3 will become effective beginning at 0001 on the next day, and will remain in effect until the earlier to occur of: (a) the end of the Forced Outage or Forced Derating or (b) 2300 on the third Business Day after the day on which the Forced Outage or Forced Derating began (the "Diagnostic Period"). 4.5.4 Consequences for Availability Adjustment. If Seller ---------------------------------------- fails to timely notify Buyer if its election under Section 4.5.2, or its Outage Election or fails to deliver or cause to be delivered either Replacement Power or Substitute Power, such incident shall be included as a Forced Outage or Forced Derating (as applicable) for purposes of the calculation of the Availability Adjustment. 4.5.5 Incidents Longer than Diagnostic Period. If Seller --------------------------------------- determines that the incident is expected to extend beyond the Diagnostic Period, then, Seller shall (as soon as practicable but no later than the expiration of the Diagnostic Period) make an Outage Election applicable to the remainder of the incident. 4.5.6 Resumption of Delivery. ---------------------- 4.5.6.1 From the Facility. Seller may resume delivery of ------------------ Electric Energy from the Unit(s) as soon as the Units can produce Electric Energy (if it can be scheduled by Buyer on such short notice). Otherwise, Seller's election under Sections 4.5.2, as applicable above shall take effect no sooner than the top of the next hour provided Seller notifies Buyer 45 minutes in advance of such delivery (for example, if the incident occurs at 0810, Seller's provision of Replacement Power may begin at 0900, avoiding Availability Adjustments as of 0900 but subject to an Availability Adjustment for the period between 0810 and 0900). Seller shall incur an Availability Adjustment only in the event that the incident meets the definition of Forced Outage or Forced Derating and Seller fails to deliver or cause to be delivered Replacement Power or Substitute Power. If Seller is able to resume delivery of Electric Energy before any Outage Election is made, Seller may do so immediately without waiting until the top of the next hour, if it can be scheduled by Buyer on such short notice. 4.5.6.2 When Substitute Power is Procured. If Seller is able to --------------------------------- resume delivery of Electric Energy from the Unit(s) prior to the expiration of any arrangements (entered into based on Seller's instructions) where Buyer is procuring Substitute Power at Seller's direction in accordance with Section 4.7.3 then, at Seller's direction, Buyer shall use commercially reasonable efforts to liquidate or unwind the Substitute Power arrangements at Prevailing Market Prices and any gain or loss realized by Buyer will be for the Seller's own account. 4.5.6.3 During an Outage Book Out. If Seller is able to resume ------------------------- delivery of Electric Energy during a period for which Seller has paid or agreed to pay an Outage Book Out Charge, Seller may resume operation of the applicable Unit(s) or portions thereof and Buyer will market the Electric Energy and pay to Seller 25 50% of the Gross Margin associated with such transaction plus the Facility Electric Energy Rate, if the Prevailing Market Price less Transaction Costs exceeds the Facility Electric Energy Rate. 4.5.7 Minimization of Outages. Consistent with Prudent ----------------------- Industry Practices, Seller shall use reasonable efforts to avoid Forced Outages and Forced Deratings and to minimize the length of any Forced Outages and Forced Deratings. 4.5.8 Information Related to Outages. In addition to the ------------------------------ foregoing, Seller shall provide to Buyer information relating to outages of Capacity at the Units which could affect Seller's ability to deliver Electric Energy from such Units. 4.6 Access to Facility. Seller authorizes Buyer and its authorized ------------------ agents, employees and inspectors to have access to the Facility, upon reasonable prior notice (in light of the circumstances) and subject to the safety rules and regulations of Seller, solely for the purpose of reading, testing, and maintaining metering equipment, or examining, repairing or removing any of Buyer's property. 4.7 Delivery of Replacement Power and Substitute Power -------------------------------------------------- 4.7.1 Replacement Power. All Replacement Power must be ----------------- delivered in accordance with the following: 4.7.1.1 Buyer shall issue Dispatch instructions to schedule Replacement Power not in excess of the Net Dependable Capacity for delivery at each hour, and Seller shall, at its expense, deliver or cause to be delivered, all scheduled Replacement Power to the Replacement Power Delivery Point. 4.7.1.2 Buyer shall pay Capacity Charges for all such scheduled and delivered Replacement Power in accordance with Section 7. 4.7.2 Pre-Commercial Operations Failure to Deliver. If -------------------------------------------- Seller fails to deliver or fails to cause to be delivered all or any part of any Replacement Power or Substitute Power scheduled for delivery prior to the Commercial Operations Date, Seller shall pay to Buyer within ten (10) days of receipt of an invoice therefor an amount equal to Buyer's actual, reasonable documented direct damages incurred for the cost of cover as a result of such failure to deliver Replacement Power or Substitute Power. At the end of each month during the Commercial Operations Delay Period, Buyer shall invoice Seller for such cost of cover if any incurred during such month, and Seller shall pay such amount within ten (10) days of Buyer's invoice therefor, and if Seller fails to timely pay such amount, Buyer may draw on the Seller Guarantees for such amount. 4.7.3 Substitute Power. Any request by Seller that Buyer ----------------- procure Substitute Power shall be in accordance with the following: 26 4.7.3.1 Seller shall request Buyer to obtain quotes for Substitute Power on Seller's behalf at Prevailing Market Prices, which instructions shall include information as to whether such Substitute Power shall be obtained on a block or hourly basis. 4.7.3.2 Buyer shall use commercially reasonable efforts to obtain such Substitute Power at Prevailing Market Prices. 4.7.3.3 Subject to Section 4.7.4 at the end of each month, in conjunction with regular billings, if Substitute Power arranged by Buyer is not delivered, Buyer shall pay or credit to Seller any cost of cover damages Buyer receives from the entity that is the source of such Substitute Power. 4.7.4 Post Commercial Operations Failure to Deliver. If there --------------------------------------------- is a failure to deliver energy to Buyer under any Substitute Power or Replacement Power arrangement by the entity that is the source of such Replacement Power or Substitute Power, then for the period of the failure until the applicable Unit(s) are able to resume operation in accordance with Buyer's Dispatch Seller shall pay to Buyer the greater of (i) the cost of cover damages ("or market LDs") Seller actually receives from such entity under the Replacement Power arrangement (or the amounts received by Buyer for Substitute Power pursuant to Section 4.7.3.3, (in either case "Third Party Damages") or (ii) the amount of any Availability Adjustment due as a result of such failure, if any. 4.7.5 Characteristics of Replacement and Substitute Power. When --------------------------------------------------- Seller is delivering Replacement Power to Buyer, Seller shall be obligated to deliver the amount of energy (at no cost to Seller, except to the extent required to deliver Replacement Power to the Replacement Power Delivery Point) scheduled by Buyer, up to the level necessary to comply with Buyer's Dispatch order (taking into account Electric Energy still being delivered by Seller during a Forced Derating) along with associated Ancillary Services in accordance with Section 9. Seller shall make appropriate power purchase and transmission arrangements to the Replacement Power Delivery Point to provide energy to Buyer which is of the same level of firmness ------- (e.g. if unit contingent, an availability comparable to that of the Facility) or higher level of firmness (e.g., system firm, firm with liquidated damages, or as firm as utility native load) as the Net Dependable Capacity hereunder. Substitute Power procured by Buyer may be of a lower level of firmness. 4.8 Emergency Conditions. During an Emergency condition, Seller may -------------------- increase, reduce, curtail or interrupt electrical generation at the Facility in accordance with Prudent Industry Practice or take other appropriate action in accordance with the applicable provisions of the Interconnection Agreement which in the reasonable judgment of the Interconnected Utility may be necessary to operate, maintain and protect the Interconnected Utility System or the transmission system of another Person during an Emergency Condition or in the reasonable judgment of Seller may be necessary to operate, maintain and protect the Facility during an Emergency Condition. 5. Metering; Billing; Payment -------------------------- 27 5.1 Metering Electricity. All Electric Energy delivered by Seller to -------------------- Buyer from the Facility under this Agreement shall be metered by the Revenue Meters and the readings therefrom, including calculated transformer and transmission line losses between the Revenue Meters and the Point of Delivery, shall be made in accordance with Prudent Industry Practice consistently applied. All Replacement Power and Substitute Power delivered to Buyer from facilities inside the Interconnected Utility System, shall be metered by the Interconnected Utility. For all Replacement Power and Substitute Power from sources outside the Interconnected Utility System, the delivered amount shall be the amount scheduled as delivered to the Interconnected Utility System by the system delivering such Replacement Power or Substitute Power into the Interconnected Utility System. The Energy Charge for which Buyer will be billed for Electric Energy also will be net of an adjustment for the value of the amount of electricity consumed by other non-operating Units at the Facility (or the Elwood II Units) during the billing period ("Non-Billable Generation") to yield the "billable generation" for the billing period. To establish the value of kilowatt hours of electricity provided by the Facility and consumed by the Elwood II Units for a billing period, the total for each billing period of electricity consumed by each Unit or unit will be determined from the individual Unit or unit meter readings using the Facility's Revenue Meter(s) (for the Units) and similar meters for the Elwood II Units which will then be summed for (both) Units and the Elwood II Units. Samples of such calculations are set forth in Appendix G. 5.1.1 Fuel. Billings for the fuel component of the Energy Rate ---- shall be based on the Actual Heat Rate and the total consumption of gas as measured by the total Station Fuel Meter as prorated to Units 7 and 8 and the Elwood II Units based upon the Individual Fuel Meters, except where Replacement Power and Substitute Power is applicable, in which case the fuel component of the Energy Rate shall be derived in accordance with Section 7.2. Billings for the Variable O&M Rate component of the Energy Charge shall be derived from Revenue Meter information or, in the event Section 5.1.4 below is applicable, the best available data. 5.1.2 Meter Testing. The Revenue Meters shall be tested by the ------------- Parties at least once each year at Seller's expense and at any other reasonable time upon request by either Party, at the requesting Party's expense; provided, however, Buyer shall have no obligation to pay for any such test if such test results in a recalibration of meters. Seller shall give Buyer at least fourteen (14) days notice of any testing of the Revenue Meters, Station Fuel Meters, and Individual Fuel Meters and Buyer shall have the right to be present during all testing and shall be furnished all testing results on a timely basis. 5.1.3 Inaccurate Meters. If testing of the Revenue Meters ----------------- indicates that an inaccuracy of more than +/-.5% in measurement of Electric Energy has occurred, the affected Revenue Meter shall be recalibrated promptly to register accurately within the Revenue Meter manufacturer stated tolerances. Each Party shall comply with any reasonable request of the other concerning the sealing of meters, the presence of a representative of the other Party when the seals are broken and the tests are made, and other matters affecting the accuracy of the measurement of Electric Energy. If either 28 Party believes that there has been a meter failure or stoppage, it shall immediately notify the other Party. 5.1.4 Failed Meters. If, for any reason, any Revenue Meter is ------------- out of service or out of repair so that the amount of Electric Energy delivered cannot be ascertained or computed from the readings thereof, the Electric Energy delivered during the period of such outage shall be estimated and agreed upon by the Parties hereto upon the basis of the best data available, and any failure to agree shall be subject to resolution in accordance with Section 11. 5.1.5 Examination of Records. Each Party (and its ---------------------- representative(s)) has the right, at its sole expense, upon reasonable notice and during normal working hours, to have an independent third party examine the records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, charge or computation relating to the output of Electric Energy. If requested, a Party shall provide to the other Party statements evidencing the amounts of Electric Energy delivered at the Point of Delivery. 5.2 Adjustment for Inaccurate Meters. If a Revenue Meter fails to -------------------------------- register, or if the measurement made by a Revenue Meter is found upon testing to be inaccurate by more than or less than one half of one percent (.5%), an adjustment shall be made correcting all measurements by the inaccurate or defective Revenue Meter for both the amount of the inaccuracy and the period of inaccuracy, in the following manner: 5.2.1 As may be agreed upon by the Parties, or 5.2.2 In the event that the Parties cannot agree on the amount of the adjustment necessary to correct the measurements made by any inaccurate or defective Revenue Meter, the Parties shall use Seller's backup metering, if installed, to determine the amount of such inaccuracy; provided, however, that Seller's backup metering has been tested and -------- ------- maintained in accordance with the provisions of this Section 5.2.2. In the event that Seller's backup metering also is found to be inaccurate by more than the allowable limits set forth in this Section 5.2.2, the Parties shall mutually agree to estimate the amount of the necessary adjustment on the basis of deliveries of Capacity and Electric Energy during periods of similar operating conditions when the Revenue Meter was registering accurately. 5.2.3 In the event that the Parties cannot agree on the actual period during which the Revenue Meter(s) made inaccurate measurements, the period during which the measurements are to be adjusted shall be the shorter of (i) the last one-half of the period from the last previous test of the Revenue Meter to the test that found the Revenue Meter to be defective or inaccurate, or (ii) the one hundred eighty (180) days immediately preceding the test that found the Revenue Meter to be defective or inaccurate. 29 5.2.4 To the extent that the adjustment period covers a period of deliveries for which payment has already been made by Buyer, Seller shall use the corrected measurements as determined in accordance with Sections 5.2.1, 5.2.2, or 5.2.3 hereof to recompute the amount due for the period of inaccuracy and shall subtract the previous payments by Buyer for this period from such recomputed amount. If the difference is a positive number, the difference shall be paid by Buyer to Seller; if the difference is a negative number, that difference shall be paid by Seller to Buyer in the form of an offset to payments due Seller by Buyer hereunder. Adjustment of such difference by the owing Party shall be made not later than thirty (30) days after the owing Party receives notice of the amount due, unless Buyer elects payment via an offset. 5.3 Billing. Within ten (10) days after the last day of each month ------- during the Term, Seller shall render a statement to Buyer for the amounts due in respect of such month under Section 7, which statement shall contain reasonable detail showing the manner in which the applicable charges were determined. 30 5.4 Payments. The amount due to Seller as shown on any monthly -------- statement rendered by Seller pursuant to Section 5.3 shall be paid by Buyer by electronic wire transfer to an account specified by Seller within ten (10) days after the date such statement is received by Buyer. Any amount not paid by Buyer when due shall bear interest at the Default Rate from the date that the payment was due until the date payment by Buyer is made. 5.5 Offsets. Amounts due to Buyer as a result of late Commercial ------- Operations Date pursuant to Section 3.3 or amounts due to Buyer pursuant to Section 7 shall be offset against current and future payments due from Buyer with interest accrued daily at the Default Rate until fully offset or paid. 5.6 Billing Disputes. ---------------- 5.6.1 If a Party questions or contests any amount claimed by the other Party to be due under Section 7, the Party obligated to pay shall pay the entire invoiced amount including the disputed portion (except obvious typographical or administrative errors). 5.6.2 In the event that either Party, by timely notice to the invoicing Party, questions or contests the correctness of any charge or payment claimed to be due by the invoicing Party, the invoicing Party shall promptly review the questioned charge or payment and shall notify the invoiced Party, within fifteen (15) Business Days following receipt by the invoicing Party of such notice , of the amount of any error and the amount of any reimbursement that the invoiced Party is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen (15) Business Days after the invoicing Party's receipt of notice from the invoiced Party shall be resolved in accordance with Section 11. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by the invoicing Party to the invoiced Party. 5.6.3 Reimbursements made under this Section 5.6 shall include interest at the Default Rate from the date the original payment was made until the date of such reimbursement. 6. Operation and Maintenance of the Facility ----------------------------------------- 6.1 Standard of Operation --------------------- 6.1.1 Operation and Maintenance. Seller shall manage, control, ------------------------- operate and maintain the Facility in a manner consistent with Prudent Industry Practice, in accordance with (a) the practices, methods, acts, guidelines, standards and criteria of MAIN, NERC, the ISO and any successors to the functions thereof; (b) the requirements 31 of the Interconnection Agreement; and (c) all applicable Requirements of Law and (d) permits taking into account Buyer's Dispatch rights under this Agreement. 6.1.2 Fuel Arrangements. Seller shall obtain and maintain fuel ----------------- supply and transportation arrangements in a manner consistent with Prudent Industry Practice, taking into account Buyer's Dispatch rights under this Agreement. 6.1.3 Insurance. Seller shall obtain and maintain appropriate --------- insurance coverages typical for plants similar to the Facility, in accordance with Prudent Industry Practice. 6.2 Permits and Licenses. Seller will obtain and maintain all -------------------- certifications, permits, licenses and approvals necessary to operate and maintain the Facility and to perform its obligations under this Agreement during the Term. 6.3 Sole Remedy. Buyer's sole and exclusive remedy (other than ----------- specific performance) and Seller's sole and exclusive liability for breach of Section 6.1 shall be the Availability Adjustment and the termination rights provided in Section 13.4. 6.4 Scheduled Maintenance. No later than March 1, 2001, Seller shall --------------------- submit to Buyer a proposed schedule of Scheduled Maintenance Outages scheduled by Seller for the following Contract Year for the Units, which schedule shall be updated by Seller by each March 31 and September 30 thereafter to cover the twelve month period following each such update; provided, however, that no Scheduled Maintenance Outage may be scheduled to cover the period from May 15 to September 15. Parameters within which Scheduled Maintenance Outages must be planned are included as Appendix I. If the OEM issues recommendations for changes to the parameters in Appendix I, the parties shall negotiate in good faith to revise Appendix I accordingly. Such schedule, and each supplement thereto, shall indicate the planned start and completion dates for each Scheduled Maintenance Outage during the period covered thereby and the amount of the Net Dependable Capacity of a Unit that will be affected. Within thirty (30) days of receipt of such schedule or any supplement thereto, Buyer may request reasonable modifications in the Scheduled Maintenance Outage schedule contained therein. Both parties agree to use reasonable efforts to develop a mutually acceptable final schedule for such Scheduled Maintenance Outages. If within six months prior to the scheduled start of a Scheduled Maintenance Outage, Buyer desires to change the scheduled start or duration of such Scheduled Maintenance Outage, Buyer shall notify Seller of Buyer's requested change and Seller shall use reasonable efforts to accommodate Buyer's requested change. Seller may propose compensation from Buyer to Seller for such change. Buyer shall then have the right to either direct such change and pay Seller such compensation, or withdraw the request for such change. At least one week prior to any Scheduled Maintenance Outage, Seller shall orally notify Buyer of the expected start date of such Scheduled Maintenance Outage, the amount of Capacity at the Units that will not be available to Buyer during such Scheduled Maintenance Outage, and the expected completion date of such Scheduled Maintenance Outage. Seller shall orally notify Buyer of any subsequent changes in such Capacity not available or any subsequent changes in 32 the Scheduled Maintenance Outage completion date. As soon as practicable, all such oral notifications shall be confirmed in writing. Scheduled Maintenance Outages may be taken in any number of non-contiguous periods, subject to Buyer's approval, which shall not be unreasonably withheld or delayed. Subject to the foregoing, the duration, frequency and timing of Scheduled Maintenance Outages shall be based on OEM recommendations and the age and operation of the Units generally plus up to five (5) days per Unit on a semi-annual basis for Non-Summer Period balance of plant maintenance. 6.5 Compressor Wash. Buyer shall permit Seller to shut down each Unit --------------- (either at the same time or at different times) for a compressor wash, (the "Compressor Wash") at a mutually agreeable time that is not during On-Peak Hours, approximately once per month in the Summer Period. Such Compressor Wash requires that the Unit be off-line for an eighteen (18) hour cool down period prior to the start of such Compressor Wash. Seller agrees that at any time during such cool down period, Buyer may interrupt such cool down, Dispatch the Unit on-line and cause Seller to reschedule the cool down and Compressor Wash for the next mutually agreeable time. Buyer agrees that once the actual Compressor Wash begins, the Compressor Wash must be completed without interruption and that Buyer cannot Dispatch the Unit on-line until such Compressor Wash is completed. 6.6 Operating Characteristics ------------------------- 6.6.1 Design Limits. The operating characteristics of the ------------- Facility shall be consistent with the Design Limits set forth in Appendix A unless otherwise mutually agreed by the Parties. Any such agreed upon change must be in writing, signed by both Parties. If the OEM provides written direction for operations that requires a change to the Design Limits, the Parties will negotiate in good faith to modify the Design Limits accordingly. 6.6.2 Interaction with Interconnected Utility System. Buyer ---------------------------------------------- understands that Seller may be required to increase, reduce, curtail or interrupt electrical generation at the Facility in accordance with Prudent Industry Practice or to take other appropriate action in accordance with the applicable provisions of the Interconnection Agreement which in the reasonable judgment of the Interconnected Utility may be necessary to operate, maintain and protect the Interconnected Utility System or the transmission system of another Person during an Emergency Condition or in the reasonable judgment of Seller may be necessary to operate, maintain and protect the Facility during an Emergency Condition. Any such curtailment shall be applied by Seller prorata across all units at the Elwood Station to the extent allowed by existing contracts (for electrical output from the Elwood Station) which terminate December 31, 2004 and in all cases shall be prorata for future power contracts. For purposes of calculating the Availability Adjustment, the Facility shall be considered Available during any such increase, reduction, curtailment, interruption or action, unless the order to increase, reduce, curtail, interrupt, or take other action with respect to generation at the Facility or the Emergency Condition is caused by a condition on Seller's side of the interconnection point between 33 the Facility and the Interconnected Utility System. Buyer acknowledges that other conditions on the Interconnected Utility System (for example, transmission outages or interruptions) may impact Seller's ability to deliver Electric Energy into the Interconnected Utility System at the Point of Delivery. For purposes of calculating the Availability Adjustment, the Facility shall be considered Available during any time that the Facility would have been actually Available but for conditions (including, for example, transmission outages or interruptions) on the Interconnected Utility System. 6.7 Records. Each Party shall keep and maintain all records as may be ------- necessary or useful in performing or verifying any calculations made pursuant to this Agreement, or in verifying such Party's performance hereunder. All such records shall be retained by each Party for at least six (6) calendar years following the calendar year in which such records were created. Each Party shall make such records available to the other Party for inspection and copying at the other Party's expense, upon reasonable notice during such Party's regular business hours. Each Party shall have the right, upon thirty days written notice prior to the end of an applicable six (6) calendar year period to request copies of such records. Each Party shall provide such copies, at the other Party's expense, within thirty (30) days of receipt of such notice or shall make such records available to the other Party in accordance with the foregoing provisions of this Section 6.7. 7. Compensation ------------ 7.1 Capacity Charge. For each month, commencing July 1, 2001 (as such --------------- date is extended for Force Majeure Events pursuant to Section 19) and each month thereafter during the Term, Buyer shall owe Capacity Charges calculated pursuant to Section 7.1.1 (subject to offsets pursuant to Section 5.5). 7.1.1 Computation. The Capacity Charge for each month shall be equal to the product of (a) the applicable Capacity Rate for such month times (b) the Net Dependable Capacity for such month, minus the Availability Adjustment, when applicable. 7.1.2 Capacity Rates. The Capacity Rate during the Term shall be: (a) $7.39 per kW per month from July 1, 2001 to December 31, 2001, and (b) $5.11 per kW per month for the remainder of the Initial Term subject in each case to a Capacity Rate Reduction. The Capacity Rate for the Extension Term shall be $4.90 per kW per month, subject to a Capacity Rate Reduction. 7.1.3 Availability Adjustment to Capacity Charge. From and after ------------------------------------------ the Commercial Operations Date, if the Facility does not achieve the Guaranteed Summer Super Peak Availability, Guaranteed Summer Partial Peak Availability or the Guaranteed Non-Summer On Peak Availability, as measured by Equivalent Availability in accordance with Appendix E, Seller shall be ---------- subject to the application of an Availability Adjustment as liquidated damages as provided in this Section 7.1.3. 34 7.1.3.1 Summer Period. For each month in the Summer Period, the ------------- Availability Adjustment shall equal the sum of (a) the Availability Adjustment for the Super Peak Hours plus (b) the greater of zero and the Availability Adjustment for the Partial Peak Hours where: (i) the Availability Adjustment for Super Peak Hours is the product of (a) the sum of the monthly Capacity Charges (before application of the Availability Adjustment) for the applicable Contract Year and (b) the applicable Monthly Adjustment Factor and (c) 75% and (d) the Guaranteed Summer Super Peak Availability less the actual Equivalent Availability for Super Peak Hours during such month; and (ii) the Availability Adjustment for Partial Peak Hours is the product of (a) the sum of the monthly Capacity Charges (before application of the Availability Adjustment) for the applicable Contract Year and (b) the applicable Monthly Adjustment Factor and (c) 25% and (d) the Guaranteed Summer Partial Peak Availability less the actual Equivalent Availability for Partial Peak Hours during such month. (iii) for purposes of the calculations in subsections (i) and (ii) above and Section 7.1.3.4 only, in the first Contract Year, the first Contract Year shall be deemed to be from July 1, 2001 through May 31, 2002. 7.1.3.2 Non-Summer Period For the Non-Summer Period the ----------------- Availability Adjustment shall equal the Availability Adjustment for Non-Summer On Peak Hours, where: The Availability Adjustment for Non-Summer On Peak Hours is the product of (a) the sum of the monthly Capacity Charges (before application of the Availability Adjustment) for the applicable Contract Year and (b) 18% and (c) the Guaranteed Non-Summer On Peak Availability less the actual Non-Summer On Peak Availability for such Non-Summer Period. This will be calculated once per Contract Year. 7.1.3.3 Super Peak 80% or below. If the Equivalent Availability ----------------------- during Super Peak Hours in any month is less than or equal to 80%, then for purposes of calculating the Availability Adjustment during the Partial Peak Hours in the same month, the Equivalent Availability during Partial Peak Hours shall be deemed to be equal to the Equivalent Availability during Super Peak Hours for such month. 7.1.3.4 Availability Adjustment Limit. In no event shall the ----------------------------- cumulative Availability Adjustment exceed (i) in the first Contract Year, $21,215,800, (ii) in all other Contract Years, other than the final Contract Year, $18,000,000 per year and (iii) in the final Contract Year $12,000,000. 7.1.4 Capacity Bonus. -------------- 35 7.1.4.1 Applicability of Bonus. Buyer shall pay Seller a Capacity ---------------------- Bonus if both (a) the Average Summer Super Peak Availability exceeds the Guaranteed Summer Super Peak Availability and (b) the Average Summer Partial Peak Availability exceeds the Guaranteed Partial Peak Availability; provided, however, if the Summer Super Peak Availability during any Summer Period month is less than or equal to 80%, then Seller shall not be entitled to a Capacity Bonus. 7.1.4.2 Calculation of Bonus. The Capacity Bonus for each Unit -------------------- shall be equal to: [(Average Summer Super Peak Availability minus Guaranteed Summer Super Peak Availability)/.03 * maximum Capacity Bonus * .75] + [(Average Summer Partial Peak Availability minus Guaranteed Summer Partial Peak Availability)/.03 * maximum Capacity Bonus * .25]. If the Commercial Operations Date occurs during the first Contract Year, then for such first Contract Year, the maximum Capacity Bonus per Unit shall be equal to the sum of (a) (number of days of Commercial Operations in July / 31 days) * $62,500 and (b) (number of days of Commercial Operations in August / 31 days) * $62,500. If the Commercial Operations Date occurs in the second Contract Year, then for such second Contract Year the maximum Capacity Bonus per Unit shall be equal to the sum of (a) (number of days of Commercial Operations in June / 30 days) * $27,500 and (b) (number of days of Commercial Operations in July / 31 days) * $48,750 and (c) (number of days of Commercial Operations in August / 31 days) * $48,750. For all other Contract Years, the maximum Capacity Bonus shall be equal to $125,000 per Unit. 7.1.4.3 Payable Monthly. The Capacity Bonus shall be divided by --------------- 12 and shall be paid over a 12 month term beginning with September of each Contract Year. 7.2 Energy Charge. Each month beginning on the earlier of the ------------- Commercial Operations Date or the Target COD and continuing for the Term, Buyer shall pay Seller an Energy Charge to the extent Seller delivers Electric Energy, Incremental Energy, Replacement Power or Test Energy. The Energy Charge for a billing month shall equal to the difference between (A) the sum of (a) the product of the total Electric Energy (in MWh) delivered to Buyer at the Point of Delivery from the Facility pursuant to Buyer's Dispatch orders, multiplied by the Facility Electric Energy Rate for each hour of such month plus (b) the product of the total Replacement Power (in MWh) provided by Seller to Buyer at the Replacement Power Delivery Point pursuant to Buyer's Dispatch orders, multiplied by the Replacement Power Energy Rate for each hour of such month adjusted for any Differential Transmission Adjustments incurred by Buyer plus (c) the product of the total Incremental Energy delivered to Buyer at the Point of Delivery pursuant to Section 4.3 multiplied by the Incremental Energy Rate for each hour of such month, plus (d) the product of the Test Energy (either Pre COD Test Energy or Post COD Test 36 Energy, as applicable) multiplied by the applicable Test Energy Rate, minus (B) any Substitute Power Cost Credit. 7.2.1 Facility Electric Energy Rate. The Facility Electric ----------------------------- Energy Rate is calculated as (the Actual Heat Rate x Fuel Charge)/1000+ Variable O&M Rate. 7.2.2 Replacement Power Energy Rate. The Replacement Power ----------------------------- Energy Rate is calculated as (Reference Heat Rate x Fuel Charge)/1000+Variable O&M Rate. 7.2.3 Incremental Energy Rate. The Incremental Energy Rate is ----------------------- the sum of $100/MWh of Incremental Energy delivered to the Point of Delivery plus (a) with respect to the first 100 hours per Unit of Incremental Energy Dispatched by Buyer during any Contract Year, twenty percent (20%) of the Gross Margin resulting from such transaction, and (b) with respect to the next 150 hours per Unit of Incremental Energy Dispatched by Buyer in any Contract Year, thirty five (35%) of the Gross Margin resulting from such transaction. 7.2.4 Test Energy Rates ----------------- 7.2.4.1 Pre COD Test Energy. The Pre COD Test Energy Rate shall ------------------- be one of the following. If the Prevailing Market Price (less Transaction Costs) (expressed as $/MWh) is greater than the Facility Electric Energy Rate, the Pre COD Test Energy Rate shall be the sum of the Facility Electric Energy Rate, plus 95% of the difference between the Facility Electric Energy Rate and the Prevailing Market Price (less Transaction Costs). If the Prevailing Market Price (less Transaction Costs) is less than the Facility Electric Energy Rate, the Pre COD Test Energy Rate shall be 100% of such Prevailing Market Price less Transaction Costs, (but not including Scheduling Fees). 7.2.4.2 Post COD Test Energy. The Test Energy Rate for Post COD -------------------- Test Energy shall be equal to either (a) the Facility Electric Energy Rate with respect to a test requested by Buyer the results of which do not require any corrections or adjustments, or (b) the lesser of the Facility Electric Energy Rate or the Prevailing Market Price (less Transaction Costs) in all other circumstances. 7.2.4.3 Substitute Power Cost Credit. Substitute Power Cost ---------------------------- Credit shall be the Buyer's documented cost per MWh of Substitute Power (adjusted for any documented Differential Transmission Adjustments incurred by Buyer, if incrementally higher, or less any amounts of Differential Transmission Adjustments saved by Buyer if incrementally lower, less the Replacement Power Energy Rate multiplied by the Substitute Power (expressed in MWh) purchased by Buyer for each hour of such month. 7.2.5 Fuel Charge ----------- 37 7.2.5.1 Base Fuel Charge. If Buyer does not alter its Day Ahead ---------------- Schedule, the Fuel Charge for all Electric Energy delivered in accordance with such schedule shall be the Fuel Index value plus 10 cents/MMBtu. 7.2.5.2 Changes to Day Ahead Schedule for the Summer On Peak ---------------------------------------------------- Hours and in September for On Peak Hours. If Buyer makes a change(s) ---------------------------------------- to the Day Ahead Schedule for operation in Summer On Peak Hours or in the On Peak Hours in September as provided in Section 4.3.2.4, the Fuel Charge for such Electric Energy generated pursuant to such Dispatch order shall be the Fuel Index value plus 15 cents/MMBtu. 7.2.5.3 Changes to Day Ahead Schedule for Non-Summer Period and ------------------------------------------------------- Summer Off Peak Hours. If Buyer makes changes to the Day Ahead --------------------- Schedule for operation in the Non-Summer Period or Summer Off Peak Hours and such change requires Seller to purchase more gas than would have been purchased but for such change in the schedule, then Seller shall provide Buyer with a quoted surcharge to be added to the Base Fuel Charge, the sum of which shall be the Fuel Charge for all Electric Energy generated pursuant to such changed schedule. If such change requires Seller to liquidate any excess gas, then Seller shall provide Buyer with a quoted fixed change fee pursuant to such changed schedule. If Buyer does not accept the quoted fixed change fee, Seller will proceed with operation of the Facility in accordance with the Dispatch schedule in effect prior to the requested change. 7.2.6 Early Commercial Operations Date. If the Commercial Operations Date occurs prior to July 1, 2001 for one or both Units, Buyer shall market and sell such Electric Energy delivered to Buyer from such Unit(s) at the Prevailing Market Price therefor if the Prevailing Market Price less Transaction Costs exceeds the Facility Electric Energy Rate, and Buyer shall remit to Seller 90% of the Gross Margin on any such transaction. 7.3 Adjustment to Actual Heat Rate for Failure to Meet Guaranteed ------------------------------------------------------------- Heat Rate. - --------- 7.3.1 Established by Testing. For purposes of calculating the ---------------------- Facility Electric Energy Rate, the Actual Heat Rate shall be reduced if the results of periodic tests indicate the combined Net Heat Rate of Units 7 and 8 and the Elwood II Units is greater than the Guaranteed Heat Rate under test conditions as set forth in Appendix B. The adjustment to the Actual Heat Rate shall be equal to the ratio of the Guaranteed Heat Rate divided by the Net Heat Rate, times the Actual Heat Rate. If any adjustment is necessary, the Actual Heat Rate Adjustment shall be effective retroactive to the date on which it was mutually determined that the Actual Heat Rate exceeded the Guaranteed Heat Rate and shall remain in effect until it is demonstrated by testing that the Net Heat Rate is less than the Guaranteed Heat Rate. In the event that Seller makes repairs to reduce the Net Heat Rate, the improvement shall be demonstrated by testing conducted at the expense of the Seller and the resulting adjustment to the Actual Heat Rate shall be retroactive to the date that repairs were effected. 38 7.3.2 Accrual of Heat Rate Credits. To the extent Net Heat Rate ---------------------------- (including the Initial Net Heat Rate) is below the Threshold Heat Rate, Seller shall accrue half of such difference as credits to be applied in the future when the Net Heat Rate exceeds the Guaranteed Heat Rate ("Heat Rate Credits"). To the extent that the Net Heat Rate (beginning with the first test of the Net Heat Rate after the determination of the Initial Net Heat Rate) is less than the Initial Net Heat Rate (after application of the Degradation Curve) all of the difference will be accrued as Heat Rate Credits. For the purposes of tracking and accrual tabulation, the Heat Rate Credits that are established by testing shall be multiplied by the Electric Energy (kWh) delivered over the same period as the test results application period, and shall effectively be accrued in units of heat energy (Btus). If there is retroactive adjustment as provided for in Section 7.3.1, then the accrual tabulation of heat energy units shall be adjusted for the same period. 7.3.3 Application of Heat Rate Credits. If the Net Heat Rate -------------------------------- (including the Initial Heat Rate) exceeds the Guaranteed Heat Rate, Seller may reduce the Net Heat Rate for purposes of calculating the Actual Heat Rate Adjustment (for the period during which such Net Heat Rate is in effect) by up to 50 Btus/kWh so long as Heat Rate Credits exist. The Seller's accumulated quantity of Heat Rate Credits shall be reduced to the extent utilized to reduce the Net Heat Rate. For the purposes of tracking and application tabulation, the negative Heat Rate Credits that are established by testing shall be multiplied by the Electric Energy (kWh) delivered over the same period as the test results application period, and shall effectively become a withdrawal of heat energy units (Btus) from the accumulated units of energy per Section 7.3.2. If there is retroactive adjustment as provided for in Section 7.3.1, then the withdrawal tabulation of heat energy units shall be adjusted for the same period. 7.3.4 Cost of Heat Rate Tests. The costs (and allocation of the ----------------------- costs) of any test pursuant to this Section 7.3 are set forth in Section 8.2. 7.4 Start Up Charge. For each Start Up of a Unit pursuant to the --------------- Dispatch of such Unit by Buyer, Seller shall be entitled to a payment of $2500.00 (the "Start Up Charge") in June 1, 1999 dollars. At the beginning of each Contract Year (i.e., January 1), thereafter, the Start Up Charge shall be adjusted by the change in the GDP-IPD from the GDP-IPD value on the previous January 1 (or June 1 in the case of the first Contract Year). Seller shall pay for the gas consumed during any Failed Starts. 7.5 Imbalance Charges. Buyer shall hold Seller harmless from any ----------------- Imbalance Charges (i) that result from Buyer's Dispatch orders or other scheduling of generation under this Agreement, (ii) that are assessed against Buyer or Seller at any time when the Facility is generating Electric Energy within 1.5% of the Dispatch level directed by Buyer after achieving Start Up and has achieved the desired Dispatched load level for a period of ten (10) minutes, (iii) that are assessed for deliveries of Electric Energy during startup and shutdown, so long as Seller operates, Starts Up and shuts down the Units in 39 accordance with this Agreement or (iv) that result from Unit trips. Buyer and Seller recognize that the Units may produce more or less energy than scheduled by Buyer. 7.6 Rates Not Subject to Review. The rates for service specified --------------------------- herein (i.e., delivery of Electric Energy, Replacement Power and Capacity) shall remain in effect for the Term, and shall not be subject to change through application to the FERC pursuant to provisions of Section 205 et seq. of the Federal Power Act, absent agreement of the Parties. 8. Performance Tests. ------------------ 8.1 Test Procedures. Seller must conduct a test to determine the --------------- Initial Net Heat Rate in conjunction with the final performance testing for each Unit under the contract with the EPC Contractor. Seller must conduct a test on or prior to the Commercial Operations Date to determine Net Dependable Capacity. Thereafter at least once per Contract Year, Seller must conduct a test to determine the Net Dependable Capacity and Net Heat Rate. After the Commercial Operations Date, such annual testing shall be conducted on or about June 1 of each Contract Year at a mutually agreeable time. Any test to determine the Net Dependable Capacity and Net Heat Rate shall include a period of two hours during which the Net Dependable Capacity is generated and the Electric Energy delivered to the Point of Delivery. Once a test period has been initiated, it must last for two hours unless Buyer's and Seller's authorized representatives mutually agree to a shorter duration. Testing procedures to establish the Net Dependable Capacity and Net Heat Rate from and after the Commercial Operations Date are included as Appendix B and are consistent with ASME and OEM guidelines to the extent practicable. No tests will be conducted or continued which, in the opinion of Seller, should not be conducted or continued in accordance with Prudent Industry Practice. Seller shall always have the right to perform a Compressor Wash prior to a test. If Seller prevents or discontinues a test in accordance with Prudent Industry Practice, Buyer shall have the right to require a retest upon prior notice to Seller, if the test was conducted pursuant to Buyer's request. 8.2 Buyer's Right to Retest. Buyer shall have the right, at its ----------------------- expense (except as provided in this Section 8.2), to require Seller to establish or reestablish the Net Dependable Capacity and Net Heat Rate on or about the Commercial Operations Date and annually thereafter pursuant to a performance test conducted at a mutually agreeable time if the Buyer reasonably believes based upon operation of the Facility over the preceding thirty (30) days that the Net Dependable Capacity as adjusted in accordance with Section 8.1 is more than 2% below the then current level of Net Dependable Capacity or the Net Heat Rate exceeds the Guaranteed Heat Rate. The first such test of a Unit (regardless of the number of Units tested in such tests) in each Contract Year shall be performed without a charge to Buyer. For the second test required by Buyer in the same Contract Year, the Buyer shall pay to Seller $5,000, for the third test, $15,000 and for the fourth test and all subsequent tests, $30,000 (regardless, in each case, of the number of Units tested in such tests). If the results of the test indicate the Net Dependable Capacity is below 2% of the current level or that Net Heat Rate exceeds the Guaranteed Heat Rate, Buyer shall not pay for the cost of the test. 40 8.3 Seller Right to Retest. Seller shall have the right to ---------------------- reestablish Net Dependable Capacity and Net Heat Rate pursuant to a capacity test at mutually agreeable time(s). The results of each capacity test under this Section 8.3 shall immediately determine or redetermine the Net Dependable Capacity and Net Heat Rate retroactively to the date Seller can reasonably demonstrate that it took corrective actions to improve the Net Dependable Capacity or Net Heat Rate, adjusted by reference to the curves in Appendix F to Reference Conditions. 8.4 Conditions for Testing. During any capacity testing, Seller shall ---------------------- designate a maximum level for Buyer's Dispatch during such capacity testing, which may be above the then current Net Dependable Capacity. All appropriate auxiliary equipment associated with the Facility shall be in service at the time of any test under this Section 8.3. Test data shall be collected with plant instruments, except that Seller shall be allowed to substitute test instrumentation for Facility instrumentation, provided that the test instrumentation is of greater accuracy. Determination of net plant output shall be with the Revenue Meter with appropriate adjustments made for transformer and line losses. 8.5 Scheduling of Testing. Any testing requested by Seller after the --------------------- Commercial Operations Date shall either be performed during times Dispatched by Buyer to generate or at mutually agreeable times. Buyer shall be entitled to witness any such tests. 9. Ancillary Services ------------------ 9.1 Availability of Ancillary Services. Buyer shall be entitled, at ---------------------------------- no additional cost, to all Ancillary Services with respect to the Net Dependable Capacity at the Point of Delivery. Seller does not guarantee the availability of any ancillary services but does warrant that it will not remarket such services to any third party; except in the case of Buyer default under Section 13.2.1. Notwithstanding the above, Seller has the right to use Ancillary Services to meet any requirement of the Interconnected Utility System, the ISO, or their successors. 9.2 Operational Considerations. Buyer may Dispatch the Facility with -------------------------- the objective to avoid the need for energy imbalance service from a control area service provider, and to provide reactive power, load following (consistent with the scheduling), voltage control, and frequency response, provided that such services do not cause the Facility to operate outside of the Design Limits, and do not impose any additional costs or liabilities on Seller. 9.3 Future Enhancements. Seller shall provide such services, ------------------- including but not limited to automatic generation control, to the extent that Buyer agrees to be responsible for reasonable incremental costs incurred by Seller to provide such services subject to mutual agreement of the parties working in good faith to arrive at an equitable arrangement. 10. Limitation of Liability and Exclusive Remedies ---------------------------------------------- 10.1 CONSEQUENTIAL DAMAGES. IN NO EVENT OR UNDER ANY CIRCUMSTANCES --------------------- SHALL EITHER PARTY (INCLUDING SUCH PARTY'S AFFILIATES AND SUCH PARTY'S AND SUCH AFFILIATES' RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) BE LIABLE TO THE 41 OTHER PARTY (INCLUDING SUCH PARTY'S AFFILIATES AND SUCH PARTY'S AND SUCH AFFILIATE'S RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES IN THE NATURE OF LOST PROFITS, WHETHER SUCH LOSS IS BASED ON CONTRACT, WARRANTY OR TORT. A PARTY'S LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES. 10.2 SOLE REMEDIES FOR FAILURE TO DELIVER OR RELATED BREACHES. -------------------------------------------------------- NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, OTHER THAN AS PROVIDED IN SECTION 10.3 BELOW, BUYER'S SOLE REMEDY FOR DAMAGES AND SELLER'S SOLE LIABILITY FOR DAMAGES FOR SELLER'S DEFAULT RELATING TO, ARISING OUT OF, OR IN ANY WAY CONNECTED WITH ANY FAILURE BY SELLER TO MEET GUARANTEED SUMMER ON PEAK AVAILABILITY OR GUARANTEED NON-SUMMER ON PEAK AVAILABILITY, TO DELIVER (OR CAUSE TO BE DELIVERED) ELECTRIC ENERGY, REPLACEMENT POWER OR SUBSTITUTE POWER AS DISPATCHED BY BUYER, OR FAILURE TO COMPLY WITH ANY FACILITY PERFORMANCE RELATED PROVISIONS INCLUDING SECTIONS 4.1, 4.5.7, 4.5.8 OR 6.1, SHALL BE THE ADJUSTMENT TO CAPACITY CHARGES BASED UPON THE AVAILABILITY ADJUSTMENT SUBJECT TO THE LIMIT ON SELLER'S LIABILITY FOR SUCH ADJUSTMENT SET FORTH IN SECTION 7.1.3.4; AND SUCH AVAILABILITY ADJUSTMENT SHALL BE CONSIDERED LIQUIDATED DAMAGES IN LIEU OF ANY OTHER DAMAGES AT LAW, IN EQUITY OR AS SET FORTH ELSEWHERE IN THIS AGREEMENT. 10.3 SOLE REMEDY FOR LATE COMMERCIAL OPERATIONS. BUYER'S SOLE REMEDIES ------------------------------------------ AND SELLER'S SOLE LIABILITY FOR FAILURE OF THE COMMERCIAL OPERATIONS DATE TO OCCUR ON OR BEFORE THE TARGET COD (INCLUDING FAILURE TO COMPLY WITH SECTION 3) SHALL BE (a) THE OFFSET OF DELAY LDs AS SET FORTH IN SECTION 3.3 AGAINST CAPACITY CHARGES AS THEY COME DUE, SUBJECT TO THE LIMITATION ON SELLER'S LIABILITY SET FORTH IN SUCH SECTION 3.3 AND (b) TERMINATION IN ACCORDANCE WITH SECTION 3.3.7, IF THE COMMERCIAL OPERATIONS DATE DOES NOT OCCUR BY THE FINAL COMMERCIAL OPERATIONS DATE. 10.4 SOLE TERMINATION FOR DEFAULT REMEDIES. BUYER'S SOLE AND EXCLUSIVE ------------------------------------- REMEDIES OF TERMINATION FOR DEFAULT SHALL BE AS SET FORTH IN SECTIONS 3.3.7, 13 AND 19, AND SHALL BE, IN LIEU OF ANY OTHER REMEDIES OF TERMINATION AT LAW OR IN EQUITY. 10.5 DIRECT DAMAGES FOR OTHER BREACHES. SUBJECT TO THE LIMITATIONS SET --------------------------------- FORTH IN SECTIONS 10.1, 10.2, AND 10.3, AND SUBJECT FURTHER TO THE ARBITRATION PROVISION OF SECTIONS 11.1 - 11.6, EACH 42 PARTY SHALL BE ENTITLED WITHOUT DUPLICATION TO RECOVER FROM THE OTHER PARTY ITS DIRECT DAMAGES OR SEEK AN INJUNCTION OR OTHER EQUITABLE RELIEF FOR BREACH BY SUCH PARTY OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND TO ENFORCE ANY PAYMENT OBLIGATIONS OF SELLER HEREUNDER OR TO TAKE ALL LEGAL ACTION NECESSARY TO ENFORCE ANY ORDER, DECISION OR SETTLEMENT OF AN ARBITRATOR RENDERED PURSUANT TO SECTION 11.2.5. 11. Disagreements ------------- 11.1 Negotiations. The Parties shall attempt in good faith to resolve ------------ all disputes promptly by negotiation, as follows. Any Party may give the other Party written notice of any dispute not resolved in the normal course of business. Executives of both Parties at levels one level above the personnel who have previously been involved in the dispute shall meet at a mutually acceptable time and place within ten (10) days after delivery of such notice, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. If the matter has not been resolved within thirty (30) days from the referral of the dispute to senior executives, or if no meeting of senior executives has taken place within fifteen (15) days after such referral, either Party may initiate arbitration as provided hereinafter. If a Party intends to be accompanied at a meeting by an attorney, the other Party shall be given at least three (3) Business Days' notice of such intention and may also be accompanied by an attorney. All negotiations pursuant to this clause shall be confidential. 11.2 Arbitration ----------- 11.2.1. If the negotiation process provided for in Section 11.1 above has not resolved the dispute, the dispute shall be decided solely and exclusively by arbitration in Chicago, Illinois in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be governed by the United States Arbitration Act (9 U.S.C. ss. 1 et seq.), and judgment entered upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. This agreement to arbitrate and any other agreement or consent to arbitrate entered into in accordance herewith will be specifically enforceable under the prevailing arbitration law of any court having jurisdiction. Notice of demand for arbitration must be filed in writing with the other Party to this Agreement. The demand must be made within a reasonable time after the controversy has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such controversy is barred by the applicable statute of limitations. Any arbitration may be consolidated with any other arbitration proceedings. Either party may join any other interested parties. The award of the arbitrator shall be specifically enforceable in a court of competent jurisdiction. 11.2.2 Either Party shall give to the other written notice in sufficient detail of the existence and nature of any dispute proposed to be arbitrated. The Parties shall attempt to agree on a person with special knowledge and expertise with respect to 43 the matter at issue to serve as arbitrator. If the Parties cannot agree on an arbitrator within ten (10) days, each shall then appoint one individual to serve as an arbitrator and the two (2) thus appointed shall select a third arbitrator with such special knowledge and expertise to serve as chairman of the panel of arbitrators; and such three (3) arbitrators shall determine all matters by majority vote; provided, however, if the two (2) -------- ------- arbitrators appointed by the Parties are unable to agree upon the appointment of the third arbitrator within five (5) days after their appointment, both shall give written notice of such failure to agree to the Parties, and, if the Parties fail to agree upon the selection of such third arbitrator within five (5) days thereafter, then either of the Parties upon written notice to the other may require such appointment from, and pursuant to the rules of, the Chicago office of the American Arbitration Association for commercial arbitration. Prior to appointment, each arbitrator shall agree to conduct such arbitration in accordance with the terms of this Agreement. The arbitration panel may choose legal counsel to advise it on the remedies it may grant, procedure, and such other legal issues as the panel deems appropriate but subject to limits on remedies and damages set forth in this Agreement. 11.2.3 The Parties shall have sixty (60) days to perform discovery and present evidence and argument to the arbitrators. During that period, the arbitrators shall be available to receive and consider all such evidence as is relevant and, within reasonable limits due to the restricted time period, to hear as much argument as is feasible, giving a fair allocation of time to each Party to the arbitration. The arbitrators shall use all reasonable means to expedite discovery and to sanction noncompliance with reasonable discovery requests or any discovery order. The arbitrators shall not consider any evidence or argument not presented during such period and shall not extend such period except by the written consent of both Parties. At the conclusion of such period, the arbitrators shall have forty-five (45) days to reach a determination. To the extent not in conflict with the procedures set forth herein, which shall govern, such arbitration shall be held in accordance with the prevailing rules of the Chicago office of the American Arbitration Association for commercial arbitration. 11.2.4 The arbitrators shall have the right only to interpret and apply the terms and conditions of this Agreement and to order any remedy allowed by this Agreement, but may not change any term or condition of this Agreement, deprive either Party of any right or remedy expressly provided hereunder, or provide any right or remedy that has been excluded hereunder. 11.2.5 The arbitrators shall give a written decision to the Parties stating their findings of fact, conclusions of law and order, and shall furnish to each Party a copy thereof signed by them within five (5) days from the date of their determination. 1.3 Costs. Each Party shall pay the cost of the arbitrator or arbitrators, ----- and any legal counsel appointed pursuant to subparagraph (a) above, with respect to those issues as to which they do not prevail, as determined by the arbitrator or arbitrators. 11.4 Settlement Discussions. The Parties agree that no statements of ---------------------- position or offers of settlement made in the course of the dispute process described in this Section 44 11 will be offered into evidence for any purpose in any litigation or arbitration between the Parties, nor will any such statements or offers of settlement be used in any manner against either Party in any such litigation or arbitration. Further, no such statements or offers of settlement shall constitute an admission or waiver of rights by either Party in connection with any such litigation or arbitration. At the request of either Party, any such statements and offers of settlement, and all copies thereof, shall be promptly returned to the Party providing the same. 11.5 Preliminary Injunctive Relief. Nothing in this Section 11 shall ----------------------------- preclude, or be construed to preclude, the resort by either Party to a court of competent jurisdiction solely for the purposes of securing a temporary or preliminary injunction to preserve the status quo or avoid irreparable harm pending arbitration pursuant to this Section 11. 11.6 Obligations to Pay Charges and Perform. If a disagreement arises on -------------------------------------- any matter which is not resolved as provided in Section 11.1 above, then, pending the resolution of the disagreement by arbitration, Seller shall continue to perform its obligations hereunder including its obligations to operate the Units in a manner consistent with the applicable provisions of this Agreement and Buyer shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. In addition, notwithstanding the provisions of Section 13.3, neither Party shall be entitled to terminate this Agreement for default (other than defaults pursuant to Sections 13.1.1 or 13.2.1) by the other Party if the alleged default is the subject of an arbitration pursuant to Section 11, pending the outcome of such arbitration. 12. Assignment; Project Financing; and Transfer of Units ---------------------------------------------------- 12.1 Assignment. Except as set forth in this Section 12, neither Party may ---------- assign its rights or obligations under this Agreement without the prior written consent of the other Party. Either Party may assign this Agreement, without the consent of the other Party, to an Affiliate or the parent company of an Affiliate, but no such assignment shall release such assignor from any obligations hereunder whether arising before or after such assignment. 12.2 Transfers and Change of Control. For the Purposes of this Section ------------------------------- 12.2, any direct transfer or series of direct transfers (whether voluntary or by operation of law) of a majority of the outstanding voting equity interests of a Party (or any entity or entities directly or indirectly holding a majority of the outstanding voting equity interests of such Party) to any party other than an Affiliate controlled by, or under common control with, such Party shall be deemed an assignment of this Agreement. In such events; (i) prior notice of any such assignment shall be provided to the other Party; (ii) any assignee (other than Lenders or their designees pursuant to Section 12.3 below) shall expressly assume assignor's obligation hereunder, unless otherwise agreed to by the other Party; and (iii) except with respect to an assignment of this Agreement in its entirety permitted hereunder by the Seller's Lender, no assignment, whether or not consented to, shall relieve the assignor of its obligations hereunder in the event the assignee fails to perform, 45 unless the other party agrees in writing in advance to waive the assignor's continuing obligations pursuant to this Agreement, such waiver not to be unreasonably withheld. 12.3 Consent to Assignment to Lender. Buyer consents to Seller's ------------------------------- assignment of this Agreement to any Lenders or the granting to any Lenders of a lien or security interest in any right, title or interest in part or all of the Facility or any or all of Seller's rights under this Agreement for the purpose of the financing or refinancing of the Facility (or any part thereof) and the Interconnection Facilities; provided, however, that -------- ------- such assignment shall recognize Buyer's rights under this Agreement. Buyer further agrees to comply with reasonable requests of Seller in Seller's efforts to obtain project financing for the Facility, including without limitation execution of a consent to assignment by Buyer and delivery by Buyer's counsel of an opinion as described below as reasonably required by Lenders. Buyer recognizes that such financing will likely entail Buyer's execution of a consent to assignment that may grant certain rights to such Lenders, which shall be fully developed and described in the consent documents, including (i) this Agreement shall not be amended in any material respect or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, which consent is not to be unreasonably withheld or delayed, (ii) Lenders shall be given notice of, and a reasonable opportunity to cure (in addition to the periods designated hereunder), any Seller breach or default of this Agreement, and (iii) if a Lender forecloses, takes a deed in lieu or otherwise exercises its remedies pursuant to any security documents, that Buyer shall, at Lender's request, continue to perform all of its obligations hereunder (subject to Buyer's rights under Section 13), so long as Lender or its nominee is performing all obligations of Seller hereunder in the place of Seller, and Lender may assign this Agreement to a Permitted Assignee so long as such Permitted Assignee assumes all obligations of Seller hereunder and so long as all monetary defaults of Seller are cured prior to such assignment, and may enforce all of Seller's rights to the extent Seller's obligations hereunder are being performed, (iii) that Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of the Facility, (iv) that Buyer shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (v) if this Agreement is rejected in Seller's bankruptcy, Buyer will enter into a replacement agreement identical to this Agreement with a Permitted Assignee so long as such Permitted Assignee assumes all obligations of Seller hereunder and so long as all monetary defaults of Seller are cured prior to such assignment, and (vi) that Buyer shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) Buyer's corporate existence, (B) Buyer's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of (x) the document evidencing Buyer's consent to assignment to Lenders and (y) this Agreement on Buyer, (D) receipt of regulatory approvals by Buyer with respect to its execution and performance under this Agreement, and (E) whether to Buyer's knowledge, any defaults by Seller are known by Buyer then to exist under this Agreement. The documentation that Lenders may require under this Section 12.3 may include an opinion of counsel typical in project finance transactions. Seller agrees to reimburse Buyer for reasonable fees and expenses incurred by Buyer in connection with consent to assignment including without limitation, attorneys' fees and 46 expenses. Such consent to assignment to Lenders shall provide that upon the exercise of trustee's or mortgagee's assignment rights pursuant to such assignment, trustee or mortgagee shall notify Buyer of the date and particulars of any such exercise of assignment rights. 12.4 Potential Changes in Ownership or Control of Aquila. Seller --------------------------------------------------- acknowledges that Aquila may become the subject of a merger, acquisition, transfer of a majority of the outstanding voting equity of Aquila, or other change in control (the "Aquila Change in Control") in the near future and that such transaction may be deemed an assignment of this Agreement pursuant to Section 12.2. Seller agrees that, if, following the consummation of the Aquila Change in Control, Aquila, or its successor entity resulting from such transaction, provides evidence reasonably satisfactory to Lenders (in accordance with common industry practice) demonstrating that it has a credit rating that is equal to or higher than such rating applicable to UCU as of the date of this Agreement, Seller shall provide its consent pursuant to Section 12.1 to such deemed assignment, and upon consummation thereof shall release UCU from its joint and several liability and from all obligations arising from and after the Aquila Change in Control. 12.5 Transfers Not in Accordance Herewith. Any sale, transfer, or ------------------------------------ assignment of any interest in the Facility or in this Agreement made without fulfilling the requirements of this Section 12 shall be null and void and shall constitute an Event of Default. 13. Default, Termination and Remedies; Notice of Default. If Buyer ---------------------------------------------------- defaults under this Agreement, then Seller shall give Buyer written notice describing such default. If Seller defaults under this Agreement, then Buyer shall give Seller written notice describing such default and concurrently provide any Lender with a copy of such notice. 13.1 Events of Default of Seller. The following shall constitute --------------------------- Events of Default of Seller ("Seller Events of Default") upon their occurrence unless cured within seven (7) days after written receipt of Notice from Buyer of such failure requiring its remedy, in the case of defaults under Sections 13.1.1 (and twenty-one (21) days with respect to Section 13.1.2) or within sixty (60) days, in the case of all other defaults, after the date of written notice from Buyer as provided above, provided that, if any such other default cannot be cured within sixty (60) days with exercise of due diligence, and if Seller within such period submits to Buyer a plan reasonably designed to correct the default within a reasonable additional period of time not to exceed six (6) months, then an Event of Default shall not exist unless Seller fails to diligently pursue such cure or fails to cure such default within the additional period of time specified by such plan: 13.1.1 Seller's failure to make payments when due; Seller Guarantor's failure to pay for Substitute Power (if Seller has failed previously to make such payment), a Delay Book Out Charge or an Outage Book Out Charge; 13.1.2 (i) A Seller Guarantee ceases to remain in full force and effect in accordance with its terms (other than as a result of such Seller Guarantee having been 47 fully drawn down by Buyer); (ii) the failure of a Seller Guarantor to make a payment upon a proper drawing by Buyer against a Seller Guarantee; or (iii) Seller fails to deliver a letter of credit as required by Section 18.1 upon a Downgrade Event with respect to a Seller Guarantor. 13.1.3 Seller's dissolution or liquidation; 13.1.4 A Bankruptcy Event occurs with respect to Seller; 13.1.5 Seller's assignment of this Agreement or any of Seller's rights under the Agreement or the sale or transfer of any interest in Seller in each case not in compliance with the provisions of Section 12; 13.1.6 The sale by Seller to a third party of Electric Energy or Capacity committed to Buyer by Seller other than as permitted under this Agreement; and 13.1.7 Any representation made by Seller under Section 14.1 shall be false in any material respect. 13.2 Buyer Default. The following shall constitute Events of Default ------------- of ("Buyer Events of Default") upon their occurrence unless cured within seven (7) days after written receipt of Notice from Seller of such failure requiring its remedy, in the case of a default under Section 13.2.1 or within sixty (60) days, in the case of all other defaults, after the date of written notice from Buyer as provided above, provided that, if any such other default cannot be cured within sixty (60) days with exercise of due diligence, and if Seller within such period submits to Buyer a plan reasonably designed to correct the default within a reasonable additional period of time not to exceed six (6) months, then an Event of Default shall not exist unless Seller fails to diligently pursue such cure or fails to cure such default within the additional period of time specified by such plan: 13.2.1 Buyer fails to pay any sum due from it hereunder on the due date thereof; 13.2.2 A Bankruptcy Event occurs with respect to Buyer; 13.2.3 Buyer dissolution or liquidation except in connection with an Aquila Change in Control pursuant to Section 12.4; 13.2.4 Buyer's failure to post or maintain security in the form of a letter of credit as a result of a Downgrade Event with regard to Buyer as described in Section 18.2, to the levels, and upon the timing, specified in such Section 18.2; 13.2.5 Buyer's assignment of this Agreement or any of Buyer's rights under this Agreement or the sale or transfer of any interest in Buyer in each case not in compliance with the provisions of Section 12; or 48 13.2.6 Any representation made by Buyer under Section 14.1 shall be false in any material respect. 13.3 Remedies. -------- 13.3.1 Upon the occurrence and during the continuance of a Buyer Event of Default or a Seller Event of Default, the non-defaulting Party may at its discretion suspend performance hereunder or terminate this Agreement upon thirty (30) days (or five (5) days for defaults under Section 13.1.4 or 13.2.2 above) prior written notice to the Party in default. In addition, if Seller terminates this Agreement pursuant to this section 13.3.1, Seller may draw the amount of its direct damages incurred as a result of Buyer's default from the Buyer letter of credit, if any, posted pursuant to Section 18.2. 13.3.2 If a Buyer Event of Default under Section 13.2.1 has occurred and is continuing, Seller shall have the right to sell Capacity and Electric Energy from the Facility on a daily basis to third parties during the continuance of such Buyer Event of Default. 13.4 Special Termination for Chronic Poor Availability. If the Summer ------------------------------------------------- Average Availability for the Facility for a Summer Period (the "Initial Poor Availability Period") is less than 80%, then Seller shall promptly engage a mutually acceptable independent engineer to conduct an assessment of Seller's operating and maintenance practices to determine what steps are necessary to restore the Facility to an Equivalent Availability of at least 97% and to recommend a detailed and specific protocol of equipment, operational and maintenance improvements necessary to achieve such Equivalent Availability (collectively, the "IE Protocol"). If Seller fails to fully and timely implement the IE Protocol and either (i) the Facility has a Summer Average Availability of less than 80% for each of the two Summer Periods subsequent to the Initial Poor Availability Period or (ii) if the Summer Average Availability for the Initial Poor Availability Period was less than 70%, and the Facility has a Summer Average Availability less than 70% for the Summer Period subsequent to the Initial Poor Availability Period, then Buyer may terminate this Agreement on September 15/th/ of the year that is two years after the Initial Poor Availability Period (in the case of a termination pursuant to the foregoing clause (i)) or on September 15/th/ of the year after the Initial Poor Availability Period (in the case of a termination pursuant to clause (ii)). In the event of such termination, Seller shall have no liability to Buyer except for liability for obligations (including Availability Adjustments) accrued prior to such termination. 14. Representations and Warranties ------------------------------ 14.1 Representations and Warranties of Seller. Seller hereby makes ---------------------------------------- the following representations and warranties to Buyer: 14.1.1 Seller is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, is qualified to do business in the State of Illinois and has the legal power and authority to own its 49 properties, to carry on its business as now being conducted and to enter into this Agreement and, subject to the receipt of the regulatory approvals set forth in Section 20, carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. 14.1.2 The execution, delivery and performance by Seller of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of Seller's Management Committee or equity holders other than that which has been obtained. 14.1.3 The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement, do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Seller is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing, and Seller has obtained all permits, licenses, approvals and consents of governmental authorities required for the lawful performance of its obligations hereunder. 14.1.4 This Agreement constitutes the legal, valid and binding obligation of Seller enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. 14.1.5 There is no pending, or to the knowledge of Seller, threatened action or proceeding affecting Seller before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. 14.2 Representations and Warranties of Buyer. Aquila and UCU, on a --------------------------------------- joint and several basis, hereby make the following representation and warranties to Seller: 14.2.1 Aquila is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and UCU is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Aquila and UCU is qualified to do business in the State of Illinois and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. 14.2.2 The execution, delivery and performance by each of Aquila and UCU of this Agreement have been duly authorized by all necessary corporate action, and 50 do not and will not require any consent or approval of its Board of Directors or shareholders other than that which has been obtained. 14.2.3 The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or its Sections of incorporation or bylaws, or any deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which either Aquila or UCU is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing. 14.2.4 This Agreement constitutes the legal, valid and binding obligation of Aquila and UCU enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. 14.2.5 There is no pending, or to the knowledge of Aquila or UtiliCorp, threatened action or proceeding affecting it before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. 15. Indemnification --------------- Each Party shall indemnify and hold harmless the other Party, and its officers, directors, agents and employees from and against any and all claims, demands, actions, losses, liabilities, expenses (including reasonable legal fees and expenses), suits and proceedings of any nature whatsoever for personal injury, death or property damage to each other's property or facilities or personal injury, death or property damage to third parties (collectively "Liabilities") caused by the negligence or willful misconduct of the indemnifying Party that arise out of or are in any manner connected with the performance of this Agreement, except to the extent such injury or damage is attributable to the gross negligence or willful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. Buyer shall indemnify Seller from all Liabilities related to Electric Energy and Replacement Power from and after delivery to the Point of Delivery or Replacement Power Delivery Point as applicable; and Seller shall indemnify Buyer for all Liabilities related to Electric Energy or Replacement Power prior to its delivery to the Point of Delivery or Replacement Power Delivery Point as applicable. 16. Notices. ------- Unless otherwise provided in this Agreement, any notice, consent or other communication required to be made under this Agreement shall be in writing and shall be delivered to the address set forth below or such other address or persons as the receiving Party may from time to time designate by written notice: 51 If to Buyer, to: Aquila Energy Marketing Corporation 1100 Walnut - Suite 2900 Kansas City, Missouri 64106 Attention: President Fax: (816) 527-1006 With a copy to: Hogan & Hartson, L.L.P. 555 Thirteenth Street, Columbia Square Washington, D.C. 20004-1109 Attn: John P. Mathis, Esquire Fax: (202) 637-5910 If to Seller, to: Elwood Energy III, LLC c/o Dominion Energy, Inc. 120 Tredegar Street Richmond, VA 23219 Attention: Christine M. Schwab, Esq. Fax: (804) 819-2202 with a copy to: Elwood Energy III, LLC c/o McGuire, Woods, Battle & Boothe LLP 901 E. Cary Street Richmond, VA 23219 Attention: Mark J. La Fratta, Esq. Telephone: (804) 775-1106 Fax: (804) 698-2096 All notices shall be effective when received. 17. Confidentiality --------------- Each Party agrees that it will treat in confidence all documents, materials and other information marked "Confidential" or "Proprietary" by the disclosing Party ("Confidential Information") which it shall have obtained during the course of the negotiations leading to, and its performance of, this Agreement (whether obtained before or after the date of this Agreement). Confidential Information shall not be communicated to any third party (other than, in the case of 52 Seller, to its Affiliates, to its counsel, accountants, financial or tax advisors, or insurance consultants, to prospective partners and other investors in Seller and their counsel, accountants, or financial or tax advisors, or in connection with its financing or refinancing; and in the case of Buyer, to its Affiliates, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants). As used herein, the term "Confidential Information" shall not include any information which (i) is or becomes available to a Party from a source other than the other Party, (ii) is or becomes available to the public other than as a result of disclosure by the receiving Party or its agents or (iii) is required to be disclosed in the opinion for a Party's legal counsel under applicable law or judicial, administrative or regulatory process, but only to the extent it must be disclosed. The timing and content of any press releases associated with this Agreement shall be agreed to by the Parties prior to any public disclosure or distribution. 18. Security -------- 18.1 Seller Guarantees. Seller shall provide guarantees of Dominion ----------------- Energy, Inc. ("Dominion") and Peoples Energy Corp ("Pecorp") (the "Seller Guarantees") in the form of Appendix H, each with a cumulative maximum liability amount for the Term equal to ten million dollars ($10,000,000). Such guarantees shall be in force beginning July 1, 2001 and shall remain in force until the termination of this Agreement. If and when a Seller Guarantor has paid out an amount equal to the maximum amount of the Seller Guarantee, such Seller Guarantor shall be released from any further liability to Buyer pursuant to this Agreement, and from and after such date Buyer shall be released from any obligation hereunder to obtain Substitute Power. Such Seller Guarantor may, in its sole discretion, reissue additional guarantees beyond such maximum. If a Downgrade Event occurs with respect to a Seller Guarantor, Seller shall post or cause to be posted in lieu of Seller's Guarantee, a letter of credit in favor of and reasonably acceptable to Buyer in an amount equal to its remaining liability under such Seller Guarantees. Neither Dominion nor Pecorp may assign or transfer its guarantee obligations to a third party entity without the consent of Buyer, and any assignee or transferee must have credit standing of Investment Grade or better . Pursuant to such guarantees, each of Dominion and Pecorp shall be severally, but not jointly or jointly and severally, liable for the performance of Seller, and their liabilities shall be limited to the amount stated in the guarantees for the applicable time period. Upon Buyer's request, Seller shall cause Dominion to provide audited financial statements on an annual basis after April 30 of each year for the preceding calendar year. 18.2 Buyer Security. Upon request of Seller, Buyer shall be required -------------- to post security in the form of a letter of credit in favor of and reasonably acceptable to Seller within ten (10) days of Seller's request if the rating of both Moody's and Standard & Poor's of UCU (or its successor or replacement entity pursuant to the operation of Section 12.4) the co- obligor under this Agreement, falls below Investment Grade. Such letter of credit shall be in an amount equal the next six (6) months Capacity Charges if such rating is one Rating Category below Investment Grade, or twelve (12) months Capacity Charges if such rating is two or more Rating Categories below Investment Grade, upon which Seller may draw any amounts due from Buyer hereunder and not timely paid. Any six 53 month Capacity Charge letter of credit shall have a term of not less than 180 days. Any twelve month Capacity Charge letter of credit shall have a term of not less than 364 days. If such letter of credit is not renewed at least thirty (30) days prior to expiration, Seller may draw the full amount of such letter of credit and hold such amounts to offset against liability (including future liability) of Buyer under this Agreement. If one or both rating agencies restores UCU's (or its successor or replacement entity pursuant to the operation of Section 12.4) long term debt rating to Investment Grade, than Buyer may request that Seller surrender the letter of credit to Buyer, and Seller will do so within three Business Days of such request. 19. Force Majeure ------------- 19.1 Definition. For the purposes of this Agreement, "Force Majeure ---------- Event" means an event, condition or circumstance beyond the reasonable control of and without the fault or negligence of the Party affected (the "Affected Party") which, despite all reasonable efforts of the Affected Party to prevent it or mitigate its effects, prevents the performance by such Affected Party of its obligations hereunder. Subject to the foregoing, "Force Majeure Event" as to either Party, shall include: 19.1.1 explosion and fire (in either case to the extent not attributable to the fault or the negligence of the Affected Party); 19.1.2 lightning, flood, earthquake, landslide, tornado, unusually severe storms, or other natural calamity or act of God; 19.1.3 strike or other labor dispute other than any labor dispute or strike by Seller's employees or the employees of any contractor or subcontractor employed at or performing work with respect to the Facility (except to the extent arising out of a strike or labor action by employees or labor organization members not employed at or performing work with respect to the Facility); 19.1.4 war, insurrection, civil disturbance, sabotage or riot; 19.1.5 failure to obtain Governmental Approvals as a result of a Change in Law; 19.1.6 Changes in Law materially adversely affecting operation of the Facility; 19.1.7 lack of fuel caused by a Force Majeure Event (as defined in this Agreement) experienced by the Facility's fuel supplier or transporter (as if for purposes of this Section 19.1.7 such fuel supplier or transporter is the Affected Party) or curtailment of firm gas transportation service to the Facility pursuant governmental order that materially affects the delivery of gas to the Facility; 54 19.1.8 the failure of performance by any third party having an agreement with Seller, including, without limitation, any vendor, supplier, or customer of Seller that is excused by reason of force majeure (or comparable term), as defined in Seller's agreement with such third party but only if such event would also constitute Force Majeure as defined in this Agreement; and 19.1.9 mechanical equipment breakdown caused by a Force Majeure Event described in Section 19.1.1, 19.1.2, or 19.1.4, and 19.1.10 interruption of acceptance by the Interconnected Utility of delivery of Electric Energy from the Facility into the Interconnected Utility System. 19.2 Obligations Under Force Majeure. -------------------------------- 19.2.1 If either Party is rendered unable, wholly or in part, by a Force Majeure Event, to carry out some or all of its obligations under this Agreement (other than obligations to pay money) despite all reasonable efforts of such Party to prevent or mitigate its effects, then, during the continuance of such inability, the obligation of such Party to perform the obligations so affected shall be suspended, except as provided in this Section 19. If Seller is the Affected Party, the Target COD shall be extended day for day for the duration of the effects of a Force Majeure Event. 19.2.2 A Party relying on a Force Majeure Event shall give written notice of such Force Majeure Event to the other Party as soon as practicable after such event occurs, which notice shall include information with respect to the nature, cause and date of commencement of the occurrence(s), and the anticipated scope and duration of the delay. Upon the conclusion of the Force Majeure Event, the Party heretofore relying on such Force Majeure Event shall, with all reasonable dispatch, take all steps reasonably necessary to resume the obligation(s) previously suspended. 19.2.3 Notwithstanding the foregoing, a Party shall not be excused under this Section 19, (x) for any non-performance of its obligations under this Agreement having a greater scope or longer period than is justified by the Force Majeure Event, (y) for the performance of obligations that arose prior to the Force Majeure Event, or (z) to the extent absent the Force Majeure Event the Affected Party would nonetheless have been unable to perform its obligations under this Agreement. 19.3 Force Majeure Not Forced Outage. Any periods of Forced Outage or ------------------------------- Forced Derating caused by Force Majeure Events shall not be included as Forced Outage Hours, or Forced Derating Hours for purposes of calculation of the Availability Adjustment. 19.4 No Economic Force Majeure. Force Majeure Events do not include ------------------------- changes in market conditions. 55 19.5 Continued Payment Obligation. Buyer shall have no obligation to ---------------------------- pay the monthly Capacity Charge during a Force Majeure period when the Seller is the Affected Party except: 19.5.1 Prior to Commercial Operations Date. Buyer shall have no ----------------------------------- obligation to pay Capacity Charges during a Force Majeure Period unless, and to the extent Seller delivers or causes to be delivered Replacement Power or Substitute Power. However, Seller's provision of Replacement Power, causing Substitute Power to be delivered, or payment of a Delay or Outage Book Out Charge shall not constitute, in any manner, a waiver of a Force Majeure Event. 19.5.2 After the Commercial Operations Date. After the Commercial ------------------------------------ Operations Date, Buyer shall have no obligation to pay Capacity Charges during any Force Majeure Period where Seller is the Affected Party, except that Buyer shall continue to pay for 50% of the Capacity Charges for up to the first 15 days of any Force Majeure Event as if the Unit(s) were meeting the Guaranteed Availability during such period. Beginning on the sixteenth (16/th/) day Buyer shall have no obligation to pay Capacity Charges unless and to the extent (a) Seller provides Replacement Power or causes to be delivered Substitute Power, or (b) the Facility is Available for Dispatch by Buyer. 19.5.3 Proration of Effect of Force Majeure Affecting Elwood ----------------------------------------------------- Station and Expansions Thereto. If a Force Majeure Event affects both the ------------------------------ Units and other units at the Elwood Station (including expansions thereof), Seller shall equitably allocate the burdens of the effects of such Force Majeure Event over all affected units (for example, if a gas curtailment affecting Units 1-6 constitutes a Force Majeure, the gas available shall be ratably allocated over such six units to the extent feasible). 19.6 Extended Force Majeure Event After Commercial Operations. If an -------------------------------------------------------- Affected Party reasonably believes that a Force Majeure Event that is preventing it from performing its obligations hereunder could result in a suspension of such performance for a period of one (1) month or longer, the Affected Party shall submit a plan to the other Party to overcome the Force Majeure Event. Such plan shall be submitted within thirty (30) Business Days of the start of the Force Majeure Event. The plan shall set forth a course of repairs, improvements, changes to operations or other actions which could reasonably be expected to permit the Affected Party to resume performance its obligations under this Agreement within a reasonable time frame projected in the plan. While such a plan is in effect, the Affected Party shall provide weekly status reports to the other Party notifying the other Party of the steps which have been taken to remedy the Force Majeure Event and the expected remaining duration of the Party's inability to perform its obligations. If the Force Majeure Event has not been overcome within five (5) months from its inception, the Parties shall meet to reassess the amount of time that is likely to pass before the Affected Party can reasonably be expected to resume performance under this Agreement, and Seller shall have thirty (30) days to establish a revised plan to overcome the Force Majeure Event within twelve (12) months of its beginning. If at the end of such thirty (30) days one or both of the Parties reasonably concludes that the Force Majeure Event cannot be reasonably be expected to be overcome within twelve months of the 56 beginning of the Force Majeure Event, the Party that is not the Affected Party may terminate this Agreement with five (5) days notice to the Affected Party. If the Affected Party is Seller and the Force Majeure Event only materially impacts the operation of one Unit, then any termination by Buyer will be as to the impacted Unit only. Notwithstanding Buyer's election not to terminate this Agreement, Buyer shall nonetheless have the right to terminate this Agreement, if Seller has failed to remedy the effects of the Force Majeure Event within twelve months of its inception such that the Facility is capable of delivering the Net Dependable Capacity and meeting other performance criteria hereunder. Upon termination of this Agreement as provided in this Section 19.6, the Parties shall have no further liability or obligation to each other except for any obligation arising prior to the date of such termination and those that survive termination as listed in Section 2.2. In addition to the foregoing, the Party not prevented from performing its obligations due to the Force Majeure Event may terminate this Agreement upon ten (10) Days prior written notice if (a) the Affected Party fails to provide a Force Majeure remedy plan as provided for in this Section 19.6, (b) the Affected Party fails to carry out the Force Majeure remedy plans in a method reasonably designed to cause that Party to be able to perform it obligations hereunder within twelve (12) months of the Force Majeure Event occurring, or (c) within five (5) Business Days after a request therefor fails to provide a weekly status report to the other Party. 20. Interconnection and Transmission -------------------------------- 20.1 Facilities. Seller shall own, operate, maintain and control ---------- during the Term at its sole cost and expense all interconnection facilities located on the Facility site up to, but not including, the Point of Delivery. Seller shall pay all costs associated with interconnecting the Facility to the Interconnected Utility System, including any facilities upgrades required by ComEd. 20.2 Transmission. Buyer shall be responsible for arranging and paying ------------ for transmission services from the Point of Delivery, including any applicable transmission costs, system charges or line/system losses from the Point of Delivery, except to the extent of Incremental Transmissions Costs for Replacement Power. Buyer shall also be responsible for obtaining and paying for any ancillary or control area services required by FERC, ComEd or any independent system operator or other transmission utility with respect to the delivery and transmission of ComEd past the Point of Delivery. 21. Taxes ----- 21.1 Applicable Taxes. Each Party shall be responsible for the payment ---------------- of all taxes imposed on its income or net worth. Except as provided in this Section 21, Seller shall be responsible for the payment of all present or future federal, state, municipal or other lawful taxes applicable by reason of the operation of the Facility or assessable on Seller's property or operations including taxes on (i) the purchase by Seller or delivery of fuel to the Facility, and (ii) production of electricity. Buyer shall pay all existing and any new sales, use, excise, and any other similar taxes, if any, imposed or levied by a governmental agency on the sale or use of or payments for the Electric Energy, 57 Replacement Power, Substitute Power and Net Dependable Capacity sold and delivered under this Agreement arising at or after the Point of Delivery. Buyer shall indemnify, defend, and hold Seller harmless from any liability for all such taxes for which Buyer is responsible. Seller shall indemnify, defend, and hold Buyer harmless from any liability from all such taxes for which Seller is responsible. Buyer shall reimburse Seller promptly on demand for the amount of any such tax that is Buyer's responsibility hereunder that Seller remits, plus any penalties and interest incurred and remitted, except such penalties as result from Seller's conduct. Seller shall reimburse Buyer promptly on demand for the amount of any such tax that is Seller's responsibility hereunder that Buyer remits, plus any penalties, interest incurred and remitted, except penalties as result from Buyer's conduct. 21.2 Contested Taxes. Neither Party shall be required to pay any such --------------- tax, assessment, charge, levy, account payable or claim if the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings (including posting security as may be required) which will prevent the forfeiture or sale of any property utilized under this Agreement or any material interference with the use thereof. 21.3 Other Charges. Seller and Buyer will pay and discharge all lawful ------------- assessments and governmental charges or levies imposed upon it or in respect to all or any part of its property or business, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor, or materials which, if unpaid might become a lien or charge upon any of its property. 22. Miscellaneous Provisions ------------------------ 22.1 Non-Waiver. The failure of either Party to insist in any one or ---------- more instances upon strict performance of any provisions of this Agreement, or to take advantage of any of its rights hereunder, shall not be construed as a waiver of any such provisions or the relinquishment of any such right or any other right hereunder, which shall remain in full force and effect. 22.2 Relationship of Parties. This Agreement shall not be interpreted ----------------------- or construed to create an association, joint venture, or partnership between the Parties or to impose any partnership obligation or liability upon either Party. Neither Party shall have any right, power or authority to enter into any agreement or undertaking for, or to act on behalf of, or to act as or be an agent or representative of, or to otherwise bind, the other Party. 22.3 Successors and Assigns. This Agreement shall inure to the benefit ------------------------ of and be binding upon the successors and permitted assigns of the Parties. 22.4 Governing Laws. This Agreement shall be construed in accordance -------------- with and governed by the laws of the State of Illinois without regard to its conflicts of laws provisions. 58 22.5 Counterparts. This Agreement may be executed in more than one counterpart, each of which may be signed by fewer than all Parties, but all of which constitute the same Agreement. 22.6 Third Party Beneficiaries. This Agreement is intended solely ------------------------- for the benefit of the Parties hereto. Nothing in this Agreement shall be construed to create a duty to or standard of care with reference to, or any liability to, any Person not a Party to this Agreement. 22.7 Financial Information. After Seller closes on any third party --------------------- financing, then from the date of such financing, for information purposes only, Seller shall, on a quarterly basis, provide to Buyer a statement of its debt coverage ratio if it is below 1.5. If Seller's debt coverage ratio is 1.5 or greater, Seller shall only inform Buyer that its debt cover ratio is 1.5 or greater without further information. Buyer agrees to treat such information as confidential pursuant to Section 17. In no event shall Buyer alter its performance under this Agreement in any manner based upon such information. Under no circumstances shall Seller have any liability to Buyer whatsoever as a result of actions taken by Buyer in reliance upon such information and Buyer hereby releases Seller for any liability whatsoever resulting therefrom. 23. Appointment of Aquila As UCU's Agent ------------------------------------ 23.1 Appointment. ----------- UCU hereby appoints Aquila as its true and lawful agent and attorney-in- fact, with full power and this Agreement, including without limitation, any notices, consents, elections, waivers, correspondence, agreements, instruments or claims which Aquila deems appropriate; provided, however, that Aquila may not agree to amend this Agreement on behalf of UCU. UCU may terminate this appointment upon written notice to Seller. 23.2 Presumption of Authority. Seller may conclusively presume and ------------------------ rely upon the fact that to the extent specified in Section 23.1, any instrument executed by Aquila acting as Buyer or agent or attorney-in-fact for UCU in authorized, regular, and binding upon UCU, without further need for inquiry. 24. Entire Agreement and Amendments ------------------------------- This Agreement supersedes all previous representations, understandings, negotiations and agreements either written or oral between the Parties hereto or their representatives with respect to the subject matter hereof and constitutes the entire agreement of the Parties with respect to the subject matter hereof. No amendments or changes to this Agreement shall be binding unless made in writing and duly executed by both Parties. 59 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date set forth at the beginning of this Agreement. Buyer: Aquila Energy Marketing Corporation By /s/ VJ Horgan ------------------------------- Name: VJ Horgan -------------------------- Title: Senior VP ------------------------- Buyer: UtiliCorp United Inc. By /s/ Keith Stamm -------------------------------- Name: Keith Stamm --------------------------- Title: Senior VP -------------------------- Seller: Elwood Energy III, LLC By /s/ Ronald D. Usher -------------------------------- Name: Ronald D. Usher Title: General Manager 60 APPENDIX A FACILITY DESIGN LIMITS AND OTHER DISPATCH RESTRICTIONS (1) The Design Limits for the Facility shall be the following: ---------------------------------------------------------- (a) The Maximum Load for a Facility shall be equal to the Net Dependable Capacity pursuant to OEM warranties, recommendations, and ambient conditions and the Governmental Approvals relating to the Facility; (b) The Minimum Load for a Unit shall be equal to sixty percent (60%) of Net Dependable Capacity (but no less than ninety (90) MW) which shall adjust with ambient conditions in accordance with actual capability of the Units as provided in Appendix F. (c) The minimum time required to Start-Up any one Unit (including the Elwood II Units) is twenty-two (22) minutes. The minimum time required to Start-Up multiple units under simultaneous Dispatch for two or three units is thirty-seven (37) minutes; provided however that the commencement of the Start-Up of second and the third Unit shall follow the commencement of Start-Up of the first Units by fifteen (15) minutes. The minimum time required to Start-Up four units under simultaneous Dispatch is fifty-two (52) minutes, provided however that the commencement of the Start-Up of the fourth Unit shall follow the commencement Start-Up of the second Unit by fifteen (15) minutes. (d) The ramp rate (load increase rate) from synchronization to Minimum Load is twelve and one-half (12.5) MW per minute per Unit. Minimum time for the load increase from synchronization to Minimum Load is seven (7) minutes. (e) The ramp rate (load increase rate) from Minimum Load to Maximum Load is thirteen (13) MW per minute per Unit. Minimum time for the load increase from Minimum Load to Maximum Load is four and six-tenths (4.6) minutes. (f) The ramp down rate (load decrease rate) from all load levels is fifteen (11.5) MW per minute per Unit. (g) The power factor of Electric Energy from a Unit as measured at the Unit's Revenue Meter shall be in the range from 0.90 lagging to 0.95 leading. (2) Dispatch and Start Procedure ---------------------------- (a) Upon Start Up of Unit(s), Seller will ramp Unit(s) to Minimum Load according to the Design Limits above, and thereafter adjust the load between Minimum Load A-1 and Maximum Load of the Unit(s) according with the Dispatch Notification and in compliance with the Design Limits above. (b) There shall be a minimum run time per Unit of four (4) consecutive hours; provided, however, Buyer shall have the option to Dispatch each -------- ------- Unit for a minimum run time of two (2) consecutive hours up to ten (10) times each Contract Year subject to Prudent Industry Practice and within manufacturer's recommendations. (c) There shall be a minimum idle time of two (2) hours between the time a Unit is taken off-line until the initiation of the next Start Up Sequence for that Unit. (d) Seller shall have the flexibility to Start Up the Units (along with the Elwood II Units) in a manner that meets Buyer's Dispatch schedule with the least number of Units, consistent with Design Limits and Prudent Industry Practice. (3) Generation During Start Up -------------------------- (a) During Start Up of one or more Units and while making load changes in response to Dispatch Requests, Seller shall use Prudent Industry Practices and commercially reasonable efforts to conform the Start Up and operation of the Unit(s) to the Dispatch Request and to minimize the amount of inadvertent Electric Energy generated prior to the Requested Load Delivery Time. (b) Prior to the Requested Load Delivery Time, during the Start Up of one Unit, Seller expects to deliver no more than 26 MWh. (c) Prior to the Dispatch Load Delivery Time, during the Start Up of two Units, Seller expects to deliver no more than 70 MWh. (d) Prior to the Dispatch Load Delivery Time, during the Start Up of three Units, Seller expects to deliver no more than 114 MWh. (e) Prior to the Dispatch Load Delivery Time, during the Start Up of four Units, (a 1Unit then 2 Units then 1 Unit Start Up), Seller expects to deliver no more than 178 MWh. (f) Seller expects to deliver no more than 18 MWh per unit during ramp down to off line. (g) If more MWh are delivered during the Start Up(s) than stated in sections (3)(a) to (3)(f) above, Buyer will market such MWh, and Seller will reimburse Buyer if Buyer's resale price is less than the Facility Electric Energy Rate at such time. A-2 (4) Permitted Runtime Hours ----------------------- (a) A maximum permitted runtime per Unit of 2500 hours per Contract Year, except in the first Contract Year, 90% of the maximum permitted runtime and in the final Contract Year, 92% of the maximum permitted runtime. (b) To the extent that permitted runtime hours are less than 2500 hours per Contract Year, Seller shall be obligated to deliver Replacement Power or comparable consideration between the permitted runtime hours and 2500 hours per Contract Year. A-3 APPENDIX B HEAT RATE and CAPACITY TEST PROCEDURE ------------------------------------- Elwood Units 5 -8 ----------------- 1. Introduction ------------ This document describes the procedure for determining the Net Dependable Capacities and corrected Net Heat Rates of Elwood Units 5-8. The Net Dependable Capacities determined by this procedure will serve as the baseline establishing the Capacity Payments and the amount of any future Forced Derating a given Unit may experience. The corrected Net Heat Rates determined by this procedure will be used to evaluate the thermal performance of each unit against the expected degradation in thermal performance as predicted by GE Curve 519HA772, "Expected Gas Turbine Plant Performance Loss Following Normal Maintenance and Off-Line Compressor Wash." The introduction should clarify that there are essentially two performance test procedures considered in this Appendix B. The first will be conducted by the EPC Contractor on or about the Commercial Operations and that the results of that performance testing will serve both to qualify the EPC Contractor's performance commitment to the Seller, and those results will apply in the determination of the Net Dependable Capacity and Initial Net Heat Rate under this Agreement. Thereafter periodic tests will be conducted by the Seller for the purpose of determining ongoing performance of the Units and/or the Facility. The following period tests conducted by the Seller shall be accomplished utilizing permanent meters and instruments installed at the Facility for data acquisition, but otherwise conducted with the intent of yielding results that will be comparable with the first testing series. There will be a series of pre-test activities to verify that the gas turbine generator being tested is operating properly at full capability and is adequately prepared for the capacity test. The Unit will be operated at 100% capability in the normal (not overfiring) operating mode with evaporative coolers in service. The evaluation methodologies utilize correction factors to correct the measured Unit capacity and Heat Rate to the Reference Conditions. Thermal performance and capacity will be further adjusted for degradation according to the accumulated fired hours at the time of the test. These correction factors are determined from curves supplied by the turbine OEM. 2. References ---------- A. Power Sales Agreement between Seller and Buyer relating to Units 5-8. B. ASME Performance Test Procedures For General Electric Heavy Duty Gas Turbines, GEI-41067D. B-1 C. Correction Curve set supplied by GE as part of output and thermal performance guarantees and GE Degradation Curve. D. ASME PTC-22 (1997) Gas Turbine Performance Test Code 3. Measurement and Instrumentation ------------------------------- The test set-up consists of the gas turbine generator unit, selected station instruments, precision psychrometer, and weather instruments installed at the Facility. The ambient air humidity will be measured near the inlet air filter on each Unit using a precision psychrometer. The ambient temperature will be measured near the inlet air filter on each Unit using a precision thermometer. The barometric pressure will be determined by averaging the barometric pressure readings from transmitters installed on each Unit. The gross power output will be measured utilizing the General Electric Mark V control system. The generator net power output will be measured with the installed Transdata watt-hour meter (Revenue Meter). The measurement will be made by repeatedly timing a fixed increment of elapsed Watt-hours. The test point duration will be determined by stopwatch. The gaseous fuel flow rate will be measured with the orifice metering section supplied with the gas turbine and its associated pressure and temperature instrumentation. 4. Pre-Test Preparation -------------------- 4.1 The gas turbine compressor section will be cleaned as described in the GE Turbine Generator Manual immediately prior to testing. The compressor inlet plenum will be inspected before and after the Compressor Wash. If the compressor is judged to be dirty after the initial wash, additional Compressor Wash may be required. 4.2 The gas turbine exhaust thermocouple signal processing system will be confirmed to be operating to control specification. A thermocouple/calibrator will be used to input a 1000EF signal to the unit control system at the terminal strips where the unit thermocouple leads first terminate. At least three thermocouple wire sets for each control system computer will be checked (R, S, and T) for a total of at least nine wire sets. If proper operation cannot be confirmed, the control system must be corrected before testing. This calibration check will be conducted no more than sixty (60) days prior to the test and the calibration data sheets made part of the test record. 4.3 The calibration and proper operation of all pertinent pressure transmitters will be verified not more than sixty (60) days prior to the conduct of the test. Copies of the B-2 calibration data sheets shall be made a part of each test record. At a minimum, the following transmitters shall be checked: . Gas fuel static pressure transmitter(s) . Gas fuel orifice differential pressure transmitter(s) . Barometric pressure transmitter(s) During verification, pressure will be supplied to each transmitter with an NIST traceable device. The input pressure levels shall cover an appropriate estimated range of normal operation. If proper operation cannot be confirmed, the transmitter in question must be re-calibrated before testing. 4.4 The Revenue Meter calibration must have been completed within the interval specified in Section 5.1 of the Agreement and best reasonable efforts shall be used to schedule the Revenue Meter calibration within the sixty (60) day period prior to the test. 4.5 Inlet Guide Vane (IGV) angular position will be measured with a machinist's protractor. The angle will be measured on sixteen vanes around the inlet circumference. The average of these measurements will define the true position of the IGV's. The true angle will be compared to the feedback angle displayed by the unit control system. The control system angle must be in agreement with the measured angle to within plus or minus 0.5 degrees, or the control system must be re-calibrated. 4.6 A fuel sampling location will be identified as close as possible to the gas turbine and upstream of the metering station. 5. Conducting the Test ------------------- Capacity and thermal performance testing will be conducted by Seller and witnessed by Buyer at its discretion. 5.1 A minimum of three test points will be conducted on each unit. Each test point will be conducted with the gas turbine power equipment and all test instrumentation functioning satisfactorily and in a steady-state condition with evaporative coolers in service and with the Mark V control system indicating that the unit is at base load. Prior to and during each test point, the gas turbine wheel space temperatures will be monitored individually to verify thermal stability. The gas turbine will be considered in a steady state condition when each turbine wheel space temperature changes by no more than 5EF over a fifteen minute period. The unit thermal stability will be documented by print-outs from the unit control system. 5.2 In accordance with ASME PTC-22 (1997), additional parameters will be monitored during each test point to verify that the system is in a steady state condition. These parameters and corresponding limits of variation are listed in the following table: B-3
Table: Steady-State Conditions Summary - ----------------------------------------------------------------------------------------------------------- Parameter Monitored Variation Limit Rule - ----------------------------------------------------------------------------------------------------------- Turbine Wheelspace Prior to and during n/a May not change more than Temperature (each) test point 5EF over any 15 minute period - ----------------------------------------------------------------------------------------------------------- Ambient Temperature During test point + 4/o/F Variation from test - point average may not exceed limit - ----------------------------------------------------------------------------------------------------------- Wet Bulb Temperature During test point + 3/o/F Variation from test - point average may not exceed limit - ----------------------------------------------------------------------------------------------------------- Gross Power Output During test point + 2.0 % Variation from test - point average may not exceed limit - ----------------------------------------------------------------------------------------------------------- Barometric Pressure During test point +0.5% Variation from test - point average may not exceed limit - -----------------------------------------------------------------------------------------------------------
5.3 In accordance with ASME PTC-22 (1997), each test point will be conducted over a thirty minute time period. Data will be recorded at five minute intervals (or more frequently) throughout the duration of the test point for a minimum of seven complete sets of instrument readings. No test point should exceed thirty minutes nor should the data recording interval exceed ten minutes. 5.4. Fuel samples will be taken at the beginning and end of each test point for a total of twelve samples per unit (including duplicates). Fuel samples will be delivered to a reputable third party laboratory for analysis. As a backup, duplicate fuel samples will be retained at the site until all fuel analysis is completed. 5.5 Testing shall be conducted with the inlet bleed heat system off and isolated. 6. Evaluation ---------- 6.0 Test Boundary This test procedure and the calculations employed are intended to determine the Net Dependable Capacity and Net Heat Rate as shown on the Heat Rate Boundary Diagram. 6.1 Net Dependable Capacity Evaluation -------------------------------------- Generator Net Power Output -------------------------- Generator Net Power Output (GNPO) will be calculated from the measured net power output from the test point divided by the test point duration in hours. GNPO = measured net power output (kWh) / test point duration (hrs.) B-4 Net Dependable Capacity ----------------------- Generator Net Power Output (GNPO) will be corrected from the test conditions to the Reference Conditions. The result will be the Net Dependable Capacity (NDC). NDC = Net Dependable Capacity corrected to Reference Conditions. NDC = GNPO x CF\\1\\ x CF\\2\\ x CF\\3\\ where: CF\\1\\ = Factor used to correct power from the measured ambient temperature and humidity to the contract conditions = CF\\a\\ / CF\\b\\ where: CF\\a\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the Reference Conditions CF\\b\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the measured ambient temperature and humidity CF\\2\\ = Factor used to correct power from the measured barometric pressure to the rated barometric pressure = P\\R\\ / P\\M\\ where: P\\R\\ = Rated barometric pressure (14.39 psia) P\\M \\= Measured barometric pressure CF\\3\\ = Factor used to correct for accumulated fired hours prior to the test = 1 + (% output loss from curve 519HA772) The NDC's determined from each test point will be summed and divided by the number of test points to determine the NDC for contract purposes. B-5 6.2 Net Heat Rate ----------------- Net Heat Rate will be calculated from the measured rate of heat consumption and the measured net power output. NHR = Net Heat Rate, Btu/kWh (uncorrected) NHR = HC / GNPO, Btu/kWh where: HC = Heat consumption rate, BTU/hr GNPO = Generator net power output from paragraph 6.1, kW 6.3 Heat Consumption Rate -------------------------- Turbine rate of heat consumption will be calculated from the measured fuel flow rate (from turbine control system and compensated for fuel temperature) and the fuel higher heating value as determined from the average of laboratory analysis of the fuel samples. HC = Turbine heat consumption rate, Btu/hr HC = 3600 x W\\F\\ x HHV, Btu/hr where: 3600 = units conversion, 3600 sec/hr W\\F\\ = Fuel flow rate, lb/s (measured by turbine control system and compensated for fuel temperature) HHV = Fuel higher heating value, Btu/lb 6.4 Corrected Net Heat Rate ---------------------------- Net Heat Rate will be corrected from test conditions to the Reference Conditions accounting for degradation in accordance with Section 1 of this procedure. CNHR = Corrected Net Heat Rate, Btu/kWh CNHR = NHR x CF1\\HR\\ x CF2\\HR\\ where: NHR = Net Heat Rate from Section 6.2, Btu/kWh CF1\\HR\\ = Correction factor to correct heat rate from the measured ambient temperature and humidity to the Reference Conditions = CF1\\HR(a)\\ / CF1\\HR(b)\\ B-6 where: CF1\\HR(a)\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the Reference Conditions. CF1\\HR(b)\\ = Ambient temperature and humidity correction factor from GE Curve [insert curve number when received from GE] at the measured ambient temperature and humidity CF2\\HR\\ = Factor to correct heat rate for the total fired hours accumulated prior to the test. Factor derived from GE Curve 519HA772 at the accumulated fired hours = 1- (% heat rate degradation from curve 519HA772) B-7 APPENDIX C COMMUNICATIONS 1. Purpose The purpose of this Appendix is: (i) To describe the nature of, and the requirements for the communication link that will be maintained between Seller and Buyer; (ii) To identify and establish a communications procedure (the "Communications Procedure") that defines the responsibilities for, and the frequency, content, and logistics of communication between personnel responsible for operating the Facility ("Seller's Operator(s)") and Dispatcher concerning the availability and Dispatch of the Units. The Parties desire that such a procedure be established so that only responsible and authorized personnel can issue requests and/or orders that may impact reliability and availability of the Units. 2. Communication Link. (i) Buyer shall establish and maintain dedicated phone lines for all communications concerning the availability and Dispatch of the Units. These dedicated systems shall be used as the primary communications link between Seller's Operators and Buyer's Dispatcher responsible for Dispatching Buyer's system ("Generation Dispatcher"). In addition to the dedicated phone lines, Seller and Buyer shall establish standard phone line(s) as a back-up system. Seller's dedicated and standard phone lines are to be located at the control facilities of the Units. (ii) At any time a Unit at the Facility is synchronized to the Interconnected Utility System, Seller must ensure that a Seller's Operator is available at the dedicated phone line (or back-up phone line if the dedicated line is unavailable) to respond to the Dispatch orders from the Generation Dispatcher. Both Seller and Buyer recognize that there may be operational conditions or events that will required Seller's Operator to leave the control room in order to resolve the condition or event. Both Seller and Buyer also recognize that these conditions or events will be infrequent. During such times, Seller's Operator must first notify the Generation Dispatcher, and provide information regarding how the Seller's Operator can be reached (i.e. a standard, back-up phone line and/or a cellular phone). (iii) Seller shall establish and maintain a paging system for the Seller's Operators. Such paging system shall constitute the secondary communications link between Seller's Operators and the Generation Dispatcher. During those times when no Unit at the Facility is synchronized to the Interconnected Utility, or during power operation when Seller's Operator has left the control room to resolve an operational condition or event, this paging system will become the primary communications link between Seller's Operator and the Generation Dispatcher. Whenever the paging system is the primary communications link, Seller will C-1 ensure at least one Seller's Operator will be available at all times, via the paging system. Should the Dispatcher initiate the paging system, Seller's Operator(s) shall immediately contact the Generation Dispatcher via telephone for specific Dispatch orders. Seller will notify Buyer as soon as possible of any disruption or unavailability of the dedicated or standard phone lines, or the pager system, as soon as practicable. Seller shall also provide a list of back-up contracts to the paging system (i.e. the names and home phone numbers for the operators) to be used should the paging system fail, be inadvertently turned off, lost, unavailable due to satellite communication problems, or if the operator fails to respond. This list of back-up contacts shall be incorporated into the Communications Procedure. 3. Communications Procedure (i) Prior to the Commercial Operations Date, Seller and Buyer shall establish a mutually approved Communication Procedure that defines the responsibilities for, and the frequency, content, and logistics of, all communications between Seller's Operator(s) and the Generation Dispatcher concerning the availability and dispatch of the Units. Seller and Buyer shall ensure that the most current mutually- approved revision of this Communication Procedure is available to the Seller's Operator(s) and the Generation Dispatcher. Both Seller and Buyer shall mutually review and revise the communications procedure, as necessary. (ii) The Communications Procedure shall provide telephone numbers for all dedicated and standard phone lines of both Seller and Buyer (including telephone numbers for facsimile machines) and pager numbers for all of Seller's Operators. The Communications Procedure shall also provide back-up contacts to the paging system (i.e. the names and home phone numbers for the operators) to be used should the paging system fail, be inadvertently turned off, lost, unavailable due to satellite communication problems, or if the Seller's Operator fails to respond. In addition, the Communications Procedure shall provide instructions and requirements to both the Seller's Operator(s) and the Generation Dispatcher describing the process(es) for communicating unit availability and Dispatch orders for the Units. At a minimum, the Communication Procedure shall provide communication instructions for the following items: a) Routine notifications (by both Seller's Operator(s) and the Generation Dispatcher) of expected hourly capability and demand, as required by Section 4(e)(ii) of this Agreement. b) Start-up and Dispatch orders for Units; c) Conditions, issues or events that could affect the output or reliability of the Units; C-2 d) The time of day (based on a twenty-four hour clock) when a Unit is placed on line and taken off line; e) Unit deratings, including the amount of any derate, the estimated or known start time and date of the derate, the estimated or known ending time and date of the derate, and the cause of the derate; f) Conditions at the Facility or a Unit that could affect the present or anticipated load following capability of a Unit; g) Planned and emergency testing requirements, or other operational work that could limit the availability or maneuverability of a Unit; and h) The use of operational reporting forms that are provided in Appendix D. 4. Revisions Each Party shall appoint a representative having power and authority to act on its behalf (the "Representative"). Each Party may change its Representative from time-to-time, effective upon notice given to the other Party. A Representative may change addresses, telephone numbers, facsimile numbers and other similar data to be used in directing communications under this Appendix C or Appendix D to the Party represented by that Representative. Each Representative shall be authorized to agree on behalf of the Party that appointed that Representative to any change in the forms or procedures provided under this Appendix C or Appendix D. C-3 APPENDIX D OPERATIONS REPORTING FORM DATA APPLICABLE FOR ELWOOD AVAILABILITY DECLARATION Availability Declaration Period Commencing ___PM/AM,___/___/___TO____PM/AM,___/___/___ TO: FAX No. Telephone No. - ------------------------------------------------------------------------------------------------------ This FAX is a submission of - ------------------------------------------------------------------------------------------------------ Generator's Offer Data _ - ------------------------------------------------------------------------------------------------------ A revision to the previously submitted offer of ____/____/____ _ -------- - ------------------------------------------------------------------------------------------------------ This document is a hardcopy back-up to the offer of ____/____/____ _ - ------------------------------------------------------------------------------------------------------ Unit_______ Available to Meet Net Dependable Capacity _____ Yes _____ No Unit_______ Available to Meet Net Dependable Capacity _____ Yes _____ No Deratings: Time Time Unit____ Cause Code: _____ MW______ Start______Date___/___/___ Stop______Date ____/___/___ Unit____ Cause Code: _____ MW_______ Start______Date___/___/___ Stop_______Date ____/___/___ Minimum: Time Time Unit____ Cause Code: _____ MW_______ Start______Date___/___/___ Stop_______Date ____/___/___ Unit____ Cause Code: _____ MW_______ Start______Date___/___/___ Stop_______Date ____/___/___
Submitted By: Date: If you do not receive all the pages or if clarification or retransmission is required call Return acknowledgment FAX to the attention of: FAX Number: ________________________________________________________________________________ ________________________________________________________________________________ Acknowledgment by (Signature) (Title) Acknowledgment date and time_____________________________________ D-1 APPENDIX E EQUIVALENT AVAILABILITY CALCULATIONS ("EA") Seller shall calculate for each month, an Equivalent Availability ("EA") for calculation of the Availability Adjustment Credit described in Section 7.1.3. The EA will be calculated (a) for the Summer Super Peak Hours; (b) for the Summer Partial-Peak Hours and (c) for the total of all Non-Summer On-Peak Hours in accordance with the following formula: EA = {1 - [FOH + EFDH] } ------------- PH Where: Equivalent Forced Derated Hours ("EFDH") are the product of Forced Derated Hours (FDH) and Size of Reduction (as defined below), divided by the Net Dependable Capacity (NDC). Equivalent hours are computed for each Forced Derating and then summed for the applicable period. Forced Derated Hours ("FDH") and Forced Outage Hours ("FOH") are calculated over On Peak Hours, during the applicable period, during which a Unit experiences a Forced Derating or Forced Outage, as applicable. They are calculated monthly in the Summer Period across all Summer Super Peak Hours and Summer Partial Peak Hours and annually for Non-Summer On Peak Hours (as applicable). Period Hours ("PH") means the total number of Summer Super Peak, Summer Partial Peak or Non-Summer On Peak Hours (as applicable) in each period. A Forced Outage or Forced Derating event shall only be included in the calculation of the Equivalent Availability when Seller fails to meet, in whole or part, Buyer's Dispatch and fails (a) to deliver or cause to be delivered Replacement Power or Substitute Power, (b) to pay to Buyer Third Party Damages pursuant to Section 4.7.4, or (c) to pay the Outage Book Out Charge due to an unplanned component failure or other condition that requires the load on the Unit or Facility to be reduced below the level Dispatched. The Size of Reduction for a Forced Derating shall be determined by Seller and shall be based upon observed output of a typical unit having the same equipment problems under similar operating and environmental conditions. Buyer may request Seller to justify the size of the reduction through provision of reasonably available historical operating records in support of Seller's selection of the Size of Reduction. In the event of a continuing Forced Outage or Forced Derating, Buyer may submit Dispatch requests as if the Unit were available for full operation, provided such requests are submitted in good faith and support Buyer's need to Dispatch a Unit absent the Forced Outage or Forced Derating. If other units at the Elwood Station are operating, Buyer's request shall be deemed to E-1 be in good faith. If no other units are running at the Elwood Station, Buyer shall, if requested by Seller, provide written explanation of the reasons that would demonstrate the economic justification for such Dispatch request. The following shall not be deemed a Forced Outage or Forced Derating for purposes of calculating the Equivalent Availability (a) a Unit is shut down for Scheduled Maintenance Outages or Compressor Washes as provided in Section 6.4 and 6.5 respectively, (b) A Unit is down or derated, but Seller meets Buyer's Dispatch order through (i) Replacement Power, (ii) Substitute Power, (iii) payment of Third Party Damages pursuant to Section 4.7.4, or (iv) payment of an Outage Book Out Charge, (c) a Unit is curtailed, interrupted, reduced or increased by the Interconnected Utility pursuant to Sections 4.8 or 6.6.2, (d) to the extent a Unit is not Available as a result of a Force Majeure Event, or (e) Seller pays imbalance charges to compensate for any under-delivery. E-2 APPENDIX F Output Adjustment Curve Degradation Curves ------------------ - --------------------------------------------------------------------------- CURVE NUMBER - --------------------------------------------------------------------------- GE Expected Degradation 719HA722 - --------------------------------------------------------------------------- Turbine Performance Curves -------------------------- - --------------------------------------------------------------------------- CURVE NUMBER - --------------------------------------------------------------------------- Estimated Single Unit Performance, Base 522HA851 - --------------------------------------------------------------------------- Compressor Inlet Temperature Corrections, Base 522HA852 - --------------------------------------------------------------------------- Modulated Inlet Guide Vanes Effect 522HA853 - --------------------------------------------------------------------------- Altitude Correction for Turbine 416HA622B - --------------------------------------------------------------------------- Humidity Effects Curve 498HA697B - --------------------------------------------------------------------------- F-1 APPENDIX G Non Billable Generation To establish the kilowatt-hours of electricity provided by a Unit and consumed by other units for a billing period, the total for each billing period of electricity consumed by each of units 5, 6, 7 and 8to be determined from the individual unit electric meter readings using the Revenue Meter which will then be summed for all four units. From this sum, the total monthly electricity purchased from the Interconnected Utility (as determined from the Interconnected Utility's revenue meter in the ComEd/Elwood Switchyard) will be subtracted, yielding an aggregate total of the electricity consumed by all four units that had been generated by one or more other units. This amount will then be multiplied by the ratio of the total operating hours of a given unit to the total operating hours of all four units. This product will represent the electricity generated by a given unit and consumed by other units. This value will be subtracted from the reading of the Revenue Meter for a particular Committed Unit for billing purposes for the billing period. The following example demonstrates the calculation methodology: Total electricity generated Unit 5 - 30,000 MWh Total electricity generated Unit 6 - 22,500 MWh Total electricity generated Unit 7 - 15,000 MWh Total electricity generated Unit 8 - 0 MWh Total electricity consumed Unit 5 - 20,000 kWh Total electricity consumed Unit 6 - 30,000 kWh Total electricity consumed Unit 7 - 15,000 kWh Total electricity consumed Unit 8- 2,000 kWh Total electricity consumed All Units = 20,000 + 30,000 + 15,000 + 2,000 = 67,000 kWh Total electricity purchased from the Interconnected Utility- 30,000 kWh Total electricity consumed by all four units and generated by all four units = 67,000 - 30,000 = 37,000 kWh G-1 Unit 5 monthly operating hours - 200 Unit 6 monthly operating hours - 150 Unit 7 monthly operating hours - 100 Unit 8 monthly operating hours - 0 Total operating hours = 200 + 150 + 100 + 0 = 450 hours CALCULATION: Electricity furnished by Unit 5 and consumed by the other units = (200/450) (37,000) = 16,444 kWh (16.444 MWh) Electricity furnished by Unit 6 and consumed by the other units = (150/450) (37,000) = 12,333 kWh (12.333 MWh) Electricity furnished by Unit 7 and consumed by the other units = (100/450) (37,000) = 8,222 kWh (8.222 MWh) Electricity furnished by Unit 8 and consumed by the other units = (0/450) (37,000) = 0 kWh Billable Generation Unit 5 = 30,000 - 16.444 = 29,983 MWh Billable Generation Unit 6= 22,500 - 12.333 = 22,488 MWh Billable Generation Unit 7 = 15,000 - 8.222 = 14,992 MWh Billable Generation Unit 8 = 0-0 = 0 MWh" G-2 APPENDIX H-1 GUARANTY THIS GUARANTY dated as of ___________, is made by Peoples Energy Corporation, an Illinois corporation ("Guarantor"), in favor of UtiliCorp United Inc. and Aquila Energy Marketing Corporation, Delaware corporations (referring to collectively hereafter as "Creditor"). WHEREAS, Creditor and Elwood Energy, III LLC, a Delaware limited liability company ("Debtor"), have entered into that certain Power Sales Agreement dated ___________, (the "Contract") and capitalized items used and not otherwise defined herein shall have the meanings assigned to them in the Contract; WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent membership interest in Debtor and the remaining 50 percent membership interest is indirectly owned by Dominion Energy, Inc. ("Dominion"); and WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the Contract, Guarantor has agreed to provide to Creditor this Guaranty; NOW, THEREFORE, in consideration of the premises, Creditor's execution of the Contract and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty. Subject to the provisions hereof, Guarantor hereby -------- irrevocably, absolutely and unconditionally guarantees the timely payment of all financial obligations which become due and payable by Debtor to Creditor under or in connection with the Contract (collectively, "Obligations" and individually, an "Obligation") such that, if Debtor fails, neglects or refuses to perform any Obligation, Guarantor shall make such payment within ten business days after Guarantor receives written notice thereof. Notwithstanding the foregoing, as to any Obligation which Guarantor is called upon to pay or cause payment to be made, Guarantor reserves to itself the right to assert any and all defenses under the Contract which Debtor could assert against Creditor with respect to such Obligation; provided, however, that such reservation shall not include any legal or equitable discharge or defense of a guarantor or surety arising out of any of the events described in Section 2 or Section 3 hereof. The guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of the Obligations ; provided, however, that in no event shall the maximum aggregate liability of Guarantor under this Guaranty exceed $10,000,000 (the "Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this Guaranty pursuant to the next sentence hereof; provided further, that Guarantor's obligations hereunder are separate and independent obligations from those of Dominion under Dominion's Guaranty of even date herewith and neither Guarantor nor Dominion shall be liable for the obligations of the other under their respective guaranties by reason of joint and several liability or otherwise. In addition to Guarantor's liability for the Obligations set forth herein, Guarantor agrees to pay to Creditor such further amounts as shall be sufficient to cover the costs of collecting or enforcing this Guaranty (including reasonable fees, expenses and disbursements of counsel). This Guaranty is a guaranty of payment and not of collection. H-1 2. Guaranty Absolute. Except as otherwise expressly provided in ----------------- Section 3(b) hereof, Creditor may, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment of, or (if applicable) interest rate on, or renew, extend or alter, any or all of the Obligations; (b) amend, waive, terminate or otherwise modify the Contract or any other document, instrument or agreement relating to any Obligation; (c) release (in whole or in part) or compromise or settle with Debtor or any other person liable in any manner for payment of any or all of the Obligations; (d) exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent; and (e) take, substitute, surrender, exchange or release any collateral or other security for any or all of the Obligations. 3. Effect of Certain Events. Guarantor agrees that, except as ------------------------ otherwise expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will not be released, reduced or impaired by the occurrence of any of the following events: (a) the liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or the Contract in or as a result of any such proceeding; (b) the renewal, consolidation, extension, modification or amendment from time to time of the Contract or any document, instrument or agreement relating to any Obligation, provided, however, that notwithstanding anything contained in this Guaranty or the Contract to the contrary, Creditor and Debtor may not, without the prior written consent of Guarantor, (i) extend or lengthen the Term of the Contract (as defined in the Contract as of the date hereof) beyond or (ii) change, modify or amend the definition of the term "Capacity Charges" (as defined in the Contract as of the date hereof) in any manner that would increase Guarantor's liability under this Guaranty; (c) the failure, delay, waiver or refusal by Creditor to exercise, in whole or in part, any right or remedy held by Creditor with respect to the Contract or the Obligations thereunder; or (d) the sale, encumbrance, transfer or other modification of the ownership of Debtor or Creditor or any change in the name, identity, business, structure, composition, financial condition or management (including, without limitation, by reason of a merger, dissolution, consolidation or reorganization) of Debtor or Creditor; H-2 (e) future changes in conditions, including change of law, or any invalidity, unenforceability or irregularity with respect to the execution and delivery of the Contract or this Guaranty; and (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety, subject to clause (ii) of Section 1 hereof. 4. Waivers. Except as expressly provided in Section 1 hereof, ------- Guarantor waives: (a) notice of acceptance of this Guaranty, of the creation or existence of the Contract or any Obligation thereunder, and of any action by Creditor in reliance hereon or in connection herewith; (b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to any Obligation; (c) any requirement that suit be brought against, or any other action by Creditor be taken against, Debtor or any other person as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor. (d) notice of adverse change in the financial condition of Debtor or any other fact which might increase Creditor's risk; and (e) any other notices or demands to which guarantors or sureties may be entitled. 5. Continuing Guaranty. This Guaranty is an absolute and continuing ------------------- guaranty. This Guaranty shall terminate when all of the Obligations have been indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time, either before or after the termination hereof, payment of the Obligations guaranteed pursuant to this Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as though such payment had not been made. 6. Representations and Warranties. Guarantor represents and warrants ------------------------------ to Creditor as follows: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Illinois and has full corporate power and authority to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty by Guarantor have been and remain duly authorized by all necessary corporate action on the part of by Guarantor and do not contravene any provision of law or of Guarantor's certificate of incorporation or bylaws or any contractual restriction binding on Guarantor or any of its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and H-3 performance of this Guaranty by Guarantor have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance by Guarantor of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Debtor is indirectly partially owned by Guarantor, and this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. 7. Covenants. Guarantor agrees that, so long as this Guaranty remains --------- in effect, Guarantor will promptly furnish to Creditor, upon request at any time and from time to time, a copy of Guarantor's most recent annual report on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the Securities and Exchange Commission (the "SEC"); provided however, if Guarantor is not required to file such reports with the SEC, Guarantor agrees to furnish to Creditor such comparable financial information respecting Guarantor as Creditor may from time to time reasonably request. 8. Miscellaneous. ------------- (a) Notice. Any notice or other communication given hereunder by ------ either Guarantor or Creditor to the other party ("Notice") shall be in writing and delivered personally, mailed by registered or certified mail, postage prepaid and return receipt requested, by telecopier, or by courier guaranteeing overnight delivery, as follows: (i) if to Guarantor: Peoples Energy Corporation 130 East Randolph Drive Chicago, Illinois Attention: William W. Reynolds, Treasurer Telecopy No.: (312) 240-4348 (ii) if to Creditor: Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. Notice given by telecopier shall be deemed effective upon transmission and electronic confirmation by the transmitting telecopier. All Notices by telecopier shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address. All amounts becoming payable by Guarantor to Creditor under this Guaranty shall be payable at H-4 Creditor's offices located at its address for purposes of Notice, or such other place as Creditor may from time to time designate (including wire transfer instructions). (b) Amendments; Waivers; Remedies. All amendments, waivers, consents ----------------------------- or approvals arising pursuant to this Guaranty must be in writing signed by Guarantor and Creditor. No failure on the part of Creditor to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right, power or privilege operate as such a waiver. No right, power or remedy of Creditor under this Guaranty or the Contract shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to any other right, power or remedy thereunder or now or hereafter existing by law or in equity. (c) Severability. If any provision of this Guaranty or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable. (d) Assignment. Neither Guarantor nor Creditor may assign its rights ---------- or obligations under this Guaranty without the other party's prior written consent, which consent may not be unreasonably withheld; provided, however, Creditor may assign its rights hereunder without consent of Guarantor (but with prior notice thereof to Guarantor) to any party to whom the Contract has been properly assigned in accordance with the terms thereof. Subject to the foregoing, this Guaranty shall be binding on, and shall inure to the benefit of, Guarantor and Creditor and their respective successors and assigns. (e) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. (f) Headings. The headings of the sections and subsections of this -------- Guaranty are for convenience only, and shall not limit or otherwise affect the meaning hereof. (g) Counterparts. Guarantor may sign this Guaranty in any number of ------------ counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument. H-5 (h) Construction of Agreement. Unless the context of this ------------------------- Agreement clearly requires otherwise, (i) pronouns, wherever used herein and of whatever gender, shall include natural persons, corporations, and associations of every kind and character, (ii) the gender of all words used in this Guaranty shall include the masculine, feminine and neuter, (iii) the words "includes" or "including" shall mean "including without limitation", and (iv) the words "hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer to this Guaranty as a whole and not any particular section or subsection in which such words appear. (i) Interpretation and Reliance. No presumption will apply in --------------------------- favor of any party hereto in the interpretation of this Guaranty or in the resolution of any ambiguity of any provision hereof. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed effective as of the date first above written. PEOPLES ENERGY CORPORATION By:___________________________ Name:_________________________ Title:________________________ H-6 APPENDIX H - 2 GUARANTY THIS GUARANTY dated as of ___________, is made by Dominion Energy, Inc., a Virginia corporation ("Guarantor"), in favor of UtiliCorp United Inc. and Aquila Energy Marketing Corporation, Delaware corporations (referred to collectively hereafter as "Creditor"). WHEREAS, Creditor and Elwood Energy III, LLC, a Delaware limited liability company ("Debtor"), have entered into that certain Power Sales Agreement dated ___________, (the "Contract") and capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Contract; WHEREAS, Guarantor, through one or more subsidiaries, owns a 50 percent membership interest in Debtor and the remaining 50 percent membership interest is indirectly owned by Peoples Energy Corporation ("Peoples"); and WHEREAS, to induce Creditor to extend credit to Debtor pursuant to the Contract, Guarantor has agreed to provide to Creditor this Guaranty; NOW, THEREFORE, in consideration of the premises, Creditor's execution of the Contract and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. Guaranty. Subject to the provisions hereof, Guarantor hereby -------- irrevocably, absolutely and unconditionally guarantees the timely payment of all financial obligations which become due and payable by Debtor to Creditor under or in connection with the Contract (collectively, "Obligations" and individually, an "Obligation") such that, if Debtor fails, neglects or refuses to perform any Obligation, Guarantor shall make such payment within ten business days after Guarantor receives written notice thereof. Notwithstanding the foregoing, as to any Obligation which Guarantor is called upon to pay or cause payment to be made, Guarantor reserves to itself the right to assert any and all defenses under the Contract which Debtor could assert against Creditor with respect to such Obligation; provided, however, that such reservation shall not include any legal or equitable discharge or defense of a guarantor or surety arising out of any of the events described in Section 2 or Section 3 hereof. The guarantee of Guarantor pursuant to this Section 1 is limited to 50 percent of the Obligations; provided, however, that in no event shall the maximum aggregate liability of Guarantor under this Guaranty exceed $10,000,000 (the "Guaranty Cap Amount") plus any amounts owed for collecting or enforcing this Guaranty pursuant to the next sentence hereof; provided further, that Guarantor's obligations hereunder are separate and independent obligations from those of Peoples under Peoples' Guaranty of even date herewith and neither Guarantor nor Peoples shall be liable for the obligations of the other under their respective guaranties by reason of joint and several liability or otherwise. In addition to Guarantor's liability for the Obligations set forth herein, Guarantor agrees to pay to Creditor such further amounts as shall be sufficient to cover the costs of collecting or enforcing this Guaranty (including reasonable fees, expenses and disbursements of counsel). This Guaranty is a guaranty of payment and not of collection. H-1 2. Guaranty Absolute. Except as otherwise expressly provided in Section ----------------- 3(b) hereof, Creditor may, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing or releasing the obligations of Guarantor hereunder: (a) change the manner, place or terms of payment of, or (if applicable) interest rate on, or renew, extend or alter, any or all of the Obligations; (b) amend, waive, terminate or otherwise modify the Contract or any other document, instrument or agreement relating to any Obligation; (c) release (in whole or in part) or compromise or settle with Debtor or any other person liable in any manner for payment of any or all of the Obligations; (d) exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent; and (e) take, substitute, surrender, exchange or release any collateral or other security for any or all of the Obligations. 3. Effect of Certain Events. Guarantor agrees that, except as otherwise ------------------------ expressly provided in Section 3(b) hereof, Guarantor's liability hereunder will not be released, reduced or impaired by the occurrence of any of the following events: (a) the liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or the Contract in or as a result of any such proceeding; (b) the renewal, consolidation, extension, modification or amendment from time to time of the Contract or any document, instrument or agreement relating to any Obligation, provided, however, that notwithstanding anything contained in this Guaranty or the Contract to the contrary, Creditor and Debtor may not, without the prior written consent of Guarantor, (i) extend or lengthen the Term of the Contract (as defined in the Contract as of the date hereof) beyond _____________, or (ii) change, modify or amend the definition of the term "Capacity Charges" (as defined in the Contract as of the date hereof) in any manner that would increase Guarantor's liability under this Guaranty; H-2 (c) the failure, delay, waiver or refusal by Creditor to exercise, in whole or in part, any right or remedy held by Creditor with respect to the Contract or the Obligations thereunder; or (d) the sale, encumbrance, transfer or other modification of the ownership of Debtor or Creditor or any change in the name, identity, business, structure, composition, financial condition or management (including, without limitation, by reason of a merger, dissolution, consolidation or reorganization) of Debtor or Creditor; (e) future changes in conditions, including change of law, or any invalidity, unenforceability or irregularity with respect to the execution and delivery of the Contract or this Guaranty; and (f) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety, subject to clause (ii) of Section 1 hereof. 4. Waivers. Except as expressly provided in Section 1 hereof, Guarantor waives: (a) notice of acceptance of this Guaranty, of the creation or existence of the Contract or any Obligation thereunder, and of any action by Creditor in reliance hereon or in connection herewith; (b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to any Obligation; (c) any requirement that suit be brought against, or any other action by Creditor be taken against, Debtor or any other person as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor. (d) notice of adverse change in the financial condition of Debtor or any other fact which might increase Creditor's risk; and (e) any other notices or demands to which guarantors or sureties may be entitled. 5. Continuing Guaranty. This Guaranty is an absolute and continuing ------------------- guaranty. This Guaranty shall terminate when all of the Obligations have been indefeasibly paid in full to Creditor. Notwithstanding anything in this Guaranty to the contrary, this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time, either before or after the termination hereof, payment of the Obligations guaranteed pursuant to this Guaranty, or any part thereof, is rescinded or must be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor or Guarantor, all as though such payment had not been made. 6. Representations and Warranties. Guarantor represents and warrants to ------------------------------ Creditor as follows: H-3 (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Virginia and has full corporate power and authority to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty by Guarantor have been and remain duly authorized by all necessary corporate action on the part of by Guarantor and do not contravene any provision of law or of Guarantor's certificate of incorporation or bylaws or any contractual restriction binding on Guarantor or any of its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty by Guarantor have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance by Guarantor of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (e) Debtor is indirectly partially owned by Guarantor, and this Guaranty reasonably may be expected to benefit, directly or indirectly, Guarantor. 7. Covenants. Guarantor agrees that, so long as this Guaranty remains --------- in effect, Guarantor will promptly furnish to Creditor, upon request at any time and from time to time, a copy of Guarantor's most recent annual report on Form 10-K or quarterly report on Form 10-Q, in each case as filed with the Securities and Exchange Commission (the "SEC"); provided however, if Guarantor is not required to file such reports with the SEC, Guarantor agrees to furnish to Creditor such comparable financial information respecting Guarantor as Creditor may from time to time reasonably request. 8. Miscellaneous. ------------- (a) Notice. Any notice or other communication given hereunder by ------ either Guarantor or Creditor to the other party ("Notice") shall be in writing and delivered personally, mailed by registered or certified mail, postage prepaid and return receipt requested, by telecopier, or by courier guaranteeing overnight delivery, as follows: (i) if to Guarantor: Dominion Energy, Inc. 120 Tredegar Street Richmond, Virginia 23219 Attention: Diane Leopold / Christine M. Schwab, Esq. Telecopy No.: (804) 819-2202 H4 (ii) if to Creditor: Notice given by personal delivery or mail shall be effective upon actual receipt or refusal of receipt. Notice given by telecopier shall be deemed effective upon transmission and electronic confirmation by the transmitting telecopier. All Notices by telecopier shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address. All amounts becoming payable by Guarantor to Creditor under this Guaranty shall be payable at Creditor's offices located at its address for purposes of Notice, or such other place as Creditor may from time to time designate (including wire transfer instructions). (b) Amendments; Waivers; Remedies. All amendments, waivers, consents ----------------------------- or approvals arising pursuant to this Guaranty must be in writing signed by Guarantor and Creditor. No failure on the part of Creditor to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right, power or privilege operate as such a waiver. No right, power or remedy of Creditor under this Guaranty or the Contract shall be exclusive of any other right, power or remedy, but shall be cumulative and in addition to any other right, power or remedy thereunder or now or hereafter existing by law or in equity. (c) Severability. If any provision of this Guaranty or the ------------ application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable. (d) Assignment. Neither Guarantor nor Creditor may assign its rights ---------- or obligations under this Guaranty without the other party's prior written consent, which consent may not be unreasonably withheld; provided, however, Creditor may assign its rights hereunder without consent of Guarantor (but with prior notice thereof to Guarantor) to any party to whom the Contract has been properly assigned in accordance with the terms thereof. Subject to the foregoing, this Guaranty shall be binding on, and shall inure to the benefit of, Guarantor and Creditor and their respective successors and assigns. (e) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND ------------- INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. GUARANTOR AND CREDITOR EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN CHICAGO, ILLINOIS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR PERFORMANCE OF THIS GUARANTY, AND GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER H-5 AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. (f) Headings. The headings of the sections and subsections of this -------- Guaranty are for convenience only, and shall not limit or otherwise affect the meaning hereof. (g) Counterparts. Guarantor may sign this Guaranty in any number of ------------ counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument. (h) Construction of Agreement. Unless the context of this Agreement ------------------------- clearly requires otherwise, (i) pronouns, wherever used herein and of whatever gender, shall include natural persons, corporations, and associations of every kind and character, (ii) the gender of all words used in this Guaranty shall include the masculine, feminine and neuter, (iii) the words "includes" or "including" shall mean "including without limitation", and (iv) the words "hereof", "herein", "hereunder" and similar terms in this Guaranty shall refer to this Guaranty as a whole and not any particular section or subsection in which such words appear. (i) Interpretation and Reliance. No presumption will apply in favor --------------------------- of any party hereto in the interpretation of this Guaranty or in the resolution of any ambiguity of any provision hereof. IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed effective as of the date first above written. DOMINION ENERGY, INC. By: _____________________________ Name: _____________________________ Title: _____________________________ H-6 APPENDIX I Scheduled Maintenance Outages
Frequency of Duration of - ------------------------------------------------------------------------------------------------------------------- Type Scheduled Maintenance Inspection Inspection Major Combustion Inspection Every 400 starts or 8,000 equivalent hours 4-5 days Major Hot Gas Path Inspection Every 800 starts or 24,000 equivalent hours 10-12 days Major Major CT Overhaul Every 1,600 starts or 48,000 equivalent hours 20 days Routine* BOP Inspections Each Spring and Fall 4 days - -------------------------------------------------------------------------------------------------------------------
*Note: Routine Balance of Plant inspections will be scheduled during a Major Inspection outage. I-1 APPENDIX K Remote Monitoring Data Points Pursuant to Section 4.3.2.7, Seller shall use commercially reasonable efforts to make available to Buyer the Station Fuel Meter outputs listed below: Station Fuel Meter, including: (a) instantaneous and integrated natural gas fuel flow; (b) instantaneous and integrated natural gas fuel energy flow; (c) instantaneous fuel quality raw data (fuel heat content, delivery pressure, delivery temperature). Pursuant to Section 4.3.2.7, Seller shall make available to Buyer the Facility and Unit outputs listed below: 1. Revenue Meter Per Unit, including: (a) instantaneous and integrated Electric Energy output (corrected to the Point of Delivery); (b) instantaneous reactive power (volt-amperes-reactive, leading or lagging), or power factor (leading or lagging) as available; (c) integrated electric power inflow (backfeed) (d) station voltage (as measured at the Revenue Meter potential transformers; (e) system frequency (as measured on the interconnected Utility system bus, or if not available, at the Revenue Meter) 2. Individual Fuel Meter instantaneous natural gas fuel flow to the individual Units (including Elwood II Units). 3. Station service instantaneous and integrated electric energy consumption. 4. Ambient dry-bulb temperature at or near to the combustion turbine air inlet. 5. Relative humidity or ambient wet-bulb temperature at or near to the combustion turbine air inlet. 6. Ambient atmospheric pressure at or near to the combustion turbine air inlet. I-1 EX-10.6 22 dex106.txt FUEL SUPPLY AND MANAGEMENT AGREEMENT Exhibit 10.6 FUEL SUPPLY AND MANAGEMENT AGREEMENT between ELWOOD ENERGY LLC ELWOOD ENERGY II, LLC ELWOOD ENERGY III, LLC and CINERGY MARKETING & TRADING, LLC dated as of May 1, 2001 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS.......................................................................... 2 ARTICLE II TERM AND DESIGNATED REPRESENTATIVES................................................. 6 2.1 Term................................................................................ 6 2.2 Designated Representatives.......................................................... 7 ARTICLE III RESPONSIBILITIES OF FUEL MANAGER................................................... 7 3.1 Supply and Delivery of Gas.......................................................... 7 3.2 Contract Management and Administration.............................................. 7 3.3 Quality of Gas...................................................................... 8 3.4 Compliance.......................................................................... 8 3.5 Metering............................................................................ 8 3.6 Sale of Power to Elwood............................................................. 8 ARTICLE IV RESPONSIBILITIES OF ELWOOD.......................................................... 9 4.1 On-Site Gas Handling Equipment...................................................... 9 4.2 Notice of Facility Operations....................................................... 9 4.3 Loaned Gas Balance.................................................................. 9 4.4 Operation of the Facility........................................................... 9 4.5 Status of T&B Agreement............................................................. 10 ARTICLE V PAYMENTS RELATED TO GAS.............................................................. 10 5.1 Payments by Elwood.................................................................. 10 5.2 Payments by Fuel Manager............................................................ 11 ARTICLE VI OFFSET RIGHTS....................................................................... 12 6.1 Offset Rights....................................................................... 12 ARTICLE VII BILLINGS AND PAYMENT............................................................... 13 7.1 Information from Nicor Gas.......................................................... 13 7.2 Invoices by Fuel Manager............................................................ 13 7.3 Records............................................................................. 13 7.4 Interest............................................................................ 13 7.5 Billing Disputes.................................................................... 13 7.6 Days/Business Days.................................................................. 14 ARTICLE VIII AGENCY............................................................................ 14 8.1 Grant of Agency..................................................................... 14 8.2 Limitations on Agency............................................................... 15 8.3 No Transfer......................................................................... 15 8.4 Obligations of Agent................................................................ 15 8.5 Notice of Agency.................................................................... 15 ARTICLE IX ADDITIONAL COVENANTS................................................................ 15 9.1 Assignment.......................................................................... 15 9.2 Taxes on Gas........................................................................ 17 9.3 Fuel Manager Guaranty............................................................... 18 9.4 Elwood Guaranties................................................................... 18 ARTICLE X DEFAULT AND TERMINATION.............................................................. 18 10.1 Termination of Agency............................................................... 18
i 10.2 Termination upon Enforcement Action................................................. 18 10.3 Fuel Manager Default................................................................ 18 10.4 Elwood Default...................................................................... 20 10.5 Release of Obligations.............................................................. 20 ARTICLE XI INDEMNITY........................................................................... 21 11.1 Fuel Manager Indemnity.............................................................. 21 11.2 Elwood Indemnity.................................................................... 21 11.3 Survival............................................................................ 22 ARTICLE XII LIMITATION OF LIABILITY............................................................ 22 12.1 Limitation of Liability............................................................. 22 ARTICLE XIII REPRESENTATIONS AND WARRANTIES.................................................... 23 13.1 By Fuel Manager..................................................................... 23 13.2 By Elwood........................................................................... 23 ARTICLE XIV FORCE MAJEURE...................................................................... 24 14.1 Force Majeure Generally............................................................. 24 14.2 Definition of Force Majeure......................................................... 25 14.3 Exclusions from Force Majeure....................................................... 26 14.4 Extended Force Majeure.............................................................. 26 ARTICLE XV MISCELLANEOUS....................................................................... 26 15.1 Notices............................................................................. 26 15.2 Governing Law....................................................................... 27 15.3 Copies.............................................................................. 28 15.4 Non Waiver.......................................................................... 28 15.5 Headings............................................................................ 28 15.6 Binding Effect...................................................................... 28 15.7 Severability; Merger................................................................ 28 15.8 Confidentiality..................................................................... 28 15.9 Disagreements....................................................................... 29 15.10 Survival............................................................................ 29 15.11 Counterparts........................................................................ 29
Exhibits: Exhibit A Communications Protocol Exhibit B Fuel Manager Guaranty Exhibit C-1 Elwood Guaranty (Dominion Energy, Inc.) Exhibit C-2 Elwood Guaranty (Peoples Energy Corporation) ii FUEL SUPPLY AND MANAGEMENT AGREEMENT This AGREEMENT is made as of May 1, 2001 between ELWOOD ENERGY LLC, ELWOOD ENERGY II, LLC and ELWOOD ENERGY III, LLC, all of which are Delaware limited liability companies, (collectively "Elwood"), and CINERGY MARKETING & TRADING, LLC, a Delaware limited liability company ("Cinergy" or "Fuel Manager"). Elwood and Cinergy are sometimes referred to herein individually as a "party" or collectively as the "parties." RECITALS -------- A. Elwood Energy LLC is the developer of, and owns and operates, a nominally 600 MW gas-fired power generation facility in Elwood, Illinois. Elwood Energy II, LLC and Elwood Energy III, LLC are in the process of developing and constructing additional generation facilities on the existing site of Elwood Energy LLC. Upon the completion of this construction in the spring of 2001, Elwood Energy II, LLC and Elwood Energy III, LLC will own and operate 300 MW and 450 MW of gas-fired power generation, respectively. Collectively, Elwood will own and operate 1350 MW of gas-fired power generation in Elwood, Illinois (the "Facility"). The Facility is comprised of nine (9) GE 7FA simple cycle combustion turbines of which Units 1 through 4 are owned and operated by Elwood Energy LLC, Units 5 and 6 are owned and operated by Elwood Energy II, LLC and Units 7 through 9 are owned and operated by Elwood Energy III, LLC. B. Elwood has agreed to sell during the Term of this Agreement, the capacity, energy and ancillary services from Units 1 through 4 and Unit 9 to Exelon Generation Company, LLC and from Units 5 through 8 to Aquila Energy Marketing Corporation and Utilicorp United, Inc. C. In connection with securing Gas for the Facility, Elwood has entered into a Gas Transportation and Balancing Agreement dated as of May 1, 2001, with Northern Illinois Gas Company d/b/a Nicor Gas Company ("Nicor Gas" or "Nicor") (the "Nicor T&B Agreement") under which Nicor Gas will provide transportation, balancing and storage services for quantities of Gas (as defined herein) delivered to Nicor Gas or The Peoples Gas Light and Coke Company ("Peoples Gas") for the account of Elwood via the interstate pipeline facilities of Northern Border Pipeline Company ("NBPL") , Alliance Pipeline Company ("APL") and Natural Gas Pipeline Company of America ("NGPL") and will redeliver such quantities to Elwood at the Facility or into storage. D. Subject to the terms and conditions of this Agreement, Fuel Manager has agreed to serve as Fuel Manager by taking on the exclusive rights and obligation to procure, schedule and deliver to Nicor and/or Peoples Gas volumes sufficient to meet Elwood's requirements for Gas at the Facility, including the management and administration of the Nicor T&B Agreement and any other agreements of Elwood specified herein. 1 ARTICLE I DEFINITIONS Whenever capitalized terms appear in this Agreement, they shall have the meanings set forth below: "Affiliate" when used with respect to any Person, means any Person controlling, controlled by or under common control with such Person. For the purposes of this definition, the term "controlling" (and, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or agency or otherwise. "Agent" has the meaning set forth in Section 8.1(a). "APL" means Alliance Pipeline Company "Btu" means British Thermal Unit, as calculated in the NBPL FERC Gas Tariff. "Business Day" means any day that is not a Saturday, Sunday or any Federal Reserve Bank holiday. "Central Clock Time" means the prevailing time (i.e., Standard Time or Daylight Savings Time) on any given day in the Central Time zone. "Cinergy's Forecast Burn" shall be the estimate of Facility Consumption of Gas for the next Gas Day given by Cinergy to Nicor in accordance with Exhibit A, --------- which shall be deemed to be the Forecast Burn described in the Nicor T&B Agreement except on Special Days as provided in Exhibit A. --------- "Communications Protocol" has the meaning set forth in Section 4.2. "Confidential Information" has the meaning set forth in Section 15.8. "Creditor" has the meaning set forth in Exhibit B. --------- "Critical Day" has the meaning ascribed to it in the Nicor T&B Agreement. "Debtor" has the meaning set forth in Exhibit B. --------- "Default Rate" means a rate of interest equal to the lower of (i) the then effective prime rate of interest published under "Money Rate" by the Wall Street Journal, plus two per cent (2%) per annum or (ii) the maximum applicable lawful interest rate. "Deferred Special Day Volumes" has the meaning set forth in Section 5.1(c). 2 "Deferred Special Day Volume Balance" means the quantity of Gas deferred for storage under Section 5.1(c) at any point in time "Delivery Point" means the facilities of Nicor that measure the Gas at the Facility. "Dispatch Schedule" means the hour-by-hour, Unit-by-Unit energy requirements submitted to Elwood by Elwood's power customers by 9:00 a.m. Central Clock Time on a calendar day prior to the calendar day on which energy is to be delivered. "Dth" means the quantity of heat energy that is one (1) MMBtu. "Dth/d" shall refer to the number of Dth per day. "Effective Degree Day" or "EDD" has the meaning associated to it in the Nicor T&B Agreement. "Elwood Event of Default" has the meaning set forth in Section 10.4(a). "Elwood Forecast Burn" shall mean the estimate of Facility Consumption of Gas for the next Gas Day given by Elwood to Cinergy in accordance with Exhibit ------- A. - - "Elwood Forecast Variance" shall be the absolute daily difference between the Elwood Forecast Burn and the actual consumption of the Facility. "Elwood Guarantor" means the Guarantor under an Elwood Guaranty. "Elwood Guaranty" and "Elwood Guaranties" have the meanings set forth in Section 9.4. "Facility" has the meaning set forth in Recital A. "Facility Consumption" means the actual amount of Gas consumed by the Facility during a Gas Day, except as otherwise provided in Section 5.1(c). "FERC" means the Federal Energy Regulatory Commission. "FERC Gas Tariff" means the FERC-approved tariff, as it may be revised from time-to-time, of the interstate pipeline on which Gas is being transported. "Force Majeure" has the meaning set forth in Section 14.2(a) as to Elwood and has the meaning set forth in Section 14.2(b) as to Fuel Manager. "Forfeited Gas" has the meaning set forth in Section 5.1(a). "Fuel Manager Event of Default" has the meaning set forth in Section 10.3(a). "Fuel Manager Guarantor" means the Guarantor under the Fuel Manager Guaranty. 3 "Fuel Manager Guaranty" has the meaning set forth in Section 9.3. "Fuel Manager T&B Charges" has the meaning set forth in Section 5.2. "Fuel Specifications" means the specifications for Gas set forth in the FERC approved tariff of the interstate pipeline on which the Gas is being transported. "Gas" means natural gas that conforms to the Fuel Specifications. "Gas Daily Average Price" means the price equal to the "Midpoint" price per MMBtu published in Gas Daily in the table entitled Daily Price Survey, under the --------- entry for "Citygates, Chicago LDCs, large e-us" for the date of consumption at the Facility (or the date on which the Gas is deemed to be sold to Elwood for storage under Section 4.3). The Gas Daily Average Price for any day for which the "Midpoint" price is not published shall be equal to the next published "Midpoint" price for a subsequent day first published after such day of non- publication. "Gas Day" has the meaning ascribed to it in Nicor Gas' Schedule of Rates. "Gas Inventory" means the quantity of Gas stored at a particular point in time under the Nicor T&B Agreement. "Guarantor" has the meaning, with respect to any Guaranty, set forth in Exhibit B, Exhibit C-1 or Exhibit C-2, as applicable. - --------- ----------- ----------- "Guaranty" means Exhibit B, Exhibit C-1 or Exhibit C-2. --------- ----------- ----------- "kWh" means kiloWatthour. "Lenders" has the meaning set forth in Section 9.1. "Loaned Gas Balance" has the meaning set forth in Section 4.3. "Maximum Daily Quantity" or "MDQ" means the maximum quantity of Gas that Fuel Manager shall be obligated to sell and deliver to Elwood for consumption at the Facility on any Gas Day. The MDQ during the Summer Months is 362,400 MMBtu/d; of which 241,600 MMBtu/d is the Firm MDQ and 120,800 MMBtu/d is the Non-Firm MDQ. The Firm MDQ during the Non-Summer Months is the lesser of 213,300 MMBtu/d or 88,875 MMBtu/d plus Fuel Manager's nominated volumes to flow on any Gas Day (Next Day Flowing Gas per Exhibit A) plus any Requested Authorized Use volumes. The Non-Firm MDQ on a Non-Summer Gas Day shall be Fuel Manager's obligation, using reasonable efforts, to sell and deliver remaining quantities above the Firm MDQ up to 426,600 MMBtu/d in total. 4 "Maximum Hourly Quantity" or "MHQ" means the maximum quantity of Gas that Elwood may consume at the Facility during any hour. The MHQ during the Summer Months is 15,100 MMBtu/hour and the MHQ during the Non-Summer Months is 17,775 MMBtu/hour. "MMBtu" means One Million British Thermal Units. "MMDth" means One Million Dth. "NBPL" means Northern Border Pipeline Company. "NGPL" means Natural Gas Pipeline Company of America. "Nicor Gas" or "Nicor" has the meaning set forth in Recital C. "Nicor Gas Outage Condition" has the meaning set forth in Section 14.2(b). "Nicor Gas' Schedule of Rates" has the meaning set forth in the Nicor T&B Agreement. "Nicor T&B Agreement" has the meaning set forth in Recital C. "Non-Special Day" means any Gas Day that is not a Special Day. "Non-Summer Months" means the months of October, November, December, January, February, March, April and May. "Peoples Gas" has the meaning set forth in Recital C. "Peoples Gas T&B Agreement" means companion transportation and balancing agreement between Nicor Gas and Peoples Gas which is used to support Nicor services on behalf of Elwood herein. "Person" means an individual or a corporation, partnership, joint venture, limited liability company, association, joint stock company, trust, unincorporated organization, entity, government or other political subdivision. "Pipeline Outage Condition" has the meaning set forth in Section 14.2(b). "Prudent Management Practices" means acts or practices undertaken by a prudent fuel manager assigned with the task of purchasing and managing the supply of gas and administering balancing and transportation arrangements to meet the prescribed daily firm obligations of a competitive non-utility power generating facility, which acts and practices in the case of Fuel Manager (or Agent as the case may be) shall be undertaken in a manner consistent with this Agreement, other contracts and agreements necessary for the operation of the Facility, and the laws, rules and regulations which may apply to the ownership and operation of the Facility. 5 "Purchase Agreement" means any contract, purchase order or other agreement (other than the Nicor T&B Agreement) for the purchase, transportation or storage of Gas for use or potential use, by Elwood at the Facility. "Receipt Point" means each point of interconnection between the system of Nicor or Peoples Gas and the system of NBPL, APL or NGPL. "Representatives" has the meaning set forth in Section 15.8. "Revised Dispatch Schedule" means the hour-by-hour, Unit-by-Unit energy requirements submitted to Elwood by Elwood's power customers after 9:00 a.m. Central Clock Time on a calendar day one (1) hour prior to delivery of energy during Summer Months and three to five (3-5) hours prior to delivery of energy during Non-Summer Months. "Sellers" means, as applicable, suppliers of Gas and suppliers of transportation and storage of Gas. "Short Notice" has the meaning set forth in Section 4.2. "Special Day" shall mean a Gas Day on which, for the entire Gas Day or any part thereof, (a) Nicor had declared a Critical Day under the Nicor T&B Agreement, (b) Nicor has forecasted that the Gas Day will be an Effective Degree Day greater than or equal to 60 EDD, and an hourly delivery limitation has been imposed by Nicor under the Nicor T&B Agreement, (c) storage withdrawal or transportation service has been curtailed by Nicor under the Nicor T&B Agreement or (d) Nicor has declared a force majeure under the Nicor T&B Agreement. "Summer Months" means the months of June, July, August and September. "Taxes" has the meaning set forth in Section 9.2. "Term" has the meaning set forth in Section 2.1. "Unit" means the nine (9) GE 7FA simple cycle combustion turbines described in Recital A, any one of which is a "Unit." "Updated Dispatch Schedule" has the meaning set forth in Exhibit A, --------- Communications Protocol. ARTICLE II TERM AND DESIGNATED REPRESENTATIVES 2.1 Term. The term of this Agreement (the "Term") shall begin as of May 1, 2001 and shall expire on April 30, 2002, unless terminated in accordance with Article 10 or extended by agreement of the parties hereto. 6 2.2 Designated Representatives. Any communications between the parties regarding authorizations by Elwood required under this Agreement for actions to be taken by Fuel Manager shall be made only by a designated representative of Elwood in accordance with the Communications Protocol contained in Exhibit A to this Agreement. --------- ARTICLE III RESPONSIBILITIES OF FUEL MANAGER 3.1 Supply and Delivery of Gas. (a) Subject to Section 10.3(c) of this Agreement, during the Term, Fuel Manager, at its own cost and expense (except as set forth in Section 5.1), shall supply and arrange for the delivery of Gas in accordance with Prudent Management Practices (as defined herein) to the Receipt Points for redelivery by Nicor or its designee to the Facility, on a firm basis up to the Firm MDQ and for the purchase price set forth in Section 5.1 hereof, Elwood's full Gas requirements for consumption by the Facility, subject to the limitations of the Nicor T&B Agreement; provided, however, that on a ----------------- Special Day Fuel Manager will be obligated to deliver Gas only if Fuel Manager and Elwood agree on a quantity (which may include an MHQ) and price for Gas to be delivered to the Receipt Points. Except as provided in Section 10.3(c), Fuel Manager shall be the sole supplier of Gas to the Facility during the term of this Agreement. If Elwood requests Gas in excess of the Firm MDQ, Fuel Manager's obligation to supply and arrange for the delivery of such Non-Firm Gas shall be on a reasonable efforts basis only for up to an additional daily quantity not to exceed the applicable Non-Firm MDQ, without any penalty for Fuel Manager's failure to do so. (b) Fuel Manager agrees that, during the term of the Nicor T&B Agreement, all Gas scheduled for consumption by the Facility, and required to be sold and delivered by Fuel Manager, must be (i) nominated on the appropriate interstate pipeline's nomination system and to the Nicor Gas Exchange nomination system, or such other electronic nomination system as Nicor may implement from time-to-time, on a timely basis and within the defined parameters of the Nicor T&B Agreement, (ii) met from the storage capacity available by the Nicor T&B Agreement and Cinergy's management of inventory therein, or (iii) purchased from Nicor as Requested Authorized Use volumes or Unauthorized Use volumes, as applicable, under the Nicor T&B Agreement. (c) In discharging its responsibilities, Fuel Manager shall be responsible for managing fuel supply volumes within the defined parameters of the Nicor T&B Agreement and for the charges assessed by Nicor for failure to do so, which are limited to those charges for which Fuel Manager is responsible under Section 5.2. 3.2 Contract Management and Administration. (a) Fuel Manager shall be responsible, using Prudent Management Practices, twenty-four (24) hours a day, seven (7) days a week during the Term, for all 7 communications, nominations, balancing and administration under the Nicor T&B Agreement. In the event that Cinergy's performance under this Agreement results in written notice from Nicor Gas that service may or will be suspended under the Nicor T&B Agreement, Elwood reserves the right to immediately suspend or terminate this Agreement if Fuel Manager does not cure the conditions that caused such notice to issue in time to prevent any such suspension or termination, and, in the event of termination, the provisions of Section 10.5 shall apply. (b) Fuel Manager will also report to Elwood on a weekly and monthly basis relevant information regarding Fuel Manager's performance under this Agreement, including without limitation the information set forth in Section 3 of Exhibit A to this Agreement, in a format that can be stored --------- and analyzed electronically in a manner and format acceptable to Elwood, such as in a spreadsheet. 3.3 Quality of Gas. Fuel Manager covenants that all Gas provided hereunder by Fuel Manager shall be merchantable natural gas, free of liens and encumbrances of any kind, and shall comply with the Fuel Specifications. 3.4 Compliance. Fuel Manager shall comply with all applicable state, federal and local laws, rules, orders, ordinances and regulations, shall give all required notices and procure and shall maintain all applicable governmental permits and licenses necessary for its performance of this Agreement, and shall pay all charges and fees in connection with obtaining the permits and licenses. 3.5 Metering. For the purpose of measuring quantities of Gas delivered to the Facility, Gas shall be metered and measured by Nicor Gas at its meters located at the "Delivery Point" as defined in the Nicor T&B Agreement, and such meters shall be tested and an adjustment to such measurements shall be made in accordance with the specifications and standards set forth in Nicor Gas' Schedule of Rates. In the event any such meter is not operating or is out of service, Gas delivered to the Facility shall be measured for the purposes of this Agreement by using reasonable proxies, such as the Elwood turbine meters for each Unit or the electric revenue meters with a heat rate conversion factor of 10,900 Btu/kWh (HHV) at 85 and 60% humidity, subject to adjustment for actual ambient conditions and actual load factors of each Unit. Any such proxy must provide the best available data in accordance with the mutual agreement of the parties. 3.6 Sale of Power to Elwood. Fuel Manager may offer to sell power to Elwood from time to time so that Elwood may forgo running the Facility and taking Gas hereunder. Elwood shall have no obligation to accept such an offer or offers, and any acceptance thereof by Elwood shall be subject to the consent of Elwood's power customers. If Elwood accepts such offer, all obligations hereunder pertaining to Gas will be suspended during the period of such sales. 8 ARTICLE IV RESPONSIBILITIES OF ELWOOD 4.1 On-Site Gas Handling Equipment. Elwood shall operate and maintain the on-site equipment at the Facility for receiving and handling Gas. 4.2 Notice of Facility Operations. All sales of Gas to Elwood, up to the MDQ each day, shall be on a "Short Notice" basis, meaning that Elwood is required to use reasonable efforts to provide Fuel Manager with notice regarding startups or shutdowns of the Facility and estimated Gas requirements, all in accordance with Section 4 and the Communications Protocol set forth in Exhibit A to this Agreement. --------- 4.3 Loaned Gas Balance. Elwood shall make available to Fuel Manager, at all times after May 31, 2001, a gas balance of no less than 725,000 MMBtu ("Loaned Gas Balance"). The Loaned Gas Balance is estimated to be 105,000 MMBtu on May 1, 2001, and Elwood will add to the Loaned Gas Balance by purchasing an additional 20,000 MMBtu each day (or such other daily amount required to achieve a Loaned Gas Balance of 725,000 MMBtu's on May 31, 2001, when purchased ratably over the month) from Fuel Manager, during the period commencing on May 1, 2001, and continuing through May 31, 2001, (or on such other schedule as the Parties shall agree on) at the Gas Daily Average Price plus four cents (4c), subject to Fuel Manager's discretion as to when the volumes are actually placed into storage and subject to the requirement that Elwood bear and pay all of Nicor's storage injection Unaccounted-for Gas charges on the first quantities of Gas deemed to have been injected into storage under the Nicor T&B Agreement during the term of this Agreement up to a quantity equal to the difference between 725,000 MMBtu's of Gas minus the Gas Inventory at the commencement of this Agreement. Fuel Manager shall have the right to utilize the Loaned Gas Balance, subject to the terms of the Nicor T&B Agreement, during the term hereof. If on the last day of the term of this Agreement the Gas Inventory is less than 725,000 MMBtu's (the difference being referred to herein as the "Storage Variance"), then Fuel Manager shall either, at Elwood's option, deliver a quantity of Gas equal to the Storage Variance to Elwood at the Receipt Point in equal daily deliveries during the first month following the end of the term of this Agreement (currently, May 2002 unless the term is extended by mutual agreement) or financially settle with respect thereto by Fuel Manager paying Elwood an amount equal to the product of the Storage Variance times the price per MMBtu published by Intelligence Press, Inc. in its NGI's Bidweek Survey, in the table entitled Spot Gas Prices, for the month of May 2002 (or the first month after the term hereof), under the listing for Midwest, Chicago Citygate. 4.4 Operation of the Facility. In operating the Facility, Elwood shall follow the following standards: 9 (a) Once a Unit is started, it shall run for a minimum of four (4) hours prior to shutting down, except that a Unit may be shut down sooner if a mechanical problem occurs. (b) Once a Unit is shut down, it shall remain off-line for a minimum of two (2) hours. (c) In the Summer Months, all nine (9) of the Units are available for dispatch and will be started approximately one (1) hour after notice of the Revised Dispatch Schedule is received by Elwood. (d) In the Non-Summer Months, (i) five (5) of the Units are available for dispatch and will be started approximately three (3) hours after notice of the Revised Dispatch Schedule is received by Elwood and (ii) four (4) of the Units are available for dispatch during Peak Hours (6:00 a.m. - 10:00 p.m. Central Clock Time, Monday-Friday) and will be started in accordance with the Dispatch Schedule established at 9:00 a.m. Central Clock Time on the previous Gas Day, unless a Revised Dispatch Schedule is negotiated and agreed to by Elwood, Nicor and Fuel Manager. 4.5 Status of T&B Agreement. Elwood shall maintain the Nicor T&B Agreement in full force and effect during the term of this Agreement. Elwood shall not agree to any changes to the Nicor T&B Agreement with the explicit intent (or resulting effect) to alter the rights or obligations of Fuel Manager, without Fuel Manager's express consent. If changes are made to the Nicor T&B Agreement to address other good faith business purposes without Fuel Manager's express consent and such changes result in a reduction in Fuel Manager's rights as agent under the Nicor T&B Agreement, or increase its obligations thereunder or under this Agreement, then Fuel Manager shall have the right to either, at Fuel Manager's sole option, terminate this Agreement or negotiate with Elwood a different pricing structure. Elwood will consult with Fuel Manager prior to agreeing with Nicor to any changes in the Nicor T&B Agreement which may reduce Fuel Manager's rights or increase its obligations. ARTICLE V PAYMENTS RELATED TO GAS 5.1 Payments by Elwood. (a) For any Non-Special Day, Elwood shall pay to Fuel Manager for Facility Consumption and quantities forfeited to Nicor under Section 7 of the Nicor T&B Agreement ("Forfeited Gas") at a price per MMBtu equal to the Gas Daily Average Price plus four cents (4c). Elwood shall have no obligation to pay Fuel Manager for any Gas during any month except Facility Consumption, Forfeited Gas, purchases during May, 2001 to fill the Loaned Gas Balance, and Deferred Special Day Volumes described in Section 5.1(c). Such payments shall be made in accordance with Section 7.2 for the applicable month. 10 (b) Elwood shall pay to Fuel Manager five cents (5c) per MMBtu for the Elwood Forecast Variance for each Gas Day, up to a 241,600 MMBtu/d variance during the Summer Months and up to a 67,400 MMBtu/d variance during the Non-Summer Months. Such payments shall be made in accordance with Section 7.2 for the applicable month. (c) For any Special Day, Elwood shall pay Fuel Manager, at a price negotiated by the parties, for all volumes delivered by Fuel Manager pursuant to the mutual agreement of the Parties under Section 3.1(a) for such Special Day, whether such volumes are consumed at the Facility on such Special Day or are deferred and injected into storage under the Nicor T&B Agreement ("Deferred Special Day Volumes"). Up to 20,000 MMBtu/d of Deferred Special Day Volumes will be withdrawn and delivered to the Facility as the "first Gas through the meter" and at no additional cost to Elwood, on immediately succeeding Non-Special Days until the Deferred Special Day Volume Balance is reduced to zero. For the purposes of Section 5.1(a), Deferred Special Day Volumes shall be excluded from Facility Consumption on Non-Special Days on which they are consumed. (d) Elwood shall pay to Nicor Gas when due all fees and charges, including taxes and surcharges, due under the Nicor T&B Agreement, subject to Fuel Manager's obligation to reimburse Elwood for some of such charges as provided in Section 5.2. (e) As compensation for its performance of the duties and obligations set forth in Section 3.2, Elwood shall pay Fuel Manager the sum of Sixty- Five Thousand Dollars ($65,000) per month for each of the Summer Months and Ten Thousand Dollars ($10,000) per month for each of the Non-Summer Months. (f) If and when any amount is received, as either an actual payment or a credit, by Elwood from Nicor under Section 10 (reduction of MMDN rights) of the Nicor T&B Agreement with respect to any Month during the term hereof, Elwood shall pay such amounts to Fuel Manager, which shall be due and payable with the next payment otherwise due hereunder. Fuel Manager also shall receive the benefit of the limitation on application of Nicor's Unaccounted-for Gas percentage contained in Section 9 of the Nicor T&B Agreement. 5.2 Payments by Fuel Manager. (a) Fuel Manager shall reimburse Elwood in accordance with Section 7.2 for the billed charges under the following sections of the Nicor T&B Agreement to the extent that (i) such charges are incurred with respect to Non-Special Days, (ii) Elwood has provided notices and information in accordance with the Communications Protocol, (iii) such charges are not the result of Elwood's failure to operate the Facility as provided in Section 4.4, (iv) such charges are not the result of total quantities consumed at the Facility having exceeded the Firm MDQ and (v) Elwood has not declared an event of Force Majeure or a Unit has not "tripped" (as that term is used in Exhibit A): --------- 11 (A) Forecast Variance Charges (Section 4(e) of the Nicor T&B Agreement) attributable to the portion of the variance up to 241,600 MMBtu/d in the Summer Months or 67,400 MMBtu/d in the Non-Summer Months; (B) Delivery Variance Charges (Section 4(c) of the Nicor T&B Agreement) except to the extent such charges are attributable to volumes in excess of the Firm MDQ; (C) Storage Inventory Overrun Charges or Excess Storage Charges but only those assessed because the highest daily quantity in storage is in excess of 951,500 MMBtu's (Sections 4(f) and 4(g) of the Nicor T&B Agreement); and (D) Charges for Requested Authorized Use and Unauthorized Use (Sections 4(i) and (j) of the Nicor T&B Agreement). Items (A), (B), (C) and (D) are collectively referred to herein as the "Fuel Manager's T&B Charges." The Fuel Manager's T&B Charges may be (i) applied by Elwood as a credit to Fuel Manager's invoices, effectively netting Fuel Manager's T&B Charges against the amounts owed Fuel Manager under this Agreement or (ii) invoiced by Elwood directly to Fuel Manager thereby requiring Fuel Manager to remit such funds to Elwood upon presentation of an invoice. Fuel Manager shall be responsible for Nicor's Unaccounted-for Gas charges with respect to storage injections except the Unaccounted-for Gas charges associated with any injections of Deferred Special Day Volumes described in Section 5.1(c) and except the Unaccounted- for Gas charges to be borne by Elwood pursuant to Section 4.3. On Special Days, Fuel Manager will not be responsible for Fuel Manager's T&B Charges except where the parties have agreed on a price and volume pursuant to Section 3.1(a) and to the extent that Fuel Manager's T&B Charges are incurred as a direct result of Fuel Manager failing to deliver to the Receipt Point on such Special Day the quantity of Gas agreed to by the Parties except to the extent such failure to deliver is caused by an event of Force Majeure that occurs after the Parties have agreed to a quantity and price for such Special Day under Section 3.1(a); provided, however, -------------------- that Fuel Manager shall in no event be responsible on a Special Day for the Fuel Manager T&B Charges described in (D) above. (b) Fuel Manager shall pay when due to a Seller or reimburse Elwood if a Seller directly invoices Elwood, all charges under any Purchase Agreements entered into by Fuel Manager on its own account or as Agent. ARTICLE VI OFFSET RIGHTS 6.1 Offset Rights. If either party fails to pay any charges as required under this Agreement, the other party shall have the right, in addition to any other remedies provided herein or under law, to set-off such amounts against any payments owed by it to such party. 12 ARTICLE VII BILLINGS AND PAYMENT 7.1 Information from Nicor Gas. To the extent Elwood receives from Nicor Gas information regarding actual consumption or account data, Elwood will forward such information to Fuel Manager and insure that Fuel Manager has joint access to any real time data links containing such information. 7.2 Invoices by Fuel Manager. Within twenty (20) days after the end of each month during the Term of this Agreement for which services are rendered hereunder, Fuel Manager shall prepare and deliver to Elwood a statement in reasonable detail setting forth the calculation of the amounts payable by Elwood to Fuel Manager, with respect to the month in question and any offsets for payments due from Elwood to Fuel Manager pursuant to Section 5.1. Fuel Manager may send this invoice to Elwood via facsimile or email. Elwood shall pay all such invoiced amounts by wire transfer or automated clearinghouse by the later of (i) ten (10) days after receipt of such invoice or (ii) 25 days after the end of such month, to the account specified by Fuel Manager. 7.3 Records. Each party shall keep complete and accurate records appropriate for proper administration of this Agreement. All such records shall be maintained for a minimum of three (3) years after the creation of such records and for any additional length of time required by a governmental authority or the Nicor T&B Agreement or any other agreement entered into in connection with this Agreement. Each party shall have the right, upon seven (7) days notice to the other, to audit the books and records of the other party relating to this Agreement with respect to the calculation of any amounts due hereunder. 7.4 Interest. If a party fails to pay when due any amounts payable by it under this Agreement (excluding, however, any payments properly set-off by such party against amounts due from it hereunder), or if, as a result of an audit by the other party or the resolution of any dispute as to amounts payable by a party hereunder, it is determined that a party has underpaid amounts due from it hereunder, then the unpaid amounts shall bear interest at the Default Rate from the date such payments were due until the date such payments are paid. 7.5 Billing Disputes. (a) If a party in good faith disputes an amount claimed to be due and payable hereunder by the other party, it may withhold payment of the amount under protest pending resolution of the dispute in accordance with subsection (b) of this section. (b) In the event that a party, by timely notice to the other party, questions or contests the correctness of any charge or payment claimed to be due by the notified party, the notified party shall promptly review the questioned charge or payment and shall 13 respond to the contesting party, within fifteen (15) Business Days following receipt of such notice, with a statement of the amount of any error and the amount of any reimbursement that the contesting party is entitled to receive in respect of such alleged error. Any disputes not resolved within fifteen (15) Business Days after receipt of such responding statement shall be resolved in accordance with Section 15.9 of this Agreement. Upon determination of the correct amount of any reimbursement, such amount shall be promptly paid by the owing party. (c) Payments withheld under subsection (a), but ultimately paid under subsection (b), shall include interest at the Default Rate from the date the original payment was due until the date such withheld payments together with interest is made. 7.6 Days/Business Days. In the event any action called for in this Article 7 is due on a day that is not a Business Day, it shall be due on the next succeeding day that is a Business Day. ARTICLE VIII AGENCY 8.1 Grant of Agency. (a) Elwood hereby appoints Fuel Manager (in such capacity, Fuel Manager being referred to hereinafter as "Agent"), to act on its behalf and for its benefit solely for the following purposes and subject to the limitations set forth in Section 8.2 below: (i) To take such actions as are specified in writing by Elwood (except to the extent such actions are in violation of law) except for physical or financial transactions regarding Gas supply, which actions may be specified by Elwood orally, with confirmation in writing before such actions are taken; (ii) To make payment of all charges in accordance with Section 5.2 of this Agreement; (iii) To act on Elwood's behalf and for Elwood's benefit in managing and administering the Nicor T&B Agreement, including submitting nominations to Nicor Gas and to NBPL, APL and NGPL. (b) The parties hereby agree, regardless of any contrary provisions of this Agreement, that the appointment of the Fuel Manager as Agent, and any agency created hereby, shall be subject to the limitations set forth in Section 8.2 and shall terminate automatically as and when set forth in this Agreement. All rights exercised by Agent shall be exercised in a manner consistent with applicable law, Fuel Manager's obligations under this Agreement (including as Agent) and Elwood's obligations under the Nicor T&B Agreement. 14 8.2 Limitations on Agency. Notwithstanding the terms of Section 8.1 or any other contrary terms of this Agreement, Fuel Manager as Agent shall not, and is not granted the authority to, without the prior written consent of Elwood: (a) Enter into any agreements on behalf of or in the name of Elwood, except as set forth in Section 8.1; (b) Enter into any physical or financial hedging or speculative transactions on behalf of or in the name of Elwood; (c) Agree to any amendment or modification to, or waive any right under, any provision in the Nicor T&B Agreement or other agreements to which Elwood is a party (either directly or via Agency); (d) Enter into any agreement or any amendment, supplement or modification of any agreement, in any manner inconsistent or in violation of applicable law, this Agreement or the Nicor T&B Agreement. 8.3 No Transfer. Elwood and Agent expressly agree that the creation of an agency as described in this Agreement does not in any way constitute a pledge, transfer or assignment to Agent of any right of Elwood in, under and to the Nicor T&B Agreement, any Purchase Agreement or other agreements of Elwood or any good or service purchased or provided for therein. 8.4 Obligations of Agent. Agent shall comply with all requirements of the Nicor T&B Agreement and all other agreements applicable to the purchase, sale, transportation, storage, injection and withdrawal of Gas including, without limitation, the timely remittance of payments to Sellers in accordance with the terms and conditions of such agreements referred to in Section 5.2 of this Agreement. Agent shall pay, from its own funds, all its expenses and costs incurred in the course of performing Agent's duties and obligations hereunder. 8.5 Notice of Agency. Elwood and Agent shall notify Nicor Gas, Peoples Gas, and existing and future Sellers as applicable, of the foregoing Agency promptly upon the effective date of this Agreement and, immediately upon expiration of the Term or upon earlier termination, shall notify the applicable entities that such Agency has been terminated. Notice to Sellers of the existence of the Agency shall state that either Elwood or Fuel Manager, acting alone, may give notice to Sellers terminating the Agency. ARTICLE IX ADDITIONAL COVENANTS 9.1 Assignment. (a) Except as provided in this Section 9.1, neither party shall assign, pledge or otherwise transfer this Agreement or any right or obligation under this Agreement without first obtaining the other party's written consent, which consent shall not be 15 unreasonably withheld or delayed. Except as specifically provided for in this Section 9.1, any assignment or transfer of this Agreement or any rights, duties or interests hereunder by any party without the written consent of the other party shall be void and of no force or effect. (b) So long as no material event of default with respect to Elwood has occurred and is continuing, Elwood shall be permitted to assign or otherwise transfer this Agreement in whole by operation of law or otherwise, with prior written notice to Fuel Manager but without Fuel Manager's consent, (i) to Elwood Marketing, LLC, (ii) any Affiliate of Dominion Energy, Inc. (50% indirect owner of Elwood) or any Affiliate of Peoples Energy Resources Corp. (50% indirect owner of Elwood) or (iii) to any assignee succeeding to the ownership of the Facility; provided, -------- however, that any proposed assignee hereunder is determined by Fuel ------- Manager, in its reasonable discretion, to be creditworthy. Upon the assumption by any such permitted assignee of Elwood's rights, duties and obligations hereunder, Elwood shall be released and discharged from any future obligation hereunder but not any past obligation. (c) So long as no material event of default with respect to Fuel Manager has occurred and is continuing, Fuel Manager shall be permitted to assign or otherwise transfer this Agreement in whole by operation of law or otherwise, with prior written notice to Elwood but without Elwood's consent, to any Affiliate of Fuel Manager; provided, however, that any -------- ------- proposed assignee hereunder is determined by Elwood, in its reasonable discretion, to be creditworthy and to be at least as well qualified to fulfill the obligations of Fuel Manager under this Agreement. Upon the assumption by any such permitted assignee of Fuel Manager's rights, duties and obligations hereunder, Fuel Manager shall be released and discharged from any future obligation hereunder but not any past obligation. (d) Fuel Manager hereby consents to Elwood's assignment of this Agreement to any and all Lenders (as defined below) or the granting to any or all Lenders of a lien or security interest in any right, title or interest in part or all of the Facility or any or all of Elwood's rights under this Agreement for the purpose of the financing or refinancing of the Facility. In order to facilitate the obtaining of financing or refinancing of the Facility without Fuel Manager's consent, Fuel Manager shall cooperate with Elwood and execute consents, agreements or similar documents with respect to the assignment hereof to any Lender as customary for comparable transactions in connection with the financing or refinancing of the Facility; provided, however, that such assignment shall recognize and -------- ------- shall not impair or otherwise adversely affect Fuel Manager's rights under this Agreement. Fuel Manager recognizes that such consent may grant certain rights to such Lenders, which shall be fully developed and described in said consent documents, including that (i) this Agreement shall not be amended or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders; (ii) without extending the cure period set forth in this Agreement, Lenders shall be given notice of, and the same opportunity to cure, any Elwood breach or default of this Agreement, provided that notwithstanding the foregoing Lender(s) may have in addition to the cure periods set forth herein an additional thirty (30) days from the expiration of such cure period to cure any breach or default of this Agreement; (iii) if a Lender 16 forecloses, takes a deed in lieu or otherwise exercises its remedies pursuant to any security documents, that Fuel Manager shall, at Lender's request, continue to perform all of its obligations hereunder, and Lender or its nominee may perform in the place of Elwood, and may assign this Agreement to another party in place of Elwood (provided either (A) such proposed assignee is creditworthy in the reasonable discretion of Fuel Manager, or (B) Fuel Manager consents to the assignment to such proposed assignee, which consent shall not be unreasonably withheld or delayed), and enforce all of Elwood's rights hereunder; (iv) that Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of the Facility and any defaults from payment existing immediately prior to such period; (v) that Fuel Manager shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee; and (vi) that Fuel Manager shall make representations and warranties to Lender(s) as Lender(s) may reasonably request, including, but not limited to, (A) Fuel Manager's corporate existence, (B) Fuel Manager's corporate authority to execute, deliver and perform this Agreement, (C) the binding nature of this Agreement on Fuel Manager, (D) receipt of such regulatory approvals by Fuel Manager as required by law with respect to its performance under this Agreement, and (E) whether any defaults by Elwood are known by Fuel Manager then to exist under this Agreement and shall upon request of Elwood cause Fuel Manager's counsel to issue an opinion to Elwood and any Lender affirming in customary form the representations of Fuel Manager in this Section 9.1 and in Section 13.1. (e) As used in this Agreement, the term "Lender(s)" means (i) any individual, governmental authority, corporation, limited liability company, partnership, limited partnership, trust, association or other entity ("Person") that from time to time enters into loans with Elwood, its successors or permitted assigns for the financing or refinancing of the Facility or any part thereof or which are secured by the Facility (including a sale-leaseback transaction), (ii) the holders of indebtedness evidencing any such loans, or (iii) any Person acting on behalf of such lender(s) to whom any lenders' rights under such loans have been transferred, any trustee on behalf of any such lenders, and any Person subrogated to the rights of such lenders. 9.2 Taxes on Gas. Fuel Manager shall pay, or shall cause to be paid, all taxes, fees, levies, penalties, licenses or charges imposed by any governmental authority ("Taxes") on or with respect to the Gas prior to the Receipt Point. Elwood shall pay or cause to be paid all Taxes on or with respect to the Gas at or after the Receipt Point. If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such taxes or charges shall furnish the other party any necessary documentation thereof; provided, however, that exemption of ----------------- interstate sourced supplies from application of the Illinois Gas Revenue Tax is assumed by the parties, and Fuel Manager agrees not to bill Elwood for such taxes until such time as Fuel Manager is required by the taxing authority having jurisdiction, after exhaustion of all appeals and other remedies available to Elwood, to pay the Illinois Gas Revenue Tax. Each party shall use reasonable efforts to notify the other party of any legal or administrative proceeding which could modify the State's application of the Illinois Gas Revenue Tax to the goods provided and services rendered under this Agreement. 17 9.3 Fuel Manager Guaranty. Fuel Manager shall deliver to Elwood, at the time this Agreement is executed, the Fuel Manager Guaranty in the form attached hereto as Exhibit B, executed by Cinergy Corp., as Guarantor. --------- 9.4 Elwood Guaranties. Elwood shall deliver to Fuel Manager, at the time this Agreement is executed, the parent guaranties in the form of Exhibit C-1 and ----------- Exhibit C-2 (each of which, an "Elwood Guaranty" and collectively, "Elwood - ----------- Guaranties"). ARTICLE X DEFAULT AND TERMINATION 10.1 Termination of Agency. If this Agreement is terminated with or without cause, then from and upon Agent's receipt of notice of such termination as provided in Section 15.1, the Agency granted to Fuel Manager under this Agreement shall immediately cease, and Fuel Manager will no longer act or be entitled to act as Elwood's Agent under the Nicor T&B Agreements or the Purchase Agreements, or any other agreement, or to hold itself out as Elwood's Agent thereafter. 10.2 Termination upon Enforcement Action. This Agreement has been structured to comply fully with any applicable federal or state law, or any regulations issued thereunder. However, if the FERC or any other federal or state agency or authority asserts, rules or determines that any of the terms of this Agreement or the conduct of the parties hereunder or in connection with the transactions contemplated hereunder, are in violation of the terms of the Natural Gas Act or any other federal or state law, or any regulations issued thereunder, or the terms of any applicable FERC Gas Tariff, then either party shall have the right to terminate this Agreement upon the first to occur of the date required by applicable law or thirty (30) days after notice given to the other party. In the event of such termination, all costs associated with unwinding or terminating Purchase Agreements shall be borne equally by the parties. 10.3 Fuel Manager Default. (a) Each of the following shall constitute a "Fuel Manager Event of Default": (i) Fuel Manager shall default in the performance of any of its covenants or obligations under this Agreement (other than those specified in Section 10.3(a)(iv), which shall be exclusively governed by that Section, and other than a Gas delivery obligation which shall be exclusively governed by Section 10.3(c)) and shall fail to cure such default within five (5) days after receiving written notice from Elwood; (ii) Default occurs under the Fuel Manager Guaranty; (iii) Liquidation (not as defined in this Agreement), dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Fuel Manager or Fuel Manager Guarantor, or the disaffirmance or 18 termination of any of Fuel Manager's or Fuel Manager Guarantor's covenants or obligations under this Agreement, or the Fuel Manager Guaranty, as applicable, in or as a result of any such proceeding; (iv) Fuel Manager shall fail to make any payment when due or cure such failure within the lesser of ten (10) days or such time period as would result in loss of Gas supply or delivery to Elwood if not cured within such period; and (v) Any representation or warranty made by Fuel Manager or Fuel Manager Guarantor herein, or in the Fuel Manager Guaranty, as applicable, should prove to be materially untrue or breached as of the date the Term of this Agreement commences. (b) Upon the occurrence of a Fuel Manager Event of Default other than an Event of Default that is subject to Section 10.3(c), Elwood shall have the right to do any or all of the following: (i) cure such default and seek reimbursement of any costs incurred by Elwood in effecting such cure, or offset such costs against any amounts thereafter payable by Elwood to Fuel Manager under this Agreement; (ii) terminate this Agreement as of the date specified in such termination notice; provided, however, that Fuel Manager -------- ------- shall remain fully responsible and liable for performance of its obligations that arose prior to such termination date; or (iii) exercise all other rights and remedies available at law or in equity. Elwood shall provide notice to Fuel Manager of Elwood's intent to exercise its rights under the previous sentence, but Elwood's exercise of such rights shall in no way be conditioned upon the provision of such notice to Fuel Manager. In the event of any termination of this Agreement pursuant to this Section 10.3(b), Fuel Manager shall not be entitled to unwind any agreements entered into pursuant to this Agreement without the consent of Elwood. (c) Notwithstanding the foregoing, and the notice and cure periods provided for above, if Fuel Manager defaults in the performance of any of its obligations to deliver the Firm MDQ on any Non-Special Day or the quantity of Gas agreed upon by the Parties for a Special Day under Section 3.1(a) and such default prevents Elwood, or in Elwood's sole judgment is reasonably likely to prevent Elwood, from meeting its obligations to deliver power to its power customers, then Elwood shall have the right, as its sole remedy therefor, to procure replacement Gas for the Facility from Sellers or other sources on commercially reasonable terms and conditions and may utilize the Nicor T&B Agreement and the Gas Inventory (Elwood shall still be obligated to pay Fuel Manager for any of the Gas Inventory taken by Elwood in accordance with Section 5.1) to effectuate delivery of such Gas. Fuel Manager shall reimburse Elwood for any reasonable incremental costs incurred by Elwood in purchasing such replacement Gas and related services (including without limitation charges under the Nicor T&B Agreement covered by Section 5.2) within fifteen (15) days after demand therefor, together with interest thereon at the Default Rate and accrued from the date of such purchase until the date reimbursement is made. If Fuel Manager fails to reimburse Elwood for such costs within such fifteen (15) day period, then, in addition to all other rights, Elwood shall be entitled to offset such costs (including interest) against any amounts thereafter payable by Elwood to Fuel Manager under this Agreement. 19 10.4 Elwood Default. (a) Each of the following shall constitute an "Elwood Event of Default": (i) If Elwood shall default in the performance of any of its obligations under this Agreement and Elwood shall fail to cure such default within five (5) days after receiving written notice from Fuel Manager. (ii) Default occurs under either of the Elwood Guaranties; (iii) Liquidation (not as defined in this Agreement), dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Elwood or an Elwood Guarantor, or the disaffirmance or termination of any of Elwood's or an Elwood Guarantor's covenants or obligations under this Agreement or an Elwood Guaranty in or as a result of any such proceeding.; and (iv) Any representation or warranty made by Elwood or an Elwood Guarantor herein, or in the Elwood Guaranties, as applicable, should prove to be materially untrue or breached as of the date this Term of this Agreement commences. (b) Upon the occurrence of an Elwood Event of Default, Fuel Manager shall have the right, upon seven (7) days notice to Elwood, to do any or all of the following: (i) terminate this Agreement; (ii) terminate the Agency granted to Fuel Manager pursuant to Section 8.1 hereof; and (iii) exercise all other rights and remedies available at law or in equity including, without limitation the right to recover from Elwood any future amounts due under Section 5.1(e) for any future months remaining in the term as if this Agreement had not been terminated pursuant to this Section. If Fuel Manager terminates this Agreement pursuant to clause (i) above, then Fuel Manager shall use its reasonable efforts to minimize the costs associated with unwinding Purchase Agreements; provided, however, that Fuel -------- ------- Manager shall not, without the consent of Elwood, unwind or terminate any such Purchase Agreements entered into by Fuel Manager pursuant to Article 8 with respect to which Elwood has financial exposure. In addition, in the event of such termination, Elwood shall reimburse Fuel Manager for all costs incurred by Fuel Manager to unwind any and all agreements entered into by Fuel Manager pursuant to Article 8. 10.5 Release of Obligations. Notwithstanding anything herein to the contrary, in the event either party terminates this Agreement pursuant to this Article X or any other provisions of this Agreement, the parties shall be released from all of their future obligations hereunder except any obligation (i) to make payments due hereunder with respect to the period prior to the effective date of the termination, (ii) if and as applicable, to pay damages with respect to a Fuel Manager Event of Default or Elwood Event of Default, to the extent such damages are expressly permitted as a remedy in 20 addition to the right to terminate, (iii) to indemnify the other party under Article XI, and (iv) of Fuel Manager under the last sentence of Section 4.3. ARTICLE XI INDEMNITY 11.1 Fuel Manager Indemnity. (a) Without limiting Elwood's rights or remedies under Article 10, Fuel Manager agrees to indemnify, defend and hold Elwood, its members, officers, directors, employees and agents harmless from and against all claims, demands, suits, losses, liabilities, penalties, actions and expenses (including reasonable attorneys' fees and litigation costs) with respect to claims by third parties arising out of, resulting from or caused by: (i) Claims associated with title to gas or liens therein; (ii) Balancing, storage, or transportation costs, charges, penalties or fees resulting from Fuel Manager's sale of Gas to Persons other than Elwood; (iii) Fines or penalties assessed by any governmental authority on account of Fuel Manager's actions; (iv) Claims arising out of or relating to Fuel Manager's failure to comply with the requirements of Article 8 hereof; (v) Claims arising out of or relating to Purchase Agreements or other agreements entered into by Fuel Manager on its own behalf or as Agent; (vi) Claims arising out of or related to Taxes which Fuel Manager is obligated to pay or cause to be paid under Section 9.2; and (vii) Any and all claims, demands, actions, losses, liabilities, expenses (including reasonable legal fees and expenses), suits and proceedings of any nature whatsoever for personal injury, death or property damage to third parties caused by the negligence or willful misconduct of the indemnifying Party that arise out of or are in any manner connected with the performance of this Agreement, except to the extent such injury or damage is attributable to the gross negligence or willful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. 11.2 Elwood Indemnity. (a) Without limiting Fuel Manager's rights or remedies under Article 10, Elwood agrees to indemnify, defend and hold Fuel Manager, its members, officers, directors, employees and agents harmless from and against all claims, demands, suits, losses, liabilities, penalties, actions and expenses (including reasonable attorneys' fees 21 and litigation costs) with respect to claims by third parties arising out of, resulting from or caused by: (i) Claims associated with the consumption of the Gas by the Facility including any environmental claims; (ii) Fines or penalties assessed by any governmental authority on account of Elwood's actions; (iii) Claims arising out of or relating to Elwood's failure to comply with the requirements of Article 8 hereof; (iv) Claims arising out of or relating to Purchase Agreements or other agreements entered into by Elwood on its own behalf; (v) Claims arising out of or related to Taxes which Elwood is obligated to pay or cause to be paid under Section 9.2; and (vi) Any and all claims, demands, actions, losses, liabilities, expenses (including reasonable legal fees and expenses), suits and proceedings of any nature whatsoever for personal injury, death or property damage to third parties caused by the negligence or willful misconduct of the indemnifying Party that arise out of or are in any manner connected with the performance of this Agreement, except to the extent such injury or damage is attributable to the gross negligence or willful misconduct of, or breach of this Agreement by, the Party seeking indemnification hereunder. 11.3 Survival. The foregoing indemnity provisions shall survive expiration of the Term or termination of this Agreement. ARTICLE XII LIMITATION OF LIABILITY 12.1 Limitation of Liability. IN NO EVENT OR UNDER ANY CIRCUMSTANCES SHALL EITHER PARTY (INCLUDING SUCH PARTY'S MEMBERS AND THEIR RESPECTIVE AFFILIATES AND SUCH PARTY'S AND ITS MEMBERS' AND SUCH AFFILIATES' RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) BE LIABLE TO THE OTHER PARTY (INCLUDING SUCH PARTY'S AFFILIATES AND SUCH PARTY'S AND SUCH AFFILIATE'S RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES IN THE NATURE OF LOST PROFITS, WHETHER SUCH LOSS IS BASED ON CONTRACT, WARRANTY OR TORT (INCLUDING INTENTIONAL ACTS, ERRORS OR OMISSIONS, NEGLIGENCE, INDEMNITY, STRICT LIABILITY OR OTHERWISE), EXCEPT TO THE EXTENT SUCH 22 TYPE OF DAMAGES ARE EXPRESSLY PROVIDED FOR HEREIN. A PARTY'S LIABILITY UNDER THIS AGREEMENT SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES, OR IF LIQUIDATED DAMAGES ARE EXCLUSIVELY SPECIFIED HEREIN, TO SUCH LIQUIDATED DAMAGES, AND ALL OTHER DAMAGES AT LAW OR IN EQUITY ARE WAIVED. ARTICLE XIII REPRESENTATIONS AND WARRANTIES 13.1 By Fuel Manager. Fuel Manager hereby represents and warrants that: (a) Fuel Manager is a limited liability company duly organized and validly existing under the laws of Delaware and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (b) The execution, delivery and performance by Fuel Manager of this Agreement have been duly authorized by all necessary company action, and do not and will not require any consent or approval of Fuel Manager's members or any third party (including any governmental authority) other than that which has been obtained. (c) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage loan agreement, other evidence of indebtedness or any other agreement or instrument to which Fuel Manager is a party or which it or any of its property is bound, or result in a breach of or a default under any of the foregoing. (d) This Agreement constitutes the legal, valid and binding obligation of Fuel Manager enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditor's rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) There is no pending or, to the knowledge of Fuel Manager, threatened action or proceeding affecting Fuel Manager before any governmental agency that purports to affect the legality, validity or enforceability of this Agreement. 13.2 By Elwood. Each of Elwood Energy LLC, Elwood Energy II, LLC and Elwood Energy III, LLC hereby represents and warrants with respect to itself that: 23 (a) It is a Delaware limited liability company duly organized and validly existing under the laws of the State of Delaware and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (b) The execution, delivery and performance by it of this Agreement have been duly authorized by all necessary company action and do not and will not require any consent or approval of it's Management Committee other than that which has been obtained. (c) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage loan agreement, other evidence of indebtedness or any other agreement or instrument to which it is a party or which it or any of its property is bound, or result in a breach of or a default under any of the foregoing. (d) This Agreement constitutes the legal, valid and binding obligation of it enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditor's rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) There is no pending or, to its knowledge, threatened action or proceeding affecting Elwood before any governmental agency that purports to affect the legality, validity or enforceability of this Agreement. ARTICLE XIV FORCE MAJEURE 14.1 Force Majeure Generally. Except with respect to payment obligations due from one party to the other hereunder, neither party shall be responsible or liable for its failure to perform any obligation hereunder, or be deemed in breach hereof, to the extent such failure to perform is due to the occurrence of an event of "Force Majeure," as that term is defined in Section 14.2 as applicable to such party, provided that: (a) The non-performing party (i) gives the other party prompt verbal notice of the occurrence and (ii) within forty-eight (48) hours of the beginning of the occurrence or by 5:00 p.m. Central Clock Time on the next Business Day after the beginning of the occurrence, whichever is the later to occur, gives the other party written notice describing the particulars of the occurrence; 24 (b) The suspension of performance is of no greater scope and of no longer duration than is required by the Force Majeure; (c) The non-performing party uses its reasonable efforts to remedy its inability to perform; (d) When the non-performing party is able to resume performance of its obligations under this Agreement, that party shall give the other party written notice to that effect; and (e) The Force Majeure was not caused by or connected with any negligent or intentional acts, errors, or omissions, or failure to comply with any law, rule, regulation, order or ordinance by the party invoking the Force Majeure. 14.2 Definition of Force Majeure. (a) In the case of Elwood, "Force Majeure" under this Agreement means any delay in the performance of its obligations hereunder due solely to circumstances beyond its reasonable control, and that could not have been prevented by due diligence, of Elwood, including without limitation: acts of God; weather-related events affecting an entire geographic region; strikes or other labor difficulties; war; riots; requirements, actions, or failures to act on the part of governmental authorities or changes in the law or applicable regulations subsequent to the date hereof preventing performance; inability despite due diligence to obtain or renew required licenses; accident; earthquake, sabotage; or fire. (b) In the case of Fuel Manager, "Force Majeure" under this Agreement means only and is limited to declarations of force majeure by Nicor Gas under the Nicor T&B Agreement, or by any of NBPL, APL, NGPL or any pipeline upstream of such pipelines under its tariff or transportation agreement, or by Peoples Gas under the Peoples Gas T&B Agreement, as the term "force majeure" is defined and applied in those documents, or a default by Nicor Gas under the Nicor T&B Agreement not due to Fuel Manager's failure to fulfill its responsibilities under this Agreement, if and only to the extent that such declaration(s) result(s) in a curtailment of transportation or storage service that directly impact Fuel Manager's ability to execute its responsibilities under this Agreement and are beyond the reasonable control of, and could not have been prevented by the due diligence of, Fuel Manager; provided, however, that if a declaration of -------- ------- force majeure by any of NBPL, APL, NGPL is based on an outage of its pipeline system upstream of its interconnection with the facilities of Peoples Gas or Nicor Gas ("Pipeline Outage Condition") or if a declaration of force majeure by Nicor Gas is based on an outage of its pipeline system used to provide service to Elwood ("Nicor Gas Outage Condition") the parties agree that such Pipeline Outage Condition or Nicor Gas Outage Condition, as applicable, shall have the effect of converting Fuel Manager's obligation to provide a firm gas supply into a reasonable efforts obligation for the duration of the Pipeline Outage Condition or Nicor Gas Outage Condition, as applicable, and Fuel Manager shall be entitled to recover from Elwood (but only to the extent such costs have been approved by Elwood in advance) Fuel Manager's costs relating to Fuel Manager's 25 performance during such Pipeline Outage Condition or Nicor Gas Outage Condition, as applicable. Notwithstanding the foregoing, if Fuel Manager uses its reasonable efforts to perform during a Pipeline Outage Condition or Nicor Gas Outage Condition, as applicable and, despite Fuel Manager's reasonable efforts and the exercise of Fuel Manager's due diligence, is unable to provide firm gas supply pursuant to this Agreement due to such Pipeline Outage Condition or Nicor Gas Outage Condition, as applicable, then such event shall qualify as a "Force Majeure" for Fuel Manager under this Agreement, subject to the other limitations on Force Majeure set forth in this Section 13 of this Agreement. Notwithstanding the foregoing provisions of this subsection (b), the Parties agree that if a declaration of force majeure by Nicor Gas under the Nicor T&B Agreement results in the occurrence of a Special Day, such Nicor Gas declaration will not excuse the Parties' obligations to deliver and receive on such Special Day the quantity of Gas subsequently agreed upon pursuant to Section 3.1(a), but that such obligations may be excused by a subsequent declaration of force majeure by Nicor Gas. 14.3 Exclusions from Force Majeure. Notwithstanding the foregoing, the term Force Majeure does not include (i) changes in market conditions that affect the cost of Gas or any alternate supplies of Gas or (ii) Gas supply or transportation interruptions, except to the extent that Gas is unavailable generally on the NBPL, APL, NGPL, Nicor Gas or Peoples Gas systems at any price. 14.4 Extended Force Majeure. In no event will any condition of Force Majeure extend this Agreement beyond its stated Term. If any condition of Force Majeure delays a party's performance for a time period greater than thirty (30) days, the party not delayed by such Force Majeure may terminate this Agreement, without further obligation; provided, however, that if the Force Majeure cannot -------- ------- be overcome within such thirty (30) days with the exercise of reasonable diligence, the party not delayed shall grant an additional reasonable period of time in which to overcome such Force Majeure. In no event will such additional reasonable period of time exceed three (3) months. ARTICLE XV MISCELLANEOUS 15.1 Notices. All notices, requests, demands or statements provided for in this Agreement shall be in writing and shall be sent by registered or certified mail, by nationally recognized air courier service or by telecopy (if confirmed by hard copy delivery by overnight air express). All such notices shall be deemed given when received; provided, however, if a party refuses -------- ------- receipt of a notice, then such notice shall be deemed given when receipt is so refused. Notices shall be sent to the following addresses: 26 Fuel Manager: Cinergy Marketing & Trading, LLC 1100 Louisiana, Suite 4900 Houston, Texas 77002 Attention: Contract Administration Telephone No.: 713-393-6813 Fax No.: 713-890-3129 with a copy to: Cinergy Marketing & Trading, LLC 1100 Louisiana, Suite 4900 Houston, Texas 77002 Attention: Vice President-Marketing Telephone No.: 713-393-6854 Fax No.: 713-890-3137 Elwood: Elwood Energy LLC c/o Dominion Energy, Inc. 5000 Dominion Blvd Glen Allen, Virginia 23060 Attention: General Manager Fax No.: 804-273-2303 Telephone No.: 804-273-3269 with a copy to: Peoples Energy Resources Corporation 150 North Michigan, 39/th/ Floor Chicago, IL 60601 Attention: Elwood Energy Commercial Manager Telecopy No.: (312) 762-1635 Telephone No.: (312) 762-1616 Each party shall have the right to change such notice address or add notice parties, by a notice given as aforesaid. 15.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. ELWOOD AND FUEL MANAGER EACH HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY TO THE ORIGINAL JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN HOUSTON, TEXAS WITH REGARD TO ANY SUIT, CLAIM OR ACTION IN ANY WAY RELATED TO THE EXECUTION, DELIVERY OR 27 PERFORMANCE OF THIS AGREEMENT, AND HEREBY IRREVOCABLY WAIVES ANY AND ALL OBJECTIONS TO WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH SUITS, CLAIMS OR ACTIONS IN SUCH JURISDICTIONS, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS. THE PARTIES HERETO FURTHER AGREE THAT ANY AND ALL SUCH SUITS, CLAIMS OR ACTIONS SHALL BE BROUGHT OR FILED EXCLUSIVELY IN SUCH COURTS AND NOWHERE ELSE. 15.3 Copies. The parties shall provide copies to each other of any filings they make to FERC or to any state or other federal regulatory agency having jurisdiction if such filing relates to the subject of this Agreement. 15.4 Non Waiver. The failure of either party to insist in any one or more instances upon strict performance of any provisions of this Agreement, or to take advantage of any right hereunder shall not be construed as a waiver of any such provisions or the relinquishment of any such right or any other right hereunder. 15.5 Headings. The headings contained in this Agreement are used solely for convenience and do not constitute a part of the Agreement between the parties, nor should they be used to aid in the construction of the Agreement or to limit meaning of any provision. 15.6 Binding Effect. This Agreement shall benefit and bind the parties hereto and their permitted successors and assigns. 15.7 Severability; Merger. The various provisions and clauses of this Agreement are severable, and the invalidity of any portion of this Agreement shall not affect the validity of the remainder of the Agreement. This Agreement constitutes the entire agreement and supersedes any prior agreements or understandings, written or oral, between the parties with respect to the subject matter hereof. 15.8 Confidentiality. Each party agrees that the terms of this Agreement are confidential and that it will treat in confidence all documents, materials and other information marked "Confidential" or "Proprietary" by the disclosing Party ("Confidential Information") which it shall have obtained during the course of the negotiations leading to, and its performance of, this Agreement (whether obtained before or after the date of this Agreement). Confidential Information shall not be communicated to any third party (other than, in the case of Elwood, to its Affiliates who have a need to know such information, to its counsel, accountants, financial or tax advisors, or insurance consultants, to prospective partners and other investors in Elwood and their counsel, accountants, or financial or tax advisors, or in connection with its financing or refinancing; and in the case of Fuel Manager, to its Affiliates who have a need to know such information, or to its counsel, accountants, financial advisors, tax advisors or insurance consultants (in each case such parties hereafter referred to as "Representatives"). Each party hereby agrees to be responsible for a breach of this provision by its Representatives. As used herein, the term "Confidential Information" shall not include any information which (i) is or becomes available to a party from a source other than the other party, (ii) is or becomes available to the public other than as a result of disclosure by the receiving party or its agents, (iii) is 28 required to be disclosed under applicable law or judicial, administrative or regulatory process, but only to the extent it must be disclosed or (iv) was previously known to the receiving party. 15.9 Disagreements. (a) The parties shall attempt in good faith to resolve all disputes promptly by negotiation, as follows. A party may give the other party written notice of any dispute not resolved in the normal course of business. Executives of both parties at levels at least one level above the personnel who have previously been involved in the dispute shall meet at a mutually acceptable time and place within ten (10) days after delivery of such notice, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. If the matter has not been resolved within thirty (30) days from the referral of the dispute to senior executives, or if no meeting of senior executives has taken place within fifteen (15) days after such referral, either party may initiate legal action. If a party intends to be accompanied at a meeting by an attorney, the other party shall be given at least three (3) Business Days' notice of such intention and may also be accompanied by an attorney. All negotiations pursuant to this clause are confidential. (b) The Parties agree that no written statements of position or offers of settlement made in the course of the negotiations described in Section 15.9(a) above will be offered into evidence for any purpose in any litigation or arbitration between the parties, nor will any such written statements or offers of settlement be used in any manner against either party in any such litigation or arbitration. Further, no such written statements or offers of settlement shall constitute an admission or waiver of rights by either party in connection with any such litigation or arbitration. At the request of either party, any such written statements and offers of settlement, and all copies thereof, shall be promptly returned to the party providing the same. (c) If a disagreement should arise on any matter which is not resolved as provided in Section 15.9(a), then, pending the resolution of the disagreement, Fuel Manager shall continue to perform in a manner consistent with the applicable provisions of this Agreement and Elwood shall continue to pay all charges and perform all other obligations required in accordance with the applicable provisions of this Agreement. 15.10 Survival. Any provisions hereof which relate to the period after the termination of this Agreement shall survive the termination of this Agreement. 15.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute one and the same document. 29 IN WITNESS WHEREOF, the undersigned have executed this Agreement. ELWOOD ENERGY LLC CINERGY MARKETING & TRADING, LLC By: /s/ Tony W. Belcher By: /s/ Douglas N. Schomtz -------------------------- ------------------------------ Name: Tony W. Belcher Name: Douglas N. Schomtz ------------------------ ----------------------------- Title: General Manager Title: Vice President ----------------------- ---------------------------- ELWOOD ENERGY II, LLC By: /s/ Ronald D. Usher -------------------------- Name: Ronald D. Usher ------------------------ Title: General Manager ----------------------- ELWOOD ENERGY III, LLC By: /s/ Ronald D. Usher -------------------------- Name: Ronald D. Usher -------------------------- Title: General Manager -------------------------- 30 EX-10.7 23 dex107.txt GAS TRANSPORTATION AND BALANCING AGREEMENT Exhibit 10.7 CONFIDENTIAL GAS TRANSPORTATION AND ---------------------- BALANCING AGREEMENT ------------------- This Agreement, dated as of May 1, 2001, between Northern Illinois Gas Company d/b/a Nicor Gas Company ("Nicor Gas" or "Company") and Elwood Energy LLC, Elwood Energy II, LLC, and Elwood Energy III, LLC (referred to collectively as "Elwood Energy" or "Customer"). WHEREAS, Elwood Energy is expanding its natural gas-fired electric power generation facility in or near Elwood, Illinois (the "Generation Facilities" described in more detail below), on a site located within the geographic area to which Nicor Gas provides gas distribution service; but within such distance of interstate natural gas pipeline facilities of Northern Border Pipeline Company ("NBPL") and Alliance Pipeline Company ("APL") that bypass of Company's gas distribution facilities is economically feasible and practical; WHEREAS, Elwood Energy has provided an affidavit to Nicor Gas stating Elwood Energy's intent to bypass Company's facilities absent the transportation and balancing service from Nicor Gas called for under this Agreement and other evidence required by and satisfactory to Nicor Gas to verify the investment required by Elwood Energy in order to bypass Company's facilities; WHEREAS, gas to be received by Elwood Energy at its Generation Facilities from Nicor Gas under this Agreement beginning on or about May 1, 2001 will be delivered to Nicor Gas for the account of Elwood Energy from interconnects with approved interstate pipeline facilities and redelivered by Nicor Gas to the gas pipeline facilities of The Peoples Gas Light and Coke Company ("Peoples Gas" or "PGLC") and transported via Peoples Gas' pipeline facilities to an interconnection directly (or indirectly via Elwood Energy gas pipeline facilities) with Nicor Gas' gas meters serving the Generation Facilities, where it will be delivered to Nicor Gas for redelivery to Elwood Energy; and 1 WHEREAS, Elwood Energy has entered into this Agreement with Nicor Gas for contract service under Rate 17 of Nicor Gas' Schedule of Rates for Gas Service, and Nicor Gas has contracted with Peoples Gas to receive certain transportation and balancing services necessary for Nicor Gas to provide to Elwood Energy the services called for in this Agreement. NOW, THEREFORE, the parties agree as follows: 1. Definitions. Unless a clear contrary intention appears, the following terms, where used in this Agreement, and in all exhibits, recitals, appendices and amendments related to this Agreement, shall have the following meaning: (a) "APL" shall mean Alliance Pipeline Company. (b) "Balancing and Storage Service" shall mean a service under which Company (i) accepts quantities of gas delivered for the account of Customer at the Receipt Point when and to the extent such quantities are in excess of the Generation Facilities' metered requirements, or (ii) delivers gas to Customer at the Delivery Point when and to the extent the Generation Facilities' metered requirements exceed quantities of gas delivered to Nicor Gas for the account of Customer at the Receipt Point. (c) "Balancing Service Account Balance" shall mean the quantity of gas at any time in the account which is, for accounting purposes, the quantity of gas delivered to Company at the Receipt Point under the Balancing and Storage Service in excess of the quantity of gas delivered to Customer at the Delivery Point under the Balancing and Storage Service. 2 (d) "Billing Month" shall mean the period between two consecutive meter readings taken as nearly as practicable to thirty (30)-day intervals. (e) "Business Day" shall mean any day on which Company is open for the conduct of business with the public, and each such day shall commence at 8:00 a.m. CCT and end at 5:00 p.m. CCT. (f) "Buy-Out Amount" shall have the meaning set forth in Section 14. (g) "Central Clock Time" or "CCT" shall mean local time in Chicago, Illinois. (h) "Company" shall mean Northern Illinois Gas Company d/b/a Nicor Gas Company or any successor or permitted assign. (i) "Contract Quantity" shall mean Customer's MDCQ, MHQ, MMDN, MFBQS and MFBQnS entitlements under this Agreement. (j) "Contract Year" shall mean the twelve-month period beginning April 1 of each year during the term of this Agreement except for the first Contract Year which shall mean an eleven (11) month period beginning on May 1, 2001 through March 31, 2002, inclusive of the commencement and ending dates. (k) "Critical Day" shall have, with respect to gas requested to be injected into or withdrawn from storage in Company's facilities, the meaning ascribed to it in Company's Schedule of Rates and shall have, with respect to gas requested to be injected into or withdrawn from storage in Peoples Gas' facilities in connection with this Agreement, the meaning ascribed to it in the Peoples Gas Agreement. (l) "Customer" shall mean Elwood Energy LLC, Elwood Energy II, LLC, and Elwood Energy III, LLC or any successor or permitted 3 assignee of these companies. (m) "Customer's Purchase Option" shall have the meaning set forth in Section 31. (n) "Delivery Point" shall mean the outlet side of the interconnection between Nicor Gas' meter(s) serving the Generation Facilities and Elwood Energy's facilities for receiving the gas from Nicor Gas for use in the Generation Facilities. (o) "Delivery Variance" shall have the meaning set forth in Section 41. (p) "Dispatch Schedule" shall have the meaning set forth in Exhibit B. (q) "Effective Degree Day" or "EDD" shall be derived from (i) the Degree Day meaning ascribed to it in Company's Schedule of Rates and (ii) wind and langley correction factors. Each variable shall be determined using Company's then existing weather service resources. (r) "Excess Storage Charge" shall have the meaning set forth in Section 4(g). (s) "Exercise Price" shall have the meaning set forth in Section 31. (t) "Force Majeure" shall have the meaning set forth in Section 11. (u) "Forecast Burn" shall be Customer's estimate of plant consumption for the next calendar day(s) and shall have the meaning set forth in Exhibit B, Communications Protocol. (v) "Forecast Variance" shall have the meaning set forth in Section 42. (w) "Gas Cost" or "GC" shall have the meaning ascribed to it in Company's Schedule of Rates. (x) "Gas Day" shall have the meaning ascribed to it in Company's Schedule of Rates. 4 (y) "Generation Facilities" shall mean Customer's Phase I and Phase II electric power generating facilities comprised of nine (9) simple-cycle natural gas turbine units with a combined installed generating capacity of approximately 600 MW for Phase I (4-units) and 775 MW for Phase II (5-units) at Customer's premises located near the intersection of Noel and Patterson Roads in Elwood, Illinois. (z) "Global Point Agreement(s)" or "GPAs" shall mean a Global Point Agreement between Company and NBPL, or other interstate pipelines, to aggregate and treat interconnection locations between Company and these pipelines as one nomination point location in order to maximize the hourly delivery flexibility to be provided to Customer or its authorized agents. (aa) "Lender," "Lenders" and "Lender(s)" shall have the meaning set forth in Section 16. (bb) "Market Price" shall mean the price, converted to the corresponding price per therm, set forth in Gas Daily under the heading Daily Price Survey, Chicago-LDCs, Large e-use, midpoint of the range for the flow date. Market Price for any Gas Day for which Gas Daily is not published shall be determined by the issue of Gas Daily first published after such Gas Day. (cc) "Maximum Balancing Service Account Balance" or "MBAB" shall have the meaning set forth in Section 2(b). (dd) "Maximum Daily Contract Quantity" or "MDCQ" shall mean the maximum quantity of gas that Company shall receive at the Receipt Point and deliver to Customer at the Delivery Point on any Gas Day. During the Summer Months, Customer's MDCQ 5 shall be 2,416,000 therms per Gas Day. During the Non-Summer Months, Customer's MDCQ shall be 2,844,000 therms per Gas Day. (ee) "Maximum Firm Balancing Quantity Non-Summer" ("MFBQnS") shall mean the Non-Summer maximum Forecast Variance quantity Company shall have the firm obligation to receive from or deliver to Customer as Balancing and Storage Service (Injection/Withdrawal) on any Gas Day. (ff) "Maximum Firm Balancing Quantity Summer" ("MFBQS") shall mean the Summer Month maximum Forecast Variance quantity Company shall have the firm obligation to receive from or deliver to Customer as Balancing and Storage Service (Injection/Withdrawal) on any Gas Day. (gg) "Maximum Hourly Quantity" or "MHQ" shall mean the maximum quantity of gas that Company shall deliver to Customer at the Delivery Point in any hour. During the Summer Months the MHQ shall be 151,000 therms per hour. During the Non-Summer Months, the MHQ shall be 177,750 therms per hour. (hh) "Minimum-Maximum Daily Nomination" or "MMDN" shall have the meaning set forth in Section 2(a). (ii) "NBPL" shall mean Northern Border Pipeline Company. (jj) "NBPL's Gas Tariff" shall mean NBPL's FERC Gas Tariff (First Revised Volume No. 1) on file and in effect, as it may be revised from time to time, with the Federal Energy Regulatory Commission or any successor to that agency. (kk) "NGPL" shall mean Natural Gas Pipeline Company of America. (ll) "Non-Summer Months" shall mean the months of October, November, December, January, February, March, April and May. (mm) "Notices" shall have the meaning set forth in Section 33. 6 (nn) "Operational Balancing Agreement(s)" or "OBAs" shall have the meaning ascribed to it in NBPL's, NGPL's and APL's respective gas tariffs. (oo) "Operational Flow Order" or "OFO" shall have the meaning ascribed to it in NBPL's, NGPL's, APL's and Company's respective gas tariffs. (pp) "Option Equipment" shall have the meaning set forth in Section 31. (qq) "Peoples Gas" or "PGLC" shall mean The Peoples Gas Light and Coke Company. (rr) "Peoples Gas Agreement" shall have the meaning set forth in Section 28. (ss) "Person" shall have the meaning set forth in Section 16. (tt) "Phase I Term" shall mean the period of time beginning May 1, 2001 and ending September 30, 2004 and shall apply to Customer's initial four (4) gas turbine units in commercial operation prior to the effective date of this Agreement (Elwood Units 1-4). (uu) "Phase II Term" shall mean the period of time beginning May 1, 2001 and ending March 31, 2006 and shall apply to Customer's additional five (5) gas turbine units (Elwood Units 5-9). (vv) "Receipt Point" shall mean the interconnection(s) between NBPL, NGPL and APL interstate pipeline facilities and Peoples Gas' and/or Nicor Gas' LDC facilities, as applicable. (ww) "Requested Authorized Use" shall have the meaning ascribed to it in Company's Schedule of Rates. (xx) "Schedule of Rates" shall mean Company's Schedule of Rates for Gas Service (Ill.C.C. No. 16) on file and in effect, as it may be revised from time to time, with the Illinois Commerce 7 Commission or any successor to that agency. (yy) "Storage Inventory Overrun Charge" shall have the meaning set forth in Section 4(f). (zz) "Summer Months" shall mean the months of June, July, August and September. (aaa) "Transportation Service" shall mean a service under which Nicor Gas receives gas delivered to Nicor Gas for the account of Elwood Energy at a Receipt Point, causes the gas to be transported via Peoples Gas' pipeline facilities to the Delivery Point, and redelivers the gas to Elwood Energy at the Delivery Point. (bbb) "Unauthorized Use" shall have the meaning ascribed to it in Company's Schedule of Rates. 2. Services. Except as otherwise provided in this Agreement, the services provided by Company shall be firm and not subject to interruption, except for reason of Force Majeure. Company agrees to provide, and Customer agrees to pay for, the following services at Customer's Generation Facilities. (a) Except as otherwise provided for in this Agreement, on any Gas Day during the Summer Months and the Non-Summer Months during the term of this Agreement, Customer shall have the right to firm Transportation Service within the "Minimum-Maximum Daily Nomination" or "MMDN" available, not to exceed the applicable MDCQ, subject to the terms and conditions of this Agreement. Company shall not be obligated to deliver gas to Customer at an hourly rate in excess of the MHQ. Company will use its reasonable efforts to deliver gas to Customer at an hourly rate in excess of the MHQ and MDCQ as requested by Customer. Such use of gas at a rate in 8 excess of the Customer's MHQ and MDCQ, when requested by Customer and subsequently approved by Company, shall not be deemed as Unauthorized Use. (b) Customer shall be entitled to receive Balancing and Storage Service during the Summer Months and the Non-Summer Months subject to the terms and conditions of this Agreement. The Balancing Service Account Balance at any time shall not exceed a maximum of 7,250,000 therms ("Maximum Balancing Service Account Balance" or "MBAB"). Any Balancing Service Account Balance in excess of the MBAB shall be subject to either (i) the Storage Inventory Overrun Charge or (ii) the Excess Storage Charge. During the Summer Months, Customer's Maximum Firm Balancing Quantity Summer ("MFBQS") shall be limited to 1,812,000 therms per Gas Day. During the Summer Months, Balancing and Storage Service in excess of Customer's MFBQS (1,812,000 therms) per Gas Day shall be interruptible by Company. During the Non-Summer Months, Customer's Maximum Firm Balancing Quantity Non-Summer ("MFBQnS") shall be limited to 888,750 therms per Gas Day. During the Non-Summer Months, Balancing and Storage Service and Forecast Variances in excess of Customer's MFBQnS (888,750 therms) per Gas Day shall be interruptible by Company. During the Non-Summer Months, Customer withdrawals from storage may be further limited by Company on any Gas Day that Company forecasts that it will experience sixty (60) or more Effective Degree Days or when Company or Peoples Gas declares a Critical Day. On any Gas Day that Company forecasts that it will experience sixty (60) or more Effective Degree Days, Customer withdrawals from storage will 9 be interruptible, based on reasonable operating limitations. Nicor Gas may require Customer to nominate flowing supplies, if necessary, to ensure firm service under this Agreement. On any Gas Day that Company forecasts that it will experience sixty (60) or more Effective Degree Days, Company shall have the right to limit Company's firm deliveries to Customer's Generation Facilities to Customer's corresponding firm city-gate deliveries on applicable interstate pipelines for such day(s). However, Company agrees that it will not unreasonably reduce Customer's MFBQS and MFBQnS injection and withdrawal storage rights in order for Company to provide incremental interruptible services. On Critical Days declared by Company or Peoples Gas and on days that Company forecasts that it will experience sixty-five (65) or more Effective Degree Days, Customer's MFBQS and MFBQnS withdrawals from storage will be interruptible, subject to reasonable operating limitations, and Company's firm deliveries to the Generation Facilities will be limited to Customer's corresponding hourly confirmed city-gate volumes delivered on NBPL, APL and NGPL as applicable. Company's forecast of Effective Degree Days, and any corresponding reduction in transportation or storage rights pursuant to this section, shall be made no later than the time by which Company is required to declare a Critical Day pursuant to Company's Schedule of Rates, but in any case no later than 8:00 A.M. CCT on the calendar day prior to adjustment of the Contract Quantities. (c) Except as otherwise provided in this Agreement, Company's Unaccounted-for Gas percentage shall not apply to any service under this Agreement. 10 3. Customer Responsibility. Acquisition and delivery of Customer-owned gas to the Receipt Point(s) shall be the sole responsibility of Customer. 4. Charges for Services. Notwithstanding anything to the contrary in Company's Schedule of Rates, charges for services under this Agreement shall be limited to the following: (a) Reservation Charge payable for each Summer Month at the rate of $0.045 per therm of M DCQ in such Billing Month. (b) Volumetric Charge payable for each Billing Month at the rate of $0.0037 per therm delivered by Company to Customer during each Summer Month and $0.0092 per therm delivered by Company to Customer during each Non-Summer Month. (c) Delivery Variance Charge assessed at the rate of $0.05 per therm on each occurrence and for each Delivery Variance greater than or equal to 50,000 therms on non-Critical and non- OFO days as ascribed to in Section 41. (d) Balancing and Storage Service Reservation Charge assessed and payable for each Summer Month at the rate of $0.335 per therm of Customer's Maximum Firm Balancing Quantity Summer ("MFBQS") (1,812,000 therms) during such Billing Month . (e) Forecast Variance Charge assessed daily and payable at the end of the Billing Month at the following rates for the absolute positive or negative variance, expressed in therms, between the total daily quantity of gas delivered by Company to 11 the Generation Facilities versus Customer's Forecast Burn as described in Section 42. Summer Months -------------
Greater of +/- 20% of Forecast Burn or 200,000 therms $0.000/therm * above & **= 1,208,000 therms $0.005/therm * 1,208,000 & **= 1,812,000 therms $0.010/therm * 1,812,000 & **= 2,416,000 therms $0.048/therm * 2,416,000 therms (non-firm) Negotiable
(* = more than) (** = less than) Non-Summer Months -----------------
Greater of +/- 20% of Forecast Burn or 200,000 therms $0.000/therm * above & **= 474,000 therms $0.005/therm * 474,000 & **= 888,750 therms $0.055/therm * 888,750 - 1,180,000 therms (non-firm) $0.055/therm * 1,180,000 (non-firm) Negotiable
(* = more than) (** = less than) (f) Storage Inventory Overrun Charge assessed monthly, at the rate of $0.05 per therm, on each occurrence where the highest daily quantity in storage is in excess of 7,250,000 therms, but not to exceed 9,515,000 therms. (g) Excess Storage Charge assessed monthly, at the rate of $0.10 per therm, on each occurrence where the highest daily quantity in storage is in excess 9,515,000 therms, or assessed daily where Balancing and Storage Service on any day exceeds 2,416,000 therms but is less than 3,020,000 therms in the Summer Months or where Balancing and Storage Service injections on any day exceeds 1,180,000 therms but less than 1,475,000 therms in the Non-Summer Months. (h) Upstream Transportation Charges. (i) Reservation Charge payable for each Summer Month at 12 the rate of $0.0737 per therm of MDCQ (2,416,000) during such Billing Month. (ii) Volumetric Charge, inclusive of fuel, payable for each Billing Month at the rate of $0.0044 per therm on quantities delivered by Company to Customer during such Billing Month. (i) Requested Authorized Use shall be a volumetric charge, at the rate set forth in Section 7, on the quantities of gas requested by Customer and authorized by Company for any such day. (j) Unauthorized Use shall be a volumetric charge, at the rate set forth in Section 7, on the last gas measured for such days. Customer recognizes that charges authorized under this Agreement are subject to Company's Rider 8, Adjustment of Municipal and State Utility Taxes, of Company's Schedule of Rates, as in effect from time- to-time. Customer further recognizes that should a taxing authority having appropriate jurisdiction over Customer levy a tax on the use of natural gas ("Gas Use Tax"), and subsequently require Company to collect such a tax, Customer shall reimburse Company for any applicable charges resulting from the invoked Gas Use Tax, provided however, to the extent Company has the authority or discretion under its Schedule of Rates to discount or waive the invoked tax, Company shall use all reasonable means to mitigate the invoked tax liability and through any appropriate discounts or exemptions, pass such benefits on to Customer. 5. Billing and Payment. (a) Each month during the term of this Agreement, Company shall tender to Customer an invoice for services rendered during the preceding month. Pipeline deliveries, 13 Customer gas usage, determination of storage volume balances, Forecast Variances, Delivery Variances, Requested Authorized Use, and Unauthorized Use and balancing overruns will, however, be calculated on a daily basis. Company may send its invoice to Customer via facsimile. Customer shall remit payment to Company by wire transfer or automated clearinghouse no later than fourteen (14) days after Customer's receipt of such invoice. (b) If Customer fails to remit the full amount payable by it when due, interest on the unpaid portion shall accrue at a rate equal to the lower of (i) the then-effective prime rate of interest published under "Money Rate" by the Wall Street Journal, plus one percent (1%) per annum from the due date until the date of payment, or (ii) the maximum applicable lawful interest rate. (c) If Customer fails to remit the full amount payable by it when due, Company may, in the absence of a good faith dispute as to the amount due and owing, suspend its performance under this Agreement on ten (10) days' written notice to Customer. Company may not suspend its performance under this Agreement for any reason other than set forth in this subsection (c) of this section. (d) Minimum Monthly and Annual Bill. The minimum monthly bill for each Summer Month shall be the sum of (i) the Reservation Charge set forth in Section 4(a), (ii) the Balancing and Storage Service Reservation Charge set forth in Section 4(d), and (iii) the Reservation Charge set forth in Section 4(h)(i), adjusted for applicable taxes. The minimum annual bill for each Contract Year shall be $4.35 million, excluding any Storage 14 Inventory Overrun, Excess Storage, Delivery Variance, Requested Authorized Use, Unauthorized Use, Buy-Out-Amounts, incremental GPA/OBA charges and applicable taxes. The Phase I and Phase II contract term extensions shall result in the minimum monthly billing and minimum annual billing being adjusted in a pro rata manner consistent with Exhibit C. 6. Requested Authorized Use. From time to time, Company and Customer may agree to negotiate: 1) authorized overrun levels of daily Balancing and Storage Service to inject or withdraw Customer-owned supplies and/or Forecast Variance charges; or 2) for purchase of Company-owned supplies (Requested Authorized Use). Authorized overruns of Balancing and Storage Service and/or Forecast Variance charges shall be in writing and shall be permitted only after a prior request by Customer and upon approval by Company, subject to the mutual agreement of the parties to any negotiated charges. Requested Authorized Use gas supplies shall be available during the Summer Months upon prior request from Customer and during the Non-Summer Months only upon prior request from Customer and authorization by Company. All requests for Requested Authorized Use shall be confirmed in writing by Company. Requests for Requested Authorized Use made prior to the Gas Day, during the Summer Months when requested and during the Non-Summer Months when requested and approved, shall be available only on a daily basis in volumes not to exceed Customer's MDCQ. Requests for Requested Authorized Use made during the Gas Day, during the Summer Months if requested and during the Non-Summer Months if requested and approved, shall be granted only on a daily basis in volumes not to exceed Customer's MDCQ multiplied by the number of remaining hours in the Gas Day divided by twenty-four (24) hours. Requested Authorized Use shall be accounted for as the first gas delivered on any Gas Day for which it 15 CONFIDENTIAL has been requested. Unauthorized Use shall be the last volume delivered on any Gas Day. If the volume of Requested Authorized Use is greater than Customer's metered usage on any Gas Day, the difference shall be accounted for as injections into storage. The Company's Unaccounted-for Gas percentage will not apply to any Requested Authorized Use unless such volumes are injected into storage. 7. Charges for Requested Authorized Use, Unauthorized Use and Authorized Overruns. Requested Authorized Use of Company gas supplies, when approved, will be charged at the higher of (a) the Company's GC, or (b) the Market Price plus $0.02 per therm. Use of Company gas supplies without requested authorization and subsequent approval, will be considered Unauthorized Use. Unauthorized Use will be charged at $6.00 per therm plus the higher of (c) the Company's GC, or (d) the Market Price plus $0.02 per therm. Prior to the beginning of the Gas Day, Company and Customer may agree to a negotiated Forecast Variance Charge and/or authorized overruns of the Balancing and Storage Se rvice. Such negotiated volumes shall be confirmed in writing and any such negotiated charges shall be applied as the last rate tier and quantities billed for purposes of computing the daily Forecast Variance charge and for overrun of Balancing and Storage Service. Injections and withdrawals from storage which exceed Customer's MFBQS and MFBQnS limitations or any agreed upon authorized overrun quantities shall be interruptible by Company. During the Summer Months, injections into and withdrawals from storage in excess of 1,812,000 therms (the MFBQS) shall be interruptible but overrun charges equal to the Excess Storage Charge shall only apply to quantities in excess of the Summer Month MDCQ. Unless otherwise agreed upon in writing, Balancing and Storage Service injections exceeding 3,020,000 therms per day in the Summer Months and 1,475,000 therms per day in the Non-Summer Months shall be subject to forfeiture of the excess gas to Company plus any applicable OFO charges. During the Summer Months, Balancing and Storage 16 Service withdrawals exceeding 3,020,000 therms per day shall be negotiable. During the Summer Months, unauthorized Balancing and Storage Service withdrawals exceeding 3,020,000 therms shall be subject to a per therm charge of $1.00 plus the higher of (i) Company's GC or (ii) the Market Price plus $0.02 per therm. During the Non-Summer Months, injections into and withdrawals from storage in excess of 888,750 therms and less than 1,180,000 therms shall be interruptible and overrun charges shall be assessed a rate of five and five-tenths cents (5.5c) per therm plus any applicable Forecast Variance charges. During the Non- Summer Months, withdrawals from storage which exceed 1,1800,000 therms or any agreed upon authorized overrun of Balancing and Storage Service shall be deemed as Unauthorized Use of Gas and shall also be subject to any applicable Forecast Variance charges; conversely, injections to storage which exceed 1,180,000 therms but not to exceed 1,475,000 therms or any agreed upon authorized overrun of Balancing and Storage Service shall be subject to the Excess Storage Charge plus any applicable Forecast Variance charges. 8. Incorporation of Rate 77. The parties agree to incorporate Rate 77 of Company's Schedule of Rates, as it may be revised from time to time and except as modified by this Agreement, as part of this Agreement for contract service under Rate 17. All other applicable provisions of the Company's Schedule of Rates as in effect from time-to-time shall apply, unless specifically modified by this Agreement. Company and Customer understand and agree that the obligations under this Agreement and the applicable provisions of Company's Schedule of Rates may change due to orders of the Illinois Commerce Commission or to applicable law. The parties agree to comply with any such changes. 9. Storage. If on any Gas Day Customer-owned gas nominated to Company exceeds Customer's metered gas deliveries to the Generation Facilities, the difference in volumes shall be the volume of gas injected into storage and added 17 to Customer's Balancing Service Account Balance. If on any Gas Day Customer- owned gas nominated to Company is lower in volume than Customer's metered gas deliveries to the Generation Facilities, the balance of any gas held in storage will be applied against such metered deliveries. Customer shall have the firm right to injections and withdrawals from storage, subject to the terms herein, up to Customer's MFBQS and MFBQnS contract quantities. Customer-owned gas injected into storage will be net of the Company's Unaccounted-for Gas percentage as in effect from time-to-time, provided that, Company's Unaccounted- for Gas percentage shall not be assessed on injection quantities which exceed a cumulative volume of seventy (70) million therms in any Contract Year. On any Gas Day, should the volume of gas delivered to the plant exceed the sum of (a) Requested Authorized Use, (b) Customer's daily nominations plus (c) any volumes available from storage, the Unauthorized Use provisions of this Agreement will apply. Withdrawals from storage are firm, subject to the reasonable, operational limitations of Nicor Gas and other conditions set forth in this Agreement. 10. Use of NBPL, APL and NGPL. Gas supplies nominated by Customer, or its authorized agent, for delivery to Customer's Generation Facilities or into storage must be transported on NBPL, APL and NGPL interstate pipelines. Customer, or its authorized agent, shall routinely inform Company of its forecasted hourly and daily usage in accordance with Exhibit B. In addition, Customer shall supply Company its Forecast Burn by 7:00 A.M. on business days and Nicor Gas shall, using reasonable operating practices and given Company's other firm obligations, make available to Customer at 8:00 A.M. on business days, the minimum and maximum quantities that can be reasonably accepted as Customer's MMDN. During the months of June, July and August of each Contract Year, Company shall make available as the MMDN no less than the minimum quantities shown on Exhibit D as allowed receipts from NBPL, APL, and NGPL. Conversely, during the months of June, July and August of each Contract Year, Company shall 18 not require as a part of the MMDN receipts by Customer of more than the quantities shown on Exhibit D. During all other days and months of the year, Company's MMDN limits shall be reasonably applied from Customer's Forecast Burn, MFBQS, MFBQnS, and Company's other firm service obligations. In the event Company's operational conditions require it to reduce MMDN rights of Customer during this period to less than the parameters shown on Exhibit D, a 4.8 cent ($.048) per therm credit shall be granted to Customer for the quantity affected; provided that, such reduction of Customer's MMDN rights are not the result of any OFO or Critical Day restrictions invoked by Company or any applicable interstate pipelines. 11. Force Majeure. In the event any obligation imposed by this Agreement on either party, except for the payment of money when it becomes due and owing hereunder (including, without limiting the generality of the foregoing, the payment by Customer of the charges calculated pursuant to Section 4 hereof), cannot be performed, on account of an act of God, strike, labor dispute, fire, war, civil disturbances, explosion, breakage or accident to machinery or lines of pipe, quarantine, epidemic, severe storms, act or interference of any governmental authority or agency including failure to grant any permit, or by any similar cause reasonably beyond the control of the party otherwise required to perform such obligation ("Force Majeure"): (a) the party so required to perform shall do all things reasonably possible to remove the cause of such interference as expeditiously as is reasonably possible; (b) during the continuance of such interference, and while the party so required to perform is attempting removal of the interference, the obligation imposed on such party shall be suspended to the extent that the interference prohibits such performance; and (c) any directly corresponding obligation imposed on the other party to this Agreement shall, during this period, likewise be suspended pro --- tanto. It is expressly understood and agreed that Force Majeure does not - ----- include scheduled outages of equipment served hereunder for turnarounds or normal maintenance. In order to invoke the suspension in whole or in part by reason of 19 Force Majeure of any obligation imposed by this Agreement, the party claiming such cause shall give notice in writing, including by facsimile, or by telephone confirmed in writing, to the other party after the initial occurrence of the cause relied on. Neither party shall at any time be required against its will to adjust or settle any labor dispute. Under Force Majeure conditions invoked by Customer, defined as non- economic, should Customer incur an unauthorized overrun of its Contract Quantities as per this Agreement, Customer shall reimburse Company an amount equal to the higher of (i) the actual interstate pipeline penalties incurred by Company that were directly related to Customer's unauthorized overrun of its Contract Quantities ("Pipeline Penalties") or (ii) a volumetric charge of $0.048 per therm during the Summer Months or $0.055 per therm during the Non-Summer Months multiplied by the quantity of unauthorized overrun. 12. Cooperation. Customer and Company agree that they will cooperate to the fullest extent in the administration of this Agreement and operation hereunder. Company and Customer shall each provide the other with a twenty-four hour contact for operational matters. The parties shall work together to schedule planned outages of their respective facilities at mutually agreeable times, but in no event will Company conduct a planned outage of its facilities serving the Generation Facilities during the Summer Months if such planned outage could cause, or does cause Company to fail to perform any of its obligations hereunder. 13. Regulatory Approvals. Upon request by either party, the other party agrees to cooperate in obtaining any necessary regulatory approval of this Agreement. Neither party shall be responsible for any filing fees or costs incurred by the other, its agent or any third party respecting this Agreement. 14. Term and Cancellation. Except as provided in this Agreement, this Agreement shall be effective on May 1, 2001 and shall remain in full force and 20 CONFIDENTIAL effect until March 31, 2006, for a period of fifty-nine (59) consecutive months, inclusive of the beginning and ending dates. Effective May 1, 2001, this Agreement supercedes and cancels the Gas Transportation and Balancing Agreement dated May 1, 1999 between Northern Illinois Gas Company d/b/a Nicor Gas Company and Elwood Energy LLC, subject to any outstanding obligations between the parties. Customer shall have the option of canceling this Agreement beginning with the end of the second Summer Month period, or September 30, 2002, and at the end of each successive Summer Month period thereafter, during the initial fifty-nine (59) month term, upon giving one (1) year prior written notice to Company and upon delivering to Company on or before such anniversary date the following "Buy-Out Amount" for each of the corresponding anniversary years. Company and Customer agree that the following "Buy-Out-Amount(s)" shall be determined by calculating the remaining unamortized portions of (i) termination fee of $1.575 million at September 30, 2002 and shall be reduced by amortizing at a rate of $0.525 million per year thereafter, (ii) Company and PGL&C's facilities investment of $1.787 million at September 30, 2002, $1.239 million at September 30, 2003, $0.645 million at September 30, 2004, and zero thereafter, and (iii) NBPL GPA/OBA fixed costs of $0.750 million at September 30, 2002, and amortized at a rate of $0.250 million per year thereafter. In the event of a buy-out, Customer shall separately have the right to purchase from the Company on-site meters and related equipment located at Company's Station 144, serving Elwood's Phase I turbines, pursuant to section 31(b). Customer recognizes that the Buy-Out-Amounts listed below may change or adjust upward dependent on the unamortized fixed cost of other Global Point and Operational Balancing agreements in place at the time of termination. Customer agrees to reimburse Company for any such incremental unamortized GPA/OBA fixed costs. Customer's termination rights do not apply to extension terms provided for in this Agreement beyond March 31, 2006. - --------------------------------------------------------------------------- Anniversary Buy-Out Amount - --------------------------------------------------------------------------- Second (September 30, 2002) $4,112,000 - --------------------------------------------------------------------------- 21 - ------------------------------------------------------------------------- Third (September 30, 2003) $2,789,000 - ------------------------------------------------------------------------- Fourth (September 30, 2004) $1,420,000 - ------------------------------------------------------------------------- 15. Order of Delivery. On any Gas Day, the order of gas delivered to the Customer shall be: (a) Requested Authorized Use gas supplies of Company, (b) Customer-owned gas nominated to Company on NBPL, APL and NGPL (confirmed Transportation Service within the "MMDN") and (c) Balancing and Storage Services for injection or withdrawal up to the MFBQS or MFBQnS, as applicable, of Customer-owned gas, (d) interruptible injections or withdrawals, as applicable, of Customer-owned gas, and (e) Unauthorized Use. 16. Assignment. (a) Except as provided in this Section 16, neither party shall assign, pledge or otherwise transfer this Agreement or any right or obligation under this Agreement without first obtaining the other party's written consent, which consent shall not be unreasonably withheld or delayed. Except as specifically provided for in this Section 16, any assignment or transfer of this Agreement or any rights, duties or interests hereunder by any party without the written consent of the other party shall be void and of no force or effect. (b) Company shall be permitted to assign or otherwise transfer this Agreement or its rights, duties and obligations hereunder, in whole or in part, by operation of law or otherwise, without Customer's consent, to any successor to or transferee of the direct or indirect ownership or operation of all or part of the pipeline system to which the Generation Facilities are connected that can fully perform Company's obligations under this 22 Agreement, provided the proposed assignee is creditworthy, and upon the assumption by any such permitted assignee of Company's rights, duties and obligations hereunder, Company shall be released and discharged therefrom to the extent provided in the assignment agreement. (c) So long as no material event of default with respect to Customer has occurred and is continuing, Customer shall be permitted to assign or otherwise transfer this Agreement in whole, by operation of law or otherwise, without Company's consent, (i) to Elwood Marketing, LLC, or (ii) to any assignee succeeding to the ownership of the Generation Facilities, provided the proposed assignee is creditworthy, and upon the assumption by any such permitted assignee of Customer's rights, duties and obligations hereunder, Customer shall be released and discharged therefrom to the extent provided in the assignment agreement. (d) Company hereby consents to Customer's assignment of this Agreement to any and all Lenders (as defined below) or the granting to any or all Lenders of a lien or security interest in any right, title or interest in part or all of the Generation Facilities or any or all of Customer's rights under this Agreement for the purpose of the financing or refinancing of the Generation Facilities. In order to facilitate the obtaining of financing or refinancing of the Generation Facilities without Company's consent, Company shall cooperate with Customer and execute consents, agreements or similar documents with respect to the assignment hereof to any Lender as customary for comparable transactions in connection with the financing or refinancing of the Generation Facilities, provided that such 23 assignment shall recognize and shall not impair or otherwise adversely affect Company's rights under this Agreement. Company recognizes that such consent may grant certain rights to such Lenders, which shall be fully developed and described in said consent documents, including that (i) this Agreement shall not be amended or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders; (ii) without extending the cure period set forth in this Agreement, Lenders shall be given notice of, and the same opportunity to cure, any Customer breach or default of this Agreement, provided that notwithstanding the foregoing Lender(s) may have in addition to the cure periods set forth herein an additional sixty (60) days from the expiration of such cure period to cure any breach or default of this Agreement; (iii) if a Lender forecloses, takes a deed in lieu or otherwise exercises its remedies pursuant to any security documents, that Company shall, at Lender's request, continue to perform all of its obligations hereunder, and Lender or its nominee may perform in the place of Customer, and may assign this Agreement to another party in place of Customer (provided either (A) such proposed assignee is creditworthy or (B) Company consents to the assignment to such proposed assignee, which consent shall not be unreasonably withheld or delayed), and enforce all of Customer's rights hereunder; (iv) that Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of the Generation Facilities and any defaults for non-payment existing immediately prior to such period; (v) that Company shall accept performance in accordance with this Agreement by Lender(s) or its (their) 24 nominee; and (vi) that Company shall make representations and warranties to Lender(s) as Lender(s) may reasonably request, including, but not limited to, (A) Company's corporate existence, (B) Company's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of this Agreement on Company, (D) receipt of such regulatory approvals by Company as are required by law with respect to its performance under this Agreement, subject to such continuing jurisdiction as the Illinois Commerce Commission may have over this Agreement, and (E) whether any defaults by Customer are known by Company then to exist under this Agreement and shall, upon request of Customer, cause Company's counsel to issue an opinion to Customer and any Lender affirming in customary form the representations of Company in subsections (a)(i), (a)(ii), (a)(iii)(A), (iv) and (v) of Section 17. (e) As used in this Agreement, the term "Lender(s)" means (i) any individual, governmental authority, corporation, limited liability company, partnership, limited partnership, trust, association or other entity ("Person") that from time to time enters into loans with Customer, its successors or permitted assigns for the financing or refinancing of the Generation Facilities or any part thereof or which are secured by the Generation Facilities (including a sale- leaseback transaction), (ii) the holders of indebtedness evidencing any such loans, or (iii) any Person acting on behalf of such lender(s) to whom any lenders' rights under such loans have been transferred, any trustee on behalf of any such lenders, and any Person subrogated to the rights of such lenders. 25 17. Representations and Warranties (a) Company hereby makes the following representations and warranties to Customer: (i) Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois, and has the legal power and authority to own its properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (ii) The execution, delivery and performance by Company of this Agreement have been duly authorized by all necessary corporate action, and do not and will not require any consent or approval of Company's board of directors other than that which has been obtained. (iii) (A) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement, do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or 26 instrument to which Company is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing, and (B) Company has obtained all permits, licenses, approvals and consents of governmental authorities required for the lawful performance of its obligations hereunder, subject to such continuing jurisdiction as the Illinois Commerce Commission may have over this Agreement. (iv) This Agreement constitutes the legal, valid and binding obligation of Company enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (v) There is no pending, or to the knowledge of Company, threatened action or proceeding affecting Company before any governmental authority, which purports to affect the legality, validity or enforceability of this Agreement. (b) Customer hereby makes the following representations and warranties to Company: (i) Customer is a Delaware limited liability corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the legal power and authority to own its 27 properties, to carry on its business as now being conducted and to enter into this Agreement and carry out the transactions contemplated hereby and perform and carry out all covenants and obligations on its part to be performed under and pursuant to this Agreement. (ii) The execution, delivery and performance by Customer of this Agreement have been duly authorized by all necessary company action, and do not and will not require any consent or approval of Customer's Management Committee other than that which has been obtained. (iii) The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment of and compliance with the provisions of this Agreement do not and will not conflict with or constitute a breach of or a default under, any of the terms, conditions or provisions of any legal requirements, or any organizational documents, agreement, deed of trust, mortgage, loan agreement, other evidence of indebtedness or any other agreement or instrument to which Customer is a party or by which it or any of its property is bound, or result in a breach of or a default under any of the foregoing. (iv) This Agreement constitutes the legal, valid and binding obligation of Customer enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, 28 insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (v) There is no pending, or to the knowledge of Customer, threatened action or proceeding affecting Customer before any governmental authority which purports to affect the legality, validity or enforceability of this Agreement. 18. Interference with Company's Service. Whenever any of the Customer's utilization equipment has characteristics which, in the sole reasonable judgment of Company, will cause interference with the service to any other customer or interfere with the proper metering, suitable facilities shall be provided by Company at Customer's expense to preclude such interference. 19. Monitoring of Usage. Company shall not be responsible for monitoring Customer's daily usage or notifying Customer of potential storage inventory overrun, excess storage, Delivery Variance, Forecast Variance, or unauthorized use of gas conditions. However, at Customer's request, Company shall provide to Customer or its authorized agent, via facsimile or electronic file, Customer's daily flow data and storage balances on a daily basis no later than the Gas Day after flow. 20. Negotiations for Additional Service. It is understood and agreed that, upon expiration or termination of this Agreement, Company and Customer may enter into good faith negotiations for additional transportation and storage services. 29 21. Bypass. Except as provided in Section 27, Customer agrees not to take deliveries of natural gas directly from any interstate pipeline or any other intrastate gas pipeline or any other service provider for the purposes of bypassing Company's local distribution system while this Agreement remains in effect. 22. Confidentiality. Company and Customer recognize the proprietary nature of this Agreement and agree to treat the contents of this Agreement on a confidential basis in the same manner as each treats its own proprietary information of a similar nature. 23. Gas Specifications. The quality of Customer-owned gas delivered to Company on behalf of Customer shall meet or exceed the specifications contained in 83 Illinois Administrative Code Section 530.10 and Section 530.15 and the FERC-approved gas tariffs of APL, NBPL and NGPL. Customer-owned gas that does not meet such specifications may be refused by Company and Customer will indemnify Company against any loss or damage resulting from delivery of such gas, for the account of Customer, which does not meet such specifications. 24. Additional Company Facilities. Should a change in Customer's equipment or operations require Company to install additional Company facilities to deliver Customer-owned gas to Customer's Generation Facilities, Company shall provide Customer with a written estimate of the facilities cost prior to incurring any costs or commencing any construction. Customer shall notify Company, in writing, within sixty (60) days if it wishes for Company to proceed with the facility upgrade. Customer shall reimburse Company for all reasonable and verifiable costs associated with any facilities upgrade approved by Customer, in writing, in accordance with Company's Schedule of Rates. 30 25. Pressure and Back-Up Services. Company will provide gas pressure at the outlet of Company's meter(s) serving Customers no lower than the lowest delivery pressure provided at the regulator outlet(s) of the NBPL and APL Receipt Point(s), less 20 pounds per square inch gauge (psig). During a service interruption on interstate pipelines serving Company, should back-up services be provided to Customer's Generation Facilities by Company, such services would be provided by the Company on a reasonable efforts basis. 26. OFOs. Should interstate pipelines serving Company issue an Operational Flow Order ("OFO"), (a) Company agrees to accept Customer's pipeline nominations in volumes not to exceed Customer's daily-metered usage, provided that such Customer nomination does not proportionally exceed any limitations imposed on other similarly affected customers, and (b) injections into storage may be prorated and will be subject to the reasonable operational limitations of the Company. 27. Company Non-Performance. (a) If, on any Gas Day, Company shall fail to perform under this Agreement, for any reason other than Force Majeure, then, Company agrees to hold Customer harmless from any damages (including without limitation any penalties imposed by interstate pipelines and any amount by which Customer's cost to obtain and receive gas from other suppliers under subsection (a)(ii) of this section exceeds Customer's costs under this Agreement attributable to the service not performed by Company) resulting from Company's failure to perform and, at the sole option of Customer, Customer may pursue the additional remedies set forth in either subsection (a)(i) or subsection (a)(ii) of this section: (i) Company shall owe 31 Customer, and be liable to Customer for, the product of: (quantity of nominated gas not delivered or received) x (the Market Price); or (ii) Customer shall have the right to obtain and receive gas from sources other than Company for the period of such failure by Company and to take any and all actions necessary to obtain and receive such gas, including without limitation submitting all nominations to interstate pipelines (including the next-available intra-day nomination or emergency intra-day nomination) in accordance with interstate pipelines respective gas tariff(s) necessary to have such gas delivered to Customer, and Company will reasonably cooperate with Customer's actions and will not prevent or delay Customer from exercising its rights under this subsection (a)(ii) of this section. (b) The remedies set forth in this Section 27 are Customer's sole and exclusive remedies for Company's failure to perform under this Agreement. (c) In no event shall either party be liable to the other for consequential, punitive, exemplary, special or indirect damages in tort, contract or otherwise. 28. Peoples Gas Agreement. As part of this Agreement, Company has contracted with Peoples Gas to provide a portion of Customer's transportation and balancing services as provided by Company under this Agreement. As such, the Agreement between Company and Peoples Gas, dated May 1, 2001, is attached as Exhibit A ("Peoples Gas Agreement"). Company and Customer agree that, if Peoples Gas exercises its rights under the Peoples Gas Agreement to give notice of its intent to suspend or terminate service to Company as a result of Company's failure to pay an amount due and payable to Peoples Gas thereunder, Company shall transmit such notice, by telephone, confirmed in writing, or by facsimile or e- 32 mail, to Elwood Energy no less than one (1) Business Day after receipt from Peoples Gas. Elwood Energy may elect to cure the default in order to prevent the suspension or termination of service under the Peoples Gas Agreement, and Company shall then be liable to Elwood Energy for compensation for reasonable costs incurred by Elwood Energy in curing the payment default, including payment of the amount remitted by Elwood Energy to Peoples Gas, plus interest from Elwood Energy's date of payment, with the interest rate to be determined in accordance with Company's Schedule of Rates. Any such action by Elwood Energy to cure a payment default is not intended to prevent Company from disputing any payment default claimed by Peoples Gas, including any amount that Peoples Gas asserts is due and owing under the Peoples Gas Agreement, and should any such dispute be resolved in Company's favor following cure of such default by Elwood Energy, then Elwood Energy shall be entitled to receive the amount paid or refunded by Peoples Gas in resolution of the dispute to the extent that Company has not already reimbursed Elwood Energy. 29. OBA and GPA. Company shall maintain a Global Point Agreement (GPA) and an Operational Balancing Agreement (OBA) with NBPL combining the Elwood Delivery Point on NBPL with receipt points where Company interconnects with NBPL. Company and Customer agree that the annual charges associated with NBPL's GPA/OBA are embedded in Section 4 herein. Company further agrees to use "reasonable efforts" to secure additional flexible Global Point and Operational Balancing agreements with APL thus enabling greater optionality by and between the parties. Should Company incur additional charges to facilitate agreements with APL, Customer shall have the option and ability to add supplies sourced from APL at the incremental cost to Company (net of any potential reduction in NBPL GPA/OBA costs), or Customer may elect to defer the ability to utilize additional APL points as sources for gas supply. 33 30. Gas Flow. Company recognizes Customer's hourly use of gas will not occur evenly throughout the Gas Day. Subject to the Customer's hourly and daily limitations, or other limitations set forth in this Agreement, Company agrees to arrange for the twenty-four (24) hour, or "daily", receipt of transportation gas and re-deliver gas to Customer, subject to the MHQ, as needed, over a portion of the Gas Day. 31. Company's Facilities and Customer Purchase Option. (a) Company shall permit Customer to connect data feed wires to Company's Daniel flow computer to be located adjacent to the Company's meters for the purpose of enabling Customer the ability to monitor fuel information generated by Company's Daniel flow computer, including, without limitation, flow rate, temperature and pressure. (b) Upon termination of this Agreement for any reason, Customer shall have the right and option ("Customer's Purchase Option") in its sole discretion to purchase the following equipment from Company located or to be located at the inlet flanges of the Generation Facilities (the "Option Equipment"): (i) Phase I, two 16-inch meter runs, (ii) Phase I, upstream and downstream measurement headers, (iii) Phase I, orifice or turbine metering, (iv) Phase II, 12-inch ultrasonic and 6-inch turbine meters, (v) any Company-owned Daniel flow computer(s), (vi) any Company-owned Electrical SCADA, and (vii) any Company-owned gas chromatograph(s) or similar Btu analyzer(s) located at the Generation Facilities. In the event Customer exercises its Customer's Purchase Option, Company will take whatever action is necessary to acquire such equipment in order to carry out its obligation hereunder to sell such 34 equipment to Customer, free and clear of any claims of third parties. The purchase price for the Option Equipment shall be two hundred eighty-five thousand dollars ($285,000) which shall cover Company's investment in metering and related equipment at Station 144 serving Customer's Phase I turbines. Company and Customer agree that purchase price for the Option Equipment related to Company's investment in any metering and related equipment serving Customer's Phase II turbines are embedded in the Buy-Out-Amount(s) ascribed to in Section 14. Customer shall exercise Customer's Purchase Option by giving written notice to Company no later than thirty (30) days after termination of this Agreement. (c) Within fifteen (15) days after receiving Customer's notice of its intent to exercise Customer's Purchase Option, Customer shall pay Company $285,000 as consideration and Company shall transfer and convey title to the Option Equipment to Customer by special warranty deed or bill of sale, as appropriate, free and clear of any and all liens, claims, mortgages and other encumbrances. Each party shall be responsible for paying its own attorneys' fees incurred in connection with said transfer and conveyance. 32. Communication Protocol and Change in Usage. Communications between Company and Customer shall be as defined and ascribed to in the Communications Protocol contained in Exhibit B to this Agreement. 33. Notices. All communications, statements and payments ("Notices") required under this Agreement shall be in writing and shall be considered duly delivered when sent by facsimile, a nationally recognized overnight courier 35 service, first class mail or hand delivered. (a) Notices to Nicor Gas shall be sent to: - -------------------------------------------------------------------------------- Notices Except Operating Communications - -------------------------------------------------------------------------------- Nicor Gas P.O. Box 190 Aurora, Illinois 60507-0190 - -------------------------------------------------------------------------------- Attn: Kristin Mosier, Rate Administration - -------------------------------------------------------------------------------- Facsimile: (630) 983-3810 - -------------------------------------------------------------------------------- Telephone: (630) 983-8676, ext. 2135 e-mail: kmosier@nicor.com - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Operating Communications - -------------------------------------------------------------------------------- As specified in Exhibit B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Payments - -------------------------------------------------------------------------------- As specified on Company's invoice - -------------------------------------------------------------------------------- (b) Notices to Elwood Energy shall be sent to: - -------------------------------------------------------------------------------- All Notices - -------------------------------------------------------------------------------- Elwood Energy LLC c/o Dominion Energy, Inc. 5000 Dominion Blvd Glen Allen, Virginia 23060 - -------------------------------------------------------------------------------- Attn: General Manager - -------------------------------------------------------------------------------- Facsimile: (804) 273-2303 - -------------------------------------------------------------------------------- Telephone: (804) 273-3269 - -------------------------------------------------------------------------------- With a copy to: - -------------------------------------------------------------------------------- Peoples Energy Resources Corporation 150 North Michigan Avenue Suite 3900 Chicago, IL 60601 - -------------------------------------------------------------------------------- Attn: Elwood Energy Commercial Manager - -------------------------------------------------------------------------------- Facsimile: (312) 762-1635 - -------------------------------------------------------------------------------- Telephone: (312) 762-1616 - -------------------------------------------------------------------------------- (c) Each party agrees to notify the other in writing of any changes of address or change of designated person for the 36 purposes hereof. Such changes are not subject to Section 36. 34. Waiver of Defaults. A waiver by either party of any one or more defaults by the other in the performance of any provisions of this Agreement shall not operate as a waiver of any future default or defaults, whether of a like or different character. 35. Entire Agreement. This Agreement contains the entire agreement between the parties, and except as stated in this Agreement, there are no oral or written promises, agreements, warranties, obligations, assurances, or conditions precedent or otherwise affecting it. 36. Amendments. Any change, modification, or alteration of this Agreement shall be in writing, signed by the parties to this Agreement, and no course of dealing between the parties shall be construed to alter the terms hereof, except as stated in this Agreement. 37. No Third Party Beneficiary. The parties agree that there is no third party beneficiary of this Agreement and that the provisions of this Agreement do not impart enforceable rights to anyone who is not a party. 38. Choice of Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Illinois without regard to principles of conflicts of law. The parties agree that the forum of any litigation shall be in a state or federal court located within the State of Illinois. 39. Preparation of Agreement. This Agreement was prepared by all parties to this Agreement and not by any party to the exclusion of any other. 37 40. Captions. The captions in this Agreement are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 41. Delivery Variance. On any Gas Day, the Delivery Variance shall be the quantity of gas delivered to Company at the Receipt Point(s) by Customer or its authorized agent that is greater than the maximum or less than the minimum quantity defined by Company for the MMDN on NBPL, APL, or NGPL, and in total, for a Gas Day. The Delivery Variance Charge set forth in Section 4(c) shall apply to any Delivery Variance quantities greater than or equal to 50,000 therms for each non-Critical and non-OFO Gas Day occurrence, however, no such Delivery Variance Charge shall apply to the first six (6) billable Delivery Variance events unless the cumulative volume of Delivery Variances greater than or equal to 50,000 therms, occurring on non-Critical and non-OFO days, exceeds 600,000 therms in a Contact Year. During the Contract Year, should the cumulative volume of Delivery Variances greater than or equal to 50,000 therms, occurring on non- Critical and non-OFO days, exceeds 600,000 therms, all prior and subsequent Delivery Variances greater than or equal to 50,000 therms shall be assessed the Delivery Variance Charge. On Critical Days and OFO days, the Delivery Variance Charge shall apply to all quantities of gas delivered to Company at the Receipt Point(s) by Customer or its authorized agent that is different in quantity from the minimum or maximum or specific volume of gas requested by Company for Customer delivery. Customer shall be obligated to use "reasonable-efforts" to prevent the continued reoccurrence of Delivery Variances charges incurred by itself, its authorized agent(s) or fuel manager(s). Should Customer fail to utilize "reasonable-efforts" to prevent reoccurring Delivery Variances, Company shall have the ability to request termination of Customer's fuel management arrangements. Company shall be held harmless for any termination or exit fees imposed on Customer resulting from termination of Customer's fuel management arrangements. 38 42. Forecast Variance. On any Gas Day, the Forecast Variance shall be the quantity of gas delivered by Company to the Generation Facilities that is different in quantity, by more or less, than the Forecast Burn of Customer, or its authorized agent, as communicated to Company on or before the 7:00 AM CCT on the Business Day prior to the Gas Day. The applicable Summer Month and Non- Summer Month Forecast Variance Charge(s) set forth in Section 4(e) shall apply to any Forecast Variance which exceeds the greater of 200,000 therms or a quantity equal to plus or minus twenty (20) percent of Customer's daily Forecast Burn of gas as communicated to Company. During the Summer Months, Company shall not be obligated to provide Balancing and Storage Service under this Agreement in excess of 1,812,000 therms per day, Customer's Maximum Firm Balancing Quantity Summer. During the Non-Summer Months, Company shall not be obligated to provide Balancing and Storage Service under this Agreement if Customer's Forecast Variances exceeds 888,750 therms per day, Customer's Maximum Firm Balancing Quantity Non-Summer. 43. Phase I Primary Term. Except as provided for in this Agreement, the primary term for Customer's Phase I generating equipment shall be a forty- one (41) month period beginning May 1, 2001 and ending September 30, 2004, inclusive of the beginning and ending dates. Upon expiration of the forty-one (41) month term, the initial demand charge(s) in this Agreement shall adjust downward by thirty (30) percent while the volumetric charges shall remain unchanged. Upon expiration of the Phase I term, Company and Customer agree that specific contract quantities in this Agreement shall adjust downward while the specific contract demand rates in this Agreement shall adjust upward as ascribed to in Exhibit C of this Agreement, "Expiration of Phase I". 44. Phase I Primary Term Extension. Customer shall have the 39 option of extending the primary term of this Agreement for Customer's Phase I generating equipment, given one hundred eighty (180) days written notice to Company. The extension term for Phase I shall be an eighteen (18) month period beginning October 1, 2004 and ending March 31, 2006, inclusive of the beginning and ending dates. Should Customer elect to extend the Phase I term, Company and Customer agree that the initial demand charges in this Agreement shall adjust upward by thirty (30) percent for four-ninths (4/9) of the contract quantities as ascribed to in Exhibit C of this Agreement, "Extension of Phase I Primary Term". 45. Phase II Term Extension. Customer shall have the option of extending the term of this Agreement for Customer's Phase II generating equipment, given one hundred eighty (180) days written notice to Company, providing such term extension is allowable within applicable law. The extension period for Phase II shall be a five (5) year term beginning April 1, 2006 and ending March 31, 2011, inclusive of the beginning and ending dates. Should Customer elect to extend the Phase II term, Company and Customer mutually agree that the "then-existing" demand charges, absent any Phase I primary term extension, in this Agreement, shall adjust upward by thirty (30) percent as ascribed to in Exhibit C of this Agreement, "Extension of Phase II". Company and Customer further agree that specific contract quantities in this Agreement shall adjust downward while specific demand rates in this Agreement shall adjust upward, dependant on Customer's decision to extend the Phase I primary term. Should Company and Customer agree to an extension of Phase II or an extension of Phase I and Phase II for the period of April 1, 2006 to March 31, 2011 and should Company incur incremental costs for any Global Point or Operational Balancing Agreements necessary to support such an term extension, Customer shall reimburse Company for any such reasonable incremental GPA/OBA costs. 46. Phase I and Phase II Term Extension. Customer shall have 40 the option of extending the term of this Agreement for Customer's Phase I and Phase II generating equipment, given one hundred eighty (180) days written notice to Company, providing such term extension is allowable within applicable law. The extension period for Phase I and Phase II shall be a five (5) year term beginning April 1, 2006 and ending March 31, 2011, inclusive of the beginning and ending dates. Should Customer elect to extend the Phase I and Phase II term, Company and Customer mutually agree that the initial demand charges in this Agreement shall adjust upward by thirty (30) percent as ascribed to in Exhibit C of this Agreement, "Extension of Phase I and Phase II". Company shall not be obligated to extend the Phase I term beyond the primary term extension of March 31, 2006 absent the Phase II term extension. Should Company and Customer agree to an extension of Phase I and Phase II for the period of April 1, 2006 to March 31, 2011 and should Company incur incremental costs for any Global Point or Operational Balancing Agreements necessary to support such an term extension, Customer shall reimburse Company for any such reasonable incremental GPA/OBA costs. 47. Flowing Gas Requirements. Should Company and Customer agree to the extension of this Agreement, either in whole or in part, for a term extending beyond March 31, 2006 as ascribed herein, Company shall have the right to require Customer, its authorized agent(s) or fuel manager(s), to nominate and deliver pipeline supplies each Gas Day in quantities equal in volumes to Customer's hourly gas requirements at the Generation Facilities should Customer's Generation Facilities be dispatched. Company will notify Customer prior to extension of the Agreement, if Company will exercise this right for service beyond March 31, 2006. 48. Rebate of Charges. Company agrees to a twenty-five (25) percent rebate of charges billed to Customer, excluding any Storage Inventory Overrun, Excess Storage, Delivery Variance, Requested Authorized Use, Unauthorized Use, Buy-Out-Amounts, incremental GPA/OBA charges and applicable 41 taxes, which exceed $5.75 million in a Contract Year. Company further agrees to a fifty (50) percent rebate of charges billed to Customer, excluding any Storage Inventory Overrun, Excess Storage, Delivery Variance, Requested Authorized Use, Unauthorized Use, Buy-Out-Amounts incremental GPA/OBA charges and applicable taxes, which exceed $6.75 million in a Contract Year. Company and Customer agree that the rebate threshold amounts, above which Company shall rebate such percentages as stated herein, shall adjust, in a prorate manner, for the applicable Phase I and Phase II contract term extensions as ascribed to in Exhibit C. 42 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate effective as of the date first written above. ELWOOD ENERGY LLC Northern Illinois Gas Company d/b/a Nicor Gas Company By: /s/ Tony Belcher ------------------------------------- Name: Tony Belcher By: /s/ Theodore Lenart Title: General Manager -------------------------------- Name: Theodore Lenart ----------------------------- Title: Asst. VP / Supply Ventures ---------------------------- ELWOOD ENERGY II, LLC By: /s/ Ronald D. Usher ------------------------------------- Name: Ronald D. Usher Title: General Manager ELWOOD ENERGY III, LLC By: /s/ Ronald D. Usher ------------------------------------- Name: Ronald D. Usher Title: General Manager 43 Exhibit A Peoples Gas Agreement 44 Exhibit B Communications Protocol ----------------------- Customer agrees that it shall notify Company of its estimated hourly and daily forecasted usage and its daily gas nominations. Subject to other mutually agreed upon circumstances or conditions, the communication protocol between Customer and Company shall be as follows: (a) Forecasted Usage. On or before 7:00 A.M. CCT on the Business Day prior to the beginning of each Gas Day, Customer, or its authorized agent, shall notify Company of Customer's forecasted burn for the next Gas Day expressed as hourly and daily forecasted use of gas. Such forecasted use by Customer shall be Customer's Forecast Burn for the next Gas Day(s). If Customer fails to submit a Forecast Burn, then the quantity shall be zero. Customer, or its authorized agent, may update this forecast but the 7:00 A.M. Forecast Burn shall be binding on Customer in determining Customer's Forecast Variance as ascribed to in Section 42 of this Agreement. Customer's 7:00 A.M. notification shall include Customer's requested range of gas deliverability for the Gas Day(s) both in aggregate and by individual pipeline for Transportation Service. Customer's 7:00 A.M. notification shall also include a confirmation or update of Customer's anticipated hourly and daily flow of gas for the Gas Day beginning at 9:00 A.M. CCT of that day. Notification to Company shall be by telephone (confirmed by facsimile or by e-mail) or by facsimile or e-mail, to Company's Gas Control Department. Customer shall send, by facsimile or e-mail, a confirmation of Customer's Forecast Burn to Company's Rate Administration Department as ascribed to in Section 33(a). Customer's Forecast Burn is not required to equal the most recent hourly and daily forecasted power run schedules ( Dispatch Schedule) but 45 differences in excess of the MFBQS or MFBQnS, as applicable, permit the Company to set reasonable limits on the MMDN. Customer's Dispatch Schedules, including updates and revised schedules, shall be non- binding on Customer. Updated Dispatch Schedules, and its associated natural gas consumption, shall be revised by Customer and provided to Company for any changes communicated to Customer throughout the Business Day. Communication of Customer's Forecast Burn and forecasted power dispatch schedules shall be provided to Company in a format agreeable to both parties and shall include the planned loading and unloading of Customer's nine (9) generating units. Excluding weekends and holidays, normal business hours for Company's Gas Control Department are Monday through Friday, 7:00 A.M. to 3:30 P.M. CCT. During normal business hours, Customer shall contact Company's Gas Control Department by phone at (630) 983-8676, extension 2222, by facsimile at (630) 983-0053, or by e-mail at gascont@nicor.com. Outside of normal business hours, Customer shall contact Company's Gas Control Department by phone at (800) 942-6011(24-hours), or by facsimile at (630) 983-0053 (24 hours). (b) Updated Dispatch Schedules and Forecasted Use Changes. In the event of a significant change in Customer's hourly and daily forecasted usage, Customer, shall use "reasonable-efforts" to give Company's Gas Control Department thirty (30) minutes notification, by telephone, and confirmed by facsimile or e-mail, of any planned revision to Customer's hourly and daily forecasted usage. A significant change will be defined as, but not limited to, any change which will result in a twenty percent (20%) variation in the hourly and/or daily forecasted usage, or other equivalent variation, such as the loading or unloading of an additional generating unit(s). Unanticipated changes in Customer's hourly and daily forecasted 46 usage and/or actual metered deliveries shall be communicated to Company as expeditiously as is reasonably possible. Notification of changes shall not alter the Forecast Burn as the basis for billing of the Forecast Variance Charge unless accompanied by an accepted and confirmed nomination change by Company. (c) Nomination and Receipt of Customer Gas. On or before 8:00 A.M. CCT on the Business Day prior to the beginning of each Gas Day, Company shall notify Customer of 1) Customer's (or its authorized agent's) minimum right to nominate and deliver to Company gas supplies from NBPL, APL, and NGPL individually and in total for the next Gas Day(s); and 2) the maximum obligation of Customer (or its authorized agent) to deliver gas supplies from the same pipelines for the next Gas Day(s). These parameters shall be set forth in the 8:00 A.M. notification of the daily MMDN by Company to Customer (or its authorized agent) and shall be determined using Customer's Forecast Burn, MFBQs, and Company's other firm service obligations. Company agrees to use "reasonable efforts" to permit Customer (or its authorized agent) the ability to nominate pipelines supplies in quantities sufficient to cover Customer's 1) Forecast Burn or 2) last forecasted power dispatch schedule prior to any nomination deadlines. Company and Customer anticipate that in most instances Customer shall be given a range-of-volume for nomination purposes with an "up-to" limitation; however, based on operational conditions and Company's obligations to other firm customers, Company reserves the right to request an absolute nomination volume by pipeline. Specifically, subject to daily gas operating conditions, Company shall have the right to set the MMDN; however, Company agrees that Customer's nomination(s) of pipeline supplies shall not be unreasonably denied or restricted by Company in order for Company to provide incremental interruptible storage 47 (injection) services. Company may set the MMDN at more than the Forecast Burn and shall have the right to require Customer, its authorized agent or fuel manager, to deliver (nominate) pipeline supplies sufficient to cover Customer's last power dispatch schedule if Customer's storage bank volume is less than fifteen-percent of capacity. In setting the daily MMDN, Company may also restrict or require Customer, as applicable, to nominate certain minimum or maximum quantities where the Customer's Forecast Burn and the latest Dispatch Schedule vary by more than the MFBQS or MFBQnS, as applicable. Customer's failure to deliver pipeline supplies within the defined daily parameters of the MMDN, as determined by Company, shall result in the applications of the Delivery Variance charge as ascribed to in Section 41 of this Agreement. Should Company's setting of the MMDN at more or less than Customer's (or its authorized agent's) requested gas deliverability for a Gas Day cause Customer to incur any Storage Inventory Overrun, Excess Storage and Unauthorized Use charges as per this Agreement, Company agrees to the waiver of such charges. Company shall have the ability to determine the timing of any Customer repayment of deficit storage volumes or the withdrawal of storage overruns and excess storage. (d) Nominations. Prior to each Gas Day and in accordance with the applicable interstate pipeline nomination protocols, Customer, or its authorized agent, shall submit notifications and subsequent nominations to Customer's pipeline suppliers for the corresponding Gas Day. Nominations to each pipeline shall be pursuant to an agreed upon procedure. Customer shall notify Company by 8:30 A.M. CCT of its reasonable estimate of the quantity of gas to be delivered by pipelines and in total, within the MMDN parameters for the next Gas Day. Customer shall advise Company at 9 A.M. of its daily nominations of pipeline 48 supplies to be electronically nominated at 11:30 A.M. for the next Gas Day(s). Nominations will be accepted by Company if received electronically by Company's Gas Transportation Department no later than 11:30 A.M. CCT on the business day prior to the Gas Day the nomination is to be effective. Customer's daily nominations, submitted by Customer or its authorized agent, will be accepted by Company if received via facsimile by Company's Gas Transportation Department no later than 8:00 A.M. CCT on the business day prior to the Gas Day the nomination is to be effective. Company agrees that to the extent, and only to the extent, that "late" or "intra-day" nomination services are available to similarly situated power plants, Customer shall have the right and ability to make "late" or "intra-day" nominations. Nominations, submitted by Customer and received by Company electronically, shall be made via Company's "GAS EXCHANGE" nomination system protocol or any replacement protocol provided by Company to Customer. Nominations, submitted by Customer and received by Company via facsimile, shall be made by faxing such nomination to Company's Gas Transportation Nomination Desk at (630) 983-8135. During normal business hours, Company's Gas Transportation Nomination Desk may be contacted by telephone at (630) 983-4040, Option 2. On or before 3:15 P.M. CCT, on the Business Day prior to the beginning of the Gas Day, Customer and Company shall review a daily summary of Customer's gas nominations and Company's corresponding pipeline confirmations for the following Gas Day or applicable weekend or holiday period. Customer's summary of gas nominations and Company's resulting confirmations shall detail the volume of gas supplies to be delivered on each interconnecting pipeline with Company. (e) Weekend Nomination Changes. For the Gas Day(s) of Saturday, Sunday, and Monday, Customer's nominations shall be made in 49 accordance with the aforementioned protocol. For the Gas Days of Sunday and Monday, Customer shall be permitted to change its daily nomination on applicable interstate pipelines, and such change will be accepted by Company, if submitted by Customer or its authorized agent and received by Company's Gas Control Department via facsimile no later than 11:30 A.M. CCT on the calendar day prior to the Gas Day the nomination is to be effective and providing such change is mutually agreeable between Company and Customer. During normal business hours, Company's Gas Control Department shall be contacted by telephone at (630) 983-8676, extension 2222, by facsimile at (630) 983-0053 or by e-mail at gascont@nicor.com. Outside of normal business hours, Company's Gas Control Department shall be contacted by telephone at (800) 942-6011 (24 hours) and confirmed by facsimile at (630) 983-0053 (24 hours). Following a nomination change made on the weekend for the Gas Days of Sunday or Monday, Customer or its authorized agent shall, on the first business day following the weekend, work with Company's Gas Transportation Department to account for such change. (f) Holiday Nominations and Changes. Should a holiday fall on a traditional business day, Customer or its authorized agent shall have the right to change its daily nomination for the subsequent Gas Day(s), providing such changes are made no later than 11:30 A.M. CCT on the calendar day prior to the Gas Day the nomination is to be effective and within the protocols described in items (d) and (e) of Exhibit B. (g) Critical Day Notification. The declaration of Critical Day shall be by telephone, facsimile or email notification to Customer by Company and 50 may be verified by telephoning Company's Gas Transportation Department at (630) 983-4040, Option 3. The declaration of a Critical Day by Peoples Gas with respect to gas stored in Peoples Gas' facilities in connection with this Agreement may be verified by telephoning Peoples Gas at (312) 240-4828. Company shall notify Customer, on or before 8:00 A.M. CCT on the calendar day prior to the Gas Day, of Company's invocation of a Critical Day and/or curtailment of Customer's access to gas withdrawals from storage. Under such curtailment, Company agrees to reasonably cooperate with Customer to allow Customer the ability arrange Transportation Service to ensure the firm delivery of the MHQ provided for under this Agreement. 51 Exhibit C Contract Term Reduction And Extension Contract Quantities --------------------------------------------------------- Unless specifically modified in Exhibit C of this Agreement, all applicable charges and contract quantities in this Agreement shall remain unchanged. Expiration of Phase I, effective October 1, 2004 Summer Month MDCQ 1,342,250 therms Non-Summer Month MDCQ 1,580,000 therms Summer Month MHCQ 84,000 therms Non-Summer Month MHCQ 98,750 therms Summer Month Demand Charge $0.0567/therm $ 76,106 (1,342,250 therms x $0.0567/therm) Summer Month Bal. Res. Charge $0.4220/therm $425,376 (84,000 therms x 12 hrs. x $0.422/therm) Summer Month Upstream Res. Chrg. $0.0929/therm $124,695 (1,342,250 therms x $0.0929/therm) Balancing Storage Capacity 4,032,000 therms (84,000 therms x 12 hrs. x 4 Days) Storage Inventory Overrun Quantities >4,032,000, <=5,291,700 therms Excess Storage Quantities >5,291,700 therms Forecast Variance Quantities Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=672,000 therms $0.005/therm >672,000 and <=1,008,000 therms $0.010/therm >1,008,000 and <=1,342,250 therms $0.048/therm >1,342,250 therms Negotiable (Interruptible) Non-Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=263,300 therms $0.005/therm >263,300 and <=493,750 therms $0.055/therm >493,750 and <=655,550 therms $0.055/therm (Interruptible) >655,550 therms Negotiable (Interruptible) Balancing Overrun Summer Months >1,342,250 and <= 1,680,000 therms $0.100/therm (Interruptible) >1,680,000 therms Negotiable (Interruptible) 52 Non-Summer Months >493,750 and <=655,550 therms $0.055/therm (Interruptible) >655,550 and <=819,440 therms (Inj) $0.100/therm (Interruptible) >655,550 therms (Withdrawal) Negotiable (Interruptible) Minimum Bill Summer Months $626,177 Minimum Annual Bill $2,862,000 (Oct. '04 - Sept. '05) (600,000/4,950,000*3,256,930)-3,256,930 Rebate of Charges 25% Rebate Exceeding $3,701,000 (800,000*5/9+3,256,930) (Oct. '04 - Sept. '05) 50% Rebate Exceeding $4,257,000 (1,800,000*5/9+3,256,930) Extension of Phase I Primary Term, effective October 1, 2004 - March 31, 2006 Summer Month MDCQ 2,416,000 therms Non-Summer Month MDCQ 2,844,000 therms Summer Month MHCQ 151,000 therms Non-Summer Month MHCQ 177,750 therms Summer Month Demand Charge $0.0510/therm $123,216 (2,416,000 therms x $0.0510/therm) Summer Month Bal. Res. Charge $0.3800/therm $688,560 (151,000 therms x 12 hrs. x $0.3800/therm) Summer Month Upstream Res. Chrg. $0.0835/therm $201,736 (2,416,000 therms x $0.0835/therm) Balancing Storage Capacity 7,250,000 therms (151,000 therms x 12 hrs. x 4 Days) Storage Inventory Overrun Quantities >7,250,000, <=9,515,000 therms Excess Storage Quantities >9,515,000 therms Forecast Variance Quantities Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=1,208,000 therms $0.005/therm >1,208,000 and <=1,812,000 therms $0.010/therm >1,812,000 and <=2,416,000 therms $0.048/therm >2,416,000 therms Negotiable (Interruptible) Non-Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=474,000 therms $0.005/therm >474,000 and <=888,750 therms $0.055/therm 53 >888,750 and <=1,180,000 therms $0.055/therm (Interruptible) >1,180,000 therms Negotiable (Interruptible) Minimum Bill Summer Months $1,013,512 Minimum Annual Bill $4,829,000 (Oct. '04 - Sept. '05) (1,013,512-893,799)*4+4,350,000 Rebate of Charges 25% Rebate Exceeding $6,229,000 (1,013,512-893,799)*4+4,950,000+800,000 (Oct. '04 - Sept. '05) 50% Rebate Exceeding $7,229,000 (1,013,512-893,799)*4+4,950,000+1,800,000 Extension of Phase II, effective April 1, 2006 - March 31, 2011 Summer Month MDCQ 1,342,250 therms Non-Summer Month MDCQ 1,580,000 therms Summer Month MHCQ 84,000 therms Non-Summer Month MHCQ 98,750 therms Summer Month Demand Charge $0.0737/therm $98,924 (1,342,250 therms x $0.0737/therm) Summer Month Bal. Res. Charge $0.5490/therm $553,392 (84,000 therms x 12 hrs. x $0.5490/therm) Summer Month Upstream Res. Chrg. $0.1207/therm $162,010 (241,600*.737*.7*1.3) (1,342,250 therms x $0.1207/therm) Balancing Storage Capacity 4,032,000 therms (84,000 therms x 12 hrs. x 4 Days) Storage Inventory Overrun Quantities >4,032,000, <=5,291,700 therms Excess Storage Quantities >5,291,700 therms Forecast Variance Quantities Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=672,000 therms $0.005/therm >672,000 and <=1,008,000 therms $0.010/therm >1,008,000 and <=1,344,000 therms $0.048/therm >1,344,000 therms Negotiable (Interruptible) Non-Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=263,300 therms $0.005/therm 54 >263,300 and <=493,750 therms $0.055/therm >493,750 and <=655,550 therms $0.055/therm (Interruptible) >655,550 therms Negotiable (Interruptible) Balancing Overrun Summer Months >1,342,250 and <= 1,680,000 therms $0.100/therm (Interruptible) >1,680,000 therms Negotiable (Interruptinle) Non-Summer Months >493,750 and <=655,550 therms $0.055/therm (Interruptible) >655,550 and <=819,440 therms (Inj) $0.100/therm (Interruptible) >655,550 therms (Withdrawal) Negotiable (Interruptible) Minimum Bill Summer Months $814,326 Minimum Annual Bill $3,615,000 (814,326-626,177)*4+2,862,000 (April '06 - March '11) Rebate of Charges 25% Rebate Exceeding $4,454,000 (800,000*5/9+4,009,526) (April '06 - March '11) 50% Rebate Exceeding $5,010,000 (1,800,000*5/9+4,009,526 Extension of Phase I and Phase II, effective April 1, 2006 - March 31, 2011 Summer Month MDCQ 2,416,000 therms Non-Summer Month MDCQ 2,844,000 therms Summer Month MHCQ 151,000 therms Non-Summer Month MHCQ 177,750 therms Summer Month Demand Charge $0.0585/therm $141,336 (2,416,000 therms x $0.0585/therm) Summer Month Bal. Res. Charge $0.4360/therm $790,032 (151,000 therms x 12 hrs. x $0.4360/therm) Summer Month Upstream Res. Chrg. $0.0958/therm $231,453 (2,416,000 therms x $0.0958/therm) Balancing Storage Capacity 7,250,000 therms (151,000 therms x 12 hrs. x 4 Days) Storage Inventory Overrun Quantities >7,250,000, <=9,515,000 therms Excess Storage Quantities >9,515,000 therms Forecast Variance Quantities 55 Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=1,280,000 therms $0.005/therm >1,280,000 and <=1,812,000 therms $0.010/therm >1,812,000 and <=2,416,000 therms $0.048/therm >2,416,000 therms Negotiable (Interruptible) Non-Summer Months >of +/- 20% or 200,000 therms $0.000/therm >above and <=474,000 therms $0.005/therm >474,000 and <=888,750 therms $0.055/therm >888,750 and <= 1,180,000 therms $0.055/therm (Interruptible) >1,180,000 therms Negotiable (Interruptible) Minimum Bill Summer Months $1,162,821 Minimum Annual Bill $5,426,000 (1,162,821-893,799)*4+4,350,000 (April `06 - March `11) Rebate of Charges 25% Rebate Exceeding $6,436,000 (5,635,654+800,000) (April '06 - March '11) 50% Rebate Exceeding $7,436,000 (5,635,654+1,800,000) 56 EX-10.8 24 dex108.txt LETTER AGREEMENT Exhibit 10.8 October 31, 2001 Mr. Robert F. Harrington Commercial Manager, Elwood Energy Peoples Energy Corporation 150 North Michigan Avenue, Suite 3900 Chicago, Illinois 60601 RE: Letter Agreement Modifying Elwood Energy LLC's Gas Transportation and Balancing Agreement Dear Mr. Harrington: This Letter Agreement modifies several provisions within the Gas Transportation and Balancing Agreement ("Agreement") and related Exhibits, dated May 1, 2001, between Northern Illinois Gas Company d/b/a Nicor Gas Company ("Company") and Elwood Energy LLC, Elwood Energy II, LLC and Elwood Energy III, LLC (referred collectively as "Elwood Energy" or "Customer"). Capitalized terms used but not defined herein shall have the meaning ascribed such terms in the Agreement. 1. Forecast Burn Communication For the Non-Summer Months only, Customer, or its authorized agent, shall be allowed to notify Company of a change to Customer's 7:00 A.M. Forecast Burn and Company shall accept such change provided that; A. Customer has fulfilled its initial obligation to notify Company, on or before 7:00 A.M. CCT on the Business Day prior to the beginning of each Gas Day, of Customer's Forecast Burn for the following Gas Day(s) expressed as its hourly and daily forecasted use of gas. B. Customer, or its authorized agent, communicates such change in hourly and daily Forecast Burn to Company on or before 9:15 A.M. CCT on the Business Day prior to the beginning of each Gas Day. C. Customer's communicated change to the 7:00 A.M. hourly and daily Forecast Burn shall be limited solely to changes in Customer's forecasted burn for Customer's combustion turbine units 5, 6, 7 and 8. D. Customer's communicated change to the 7:00 A.M. Forecast Burn shall be limited solely to upward adjustments from Customer's initial forecast for units 5, 6, 7 and 8. E. Customer's communicated change to the 7:00 A.M. Forecast Burn shall not exceed, in representative gas quantities, the increase in electrical dispatch by Customer for units 5, 6, 7 and 8 at 9:00 A.M. CCT versus the electrical dispatch at 7:00 A.M. CCT. F. Customer's communicated change to the 7:00 A.M. Forecast Burn shall not exceed 1,264,000 therms per day or 79,000 therms per hour above the original 7:00 A.M. Forecast Burn. Mr. Robert F. Harrington Page 2 G. Any change to the 7:00 A.M. Forecast Burn, communicated by Customer or its authorized agent to Company in accordance with the above shall be binding on Customer in determining any applicable Forecast Variance charge. 2. Minimum Maximum Daily Nomination A. For the Non-Summer Months only, in conjunction with a properly communicated and Company accepted change to Customer's 7:00 A.M. Forecast Burn, Customer, or its authorized agent, may notify Company of any corresponding and desired change in Customer's requested range of gas deliverability for the Gas Day(s), both in aggregate and by individual pipeline, provided such requested change in gas deliverability is received by Company on or before 9:15 A.M. CCT on the Business Day prior to the Gas Day. B. In the event there is a properly communicated and Company accepted change to Customer's 7:00 A.M. Forecast Burn by Company, Company shall have the ability to redetermine Customer's Minimum Maximum Daily Nomination (MMDN), as determined by Company and communicated to Customer, on or before 8:00 A.M. CCT. Any such corresponding redetermination in MMDN quantities by Company shall be communicated to Customer on or before 9:45 A.M. CCT on the Business Day prior to the Gas Day(s). C. Company's ability to redetermine Customer's 8:00 A.M. MMDN quantities shall only exist when there is a properly communicated and Company accepted change to Customer's 7:00 A.M. Forecast Burn. Revisions to MMDN quantities by Company may only be in an upward direction. D. Company's right to redetermine Customer's 8:00 A.M. MMDN quantities shall not exceed the applicable and corresponding changes in hourly and daily Forecast Burn as submitted by Customer in a properly communicated and Company accepted change to Customer's 7:00 A.M. Forecast Burn. Customer agrees to abide by any such changes in MMDN quantities invoked by Company. 3. Nominations A. For the Non-Summer Months only, in conjunction with a properly communicated change to Customer's 7:00 A.M. Forecast Burn, Customer, or its authorized agent, shall notify Company by 10:30 A.M. CCT of the quantity of gas to be delivered by individual pipelines and in total and electronically nominated to Company on or before 11:30 A.M. CCT, within any revised MMDN quantities, if applicable, for the next Gas Day(s). B. Nominations by Customer, or its authorized agent, will be accepted by Company if received electronically by Company no later than 11:30 A.M. CCT on the Business Day prior to the Gas Day. C. For the Gas Days of Sunday and Monday and where in conjunction with a properly communicated and Company accepted change to Customer's 7:00 A.M. Forecast Burn and any subsequent revision to Customer's MMDN quantities, Customer shall be permitted to change its daily nomination on applicable interstate pipelines, and such nomination changes will be accepted by Company, if submitted by Customer or its authorized agent, and communicated to Company's Gas Control via facsimile no later than 11:30 A.M. CCT on the calendar day prior to the Gas Mr. Robert F. Harrington Page 3 Day, provided that such nomination change is mutually agreeable between Company and Customer. 4. Term A. This Letter Agreement shall be effective for an eight (8) month term beginning on October 1, 2001 and ending May 31, 2002 (Non-Summer Months), inclusive of the beginning and ending dates. This Letter Agreement may be extended for an additional Non-Summer Month period(s) by mutual agreement between Company and Customer. B. Unless otherwise agreed upon, the terms of this Letter Agreement shall not be applicable on Critical Days declared by Company or Peoples Gas Light and Coke Company or on Gas Days when the Company forecasts Effective Degree Days to be greater than or equal to sixty (60) Effective Degree Days. This Letter Agreement shall be considered as an Amendment to the Gas Transportation and Balancing Agreement and related Exhibits, dated May 1, 2001, between Company and Customer, and in full compliance with Section 36, as set forth in the Agreement. In the event of any conflict between this Letter Agreement and the Agreement or any Exhibits to the Agreement including the Communications Protocol, this Letter Agreement shall apply. Unless detailed above, no other provisions of the Agreement shall be considered modified. If the above is acceptable to you, please indicate by executing the Letter Agreement in the space provided below. Sincerely, /s/ Theodore J. Lenart Theodore J. Lenart Assistant Vice President, Supply Ventures Agreed to and Accepted by: By: /s/ Tony Belcher ------------------------- Print: Tony Belcher ------------------------- Title: General Manager ------------------------- Date: 12-11-01 ------------------------- EX-10.9 25 dex109.txt RESTATED OPERATION AND MAINTENANCE AGREEMENT Exhibit 10.9 ELWOOD GENERATION FACILITY AMENDED AND RESTATED OPERATION AND MAINTENANCE AGREEMENT This AMENDED AND RESTATED OPERATION AND MAINTENANCE AGREEMENT (the "Agreement") is made and entered into as of October 1, 2001 by and between ELWOOD ENERGY LLC, a Delaware limited liability company ("Owner"), and DOMINION ELWOOD SERVICES COMPANY, INC., a Virginia corporation ("Operator"). RECITALS WHEREAS, Owner and Operator entered into an Operation and Maintenance Agreement, dated as of June 18, 1999 (the "Original Agreement"), whereby Owner retained the Services (as defined herein) of Operator for the operation and maintenance of Units 1 through 4 of the Facility (as defined herein), and Operator agreed to perform the Services upon the terms and conditions set forth in the Original Agreement; WHEREAS, Operator entered into additional Operation and Maintenance Agreements with Elwood Energy II, LLC and Elwood Energy III, LLC, each dated March 23, 2001 (the "Merged Agreements"), governing the operation and maintenance of Units 5 and 6 and Units 7 through 9 of the Facility, respectively; WHEREAS, Elwood II and Elwood III have since merged with and into Owner, making Owner the owner of Units 5 through 9 of the Facility and a party to the Merged Agreements; and WHEREAS, Owner and Operator desire to restate the Original Agreement in its entirety as set forth herein, and to enter into this Agreement for the purpose of governing the operation and maintenance of all of Units 1 through 9 of the Facility by Operator from and after the Effective Date (as defined herein). NOW THEREFORE, in consideration of the mutual covenants, undertakings and conditions set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to amend, restate, and replace in its entirety the Original Agreement, as follows: ARTICLE 1 AGREEMENT Section 1.1 AGREEMENT. This Agreement consists of the general terms and ---------- conditions set forth herein, as well as the following appendices hereto, which are incorporated herein and made part hereof: 1 Appendix A - Scope of Services Appendix B - Compensation Appendix C - Communication Protocols If the terms and conditions of Articles 1 through 15 of this Agreement conflict, vary or are inconsistent with any portion of Appendices A, B or C hereto, the terms of Articles 1 through 15 of this Agreement shall control and be given priority, and all items in such Appendices shall be subject to the terms of Articles 1 through 15 hereof. This Agreement (including the Appendices) contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior negotiations, undertakings and agreements, whether oral or written, between the parties with respect to the subject matter hereof. Neither party will be bound by nor deemed to have made any representations, warranties, commitments or undertakings with respect to the subject matter hereof, except those contained herein. Section 1.2 RELATIONSHIP OF THE PARTIES. Operator has been retained by ---------------------------- Owner as an independent contractor to operate, maintain and manage the Facility on behalf of Owner in accordance with the Project Agreements. Owner has delegated to Operator overall responsibility for operating, maintaining and managing the Facility to ensure that the Facility is available to produce electric energy for sale by Owner and meets all requirements under the Project Agreements. Neither Operator nor any of its employees, subcontractors or agents shall be deemed to be an employee, partner, joint venturer or holder of any position as agent of Owner, except to the extent that this Agreement expressly grants Operator the authority to act on behalf of Owner. To the extent necessary to fulfill the requirements of 18 C.F.R. (S)365.3(a)(1)(iii), Operator shall be considered Owner's agent. Section 1.3 REPRESENTATIVES. Each of Owner and Operator shall designate a ---------------- primary representative and secondary representative (each, a "Designated Representative") to act on its behalf in overseeing the performance of this Agreement. Owner and Operator may change their respective Designated Representatives upon written notice to the other party. Designated Representatives shall be the primary means for communication and all other interactions between Owner and Operator that are required under the terms and conditions of this Agreement. The secondary Designated Representative shall act in the absence of the primary Designated Representative. Designated Representatives shall have the power and authority to bind their respective principals under the terms of this Agreement, with any required internal corporate approvals with respect to such authority being the responsibility of each representative to obtain from his or her principal. ARTICLE 2 DEFINITIONS Section 2.1 Definitions. Unless otherwise required by the context in ------------ which any defined term appears, the following defined terms shall have the meanings specified in this Article 2. 2 "Administrative Procedures Manual" has the meaning set forth in Section -------------------------------- 5.1. "Affiliate" means, when used with respect to any Person, any Person or --------- entity controlling, controlled by or under common control with such Person. For the purposes of this definition, the term "controlling" (and, with correlative meanings, the terms "controlled by" and "under common control with") shall mean the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or agency or otherwise. "Agreement" means this Amended and Restated Operation and Maintenance --------- Agreement, including the Appendices hereto, as the same may be amended or supplemented by the parties from time to time. "Annual Budget" has the meaning set forth in Section 5.2(a). ------------- "Annual Facility Operating Plan" has the meaning set forth in Section 5.2. ------------------------------ "Annual Operating Fee" means an annual operating fee paid to Operator -------------------- during each Contract Year as set forth in Section 7.3. "Arbitration Notice" has the meaning set forth in Section 14.1. ------------------ "Bankruptcy" means a situation in which (i) a party 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 party or of all or any substantial part of its properties (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 thirty (30) 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 any party 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 local statute or law relating to bankruptcy, insolvency, or other relief for debtors, and such party shall acquiesce and such decree shall remain unvacated and unstayed for an aggregate of sixty (60) days (whether or not consecutive) from the date of entry thereof, or a trustee, receiver, conservator or liquidator of such party shall be appointed with the consent or acquiescence of such party and such appointment shall remain unvacated and unstayed for an aggregate of sixty (60) days whether or not consecutive; (iii) a party shall admit in writing its inability to pay its debts as they mature; (iv) a party shall give notice to any Person of insolvency or pending insolvency, or suspension or pending suspension of operations; or (v) a party shall make an assignment for the benefit of creditors or take any other similar action for the protection or benefit of creditors. 3 "Base Index" means the GDP-IPD published for the calendar quarter ---------- immediately prior to the Effective Date. "Business Day" means any day other than a Saturday, Sunday or other day on ------------ which commercial banks are authorized or required to close in Illinois. "ComEd" means Commonwealth Edison Company, an Illinois corporation. ----- "Common Facilities Agreement" means that certain Common Facilities --------------------------- Agreement dated April 16, 1999 between Peoples Energy Resources Corp., as assignee of The Peoples Gas Light and Coke Company, and Elwood Energy LLC, as the same may be amended, modified and supplemented from time to time. "Contract Year" means: (i) for the first Contract Year, that period from ------------- the Effective Date to and including December 31 of such year; and (ii) for each Contract Year thereafter, the calendar year. "Dispute" has the meaning set forth in Section 14.1. ------- "Easements" means any easements, licenses or other agreements for the use --------- of real property granted to or by Owner for the benefit of any real property connected or related to the Facility. "Effective Date" means the date of this Agreement as set forth in the first -------------- paragraph of this Agreement. "Elwood LLC Operating Agreement" means the Amended and Restated Operating ------------------------------ Agreement of Elwood Energy LLC, dated as of August 3, 2001, between Peoples Elwood LLC, Dominion Elwood, Inc. and any Persons subsequently admitted as members in accordance with the terms thereof. "Environmental Claim" means any and all suits, sanctions, liabilities, ------------------- legal proceedings, claims, demands, losses, costs and expenses of whatever kind or character, including, without limitation, attorneys' fees, civil fines or penalties or other expenses incurred, assessed or sustained by or against Owner or Operator as a result of or in connection with environmental matters pursuant to Section 10.2 hereof. "Environmental Law" means any and all federal, state and municipal permits, ----------------- codes, ordinances, laws, rules and regulations and judgments, decrees, injunctions, writs or orders of any court, arbitrator, governmental agency or authority relating to actual or potential effect on human health, safety or the environment of the activities in, at or around the Facility contemplated by this Agreement, including, but not limited to, (i) emission, discharges, spills, releases or threatened releases of pollutants, contaminants, Hazardous Materials, or hazardous or toxic materials or wastes onto land or into ambient air, surface water, ground water, wetlands or septic systems; (ii) the use, treatment, storage, disposal, handling or containment of Hazardous 4 Materials or hazardous and/or toxic wastes, material products or by-products (or of equipment or apparatus containing Hazardous Materials); or (iii) pollution. "EPC Contracts" means each of (i) the Agreement for Engineering, ------------- Procurement, Construction & Installation Services for the Facility, dated as of July 23, 1998, between General Electric Company and Owner; (ii) the Agreement for Engineering, Procurement, Construction & Installation Services for the Elwood Generation Facility Phase II Units 3 & 4, dated as of September 25, 1998, between General Electric Company and Owner; (iii) the Agreement for Engineering, Design, Procurement, Construction & Installation Services for the Facility Units 5 & 6, dated as of July 31, 2000 between General Electric Company and Owner; (iv) the Agreement for Engineering, Design, Procurement, Construction & Installation Services for the Facility Units 7 & 8, dated as of July 31, 2000 between General Electric Company and Owner; (v) the Agreement for Engineering, Design, Procurement, Construction & Installation Services for the Facility Unit 9, dated as of September 20, 2000 between General Electric Company and Owner; and (vi) any other agreement entered into by Owner or its Affiliates for engineering, design, procurement, construction or installation of power generating facilities and related assets located at or near the Facility. "Facility" means the nominally 1350 megawatt ("MW") simple cycle peaking -------- power generating facility and related assets, together with up to 2500 MW of additional combined cycle and simple cycle power generating facilities and related assets, to be constructed on certain real property in Elwood, Illinois. "Financing Document" means any of the agreements, instruments or other ------------------ documents between Owner and Lender(s) pursuant to which financing or refinancing will be provided for the Facility. "First Party" has the meaning set forth in Section 14.2. ----------- "Five Year Budget" has the meaning set forth in Section 5.2(d). ---------------- "Force Majeure Event" means an event, condition or circumstance beyond the ------------------- reasonable control of, and not due to the fault or negligence of, the party affected, and which could not have been avoided by due diligence and use of reasonable efforts, which prevents the performance by such affected party of its obligations hereunder; provided, that a "Force Majeure Event" shall not be -------- deemed to have occurred or to be continuing unless: (i) the affected party shall give the other party written notice describing the particulars of each event as soon as is reasonably practicable, (ii) the suspension of performance is of no greater scope and of no longer duration than is reasonably required by such event, (iii) no obligations of the affected party which arose before such event are excused as a result of such event, and (iv) the affected party uses all reasonable efforts to prevent, overcome and/or mitigate the effects of such event. Subject to the foregoing, "Force Majeure Event" shall include, as to Operator, a shortage of fuel of appropriate quality or quantity (despite operation by Operator in conformance with the Fuel Supply Agreements), and as to either party, explosion and fire (in either case to the extent not attributable to the negligence of the affected party), flood, earthquake, storm or other natural calamity or act of God, strike or 5 other labor dispute, war, insurrection or riot, actions or failures to act by governmental entities or officials, failure to obtain governmental permits or approvals (despite timely application therefor and due diligence) and changes in laws, rules, regulations, orders or ordinances affecting operation of the Facility not pending on the Effective Date hereof. "Fuel Supply Agreements" means any and all agreements entered into by Owner ---------------------- for the balancing, delivery, management and supply of fuel for the Facility, including, without limitation, that certain Gas Transportation and Balancing Agreement, dated as of May 1, 2001, between Owner and Northern Illinois Gas Company d/b/a Nicor Gas Company, and that certain Fuel Supply and Management Agreement, dated as of May 1, 2001 between Owner and Cinergy Marketing & Trading, LLC. "GDP-IPD" means the final Gross Domestic Product Implicit Price Deflator ------- Index published for each quarter by the United States Department of Commerce, or, if such index is discontinued, such other comparable replacement index as the parties designate. "Hazardous Material(s)" means any and all "hazardous substances," --------------------- "hazardous wastes," "hazardous materials," "toxic substances," "waste," "pollutant" or "contaminant" as any such terms may be defined in any Environmental Law, or the regulations promulgated thereunder, or case law interpreting the same, or any other pollutant, material or substance that is regulated under any Environmental Law or that may be the subject of liability for costs of response or remediation under any Environmental Law. "Interconnection Agreements" means the three Interconnection Agreements, -------------------------- dated as of April 23, 1999, January 4, 2001 and January 4, 2001, respectively, between ComEd and Owner, as the same may be amended, supplemented or modified from time to time. "Laws" means (i) all applicable federal, state and local laws, treaties, ---- ordinances, codes, rules and regulations, judgments, decrees, injunctions, writs and orders or directives of any court, arbitrator or governmental agency or authority, (ii) all Environmental Laws, and (iii) all permits, licenses, governmental standards, approved plans, agreements, filings, authorizations, approvals, easements or rights of way required by or entered into with any federal, state or local governmental department, commission, board, bureau, agency or other governmental authority, which are applicable to the Facility or its operations, including those pertaining to employment, health and safety. "Lender(s)" means (i) any Person that, from time to time, has made loans to --------- Owner, its successors or permitted assigns for the financing or refinancing of the Facility or any part thereof or which are secured by the Facility or any part thereof, (ii) the holder(s) of indebtedness evidencing any such loans, (iii) any Person acting on behalf of such holders to which any holders' rights under any Financing Documents have been transferred, any trustee on behalf of any such holders, or (iv) any Person who purchases the Facility in connection with a sale-leaseback or other lease arrangement in which Owner is the lessee of the Facility pursuant to a net lease. "Notices" has the meaning set forth in Section 15.8. ------- 6 "Operating Manuals" means the operating data, design drawings, ----------------- specifications, vendors' manuals, warranty requirements, procedures (including those for maintenance of the Facility and environmental and safety compliance), and similar materials with respect to the Facility. "Operator" means Dominion Elwood Services Company, Inc., a Virginia -------- corporation. "Operator Indemnified Party" has the meaning set forth in Section 10.1(b). -------------------------- "Owner" means Elwood Energy LLC, a Delaware limited liability company. ----- "Owner Indemnified Party" has the meaning set forth in Section 10.1(a). ----------------------- "Owner's Customer" means any purchaser of the capacity associated with ---------------- and/or electric energy generated from the Facility, including, without limitation, purchasers under any Power Sales Agreement. "Person" means any individual, partnership, corporation, limited liability ------ company, association, business, trust, government or political subdivision thereof, governmental agency or other entity. "Power Sales Agreement" means any agreement pursuant to which Owner agrees --------------------- to provide electric energy and/or capacity to a third party and the third party agrees to purchase such electric energy and/or capacity from Owner. "Premises Agreement" means (i) that certain Ground Lease, dated as of ------------------ September 30, 1998 (the "Ground Lease"), between The Peoples Gas Light and Coke Company and Owner, as the same may be amended, supplemented or modified from time to time, pursuant to which Owner leases a portion of the Facility site and (ii) upon execution thereof, the Purchase and Sale Agreement, as referred to in Article 17 of the Ground Lease. "Project Agreements" means the material agreements relating to the ------------------ Facility, including any Power Sales Agreement, any Fuel Supply Agreement, any EPC Contract, any Interconnection Agreement, the Common Facilities Agreement, any Premises Agreement, the Easements, the Elwood LLC Operating Agreement, the Financing Documents, this Agreement and all other permits and licenses required for the operation, maintenance and management of the Facility. "Provisional Acceptance Date" means either July 18, 1999 for Units 1 --------------------------- through 4 of the Facility, May 9, 2001 for Units 5 and 6 of the Facility or May 7, 2001 for Units 7 through 9 of the Facility, as applicable. "Prudent Utility Practice" means any of the practices, methods, and acts ------------------------ required or approved by the System Operator or engaged in or approved by a significant portion of the electric utility industry in the geographic region covered by the Mid-America Interconnected Network during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known or that reasonably should have been 7 known at the time a decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Prudent Utility Practice is not intended to be limited to the optimum practice, method, or act, to the exclusion of all others, but rather is a spectrum of possible practices, methods or acts generally accepted in the geographic region covered by the Mid-America Interconnected Network. "Reference Index" means, for any Contract Year, the GDP-IPD published for --------------- the calendar quarter immediately prior to the first day of such Contract Year. "Reference Rate" means the rate published in the Money Rates table of The -------------- --- Wall Street Journal, from time to time, as the "prime rate", plus 1%. - ------------------- "Reimbursable Costs" has the meaning set forth in Section 7.2. ------------------- "Renewal Date" has the meaning set forth in Section 8.1. ------------ "Second Party" has the meaning set forth in Section 14.2. ------------ "Section" means a section or paragraph of this Agreement, unless ------- specifically stated otherwise. "Services" has the meaning set forth in Article 3.1. -------- "System Operator" means any Person that is responsible as system operator --------------- for the transmission system to which the Facility is connected. ARTICLE 3 SERVICES Section 3.1 SCOPE OF SERVICES. Operator shall operate, maintain and ------------------ manage the Facility and, in connection therewith, shall perform the duties set forth herein (including, without limitation, the duties set forth in Sections 4.2 and 15.16) and in Appendix A (collectively, the "Services"). The Parties may amend, modify or expand the scope of the Services at any time (including, without limitation, if the Facility is converted to or incorporates combined cycle operations) upon the written consent of the Parties to such amendment, modification or expansion of the Services. From and after the Effective Date, Operator shall have primary responsibility and control in connection with performance of the Services. Section 3.2 STANDARDS FOR PERFORMANCE OF THE SERVICES. Operator shall ------------------------------------------ perform the Services required under this Agreement, including those set forth in Appendix A, in a prudent, reasonable, and efficient manner and in accordance with (i) Operating Manuals, the Administrative Procedures Manual and applicable vendor warranties, (ii) the applicable Annual Facility Operating Plan and Annual Budget, (iii) all applicable Laws, (iv) Prudent Utility Practices, (v) the Project Agreements, (vi) the requirements of any System Operator, and (vii) all insurance policies specified in Article 9 of this Agreement. Operator shall use all reasonable 8 efforts to optimize the useful life of the Facility and to minimize Reimbursable Costs and Facility outages or other unavailability. Section 3.3 OPERATOR'S PERSONNEL STANDARDS. Operator shall provide and ------------------------------- make available as reasonably necessary all labor and professional, supervisory and managerial personnel as are required to perform the Services. Such personnel shall be qualified to perform the duties to which they are assigned and shall meet the requirements for Facility personnel under the Project Agreements. All individuals employed by Operator to perform the Services shall be employees of Operator, and their working hours, rates of compensation and all other matters relating to their employment shall be determined solely by Operator (subject to Owner's approval rights with respect to the Annual Budget), and Operator shall retain sole responsibility with respect to labor matters in connection with performance of the Services. With respect to hiring personnel and employment policies, Operator shall comply with all applicable Laws and shall exercise control over labor relations in a reasonable manner consistent with the intent and purpose of this Agreement. Notwithstanding the foregoing, Operator acknowledges and agrees that without Owner's approval, Operator has no authority to enter into any contracts with respect to labor matters that purport to bind or otherwise obligate Owner. Section 3.4 COMPLIANCE. Operator shall comply with all Laws applicable to ----------- the operation, maintenance and management of the Facility and the performance of the Services. Operator shall apply for and obtain, and Owner shall assist Operator in applying for and obtaining, all necessary permits, licenses and approvals (and renewals of the same) required to allow Operator to do business or perform the Services in the jurisdictions where the Services are to be performed. Operator shall provide reasonably necessary assistance to Owner to secure all permits, licenses and approvals (and renewals of the same), which Owner is required to obtain from or file with any governmental agency regarding the Facility including those relating to water and sewer use, chemical and other waste (including Hazardous Materials) storage, disposal, testing and safety and to file such reports, notices, and other communications. Section 3.5 OPERATING RECORDS AND REPORTS. Operator shall maintain at the ------------------------------ Facility operating logs, records and reports documenting the operation and maintenance of the Facility, all in form and substance sufficient to meet Owner's reporting requirements under the Project Agreements, and shall maintain current revisions of drawings, specifications, lists, clarifications and other materials related to operation and maintenance of the Facility provided to Operator by Owner and vendors. Operator shall provide Owner reasonably necessary assistance in connection with Owner's compliance with reporting requirements under the Project Agreements, applicable Laws or any other agreement to which Owner is a party relating to the Facility. Such assistance shall include providing reports, records, logs and other information which Owner may reasonably request as to the Facility or its operation. Section 3.6 NO LIENS OR ENCUMBRANCES. Operator shall keep and maintain ------------------------- the Facility free and clear of all liens and encumbrances resulting from any action of Operator or work done at the request of Operator, except for such liens or encumbrances resulting directly from nonpayment of any amounts due and owing to Operator from Owner under this Agreement. 9 Section 3.7 NO ACTION. Except where such action is expressly permitted by ---------- this Agreement, Operator shall not take any action that would cause a default under any Project Agreement. Section 3.8 EMERGENCY ACTION. If an emergency affecting the safety or ----------------- protection of natural Persons or endangering the Facility or property located at or near the Facility occurs, Operator shall promptly notify Owner and take all necessary action to attempt to prevent or mitigate any such threatened damage, injury or loss, provided, however, that Operator shall make reasonable efforts to minimize any cost associated with such remedial action. Section 3.9 ACTION IN EXTRAORDINARY CIRCUMSTANCES. If (A) an unplanned -------------------------------------- outage of the Facility or major Facility equipment occurs or Operator reasonably believes that such occurrence is imminent, and (B) Operator has made reasonable, but unsuccessful, efforts to notify and communicate with Owner regarding such occurrence or imminent occurrence in accordance with Appendix C, then Operator shall take all necessary action to attempt to prevent or mitigate such unplanned outage of the Facility or major Facility equipment, provided, however, that Operator (i) shall make reasonable efforts to minimize any cost associated with such remedial action, (ii) shall continue to attempt to notify and communicate with Owner regarding the occurrence and the remedial action and (iii) shall not expend more than an aggregate of five hundred thousand dollars ($500,000) per Contract Year for any such remedial actions. ARTICLE 4 OWNER RESPONSIBILITIES Section 4.1 INFORMATION. Owner shall provide Operator with all vendor ------------ manuals, spare parts lists, Facility data books and drawings which are provided to Owner pursuant to any Project Agreement or by any contractor responsible for construction, installation, repair or maintenance of the Facility or any portion thereof. Subject to the standards of performance set forth in Section 3.2, Operator shall be entitled to rely upon such information in performance of the Services. Owner shall also provide Operator with copies of all Project Agreements and any amendments thereto and any other documents which define the Facility's operating requirements. Section 4.2 TEARDOWN AND OVERHAUL OF MAJOR EQUIPMENT AND CAPITAL ---------------------------------------------------- IMPROVEMENTS. The cost of all major equipment teardowns and overhauls and all - ------------- capital improvements shall be the responsibility of Owner. Operator shall promptly notify Owner in writing of any such teardowns and overhauls of major equipment or capital improvements that Operator believes are necessary or advisable together with a proposed schedule for completing such repairs or improvements. To the extent reasonably possible, the cost of all major equipment teardowns and overhauls and all capital improvements shall be incorporated into the applicable Annual Budget. If such costs have been incorporated into an approved Annual Budget or if Owner has otherwise consented in writing to reimburse Operator for the costs of such major equipment teardowns and overhauls or capital improvements, Operator shall schedule, coordinate, contract and oversee the performance of such activities and 10 shall be responsible for monitoring and enforcing compliance by the contractor performing such work, including taking such steps, short of litigation, to enforce any warranties granted to Owner by such contractor in accordance with Section 15.16 of this Agreement. Section 4.3 ANNUAL BUDGET AND FACILITY OPERATING PLAN. In accordance with ------------------------------------------ Section 5.2, Owner shall be responsible for approval of the Annual Budget, the Annual Facility Operating Plan and the Five Year Budget. ARTICLE 5 PROCEDURES, PLANS AND REPORTING Section 5.1 ADMINISTRATIVE PROCEDURES MANUAL. The parties have approved --------------------------------- an administrative procedures manual including procedures for (i) organization and reporting, (ii) correspondence and review, (iii) procurement and contracting, and (iv) accounting, bookkeeping and record-keeping (the "Administrative Procedures Manual"). The Administrative Procedures Manual shall remain in effect for the term of this Agreement, subject to such revision and amendment as may be proposed by either party and consented to by the other party in writing. Section 5.2 ANNUAL FACILITY OPERATING PLAN AND BUDGET. ------------------------------------------ (a) Adoption. At least ninety (90) days before the first day of --------- each Contract Year, Operator shall prepare and submit to Owner a proposed annual budget for such Contract Year, established on a monthly basis, which shall include a separate operating budget and capital budget and shall set forth, in detail acceptable to Owner, anticipated operations, repairs and capital improvements, routine maintenance and overhaul schedules, procurement (including equipment acquisitions and spare parts and consumable inventories (excluding fuel) indicating a breakdown of capital items and expense items), staffing, personnel and labor activities (including unit rates for labor and holidays to be observed), administrative activities, and other work proposed to be undertaken by Operator, together with an itemized estimate, in detail acceptable to Owner, of all Reimbursable Costs to be incurred in connection therewith. Such proposed annual budget shall be accompanied by a proposed annual operating plan setting forth the underlying assumptions and implementation plans in connection with the proposed annual budget. Any actions to be performed by Operator under the proposed annual operating plan shall be consistent with Operator's obligations set forth in this Agreement. If requested by Operator, Owner shall provide Operator any cost information in Owner's possession from previous Contract Years applicable to items in the proposed annual budget. Owner shall review Operator's proposed annual budget and annual operating plan within thirty (30) days following receipt thereof, and may, by written request, require changes, additions, deletions and modifications thereto. Owner and Operator will then meet and use their reasonable commercial efforts to agree upon a final budget and plan (the "Annual Budget" and "Annual Facility Operating Plan", respectively), which shall be approved in writing by both parties. Except to the extent that the terms of Sections 3.8 and 3.9 permit Operator to take actions which are outside the final Annual 11 Budget without the consent of Owner, the final Annual Budget and Annual Facility Operating Plan shall remain in effect throughout the applicable Contract Year, subject to revisions and amendments proposed by either party and consented to in writing by the other party. (b) Changes. Operator shall notify Owner as soon as reasonably -------- possible of any significant deviations or discrepancies from the projections contained in the Annual Budget or Annual Facility Operating Plan. (c) Failure to Adopt. If, by the first day of any Contract Year ----------------- after the first Contract Year, the parties are unable to reach agreement concerning any item or portion of the Annual Budget for such Contract Year, then the amount(s) of such item or portion of the Annual Budget for such Contract Year shall be equal to one hundred five percent (105%) of the amounts for the corresponding item or portion of the Annual Budget for the preceding Contract Year. (d) Five Year Budget. In addition to proposing and adopting Annual ----------------- Budgets and Annual Facility Operating Plans as provided for above, at least sixty (60) days before the first day of each Contract Year, Operator shall prepare and submit to Owner a proposed budget for the next five (5) Contract Years or the remaining term of the Agreement, established on an annual basis, which shall include a separate operating budget and capital budget and shall set forth, in detail reasonably acceptable to Owner, anticipated operations, repairs and capital improvements, routine maintenance and overhaul schedules, procurement (including equipment acquisitions and spare parts and consumable inventories (excluding fuel) indicating a breakdown of capital items and expense items), staffing, personnel and labor activities (including unit rates for labor and holidays to be observed), administrative activities, and other work proposed to be undertaken by Operator, together with an estimate, in detail reasonably acceptable to Owner, of all Reimbursable Costs to be incurred in connection therewith, accompanied by the underlying assumptions and implementation plans in connection with the proposed five-year budget. Owner shall review Operator's proposed five year budget within thirty (30) days following receipt thereof, and may, by written request, require changes, additions, deletions and modifications thereto. Owner and Operator will then meet and use their reasonable commercial efforts to agree upon a final five-year budget (the "Five Year Budget"), which shall be approved in writing by both Parties. If a final Five Year Budget shall not be approved by both parties in its entirety, the five year budget submitted by Operator, with Owner's final suggested changes, additions, deletions and modifications thereto, shall serve as the Five Year Budget. The Five Year Budget shall be used only for planning and comparison purposes, and shall not constrain Operator in its actions or expenditures; provided, however, that Operator shall be required to conform in its operations to the Annual Budget and Annual Facility Operating Plan as provided in this Agreement. Section 5.3 OPERATING DATA AND RECORDS. Operator shall monitor and record --------------------------- all operating data and information which (i) Owner must report to any Person under any 12 Project Agreement, (ii) Owner must report to any government agency or other Person under any applicable Laws and (iii) Owner reasonably requests. Operator shall report such operating data and information to Owner (A) within fifteen (15) Business Days following the last day of the respective billing periods established in connection with each Project Agreement, (B) as required by Owner to support monthly invoicing under the Project Agreements, and (C) upon request at any time by Owner, within fifteen (15) Business Days following such request. Such operating data shall include information from operating logs, meter and gauge readings and maintenance records. Section 5.4 ACCOUNTS AND REPORTS. Operator shall cooperate with Owner in --------------------- complying with the reporting requirements set forth in the Project Agreements and shall, from and after the Effective Date, furnish or cause to be furnished to Owner the following reports concerning the Facility operations and the Services: (a) Monthly Reports. Within ten (10) Business Days following the ---------------- last day of each calendar month, Operator shall submit: (i) a progress report, in detail acceptable to Owner, covering all activities during such month with respect to operations and maintenance (including information regarding amount of electric energy generated, hours of operation, fuel consumed, heat rate, availability, outages, accidents and emergencies), capital improvements, labor relations and other significant matters and Services, which report shall include a comparison of such items to corresponding values for the preceding month and Contract Year and a listing of any significant operating problems along with immediately planned remedial actions and a brief summary of major activities planned for the next reporting period and (ii) a statement setting forth all Reimbursable Costs paid or incurred in such month, which statement shall itemize, in detail acceptable to Owner, the computation of such Reimbursable Costs and shall state whether or not the Facility operations have conformed to the applicable Annual Facility Operating Plan and Annual Budget during such reporting period and if not, the extent and reasons for such deviation and any remedial action therefor. (b) Annual Reports. As soon as available, and in any event within --------------- sixty (60) days after the end of each Contract Year, Operator shall submit an annual report describing, in detail substantially similar to that contained in the monthly reports referred to in Section 5.4(a), all of the Facility activities for such Contract Year and presenting a comparison of such Facility activities with the goals set forth in the Annual Facility Operating Plan and Annual Budget for such Contract Year and with those achieved during the preceding Contract Year, if any, and an explanation of any substantial deviations. Within thirty (30) days after submission of each annual report, Operator shall meet with Owner to review and discuss the report and any other aspects of Facility operations that Owner may wish to discuss. (c) Litigation: Permit Lapses. Upon obtaining knowledge thereof, -------------------------- Operator shall submit prompt written notice to Owner of: (i) any event of default under any of the Project Agreements; (ii) any litigation, claims, disputes or actions, threatened or filed, concerning the Facility or the Services; (iii) any refusal or threatened refusal to grant, 13 renew or extend, or any action pending or threatened that might affect the granting, renewal or extension of, any license, permit, warranty, approval, authorization or consent relating to the Facility or the Services; and (iv) any dispute with any governmental authority relating to the Facility or the Services. (d) Other Information. Operator shall promptly submit to Owner any ------------------ material information concerning new or significant aspects of the Facility's activities and, upon Owner's request, shall promptly submit any other information concerning the Facility or the Services. Section 5.5 COMMUNICATION OF CERTAIN EVENTS. Operator shall communicate -------------------------------- certain events to Owner and third parties in accordance with the communication protocols set forth in Appendix C hereto. ARTICLE 6 LIMITATIONS ON AUTHORITY Section 6.1 GENERAL LIMITATIONS. Notwithstanding any provision in this -------------------- Agreement to the contrary, unless previously approved by Owner in writing or through Owner's approval of the Annual Budget, neither Operator nor any employee, representative, contractor or other agent of Operator, shall: (a) Disposition of Assets. Sell, lease, pledge, mortgage, convey, ---------------------- or make any license, exchange or other transfer or disposition of any property or assets of Owner, including any property or assets purchased by Operator hereunder the cost of which is a Reimbursable Cost; (b) Contract. Make, enter into, execute, amend, modify or --------- supplement any contract or agreement (i) on behalf of, in the name of, or purporting to bind Owner or (ii) that prohibits or otherwise restricts Operator's right to assign such contract or agreement to Owner at any time; (c) Expenditures. Make or consent or agree to make any expenditure ------------- for equipment, materials, assets or other items which would be a Reimbursable Cost, except in conformity with the Annual Budget; provided, however, that solely in connection with actions taken by Operator pursuant to Sections 3.8 and 3.9, Operator may, without prior approval from Owner, make limited expenditures outside the Annual Budget in accordance with Sections 3.8 and 3.9; (d) Other Actions. Take or agree to take any other action that -------------- materially varies from the applicable Annual Facility Operating Plan, Annual Budget or the requirements of any Project Agreement; (e) Lawsuits and Settlements. Settle, compromise, assign, pledge, ------------------------- transfer, release or consent to the compromise, assignment, pledge, transfer or release of, any claim, suit, debt, demand or judgment against or due by, Owner or Operator, the cost of 14 which, in the case of Operator, would be a Reimbursable Cost hereunder, or submit any such claim, dispute or controversy to arbitration or judicial process, or stipulate in respect thereof to a judgment, or consent to do the same; (f) Liens. Create, incur or assume any lien upon the Facility; ------ (g) Transactions on Behalf of Others. Engage in any other --------------------------------- transaction on behalf of Owner or any other Person not expressly authorized by this Agreement or that violates applicable Laws, this Agreement or any Project Agreement; or (h) Agreements. Enter into any agreement to do any of the ----------- foregoing. Section 6.2 EXECUTION OF DOCUMENTS. Any agreement, contract, notice or ----------------------- other document that is expressly permitted hereunder (or under written approval of Owner) to be executed by Operator shall be executed by the authorized representative of Operator or, subject to prior written notice to Owner, by such other representative of Operator who is authorized and empowered by Operator to execute such documents. ARTICLE 7 COMPENSATION AND PAYMENT Section 7.1 PAYMENTS. As compensation to Operator for performance of the --------- Services hereunder, Owner shall pay Operator the Annual Operating Fee (or a pro rata portion thereof in the case of a Contract Year of less than 12 months), and, at Owner's option, shall (i) reimburse Operator, in the manner and at the times specified in this Article 7 and in Appendix B, as the same may be modified from time to time, for all Reimbursable Costs or (ii) pay such Reimbursable Costs directly to applicable third parties. Section 7.2 REIMBURSABLE COSTS. Subject to (i) Owner's approval of such ------------------- costs through approval of the Annual Budget, (ii) written approval of such costs by Owner or (iii) costs incurred by Operator in accordance with Sections 3.8, 3.9 and 6.1(c), except for such costs which are caused by the gross negligence or willful misconduct of Operator. Owner shall reimburse Operator for all costs incurred by Operator in performing the Services, including the costs set forth in Appendix B (collectively, the "Reimbursable Costs"). Subject to Owner's right to modify the provisions of this Section 7.2 from time to time upon the reasonable request of the Lenders, Owner shall pay Reimbursable Costs as follows: (a) Terms of Payments. In order to facilitate disbursements for ------------------ Reimbursable Costs, Owner will advance to Operator on a mutually agreeable basis, such funds as may be required for Operator to make all payments as they become due in accordance with the Annual Budget. Not less than fifteen (15) days prior to the first day of each calendar month during the term of this Agreement, Operator shall submit to Owner an estimate of funds required for such month, which estimate shall be in accordance with the Annual Budget. Owner shall pay to Operator the amount of such estimate in a timely manner prior to the time such funds are required by Operator. Such advances shall be deposited in a separate account in Operator's name, as agent for Owner, in a bank or banks 15 approved by Owner, subject to withdrawal by Operator solely for the purpose of making required payments. In connection therewith, within fifteen (15) days of the end of each month, Operator shall submit to Owner a statement of receipts and disbursements, in detail satisfactory to Owner, together with supporting documentation as set forth in Section 5.4(a). Reimbursement of any cost related to the Services shall not be construed as Owner's approval or acceptance of the Services. No such Reimbursable Costs shall be incurred by Operator unless they are incurred in accordance with the applicable Annual Budget, as amended pursuant to Section 5.2, or are permitted by Sections 3.8, 3.9 and 6.1(c). If, at any time during the performance of the Services, Operator becomes aware that Reimbursable Costs exceed or will exceed the amount provided therefor in the Annual Budget, as the same may have been amended pursuant to Section 5.2, by 5% or more, Operator shall use all reasonable efforts to notify Owner within ten (10) days of such budget overrun and shall not, without Owner's approval to amend such Annual Budget or authorization to make such expenditure, perform any further Services that will result in or increase such budget overrun, except as provided in Sections 3.8, 3.9 and 6.1(c). Owner's refusal to promptly authorize expenditures in excess of the Annual Budget will relieve Operator of only those duties or obligations under the terms or conditions of this Agreement that can not be performed without the money provided by the expenditures which Owner refuses to approve. It is understood and agreed between the parties that any expenditures made by Operator in excess of the Annual Budget which are required to comply with any Law applicable to the Services or the Facility, shall be approved and reimbursed by Owner. In all cases, Operator shall use its reasonable commercial efforts to mitigate any adverse impact resulting from Owner's refusal to authorize expenditures in excess of the Annual Budget. (b) Adjustments and Conditions. Notwithstanding the payment of any --------------------------- amount pursuant to the foregoing provisions, Owner shall remain entitled to conduct a subsequent audit and review of all Reimbursable Costs incurred and paid by Owner hereunder, together with any supporting documentation in accordance with the provisions of Section 5.4(a), for a period of two (2) years from and after the close of the applicable Contract Year. If, pursuant to such audit and review, it is determined that any amount(s) previously paid by Owner to Operator did not constitute a Reimbursable Cost, Owner may recover such amount(s) from Operator, plus interest at the Reference Rate calculated from and after the date that such audit commences, or Owner may deduct or cause to be deducted such amount from any payment that thereafter may become due to Operator . Section 7.3 ANNUAL OPERATING FEE. For the first Contract Year and each --------------------- subsequent Contract Year, Owner shall pay to Operator the sum of fifty-four thousand one hundred sixty-six dollars and sixty-seven cents ($54,166.67) per month of the Contract Year, for 16 an annual fee of six hundred fifty thousand dollars ($650,000) (the "Annual Operating Fee"). Beginning on the first day of the second Contract Year and on the first day of each Contract Year thereafter, the Annual Operating Fee (and the corresponding monthly operating fee) shall be adjusted to reflect changes in the GDP-IPD, as follows: the Annual Operating Fee set forth in this Section 7.3, multiplied by (ii) a fraction, the numerator of which is the Reference Index and the denominator of which is the Base Index. Section 7.4 CONSENT. Operator shall obtain Owner's prior written approval -------- before incurring any expense hereunder which is not included in the Annual Budget or otherwise permitted by Section 6.1(c). Section 7.5 BILLING AND PAYMENT. Within fifteen (15) days following the -------------------- end of each month, Operator shall submit the receipts and disbursements showing Reimbursable Costs for such month in accordance with Subsection 7.2(a). Within fifteen (15) days after receipt of any such invoice, Owner shall: (a) Pay Operator the sum specified in such invoice, less (i) any amounts previously deposited with Operator relating to such invoice, and (ii) any portion of such invoice amount that Owner disputes in good faith or is permitted to defer under this Agreement; and (b) With respect to any disputed portion of such invoice, provide Operator with a written statement explaining, in reasonable detail, the basis for such dispute. The parties shall attempt to resolve any such disputed portion in accordance with Article 14. Section 7.6 INTEREST. Any amount owed to either party under this --------- Agreement by the other party which remains unpaid more than thirty (30) days after the date such amount is due and payable shall begin to accrue interest at the Reference Rate commencing on the thirty-first (31st) day after such due date. ARTICLE 8 TERM AND TERMINATION Section 8.1 TERM. The term of this Agreement shall be from and including ----- the Effective Date to and including the termination date of the Elwood LLC Operating Agreement (the "Renewal Date"). This Agreement shall be subject to extension for additional five (5) year periods from the Renewal Date, upon mutual agreement of the parties hereto. Notwithstanding the foregoing, this Agreement is subject to earlier termination pursuant to Sections 8.2, 8.3, 8.4 or 8.5. Section 8.2 IMMEDIATE TERMINATION BY OWNER. Subject to the terms of any ------------------------------- Financing Documents, Owner may terminate this Agreement immediately (i) upon the Bankruptcy of Operator or (ii) upon the occurrence of a Force Majeure Event that is not remedied within one hundred twenty (120) days of its initial occurrence. If the Agreement is terminated by Owner pursuant to Section 8.2(i) or (ii), Operator shall be compensated for all Reimbursable Costs incurred by Operator to and including the date of termination. In addition, if 17 the Agreement is terminated by Owner pursuant to Section 8.2(ii), Operator shall be paid all unpaid Annual Operating Fees to and including the date of termination. Section 8.3 TERMINATION UPON NOTICE BY OWNER. Subject to the terms of any --------------------------------- Financing Documents, Owner may terminate this Agreement upon ten (10) days prior written notice to Operator in the event (i) that Operator violates, or consents to a violation of, any Laws applicable to the Services or the Facility, which violation has or may have a material adverse effect on the maintenance or operation of the Facility or Owner's interest therein and Operator does not cure such violation within thirty (30) days from the date such violation or consent to violation is known (or, if not curable within thirty (30) days, within such period of time as is reasonably necessary to accomplish such cure, but in no event greater than ninety (90) days, provided that Operator diligently commences and continues to pursue such cure to completion within such period and reimburses and indemnifies Owner for all costs, fees, expenses and liabilities related to such violation); or (ii) of a material breach by Operator in the performance of the Services in accordance with the requirements of this Agreement, if Operator does not cure such breach within thirty (30) days from the date of receipt of a notice from Owner demanding such cure (or, if not curable within thirty (30) days within such period of time as is reasonably necessary to accomplish such cure, but in no event greater than ninety (90) days, provided that Operator diligently commences and continues to pursue such cure to completion within such period and reimburses and indemnifies Owner for all costs, fees, expenses and liabilities related to such breach). If the Agreement is terminated by Owner pursuant to this Section 8.3, Operator shall be compensated for all Reimbursable Costs incurred by Operator and all unpaid Annual Operating Fees to and including the date of termination. Section 8.4 OTHER TERMINATION UPON NOTICE BY OWNER. Subject to the terms --------------------------------------- of any Financing Documents, Owner may terminate this Agreement with two (2) months prior written notice to Operator, upon the occurrence of (a) a sale or transfer by Owner of its rights in the Facility or a sale or transfer of all or substantially all of the assets of or membership interests in Owner, (b) Operator's Reimbursable Costs for Services exceeding 110% of the approved Annual Budget with respect to Reimbursable Costs, for any two (2) consecutive full Contract Years during the term of this Agreement, provided, however, that such overruns are the fault of, or due to the negligent operation of the Facility by, Operator, (c) a determination by Owner that, for any reason, it no longer intends to continue operation of the Facility or (d) a determination by Owner, at any time after the Renewal Date, that it desires to terminate the Agreement. If the Agreement is terminated by Owner pursuant to this Section 8.4, Operator shall be compensated for all Reimbursable Costs incurred by Operator and all unpaid Annual Operating Fees to and including the date of such termination under this Section 8.4. Section 8.5 TERMINATION BY OWNER WITHOUT CAUSE. In addition to its rights ----------------------------------- set forth in this Article 8, subject to the terms of any Financing Documents, Owner reserves the right to terminate this Agreement without cause upon ninety (90) days notice in writing to Operator. If the Agreement is terminated by Owner pursuant to this Section 8.5, Operator shall be compensated for all Reimbursable Costs incurred by Operator and all unpaid Annual Operating Fees to and including the date of such termination under this Section 8.5. Such payments, together with the termination payment set forth in Section 8.8, shall be 18 Operator's sole remedy in respect of such termination and shall be made by Owner within thirty (30) days of receipt of a final invoice from Operator computed on the foregoing basis. Section 8.6 TERMINATION BY OPERATOR. Subject to the terms of any ------------------------ Financing Documents, Operator may terminate this Agreement for cause upon fifteen (15) days prior written notice to Owner in the event of: (i) Owner's Bankruptcy; or (ii) Owner's failure to perform in a timely manner any material obligation required to be performed by Owner hereunder and such failure is not cured by or on behalf of Owner within thirty (30) days of Owner's receipt of a notice from Operator demanding such cure (or, if not curable within thirty (30) days within such period of time as is reasonably necessary to accomplish such cure, but in no event greater than ninety (90) days, provided that Owner diligently commences and continues to pursue such cure to completion within such period. Section 8.7 FACILITY CONDITION AT END OF TERM. Upon expiration or ---------------------------------- termination of this Agreement, Operator shall remove its personnel from the Facility. Operator shall leave the Facility in as good condition as it was on the Effective Date, normal wear and tear and casualty excepted, and with the on- hand supply of spare parts and consumables and any other operating items as were provided by Owner to Operator as of the Effective Date, or such modified supply thereof as has been approved by Owner (and shall be reimbursed for all unreimbursed Reimbursable Costs incurred in connection therewith). All special tools, improvements, inventory of supplies, spare parts, safety equipment, Operating Manuals and Administrative Procedures Manuals, operating logs, records and documents maintained by Operator pursuant to Section 3.5 (in each case, as provided to or obtained or provided by Operator during the term of this Agreement) and any other items furnished on a Reimbursable Cost basis under this Agreement will be left at the Facility and will become or remain the property of Owner without additional charge. Owner shall also have the right, in its sole discretion, to directly assume and become liable for any contracts or obligations that Operator may have undertaken with third parties in connection with the Services. Operator shall execute all documents and take all other reasonable steps requested by Owner that may be required to assign to and vest in Owner all rights, benefits, interests and title in connection with such contracts or obligations; provided, however, that Owner shall indemnify and hold harmless Operator for all liabilities arising out of events and obligations thereunder arising after the date of any such assumption. Operator shall use commercially reasonable efforts to cooperate with Owner or a succeeding operator to assure that the operation, maintenance and management of the Facility are not disrupted. Section 8.8 TERMINATION PAYMENT. In the event of a termination of this -------------------- Agreement pursuant to Sections 8.2 (ii), 8.4 (a), 8.4 (c), 8.4 (d) or 8.5, Operator shall be entitled, in addition to all other amounts due hereunder as of the date of termination, to a demobilization and cancellation payment equal to the total of all relocation and severance costs incurred with respect to Operator's employees and all costs Operator is at such time contractually or legally obligated to pay to its employees, or which are incurred with the prior written approval of Owner. Severance costs for each of Operator's employees shall equal two (2) weeks of normal forty (40) hour/week pay for each year such employee has worked for Operator at the Facility. 19 Subject to Owner's right to conduct a subsequent audit and review pursuant to Section 8.8(a), such amounts shall be due and payable by Owner within thirty (30) days of Operator's submission of an invoice therefor, which invoice shall include a statement of all such costs and expenses in the form and with the substantiation required by Section 7.2(a). Owner shall pay any and all legal costs incurred by Operator to collect payments under this Section 8.8. In the event of a termination of this Agreement by Owner other than pursuant to Sections 8.2 (ii), 8.4(a), 8.4(c), 8.4(d) or 8.5, Operator shall indemnify Owner against, and Owner shall be entitled to recover from Operator, any damages, fines or penalties, or direct damages Owner suffers or incurs in connection with, or related to, such termination by Owner, including the costs of mobilizing and training a successor operator, provided, however, that the aggregate amount of Operator's indemnity obligation under this Section 8.8 shall in no event exceed the Annual Operating Fee, or portion thereof, previously paid to Operator for the Contract Year in which the termination occurs. (a) Audit. Notwithstanding payment of any amount pursuant to this ------ Section 8.8, Owner shall remain entitled to conduct a subsequent audit and review of all costs incurred and paid by Owner pursuant to this Section 8.8, together with any supporting documentation requested by Owner, for a period of two (2) years from and after the date of such payment. If, pursuant to such audit and review, it is determined that any amount(s) previously paid to Operator did not constitute, in whole or in part, a reimbursable item pursuant to this Section 8.8, Owner may recover such amount(s) from Operator plus interest at the Reference Rate calculated from and after the date such audit commences, or Owner may deduct or cause to be deducted such amount(s) from any payment that may be due to Operator. ARTICLE 9 INSURANCE Section 9.1 COVERAGE. --------- (a) Obligation to Obtain. Owner and Operator shall obtain and --------------------- maintain the insurance set forth in Sections 9.1(b) and 9.1(c). Such insurance may be maintained under individual or blanket insurance policies. (b) Operator Coverage. Operator shall maintain from and after the ------------------ Effective Date the insurance described below with insurance companies acceptable to Owner and with limits and coverage provisions not less than the limits and coverage provisions set forth below: (i) General Liability Insurance: Liability insurance on an occurrence basis against claims for personal injury (including bodily injury and death) and property damage. Such insurance shall provide products, completed operations, blanket contractual, explosion, collapse and underground, broad form property damage coverage, personal injury insurance and hostile fire liability with a $1,000,000 minimum limit per occurrence for combined bodily injury and 20 property damage provided that policy aggregates, if any, shall apply separately to claims occurring with respect to the Facility. (ii) Automobile Liability Insurance: Automobile liability insurance against claims for personal injury (including bodily injury and death) or property damage arising out of the use of all owned, leased, non-owned and hired motor vehicles, including loading and unloading, with $1,000,000 minimum limit per occurrence for combined bodily injury and property damage and containing appropriate no-fault insurance provisions where applicable. (iii) Workers' Compensation Insurance: Workers' compensation insurance as required by applicable state laws, including employers liability insurance for all employees of Operator with a $1,000,000 minimum limit per accident. (iv) Excess Liability Insurance: Excess liability insurance on an occurrence basis covering claims in excess of the underlying insurance described in the foregoing subsections (i), (ii) and (iii), with a $35,000,000 minimum limit per occurrence provided that aggregate limits of liability, if any, shall apply separately to claims occurring with respect to the Facility. The amounts of insurance required in the foregoing subsections (i), (ii), (iii) and (iv) may be satisfied by Operator purchasing coverage in the amounts specified or by any combination thereof, so long as the total amount of insurance meets the requirements specified above. Upon mutual agreement of the Owner, Operator may provide equivalent self-insurance in lieu of the requirements set forth in this Section. (v) [RESERVED.] (vi) All policies of liability insurance to be maintained by Operator shall provide for waivers of subrogation in favor of Owner, the Lenders and such other persons as may be required by the Project Agreements. These policies shall include the following: (A) To provide a severability of interests or cross liability clause; (B) To provide that the insurance shall be primary and not excess to or contributing with any insurance or self- insurance maintained by Owner or the Lenders; and (C) To name Owner, any of its Affiliates, the Lenders and their respective officers, agents (and such other Persons as may be required by the Project Agreements) as additional insureds in Sections 9.1(b)(i), (ii), (iv) and (v) only. 21 All policies of insurance required to be maintained pursuant to Section 9.1 shall include a provision so that they cannot be canceled or coverage reduced thereunder in a manner which affects the interests of Owner, without sixty (60) days prior written notice to Owner, except for termination for non-payment of premium which shall require ten (10) days prior written notice to Owner. Owner has the option in placing the coverages listed above and naming the Operator as an additional insured. (c) Owner Coverage. Owner shall maintain from and after the --------------- Effective Date the insurance described below and with limits and coverage provisions not less than the limits and coverage provisions set forth below: (i) Liability Insurance: Liability insurance on an occurrence basis against claims for personal injury (including bodily injury and death) and property damage. Such insurance shall provide products, completed operations, blanket contractual, explosion, collapse and underground, broad form property damage coverage, personal injury insurance and hostile fire liability with a thirty six million dollar ($36,000,000) minimum limit per occurrence for combined bodily injury and property damage provided that policy aggregates, if any, shall apply separately to claims occurring with respect to the Facility. Owner may provide adequate self-insurance in lieu of the requirements set forth in this Section. (d) Cost. All costs incurred by Operator with respect to payment of ----- any deductible relating to the insurance coverage set forth in this Section 9.1 (except as set forth in Section 9.3 or Section 10.1(a)) or any losses in excess of insurance coverage and (except as set forth in Section 10.1(a)) shall be deemed Reimbursable Costs. Section 9.2 CERTIFICATES. On or before the date on which insurance must ------------- be provided hereunder, each party shall furnish certificates of insurance to the other party evidencing the insurance required of such party pursuant to this Agreement. Each party shall cooperate with the other to ensure collection from insurers for any loss under any such policy. Section 9.3 PAYMENT OF DEDUCTIBLE AMOUNTS. Notwithstanding which party ------------------------------ hereto shall have purchased, or been responsible for the purchase of, any insurance in respect of the Facility or otherwise referred to in this Agreement, Operator shall promptly pay to Owner any deductible amount related to any claim against or other cost to Owner covered under any such insurance policy which arose due to the gross negligence of Operator. ARTICLE 10 INDEMNIFICATION AND LIABILITIES Section 10.1 INDEMNIFICATION. ---------------- (a) Indemnification by Operator. Operator shall indemnify, defend ---------------------------- and hold harmless Owner, the members thereof, and their respective officers, directors, employees, agents, Affiliates and representatives (the "Owner Indemnified Parties"), from and against any and all suits, sanctions, actions, liabilities, legal proceedings, claims, fines 22 and penalties (to the extent reimbursement therefor is not prohibited by law), demands, losses, costs and expenses of whatever kind or character, including attorneys' fees and expenses, for injury to or death of persons or loss of or damage to property arising out of or in any way connected with, but only to the extent of, any gross negligence, fraud or willful misconduct on or after the Effective Date of Operator or anyone acting on Operator's behalf or under its instructions, including suppliers, subcontractors, and vendors, their subcontractors and subvendors, and the employees and agents of any of the foregoing in connection with this Agreement and Operator's obligations thereunder. Any costs or expenses incurred by Operator pursuant to its indemnity obligations under this Section 10.1(a), including the cost of deductibles with respect to the insurance maintained by Operator or Owner pursuant to Article 9 or losses in excess of such insurance coverage, shall not constitute a Reimbursable Cost under this Agreement. (b) Indemnification by Owner. Owner shall indemnify, defend and ------------------------- hold harmless Operator, its officers, directors, employees, agents, Affiliates and representatives (the "Operator Indemnified Parties") from and against any and all suits, sanctions, actions, liabilities, legal proceedings, claims, fines and penalties (to the extent reimbursement therefor is not prohibited by law), demands, losses, costs and expenses of whatever kind or character, including attorneys' fees and expenses, for injury to or death of persons or loss of or damage to property arising out of or in any connected with, but only to the extent of, any gross negligence, fraud or willful misconduct on or after the Effective Date of Owner or anyone acting on Owner's behalf or under its instructions (other than Operator and its suppliers, subcontractors, venders, and their subcontractors and vendors and any employee or agent of the foregoing), including suppliers, subcontractors, and vendors, their subcontractors and subvendors, and the employees and agents of any of the foregoing in connection with this Agreement and Owner's obligations thereunder. Section 10.2 ENVIRONMENTAL LIABILITY. ------------------------ (a) Operator Liability. In no event shall Operator be responsible ------------------- for present or future Environmental Claims directly or indirectly related to or arising out of the actual or alleged existence, generation, use, collection, handling, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Materials at the Facility and/or adjacent areas, arising from the period prior to the applicable Provisional Acceptance Date, except to the extent such materials are generated, used, collected, handled, treated, stored, transported, recovered, removed, discharged or disposed of by Operator in a grossly negligent manner. Without limiting the foregoing, Owner shall defend, indemnify and hold Operator and its Affiliates performing on behalf of Operator under this Agreement harmless against, and shall reimburse Operator for such Environmental Claims, except to the extent such Environmental Claims arise from Operator's grossly negligent or intentional acts. (b) Owner Liability. In no event shall Owner be responsible for ---------------- present or future Environmental Claims directly related to or arising out of the actual or alleged 23 existence, generation, use, collection, treatment, storage, transportation, recovery, removal, discharge or disposal of Hazardous Materials at the Facility and/or adjacent areas arising out of the grossly negligent or intentional acts of Operator or any of its officials, representatives, agents, or employees, and Operator shall defend, indemnify and hold Owner harmless against, and shall reimburse Owner for such Environmental Claims; provided, however, that nothing contained herein shall be construed as requiring Operator to take any corrective action with respect to any Hazardous Materials in existence prior to the date of this Agreement unless directed to do so by a governmental authority or by Owner in order to comply with any applicable Environmental Laws, in which case the corrective actions so undertaken shall be deemed an Environmental Claim pursuant to Section 10.2(a) hereof. (c) Governmental Actions. If compliance at the Facility with any --------------------- applicable Environmental Laws is required during the term of this Agreement, Owner with Operator's assistance shall be responsible for preparing and filing with the appropriate governmental authority any notices, applications, plans, submissions or other materials and information necessary for such compliance; provided that the costs of any outside consultants, sampling and remedial work shall be deemed an Environmental Claim, which costs shall be borne by either Owner or Operator in accordance with Sections 10.2(a) and 10.2(b) hereof; provided, however, that such consulting or sampling costs that are incorporated into the Annual Budget or are otherwise agreed upon in writing by Owner shall be Reimbursable Costs hereunder. Any compliance action taken by Operator pursuant to any such Law shall be performed only after consultation with Owner. Costs and expenses associated with any such compliance action shall only be incurred by Operator with Owner's prior written consent, unless a governmental authority requires Operator to incur such costs and expenses prior to obtaining such written consent. ARTICLE 11 LIMITATIONS OF LIABILITY Section 11.1 LIMITATIONS OF LIABILITY. ------------------------- (a) Consequential Damages. Notwithstanding any provision in this ---------------------- Agreement to the contrary, Operator and Owner each agree not to assert against the other any claim, demand or suit for consequential, incidental, indirect or special damages arising from any aspect of the performance or nonperformance of the other party or any third-party engaged by such other party under this Agreement, and each party hereto waives any such claim, demand or suit against the other in connection with this Agreement. (b) Damages Limited to Annual Operating Fee. Notwithstanding any ---------------------------------------- provision in this Agreement to the contrary, the aggregate liability of Operator (except for those claims that are subject to the provisions of Section 10.1(a) or covered by the insurance set forth in Article 9, and then only to the extent such claims are actually 24 covered thereby, after giving effect to any deductibles, exclusions, limits, or self-insured retentions thereunder) with respect to claims of Owner arising out of the performance or nonperformance of the Services or any other work or obligations set forth under this Agreement, whether based on contract, indemnity, tort (including negligence), strict liability or otherwise, shall in no event exceed, during any Contract Year, the Annual Operating Fee payable to Operator during such Contract Year plus the amount necessary to satisfy Operator's indemnification responsibilities under Article 10. (c) Personal Liability Limited. Notwithstanding any provision in --------------------------- this Agreement to the contrary, Operator and Owner each understand and agree that there shall be absolutely no personal liability on the part of any of the members, partners, officers, employees, directors, agents, authorized representatives or Affiliates of Owner or Operator for the payment of any amounts due hereunder, or performance of any obligations hereunder. Operator shall look solely to the assets of Owner for the satisfaction of each and every remedy of Operator in the event of any breach by Owner and Owner shall look solely to the assets of Operator for the satisfaction of each and every remedy of Owner in the event of any breach by Operator. In furtherance of the foregoing, Owner agrees with respect to Operator and Operator agrees with respect to Owner, that it shall neither seek or obtain nor be entitled to seek or obtain, any deficiency or other judgment against Owner or Operator, as the case may be, for any action or inaction on the part of any of its respective members, partners, officers, employees, directors, agents, authorized representatives or Affiliates. (d) Survival. The parties further agree that the waivers and --------- disclaimers of liability, indemnities, releases from liability, and limitations on liability expressed in this Agreement shall survive termination or expiration of this Agreement, and shall apply at all times (unless otherwise expressly indicated), whether in contract, equity, tort or otherwise, regardless of fault, negligence, strict liability, or breach of warranty of the party indemnified, released or whose liabilities are limited, and shall extend to the members, partners, principals, officers, employees, controlling persons, executives, directors, agents, authorized representatives and Affiliates of such party. (e) Exclusivity. The provisions of this Agreement constitute ------------ Operator's and Owner's exclusive liability, respectively, to each other, and Operator's and Owner's exclusive remedy, respectively, with respect to the Services to be performed hereunder and Owner hereby releases Operator and its Affiliates performing Services hereunder, and Operator hereby releases Owner and its Affiliates performing its obligations hereunder, from any further liability whether arising in contract, tort (including negligence), strict liability, or otherwise. ARTICLE 12 CONFIDENTIALITY Section 12.1 OPERATOR. Operator agrees to hold in confidence for a period --------- of five (5) years from the date of disclosure, any information supplied to Operator by Owner or its 25 members, partners, officers, employees, directors, agents, authorized representatives or Affiliates. Operator further agrees, to the extent requested by the supplier of such information, to require its subcontractors, vendors, suppliers and employees to enter into appropriate nondisclosure agreements relative to such information, prior to the receipt thereof. Section 12.2 OWNER. Owner agrees to hold in confidence for a period of ------ five (5) years from the date of disclosure, any information supplied to Owner by Operator or its members, partners, officers, employees, directors, agents, authorized representatives or Affiliates, provided that Owner may disclose such information requested by Lenders (including their agents and advisors) as long as such Lenders enter into appropriate nondisclosure agreements. Owner further agrees, to the extent requested by the supplier of such information, to require its members and contractors to enter into such appropriate nondisclosure agreements relative to such information, prior to their receipt thereof. Section 12.3 EXCEPTIONS. The provisions of this Article shall not apply ----------- to information within any one of the following categories or any combination thereof: (a) Information that was in the public domain prior to the receiving party's receipt thereof or that subsequently becomes part of the public domain by publication or otherwise, other than as a result of disclosure by the receiving party or any of its representatives; or, (b) Information that the receiving party can show was in its possession prior to receipt thereof from the disclosing party; or (c) Information received by a party from a third party having no obligation of secrecy with respect thereof. No information obtained or prepared by a receiving party or any of its representatives regarding the other party shall be deemed to be in the public domain or in the prior possession of the receiving party or its representatives unless it is specifically included in more general information that is in the public domain or in the prior possession of any of the foregoing. Section 12.4 REQUIRED DISCLOSURE. In the event that a receiving party or -------------------- any of its respective representatives is requested or required by applicable law, regulation or legal process to disclose any of the information that is otherwise required to remain confidential pursuant to this Article 12, the receiving party will notify the other party, as well as its legal counsel, promptly in writing so that the other party may seek a protective order or other appropriate remedy, or, in the other party's sole discretion, waive compliance with the terms of this Agreement. The receiving party agrees not to, and agrees that none of its respective representatives will, oppose any action by the other party to obtain a protective order or other appropriate remedy. In the event that no such protective order or other remedy is obtained, or that the other party waives compliance with the terms of this Agreement, the receiving party and its respective representatives will furnish only that portion of the information which the receiving party is advised by its outside counsel is legally required and the receiving party will exercise its reasonable best efforts to obtain reliable outside assurance that confidential treatment will be 26 accorded such information. This Agreement does not alter the rights of either party to object to the Laws or proceedings requiring the disclosure. ARTICLE 13 TITLE, DOCUMENTS AND DATA Section 13.1 MATERIALS AND EQUIPMENT. Title to all materials, equipment, ------------------------ tools, supplies, consumables, spare parts and other items purchased or obtained by Operator on a Reimbursable Cost basis hereunder shall pass immediately to and vest in Owner upon the passage of title from the vendor or supplier thereof, provided, however, that such transfer of title shall in no way affect Operator's obligations as set forth in this Agreement. Section 13.2 DOCUMENTS. All materials and documents prepared or developed ---------- by Operator, its employees, representatives or contractors in connection with the Facility or performance of the Services, including all manuals, data, drawings, plans, specifications, reports and accounts, shall become Owner's property when prepared, and Operator, its agents, employees, representatives, or contractors shall not use such materials and documents for any purpose other than performance of the Services, without Owner's prior written approval. All such materials and documents, together with any materials and documents furnished to Operator, its agents, employees, representatives, or contractors by Owner, shall be delivered to Owner upon expiration or termination of this Agreement and before final payment is made to Operator. Section 13.3 REVIEW BY OWNER. ---------------- All materials and documents referred to in Section 13.2 hereof shall be available for review by Owner or Lenders (including their agents or advisors) at all reasonable times during development and promptly upon completion. All such materials and documents required to be submitted for approval by Owner shall be prepared and processed in accordance with the requirements and specifications set forth in the Administrative Procedures Manual. However, Owner's approval of materials and documents submitted by Operator shall not relieve Operator of its responsibility for the correctness thereof or of its obligation to meet all requirements of this Agreement. Section 13.4 PROPRIETARY INFORMATION. Where materials or documents ------------------------ prepared or developed by Operator or its agents, employees, representatives or contractors contain proprietary or technical information, systems, techniques, or know-how previously known to, or acquired from third parties by, Operator, its agents, employees, representatives, or contractors, Operator, its agents, employees, representatives, and contractors shall have unrestricted rights to use or dispose of such information, systems, techniques, or know-how as they see fit, provided, however, that Owner shall have the right to the same to the extent necessary for operation or maintenance of the Facility. ARTICLE 14 DISPUTE RESOLUTION; REMEDIES Section 14.1 SENIOR MANAGEMENT. If during the term of this Agreement any ------------------ issue, dispute or controversy ("Dispute") arises hereunder, then the designated representatives of Owner and Operator shall promptly confer and exert their best efforts in good faith to reach a 27 reasonable and equitable resolution of such Dispute. If such representatives are unable to resolve such Dispute within five (5) Business Days, the Dispute shall be referred within two (2) Business Days of the lapse of the aforementioned five (5) Business Day period to the responsible senior management of each party for resolution. Neither party shall seek any other means of resolving any Dispute arising in connection with this Agreement until both parties' responsible senior management have had at least five (5) Business Days to resolve the Dispute following referral of the Dispute to such responsible senior management. Each party shall have the right to join in any such proceeding any other party or entity having an interest therein. If the parties are unable to resolve the Dispute in accordance with the foregoing procedure, either party may then, at any time, deliver notice to the other party of its intent to submit the Dispute to arbitration, which notice shall include the specific issues concerning the Dispute which must be resolved (the "Arbitration Notice"). Section 14.2 DESIGNATION OF ARBITRATORS. At any time following the 30th --------------------------- day after delivery of an Arbitration Notice, either party (for purposes of this Article 14, the "First Party") may give notice to the other party (for purposes of this Article 14, the "Second Party") that it has designated an arbitrator. Within twenty (20) days of the delivery of the aforesaid notice of designation, the Second Party shall be required to designate a second arbitrator and to notify the First Party of such designation. Within twenty (20) days of the designation of the second arbitrator, the two designated arbitrators shall meet and shall jointly designate a third arbitrator who shall be neutral and impartial. Arbitrators shall be qualified by education and experience in the subject matter of the Dispute and issues to be arbitrated. The arbitrator designated by the party-appointed arbitrators shall be the Chairman of the arbitration panel. The award rendered by the arbitrators shall be in writing and shall set forth in reasonable detail the facts of the Dispute, the decision of the arbitrators and their reasons therefor and shall apportion the costs of the arbitration. The award rendered in any arbitration hereunder shall be final and binding upon the parties and judgment thereon may be entered in any court having jurisdiction for its enforcement. During the pendency of any arbitration, Operator shall continue to perform its obligations hereunder. Section 14.3 FAILURE TO DESIGNATE ARBITRATOR. If for any reason (i) the -------------------------------- Second Party shall fail timely to designate an arbitrator after notice of designation is delivered by the First Party, (ii) the two party-appointed arbitrators fail timely to designate a third arbitrator, or (iii) the third arbitrator shall fail for any reason to serve, such arbitrator(s) shall be designated by the American Arbitration Association upon the demand of either party. Section 14.4 VENUE. All proceedings before the arbitrators shall be held ------ at such place as Owner and Operator may agree. Failing such agreement, they shall be held in Chicago, Illinois. Section 14.5 APPLICABLE ARBITRATION RULES. The parties agree that any ----------------------------- Dispute being resolved by arbitration hereunder shall be determined pursuant to the provisions set forth herein and pursuant to the applicable commercial arbitration rules of the American Arbitration Association then in effect insofar as such rules are not inconsistent with the provisions set forth herein. 28 Section 14.6 LIMITED AUTHORITY. The authority of the arbitrators shall be ------------------ limited to the specific Dispute and related issue(s) in controversy as designated by the parties. ARTICLE 15 MISCELLANEOUS PROVISIONS Section 15.1 ASSIGNMENT. Except as set forth in this Section 15.1, ----------- neither party may assign its rights or obligations under this Agreement without the prior written consent of the other party hereto, except that this Agreement may be assigned without such consent (i) by Owner to any successor of Owner, to a Person acquiring all or substantially all of the Facility, to a wholly-owned subsidiary of Owner, to a Lender or any purchaser of the Facility upon the exercise of remedies by a Lender, and (ii) by Operator to an Affiliate (provided that Operator first provides to Owner reasonable assurances that such Affiliate is capable of performing the obligations of Operator under this Agreement). Notwithstanding the foregoing, Operator hereby consents to the assignment by Owner of a security interest in this Agreement to its Lenders. Operator further agrees to execute documentation to evidence such consent reasonably required by the Lenders typical for project finance (including an opinion of its counsel in typical form regarding such consent and this Agreement). Operator recognizes that such consent may grant certain rights to such Lenders, which shall be fully developed and described in the consent documents, including but not limited to (i) this Agreement shall not be amended or terminated (except for termination pursuant to the terms of this Agreement) without the consent of Lenders, (ii) the Lenders shall be given notice of, and a reasonable time period at least sixty (60) days beyond that granted to Owner, to cure any Owner breach or default of this Agreement, (iii) if a Lender forecloses, takes a deed in lieu or otherwise exercises its remedies pursuant to any security documents, that Operator shall, at Lenders' request and provided that any breach by Owner has been cured (to the extent any such breaches can be cured by the payment of money), continue to perform all of its obligations hereunder, and Lender or its nominee may perform in the place of Owner, and may assign this Agreement to another party in place of Owner, and enforce all of Owner's rights hereunder, (iv) that Lender(s) shall have no liability under this Agreement except during the period of such Lender(s)' ownership and/or operation of the Facility, (v) that Operator shall accept performance in accordance with this Agreement by Lender(s) or its (their) nominee, (vi) that Operator shall make all payments to an account designated by Lender(s), and (vii) that Operator shall make representations and warranties to Lender(s) as Lender(s) may reasonably request with regard to (A) Operator's corporate existence, (B) Operator's corporate authority to execute, deliver, and perform this Agreement, (C) the binding nature of this Agreement on Operator, (D) receipt of regulatory approvals (if any) by Operator with respect to its performance under this Agreement, and (E) whether any defaults by Owner are known by Operator then to exist under this Agreement. Section 15.2 ACCESS. ------- (a) Owner. Owner, Lenders and their respective agents and ------ representatives shall have access at all times to the Facility and any documents, materials and records and accounts relating to Facility operations for purposes of inspection and review. Upon the request of Owner, Lender or their respective agents and representatives, Operator shall 29 make available to such Persons and provide them with access to any operating data and all operating logs. (b) Cooperation. During any such inspection or review of the ------------ Facility, each of Owner, Lender and their respective agents and representatives shall use its reasonable commercial efforts to cause authorized visitors to comply with Operator's safety and security procedures and to conduct such inspection and review in a manner which causes minimal interference with Operator's activities. Operator agrees to cooperate fully with Owner, Lender and their respective agents and representatives in providing requested information and documentation for the support of any financial or legal transactions associated with the Facility. Section 15.3 NOT FOR BENEFIT OF THIRD PARTIES. This Agreement and each --------------------------------- and every provision hereof and thereof is for the exclusive benefit of the parties hereto and not for the benefit of any third party; provided that the provisions hereof are also for the benefit of the Lenders (i) to the extent such provisions require the consent, approval or satisfaction of, or the payment to or for the benefit of the Lenders, or (ii) as provided in Article 15.1 or in any assignment of Owner's rights hereunder to the Lenders to secure Owner's obligations under any applicable Financing Document or any Consent to Assignment referred to in Article 15.1 requiring the consent, approval or satisfaction of the Lenders is also for the benefit of the Lenders. Section 15.4 FORCE MAJEURE. If either Owner or Operator is rendered -------------- wholly or partially unable to perform its obligations under this Agreement (other than payment obligations) due to a Force Majeure Event, the party affected by such Force Majeure Event shall be excused from whatever performance is impaired by such Force Majeure Event, provided that the affected party shall promptly, upon learning of such Force Majeure Event and ascertaining that it will affect its performance hereunder, give notice to the other party stating the nature of the Force Majeure Event, its anticipated duration and any action being taken to avoid or minimize its effect. The burden of proof shall be on the party asserting excuse from performance due to a Force Majeure Event. (a) Scope. The suspension of performance shall be of no greater ------ scope and no longer duration than that which is necessary. The excused party shall use its reasonable commercial efforts to remedy its inability to perform. No obligations of either party which arose before the occurrence causing the suspension of performance and which could and should have been fully performed before such occurrence shall be excused as a result of such occurrence. Section 15.5 AMENDMENTS. No amendments or modifications of this Agreement ----------- shall be valid unless evidenced in writing and signed by duly authorized representatives of both parties. 30 Section 15.6 SURVIVAL. Notwithstanding any provisions herein to the --------- contrary, the obligations set forth in Articles 7, 10, 12 and 14, and the limitations of liabilities set forth in Article 11, shall survive in full force despite the expiration or termination of this Agreement. Section 15.7 NO WAIVER. It is understood and agreed that any delay, ---------- waiver or omission by Owner or Operator to exercise any right or power arising from any breach or default by the other party with respect to any of the terms, provisions, or covenants of this Agreement shall not be construed to be a waiver by Owner or Operator of any subsequent breach or default of the same or other terms, provisions or covenants on the part of Owner or Operator. Section 15.8 NOTICES. All notices, requests, consents, demands and other -------- communications (collectively "Notices") required or permitted to be given under this Agreement shall be in writing and shall be given to each party at its address or fax number set forth in this Section 15.8 or at such other address or fax number as such party may hereafter specify for the purpose by notice to the other party and shall be either delivered personally or sent by fax or telegraph or registered or certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight courier service. A notice shall be deemed to have been given (i) when transmitted if given by fax or telegraph, provided the transmittal is confirmed or (ii) upon receipt by the intended recipient, if given by any other means. Notices shall be sent to the following addresses: To Operator: DOMINION ELWOOD SERVICES COMPANY, INC. 5000 Dominion Boulevard Glen Allen, Virginia 23060 Attention: Tony Belcher Tel: (804) 273-3269 Fax: (804) 273-2303 To Owner: ELWOOD ENERGY LLC c/o Peoples Energy Resources Corp. 150 North Michigan Avenue Suite 3900 Chicago, Illinois 60601 Attention: Robert Harrington Tel: (312) 762-1616 Fax: (312) 762-1635 Section 15.9 FINES AND PENALTIES. If during the term of this Agreement -------------------- any governmental or regulatory authority or agency assesses any fines or penalties against Operator or Owner arising from Operator's failure to operate and maintain the Facility in accordance with applicable Laws without Owner's prior written consent, such fines and penalties shall, subject to 31 the limitations set forth in Article 11, be the sole responsibility of Operator and shall not be deemed a Reimbursable Cost. Section 15.10 REPRESENTATIONS AND WARRANTIES. Each party represents and ------------------------------- warrants to the other party that: (a) such party has the full power and authority to execute, deliver and perform this Agreement and to carry out the transactions contemplated hereby; (b) the execution and delivery of this Agreement by such party and the carrying out by such party of the transactions contemplated hereby have been duly authorized by all requisite corporate or limited liability company action, and this Agreement has been duly executed and delivered by such party and constitutes the legal, valid and binding obligation of such party, enforceable against it in accordance with the terms hereof, subject to limitations imposed by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the enforcement of creditors' rights generally and general principles of equity; (c) to the best of such party's knowledge, no authorization, consent, approval or order, or notice to or registration, qualification, declaration or filing with, any governmental authority, is required for the execution, delivery and performance by such party of this Agreement or the carrying out by such party of the transactions contemplated hereby, other than regulatory and similar approvals needed with respect to the construction and operation of the Facility; (d) to the best of such party's knowledge, none of the execution, delivery and performance by such party of this Agreement, the compliance with the terms and provisions hereof, and the carrying out of the transactions contemplated hereby, materially conflicts or will conflict with or result in a material breach or violation of any of the terms, conditions, or provisions of any law, governmental rule or regulation or organizational document, as amended, or bylaws, as amended, of such party or any applicable order, writ, injunction, judgment or decree of any court or governmental authority against such party or by which it or any of its properties is bound, or any loan agreement, indenture, mortgage, bond, note, resolution, contract or other agreement or instrument to which such party is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or will result in the imposition of any third party lien upon any of its properties; and (e) there are no legal proceedings, arbitrations, administrative actions or other proceedings by or before any governmental or regulatory authority or agency, now pending or, to the knowledge of such party, threatened against such party or any of its subsidiaries that if adversely determined, could reasonably be expected to have a material adverse effect on such party's ability to perform its obligations under this Agreement. Section 15.11 COUNTERPARTS. The parties may execute this Agreement in ------------- counterparts, which shall, in the aggregate, when signed by both parties constitute one and the 32 same instrument. Thereafter, each counterpart shall be deemed an original instrument as against any party who has signed it. Section 15.12 GOVERNING LAW. This Agreement is executed and intended to -------------- be performed in the State of Illinois and the laws of that state, without regard to its conflicts of laws rules, shall govern its construction, interpretation and effect. Section 15.13 PARTIAL INVALIDITY. If any term, provision, covenant or ------------------- condition of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the rest of this Agreement shall remain in full force and effect and in no way be affected, impaired or invalidated. Section 15.14 CAPTIONS. Titles or captions of Sections contained in this --------- Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend, describe or otherwise affect the scope or meaning of this Agreement or the intent of any provision hereof. Section 15.15 DOLLAR AMOUNTS. All amounts of money in this Agreement are --------------- denominated in United States of America dollars. Section 15.16 VENDOR'S WARRANTIES. For Owner's benefit, Operator shall -------------------- obtain from sellers of equipment, material, or services (other than the Services), warranties against defects in materials and workmanship to the extent such warranties are reasonably obtainable, and, to the extent of any such warranties actually obtained, Owner releases Operator from any further liability arising in respect of such equipment, material or services (other than the Services) to the extent such liability is covered by any such warranty. Operator itself shall not be liable for any such warranties, or for any defects or damage caused by such equipment, material or services (other than the Services). Upon Owner's request, Operator agrees to take such steps as are necessary, short of litigation, to enforce said warranties. Each such warranty shall be enforceable by Owner for Owner's benefit or assignable by Operator to Owner without any further action or consent by or on the part of any third party. Unless otherwise requested, Operator shall administer such warranties and immediately notify Owner of any defects discovered or suspected that may be covered by such warranties. When requested, Operator shall assign any such warranty to Owner and assist Owner with the administration and enforcement of such warranty, or, if such warranty is not assignable to Owner, assist Owner with the administration and enforcement of such warranty. Section 15.17 ATTORNEYS' FEES. If any action or proceeding, including any ---------------- arbitration proceeding pursuant to Article 14, is brought by either party to remedy a breach of this Agreement or to enforce any of its provisions, the prevailing party shall be entitled to, in addition to any other relief granted in such action or proceeding, reasonable attorneys' fees, disbursements and court costs. Section 15.18 USAGE. This Agreement shall be governed by the following ------ rules of usage: (i) a reference in this Agreement to a Person includes, unless the context otherwise requires, such Person's permitted assignees; (ii) a reference in this Agreement to a Law, license, 33 or permit includes any amendment, modification or replacement to such Law, license or permit; (iii) accounting terms used in this Agreement shall have the meanings assigned to them by United States generally accepted accounting principles; (iv) a reference in this Agreement to an article, section, exhibit, schedule or appendix is to an article, section, exhibit, schedule or appendix of this Agreement unless otherwise stated; (v) a reference in this Agreement to any document, instrument or agreement shall be deemed to include all appendices, exhibits, schedules and other attachments thereto and all documents, instruments or agreements issued or executed in substitution thereof, and shall mean such document, instrument or agreement, or replacement thereof, as amended, modified and supplemented from time to time in accordance with its terns and as the same is in effect at any given time; (vi) unless otherwise specified, the words "hereof", "herein", and "hereunder" and words or similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and (vii) the words "include" and "including" and words of similar import used in this Agreement are not limiting and shall be construed to be followed by the words "without limitation", whether or not they are in fact followed by such words. Section 15.19 EFFECTIVE DATE. This Agreement shall govern the rights and --------------- obligations of the parties from and after the Effective Date. Except as otherwise provided herein, all rights and obligations of Owner and Operator under the Original Agreement and/or the Merged Agreements relating to periods prior to the Effective Date, shall be governed by the Original Agreement or the appropriate Merged Agreement, as applicable. Section 15.20 TERMINATION OF MERGED AGREEMENTS. Except as set forth in --------------------------------- Section 15.19 hereof, Owner and Operator hereby terminate the Merged Agreements through the mutual agreement of the parties. All rights and obligations of Owner and Operator relating to Units 5 through 9 of the Facility from and after the Effective Date shall be as set forth in this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] 34 IN WITNESS WHEREOF, the parties have executed this Agreement through their duly authorized officers as of the date set forth in the preamble to this Agreement. ELWOOD ENERGY LLC By: /s/ Tony Belcher ------------------------------------ Name: Tony Belcher Title: General Manager DOMINION ELWOOD SERVICES COMPANY, INC. By: /s/ James W. Braswell ------------------------------------- Name: James W. Braswell Title: Vice President 35 APPENDIX A SCOPE OF SERVICES ----------------- OPERATOR SHALL PERFORM EACH OF THE SERVICES LISTED IN THIS APPENDIX A IN ACCORDANCE WITH THE STANDARDS REQUIRED UNDER SECTION 3.2 OF THE AGREEMENT I. In addition to those responsibilities described in Articles 1 through 15 of the Agreement, Operator shall be responsible for the implementation of the following programs, standards and procedures which shall require approval of Owner and which shall be included in the "Services". A. The administrative program for establishing specific operating goals for each functional Facility area, for managing resources to minimize personnel turnover, and for qualifying personnel, to operate and maintain the Facility (including the basis for qualification of personnel). B. The program for communicating and cooperating with Owner and governmental agencies. C. The Facility management standards for conduct of operations, Facility safety, conduct of maintenance, housekeeping, material condition, and records management. D. The program for preparing supporting documentation, meter readings and information necessary to accurately prepare, justify and support monthly invoices in accordance with the terms and conditions of the Project Agreements. E. Developing the procedures used to operate the Facility as well as monitoring, evaluating, and proposing revisions to such procedures. F. The Facility operations and monitoring program which provides the requirements for: 1. Monitoring of Facility Performance 2. Monthly Facility Performance Calculations and Report 3. Monthly Fuel Consumption Calculations and Report 4. Facility Permitting and Environmental Reporting 5. Shift Routines / Operating Practices 6. Control of Equipment 7. Facility Chemistry Control and Water Treatment 8. Training Programs 9. Operator Qualifications A-1 10. Operating Procedures 11. Status of Major Equipment G. The maintenance program which provides the requirements for: 1. Maintenance Planning 2. Maintenance Procedures 3. Preventive Maintenance 4. Predictive Maintenance 5. Maintenance Training H. The materials management program which provides the requirements for: 1. Procuring Materials and Tools 2. Inventory Levels and Control 3. Renewal of Inventories I. The diagnostic testing program for maintaining the Facility and Facility equipment, including both system and component level testing. J. The housekeeping / cleanliness program which provides the requirements for: 1. Hazardous Material Control 2. General Facility Cleanliness 3. Equipment Condition Inspections 4. Hazardous Waste Program K. The problem assessment program which provides the procedure for determining the cause(s) of operational or equipment failures and preventing future failures through recommended improvements, including justification for such recommendations (i.e., basis of recommendation and economic analysis). L. The records management program for maintaining the traceability and documentation of Facility performance. M. The Facility safety program which provides the requirements for establishing: 1. Safety Monitoring 2. Accident Prevention Program 3. Accident Reporting N. Monthly and yearly reporting systems of Facility performance to Owner. O. The security program for maintaining the security of the Facility and surrounding area. A-2 II. Specific Requirements Operator's scope of Services is based on the Facility design as described in the EPC Contracts, the Facility Operating Manuals, vendor manuals and design drawings. Operator will prepare Annual Facility Operating Plans, which, in part, will define the operations procedural requirements for the Facility to meet the requirements of the Project Agreements. Operator, as part of the Services, is responsible for: A. Providing such trained personnel as is reasonably necessary to operate and maintain the Facility and provide the Services set forth in this Agreement. B. Operating and maintaining the Facility in accordance with the approved Annual Facility Operating Plan. C. Submitting an Annual Facility Operating Plan. Not later than ninety (90) days prior to the first (1st) day of each Contract Year, Operator will submit an Annual Facility Operating Plan to Owner. In addition to the requirements set forth in Section 5.2.1 of the Agreement, the Annual Facility Operating Plan will detail maintenance, outage, and overhaul schedules, Facility staffing, known capital and expense budget items, operating plans, and will provide the underlying assumptions used in developing the proposed budgets and anticipated availability for the period. Owner will review and approve the Annual Facility Operating Plan. Such approval will become the basis for reimbursement under the Annual Budget. D. Planning and managing on-site operations and maintenance activities, including: 1. Assuring that operational goals and operating plans are consistent with the Annual Facility Operating Plan. 2. Assuring that the Facility is operated in accordance with this Agreement and in a safe, reliable, efficient, and prudent manner. 3. Assuring that operations and maintenance personnel are trained and qualified for their assigned responsibilities and tasks, and that such qualification is maintained. 4. Assuring that the Facility meets contract, regulatory, and environmental requirements set forth in the Project Agreements or otherwise identified by Owner or Operator. A-3 5. Managing and controlling costs consistent with budget requirements. 6. Planning, scheduling and managing work and maintenance activities. 7. Defining and documenting operational technical requirements. 8. Defining and delineating responsibilities between Operator and Owner and identifying reporting requirements. 9. Establishing labor relations and personnel programs that will meet state and federal requirements and encourage employee retention. 10. Maintaining a current inventory of materials and procuring all services, spare parts, operational materials, consumables, office equipment, tools and shop equipment, or any other items or materials required to operate or maintain the Facility. Operator will identify required items, cost, quantity and need date. The cost of any item or service shall be reimbursed by Owner in accordance with this Agreement. 11. Controlling outages, both planned and unplanned, by using detailed and integrated plans and schedules, and resource management. 12. Maintaining Facility performance levels by using routine system and component performance testing. 13. Maintaining a file of preplanned outage-related work to allow for efficient use of any forced outage downtime. 14. Establishing open purchase order or contract agreements with Facility equipment vendors, industrial suppliers, jobbers, and maintenance contractors in accordance with Project Agreements to ensure timely response to Facility maintenance needs. 15. Promptly notifying Owner in writing of any teardowns and overhauls of major equipment or capital improvements that Operator believes are necessary or advisable together with a proposed schedule for completing such repairs or improvements. If the costs of such teardowns, overhauls or capital improvements have been incorporated into an approved Annual Budget or if Owner has otherwise consented in writing to reimburse Operator for such costs, Operator shall schedule, coordinate, contract and oversee the performance of such activities and shall be responsible for monitoring and enforcing compliance by the contractor performing such work, including taking such steps, short of litigation, to enforce any A-4 warranties granted to Owner by such contractor in accordance with Section 15.16 of this Agreement. E. Performing certain tasks, duties, responsibilities and obligations assigned to Owner under the Interconnection Agreements, including, but not limited to, the following: 1. Performing routine surveillance of all equipment routinely used to communicate with the System Operator. 2. Notifying the System Operator of any routine maintenance activities which will require clearance from the System Operator. 3. Providing the System Operator and Owner's Customers with all required information regarding the Facility's availability. 4. Responding to dispatch orders from the System Operator and Owner's Customers. 5. Monitoring and adjusting the reactive output of the generators to maintain transmission voltage levels within the capability of the Facility's generators. 6. Responding to and correcting generator dynamic instability in accordance with instructions from the System Operator. F. Execution or oversight of routine preventive maintenance ("PM") activities in accordance with Prudent Utility Practice, including, without limitation: 1. Lubrication Checks 2. Cleaning / Flushing 3. Preservation 4. Fluid Changes and Replacement 5. Visual Inspections 6. Operational Monitoring 7. Vibration Analysis 8. Chemical Analysis (water testing) 9. Trend Analysis 10. Calibration 11. Measurements 12. Adjustments 13. Hydrostatic Tests 14. Lube Oil Analysis (sampling only) 15. Replacement of Wear / Sacrificial Parts 16. Resistance Testing A-5 G. Execution or oversight of routine corrective maintenance ("CM") activities in accordance with Prudent Utility Practices to troubleshoot, inspect, and repair the equipment upon identification and detection of certain conditions, including without limitation: 1. Physical fault conditions such as: a. Blocked / stopped flow b. Fractures / break / breaches c. Cracks d. Distortion / displacement e. Corrosion / discoloration 2. Out of specification conditions such as: a. High / low flow, pressure, temperature, or chemistry b. Off voltage c. Out of limits / adjustments d. Erratic output e. Intermittent / spurious operation f. Failure to control / hold g. High / low output h. Improper timing 3. Demand fault conditions such as failure to: a. Start / run / operate b. Stop c. Open d. Close e. Move / release / respond 4. Abnormal characteristics such as: a. Overheating b. Noise c. Vibration d. Chatter e. False response 5. Leakage conditions such as: a. Leakage to surrounding environment b. Leakage past seats / stems / packing / seals A-6 CM activities not requiring equipment shutdown shall be performed as soon as possible and in order of priority. CM activities requiring equipment shutdown shall be performed when equipment is removed from service. H. The PM and CM activities will be inventoried and performed on a system-by-system basis and shall apply to the following equipment types: 1. Circuit Breakers (all types) 2. Batteries (all types) 3. Electric Heaters 4. Heat Tracing 5. Blowers 6. AC Motors (synchronous / induction) 7. DC Motors (synchronous / induction) 8. Valves (all types) 9. Valve Operators (air / motor / hydraulic) 10. Control Relays (AC / DC) 11. Transformers 12. Controllers 13. Recorders 14. Transmitters 15. Switches (all types) 16. Dampers 17. Fans / Compressors 18. Heat Exchangers 19. Radiators 20. Pumps 21. Filters / Strainers 22. Air Dryers 23. Tanks / Vessels 24. Pipe / Pipe Fittings / Pipe Supports 25. Combustion Turbines 26. Generators I. Performing such other tasks and services which Owner may reasonably request from time to time in connection with operation of the Facility. A-7 APPENDIX B COMPENSATION ------------ A. Reimbursable Cost items shall be paid to Operator in accordance with the requirements of Articles 5 and 7. Reimbursable Costs include: 1. Labor costs including allowances for payroll, taxes, bonuses and benefits 2. Spare and Replacement Parts 3. All Material, Tools and Equipment necessary to operate and maintain the Facility 4. Chemicals 5. Lubricants (including proper disposal costs) 6. Specialized Instrumentation and Calibration Equipment 7. Rigging and Handling Equipment 8. Consumables and General Supplies 9. Cleaning Supplies 10. Shop Equipment Installed in Facility 11. Authorized Leased Equipment 12. Specialized Test and Calibration Equipment 13. Major Equipment Overhauls 14. Building Repairs and Maintenance (not caused by contractors under the EPC Contracts) 15. Insurance costs in accordance with Section 9.1(c) 16. Taxes (excluding income) required to be paid by Operator 17. Costs related to training of plant personnel 18. Consultant's Fees and Expenses, if incorporated in the Annual Budget or otherwise approved in advance by Owner. B-1 19. Contract Services, if incorporated in the Annual Budget or otherwise approved in advance by Owner. B. The following will be Reimbursable Costs when specifically related to Facility support: 1. Office Supplies 2. Office Equipment and Furniture 3. Telephone and Other Communication Service Charges 4. Freight and Express Mail Charges 5. Janitorial, Cleaning, and Groundskeeping Services All Services by Operator and/or Affiliates which support Facility activities and all Reimbursable Costs shall be approved by Owner, through the Annual Budget or otherwise, prior to implementation by Operator. B-2 APPENDIX C COMMUNICATION PROTOCOLS ----------------------- Communication Protocols will incorporate not only communication between Owner and Operator, but also Operator's communication with certain third parties on Owner's behalf under the Project Agreements. Examples are attached hereto. EX-10.10 26 dex1010.txt COMMON FACILITIES AGREEMENT Exhibit 10.10 Execution Copy COMMON FACILITIES AGREEMENT Dated as of April 16, 1999 By and Between THE PEOPLES GAS LIGHT AND COKE COMPANY and ELWOOD ENERGY LLC COMMON FACILITIES AGREEMENT --------------------------- This Common Facilities Agreement (the "Agreement") is made and entered into as of April 16, 1999 (the "Effective Date") by and between The Peoples Gas Light and Coke Company, an Illinois corporation ("Peoples"), and Elwood Energy LLC, a Delaware limited liability company ("Elwood"). RECITALS -------- A. Peoples owns approximately 274 acres of real property in Elwood, Illinois legally described on Exhibit A-1 (the "Property"). B. Peoples and Elwood have entered into the Ground Lease dated September 30, 1998, as amended (the "Ground Lease"), pursuant to which Peoples has leased to Elwood approximately 21.465 acres of land, together with the improvements located thereon, which land is legally described in Exhibit A-2 (the "Premises"). The Property other than the Premises is sometimes referred to herein as the "McDowell Energy Center". C. Elwood intends to own, acquire, construct, lease, develop, permit, operate, finance and manage a 600 MW simple cycle peaking power generating facility and related assets, and up to 2500 MW of additional combined cycle and simple cycle power generating facilities and related assets, on the Premises and adjacent properties (such 600 MW facility and such other 2500 MW facilities, collectively the "Facility"). D. Elwood and Peoples desire to set forth their mutual agreement with respect to the shared use of certain facilities on the Property (the "Services") and the sharing of the costs and expenses with respect thereto by Elwood, Peoples and any tenants of Peoples. NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, Peoples and Elwood agree as follows: ARTICLE I DEFINITIONS Defined Terms. Unless the context otherwise requires, capitalized terms ------------- used in this Agreement shall have the meanings ascribed below, terms used in the singular shall include the plural; references to "Sections," "Exhibits" or "Appendices" are to sections, exhibits or appendices of this Agreement; a reference to a given agreement or instrument or to a Law is a reference to that agreement or instrument or Law, and the regulations promulgated thereunder, as amended, modified or supplemented from time to time; the words "include", "includes" and "including" are not limiting; the words "hereof", "herein" or "hereunder" and words of similar impact refer to this Agreement as a whole and not to any particular provision; and a reference to a Person includes permitted successors and assigns. "Affiliate" of a specified Person means any other Person that directly, or --------- indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified. For purposes of the foregoing, "control," "controlled by" and "under common control with" with respect to any Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Agreement" means this Common Facilities Agreement, including all exhibits, --------- appendices, attachments and amendments hereto. "Base Index" means the GDPIPD published for the calendar quarter ---------- immediately prior to the Effective Date. "Billing Period" means each calendar month; except that, in the event that -------------- the Effective Date or the Termination Date occurs on a day other than the first day of a calendar month, "Billing Period" shall mean, for such month or months only, the period from the Effective Date through the end of the calendar month during which the Effective Date occurs or the period from the beginning of the calendar month during which the Termination Date occurs through the Termination Date, respectively. "Blowdown Water" means water discharged from the Facility's inlet air -------------- coolers that meets the quantity and quality specifications set forth in Appendix D. "Construction Contracts" means the Agreement for Engineering, Procurement, ---------------------- Construction, & Installation Services for the Elwood Generation Facility dated July 23, 1998 between General Electric Company, a New York corporation ("GE"), and Elwood and the Agreement For Engineering, Procurement, Construction & Installation Services for the Elwood Generation Facility Phase II Units 3 & 4 dated September 25, 1998 between GE and Elwood. "Contract Year" means: (i) for the first Contract Year, that period from ------------- the Effective Date to and including December 31 of such year; and (ii) for each Contract Year thereafter, the calendar year. "Effective Date" has the meaning set forth in the introductory paragraph -------------- hereof. "Elwood" has the meaning set forth in the introductory paragraph hereof. ------ "Elwood's Fire Protection System" means the fire pumps, water pipes, fire ------------------------------- hydrants, sprinkler heads and other equipment to be installed by or on behalf of Elwood at the Facility 2 used to protect Elwood's employees and the Facility from harm due to fire, as more fully described in Appendix B. "Facility" has the meaning set forth in the Recitals. -------- "Fee" means, with respect to each Service, the charge therefor set forth in --- the applicable Appendix to this Agreement by the Party receiving such Service. "Final Acceptance" has the meaning set forth in the Construction Contracts. ---------------- "Financing Documents" means the loan agreements, notes, indentures, ------------------- security agreements and other documents, if any, relating to the financing (including refinancing) of the Facility, the Property, the McDowell Energy Center or any part thereof. "Fire Protection Water" means water to be supplied by Peoples to Elwood for --------------------- the operation of Elwood's Fire Protection System that meets the quantity and quality specifications set forth in Appendix B. Fire Protection Water may be supplied from wells operated by Peoples, or such other sources as Peoples may determine from time to time in its sole discretion. "Force Majeure Event" has the meaning set forth in Section 8.1. ------------------- "GDPIPD" means the final Gross Domestic Product Implicit Price Deflator ------ Index published for each quarter by the United States Department of Commerce, or, if such index is discontinued, such other comparable replacement index as the parties designate. "Governmental Authority" means any national, state or local government ---------------------- (whether domestic or foreign), any political subdivision thereof or any other governmental, judicial, public or statutory instrumentality, authority, body, agency, court or arbitrator with authority and valid jurisdiction to bind a party at law. "Ground Lease" has the meaning set forth in the Recitals. ------------ "Law" means any applicable statute, law, ordinance, code, rule, Permit, --- regulation, interpretation, judgment, decree, decision or order of any Governmental Authority. "Lender" means (i) any Person that, from time to time, has made loans to ------ Elwood or Peoples or their respective permitted successors or permitted assigns for the financing or refinancing of the Facility, the Property or the McDowell Energy Center or which are secured thereby, (ii) the holders of indebtedness evidencing any such loans, (iii) any Person acting on behalf of such lender(s) to whom any lenders' rights under financing documents have been transferred, any trustee on behalf of any such lenders, and any Person subrogated to the rights of the lenders, or (iv) any Person who purchases the Facility or the McDowell Energy Center in a 3 sale-leaseback financing in which the seller thereof leases back the Facility or the McDowell Energy Center (as the case may be), or any Lender to such Person. "Material Adverse Effect" means (i) any material adverse effect on the ----------------------- McDowell Energy Center or the Facility, (ii) any material adverse effect on the operation or utilization of the McDowell Energy Center or the Facility, or (iii) a material adverse effect on the rights or remedies of a Party under this Agreement, the Ground Lease or the Purchase and Sale Agreement. "Operating Agreement" means the Operating Agreement of Elwood dated July ------------------- 23, 1998 between Peoples Elwood, LLC, a Delaware limited liability company, and Dominion Elwood, Inc., a Delaware corporation. "Party" means either Peoples or Elwood. ----- "Payment Due Date" has the meaning set forth in Section 5.1. ---------------- "Peoples" has the meaning set forth in the introductory paragraph hereof. ------- "Peoples' Fire Protection System" means Peoples' tanks, fire pumps, water ------------------------------- pipes, fire hydrants, wells, sprinkler heads and other equipment existing at the McDowell Energy Center on the Peoples side of the Point of Interconnection used to protect Peoples' employees and the McDowell Energy Center from harm due to fire, as altered, modified or replaced from time to time. "Permits" means all applicable permits, licenses, approvals, ------- authorizations, consents, exemptions, waivers, variances, or filings with or otherwise issued by a Governmental Authority. "Person" means any individual, partnership, corporation, association, ------ business trust, limited liability company, government or political subdivision thereof, governmental agency or other entity. "Point of Interconnection" means either (i) the point of interconnection of ------------------------ Elwood's Service Water system and Peoples' Service Water system described in Appendix A, (ii) the point of interconnection of Elwood's Fire Protection System and Peoples' Fire Protection System described in Appendix B, (iii) the point of interconnection of Elwood's Storm Water discharge system and Peoples' Storm Water discharge system described in Appendix C, or (iv) the point of interconnection of Elwood's Blowdown Water discharge system and Peoples' Storm Water discharge system described in Appendix D, as the context requires. "Premises" has the meaning set forth in the Recitals. -------- 4 "Project Documents" means the Ground Lease, the Purchase and Sale ----------------- Agreement, Financing Documents, the Operating Agreement, and any operation and maintenance agreements executed in connection with the Facility and the Construction. "Prudent Operating Practice" means, with respect to the Services to be -------------------------- provided under this Agreement, the reasonable practices, methods, and acts which (i) are commonly used to operate and maintain facilities such as the McDowell Energy Center safely, reliably and efficiently and in compliance with applicable Laws, and (ii) at a particular time, in the exercise of reasonable judgment in light of the facts known or that reasonably should have been known at the time a decision was made, would have been expected to accomplish the desired result safely, reliably and efficiently in a manner consistent with applicable Law and this Agreement. "Purchase and Sale Agreement" means a Purchase and Sale Agreement, and any --------------------------- amendments thereto, in the form attached as Exhibit C to the Ground Lease at such time as it is executed by and between Elwood and Peoples. "Reference Index" means, for any Contract Year, the GDPIPD published for --------------- the calendar quarter immediately prior to the first day of such Contract Year. "Services" has the meaning set forth in Recital D. -------- "Service Water" means untreated water from wells on Peoples' property or ------------- from such other source(s) that Peoples may develop. "Storm Water" means surface runoff from precipitation of any form ----------- discharged from the Facility at one or more Points of Interconnection described on Appendix C to People's storm water system that meets the quality specifications in Appendix C. "Term" has the meaning set forth in Section 3.1. ---- "Termination Date" means December 31, 2028 unless this Agreement is ---------------- terminated earlier in accordance with the provisions of Article VII in which case "Termination Date" means the date this Agreement terminates under such Article VII. ARTICLE II SERVICES PROVIDED BY PEOPLES TO ELWOOD Subject to the terms and conditions of this Agreement and for the compensation set forth in Article V, commencing on the Effective Date and continuing through the Termination Date, Peoples agrees to provide the following Services to Elwood, and Elwood agrees to purchase the Services from Peoples: 5 Section 2.1 Service Water ------------- (a) Peoples' Responsibilities. Commencing April 1, 1999 Peoples shall ------------------------- use best efforts to provide Service Water at the Point of Interconnection and pursuant to the quality, quantity and other specifications set forth in Appendix A. Peoples shall own, operate and maintain in accordance with applicable Law and Prudent Operating Practice such facilities on its side of the applicable Point of Interconnection as are necessary to provide Service Water to Elwood in accordance with this Agreement. Peoples shall be responsible for obtaining and maintaining all Permits that are necessary for the operation of the wells and other water supply sources and the provision of Service Water hereunder. Peoples shall not take any action or use or permit the use of its wells and other water supply sources in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with the provision of Services under this Section 2.1. Peoples shall not amend or modify any of such Permits without the consent of Elwood, which consent shall not be unreasonably withheld or delayed (and which shall be deemed given unless Elwood notifies Peoples of its decision to refuse consent within 30 days of Peoples request). (b) Elwood's Responsibilities. Elwood shall be responsible at its sole ------------------------- cost and expense for the design, construction and installation of Elwood's Service Water system, including physically connecting Elwood's Service Water system with Peoples' Service Water system at the Point of Interconnection, all in accordance with Prudent Operating Practice. The work for such physical connection shall be conducted in a manner and at times reasonably acceptable to Peoples, and Elwood shall provide to Peoples any and all schedules, advance notices and other information that Peoples' representatives may request concerning such work. Prior to construction of the Point of Interconnection, Elwood shall submit to Peoples for Peoples' approval, which shall not be unreasonably withheld or delayed (and which shall be deemed given unless Peoples notifies Elwood of its decision to refuse consent within 30 days of Elwood's request), all design drawings for the Point of Interconnection. Upon completion of construction of the Point of Interconnection and Elwood's Service Water system, Elwood shall provide Peoples with a copy of "as-built" engineering drawings of the Point of Interconnection and Elwood's Service Water system. Elwood shall be responsible for the maintenance of Elwood's Service Water system at its sole cost and expense, except with respect to Peoples' obligations expressly set forth in Section 2.1(a). Elwood shall not take any action or use or permit the use of Elwood's Service Water system in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with Peoples' Service Water system or Peoples' provision of Services under Section 2.1(a). (c) Termination. Notwithstanding anything contained herein to the ----------- contrary, Peoples may terminate the provision of Service under this Section 2.1 without liability and without need 6 to show cause by a notice in writing pursuant to Article XIII of this Agreement at least twelve (12) months before the effective date of such termination. Section 2.2 Fire Protection Water --------------------- (a) Peoples' Responsibilities. Commencing on the later of April 1, ------------------------- 1999 and the date on which Elwood has connected Elwood's Fire Protection System to Peoples' Fire Protection System at the Point of Interconnection, Peoples shall use best efforts to provide Fire Protection Water to Elwood at the Point of Interconnection and pursuant to the quality, quantity and other specifications set forth in Appendix B. Peoples shall own, operate, and maintain Peoples' Fire Protection System and any wells or other sources of Fire Protection Water in accordance with all applicable Laws and Prudent Operating Practice. Peoples shall be responsible for obtaining and maintaining all Permits that are necessary for the operation of Peoples' Fire Protection System and the provision of Fire Protection Water to Elwood's Fire Protection System hereunder. Peoples shall not take any action or use or permit the use of Peoples' Fire Protection System in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with the intended use by Elwood of Elwood's Fire Protection System or Peoples' provision of Services under this Section 2.2. Peoples shall not amend or modify any of such Permits without the consent of Elwood, which consent shall not be unreasonably withheld or delayed (and which shall be deemed given unless Elwood notifies Peoples of its decision to refuse consent within 30 days of Peoples request). (b) Elwood's Responsibilities. Elwood shall be responsible at its ------------------------- sole cost and expense for the design, construction and installation of Elwood's Fire Protection System, including physically connecting Elwood's Fire Protection System with Peoples' Fire Protection System at the Point of Interconnection, all in accordance with Prudent Operating Practice. The work for such physical connection shall be conducted in a manner and at times reasonably acceptable to Peoples, and Elwood shall provide to Peoples any and all schedules, advance notices and other information that Peoples' representatives may request concerning such work. Prior to construction of the Point of Interconnection, Elwood shall submit to Peoples for Peoples' approval (which shall not be unreasonably withheld or delayed and which shall be deemed given unless Peoples notifies Elwood of its decision to refuse consent within 30 days of Elwood's request) all design drawings for the Point of Interconnection. Upon completion of construction of the Point of Interconnection and Elwood's Fire Protection System, Elwood shall provide Peoples with a copy of "as-built" engineering drawings of the Point of Interconnection and Elwood's Fire Protection System. Elwood shall be responsible for the maintenance of Elwood's Fire Protection System at its sole cost and expense, except with respect to Peoples' obligations expressly set forth in this Section 2.2. Elwood shall not take any action or use or permit the use of Elwood's Fire Protection System in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals 7 obtained or required to be obtained in connection with Peoples' Fire Protection System or Peoples' provision of Services under this Section 2.2. (c) Alterations or Improvements to the McDowell Energy Center. If --------------------------------------------------------- Peoples desires to make alterations or improvements to the existing McDowell Energy Center which would result in Fire Protection Water being inadequate to meet the requirements for operation of both the McDowell Energy Center and the Facility, Peoples shall provide Elwood with written notice eighteen (18) months in advance of the date that either Elwood's Fire Protection System or Peoples' Fire Protection System will become inadequate. Upon receiving such notice, Elwood shall have the option of installing its own modifications to Elwood's Fire Protection System (including procuring its own Fire Protection Water) or equitably sharing in the expenses for such alterations or improvements as are necessary and mutually acceptable to the Parties to meet the needs of both the McDowell Energy Center and the Facility and modifying the prices set forth in Appendix B to reflect such equitable sharing. (d) Termination. Notwithstanding anything contained herein to the ----------- contrary, Peoples may terminate the provision of Service under this Section 2.2 without liability and without need to show cause by a notice in writing pursuant to Article XIII of this Agreement at least eighteen (18) months before the effective date of such termination. Section 2.3 Storm Water ----------- (a) Elwood's Responsibilities. Elwood has caused, at its sole cost ------------------------- and expense, a storm water retention pond and associated facilities to be constructed for its own use in accordance with the requirements of this Agreement and good engineering practice, in a lien free manner, at a site on the McDowell Energy Center identified on Appendix C (the "Retention Pond"). Elwood shall be responsible at its sole cost and expense for the design, construction and installation of Elwood's Storm Water discharge system, including physically connecting Elwood's Storm Water discharge system with Peoples' Storm Water discharge system at the Point of Interconnection, all in accordance with Prudent Operating Practice. The work for such physical connection shall be conducted in a manner and at times reasonably acceptable to Peoples, and Elwood shall provide to Peoples any and all schedules, advance notices and other information that Peoples' representatives may request concerning such work. Prior to construction of the Point of Interconnection, Elwood shall submit to Peoples for Peoples' approval, which shall not be unreasonably withheld or delayed (and which shall be deemed given unless Peoples notifies Elwood of its decision to refuse consent within 30 days of Elwood's request), all design drawings for the Point of Interconnection. Upon completion of construction of the Point of Interconnection and Elwood's Storm Water discharge system, Elwood shall provide Peoples with a copy of "as-built" engineering drawings of the Point of Interconnection and Elwood's Storm Water discharge system. Elwood shall be responsible for the maintenance of Elwood's Storm Water discharge system at its sole cost and expense, except with respect to Peoples' obligations expressly set forth in this Section 2.3. Elwood shall not take any action or use or permit the use of Elwood's Storm Water discharge system in any manner which would 8 cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with Peoples' Storm Water discharge system or Peoples' provision of Services under this Section 2.3. Elwood shall have the right to discharge its Storm Water into Peoples' Storm Water discharge system provided such Storm Water meets the specifications set forth in Appendix C. Elwood shall own, operate or maintain at its sole expense, such equipment as is necessary to ensure that the Storm Water delivered to Peoples meets the quality specifications set forth in Appendix C. To the fullest extent permitted by Law, Elwood hereby agrees to indemnify, save and hold Peoples and its Affiliates harmless from all costs, expenses (including reasonable attorneys' fees and court costs), losses (including the loss of any Permits), damages, fines and penalties arising out of any claims, demands and causes of action which may be asserted by any Person directly or indirectly resulting from Elwood's failure to discharge Storm Water that meets the requirements of Appendix C. (b) Peoples' Responsibilities. Peoples shall accept and dispose of ------------------------- Storm Water that is delivered by Elwood to Peoples at the Point of Interconnection which meets the requirements set forth in Appendix C in accordance with applicable Law and Prudent Operating Practice. Peoples shall not be required to accept or dispose of Storm Water that fails to conform to the specifications set forth in Appendix C. Peoples shall be responsible for obtaining and maintaining all Permits that are necessary for the acceptance and disposal of Elwood's Storm Water that meets the specifications set forth in Appendix C. Peoples shall also use best efforts to provide that Elwood's Storm Water is authorized under such Permits. Peoples shall not take any action or use or permit the use of its Storm Water discharge system in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with the provision of Services under this Section. Peoples shall not amend or modify any of such Permits without the consent of Elwood, which consent shall not be unreasonably withheld or delayed (and which shall be deemed given unless Elwood notifies Peoples of its decision to refuse consent within 30 days of Peoples' request). (c) Nonconforming Discharge. If Elwood discharges Storm Water into ----------------------- Peoples' Storm Water discharge system that fails to meet the specifications set forth in Appendix C, the Party that first becomes aware of such nonconforming discharge shall immediately notify the other Party and Elwood shall take at its sole cost and expense all steps necessary to prevent the further discharge of such nonconforming Storm Water. In addition, if Elwood fails to prevent the further discharge of such nonconforming Storm Water within seven (7) days of the date Elwood first becomes aware of such nonconforming discharge and such failure continues for three (3) days after notice is given to Elwood from Peoples, then Peoples may stop providing Service under this Section 2.3 until Peoples is reasonably satisfied that the discharge of nonconforming Storm Water has ceased. 9 (d) Termination. Notwithstanding anything contained herein to the ----------- contrary, Peoples may terminate the provision of Service under this Section 2.3 without liability and without need to show cause by a notice in writing pursuant to Article XIII of this Agreement at least eighteen months before the effective date of such termination. Section 2.4 Blowdown Water Discharge Services --------------------------------- (a) Peoples' Responsibilities. Commencing April 1, 1999, Peoples ------------------------- shall accept and dispose of Blowdown Water that is delivered by Elwood to Peoples at the respective Points of Interconnection and pursuant to the quality, quantity and other specifications set forth in Appendix D in accordance with applicable Law and Prudent Operating Practice. Peoples shall not be required to dispose of Blowdown Water in excess of the quantities specified or that fails to conform to the qualities specified in Appendix D. Peoples shall own, operate and maintain in accordance with applicable Law and Prudent Operating Practice such facilities as are necessary to provide Services under this Section 2.4. Peoples shall be responsible for obtaining and maintaining all Permits that are necessary for the disposal of Blowdown Water hereunder. Peoples shall not take any action or use or permit the use of its facilities in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with the provision of Services under this Section 2.4. Peoples shall not amend or modify any of such Permits without the consent of Elwood, which consent shall not be unreasonably withheld or delayed (and which shall be deemed given unless Elwood notifies Peoples of its decision to refuse consent within 30 days of Peoples' request). (b) Elwood's Responsibilities. Elwood shall be responsible at its ------------------------- sole cost and expense for the design, construction and installation of Elwood's Blowdown Water discharge system, including physically connecting Elwood's Blowdown Water discharge system with Peoples' Storm Water discharge system at the Point of Interconnection, all in accordance with Prudent Operating Practice. The work for such physical connection shall be conducted in a manner and at times reasonably acceptable to Peoples, and Elwood shall provide to Peoples any and all schedules, advance notices and other information that Peoples' representatives may request concerning such work. Prior to construction of the Point of Interconnection, Elwood shall submit to Peoples for Peoples' approval, which shall not be unreasonably withheld or delayed (and which shall be deemed given unless Peoples notifies Elwood of its decision to refuse consent within 30 days of Elwood's request), all design drawings for the Point of Interconnection. Upon completion of construction of the Point of Interconnection and Elwood's Blowdown Water discharge system, Elwood shall provide Peoples with a copy of "as-built" engineering drawings of the Point of Interconnection and Elwood's Blowdown Water discharge system. Elwood shall be responsible for the maintenance of Elwood's Blowdown Water discharge system at its sole cost and expense, except with respect to Peoples' obligations 10 expressly set forth in this Section 2.4. Elwood shall not take any action or use or permit the use of Elwood's Blowdown Water discharge system in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with Peoples' sewage system or Peoples' provision of Services under this Section 2.4. Elwood shall have the right to discharge Blowdown Water into Peoples' Storm Water discharge system that meets the specifications set forth in Appendix D. Elwood shall own, operate or maintain at its sole expense, such equipment as is necessary to ensure that the Blowdown Water delivered to Peoples meets the specifications set forth in Appendix D. (c) Nonconforming Discharge. If Elwood discharges Blowdown Water into ----------------------- Peoples' Storm Water discharge system that fails to meet the specifications set forth in Appendix D, the Party that first becomes aware of such nonconforming discharge shall immediately notify the other Party and Elwood shall take all reasonable steps at its disposal site to prevent the further discharge of such nonconforming Blowdown Water. In addition, if Elwood fails to prevent the further discharge of such nonconforming Blowdown Water within seven (7) days of the date Elwood first becomes aware of such nonconforming discharge, and such failure continues for three (3) days after notice is given to Elwood from Peoples, then Peoples may stop providing Blowdown Water disposal Service until Peoples is reasonably satisfied that the discharge of nonconforming Blowdown Water has ceased. (d) Termination. Notwithstanding anything contained herein to the ----------- contrary, Peoples may terminate the provision of Service under this Section 2.4 without liability and without need to show cause by a notice in writing pursuant to Article XIII of this Agreement at least eighteen (18) months before the effective date of such termination. Section 2.5 Office Space, Restrooms, Showers, Locker Rooms, Warehousing ----------------------------------------------------------- and Machine Shop Access - ----------------------- (a) Peoples Responsibilities. Commencing October 1, 1998, Peoples ------------------------ shall allow Elwood to occupy certain office space and use certain restrooms, showers, locker rooms, warehouse space and use of a machine shop depicted on Appendix E (the "Office and Warehouse Space"), including desks, restrooms, and storage for keeping records. Peoples shall provide normal heating and cooling for such facilities. The Office and Warehouse Space shall be located as shown on Appendix E or as otherwise mutually agreed to by the Parties. Elwood's use of the Office and Warehouse space shall be only for such period of time as reasonably necessary until Elwood constructs its own such facilities, and in any event no later than December 31, 1999 and month to month thereafter, subject to mutual agreement of the Parties (the "Office and Warehouse Space Termination Date"). Payment of costs and expenses as well as other applicable terms and conditions relating to such facilities shall be as set forth on Appendix E. 11 (b) Elwood's Responsibilities. Elwood shall be responsible for ------------------------- maintaining the Office and Warehouse Space in a clean and professional manner and will be responsible for the procurement of potable water, telephone and any other services ancillary to its use of the Office and Warehouse Space. At the conclusion of Elwood's use of the Office and Warehouse Space, and in any event no later than the Office and Warehouse Space Termination Date, Elwood shall return the Office and Warehouse Space to Peoples broom clean and in the same condition it was provided to Elwood by Peoples, ordinary wear and tear excepted. Elwood agrees to indemnify and hold Peoples and its Affiliates harmless from and against all costs, expenses (including reasonable attorneys' fees and court costs), losses (including the loss of any Permits), damages, fines and penalties arising out of any claims, demands and causes of action which may be asserted by any Person directly or indirectly resulting from Elwood's occupancy of the Office and Warehouse Space. (c) No Warranty. THE OFFICE AND WAREHOUSE SPACE IS PROVIDED ----------- HEREUNDER ON AN "AS IS AND WHERE IS" BASIS, WITH ALL FAULTS AND DEFECTS PATENT AND LATENT, WITHOUT ANY WARRANTIES WHATSOEVER. ALL WARRANTIES EXPRESS OR IMPLIED, ARE HEREBY DISCLAIMED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Section 2.6 Easements --------- At the request of Elwood, and upon the conditions set forth in the following sentence, Peoples shall grant to Elwood (i) an easement over, upon and under the "Lessor's Parcel" (as defined in the Ground Lease) for the purpose of constructing, using, and maintaining an underground water line and related pipes and other facilities, for the purpose of supplying Service Water to the Facility, and (ii) an easement over, upon and under the Lessor's Parcel for the purpose of constructing, using, and maintaining an underground line for Blowdown Water and related pipes and other facilities, for the purpose of carrying such Blowdown Water to a treatment facility or to another discharge point, located off of the Lessor's Parcel, and (iii) an easement over, upon and under the Lessor's Parcel for the purpose of constructing, using, and maintaining an underground line for Storm Water and related pipes and other facilities, for the purpose of carrying such Storm Water to a discharge point for which Elwood has obtained necessary permits (whether or not located on the Lessor's Property) or to a treatment facility or to another discharge point located off of the Lessor's Parcel, and (iv) an easement over, upon and under the Lessor's Parcel for the purpose of constructing, using, and maintaining an underground water line and related pipes and other facilities, for the purpose of supplying Fire Protection Water to the Facility. Elwood shall be entitled to request such easements, and Peoples shall grant such easements in the event that (A) in the case of the easement for Service Water described in clause (i) above, the Facility's use or anticipated use of Service Water exceeds the Service Water quantities described on Appendix B, (B) in the case of the easements for each of Service Water, Blowdown Water, Storm Water and Fire Protection Water, (x) Peoples terminates its obligation to provide Service pursuant to Section 2.1(c), 2.2(d), 2.3(d) or 12 2.4(d) hereof, as applicable or (y) either party terminates this Agreement pursuant to Section 7.3 hereof. The location of each such easement shall be subject to the reasonable approval of Peoples. Elwood shall pay for all costs of constructing, installing, using and maintaining such easements and the lines and other facilities located therein in a lien free manner and in accordance with Prudent Operating Practice, and Elwood shall at all times keep such easements and the facilities located therein in good condition and repair in accordance with Prudent Operating Practice. In the event Peoples anticipates incurring any costs or expenses in connection with the location of any such easements or the installation of said underground facilities, Peoples shall inform Elwood of the estimated amount thereof before incurring same. Within ten days after receipt of such estimated costs, Elwood shall elect either to (i) proceed with the work or location giving rise to such costs, in which case Elwood shall promptly reimburse Peoples for such costs upon demand, or (ii) discontinue such proposed work or revise its plans for such work, in which case Peoples shall not incur such costs or shall inform Elwood of the estimated costs to be incurred by Peoples in the case of such revised plans. Peoples shall have the right to use the surface of the Lessor Parcel subject to such easements for all purposes that do not materially interfere with Elwood's use and enjoyment of such easements. Peoples shall have the right, from time to time, to relocate the aforesaid easements to other areas of the Lessor's Parcel reasonably acceptable to Elwood, at Peoples cost, provided such relocation does not materially interfere with the operation of the Facility. Peoples hereby grants to Elwood a nonexclusive easement over, upon and under the Lessor's Parcel for the construction, use and operation of and for the discharge of Storm Water into, the Retention Pond and associated pipes and facilities, on and under the real property described in Exhibit B. The Retention Pond and associated pipes and facilities shall be operated and maintained by Elwood as part of Elwood's Storm Water discharge system. The easement granted hereby shall terminate at such time, if ever, that Peoples leases or sells to Elwood the real property on which the Retention Pond is located. Peoples and Elwood agree to execute an easement agreement mutually acceptable in form and substance to both Parties for recording in the Office of the Recorder of Deeds of Will County to provide public notice of the granting of said easement. Section 2.7 Landscaping ----------- (a) Peoples' Responsibilities. Peoples shall provide to Elwood ------------------------- landscaping services with respect to the areas depicted on Exhibit A-2. Peoples shall supply all necessary personnel, equipment and materials in connection with these Services. (b) Termination. In the event that Peoples desires to terminate ----------- its obligations under this Section 2.7, Peoples shall provide forty-five (45) days prior written notice to Elwood and Elwood shall no longer be liable for the cost of providing such maintenance activities. Section 2.8. Generation and Disposal of Waste. All solid, special and -------------------------------- hazardous waste and used oil generated by Elwood at the Facility shall be managed on site and transported 13 and disposed of at offsite facilities in compliance with all Laws and at Elwood's sole cost and expense. Elwood shall be responsible for obtaining at its sole cost and expense any required hazardous waste generator number from EPA or IEPA as applicable for Elwood's operation of the Facility. All solid, special and hazardous waste and used oil generated in Elwood's operation of the Facility shall be manifested in Elwood's name. Section 2.9 EPCRA Reporting. --------------- (a) Pursuant to the Emergency Planning and Community Right-to-Know Act ("EPCRA"), certain notifications must be made to governmental authorities when any "extremely hazardous substances" and any "hazardous chemical" (as defined under EPCRA) are brought to a facility above certain threshold quantities. Within twenty (20) days of Elwood bringing any extremely hazardous substance or hazardous chemical onto the Facility for which a threshold quantity has been set under EPCRA, Elwood shall transmit to Peoples, at a minimum, (i) a copy of the Material Safety Data Sheet, (ii) the quantity of such extremely hazardous substance(s) and hazardous chemical(s) brought on site, as well as the quantity of any then existing inventory. Peoples shall comply with the applicable notification requirements under EPCRA if the quantity of the extremely hazardous substance or the hazardous chemical on Peoples' retained land and the Facility exceeds the threshold reporting requirement. Peoples shall send a copy of any such notices to Elwood. (b) Notwithstanding anything contained herein to the contrary, Peoples may terminate the provision of Services under this Section 2.9 without liability and without need to show cause by delivering written notice to Elwood at any time after any termination of the Ground Lease. Section 2.10 Air Monitoring and Reporting. Section 21.2 of the Ground ---------------------------- Lease provides for Elwood to construct and initially operate the "Elwood Generation Assets" (as defined in the Ground Lease) pursuant to People's Prevention of Significant Deterioration Construction Permit ("PSD Permit") and to operate the Elwood Generation Assets under Peoples' operating permit to be issued under Title V of the Clean Air Act (the "Title V Permit"). This right to operate the Elwood Generation Assets under such permits continues until such time as the necessary operating permits for the Elwood Generation Assets are moved into Elwood's name as set forth in such Section 21.2 of the Ground Lease. Until such time as issuance of a Title V Permit for operation of the Elwood Generation Assets in Elwood's name, Elwood shall comply, at Elwood's sole cost and expense, with the requirements, including but not limited to the air monitoring, record keeping and reporting requirements under the PSD Permit or Title V Permit as such permits apply to the operation of the Elwood Generation Assets (the "Pre-Elwood Title V Period"). During such Pre-Elwood Title V Period, Elwood shall provide Peoples with any monitoring reports required for submission to IEPA within a reasonable period of time under the circumstances before such reports are due to IEPA for review and comment by Peoples. In no event shall Elwood delay the timely submission of such monitoring reports to IEPA in waiting for or in attempting to address Peoples' comments. This Section 2.10 shall in no way 14 alter or eliminate the rights and obligations of Peoples and Elwood under Section 21.2 of the Ground Lease. Section 2.11 Additional Services. The Services set forth in this Article ------------------- II are the only Services Peoples is obligated to provide to Elwood. Subject to the Parties' mutual agreement to compensation and other terms, each Party agrees to negotiate in good faith to provide the other with any and all Services in addition to those specified in this Agreement that are necessary to the implementation and purposes of this Agreement and are reasonably requested by either Party. ARTICLE III TERM Section 3.1 Term. The term of this Agreement shall commence on the ---- Effective Date and shall terminate on December 31, 2028, unless this Agreement is terminated earlier in accordance with the terms of Article VII. ARTICLE IV COMPENSATION FOR SERVICES Section 4.1 Payment Schedule. Elwood shall compensate Peoples for the ---------------- Services provided pursuant to Article II in accordance with the payment schedules set forth in Appendices A through E. Section 4.2 Taxes. In addition to the Fees set forth in Appendices A ----- through E, Elwood shall pay (or reimburse Peoples for) all sales, use or other transfer taxes imposed by Law upon the provision of such Service or commodity. Section 4.3 Increased Cost of Service. The Parties acknowledge and agree ------------------------- that, except as expressly identified in the Appendices, the Services to be provided under this Agreement are expected to be provided using the existing facilities of the McDowell Energy Center (subject to repair or replacement during the ordinary course of business) and under operating circumstances similar in all material respects to those in existence as of the date of this Agreement. In the event that additions or improvements (as compared to repairs or replacements) to such existing facilities of the McDowell Energy Center are necessary to continue to provide these Services beyond those that could reasonably be expected under existing operating conditions, whether as a result of changes in the nature of the Facility's operations, changes required by applicable Law or otherwise, Peoples shall notify Elwood of such necessary changes and either (i) the Parties shall develop a mutually agreeable amendment to this Agreement to develop and execute a plan for such additions or improvements, including an appropriate sharing of expenses, or a modification of the prices set forth in the applicable Appendix or (ii) Elwood shall elect not to have such Services provided by Peoples. 15 Section 4.4 Adjustments to Cost of Service. Beginning on the first day of ------------------------------ the second Contract Year and on the first day of each Contract Year thereafter (subject to the other provisions of this Section 4.4), the annual Fees for each respective Service (and the corresponding monthly Fees) shall be adjusted to reflect changes in the GDPIPD, as follows: (i) the Fee set forth in the applicable Appendix multiplied by (ii) a fraction, the numerator of which is the Reference Index and the denominator of which is the Base Index. Notwithstanding anything contained herein to the contrary, in the event that a Party providing Services to the other Party hereunder reasonably determines that the cost of providing a particular Service is greater than or less than the agreed upon Fee for such Service set forth in the applicable Appendixes, then the Parties shall negotiate in good faith for an increase or decrease, as the case may be, in compensation to be paid to the Party providing such Service; provided, however, that there shall not be permitted hereunder an increase or decrease, as the case may be, in the Fee for any Service more frequently than once in an Contract Year (except for an increase or decrease reflecting a change in the GDPIPD as provided in the first sentence of this Section 4.4). In the absence of the Parties being able to agree on any equitable cost allocation, any Party's cost for such Services shall be proportionate to reflect the percentage of such Party's use represents as a percentage of the whole. Notwithstanding the above, no amendment shall be required and no sharing of expenses or adjustment of the Fees set forth in the applicable Appendix shall be made in the event that an addition or modification to the facilities needed to provide the Services is undertaken solely for discretionary or other purposes unrelated to this Agreement or because of the negligence or willful misconduct of the Party obligated to provide the Service in question. ARTICLE V BILLING AND PAYMENT Section 5.1 Billing. Invoices for the Services provided hereunder during ------- each Billing Period shall be rendered by the Party providing the applicable Service (the "Providing Party") to the Party receiving such Service (the "Receiving Party") following the end of such Billing Period. Subject to Section 5.3 hereof, the Receiving Party shall pay the Providing Party in full within thirty (30) days of its receipt of the invoice from Providing Party (the "Payment Due Date"). Section 5.2 Interest on Late Payments. Any amount owing pursuant to ------------------------- Section 5.1 but unpaid beyond the Payment Due Date shall accrue interest from the Payment Due Date to the date payment is made at the lesser of (a) a rate per annum equal to the prime lending rate quoted to responsible commercial borrowers on ninety (90) day loans by Bank of America, NT&SA, plus two percent (2%) or (b) the maximum rate permitted by law. Section 5.3 Disputed Payments. In the event the Receiving Party disputes ----------------- a portion of any amount due hereunder, the Receiving Party shall provide notice to the Providing Party on or before the Payment Due Date, stating the amount in dispute and the basis of such dispute and shall pay any undisputed amount. Upon resolution of such dispute, any amount owing shall be paid with interest as set forth in Section 5.2. Unless resolved by mutual agreement of the Parties 16 within ninety (90) days of the Payment Due Date, any dispute regarding any amount due shall be resolved in accordance with the provisions of Article XI. Section 5.4 Billing Records. The Providing Party shall maintain and --------------- preserve in a neat and orderly fashion, for a period of not less than three (3) years, all written and electronic records of all data and information used to calculate the amount of any invoice, including, without limitation, receipts showing the source, quantity and price of all expenses incurred by the Providing Party in performing the Services. Upon reasonable advance request, the Receiving Party shall have access to such records during normal business hours for purposes of inspection, auditing and copying. ARTICLE VI RIGHTS OF ACCESS Peoples and its contractors, employees, agents and other entities that supply goods or services to Peoples in connection with Peoples' performance of this Agreement shall be entitled to enter the Facility to the extent necessary in order to perform Peoples' obligations hereunder. The Parties shall mutually agree on a mechanism to identify those Persons supplying goods and Services with a need to enter the Facility and, so far as practicable, the Parties shall mutually agree in advance upon the routes of access to the Facility to be used by such Persons. All Persons who enter the Facility pursuant to this Article VI shall enter the Facility subject to Elwood's reasonable rules for safety and security, and such other reasonable rules or conditions Elwood may impose. Peoples shall not take any action or request access to the Facility for any purpose which could reasonably be expected to have a Material Adverse Effect. ARTICLE VII EVENTS OF DEFAULT AND TERMINATION Section 7.1 Events of Default. An event of default under this Agreement ----------------- (an "Event of Default") shall be deemed to exist upon the occurrence of any one or more of the following events: (a) Failure by a Providing Party to provide any of the Services at the respective times required therefor by this Agreement, which failure continues for a period of ten (10) days after receipt of written notice of such failure; (b) Failure by the Receiving Party to make payment of any amount due to the Providing Party under this Agreement when such payment is due hereunder, which failure continues for a period of ten (10) days after receipt of written notice of such nonpayment, unless such amount is in dispute, in which case the provisions of Article XI shall apply; 17 (c) Failure by Elwood to vacate the Office and Warehouse Space by more than two (2) days following the Office and Warehouse Space Termination Date; (d) Failure by a Party to perform any other material obligation under this Agreement, which failure (i) continues for a period of forty-five (45) days after receipt of written notice of such failure, or (ii) such longer period as is reasonably necessary for the nonperforming Party to cure such failure, provided the nonperforming Party commences efforts to cure such failure within forty-five (45) days after receipt of written notice of such failure and thereafter proceeds with all due diligence to cure such failure; provided, however, the cure period provided for in this clause (ii) shall not exceed 180 days unless the defaulting Party notifies the other Party, prior to the expiration of such 180-day period, that such 180-day period is insufficient to cure such default with the exercise of best efforts and provides to the other Party together with such notice a reasonable plan and schedule for curing such default; or (e) If a Party fails to comply with the terms of any decision or order issued pursuant to Article XI, and such failure continues (i) for thirty (30) days after receipt of notice thereof, or (ii) such longer period (not to exceed 180 days) as is reasonably necessary for the nonperforming Party to cure such failure, provided the nonperforming Party commences efforts to comply with such decree or order within thirty (30) days after receipt of written notice thereof and thereafter proceeds with all due diligence to cure such failure. Section 7.2 Notice to Lender, Opportunity to Cure. Anything in this ------------------------------------- Agreement notwithstanding, from and after the closing date of any loans under the Financing Documents, Peoples shall not seek to terminate this Agreement as the result of any default of Elwood without first giving a copy of any notices required to be given to Elwood under Section 7.1 to the Lenders, such notice to be coupled with a request to the Lenders to cure any such default within the applicable cure period provided to Elwood, such cure period to begin on the date of such notice to the Lenders. If there is more than one Lender, the Lenders will designate in writing to Peoples an agent (the "Agent") and any notice required hereunder shall be delivered to such Agent, such notice to be effective upon delivery to the Agent as if delivered to each of the Lenders. The address for Lender or Agent shall be provided to Peoples by Elwood and thereafter may be changed by the Lender or the Agent by subsequent delivery of a notice to Peoples at the address for Peoples provided in Article XIII (or at such other address subsequently delivered to the Lender or the Agent in accordance with this Section 7.2) and otherwise in accordance with the requirements of Article XIII. No rescission or termination of this Agreement by Peoples pursuant to Section 7.3(a) or Section 7.3(c) shall be valid or binding upon the Lenders without such notice, the expiration of such cure period, and the expiration of the Extended Cure Period (as defined below) provided in this Section 7.2. The Lenders may make, but shall be under no obligation to make, any payment or perform any act required to be made or performed by Elwood, with the same effect as if made or performed by Elwood. If the Lenders fail to cure or are unable or unwilling to cure any Event of Default by Elwood within the applicable cure period provided to Elwood in this Agreement, 18 Peoples shall have all its rights and remedies with respect to such default as set forth in this Agreement; provided, however, that if the cure by the Lenders of the Event of Default requires the Lenders to take control of, and occupy, the Facility, the Lenders, upon the termination of the cure period provided to Elwood, such cure period commencing on the delivery of such notice to the Lenders shall be offered a further period (the "Evaluation Period"), during which the Lenders shall evaluate such default, the condition of the Facility, and other matters relevant to the actions to be taken by the Lenders concerning such default, and which Evaluation Period shall end on the sooner to occur of (i) the Lenders' delivery to Peoples of a notice that the Lenders have elected to pursue their remedies under the Financing Documents and assume the rights and obligations of Elwood under this Agreement (an "Election Notice"), or (ii) thirty (30) days following the end of the cure period. Upon the delivery of the Election Notice, the Lenders shall be granted an additional period or six (6) months to cure any Event of Default (the "Extended Cure Period"). In the event that the Lenders fail to cure any Event of Default on or before the expiration of the Extended Cure Period, as it may have been extended, Peoples may exercise its rights and remedies with respect to such default set forth in this Agreement, and may immediately terminate this Agreement, and such termination shall be effective on delivery to the Lenders or the Agent of notice of such termination. Section 7.3 Remedies; Termination. Upon the occurrence and continuation --------------------- of an Event of Default, the non-defaulting Party, in addition to any other remedies it may have under this Agreement, may do any or all of the following (which remedies shall be cumulative): (a) Terminate this Agreement upon thirty (30) days' written notice to the defaulting party; provided, however, no such termination shall terminate Elwood's right to request, and Peoples obligation to grant, the easements referred to in Section 2.6 hereof pursuant to the terms and conditions set forth therein, which Section shall survive any such termination of this Agreement; and provided further, however, if Peoples terminates this Agreement as a result of an Event of Default, Peoples will enter into a new common facilities agreement with the Lenders or their nominee, for the remainder of the term hereof, effective as of the date of such termination, upon the terms, provisions, covenants and agreements herein contained and subject only to the rights, if any, of any parties then in possession of any part of the Lessor's Parcel, provided: (i) the Lenders, the Agent or its or their nominee shall make written request upon Peoples for such new common facilities agreement within fifteen (15) days after the date of such termination and such written request is accompanied by payment to Peoples of sums then due to Peoples under this Agreement; and (ii) the Lenders, Agent or their or its nominee shall pay to Peoples at the time of the execution and delivery of the new Agreement, any and all sums which would, at the time of the execution and delivery thereof, be due pursuant to this Agreement but for such termination, and in addition thereto, any expenses, including reasonable attorneys' fees, to which Peoples shall have been subjected by reason of such Event of Default. (b) Upon the occurrence of an Event of Default pursuant to Section 7.1(c), either (i) treat Elwood as a tenant in sufferance and charge Elwood for each day such Event of Default continues an amount equal to two (2) times the charge (calculated on a per diem basis) 19 for the Office and Warehouse Space pursuant to Article III (which amount Elwood hereby agrees is a reasonable liquidated damage, and not a penalty), or (ii) to the extent permitted by law, Peoples may re-enter the Office and Warehouse Space and take complete and peaceful possession thereof, with process of law, but without the requirement of any additional notice (to Elwood, any Lender or otherwise) and without relinquishing any other right given to the non-defaulting Party hereunder or by operation of Law. All property of Elwood removed from the Office and Warehouse Space by Peoples pursuant to the exercise of its rights under clause (ii) of the preceding sentence may be handled, removed or stored by Peoples at the cost and expense of Elwood and Peoples shall not be responsible in any event for the value, preservation or safekeeping thereof. Elwood shall reimburse Peoples upon demand with respect to such removal and storage and all such property not removed or retaken from storage by Elwood within thirty (30) days after the Office and Warehouse Space Termination Date shall be conclusively deemed to have been conveyed by Elwood to Peoples as by bill of sale without further payment or credit by Peoples to Elwood. (c) Exercise any other remedies available at Law or equity; provided, however, no such termination shall terminate Elwood's right to request, and Peoples obligation to grant, the easements referred to in Section 2.6 hereof pursuant to the terms and conditions set forth therein, which Section shall survive any such termination of this Agreement. Upon any such termination, the non-defaulting party shall be entitled to sue for and recover damages arising from such Event of Default. Elwood may also terminate this Agreement or any one or more of the Services without liability and without need to show cause by a notice in writing pursuant to Article XIII of this Agreement at least ninety (90) days before the effective date of such termination. Section 7.4 Right to Operate. ---------------- (a) Scope of Right. Upon the occurrence of an Event of Default, -------------- in addition to other remedies hereunder, (including without limitation, the right to terminate this Agreement pursuant to Section 7.3) the non-defaulting Party may, but shall not be obligated to, assume operational control of the facilities and equipment of the defaulting Party necessary for the continuation of the Services provided for under this Agreement. In the event that a non- defaulting Party determines to exercise its right under this Section 7.4, such Party shall provide the defaulting Party three (3) days written notice of such election. At the expiration of such three (3) day period, unless the defaulting Party shall have cured the Event of Default in question, the non-defaulting Party, its employees, contractors and designated third parties shall have the unrestricted right to enter the property of the defaulting Party for the purpose of operating such facilities and equipment as may be necessary to effectuate the continuation of the Services provided for under this Agreement; provided, -------- however, that nothing herein shall entitle (i) Elwood to assume operational - ------- control of Peoples' facilities and equipment used directly and exclusively in the purchase, storage, distribution, sale, and transportation of natural gas or (ii) 20 Peoples to assume operational control of Elwood's facilities and equipment used directly and exclusively in the generation of electricity; provided, -------- further, that the non-defaulting Party exercising its rights under this Section - ------- 7.4 shall continue to perform its obligations under this Agreement. In addition to the foregoing, upon the occurrence of an Event of Default with respect to Peoples' obligation to provide the Fire Protection Water Service under Section 2.2, then Elwood may, at its sole risk and expense, enter upon the McDowell Energy Center to the extent necessary to obtain access to Peoples' water storage lagoons for the purpose of parking and operating a pumper truck or similar vehicle and laying piping or hose to enable Elwood to pump water from such lagoons to the Facility to furnish the Facility with Fire Protection Water; provided, however, that (i) nothing in this Agreement shall require Peoples to maintain such lagoons at any time or in any manner, and Peoples shall at all times be free to use, abandon or fill in such lagoons in any manner Peoples deems appropriate or convenient in its sole discretion, (ii) Elwood shall exercise its rights under this sentence only if at the time the Event of Default occurs there exist sufficient quantities of water in the lagoons and such water is not contaminated such that its use as Fire Protection Water would not be in accordance with Prudent Operating Practice. (b) Liability. A Party's exercise of its rights under this Section --------- 7.4 shall not be deemed an assumption by such Party of any liability attributable to the other Party; provided, however, that, without limiting the -------- ------- provisions of Section 10.1 or Section 10.2, as the case may be, during the period in which a Party is operating any of the other Party's facilities or equipment pursuant to this Section 7.4, the defaulting Party shall be relieved of all of its obligations to provide the Services being provided by the nondefaulting Party (the "Operating Party") through its operation of the defaulting Party's facilities and such Operating Party shall defend, indemnify, and hold harmless the defaulting Party and its directors, partners, officers, employees and agents from and against all claims, demands, damages, losses, judgments, awards liabilities, costs and expenses (including reasonable attorneys' fees, court costs and other expenses of litigation) in connection with any suit, claim, action or other legal proceeding relating to the bodily injury, sickness, disease or death of persons or the damage to or destruction of property, real or personal, resulting from or arising out of the Operating Party's negligence or willful misconduct in the operation of the defaulting Party's facilities or equipment. The liability imposed by this Section 7.4(b) upon the Operating Party shall not apply to claims, demands, damages, losses, judgments, awards, liabilities, costs and expenses resulting from the negligence or willful misconduct of the defaulting Party. (c) Costs and Payments. During the period that a Party is ------------------ operating the other Party's facilities or equipment pursuant to this Section 7.4, such Party shall continue to make such payments as are due to the other pursuant to Article V, net of any applicable offsets; provided, however, that -------- ------- the Operating Party may deduct from such payments all reasonable costs and expenses incurred by such Operating Party in connection with the exercise of its right under this Section 7.4. 21 (d) Length of Right. An Operating Party may continue to operate the --------------- portions of the other Party's facilities or equipment provided for in this Section 7.4 until such time as (i) the defaulting Party cures the Event of Default giving rise to the Operating Party's exercise of its rights under this Section 7.4 or recommences the provision of the Service or commodity in question, (ii) a Lender shall have foreclosed upon the Facility or otherwise exercised remedies with respect to Elwood, the Facility or the Project Documents and shall have designated another Person to operate and maintain the Facility, (iii) after notice from defaulting Party, if Operating Party has failed to cure such Event of Default within thirty (30) days after assuming operational control of the defaulting Party's facilities, or (iv) the Operating Party terminates this Agreement pursuant to Section 7.3. ARTICLE VIII FORCE MAJEURE Section 8.1 Definition of Force Majeure. "Force Majeure Event" means any --------------------------- cause beyond the reasonable control of, and not due to the fault or negligence of, the Party affected, and which could not have been avoided by due diligence and use of reasonable efforts, including, but not limited to, drought, flood, earthquake, storm, fire, lightning, epidemic, war, riot, civil disturbance, sabotage, explosions, public utility outages, subsurface aquifer depletion, failure of equipment or of suppliers, contractors or shippers to furnish labor, equipment, goods or services, and strikes or labor disputes. Section 8.2 Excused Performance. Each Party hereto shall be excused from ------------------- performance and shall not be considered to be in default with respect to any obligation hereunder, except the obligation to make payments of money in a timely manner, if and to the extent that its failure of, or delay in, performance is due to a Force Majeure Event; provided: (a) such Party gives the other Party written notice describing the particulars of the Force Majeure Event as soon as is reasonably practicable; (b) the suspension of performance is of no greater scope and of no longer duration than is reasonably required by the Force Majeure Event; (c) no obligations of the Party which arose before the occurrence causing the suspension of performance are excused as a result of the occurrence; and (d) the Party uses best efforts to overcome or mitigate the effects of such occurrence; Section 8.3 Settlement of Strikes. Notwithstanding the foregoing, nothing --------------------- in this Article VIII shall be construed to require the settlement of any strike, walkout, lockout or other labor dispute on terms which, in the sole judgment of the Party involved in the dispute, are 22 contrary to such Party's interest. It is understood and agreed that the settlement of strikes, walkouts, lockouts or other labor disputes shall be entirely within the discretion of the Party experiencing such action. ARTICLE IX REPRESENTATIONS AND WARRANTIES LIMITATION OF LIABILITY Section 9.1 Peoples' Representations And Warranties. Peoples hereby --------------------------------------- represents and warrants to Elwood as follows as of the Effective Date: (a) Standing. It is a corporation duly organized and validly existing under the laws of the State of Illinois. (b) No Litigation. Except as disclosed in the Company's Form 10-K filed with the Securities and Exchange Commission ("SEC") for the fiscal year ended September 30, 1998, andthe Company's Form 10-Q filed with the SEC for the fiscal period ended December 31, 1998, there are no legal or arbitration proceedings or any proceedings by or before any governmental or regulatory authority or agency, now pending or threatened against Peoples which, if adversely determined, could have a material adverse effect upon Peoples' ability to perform under this Agreement or an adverse effect upon the financial condition, operations, prospects or business, as a whole, of Peoples. (c) No Breach. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated or compliance with the terms and provisions hereof will not conflict with or result in a breach of, or require any consent (except consents in the nature of Permits which have been obtained or reasonably are expected to be obtained in due course) under, the organizational documents of Peoples, or any applicable Law, or any agreement or instrument to which Peoples is a party or by which it is bound or to which it is subject, or constitute a default under any such agreement or instrument. (d) Authority. Peoples has all necessary power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by Peoples of this Agreement have been duly authorized by all necessary actions on its part; and this Agreement has been duly and validly executed and delivered by Peoples and constitutes a legal, valid and binding obligation of Peoples enforceable in accordance with its terms. (e) No Consents. Except as set forth on Schedule 9.1(e), no authorization, consent, approval, Permits or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by Peoples of this Agreement which has not been obtained. 23 Section 9.2 Elwood's Representations and Warranties. Elwood hereby --------------------------------------- represents and warrants to Peoples as follows: (a) Standing. It is a limited liability company duly organized and validly existing under the laws of the State of Delaware. (b) No Litigation. There are no legal or arbitration proceedings or any proceedings by or before any governmental or regulatory authority or agency, now pending or threatened against Elwood which, if adversely determined, could have a material adverse effect upon Elwood's ability to perform under this Agreement or an adverse effect upon the financial condition, operations, prospects or business, as a whole, of Elwood. (c) No Breach. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated or compliance with the terms and provisions hereof will not conflict with or result in a breach of, or require any consent (except consents in the nature of Permits which have been obtained or reasonably are expected to be obtained in due course) under, the organizational documents of Elwood, or any applicable Law, or any agreement or instrument to which Elwood is a party or by which it is bound or to which it is subject, or constitute a default under any such agreement or instrument. (d) Authority. Elwood has all necessary power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by Elwood of this Agreement have been duly authorized by all necessary actions on its part; and this Agreement has been duly and validly executed and delivered by Elwood and constitutes a legal, valid and binding obligation of Elwood enforceable in accordance with its terms. (e) No Consents. Except as set forth on Schedule 9.2(e), no authorization, consent, approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by Elwood of this Agreement which has not been obtained. Section 9.3 Limitations of Warranties and Liabilities. ----------------------------------------- (a) EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE IX, THE PARTIES EXPRESSLY DISCLAIM ANY AND ALL REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE SERVICES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. (b) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER (WHETHER IN CONTRACT, TORT, STRICT LIABILIITY OR OTHERWISE) FOR ANY 24 LOST REVENUES, LOST PROFITS, OR PUNITIVE, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY NATURE, EVEN IF A PARTY IS SPECIFICALLY INFORMED OF THE POSSIBILITY THEREOF. (c) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL PEOPLES' LIABILITY TO ELWOOD IN CONNECTION WITH THE PERFORMANCE OF THIS AGREEMENT (WHETHER IN CONTRACT, TORT, STRICT LIABILIITY OR OTHERWISE) EXCEED IN THE AGGREGATE THE SUM OF ALL AMOUNTS THEN PAID BY ELWOOD UNDER SECTION 4.1 HEREOF ; PROVIDED, HOWEVER, THAT THE LIMITATION OF LIABILITY CONTAINED IN THIS SENTENCE SHALL NOT BE APPLICABLE TO ANY LIABILITY (WHETHER IN CONTRACT, TORT, STRICT LAIBILITY OR OTHERWISE) CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OF PEOPLES, OR TO ANY OBLIGATIONS OF PEOPLES UNDER SECTION 10.3 HEREOF. THE TERMS OF THIS SECTION SHALL IN NO RESPECT LIMIT PEOPLES' LIABILITY UNDER THE GROUND LEASE. ARTICLE X INDEMNITY Section 10.1 Definition of "Environmental Laws" and "Hazardous Materials". ----------------------------------------------------------- For purposes of this Agreement, "Environmental Laws" means any and all federal, state and municipal laws, ordinances and regulations, including without limitation any and all requirements to register underground storage tanks, relating to: (i) emissions, discharges, spills, releases or threatened releases of pollutants, contaminants, "Hazardous Materials" (as hereinafter defined), or hazardous or toxic materials or wastes onto land or into ambient air, surface water, ground water, wetlands, or septic systems; (ii) the use, treatment, storage, disposal, handling, or containing of Hazardous Materials or hazardous and/or toxic wastes, material products or by-products (or of equipment or apparatus containing Hazardous Materials); or (iii) pollution or the protection of human health or the environment. "Hazardous Materials" means (A) hazardous materials, hazardous wastes, and hazardous substances as those terms are defined under any Environmental Laws, (B) petroleum and petroleum products including crude oil and any fractions thereof; (C) natural gas, synthetic gas, and any mixtures thereof; (D) asbestos or any material which contains any hydrated mineral silicate, including, but not limited to chrysotile, amosite, crocidolite, tremolite, anthophylite or actinolite, whether friable or non- friable; (E) PCB's or PCB-containing materials, or fluids; (F) any other hazardous, toxic or radioactive substance, material, contamination, pollutant, or waste; and (G) any substance with respect to which any Environmental Law or Governmental Authority requires environmental investigation, monitoring or remediation. Section 10.2 Elwood's Indemnity. Unless due to the intentional ------------------ misconduct or gross negligence of Peoples or Peoples' agents or employees, Elwood shall defend, indemnify, and 25 hold harmless Peoples, its directors, officers, employees and agents (the "Peoples Indemnified Parties") from and against any and all liabilities, claims, losses, damages, actions, judgments, costs, and expenses (including without limitation attorney's fees and expenses) of every kind (collectively "Claims") to the extent imposed upon or asserted against the Peoples Indemnified Parties or any one of them by reason of or in connection with (a) any accident, injury to or death of persons, or loss of or damage to property occurring on or about the Premises or the McDowell Energy Center related to Elwood's use of the Premises or operation of the Facility or performance of its obligations under this Agreement; (b) Elwood's possession, operation, use or misuse of the Facility; (c) the imposition or enforcement of any liens upon the McDowell Energy Center arising by, through or under Elwood or its acts or omissions under this Agreement; or (d) any failure on the part of Elwood to perform or comply with any of the terms of this Section 10.2. In addition to the foregoing, Elwood shall indemnify, defend and hold the Peoples Indemnified Parties free and harmless from and against any Claims arising from or caused in whole or in part, directly or indirectly, by any one of the following: (a) the discharge in or from the Premises or the Facility by any one of Elwood or its employees, agents, contractors and subtenants (collectively, "Elwood's Parties") of any Hazardous Materials, or the disposal, release, threatened release, discharge, or generation of Hazardous Materials to, in, on, under, about, or from the Premises or the Facility by any of the Elwood's Parties; or (b) the failure of any of the Elwood's Parties to comply with any Environmental Laws, licenses or permits relating to the Premises. Elwood's indemnity and liability hereunder shall survive the expiration or earlier termination of this Agreement. In no event, however, shall the indemnities contained in this Section 10.2 include any lost profits or lost revenues incurred by Peoples. Notwithstanding anything to the contrary in this Agreement, Elwood shall not be required to indemnify any Indemnified Party for any Claims for which Peoples is required to indemnify Elwood under the Ground Lease or the Purchase and Sale Agreement. Section 10.3 Peoples' Indemnity. Peoples shall defend, indemnify, and ------------------ hold harmless Elwood, its directors, officers, employees and agents (the "Elwood Indemnified Parties") from and against: (a) any Claims arising from or in connection with (i) any Hazardous Materials at, from, in or on the Premises or the Facility on or prior to the Commencement Date, (ii) any violation by Peoples or its employees and agents (collectively, the "Peoples' Parties") of any Environmental Laws and any failure by the Peoples' Parties to comply with any Environmental Laws, licenses or permits with respect to the McDowell Energy Center (specifically excluding, however, any such failure for which Elwood is obligated to indemnify the Peoples Parties pursuant to Section 2.3, 2.4, or 10.2 hereof or pursuant to the Ground Lease or the Purchase and Sale Agreement); specifically excluding in each case, however, any emission, discharge, spill, release or disposal of Hazardous Materials at, from or on the Premises or at the Facility at or prior to the Effective Date caused by the Elwood's Parties, or any violation of any Environmental Law; caused by the Elwood's Parties, and (iii) the discharge in or from the McDowell Energy Center by any of the Peoples' Parties of any Hazardous Materials, or the disposal, release, threatened release, discharge, or generation of Hazardous Materials to, in, on, under, about or from the McDowell Energy Center by any of the Peoples' Parties; and (b) the imposition or enforcement of any liens upon Elwood's interest in the Premises or the Facility arising by, 26 through or under Peoples or its acts or omissions under this Agreement; provided, however, in no event shall the indemnifications contained in this sentence, or any limitations thereof contained in this Section, in any way limit Peoples' indemnification obligations under the Ground Lease or the Purchase and Sale Agreement which are and shall be separate and independent indemnification obligations of Peoples. In no event, however, shall the indemnities contained in this Section 10.3 include any lost profits or lost revenues incurred by Elwood. Peoples' indemnity and liability under this Section 10.3 shall survive the expiration or earlier termination of this Agreement or an assignment of this Agreement by Peoples. However, in the event of such assignment, the indemnities contained in this Section 10.3 shall, as to any successor of Peoples, in no event pertain, cover or relate to the acts or omissions of Peoples' successors or assigns under this Agreement (or any other person or entity except the Peoples Parties). ARTICLE XI ARBITRATION Section 11.1 Matters Subject to Arbitration. In case any disagreement ------------------------------ shall arise between the parties hereto relating to any of the following matters, such matter in dispute shall, at the election of either party hereto, be determined by arbitration in the manner provided in this Article XI: (a) Any disputes arising under Article V hereof. (b) Any disputes concerning the specifications set forth in any of the Appendixes hereto. (c) Any disputes arising under Section 4.3 concerning whether additions or modifications to Peoples' facilities needed to provide Services hereunder are discretionary. Section 11.2 Arbitration Proceedings. The determination by arbitration of ----------------------- any matter agreed to be submitted to arbitration as provided in this Agreement shall be determined as follows: Either party shall notify the other party of its desire to arbitrate the matter in dispute and shall state in said notice the name and address of a qualified person to act as arbitrator hereunder. Within thirty (30) days after the receipt of such notice, the other party shall give notice to the sender of the first-mentioned notice, likewise stating the name and address of a qualified person to act as arbitrator hereunder. The arbitrators so specified in such notices shall be experienced in the field of the matter in dispute. If within thirty (30) days following the appointment of the latter of said arbitrators, said two (2) arbitrators shall be unable to agree in respect of the matter in dispute, the said arbitrators shall appoint by instrument in writing a third similarly qualified arbitrator, who shall proceed with the two (2) arbitrators first appointed to determine the matter in dispute. The written decision of any two (2) of the arbitrators so appointed shall be binding and conclusive upon the parties hereto. If after notice of the appointment of an arbitrator, the other party shall fail within the above- specified period of thirty (30) days to appoint an arbitrator, then the arbitrator so appointed by the first party shall have 27 power to proceed to arbitrate as sole arbitrator, and to make an award. If the two (2) arbitrators aforesaid shall be unable to agree within thirty (30) days following the appointment of the latter of said arbitrators upon the matter in dispute and shall fail to appoint in writing a third arbitrator within thirty (30) days thereafter, the necessary arbitrator, who need not be similarly qualified but who shall be a member of a National Panel of Arbitrators of the American Arbitration Association shall be appointed by the American Arbitration Association in accordance with the then existing commercial arbitration rules of said American Arbitration Association. Unless otherwise agreed to by the Parties, all arbitration proceedings shall be held in Chicago, Illinois. Section 11.3 Expenses of Arbitration. Peoples and Elwood shall each pay ----------------------- all of the fees of the person acting as arbitrator hereunder for Peoples and Elwood, respectively, one-half of the fees of any third arbitrator appointed pursuant to the provisions of Section 11.2, one-half of the general expenses of any arbitration conducted under this Agreement, and all of its own respective attorneys' fees incurred with respect thereto. Section 11.4 Parties Entitled to Participate in Arbitration Proceedings. ---------------------------------------------------------- Peoples and Elwood shall each have the right to appear and be represented by counsel before said arbitrators and to submit such data and memoranda in support of their respective positions in the matter in dispute as each may deem necessary or appropriate in the circumstances. ARTICLE XII SUCCESSORS AND ASSIGNS Section 12.1 Transfer of McDowell Energy Center. Peoples may assign its ---------------------------------- rights and obligations under this Agreement only to a Person to whom it transfers the McDowell Energy Center provided: (a) it secures from such Person an agreement in writing that such Person shall be bound by the terms and conditions of this Agreement, and (b) such Person assumes all of Peoples' obligations hereunder for any period of ownership or control of the McDowell Energy Center, unless otherwise agreed to by Elwood and such Person. No such transfer or assignment shall relieve or release Peoples from any obligations under this Agreement without the prior written consent of Elwood as to the financial ability of any such assignee to perform the obligations of Peoples under this Agreement, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Peoples shall have the right, without the consent of Elwood, (x) to assign or pledge this Agreement to any lenders, trustees, agents or secured parties in connection with any financing for the Property or secured thereby, and/or (y) to assign all of its rights and obligations under this Agreement to Peoples Energy Resources Corp., an Illinois corporation, provided that Peoples transfers the McDowell Energy Center to Peoples Energy Resources Corp. Elwood hereby agrees, in connection with any such financing or assignment in connection therewith described in clause (x) of the preceding sentence, to execute and deliver (and to cause any Lenders, trustees, agents or secured parties existing by through or under Elwood to execute and deliver) at the request of any such Lender, trustee, agent or secured party, 28 a consent to assignment in form typical in project finance transactions and reasonably acceptable to Elwood. Section 12.2 Transfer of Facility. Except as set forth in the following -------------------- sentence, Elwood may assign its rights and obligations under this Agreement only to a Person to whom it transfers the Facility provided: (a) it secures from such Person an agreement in writing that such Person shall be bound by the terms and conditions of this Agreement, and (b) such Person assumes all of Elwood's obligations hereunder for any period of ownership or control of the Facility, unless otherwise agreed to by Peoples and such Person. Notwithstanding the foregoing, Elwood shall have the right, without the consent of Peoples, to assign or pledge this Agreement to any lenders, trustees, agents or secured parties in connection with any financing for the Facility or secured thereby. Peoples hereby agrees, in connection with any such financing or assignment in connection therewith, to execute and deliver (and to cause any lenders, trustees, agents or secured parties existing by through or under Peoples to execute and deliver) at the request of any such lender, trustee, agent or secured party, a consent to assignment in form typical in project finance transactions and reasonably acceptable to Peoples. No such transfer or assignment shall relieve or release Elwood from any obligations under this Agreement without the prior written consent of Peoples as to the financial ability of any such assignee to perform the obligations of Elwood under this Agreement, which consent shall not be unreasonably withheld or delayed. ARTICLE XIII NOTICES Any notice, demand, offer or other written instrument required or permitted to be given pursuant to this Agreement shall be in writing, and shall be signed by the Party giving such notice and shall be sent by facsimile, with a copy by overnight courier service, telegram or registered mail: If to the Peoples: The Peoples Gas Light and Coke Company 130 East Randolph Drive Chicago, Illinois 60601 Telecopy No. (312) 240-4541 Attn: William E. Morrow, Vice President With a copy to: John Nassos The Peoples Gas Light and Coke Company 130 East Randolph Drive 23rd Floor Chicago, Illinois 60601 Telecopy No. (312) 240-4486 29 If to Elwood: Elwood Energy, LLC c/o Dominion Energy, Inc. P.O. Box 26532 Richmond, Virginia 23261 120 Tredegar Street Richmond, Virginia 23219 Telecopy No. (804) 819-2202 Attn: Ronald D. Usher/Christine Schwab Each Party shall have the right to change the place to which notice shall be sent or delivered by similar notice sent or delivered in like manner to the other Party. Without limiting any other means by which a Party may be able to prove that a notice has been received by the other Party, a notice shall be deemed to be duly received: (a) if sent by hand, overnight courier service or telegram, the date when left at the address of the recipient; (b) if sent by registered mail, the date of the return receipt or first attempted delivery; or (c) if sent by facsimile, upon receipt by the sender of an acknowledgment or transmission report generated by the machine from which the facsimile was sent indicating that the facsimile was sent to the receiving Party's facsimile number specified above or as may be specified by the receiving Party from time to time in accordance with this Article XIII. ARTICLE XIV MISCELLANEOUS Section 14.1 Non-Dedication. Nothing herein shall be construed as the --------------- dedication by either Party of its facilities or equipment to the public or any part thereof. Neither Party shall take any action that would subject the other, or the other's facilities or equipment to the jurisdiction of any Governmental Authority. Neither Party shall assert in any proceeding before a court or regulatory body that the other is a public utility by virtue of such other Party's performance under this Agreement. Section 14.2 Independent Parties. Nothing in this Agreement shall be ------------------- construed as creating a partnership, trust or any similar relationship between the Parties. Neither Party is authorized to act on behalf of the other Party and neither shall not be considered the agent of the other. Section 14.3 Agreement Binding. This Agreement shall be binding upon and ----------------- for the benefit of the Parties hereto and their permitted successors and permitted assigns. 30 Section 14.4 Drafting Interpretations. Preparation of this Agreement has ------------------------ been a joint effort of the parties and the resulting document shall not be construed more severely against one of the parties than against the other. Section 14.5 Choice of Law. This Agreement and any dispute arising ------------- therefrom shall be governed and interpreted in accordance with the laws of Illinois as applied to contracts made and wholly performed within said state. Section 14.6 Section Headings and Subheadings. All Section headings and -------------------------------- subheadings are inserted for convenience only and shall not affect any construction or interpretation of this Agreement. Section 14.7 Severability. The invalidity of one or more phrases, ------------ sentences, clauses, or Sections contained in this Agreement shall not affect the validity of the remaining portions of the Agreement so long as the material purposes of this Agreement can be determined and effectuated. Section 14.8 Entire Agreement. This Agreement sets forth the full and ---------------- complete understanding of the Parties as to the subject matter contained herein, and all prior written or oral understandings, offers or other communications of every kind pertaining to the subject matter contained herein are hereby abrogated and withdrawn. Section 14.9 Amendment. This Agreement may be amended or modified only by --------- mutual written agreement signed by authorized representatives of both Parties hereto. Section 14.10 Survival. Cancellation, expiration or earlier termination -------- of this Agreement shall not relieve the Parties of obligations that by their nature should survive such cancellation, expiration or termination, including without limitation, promises of indemnity and confidentiality. Section 14.11 Cooperation. The Parties shall cooperate with each other in ----------- carrying out the transactions contemplated by this Agreement, in obtaining any and all required consents of third parties, including, without limitation, any Permits, or licenses, required in connection with this Agreement, in filing notifications and reports, if any, which may be required, and in executing and delivering all documents, instruments and copies thereof as shall be reasonably agreed upon or as a party may reasonably request for the purpose of carrying out the terms and conditions of this Agreement. Section 14.12 Waiver. No waiver of any of the provisions of this ------ Agreement shall be deemed to be, nor shall it constitute, a waiver of any other provision whether similar or not. No single waiver shall constitute a continuing waiver. No waiver shall be binding unless executed in writing by the Party making the waiver. 31 Section 14.13 Consequential Damages. Notwithstanding any other provision --------------------- of this Agreement, in no event shall either Party be liable to the other Party for any special or consequential damages (including without limitation, loss of profits) suffered as a result of a breach of this Agreement or paid as a result of any and all claims, demands, suits, causes of action, proceedings, including any arbitration proceedings, judgments and liabilities, incurred or sustained by or against such other Party. Section 14.14 Insurance; Waiver of Subrogation. Each Party shall maintain -------------------------------- such insurance as required under the Ground Lease and the Purchase and Sale Agreement. Peoples and Elwood each hereby waive any and every claim for recovery from the other for any and all loss of or damage to their respective property, or to the contents thereof, which loss or damage is covered by valid and collectible physical damage insurance policies or would have been covered had the insurance policies required by this Agreement been in force, to the extent that such loss or damage is recoverable under said insurance policies. Inasmuch as this mutual waiver of subrogation will preclude the assignment of any such claim by subrogation (or otherwise) to an insurance company or any other person, Peoples and Elwood each agree to give to each insurance company which has issued, or in the future may issue its policies of physical damage insurance, written notice of the terms of this mutual waiver, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of such insurance coverage by reason of said waiver. Section 14.15 Third Parties. Nothing in this Agreement, whether express ------------- or implied, is intended to confer any rights or remedies on any persons other than the Parties hereto and their respective permitted successors and permitted assigns. Section 14.16 Counterparts. This Agreement may be signed in any number of ------------ counterparts and each counterpart shall represent a fully executed original as if signed by both Parties. 32 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first written above. ELWOOD ENERGY LLC: By: /s/ Ronald D. Usher ---------------------------------- Ronald D. Usher General Manager THE PEOPLES GAS LIGHT AND COKE COMPANY By: /s/ William E. Morrow ---------------------------------- William E. Morrow Vice President 33 COMMON FACILITIES AGREEMENT EXHIBIT A-1 ----------- LEGAL DESCRIPTION OF THE PROPERTY THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER, ALSO THE EAST 99.00 FEET OF THE SOUTHWEST QUARTER OF THE NORTHEAST QUARTER, ALSO THE SOUTHEAST QUARTER EXCEPTING THAT PART DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHEAST CORNER OF THE SAID SOUTHEAST QUARTER; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 568.00 FEET, ALONG THE SOUTH LINE OF THE SAID SOUTHEAST QUARER; THENCE NORTH 00 DEGREES 26 MINUTES 48 SECONDS EAST 454.00 FEET, ALONG A LINE PARALLEL TO THE EAST LINE OF THE SAID SOUTHEAST QUARTER; THENCE NORTH 90 DEGREES 00 MINUTES 00 SECONDS EAST 568.00 FEET, ALONG A LINE PARALLEL TO THE SAID SOUTH LINE OF THE SOUTHEAST QUARTER, TO THE SAID EAST LINE OF THE SOUTHEAST QUARTER; THENCE SOUTH 00 DEGREES 26 MINUTES 48 SECONDS WEST 454.00 FEET, ALONG THE SAID EAST LINE OF THE SOUTHEAST QUARTER, TO THE POINT OF BEGINNING, AND ALSO THE EAST HALF OF THE SOUTHWEST QUARTER EXCEPTING THEREFROM THAT PART DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST CORNER OF GOVERNMENT LOT 1 IN THE SAID SOUTHWEST QUARTER, SAID SOUTHWEST CORNER BEING 1428.22 FEET EAST (MEASURED ALONG THE SOUTHLINE OF THE SAID SOUTHWEST QUARTER) FROM THE SOUTHWEST CORNER; THENCE EAST ALONG THE SOUTH LINE OF SAID GOVERNMENT LOT 1, A DISTANCE OF 32.03 FEET; THENCE NORTH, PERPENDICULAR TO THE SAID SOUTH LINE OF GOVERNMENT LOT 1, A DISTANCE OF 2629.69 FEET, TO THE NORTH LINE OF SAID GOVERNMENT LOT 1; THENCE WEST ALONG THE SAID NORTH LINE OF GOVERNMENT LOT 1, A DISTANCE OF 4.06 FEET, TO THE NORTHWEST CORNER OF SAID GOVERNMENT LOT 1, SAID NORTHWEST CORNER OF GOVERNMENT LOT 1 BEING 1437.51 FEET EAST (MEASURED ALONG THE NORTH LINE OF THE SAID SOUTHWEST QUARTER) FROM THE NORTHWEST CORNER OF THE SAID WEST FRACTIONAL HALF OF THE SOUTHWEST QUARTER; THENCE SOUTH ALONG THE WEST LINE OF SAID GOVERNMENT LOT 1, A DISTANCE OF 2629.83 FEET, TO THE POINT OF BEGINNING ALL IN SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN EXCLUDING, HOWEVER: THE EAST 33.00 FEET OF THE SOUTHEAST QUARTER OF THE NORTHEAST QUARTER AND THE EAST 33.00 FEET OF THE SOUTHEAST QUARTER EXCEPTING THE SOUTH 454.00 FEET THEREOF, ALL IN SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN WILL COUNTY, ILLINOIS CONTAINING 2.645 ACRES MORE OF LESS. EXHIBIT A-2 ----------- LEGAL DESCRIPTION OF THE PREMISES THAT PART OF THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHEAST CORNER OF THE SAID SOUTHEAST QUARTER; THENCE SOUTH 90 DEGREESS 00 MINUTES 00 SECONDS WEST 1202.35 FEET, ALONG THE SOUTH LINE OF SAID SOUTHEAST QUARTER, TO THE POINT OF BEGINNING; THENCE NORTH 00 DEGRESS 00 MINUTES 00 SECONDS EAST 454.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 84.23 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 781.04 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 80.00 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 402.23 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 423.52 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 113.03 FEET; THENCE SOUTH 02 DEGREES 35 MINUTES 36 SECONDS EAST 409.99 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 42.00 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 298.57 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 100.73 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 816.10 FEET, TO A POINT ON THE SAID SOUTH LINE OF THE SAID SOUTHEAST QUARTER; THENCE NORTH 90 DEGREES 00 MINUTES 00 SECONDS EAST 711.93 FEET, ALONG THE SAID SOUTH LINE OF THE SOUTHEAST QUARTER, TO THE POINT OF BEGINNING, IN WILL COUNTY, ILLINOIS, CONTAINING 21.465 ACRES MORE OR LESS. COMMON FACILITIES AGREEMENT APPENDIX A NON-POTABLE SERVICE WATER SUPPLY -------------------------------- 1. Scope of Service: Peoples shall supply non-potable Service Water to Elwood under this Appendix A per the following specifications. 2. Quality: Untreated well water as provided by the existing Peoples Gas raw water system. (A representative water quality analysis for a typical sample of the well water is attached.) 3. Maximum Flow Rate: 200 gpm 4. Pressure: 100 - 140 psig 5. Point of Interconnection: The interconnection, including required valves, to be proposed by Elwood and subject to Peoples' review and approval, which shall not be unreasonably withheld or delayed. 6. Monthly Service Water Supply Fee: a. Deep well pump (250 kw, 700 gpm, 0.08c/kwh): 45c per 1000 gallons. 27.5 gpm x 60 min/hr x 1000 hr x 4 units = 6.6 million gal. 0.45/1000 x 6.6 million = $2,970/yr. b. Service water pump (115.5 kw, 110 gpm, 0.08c/kwh): $1.40 per 1000 gal c. Total electric: $1.85/1000 gal. For 6.6 million gal: $12,210/year or $1017.5/mo. d. Maintenance: $182.5/mo. e. Total: $1200/mo. Facilities owned by Peoples Gas and associated with supplying non-potable service water to Elwood Energy (These facilities are not to be considered exclusively dedicated to Elwood Energy.) 1. Two 700 gpm deep well pumps. 2. Three 740 gpm (at 140 psig discharge pressure) raw water pumps. 3. One 932,700 gallon raw water storage tank. Process Water capacity is approximately 180,000 gallons. COMMON FACILITIES AGREEMENT APPENDIX B FIRE PROTECTION WATER SUPPLY ---------------------------- 1. Scope of Service: Peoples shall supply Fire Protection Water to Elwood under this Appendix B per the following specifications. 2. Maximum Flowrate: Nominally 2500 gpm. 3. Pressure at Maximum Flowrate: Nominally 105 psig. 4. Pressure at Zero Flowrate: Nominally 120 psig 5. Storage Capacity: 750,000 gallons for the total PGL fire system. 6. Point of Interconnection: To be provided by Elwood and subject to Peoples' approval, which shall not be unreasonably withheld or delayed. 7. Monthly Fire Protection Water Supply Fee: a. 14 hp x .746kw/hp/.875 eff. x 730 hr/mo x $0.0757/kwh = $660/mo. b. Three years maint. on pumps = $11,000/36 mo. = $305/mo c. Total = $965/mo. Facilities: - ----------- a. Two 2500 gpm (at 125 psig discharge pressure) fire water pumps. One is electric-motor driven (primary). One is diesel-engine driven (backup). b. One 50 gpm (at nominally 120 psig) fire water jockey pump. (Used to maintain pressure under no load. c. One 500 kw diesel emergency generator. d. One 932,700 gallon raw water tank. Fire water capacity of tank is approximately 750,000-800,000 gallons. (These facilities are not to be considered exclusively dedicated to Elwood Energy.) COMMON FACILITIES AGREEMENT APPENDIX C ACCEPTANCE AND DISPOSAL OF STORMWATER DISCHARGE 1. Scope of Service: Peoples shall accept and dispose of the discharge of Storm Water from the Facility under this Appendix C per the following specifications. 2. Maximum Flowrate into the Peoples Storm Water system: Storm Water discharge quantities shall not be monitored. Detention storage shall be designed and maintained in accordance with the Village of Elwood stormwater detention ordinances in effect at the time. 3. Contaminants: pH in range of 6 to 9, and otherwise in compliance with applicable Law. 4. Sampling Provisions: Elwood shall provide a sample point prior to the point where Storm Water from the Elwood Facility enters the Peoples Storm Water system for Peoples' use in obtaining grab samples. 5. Point of Interconnection: Points of Interconnection shall be as designated on the detention storage construction plans approved by the Village of Elwood for construction. 6. Monthly Storm Water Acceptance Fee: The fee is based on the cost of monthly monitoring and analysis of the Storm Water by a chemist. The cost will be shared equally by Peoples and Elwood. The initial charge to Elwood is $200 per month. COMMON FACILITIES AGREEMENT APPENDIX D ACCEPTANCE AND DISPOSAL OF BLOWDOWN WATER 1. Scope of Service: Peoples shall accept and dispose of the discharge of Blowdown Water from the Facility into Peoples' Storm Water discharge system in accordance with the Peoples Gas NPDES permit under this Appendix D per the following specifications. 2. Maximum Flowrate into the Peoples' Storm Water discharge system: 140 gpm 3. Contaminants: a. Chlorine (free): less than 0.5 mg/l b. Chromium: less than 0.2 mg/l c. pH: 6 to 9 d. Zinc: less than 1.0 mg/l 4. Chemical treatment of inlet air cooler water: None 5. Sampling Provisions: Elwood shall provide a sample point prior to the point where Blowdown Water from the Elwood Facility enters the Peoples' Storm Water discharge system for Peoples' use in obtaining grab samples. 5. Point of Interconnection: To be proposed by Elwood and approved by Peoples, which approval shall not be unreasonably withheld or delayed. 6. Monthly Blowdown Water Acceptance Fee: $187.5 per month 150 hr/yr x $30/hr/12 mo. x 50% (Split cost) COMMON FACILITIES AGREEMENT APPENDIX E OFFICE SPACE, RESTROOMS, SHOWERS, LOCKER ROOMS, WAREHOUSING ----------------------------------------------------------- AND MACHINE SHOP ACCESS ------------------------ 1. Scope of Services: Peoples shall allow Elwood to occupy certain office space, use certain restrooms, locker rooms, showers, warehouse space, machine shops, machine tools, and certain other ancillary facilities as listed in this Appendix E. 2. Description of the facility: The facility is a nominally 6000 SF space in the Contract Maintenance and Warehouse Building located adjacent to the northwest corner of the turbine site. The leased space includes one office, locker rooms, bath rooms, lunch room, and warehouse space. It has a truck dock and parking in front of the building. 3. Description of office: A 25 ft x 15 ft office on the north end of the building. 4. Description of locker rooms: The mens locker room (19 ft x 50 ft) contains 50 lockers and a four-shower head shower. The women's locker room (10 ft x 12 ft) contains five lockers and one shower stall. 5. Description of warehouse space: The warehouse space (94 ft x 39 ft) includes four work benches that will be used for testing welders at the job site. 6. Description of other ancillary facilities allowed: Access to the parking facilities in front of the building will be allowed. 7. Rental Fee for Access to Peoples Facilities: $2500 per month ($5/SF/year) EX-10.11 27 dex1011.txt AMENDMENT #1 TO COMMON FACILITIES AGREEMENT Exhibit 10.11 AMENDMENT NO. 1 TO COMMON FACILITIES AGREEMENT This Amendment No. 1 to Common Facilities Agreement (this "Amendment") is made and entered into this 30 day of March, 2000, by and between Peoples Energy Resources Corp. ("PERC") and Elwood Energy LLC ("Elwood"). RECITALS A. On April 16, 1999, The Peoples Gas Light and Coke Company ("Peoples") and Elwood entered into that certain Common Facilities Agreement (the "Agreement"). By letter dated August 23, 1999, Peoples assigned all of its rights and obligations under the Agreement to PERC. Capitalized terms not otherwise defined herein have the respective meanings given them in the Agreement. B. Pursuant to the Agreement, PERC and Elwood set forth their mutual agreement with respect to the shared use of certain facilities on the Property (the "Services") and the sharing of the costs and expenses with respect thereto. C. PERC and Elwood now desire to amend the Agreement to reflect the shared use of certain additional Services and the sharing of the costs and expenses with respect thereto. In consideration of the premises and the mutual covenants hereinafter set forth and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, PERC and Elwood hereby agree as follows: 1. Article II of the Agreement is hereby amended by adding the following new Sections 2.12, 2.13 and 2.14: Section 2.12 Janitorial Services (a) PERC's Responsibilities. Commencing November 1, 1999, PERC shall ----------------------- provide to Elwood janitorial services as described in Appendix F. PERC shall ---------- provide all necessary personnel, equipment and materials in connection with these Services. (b) In the event that PERC desires to terminate its obligations under this Section 2.12, PERC shall provide forty-five (45) days prior written notice to Elwood and Elwood shall no longer be liable for the cost of such janitorial activities after the effective date of such termination. Section 2.13 Security Services (a) PERC's Responsibilities. Commencing November 1, 1999, PERC ----------------------- shall provide to Elwood security services as described in Appendix G. PERC shall ---------- provide all necessary personnel, equipment and materials in connection with these Services. (b) Elwood's Responsibilities. Elwood shall be responsible for ------------------------- ensuring that all security personnel that are provided by PERC pursuant to this Section 2.13 are given free access to the Premises after the effective date of such termination. (c) In the event that PERC desires to terminate its obligations under this Section 2.13, PERC shall provide forty-five (45) days prior written notice to Elwood and Elwood shall no longer be liable for the cost of such security services. Section 2.14 Snow Plowing Services (a) PERC's Responsibilities. Commencing December 1, 1999, PERC ----------------------- shall provide to Elwood snow removal services as described in Appendix H. PERC ---------- shall provide all necessary personnel, equipment and materials in connection with these Services. (b) In the event that PERC desires to terminate its obligations under this Section 2.14, PERC shall provide forty-five (45) days prior written notice to Elwood and Elwood shall no longer be liable for the cost of providing such snow removal activities. 2. Sections 4.1 and 4.2 of the Agreement are hereby amended by deleting the words "A through F" and inserting in lieu thereof the words "A through H." Additionally, new Appendices F, G and H, which are attached hereto, are made a part of the Agreement. IN WITNESS WHEREOF, PERC and Elwood have caused this Amendment to be executed as of the date first written above. ELWOOD ENERGY LLC By: /s/ Tony Belcher -------------------------- Tony Belcher General Manager PEOPLES ENERGY RESOURCES CORP. By: /s/ William E. Morrow -------------------------- William E. Morrow Vice President COMMON FACILITIES AGREEMENT APPENDIX F JANITORIAL SERVICES ------------------- 1. Scope of Services: PERC shall provide general janitorial services. 2. Charges for Services: PERC shall charge Elwood the sum of $36.88 per hour per person performing such janitorial services. Consumable items provided to Elwood by PERC in the performance of such janitorial services are not included in this charge and shall be billed to Elwood as an additional cost. COMMON FACILITIES AGREEMENT APPENDIX G SECURITY SERVICES ----------------- 1. Scope of Services: PERC shall provide security services for the Premises as specified in the Guardian Security Services Security Officer Instructions for Peoples Energy Corporation, McDowell Energy Center-Revised Jan/00, as amended and supplemented from time to time. 2. Charges for Services: PERC shall charge Elwood the sum of $31,500 per year for such security services. COMMON FACILITIES AGREEMENT APPENDIX H SNOW PLOWING SERVICES --------------------- 1. Scope of Services: PERC shall provide snow plowing services. In the event that the quantity of snow is required to be removed from the Premises by hauling the snow to a location offsite from the Premises, PERC shall provide the necessary hauling. 2. Charges for Services: PERC shall charge Elwood the following charges, inclusive of equipment costs, for snow removal services: a. Fixed annual charge in the amount of $2,669.25. b. $35.13 per hour per person performing such snow plowing services. This rate includes any and all expenses. c. Additional charges where hauling of snow is required. EX-10.12 28 dex1012.txt AMENDMENT #2 TO COMMON FACILITIES AGREEMENT Exhibit 10.12 AMENDMENT NO. 2 TO COMMON FACILITIES AGREEMENT This Amendment No. 2 to Common Facilities Agreement (this "Amendment") is made and entered into this 1st day of August, 2001, by and between Peoples Energy Resources Corp. ("PERC") and Elwood Energy LLC ("Elwood"). RECITALS A. On April 16, 1999, The Peoples Gas Light and Coke Company ("Peoples") and Elwood entered into that certain Common Facilities Agreement (as amended, the "Agreement"). By letter dated August 23, 1999, Peoples assigned all of its rights and obligations under the Agreement to PERC. Elwood and PERC executed Amendment No. 1 to Common Facilities Agreement on March 30, 2001 to include additional services to be provided by PERC under the Agreement. Capitalized terms not otherwise defined herein have the respective meanings given them in the Agreement. B. Pursuant to the Agreement, PERC and Elwood set forth their mutual agreement with respect to the shared use of certain facilities on the Property (the "Services") and the sharing of the costs and expenses with respect thereto. C. PERC and Elwood now desire to further amend the Agreement to reflect the shared use of certain additional Services and the sharing of the costs and expenses with respect thereto. In consideration of the premises and the mutual covenants hereinafter set forth and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, PERC and Elwood hereby agree as follows: 1. Article I of the Agreement is hereby amended deleting the definitions of "Blowdown Water," "Operating Agreement," "Point of Interconnection" and "Storm Water" in their entireties and inserting in lieu thereof the following new definitions: "Blowdown Water" means water discharged from the inlet air coolers of Units -------------- 1 through 4 of the Facility that meets the quantity and quality specifications set forth in Appendix D. "Operating Agreement" means the Amended and Restated Operating Agreement of ------------------- Elwood, dated as of August ___, 2001, between Peoples Elwood, LLC, a Delaware limited liability company, and Dominion Elwood, Inc., a Delaware corporation. "Point of Interconnection" means either (i) the applicable point of ------------------------ interconnection of Elwood's Service Water system and PERC's Service Water system for non-potable Service Water described in Appendix A, (ii) the applicable point of interconnection of Elwood's Fire Protection System and PERC's Fire Protection System described in Appendix B, (iii) the point of interconnection of Elwood's Storm Water discharge system and PERC's Storm Water discharge system described in Appendix C, (iv) the point of interconnection of Elwood's Blowdown Water discharge system and PERC's Storm Water discharge system described in Appendix D or (v) the point of interconnection of Elwood's Service Water system and PERC's Service Water system for potable Service Water described in Appendix I, as the context requires. "Storm Water" means surface runoff from precipitation of any form ----------- discharged from Units 1 through 4 of the Facility at one or more Points of Interconnection described on Appendix C to PERC's storm water system that meets the quality specifications in Appendix C. 2. Section 2.6 of the Agreement is hereby amended by deleting the current Section 2.6 in its entirety and inserting in its place the following new Section 2.6: Section 2.6 Easements --------- At the request of Elwood, and upon the conditions set forth in the following sentence, PERC shall grant to Elwood (i) an easement over, upon and under the "Lessor's Parcel" (as defined in the Ground Lease) for the purpose of constructing, using, and maintaining an underground water line and related pipes and other facilities, for the purpose of supplying Service Water to the Facility, and (ii) an easement over, upon and under the Lessor's Parcel for the purpose of constructing, using, and maintaining an underground line for Blowdown Water and related pipes and other facilities, for the purpose of carrying such Blowdown Water to a treatment facility or to another discharge point, located off of the Lessor's Parcel, and (iii) an easement over, upon and under the Lessor's Parcel for the purpose of constructing, using, and maintaining an underground line for Storm Water and related pipes and other facilities, for the purpose of carrying such Storm Water to a discharge point for which Elwood has obtained necessary permits (whether or not located on the Lessor's Property) or to a treatment facility or to another discharge point located off of the Lessor's Parcel, and (iv) an easement over, upon and under the Lessor's Parcel for the purpose of constructing, using, and maintaining an underground water line and related pipes and other facilities, for the purpose of supplying Fire Protection Water to the Facility. Elwood shall be entitled to request such easements, and PERC shall grant such easements in the event that (A) in the case of the easement for Service Water described in clause (i) above, the Facility's use or anticipated use of Service Water (potable or non-potable) exceeds the Service Water quantities described on Appendix A and/or Appendix I, (B) in the case of the easements for each of Service Water (potable or non-potable), Blowdown Water, Storm Water and Fire Protection Water, (x) PERC terminates its obligation to provide Service pursuant to Section 2.1(c), 2.2(d), 2.3(d), 2.4(d) or 2.15(c) hereof, as applicable or (y) either party terminates this Agreement pursuant to Section 7.3 hereof. The location of each such easement shall be subject to the reasonable approval of PERC. Elwood shall pay for all costs of constructing, installing, using and maintaining such easements and the lines and other facilities located therein in a lien free manner and in accordance with Prudent Operating Practice, and Elwood shall at all times keep such easements and the facilities located therein in good condition and repair in accordance with Prudent Operating Practice. In the event PERC anticipates incurring any costs or expenses in connection with the location of any such easements or the installation of said underground facilities, PERC shall inform Elwood of the estimated amount thereof before incurring same. Within ten days after receipt of such estimated costs, Elwood shall elect either to (i) proceed with the work or location giving rise to such costs, in which case Elwood shall promptly reimburse PERC for such costs upon demand, or (ii) discontinue such proposed work or revise its plans for such work, in which case PERC shall not incur such costs or shall inform Elwood of the estimated costs to be incurred by PERC in the case of such revised plans. PERC shall have the right to use the surface of the Lessor Parcel subject to such easements for all purposes that do not materially interfere with Elwood's use and enjoyment of such easements. PERC shall have the right, from time to time, to relocate the aforesaid easements to other areas of the Lessor's Parcel reasonably acceptable to Elwood, at PERC cost, provided such relocation does not materially interfere with the operation of the Facility. PERC hereby grants to Elwood a nonexclusive easement over, upon and under the Lessor's Parcel for the construction, use and operation of and for the discharge of Storm Water into, the Retention Pond and associated pipes and facilities, on and under the real property described in Exhibit B. The Retention Pond and associated pipes and facilities shall be operated and maintained by Elwood as part of Elwood's Storm Water discharge system. The easement granted hereby shall terminate at such time, if ever, that PERC leases or sells to Elwood the real property on which the Retention Pond is located. PERC and Elwood agree to execute an easement agreement mutually acceptable in form and substance to both Parties for recording in the Office of the Recorder of Deeds of Will County to provide public notice of the granting of said easement. 3. Article II of the Agreement is hereby amended by adding the following new Sections 2.15, 2.16 and 2.17: Section 2.15 Potable Service Water --------------------- (a) PERC's Responsibilities. Commencing August 1, 2001, PERC shall ----------------------- use best efforts to provide potable Service Water to Units 5 through 9 of the Facility at the Point of Interconnection and pursuant to the quality, quantity and other specifications set forth in Appendix I. ---------- PERC shall own, operate and maintain in accordance with applicable Law and Prudent Operating Practice such facilities on its side of the applicable Point of Interconnection as are necessary to provide potable Service Water to Elwood in accordance with this Agreement. PERC shall be responsible for obtaining and maintaining all Permits that are necessary for the operation of the wells and other water supply sources and the provision of potable Service Water hereunder. PERC shall not take any action or use or permit the use of its wells and other water supply sources in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with the provision of Services under this Section 2.15. PERC shall not amend or modify any of such Permits without the consent of Elwood, which consent shall not be unreasonably withheld or delayed (and which shall be deemed given unless Elwood notifies PERC of its decision to refuse consent within 30 days of PERC's request). (b) Elwood's Responsibilities. Elwood shall be responsible for the ------------------------- maintenance of Elwood's Service Water system at its sole cost and expense, except with respect to PERC's obligations expressly set forth in Section 2.15(a). Elwood shall not take any action or use or permit the use of Elwood's Service Water system in any manner which would cause a violation or breach of, or cause the loss or termination of or failure to renew or (re)issue, any Permits and approvals obtained or required to be obtained in connection with PERC's Service Water system or PERC's provision of Services under Section 2.15(a). (c) Termination. Notwithstanding anything contained herein to the ----------- contrary, PERC may terminate the provision of Service under this Section 2.15 without liability and without need to show cause by a notice in writing pursuant to Article XIII of this Agreement at least twelve (12) months before the effective date of such termination. Section 2.16 Fuel Gas Piping Maintenance --------------------------- (a) PERC's Responsibilities. Commencing August 1, 2001, PERC shall ----------------------- provide to Elwood certain maintenance and monitoring services for Elwood's underground fuel gas piping as described in Appendix J. PERC shall provide ---------- all necessary personnel, equipment and materials in connection with these Services. (b) Termination. In the event that PERC desires to terminate its ----------- obligations under this Section 2.16, PERC shall provide forty-five (45) days prior written notice to Elwood and Elwood shall no longer be liable for the cost of such maintenance and monitoring activities after the effective date of such termination. Section 2.17 Underground Structure Damage Prevention --------------------------------------- (a) PERC's Responsibilities. Commencing August 1, 2001, PERC shall ----------------------- provide to Elwood services to protect from damage by outside forces certain underground structures owned by Elwood within the Patterson Road utility easements as described in Appendix K. PERC shall provide all necessary ---------- personnel, equipment and materials in connection with these Services. (b) Termination. In the event that PERC desires to terminate its ----------- obligations under this Section 2.17, PERC shall provide forty-five (45) days prior written notice to Elwood and Elwood shall no longer be liable for the cost of such monitoring activities after the effective date of such termination. 4. Sections 4.1 and 4.2 of the Agreement are hereby amended by deleting the words "Appendices A through H" and inserting in lieu thereof the words "the Appendices." 5. Appendix A to the Agreement is hereby amended by deleting the current Appendix A in its entirety and inserting in its place the new Appendix A attached hereto. 6. New Appendices I, J and K, which are attached hereto, are made a part of the Agreement. 7. Pursuant to Section 2.5 of the Agreement, Elwood has been renting the Office and Warehouse Space from PERC on a month-to-month basis. The parties hereby agree to terminate PERC's obligations to provide such Office and Warehouse Space, and Elwood shall vacate the Office and Warehouse Space in accordance with the Agreement, as of the Office and Warehouse Space Termination Date. The parties agree that the Office and Warehouse Space Termination Date shall be September 30, 2001. 8. Pursuant to Section 2.7(b) of the Agreement, the parties hereby terminate PERC's obligations to provide landscaping services to the Premises under Section 2.7 of the Agreement and Elwood hereby waives any notice obligations of PERC with respect thereto. 9. Pursuant to Section 2.12(b) of the Agreement, the parties hereby terminate PERC's obligations to provide janitorial services to the Facility under Section 2.12 of the Agreement and Elwood hereby waives any notice obligations of PERC with respect thereto. 10. Pursuant to Section 2.14(b) of the Agreement, the parties hereby terminate PERC's obligations to provide snow plowing services to the Facility under Section 2.14 and Appendix H of the Agreement and Elwood hereby waives any ---------- notice obligations of PERC with respect thereto. 11. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Agreement. 12. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 13. This Amendment shall be governed by and construed in accordance with the laws of the State of Illinois. IN WITNESS WHEREOF, PERC and Elwood have caused this Amendment to be executed as of the date first written above. ELWOOD ENERGY LLC By: /s/ Tony Belcher ----------------------- Tony Belcher General Manager PEOPLES ENERGY RESOURCES CORP. By: /s/ William E. Morrow ------------------------ William E. Morrow Vice President COMMON FACILITIES AGREEMENT APPENDIX A NON-POTABLE SERVICE WATER SUPPLY -------------------------------- 1. Scope of Service: PERC shall supply non-potable Service Water to Elwood under this Appendix A per the following specifications. 2. Quality: Untreated well water as provided by the existing raw water system. (A representative water quality analysis for a typical sample of the well water is attached.) 3. Maximum Flow Rate: 320 gpm 4. Pressure: 60 - 140 psig 5. Interconnection Point: The interconnection, including required valves, to be owned by PERC. Elwood will own and operate piping downstream of interconnection point. 6. Monthly Service Water Supply Fee: a. Deep well pump (250 kw, 700 gpm, 0.08c/kwh): 45c per 1000 gallons. 27.5 gpm x 60 min/hr x 1000 hr x 9 units = 14.85 million gal. 0.45/1000 x 14.85 million = $6682.50/yr or $557/mo. b. Service water pump (full load): (19.8 kw, 160 gpm, 0.08c/kwh): $.165 per 1000 gal 14.85 million gal. X $0.165/1000gal. = $2450.25/yr = $204/mo. c. Service water pump (no load): (16kw @ 0.08/kwh= $1.28/hr, 7 months @ no load minus 1000 hr @ full load = 4110 hr x $1.28 = $5261/yr = $438/mo. d. Maintenance: $300/mo. e. Total: $1,500/mo. Facilities owned by PERC and associated with supplying non-potable service water to Elwood Energy (These facilities are not to be considered exclusively dedicated to Elwood Energy.) 1. Two 700 gpm deep well pumps. 2. Two 740 gpm (at 140 psig discharge pressure) raw water pumps. 3. Two 160 gpm (at 140 psig discharge pressure) raw water pumps. 4. One 932,700 gallon raw water storage tank. Process Water capacity is approximately 180,000 gallons. Special Assessments: - ------------------- PERC shall have the right to open discussions with Elwood and negotiate a fair and reasonable fee for extraordinary expenses that may be incurred for repair, upgrade, or expansion of the non-potable water system at the McDowell Energy Center. COMMON FACILITIES AGREEMENT APPENDIX I POTABLE SERVICE WATER SUPPLY ---------------------------- 1. Scope of Service: PERC shall supply potable Service Water to Elwood for Units 5 through 9 of the Facility under this Appendix I per the following specifications. 2. Quality: Untreated well water as provided by the existing PERC raw water system. 3. Maximum Flow Rate: 100 gpm 4. Pressure: 80 - 100 psig 5. Interconnection Point: The interconnection, including required valves, owned by PERC. Elwood will own and operate piping and equipment downstream of interconnection point. 6. Monthly Service Water Supply Fee: a. Deep well pump (250 kw, 700 gpm, 0.08c/kwh): 45c per 1000 gallons. 0.45/1000 gallons x 150,000 gallons = $71 /yr. = $6 / mo. b. Potable water pump (13.5 kw, 100 gpm, 0.08c/kwh): $0.18 per 1000 gal c. Potable water pump (full load): 150,000 gal. X $.18/1000 gal. = $27 / yr = $2.25 / mo. d. Potable water pump (no load): 8 kw x 8735 hr/yr x $0.08/kwh = $5590/yr = $465/mo. x 1/3 = $155/mo. e. Maintenance: $125/mo. f. Monthly Fee: $300/mo. Facilities owned by PERC and associated with supplying potable service water to Elwood (These facilities are not to be considered exclusively dedicated to Elwood.) 1. Two 700 gpm deep well pumps. 2. Two 125 gpm (at 100 psig discharge pressure) potable water pumps. 3. One 100,000 gallon potable water storage tank. Special Assessments: - ------------------- PERC shall have the right to open discussions with Elwood and negotiate a fair and reasonable fee for extraordinary expenses that may be incurred for repair, upgrade, or expansion of the potable water system at the McDowell Energy Center. COMMON FACILITIES AGREEMENT APPENDIX J FUEL GAS PIPING MAINTENANCE --------------------------- 1. Scope of Services: PERC shall provide a fuel gas piping maintenance program consisting of Routine and Non-Routine Services (described below). 2. Routine Services Tasks included under Routine Services are as follows: . Quarterly pipe-to-soil, insulator, bond current, and rectifier readings, as applicable . Annual leak survey, with electronic gas detection equipment, of all underground fuel gas piping . Minor repairs to cathodic protection test stations . Recommend necessary repairs and additions, as required . Maintain records of all related maintenance activity The charge for Routine Services is $1,000 per month, subject to an annual adjustment for inflation in accordance with the Agreement. 3. Non-Routine Services (to be billed at the rates listed w/annual adjustments) PERC will procure and furnish, at Elwood's request and expense, all materials, equipment, services, supplies, and labor necessary to perform any repairs, maintenance, or other mutually agreed to service related to the fuel gas piping including, emergency response, installation of anodes, and the performance of close interval surveys not defined as a Routine Service above. Charges for Non-Routine Services will be based on the following rate schedule: . Company Labor: Wage Earner $40.00/hour s.t. $60.00/hour o.t. Supervisory $60.00/hour . Material: Cost plus 20% . Contractor and Eqpt. Rental: Cost plus 20% COMMON FACILITIES AGREEMENT APPENDIX K UNDERGROUND STRUCTURE DAMAGE PREVENTION --------------------------------------- 1. Scope of Services: PERC shall provide a damage prevention program consisting of Routine and Non-Routine Services (described below) to protect from damage by outside forces certain underground structures owned by Elwood within the Patterson Road utility easements at the Facility. 2. Routine Services Tasks included under Routine Services are as follows: . 24 x 7 Response to JULIE System (one-call system) requests to locate the facilities . Ensure that the JULIE database is kept up-to-date regarding the status of the facilities . Monitor the area for and respond to unauthorized excavations and potential conflicting work by others . Provide liaison with local officials regarding any road work and drainage issues affecting the facilities . Maintain records of all related JULIE activity The charge for Routine Services is $1,000 per month, subject to an annual adjustment for inflation in accordance with the Agreement. 3. Non-Routine Services (to be billed at the rates listed and w/annual adjustments) PERC will procure and furnish, at Elwood's request and expense, all materials, equipment, services, supplies, and labor necessary to perform any repairs, maintenance, or other mutually agreed to service related to the underground structures and not defined as a Routine Service above. Charges for Non-Routine Services will be based on the following rate schedule: . Company Labor: Wage Earner $40.00/hour s.t. $60.00/hour o.t. Supervisory $60.00/hour . Material: Cost plus 20% . Contractor and Eqpt. Rental: Cost plus 20% EX-10.13 29 dex1013.txt GROUND LEASE Exhibit 10.13 GROUND LEASE by and between THE PEOPLES GAS LIGHT AND COKE COMPANY, as Lessor and ELWOOD ENERGY LLC, as Lessee Dated: September 30, 1998 Address of Premises: 21100 Noel Road Elwood, Illinois GROUND LEASE ------------ THIS GROUND LEASE (this "Lease"), made this 30th day of September, 1998, by ----- and between THE PEOPLES GAS LIGHT AND COKE COMPANY, an Illinois Corporation (the "Lessor"), and ELWOOD ENERGY LLC, a Delaware limited liability company (the ------ "Lessee"). - ------- W I T N E S S E T H: ------------------- WHEREAS, Lessor is the owner of fee title to the premises (as defined below), which consists of approximately 18.892 acres of land, together with the improvements located thereon, and is legally described on Exhibit A attached --------- hereto and made part hereof. The premises are part of the McDowell Energy Center in unincorporated Will County, Illinois. The address of the premises is 21100 Noel Road, Elwood, Illinois; and WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, the premises, all on and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows: AGREEMENTS ---------- ARTICLE 1 DEFINITIONS ----------- For the purpose of this Lease, the following terms shall have the meanings ascribed to them below: "Approval Contingencies" shall have the meaning ascribed to such term in ---------------------- Section 2.4 hereof. - ----------- "award" shall have the meaning ascribed to such term in Section 9.1 hereof. ----- ----------- "basic rent" shall have the meaning ascribed to such term in Section 3.1 ---------- ----------- hereof. "building fixtures" shall have the meaning ascribed to such term in Section ----------------- ------- 18.1 hereof. - ---- "Buildings" shall mean the buildings, structures and improvements and all --------- building fixtures (as said term is defined in Section 18.1 hereof), together ------------ with any and all buildings, structures and improvements now existing or at any time hereafter erected, constructed or situated upon the land comprising the demised premises, or any part thereof, during the hereafter affixed or attached to any such buildings, structures, or improvements and any and all renewals and replacements of, additions to and substitutions for any such building, building fixtures, structure or improvement, specifically excluding, however, the Kirk Building (as hereinafter defined). "business day" shall mean any day other than (i) a Saturday, (ii) a Sunday ------------ or (iii) a State of Illinois or federal holiday upon which banks are authorized or required by law to be closed for the conduct of normal business. "Commencement Date" shall have the meaning ascribed to such term in Section ----------------- ------- 2.2 hereof. - --- "Common Areas" shall have the meaning ascribed to such term in Section 14.1 ------------ ------------ hereof. "Common Facilities Agreement" shall have the meaning ascribed to such term --------------------------- in Section 14.1 hereof. ------------ "Common Utility Facilities" shall have the meaning ascribed to such term in ------------------------- Section 14.2 hereof. - ------------ "Default" shall mean any event which, with the giving of notice and/or ------- passage of time would constitute an Event of Default under this Lease. "Default Rate" shall mean a rate per annum which is the sum of (x) the ------------ "prime rate" of interest as announced by Citibank, N.A. (or any other national bank designated by Lessor) from time to time, plus (y) four percent (4%). "Environmental Laws" shall have the meaning ascribed to such term in ------------------ Section 21.1 hereof. - ------------ "Extended Commencement Date" shall have the meaning ascribed to such term -------------------------- in Section 2.4 hereof. ----------- "Event of Default" shall have the meaning ascribed to such term in Section ---------------- ------- 20.1 hereof. - ---- "Gas Main Easement" shall have the meaning ascribed to such term in Section ----------------- ------- 14.3 hereof. - ---- "Governmental Authority" shall have the meaning ascribed to such term in ---------------------- Section 21.1 hereof. - ------------ "Hazardous Materials" shall have the meaning ascribed to such term in ------------------- Section 21.1 hereof. - ------------ "ICC Approval Contingency" shall have the meaning ascribed to such term in ------------------------ Section 2.3 hereof. - ----------- "Impositions" shall have the meaning ascribed to such term in Section 4.1 ----------- ----------- hereof. "Institutional Mortgagee" shall mean a bank, savings bank or trust company ----------------------- having a capital 2 of not less than One Hundred Million Dollars ($100,000,000), an insurance company, authorized to do business in the State in which the Property is located, a financial services company, college, university, mortgage banker, building and loan or savings and loan association or society, pension fund, welfare fund, retirement fund, endowment fund, or a fraternal organization, or any combination thereof, or a collateral agent, trustee or other entity in connection with any public offering, 144A offering or other similar registered or exempt offering of notes or other indebtedness. "Kirk Building" shall mean that certain approximately 40.2 foot by 77.2 ------------- foot metal storage building located on the premises which is currently being used by Lessor for the storage of various catalysts for manufacturing processes. "Lessor's Parcel" shall have the meaning ascribed to such term in Section --------------- ------- 14.1 hereof. - ---- "Lessor's Remaining Property" shall have the meaning ascribed to such term --------------------------- in Section 14.1 hereof. ------------ "Permitted Exceptions" shall have the meaning ascribed to such term in -------------------- Section 2.1 hereof. - ----------- "Personal Property" shall have the meaning ascribed to such term in Section ----------------- ------- 18.2 hereof. - ---- "Premises," "premises", "demised premises" or "leased premises" shall mean -------- -------- ---------------- --------------- and include all of the land, appurtenant rights and easement rights demised herein (including, without limitation, the rights granted to Lessee pursuant to Article 14 hereof), and any Buildings now located thereon, but specifically excluding, however, the Kirk Building. "Property" shall mean and include both the demised premises and the -------- Buildings, but specifically excluding, however, the Kirk Building. "Rent" or "rent" shall mean, collectively, all basic rent and additional ---- ---- rent payable under this Lease from time to time. "Subdivision Approval Contingency" shall have the meaning ascribed to such -------------------------------- term in Section 2.4 hereof. ----------- "Term" shall have the meaning ascribed to such word in Section 2.2 hereof. ---- ----------- "Termination Date" shall have the meaning ascribed to such term in Section ---------------- ------- 2.2 hereof. - --- "Waste Treatment Facility" shall have the meaning ascribed to such term in ------------------------ Section 14.3 hereof. - ------------ 3 ARTICLE 2 PREMISES AND TERM ----------------- Section 2.1 Lease of Premises. Lessor, for and in consideration of the rent ----------------------------- herein reserved and of the covenants and agreements herein contained on the part of the Lessee to be kept, observed and performed, has demised and leased, and does by these presents demise and lease, to the Lessee, and Lessee hereby leases from Lessor, the premises, subject however to the terms and conditions of this Lease and the following exceptions to title: (a) General and special taxes and assessments for the year 1998 and subsequent years, which are not yet due and payable, and (b) The exceptions to title listed on Exhibit B attached hereto and made a --------- part hereof (collectively, the "Permitted Exceptions"), provided that Lessor -------------------- shall have until fifteen (15) days from the date the Approval Contingencies are satisfied to cause the Mortgage described as Item 1 on Schedule B to be released of record, at which time said Mortgage shall no longer be a Permitted Exception. Section 2.2 Term. The term of this Lease (the "Term") shall commence on the ---------------- ---- satisfaction or waiver of the Approval Contingencies (the "Commencement Date") ----------------- and shall end ninety nine (99) years thereafter (as such termination date may be modified pursuant to the provisions of this Lease, the "Termination Date"), ---------------- unless said Term shall be sooner terminated, as provided elsewhere in this Lease. Upon determination of the Commencement Date, Lessor and Lessee shall promptly confirm same in writing. Section 2.3 ICC Approval Contingency. Notwithstanding anything contained in ------------------------------------ this Lease to the contrary, Lessor's obligations and Lessee's rights under this Lease are expressly subject to and contingent upon the issuance by the Illinois Commerce Commission (the "ICC") of an interim written order permitting and approving this Lease of the premises by and between Lessor and Lessee, in form and substance reasonably satisfactory to both Lessor and Lessee (the "ICC Approval Contingency"). If the ICC Approval Contingency has not been satisfied by December 1, 1998, then the terms of Section 2.4(c) below shall apply. Lessor and Lessee shall cooperate with one another and shall perform, execute, and acknowledge and deliver all reasonably necessary acts, instruments and assurances and do all things necessary to assist one another in satisfying the ICC Approval Contingency on or before December 1, 1998. Lessor shall promptly apply for, and diligently pursue, such necessary ICC approvals. Section 2.4 Subdivision Approval Contingency. -------------------------------------------- (a) Lessor and Lessee acknowledge that the premises are not presently a complete, separately platted parcel. If state, county, and/or local law requires that a subdivision plat be filed as a condition to the leasing of the premises, then as soon as practicable, Lessor shall prepare and 4 file for approval a plat of subdivision for the premises reasonably satisfactory to both Lessor and Lessee. If the plat of subdivision has not been approved by all necessary governmental bodies and authorities and recorded in the Office of the Will County Recorder (collectively, the "Subdivision Approval Contingency") by December 1, 1998, then the terms of subparagraph (c) below shall apply. In connection therewith, Lessee shall bear all fees and expenses charged by all governmental authorities and any surveyors, engineers, and other consultants whose services are reasonably necessary to obtain such required subdivision and the approvals therefor. Lessor and Lessee shall cooperate with one another and shall perform, execute, acknowledge and deliver all reasonably necessary acts, instruments and assurances and do all things necessary to assist the other in obtaining any required subdivision and the approvals therefor. (b) The Subdivision Approval Contingency and the ICC Approval Contingency are sometimes collectively referred to herein as the "Approval Contingencies." (c) If the Commencement Date has not occurred by December 1, 1998, then the time period for satisfying the Approval Contingencies shall be automatically extended for an additional three hundred sixty-five (365) days (the "Extended Commencement Date"). In the event Lessor and Lessee are unable to satisfy the Approval Contingencies on or prior to the Extended Commencement Date, then either party hereto may terminate this Lease upon written notice to the other, in which event this Lease shall terminate and the parties shall have no further liability to each other hereunder. ARTICLE 3 RENTAL ------ Section 3.1 Basic Rent. As consideration for Lessor's lease of the premises ---------------------- to Lessee, Lessee hereby covenants and agrees to pay Lessor on or before the Commencement Date, in coin or currency which at the time of payment is legal tender for public or private debts in the United States of America, at the office of the Lessor in Chicago, Illinois, or at such other place as the Lessor may designate in writing, in lieu of any annual base rent, a one-time, lump sum amount equal to Two Hundred Eighty Three Thousand Three Hundred Eighty and No/100 Dollars ($283,380.00) (the "basic rent"). ---------- Section 3.2 Net Lease. It is the purpose and intent of Lessor and Lessee ---------------------- that the basic rent be absolutely net to Lessor, so that this Lease shall yield, net, to Lessor, the basic rent specified in Section 3.1 hereof, and that, except ----------- as specifically set forth in this Lease, all costs and expenses and obligations of every kind and nature whatsoever relating to the Property (except the taxes of Lessor referred to in Section 4.2 hereof and the costs to be paid by Lessor ----------- under Sections 2.3 and 2.4 hereof) which may arise or become due during the term of this Lease shall be paid by Lessee, and that Lessor shall be indemnified, defended and held harmless by Lessee from and against the same. Section 3.3 No Set-Off. The basic rent shall be paid to Lessor when due, ----------------------- without abatement, deduction or set-off. 5 Section 3.4 Additional Rent. Lessee shall also pay as additional rent ---------------------------- without abatement, deduction or set-off, all sums, Impositions (as defined in Section 4.1), costs, expenses and other payments which Lessee in any of the - ----------- provisions of this Lease agrees to pay. ARTICLE 4 TAXES AND ASSESSMENTS --------------------- Section 4.1 Payment of Impositions. ----------------------------------- (a) Lessee further agrees to pay as additional rent for the demised premises all taxes and assessments, general and special, water rates and all other impositions, ordinary and extraordinary, of every kind and nature whatsoever, which may be levied, assessed or imposed upon the Property or levied or assessed upon the interest of the Lessor in or under this Lease, now accrued or due, or accruing and becoming due and payable during the term of this Lease, and also all unpaid installments now accrued or due, or accruing and becoming due and payable during the term hereof, of special assessments levied against the Property for improvements completed or not yet completed (all of the foregoing being collectively referred to herein as "Impositions"). All ----------- Impositions shall be paid by Lessee before the same shall become delinquent, and in any case within sufficient time to prevent any sale or forfeiture of the Property therefor or for any part thereof; provided, however, that the general taxes levied against the Property for the first and last calendar years of the Term shall be prorated between the Lessor and the Lessee on and as of the Commencement Date and Termination Date, as the case may be, on the basis of the then last available tax bills. (b) Upon the execution of this Lease, Lessor shall promptly file a petition to have the Property separately assessed with a distinct property tax identification number in the name of the Lessor (or, if possible, in the name of the Lessee). Until such tax division is obtained, if any tax bills for Impositions cover the demised premises (including any Buildings thereon) and other property owned by Lessor (i) such bills shall be allocated between the demised premises and such other property based on the area of the demised premises relative to the area of the entire tax parcel covered by such tax bills of which the demised premises forms a part; (ii) Lessee shall promptly pay Lessor on demand (which demand shall be accompanied by a copy of the applicable tax bill and the computation upon which the portion thereof payable by Lessee is based) the portion of such tax bills which are allocated to the demised premises, as set forth above; and (iii) Lessor shall pay all tax bills for Impositions covering the demised premises (including any buildings thereon) and other property owned by Lessor in a timely manner, except to the extent Lessee fails to make timely payment pursuant to subpart (ii) of this sentence. Section 4.2 Substitute Taxes. The parties to this Lease agree that ----------------------------- nothing herein contained shall be construed to require the Lessee to pay any franchise, inheritance, estate, succession or transfer tax of the Lessor or any income or excess profits tax assessed upon or in respect of the income of the Lessor or chargeable to or required to be paid by the Lessor, unless such tax shall be specifically levied against the income of the Lessor derived from the rent paid pursuant to this 6 Lease, expressly and as and for a specific substitute for the taxes, in whole or in part, upon the Property or any part thereof. Lessee covenants and agrees to pay all such substitute taxes as so much additional rent as and when the same become due and payable; provided, however, that if the amount or rate of any such income or excess profits taxes so levied against the income of the Lessor, as a specific substitute for the taxes on the Property or any part thereof, shall be increased by reason of any other income received or property owned by the Lessor, then the Lessee shall not be obligated to pay such increased amount but only such tax as the Lessor would be obligated to pay in case it derived no income from any source other than the real estate hereby demised. Section 4.3 Tax Deposits. Following the occurrence of an Event of Default ------------------------- hereunder, Lessee further covenants and agrees that it will deposit with the Lessor, on the first day of each month of the Term hereof, an amount equal to 1.05 times one-twelfth (1/12th) of the amount of the general real estate taxes and assessments on the Property as determined by the previous year's tax bill, or, if such tax bill is not available, then by the last procurable tax bill. If such previous year's or last procurable bill does not include a full assessment of the Buildings, each of such deposits shall be in an amount of 1.05 times one- twelfth (1/12th) of the Lessor's reasonable estimate of the taxes and assessments to be assessed. It is the intent hereof that such aggregate deposits for taxes and assessments shall be sufficient for the payment of such general real estate taxes and assessments when due. At the written request of Lessee, accompanied by the bill for the tax then due, Lessor shall use said moneys so deposited to pay the general taxes and assessments on the Property when and as said general taxes and assessments shall become due and payable to the proper taxing authority; and, in the absence of such written request, Lessor may, but shall not be required to, apply said deposited moneys to the payment of such general taxes and assessments. In the event Lessee is required to make monthly deposits under the terms of this Section 4.3, and thereupon makes twelve (12) consecutive monthly deposits in a timely manner as required in this Section and is not otherwise in Default under this Lease beyond applicable cure periods, Lessee's obligation to continue making such deposits shall discontinue until such time, if any, that another Event of Default occurs, in which case the provisions of this sentence shall once again apply. In the event that during the Term of this Lease there shall be an excess of moneys so deposited with the Lessor over and above the amount of taxes and assessments to become due and payable in any calendar year, such excess shall be retained by the Lessor and shall be credited pro tanto to the monthly installments to be paid to the Lessor --- ----- by the Lessee during the next succeeding year, excepting only that at the time of the termination of this Lease, if Lessee is not then in Default, then Lessee shall be entitled to withdraw the amount of such deposit in excess of the amount required to pay the taxes and assessments to the end of the Term hereof. Nothing herein contained shall relieve the Lessee from the necessity of paying any deficiency of any general taxes and assessments in the event that the total annual deposit with Lessor is less than the amount of the actual tax levied and assessed. Section 4.4 Lessor's Right to Pay Delinquent Amounts. It is further agreed ---------------------------------------------------- that the Lessor shall at its option have the right at all times during the Term hereof to pay any Impositions remaining unpaid after the same shall have become delinquent, and to pay, cancel and clear off all tax sales, liens, charges and claims upon or against the Property, and to redeem said Property from the same or any of them from time to time, and the amounts so paid, including reasonable expenses, shall be so much additional rent due from the Lessee to the Lessor on the business day after any 7 such payment, with interest thereon at the Default Rate from the date of payment thereof by the Lessor until the repayment thereof by the Lessee to the Lessor. Section 4.5 Lessee's Right to Contest. All other provisions of this Lease ------------------------------------- to the contrary notwithstanding, Lessee shall not be required to pay, discharge or remove any Imposition so long as Lessee shall in good faith and with due diligence contest the same or the validity thereof by appropriate legal proceedings which shall have the effect of preventing the collection of the Imposition so contested and the sale or forfeiture of said Property or any part thereof or any interest therein to satisfy the same, and, provided that, pending any such legal proceedings, Lessee shall deposit with the Lessor cash in an amount equal to not less than one hundred percent (100%) of the amount of the Impositions and all interest and penalties thereon so contested, or Lessee shall deposit the bond described below. Pending the diligent prosecution of any such legal proceedings, and provided Lessee has maintained the deposit or bond above provided for, Lessor shall not have the right to pay, remove or discharge the Imposition so contested. At the conclusion of such contest, upon written request of Lessee, accompanied by the bill for the Imposition then due, Lessor shall use the cash deposited with Lessor pursuant to this Section 4.5, less the amount of ----------- any loss, cost, damage and reasonable expense that Lessor may sustain in connection with the Imposition so contested, to pay such Imposition; or if the Property shall have been released and discharged from any such Imposition, and if Lessee is not in Default under the provisions of this Lease, Lessor shall return the cash so deposited to Lessee. Notwithstanding anything in this Section ------- 4.5 to the contrary, if Lessee fails to prosecute such contest with due - --- diligence, or fails to maintain said deposit or bond as above provided, or if Lessee is otherwise in Default under the provisions of this Lease, or if, at the conclusion of such contest, Lessee fails to request Lessor to pay the Imposition, then Lessor may use the cash so deposited to pay any item for which Lessor would be entitled to make advances under Section 4.4 and Article 25 ----------- ---------- hereof. The amount of any money deposited or the face amount of any bond posted (provided such bond shall have been approved by Lessor, which approval shall not be unreasonably withheld) by Lessee with any municipality or other governmental body to secure the payment of any Imposition in connection with any contest thereof, shall be credited against the amount of the deposit required to be made by Lessee with Lessor pursuant to this Section 4.5. ----------- Section 4.6 Lessee's Right to Recover. In the event that Lessee at any time ------------------------------------- institutes suit against any governmental authority to recover any Imposition paid by Lessee under protest in Lessor's name, Lessee shall have the right, at its own sole expense, to institute and prosecute such suit or suits in Lessor's name, in which event Lessee covenants and agrees to indemnify and defend Lessor and save it harmless from and against all costs, charges or liabilities in connection with any such suit. All funds recovered as a result of any such suit shall belong to Lessee. Section 4.7 No Interest Payable on Deposits. Lessor shall not be liable to ------------------------------------------- Lessee for the payment of any interest on any monies deposited by Lessee with Lessor pursuant to Section 4.3 or 4.5 hereof. ----------- --- 8 ARTICLE 5 USE AND CARE OF PREMISES; LIABILITY INSURANCE --------------------------------------------- Section 5.1 Lessee's Obligation to Maintain Property. Lessee has inspected ---------------------------------------------------- the Premises and finds it to be in a safe and satisfactory condition and acknowledges that, without limiting the effectiveness of the indemnity contained in Section 21.4 hereof, Lessor has made no representation to Lessee as to the ------------ condition, safety, fitness for use, or state of repair thereof. Lessee covenants and agrees that during the Term it will: (i) keep the Property in a good state of repair and generally that it will in all respects and at all times comply in all material respects with all lawful health and police regulations applicable to the Property or Lessee's use thereof; (ii) keep the Property and areas adjacent thereto, as well as in the area thereof, safe, secure and in conformity in all material respects with the lawful and valid requirements of any municipality or political subdivision in which said premises may be situated and of all other public authorities; (iii) make at its own expense (subject, however, to the provisions of this Lease) all additions, improvements, alterations and repairs on the Property and to the appurtenances and equipment thereof required by any lawful authorities or which may be made necessary by the act or neglect of any other person or corporation (public or private) other than Lessor, including shoring up and protecting any of the Buildings or strengthening the foundations of any Building at any time situated on said premises; (iv) save, indemnify, defend and hold harmless the Lessor at all times against any loss, damage, cost or expense by reason of the failure so to do in any respect or by reason of any accident, loss or damage resulting to persons or property from any use which may be made of the Property or by reason of or growing out of any act or thing done or omitted to be done or any occurrence upon the Property; and (v) save, indemnify, defend, hold and keep the Lessor and the Property harmless and free and clear of and from any and all claims, demands, penalties, liabilities, judgments, costs and expenses, including reasonable attorneys' fees and expenses, arising out of any damage which may be sustained by adjoining property or adjoining owners or other persons or property in connection with any remodeling, altering or repairing of any structures, improvements, or buildings on the demised premises or the erection of any new structures, improvements or buildings thereon. For purposes of subsections (i) and (ii) above, "material" shall mean and include any violation of the applicable regulations and requirements that would have an adverse effect or impact on Lessor or Lessor's Remaining Property (as hereinafter defined). Notwithstanding the foregoing, however, in no event shall the covenants and indemnities of Lessee contained in this Section 5.1 pertain to the Kirk ----------- Building, or to the use thereof by Lessor and its employees and agents. Lessor shall save, indemnify, defend and hold Lessee harmless and free and clear of and from any and all claims, demands, penalties, liabilities, judgments, costs and expenses, including reasonable attorneys' fees and expenses, to the extent arising out of the use of the Kirk Building by Lessor and its agents, contractors and employees. Section 5.2 Use. Lessee may use the Property solely for the construction --------------- and operation of a gas or liquid fuels electric power generation facility with related fuel handling and storage, and transmission equipment and facilities, and uses necessary or ancillary thereto. Lessee also shall not use or suffer or permit anyone claiming under Lessee to use the Property for any unlawful purpose, nor suffer or permit any condition to occur or exist which will (i) injure the reputation of the Property, or (ii) interfere with Lessor's use and enjoyment of its property which surrounds and 9 adjoins the demised premises. All tile drains and underground facilities of Lessor that may be damaged or otherwise disturbed in any manner by Lessee's use of and/or activities on the demised premises shall be immediately repaired, at Lessee's sole cost and expense, with comparable tile drain. Lessee shall comply with all provisions of the Permitted Exceptions which pertain to the Property. Section 5.3 Insurance. ---------------------- (a) Lessor and Lessee each hereby waive any and every claim for recovery from the other for any and all loss of or damage to the Property, or to the contents thereof, which loss or damage is covered by valid and collectible physical damage insurance policies or would have been covered had the insurance policies required by this Lease been in force, to the extent that such loss or damage is recoverable under said insurance policies. Inasmuch as this mutual waiver will preclude the assignment of any such claim by subrogation (or otherwise) to an insurance company (or any other person), Lessor and Lessee each agree to give to each insurance company which has issued, or in the future may issue its policies of physical damage insurance, written notice of the terms of this mutual waiver, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waiver. (b) Lessee shall procure and maintain, at Lessee's sole expense, insurance during the entire Term for the benefit of Lessee and Lessor (as their interests may appear) from a company duly authorized to transact business in Illinois holding a "General Policyholders Rating" of at least "A", as set forth from time to time in the most recent issue of "Best's Insurance Guide" (or companies having a comparable rating in any successor or replacement for Best's Insurance Guide), or from insurance companies otherwise reasonably satisfactory to Lessor, in the following amounts: (i) Comprehensive general liability insurance (including personal injury, bodily injury, blanket contractual, broad form property damage and independent contractors coverage) written on an occurrence form, having a minimum combined single limit of $5,000,000.00 for liability on account of bodily injury and property damage; (ii) All risk property insurance (including flood, earth movement and windstorm coverage) in an amount not less than the full replacement cost of the Buildings and improvements (including, all furniture, fixtures, equipment and personalty), with commercially reasonable deductibles determined by Lessee; (iii) Comprehensive boiler and machinery insurance, in an amount not less than $5,000,000.00, with commercially reasonable deductibles determined by Lessee; (iv) Excess or umbrella liability coverage in an amount not less than $15,000,000.00; and (v) Workers compensation and nonoccupational disability coverages if and as required by the State of Illinois. 10 (c) With respect to each required coverage, except workers compensation and nonoccupational disability, Lessee will require the insurer to: (i) name Lessee as the insured, and Lessor and those parties otherwise designated by Lessor from time to time by written notice to Lessee as additional insureds as their interests may appear; and (ii) give the insured and each named additional insured written notice not less than thirty (30) days before cancelling the policy or reduction in coverage. (d) Lessee will be responsible to bear the deductible portion of any claims or losses. (e) Prior to the date Lessee takes possession of the Property, Lessee shall furnish Lessor with certificates of insurance (which certificates shall state that such insurance coverage may not be changed or cancelled without at least thirty (30) days prior written notice to Lessee and Lessor) evidencing all coverages required above to be in full force and effect, together with a copy of the current endorsement evidencing the required all risk property insurance coverage, and evidence that the premiums then due for the coverages have been fully paid so that Lessor may ascertain the current state of Lessee's performance of Lessee's obligation to provide insurance in the prescribed manner. Lessee shall provide Lessor with new certificates of insurance not less than thirty (30) days before any insurance policy will, by its terms expire. (f) At the request of Lessor, the coverage amounts set forth above in this Section 5.3 shall be increased on each fifth (5th) anniversary of the - ----------- Commencement Date by a percentage equal to the percentage increase (if any) in the Consumer Price Index for all urban consumers published from time to time by the United States [Bureau of Labor Statistics] ("CPI") between the month in which each such fifth anniversary occurs and the month in which the Commencement Date has occurred. If the CPI shall cease to be so published, a comparable index thereto that is reasonably acceptable to Lessor shall be substituted therefor. ARTICLE 6 REPAIRS AND REPLACEMENTS: RESTORATION OF DAMAGED OR DESTROYED IMPROVEMENTS ------------------------------------ Section 6.1 Maintenance of Improvements. Lessee covenants and agrees at its --------------------------------------- own expense to keep the Buildings at all times in good repair, order and condition. Section 6.2 Alterations. Lessee shall have, at its own expense and subject ----------------------- to the provisions of Section 6.3 hereof, the right at any time and from time to ----------- time during the term of this Lease to erect new Buildings, to make such changes and alterations, structural or otherwise, to the Buildings, and to erect, place or install upon the demised premises buildings, structures, improvements and equipment in addition to those now or hereafter located thereon as the Lessee may deem necessary or desirable, it being agreed that the salvage therefrom shall become the property of the Lessee and may be disposed of in such manner as the Lessee may deem best. 11 Section 6.3 Removal of Buildings. Anything herein contained to the contrary -------------------------------- notwithstanding, Lessee may, without Lessor's prior written consent, remove any Buildings (specifically excluding the Kirk Building) now or hereafter located on the demised premises. Section 6.4 Lessor's Rights to Kirk Building. Lessor and Lessee acknowledge -------------------------------------------- and agree that the demised premises do not include the Kirk Building (or the land lying thereunder) and that Lessor retains all rights of ownership (and all obligations to repair and comply with laws) regarding the Kirk Building. Without limiting the generality of the foregoing, Lessor shall have the continued right to use the Kirk Building for the storage of catalysts, and uses necessary and ancillary thereto. Lessor expressly reserves a non-exclusive easement and right- of-way over, upon, and through the demised premises for direct and unimpeded access to and from the Kirk Building for storing and removing catalysts therefrom. Lessor's access rights pursuant to the preceding sentence may be exercised at any time, from time to time, upon reasonable prior notice to Lessee. The location of the Kirk Building and such access easement will be more particularly described in the Common Facilities Agreement. ARTICLE 7 LIENS ----- Section 7.1 Liens. It is expressly covenanted and agreed by and between the ----------------- parties hereto that nothing in this Lease contained shall authorize Lessee to do any act which shall in any way encumber the title of Lessor in and to the premises, nor shall the interest or estate of the Lessor in the premises be in any way subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Lessee, and any claim to or lien upon the premises arising from any act or omission of Lessee shall accrue only against the leasehold estate of Lessee and Lessee's interest in the Buildings and shall in all respects be subject and subordinate to the paramount title and right of Lessor in and to the premises. Lessee shall promptly pay, discharge or bond over any mechanics', laborers' or materialmen's lien on account of labor or material furnished to the Lessee or any sublessee in connection with work of any character performed or claimed to have been performed on the Property by or at the direction or sufferance of the Lessee; provided, however, that Lessee shall have the right to contest in good faith and with reasonable diligence the validity of any such lien or claimed lien if Lessee shall give to the Lessor such reasonable security as may be demanded by the Lessor to insure payment and to prevent any sale, foreclosure or forfeiture of the demised premises by reason of non-payment thereof. Upon final determination of any lien or claim for lien, the Lessee will immediately pay any judgment rendered with all proper costs and charges and will at its own expense have the lien released and any judgment satisfied. Section 7.2 Failure to Contest Liens. In case Lessee shall fail to contest ------------------------------------ the validity of any lien or claimed lien and give security to Lessor to insure payment thereof, or having commenced to contest the same, and having given such security, shall fail to prosecute such contest with diligence, or shall fail to have the same released and satisfy any judgment rendered thereon, then Lessor may, at its election (but shall not be required so to do) remove or discharge such lien or claim for lien 12 (with the right in its discretion to settle or compromise the same) and any amounts advanced by Lessor for such purposes shall be so much additional rental due from Lessee to Lessor at the next rent day after any such payment, with interest at the Default Rate from the date of payment thereof by Lessor until the repayment thereof by Lessee to Lessor. ARTICLE 8 DISBURSEMENT OF INSURANCE PROCEEDS ---------------------------------- Section 8.1 [INTENTIONALLY OMITTED]. ----------------------------------- Section 8.2 Payment of Proceeds Directly to Lessee. Insurance proceeds --------------------------------------------------- related to damaged or destroyed improvements or Buildings shall be paid to Lessee, or an Institutional Mortgagee, without any right or participation therein by Lessor, and shall be used by Lessee or such Institutional Mortgagee for restoration and rebuilding of the Buildings and improvements, or for restoring the premises to a condition that is as near as is reasonably practical to the condition of the Premises which existed on the Commencement Date. The balance of such proceeds (after such restoration and/or rebuilding has been accomplished) shall be the property of Lessee. ARTICLE 9 CONDEMNATION ------------ Section 9.1 Full Takings. In the event that the whole of the Property shall ------------------------ be permanently taken, condemned or title thereto acquired by the exercise of the power of eminent domain by any person or corporation, municipal, public, private or otherwise, during the Term hereof, then and in that event the Term of this Lease shall terminate from the date when possession of the Property shall be acquired for such use or purpose, and any award, compensation or damages (collectively, the "award") shall be divided between Lessor and Lessee in ----- accordance with their respective interests. Section 9.2 Partial Takings. In the event that a part of the Property shall --------------------------- be permanently taken, condemned or title thereto acquired by the exercise of the power of eminent domain by any person or corporation, municipal, public, private or otherwise, during the Term hereof, then the Lessee may, at its option, terminate this Lease and the Term hereof on the date when possession of such part of the Property shall be required for such use or purpose, and any award shall be divided between the Lessor and the Lessee in the same manner and upon the same conditions as set forth in Section 9.1. Such option shall be exercised ----------- by the Lessee by written notice to the Lessor not less than thirty (30) days prior to the date on which possession of such portion of the Property shall be required for such purpose, unless possession shall be taken before award is made, in which case such notice shall be given on or prior to the thirtieth (30th) day after the date on which possession shall be so taken. If the Lessee shall not so elect to terminate this Lease and the Term hereof in the event of such partial taking, then, upon the payment of any award arising from such condemnation the amount received for the whole Property, including the Buildings, shall be paid to and held by 13 Lessee and used in defraying, to the extent that it suffices, the cost and expense of making repairs to and alterations of the Buildings for the purpose of restoring the same to an economic architectural unit to the extent that may have been made necessary by such condemnation, and the balance, if any, remaining shall be paid to the Lessor. Lessee shall perform such restoration with due diligence in a timely manner, in accordance with the provisions of Article 6 --------- hereof. ARTICLE 10 RENT ABSOLUTE ------------- Except as otherwise specifically provided herein, damage to or destruction of any portion or all of the Buildings, by fire, the elements or any other cause whatsoever, whether with or without fault on the part of the Lessee, shall not terminate this Lease or entitle the Lessee to surrender the demised premises or entitle the Lessee to any abatement of or reduction in the rent payable, or otherwise affect the respective obligations of the parties hereto, any present or future law to the contrary notwithstanding. If the use of the Property for any purpose should at any time during the Term of this Lease be prohibited by applicable law, ordinance or other governmental regulation or prevented by injunction, or if there be any eviction by title paramount, this Lease shall not be terminated nor shall the Lessee be entitled by reason thereof to surrender the demised premises or to any abatement or reduction in rent, nor shall the respective obligations of the parties hereto be otherwise affected. ARTICLE 11 ASSIGNMENT AND MORTGAGING BY LESSEE ----------------------------------- Section 11.1 Assignment. Except as otherwise hereinafter provided in ----------------------- Section 11.4 hereof, Lessee shall not allow or permit any transfer of this Lease - ------------ or any interest hereunder or assign, convey, sublease, mortgage, pledge, or encumber this Lease or any interest hereunder, or Lessee's interest in the Buildings, or permit the use or occupancy of the premises or any part thereof by anyone other than Lessee or Lessee's subtenants, without, in each case, Lessor's written consent first had and obtained, (which consent shall not be unreasonably withheld or delayed). No assignment or subletting (with or without Lessor's consent) shall release Lessee from any of its obligations hereunder. Section 11.2 Evidence of Assignment. Any assignment of this Lease by Lessee ----------------------------------- shall be evidenced by an instrument in writing (a copy whereof shall be delivered to Lessor) duly executed and acknowledged by the assignor and the assignee and duly recorded in the Recorder's Office of Will County, Illinois, wherein and whereby the assignee shall expressly accept and assume all of the terms and covenants thereafter arising in this Lease contained to be kept, observed and performed by the Lessee and shall further acknowledge that all interest in the land and Buildings acquired by virtue of such assignment is expressly subject to the paramount rights of the Lessor under this Lease. In no event shall Lessee be released from liability under this Lease in connection with such assignment, whether arising before or after such assignment. 14 Section 11.3 [INTENTIONALLY OMITTED]. ------------------------------------- Section 11.4 Leasehold Mortgages. Lessee, and its permitted successors and -------------------------------- assigns, shall have the right to mortgage or pledge this Lease and Lessee's interest in the Buildings, in whole or in part, to any Institutional Mortgagee. Any leasehold mortgage shall be subject and subordinate to the rights of the Lessor hereunder (including Lessor's fee ownership of the premises). The provisions of this Section or Article 12 shall not be binding upon Lessor, ---------- unless and until an executed counterpart of such leasehold mortgage, or a copy thereof certified by the Institutional Mortgagee to be true, shall have been delivered to Lessor and Lessor shall have been duly notified in writing by the Lessee or by the Institutional Mortgagee under such leasehold mortgage of the name and address of the Mortgagee. In no event shall an assignment of this Lease pursuant to a foreclosure sale (involving the judicial foreclosure of the mortgage held by an Institutional Mortgagee) or an assignment of this Lease (in lieu of foreclosure) by Lessee to such Institutional Mortgagee require the consent of Lessor. Section 11.5 Assignments in Contravention of this Article. Any attempted ---------------------------------------------------------- assignment, transfer or mortgage in violation of any of the provisions of this Article shall be null and void and of no force and effect. ARTICLE 12 RIGHTS OF LEASEHOLD MORTGAGEES ------------------------------ If Lessee or Lessee's successors or assigns shall mortgage this Lease in accordance with the provisions of Section 11.4 hereof and Lessor shall have been ------------ given due notice thereof as provided in Section 11.4 and, provided that the ------------ leasehold mortgage shall have been given as security for a bona fide loan of money made to the Lessee and shall be owned and held by an Institutional Mortgagee having no financial interest in or connection with Lessee, the following provisions shall apply so long as any such leasehold mortgage shall remain unsatisfied of record or (to the extent applicable) after acquisition of the leasehold estate pursuant to any foreclosure of such leasehold mortgage or in lieu of foreclosure thereof: (a) Lessor and Lessee shall not enter into any agreement providing for surrender or modification of this Lease without the prior consent in writing of the Institutional Mortgagee under any leasehold mortgage, which consent shall not be unreasonably withheld or delayed. (b) Lessor shall not be empowered to terminate the leasehold estate hereunder by reason of the occurrence of any Default or Event of Default, unless the Lessor shall have served upon the Institutional Mortgagee under such leasehold mortgage, at the address furnished to Lessor and otherwise in the manner hereinafter provided for the service of notice, a notice of default such as Lessor may be required by the terms of this Lease to serve upon the Lessee. 15 (c) Any such Institutional Mortgagee shall have the right to remedy any Default under this Lease or cause the same to be remedied, and Lessor shall accept such performance by or at the instance of such Institutional Mortgagee as if the same had been made by Lessee. There shall be added to any grace period allowed by the terms of this Lease to the Lessee for curing any Default, an additional thirty (30) days in the case of Default in payment of rent and an additional sixty (60) days in the case of all other Defaults, for the Institutional Mortgagee to cure the same beyond the time allowed to the Lessee, all such cure periods being determined from the date on which notice of Default has been sent to the Institutional Mortgagee. If such Institutional Mortgagee shall fail to remedy any such Defaults within any such additional period of time, then, subject to Sections 12(d) and (e) below, Lessor may pursue all ---------------------- remedies in accordance with Article 20 of this Lease. ---------- (d) In case of a Default by Lessee under this Lease that cannot be cured by such Institutional Mortgagee without possession of the Property (other than a Default by Lessee under Article 21 hereof, Lessor shall take no action to effect ---------- a termination of this Lease by service of notice or otherwise, without first giving to such Institutional Mortgagee a reasonable time, not to exceed one hundred eighty (180) days, within which to institute and complete foreclosure or similar proceedings, to lift any applicable bankruptcy stay or otherwise acquire Lessee's leasehold estate under this Lease in order to obtain possession of the Property (including possession by a receiver) and to cure or cause to be cured such Default. (e) If Lessor terminates this Lease as a result of an Event of Default, Lessor will enter a new ground lease of the demised premises with such Institutional Mortgagee or its nominee, for the remainder of the Term, effective as of the date of such termination, at the rent and upon the terms, provisions, covenants and agreements herein contained and subject only to the same conditions of title as this Lease is subject on the Commencement Date, and to the rights, if any, of any parties then in possession of any part of the Property, provided: (i) the Institutional Mortgagee or its nominee shall make written request upon Lessor for such new lease within fifteen (15) days after the date of such termination and such written request is accompanied by payment to Lessor of all sums then due to Lessor (or otherwise payable) under this Lease; (ii) the Institutional Mortgagee or its nominee shall pay to Lessor at the time of the execution and delivery of the new lease, any and all sums which would, at the time of the execution and delivery thereof, be due pursuant to this Lease but for such termination, and in addition thereto, any expenses, including reasonable attorneys' fees, to which Lessor shall have been subjected by reason of such default; (iii) the Institutional Mortgagee or its nominees shall cure all non-monetary Defaults which are then capable of being cured by such party, and promptly after entering such new ground lease (with respect to any other non-monetary defaults that are capable of being cured upon receipt of possession of the Property) the Institutional Mortgagee or such nominee shall promptly proceed (and at all times thereafter shall diligently attempt) to cure such Defaults; and (iv) Lessor shall not warrant possession of the Property as against Lessee to the Lessee under the new lease. (f) Any moneys held by Lessor under the provisions of this Lease which may be or become payable to Lessee (including, but not limited to, deposits made by Lessee pursuant to Section 4.3 for payment of real estate taxes, proceeds of ----------- casualty insurance or proceeds of condemnation awards) shall be payable upon demand, to the Institutional Mortgagee under any 16 leasehold mortgage as the interest of such Institutional Mortgagee may appear. If Lessor should at any time be in doubt as to whether any such moneys are payable to such Institutional Mortgagee or to the Lessee, Lessor may pay such moneys into court and file an appropriate action of interpleader in which all of Lessor's costs and expenses, including attorneys' fees, shall first be paid out of the proceeds so deposited. (g) No Institutional Mortgagee under any leasehold mortgage or holder of indebtedness secured thereby or purchaser at foreclosure sale shall incur or be required to assume liability for the payment of rental under this Lease or for the performance of any of Lessee's covenants and agreements contained herein, unless and until such Institutional Mortgagee or holder of indebtedness shall have become the owner of the leasehold estate hereunder by foreclosure or by assignment in lieu of foreclosure, whereupon the liability of any such person shall be only such as may arise by operation of law by reason of privity of estate; provided, however, that such Institutional Mortgagee or its nominee shall not be obligated to cure any Defaults under Sections 20.1(c), (d) or (e) ---------------------------- hereof. (h) Casualty insurance policies may contain mortgagee clauses covering the interest of the Institutional Mortgagee under a leasehold mortgage, as such interest may appear, provided that the same contain an express recital that the rights of such Institutional Mortgagee are at all times subject to the rights of the Lessor hereunder. (i) Lessor shall, upon request, execute, acknowledge and deliver to each Institutional Mortgagee, an agreement prepared at the sole cost and expense of Lessee, in form reasonably satisfactory to Lessor and such Institutional Mortgagee, between Lessor, Lessee and Institutional Mortgagee agreeing to the provisions of Section 11.4 and this Section 12 and such reasonable modifications thereof as shall be requested by such Institutional Mortgagee and reasonably acceptable to Lessor. The term "mortgage" or "leasehold mortgage" whenever used herein, shall include, without limitation, deeds of trust, trust deeds and any instruments required in connection with a lease-leaseback transaction. ARTICLE 13 INDEMNITY FOR LITIGATION ------------------------ The Lessee covenants and agrees that in case the Lessor shall without fault on its part be made a party to any litigation commenced by or against the Lessee, then the Lessee shall and will pay all costs and expenses, including attorneys' fees and expenses, incurred by or imposed on the Lessor by or in connection with such litigation; and also shall and will pay all costs and expenses, including attorneys' fees and expenses, which may be incurred by the Lessor in enforcing any of the covenants and agreements of this Lease, and all such costs, expenses and reasonable attorneys' fees shall if paid by Lessor herein, be so much additional rent due on the next rent date after such payment or payments, together with interest at the Default Rate from the date of payment thereof by Lessor until repayment thereof by the Lessee to the Lessor. 17 ARTICLE 14 OFF-PREMISES FACILITIES ----------------------- Section 14.1 Common Areas. Lessee acknowledges and agrees that the demised ------------------------- premises are part of a larger tract of land owned by Lessor (the "Lessor's Parcel"). The Lessor's Parcel less the demised premises is sometimes referred to herein as the "Lessor's Remaining Property." The Lessor's Remaining Property surrounds and adjoins the demised premises to the north, east and west. For purposes of this Lease, the term "Common Areas" shall mean all areas within the boundaries of the Lessor's Parcel that are, or are to be made available from time to time, for the non-exclusive use, convenience and benefit of the Lessor, the Lessee and their respective permittees. Among other things, the Common Areas include: (i) the Common Utility Facilities (defined in Section 14.2 ------------ below); (ii) any shared access roads and other shared roadways on Lessor's Parcel, to provide vehicular access to and from and in and out of any shared parking areas, the demised premises, and/or the Lessor's Remaining Property; and (iii) the Waste Treatment Facility (as defined in Section 14.4 below), but only ------------ if Lessor grants Lessee a license to use the same in accordance with Section ------- 14.4. The Common Areas do not include: (i) any Buildings; (ii) the Kirk - ---- Building; (iii) any interior areas within any Buildings or the Kirk Buildings; (iv) any separate truck facilities; or (v) any utility easements separately and exclusively serving either the demised premises or the Lessor's Remaining Property. Lessor and Lessee shall, within a reasonable period of time hereafter, enter into the "Common Facilities Agreement", which shall (among other things) set forth the rights and obligations of the parties with respect to the maintenance, repair, operation and replacement (including allocating the cost thereof between Lessor and Lessee) of the Common Areas and Common Utility Facilities. Section 14.2 Easement in Common Utility Facilities. For purposes of this --------------------------------------------------- Lease, the term "Common Utility Facilities" shall mean utility systems and facilities from time to time situated on the Lessor's Parcel serving both the Lessor's Remaining Property and the demised premises, for use or service in common by both parties or for service of the Common Areas, such as the following: storm drainage and retention facilities and sanitary sewer systems, manholes, underground domestic and fire protection water systems, underground natural gas systems and gas supply pipelines, underground electric power cables and systems, underground telephone cables and systems, cable television systems and all other utility systems and facilities for such common use or service. The Lessor hereby grants to the Lessee for the term of this Lease a non- exclusive easement in the Lessor's Remaining Property for the purpose of exercising the rights provided for in the Common Facilities Agreement with respect to the Common Utility Facilities which are intended to serve the demised premises. The Lessor, in addition, hereby reserves unto itself a non-exclusive easement in the demised premises for the purpose of exercising the rights provided for in the Common Facilities Agreement with respect to Common Utility Facilities which are intended to serve the Lessor's Remaining Property. Section 14.3 Easement for Gas Main Water Discharge Pipe Easement. Upon ---------------------------------------------------------------- Lessee's request, Lessor shall grant Lessee for the Term of this Lease easements, over, upon and under the Lessor's Parcel for the purpose of constructing, using and maintaining (i) an underground gas main 18 to supply natural gas for Lessee's permitted use of the demised premises ("Gas Main Easement"); and (ii) an underground pipeline for the discharge of water utilized in conjunction with Lessee's permitted use of the demised premises ("Water Discharge Pipe Easement"). The location of the Gas Main Easement and Water Discharge Pipe Easement shall be subject to the reasonable approval of Lessor. Lessee shall pay for all costs of constructing, installing, using and maintaining the Gas Main Easement and Water Discharge Pipe Easement and the facilities in connection therewith, and Lessee shall at all times keep the Gas Main Easement and Water Discharge Pipe Easement and such facilities in good condition and repair. Lessee shall indemnify and hold Lessor harmless from all loss, cost, damage and expense in connection with the Gas Main Easement and Water Discharge Pipe Easement. Lessor shall have the right to use the surface of the Lessor's Parcel subject to the Gas Main Easement and Water Discharge Pipe Easement for all purposes that do not materially interfere with Lessee's use and enjoyment of the Gas Main Easement and Water Discharge Pipe Easement. Lessor shall have the right, from time to time, to relocate the Gas Main Easement and Water Discharge Pipe Easement to other areas of the Lessor's Parcel, at Lessor's cost. Section 14.4 Use of Waste Treatment Facility. For purposes of this Lease, --------------------------------------------- the term "Waste Treatment Facility" shall mean those certain retention/detention ponds located on the Lessor's Remaining Property which are designed for the purpose of storing, retaining, detaining, treating, and cleaning the waste water generated from the activities conducted on the Lessor's Remaining Property and storm water runoff. The Lessor may, but shall have no obligation to, grant to the Lessee a revocable license to utilize the Waste Treatment Facility in connection with Lessee's permitted use of the demised premises. In the event the Lessor grants the Lessee a revocable license to use the Waste Treatment Facility, such license shall not be terminated until Lessor has given Lessee at least 365 days advance notice, and then for so long as such license continues, (i) the Waste Treatment Facility shall be deemed a part of the Common Areas, and (ii) the costs and expenses incurred by the Lessor for the maintenance, repair, operation and replacement of the Waste Treatment Facility shall be allocated as set forth in the Common Facilities Agreement. ARTICLE 15 ESTOPPEL CERTIFICATE BY LESSEE AND LESSOR ----------------------------------------- The Lessee and Lessor each agree at any time and from time to time, upon not less than twenty (20) days' prior written request by either to execute, acknowledge and deliver to the other a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), the dates to which the rental and other charges have been paid in advance, if any, and whether or not, to the knowledge of the party executing the certificate there are then any defaults under this Lease, either by Lessor or by Lessee or both (and if so, specifying the same), it being intended that any such statement delivered pursuant to this Article may be relied upon by any prospective purchaser of the fee or leasehold or the mortgagee or assignee of any mortgage upon the fee or leasehold of the Property. 19 ARTICLE 16 INSPECTION OF PROPERTY ---------------------- The Lessee agrees to permit the Lessor and the authorized representatives of the Lessor to enter the Property at all times during reasonable business hours for the purpose of inspecting the same. ARTICLE 17 PURCHASE AND SALE OF DEMISED PREMISES FROM LESSOR TO LESSEE AND SIMULTANEOUS TERMINATION OF THE LEASE UPON CLOSING -------------------------------------------------- Within forty-five (45) days from the date on which: (a) the Approval Contingencies have been satisfied; and (b) Lessee has received an Operating Permit issued in its name by the Illinois Environmental Protection Agency pursuant to Title V of the Clean Air Act, Lessee will purchase, and Lessor shall sell, the demised premises by executing, delivering to one another, and performing that certain "Purchase and Sale Agreement" in the form attached as Exhibit C and made part hereof. Upon the closing of such Purchase and Sale Agreement, the parties shall, notwithstanding anything contained in the Purchase and Sale Agreement to the contrary execute (i) a mutually agreed instrument recreating the easements for Common Areas and Common Utility Facilities set forth in this Lease; (ii) any mutually desired and agreed amendment to or restatement of the Common Facilities Agreement; and (iii) a mutually agreed instrument terminating this Lease. The parties agree that Lessee shall be given a credit toward the Purchase Price required in the Purchase and Sale Agreement in an amount equal to the Base Rent previously paid by Lessee to Lessor under this Lease as of the date of the closing of said Purchase and Sale Agreement. ARTICLE 18 FIXTURES -------- Section 18.1 Ownership of Building Fixtures. Except for the Common -------------------------------------------- Utility Facilities, subject to Lessee's obligations under Article 22 hereof, all ---------- plumbing, heating, lighting, electrical and air conditioning fixtures and equipment and other articles of personal property used in the operation of the Buildings as such (as distinguished from operations incident to the business of the Lessee) attached to said land or any Buildings thereon and now or hereafter located upon said land, sometimes herein referred to as "building fixtures", are ----------------- and shall be and become and remain the property of Lessee. Section 18.2 Personal Property. All trade fixtures and all personal ------------------------------- property, fixtures, 20 apparatus, machinery and equipment now or hereafter located upon said land, other than the Buildings and said building fixtures, and owned by the Lessee and whether or not the same are affixed thereto, shall be and remain the personal property of the Lessee or such other occupants and the same are herein sometimes referred to as "Personal Property". ----------------- Section 18.3 Removal of Personal Property. Personal Property and building ------------------------------------------ fixtures may be removed from time to time by Lessee, provided, however, that if such removal shall injure or damage the Property, Lessee shall repair the damage and place the Property in the same condition as it would have been if such Personal Property had not been installed. ARTICLE 19 NOTICES OR DEMANDS ------------------ All notices, demands, requests or other communications required or permitted to be given under this Lease shall be deemed given (a) when personally delivered, (b) one (1) business day after deposit with Federal Express or other commercially recognized courier for overnight delivery, charges prepaid, or (c) upon delivery or first attempted delivery if mailed registered or certified United States mail, postage prepaid, return receipt requested, and in each case addressed as follows: 1. If intended for Lessee: Elwood Energy LLC c/o Dominion Energy, Inc. 901 E. Byrd Street Richmond, Virginia 23219 Attn: Ronald D. Usher with a copy to: Peoples Energy Resources Corp. c/o Peoples Energy Corporation 130 East Randolph Drive Chicago, Illinois 60601 Attn: Director, Power Generation and a copy to: Dominion Energy, Inc. 901 E. Byrd Street Richmond, Virginia 23219 Attn: Christine Schwab, General Counsel 21 2. If intended for Lessor: The Peoples Gas Light and Coke Company 130 East Randolph Drive Chicago, Illinois 60601 Attn: William E. Morrow, Vice President with a copy to: John Nassos, Esq. The Peoples Gas Light and Coke Company Office of General Counsel 130 East Randolph Drive 23rd Floor Chicago, Illinois 60601 or at such other address as the party to be served notice may have furnished in writing to the party seeking or desiring to serve notice as a place for service of notice. Notices given in any other fashion shall be deemed effective only upon receipt. ARTICLE 20 DEFAULT ------- Section 20.1 Events of Default. If: ------------------------------- (a) Lessee shall default in the payment of the rent or any part thereof or any other amounts when due as herein provided, and such default shall continue for ten (10) days after notice thereof in writing to Lessee; or (b) Lessee shall default in any material respect in the performance of any other material covenant, agreement, condition or undertaking herein contained to be kept, observed and performed by the Lessee which do not involve the payment of money, and such default shall continue for thirty (30) days after notice thereof in writing to Lessee; provided, however, that if the default specified in such notice cannot be reasonably cured within thirty (30) days, then Lessee shall not be deemed to be in default if Lessee begins to cure within such thirty (30) day period and thereafter diligently prosecutes to completion appropriate curative action within ninety (90) days after such default notice; or (c) Lessee shall file a petition in voluntary bankruptcy under the Federal Bankruptcy Act or any similar law, state or federal, whether now or hereafter existing, or an answer admitting insolvency or inability to pay its debts, or fail to obtain a vacation or stay of involuntary proceedings within sixty (60) days, as hereinafter provided; or 22 (d) Lessee shall be adjudicated a bankrupt, or a trustee or receiver shall be appointed for Lessee or for all of its property or the major part thereof in any involuntary proceedings, or any court shall have taken jurisdiction of the property of Lessee or the major part thereof in any involuntary proceeding for reorganization, dissolution, liquidation or winding up of Lessee, and such trustee or receiver shall not be discharged or such jurisdiction relinquished or vacated or stayed on appeal or otherwise within sixty (60) days; or (e) Lessee shall abandon the Property; then upon the occurrence of any such event (each, an "Event of Default"), it ---------------- shall be lawful for Lessor, at its election, to declare the Term ended and require Lessee to immediately vacate the Premises. Additionally, Lessor shall have all remedies otherwise available to it at law or in equity. So long as any leasehold mortgage complying with Section 11.4 hereof remains outstanding, ------------ Lessor shall not have the right to exercise said remedy by reason of the occurrence of any Event of Default hereunder, provided that the Institutional Mortgage has cured such Event of Default in accordance with Section 12(c) ------------- hereof. Section 20.2 Other Remedies Available to Lessor. The foregoing provisions ------------------------------------------------ for the termination of this Lease for any Event of Default in any of its covenants shall not operate to exclude or suspend any other remedy of Lessor for breach of any of said covenants or for the recovery of said rent or any advance of Lessor made thereon, and in the event of the termination of this Lease as aforesaid, Lessee covenants and agrees to indemnify and save harmless Lessor from any loss arising from such termination and re-entry in pursuance thereof. ARTICLE 21 INDEMNITIES AND ENVIRONMENTAL MATTERS ------------------------------------- Section 21.1 Definition of "Environmental Laws" and "Hazardous Materials". ------------------------------------------------------------------------- For purposes of this Lease, "Environmental Laws" means any and all federal, state and municipal laws, ordinances and regulations, including without limitation any and all requirements to register underground storage tanks, relating to: (i) emission, discharges, spills, releases or threatened releases of pollutants, contaminants, "Hazardous Materials" (as hereinafter defined), or hazardous or toxic materials or wastes onto land or into ambient air, surface water, ground water, wetlands, or septic systems; (ii) the use, treatment, storage, disposal, handling, or containing of Hazardous Materials or hazardous and/or toxic wastes, material products or by-products (or of equipment or apparatus containing Hazardous Materials); or (iii) pollution or the protection of human health or the environment. "Hazardous Materials" means (A) hazardous materials, hazardous wastes, and hazardous substances as those terms are defined under any Environmental Laws, (B) petroleum and petroleum products including crude oil and any fractions thereof; (C) natural gas, synthetic gas, and any mixtures thereof; (D) asbestos or any material which contains any hydrated mineral silicate, including, but not limited to chrysotile, amosite, crocidolite, tremolite, anthophylite or actinolite, whether friable or non- friable; (E) PCB's or PCB-containing materials, or fluids; (F) any other 23 hazardous, toxic or radioactive substance, material, contamination, pollutant, or waste; and (G) any substance with respect to which any Environmental Law or Governmental Authority requires environmental investigation, monitoring or remediation. For purposes hereof, "Governmental Authority" means any local, regional, provincial, or federal entity, agency, court, judicial or quasi- judicial body, or legislative or quasi-legislative body. Section 21.2 Compliance with Environmental Laws. ------------------------------------------------ (a) Lessee shall comply with all Environmental Laws applicable to the premises and Lessee's use thereof. Lessee shall not create nor permit the existence of (i) any condition on the premises that could present a threat to human health or to the environment under any applicable Environmental Laws, or (ii) any treatment, storage or disposal facility on the premises as those terms are defined in the Resource Conservation and Recovery Act or any state analogue. (b)(i) Lessor and Lessee recognize and agree that the construction and initial operation of the Elwood Generation Assets, as defined in the Operating Agreement of Elwood Energy LLC, will be pursuant to Lessor's Prevention of Significant Deterioration Construction Permit ("PSD Permit"). Lessor agrees to use its best efforts to cooperate with Lessee's efforts to obtain an operating permit pursuant to Title V of the Clean Air Act ("Title V Permit") for the Elwood Generation Assets exclusively in the name of Lessee. Until the time that such Title V Permit is issued to Lessee, Lessor agrees that, without the consent of Lessee, which consent shall not be unreasonably withheld: (A) Lessor will neither amend nor transfer the PSD Permit, and (B) Lessor will not undertake any activity that would cause any regulatory review under any applicable Environmental Law or that would further restrict Lessee's ability to emit air pollutants or otherwise operate the air emission sources under the PSD Permit beyond the limitations established or restrictions established in the PSD Permit. As soon as reasonably practicable, Lessor shall use its best efforts to have Lessee named as an operator on the PSD Permit. Lessee shall neither construct an emissions source not within the PSD Permit nor seek any change of any emission limit set forth in the PSD Permit without the approval of Lessor, which approval shall not be unreasonably withheld. For any future air permits applied for by either Lessee or Lessor, Lessor and Lessee agree that: (x) potential emission credits to the respective party shall be defined by those available from the emission sources in the PSD Permit, and (y) each party shall use its best efforts to avoid triggering any significant net air emissions increases or decreases for the source, as defined under the PSD Permit, unless approved by the other party, which approval shall not be unreasonably withheld. Lessor agrees to make available to Lessee any of Lessor's existing air pollution emissions credits, as defined by Lessor's air emissions sources in the PSD Permit, necessary to construct or operate the Elwood Generation Assets under any emissions trading or netting program existing or promulgated pursuant to the Clean Air Act or any state counterpart thereof. To the extent construction or operation of the Elwood Generation Assets does not use all of the air emissions credits provided in the PSD Permit, Lessee shall transfer or otherwise make available such credits to Lessor without compensation. (b)(ii) Subject to the provisions of subsection 21.2(b)(i), to the extent that any of Lessee's environmental permits, licenses, or government approvals may become subject to regulatory 24 review, Lessee shall not apply for or obtain any environmental permits, licenses or governmental approvals required by any Environmental Laws applicable to the premises and Lessee's use thereof without prior written approval from Lessor, which approval shall not be unreasonably withheld. If Lessor neither approves nor disapproves Lessee's written request for approval within thirty (30) days of Lessor's receipt, such request shall be deemed approved. To the extent that Lessee uses Lessor's permits and licenses (including but not limited to, permits and licenses associated with Lessor's waste treatment facilities), Lessee shall take all actions necessary to ensure compliance with all such permits and licenses. Lessee shall advise Lessor of any release and any anticipated or actual environmental non-compliance, penalties, fines, litigation or other actions or issues that might result in liability to Lessor. Lessee also shall give Lessor timely notice of all measures undertaken by or on behalf of Lessee to investigate, remediate, respond to or otherwise cure such release or violation. In the event that Lessor receives notice from Lessee or otherwise of a release or violation of Environmental Laws which occurred during or is occurring during the term of this Lease, Lessor may require Lessee, at Lessee's sole cost, to take timely measures to investigate, remediate, respond to or otherwise cure such release or violation. (b)(iii) Wherever the Lessor's consent or approval is required under the terms of this Section 21.2(b), such consent or approval shall not be unreasonably withheld or delayed. Without limiting the foregoing, if Lessor neither approves nor in good faith disapproves Lessee's written request for approval or consent within thirty (30) days of Lessor's receipt of such request for approval or consent, such request shall be deemed approved. In addition, in considering the reasonableness of any such approval or consent, Lessor acknowledges that Lessee is constructing and operating on the premises an electric generating facility which will have nominal 600 MW of peaking capacity initially which Lessee anticipates expanding to up to nominal 3,100 MW of both peaking and combined cycle generation. Accordingly, there shall be a rebuttable presumption that Lessor shall be deemed to have unreasonably withheld its consent or approval to any request for approval by Lessee if such request by Lessee is consistent with the development of such planned generation facilities by Lessee. (c) Lessor and its employee and contractors shall have the right, but not the obligation, to conduct periodic audits of the premises, including records review, to determine Lessee's compliance with applicable Environmental Laws, permits and licenses. The results of such audits shall be documented and provided to Lessee. If the audit determines that Lessee is not in compliance with the terms of this Lease, Lessee, at its sole cost, shall diligently proceed to correct such non-compliance. If Lessee does not so act, then Lessor shall have the right to prohibit Lessee's use of Lessor's waste facilities, permits, and licenses that are at issue. Lessor's audit of Lessee's operations shall not constitute approval as to the sufficiency thereof. If Lessor does not audit Lessee's operations, Lessor shall not be deemed to have waived any rights it may have against Lessee. Lessor shall use its best efforts to conduct such audits and describe their results in such a manner as to establish and preserve their confidentiality. Lessor shall not voluntarily make available such audit results to any third party without the express written authorization of Lessee, provided, however, that nothing contained in this paragraph (c) shall prohibit Lessor from disclosing any such audit results to the extent required to do so (in the opinion of Lessor's legal 25 counsel) by any applicable law, rule, regulation, executive or administrative order, or subpoena or other judicial order. (d) On a periodic basis, but not less than on a quarterly basis, Lessee shall advise Lessor of all Hazardous Materials that are or may become subject to any reporting or notice obligation under an applicable Environmental Law, including quantities thereof, utilized by Lessee on the premises. (e) Lessee shall notify Lessor of either (i) any proposed construction activity, or (ii) any proposed addition of equipment to the premises, if either (i) or (ii) will result in regulatory review under any applicable Environmental Law. (f) Prior to termination of this Lease, Lessee shall remove all underground storage tanks installed by Lessee during the term of this Lease. Such removal shall be in accordance with all applicable Environmental Laws and shall be at Lessee's sole cost and expense. In the event that any environmental contamination resulting from the presence of the underground storage tank in, on or under the Premises is discovered during or after the removal of any underground storage tank, Lessee shall notify all appropriate federal, state and local agencies of such contamination and shall undertake and complete, at its sole cost and expense, all investigation and remediation required by any applicable Environmental Law. (g) In the event of a default by either party in the performance of its obligations under this Section 21.2, in addition to whatever remedies are available to the non-defaulting party at law or in equity, the non-defaulting party shall have the right to obtain specific performance of the defaulting party's obligations hereunder and to cure any such default at the cost and expense of the defaulting party. Section 21.3 Lessee's Indemnity. Unless due to the intentional misconduct -------------------------------- or gross negligence of Lessor or Lessor's agents or employees, Lessee will defend, indemnify, and hold harmless Lessor, its directors, officers, employees and agents (the "Indemnified Parties") from and against any and all liabilities, claims, losses, damages, actions, judgments, costs, and expenses (including without limitation attorney's fees and expenses) of every kind imposed upon or asserted against the Indemnified Parties or any one of them or Lessor's title in the premises arising by reason of or in connection with (a) this Lease and the ownership by Lessee of the interest created in the Lease or Lessee's possession, use, occupancy, or control of the premises (excluding, however, (i) Lessor's costs and expenses with respect to the Kirk Building that do not result from any act or omission of Lessee, and (ii) Lessor's obtaining approval of this Lease by the Illinois Commerce Commission); (b) any accident, injury to or death of persons, or loss of or damage to property occurring on or about the premises or adjoining public streets (which are related to Lessee's use of the premises) or any easements appurtenant, during the term of this Lease or Lessee's possession, use, occupancy or control of the premises; (c) the possession, operation, use, misuse, maintenance, or repair of the premises during the term of this Lease or Lessee's possession, use, occupancy or control of the premises; or (d) any failure on the part of Lessee to perform or comply with any of the terms of this Lease. In addition to the foregoing, Lessee shall indemnify, defend and hold the 26 Indemnified Parties free and harmless from and against any claims, damages, losses, forfeitures, penalties, expenses or liabilities (including reasonable legal fees and other costs of litigation) arising from or caused in whole or in part, directly or indirectly, by any one of the following: (a) the discharge in or from the premises by any one of Lessee or its employees, agents, contractors and subtenants (collectively, "Lessee's Parties") of any Hazardous Materials, or the disposal, release, threatened release, discharge, or generation of Hazardous Materials to, in, on, under, about, or from the premises by any of the Lessee's Parties; or (b) the failure of any of the Lessee's Parties to comply with any Environmental Laws, licenses or permits relating to the premises. Lessee's indemnity and liability hereunder shall survive the expiration or earlier termination of this Lease. In no event, however, shall the indemnities contained in this Section 21.3 include any lost profits or lost revenues ------------ incurred by Lessor. Section 21.4 Lessor's Environmental Indemnity. Lessor shall indemnify, ---------------------------------------------- defend and hold Lessee and Lessee's officers, employees, agents, successors and assigns, free and harmless from and against any claims, damages, losses, forfeitures, penalties, expenses or liabilities (including reasonable legal fees and other costs of litigation) arising from or in connection with (i) any Hazardous Materials at, from, in or on the premises on or prior to the Commencement Date, (ii) any violation by Lessor or its employees, agents or contractors (collectively, the "Lessor's Parties") of any Environmental Laws and any failure by the Lessor's Parties to comply with any Environmental Laws, licenses or permits with respect to the premises, the Kirk Building or Lessor's Remaining Property; specifically excluding, however, any emission, discharge, spill, release or disposal of Hazardous Materials at, from or on the premises at or prior to the Commencement Date caused by the Lessee's Parties, or any violation of any Environmental Law, caused by the Lessee's Parties, and (iii) the discharge in or from the Kirk Building or Lessor's Remaining Property by any of the Lessor's Parties of any Hazardous Materials, or the disposal, release, threatened release, discharge, or generation of Hazardous Materials to, in, on, under, about or from the Kirk Building or Lessor's Remaining Property by any of the Lessor's Parties. In no event, however, shall the indemnities contained in this Section 21.4 include any lost profits or lost revenues incurred by Lessee. ------------ Lessor's indemnity and liability under this Section 21.4 shall survive the ------------ expiration or earlier termination of this Lease or an assignment of this Lease by the original Lessor. However, in the event of such assignment, the indemnities contained in this Section 21.4 (a) shall, as to any Lessor ------------ (including the original Lessor), in no event pertain, cover or relate to the acts or omissions of Lessor's successor under this Lease (or of any other person or entity, except the Lessor's Parties), and (b) as to any successor Lessor (i.e., a Lessor other than the original Lessor), shall pertain solely to the period of the successor Lessor's ownership. ARTICLE 22 SURRENDER --------- Upon termination of this Lease, by lapse of time or otherwise, or upon re- entry by Lessor, Lessee will promptly and truly surrender and deliver up the Property to Lessor without fraud or delay in reasonably good order, condition and repair, ordinary wear and tear excepted, including all of the Buildings then located on the premises. Lessee shall, upon termination of this Lease, execute 27 and deliver to Lessor all documents reasonably requested by Lessor in order to convey fee title to the Buildings then located on the premises to Lessor. ARTICLE 23 REMEDIES TO BE CUMULATIVE ------------------------- Section 23.1 Remedies to be Cumulative. No remedy herein or otherwise --------------------------------------- conferred upon or reserved to Lessor shall be considered exclusive of any other remedy, but the same shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute, and every power and remedy given by this Lease to Lessor may be exercised from time to time and as often as occasion may arise or as may be deemed expedient. No delay or omission of Lessor to exercise any right or power arising from any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or any acquiescence therein. Section 23.2 No Waiver. No waiver of any breach of any of the covenants ----------------------- of this Lease shall be construed, taken or held to be a waiver of any other breach or waiver, acquiescence in or consent to any further or succeeding breach of the same covenant. ARTICLE 24 COVENANTS RUN WITH LAND ----------------------- Section 24.1 Covenants Run with Land. All of the covenants, agreements, ------------------------------------- conditions and undertakings in this Lease contained shall extend and inure to and be binding upon the heirs, executors, administrators, successors and assigns of the respective parties hereto, the same as if they were in every case specifically named, and shall be construed as covenants running with the land, and wherever in this Lease reference is made to either of the parties hereto, it shall be held to include and apply to, wherever applicable, the heirs, executors, administrators, successors and assigns of any such party. Nothing herein contained shall be construed to grant or confer upon any person or persons, firm, corporation or governmental authority, other than the parties hereto, their heirs, executors, administrators, successors and assigns, any right, claim or privilege by virtue of any covenant, agreement, condition or undertaking in this Lease contained. Section 24.2 Definition of "Lessor". Except with respect to the covenants ----------------------------------- of the original Lessor contained in Section 21.4 hereof which expressly survive ------------ an assignment of this Lease by the original Lessor, the term "Lessor" as used in this Lease, so far as covenants or obligations on the part of the Lessor are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee of the demised premises, and in the event of any transfer or transfers of the title to such fee, the Lessor herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed or relieved, from and after the date of such transfer or conveyance, of all personal liability as respects the performance of any covenants or obligations on the part of the Lessor contained in this Lease thereafter to be performed; provided 28 that any funds in the hands of such Lessor or the then grantor at the time of such transfer, in which the Lessee has an interest, shall be turned over to the grantee, and any amount then due and payable to the Lessee by the Lessor or the then grantor under any provisions of this Lease shall be paid to the Lessee. ARTICLE 25 LESSOR'S PERFORMANCE OF LESSEE'S COVENANTS ------------------------------------------ Should Lessee at any time fail to do any of the things required to be done by it under the provisions of this Lease, Lessor at its option, and in addition to any and all other rights and remedies of Lessor in such event, may (but shall not be required to) do the same or cause the same to be done, and the reasonable amount of any money expended by Lessor in connection therewith shall be so much additional rental due from Lessee to Lessor and shall be a demand obligation owing by Lessee to Lessor bearing interest at the Default Rate from the date written demand for the repayment thereof is given by Lessor until the repayment thereof to Lessor by Lessee. ARTICLE 26 COVENANT OF QUIET ENJOYMENT --------------------------- Lessor covenants and agrees to and with Lessee that during the Term of this Lease, Lessee's quiet and peaceable enjoyment of the demised premises shall not be disturbed or interfered with by any person claiming by, through or under Lessor. ARTICLE 27 MEMORANDUM OF LEASE ------------------- The parties agree to execute a memorandum of lease for recording, such memorandum to be in the form attached as Exhibit D hereto and made a part --------- hereof, with the cost of recording same to be split equally between the parties. ARTICLE 28 ARBITRATION ----------- Section 28.1 Matters Subject to Arbitration. In case any disagreement -------------------------------------------- shall arise between the parties hereto relating to any of the following matters, such matter in dispute shall, at the election of either party hereto, be determined by arbitration in the manner provided in this Article 28: ---------- (a) The requirements of Section 5.1 relating to the condition of the ----------- Property and areas adjacent thereto, but excluding any question of alleged non- compliance with applicable laws, ordinances and regulations of any governmental body; 29 (b) The requirements of Section 5.2 relating to any use of the Property ----------- which will injure the reputation of the Property or interfere with Lessor's use of its property adjoining and surrounding the demised premises, but excluding any question of alleged use of the Property for any unlawful purpose; (c) The determination of the fair value and fair rental value of buildings, improvements or equipment removed or altered and of the new or altered buildings, improvements or equipment referred to in Section 6.3; and ----------- (d) Whether particular fixtures and equipment are building fixtures or Personal Property. Section 28.2 Arbitration Proceedings. The determination by arbitration of ------------------------------------- any matter agreed to be submitted to arbitration as in this Lease provided, shall be determined as follows: Either party shall notify the other party of its desire to arbitrate the matter in dispute and shall state in said notice the name and address of a qualified person to act as arbitrator hereunder. Within thirty (30) days after the receipt of such notice, the other party shall give notice to the sender of the first-mentioned notice, likewise stating the name and address of a qualified person to act as arbitrator hereunder. The arbitrators so specified in such notices shall be experienced in the field of the matter in dispute. If within thirty (30) days following the appointment of the latter of said arbitrators, said two (2) arbitrators shall be unable to agree in respect of the matter in dispute, the said arbitrators shall appoint by instrument in writing as third arbitrator a similarly qualified person, who shall proceed with the two (2) arbitrators first appointed to determine the matter in dispute. The written decision of any two (2) of the arbitrators so appointed shall be binding and conclusive upon the parties hereto. If after notice of the appointment of an arbitrator the other party shall fail, within the above-specified period of thirty (30) days to appoint an arbitrator, then the arbitrator so appointed by the first party shall have power to proceed to arbitrate as sole arbitrator, and to make an award. If the two (2) arbitrators aforesaid shall be unable to agree within thirty (30) days following the appointment of the latter of said arbitrators upon the matter in dispute and shall fail to appoint in writing a third arbitrator within thirty (30) days thereafter, the necessary arbitrator, who need not be similarly qualified but who shall be a member of a National Panel of Arbitrators of the American Arbitration Association shall be appointed by the American Arbitration Association in accordance with the then existing commercial arbitration rules of said American Arbitration Association. Section 28.3 Expenses of Arbitration. Lessor and Lessee shall each pay ------------------------------------- the fees of the person acting as arbitrator hereunder for Lessor and Lessee, respectively, and Lessor and Lessee shall each pay one-half of the fees of any third arbitrator appointed pursuant to the provisions of Section 28.2 and one- ------------ half of the general expenses of such arbitration. Section 28.4 Parties Entitled to Participate in Arbitration Proceedings. ------------------------------------------------------------------------ Lessor, Lessee, any fee mortgagee and leasehold mortgagee shall each have the right to appear and be represented by counsel before said arbitrators and to submit such data and memoranda in support of their 30 respective positions in the matter in dispute as each may deem necessary or appropriate in the circumstances. ARTICLE 29 MISCELLANEOUS ------------- Section 29.1 Captions. The captions of this Lease are for convenience ---------------------- only and are not to be construed as part of this Lease and shall not be construed as defining or limiting in any way the scope or intent of the provisions hereof. Section 29.2 Partial Invalidity. If any term or provision of this Lease -------------------------------- shall to any extent be held invalid or unenforceable, the remaining terms and provisions of this Lease shall not be affected thereby, but each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. Section 29.3 Governing Law. This Lease shall be construed and enforced in --------------------------- accordance with the laws of the State of Illinois. Section 29.4 Brokers. Each of Lessor and Lessee represents to the other --------------------- that it has not dealt with any broker in connection with this Lease and no broker is entitled to any commission in connection therewith. Each of Lessor and Lessee agrees to indemnify the other and its employees, agents, their officers and partners harmless from and against any claims, costs or liabilities arising out of such party's breach of its representation. The indemnities contained in this Section 29.4 shall survive the termination of this Lease. ------------ Section 29.5 Entire Agreement. This Lease is the entire agreement between ------------------------------ the parties as to the subject matter contained herein. All prior agreements and representations are of no effect unless expressly incorporated in this Lease. Section 29.6 Successors and Assigns. The terms and conditions contained in ------------------------------------ this Lease will inure to the benefit of, and be binding on the parties and their respective legal representatives, beneficiaries, and permitted successors and assigns, except as otherwise herein expressly provided. Section 29.7 Survival of Obligations. All Lessee's obligations not fully ------------------------------------- performed when the Term ends or this Lease terminates will survive the expiration or termination of the Term, including, without limitation, all payment obligations with respect to Taxes and insurance and all obligations concerning the condition and repair of the Property. Section 29.8 Lessor's Covenants. All Lessor's obligations will be construed ------------------------------- as covenants, not conditions, and be binding on Lessor only during the period of its ownership of the Property, except as otherwise provided herein with respect to assignments of this Lease by the original Lessor in Section 21.4 and except ------------ for covenants breached prior to any such transfer. 31 Section 29.9 Counterparts. This Lease may be executed in two or more -------------------------- counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 29.10 Parties not Partners. Nothing contained in this Lease shall ----------------------------------- constitute any one or more of the parties hereto as partners with one another or agents for one another. Section 29.11 Certain Definitions. As used herein, the terms (i) "person" ---------------------------------- shall mean an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated organization or any agency or political subdivision thereof; (ii) "including" shall mean including, without limiting the generality of the foregoing; (iii) the masculine shall include the feminine and the neuter; (iv) "to the best knowledge" or any similar phrase shall mean actual knowledge or such knowledge as a reasonable person under the circumstances should have after diligent inquiry and investigation; and (v) the plural includes the singular and the singular, the plural. Section 29.12 Application of Payments. Lessor shall have the right to apply ------------------------------------- payments received from Lessee pursuant to this Lease or otherwise (regardless of Lessee's designation of such payments) first to the payment of all then due rent, and thereafter to satisfy any other obligations of Lessee hereunder, in such order and amounts, as Lessor in its sole discretion may elect. Section 29.13 Incorporation of Recitals and Exhibits. The recitals, ----------------------------------------------------- appendices and exhibits, if any, referred to in this Lease and attached hereto are incorporated in this Lease by reference and made a part hereof. Section 29.14 Legal Fees. In the event any legal action is instituted with ------------------------- respect to any dispute arising under this Lease, the losing party in such action shall pay the prevailing party's costs and expenses incurred in connection with such action, including, without limitation, any court costs and reasonable professional fees such as accountants' and attorneys' fees. Section 29.15 Force Majeure. With the exception of the payment of rent and ---------------------------- other sums due hereunder, whenever a period of time is prescribed for a party to take action under this Lease, that party will not be liable or responsible for any delays due to acts of God, war, governmental laws, regulations or restrictions, public disorders, strikes, shortages of materials or labor, or any other cause beyond the reasonable control or foreseeability of the performing party or for delays caused by the other party, and the time for performance will be extended by the length of the delay attributable to these causes. ARTICLE 30 TITLE AND SURVEY ---------------- (a) No more than thirty (30) days after the date of this Lease, Lessor shall furnish to Lessee at Lessor's expense, a current ALTA 1992 Form B standard commitment for owner's policy of title insurance (the "Title Commitment"), issued by the Title Company, under which the Title Company shall agree to insure, in the name of Lessee and in the amount of $283,380.00, Lessee's 32 leasehold interest in the demised premises. The Policy shall indicate that the demised premises shall be subject only to current general real estate taxes and special assessments not yet delinquent, to the Permitted Exceptions as described above in Section 2.1(b), and to such other rights-of-way, easements, agreements, restrictions, and minor exceptions to title which, in the reasonable judgment of Lessee, do not materially adversely affect the marketability of title or the usability of the Property for the purposes herein contemplated by Purchaser. In addition, Lessor shall cause the Title Company to issue endorsements in said Title Commitment covering the following: (1) an access endorsement insuring that there is direct and unencumbered access for automobiles and commercial vehicles to and from the demised premises to physically open streets; (2) contiguity of all parcels comprising the demised premises and contiguity of the Property to physically open streets. (b) No more than thirty (30) days after the date of this Lease, Lessor shall furnish to Lessee, at Lessor's expense, a satisfactory survey of the demised premises, prepared and certified as of a date not more than sixty (60) days prior to the date of delivery to Lessee by an Illinois registered professional engineer or land surveyor reasonably acceptable to Lessee (the "Survey"), which: (1) is prepared in accordance with Minimum Standard Detail Requirements for Illinois Land Title Surveys for the benefit of Lessee and the Title Company; (2) is accompanied by the preparer's certificate to such effect; (3) set forth the legal description of and acreage contained within the demised premises; (4) establishes that the size of the demised premises is approximately nineteen (19) acres; (5) establishes that there are no encroachments upon the demised premises from any adjacent property nor any encroachments upon any adjacent property from the demised premises; (6) shows the location of building lines, public and private right-of-way lines, all easements (whether recorded or visible), all existing means of access to and from public roads and highways, and all utility lines and easements therefor upon the demised premises; (7) bears the preparer's certificate that no part of the Property is located within any zone of a one hundred (100) year flood plain, nor within or adjacent to any navigable waters under the jurisdiction of the Illinois Department of Natural Resources; 33 (8) and must otherwise be in a form reasonably acceptable to Lessee. The Minimum Standard Detail Certificate shall run in favor of Lessee and the Title Company. The Survey shall be in a form and substance sufficient to permit the Title Company to waive any exceptions for survey and other matters which would be disclosed by a proper and correct survey. ARTICLE 31 CONTINGENT OPTIONS FOR ADDITIONAL PROPERTY ------------------------------------------ The parties agree to negotiate in good faith for the acquisition by Lessee of an option to acquire either a fee interest or a leasehold interest in each of the parcels of real property described on Exhibit E attached hereto and made a part hereof, which options shall be exercisable in the event that Lessee fails to obtain, prior to June 1, 2000, re-zoning to I-3 Intensive Industrial District under the Will County Zoning Ordinance or I-3 under the Village of Elwood Zoning Ordinance for property acquired by Lessee from James A. Hibner and Raymond F. Hibner located directly east of the demised premises at the corner of Noel and Patterson Roads, Will County, Illinois. Any such lease shall have a lease term equivalent to the then unexpired term of this Lease. ARTICLE 32 LESSOR'S REPRESENTATIONS AND WARRANTIES --------------------------------------- Lessor represents and warrants to Lessee as follows as of the date hereof (unless otherwise stated): (a) The facts described in the recitals to this Lease are true and correct. (b) Lessor is a duly formed and validly existing corporation in good standing under the laws of the State of Illinois; Lessor has been duly authorized to execute this Lease and to consummate the transaction contemplated hereby; the persons executing this Lease and all of the documents required to consummate the transaction contemplated hereby have been duly authorized to execute such documents and to bind Lessor. (c) Lessor is the fee simple owner of the demised premises. (d) Lessor is not a "foreign person" within the meaning of Section 1445(F)(3) of the Internal Revenue Code of 1986, as amended (the "Code"); (e) At the execution of this Lease there will be no outstanding contracts made by Lessor (or any of Lessor's agents or affiliates) for any work in connection with the demised premises for which full payment will not have been made, except for the contracts and agreements listed on Exhibit F attached hereto and made a part hereof (collectively, the "Outstanding Contracts"). 34 (f) Except for the Outstanding Contracts, there are no contracts or agreements with third parties for services or supplies which cannot be cancelled by notice and without penalty upon thirty (30) days notice. (g) Lessor will not change the zoning of the demised premises while this Agreement is in effect without the written consent of Lessee, which consent shall not be unreasonably withheld or unduly delayed. (h) There are no recorded or unrecorded leases, tenancies, licensees or occupants affecting the demised premises. (i) There is no pending or, to the best of Lessee's knowledge, threatened litigation respecting the demised premises. (j) Provided the Approval Contingencies are satisfied, the execution, delivery and performance of this Lease by Lessor does not violate any law, statute, rule or regulation of any governmental authority, and upon satisfaction of the Approval Contingencies, Lessor will have obtained all permits, approvals and licenses necessary from governmental authorities for the execution, delivery and performance of this Lease. (k) Lessor has taken all necessary corporate actions and obtained all necessary consents to authorize its execution, delivery and performance of this Lease and the transaction contemplated hereby, and this Lease is enforceable against Lessor. (l) There is no legal action pending which would materially affect the ability of Lessor to carry out the transaction contemplated by this Lease. Each of the representations and warranties contained in Article 32 of this Lease shall survive the expiration or termination of this Lease for a period of six (6) months (except for Lessor's representation and warranty contained in Section 32(j), which shall survive indefinitely). Lessor agrees to indemnify and hold Lessee free and harmless from and against all losses, damages, costs and expenses (including attorneys' fees and expenses) sustained by Lessee as a result of any inaccuracy or breach of any representation or warranty of Lessor contained in this Article 32. Notwithstanding anything contained herein or elsewhere in this Lease to the contrary, in the event any of Lessor's representations or warranties made in this Article 32 are untrue, inaccurate or incorrect in any material respect, the aggregate liability of Lessor arising pursuant to or in connection with a material breach of any such representations and warranties shall not exceed $283,380.00. 35 IN WITNESS WHEREOF, the Lessor and the Lessee have caused these presents to be executed. LESSOR: ------ THE PEOPLES GAS LIGHT AND COKE COMPANY, an Illinois corporation By: /s/ William E. Morrow ------------------------------------------------------ Title: Vice President --------------------------------------------- LESSEE: ------ ELWOOD ENERGY LLC, a Delaware limited liability company By: /s/ Ronald D. Usher ----------------------------------------------------- Title: Manager -------------------------------------------- 36 EXHIBIT A --------- Legal Description of the Premises --------------------------------- THAT PART OF THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHEAST CORNER OF THE SAID SOUTHEAST QUARTER; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 1202.35 FEET, ALONG THE SOUTH LINE OF SAID SOUTHEAST QUARTER, TO THE POINT OF BEGINNING; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 454.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 84.23 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 896.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 489.02 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 235.34 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 37.95 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 298.57 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 100.73 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 816.10 FEET; TO A POINT ON THE SAID SOUTH LINE OF THE SAID SOUTHEAST QUARTER; THENCE NORTH 90 DEGREES 00 MINUTES 00 SECONDS EAST 711.93 FEET, ALONG THE SAID SOUTH LINE OF THE SOUTHEAST QUARTER, TO THE POINT OF BEGINNING, IN WILL COUNTY, ILLINOIS, CONTAINING 18.892 ACRES MORE OR LESS. EXHIBIT B --------- Permitted Exceptions -------------------- 1. MORTGAGES AND ENCUMBRANCES OF A GENERAL NATURE WHICH MAY HAVE BEEN EXECUTED BY THE PEOPLES GAS LIGHT AND COKE COMPANY, AN ILLINOIS CORPORATION AND MORE SPECIFICALLY THE FOLLOWING: SUPPLEMENTAL INDENTURE DATED AUGUST 15, 1980 AND RECORDED AUGUST 22, 1980 AS DOCUMENT NO. R80-21575 MADE BY THE PEOPLES GAS LIGHT AND COKE COMPANY TO CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO SUCCESSOR TO ILLINOIS MERCHANTS TRUST COMPANY, AS TRUSTEE UNDER THE ORIGINAL MORTGAGE. 2. AGREEMENT DATED MARCH 22, 1883 AND RECORDED MARCH 22, 1883, IN BOOK 223, PAGE 346, AS DOCUMENT NO. 127733, BETWEEN GEORGE EIB, KRYAN BREEN AND ALBERT M. EIB, FOR THE CONSTRUCTION AND MAINTENANCE OF A SYSTEM OF DRAIN TILES OVER THE LAND, SUBJECT TO THE TERMS AND PROVISIONS THEREIN CONTAINED. (AFFECTS THE EAST 1/2 OF THE SOUTHWEST 1/4 OF SECTION 7) 3. RIGHTS OF WAY FOR DRAINAGE TILES, DITCHES, FEEDERS, LATERALS AND UNDERGROUND PIPES, IF ANY. 4. RIGHTS OF THE PUBLIC, THE STATE OF ILLINOIS AND THE MUNICIPALITY IN AND TO THAT PART OF THE LAND, IF ANY, TAKEN OR USED FOR ROAD PURPOSES, TOGETHER WITH UTILITY RIGHTS THEREIN. 5. AGREEMENT DATED NOVEMBER 26, 1960 AND RECORDED DECEMBER 30, 1960 AS DOCUMENT NO. 919595, BETWEEN WILLIAM AND ELASTEEN GLASSCOCK AND FREDERICK AND NAOMA WILHELMI AND EDITH E. HIBNER AND VIOLA A. POHL, FOR THE CONSTRUCTION AND MAINTENANCE OF A SYSTEM OF DRAIN TILES OVER THE LAND, SUBJECT TO THE TERMS AND PROVISIONS THEREIN CONTAINED. 6. AGREEMENT DATED NOVEMBER 26, 1960 AND RECORDED DECEMBER 30, 1960 AS DOCUMENT NO. 919596, BETWEEN WILLIAM AND ELASTEEN GLASSCOCK AND FREDERICK AND NAOMA WILHELMI AND EDITH E. HIBNER AND VIOLA A. POHL, FOR THE CONSTRUCTION AND MAINTENANCE OF A SYSTEM OF DRAIN TILES OVER THE LAND, SUBJECT TO THE TERMS AND PROVISIONS THEREIN CONTAINED. 7. EASEMENT FOR DRAINAGE PURPOSES RESERVED OVER PART OF THE LAND BY "RELEASE OF DRAINAGE RIGHTS", DATED MARCH 16, 1973 AND RECORDED MARCH 30, 1973 AS DOCUMENT NO. R73-08860 AND ALL RIGHTS THEREUNDER. 8. EASEMENT IN FAVOR OF THE COMMONWEALTH EDISON COMPANY, AND ITS/THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, TO INSTALL, OPERATE AND MAINTAIN ALL EQUIPMENT NECESSARY FOR THE PURPOSE OF SERVING THE LAND AND OTHER PROPERTY, TOGETHER WITH THE RIGHT OF ACCESS TO SAID EQUIPMENT, AND THE PROVISIONS RELATING THERETO CONTAINED IN THE GRANT RECORDED/FILED AS DOCUMENT NO. R74- 06220, AFFECTING THE SOUTH 5 FEET OF THE FOLLOWING DESCRIBED PROPERTY: THE EAST 1/2 OF THE SOUTHEAST 1/4 OF SAID SECTION 7, EXCEPT THAT PART FALLING WITHIN THE FOLLOWING DESCRIBED PROPERTY: THAT PART OF THE SOUTHEAST 1/4 OF SECTION 7, BOUNDED AND DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHEAST CORNER OF THE WEST 1/2 OF THE SOUTHEAST 1/4 OF SAID SECTION 7 AND RUNNING THENCE WEST ALONG THE SOUTH LINE OF SAID SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 781.70 FEET; THENCE NORTH ALONG A LINE PARALLEL WITH THE EAST LINE OF SAID WEST 1/2 OF THE SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 270.00 FEET; THENCE EAST ALONG A LINE PARALLEL WITH SAID SOUTH LINE OF THE SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 806.70 FEET TO A POINT 25.00 FEET EAST FROM THE EAST LINE OF SAID WEST 1/2 OF THE SOUTHEAST 1/4 OF SECTION 7; THENCE SOUTH ALONG A LINE PARALLEL WITH SAID EAST LINE OF THE WEST 1/2 OF THE SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 270.00 FEET TO AN INTERSECTION WITH SAID SOUTH LINE OF THE SOUTHEAST 1/4 OF SECTION 7 AND THENCE WEST ALONG SAID SOUTH LINE A DISTANCE OF 25 FEET TO THE POINT OF BEGINNING. 9. RIGHTS OF ADJOINING OWNERS TO THE UNINTERRUPTED FLOW OF ANY STREAM WHICH MAY CROSS THE PREMISES. 10. EASEMENT IN FAVOR OF THE COMMONWEALTH EDISON COMPANY, AND ITS/THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, TO INSTALL, OPERATE AND MAINTAIN ALL EQUIPMENT NECESSARY FOR THE PURPOSE OF SERVING THE LAND AND OTHER PROPERTY, TOGETHER WITH THE RIGHT OF ACCESS TO SAID EQUIPMENT, AND THE PROVISIONS RELATING THERETO CONTAINED IN THE GRANT RECORDED/FILED AS DOCUMENT NO. R82- 04897, AFFECTING THE SOUTH 5 FEET OF THE LAND. 11. EASEMENT AGREEMENT RECORDED AS DOCUMENT NO. R82-04897 BETWEEN PEOPLES GAS LIGHT AND COKE COMPANY AND NORTHERN ILLINOIS GAS COMPANY GRANTING UNTO NORTHERN ILLINOIS GAS AN EASEMENT FOR THE RIGHT, PERMISSION AND AUTHORITY TO CONSTRUCT, OPERATE AND MAINTAIN A 6 INCH PROPANE PIPELINE UNDER, ALONG AND ACROSS THE LAND. 12. EASEMENT AGREEMENT RECORDED APRIL 17, 1975 AS DOCUMENT NO. R75-08745 MADE BY THE PEOPLES GAS LIGHT AND COKE COMPANY TO AMOCO 2 OIL COMPANY TO CONSTRUCT, OPERATE AND MAINTAIN A TEN INCH PIPELINE FOR THE TRANSPORTATION OF PETROLEUM PRODUCTS, ONE METER SITE AND A 15 FOOT CRUSHED STONE ACCESS DRIVEWAY, ON, IN, OVER AND THROUGH THE LAND. AMENDMENT TO EASEMENT RECORDED AS DOCUMENT NO. R76-03727. 13. EASEMENT AGREEMENT RECORDED JUNE 9, 1978 AS DOCUMENT NO. R78-21508 MADE BY AND BETWEEN THE PEOPLES GAS LIGHT AND COKE COMPANY AND NORTHERN ILLINOIS GAS COMPANY GRANTING UNTO NORTHERN ILLINOIS GAS AN EASEMENT TO CONSTRUCT, OPERATE AND MAINTAIN A SIX INCH PROPANE PIPELINE UNDER, ALONG AND ACROSS THE LAND AS SHOWN ON EXHIBITS A, B, C, D AND E ATTACHED TO SAID DOCUMENT. 3 EXHIBIT C PURCHASE AND SALE AGREEMENT --------------------------- This Purchase and Sale Agreement (this "Agreement") is made and entered into by and between ELWOOD ENERGY LLC, a Delaware limited liability company (hereinafter referred to as "Purchaser"), and THE PEOPLES GAS LIGHT AND COKE COMPANY, an Illinois corporation (hereinafter referred to as "Seller"). W I T N E S S E T H: WHEREAS, Seller is the owner in fee simple of a certain parcel of real property and improvements thereon, containing approximately twenty (20) acres, located in Will County, said real property being more particularly described on Exhibit A, which is attached hereto, and by this reference, incorporated herein, - --------- together with all improvements and appurtenances thereon or appertaining thereto, said real property together with such improvements and appurtenances being hereinafter collectively referred to as the "Property"; and WHEREAS, Seller is the Lessor, and Purchaser is the Lessee, of the Property under that certain Ground Lease dated __________, 1998; WHEREAS, Purchaser desires to purchase from Seller and Seller desires to sell to Purchaser the Property upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, promises and undertakings set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: I. AGREEMENT OF PURCHASE AND SALE. ------------------------------ (a) Subject to the terms and conditions set forth in this Agreement, Seller agrees to sell, transfer, and convey to Purchaser, and Purchaser agrees to purchase and accept from Seller, all of Seller's right, title and interest in and to the Property. (b) Upon the execution of this Agreement, and as a condition precedent to Seller's obligations under this Agreement, Purchaser shall deposit the sum of _______________ and No/100 Dollars ($_____________) (the "Earnest Money Deposit") with Chicago Title and Trust Company (the "Title Company"). The Earnest Money Deposit shall be held by the Title Company pursuant to the Title Company's standard form of strict joint order escrow agreement with such alteration as shall be necessary to conform to the terms of this Agreement. The Earnest Money Deposit shall be applied to the Purchase Price (as hereinafter defined) at Closing. The Earnest Money Deposit will be held in an interest-bearing account under Purchaser's taxpayer identification number. The party entitled to receive the Earnest Money Deposit shall also receive all the interest accrued thereon. In the event of a default by either party, the Earnest Money Deposit shall be disbursed by the Title Company in accordance with Section XVII or Section XVIII hereof, as the case may be. II. PURCHASE PRICE. -------------- The purchase price ("Purchase Price") for the Property, subject to adjustments and prorations as provided for herein, shall be Two Hundred Eighty Three Thousand Three Hundred Eighty and no/100 Dollars ($283,380.00), inclusive of all roadways and drainage areas if Seller owns the underlying interest, as determined by the Survey (as defined in Section VI(a)(2) below) to be procured hereunder. The parties agree that Purchaser shall be given a credit toward the Purchase Price in an amount equal to the Base Rent paid by Lessee to Lessor under the Ground Lease as of the Closing Date described below. III. [INTENTIONALLY OMITTED] ----------------------- IV. PAYMENT OF PURCHASE PRICE. ------------------------- At Closing, the Purchase Price shall be payable to Seller at the time and in the manner hereinafter set forth: (a)(_) The Purchase Price, as adjusted pursuant to the terms of this Agreement, shall be paid to Seller at Closing (as that term is hereinafter defined in Section V below) by cash, wire transfer or cashier's check. (b)(_) General real estate taxes and assessments, insurance, utility charges, fees and assessments, not otherwise allocated under Section IV(c), if any, shall be prorated as of the Closing Date (as hereinafter defined). General real estate taxes shall be prorated on the basis of the last available assessed valuation issued for the Property and upon the last available tax rates and tax equalizer appearing on the most recent tax bill; provided, -------- however, that at the request of either party the parties will promptly re-prorate when actual tax bills are issued on the basis of such actual tax bills. (_)(c) The Closing shall take place on the Closing Date through a so- called "New York" style escrow with the Title Company pursuant to separate written instructions of Seller and Purchaser, if required by the Title Company. Seller shall pay all release fees, all state and county transfer taxes (unless the transaction is exempt from such taxes at the time of Closing), all state and county deed stamps, all capital gains taxes, all "roll back" or similar taxes applicable to a change in use of the Property, one-half of the escrow fee, one-half of the cost for the "New York" style closing, and all other closing costs and expenses customarily charged to sellers of real property in the local area. In addition, Seller shall pay all costs of obtaining the title insurance and survey described below in Section VI and for the title policy and 2 related title endorsements to be delivered to Purchaser at Closing under the terms of this Agreement. Purchaser shall pay all recording fees for the deed, the remaining one-half of the escrow fee, the remaining one-half of the cost for the "New York" style closing, any local transfer taxes (unless the transaction is exempt from such taxes at the time of Closing), and all other costs and expenses not being paid by Seller which are normally charged to purchasers of real property in the local area. V. CLOSING AND CONVEYANCE OF TITLE. ------------------------------- (a) Subject to the truth and accuracy of Seller's representations and warranties set forth in Section VIII hereof, the closing of the purchase of the Property shall be held on a mutually agreed upon date within thirty (30) days after the Purchaser's and Seller's satisfaction or waiver of the contingencies described below in Section VI (the "Closing" or "Closing Date"). (b) Seller shall deliver to Purchaser, on or before the Closing Date, the following closing documents: (i) A recordable special warranty deed conveying to Purchaser (or to Purchaser's designee) marketable and insurable fee simple title to the Property, subject only to the Permitted Exceptions described below in Section VI(a); (ii) Seller's certificate dated as of the Closing Date confirming that the representations and warranties set forth in Section VIII herein are true and correct on and as of the Closing Date; (iii) an Affidavit of Title covering the Property, in customary form; (iv) an ALTA statement; (v) state, county and local real estate transfer tax declarations prepared and executed by Seller; (vi) an affidavit from Seller stating (a) its taxpayer identification number, and (b) it is not a "foreign person" within the meaning of Section 1445 et seq. of the Internal Revenue Code of 1986 as amended; (vii) such other documents, instruments, certifications and confirmations as may be reasonably required and designated by Purchaser to fully effect and consummate the transaction contemplated hereby; and (viii) such documents (in recordable form) necessary to comply with the disclosure requirements of the Illinois Responsible Property Transfer Act (but only if required by law). 3 VI. TITLE COMMITMENT. ---------------- 1. No more than thirty (30) days after the Effective Date of this Agreement as set forth below, Seller shall have furnished to Purchaser, at Seller's expense, a current ALTA 1992 Form B standard commitment for an owner's policy of title insurance (the "Title Commitment"), issued by the Title Company, under which the Title Company shall agree to insure, in the name of Purchaser and in the amount of the Purchase Price, fee simple title to the Property upon delivery of Seller's aforesaid deed to Purchaser. The Property shall be subject only to current general real estate taxes, special assessments and special service area assessments not yet delinquent, to those exceptions set forth on Exhibit B to the Ground Lease, and to covenants, conditions, restrictions, easements and encumbrances of record occurring by or through Purchaser (collectively, the "Permitted Exceptions"). In addition, Seller shall cause the Title Company to issue endorsements in said Title Commitment covering the following: A. an access endorsement insuring that there is direct and unencumbered access for automobiles and commercial vehicles to and from the Property to physically open streets; B. contiguity of all parcels comprising the Property and contiguity of the Property to physically open streets. At or prior to the delivery of the Title Commitment, Seller shall also deliver or cause to be delivered to Purchaser copies of all documents of record reflected as exceptions in the Title Commitment, together with copies of any other easements, covenants or agreements benefiting or affecting the Property, whether or not of record, of which Seller has knowledge or control. Within thirty (30) days after receipt by Purchaser of the Title Commitment, the documentation described in the previous sentence, and the Survey described in Section VI(a)(2) below, Purchaser shall advise Seller of any defect or objection thereto. Seller shall then have thirty (30) days from the date of Purchaser's objection to correct or satisfy all defects or objections, and if such defects and objections are not, in the reasonable opinion of Purchaser, satisfied within such time, or if any defects or objections arise after the date hereof and are not corrected or satisfied within said thirty (30) day period, then Purchaser, at its option, may elect to terminate this Agreement without liability to Seller by written notice to Seller, in which case, notwithstanding anything contained herein to the contrary, the Earnest Money Deposit shall be promptly returned to Purchaser, or Purchaser may elect to proceed to Closing and take as a credit against the Purchase Price the actual or reasonably estimated cost of curing defects or objections of a definite or ascertainable amount. Seller shall use commercially reasonable efforts to cure such objections or defects but shall not be obligated to spend more than $25,000.00 in the aggregate to do so (except in the case of liens securing indebtedness of Seller, which Seller covenants to have released at or prior 4 to Closing without regard to such $25,000.00 cost limitation). Notwithstanding anything contained herein to the contrary, in the event any such defect or objection is a lien for a liquidated sum that can be satisfied by the payment of money but is not so satisfied at or prior to Closing, or shall be created by the affirmative act of Seller after the Effective Date of this Agreement, a default by Seller shall be deemed to have occurred hereunder. VII. TERMINATION OF GROUND LEASE. --------------------------- At the closing of the Closing Date, Seller and Purchaser shall execute and deliver to one another: A. A mutually agreed instrument recreating the easements for Common Areas and Common Utility Facilities set forth in the Ground Lease; B. Any mutually desired and agreed amendments to or restatements of the Common Facilities Agreement; and C. A mutually agreed instrument terminating the Ground Lease. VIII. SELLER'S REPRESENTATIONS AND WARRANTIES. --------------------------------------- Seller represents and warrants to Purchaser as follows as of the date hereof (unless otherwise stated) and as of the Closing Date: A. The facts described in the recitals to this Agreement are true and correct. B. Seller is a duly formed and validly existing corporation in good standing under the laws of the State of Illinois; Seller has been duly authorized to execute this Agreement and to consummate the transaction contemplated hereby; the persons executing this Agreement and all of the documents required to consummate the transaction contemplated hereby have been duly authorized to execute such documents and to bind Seller. C. Seller is the fee simple owner of the Property. D. Seller is not a "foreign person" within the meaning of Section 1445(F)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and Seller shall on the Closing Date provide Purchaser with all instruments and documents required by Section 1445 of the Code to comply therewith. E. Seller has taken all necessary corporate actions and obtained all necessary consents to authorize its execution, delivery and performance of this Agreement and the 5 transaction contemplated hereby, and this Agreement is enforceable against Seller. F. There is no legal action pending which would materially affect the ability of Seller to carry out the transaction contemplated by this Agreement. Each of the representations and warranties contained in Section VIII of this Agreement shall survive the date of Closing and/or the expiration or termination of this Agreement for a period of six (6) months (except for Seller's representation and warranty contained in Section VIII(j), which shall survive indefinitely). Seller agrees to indemnify and hold Purchaser free and harmless from and against all losses, damages, costs and expenses (including attorneys' fees and expenses) sustained by Purchaser as a result of any inaccuracy or breach of any representation or warranty of Seller contained in Section VIII of this Agreement. Notwithstanding anything contained herein or elsewhere in this Agreement to the contrary, in the event any of Seller's representations or warranties made in this Section VIII are untrue, inaccurate or incorrect in any material respect, the aggregate liability of Seller arising pursuant to or in connection with a material breach of any such representations and warranties shall not exceed the Purchase Price. IX. PURCHASER'S REPRESENTATIONS AND WARRANTIES. ------------------------------------------ Purchaser represents and warrants to Seller as follows as of the date hereof (unless otherwise stated) and as of the Closing Date: A. Purchaser is a duly formed and validly existing Delaware limited liability company and, on the Closing Date, will be in good standing under the laws of the State of Illinois. B. Purchaser has taken all necessary actions and obtained all necessary consents to authorize its execution, delivery and performance of this Agreement and the transaction contemplated hereby, and this Agreement is enforceable against Purchaser. C. There is no legal action pending which would materially affect the ability of Purchaser to carry out the transaction contemplated by this Agreement. D. The execution, delivery and performance of this Agreement by Purchaser does not violate any law, statute, rule or regulation of any governmental authority, and Purchaser will have obtained all permits, approvals and licenses necessary from governmental authorities for the execution, delivery and performance of this Agreement and the purchase of the Property from Seller. Each of the representations and warranties contained in Section IX of this Agreement shall survive the date of Closing and/or the expiration or termination of this Agreement for a period of six (6) months (except for Purchaser's indemnity in Section VII hereof and Purchaser's representation and warranty contained in Section IX(d), which shall survive indefinitely). 6 Purchaser agrees to indemnify and hold Seller free and harmless from and against all losses, damages, costs and expenses (including attorneys' fees and expenses) sustained by Seller as a result of any inaccuracy or breach of any representation or warranty of Purchaser contained in Section IX of this Agreement. Notwithstanding anything contained herein or elsewhere in this Agreement to the contrary, in the event any of Purchaser's representations or warranties made in this Section IX are untrue, inaccurate or incorrect in any material respect, the aggregate liability of Purchaser arising pursuant to or in connection with a material breach of any such representations and warranties shall not exceed the Purchase Price. X. SELLER'S ENVIRONMENTAL INDEMNITY. -------------------------------- A. For purposes of this Agreement, "Environmental Laws" means any and all federal, state and municipal laws, ordinances and regulations, including without limitation any and all requirements to register underground storage tanks, relating to: (i) emission, discharges, spills, releases or threatened releases of pollutants, contaminants, "Hazardous Materials" (as hereinafter defined), or hazardous or toxic materials or wastes onto land or into ambient air, surface water, ground water, wetlands, or septic systems; (ii) the use, treatment, storage, disposal, handling, or containing of Hazardous Materials or hazardous and/or toxic wastes, material products or by- products (or of equipment or apparatus containing Hazardous Materials); or (iii) pollution or the protection of human health or the environment. "Hazardous Materials" means (A) hazardous materials, hazardous wastes, and hazardous substances as those terms are defined under any Environmental Laws, (B) petroleum and petroleum products including crude oil and any fractions thereof; (C) natural gas, synthetic gas, and any mixtures thereof; (D) asbestos or any material which contains any hydrated mineral silicate, including, but not limited to chrysotile, amosite, crocidolite, tremolite, anthophylite or actinolite, whether friable or non-friable; (E) PCB's or PCB-containing materials, or fluids; (F) any other hazardous, toxic or radioactive substance, material, contamination, pollutant, or waste; and (G) any substance with respect to which any Environmental Law or Governmental Authority requires environmental investigation, monitoring or remediation. For purposes hereof, "Governmental Authority" means any local, regional, provincial, or federal entity, agency, court, judicial or quasi- judicial body, or legislative or quasi-legislative body. B. Seller shall indemnify, defend and hold Purchaser and Purchaser's officers, employees, agents, successors and assigns, free and harmless from and against any claims, damages, losses, forfeitures, penalties, expenses or liabilities (including reasonable legal fees and other costs of litigation) arising from or in connection with any Hazardous Materials present in or on the Property as of the Commencement Date under the Ground Lease, specifically excluding, however, any Hazardous Materials, or the emission, discharge, spill, release or disposal thereof, at, from or on the Property, or any violation of any Environmental Law, caused at any time by Purchaser, its agents, employees or independent contractors. 7 C. Without limiting Seller's obligations under paragraph X(B), Seller, as indemnitor under paragraph X(B) above, shall be liable for all fines, costs of investigation, repair, remediation, restoration, cleanup, detoxification or decontamination and preparation and implementation of any closure, remedial action or other required plan necessitated by any violation by Seller of any Environmental Law and with respect to any of the other matters covered by Seller's indemnification obligations set forth in paragraph X(B). Seller's indemnity and liability hereunder shall survive the Closing hereunder and the delivery of the deed. XI. NOTICES. ------- All notices and requests permitted or required to be given hereunder shall be in writing and shall be deemed effective (a) on the date delivered, if hand delivered, (b) on the date mailed by registered or certified U.S. Mail, return receipt requested, with adequate postage affixed, if mailed by registered or certified mail, or (c) on the date when sent, charges pre-paid, if delivered by reputable commercial overnight delivery service or U.S. Express Mail as evidenced by service receipt or by Express Mail postmark. All notices shall be addressed to the addressee stated hereinbelow or at such other address as either party shall designate in writing in the manner hereinabove set forth. Address of Seller: The Peoples Gas Light and Coke Company 130 East Randolph Drive Chicago, Illinois 60601 Attn.: William E. Morrow, Vice President with a copy to: John Nassos, Esq. The Peoples Gas Light and Coke Company Office of General Counsel 130 East Randolph Drive 23rd Floor Chicago, Illinois 60601 -and- John J. Lawlor, Esq. Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 8 Address of Purchaser: Elwood Energy LLC c/o Dominion Energy, Inc. 901 E. Byrd Street Richmond, Virginia 23219 Attn.: Ronald D. Usher XII. BINDING UPON SUCCESSORS AND ASSIGNS. ----------------------------------- All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns. XIII. SURVIVAL OF OBLIGATIONS. ----------------------- Subject to the terms of Section VIII and Section IX hereof, each of the covenants, warranties, representations, agreements and indemnities contained in this Agreement shall be made as of the date of execution hereof and shall be deemed renewed upon the date of Closing and/or the expiration or termination of this Agreement; provided, however, that such covenants, warranties, representations, agreements and indemnities shall be deemed to survive the date of Closing and the delivery of the deed only for the period of time specified in Section VIII and Section IX hereof (except that Seller's environmental indemnity contained in Section X hereof, Seller's representation and warranty contained in Section VIII(j) hereof, Purchaser's indemnity in Section VII hereof, and Purchaser's representation and warranty contained in Section IX(d) hereof shall all survive the date of Closing and the delivery of the deed indefinitely), and no action or claim based thereon shall be commenced after such period. XIV. EMINENT DOMAIN. -------------- If, during the term of this Agreement, any portion of the Property shall be taken by eminent domain, or is the subject of eminent domain proceedings threatened or commenced, Seller shall promptly notify Purchaser thereof, and immediately provide Purchaser with copies of any written communication from any condemning authority. If any of said events occur then, in that event, Purchaser shall have the right to rescind this Agreement, in which event, this Agreement shall become null and void and the Earnest Money Deposit shall be immediately returned to Purchaser in full. If any of said events occur and Purchaser still desires to close, (a) if the transfer to the condemning authority takes place prior to Closing hereunder, the remainder of the Property shall be conveyed to Purchaser at Closing; (b) if the transfer to the condemning authority has not taken place prior to Closing, the entire Property shall be conveyed to Purchaser at Closing hereunder; (c) if Seller has received payment for such condemnation or taking prior to the Closing hereunder, the amount of such payment shall be a credit against the Purchase Price payable by Purchaser 9 hereunder; and (d) if Seller has not received such payment at the time of Closing, Seller shall assign to Purchaser all claims and rights on account of or arising out of such taking. XV. MISCELLANEOUS AND STATE LAW. --------------------------- Whenever it is provided in this Agreement that days shall be counted, the first day to be counted shall be the day following the date on which the event causing the period to commence occurs. If the day for performance of any action hereunder falls on a Saturday, Sunday, or legal holiday, then the time for performance shall be deemed extended to the next succeeding business day. This Agreement shall be construed under the laws of the State of Illinois. XVI. BROKER'S COMMISSION. ------------------- Seller and Purchaser represent and warrant that they have dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction. Seller and Purchaser agree to indemnify and hold one another harmless from and against any claims by any broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with respect to this transaction. XVII. PURCHASER'S DEFAULT. ------------------- If all contingencies and conditions precedent are satisfied and the sale and purchase of the Property as contemplated by this Agreement is not consummated because of Purchaser's default, then Seller shall retain the Earnest Money Deposit, and any interest earned thereon, as full liquidated damages for such default of Purchaser. THE PARTIES HERETO EXPRESSLY ACKNOWLEDGE THAT IT IS IMPOSSIBLE MORE PRECISELY TO ESTIMATE THE DAMAGE TO BE SUFFERED BY SELLER UPON PURCHASER'S DEFAULT, AND THAT RETENTION OF THE EARNEST MONEY DEPOSIT AND INTEREST EARNED THEREON IS INTENDED NOT AS A PENALTY, BUT AS FULL LIQUIDATED DAMAGES. The Seller's right to retain the Earnest Money Deposit and interest earned thereon as full liquidated damages is Seller's sole and exclusive remedy in the event of default hereunder by Purchaser, and Seller hereby waives and releases any right to and hereby covenants that it shall not sue the Purchaser to prove that Seller's actual damages exceed the Earnest Money Deposit and interest earned thereon which is hereby provided Seller as full liquidated damages. XVIII. SELLER'S DEFAULT. ---------------- If the sale and purchase of the Property as contemplated by this Agreement is not consummated in accordance with the terms and conditions of this Agreement because of Seller's default, the Purchaser may, at Purchaser's option: (a) terminate this Agreement by giving written notice of such termination to Seller, whereupon the Earnest Money Deposit shall be returned to 10 Purchaser, and all rights, duties and obligations of all the parties hereunder shall expire and this Agreement shall in all respects become null and void, or (b) exercise such rights and remedies as may be provided for or allowed by law or in equity, including, without limitation, the right to seek and obtain specific performance of this Agreement. XIX. ASSIGNMENT OF AGREEMENT. ----------------------- This Agreement shall not be assigned by Purchaser without the prior written consent of Seller, which may be withheld in Seller's sole and absolute discretion. XX. MODIFICATIONS. ------------- This Agreement may not be amended, modified or changed, nor shall any waiver of any provision hereof be effective, except by an instrument in writing and signed by the party against whom enforcement of any such waiver, amendment, modification, change or discharge is sought. XXI. CONTINGENT OPTIONS FOR ADDITIONAL PROPERTY. ------------------------------------------ The parties agree to negotiate in good faith for the acquisition by Purchaser of an option to acquire either a fee interest or a leasehold interest in each of the parcels of real property described on Exhibit C attached hereto and made a part hereof, which options shall be exercisable in the event that Purchaser fails to obtain, prior to June 1, 2000, re-zoning to I-3 Intensive Industrial District under the Will County Zoning Ordinance or I-3 under the Village of Elwood Zoning Ordinance for property acquired by Purchaser from James A. Hibner and Raymond F. Hibner located directly east of the Property at the corner of Noel and Patterson Roads, Will County, Illinois. Any such lease shall have a lease term equivalent to the then unexpired term of the Ground Lease. XXII. WAIVER. ------ Either party shall have the right to waive any condition or contingency in this Agreement for the benefit of the party granting such waiver. Any such waiver shall be in writing and shall be signed by the party waiving such condition or contingency. XXIII. CLOSING CONTINGENCIES. --------------------- Notwithstanding anything to the contrary contained in this Agreement, Purchaser shall not be obligated to close hereunder unless: A. Seller shall provide Purchaser a standard ALTA owner's title insurance policy consistent with the Title Commitment required under the terms of this Agreement from the Title Company on the Closing Date. 11 B. There exists no breach of any representation or warranty contained herein. C. The other conditions to Closing expressly set forth herein shall be satisfied. In the event that any one or more of the foregoing contingencies shall not be satisfied or met by the Closing Date, Purchaser, at its option, may waive the satisfaction thereof, or terminate this Agreement without liability to Seller, in which case, notwithstanding anything contained herein to the contrary, the Earnest Money Deposit shall be promptly refunded to Purchaser. XXIV. RISK OF LOSS. ------------ The risk of loss or damage to the Property until the Closing shall be governed by the Ground Lease. XXV. TIME IS OF ESSENCE. ------------------ Time is of the essence in this Agreement. XXVI. GOVERNMENTAL APPLICATIONS. ------------------------- Seller acknowledges that Purchaser may, at its own expense, file applications for matters such as zoning, planned development, special use, subdivision, lot consolidation, and driveway permits (collectively, "Zoning and Permitting"). Upon Purchaser's request, Seller will promptly execute written authorizations and related ownership disclosures respecting such applications; provided, however, in the event any of such Zoning and Permitting matters are finalized and Closing does not take place for any reason other than a breach of this Agreement by Seller, then Purchaser shall cooperate with and reimburse Seller for any and all reasonable costs and expenses (including reasonable attorneys' fees) incurred by Seller to restore the Zoning and Permitting status of the Property to its condition to the way it existed on the day prior to the Effective Date. XXVII. ENTIRE AGREEMENT. ---------------- This Agreement, together with the schedules and exhibits hereto, represents the entire agreement and understanding of the parties hereto with reference to the transactions set forth herein, and no representations, warranties or covenants have been made in connection with this Agreement other than those expressly set forth herein, in the exhibits, schedules, certificates, agreements and other documents delivered in accordance herewith. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement and all prior drafts of this 12 Agreement, all of which are merged into this Agreement. The exhibits and schedules attached hereto are a part of this Agreement as if fully set forth herein. IN WITNESS WHEREOF, Purchaser has executed this Agreement as of the ________ day of ________________, ____________ (the "Effective Date"). PURCHASER --------- ELWOOD ENERGY LLC, a Delaware limited liability company By:___________________________________________ Title:________________________________________ This Agreement is agreed to and accepted by Seller this _____ day of ____________________, ______________. SELLER ------ THE PEOPLES GAS LIGHT AND COKE COMPANY, an Illinois corporation By:___________________________________________ Title:________________________________________ 13 EXHIBITS -------- Exhibit A -- Legal Description of the Property Exhibit B -- Permitted Exceptions Referenced in Section VI Exhibit C -- Article XXI Rendering 14 EXHIBIT B --------- Permitted Exceptions -------------------- 1. AGREEMENT DATED MARCH 22, 1883 AND RECORDED MARCH 22, 1883, IN BOOK 223, PAGE 346, AS DOCUMENT NO. 127733, BETWEEN GEORGE EIB, KRYAN BREEN AND ALBERT M. EIB, FOR THE CONSTRUCTION AND MAINTENANCE OF A SYSTEM OF DRAIN TILES OVER THE LAND, SUBJECT TO THE TERMS AND PROVISIONS THEREIN CONTAINED. (AFFECTS THE EAST 1/2 OF THE SOUTHWEST 1/4 OF SECTION 7) 2. RIGHTS OF WAY FOR DRAINAGE TILES, DITCHES, FEEDERS, LATERALS AND UNDERGROUND PIPES, IF ANY. 3. RIGHTS OF THE PUBLIC, THE STATE OF ILLINOIS AND THE MUNICIPALITY IN AND TO THAT PART OF THE LAND, IF ANY, TAKEN OR USED FOR ROAD PURPOSES, TOGETHER WITH UTILITY RIGHTS THEREIN. 4. AGREEMENT DATED NOVEMBER 26, 1960 AND RECORDED DECEMBER 30, 1960 AS DOCUMENT NO. 919595, BETWEEN WILLIAM AND ELASTEEN GLASSCOCK AND FREDERICK AND NAOMA WILHELMI AND EDITH E. HIBNER AND VIOLA A. POHL, FOR THE CONSTRUCTION AND MAINTENANCE OF A SYSTEM OF DRAIN TILES OVER THE LAND, SUBJECT TO THE TERMS AND PROVISIONS THEREIN CONTAINED. 5. AGREEMENT DATED NOVEMBER 26, 1960 AND RECORDED DECEMBER 30, 1960 AS DOCUMENT NO. 919596, BETWEEN WILLIAM AND ELASTEEN GLASSCOCK AND FREDERICK AND NAOMA WILHELMI AND EDITH E. HIBNER AND VIOLA A. POHL, FOR THE CONSTRUCTION AND MAINTENANCE OF A SYSTEM OF DRAIN TILES OVER THE LAND, SUBJECT TO THE TERMS AND PROVISIONS THEREIN CONTAINED. 6. EASEMENT FOR DRAINAGE PURPOSES RESERVED OVER PART OF THE LAND BY "RELEASE OF DRAINAGE RIGHTS", DATED MARCH 16, 1973 AND RECORDED MARCH 30, 1973 AS DOCUMENT NO. R73-08860 AND ALL RIGHTS THEREUNDER. 7. EASEMENT IN FAVOR OF THE COMMONWEALTH EDISON COMPANY, AND ITS/THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, TO INSTALL, OPERATE AND MAINTAIN ALL EQUIPMENT NECESSARY FOR THE PURPOSE OF SERVING THE LAND AND OTHER PROPERTY, TOGETHER WITH THE RIGHT OF ACCESS TO SAID EQUIPMENT, AND THE PROVISIONS RELATING THERETO CONTAINED IN THE GRANT RECORDED/FILED AS DOCUMENT NO. R74- 06220, AFFECTING THE SOUTH 5 FEET OF THE FOLLOWING DESCRIBED PROPERTY: THE EAST 1/2 OF THE SOUTHEAST 1/4 OF SAID SECTION 7, EXCEPT THAT PART FALLING WITHIN THE FOLLOWING DESCRIBED PROPERTY: THAT PART OF THE SOUTHEAST 1/4 OF SECTION 7, BOUNDED AND DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHEAST CORNER OF THE WEST 1/2 OF THE SOUTHEAST 1/4 OF SAID SECTION 7 AND RUNNING THENCE WEST ALONG THE SOUTH LINE OF SAID SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 781.70 FEET; THENCE NORTH ALONG A LINE PARALLEL WITH THE EAST LINE OF SAID WEST 1/2 OF THE SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 270.00 FEET; THENCE EAST ALONG A LINE PARALLEL WITH SAID SOUTH LINE OF THE SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 806.70 FEET TO A POINT 25.00 FEET EAST FROM THE EAST LINE OF SAID WEST 1/2 OF THE SOUTHEAST 1/4 OF SECTION 7; THENCE SOUTH ALONG A LINE PARALLEL WITH SAID EAST LINE OF THE WEST 1/2 OF THE SOUTHEAST 1/4 OF SECTION 7, A DISTANCE OF 270.00 FEET TO AN INTERSECTION WITH SAID SOUTH LINE OF THE SOUTHEAST 1/4 OF SECTION 7 AND THENCE WEST ALONG SAID SOUTH LINE A DISTANCE OF 25 FEET TO THE POINT OF BEGINNING. 8. RIGHTS OF ADJOINING OWNERS TO THE UNINTERRUPTED FLOW OF ANY STREAM WHICH MAY CROSS THE PREMISES. 9. EASEMENT IN FAVOR OF THE COMMONWEALTH EDISON COMPANY, AND ITS/THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, TO INSTALL, OPERATE AND MAINTAIN ALL EQUIPMENT NECESSARY FOR THE PURPOSE OF SERVING THE LAND AND OTHER PROPERTY, TOGETHER WITH THE RIGHT OF ACCESS TO SAID EQUIPMENT, AND THE PROVISIONS RELATING THERETO CONTAINED IN THE GRANT RECORDED/FILED AS DOCUMENT NO. R82- 04897, AFFECTING THE SOUTH 5 FEET OF THE LAND. 10. EASEMENT AGREEMENT RECORDED AS DOCUMENT NO. R82-04897 BETWEEN PEOPLES GAS LIGHT AND COKE COMPANY AND NORTHERN ILLINOIS GAS COMPANY GRANTING UNTO NORTHERN ILLINOIS GAS AN EASEMENT FOR THE RIGHT, PERMISSION AND AUTHORITY TO CONSTRUCT, OPERATE AND MAINTAIN A 6 INCH PROPANE PIPELINE UNDER, ALONG AND ACROSS THE LAND. 11. EASEMENT AGREEMENT RECORDED APRIL 17, 1975 AS DOCUMENT NO. R75-08745 MADE BY THE PEOPLES GAS LIGHT AND COKE COMPANY TO AMOCO OIL COMPANY TO CONSTRUCT, OPERATE AND MAINTAIN A TEN INCH PIPELINE FOR THE TRANSPORTATION OF PETROLEUM PRODUCTS, ONE METER SITE AND A 15 FOOT CRUSHED STONE ACCESS DRIVEWAY, ON, IN, OVER AND THROUGH THE LAND. AMENDMENT TO EASEMENT RECORDED AS DOCUMENT NO. R76-03727. 12. EASEMENT AGREEMENT RECORDED JUNE 9, 1978 AS DOCUMENT NO. R78-21508 MADE BY AND BETWEEN THE PEOPLES GAS LIGHT AND COKE COMPANY AND NORTHERN ILLINOIS GAS COMPANY GRANTING UNTO 16 NORTHERN ILLINOIS GAS AN EASEMENT TO CONSTRUCT, OPERATE AND MAINTAIN A SIX INCH PROPANE PIPELINE UNDER, ALONG AND ACROSS THE LAND AS SHOWN ON EXHIBITS A, B, C, D AND E ATTACHED TO SAID DOCUMENT. 17 EXHIBIT D --------- Memorandum of Lease ------------------- This Memorandum of Lease is entered into as of the _____ day of September, 1998, between THE PEOPLES GAS LIGHT AND COKE COMPANY, an Illinois corporation ("Lessor"), and ELWOOD ENERGY LLC, a Delaware limited liability company ("Lessee"). 1. Premises. For sufficient consideration received, and the terms and -------- conditions more particularly set forth in that certain long form Lease between Lessor and Lessee of even date herewith ("Lease"), Lessor leases to Lessee and Lessee leases from Lessor approximately 18.892 acres of land located at 21100 Noel Road, Elwood, Illinois, which is legally described on Exhibit A attached hereto and made a part hereof ("Land"). 2. Easement. Pursuant to the Lease, Lessor has granted to Lessee a non- -------- exclusive easement for the exercise of certain rights granted to Lessee with respect to the Common Utility Facilities located on Lessor's Remaining Property (as such capitalized terms are defined in the Lease). 3. Term. Unless the Lease has been terminated, as provided therein, the ---- "Term" of the Lease shall commence upon the satisfaction of the Approval Contingencies (as defined in the Lease) and shall expire ninety nine (99) years thereafter. 4. Inquiries. Inquiries concerning the precise terms of the Lease may be --------- made to: Lessor: Lessee: The Peoples Gas Light and Elwood Energy LLC Coke Company c/o Dominion Energy, Inc. 130 East Randolph Drive 901 E. Byrd Street Chicago, Illinois 60601 Richmond, Virginia 23219 Attn: _____________________ Attn: _______________________ This document prepared by: Dustin E. Neumark, Esq. Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 5. Successors. The rights and obligations created in the Lease shall ---------- bind and inure to the benefit of the respective successors and assigns of Lessor and Lessee. 6. Incorporation and Conflicts. All of the terms and conditions of the --------------------------- Lease are incorporated herein by reference as though set forth fully herein. In the event of any conflict between the terms hereof and of the Lease, the Lease shall prevail. IN WITNESS WHEREOF, this Memorandum of Lease is executed as of the date first above written. LESSOR: THE PEOPLES GAS LIGHT AND COKE COMPANY an Illinois corporation By _______________________________ Its____________________________ LESSEE: ELWOOD ENERGY LLC a Delaware limited liability company By _______________________________ Its ___________________________ 2 EXHIBIT E ARTICLE 31 RENDERING -------------------- [MAP] EXHIBIT F OUTSTANDING CONTRACTS 1. Agreement between Elwood Energy LLC and General Electric Company for Engineering, Design, Procurement, Construction and Installation Services for the Elwood Facility, dated July 23, 1998. 2. Professional Services Agreement between Elwood Energy LLC and Sargent & Lundy LLC, dated June 16, 1998. 3. Agreement between Elwood Energy LLC and General Electric Company for Engineering, Design, Procurement, Construction and Installation Services for the Elwood Generation Facility - Phase II, Units 3 and 4, dated as of September 25th, 1998. STATE OF ILLINOIS ) ) COUNTY OF COOK ) I, Gloria A. Rodriguez, a Notary Public in and for the said County, in the ------------------- State aforesaid, DO HEREBY CERTIFY that William E. Morrow personally known to me ----------------- to be the Vice President of The Peoples Gas Light and Coke Company, an Illinois -------------- corporation, and personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that as such Vice President, he signed and delivered the said -------------- instrument as his free and voluntary act, and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth. Given under my hand and official seal, this 30th day of September, 1998. ------ [SEAL] /s/ Gloria A Rodriguez -------------------------- Notary Public Commission expires: 5-16-01 --------- STATE OF ILLINOIS ) --------- ) COUNTY OF COOK ) ---- I, Gloria A. Rodriguez, a Notary Public in and for the said County, in the ------------------- State aforesaid, DO HEREBY CERTIFY that Ronald D. Usher personally known to me --------------- to be the Manager of Elwood Energy LLC, a Delaware limited liability company, ------- and personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that as such Manager, he signed and delivered the said instrument as his free ------- and voluntary act, and as the free and voluntary act and deed of limited liability company, for the uses and purposes therein set forth. Given under my hand and official seal, this 30th day of September, 1998. ---- [SEAL] /s/ Gloria A. Rodriguez ----------------------- Notary Public Commission expires: 5-16-01 ------- TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 DEFINITIONS..................................................................... 1 - ----------- ARTICLE 2 PREMISES AND TERM............................................................... 4 - ----------------- Section 2.1 Lease of Premises............................................ 4 Section 2.2 Term......................................................... 4 Section 2.3 ICC Approval Contingency..................................... 4 Section 2.4 Subdivision Approval Contingency............................. 5 ARTICLE 3 RENTAL.......................................................................... 5 - ------ Section 3.1 Basic Rent................................................... 5 Section 3.2 Net Lease.................................................... 5 Section 3.3 No Set-Off................................................... 6 Section 3.4 Additional Rent.............................................. 6 ARTICLE 4 TAXES AND ASSESSMENTS........................................................... 6 - --------------------- Section 4.1 Payment of Impositions....................................... 6 Section 4.2 Substitute Taxes............................................. 7 Section 4.3 Tax Deposits................................................. 7 Section 4.4 Lessor's Right to Pay Delinquent Amounts..................... 8 Section 4.5 Lessee's Right to Contest.................................... 8 Section 4.6 Lessee's Right to Recover.................................... 8 Section 4.7 No Interest Payable on Deposits.............................. 9 ARTICLE 5 USE AND CARE OF PREMISES; LIABILITY INSURANCE................................... 9 - --------------------------------------------- Section 5.1 Lessee's Obligation to Maintain Property..................... 9 Section 5.2 Use.......................................................... 10 Section 5.3 Insurance.................................................... 10 ARTICLE 6 REPAIRS AND REPLACEMENTS: RESTORATION OF DAMAGED OR DESTROYED IMPROVEMENTS............................................ 12 - ------------------------------------ Section 6.1 Maintenance of Improvements.................................. 12 Section 6.2 Alterations.................................................. 12 Section 6.3 Removal of Buildings......................................... 12 Section 6.4 Lessor's Rights to Kirk Building............................. 12
i TABLE OF CONTENTS ----------------- (continued)
Page ---- ARTICLE 7 LIENS.......................................................................... 12 - ----- Section 7.1 Liens....................................................... 12 Section 7.2 Failure to Contest Liens.................................... 13 ARTICLE 8 DISBURSEMENT OF INSURANCE PROCEEDS............................................. 13 - ---------------------------------- Section 8.1 [INTENTIONALLY OMITTED]...................................... 13 Section 8.2 Payment of Proceeds Directly to Lessee...................... 13 ARTICLE 9 CONDEMNATION................................................................... 13 - ------------ Section 9.1 Full Takings................................................ 13 Section 9.2 Partial Takings............................................. 14 ARTICLE 10 RENT ABSOLUTE.................................................................. 14 - ------------- ARTICLE 11 ASSIGNMENT AND MORTGAGING BY LESSEE............................................ 14 - ----------------------------------- Section 11.1 Assignment................................................. 14 Section 11.2 Evidence of Assignment..................................... 15 Section 11.3 [INTENTIONALLY OMITTED].................................... 15 Section 11.4 Leasehold Mortgages........................................ 15 Section 11.5 Assignments in Contravention of this Article............... 15 ARTICLE 12 RIGHTS OF LEASEHOLD MORTGAGEES................................................. 15 - ------------------------------ ARTICLE 13 INDEMNITY FOR LITIGATION....................................................... 18 - ------------------------ ARTICLE 14 OFF-PREMISES FACILITIES........................................................ 18 - ----------------------- Section 14.1 Common Areas............................................... 18 Section 14.2 Easement in Common Utility Facilities...................... 18 Section 14.3 Easement for Gas Main Water Discharge Pipe Easement........ 19 Section 14.4 Use of Waste Treatment Facility............................ 19
ii TABLE OF CONTENTS ----------------- (continued)
Page ---- ARTICLE 15 ESTOPPEL CERTIFICATE BY LESSEE AND LESSOR......................................... 20 - ----------------------------------------- ARTICLE 16 INSPECTION OF PROPERTY............................................................ 20 - ---------------------- ARTICLE 17 PURCHASE AND SALE OF DEMISED PREMISES FROM LESSOR TO LESSEE AND SIMULTANEOUS TERMINATION OF THE LEASE UPON CLOSING................................ 20 - -------------------------------------------------- ARTICLE 18 FIXTURES.......................................................................... 21 - -------- Section 18.1 Ownership of Building Fixtures................................ 21 Section 18.2 Personal Property............................................. 21 Section 18.3 Removal of Personal Property.................................. 21 ARTICLE 19 NOTICES OR DEMANDS................................................................ 21 - ------------------ ARTICLE 20 DEFAULT........................................................................... 22 - ------- Section 20.1 Events of Default............................................. 22 Section 20.2 Other Remedies Available to Lessor............................ 23 ARTICLE 21 INDEMNITIES AND ENVIRONMENTAL MATTERS............................................. 23 - ------------------------------------- Section 21.1 Definition of "Environmental Laws" and "Hazardous Materials".. 23 Section 21.2 Compliance with Environmental Laws............................ 24 Section 21.3 Lessee's Indemnity............................................ 26 Section 21.4 Lessor's Environmental Indemnity.............................. 26 ARTICLE 22 SURRENDER......................................................................... 27 - --------- ARTICLE 23 REMEDIES TO BE CUMULATIVE......................................................... 27 - ------------------------- Section 23.1 Remedies to be Cumulative..................................... 27 Section 23.2 No Waiver..................................................... 28
iii TABLE OF CONTENTS ----------------- (continued)
Page ---- ARTICLE 24 COVENANTS RUN WITH LAND......................................................... 28 - ----------------------- Section 24.1 Covenants Run with Land..................................... 28 Section 24.2 Definition of "Lessor"...................................... 28 ARTICLE 25 LESSOR'S PERFORMANCE OF LESSEE'S COVENANTS...................................... 28 - ------------------------------------------ ARTICLE 26 COVENANT OF QUIET ENJOYMENT..................................................... 29 - --------------------------- ARTICLE 27 MEMORANDUM OF LEASE............................................................. 29 - ------------------- ARTICLE 28 ARBITRATION..................................................................... 29 - ----------- Section 28.1 Matters Subject to Arbitration.............................. 29 Section 28.2 Arbitration Proceedings..................................... 30 Section 28.3 Expenses of Arbitration..................................... 30 Section 28.4 Parties Entitled to Participate in Arbitration Proceedings.. 30 ARTICLE 29 MISCELLANEOUS................................................................... 30 - ------------- Section 29.1 Captions................................................... 30 Section 29.2 Partial Invalidity......................................... 30 Section 29.3 Governing Law.............................................. 31 Section 29.4 Brokers.................................................... 31 Section 29.5 Entire Agreement........................................... 31 Section 29.6 Successors and Assigns..................................... 31 Section 29.7 Survival of Obligations.................................... 31 Section 29.8 Lessor's Covenants......................................... 31 Section 29.9 Counterparts............................................... 31 Section 29.10 Parties not Partners....................................... 31 Section 29.11 Certain Definitions........................................ 31 Section 29.12 Application of Payments.................................... 32 Section 29.13 Incorporation of Recitals and Exhibits..................... 32 Section 29.14 Legal Fees................................................. 32 Section 29.15 Force Majeure.............................................. 32
iv TABLE OF CONTENTS ----------------- (continued)
Page ---- ARTICLE 30 TITLE AND SURVEY................................................................ 32 - ---------------- ARTICLE 31 CONTINGENT OPTIONS FOR ADDITIONAL PROPERTY...................................... 33 - ------------------------------------------ ARTICLE 32 LESSOR'S REPRESENTATIONS AND WARRANTIES......................................... 34 - ---------------------------------------
EXHIBITS - -------- EXHIBIT A - Legal Description of the Premises EXHIBIT B - Permitted Exceptions EXHIBIT C - Form of Purchase and Sale Agreement EXHIBIT D - Memorandum of Lease EXHIBIT E - Article 31 Rendering EXHIBIT F - Outstanding Contracts v EX-10.14 30 dex1014.txt FIRST AMENDMENT TO GROUND LEASE Exhibit 10.14 FIRST AMENDMENT TO GROUND LEASE ------------------------------- THIS FIRST AMENDMENT TO GROUND LEASE (this "Amendment") dated as of April 16, 1999 ("Effective Date") is made and entered into by and between THE PEOPLES GAS LIGHT AND COKE COMPANY, and Illinois corporation ("Lessor"), and ELWOOD ENERGY LLC, a Delaware limited liability company ("Lessee") under the following circumstances: A. By that certain Ground Lease dated September 30, 1998 (the "Lease"), Lessor agreed to demise and lease to Lessee and Lessee agreed to lease from Lessor the "Premises" as legally described on Exhibit A thereto. B. Lessor and Lessee now desire to amend the Lease to change the boundaries of the Premises such that (i) Lessee shall lease from Lessor an additional 2.788 acres of Lessor's property depicted as Parcel 3 on Exhibit B --------- attached hereto and made a part hereof, and (ii) Lessor and Lessee shall cancel and terminate the Lease as to a portion of the Premises consisting of approximately 0.2114 acres in the aggregate which is depicted as Parcel 1 and Parcel 2 on Exhibit B attached hereto and made a part hereof (the "Surrender --------- Premises"). NOW, THEREFORE, in consideration of the covenants and agreements hereinafter contained and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used and not otherwise defined herein ----------- have the meanings ascribed to them in the Lease. 2. Amendments to Lease. The Lease is hereby amended as follows: ------------------- (a) The legal description of the Premises set forth in Exhibit A to the Lease is hereby amended and restated in its entirety as set forth in Exhibit ------- A to this Amendment. - - (b) The definition of "basic rent" is hereby amended to mean $321,975. (c) All references to the "Property" in the Purchase and Sale Agreement attached to the Lease as Exhibit C shall be deemed to mean and refer to Premises as amended by this amendment. 3. Surrender Premises. Lessor and Lessee agree that the Lease is hereby ------------------ canceled and terminated and the term thereby demised brought to an end with respect to the Surrender Premises with the same force and effect as if the term of the Lease were in and by the provisions thereof fixed to expire on the Effective Date with respect to the Surrender Premises. Without limiting the generality of the foregoing, Lessee agrees to quit and surrender the Surrender Premises to Lessor in such condition as provided for in Article 22 of the Lease and that Lessor shall have the right to re-enter the Surrender Premises as of the Effective Date, as fully as it would or could have done if that were the date provided for in the expiration of the term of the Lease. 4. ICC Approval Contingency. Notwithstanding anything contained herein to ------------------------ the contrary, each of Lessor's and Lessee's rights and obligations under this Amendment are expressly subject to and contingent upon the earlier to occur of (a) the issuance by the ICC of an interim order permitting and approving this Amendment in form and substance reasonably satisfactory to Lessor and Lessee, or (b) the assignment by Lessor of Lessor's rights and obligations under the Lease and this Amendment, in accordance with the provisions of the Lease, to any individual, corporation, partnership, limited liability company or other entity that results in the issuance of such interim order being unnecessary, in the reasonable opinion of Lessor's legal counsel and Lessee's legal counsel. 5. Successors and Assigns. This Amendment shall be binding upon and inure ---------------------- to the benefit of the parties hereto and their respective successors and assigns. 6. Effect of Amendment. Except as expressly set forth in this Amendment, ------------------- all of the terms and conditions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the Effective Date. LESSOR: ------ THE PEOPLES GAS LIGHT AND COKE COMPANY, an Illinois corporation By: /s/ C.L. Thompson --------------------------------- Title: Vice President -------------------------- LESSEE: ------ ELWOOD ENERGY LLC, a Delaware limited liability corporation By: /s/ Ronald D. Usher --------------------------------- Title: General Manager ------------------------- 2 EXHIBIT A Legal Description of the Premises --------------------------------- THAT PART OF THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHEAST CORNER OF THE SAID SOUTHEAST QUARTER; THENCE SOUTH 90 DEGREESS 00 MINUTES 00 SECONDS WEST 1202.35 FEET, ALONG THE SOUTH LINE OF SAID SOUTHEAST QUARTER, TO THE POINT OF BEGINNING; THENCE NORTH 00 DEGRESS 00 MINUTES 00 SECONDS EAST 454.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 84.23 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 781.04 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 80.00 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 402.23 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 423.52 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 113.03 FEET; THENCE SOUTH 02 DEGREES 35 MINUTES 36 SECONDS EAST 409.99 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 42.00 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 298.57 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 100.73 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 816.10 FEET, TO A POINT ON THE SAID SOUTH LINE OF THE SAID SOUTHEAST QUARTER; THENCE NORTH 90 DEGREES 00 MINUTES 00 SECONDS EAST 711.93 FEET, ALONG THE SAID SOUTH LINE OF THE SOUTHEAST QUARTER, TO THE POINT OF BEGINNING, IN WILL COUNTY, ILLINOIS, CONTAINING 21.465 ACRES MORE OR LESS. EXHIBIT B Map and Legal Descriptions of Surrender Premises (Parcels 1 and 2) ------------------------------------------------------------------ PARCEL 1 -------- THAT PART OF THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHEAST CORNER OF THE SAID SOUTHEAST QUARTER; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 1202.35 FEET, ALONG THE SOUTH LINE OF SAID SOUTHEAST QUARTER; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 454.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 84.23 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 781.04 FEET, TO THE POINT OF BEGINNING; THENCE CONTINUNG NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 114.96 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 80.00 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 114.96 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS EAST 80.00 FEET, TO THE POINT OF BEGINNING, IN WILL COUNTY, ILLINOIS, CONTAINING 0.211 ACRES MORE OR LESS. PARCEL 2 -------- THAT PART OF THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHEAST CORNER OF THE SAID SOUTHEAST QUARTER; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 1202.35 FEET, ALONG THE SOUTH LINE OF SAID SOUTHEAST QUARTER; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 454.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 84.23 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 896.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 489.02 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 145.89 FEET, TO THE POINT OF BEGINNING; THENCE CONTINUING SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 89.45 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS EAST 4.05 FEET; THENCE NORTH 02 DEGREES 35 MINUTES 36 SECONDS WEST 89.54 FEET, TO THE POINT OF BEGINNING, IN WILL COUNTY, ILLINOIS, CONTAINING 0.0004 ACRES MORE OR LESS. [PLAT] PARCEL 3 -------- THAT PART OF THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 34 NORTH, RANGE 10 EAST OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: COMMENCING AT THE SOUTHEAST CORNER OF THE SAID SOUTHEAST QUARTER; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 1202.35 FEET, ALONG THE SOUTH LINE OF SAID SOUTHEAST QUARTER; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 454.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 84.23 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONDS EAST 896.00 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 80.00 FEET, TO THE POINT OF BEGINNING; THENCE CONTINUING SOUTH 90 DEGREES 00 MINUTES 00 SECONDS WEST 409.02 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 145.89 FEET; THENCE NORTH 02 DEGREES 35 MINUTES 36 SECONDS WEST 145.89 FEET; THENCE NORTH 02 DEGREES 35 MINUTES 36 SECONDS WEST 320.45 FEET; THENCE NORTH 00 DEGREES 00 MINUTES 00 SECONS EAST 113.03 FEET; THENCE SOUTH 90 DEGREES 00 MINUTES 00 SECONDS EAST 423.52 FEET; THENCE SOUTH 00 DEGREES 00 MINUTES 00 SECONDS WEST 287.27 FEET, TO THE POINT OF BEGINNING, IN WILL COUNTY, ILLINOIS, CONTAINING 2.788 ACRES MORE OR LESS. EX-12.1 31 dex121.txt STATEMENT REGARDING COMPUTATION OF RATIOS EXHIBIT 12.1 Statement re computation of ratios (Thousands of Dollars) Years Ended September 30, 2001 2000 1999 1998 Earnings: Income from continuing operations 49,214 30,356 17,028 -- Amortization of capitalized interest 171 -- -- -- ------------------------------------- Subtotal 49,385 30,356 17,028 -- Add fixed charges: Interest on long-term debt 3,937 -- -- -- Capitalized interest 8,987 2,559 -- -- ------------------------------------- Total Fixed Charges 12,924 2,559 -- -- Total Earnings 62,309 32,915 17,028 Less Interest Capitalized (8,987) (2,559) -- -- ------------------------------------- Revised Earnings Subtotal 53,322 30,356 17,028 -- Ratio of Earnings to Fixed Charges 4.1X 11.9X -- -- EX-21.1 32 dex211.txt SUBSIDIARIES OF ELWOOD EXHIBIT 21.1 SUBSIDIARIES OF ELWOOD ENERGY LLC Subsidiary Name: State of Organization: - --------------- --------------------- Elwood II Holdings, LLC Delaware Elwood III Holdings, LLC Delaware EX-23.1 33 dex231.txt CONSENT OF PACE GLOBAL ENERGY SERVICES, LLC EXHIBIT 23.1 MARKET CONSULTANT AND FUEL CONSULTANT CONSENT (Registration Statement and Prospectus) We consent to the inclusion of (i) our report titled "Power Market Assessment: Mid-America Interconnected Network (MAIN)", dated September 6, 2001 and (ii) our report titled, "Independent Fuel Consultant's Report," dated August 21, 2001 (together, the "Reports"), in the Registration Statement on Form S-4 (the "Registration Statement") filed with the Securities Exchange Commission with respect to Elwood Energy LLC's 8.159% Senior Secured Bonds due 2026 (the "Bonds") and the related Debt Service Reserve Guaranties of Dominion Resources, Inc. and Peoples Energy Corporation and in the prospectus relating to such Registration Statement. We also consent to reference to us under the heading "Independent Power Market and Fuel Consultant" and to the filing of this Consent as an exhibit to the Registration Statement. PACE GLOBAL ENERGY SERVICES, LLC By: /s/ Mark A. Peterson ------------------------- Name: Mark A. Peterson Title: Executive Director Dated: January 10, 2002 EX-23.2 34 dex232.txt CONSENT OF STONE & WEBSTER CONSULTANTS, INC. EXHIBIT 23.2 INDEPENDENT ENGINEER CONSENT (Registration Statement and Prospectus) We consent to the inclusion of our report titled "Independent Technical Review Elwood Energy Power Project", dated October 3, 2001, in the Registration Statement on Form S-4 (the "Registration Statement") filed with the Securities Exchange Commission with respect to Elwood Energy LLC's 8.159% Senior Secured Bonds due 2026 (the "Bonds") and the related Debt Service Reserve Guaranties of Dominion Resources, Inc. and Peoples Energy Corporation and in the prospectus relating to such Registration Statement. We also consent to reference to us under the heading "Independent Engineer" and to the filing of this Consent as an exhibit to the Registration Statement. STONE AND WEBSTER CONSULTANTS, INC. By: /s/ Bradley G. Barta -------------------- Name: Bradley G. Barta Title: Vice President Dated: January 10, 2002 EX-23.3 35 dex233.txt CONSENT OF DELOITTE & TOUCHE, LLP EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT - ----------------------------- We consent to the incorporation by reference in this Registration Statement of Elwood Energy LLC on Form S-4 of our reports on the consolidated financial statements and schedules of Dominion Resources, Inc. dated January 25, 2001, (which expresses an unqualified opinion and includes an explanatory paragraph relating to changes in accounting principle for the method of accounting used to develop the market-related value of pension plan assets, and for the method of accounting for oil and gas exploration and production activities to the full cost method) included and incorporated by reference in the Annual Report on Form 10-K of Dominion Resources, Inc. for the year ended December 31, 2001, and to the use of our report dated November 30, 2001 (which expresses an unqualified opinion and includes an explanatory paragraph referring to a change in the method of accounting for derivatives and hedging transactions), appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Richmond, Virginia January 10, 2002 EX-23.4 36 dex234.txt CONSENT OF ARTHUR ANDERSON, LLP EXHIBIT 23.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS - ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference in Elwood Energy LLC's Form S-4 Registration Statement related to 8.159% Senior Secured Bonds due 2026, of our report dated October 26, 2001 (except with respect to the matter discussed in Note 19, as to which the date is December 11, 2001) included in Peoples Energy Corporation's Form 10-K for the year ended September 30, 2001 and to all references to our Firm included in the Registration Statement. /s/ Arthur Andersen LLP Arthur Andersen LLP Chicago, Illinois January 10, 2002 EX-24.1 37 dex241.txt POWERS OF ATTORNEY EXHIBIT 24.1 Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard E. Terry, Thomas A. Nardi, Peter H. Kauffman and John G. Nassos, and each of them, his true and lawful attorneys-in- fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in- fact and agents or any of them, or their, or his substitute or substitutes, may lawfully do or cause to be done by virtue of hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 10TH DAY OF JANUARY, 2002.
Names Signatures Title - ----- ---------- ----- Richard E. Terry /s/ Richard E. Terry Director, Chairman and Chief ------------------------------- Executive Officer James R. Boris /s/ James R. Boris Director ------------------------------- William J. Brodsky /s/ William J. Brodsky Director ------------------------------- Pastora San Juan Cafferty /s/ Pastora San Juan Cafferty Director ------------------------------- Homer J. Livingston /s/ Homer J. Livingston Director ------------------------------- Lester H. McKeever /s/ Lester H. McKeever Director ------------------------------- Thomas M. Patrick /s/ Thomas M. Patrick Director ------------------------------- Richard P. Toft /s/ Richard P. Toft Director ------------------------------- Arthur R. Velasquez /s/ Arthur R. Velasquez Director -------------------------------
EX-25.1 38 dex251.txt STATEMENT OF ELIGIBILITY OF BANK ONE TRUST COMPANY Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)|_| BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) A National Banking Association 31-0838515 (I.R.S. employer identification number) 100 East Broad Street, Columbus, Ohio 43271-0181 (Address of principal executive offices) (Zip Code) BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION 1 Bank One Plaza, Suite IL1-0801 Chicago, Illinois 60670 Attn: F. Henry Kleschen III, First Vice President, (312) 732-1793 (Name, address and telephone number of agent for service) Elwood Energy LLC (Exact name of obligor as specified in its charter) Delaware 54-1899492 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 120 Tredegar Street Richmond, Virginia 23219 (Address of principal executive offices) (Zip Code) 8.159% Senior Secured Bonds due 2026 (Title of Indenture Securities) Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of Currency, Washington, D.C.; Federal Deposit Insurance Corporation, Washington, D.C.; The Board of Governors of the Federal Reserve System, Washington D.C. (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. Item 2. Affiliations With the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. No such affiliation exists with the trustee. Item 16. List of exhibits. List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificate of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Bank One Trust Company, National Association, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and State of Illinois, on the 18th day of December, 2001. Bank One Trust Company, National Association, Trustee By /s/ F. Henry Kleschen III F. Henry Kleschen III First Vice President * Exhibits 1, 2, 3, and 4 are herein incorporated by reference to Exhibits bearing identical numbers in Item 16 of the Form T-1 of Bank One Trust Company, National Association, filed as Exhibit 25 to the Registration Statement on Form S-4 of U S WEST Communications, Inc., filed with the Securities and Exchange Commission on March 24, 2000 (Registration No. 333-32124). EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT December 18, 2001 Securities and Exchange Commission Washington, D.C. 20549 Ladies and Gentlemen: In connection with the qualification of a trust indenture between Elwood Energy LLC and Bank One Trust Company, National Association, as Trustee, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, Bank One Trust Company, National Association By: /s/ F. Henry Kleschen III F. Henry Kleschen III First Vice President EXHIBIT 7 Legal Title of Bank: Bank One Trust Company, N.A. Call Date: 9/30/01 State #: 391581 FFIEC 041 Address: 100 Broad Street Vendor ID: D Cert #: 21377 Page RC-1 City, State Zip: Columbus, OH 43271 Transit #: 04400003
Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for September 30, 2001 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding of the last business day of the quarter. Schedule RC--Balance Sheet
Dollar Amounts in thousands C300 RCON BIL MIL THOU ------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): RCON ---- a. Noninterest-bearing balances and currency and coin(1)........... 0081 297,128 1.a b. Interest-bearing balances(2).................................... 0071 0 1.b 2. Securities a. Held-to-maturity securities(from Schedule RC-B, column A)....... 1754 0 2.a b. Available-for-sale securities (from Schedule RC-B, column D).... 1773 863 2.b 3. Federal funds sold and securities purchased under agreements to resell 1350 1,457,726 3. 4. Loans and lease financing receivables: (from Schedule RC-C): RCON ---- a. Loans and leases held for sale.................................. 5369 0 4.a b. Loans and leases, net of unearned income........................ B528 147,723 4.b c. LESS: Allowance for loan and lease losses....................... 3123 194 4.c d. Loans and leases, net of unearned income and allowance (item 4.b minus 4.c)........................................... B529 147,529 4.d 5. Trading assets (from Schedule RC-D)................................ 3545 0 5. 6. Premises and fixed assets (including capitalized leases)........... 2145 17,587 6. 7. Other real estate owned (from Schedule RC-M)....................... 2150 0 7. 8. Investments in unconsolidated subsidiaries and associated.......... companies (from Schedule RC-M)..................................... 2130 0 8 9. Customers' liability to this bank on acceptances outstanding....... 2155 0 9. 10. Intangible assets.................................................. a. Goodwill........................................................ 3163 0 10.a b. Other intangible assets (from Schedule RC-M).................... 0426 9,759 10.b 11. Other assets (from Schedule RC-F).................................. 2160 763,544 11. 12. Total assets (sum of items 1 through 11)........................... 2170 2,694,136 12.
(1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. Legal Title of Bank: Bank One Trust Company, N.A. Call Date: 9/30/01 State #: 391581 FFIEC 041 Address: 100 East Broad Street Vendor ID: D Cert #" 21377 Page RC-2 City, State Zip: Columbus, OH 43271 Transit #: 04400003
Schedule RC-Continued
Dollar Amounts in Thousands --------- LIABILITIES 13. Deposits: RCON a. In domestic offices (sum of totals of columns A and C ---- from Schedule RC-E) .......................................... 2200 2,450,819 13.a (1) Noninterest-bearing(1) ................................... 6631 1,403,420 13.a1 (2) Interest-bearing ......................................... 6636 1,047,399 13.a2 b. Not applicable 14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 0 14. 15. Trading Liabilities(from Schedule RC-D) ......................... RCFD 3548 0 15. 16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases) (from Schedule RC-M) ...... 3190 0 16. 17. Not applicable 18. Bank's liability on acceptances executed and outstanding ........ 2920 0 18. 19. Subordinated notes and debentures (2) ........................... 3200 0 19. 20. Other liabilities (from Schedule RC-G) .......................... 2930 82,625 20. 21. Total liabilities (sum of items 13 through 20) .................. 2948 2,533,444 21. 22. Minority interest in consolidated subsidiaries .................. 3000 0 22. EQUITY CAPITAL 23. Perpetual preferred stock and related surplus ................... 3838 0 23. 24. Common stock .................................................... 3230 800 24. 25. Surplus (exclude all surplus related to preferred stock) ........ 3839 45,157 25. 26. a. Retained earnings ............................................ 3632 114,729 26.a b. Accumulated other comprehensive income (3) ................... B530 26 26.b 27. Other equity capital components (4) ............................. A130 0 27. 28. Total equity capital (sum of items 23 through 27) ............... 3210 160,692 28. 29. Total liabilities, minority interest, and equity capital (sum of items 21, 22, and 28) ........................... 3300 2,694,136 29.
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external auditors as of any date during ------- Number 2000 ............................................................RCFD 6724..... N/A M.1. ------- 1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
(1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus. (3) Includes net unrealized holding gains (losses) on available-for-sale securities, accumulated net gains (losses) on cash flow hedges, and minimum pension liability adjustments. (4) Includes treasury stock and unearned Employee Stock Ownership Plan shares. 6 EX-99.1 39 dex991.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 ELWOOD ENERGY LLC C/O PEOPLES ENERGY RESOURCES CORP. 130 EAST RANDOLPH DRIVE CHICAGO, ILLINOIS 60601 Letter Of Transmittal For 8.159% Senior Secured Bonds Due 2026 In Accordance With The Prospectus Dated , 2002 -------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , , 2002 -------------------------------------------------------------------- The Exchange Agent is: Bank One Trust Company, National Association - ----------------------------------------------------------------------------------------------- By Facsimile: By Registered or Certified Mail: By Hand/Overnight Delivery: (312) 407-8853 Bank One Trust Company, N.A. Bank One Trust Company, N.A. 1 Bank One Plaza One North State Street Mail Suite IL1-0134 9/th/ Floor Chicago, Illinois 60670-0134 Chicago, Illinois 60602 Attention: Exchange Floor Attention: Exchanges Global Corporate Trust Services - -----------------------------------------------------------------------------------------------
Confirm by telephone: (800) 524-9472 For Information Call: (800) 524-9472 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges receipt of the Prospectus dated , 2002 (the "Prospectus") of Elwood Energy LLC, a Delaware limited liability company (the "Company" or the "Issuer"), and this Letter of Transmittal, which may be amended from time to time (the "Letter"), which together constitute the Issuer's offer to exchange (the "Exchange Offer") all of its outstanding 8.159% Senior Secured Bonds due 2026 (the "Senior Bonds"), issued and sold in reliance upon an exemption from registration under the Securities Act of 1933, for bonds having identical terms that have been registered under the Securities Act (the "Exchange Bonds" and, together with the Senior Bonds, the "Bonds"). The undersigned has completed, executed and delivered this Letter to indicate the action he or she desires to take with respect to the Exchange Offer. All holders of Senior Bonds who wish to tender their Senior Bonds must, before the Expiration Date: (1) complete, sign, date and mail or otherwise deliver this Letter to the Exchange Agent, in person or to the address set forth above; and (2) 1 tender their Senior Bonds or, if a tender of Senior Bonds is to be made by book- entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance with the procedures for tendering described in the Instructions to this Letter. Holders of Senior Bonds whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation and all other documents required by this Letter to be delivered to the Exchange Agent on or before the Expiration Date, must tender their Senior Bonds according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer-- Procedures for Tendering the Existing Bonds" in the Prospectus. (See Instruction 1). The Instructions included with this Letter must be followed in their entirety. Questions and requests for assistance or for additional copies of the Prospectus or this Letter may be directed to the Exchange Agent, at the address listed above, Don Burnette, Financing Manager-Structured Finance of Dominion Energy, Inc., at 120 Tredegar Street, Richmond, Virginia 23219 or Thomas B. Linquist, Assistant Vice President-Project/Structured Finance of Peoples Energy Resources Corp., at 130 East Randolph Drive, Chicago, Illinois 60601. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW Capitalized terms used in this Letter and not defined herein shall have the respective meanings ascribed to them in the Prospectus. List in Box 1 below the Senior Bonds of which you are the holder. If the space provided in Box 1 is inadequate, list the certificate numbers and principal amount of Senior Bonds on a separate signed schedule affixed hereto.
- ------------------------------------------------------------------------------------------------------- BOX 1 - TO BE COMPLETED BY ALL TENDERING HOLDERS - ------------------------------------------------------------------------------------------------------- Certificate(s) Tendered (Attach Additional Signed List, If Necessary) - ------------------------------------------------------------------------------------------------------- Name(s) and Address(es) of Certificate Principal Amount of Principal Amount of Registered Holder(s) Number(s)/(1)/ Senior Bonds Represented Senior Bonds (Please Fill in if Blank) by Certificate(s) Tendered/(2)/ - ------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- Total - -------------------------------------------------------------------------------------------------------
(1) Need not be completed if Senior Bonds are being tendered by book-entry transfer. (2) Unless otherwise indicated, the entire principal amount of Senior Bonds represented by a certificate or Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered. Senior Bonds tendered hereby must be in a minimum principal amount of $100,000 or in multiples of $100.00 in excess of that amount. 2 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned tenders to the Issuer the principal amount of Senior Bonds indicated above. Subject to, and effective upon the acceptance for exchange of the Senior Bonds tendered with this Letter, the undersigned exchanges, assigns and transfer to, or upon the order of, the Issuer all right, title and interest in and to the Senior Bonds tendered. The undersigned constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Issuer) with respect to the tendered Senior Bonds, with full power of substitution, to: (a) deliver certificates for such Senior Bonds; (b) deliver Senior Bonds and all accompanying evidence of transfer and authenticity to or upon the order of the Issuer upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Bonds to which the undersigned is entitled upon the acceptance by the issuer of the Senior Bonds tendered under the Exchange Offer; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of the Senior Bonds, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Senior Bonds tendered hereby and that the Issuer will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the assignment and transfer of the Senior Bonds tendered. The undersigned has read and agrees to all of the terms of the Exchange Offer. The undersigned agrees that acceptance of any tendered Senior Bonds by the Issuer and the issuance of Exchange Bonds in exchange therefor shall constitute performance in full by the issuer of its obligations under the Exchange and Registration Rights Agreement (as defined in the Prospectus) and that, upon the issuance of the Exchange Bonds, the Issuer will have no further obligations or liabilities thereunder (except in certain limited circumstances). By tendering the Senior Bonds, the undersigned certifies that (i) it is acquiring the Exchange Bonds in the ordinary course of its business; (ii) it is not participating, does not intend to participate and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Bonds; (iii) it is not a broker-dealer who purchased Senior Bonds directly from the Issuer for resale under Rule 144A or any other available exemption under the Securities Act; and (iv) it is not an "affiliate" (as defined in Rule 405 under the Securities Act) of the Issuer. The undersigned acknowledges that, if it is a broker-dealer that will receive Exchange Bonds for its own account, it must deliver a prospectus in connection with any resale of such Exchange Bonds. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. All authority conferred or agreed to be conferred by this Letter shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Letter shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. Tenders may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. Unless otherwise indicated under "Special Delivery Instructions" below, the Exchange Agent will deliver Exchange Bonds (and, if applicable, a certificate for any Senior Bonds not tendered but represented by a certificate also encompassing Senior Bonds which are tendered) to the undersigned at the address set forth in Box 1. The undersigned acknowledges that the Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the Prospectus and this Letter, the Prospectus shall prevail. 3 [_] CHECK HERE IF TENDERED SENIOR BONDS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _____________________________________ DTC Account Number: ________________________________________________ Transaction Code Number: ___________________________________________ [_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED SENIOR BONDS ARE BEING DELIVERED IN ACCORDANCE WITH A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): ____________________________________ Date of Execution of Notice of Guaranteed Delivery _________________ Window Ticket Number (if available) ________________________________ Name of Institution which Guaranteed Delivery: _____________________ If Guaranteed Delivery is to be made by Book-Entry Transfer: Name of Tendering Institution: _____________________________________ DTC Account Number _________________________________________________ Transaction Code Number ____________________________________________ [_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED SENIOR BONDS ARE TO BE RETURNED BY CREDITING THE ACCOUNT NUMBER SET FORTH ABOVE. [_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE SENIOR BONDS FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR THERETO. Name: _______________________________________________________________ Address: _______________________________________________________________ _______________________________________________________________ PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 4 - -------------------------------------------------------------------------------- BOX 2 PLEASE SIGN HERE WHETHER OR NOT SENIOR BONDS ARE BEING PHYSICALLY TENDERED HEREBY X ______________________________________ ______________________________ X ______________________________________ ______________________________ SIGNATURE(S) OF OWNER(S) DATE OR AUTHORIZED SIGNATORY Area Code and Telephone Number: ________________________________________________ This box must be signed by registered holder(s) of Senior Bonds as their name(s) appear(s) on certificate(s) for Senior Bonds, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. (See Instruction 3.) Name(s) ________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT) Capacity _______________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Tax Identification or Social Security Number(s) ________________________________ Signature(s) __________________________________________________________ Guaranteed by an (AUTHORIZED SIGNATURE) Eligible Institution: (If required by Instruction 3) __________________________________________________________ (TITLE) __________________________________________________________ (NAME OF FIRM) - -------------------------------------------------------------------------------- 5
- ---------------------------------------------------------------------------------------------------------------------------- Box 3 - ---------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part I--TIN--Please provide Part II--Awaiting TIN--If you have not been FORM W-9 Your TIN In the Space issued a TIN but have applied for one, or Provided and Certify By intend to apply for one in the near future, Department of the Treasury Signing and Dating Below. please check the box provided and certify by Internal Revenue Service signing and dating Part IV and the Payor's Request for Taxpayer "Certificate Of Taxpayer Awaiting Identification Number (TIN) ______________________________ Identification Number" below. Social Security Number or Employer Identification Number [_] Awaiting TIN - ----------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Part III--Exempt Holders--If you are exempt from backup withholding (e.g. a corporation), you must still certify your TIN by completing Part I and by signing and dating below. Please indicate your exempt status by writing "EXEMPT" in the space provided to the right. ________________________________ ________________________________________________________________________________ Part IV--Certification--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct TIN (or I am waiting for a TIN to be issued to me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax return. However, if you have since been notified by the IRS that you are no longer subject to backup withholding, do not cross out item (2). SIGNATURE _____________________________________________ Date ___________________ - -------------------------------------------------------------------------------- NOTE: Failure to complete and return this form may result in backup withholding taxes on reportable payments received by you with respect to the Bonds. Please review the attached guidelines for certification of taxpayer identification number on substitute Form W-9 for additional details. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART II OF SUBSTITUTE FORM W-9 ABOVE - -------------------------------------------------------------------------------- CERTIFICATE OF TAXPAYER AWAITING IDENTIFICATION NUMBER I certify, under penalties of perjury, that a taxpayer identification number has not been issued to me, and that I mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a taxpayer identification number within sixty (60) days, applicable backup withholding taxes on all reportable payments made to me thereafter will be withheld until I provide a TIN. SIGNATURE _____________________________________________ Date ___________________ - -------------------------------------------------------------------------------- 6
- ------------------------------------------------------------------------------------------------------------------------------ Box 4 Box 5 SPECIAL ISSUANCE SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY (i) if certificates for Senior Bonds To be completed ONLY if certificates for Senior Bonds not not exchanged, or Exchange Bonds issued in exchange for exchanged, or Exchange Bonds issued in exchange for Senior Senior Bonds accepted for exchange, are to be issued in Bonds accepted for exchange, are to be sent to someone other the name of someone other than the person whose than the person whose signature appears in Box 2 or to an signature appears in Box 2, or (ii) if Senior Bonds address other than that shown in Box 1. tendered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account Mail to: maintained at the Book-Entry Transfer Facility other than the account indicated above. Name:___________________________________ (PLEASE PRINT) Issue certificate(s) to: Address:________________________________ Name:___________________________________ (PLEASE PRINT) ________________________________ Address:________________________________ [Please complete the Substitute Form W-9 at Box 3] ________________________________ Tax I.D. or Social Security Number: [Please complete the Substitute Form W-9 at Box 3] ___________________________________ Tax I.D. or Social Security Number: __________________________________ Credit Senior Bonds not exchanged and delivered by book-entry transfer to the account set forth below: Account Number: ________________________ - ------------------------------------------------------------------------------------------------------------------------------
7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Senior Bonds or a Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed copy of this Letter and any other documents required by this Letter, must be received by the Exchange Agent at one of its addresses set forth herein on or before the Expiration Date. The method of delivery of this Letter, certificates for Senior Bonds or a Book-Entry Confirmation, as the case may be, and any other required documents is at the election and risk of the tendering holder, but, except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. If delivery is by mail, the use of registered mail with return receipt requested, properly insured, is suggested. Holders whose Senior Bonds are not immediately available or who cannot deliver their Senior Bonds or a Book-Entry Confirmation, as the case may be, and all other required documents to the Exchange Agent on or before the Expiration Date may tender their Senior Bonds under the guaranteed delivery procedures set forth in the Prospectus. Under this procedure: (i) tender must be made by or through an Eligible Institution (as described in the Prospectus under the caption "The Exchange Offer"); (ii) before the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, overnight mail or hand delivery) (x) setting forth the name and address of the holder, the description of the Senior Bonds and the principal amount of Senior Bonds tendered, (y) stating that the tender is being made thereby and (z) guaranteeing that, within three (3) New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, this Letter together with the certificates representing the Senior Bonds or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates for all tendered Senior Bonds or a Book-Entry Confirmation, as the case may be, as well as all other documents required by this Letter, must be received by the Exchange Agent within three (3) New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering the Existing Bonds." All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Senior Bonds will be determined by the Issuer, whose determination will be final and binding. The Issuer reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which, in the opinion of the Issuer's counsel, would be unlawful. The Issuer also reserves the right to waive any irregularities or conditions of tender as to particular Senior Bonds. All tendering holders, by execution of this Letter, waive any right to receive notice of acceptance of their Senior Bonds. Neither the Issuer, the Exchange Agent nor any other person shall be obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER); WITHDRAWALS. If less than the entire principal amount of any Senior Bond evidenced by a submitted certificate or by a Book-Entry Confirmation is tendered, the tendering holder must fill in the principal amount tendered in the Box 1 above. ALL OF THE SENIOR BONDS REPRESENTED BY A CERTIFICATE OR BY A BOOK- ENTRY CONFIRMATION DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. A certificate for Senior Bonds not tendered will be sent to the holder, unless otherwise provided in Box 5, as soon as practicable after the Expiration Date, if less than the entire principal amount of Senior Bonds represented by a submitted certificate is tendered (or, in the case of Senior Bonds tendered by book-entry transfer, such non-exchanged Senior Bonds will be credited to an account maintained by the holder with the Book- Entry Transfer Facility). If not yet accepted, a tender under the Exchange Offer may be withdrawn before the Expiration Date. To be effective with respect to the tender of Senior Bonds, a notice of withdrawal must: (i) be received by the Exchange Agent before the Expiration Date; (ii) specify the name of the person who tendered the Senior Bonds; (iii) contain a description of the Senior Bonds to be withdrawn, the certificate numbers shown on the particular certificate evidencing such Senior Bonds and the principal amount of Senior Bonds represented by such certificates; and (iv) be signed by the holder in the same manner as the original signature on this Letter (including any required signature guarantee). 8 3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the holder(s) of Senior Bonds tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) for such Senior Bonds, without alteration, enlargement or any change whatsoever. If any of the Senior Bonds tendered hereby are owned by two or more joint owners, all owners must sign this Letter. If any tendered Senior Bonds are held in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are names in which certificates are held. If this Letter is signed by the holder of record and (i) the entire principal amount of the Holder's Senior Bonds are tendered; and/or (ii) untendered Senior Bonds, if any, are to be issued to the holder of record, then the holder of record need not endorse any certificates for tendered Senior Bonds, nor provide a separate bond power. In any other case, the holder of record must transmit a separate bond power with this Letter. If this Letter or any certificate or assignment is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence satisfactory to the Issuer of their authority to so act must be submitted, unless waived by the Issuer. Signatures on this Letter must be guaranteed by an Eligible Institution, unless Senior Bonds are tendered: (i) by a holder who has not completed the Box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter; or (ii) for the account of an Eligible Institution. If the signatures in this Letter or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of The Securities Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program (SEMP) (collectively, "Eligible Institutions"). If Senior Bonds are registered in the name of a person other than the signer of this Letter, the Senior Bonds surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Issuer, in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in Box 4 or 5, as applicable, the name and address to which the Exchange Bonds or certificates for Senior Bonds not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Senior Bonds by book-entry transfer may request that Senior Bonds not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate. 5. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder whose tendered Senior Bonds are accepted for exchange must provide the Exchange Agent (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, interest payments may be subject to back-up withholding. (If withholding results in overpayment of taxes, a refund may be obtained.) Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. Under federal income tax laws, payments that may be made by the Issuer on account of Exchange Bonds issued in the Exchange Offer may be subject to back-up withholding at a rate equal to the fourth lowest rate of tax applicable under Section 1(c) of the Code. In order to prevent back-up withholding, each tendering holder must provide its correct TIN by completing the "Substitute Form W-9" referred to above, certifying that the TIN provided is correct (or that the holder is awaiting a TIN) and that: (i) the holder has not been notified by the Internal Revenue Service that he or she is subject to back-up withholding as a result of failure to report all interest or dividends; or (ii) the Internal Revenue Service has notified the holder that he or she is no longer subject to back-up withholding; or (iii) in accordance with the Guidelines such holder is exempt from back-up withholding. If the Senior Bonds are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for information on which TIN to report. 9 6. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any, applicable to the transfer of Senior Bonds to it or its order in the Exchange Offer. If, however, the Exchange Bonds or certificates for Senior Bonds not exchanged are to be delivered to, or are to be issued in the name of, any person other than the record holder, or if tendered certificates are recorded in the name of any person other than the person signing this Letter, or if a transfer tax is imposed by any reason other than the transfer of Senior Bonds to the Issuer or its order in the Exchange Offer, then the amount of such transfer taxes (whether imposed on the record holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of taxes or exemption from taxes is not submitted with this Letter, the amount of transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter. 7. WAIVER OF CONDITIONS; NO CONDITIONAL TENDERS. The Issuer reserves the absolute right to amend or waive any of the specified conditions in the Exchange Offer in the case of any Senior Bonds tendered. No alternative, conditional, irregular or contingent tenders will be accepted. 8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose certificates for Senior Bonds have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above, for further instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus or this Letter, may be directed to the Exchange Agent at 800-524- 9472. IMPORTANT: THIS LETTER (OR A FACSIMILE THEREOF), TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 10 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer. Social Security numbers have nine digits separated by two hyphens: i.e. 000-00- 0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the proper identification number to give.
- ------------------------------------------------------------------ ------------------------------------------------------------- Give the name and Give the name and EMPLOYER For this type of account: SOCIAL SECURITY For this type of account: IDENTIFICATION number of: number of: - ------------------------------------------------------------------ ------------------------------------------------------------- 1. Individual account The individual 6. A valid trust, estate, Legal entity (do not furnish or pension trust the identification number of 2. Two or more individuals The actual owner of the account the personal representative (joint account) or, if combined funds, the first or trustee unless the legal individual on the account(1) entity itself is not designated in the account title)(4) 7. Corporation The corporation 3. Custodian account of a The minor(2) minor (Uniform Gift to 8. Association, club, The organization Minors Act) religious, charitable, educational or other 4. a. The usual revocable The grantor-trustee(1) tax-exempt organization savings trust (grantor is also trustee) 9. Partnership The partnership b. The so-called trust The actual owner(1) 10. A broker or registered The broker or nominee account that is not a nominee legal or valid trust under state law 11. Account with the The public entity Department of Agriculture 5. Sole proprietorship The owner(3) in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - ------------------------------------------------------------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or employer identification number. 4) List first and circle the name of the legal trust, estate or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. i GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Obtaining a Number If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding . An organization exempt from tax under section 501(a) or an individual retirement plan, or a custodial account under section 403(b)(7). . The United States or any agency or instrumentality thereof. . A state, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency or instrumentality thereof. Payees that may be Exempt from Backup Withholding . A corporation. . A foreign central bank of issue. . A dealer in securities or commodities registered in the United States or a possession of the United States. . A futures commodities merchant registered with the Commodity Futures Trading Commission. . A real estate investment trust. . An entity registered at all times under the Investment Company Act of 1940. . A common trust fund operated by a bank under section 584(a). . A financial institution. . A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominees List. . A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. . Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Mortgage interest paid to you. Exempt payees described above should file Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. ii Payments that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6050A and 6050N. Privacy Act Notice--Section 6109 requires most recipients of dividends, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the number for identification purposes and help verify the accuracy of your return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold taxes on taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE iii EX-99.2 40 dex992.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 FORM OF NOTICE OF GUARANTEED DELIVERY (Not to be used for Signature Guarantees) ELWOOD ENERGY LLC EXCHANGE OFFER TO HOLDERS OF ITS 8.159% SENIOR SECURED BONDS DUE 2026 NOTICE OF GUARANTEED DELIVERY As set forth in the Prospectus dated _______________, 2002 (the "Prospectus") of Elwood Energy LLC (the "Issuer") under "The Exchange Offer-- Procedures for Tendering the Existing Bonds" and in the Letter of Transmittal for 8.159% Senior Secured Bonds due 2026 (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Exchange Offer (as defined below) of the Issuer if: (i) certificates for the above- referenced Bonds (the "Senior Bonds") are not immediately available; or (ii) time will not permit all required documents to reach the Exchange Agent (as defined below) on or before the Expiration Date of the Exchange Offer. The form may be delivered by hand or transmitted by telegram, telex, facsimile transmission or letter to the Exchange Agent. ------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002 ------------------------------------------------------------------- The Exchange Agent is: Bank One Trust Company, National Association - ------------------------------------------------------------------------------------- By Facsimile: By Registered or Certified Mail: By Hand/Overnight Delivery: (312) 407-8853 Bank One Trust Company, N.A. Bank One Trust Company, N.A. 1 Bank One Plaza One North State Street Mail Suite IL1-0134 9/th/ Floor Chicago, Illinois 60670-0134 Chicago, Illinois 60602 Attention: Exchange Floor Attention: Exchanges Global Corporate Trust Services - -------------------------------------------------------------------------------------
Confirm by telephone: (800) 524-9472 For Information Call: (800) 524-9472 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO A FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: The undersigned hereby tenders to the Issuer, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the aggregate principal amount of Senior Bonds set forth below under the guaranteed delivery procedure described in the Prospectus and the Letter of Transmittal. Sign Here Principal Amount of Senior BondsTendered* ________________ Signature(s) _____________________________________________ _____________________________________________ Please Print the Following Information: Certificate Nos. (if available) ____________ Name(s) __________________________________________________ __________________________________________________ Total Principal Amount Represented by Senior Bonds: Certificate(s) _____________________ Address __________________________________________________ __________________________________________________ Area Code and Tel. No(s). ________________________________ Account Number ___________________________________________ Dated: ________________________, 2002 _____________ *Must be in a minimum denomination of $100,000 and in multiples of $100.00 in excess of that amount. The undersigned, an Eligible Institution within the meaning of Rule 17(A) (d)-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of certificates tendered hereby, in proper form for transfer, or delivery of such certificates under the procedure for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents, is being made within three New York Stock Exchange trading days after the date of execution of a Notice of Guaranteed Delivery of the above-named person. __________________________________________________ Name of Firm __________________________________________________ Authorized Signature __________________________________________________ Number and Street or P.O. Box __________________________________________________ City State Zip Code __________________________________________________ Area Code and Tel. No. Dated: _____________________, 2002 EX-99.3 41 dex993.txt FORM OF LETTER TO CLIENTS EXHIBIT 99.3 ELWOOD ENERGY LLC OFFER TO EXCHANGE 8.159% SENIOR SECURED BONDS DUE 2026 To Our Clients: Enclosed for your consideration is a Prospectus dated _______, 2002 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Elwood Energy LLC (the "Issuer") to exchange all of its outstanding 8.159% Senior Secured Bonds due 2026, issued in reliance upon an exemption from registration under the Securities Act of 1933 (the "Senior Bonds"), for bonds having identical terms that have been registered under the Securities Act (the "Exchange Bonds"). The material is being forwarded to you as the beneficial owner of Senior Bonds carried by us for your account or benefit but not registered in your name. A tender of any Senior Bonds may be made only by us as the registered holder in accordance with your instructions. Therefore, the Issuer urges beneficial owners of Senior Bonds registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact the registered holder promptly if they wish to tender Senior Bonds in the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all Senior Bonds under the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us whether to tender your Senior Bonds. YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER TO PERMIT US TO TENDER SENIOR BONDS ON YOUR BEHALF IN ACCORDANCE WITH THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00 p.m., New York City time, on [ ], 2002, unless extended (the "Expiration Date"). Senior Bonds tendered in the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time before the Expiration Date. If you wish to have us tender any or all of your Senior Bonds held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Senior Bonds held by us and registered in our name for your account or benefit. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of Elwood Energy LLC. This will instruct you to tender the principal amount of Senior Bonds indicated below held by you for the account or benefit of the undersigned in accordance with the terms of and conditions set forth in the Prospectus and the Letter of Transmittal. 1. [_] Please tender my Senior Bonds held by you for my account or benefit. If I wish to tender less than all of my Senior Bonds, I identified on a signed schedule attached hereto the principal amount of Senior Bonds to be tendered, in a minimum amount of $100,000 and multiples of $100.00 in excess of that amount. 2. [_] Please do not tender my Senior Bonds. Date: ____________, 2002 _____________________________________________ _____________________________________________ Signature(s) _____________________________________________ _____________________________________________ Please print name(s) here If you have marked Box Number 1 above, unless a specific contrary instruction is given in a signed Schedule attached hereto, your signature(s) hereon shall constitute an instruction to us to tender all your Senior Bonds. EX-99.4 42 dex994.txt FORM OF LETTERS EXHIBIT 99.4 ELWOOD ENERGY LLC OFFER TO EXCHANGE 8.159% SENIOR SECURED BONDS DUE 2026 To Securities Dealers, Commercial Banks, Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus dated ____, 2002 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Elwood Energy LLC (the "Issuer") to exchange all of its outstanding 8.159% Senior Secured Bonds due 2026, issued in reliance upon an exemption from registration under the Securities Act of 1933 (the "Senior Bonds"), for bonds having identical terms that have been registered under the Securities Act (the "Exchange Bonds"). We are asking you to contact your clients for whom you hold Senior Bonds registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Senior Bonds registered in their own name. The Issuer will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders under the Exchange Offer. You will, however, be reimbursed by the Issuer directly for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Issuer will pay all transfer taxes, if any, applicable to the tender of Senior Bonds to it or its order, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed are copies of the following documents: 1. The Prospectus; 2. A Letter of Transmittal for your use in connection with the tender of Senior Bonds and for the information of your clients; 3. A form of letter that may be sent to your clients for whose accounts you hold Senior Bonds registered in your name or the name of your nominee, with space provided for obtaining the clients' instructions with regard to the Exchange Offer; 4. A form of Notice of Guaranteed Delivery; and 5. Guidelines for Certification of Taxpayer Identification Number on Form W-9. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., New York City time, on _________________, 2002, unless extended (the "Expiration Date"). Senior Bonds tendered in the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time before the Expiration Date. To tender Senior Bonds, certificates for Senior Bonds or a Book-Entry Confirmation, a duly executed and properly completed Letter of Transmittal or a facsimile thereof, and any other required documents, must be received by the Exchange Agent as provided in the Prospectus and the Letter of Transmittal. Additional copies of the enclosed material may be obtained from the Exchange Agent, Bank One Trust Company, National Association, 1 Bank One Plaza, Mail Suite 1L 1-0134, Chicago, Illinois 60670-0134, Attention: Exchange Floor, Global Corporate Trust Services, telephone (800) 524-9472. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS CONSTITUTES YOU OR ANY PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZES YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. 2 EX-99.5 43 dex995.txt FORM OF EXCHANGE AGENT AGREEMENT EXHIBIT 99.5 FORM OF EXCHANGE AGENT AGREEMENT THIS EXCHANGE AGENT AGREEMENT (this "Agreement") is made and entered into as of ___________, 2002 by and between Elwood Energy LLC, a Delaware limited liability company, (the "Issuer") and Bank One Trust Company, N.A., a national banking association incorporated and existing under the laws of the United States of America, and its successors as exchange agent (the "Exchange Agent"). RECITALS The Issuer proposes to make an offer to exchange, upon the terms and subject to the conditions set forth in the Issuer's Prospectus dated ___________, 2002 (the "Prospectus"), and the accompanying letter of transmittal (the "Letter of Transmittal") attached hereto as Exhibit A (which together with the Prospectus --------- constitutes the "Exchange Offer"), its 8.159% Senior Secured Bonds due 2026 (the "Restricted Securities") issued in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Securities Act") for an equal principal amount of bonds having identical terms that have been registered under the Securities Act (the "Exchange Securities" and, together with the Restricted Securities, the "Securities.") The Exchange Offer will commence as soon as practicable after the Issuer's Registration Statement on Form S-4 relating to the Exchange Offer is declared effective under the Securities Act, as certified in writing to Exchange Agent by the Issuer (the "Effective Time") and shall terminate at 5:00 p.m., New York City time, on ____________, 2002 (the "Expiration Date"), unless the Exchange Offer is extended by the Issuer and the Issuer notifies Exchange Agent of such extension by 5:00 p.m., New York City time, on the previous Expiration Date, in which case, the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In connection therewith, the undersigned parties hereby agree as follows: 1. Appointment and Duties as Exchange Agent. Issuer hereby authorizes Bank ---------------------------------------- One Trust Company, N.A., to act as Exchange Agent in connection with the Exchange Offer, and Bank One Trust Company, N.A., hereby agrees to act as Exchange Agent and to perform the services outlined herein in connection with the Exchange Offer on the terms and conditions contained herein. 2. Mailing to Holders of the Restricted Securities. A. As soon as ----------------------------------------------- practicable after its receipt of certification from the Issuer as to the Effective Time, Exchange Agent will mail to each Holder (as defined in the Indenture), and to each DTC participant identified by DTC as a holder of any Restricted Securities (i) a Letter of Transmittal with instructions (including instructions for completing a substitute Form W-9), substantially in the form attached hereto as Exhibit A (the "Letter of Transmittal"), (ii) a Prospectus --------- and (iii) a Notice of Guaranteed Delivery substantially in the form attached hereto as Exhibit B (the "Notice of Guaranteed Delivery") all in accordance with --------- the procedures described in the Prospectus. B. Issuer shall supply Exchange Agent with sufficient copies of the Prospectus, Letter of Transmittal and Notice of Guaranteed Delivery to enable Exchange Agent to perform its duties hereunder. Issuer shall also furnish or cause to be furnished to Exchange Agent a list of the holders of the Restricted Securities (including a beneficial holder list from The Depository Trust Company ("DTC"), certificated Restricted Securities numbers and amounts, mailing addresses, and social security numbers), unless waived by Exchange Agent. 3. ATOP Registration. As soon as practicable but in no event later than five ----------------- business days after the date of the Prospectus, Exchange Agent shall establish an account with DTC in its name to facilitate book-entry tenders of Restricted Securities through DTC's Automated Tender Offer Program (herein "ATOP") for the Exchange Offer. 4. Receipt of Letters of Transmittal and Related Items. From and after the --------------------------------------------------- Effective Time, Exchange Agent is hereby authorized and directed to accept (i) Letters of Transmittal, duly executed in accordance with the instructions thereto (or a manually signed facsimile thereof), and any requisite collateral documents from Holders of the Restricted Securities and (ii) surrendered Restricted Securities to which such Letters of Transmittal relate. Exchange Agent is authorized to request from any person tendering Restricted Securities such additional documents as Exchange Agent or the Issuer deems appropriate. Exchange Agent is hereby authorized and directed to process withdrawals of tenders to the extent withdrawal thereof is authorized by the Exchange Offer. 5. Defective or Deficient Restricted Securities and Instruments. A. As soon ------------------------------------------------------------ as practicable after receipt, Exchange Agent will examine instructions transmitted by DTC ("DTC Transmissions"), Restricted Securities, Letters of Transmittal and other documents received by Exchange Agent in connection with tenders of Restricted Securities to ascertain whether (i) the Letters of Transmittal are completed and executed in accordance with the instructions set forth therein (or that the DTC Transmissions contain the proper information required to be set forth therein), (ii) the Restricted Securities have otherwise been properly tendered in accordance with the Prospectus and the Letters of Transmittal (or that book-entry confirmations are in due and proper form and contain the information required to be set forth therein) and (iii) if applicable, the other documents (including the Notice of Guaranteed Delivery) are properly completed and executed. B. If any Letter of Transmittal or other document has been improperly completed or executed (or any DTC Transmissions are not in due and proper form or omit required information) or the Restricted Securities accompanying such Letter of Transmittal are not in proper form for transfer or have been improperly tendered (or the book-entry confirmations are not in due and proper form or omit required information) or if some other irregularity in connection with any tender of any Restricted Securities exists, Exchange Agent shall promptly report such information to the Holder. If such condition is not promptly remedied by the Holder, Exchange Agent shall report such condition to the Issuer and await its direction. All questions as to the validity, form, eligibility (including timeliness of receipt), acceptance and withdrawal of any Restricted Securities tendered or delivered shall be determined by the Issuer, in its sole discretion. Notwithstanding the above, Exchange Agent shall not be under any duty to give notification of defects in such tenders and shall not incur any liability for failure to give such notification unless such failure constitutes gross negligence or willful misconduct. C. The Issuer reserves the absolute right (i) to reject any or all tenders of any particular Restricted Securities determined by the Issuer not to be in proper form or the acceptance or exchange of which may, in the opinion of Issuer's counsel, be unlawful and (ii) to waive any of the conditions of the Exchange Offer or any defect or irregularity in the tender of any particular Restricted Securities, and the Issuer's interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and Notice of Guaranteed Delivery and the instructions set forth therein) will be final and binding. 6. Requirements of Tenders. A. Tenders of Restricted Securities shall be ----------------------- made only as set forth in the Letter of Transmittal and in the section of the Prospectus captioned "The Exchange Offer - Procedures for Tendering the Existing Bonds," and shall be considered properly tendered only when tendered in accordance therewith. Notwithstanding the provisions of this paragraph, any Restricted Securities that the Issuer's General Manager, or any other person designated by the Issuer's Board of Managers shall approve as having been properly tendered shall be considered to be properly tendered (such approval, if given orally, shall be confirmed in writing). B. Exchange Agent shall (a) ensure that each Letter of Transmittal and the related Restricted Securities or a bond power are duly executed (with signatures guaranteed where required) by the appropriate parties in accordance with the terms of the Exchange Offer; (b) in those instances where the person executing the Letter of Transmittal (as indicated on the Letter of Transmittal) is acting in a fiduciary or a representative capacity, ensure that proper evidence of his or her authority so to act is submitted; and (c) in those instances where the Restricted Securities are tendered by persons other than the registered holder of such Restricted Securities, ensure that customary transfer requirements, including any applicable transfer taxes, and the requirements imposed by the transfer restrictions on the Restricted Securities (including any applicable requirements for certifications, legal opinions or other information) are fulfilled. 7. Exchange of the Restricted Securities. A. Promptly after the Effective ------------------------------------- Time and upon the satisfaction or waiver of all conditions to the Exchange Offer, the Issuer will deliver the Exchange Securities to the Exchange Agent. Upon surrender of the Restricted Securities properly tendered in accordance with the Exchange Offer, Exchange Agent is hereby directed to deliver or cause to be delivered Exchange Securities to the Holders of such surrendered Restricted Securities. The principal amount of the Exchange Securities to be delivered to a Holder shall equal the principal amount of the Restricted Securities surrendered. B. The Exchange Securities issued in exchange for certificated Restricted Securities shall be mailed by Exchange Agent, in accordance with the instructions contained in the Letter of Transmittal, by first class or registered mail, and under coverage of Exchange Agent's blanket surety bond for first class or registered mail losses protecting the Issuer from loss or liability arising out of the non-receipt or non-delivery of such Exchange Securities or the replacement thereof. C. Notwithstanding any other provision of this Agreement, issuance of the Exchange Securities for accepted Restricted Securities pursuant to the Exchange Offer shall be made only after deposit with Exchange Agent of the Restricted Securities, the Letter of Transmittal and any other required documents. 8. Securities Held in Trust. The Exchange Securities and any cash or other ------------------------- property (the "Property") deposited with or received by Exchange Agent (in such capacity) from the Issuer shall be held in a segregated account, solely for the benefit of Issuer and Holders tendering Restricted Securities, as their interests may appear, and the Property shall not be commingled with securities, money, assets or property of Exchange Agent or any other party. Exchange Agent hereby waives any and all rights of lien, if any, against the Property, except to the extent set forth in the Indenture with respect to the Exchange Securities. 9. Reports to Issuer. Exchange Agent shall notify, by facsimile or ----------------- electronic communication, the Issuer of the principal amount of the Restricted Securities which have been duly tendered since the previous report and the aggregate amount tendered since the Effective Date on a weekly basis (and more frequently during the week immediately preceding the Expiration Date if requested by the Issuer) until the Expiration Date. Such notice shall be delivered in substantially the form set forth as Exhibit C. --------- 10. Record Keeping. Each Letter of Transmittal, Restricted Security and any --------------- other documents received by Exchange Agent in connection with the Exchange Offer shall be stamped by Exchange Agent to show the date of receipt (or if Restricted Securities are tendered by book-entry delivery, such form of record keeping of receipt as is customary for tenders through ATOP) and, if defective, the date and time the last defect was cured or waived by the Issuer. Exchange Agent shall cancel certificated Restricted Securities. Exchange Agent shall retain all Restricted Securities and Letters of Transmittal and other related documents or correspondence received by Exchange Agent until the Expiration Date. Exchange Agent shall return all such material to Issuer as soon as practicable after the Expiration Date. If Exchange Agent receives any Letters of Transmittal after the Expiration Date, Exchange Agent shall return the same together with all enclosures to the party from whom such documents were received. 11. Discrepancies or Questions. Any discrepancies or questions regarding any -------------------------- Letter of Transmittal, Restricted Security, notice of withdrawal or any other documents received by Exchange Agent in connection with the Exchange Offer shall be referred to Issuer and Exchange Agent shall have no further duty with respect to such matter; provided that Exchange Agent shall cooperate with Issuer in -------- attempting to resolve such discrepancies or questions. 12. Transfer of Registration. Exchange Securities may be registered in a ------------------------ name other than that of the record Holder of a surrendered Restricted Security, if and only if (i) the Restricted Security surrendered shall be properly endorsed (either by the registered Holder thereof or by a properly completed separate power with such endorsement guaranteed by an Eligible Institution (as defined in the Letter of Transmittal) and otherwise in proper form for transfer, (ii) the person requesting such transfer of registration shall pay to Exchange Agent any transfer or other taxes required, or shall establish to Exchange Agent's satisfaction that such tax is not owed or has been paid and (iii) the such other documents and instruments as Issuer or Exchange Agent require shall be received by Exchange Agent. 13. Partial Tenders. If, pursuant to the Exchange Offer, less than all of --------------- the principal amount of any Restricted Security submitted to Exchange Agent is tendered, Exchange Agent shall, promptly after the Expiration Date, return, or cause the registrar with respect to each such Restricted Security to return, a new Restricted Security for the principal amount not being tendered to, or in accordance with the instruction of, the Holder who has made a partial tender. 14. Withdrawals. A tendering Holder may withdraw tendered Restricted ----------- Securities as set forth in the Prospectus and the Letter of Transmittal at any time on or before the Expiration Date, in which event Exchange Agent shall, after proper notification of such withdrawal, return such Restricted Securities to, or in accordance with the instructions of, such Holder and such Restricted Securities shall no longer be considered properly tendered. Any withdrawn Restricted Securities may be tendered by again following the procedures therefor described in the Prospectus at any time on or prior to the Expiration Date. 15. Rejection of Tenders. If, pursuant to the Exchange Offer, Issuer does -------------------- not accept for exchange all of the Restricted Securities tendered by a Holder of Restricted Securities, Exchange Agent shall as soon as practicable after the expiration or termination of the Exchange Offer return or cause to be returned such Restricted Securities to, or in accordance with the instructions of, such Holder of Restricted Securities. 16. Cancellation of Exchanged Restricted Securities. Exchange Agent is ----------------------------------------------- authorized and directed to cancel all Restricted Securities received by it upon delivering the Exchange Securities to tendering holders of the Restricted Securities as provided herein. Exchange Agent shall maintain a record as to which Restricted Securities have been exchanged pursuant to Section 7 hereof. 17. Requests for Information. Exchange Agent shall accept and comply with ------------------------ telephone and mail requests for information from any person concerning the proper procedure to tender Restricted Securities. Exchange Agent shall provide copies of the Prospectus, Letter of Transmittal and Notice of Guaranteed Delivery to any person upon request. All other requests for materials shall be referred to the Issuer. Exchange Agent shall not offer any concessions or pay any commissions or solicitation fees to any brokers, dealers, banks or other persons or engage any persons to solicit tenders. 18. Tax Matters. Exchange Agent shall file with the Internal Revenue Service ----------- and Holders Form 1099 reports regarding principal and interest payments on Securities which Exchange Agent has made in connection with the Exchange Offer, if any. Any questions with respect to any tax matters relating to the Exchange Offer shall be referred to Issuer, and Exchange Agent shall have no duty with respect to such matter; provided that Exchange Agent shall cooperate with Issuer in attempting to - -------- resolve such questions. 19. Reports. Within 5 days after the Expiration Date, Exchange Agent shall ------- furnish the Issuer a final report showing the disposition of the Exchange Securities. 20. Fees and Expenses. Issuer will pay Exchange Agent its fees plus ----------------- expenses, including counsel fees and disbursements, as set forth in Exhibit D. --------- 21. Concerning the Exchange Agent. As exchange agent hereunder, Exchange ----------------------------- Agent: A. shall have no duties or obligations other than those specifically set forth in this Agreement; B. will make no representation and will have no responsibility as to the validity, value or genuineness of the Exchange Offer, shall not make any recommendation as to whether a Holder of Restricted Securities should or should not tender its Restricted Securities and shall not solicit any Holder for the purpose of causing such Holder to tender its Restricted Securities; C. shall not be obligated to take any legal action hereunder which may, in Exchange Agent's sole judgment, involve any expense or liability to Exchange Agent unless it shall have been furnished with indemnity against such expense or liability which, in Exchange Agent's sole judgment, is adequate; D. may rely on and shall be protected in acting upon any certificate, instrument, opinion, notice, instruction, letter, telegram or other document, or any security, delivered to Exchange Agent and believed by Exchange Agent to be genuine and to have been signed by the proper party or parties; E. may rely on and shall be protected in acting upon the written instructions of Issuer, its counsel, or its representatives; F. shall not be liable for any claim, loss, liability or expense, incurred without Exchange Agent's negligence, bad faith or willful misconduct, arising out of or in connection with the administration of Exchange Agent's duties hereunder; and G. may consult with counsel, and the advice of such counsel or any opinion of counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by Exchange Agent hereunder in accordance with the advice of such counsel or any opinion of counsel. 22. Indemnification. A. Issuer covenants and agrees to indemnify and hold --------------- harmless Exchange Agent, its directors, officers, employees and agents (the "Indemnified Persons") against any and all losses, damages, costs or expenses (including reasonable attorney's fees and court costs), arising out of or attributable to its acceptance of appointment as Exchange Agent hereunder, provided that such indemnification shall not apply to losses, damages, costs or expenses incurred due to negligence, bad faith or willful misconduct of the Exchange Agent. Exchange Agent shall notify Issuer in writing of any written asserted claim against Exchange Agent or of any other action commenced against Exchange Agent, reasonably promptly after Exchange Agent shall have received any such written assertion or shall have been served with a summons in connection therewith. Issuer shall be entitled to participate at its own expense in the defense of any such claim or other action and, if Issuer so elects, Issuer may assume the defense of any pending or threatened action against Exchange Agent in respect of which indemnification may be sought hereunder; provided that Issuer shall not be entitled to assume the defense of -------- any such action if the named parties to such action include both the Issuer and Exchange Agent and representation of both parties by the same legal counsel would, in the written opinion of counsel for Exchange Agent, be inappropriate due to actual or potential conflicting interests between them; and further ----------- provided that in the event Issuer shall assume the defense of any such suit, and - -------- such defense is reasonably satisfactory to Exchange Agent, Issuer shall not therewith be liable for the fees and expenses of any counsel retained by Exchange Agent. B. Exchange Agent agrees that, without the prior written consent of Issuer (which consent shall not be unreasonably withheld), it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could be sought in accordance with the indemnification provision of this Agreement (whether or not any Indemnified Persons is an actual or potential party to such claim, action or proceeding). 23. Applicable Law. This Agreement shall be construed and enforced in -------------- accordance with the laws of the State of New York, without regard to conflicts of laws principles. 24. Notices. Notices or other communications pursuant to this Agreement ------- shall be delivered by facsimile transmission, reliable overnight courier or by first-class mail, postage prepaid, addressed as follows: To Issuer at: Elwood Energy LLC c/o Dominion Resources Services, Inc. 120 Tredegar Street Richmond, Virginia 23219 Attention: Donald Burnette Fax: (804) 819-2211 and Elwood Energy LLC c/o Peoples Energy Resources Corp. 150 North Michigan Ave. Suite 3900 Chicago, Illinois 60601 Attention: John E. Horton Fax: (312) 240-3966 with a copy to: McGuireWoods LLP One James Center 901 East Cary Street Richmond, Virginia 23219 Attention: D. Michael Jones Fax: Or to Exchange Agent at: Bank One Trust Company, N.A. One North State Street, 9/th/ Floor Chicago, IL 60602 Attention: Exchanges Fax: (312) 407-8853 Telephone: (800) 524-9472 Or to such address as either party shall provide by notice to the other party. 25. Change of Exchange Agent. Exchange Agent may resign from its duties under ------------------------ this Agreement by giving to Issuer thirty days prior written notice. If Exchange Agent resigns or becomes incapable of acting as Exchange Agent and the Issuer fails to appoint a new exchange agent within a period of 30 days after it has been notified in writing of such resignation or incapacity by Exchange Agent, the Issuer shall appoint a successor exchange agent or assume all of the duties and responsibilities of Exchange Agent. Any successor exchange agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Exchange Agent without any further act or deed; but Exchange Agent shall deliver and transfer to the successor exchange agent any Property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for such purpose. 26. Miscellaneous. Neither party may transfer or assign its rights or ------------- responsibilities under this Agreement without the written consent of the other party hereto; provided, however, that Exchange Agent may transfer and assign its rights and responsibilities hereunder to any of its affiliates otherwise eligible to act as Exchange Agent and, upon 45 days prior written notice to Exchange Agent, Issuer may transfer and assign its rights and responsibilities hereunder to any successor by merger, any purchaser of all of the common stock of Issuer, or any purchaser of all or substantially all of Issuer's assets. This Agreement may be amended only in writing signed by both parties. Any Exchange Securities which remain undistributed after the Expiration Date shall be cancelled and delivered to the Issuer upon demand, and any Restricted Securities which are tendered thereafter shall be returned by Exchange Agent to the tendering party. Except for Sections 20 and 22, this Agreement shall terminate on the 31st day after the Expiration Date. 27. Severability. In case any provision of this Agreement shall be invalid, ------------ illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 28. Parties in Interest. This Agreement shall be binding upon and inure ------------------- solely to the benefit of each party hereto and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefits or remedy of any nature whatsoever under or by reason of this Agreement. Without limitation to the foregoing, the parties hereto expressly agree that no Holder or holder of Securities shall have any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 29. Entire Agreement; Headings. This Agreement constitutes the entire -------------------------- understanding of the parties hereto with respect to the subject matter hereof. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 30. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original, and all of such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, Issuer and Exchange Agent have caused this Agreement to be signed by their respective officers thereunto authorized as of the date first written above. ELWOOD ENERGY LLC By: ______________________________ Name: Title: BANK ONE TRUST COMPANY, N.A. By: ______________________________ Name: Title: Exhibit A - --------- Form of Letter of Transmittal Exhibit B - --------- Notice of Guaranteed Delivery Exhibit C - --------- Form of Weekly Report Exhibit D - --------- Exchange Agent Fee Schedule Exhibit C Date: ____________________ Elwood Energy LLC BY FAX: ________________________ Re: Notice of Tenders With respect to Section 9 of the Exchange Agent Agreement, dated as of _______________, we confirm the following information as of the date hereof: 1. Principal amount of Restricted Securities tendered during the past week: $____________________ 2. Principal amount of Restricted Securities referred to in paragraph 1. above regarding which Exchange Agent questions validity of the tender: $____________________ 3. Aggregate principal amount of Restricted Securities tendered since the Effective Date as to which Exchange Agent questions the validity of the tender: $___________________. 4. Principal amount of Restricted Securities remaining unpresented (based on $______________ total Restricted Securities): $__________________ 5. Total aggregate principal amount of Restricted Securities validly tendered since the Effective Date: $_____________________ Bank One Trust Company, N.A., as Exchange Agent By: _____________________________ Name: Title: Exhibit D Schedule of Fees Per letter of transmittal mailed: $150.00 Minimum fee: $2,000.00 Extraordinary services and special requests: by appraisal Out of pocket expenses incurred will be billed for reimbursement at invoiced cost The minimum fee of $2,000.00 shall be due and payable upon execution of the Exchange Agent Agreement. The remaining balance shall be due and payable upon receipt of Exchange Agent's invoice therefor. -----END PRIVACY-ENHANCED MESSAGE-----